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, 1996
[ ] Transition Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ____________ to ____________.
Commission file number 1-12350
QPQ CORPORATION
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 65-0611607
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1000 Lincoln Road, Suite 210
Miami Beach, Florida 33139
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(Address of Principal Executive Offices) (Zip Code)
(305) 674-8115
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b)
of the Securities Exchange Actof 1934:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, par value $.01 per share, Boston Stock Exchange
non-cumulative
Common Stock Purchase Warrants Boston Stock Exchange
Securities registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
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(Title of Class)
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Check whether the registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 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. [X]
State registrant's revenues for its most recent fiscal year: $2,093,145.
State the aggregate market value of the voting stock held by
non-affiliates of the registrant on March 21, 1997, computed by reference to the
closing bid price ($1.1563) of the QPQ Common Stock as reported by the Wall
Street Journal on that date: $8,849,321.
APPLICABLE ONLY TO CORPORATE ISSUERS
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The number of shares outstanding of the registrant's Common Stock, par
value $.01 per share (the "QPQ Common Stock"), as of March 21, 1997, was
7,653,467.
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PART I
Item 1. Description of Business.
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A. QPQ CORPORATION'S BUSINESSES
GENERAL
QPQ Corporation ("QPQ") develops and operates Domino's Pizza Stores
("Dominos Stores") and until October, 1996 operated a cafe-style restaurant in
the Republic of Poland. QPQ has the exclusive right to develop, operate and,
with the exception of Domino's Stores developed in Warsaw, Poland, franchise to
unrelated third parties ("Non-Affiliated Franchisees") Domino's Stores in Poland
pursuant to the Domino's Development Agreement, as amended to date (the "Dominos
Development Agreement"), with a wholly owned subsidiary of Dominos Pizza, Inc.
("Dominos"). QPQ has also entered into the Commissary Agreement with a wholly
owned subsidiary of Domino's pursuant to which QPQ has been granted the
exclusive right to open and operate a Commissary for all Domino's Stores in
Poland for the ten-year term of the Domino's Development Agreement and any
renewal term. QPQ opened a Domino's Store in each of March 1994, May 1994 and
August 1994. Since August 1995 QPQ Medical has been in the business of
developing and/or operating centers which offer primary care, medical services
and medically supervised weight loss programs. The weight loss programs use a
protocol which integrates systems and routines of nutrition management, exercise
and prescribed medication and certain other medical services to address the
weight loss and non-weight loss related medical problems of its patients. In
January, April, July and September of 1996, QPQ opened its first four (4)
medical centers. In February 1997, QPQ Medical acquired the medical practice of
Dr. Jack B. Drimmer, P.A. and relocated such practice to its Aventura center.
QPQ's medical centers are located in Kendall, Aventura, Fort Lauderdale and Boca
Raton, Florida. QPQ Medical intends to contain its operations to South Florida
for the immediate future.
PROPOSED VENTURE ACTIVITIES
QPQ, through its direct or indirect subsidiaries, continues to search
for, investigate and attempt to secure and develop business opportunites on its
own behalf and for its subsidiaries. However, there can be no assurance that QPQ
will be successful in its search for new business opportunities.
QPQ is searching for and investigating business opportunities on its
own behalf and for its subsidiaries. QPQ presently intends to investigate and/or
engage in one or more of the following activities ("Venture Activities") : (1)
acquisition of at ]east a majority interest in and operational control of,
business enterprises; (2) development and marketing of commercial enterprises,
products and/or services; and (3} participation in business ventures with
existing or newly formed business entities on a joint venture or other active
business relationship basis. QPQ may also take equity positions in certain
business enterprises through the direct purchase of securities or through other
financing methods including the utilization of debt financing and may also
purchase franchises and/or license products or services. In any case, QPQ
intends to, directly and/or through subsidiaries or affiliates, acquire and
maintain a controlling interest in the entities it acquires or establishes.
Management anticipates that the selection of business enterprises, products or
services for acquisition will be complex and risky. Because of QPQ's limited
financial capabilities at this time, it is anticipated that QPQ may not be able
to diversify its acquisitions and will essentially be limited to a few ventures.
QPQ will consider the quality of the management of any business
acquisition candidate and the operating records of the entity, the soundness of
the service or product to be developed or being developed, the effect of market
and economic conditions and governmental policies on the business and its
products, the nature of its competition, and the total projected required
capital. At this time, QPQ cannot predict the manner in which it may acquire
and/or participate in the establishment and/or financing of a business
enterprise.
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THE DOMINO'S STORE SYSTEM
QPQ believes that its prospects should be enhanced by the recognition
and reputation of the Domino's Store system as well as the support, supervision,
and assistance that QPQ anticipates will be made available by Domino's. The
Domino's Store system is one of the world's largest franchisors of fast food
outlets, with more than 5,000 stores in over 35 foreign countries. QPQ has no
affiliation or relationship with Domino's other than as provided for in the
Domino's Development Agreement and the Commissary Agreement. QPQ does not
believe that the success or lack thereof of Domino's Stores in the United States
or Europe should be taken as indicative of QPQ's performance in Poland.
Domino's has developed a store format and operating system, which
system includes a recognized design, decor and color scheme for store buildings;
kitchen and dining room equipment and layout; service format; quality and
uniformity of products and services offered; procedures for inventory and
management control; a delivery system; and the Domino's Trademarks, which
include such trademarks, service marks and other marks as Domino's may authorize
from time to time for use in connection with Domino's Stores (the "Domino's
System"). 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. Some Domino's
Stores also provide customer seating and dine-in services. Domino's Stores 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 systemwide 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. QPQ believes
that the store format and operating system of Domino's Stores in Poland may be
adapted to local requirements and to perceived customer preferences.
RELATIONSHIP WITH DOMINO'S
DOMINO'S DEVELOPMENT AGREEMENT. The relationship between QPQ and
Domino's is governed principally by the Domino's Development Agreement. Pursuant
to the Domino's Development Agreement, as amended, QPQ is granted the exclusive
right until December 31, 2003 to develop, operate and, with the exception of
Domino's Stores to be developed in Warsaw, Poland, franchise Domino's Stores in
Poland. During the Initial Term of the Domino's Development Agreement, which
expires on December 31, 2003, QPQ is required to open and operate, either
through affiliates of QPQ ("Affiliated Franchisees") or unrelated third parties
("Non-Affiliated Franchisees"), at least 50 Domino's Stores in accordance with a
schedule that obligates QPQ or its Non-Affiliated Franchisees to open eight
Domino's Stores in 1996 and five, six or seven Domino's Stores for each of the
following seven years. QPQ did not satisfy the requirements to open eight
Domino's stores during 1996 and in March 1997, Domino's granted QPQ an extension
until July 1, 1997 to satisfy such requirement. In addition, Domino's indicated
it would be agreeable to a further six month extension if QPQ provided
satisfactory evidence of recapitalization at a level which, in Domino's sole
discretion, will enable QPQ to satisfy its obligations under the agreement.
Domino's Stores developed and/or operated by Non-Affiliated Franchisees are
counted towards QPQ's obligation to open a minimum number of Domino's Stores.
During 1996 QPQ did not open any Domino's stores. In March 1997, construction
began on a Domino's Store consisting of approximately 100 square meters with a
completion date set for June 1997. If QPQ is in compliance with the Domino's
Development Agreement at the expiration of its Initial Term, QPQ will have the
option to extend the Domino's Development Agreement for an additional 10-year
period. In addition to its rights to develop Domino's Stores, QPQ has been
granted the exclusive right to establish a Commissary for the purpose of
supplying food products and supplies to the Domino's Stores in Poland. QPQ
intends to conduct all of its purchasing, distribution and major food supply
preparation operations at or from the Commissary. See "--Commissary
Development."
With respect to each operating Domino's Store, QPQ is required to pay
Domino's a monthly royalty fee of a percentage of each Domino's Store's gross
sales net of taxes, irrespective of profitability. QPQ's royalty payments to
Domino's are payable in United States currency. Although Domino's may elect to
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accept payment in alternative currencies if payment in United States currency is
prohibited by applicable law, Domino's may terminate the Domino's Development
Agreement if QPQ is unable to pay Domino's in United States currency for a
period of one year.
Under the terms of the Domino's Development Agreement, Domino's is
required to provide, on an ongoing basis, all information and materials
necessary to make QPQ familiar with the Domino's System and the methods used to
operate and manage Domino's Stores and the Commissary, 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 Domino's to QPQ in the
form of the Domino's Operations Manual, memoranda or through consultations with
Domino's experienced staff members.
The Domino's Development Agreement requires QPQ to designate a
full-time general manager to be responsible for the Domino's Stores to be
developed pursuant to the Domino's Development Agreement. Such general manager
must be acceptable to Domino's. Since March 9, 1995, QPQ's wholly owned
subsidiary, Pizza King Polska ("PKP"), designated Leon Blumenthal as its general
manager. Domino's has verbally confirmed its approval of Mr. Blumenthal as the
General Manager.
The Domino's Development Agreement is not assignable by QPQ without
Domino's consent. In addition, the Domino's Development Agreement prohibits
Mitchell Rubinson from transferring control of QPQ, respectively, without
Domino's prior written consent. Domino's consented to QPQ's initial public
offering and agreed that the control requirement would be satisfied by the
agreement of Mitchell Rubinson to serve as an officer and director of QPQ if
elected. QPQ agreed to use its best efforts to elect Mitchell Rubinson as an
officer and director. For the term of the Domino's Development Agreement, QPQ,
and Mitchell Rubinson are restricted from having an interest in, being employed
by, advising or assisting another business that is the same as or similar to a
Domino's Store. The Domino's Development Agreement also sets forth restrictions
on transfer of the various rights of QPQ, Affiliated Franchisees and
Non-Affiliated Franchisees.
Domino's has reserved the right to review and audit certain of QPQ's
operations, financial and tax accounting reports, statements and returns.
Domino's may terminate rights granted to QPQ under the Domino's Development
Agreement, including franchise approvals for stores not yet opened, for a
variety of possible defaults by QPQ, including, among others, failure to open
Domino's Stores in accordance with the schedule set forth in the Domino's
Development Agreement; 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
Development Agreement. Upon termination of the Domino's Development 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 QPQ fails to meet its development schedule during the Initial
Term or any successor development term, QPQ would lose its rights to develop and
franchise additional Domino's Stores, but would be entitled to continue to act
as a master franchisor and a franchisee with respect to all franchise agreements
theretofore granted. Under certain circumstances of default, Domino's has the
right to terminate the Domino's Development Agreement and force the sale of, at
the then current market value, all of QPQ's rights and interests as a master
franchisor of Domino's Stores and all of the assets of each Domino's Store
controlled by QPQ. Termination of the Domino's Development Agreement could
materially adversely affect QPQ.
To purchase QPQ's rights and interests as a master franchisor, within
ten days of termination of the Domino's Development Agreement, Domino's is
required to request an appraisal of all of QPQ's rights and interests as a
master franchisor and is entitled to full access to all of QPQ's books and
records. If QPQ and Domino's are unable to agree upon a fair market value for
QPQ's rights and interests as a master franchisor within 30 days of Domino's
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request for appraisal, the fair market value is determined by an appraiser,
which appraiser is selected according to a prescribed method and within 20 days
after the expiration of the 30 days. The appraiser is required to submit an
appraisal report within 60 days of his/her appointment and Domino's then has the
option within 30 days of such submission to purchase all of QPQ'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 QPQ's rights and interests
as a master franchisor, Domino's will also have the option for 30 days from the
date of the Domino's Development Agreement's termination to give notice of
appraisal, review QPQ's books and records, and purchase, at fair market value,
all of the assets of each Domino's Store controlled by QPQ. Fair market value of
the assets of each Domino's Store is determined through a process similar to
that described above.
FRANCHISE AGREEMENTS. Prior to the opening of each Domino's Store, QPQ
is required to pay Domino's a franchise fee and, as master franchisor, is
required to enter into a Standard Franchise Agreement (the "Standard Franchise
Agreement") with each Affiliated Franchisee or Non-Affiliated Franchisee
(collectively, a "Franchise") which will be operating a Domino's Store. 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 QPQ an initial franchise fee and a monthly royalty and
advertising fee of a percentage of each Domino's Store's gross sales net of
taxes, irrespective of profitability. The financial terms of the Standard
Franchise Agreement may be renewed at the expiration of the term if the
Franchisee executes Domino's then current standard franchise agreement. A
Franchisee's rights under a Standard Franchise Agreement may not be transferred
without the consent of QPQ and Domino's.
Each Franchisee must comply strictly with the Domino's System, as 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, data and voice communications and the like
is similarly prescribed. Domino's and QPQ 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, QPQ has the right to review and audit each
Franchisee's operations, financial and tax accounting statements, reports and
returns. QPQ 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 QPQ, 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 QPQ require
extensive training of Domino's Store personnel. All Franchisees, or their
designees, must successfully complete QPQ's Domino's Store manager training
program and any additional training programs required by Domino's or QPQ. Each
Franchisee must implement a training program for store employees in accordance
with training standards and procedures prescribed by Domino's and QPQ and must
staff each Domino's Store at all times with a sufficient number of trained
employees.
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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.
QPQ 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
QPQ becomes entitled to assume the Franchisee's leasehold interest and purchase
the Domino's Store at the fair market value thereof.
QPQ and its wholly-owned subsidiary, Pizza King Polska ("PKP"), a
Polish limited liability corporation, have entered into standard franchise
agreements with respect to QPQ's three opened Domino's Stores and QPQ and
Domino's have entered into Domino's Store Certification Agreements with respect
to QPQ's three opened Domino's Stores.
CONSULTING AGREEMENT
On July 25, 1993, QPQ entered into a three year consulting agreement
(the "Consulting Agreement") with International Fast Food Corporation ("IFFC"),
an affiliate of Capital Brands. Under the terms of such agreement, IFFC is to
assist QPQ generally with operational and administrative matters. Pursuant to
the Consulting Agreement, as amended on July 27, 1994 and January 1, 1995, IFFC
provided to QPQ: (1) the services of IFFC's Chief Financial Officer for not more
than 30% of his business time; (2) the services of IFFC's Controller for not
more than 30% of each of her business time; and (3) the services of managerial,
general office and staff personnel of IFFC. In exchange for such services, QPQ
is required to pay IFFC: (1) 30% of all compensation and benefits provided by
IFFC to its Chief Financial Officer; (2) 27.5% of all compensation and benefits
provided by IFFC to its Controller; and (3) all costs and expenses incurred by
IFFC in connection with the services rendered pursuant to the Consulting
Agreement. For the fiscal years ended December 31, 1996 and December 31, 1995,
QPQ's incurred obligations to IFFC pursuant to the terms of the Consulting
Agreement aggregated to $4,225 and $218,742, respectively. QPQ terminated the
agreement with IFFC in June 1996. In connection with the signing of the
Consulting Agreement, QPQ granted IFFC an option to purchase up to 250,000
shares of QPQ's common stock at an exercise price of $6.00 per share. This
option was also terminated in June 1996 for a $10,000 cash payment.
In April 1995, IFFC's majority-owned subsidiary, (85%) IFFP, entered into
a consulting agreement (the "Subsidiary Consulting Agreement") with QPQ's
wholly-owned subsidiary, Pizza King Polska, pursuant to which IFFP has agreed to
provide Pizza King Polska with all general staff and administrative support
required by Pizza King Polska to operate its Domino's Store business. The
services of Leon Blumenthal have been made available to Pizza King Polska and
QPQ pursuant to the Subsidiary Consulting Agreement. In exchange for such
services, IFFP receives from Pizza King Polska a sum equivalent to 10% of Pizza
King Polska's sales and a reimbursement of expenses. In the years ended December
31, 1996 and 1995, Pizza King Polska's obligations to IFFP pursuant to the terms
of the Subsidiary Consulting Agreement aggregated to $64,999 and $116,723,
respectively. In June 1996 this agreement was terminated.
DOMINO'S STORE DEVELOPMENT
QPQ opened a Domino's Store in Warsaw, Poland, in each of March 1994,
May 1994 and August 1994. In March 1997, construction began on a Domino's Store
in Warsaw, Poland, consisting of approximately 100 square meters. The Domino's
Store is expected to be completed in June 1997. Although to date QPQ has
concentrated its efforts on the development of Domino's Stores in Warsaw,
Poland, QPQ intends to focus its future Domino's Store development efforts on
other Polish cities. QPQ's decision to refocus its development efforts are based
on a number of factors, including, but not limited to, QPQ's ability to conserve
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its capital resources by developing additional Domino's Stores outside of Warsaw
through Non-Affiliated Franchisees, QPQ's belief that the level of competition
faced by a Domino's Store in a major Polish city other than Warsaw may be less
than the level of competition faced in Warsaw and Domino's recent agreement to
allow QPQ to immediately begin to franchise Domino's Stores to Non-Affiliated
Franchisees. QPQ has not yet identified nor engaged any Non-Affiliated
Franchisees which may develop and operate future Domino's Stores. In addition,
QPQ has not yet identified nor secured any additional Domino's Store sites.
QPQ intends to focus its efforts on the development of Domino's Stores
which provide only delivery and pick-up services (collectively, "Take-out
Services") or Take-out Services coupled with counter service and/or limited
seating for customers. QPQ considers a Domino's Store location to be critical to
its prospects and has devoted and intends to devote significant efforts to the
investigation and evaluation of potential leases and sites. QPQ intends to
provide Non-Affiliated Franchisees support with respect to lease and site
selection. QPQ 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. QPQ has sought and seeks to place Domino's Stores in
metropolitan areas with adequate levels of residential and/or business telephone
ownership. QPQ's personnel will inspect and approve a proposed site for each
Domino's Store prior to the execution of a Standard Franchise Agreement or
lease. All sites are subject to the approval of Domino's. To date, Domino's has
and QPQ anticipates that Domino's will continue to initially indicate its
approval of franchisees and Domino's Stores designs and locations verbally,
which verbal consents are confirmed by Domino's execution of a Domino's Store
Certification Agreement. Delays by Domino's in granting, or the failure by
Domino's to grant such approvals on a timely basis could have a material adverse
effect on QPQ's operations. The opening of Domino's Stores is contingent upon,
among other things, locating satisfactory sites, negotiating acceptable leases
or similar rights to a site, completing any necessary construction or
renovations, and securing required government permits and approvals.
Domino's Stores typically consist of a kitchen/preparation area and
ordering counter. Some Domino's Stores provide an area for customer seating and
sit-down services. The design for a Domino's Store, which must comply with
specified Domino's standards and specifications, is relatively flexible.
Domino's Stores may incorporate varying floor plans and configurations and be
located in a specially constructed freestanding building or in existing
buildings.
QPQ's initial Domino's Stores are in existing buildings and range from
1,000 square feet to 2,500 square feet, depending primarily upon whether only
Take-out Services or Takeout Services and counter service with limited seating
for customers is offered. QPQ estimates that once the space has been leased and
made available to QPQ, approximately 90 days is required to renovate, equip and
furnish the store, obtain necessary licenses and approvals and open a Domino's
Store. QPQ estimates the cost of opening a Domino's Store to be between $125,000
and $500,000, including leasehold improvements, furniture, fixtures, equipment,
the initial franchise fee and opening inventories. Such estimates vary depending
on the size and condition of a proposed Domino's Store, the amount of customer
seating provided, and the extent of leasehold improvements required.
COMMISSARY DEVELOPMENT
In conjunction with its exclusive right to develop and franchise
Domino's Stores in Poland, the Domino's Development Agreement grants QPQ the
exclusive right to develop and operate a commissary from which all Affiliated
Franchisees and Non-Affiliated Franchisees will purchase food and supplies. QPQ
conducts all of its purchasing, distribution and major food supply preparation
operations at or from the Commissary. Domino's has provided and has agreed to
provide QPQ, on an ongoing basis, all information and materials necessary to
make QPQ familiar with the methods used to operate and manage a Domino's
commissary.
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In January 1995, QPQ commenced its own full-service commissary
operations. QPQ has developed approximately 1,500 square feet of the Jana Pawla
Domino's Store as its commissary. QPQ believes that it will be able to service
any Domino's Stores contemplated to be opened in Poland in the next three years
from the Commissary. QPQ has the right to develop additional Commissaries if
needed. See "--Properties--Jana Pawla Domino's Store/Commissary."
SOURCES OF SUPPLY
QPQ 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 Development Agreement and the
Standard Franchise Agreement, all of these supplies must be of a quality and
conform to specifications acceptable to Domino's. QPQ currently obtains a
majority of its supplies and food products, including cheese, soft drinks, and
cold cuts from Polish sources. The balance of QPQ's supplies and food products,
including wheat flour, tomato sauce, corn oil and peppers, come from sources in
Western Europe and the United States. QPQ currently obtains its store furniture
and fixtures from sources in Poland and obtains its restaurant equipment and
paper products primarily from Domino's approved sources in the United States and
Western Europe. QPQ currently has no written, long-term supply agreements or
arrangements. Shipments of food and supplies are delivered directly to QPQ's
Commissary or Domino's Stores. QPQ maintains approximately a 7-30 day inventory
of food products and supplies.
STORE OPERATIONS AND PERSONNEL
QPQ operates its Domino's Stores under uniform standards set forth in
Domino's confidential Operations Manual, including specifications relating to
food quality and preparation, design and decor and day-to-day operations. QPQ
operations are similar to those of other Domino's Stores.
QPQ's Domino's offer various types of pizza, soft drinks, salads,
sandwiches, breadsticks and ice cream, and QPQ anticipates that its future
Domino's Stores will offer other food items. QPQ typically offers pizzas for the
zloty equivalent of approximately $1.30 - $8.00, depending upon the size of the
pizza and the number of toppings selected. Soft drinks are typically offered for
the zloty equivalent of $.50-$.85, depending upon the size of the soft drink.
QPQ believes, to the extent a comparison is possible, that the prices it charges
for meals is comparable to the prices charged by QPQ's American-style fast food
competitors in Poland.
QPQ hires Domino's Stores 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.
To date, QPQ believes that it has successfully attracted and trained
local managers and other employees. QPQ expects to open and operate its own
training facility in Poland, with assistance from Domino's. QPQ expects to
utilize Domino's training techniques and manuals and to solicit the assistance
and counsel of Domino's personnel. QPQ will be responsible, at its expense, for
the translation of Domino's manuals into Polish and expects to pay Domino's for
certain support services related to employee training.
QPQ 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.
ADVERTISING AND PROMOTION
The Standard Franchise Agreement provides that each Franchisee will
contribute a monthly advertising and promotion fee equal to a percentage of its
gross sales to a fund administered by QPQ to be used for advertising, sales
promotion and public relations. QPQ is responsible for using the proceeds of the
advertising fund to develop and implement advertising and promotional plans,
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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 are permitted to conduct their own advertising and promotion subject
to QPQ's and Domino's approval. Domino's is required to provide certain
advertising and promotional assistance to QPQ. QPQ believes that certain
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.
COMPETITION
QPQ faces competition from a number of American fast-food franchisors
and/or their licensees, including Pizza Hut, McDonald, Kentucky Fried Chicken,
Taco Bell and Burger King. QPQ also encounters competition from a broad range of
existing Polish restaurants and food service establishments, including local
fast food restaurants offering products that are familiar to Polish consumers
and have achieved broad market acceptance, as well as existing restaurants
offering American-style fast food, including pizza. Additionally, it can be
expected that, in the event of perceived initial market acceptance of
American-style fast food, there will be a rapidly increasing number of market
entrants offering such products, including additional American franchisors and
Polish or other companies seeking to imitate the American-style fast food
concept. Many of QPQ's competitors and potential competitors, particularly the
major American fast-food franchisors, possess significantly greater financial,
marketing, personnel and other resources than QPQ. QPQ expects that it will
compete on the basis of price, service and food quality. Since the disposable
income of Polish consumers is limited, certain of QPQ's products may be viewed
as luxury items, which may adversely affect market acceptance.
TRADEMARKS
QPQ 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 (collectively, the "Domino's Trademarks"). QPQ has acquired the
exclusive rights to an existing registration of the trademark "Domino's" in
Poland, which QPQ transferred to Domino's. Domino's has trademark applications
pending in Poland for certain Domino's Trademarks and intends to submit
trademark applications for the trademark rights recently acquired by QPQ. There
can be no assurance, however, that such Trademarks will be approved for
registration in Poland. Under the terms of the Domino's Development Agreement
and the Standard Franchise Agreement, QPQ and each Non-Affiliated Franchisee are
required to assist in the defense of any action relating to the right to use or
the validity of the Domino's Trademarks and to cooperate in the prosecution of
any action to prevent the infringement, imitation, illegal use or misuse of the
Domino's Trademarks or the Domino's System. Domino's is obligated to bear the
legal expenses and costs incidental to QPQ's and each Non-Affiliated
Franchisee's participation in any such action. However, Domino's has made no
warranty or representation that the Domino's Trademarks will be available to QPQ
on an exclusive basis or at all. Any events or conditions that negatively affect
such Trademarks could have a material adverse effect on QPQ.
THE CAFE RENAISSANCE
In January 1995, QPQ opened a cafe-style restaurant (the "Cafe
Renaissance") in a historic, downtown city square in Krakow, Poland. The Cafe
Renaissance, was not operated as a franchised Domino's Store, offered, at
moderate prices by local standards ($4 - $10 meal), sit-down lunch and dinner
service. October 1, 1996 PKP sold its Cafe Renaissance restaurant for $250,000,
consisting of cash of $180,000 and a promissory note in the principal amount of
$70,000, payable on or before December 31, 1996. As of March 21, 1997 their
remains a principal balance of $30,000. The Company anticipates such balance
being paid on or before May 30, 1997.
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FOREIGN CURRENCY AND EXCHANGE
QPQ intends to maintain substantially all of its currents assets in
dollar or other hard currency-denominated accounts, to protect such proceeds
against declines in value of the Polish zloty and to acquire foreign goods to be
imported into Poland. Revenues from operations in Poland, if any, must be
maintained in zloty- denominated accounts, although they may be freely converted
into foreign currencies, at then current official exchange rates, for purposes
of paying for foreign goods and for repatriation of profits. There are presently
no limitations on QPQ's ability to repatriate profits. The exact amount of
profits, if any, that QPQ repatriates at a given time will depend on, among
other factors, QPQ's financial condition, results of operations and capital
requirements. Unless and until QPQ is able to obtain its supplies locally, it
will be dependent on foreign sources of supply and will be subject to risks from
exchange rate fluctuations. Although QPQ has no present intention to do so, QPQ
may seek to limit its exposure to the risk of currency fluctuations by engaging
in hedging or other transactions, which transactions could expose QPQ to
substantial risk of loss. QPQ has no experience in hedging or in managing
international transactions and has not yet formulated a strategy to protect QPQ
against currency fluctuations.
UNITED STATES INCOME TAXES
Pursuant to United States tax laws, if QPQ's subsidiaries organized
under the laws of Poland are not engaged in business in the United States, such
subsidiaries will not be subject to United States taxation. Any earnings of
these Polish subsidiaries, when paid to QPQ (or, in certain cases, deemed paid,
even though not distributed, under certain technical provisions of the Internal
Revenue Code), would be included by QPQ for United States Federal income tax
purposes. However, QPQ would receive a credit against Federal income tax
liability that otherwise would result from any deemed or actual distributions
from its Polish subsidiaries, for any Polish corporate taxes paid by such Polish
subsidiaries on these distributions, as well as for any Polish dividend and
royalty withholding taxes imposed directly on QPQ. Because the Polish corporate
tax rate (presently 40 percent of taxable income) is higher than the United
States corporate tax rate, QPQ does not anticipate being subject to significant
United States Federal income tax on either distributed or undistributed earnings
of its Polish subsidiaries.
EMPLOYEES
As of March 21, 1997, QPQ had 36 full-time employees and 72 part-time
employees. Mr. Mitchell Rubinson, QPQ's Chairman of the Board, Chief Executive
Officer and President has entered into an employment agreement with QPQ,,
pursuant to which he is required to devote such portion of his business time to
QPQ as may be reasonably required by QPQ's Board of Directors. The success of
QPQ will be dependent, in part, upon its ability to hire and retain additional
qualified personnel. QPQ utilizes local employees to staff its Domino's Stores
and the Commissary. Such employees are not represented by labor unions.
Substantially all of QPQ's management and employees resident in Poland speak
Polish and QPQ's senior management team in Poland is also able to communicate in
English. QPQ anticipates hiring and training employees as required for the
operation and development of Domino's Stores.
PROPERTIES
QPQ's proposed business operations will be located almost exclusively
in Poland, with the exception of certain strategic planning, financial,
accounting and administrative services which may be provided from offices in the
United States.
OFFICES. QPQ currently maintains its executive offices in approximately
1,600 square feet of office space at 1000 Lincoln Road, Suite 210 and Suite 206,
Miami Beach, Florida 33139. Rental payments for the space aggregate to
approximately $18,000 plus tax.
PKP and IFFP share equally the cost and use of office space in Poland.
In November 1993, PKP entered into a ten-year lease (the "Cogik Lease") with
Cogik, a Polish limited liability corporation ("Cogik"), and on September 30,
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1994, the Cogik Lease was amended. The Cogik Lease pertains to 325 square meters
of office space. Annual lease payments, excluding utility charges, aggregate to
approximately $73,200. The Cogik Lease will be automatically extended for
another ten-year term unless PKP or Cogik gives the other party notice
otherwise. PKP and Cogik can each terminate the lease upon six months written
notice. Renovation costs, including leasehold improvements, were $61,100. In
November 1996 Cogik exercised its option to terminate the lease upon six months
notice. Accordingly, PKP must vacate such premises in May 1997. PKP anticipates
being able to find available office space in Poland.
PARNAS DOMINO'S STORE. In January 1994, IFFC and QPQ entered into
agreements with each of PTTK, the Warsaw district Department of Tourism (the
"Lessor"), and its lessees, Mr. Tadeusz Hofmokl ("Hofmokl") and Polish-Greek
Production and Trading Enterprises ("Ambrozja") (collectively, Hofmokl and
Ambrozja are referred to as the "Lessees"), in order to secure until 2009
approximately 480 square meters of space for use as a Burger King restaurant and
a Domino's Store. Pursuant to the agreement between IFFC, QPQ and the Lessor,
the Lessor has consented to IFFC's and QPQ's sublease of space from the Lessees.
In addition, the Lessor has agreed, upon the termination of each lease between
the Lessor and the individual Lessees, to enter into a lease with IFFC and QPQ
on comparable terms, with the exception of certain lease expenses and
termination dates.
With respect to the 450 square meters of space subleased from Ambrozja,
IFFC and QPQ have each paid Ambrozja an initial fee of $37,500 as of April 13,
1994, and have jointly agreed to pay Ambrozja annual sublease payments,
excluding utility fees, of the zloty equivalent of $135,000, which sublease
payments increase annually by three percent. The sublease is for a term of ten
years and may be extended for five years upon IFFC's and QPQ's election. In the
event that IFFC and QPQ are required to vacate the restaurant site due to no
fault of their own, IFFC and QPQ will be entitled to compensation from Ambrozja
for their subleasehold improvements to the restaurant site.
With respect to the 40 square meters of space subleased from Hofmokl,
IFFC and QPQ have jointly agreed to pay Hofmokl annual sublease payments,
excluding utility fees, of the zloty equivalent of $15,000, which sublease
payments increase annually by three percent. The sublease is for a term of five
years. Neither Hofmokl nor IFFC and QPQ have the right to unilaterally extend
the term of the sublease. In addition to the occurrence of other events of
default by Hofmokl, IFFC and QPQ have the right to terminate the sublease if
IFFC and QPQ lose their permits or licenses to operate Burger King restaurants
and Domino's Stores, at the site.
Renovation costs, including leasehold improvements and furniture,
fixtures and equipment were approximately $399,000, which figure includes the
cost of converting a portion of the Domino's Store into a commissary.
GROJECKA DOMINO'S STORE. In February 1994, QPQ entered into a lease for
an unlimited period with the Municipality of Ochota, Warsaw for a Domino's Store
site consisting of approximately 130 square meters. The lease may be terminated
by QPQ at any time upon three months' notice. The Municipality of Ochota, Warsaw
may terminate the lease at any time upon three months' notice. Renovation costs,
including leasehold improvements and furniture, fixtures and equipment were
approximately $251,000. Annual lease payments, excluding utility charges, are
181,350,000 zlotys, approximately $7,348 at year end exchange rates.
JANA PAWLA DOMINO'S STORE/COMMISSARY. In March, 1994, QPQ entered into
a ten-year lease with the Iron Gate Housing Cooperative ("Iron Gate") for a
Domino's Store and Commissary site consisting of approximately 482 square
meters. Annual lease payments, excluding utility charges, are $34,797. The lease
may be terminated by QPQ at any time upon three months' notice. Iron Gate may
terminate the lease at any time upon three months' notice provided that it
reimburses QPQ for all of its capital expenditures for the site, net of
depreciation. Renovation costs, including leasehold improvements and furniture,
fixtures and equipment were approximately $453,000. The lease does not provide
either party a means of unilaterally extending the term of the lease.
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BONA DOMINO'S STORE. In September 1996, QPQ entered into a lease for
unlimited period of time with Municipality of Warsaw, Centrum for a Domino's
Store consisting of approximately 100 square meters. The lease may be terminated
by QPQ at any time upon three months' notice. The lease may be terminated by the
Municipality of Warsaw, Centrum at any time upon three months' notice. In March
1997, construction was started on the site. The renovation costs including
leasehold improvements, furniture, fixture and equipment is estimated to be
$110,000.Annual lease payments, excluding electricity, are approximately
$4,560.00.
INSURANCE
In the opinion of the management of QPQ, QPQ's leasehold improvements
are adequately covered by insurance. QPQ maintains liability, casualty and
business interruption insurance in amounts which it believes to be adequate.
B. QPQ Medical Centers, Inc.'s Business
Since August 1995 QPQ Medical has been in the business of developing
and/or operating centers which offer primary care, medical services and
medically supervised weight loss programs. The weight loss programs use a
protocol which integrates systems and routines of nutrition management, exercise
and prescribed medication and certain other medical services to address the
weight loss and non-weight loss related medical problems of its patients. In
January, April, July and September of 1996, QPQ opened its first four (4)
medical centers. In February 1997, QPQ Medical acquired the medical practice of
Dr. Jack B. Drimmer, P.A. and relocated such practice to its Aventura center.
QPQ's medical centers are located in Kendall, Aventura, Fort Lauderdale and Boca
Raton, Florida. QPQ Medical intends to contain its operations to South Florida
for the immediate future.
LICENSE AGREEMENT
As of November 9, 1995, QPQ Medical entered into a license agreement
(the "License Agreement") with Weight Loss Associates, Inc. ("Weight Loss
Associates"), a corporation owned by Dr. Rabinowitz, a director of QPQ, and Mr.
Rubinson, QPQ's Chairman of the Board, Chief Executive Officer and President,
pursuant to which QPQ Medical has acquired the exclusive rights subject to
certain restrictions, to use and sublicense a weight loss system and certain
proprietary marks developed by Weight Loss Associates. The weight loss system
(the "Program") integrates systems and routines of nutrition management,
exercise and prescribed medication.
Under the License Agreement, Weight Loss Associates is required to
assist QPQ Medical in developing and operating the Weight Loss Centers and other
businesses (collectively, the "Weight Loss Business") that utilize the Program,
which assistance includes, but is not limited to, the following: providing to
QPQ Medical the Program; providing to QPQ Medical the information necessary to
prepare operations and marketing materials which describe how the Program should
be implemented; providing to QPQ Medical information necessary to prepare a
comprehensive business plan with respect to the Program; providing to QPQ
Medical any assistance or information reasonably deemed necessary or desirable
by QPQ Medical in connection with any of its efforts to secure financing for the
Business; providing any assistance or information reasonably deemed necessary or
desirable by QPQ Medical in connection with any of his efforts to sub-license
the Program and/or Marks; providing to QPQ Medical in connection with any of its
efforts to (i) obtain any governmental license, authorization, permits, consent
or approval with respect to use of the Program and/or Marks, and (ii) respond to
any governmental authority inquiries with respect to the Business; providing to
QPQ Medical technical advice regarding the development and marketing of the
Business; and continuing to use its best efforts to develop and/or enhance the
value of the Business and Program.
Weight Loss Associates is also responsible for the establishment of all
protocols to be followed in connection with the implementation of the Program by
QPQ Medical. Subject to Weight Loss Associates' consent otherwise, QPQ Medical
is prohibited from overriding, modifying or otherwise causing non-conformity
with such protocols established by Weight Loss Associates in connection with the
implementation of the Program.
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QPQ Medical shall pay Weight Loss Associates, Inc., as royalties for the
license of the Program, (i) a percentage of QPQ Medical's "Operating Profit"
from each of its product lines associated weight loss, and (ii) a percentage of
QPQ Medical's "Extraordinary Gain" from certain events. Payments shall be made
in arrears not later that the twentieth day of each month. For purposes of the
License Agreement, Operating Profit is generally defined in accordance with
Statement of Financial Accounting Standards No. 14 but excludes royalties
payable to Weight Loss Associates and certain other items. For purposes of the
License Agreement, "Extraordinary Gain" is defined to include the gain
associated with the events described in APB Opinion No. 30, including: (a) the
disposal of a business segment, (b) extraordinary items, and (c) unusual or
infrequent items. The calculation of an Extraordinary Gain is made in accordance
with APB Opinion No. 30 and generally accepted accounting principles, with the
following modifications: (a) Extraordinary Gain is computed without reduction or
allowance for events which give rise to a negative Extraordinary Gain, (b)
Extraordinary Gain is computed without reduction or allowance for federal or
state income taxes, and (c) in computing Extraordinary Gain, estimated Operating
Profit or negative Operating Profit between "measurement date" and the "disposal
date" (as such terms are defined in APB Opinion No. 30) do not enter into the
computation of Extraordinary Gain. The License Agreement also provides that
Weight Loss Associates and its employees, officers or directors are entitled to
reimbursement from QPQ Medical for ordinary and necessary out-of-pocket expenses
incurred by them in the course of performing their duties under the License
Agreement. QPQ Medical will be required to make payments to Weight Loss
Associates even if QPQ medical fails to develop the system into a profitable
business concept.
Under the License Agreement, QPQ Medical is also required to expend a
percentage of its annual gross receipts for promotion and marketing the Program.
MEDICAL CENTER DEVELOPMENT
In January, April, July and September 1996, QPQ Medical opened its
medical centers in Kendall, Aventura, Fort Lauderdale and Boca Raton, Florida.
QPQ Medical initially intends to focus its medical center development efforts in
South Florida. QPQ Medical's strategy is to lease sites for its medical centers
in existing structures and to develop medical facilities in upper to middle
class areas.
In February 1997, the Company purchased the practice of Dr. Jack B.
Drimmer, P.A. for a cash consideration of $60,000, and a promissory note in the
principal amount of $40,000 due in February 2000. The promissory note bears
interest at the prevailing prime rate as published by the Wall Street Journal.
Payments of principal and interest are due at maturity.
QPQ Medical has acquired and is utilizing a computerized management
information system at its medical centers for practice management and
accounting. Through computer terminals linked by modems to the main computer,
QPQ Medical believes that the main computer is capable of servicing all of QPQ
Medical's existing and proposed medical centers.
QPQ Medical has a limited history of operations and is subject to all
the risk attendant with launching a new business. QPQ Medical has not performed
formal market studies of the South Florida market.
MEDICAL CENTER OPERATIONS AND PERSONNEL
QPQ Medical employs 1-3 licensed doctors, and 2-8 support personnel at
each of its Medical Centers. As of March 21, 1997, QPQ Medical had 24 full-time
employees. QPQ Medical has entered into employment agreements with its five
doctors.
In addition, those QPQ doctors that practice bariatric medicine do so
in accordance with protocols established by Weight Loss Associates. To date, a
principal of Weight Loss Associates, Dr. Rabinowitz, has trained QPQ Medical's
doctors in the use of the Program. QPQ Medical believes that it and Weight Loss
Associates have each satisfactorily performed their respective obligations under
the License Agreement.
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ADVERTISING AND PROMOTION
QPQ Medical intends to, in accordance with the terms of the License
Agreement, expend a percentage of its revenue for promotion and marketing of the
Program. QPQ Medical believes that it may have to spend a considerable portion
of its revenue marketing the Program to a public which is currently relatively
unfamiliar with the Program. Although QPQ Medical is still in the process of
developing and refining techniques to effectively and efficiently market the
Program, QPQ Medical believes its marketing message will be disseminated
primarily through local television, radio and newspaper advertisements.
COMPETITION
QPQ Medical believes that its closest competitors are medical doctors
which specialize in practicing bariatric medicine, certain of which have already
adopted strategies similar to QPQ Medical's of providing medical weight loss
services as cost efficiently as possible through the maximum use of licensed
nutritionists, dieticians, technicians and support personnel under the
supervision of a licensed doctor. QPQ Medical recognizes that many of its
closest competitors have established track records and may adopt marketing
strategies which are comparable to its proposed strategy. QPQ Medical is also
aware that certain individuals may prefer their medically supervised weight loss
program to be designed, supervised and administered exclusively by a licensed
doctor. Although QPQ Medical's medically supervised weight loss programs are to
be designed and supervised by licensed doctors, certain aspects of the weight
loss program will be monitored and administered by licensed nutritionists,
licensed dieticians, technicians and/or other support personnel. QPQ Medical
also anticipates that it will encounter competition from a wide variety of
non-medically supervised weight loss services and/or their franchisees, which
services include the commonly known national systems of the Cambridge Diet,
Herbalife, Jenny Craig, Nutri System and Weight Watchers. QPQ Medical recognizes
that many of its competitors have significantly greater financial and other
resources than QPQ Medical. There can be no assurance that QPQ Medical will be
perceived as a superior alternative to these other weight loss services by a
sufficient number of people QPQ Medical anticipates that less than a majority of
its services will be covered by its clients' medical insurance and/or care
policies.
PROPERTIES
KENDALL MEDICAL CENTER. In September 1995, QPQ Medical entered into a
five-year lease, which commenced on November 1, 1995, for an approximately 3,157
square foot medical office space located in a medical office building in
Kendall, Florida. For the term of the lease, annual lease payments are a minimum
of $61,561 per year, subject to annual upward adjustments to reflect changes in
the Consumer Price Index as published by the U.S. Department of Labor. QPQ
Medical is also responsible for a pro rata share of the office building's real
estate taxes and the costs of managing, operating and maintaining the office
building, including utilities and insurance. Upon the lease's expiration, QPQ
Medical has an option to renew the lease for an additional five years. QPQ has
guaranteed the performance of QPQ Medical's obligations under the lease.
AVENTURA MEDICAL CENTER. On November 1, 1995, QPQ Medical entered into
a sixty-seven month lease for an approximately 3,788 square foot medical office
space located in an office building in Aventura, Florida. Pursuant to the lease,
QPQ Medical's annual lease payments are $60,608 per year, subject to three
percent annual increases commencing on the nineteenth month of the lease. QPQ
Medical is also responsible for a pro rata share of the office building's
operating expenses which are defined as the total cost and expense of owning,
operating, maintaining, managing and repairing the office building, including
taxes, insurance and utilities. Upon the lease's expiration, QPQ Medical has an
option to renew the lease for an additional five years, QPQ has guaranteed the
performance of QPQ Medical's obligations under the lease.
BOCA RATON MEDICAL CENTER. In March 1996, QPQ Medical entered into a
five year lease, which commences on May 1, 1996, for an approximately 3,658
square foot medical office space located in a medical office building in Boca
Raton, Florida. From September 1, 1996 to March 1997, QPQ Medical is required to
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make monthly lease payments of $5,412. For the balance of the lease, QPQ Medical
is required to make lease payments which aggregate to approximately $63,100 in
the second year of the lease and which increase by three percent per year
thereafter. QPQ Medical is also responsible for its own utility expenses and a
pro rata share of the office building's real estate taxes, insurance, common
area maintenance and operating expenses. Upon the lease's expiration, QPQ
Medical has an option to renew the lease for an additional five years. QPQ has
guaranteed the performance of QPQ Medical's obligations under the lease.
FORT LAUDERDALE MEDICAL CENTER. In April 1996 QPQ Medical entered into
a five year lease, which commenced on June 1, 1996 for approximately 2,500
square feet of medical office space located in a medical office building in Fort
Lauderdale, Florida. Pursuant to the lease, QPQ Medical makes monthly lease
payments of $3,125, subject to 3% increases of the previous year's minimum rent.
QPQ Medical is also responsible for its pro rata share of the facilities
operating expenses. Upon the lease's expiration QPQ Medical has an option to
renew the lease for an additional five years.
INSURANCE
In the opinion of the management of QPQ Medical, QPQ Medical's
leasehold improvements and computer equipment are adequately covered by
insurance. QPQ Medical maintains liability, casualty, business interruption and
medical malpractice insurance which it believes to be adequate.
Although QPQ Medical's weight loss system incorporates a variety of
weight loss techniques, each of which QPQ Medical believes is safe, QPQ Medical
recognizes that it may be subject to lawsuits if individuals using the Program
coincidentally experience medical problems. QPQ Medical is subject to the risk
that new medical discoveries may question the safety or effectiveness of QPQ
Medical's Program, it may be required to devote all or an inordinate amount of
its available cash and managerial resources defending itself against and/or
settling claims, even if frivolous or not meritorious, and that, it may be
subject to liability for claims in which the offered proof that QPQ Medical's
services were the cause of the claimant's injuries are accepted by a court
regardless whether, in QPQ Medical's opinion, they are unsubstantiated by
medical or scientific knowledge.
ECONOMIC AND BUSINESS CONDITIONS IN POLAND
The Republic of Poland is situated between the southern coast of the
Baltic Sea and the Carpathian Mountains. Its geographic neighbors are the
Republic of Belarus, the Czech Republic, the Federal Republic of German, the
Republic of Lithuania and the Ukraine. It has a total area of approximately
120,700 square miles and a population of approximately 38.6 million. Poland has
an extensive network of roads, railways and canals, and has four major ports on
the Baltic sea. Poland's major cities and their approximate populations are:
Warsaw (1.9 million)' Lodz (950,000); Katowice (950,000); Krakow (750,000);
Wroclaw (650,000); Poznan (600,000); and Gdansk (500,000). Poland today is
ethnically almost homogeneous (98% Polish).
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. Four years into its transition to a market economy, Poland
has become the first former centrally planned economy in Central and Eastern
Europe to end its recession and return to growth. Poland's transition-induced
recession bottomed out in the second quarter of 1991, and for the last four
years the Polish economy has enjoyed an accelerated recovery.
The sweeping economic reforms introduced in 1989 removed price control,
eliminated subsidies to industry, opened Poland's markets to international
competition, and imposed strict budgetary and monetary discipline. These reforms
have achieved impressive results in reducing inflation--from almost 600% in 1990
to 32%, 21.6% and 19.5% in 1994, 1995 and 1996.
Since 1989, the Polish government has sought to attract foreign capital
by, among other actions, executing investment protection agreements with major
industrialized countries, and adopting a law the express intent of which is to
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encourage foreign investment in Poland. Poland has further evidenced its
commitment to a market system by opening a stock exchange in Warsaw and
introducing a system designed to result in the development of a Western system
of banking. The tax system was reformed to provide equal tax treatment of all
economic entities.
FOREIGN INVESTMENT LAW AND GOVERNMENT REGULATION
General
The Polish Law of June 14, 1991 on companies with foreign participation
(the "Foreign Investment Law") sets forth the legal requirements governing
foreign investment in Poland. The Foreign Investment Law states that, unless
provided otherwise, the Polish Commercial Code of 1934 (the "Commercial Code")
is the commercial law generally applicable to domestic business. The Commercial
Code governs corporate and partnership formation, governance and activity, and
is generally similar to corresponding regulations of countries in the EEC.
Under the relevant portions of the Foreign Investment Law, 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.
The Foreign Investment Law also governs foreign investment in "joint stock
companies," which are roughly analogous to publicly held corporations in the
United States. Since IFFC and QPQ anticipate that their business in Poland will
be conducted solely through one or more of its wholly owned limited liability
companies for the foreseeable future, the following discussion addresses only
limited liability companies.
The Foreign Investment Law defines the range of economic activities in
which a limited liability company with foreign participation (a "CFP") may
engage to include "participation in revenues from the operation of enterprises
in the territory of the Republic of Poland." The Foreign Investment Law does not
restrict the scope of economic activities of a CFP, which is thus permitted to
engage in any business in which a domestic Polish limited liability company
without foreign participation may engage. No special permits are required unless
the CFP will conduct business activities in one of the enumerated sectors
considered to be of critical importance for the Polish economy. IFFC's
development and operation of restaurants is not included in one of those
enumerated sectors, and do not require special licensing. Moreover, access to
raw materials and supplies in the domestic market is afforded without
distinction as to cooperatives and state enterprises on the one hand, and
private business entities, including a CFP, on the other. All private business
entities have equal access to raw materials and labor and are treated equally
for tax purposes. A CFP is free to set prices for its products and services.
A CFP must comply with certain formal requirements preceding the
commencement of revenue producing activities, which formal requirements have
been complied with by QPQ's subsidiary. The Founding Act of a CFP (essentially
equivalent to articles of incorporation and bylaws in the case of a CFP that is
a 100% owned subsidiary) must be prepared and executed before a notary public
(who is a lawyer and who reviews the Founding Act as to its compliance with
applicable law) in the form of a Notarial Deed. The CFP must then be registered
by the District Court responsible for the conduct of the Commercial Register.
The registration process for a newly formed CFP generally takes from one to
three months. The CFP commences its legal existence upon registration. The CFP
must then register with the Local Statistical Office to obtain a National
Economy Code Number ("REGON") and register with the Treasury Office to obtain a
Tax Indemnification Number ("NIP"). Without a REGON and a NIP, a CFP may not
complete mandatory registration with the local Fiscal Office and Social Security
Office, and may not open bank accounts or proceed with customs clearance. These
formal requirements are identical to those required for a domestic Polish
limited liability company without foreign participation.
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Contribution to Capital
Other than pursuant to provisions of the Commercial Code generally
applicable to all limited liability companies, there is no minimum level of
investment required of a CFP. The minimum capital required for establishment of
any limited liability company is 40,000,000 zlotys (about $1,301 as published by
the National Bank of Poland on March 21, 1997), 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 CFP's Founding Act, 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 CFP's Founding Act, fixed assets may constitute in-kind, non-monetary
contributions to equity.
Taxation
A CFP is subject to the same taxes, and general tax reductions, as
domestic Polish companies without foreign participation. Tax exemptions
specifically reserved for foreign investors or companies with foreign
participation are no longer available after January 1, 1994 and such tax
exemptions can only be utilized if the right to such exemptions was acquired
prior to January 1, 1994. A CFP 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 40
percent of taxable income, which 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.
All goods and services, including imported goods and services, are
subject to a VAT and 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,
it is reduced to 7% or entirely. Under the VAT system, credit is given for VAT
paid against VAT collected.
A CFP's employees are subject to a personal income tax, and a CFP is
required to make contributions for employees' health and pension insurance,
commonly referred to as the social security fund. Currently, an employer must
remit to the social security fund, the unemployment fund and the Fund of
Guaranteed Employees' Payments 45%, 3% and .2%, respectively, of the amount of
wages paid to an employee before withholding for personal income tax. Both
Polish and foreign employees are governed by the same social security, health,
pension, and unemployment insurance provisions.
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 CFP which is a subsidiary of IFFC or QPQ will be at the rate
of 5%.
Customs Duties and Import Restrictions
Customs duties on imported goods are regulated by the Customs Law of
1989 (as amended). The tariff is coordinated and integrated with international
regulations and the provisions of the General Agreement on Tariffs and Trade.
IFFC's and QPQ's operations are subject to significant levels of customs duties
on goods imported into Poland. Customs duties on goods imported into Poland
currently range from 15% to 20% for furniture, fixtures and equipment, and 30%
for meat. 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 and QPQ intend to contribute as
capital substantially all of their respective subsidiaries' furniture, fixtures
and equipment, there can be no assurance that such equipment will ultimately
qualify as "fixed assets" for purposes of this exclusion. In connection with
Poland's application to the European Economic Union, it has imposed customs
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duties on certain foods and other products, which aggregate to 25% on cheese and
40% on milk imported from European Economic Union countries, and 35% on cheese
and 40% on milk, imported from other countries. As of July 5, 1993, temporary
restrictions, including import license requirements and import quotas, were
placed on the importation into Poland of certain categories of food products.
From January 1995 goods imported to Poland were subject to a five
percent (5%) import tax (the "Import Tax"). Since January 1, 1996, the rate of
Import Tax has been three percent (3%). The Import Tax is structured as a surtax
and is imposed on the customs value of imported goods increased by the regularly
applicable customs duty.
On February 4, 1994 the Parliament passed a law imposing countervailing
duties on certain agricultural and food products imported from abroad, which law
became effective as of April 14, 1994. The law is intended to protect local
producers by increasing the cost of importation of certain agricultural and food
products, such as meat, milk, wheat flour, processed tomatoes, vegetable oil,
pork, poultry and dairy products, through the imposition of countervailing
duties up to a level comparable to the local prices of such products as
determined by the Minister of Agriculture.
Polish Currency and Foreign Exchange
The only currency that may be used 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. As of January 1, 1995, the National Bank of Poland
introduced a new currency unit which is named a "zloty" (a "new zloty"). New
zlotys are equivalent to 10,000 old zlotys ("old zlotys"). Old zlotys will
remain legal tender until December 31, 1996, after which date they will only be
exchangeable at certain banks. All references in this document to zlotys are to
old zlotys. Domestic persons and CFPs are entitled to hold foreign currency
acquired through the conduct of an economic activity in their own accounts.
Foreign currency may only be converted into zlotys, by selling the foreign
currency to a foreign exchange bank. Proceeds from economic activities in Poland
must be maintained in zloty denominated accounts, but may be converted into hard
currencies for certain purposes as discussed below. Typically, the transfer of
foreign currency abroad requires a foreign exchange permit, but no permit is
required for the repatriation to foreign investors in hard currency of up to
100% of the profits of a CFP. Similarly, foreign investors may repatriate in
foreign currency all proceeds of the sale or liquidation of equity interests in
the CFP, all proceeds of the liquidation of a CFP, and compensation resulting
from expropriation or similar government acts. The zloty is also tradeable and
exchangeable into foreign currency for the purpose of purchasing goods and
services abroad. On March 21, 1997, the exchange rate was 30,745 zlotys per
dollar as published by National Bank of Poland. Foreign exchange banks are
required to sell foreign currency to domestic persons, including a CFP, when
such currency is needed for repatriation as set forth above, and to satisfy
foreign currency obligations to foreign persons resulting from the purchase of
goods and certain services. Foreign employees may repatriate their after-tax
earnings in hard currencies without having to obtain an individual foreign
exchange permit.
Foreign Exchange Law
Effective January 1, 1995, a new Polish Foreign Exchange Law became
effective. The expressed objectives of the new law are (i) to apply uniform
standards to all Foreign Exchange Banks operating in Poland, (ii) to create a
legal framework for market valuation of the Polish currency, and (iii) to move
toward full convertibility of the zloty. The new law is also designed to permit
greater freedom (less restrictions) on certain foreign trade transactions
accounted for in Polish currency.
Reporting and Audit
The balance sheet and profit and loss statements of a CFP must be
prepared in accordance with Polish accounting principles and in compliance with
the requirements of the Commercial Code. As Poland becomes more integrated with
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the EEC, it is anticipated that its financial reporting requirements will become
substantially similar to generally accepted accounting principles in the EEC
which are generally similar to those in the United States. For financial
reporting purposes in the United States, IFFC and QPQ prepare their financial
statements in accordance with generally accepted accounting principles.
Leases and Purchase of Land
A CFP may lease real property from private parties without substantial
restrictions. The acquisition of real property is regulated by the Acquisition
of Real Property Estate by Foreign Persons Act of 24 March 1920 and The Act
Amending the Land Economy and Expropriation Act of 29 September 1990. Since
neither IFFC nor QPQ presently intends to acquire real property in Poland, these
statutes are not described herein.
Employees and Wages
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 can be typically
obtained in due course. As set forth above, all wages are subject to payroll
taxes payable by the employer, and income tax payable by the employee. Employers
are required to pay a minimum wage.
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 meat and
other 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, and are typically granted within 14 days of
application therefor.
Trademark Protection
Under Polish law, the registrant of a trademark in Poland acquires the
exclusive right to use the trademark in commerce for goods and services covered
by the registration. If the trademark is infringed, the registrant is entitled
to demand injunctive relief, monetary damages, and seizure of infringing items.
In general, the first applicant is entitled to the registration of a trademark
from the date the application is filed with the Patent Office. Foreign nationals
generally have the same rights as Polish citizens with regard to trademarks.
United States-Poland Treaty
On March 21, 1990, the President of the United States and the Prime
Minister of Poland signed a treaty concerning business and economic relations,
which was ratified by both countries. The ratification instruments were
exchanged in Warsaw on July 7, 1994 and the treaty became effective as of August
6, 1994. The aim of the treaty is to encourage and facilitate United States
investments in Poland by providing internationally recognized protections and
standards. The treaty sets certain minimum standards; in some cases, Polish
legislation more favorable than that required by the treaty has been enacted.
Some of the key elements of the treaty include the following:
o Poland agreed to treat United States investors in Poland the
same as Polish nationals or investors from other countries,
whichever is more favorable.
o The United States and Poland agreed to internationally
recognized standards for expropriation; expropriation will be
permitted only for a public purpose, and must include prompt
payment at fair market value.
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o The United States and Poland agreed to abide by internationally
recognized standards for arbitration that ensure that an
investor has the right to resort to international arbitration.
o Poland guaranteed that United States firms will have the right
to market goods and services both at the wholesale and retail
level; obtain access to public utilities and financial
institutions; obtain commercial rental space and raw materials
on a non-discriminatory basis; conduct market studies and
distribute commercial information of all kinds; and obtain
registrations, licenses, permits and other approvals on an
expeditious basis.
o Poland agreed to adopt major new intellectual property
standards, including adherence to the Paris Act of the Berne
Convention; copyright protection for computer software; and
protection of proprietary information.
o Poland agreed to permit immediate and complete repatriation of
export earnings and capital from Poland to the United States. In
addition, Poland agreed to progressively eliminate restrictions
on repatriation of United States investor zloty profits. All
such restrictions on the repatriation of profits have been
eliminated. See "Polish Currency and Foreign Exchange."
Item 2. Description of Property.
-----------------------
See Item 1. Description of Business - A. QPQ Corporation's Business - Properties
" - and "B. QPQ Medical Centers, Inc.'s Business - Properties."
Item 3. Legal Proceedings.
-----------------
Except as described below, QPQ is not a party to any litigation or
governmental proceedings that management believes would result in any judgments
or fines that would have a material adverse effect on QPQ.
On November 20, 1996, the Company was notified by holders of Warrants
for the purchase of an aggregate of 38,250 shares of Common Stock issued on
September 22, 1993, pursuant to the Underwriter's Common Stock Purchase
Agreement, between the Company and Reich & Co., Inc., that pursuant to the
anti-dilution provisions contained in such Warrants, the Warrant exercise per
share of Common Stock underlying the Warrant was reduced to $0.25 per share. The
claim also alleges that the number of shares for which the Warrants are
exercisable increased to an aggregate of 1,377,000 shares. The warrant holders
have requested demand registration of such shares. The Company has not
registered such shares and the warrant holders have requested the Company
repurchase all of such warrants for an aggregate of $3,442,500 based upon the
failure to register provisions contained in the Warrant Agreement. The Company
is contesting the claim.
Item 4. Submission of Matters to a Vote of Security-Holders.
---------------------------------------------------
None.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
--------------------------------------------------------
QPQ's Common Stock is quoted on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), and listed, on the Boston Stock
Exchange, under the symbols QPQ and IPZ, respectively. The following table sets
forth, for the period since January 1, 1994, the high and low closing bid
quotations for the Common Stock as reported by NASDAQ. The NASDAQ quotations
represent quotations between dealers without adjustments for retail markups,
markdowns or commissions and may not necessarily represent actual transactions.
High Low
---- ---
1994
First Quarter............................................ 3 5/8 2 21/32
Second Quarter........................................... 3 2 3/4
Third Quarter............................................ 2 1/4 1 1/2
Fourth Quarter........................................... 2 1 1/4
1995
First Quarter............................................ 1 5/16 5/8
Second Quarter........................................... 2 1/8 21/32
Third Quarter............................................ 1 7/16 5/8
Fourth Quarter........................................... 2 1/2 5/8
1996
First Quarter............................................ 2 3/8 1 5/8
Second Quarter........................................... 2 2
Third Quarter............................................ 4 3 1/2
Fourth Quarter........................................... 2 3/4 2 3/8
As of March 21, 1997, there were 95 record holders of QPQ's Common
Stock. QPQ believes that there were in excess of 300 beneficial holders of the
QPQ Common Stock.
QPQ has not paid any cash dividends on the QPQ Common Stock and does
not currently intend to declare or pay cash dividends in the foreseeable future.
QPQ intends to retain any earnings that may be generated to provide funds for
the operation and expansion of QPQ's business.
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Item 6. Management's Discussion and Analysis or Plan of Operation.
----------------------------------------------------------
A. QPQ Corporation
GENERAL
QPQ commenced its planned principal operations through its wholly owned
subsidiary, Pizza King Polska Sp. zo.o ("PKP"), in April 1, 1994. PKP
anticipates that it will incur losses until, at the earliest, it establishes a
number of Domino's Stores generating sufficient revenues to offset its operating
costs and the costs of its proposed continuing expansion. There can be no
assurance that PKP will be able to successfully establish a sufficient number of
Domino's Stores to achieve profitable operations. PKP cannot reasonably estimate
the length of time before any Domino's Store may generate sufficient revenues to
offset its operating costs or the length of time before PKP may generate income,
if ever. QPQ's independent auditors have included as explanatory paragraph in
their report for the year ended December 31, 1995 and 1996 stating that QPQ's
financial statements have been prepared assuming QPQ will continue as a going
concern although QPQ's recurring losses raise substantial doubt about QPQ's
ability to do so.
On August 25, 1995, QPQ Medical Centers, Inc. ("QPQ Medical"), a wholly
owned subsidiary of QPQ, was organized. QPQ Medical offers medically supervised
weight loss programs using a protocol which integrates systems and routines of
nutrition management, exercise and prescribed medication. QPQ Medical
anticipates that it will incur losses until at the earliest, it establishes a
number of weight loss centers generating sufficient revenue to offset its
operating costs and the costs of its proposed expansion. There can be no
assurance that QPQ Medical will be able to successfully establish a sufficient
number of medical centers to achieve profitable operations. QPQ Medical cannot
reasonably estimate the length of time before it will generate sufficient
revenues to offset its operating costs, if ever.
Subject to market conditions and its need for funds, QPQ may generate
additional capital through the public or private sale of equity in QPQ and may
seek to borrow funds, if available, on commercially reasonable terms.
YEAR ENDED DECEMBER 31, 1996 VS YEAR ENDED DECEMBER 31, 1995
RESULTS OF OPERATIONS
During the year ended December 31, 1996, QPQ incurred a net loss of
$2,866,982 ($.42 per share) compared to a net loss of $1,971,398 ($.38 per
share) for the year ended December 31, 1995. The increase in QPQ's loss for the
year ended December 31, 1996 compared to its loss for the year ended December
31, 1995 is primarily attributable to losses generated by QPQ Medical in its
first year of operations which were partially offset by reductions in the losses
incurred by QPQ and PKP.
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<PAGE>
On October 1, 1996, the Cafe Renaissance restaurant was sold for $250,000,
consisting of cash of $180,000 and a promissory note of $70,000, payable on or
before December 31, 1996. As of March 21, 1997 their remains a principal balance
of $30,000. The Company anticipates such balance being paid on or before May 30,
1997. The sale resulted in a loss of $65,485 which is included in the
accompanying Consolidated Statements Of Operations under Loss on Sale of Assets
During the year ended December 31, 1996, QPQ generated Sales of $1,264,850
from its three Domino's Stores and the Cafe Renaissance which were opened in
April, May and August 1994 and January 1995, respectively, versus Sales of
$1,167,231 for the year ended December 31, 1995 from its three Domino's Stores
and the Cafe Renaissance. For the year ended December 31, 1996, versus the year
ended December 31, 1995, the three Domino's Stores experienced an increase in
(average monthly) same store sales.
During the year ended December 31, 1996, QPQ incurred $451,471, $338,816,
$470,599 and $191,612 of Food and Packaging Expenses, Payroll and Related Costs,
Occupancy and Other Operating Expenses and Depreciation and Amortization
Expense, respectively.
Food and Packaging Expenses for the year ended December 31, 1996 and
the year ended December 31, 1995 were approximately 36% and 38% of Sales,
respectively. The decrease is primarily attributable to the improved cost
control and a lower level of promotional and giveaway programs at the three
Domino's Stores. Food and Packaging Expenses as a percentage of Sales for the
year ended December 31, 1995 were adversely affected by special promotions and
giveaways conducted in connection with the Cafe Renaissance grand opening.
Payroll and Related Costs as a percentage of Sales for the year ended
December 31, 1996 and December 31, 1995 were approximately 27% and 31%,
respectively. The decrease in Payroll and Related Costs as a percentage of Sales
is attributable to an increase in the average level of same store sales and
continued improvement in labor force scheduling for the year ended December 31,
1996. The Payroll and Related Costs for the Cafe Renaissance was higher than
average Payroll and Related Costs as a percentage of Sales for QPQ's Domino's
Stores.
Occupancy and Other Operating Expenses as a percentage of Sales for the
year ended December 31, 1996 and December 31, 1995 were approximately 37% and
44%, respectively. The decrease in Occupancy and Other Operating Expenses as a
percentage of Sales is primarily attributable to an increase in the average
level of same store sales for the year ended December 31, 1996, and the
implementation of tighter cost controls. Approximately $32,800 of expenses
associated with the Commissary were included in Occupancy and Other Operating
Expenses.
General and Administrative Expenses for the year ended December 31, 1996
and December 31, 1995, totalled $1,337,678 and $1,302,962, respectively. For the
year ended December 31, 1996, General and Administrative Expenses were comprised
of executive and office staff salaries and benefits of $301,959, legal and
professional fees, office rent, travel, telephone and other corporate expenses
of $924,842, and depreciation and amortization of $110,877. For the year ended
December 31, 1995, General and Administrative Expenses were comprised of
executive and office staff salaries of $377,169, legal and professional fees,
office rent, travel, telephone and other general corporate expenses of $796,231,
and depreciation and amortization of $129,562.
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QPQ's General and Administrative Expenses for the year ended December 31,
1996 were $34,716 higher than such expenses for the year ended December 31,
1995, as a result of, among other things, a reduction in executive salaries, a
reduction in QPQ's allocation of certain expenses it shares with IFFC and
improved corporate overhead control systems, offset by $308,340 of General and
Administrative expenses applicable to QPQ Medical which commenced operations in
January 1996.
Interest and Other Income for the year ended December 31, 1996 and
December 31, 1995 were $12,315 and $217,995, respectively. The decrease is
primarily attributable to a reduction in the funds held for investment by QPQ.
As a result of the liquidation of financial investments in June 1995 to retire
debt, QPQ's level of interest income declined.
During the year ended December 31, 1996 and December 31, 1995, Interest
Expense was $36,844 and $200,109, respectively. The decrease in Interest Expense
is primarily attributable to the retirement of debt in June of 1995 resulting
from the sale of QPQ's financial investments.
LIQUIDITY AND CAPITAL RESOURCES
A. QPQ Corporation/Pizza King Polska
Pursuant to the Domino's Development Agreement, as amended November 13,
1995 and March 21, 1997, QPQ is granted the exclusive right until December 31,
2003 to develop, operate and franchise Domino's Stores in Poland. During the
Initial Term of the Domino's Development Agreement, which expires on December
31, 2003, QPQ is required to open and operate, either through affiliates of QPQ
("Affiliated Franchisees") or unrelated third parties ("Non-Affiliated
Franchisees"), at least 50 Domino's Stores in accordance with a schedule that
obligates QPQ or its Non-Affiliated Franchisees to open three Domino's Stores in
1994, no Domino's Stores in 1995, eight Domino's Stores in 1996 and five, eight
or seven Domino's Stores for each of the following seven years. Domino's Stores
developed and/or operated by Non-Affiliated Franchisees are counted towards
QPQ's obligation to open a minimum number of Domino's Stores. QPQ did not
satisfy the requirements to open eight Domino's stores during 1996 and in March
1997, Domino's granted QPQ and extension until July 1, 1997 to satisfy such
requirement. In addition, Domino's indicated it would be agreeable to a further
six month extension if QPQ provided satisfactory evidence of recapitalization at
a level which in Domino's sole discretion, will enable QPQ to satisfy its
obligations under the agreement.
In compliance with the Domino's Development Agreement, QPQ opened three
Domino's Stores in 1994. QPQ is required and, subject to the factors discussed
below, may open or cause to be opened at least eight additional Domino's Stores
prior to December 1997. Subject to the modifications of the Domino's Agreement,
if QPQ in fact fails to meet the development schedule described above as
amended, QPQ will lose its rights to develop and franchise additional Domino's
Stores but will be entitled to act as a master franchisor and franchisee with
respect to the franchise agreements granted prior thereto.
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<PAGE>
As of December 31, 1996, QPQ had working capital of $238,975. QPQ's
material commitments for capital expenditures relate to the Domino's Stores that
QPQ must open to comply with the Domino's Development Agreement. Although to
date QPQ has concentrated its efforts on the development of Domino's Stores in
Warsaw, Poland, subject to the re-evaluation described below, QPQ intends to
focus its future Domino's Store development efforts on other Polish cities.
QPQ's decision to expand its development efforts is based on a number of
factors, including, but not limited to, QPQ's ability to conserve its capital
resources by developing additional Domino's Stores outside of Warsaw through
Non-Affiliated Franchisees.
QPQ estimates the cost of opening a Domino's Store to be approximately
$125,000 to $500,000, including leasehold improvements, furniture, fixtures and
equipment, and opening inventories, but excluding up front payments, lease
payments and franchise fees. Such estimates vary depending on the size and
condition of a Domino's Store, the amount of customer seating provided and the
extent of leasehold improvements required. QPQ estimates that once a space has
been leased and made available, approximately 90 days is required to renovate,
equip and furnish the store, obtain necessary licenses and approvals and open a
Domino's Store.
QPQ intends to, to the extent possible, finance the operation and
expansion of its restaurant system and medical center system with the unutilized
proceeds of its Private Offering and Public Offering (defined below) credit
facilities and cash from operations.
Any implementation of QPQ's business plan with respect to the operation of
its three Domino's Stores (the "QPQ Operations Plan") beyond May 31, 1997, may
require resources greater than those currently available to QPQ. Except as
discussed below, QPQ has no current arrangements with respect to, or sources of,
additional financing, and it is not contemplated that QPQ's principal
shareholders, will provide any portion of QPQ's future financing requirements.
Implementation of the QPQ Operations Plan is contingent upon, among other
things, QPQ's ability to utilize significantly less of its capital resources
financing its restaurants' operations and General and Administrative Expenses
than it has to date. There can be no assurance that QPQ will generate any cash
flow from operations in the future, or that additional financing will be
available on acceptable terms, or at all, to fund QPQ's operations.
Any implementation of QPQ's business plan with respect to the expansion of
its Domino's Store system by franchising Domino's Stores to Non-Affiliated
Franchisees (the "QPQ Development Plan") beyond May 31, 1997 may require
resources greater than those allocated for such purpose or otherwise currently
available to QPQ. Successful implementation of QPQ's Development Plan is
contingent upon QPQ identifying and engaging Non-Affiliated Franchisees with the
financial and other resources capable of developing and opening Domino's Stores
in accordance with the development schedule or QPQ securing additional debt or
equity financing to permit QPQ to develop the Domino's Stores in accordance with
the development schedule. Successful implementation of the QPQ Development Plan
is also contingent upon QPQ's ability to economically supervise, provide
technical support and distribute food products from QPQ's Commissary to
Non-Affiliated Franchisees. QPQ has no experience in identifying, engaging,
supervising or providing technical assistance to Non-Affiliated Franchisees.
Further, QPQ has not yet identified nor engaged any Non-Affiliated Franchisees
which may develop and operate future Domino's Stores.
26
<PAGE>
In September 1996, QPQ entered into a lease for approximately 100 square
meters of space in Warsaw Poland to be used as the site of its fourth Domino's
store. The lease is for an unlimited period of time but can be cancelled by
either party upon three months notice. Annual lease payments approximate $4,560.
In March 1997, QPQ commenced construction on the site and estimates that its
total costs of renovation of the site, including leasehold improvements and
furniture fixtures and equipment will approximate $110,000.
QPQ's Operations Plans and Development Plans beyond May 31, 1997 are
contingent upon its operating and development experiences prior thereto.
Accordingly, QPQ cannot accurately predict its Operations Plans and Development
Plans beyond May 31, 1997.
QPQ continues to review the performance and prospects of its pizza
operations and is evaluating its current business plan to determine the best
possible means of effecting a profitable operation. The alternatives now under
consideration include, among others, focusing future development efforts on
Domino's traditional takeout and delivery service; selling certain or all of
QPQ's existing Domino's Stores to unrelated third parties and/or affiliates of
QPQ; closing certain of QPQ's Stores; or entering into management agreements or
joint venture agreements with unrelated third parties or affiliates with respect
to the operation of certain or all of QPQ'S Stores.
Subject to market conditions and its need for funds, QPQ may generate
additional capital through the public or private sale of equity in QPQ.
The deployment of QPQ's financial, personnel, capital and/or other
resources in other businesses or investment opportunities, including QPQ Medical
Centers, may result in a diminution in resources available to execute the QPQ
Operations Plan and/or the QPQ Development Plan. See "-B. QPQ Medical Centers,
Inc." for more information regarding QPQ Medical's liquidity and capital
resources.
Subject to, among other things, QPQ's future operating results, QPQ's
capital resources, QPQ's ability to locate a ready, willing and able buyer (a
"Qualified Buyer") for certain or all of the Stores, QPQ's ability to locate a
joint venture partner or Non-Affiliated Franchisee (a "Qualified Partner"),
willing and able to develop and operate its existing or additional Stores, and
the Board of Directors believes that it may be in the best interests of QPQ to
close certain of its Stores. The Board of Directors' belief is based upon, among
other things, certain of the Stores operating results to date, QPQ's projected
operating results with all of the Stores open, QPQ's projected operating results
with certain of the Stores closed, QPQ's cash position, QPQ's ability to secure
additional sources of capital, QPQ's perceived risk adjusted rate of return on
additional cash investments in the Domino's Stores versus QPQ's perceived risk
adjusted rate of return in alternative investments, QPQ's inability to date to
locate a Qualified Buyer for the Store(s) and/or QPQ's Domino's Store
development rights on acceptable terms, QPQ's inability to date to locate a
Qualified Partner to develop and operate additional Domino's Stores, and QPQ's
relationship with Domino's.
To date, QPQ's business has been principally financed by proceeds from
QPQ's public offering of QPQ Common Stock and Warrants, proceeds from bank
credit facilities, proceeds from two private offerings of QPQ Common Stock and
proceeds from two Regulation S Offerings of QPQ Common Stock.
27
<PAGE>
In September 1993, QPQ consummated an underwritten initial public offering
(the "Public Offering") of 1,250,000 shares of its common stock and 1,405,660
redeemable Common Stock Purchase Warrants (the "Warrants"), each Warrant
entitling the holder thereof to purchase one share of QPQ's Common Stock for
$6.60, for aggregate proceeds of approximately $6,012,000, net of underwriting
discounts and commissions, expense allowances and other registration costs.
As of March 30, 1995, QPQ sold (the "Private Offering") 3,400,000
restricted shares of QPQ Common Stock for aggregate proceeds of $850,000. The
proceeds of the Private Offering have been utilized by QPQ to finance it
operations and expansion.
In January 1994, QPQ's wholly owned subsidiary, PK Polska, obtained a
$28,000 line of credit from American Bank, with interest payable on outstanding
principal amounts at a rate equivalent to the American Bank's overdraft rate
minus 4%, payable monthly on the first day of the month. In September 1994, QPQ
guaranteed PK Polska's payment of any and all amounts, not exceeding $28,000,
owed to American Bank pursuant to the credit facility. As of December 31, 1996
and March 21, 1997, $21,718 and $32,526, respectively, of the credit facility
were outstanding.
In January 1995, PK Polska obtained a $300,000 line of credit from
American Bank with interest payable on outstanding principal amount at a rate of
7.75%. PK Polska is also obligated to pay American Bank a 1% per annum
commission on the daily average unutilized principal balance of the credit
facility. Interest and commission expenses are payable once every three months.
The credit facility are secured by PK Polska deposits with American Bank and a
guarantee of QPQ. Borrowings are required to be repaid in full on January 28,
1998. As of December 31, 1996 and March 21, 1997, $300,000 and $300,000,
respectively, of the credit facility were outstanding.
During the year ended December 31, 1996, QPQ completed a private offering
(the "Private Offering") of 1,195,000 shares of Common Stock at an offering
price of $1 per share. The Private Offering was made only to accredited
investors in accordance with the provisions of Regulation D promulgated under
the Securities Act of 1933, as amended. Mr. Rubinson, the Chairman of the Board,
Chief Executive Officer, President and a principal shareholder of QPQ, and Nigel
Norton, a principal shareholder of QPQ, purchased 200,000 and 100,000 shares of
common stock, respectively.
In July 1996 and November 1996 QPQ sold 337,012 and 96,455 shares of
Common Stock in two Regulation S offerings and received cash proceeds of
$959,923, net of offering expenses.
In March 1997, the Company entered into Securities Subscription Agreements
(the "Agreements") for the sale of $1,280,000 of 8% Convertible Debentures (the
"Debentures") with a maturity date of March 31, 1998, for which the Company
received net proceeds of $1,066,667. Interest is payable quarterly. The
Debentures are convertible into shares of common stock at a conversion price per
28
<PAGE>
share equal to the lower of (a) 75% of the average closing bid price of the
common stock for five business days immediately preceding the conversion date
or (b) 75% of the average of the closing bid price of the common stock for the
business day immediately preceding the date of the individual Subscription
Agreement.
The Debentures were issued in reliance upon the exemption from
registration afforded by Regulation S as promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
The Company has authorized a maximum of $6,000,000 principal amount of the
Debentures.
B. QPQ Medical Centers, Inc.
GENERAL
In August 1995, QPQ entered into the business of developing and operating
medical centers ("Medical Centers") which offer primary care medical services
and medically supervised weight loss programs. In January, April, July and
September 1996, QPQ Medical opened its first four Medical Centers. In February
1997, QPQ purchased a medical practice and relocated such practice to its
Aventura Medical Center. QPQ Medical has incurred losses and anticipates that it
will continue to incur losses until it establishes a number of Medical Centers
generating sufficient resources to offset its operating costs and the costs of
its proposed continuing expansion. In light of the uncertainties in connection
with the commencement of a new business, QPQ cannot reasonably estimate the
length of time before QPQ Medical may achieve profitable operations, if ever.
RESULTS OF OPERATIONS OF QPQ MEDICAL
YEAR ENDED DECEMBER 31, 1996
QPQ Medical commenced operations in January 1996. Accordingly, a
comparison of QPQ Medical's results of operations for the year ended December
31, 1996 with any other time period are not meaningful.
During the year ended December 31, 1996, QPQ Medical generated Medical
Center Revenues of $828,295 from its four Medical Centers.
During the year ended December 31, 1996, QPQ Medical incurred $993,888,
$471,438, $541,422 and $72,919 of Payroll and Related Expense, Occupancy and
Other Expense, Advertising and Depreciation and Amortization, respectively. QPQ
Medical believes that the foregoing expenses as a percentage of Medical Center
Revenues should decline as Medical Center Revenues increase and Medical Centers
currently under lease and renovation develop into revenue production centers.
See "A. QPQ Corporation-Results of Operations" for a discussion of QPQ
Medical's general corporate and overhead expenses.
29
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Subject to QPQ's other business commitments, QPQ Medical is required to
use its best efforts to develop the Medical Center business concept, the License
Agreement does not require QPQ Medical to develop and open Medical Centers
pursuant to an established schedule. QPQ Medical's material commitments for
capital expenditures relate to the weight loss centers it is in the process of
developing and operating. In addition, under the License Agreement, QPQ Medical
is required to expend a minimum of $100,000 in start-up funding and a percentage
of its annual gross receipts for promotion and marketing the Program. QPQ
Medical has expanded the required amounts in accordance with the License
Agreement.
QPQ Medical estimates the cost of opening a Medical Center to be
approximately $50,000 to $300,000, including leasehold improvements, furniture,
fixtures and equipment, but excluding lease payments and license fees. Such
estimates vary depending on the size and style of a Medical Center and the
extent of leasehold improvements required. QPQ Medical estimates that once a
space has been leased and made available, approximately 90 days is required to
renovate, equip and furnish the Medical Center, obtain necessary licenses and
approvals and open a Medical Center.
In February 1997, the Company purchased a medical practice for $100,000
consisting of cash of $60,000, and a promissory note in the amount of $40,000
due in February 2000. The promissory notes bear interest at the prevailing prime
rate as published in the Wall Street Journal.
QPQ intends to finance the development and operations of Medical Centers
with the unutilized proceeds of QPQ's Private Offering and Public Offering and
cash, if any, from Medical Center operations. Any implementation of QPQ
Medical's business plan with respect to the operation of its Medical Centers
(the "QPQ Medical Operations Plan") beyond May 1997 may require resources
greater than those currently available to QPQ Medical. Although QPQ Medical
desires to develop additional Medical Centers, any implementation of QPQ
Medical's business plan with respect to the expansion of its Medical Center
System (the "QPQ Medical Development Plan") beyond May 1997 may require
resources greater than those currently available to QPQ Medical. QPQ Medical has
no current arrangements with respect to, or sources of, financing. QPQ's
Medical's Operation Plans and QPQ Medical's Development Plans beyond May 1997
are contingent upon its operating and development experiences prior thereto.
Accordingly, QPQ Medical cannot accurately predict its operations and
development plans beyond May 1997.
QPQ continues to review the performance and prospects of its Medical
Centers and is evaluating its current business plan to determine the best
possible means of effecting a profitable operation. The alternatives now under
consideration include, among others, focusing future development efforts on the
development of additional centers, purchase of existing medical practices,
selling certain or all of QPQ's existing Medical Centers to unrelated third
parties and/or affiliates of QPQ; closing certain of the Medical Centers or
entering into management agreements or joint venture agreements with unrelated
third parties or affiliates with respect to the operation of certain or all of
the Medical Centers.
30
<PAGE>
The deployment of QPQ's financial, personnel, capital and/or other
resources in other businesses or investment opportunities, including Domino's
Stores, may result in a diminution in resources available to execute the QPQ
Operations Plan and/or the QPQ Development Plan. See "-B. QPQ Medical Centers,
Inc." for more information regarding QPQ Medical's liquidity and capital
resources.
Subject to, among other things, QPQ's future operating results, QPQ's
capital resources, QPQ's ability to locate a ready, willing and able buyer (a
"Qualified Buyer") for certain or all of the Medical Centers, QPQ's ability to
locate a joint venture partner (a "Qualified Partner"), willing and able to
develop and operate its existing or additional Medical Centers, the Board of
Directors believes that it may be in the best interests of QPQ to close certain
of its Medical Centers. The Board of Directors' belief is based upon, among
other things, certain of the Medical Centers operating results to date, QPQ's
projected operating results with additional Medical Centers open, QPQ's
projected operating results with certain of the Medical Centers closed, QPQ's
cash position, QPQ's ability to secure additional sources of capital, QPQ's
perceived risk adjusted rate of return on additional cash investments in the
Medical Centers versus QPQ's perceived risk adjusted rate of return in
alternative investments, QPQ's inability to date to locate a Qualified Buyer for
the Medical Centers on acceptable terms and QPQ's inability to date to locate a
Qualified Partner to develop and operate additional Medical Centers.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
Domino's 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 United States dollar and European currencies.
However, in the year ended December 31, 1996, the rates of inflation and
devaluation improved. For the years ended December 31, 1993, 1994, 1995 and
1996, the annual inflation rate in Poland was 35%, 32% , 21.6% and 19.5%
respectively, and as of December 31, 1993, 1994, 1995 and 1996 the exchange rate
was 21,344, 24,372, 24,680 and 28,725 zlotys per dollar, respectively. Franchise
fees for each Domino's Store opened are paid in United States currency.
Additionally, QPQ is dependent on foreign sources of supply (equipment, paper
goods and certain food products) which require payment in European or United
States currencies. Since QPQ's revenues from operations are in zlotys, QPQ is
subject to the risk of currency fluctuations. QPQ has and intends to maintain
substantially all of its unutilized funds in dollar denominated accounts and/or
securities. There can be no assurance that QPQ will successfully manage its
exposure to currency fluctuations or that such fluctuations will not have a
material adverse effect on QPQ.
Thus far, QPQ's revenues have been used to fund restaurant operations and
QPQ'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 QPQ.
31
<PAGE>
The accounts of PK Polska are measured using the Polish zloty. Due to
Poland's highly inflationary environment through December 31, 1995, generally
accepted accounting principles required QPQ to calculate and recognize on its
statement of operations its currency translation gains or losses associated with
PK Polska. For the year ended December 31, 1995 , QPQ had a foreign currency
translation gain of $55,700. Due to the reduction in Polands inflation rate,
effective for the year ended December 31, 1996, QPQ is no longer required
pursuant to generally accepted accounting principles to recognize currency
translation gains or losses in its statement of operations. Accordingly, for the
year ended December 31, 1996, QPQ recognized a currency translation gain of
$68,537 which is included in shareholders' equity under the caption Accumulated
Translation Adjustment.
The only currency that may be used 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 affect the value of
currencies generally. As of January 1, 1995, the National Bank of Poland
introduced a new currency unit which is named a "zloty" (a "new zloty"). New
zlotys are equivalent to 10,000 old zlotys ("old zlotys"). Old zlotys will
remain legal tender until December 31, 1996, after which date they will only be
exchangeable at certain banks. All references in this document to zlotys are to
old zlotys. At December 31, 1996, the exchange rate was 28,725 zlotys per
dollar.
32
<PAGE>
Item 7. Financial Statements.
--------------------
See "Index to Financial Statements" for a description of the financial
statements included in this Form 10-KSB.
Item 8. Changes and Disagreements with Accountants on Accounting and Financial
-----------------------------------------------------------------------
Disclosures.
-----------
On February 3, 1997, Coopers & Lybrand resigned as the Company's
auditors. During the two most recent fiscal years and interim period subsequent
to December 31, 1996, there have been no disagreements with Coopers & Lybrand on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure or any reportable events. The report
of Coopers & Lybrand for the fiscal years ended December 31, 1995 and December
31, 1994 did not contain an adverse opinion, disclaimer of opinion,
qualification, or modification as to uncertainty, audit scope or accounting
principles, except the Company's financial statements for the year ended
December 31, 1995, contain a going concern opinion. The Company has received
from Coopers & Lybrand LLP a letter addressed to the Securities and Exchange
Commission stating that it agrees with the statements made by the Company. On
February 5, 1997, the Board of Directors of the Company appointed Moore
Stephens- Lovelace, Roby, P.L. as independent auditors of the Company for the
fiscal year ended December 31, 1996.
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
------------------------------------------------------------------------
with Section 16(a) of the Exchange Act.
---------------------------------------
The Company's Bylaws provide that the number of directors shall be
fixed from time to time by resolution of the Board of Directors within the
limits specified by the Company's Articles of Incorporation. The Board of
Directors has fixed at three the number of directors that will constitute the
33
<PAGE>
Board for the ensuing year. Each director elected at the Annual Meeting will
serve for a term expiring at the Company's 1997 Annual Meeting of Shareholders
(the "Annual Meeting") or when his successor has been duly elected and
qualified.
The directors and executive officers of the Company are as follows:
Name Age Position
- ------------------ ----------- ----------------------------------------
Mitchell Rubinson 49 Chairman of the Board, Chief Executive
Officer, Chief Operating Officer and
President
James Martin 36 Chief Financial Officer
Dr. Mark Rabinowitz 49 Director
MITCHELL RUBINSON has served as the Chairman of the Board, Chief Executive
Officer and President of the Company since its inception in July 1993 and has
served as the Chief Operating Officer of the Company since October 1995. Mr.
Rubinson served as the Chairman of the Board, Chief Executive Officer and
President of Capital Brands, Inc. ("Capital Brands") from March 1988 until April
26, 1996 and was Capital Brands' Treasurer from March 1992 to April 1993. Mr.
Rubinson has been the Chairman of the Board, Chief Executive Officer and
President of IFFC, a publicly traded corporation, since its incorporation in
December 1991, and was the Treasurer of IFFC from December 1991 to February
1993. IFFC is the exclusive developer and operator, subject to certain
restrictions and site exceptions, of Burger King restaurants in Poland. Mr.
Rubinson has served as the Chairman of the Board, Chief Executive Officer and
President of QPQ Medical since September 1995. QPQ Medical, a wholly owned
subsidiary of QPQ, develops and operates centers which provide medically
supervised weight loss programs in South Florida. Since October 1995 Mr.
Rubinson has been a principal shareholder of and has served as a director and
the secretary of Weight Loss Associates, Inc. ("WLA"). WLA has developed and
licenses to QPQ Medical a weight loss system.
JAMES F. MARTIN, CPA has served as the Vice President and Chief
Financial Officer of QPQ since October 1996. Mr. Martin served as the Director
of Finance for Pizza King Polska, Sp.zoo, the wholly owned subsidiary of QPQ
Corporation located in the Republic of Poland, from November 1993 through
February 1995. From May 1995 through September 1996, Mr. Martin was a 50% owner
in an information systems and software consulting company located in South
Florida. Additionally, Mr. Martin has nine years of commercial banking
experience.
DR. MARK RABINOWITZ has served as a director of the Company since
January 1996. Dr. Rabinowitz has also served as a director of 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 for and the
President of Women's Centre for Health, Inc. Since October 1995 Dr. Rabinowitz
has been a principal shareholder of and served as a director and the president
of WLA.
The Company's officers are elected annually by the Board of Directors and
serve at the discretion of the Board. The Company reimburses all directors for
their expenses in connection with their activities as directors of the Company.
The directors make themselves available to consult with the Company's
management. Directors of the Company who are also employees of the Company do
not receive additional compensation for their services as directors.
Under the terms of the Domino's Development Agreement, dated June 11,
1993, between QPQ and Domino's, Inc., the Company has agreed with Domino's to
use its best efforts to elect Mr. Rubinson as an officer and director of the
Company until 2003.
34
<PAGE>
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 1996, the Company's Board of
Directors took action 17 times by unanimous written consent. The Board does not
presently have a stock option, audit, nomination or similar committee.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's outstanding Common Stock, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock. Such persons are required by SEC
regulation to furnish the Company with copies of all such reports they file. To
the Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners have been complied
with, except Marilyn Rubinson, on two occasions, and Nigel Norton on one
occasion, failed to make such filings. The appropriate filings have been
subsequently made.
Item 10. Executive Compensation
----------------------
Summary Compensation Table
The following table sets forth the aggregate compensation paid to Mr.
Mitchell Rubinson (the "Named Executive Officer"). None of the Company's other
executive officers total annual salary and bonus for the year ended December
31,1996 was $100,000 or more.
Long Term
Annual Compensation(1) Compensation
-------------------------- --------------
Number of
Name and Fiscal Other Annual Options All Other
Principal Position Year Salary Compensation Granted(2) Compensation
- ----------------------- ------- -------- ------------ ---------- ------------
Mitchell Rubinson, 1996 $155,031 $ 0 0 -
Chief Executive Officer 1995 $141,551 $ 0 100,000(3) -
1994 $128,365 $ 0 0(4) -
(1) The columns for "Bonus", "Restricted Stock Awards" and "LTIP Payments"
have been omitted because there is no compensation required to be reported
in such columns.
(2) See "Aggregated Fiscal Year-end Option Value Table" for additional
information concerning options granted.
(3) Represents an option granted to purchase 100,000 shares of Common Stock at
an exercise price of $l.5625.
(4) As of March 7, 1995 each of the options held by Mr. Rubinson was amended
to reduce the stated exercise price therein to the fair market value of
the Common Stock on such date ($0.69).
35
<PAGE>
Employment Agreements
The Company entered into an employment agreement with Mitchell Rubinson,
effective July 23, 1993. which provides that he will serve as Chairman of the
Board, Chief Executive Officer and President for an initial term of three years,
commencing on September 22, 1993, which the Company may extend for up to two
additional years. His annual salary for the first year was $125,000, subject to
annual ten percent increases. Additionally, Mr. Rubinson is entitled to receive
an annual incentive bonus in the amount of 2.5% of the Company's net income
after tax. Pursuant to his employment agreement, Mr. Rubinson is required to
devote such portion of his business time to the Company as may be reasonably
required by the Company's Board of Directors, subject to his other business
interests. Mr. Rubinson's employment agreement with the Company provides that he
is entitled to six weeks of paid vacation a year. As of March 31, 1995, Mr.
Rubinson's employment agreement with the Company was amended to provide that for
each day of vacation that Mr. Rubinson elects not to take, the Company shall pay
him an amount of money equal to the quotient of his then current annual salary
divided by 260.
Mr. Rubinson's employment agreement requires that he not compete or engage
in a business competitive with the Company's business for the term of the
agreement and for one year thereafter. Mr. Rubinson's employment agreement
provide; for a payment of $166,375 in the event his employment is terminated by
reason of his death or disability and a severance payment of twice the minimum
annual salary then in effect, plus the incentive bonus paid in the prior year,
in the event his employment is terminated by the Company without cause. Mr.
Rubinson's employment agreement does not provide for a severance payment in the
event his employment is terminated for cause. On November 7, 1996, the Company
amended its employment agreement with Mr. Rubinson, pursuant to which the
agreement was extended to December 31, 1999. The amended agreement provides for
a minimum annual salary of $166,375, during the first year and subject to a 10%
annual increase for each of the remaining two years.
Aggregated Fiscal Year-End Option Value Table
The following table sets forth certain information concerning unexercised
stock options held by the Named Executive Officer as of December 31, 1996. No
stock options were exercised by the Named Executive Officer during the period
ended December 31, 1996. No stock appreciation rights were granted or are
outstanding.
<TABLE>
<CAPTION>
Number of Unexercised Options Held Value of Unexercised In-the-Money Options
at December 31, 1996 at December 31, 1996(1)
---------------------------------- -----------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------- ---------------- ----------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Mitchell Rubinson 200,000 0 $321,000 $0
_________________________________
(1) The average of the high ask and low bid quotations for the Company's Common Stock as
reported by NASDAQ on December 31, 1996 was $2.73 and the closing bid quotation for the
Company's Common Stock as reported by The Wall Street Journal on March 21 , 1997 was
$1.15625.
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth, as of March 21, 1997, the number of shares
of Common Stock of the Company which were owned beneficially by (i) each person
who is known by the Company to own beneficially more than 5% of its Common
Stock, (ii) each director and nominee for director, (iii) the Named Executive
Officer and (iv) all directors and executive officers of the Company as a group:
36
<PAGE>
Percentage of
Name and Address of Amount and Nature of Outstanding
Beneficial Owner(1) Beneficial Ownership(2) Shares Owned
---------------------------- ------------------------- --------------------
Mitchell Rubinson ..................1,325,000(3) 16.89%
Dr. Mark Rabinowitz ................ 144,000(4) 1.88%
James Martin........................ -0- *
All directors and
executive officers as
a group (three persons) ..........1,469,000(5) 18.65%
_______________________________
*Less than 1 %.
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is 1000 Lincoln Road, Suite 206, Miami Beach, Florida 33139.
Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Amendment
upon the exercise of options. Each beneficial owner's percentage ownership
is determined by assuming that options that are held by such person (but
not those held by any other person) and that are exercisable within 60
days from the date of this Amendment have been exercised. As of March 21,
1997, there were 7,653,467 shares of Common Stock outstanding.
(3) Such figure includes options to purchase 100,000 shares of Common Stock
pursuant to the Company's 1993 Stock Option Plan (Amended) (the "Stock
Option Plan") that are immediately exercisable at an exercise price of
$0.69 per share. Such figure includes options to purchase 100,000 shares
of Common Stock pursuant to the Stock Option Plan that are immediately
exercisable at an exercise price of $1.5625. Such figure does not include
shares of the Company's Common Stock beneficially owned by Mr. Rubinson's
parents or children. Mr. Rubinson disclaims beneficial ownership of the
shares owned by such family members.
(4) Such figure includes options to purchase 100,000 shares of Common Stock
pursuant to the Stock Option Plan that are immediately exercisable at an
exercise price of $l.5625. Such figure includes warrants to purchase
22,000 shares of Common Stock at an exercise price of $6.60.
(5) See Notes (2), (3) and (4).
Possible Changes in Control of the Company
Until April 26, 1996 Mitchell Rubinson controlled Capital Brands and,
through Capital Brands and certain direct shareholdings, the Company. Due to
certain transactions, Mitchell Rubinson has ceased to control Capital Brands and
may in the future lose control of the Company.
In April 1996, Mr. Rubinson acquired 250,000 shares of Common Stock
from Capital Brands in satisfaction of amounts owed to Mr. Rubinson under an
employment agreement with Capital Brands. In July 1996, Mr. Rubinson purchased
from Capital Brands 1,125,000 shares of QPQ at a purchase price of $1.00 per
share pursuant to a promissory note which matures in July 1997. The shares of
QPQ are pledged as collateral for repayment of such note. Such shares represent
14.7% of the outstanding shares of the Company's Common Stock. Accordingly, if
Mr. Rubinson was to default under his obligations under such note he may lose
control of the Company. In addition, Mr. Rubinson has registered under a Form
S-3 925,000 of his shares of common stock.
37
<PAGE>
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
Shared Facilities
The Company has occupied office space, at Suites 200, 206 and 210 at 1000
Lincoln Road, Miami, Florida. With respect to Suite 200, the Company was
ultimately responsible for payments of $10,132 in the year ended 1996 and $0 in
1995. With respect to Suite 206, the Company was ultimately responsible for
payments of $1,380 in the year ended 1996 and $156 in 1995. With respect to
suite 210, the Company was responsible for $3,004 during the year ended December
31, 1996 and $9,585 during the year ended December 31, 1995. The Company shared
all or a portion of these facilities with International Fast Food Corporation
and Capital Brands, Inc.
The Company operates a Domino's pizza store ("Domino's Store") adjacent to
a Burger King restaurant operated by IFFC in Poland. They each have their own
counter service and kitchen area, but share a seating space. The Company and
IFFC are jointly and severally liable for, and costs are allocated between the
companies with respect to, the leasehold payments for the site.
Business Opportunities
Mitchell Rubinson serves as the Chairman of the Board, Chief Executive
Officer and President of each of the Company, and IFFC. In order to limit
possible future conflicts of interest, IFFC and the Company have agreed that the
Company will not engage in hamburger fast-food operations and IFFC will not
engage in pizza fast-food operations.
Private Offering
As of March 31, 1996, the Company had negative working capital of
$169,089. The Company required an infusion of working capital. After considering
various alternatives and factors, including the market price of the Common
Stock, its trading volume and various time constraints, the Board of Directors
of the Company authorized a private offering of up to 1,195,000 shares of Common
Stock. As of July 1996, QPQ sold in a private offering (the "Private Offering")
1,195,000 of restricted Common Stock, which included 200,000 shares sold to
Mitchell Rubinson, 50,000 shares each to Mr. Rubinson's two children, 100,000
shares to Nigel Norton, Mr. Rubinson's brother-in-law and 100,000 shares to each
of Mr. Rubinson's two nieces. Each party has taken the position that they have
not entered into any contracts, arrangements or understanding with Mr. Rubinson
with respect to control of the Company.
Consulting Agreement
On July 25, 1993 the Company entered into a three year consulting
agreement (the "Consulting Agreement") with IFFC. Under the terms of such
agreement, IFFC is to assist the Company generally with operational and
administrative matters. Pursuant to the Consulting Agreement, as amended on July
27, 1994 and January 1, 1995, IFFC will provide to the Company: (1) the services
of IFFC's Chief Financial Officer for not more than 30% of his business time;
(2) the services of IFFC's Controller for not more than 30% of each of his
business time; and (3) the services of managerial, general office and staff
personnel of IFFC. In exchange for such services, the Company is required to pay
IFFC: (1) 30% of all compensation and benefits provided by IFFC to its Chief
Financial Officer; (2) 27.5% of all compensation and benefits provided by IFFC
to its Controller; and (3) all costs and expenses incurred by IFFC in connection
with the services rendered pursuant to the Consulting Agreement. For the fiscal
years ended December 31, 1996 and December 31, 1995, the Company's obligations
to IFFC pursuant to the terms of the Consulting Agreement aggregated to $4,225
and $218,742, respectively. QPQ terminated the agreement with IFFC in June 1996.
In connection with the signing of the Consulting Agreement, the Company granted
IFFC an option to purchase up to 250,000 shares of the Company's Common Stock at
an exercise price of $6.00 per share. This option was also terminated in June
1996 for a $10,000 cash payment.
38
<PAGE>
In April 1995 IFFC's majority-owned subsidiary (85%), IFFP, entered into a
consulting agreement (the "Subsidiary Consulting Agreement") with the
wholly-owned subsidiary of QPQ, Pizza King Polska, pursuant to which IFFP has
agreed to provide Pizza King Polska with all general staff and administrative
support required by Pizza King Polska to operate its Domino's Store business.
The services of Leon Blumenthal have been made available to Pizza King Polska
and QPQ pursuant to the Subsidiary Consulting Agreement. ln exchange for such
services, IFFP receives from Pizza King Polska a sum equivalent to 10% of Pizza
King Polska's sales and a reimbursement of expenses. In the year ended December
31, 1996, Pizza King Polska's obligations to IFFP pursuant to the terms of the
Subsidiary Consulting Agreement aggregated to $64,999. In June 1996, the
Agreement was terminated.
License Agreement
As of November 9, 1995, QPQ Medical entered into a license agreement (the
"License Agreement"), with Weight Loss Associates, Inc. ("Weight Loss
Associates"), a corporation owned by Dr. Rabinowitz, a director of QPQ, and Mr.
Rubinson, QPQ's Chairman of the Board, Chief Executive Officer and President,
pursuant to which QPQ Medical has acquired the exclusive rights subject to
certain restrictions, to use and sublicense a weight loss system and certain
proprietary marks developed by Weight Loss Associates. The weight loss system
(the "Program") integrates systems and routines of nutrition management,
exercise and prescribed medication.
Under the License Agreement, Weight Loss Associates is required to assist
QPQ Medical in developing and operating the Weight Loss Centers and other
businesses (collectively, the "Weight Loss Business"), that utilize the Program,
which assistance includes, but is not limited to, the following: providing to
QPQ Medical the Program; providing to QPQ Medical the information necessary to
prepare operations and marketing materials which describe how the Program should
be implemented; providing to QPQ Medical information necessary to prepare a
comprehensive business plan with respect to the Program; providing to QPQ
Medical any assistance or information reasonably deemed necessary or desirable
by QPQ Medical in connection with any of its efforts to secure financing for the
Business; providing any assistance or information reasonably deemed necessary or
desirable by QPQ Medical in connection with any of his efforts to sub-license
the Program and/or Marks; providing to QPQ Medical in connection with any of its
efforts to (i) obtain any governmental license, authorization, permits, consent
or approval with respect to use of the Program and/or Marks, and (ii) respond to
any governmental authority inquiries with respect to the Business; providing to
QPQ Medical technical advice regarding the development and marketing of the
Business; and continuing to use its best efforts to develop and/or enhance the
value of the Business and Program.
Weight Loss Associates is also responsible for the establishment of all
protocols to be followed in connection with the implementation of the Program by
QPQ Medical. Subject to Weight Loss Associates' consent otherwise, QPQ Medical
is prohibited from overriding, modifying or otherwise causing non-conformity
with such protocols established by Weight Loss Associates in connection with the
implementation of the Program.
QPQ Medical shall pay Weight Loss Associates, Inc., as royalties for the
license of the Program, (i) a percentage of QPQ Medical's "Operating Profit"
from each of its product lines associated weight loss, and (ii) a percentage of
QPQ Medical's "Extraordinary Gain" from certain events. Payments shall be made
in arrears not later that the twentieth day of each month. For purposes of the
License Agreement, Operating Profit is generally defined in accordance with
Statement of Financial Accounting Standards No. 14 but excludes royalties
payable to Weight Loss Associates and certain other items. For purposes of the
License Agreement, "Extraordinary Gain" is defined to include the gain
associated with the events described in APB Opinion No. 30, including: (a) the
disposal of a business segment, (b) extraordinary items, and (c) unusual or
infrequent items. The calculation of an Extraordinary Gain is made in accordance
with APB Opinion No. 30 and generally accepted accounting principles, with the
following modifications: (a) Extraordinary Gain is computed without reduction or
allowance for events which give rise to a negative Extraordinary Gain, (b)
Extraordinary Gain is computed without reduction or allowance for federal or
state income taxes, and (c) in computing Extraordinary Gain, estimated Operating
Profit or negative Operating Profit between "measurement date" and the "disposal
39
<PAGE>
date" (as such terms are defined in APB Opinion No. 30) do not enter into the
computation of Extraordinary Gain. The License Agreement also provides that
Weight Loss Associates and its employees, officers or directors are entitled to
reimbursement from QPQ Medical for ordinary and necessary out-of-pocket expenses
incurred by them in the course of performing their duties under the License
Agreement. QPQ Medical will be required to make payments to Weight Loss
Associates even if QPQ medical fails to develop the system into a profitable
business concept.
40
<PAGE>
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K.
---------------------------------------
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
1.1 Form of Underwriting Agreement between QPQ and Reich & Co., Inc.(1)
3.1 QPQ's Articles of Incorporation(1), as amended(14)
3.2 QPQ's Bylaws(1)
4.1 Form of QPQ's Common Stock Certificate(1)
4.2 Form of Warrant Agreement between QPQ and Reich & Co., Inc. (the
"Underwriter") (including form of Underwriter's Warrants)(1)
4.3 Form of Warrant Agreement between QPQ and Continental Stock Transfer &
Trust Company (including form of Warrants)(1)
10.1 Domino's Development Agreement dated as of June 11, 1993, between Capital
Brands and Domino's (including form of Standard Franchise Agreement and
Know-How and Technical Knowledge, License and Management Agreement)
(the "Development Agreement")(1)
10.2 Assignment and Assumption Agreement, dated as of July 16, 1993, between
QPQ and Capital Brands assigning the Development Agreement to QPQ(1)
10.3 QPQ's Stock Option Plan, as amended(1)*
10.4 QPQ's Directors Stock Option Plan(1)*
10.5 Employment Agreement, effective as of July 23, 1993, between QPQ and
Mitchell Rubinson(1)*
10.6 Amendment to Domino's Development Agreement, dated March 7, 1995,
between QPQ and Domino's (10.1) (7)
10.7 Amendment to Employment Agreement, effective March 31, 1995, between QPQ
and Mitchell Rubinson (9)*
10.8 Form of Indemnification Agreement between QPQ and each of QPQ's Directors
and Executive Officers(1)*
10.9 Consulting Agreement, effective as of July 25, 1993, between QPQ and IFFC(1)
10.10 Stock Option Agreement, effective as of July 25, 1993, between QPQ and
IFFC(1)
10.11 Form of Financial Consulting Agreement between QPQ and the Underwriter(1)
10.12 Letter Amendment to Master Franchise Agreement, dated November 13, 1995,
from Domino's to QPQ (13)
10.13 Credit Facility, dated October 22, 1993, between Northern Trust Bank of Florida,
N.A. and QPQ (10.1)(3)
10.14 Key Man Life Insurance Policy, dated August 9, 1993,
insuring life of Mitchell Rubinson with QPQ as the
beneficiary (4)
10.15 Second Amendment to Consulting Agreement, dated January 1, 1995, between
QPQ and IFFC (9)
10.16 Credit Facility, dated January 26, 1995, and credit
facility amendment dated February 15, 1996, between PK
Polska and AmerBank(10.1)(10)
10.17 Stock Option Agreement, dated as of September 22, 1993, between QPQ and
Mitchell Rubinson (4)*
41
<PAGE>
10.18 Stock Option Agreement, dated as of September 22, 1993, between QPQ and
Stephen R. Groth (4)*
10.19 Amendment, dated May 25, 1995, to lease, dated July 20,
1993, between Corporate Srodmiescie and Pizza King
Polska (10.1)(11)
10.20 Office Site Lease, dated February 28, 1984, between QPQ and the Managing
Board of Municipality of Ochota (4)
10.21 Domino's Store Site Lease, dated November 25, 1993, between QPQ and
Cogik (4)
10.22 Domino's Store Site Lease and Lease Option, dated January 17, 1994, between
PTTK, IFFC and QPQ (4)
10.23 Domino's Store Site Sublease, dated January 17, 1994, between Ambrozja, IFFC
and QPQ (4)
10.24 Domino's Store Site Sublease, dated January 17, 1994, between Hofmokl, IFFC
and QPQ (4)
10.25 Amendment to Credit Facility, dated April 22, 1994, between Northern Trust
Bank of Florida, N.A. and QPQ (4)
10.26 Restaurant Site Lease, dated November 10, 1993, between QPQ, Jan Kosmowski,
Justine Kosmowski, Irene Kosmowski and Krystof Kosmowski (4)
10.27 Schedule of Standard Franchise Agreements as of March
30, 1995 (form Standard Franchise Agreement filed with
Domino's Development Agreement) (9)
10.28 First Amendment to Consulting Agreement, dated July 27, 1994, between QPQ
and IFFC (10.1) (5)
10.29 Restaurant Site Lease dated July 20, 1994 between Corporate Srodmiescie and
multi-business company ABJ-POL, Ltd. (10.2) (5)
10.30 Assignment Agreement dated May 28, 1994 between Pizza King Polska and
Krak-Wien (10.3) (5)
10.31 Agreement dated May 13, 1994 between QPQ and Beata Najgrodzki (10.4) (5)
10.32 Credit Agreement No. 11/94 between Pizza King Polska and American Bank in
Poland S.A. dated January 31, 1994, amended as of September 26, 1994 (10.1)
(6)
10.33 Guarantee dated September 26, 1994 to American Bank in Poland S.A. from
QPQ (10.2) (6)
10.34 Amendment, dated November 2, 1994, to the Assignment
Agreement entered into on May 28, 1994 between Pizza
King Polska and Krak-Wien (10.3) (6)
10.35 Amendment, dated November 2, 1994, to the agreement
entered into on May 13, 1994 between QPQ Corporation
and Beata Najgrodzki (10.4) (6)
10.36 Domino Store Site Sublease agreement, dated January 17,
1994, between IFFP and Pizza King Polska and Ambrozja
[Parnas] (9)
10.37 Domino Store Site Sublease agreement, dated January 17,
1994, between IFFP and Pizza King Polska and Hofmokl
[Parnas] (9)
10.38 Lease Agreement, dated March 9, 1994, between Pizza King Polska and "Iron
Gate" Housing Cooperative [John Paul] (9)
10.39 Sublease Termination Agreement between Pizza King Polska and AWAL Sp. z
o.o. [John Paul] (9)
10.40 Weight Loss Center Site, dated September 1995, between QPQ Medical and
M.C.H. Medical Center, Ltd. (10.1)(12)
10.41 Weight Loss Center Site, dated November 1, 1995, between QPQ Medical and
Aventura Corporate Center (10.2)(12)
10.42 License Agreement, dated November 9, 1995, between QPQ
Medical and Weight Loss Associates (QPQ has requested
of the Securities and Exchange Commission that certain
portions of the License Agreement receive confidential
treatment (10.3)(12)
10.43 Physician Employment Agreement, dated December 27, 1995, between QPQ
Medical and Dr. Beth D. Yedwab, M.D. (13)*
42
<PAGE>
10.44 Physician Employment Agreement, dated December 13, 1995, between QPQ
Medical and Dr. Jose David Suarez, M.D. (13)*
10.45 Amendment dated January 19, 1996, to Credit Facility dated January 31, 1995
between PKP and AmerBank (13)
10.46 Amendment, dated November 24, 1995, to credit facility dated January 26,
1995, between PKP and AmerBank (13)
10.47 Lease Agreement, dated March 18, 1996, between QPQ Medical Weight Loss
Centers, Inc. and Howard B. Goldman and Sue E. Goldman (13)
10.48 Amendment to Employment between QPQ and Mitchell Rubinson, dated
November 7, 1996.(14)
10.49 Amendment to its Master Franchise Agreements, dated March 21, 1996 between
Domino's and QPQ (14)
10.50 Employment Agreement dated February 21, 1997 between QPQ and Dr. Jack
Drimmer.(14)
12.51 Purchase Agreement dated February 21, 1997 between QPQ and Dr. Jack
Drimmer, P.A.(14)
22.1 Subsidiaries of QPQ (13)
23.0 Consent of Accountants
27.0 Financial Data Schedule
_________________
</TABLE>
* Executive Compensation Plan or Arrangement
(1) Incorporated by reference to the exhibit of the same
number filed with QPQ's Registration Statement on Form
S-1 (File No. 33-66862).
(2) Incorporated by reference to the exhibit number
indicated filed with QPQ's Registration Statement on
Form S-1 (File No. 33-66862).
(3) Incorporated by reference to the exhibit number
indicated filed with QPQ's Form 10-QSB for the
quarterly period ended September 30, 1993.
(4) Incorporated by reference to the exhibit of the same
number filed with QPQ's Form 10-KSB for the year ended
December 31, 1993.
(5) Incorporated by reference to the exhibit of the number
indicated filed with QPQ's Form 10-QSB for the
quarterly period ended June 30, 1994.
(6) Incorporated by reference to the exhibit of the number
indicated filed with QPQ's Form 10-QSB for the
quarterly period ended September 30, 1994.
(7) Incorporated by reference to the exhibit of the number
indicated filed with QPQ's Form 8-K dated March 8,
1995.
(8) Incorporated by reference to the exhibit of the number
indicated filed with QPQ's Form 8-K dated March 30,
1995.
(9) Incorporated by reference to the exhibit of the number
indicated filed with QPQ's Form 10-KSB for the year
ended December 31, 1994.
(10) Incorporated by reference to the exhibit of the number
indicated filed with QPQ's Form 10-QSB for the quarter
ended March 31, 1995.
(11) Incorporated by reference to the exhibit of the number
indicated filed with QPQ's Form 10-QSB for the quarter
ended June 30, 1995.
(12) Incorporated by reference to the exhibit of the number
indicated filed with QPQ's Form 10-QSB for the quarter
ended September 30, 1995.
(13) Incorporated by reference to the exhibit of the number
indicated filed of QPQ's form 10-KSB for the year ended
December 31, 1995.
(14) Filed herewith.
(b) Reports on Form 8-K:
QPQ filed the following reports on Form 8-K during the
quarterly period ended December 31, 1996:
43
<PAGE>
(1) Form 8-K, dated November 22, 1996, reporting the
issuance of 96,455 shares of Common Stock pursuant to
Regulation S.
(2) Form 8-K, dated Novermber 27, 1996, reporting a
claim by holders of Warrants with respect to
anti-dilution provisions contained in such Warrants.
44
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, QPQ has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
QPQ CORPORATION
DATE: March 28, 1997 By: /s/ Mitchell Rubinson
------------------------------------------
Mitchell Rubinson, Chairman of the Board,
Chief Executive Officer and President
[Principal Executive Officer]
DATE: March 28, 1997 By: /s/ James Martin
------------------------------------------
James Martin, Chief Financial Officer,
[Principal Financial and Accounting
Officer]
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of QPQ in the capacities
and on the dates indicated:
DATE: March 28, 1997 /s/ Mitchell Rubinson
------------------------------------------
Mitchell Rubinson, Director
DATE: March 28, 1997 /s/ Dr. Mark Rabinowitz
------------------------------------------
Dr. Mark Rabinowitz, Director
45
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
-------
Reports of Independent Accountants F-2 - F-3
Consolidated Balance Sheets as of
December 31, 1996 and 1995 F-4 - F-5
Consolidated Statements of Operations
for the Years Ended December 1996 and
1995 F-6
Consolidated Statements of
Shareholders' Equity for the Years
Ended December 31, 1996 and 1995 F-7
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1996
and 1995 F-8 - F-9
Notes to Consolidated Financial
Statements F-10 - F-18
F-1
<PAGE>
REPORT OF INDEPENDANT ACCOUNTANTS
Board of Directors
QPQ Corporation
Miami Beach, Florida
We have audited the accompanying consolidated balance sheet of QPQ Corporation
and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of QPQ Corporation and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered and continues to
suffer significant losses from its operations, has an accumulated deficit and
revenue and cash flows from its operations have not developed to the point where
the Company can internally fund its operations. These factors, among others,
raise substantial doubt about its ability to continue as a going concern.
Management's plans with regard to these matters are described in Note 11. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Moore Stephens Lovelace, P. L.
Certified Public Accountants
Orlando, Florida
March 27, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors
of QPQ Corporation
We have audited the accompanying consolidated balance sheet of QPQ Corporation
and Subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year
ended December 31, 1995. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurances 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 audit provides a reasonable basis for our oplnion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of QPQ Corporation
and Subsidiaries as of December 31, 1995, and the consolidated results of their
operations and their cash flows for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the accompanying
consolidated statement of operations for the year ended December 31, 1995, the
Company incurred a substantial operating loss. In addition, uncertainties exist
with regard to the Company's ability to generate sufficient cash flows from
operations or other sources to meet its existing obligations and commitments
with regard to the expansion of its operations. Management's plans are discussed
in Note 11. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments related 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.
COOPERS & LYBRAND L.L.P.
Miami, Florida
March 29, l996
F-3
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
December 31,
------------------------------
1996 1995
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents $ 138,731 $ 1,052,831
Restricted Cash 300,000 300,000
Receivables 171,972 868
Inventory 57,718 63,567
Accrued interest receivable 28,889 -
Due from affiliates 149,382 1,040
Prepaid expenses 230,368 7,952
------------ -----------
Total Current Assets 1,077,060 1,426,258
------------ -----------
Furniture, equipment & leasehold
improvements, net 1,988,251 1,635,195
Deferred charges, net of accumulated
amortization of $11,301 and $18,747
at 1996 and 1995, respectively 124,030 279,249
Domino's development rights, net
of accumulated amortization of
$106,208 and $75,123 at 1996 and
1995, respectively 204,646 235,731
------------ -----------
Total Assets $ 3,393,987 $ 3,576,433
============ ===========
See Accompanying Notes
F-4
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
December 31,
------------------------------
1996 1995
------------ -----------
CURRENT LIABILITIES:
Accounts payable $ 479,895 $ 245,164
Accrued expenses 92,489 82,758
Due to affiliate 243,983 49,087
Bank credit facilities payable 21,718 -
------------ ------------
Total Current Liabilities 838,085 377,009
------------ ------------
BANK CREDIT FACILITIES PAYABLE 300,000 300,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value,
1,000,000 shares authorized;
no shares issued - -
Common Stock, $.01 par value,
100,000,000 shares authorized;
7,653,467 and 6,025,000 shares
issued and outstanding,
respectively 76,535 60,250
Additional paid-in capital 9,201,682 7,063,044
Accumulated Deficit ( 7,090,852) ( 4,223,870)
Accumulated translation adjustment 68,537 -
------------ ------------
Total Shareholders' Equity 2,255,902 2,899,424
------------ ------------
Total Liabilities and
Shareholders' Equity $ 3,393,987 $ 3,576,433
============ ============
See Accompanying Notes
F-5
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
------------------------------
1996 1995
------------ -----------
REVENUES:
Restaurant $ 1,264,850 $ 1,167,231
Medical Centers 828,295 -
------------ ------------
Total Revenue $ 2,093,145 $ 1,167,231
------------ ------------
RESTAURANT OPERATING:
Food and packaging 451,741 444,889
Payroll and related costs 338,816 365,602
Occupancy and other operating
expenses 470,599 516,533
Depreciation and amortization 191,612 249,206
------------ ------------
Total restaurant operating
expenses 1,452,768 1,576,230
------------ ------------
MEDICAL CENTERS:
Payroll and related 993,888 -
Occupancy and other 471,438 -
Advertising 541,422 -
Depreciation and amortization 72,919 -
------------ ------------
Total Medical Centers 2,079,667 -
------------ ------------
GENERAL & ADMINISTRATIVE
EXPENSES 1,337,678 1,302,962
LOSS ON SALE OF ASSETS 65,485 -
------------ ------------
OPERATING LOSS ( 2,842,453) ( 1,711,961)
------------ ------------
OTHER INCOME (EXPENSES):
Interest and other income 12,315 217,995
Loss on sale of investment - ( 333,023)
Interest expense ( 36,844) ( 200,109)
Gain from foreign currency
translation - 55,700
------------ ------------
Total other expense,
net ( 24,529) ( 259,437)
------------ ------------
NET LOSS $( 2,866,982) $( 1,971,398)
============ ============
NET LOSS PER COMMON
SHARE $( .42) $( .38)
============ ============
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 6,863,099 5,214,440
============ ============
See Accompanying Notes
F-6
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Net Unrealized
Common Stock Additional Loss On Accumulated
---------------------- Paid In Marketable Translation Accumulated
Shares Amount Capital Securities Adjustment Deficit Total
---------- --------- --------- ----------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1994 2,625,000 $ 26,250 $6,257,044 $( 840,364) -0- $( 2,252,472) $ 3,190,458
Issuance of
shares in
private
offering 3,400,000 34,000 816,000 850,000
Repurchase of
warrants ( 10,000) (
10,000)
Changes in
unrealized
loss on marketable
securities 840,364 840,364
Net loss for
the year ( 1,971,398) (
1,971,398)
---------- --------- ---------- ------------ ----------- ------------ ------------
Balances,
December 31,
1995 6,025,000 60,250 7,063,044 -0- -0- ( 4,223,870) 2,899,424
Issuance of
shares in
private offering 1,195,000 11,950 1,183,050 1,195,000
Translation
adjustments 68,537 68,537
Issuance of
shares in
Regulation S
offerings,
net of offering
expenses 433,467 4,335 965,588 969,923
Cost of termination
of option (10,000) (10,000)
Net loss for
the year ( 2,866,982) (2,866,982)
---------- --------- ---------- ------------ ----------- ------------ ------------
Balances,
December 31,
1996 7,653,467 $ 76,535 $9,201,682 $ -0- $ 68,537 $( 7,090,852) $ 2,255,902
========== ========= ========== ============ =========== ============ ============
</TABLE>
See Accompanying Notes
F-7
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------------------------
1996 1995
------------ -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $( 2,866,982) $( 1,971,398)
Adjustment to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 375,408 378,768
Loss on the sale of investments - 333,023
Loss on sale of assets 65,485 -
Changes in operating assets and
liabilities:
Receivables ( 102,528) 120,446
Inventory 5,849 ( 11,470)
Accrued interest receivable ( 28,889) 57,690
Prepaid expenses ( 222,416) 96,833
Other assets 142,346 11,792
Accounts payable and
accrued expenses 244,462 43,004
------------ ------------
Net cash used in operating
activities ( 2,387,265) ( 941,312)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash - ( 225,853)
Payments for organization and
prepaid advertising costs - ( 259,152)
Proceeds from sales of investments - 5,727,078
Payments for furniture, equipment
and leasehold improvements ( 998,173) ( 176,615)
Proceeds from sale of assets 179,606 -
------------ ------------
Net cash (used in) provided by
investing activities ( 818,567) 5,065,458
------------ ------------
See Accompanying Notes
F-8
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Year Ended December 31,
------------------------------
1996 1995
------------ -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repurchase of option/warrants ( 10,000) ( 10,000)
Proceeds from common stock offerings 2,164,923 850,000
Borrowings under bank credit
facilities 21,718 859,000
Repayments of bank credit facilities - ( 5,196,909)
Payments from affiliates, net 46,554 9,628
------------ ------------
Net cash provided by (used in)
financing activities 2,223,195 ( 3,488,281)
------------ ------------
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT 68,537 -
(DECREASE)INCREASE IN CASH AND CASH
EQUIVALENTS ( 914,100) 635,865
BEGINNING CASH AND CASH EQUIVALENTS 1,052,831 416,966
------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 138,731 $ 1,052,831
============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 36,453 $ 200,109
============ ============
See Accompanying Notes
F-9
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
QPQ Corporation (the "Company/"QPQ") formerly known as International Pizza
Corporation, was organized for the purpose of developing and operating
franchised Domino's stores in the Republic of Poland ("Poland"). A former
majority shareholder of the Company, Capital Brands, Inc. ("CBI"), entered into
a development agreement (the "Development Agreement") with Domino's Pizza
International, Inc. ("Domino's") and assigned all its rights and obligations
under the Development Agreement to the Company. Operations commenced on April 1,
1994.
In addition to having the exclusive right to develop Domino's Stores in
Poland, the Company has been granted the exclusive right to establish a
commissary or commissaries for the purpose of supplying food products and
supplies to the Domino's stores in Poland.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned Polish subsidiary Pizza
King Polska, Sp.zo.o a limited liability corporation ("PK Polska") and a wholly
owned subsidiary, QPQ Medical Centers, Inc. ("QPQ Medical"). QPQ Medical was
formed in 1995 and as of December 31, 1995, had no operations. QPQ Medical
commenced operations in January, 1996. 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 these estimates.
The only currency that may be used 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. As of January 1, 1995, the National Bank of Poland
introduced a new currency unit which is named a "zloty" (a "new zloty"). New
zlotys are equivalent to 10,000 old zlotys ("old zlotys"). Old zlotys will
remain legal tender until December 31, 1996, after which date they will only be
exchangeable at certain banks. All references in this document to zlotys are to
old zlotys. At December 31, 1996 and 1995, the exchange rate was 28,725 and
24,680 old zlotys per dollar, respectively. Monetary assets and liabilities are
translated from the local currency, the "zloty", to U.S. dollars at the period
end exchange rate. Non-monetary assets, liabilities, and related expenses,
primarily furniture, equipment, leasehold improvements and related depreciation
and amortization, are translated using historical exchange rates. Income and
expense accounts, excluding depreciation and amortization, are translated at a
weighted average exchange rate.
The accounts of PK Polska are measured using the Polish zloty. Due to
Poland's highly inflationary environment through December 31, 1995, generally
accepted accounting principles required QPQ to calculate and recognize on its
statement of operations its currency translation gains or losses associated with
F-10
<PAGE>
PK Polska. For the year ended December 31, 1995 , QPQ had a foreign currency
translation gain of $55,700. Due to the reduction in Polands inflation rate,
effective for the year ended December 31, 1996, QPQ is no longer required
pursuant to generally accepted accounting principles to recognize currency
translation gains or losses in its statement of operations. Accordingly, for the
year ended December 31, 1996, QPQ recognized a currency translation gain of
$68,537 which is included in shareholders' equity under the caption Accumulated
Translation Adjustment.
GOING CONCERN - The accompanying financial statements have been prepared
on a going concern basis, which assumes the realization of assets and the
liquidation of liabilities in the ordinary course of business. The Company has
incurred substantial losses in each of the years ended December 31, 1996 and
1995 and uncertainties exist with regard to the Company's ability to generate
sufficient cash flows from operations or other sources to meet existing
obligations and fund its commitment with regard to the expansion of its existing
operations which gives rise to doubts about the Company's ability to continue as
a going concern. These financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
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 balances
in bank deposit accounts which, at times, may exceed federally insured limits.
The Company has not experienced any losses in any 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 computation of net loss per common share
in the accompanying statements of operations is based upon the weighted average
number of shares outstanding during the period. The net loss per common share
does not include the assumed exercise of any common stock options or warrants
since their inclusion would be anti-dilutive.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Furniture, equipment and
leasehold improvements are stated at cost. Maintenance and repairs are charged
to expense when incurred. Additions, major renewals and betterments are
capitalized. Leasehold improvements, upon completion, are amortized over the
shorter of the life of the respective lease or the expected life of the
improvement. Furniture and equipment are being depreciated over lives ranging
from three to five years on a straight-line basis. 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.
INCOME TAXES - Deferred income taxes are recognized for the tax
consequences in future years for differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the time periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
F-11
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Income tax expense is the tax payable for the period and the change during the
period in the deferred tax asset and liability.
ACQUISITION COSTS OF DEVELOPMENT RIGHTS - All costs associated with the
acquisition of Domino's Development Rights have been capitalized. The cost of
these rights is being amortized over 10 years.
DEFERRED CHARGES - All costs incurred in connection with the organization
of the Company have been deferred and are being amortized on a straight-line
basis over 5 years. During 1996, certain of these costs were transferred
primarily to furniture, equipment and leasehold improvements in connection with
the commencement of operation of QPQ Medical.
ADVERTISING AND PROMOTION EXPENSE - Production costs of future media
advertising are deferred until the advertising occurs. All other advertising and
promotion costs are expensed when incurred. Deferred advertising costs as of
December 31, 1996 approximated $146,000.
3. RESTRICTED CASH:
At December 31, 1996, the Company had $300,000 of restricted cash,
classified as a current asset, which represents collateral for the outstanding
line of credit.
4. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture, equipment and leasehold improvements at December 31, 1996 and
1995 are as follows:
December 31, December 31,
1996 1995
----------- -----------
Vehicles $ - $ 16,013
Furniture and Equipment 318,381 161,049
Restaurant Equipment 735,509 749,111
Medical Equipment 413,028 -
Leasehold Improvements 1,160,673 1,111,184
----------- -----------
2,627,591 2,037,357
Less: accumulated depreciation
and amortization ( 639,340) ( 402,162)
----------- ------------
$ 1,988,251 $ 1,635 195
=========== ===========
Depreciation and amortization expense $ 331,450 $ 334,952
=========== ============
On October 1, 1996, the Company sold its Cafe Renaissance restaurant for
$250,000 consisting of cash of $180,000 and a promissory note of $70,000. The
Company recognized a loss on the sale of $65,485 which is included in the
accompanying Consolidated Statements of Operations under Loss on Sale of Assets.
5. ACQUISITION COSTS OF DOMINO'S DEVELOPMENT RIGHTS:
On June 11, 1993, the Company's former parent entered into a Development
Agreement with Domino's which provided for the exclusive right to develop and/or
franchise Domino's Stores in Poland, subject to certain terms and conditions.
The Company paid Domino's $300,000 under the terms of the Development Agreement
F-12
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
and incurred $10,854 of legal and other costs related to the negotiations. In
connection with the initial capitalization of the Company, the former parent
assigned all of its rights and obligations under the Development Agreement to
the Company.
Pursuant to the Domino's Development Agreement, as amended November 13,
1995 and March 21, 1997, QPQ is granted the exclusive right until December 31,
2003 to develop, operate and franchise Domino's Stores in Poland. During the
Initial Term of the Domino's Development Agreement, which expires on December
31, 2003, QPQ is required to open and operate, either through affiliates of QPQ
("Affiliated Franchisees") or unrelated third parties ("Non-Affiliated
Franchisees"), at least 50 Domino's Stores in accordance with a schedule that
obligates QPQ or its Non-Affiliated Franchisees to open three Domino's Stores in
1994, no Domino's Stores in 1995, eight Domino's Stores in 1996 and five, six
or seven Domino's Stores for each of the following seven years. Domino's Stores
developed and/or operated by Non-Affiliated Franchisees are counted towards
QPQ's obligation to open a minimum number of Domino's Stores. QPQ did not
satisfy the requirements to open eight Domino's stores during 1996 and in March
1997, Domino's granted QPQ an extension until July 1, 1997 to satisfy such
requirement. In addition, Domino's indicated it would be agreeable to a further
six month extension if QPQ provided satisfactory evidence of recapitalization at
a level which, in Domino's sole discretion, will enable QPQ to satisfy its
obligations under the agreement.
The Company is required to pay Domino's a franchise fee for each store
opened and a monthly royalty fee based upon a percentage of gross sales.
In March 1997, QPQ commenced construction of its fourth Domino's Store
which is expected to open by June 30, 1997.
In compliance with the Domino's Development Agreement, QPQ opened three
Domino's Stores in 1994. QPQ is required and, subject to the factors discussed
below, may open or cause to be opened at least eight additional Domino's Stores
prior to December 1997. Subject to the modifications of the Domino's Agreement,
if QPQ in fact fails to meet the development schedule described above as
amended, QPQ will lose its rights to develop and franchise additional Domino's
Stores but will be entitled to act as a master franchisor and franchisee with
respect to the franchise agreements granted prior thereto. However, under
certain circumstances of default, Domino has the right to terminate the Domino's
Development Agreement and force the sale of, at the then current market value,
all of QPQ's rights ant interests as a master franchisor of Domino's Stores and
all of the assets of each Domino's Store controlled by QPQ.
6. LINE OF CREDIT:
In January 1995, PK Polska obtained a $300,000 line of credit from
American Bank in Poland, S.A. with interest payable quarterly at a rate of 7.75%
per annum. The Company has guaranteed the borrowings which are collateralized by
its amounts on deposit. The line expires January 28, 1998.
F-13
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. FINANCIAL INSTRUMENTS:
Fair Value of Financial Instruments - The carrying amounts of cash, cash
equivalents, receivables, accounts payable and accrued expenses approximate fair
value because of the short maturity of these items. The carrying amount of
long-term bank credit facilities payable approximate fair value because the
interest rate on this instrument changes with market interest rates.
8. SHAREHOLDERS' EQUITY:
On September 29, 1993, the Company completed its initial public offering
of 1,250,000 shares of its Common Stock and 1,405,660 Redeemable Common Stock
Purchase Warrants including 155,650 Warrants issued in November 1993, (the
"Warrants"). Each Warrant entitles the holder to purchase one share of Common
Stock for $6.60, exercisable through September 22, 1998. The offering closed
with net proceeds to the Company aggregating approximately $6,012,000, net of
underwriting discounts and commissions, expense allowances and other
registration costs.
In connection with its initial public offering, the Company sold to the
Underwriter for nominal consideration, two Purchase Warrants. The first Purchase
Warrant allows the holder to purchase for $9.00 per share up to 125,000 shares
of Common Stock. The second Purchase Warrant allows the holder to purchase for
$.145 each up to 125,000 Warrants which can be converted to one share of Common
Stock per Warrant at an exercise price of $9.00.
Pursuant to the terms of the Common Stock Subscription Agreements dated
March 28, 1995, between the Company and the Company's Chairman and three other
investors, the Company sold an aggregate 3,400,000 shares of its Common Stock at
a purchase price of $.25 per share in exchange for cash of $850,000.
The Company's Stock Option Plan (the "Plan") and Directors Stock Option
Plan (the "Directors Plan") (collectively the "Plans"), authorize the issuance
of 300,000 and 50,000 shares of common stock options, respectively. The Plans
are designed to serve as incentives for retaining qualified and competent
employees and directors.
Effective October 24, 1995, shareholders approved an increase in the
maximum number of shares available for grant under the Plan to 1,000,000.
The following table reflects the option activity for the years ended
December 31, 1996 and 1995:
1996 1995
---------- -------
Outstanding at beginning of year 542,000 287,000
Granted 142,500 365,000
Exercised - -
Expired ( 182,000) (110,000)
---------- --------
Outstanding at end of year 502,500 542,000
========== ========
Exercisable at end of year 312,000 137,000
========== ========
F-14
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Price range of options
outstanding at end of year $ .69 - $2.875 $ .69 -$6.00
============== ============
Available for grant at end of year 547,500 457,500
========== ==========
On March 7, 1995, certain of the stock option agreements were amended to
reduce the exercise price to $.69, which amount represented the market price per
share on that date.
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") was
issued during 1995 and is effective for the year ended December 31, 1996. This
pronouncement establishes financial accounting and reporting 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 based on new fair value accounting
rules. Companies that choose not to adopt the new fair value accounting rules
will be required to disclose proforma net income and earnings per share under
the new method. The Company has adopted the disclosure provisions of SFAS 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 123 for options granted in
1996 and 1995, the Company's net income and earnings per share for those years
would have been reduced by approximately $50,000 and $380,000 or $.01 and $.07
per share respectively. The fair value of the options granted during 1996 and
1995 is estimated as $248,000 and $514,600, respectively on the dates of grant
using the Black-Scholes option-pricing model with the following assumptions:
volatility of 235%, expected dividends of 0, risk-free interest rate of 5%, and
terms of 8.4 to 10 years.
As a result of the stock subscription and pursuant to the Underwriters
Warrant Agreement, the exercise price of 125,000 warrants to purchase common
stock issued to the Underwriter were repriced and became exercisable at a price
of $.25 per share. In June 1995, pursuant to a Warrant Redemption Agreement, the
Company repurchased 86,750 Underwriters Warrants for $10,000. Upon original
issuance those Warrants entitled the holder to purchase 86,750 shares of the
Company's Common Stock at an exercise price of $9.00 per share. The $10,000 is
reflected in the accompanying Consolidated Balance Sheet as a reduction of
additional paid in capital.
In July 1996, QPQ sold 1,195,000 shares of Common Stock in a private
offering and received cash proceeds of $1,195,000. Principal shareholders of the
Company, including the Company's Chairman, Chief Executive Officer and President
purchased an aggregate of 300,000 shares of the offering. In September 1996 and
November 1996 QPQ sold 337,012 and 96,455 shares of Common Stock pursuant to two
Regulation S offerings and received aggregate cash proceeds of $969,923, net of
offering expenses.
At December 31, 1996, the Company has reserved 2,071,400 shares of Common
Stock for issuance pursuant to outstanding options and warrants.
9. DEFERRED TAXES:
As of December 31, 1996 and 1995, the Company had net operating loss
carryforwards of approximately $4,197,000 and $1,966,000, respectively, for U.S.
tax purposes, which expire in various years through 2011. Deferred tax assets as
of December 31, 1996 and 1995 of approximately $1,574,000 and $727,000,
respectively, were subject to and presented net of a 100% valuation allowance.
The Company's Polish subsidiary had net operating loss carryforwards (in
U.S. dollars) of approximately $2,775,000 and $2,249,000 at December 31, 1996
and 1995, respectively, which expire in various years through 1998. Deferred tax
assets as of December 31, 1996 and 1995 of approximately $1,110,000 and
$900,000, respectively, were subject to and presented net of a 100% valuation
allowance.
F-15
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. RELATED PARTY TRANSACTIONS:
As of April 1995, International Fast Food Corporation ("IFFC"), an
affiliate of the Company, and its majority-owned subsidiary, International Fast
Food Polska ("IFFP"), entered into a consulting agreement (the "Subsidiary
Consulting Agreement") with QPQ's wholly-owned subsidiary, PK Polska, pursuant
to which IFFP has agreed to provide PK Polska with all general staff and
administrative support required by PK Polska to operate its Domino's Store
business. In exchange for such services, IFFP receives from PK Polska a sum
equivalent to 10% of PK Polska's sales and a reimbursement of expenses. In the
years ended December 31, 1996 and 1995, PK Polska's obligations to IFFP pursuant
to the terms of the Subsidiary Consulting Agreement aggregated $64,999 and
$116,723, respectively. QPQ terminated the agreement with IFFC in June 1996.
In connection with the signing of the Consulting Agreement, QPQ granted
IFFC an option to purchase 250,000 shares of QPQ's common stock at an exercise
price of $6.00 per share. The option was also terminated in July 1996 for a
$10,000 cash payment.
In June 1996, QPQ terminated its consulting agreement with IFFC relating
to QPQ's reimbursement of costs associated with services provided by IFFC's
Chief Financial Officer and Controller. For the years ended December 31, 1996
and 1995, QPQ was charged $1,869 and $70,495 for such services.
In addition to the costs allocated from IFFC in connection with the
Consulting Agreement noted above, certain common general and administrative
expenses were allocated to QPQ and IFFC. For the years ended December 31, 1996
and 1995, these costs were $2,386 and $148,247, respectively.
As of November 9, 1995, QPQ Medical entered into a license agreement ("the
"License Agreement") with Weight Loss Associates, Inc. ("Weight Loss
Associates"), a corporation owned by Dr. Rabinowitz, a director of QPQ, and Mr.
Rubinson, QPQ's Chairman of the Board, Chief Executive Officer and President,
pursuant to which QPQ Medical has acquired the exclusive rights subject to
certain proprietary marks developed by Weight Loss Associates. Under the License
Agreement, QPQ Medical is required to expend a minimum of $100,000 in start-up
funding and a percentage of its annual gross receipts for promotion and
marketing. QPQ Medical has expended the required amounts in accordance with the
License Agreements. In addition, QPQ Medical is required to pay royalties based
upon a percentage of its operating profit as defined from each of its product
lines associated with weight loss.
11. COMMITMENTS AND CONTINGENCIES:
On November 7, 1996, the Company amended its employment agreement with
Mitchell Rubinson, its Chairman of the Board, President and Chief Executive
Officer, pursuant to which the agreement is extended to December 31, 1999. The
amended agreement provides for a minimum annual salary of $166,375 during the
first year subject to a 10% annual increase in each of the remaining two years.
PK Polska entered into a ten year lease agreement with a third party and
in September, 1994, the lease was amended. The lease is for an office in Warsaw
of approximately 325 square meters. PK Polska shares equally the cost and use of
the office with an affiliate. Annual lease payments aggregate to approximately
$73,200. The lease provided for a ten year renewal option, and could be
terminated at any time with six months written notice. In November 1996, the
landlord exercised its option to terminate the lease upon six months notice.
Accordingly, PKP must vacate the premises in May 1997.
In connection with the procurement of restaurant sites, PK Polska has
entered into various long-term arrangements for restaurant space. The terms of
the various agreements range from ten years to unlimited, plus extensions based
upon agreement between the parties. QPQ Medical has entered into long-term
leases for Medical Centers, with terms ranging from five years to five years and
seven months.
F-16
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
In September 1996, QPQ entered into a lease for approximately 100 square
meters of space in Warsaw Poland to be used as the site of its fourth Domino's
store. The lease is for an unlimited period of time but can be cancelled by
either party upon three months notice. Annual lease payments approximate $4,560.
In March 1997, QPQ commenced construction on the site and estimates that its
total costs of renovation of the site, including leasehold improvements and
furniture fixtures and equipment will approximate $110,000.
The following is a schedule by years of minimum future rentals on
non-cancelable operating leases as of December 31, 1996 based on year end
exchange rates:
Year Ending December 31:
------------------------
POLAND U.S.A. TOTAL
------ ------ -----
1997 $140,660 $348,281 $ 488,941
1998 120,906 344,430 465,336
1999 121,159 331,207 452,366
2000 121,420 327,714 449,134
2001 121,689 105,594 227,283
Rent expense, including amounts due under non-cancelable operating leases
for the years ended December 31, 1996 and 1995 was $478,369 and $224,712,
respectively.
The Company has incurred substantial losses for the year ended December
31, 1996 and 1995 and may not have sufficient current liquid assets to fund its
current operating losses and obligations under the Domino's Development
Agreement as well as obligations that will arise in connection with the
continuing development of QPQ Medical. Management currently plans to use its
available resources to fund operations and development of its existing
businesses and to seek additional financing in the form of either debt or equity
in order to meet its existing obligations.
On November 20, 1996, the Company was notified by holders of Warrants for
the purchase of an aggregate of 38,250 shares of Common Stock issued on
September 22, 1993, pursuant to the Underwriter's Common Stock Purchase
Agreement, between the Company and Reich & Co., Inc., that pursuant to the
anti-dilution provisions contained in such Warrants, the Warrant exercise per
share of Common Stock underlying the Warrant was reduced to $0.25 per share. The
claim also alleges that the number of shares for which the Warrants are
exercisable increased to an aggregate of 1,377,000 shares. The warrant holders
have requested demand registration of such shares. The Company has not
registered such shares and the warrant holders have requested the Company
repurchase all of such warrants for an aggregate of $3,442,500 based upon the
failure to register provisions contained in the Warrant Agreement. The Company
is contesting the claim. While the ultimate resolution of this matter cannot
presently be determined, management does not expect that it will have a material
adverse effect on the Company's financial position or results of operations.
12. SUBSEQUENT EVENTS:
In February 1997, the Company purchased a medical practice for $100,000
consisting of cash of $60,000, and a promissory note in the amount of $40,000
due in February 2000. The promissory note bears interest at the prevailing prime
rate as published by the Wall Street Journal.
In March 1997, the Company entered into Securities Subscription Agreements
(the "Agreements") for the sale of $1,280,000 of 8% Convertible Debentures (the
"Debentures") with a maturity date of March 31, 1998, for which the Company
received net proceeds of $1,066,667.
F-17
<PAGE>
QPQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Interest is payable quarterly. The Debentures are convertible into shares of
common stock at a conversion price per share equal to the lower of (a) 75% of
the average closing bid price of the common stock for five business days
immediately preceding the conversion date or (b) 75% of the average of the
closing bid price of the common stock for the business day immediately preceding
the date of the individual Subscription Agreement.
The Debentures were issued in reliance upon the exemption from
registration afforded by Regulation S as promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
The Company has authorized a maximum of $6,000,000 principal amount of the
Debentures.
F-18
ARTICLES OF AMENDMENT
---------------------
TO THE
------
ARTICLES OF INCORPORATION
-------------------------
OF
--
QPQ CORPORATION
---------------
Pursuant to Section 607.1006 of the Business Corporation Act of the State
of Florida, the undersigned President of QPQ CORPORATION, a corporation
organized and existing under and by virtue of the Business Corporation Act of
the State of Florida, does hereby certify:
First: That pursuant to Unanimous Written Consent of the Board of
Directors and Majority Consent of the Shareholders of said Corporation, which
were adopted on August 19,1996, the Shareholders and Directors approved the
amendment to the Corporation's Articles of Incorporation as follows:
WHEREAS, the Board of Directors of the Corporation deem it to be in the
best interest of the Corporation to increase the number of authorized shares of
the Company's common stock, par value $.01 per share, from 10,000,000 to
100,000,000 shares by amending the Company's Articles of Incorporation.
NOW, THEREFORE, BE IT RESOLVED, that Article III of the Articles of
Incorporation of the Corporation be amended 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 one hundred and one million
(101,000,000) shares, consisting of (i) one hundred million (100,000,000) shares
of common stock, par value $0.01 per share (the "Common Stock"), and (ii) one
million (1,000,000) 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
<PAGE>
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;
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;
<PAGE>
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 by a resolution, adding to such
class or series 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.
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.
<PAGE>
C. Possible Required Disposition or Redemption of Common Stock.
------------------------------------------------------------
1. If (a) any competitor (a "Competitor") of Domino's Pizza
International, Inc. ("Domino's") owns of record or is the beneficial owner of
more than 5% of the outstanding shares of the Common Stock of the Corporation,
and (b) the Corporation's Board of Directors, in its sole judgment and
discretion, determines that, as a result thereof, the continued ownership of the
Common Stock by such Competitor could have a material adverse impact on the
business, financial condition or results of operations of the Corporation, the
Corporation shall have the right, but not the obligation, to (i) require the
Competitor to dispose of such amount of the shares of Common Stock held of
record or owned beneficially by the Competitor as the Corporation's Board of
Directors, in its sole judgment and discretion, determines, or (ii) to redeem
from the Competitor such amount of the shares of Common Stock held of record or
owned beneficially by the Competitor as the Company's Board of Directors, in its
sole judgment and discretion, determines (the occurrence of any such event and
determination being hereinafter referred to as a "Disposition Determination").
The shares of Common Stock that the Corporation requires the Competitor to
dispose of or that the Corporation elects to redeem are referred to hereinafter
as the "Disposition Shares." Although the Corporation's Board of Directors is
entitled to consult with Domino's and such other individuals as are desirable or
necessary to make an informed decision, the determination of whether or not a
Competitor of the Corporation is a Competitor of Domino's will be made by the
Corporation's Board of Directors in its sole judgment and discretion.
2. A Competitor will be required to dispose of all Disposition
Shares within 30 days after the Corporation notifies the Competitor of a
Disposition Determination (the "Disposition Determination Notice"), and
beginning on the 30th day after the day on which the Corporation notifies a
Competitor of a Disposition Determination, the Corporation will have the option,
upon notice to the Competitor (the "Notice of Redemption"), to redeem at any
time, or from time to time until the Disposition Determination is revoked, any
or all Disposition Shares in a form of consideration permitted in Paragraph 4
hereof, at the price per share which is the lower of (a) the fair market value
of a share of Common Stock on the day the Corporation notifies the Competitor of
the Disposition Determination, or (b) the fair market value of a share of Common
Stock on the day the Corporation notifies the Competitor of the Corporation's
election to redeem the stock (the "Redemption Price"). For the purposes of this
Article III, Section C, (i) the fair market value of a share of Common Stock on
a day will be the last reported price at which the Common Stock is traded on
that day on the principal market for the Common Stock (whether that is a stock
exchange, an automated quotation system or another organized market) or if the
Common Stock is not traded in an organized market, the fair market value of a
share of the Common Stock as determined in good faith by the Corporation's Board
of Directors, based upon an evaluation provided by an investment banking firm or
other expert in valuing securities selected by the Board of Directors, and (ii)
<PAGE>
a Disposition Determination Notice or a Notice of Redemption will be deemed
given to a Competitor two (2) days after the day when it is mailed by first
class mail to the Competitor at the address shown on the stock records of the
Corporation, or, if the Competitor is a beneficial but not a record owner of
stock of the Corporation, at any address of the Competitor shown on any report
or other document filed with the Securities and Exchange Commission or any
successor to that agency, or at the address shown on the stock records of the
Corporation of any record owner of any stock of the Corporation of which the
Competitor is a beneficial owner. The Corporation will be entitled to injunctive
relief in any court of competent jurisdiction to enforce the provisions of this
Article III, Section C and each holder of Common Stock will be deemed to have
acknowledged by acquiring or retaining Common Stock that failure to comply with
this Article III, Section C will expose the Corporation to irreparable injury
for which there is no adequate remedy at law and that the Corporation is
entitled to injunctive relief to enforce the provisions of this Article III,
Section C.
3. Upon the occurrence of a Disposition Determination, the
Corporation shall send a Disposition Determination Notice to the Competitor or
Competitors affected. The Disposition Determination Notice shall, (i) state that
the Disposition Determination has been made and contain a brief description of
the conditions that triggered the Disposition Determination; (ii) state that in
accordance with the terms and provisions of this Article III, Section C, the
Competitor must dispose of all Disposition Shares within 30 days after receipt
of this notice (as receipt is described in this Article III, Section C), and
that beginning on the 30th day after receipt of this notice the Corporation may
exercise its right to redeem any or all of the Disposition Shares and (iii)
state that if the Corporation exercises its right to redeem any or all of the
Competitor's shares it will provide the Competitor with a Notice of Redemption,
which notice shall (a) specify the date on which the closing of the redemption
shall take place (the "Closing Date"); (b) set forth the Redemption Price and
the manner in which the Redemption Price will be paid; and (c) describe any
documents which must be executed and delivered and any other action which the
Corporation will require of the Competitor in connection with the redemption.
4. The "Redemption Price" per share shall be the price determined
pursuant to the provisions of paragraph 2 of this Article III, Section C. On the
Closing Date, the Corporation shall pay the Redemption Price in the following
form and manner: (i) delivery of the full amount of the Redemption Price to the
subject Competitor in cash or immediately available funds; or (ii) delivery to
the Competitor of a promissory note of the Corporation in favor of the
Competitor in the principal amount of the Redemption Price; or (iii) delivery to
the Competitor of a combination of cash and a promissory note in the aggregate
amount of the Redemption Price. If the Corporation elects to pay all or a
portion of the Redemption Price by promissory note, such promissory note shall
bear interest at the prime rate reported in the "Money Rates" section of the
Wall Street Journal on the fifth business day preceding the Closing Date, such
interest to be payable monthly in cash. The principal of such promissory note
shall be payable in one single payment on the maturity date of such promissory
<PAGE>
note, which maturity date shall be the fifth anniversary date of the promissory
note or, if earlier, such date, if any, established by applicable statute or
regulation as the latest permissible maturity date that will permit such
promissory note not to be deemed an impermissible investment interest in the
Corporation. On the Closing Date, the Competitor shall deliver to the
Corporation the certificate or certificates for the Disposition Shares being
redeemed, a stock power duly executed by the Competitor and such other documents
as the Corporation deems reasonably necessary or desirable to effect the
intentions of this Article.
The foregoing amendment was adopted by the Board of Directors of the
Corporation pursuant to Unanimous Written Consent of the Board of Directors, and
by a majority of the Shareholders of the Common Stock of the Corporation at the
Corporation's Annual Meeting of Shareholders, which shares consenting and voted
at such meeting represented a majority of the total issued and outstanding
capital stock of the Corporation entitled to vote. Therefore, the number cast
for the amendment to the Corporation's Articles of Incorporation was sufficient
for approval.
IN WITNESS WHEREOF, the undersigned, being the President of this
Corporation, has executed these Articles of Amendment as of August 20, 1996.
QPQ CORPORATION
By: /s/ Mitchell Rubinson
------------------------------
Mitchell Rubinson, President
AMENDMENT #2 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT #2 TO EMPLOYMENT AGREEMENT ("Agreement") is entered into by
and between QPQ Corporation ("QPQ"), a Florida corporation and Mitchell Rubinson
("Rubinson"), this 7th day of November, 1996.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, QPQ and Rubinson have entered into an Employment Agreement dated
July 23, 1993 and amended November 1, 1994 governing the relationship between
the parties thereto with respect to employment of Rubinson by QPQ;
WHEREAS, QPQ and Rubinson desire to extend the duration of Rubinson's
employment with QPQ and effect an annual 10% increase in salary through the
duration of the Agreement;
NOW, THEREFORE, it is agreed as follows:
1. SECTION 2 OF EMPLOYMENT AGREEMENT. The term of this Agreement, and
the employment of the Executive hereunder, shall be for a period expiring on
December 31, 1999.
2. SECTION 3 (A) OF EMPLOYMENT AGREEMENT. The Executive's minimum
salary during the first year of the term of this Agreement shall be $166,375 per
annum, payable by check in equal bi-weekly installments or in such other
periodic installments as may be in accordance with the regular payroll policies
of the Company as from time to time in effect, less such deductions or amounts
to be withheld as shall be required by applicable law and regulations, provided
that for each subsequent year during the term, the minimum salary shall be
increased by ten percent (10%) per annum.
3. NO FURTHER AMENDMENT. Except as otherwise provided herein and in
Amendment #1, the terms and provisions of the Employment Agreement remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Agreement as of the date first above written.
QPQ CORPORATION, a Florida
corporation
By: /s/ Jim Martin
----------------------------------------
Its: Vice President & CFO
----------------------------------------
/s/ Mitchell Rubinson
----------------------------------------
Mitchell Rubinson
DOMINO'S PIZZA INTERNATIONAL, INC.
MASTER FRANCHISE AGREEMENT
FOR POLAND
This Second Amendment is entered into this 21 day of March, 1997, by and
between Domino's Pizza International, Inc. ("Franchisor") and QPQ Corporation,
formerly known as International Pizza Corporation ("Master Franchisee").
WHEREAS:
A. Franchisor and Capital Brands, Inc. f/k/a Capital Acquisitions, Inc. ("Cap
Brands") entered into that certain Master Franchise Agreement dated June 6, 1993
and subsequently amended on March 5, 1995 ("the MFA") to develop Domino's Pizza
stores in the Republic of Poland and Cap Brands, with the consent of Franchisor,
assigned its rights and obligations thereunder to Master Franchisee;
B. Franchisor and Master Franchisee desire to modify the provisions of the
MFA, effective as of the date hereof; and
C. Terms defined in the MFA have the same meaning in this Second Amendment.
NOW, THEREFORE, in consideration of the mutual agreements and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Subject to the conditions set forth below, Franchisor hereby waives
any and all rights that it may have under Section 2.2 of the MFA until July 1,
1997.
2. Franchisor's waiver is conditional upon the Master Franchisee
remaining in good standing with all material obligations under the MFA.
3. Master Franchisee agrees that it shall attempt in the next six
months to achieve a recapitalization at a level which will enable it to satisfy
its obligations under the MFA.
4. Franchisor agrees that if the Master Franchisee completes a
recapitalization at a level which, in Franchisor's sole discretion, will enable
it to satisfy its obligations under the MFA, the Franchisor shall (i) grant an
additional six month waiver of its rights under Section 2.2; and (ii) consider
in good faith an amendment to Section 2.2 and to the growth requirements set
forth on Schedule Two to the MFA for the years 1998 through 2003. The parties
agree, however that the total stores required by December 31, 2003 shall remain
at 50.
<PAGE>
5. The Master Franchisee acknowledges that if it does not complete the
recapitalization described above, within six months from the date hereof, the
original growth clause as set forth in Section 2.2 of the MFA shall be
reinstated, and the Master Franchisee's failure to be in compliance with such
growth requirements shall constitute a default under the MFA and shall entitle
the Franchisor to all default rights described therein.
6. The Master Franchisee further acknowledges that its failure to
remain in good standing with all material obligations of the MFA shall
constitute a default hereunder and under the MFA and shall entitle the
Franchisor to all default rights described therein.
With the exception of the amendments set forth above, the MFA is hereby ratified
and confirmed by the parties hereto.
QPQ Corporation Domino's Pizza International, Inc.
By: /s/ Mitchell Rubinson By: /s/ Gary McCausland
------------------------------- -------------------------------
Title: President Title: Managing Director
---------------------------- ----------------------------
PHYSICIAN EMPLOYMENT AGREEMENT
THIS PHYSICIAN EMPLOYMENT AGREEMENT (the "Agreement") dated as of
February 21, 1997 (the "Execution Date"), is entered into by and between , QPQ
CORPORATION, a Florida corporation and its successors and assigns (the
"Company") and JACK B. DRIMMER, M.D. (the "Physician").
PRELIMINARY STATEMENTS
1. Simultaneous with the execution and delivery of this Agreement,
QPQ Corporation, a Florida corporation, the Physician and Jack B. Drimmer, M.D.,
P.A., a Florida professional association (the "PA") closed the transactions
memorialized by a Stock Purchase Agreement, dated as of the __ day of February,
1997 (the "Stock Purchase Agreement"). All capitalized terms not defined in this
Agreement shall have the meanings given them in the Asset Purchase Agreement.
2. The Company desires to employ the Physician and the Physician
desires to serve the Company, on the terms and subject to the conditions
contained in this Agreement.
In consideration of the parties' promises and mutual covenants in this
Agreement, the Company and the Physician agree as follows:
AGREEMENT
1. EMPLOYMENT. The Company employs the Physician and the Physician
accepts the employment upon this Agreement's terms and conditions.
2. TERM OF EMPLOYMENT. Unless terminated earlier under the provisions
of this Agreement, the initial term of employment of the Physician shall be for
a period of three (3) years (the "Term"), commencing on February __, 1997 (the
"Commencement Date") and expiring on January 31, 2001 (the "Expiration Date").
One Hundred Eighty (180) days prior to the expiration of the Term, Physician may
elect to extend the term for a period of two (2) years (the "Renewal Term") by
sending a written notice to Company. The Renewal shall be upon the same terms
and conditions as contained in this Agreement (except where otherwise specified
in this Agreement). Any written notice from Physician to the Company notifying
Company of the Physician's intent to extend the Term shall be a "Renewal
Notice".
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<PAGE>
3. COMPENSATION. During the Term and Renewal Term, the Physician
shall be compensated as follows:
(a) SALARY COMPENSATION.
(i) BASE COMPENSATION. Provided that this Agreement has
not been terminated, the Company shall pay to the Physician as compensation for
the performance of his duties under this Agreement, base compensation at an
annual rate of: (i) One Hundred Thousand Dollars ($100,000.00) during the Term
and any Renewal Term. The Base Compensation may be adjusted as described on
Schedule 3(a)(i) attached hereto and incorporated herein by reference ("Adjusted
Compensation").
Physician Base Compensation or Adjusted Compensation shall be paid every other
Friday, in equal installments, or at more frequent intervals as the Board of
Directors may determine, subject to all applicable withholdings, set offs and
taxes.
(ii) INCENTIVE COMPENSATION. Provided that this Agreement
has not been terminated, during each year of the Term and any Renewal Term, the
Physician shall be entitled to receive the following sums (collectively, the
"Incentive Compensation"):
(a) Two Thousand Five Hundred Dollars ($2,500.00) for
every Ten Thousand Dollars ($10,000.00) of net revenues
derived from the Physician's provision of professional
services (the "Physician Services") at the Company's
Offices listed on Schedule 3(a)(ii) which net revenues are
in excess of the base net revenues derived from the
Physician Services at those PA Offices for the twelve (12)
months immediately preceding the Closing Date. Net
revenues are defined as cash collections of the Physician
and Base net revenues shall be equal to Two Hundred Sixty
Thousand Dollars ($260,000.00);
(b) In the event that net revenues derived from the
Physician's provision of professional services (the
"Physician Services") at the Company's Offices listed on
Schedule 3(a)(ii), equal or exceed Two Hundred Sixty
Thousand Dollars ($260,000.00) for the first twelve months
Physician is employed by the Company, Physician shall be
entitled to a one time bonus of Twenty Thousand Dollars
($20,000.00) within ninety (90) days after such net
revenues exceed Two Hundred Sixty Thousand Dollars
($260,000.00).
2
<PAGE>
All Incentive Compensation payable pursuant to this Agreement shall be paid to
Physician annually within ninety (90) days of the end of each calendar year
during the Term and any Renewal Term, subject to applicable withholdings,
insurance co-payments and other taxes. The Physician shall be entitled, upon
reasonable request to the Company, to be given access to records directly
related to the net revenues from the Physician Services.
(iii) RETIREMENT BONUS. Provided that this Agreement has
not been terminated, if during the Term, net revenues derived from Physician
Services exceed One Million Two Hundred Thousand Dollars ($1,200,000.00) and
Physician elects to extend the Term by sending a Renewal Notice to Company, at
the end of the Renewal Term Physician shall be entitled to a bonus of
Twenty-Five Thousand Dollars ($25,000.00) payable in cash.
(b) EMPLOYEE BENEFIT PLANS. The Physician shall be entitled to
participate in or benefit from the benefits that are afforded to other Company
employees. The Company retains the right to terminate or alter in its sole and
absolute discretion, any plans or policies from time to time. The Company's
existing benefit plans are described on Schedule 3(b), which benefits may be
altered or terminated by the Company at any time. However, the Company shall be
required to provide non-HMO health insurance for Physician and his wife.
(c) VACATION AND SICK DAYS. The Physician shall accrue five (5)
weeks paid vacation time during each 12 month calendar year commencing February
1, 1997. Vacation days shall be used within the contract year, and shall only be
used at the times and intervals mutually agreed upon between Physician and the
Company. The Physician shall not be entitled to any additional compensation for
unused vacation days. Additionally, any time spent by Physician on education,
through the attendance of lectures, seminars or other educational activities,
when Physician would otherwise be providing services to the Company shall be
considered vacation time.
(d) LICENSES, STAFF FEES AND PROFESSIONAL FEES. During the Term and
all Renewal Terms, the Company shall pay Physician's applicable hospital medical
staff fees and professional license fees which enable Physician to fulfill his
obligations under this Agreement.
(e) PROFESSIONAL LIABILITY INSURANCE. During the Term and all Renewal
Terms, the following will apply:
(i) the Company shall insure, at its cost, the Physician
under the Company's current professional liability policy written by PPTF
("Physicians, Insurance") in the amount of $500,000.00 for each claim and
$1,000,000.00 annual aggregate limit and the costs for such insurance shall be
borne by the Company;
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<PAGE>
(ii) in the event the Company determines to provide
professional liability insurance for the Physician from other than Physicians'
Insurance, at its costs, the Company agrees to provide coverage limits no less
than as specified in subsection (i) above;
(iii) subject to Section 3(e)(vi), the Company may, in its
absolute sole discretion, with the consent of the Physician, at any time during
the Term and the Renewal Term, continue, modify, change or substitute the
malpractice insurance policy coverage for Physician and/or the Company for
Physician's provision of medical services while acting in the scope of his
employment pursuant to the terms and conditions of this Agreement which was
obtained pursuant to Company's obligations under this Agreement;
(iv) Physician shall immediately execute and deliver, in
strict accordance with Company's written instructions, all documents and
instruments necessary to effectuate the provisions of this Section; and,
(v) Physician agrees to act in full accordance with the
terms and conditions of any and all malpractice insurance policies, copies of
which shall be provided to the Physician.
(vi) subject to Section 3(e)(i) and (ii), Company will
obtain a continuous claims made professional liability insurance policy to cover
Physician pursuant to the terms of this Agreement. The Company shall, at the
Company's expense, continue to cover Physician for medical malpractice claims
arising out of his employment under this Agreement through a date four (4) years
from the date of termination by: (i) continuing the continuous claims made
professional liability insurance policy; (ii) purchasing a replacement
continuous claims made professional liability insurance policy with retroactive
coverage which does not create any lapse in coverage; or, (iii) purchasing
appropriate tail coverage to meet its obligation under this subparagraph.
(f) WITHHOLDINGS. The Company may withhold from any compensation or
other benefits payable under this Agreement, or arrange for the payment of, any
federal, state, city or other taxes as shall be required pursuant to any law or
governmental regulation or ruling.
(g) MOVING. The Company shall pay for all costs and expenses
incurred by Physician for the moving of Physician's office from its current
location to Company's office in Aventura, Florida.
4. EMPLOYMENT DUTIES.
4
<PAGE>
(a) The Physician agrees during his employment under this Agreement
to: (i) provide medical services on behalf of the Company as a duly licensed
physician under the laws of the State of Florida; and (ii) perform any other
duties and assignments relating to the business of the Company, its affiliates
and subsidiaries, as the Company's Board of Directors or its delegatees directs,
provided further that those duties or assignments shall be reasonably related to
the Physician's expertise and experience ((i) and (ii) shall be collectively,
the "Physician Duties"). During the Term and Renewal Term, the Physician shall,
except during vacation periods, approved leaves and periods of illness, devote
his entire business time and attention to the performance of the Physician
Duties, consistent with his current schedule, under this Agreement and shall use
his best efforts, skills and abilities to perform his duties in accordance with
applicable laws which are brought to his attention by the Company and to promote
the Company's best interests.
(b) CALL. The Physician agrees and acknowledges that his services may
be necessary on evenings and weekends, and shall be available for weekday and
weekend call in accordance with the Company's reasonable call policies and
schedules.
(c) ACCESS TO RECORDS. Upon written request, and in accordance with
Title 42 of the United States Code, Section 1395(x)(v)(1)(I), as amended,
Physician agrees to make available to the Secretary of the United States
Department of Health and Human Services or the Comptroller General of the United
States, or any of their duly authorized representatives, this Agreement, all
documents and records necessary to certify the nature and extent of services
provided by Physician under this Agreement.
(d) REIMBURSEMENT OF EXPENSES. The Company agrees to pay for or
reimburse Physician for any reasonable business expenses, incurred by the
Physician and approved by the Company. In addition, the Company shall provide
Physician with a car allowance of Five Hundred Dollars ($500) per month, beeper,
cellular phone and pay for the following dues; AMA, FMA, DCMA.
(e) MISCELLANEOUS.
(i) The Physician further agrees and acknowledges that he
shall comply with and follow all written policies, standards, rules and
regulations established by the Company in performing the Physician Duties under
this Agreement, and agrees to be bound by and comply with the terms and
conditions of other agreements to which the Company is a party to, or to which
it may become a party to, with hospitals, ambulatory surgical centers, insurance
companies, third party payors and other providers of medical services in
connection with the provision of medical services.
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<PAGE>
(ii) Without the Company's prior written consent (which
consent shall not be unreasonably withheld), the Physician shall not, during his
employment under this Agreement, render medical services, or any other related
services, for any other person or entity as an employee, agent, independent
contractor or otherwise.
(iii) Except as described in Schedule 4(e)(iii) (the
'Outside Services"), without the Company's prior written consent (which shall
not be unreasonably withheld), the Physician shall not, during his employment
under this Agreement, devote any time to consulting, lecturing, or engaging in
any other self-employment or employment activities. The Company consents to the
Physician's participation in the Outside Services, provided that: (a) the
Outside Services are not provided during the time period when the Physician's
services are required pursuant to this Agreement; and, (b) the Outside Services
do not affect, in any manner whatsoever, the Employee's ability to perform the
services required pursuant to this Agreement.
(iv) The Physician shall immediately notify the Company of
any and all incidents, unfavorable occurrences, notices or claims made arising
out of his services as soon as he becomes aware of this information and shall
cooperate in any investigation and in the defense of any incidents, unfavorable
occurrences, notices and claims.
5. DUTY TO ACCOUNT.
(a) Physician shall assign, account, and pay to the Company all
accounts receivable, compensation and any other form of remuneration due from or
paid by any source other than the Company attributable to medical services he
has rendered in his professional capacity on behalf of the Company under this
Agreement or sums which come into his possession which are attributable to the
services of other employees of the Company, (collectively the "Company
Receivables"), except as Company may otherwise agree in writing. Physician
appoints the Company as his attorney in fact to execute, deliver and/or endorse
checks, applications for payments, insurance claim forms or other instruments or
documents, convenient or required in the exclusive discretion of the Company to
fully collect, secure and realize all sums due to the Company in respect to
services provided under this Agreement. The power of attorney is coupled with an
interest, is irrevocable and shall survive the expiration or termination of this
Agreement for a time period without limitation. Disability insurance benefits
and medical expense reimbursements received by Physician pursuant to any formal
plan of the Company shall not be considered a Company Receivable for purposes of
this Section.
6
<PAGE>
(b) All Company Receivables shall be the sole property of the
Company. In no event shall Physician be entitled to any portion of the Company
Receivables, or the proceeds from Company Receivables, during the Term, any
Renewal Terms or after the termination of this Agreement, whether or not Company
Receivables may have been derived in any way from the performance of Physician
pursuant to the terms of this Agreement.
6. REPRESENTATIONS AND WARRANTIES. The Physician represents and
warrants to the Company as follows:
(a) Physician is a physician duly licensed to practice medicine under
the laws of the State of Florida;
(b) Physician has complied with all laws, rules and regulations
relating to the practice of medicine and is able to enter into and perform all
duties under this Agreement;
(c) Physician is not a party to or bound by any other agreement or
commitment, or subject to any restriction or agreement related to previous
employment or consultation containing confidentiality or non-compete covenants
or other relevant restrictions which may have a possible present or future
adverse affect on the Company or the Physician in the performance of his duties
under this Agreement; and,
(d) to his knowledge, Physician is in good physical and mental health
for his age and does not suffer from any illness or disability which could
prevent him from fulfilling his responsibilities under this Agreement; and,
(e) the Physician has never: (i) had his professional license, Drug
Enforcement Agency number, Medicare provider status or staff privileges at any
hospital or medical facility suspended, relinquished, terminated or revoked;
(ii) been reprimanded, sanctioned or disciplined by any licensing board or any
federal, state, or local society or agency, governmental body, hospital, third
party payor or specialty board; or, (iii) had a final judgment or settlement
without judgment entered against him in connection with a malpractice or similar
action for an amount in excess of Five Thousand Dollars ($5,000.00).
The Physician agrees to immediately notify the Company of any fact or
circumstance which occurs or is discovered during the Term and Renewal Term,
which in itself or with the passage of time and/or the combination with other
reasonably anticipated factors does render or will render any of these
representations and warranties to be untrue.
7. CONFIDENTIALITY.
(a) CONFIDENTIAL INFORMATION. The Physician acknowledges that as a
result of the Physician's employment with the Company, the Physician has and
will necessarily become informed of, and have access to, certain valuable and
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<PAGE>
confidential information of the Company, including, without limitation, trade
secrets, technical information, plans, lists of patients, data, records, fee
schedules, computer programs, manuals, processes, methods, intangible rights,
contracts, agreements, licenses, personnel information and the identity of
health care providers (collectively, the "Confidential Information"), and that
the Confidential Information, even though it may be contributed, developed or
acquired in whole or in part by the Physician, is the Company's exclusive
property to be held by the Physician in trust and solely for the Company's
benefit. Accordingly, except as required by law, the Physician shall not, at any
time, either during or subsequent to the Term and any Renewal Terms, use,
reveal, report, publish, copy, transcribe, transfer or otherwise disclose to any
person, corporation or other entity, any of the Confidential Information without
the prior written consent of the Company, except to officers and employees of
the Company and except for information which legally and legitimately is or
becomes of general public knowledge from authorized sources other than the
Physician.
(b) RETURN OF CONFIDENTIAL INFORMATION. Upon the termination of this
Agreement, the Physician shall promptly deliver to the Company all Company
property and possessions including all drawings, manuals, letters, notes,
notebooks, reports, copies, deliverable Confidential Information and all other
materials relating to the Company's business which are in the Physician's
possession or control.
8. NON-COMPETITION. Without the Company's prior written consent, which
may be withheld in its absolute sole discretion, Physician agrees that he will
not during the Term and the Renewal Term of his employment under this Agreement
and at any time within a one-year period from the date of termination of
employment pursuant to Section 10 of this Agreement anywhere within five (5)
miles from any location where the Physician provided the Physician either
directly or indirectly, on his own behalf or as a principal, partner,
stockholder, officer, employee, agent, consultant independent contractor,
director or trustee of any person, partnership, entity, firm or corporation:
(a) own, manage, operate, control or otherwise engage in a Competing
Business (as defined below), or receive any compensation in any capacity from
any Competing Business;
(b) other than as a patient himself or as the Company directs, have
any business relationship, in any capacity whatsoever, with any IPA, PHO, or any
other form of an integrated delivery system, competing medical practice or
medical services delivery system which is operated in or affiliated in any
manner with medical practices in the Restricted Area;
(c) attempt to solicit or solicit the patients or facilities
serviced by the Company to terminate, curtail or restrict their relationship
with the Company or attempt to provide or provide those patients or facilities
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<PAGE>
with medical services previously furnished to them by the Physician while
employed by the Company during the Term and any Renewal Terms;
(d) otherwise divert or attempt to divert from the Company any
business or business opportunity whatsoever; or,
(e) attempt to solicit or solicit any person employed or contracted
by the Company, or any of their affiliates, to leave their employment or not
fulfill their contractual responsibility, whether or not the employment or
contracting is full-time or temporary, pursuant to a written or oral agreement,
or for a determined period or at will.
The term "Competing Business" shall mean any business which is
competitive with the Company, which is specifically agreed to by the parties to
be the management, provision and operation of medical services, including the
operation and management of a management services organization ("MSO") available
for contract to physicians, hospitals, healthcare facilities, integrated
delivery systems, PHOS, IPAs and physician networks; and, the acquisition and
operation of primary care and specialty physician offices.
In the event that the Company commits a breach of a material term of
this Agreement, the Stock Purchase Agreement or the Promissory Note dated
February 12, 1997 between the parties (after the Company has received at least
thirty (30) days written notice of that material breach and the Company has
failed to remedy that breach within the thirty day period) then Sections 8(a),
(b), (c) and (d) shall not apply.
9. REMEDIES. The Physician and the Company each acknowledge that: (i)
the services Physician will render under this Agreement are special and unique
and cannot be replaced by the Company; (ii) the event of a breach by the
Physician of the provisions of Sections 4(c), 5, 7, 8 or 11(a) will cause the
Company irreparable harm; and, (iii) monetary damages in an action at law would
not provide an adequate remedy in the event of a breach. Accordingly, the
Physician agrees that, in addition to any other remedies (legal, equitable or
otherwise) available to the Company, the Company may seek and obtain injunctive
relief against the breach or threatened breach of the provisions of Sections
4(c), 5, 7, 8 or 11(a) as well as all other rights and remedies available at law
and equity including, without limitation, the right to be indemnified by
Physician for all claims, damages, actions, suits whatsoever for a breach of
Sections 4(c), 5, 7, 8 or 11(a) and if the Company prevails in litigation
against the Physician, its reasonable attorneys' fees, expenses and costs
incurred in enforcing any provisions of Sections 4(c), 5, 7, 8 or 11(a), whether
or not litigation is instituted, and if instituted, at pre-trial, trial and
appellate levels. Nothing contained in this Section 9 shall be construed as
prohibiting the Company and all other injured parties from pursuing all other
remedies available to them for a breach or threatened breach of the provisions
of Sections 4(c), 5, 7, 8 or 11(a), including the recovery of compensatory and
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punitive damages from Physician. Physician further acknowledges and agrees that
the covenants contained in Sections 4(c), 5, 7, 8 or 11(a) are necessary for the
protection of the Company's legitimate business and professional duties, ethical
obligations and interests, and are reasonable in scope and content.
10. TERMINATION. This Agreement may be terminated prior to the
expiration of the Term described in Section 2, upon the occurrence of any of the
following events:
(a) DEATH. This Agreement will automatically terminate upon the
death of the Physician. The Company shall have no further obligation under this
Agreement to make any payments to, or bestow any benefits on, the Physician's
beneficiary or beneficiaries from and after the date of the Physician's death,
other than as provided in Section 10(e).
(b) DISABILITY. This Agreement may be terminated at the Company's
option, exercisable in its absolute sole discretion, if the Physician shall
suffer a permanent disability. For the purposes of this Agreement, the term
"permanent disability" means the Physician's inability to perform his duties
under this Agreement for a period of any six (6) consecutive months due to
illness, accident or any other physical or mental Incapacity. The Company shall
have no further obligation under this Agreement to make any payments to, or
bestow any benefits on, the Physician from and after the date of termination
under this provision, other than as provided in Section 10(e).
(c) CAUSE. This Agreement may be terminated for cause at the
Company's option, at any time. Cause shall mean, for purposes of this Agreement,
the Physicians: (i) material breach of any provision of this Agreement; (ii)
willful refusal to perform any duty directed by the Company's Board of Directors
or a supervising officer, an executive of the Company or any authorized
delegates, which is reasonably within the scope of the Physician's duties; (iii)
misappropriation of assets or business opportunities of the Company for personal
or non-Company use; (iv) conviction of any criminal act except for a minor
traffic offense; (v) commission of fraud, embezzlement, or breach of trust
relating to or arising out of his relationship with the Company, its
subsidiaries and affiliates; (vi) revocation or suspension of Physician's
license to practice medicine under the laws of the State of Florida after appeal
rights have been exhausted (provided that a good faith and probable appeal has
been made); (vii) inability to obtain adequate professional liability coverage
in accordance with Section 3(e) of this Agreement due to the Physician's claims
history or fault; (viii) failure or inability to competently and adequately
perform his historic duties under this Agreement as determined by the Company's
Board of Directors, exercisable in its reasonable discretion; or, (ix)
Physician's breach of his obligations contained in Section 11(a) of this
Agreement. Prior to the Company's termination of this Agreement for cause under
Section 10(c), the Company shall first have provided Physician with at least
thirty (30) days prior written notice and Physician shall have not, within that
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<PAGE>
thirty (30) days remedied, to the Company's reasonable satisfaction, the basis
of that termination. The Company shall have no further obligation under this
Agreement to make any payments to, or bestow any benefits on, the Physician from
and after the date of the Physician's termination under this provision, other
than as provided in Section 10(e).
This Agreement may be terminated for cause at the Physician's option, for
the Company's failure to materially perform its obligations to the Physician
under this Agreement after the Company has received at least thirty (30) days
prior written notice of that material failure and the Company has failed within
that thirty (30) day period to remedy that substantial failure to the
Physician's reasonable satisfaction.
(d) VOLUNTARY. This Agreement may be terminated by the Physician by
sending writeen notice to the Company that Physician doen not elect to extend
the Term. The Company shall have no further obligation under this Agreement to
make any payments to, or bestow any benefits on, the Physician from and after
the date of termination of this Agreement under this provision, other than as
provided in Section 10(e).
(e) OBLIGATIONS. In the event of a termination under Sections 10(a),
(b), (c) or (d), the Company shall have no further obligation under this
Agreement to make any payments to, or bestow any benefits on, the Physician from
and after the date of termination, other than payments or benefits accrued and
due and payable to Physician prior to the date of the termination. Physician
shall, upon Company's request and immediately upon notice, vacate all premises,
including all facilities serviced by the Company. Physician shall return all of
the property of the Company and its affiliates that is in his possession or
control.
11. MISCELLANEOUS.
(a) SUBSTANCE ABUSE POLICY. It is the Company's policy (the
"Policy") that none of its employees shall use or abuse any controlled
substances at any time (other than those medications lawfully prescribed by a
medical doctor in a reasonable diagnosis and which do not interfere with the
Employee's capacity to perform his or her obligations under this Agreement) or
be under the influence of alcohol or be affected by the use of alcohol during
the time period required to perform their duties and obligations under any
employment agreements. Company and Physician both acknowledge and agree that the
purpose of this Policy is for the benefit of the Company, the Physician and the
individuals whom they serve.
In compliance with this Policy, during the Term and any
Renewal Terms Physician agrees to submit to random drug testing immediately upon
the Company's request. Testing may include, but shall not be limited to, the
taking of blood and urine samples and utilization of gas chromatography. In the
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<PAGE>
event that a positive test result is reached indicating a violation of the
Company's Policy, the Physician may, at his own expense and subject to the
supervision and approval of the Company of the manner and testing facilities
utilized, elect to have a second drug test performed, at a time which is no
longer than two days after the initial positive results were received by the
Company and the Employee. The Company may, in its sole and absolute discretion,
terminate the Physician for cause pursuant to Section 10(c) of this Agreement in
the event either: (i) a positive test result is received in the initial drug
test and the Physician fails to exercise his option for a second test in the
manner provided for in this Section; or, (ii) positive test results are received
from both tests. In the event that the second test result is negative, the
Company may, at any time, retest the Physician pursuant to the terms of this
Section.
(b) SURVIVAL. The provisions of Sections 6, 7, 8, 9, 10(d) and 11
shall survive the termination of this Agreement for a time period without
limitation.
(c) ENTIRE AGREEMENT; WAIVER. This Agreement contains the entire
understanding of the parties and merges and supersedes any prior or
contemporaneous agreements between the parties relating to this Agreement's
subject matter. This Agreement may not be modified or terminated orally, and no
modification, termination or attempted waiver of any of the provisions shall be
binding unless in writing and signed by the party against whom it is sought to
be enforced; provided however, that Physician's compensation may be increased at
any time by the Company without in any way affecting any of the other terms and
conditions of this Agreement, which in all other respects shall remain in full
force and effect. Failure of a party to enforce one or more of the provisions of
this Agreement or to require at any time performance of any of the obligations
under this Agreement shall not be construed to be a waiver of any provisions by
a party nor to in any way affect the validity of this Agreement or a party's
right to enforce any provision of this Agreement, nor to preclude a party from
taking any other action at any time which it would legally be entitled to take.
(d) MERGERS AND CONSOLIDATION; SUCCESSORS AND ASSIGNS. Physician
shall not have the right to assign or delegate this personal service Agreement,
or any of his rights or obligations under this Agreement, without the Company's
consent. The preceding sentence shall not hinder the Physician's estate from
being entitled to receive all accrued and unpaid compensation and benefits due
to Physician at the time of his death. The Company may freely assign and
delegate all of its rights and duties under this Agreement. Additionally, the
parties each agree that upon the sale of all or substantially all of the assets,
business and goodwill of the Company to another company or any other entity, or
upon the merger or consolidation of the Company with another company or any
other entity, this Agreement shall inure to the benefit of, and be binding upon,
both Physician and the Company and any entity purchasing the assets, business
and goodwill, or surviving merger or consolidation.
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<PAGE>
(e) ADDITIONAL ACTS. The Physician and the Company each agrees to
execute, acknowledge and deliver all further instruments, agreements or
documents and do all further acts that are necessary or expedient to carry out
this Agreement's intended purposes. Each party recognizes that time is of the
essence with respect to each of their obligations in this Agreement. Each party
agrees to act as soon as practicable in light of the particular circumstances
and use their best efforts in as timely a fashion as possible to maximize the
intended benefits of this Agreement.
(f) NOTICES. Whenever any notice, demand or request is required or
permitted under this Agreement, that notice, demand or request shall be either
hand-delivered in person or sent by United States Mail, registered or certified,
postage prepaid, or delivered via overnight courier to the addresses below or to
any other address that either party may specify by notice to the other party.
Neither party shall be obligated to send more than one notice to the other party
and no notice of a change of address shall be effective until received by the
other party. A notice shall be deemed received upon hand delivery, two business
days after posting in United States Mail or one business day after dispatch by
overnight courier.
To the Company: QPQ CORPORATION
1000 Lincoln Road, Suite 204
Miami Beach, FL
Mitchell Rubinson, C.E.O.
To the Physician: JACK B. DRIMMER, M.D.
3600 Mystic Point Drive
Apt. 1618
Aventura, FL. 33180
(g) HEADINGS. The headings of the paragraphs of this Agreement have
been inserted for convenience of reference only and shall in no way restrict or
otherwise affect the construction of the terms or provisions of this Agreement.
References in this Agreement to Sections are to the sections of this Agreement.
(h) CONSTRUCTION. This Agreement shall be construed without regard
to any presumption or other rule requiring construction against the party
causing this Agreement to be drafted, including any presumption of superior
knowledge or responsibility based upon a party's business or profession or any
professional training, experience, education or degrees of any member, agent,
officer or employee of any party. If any words in this Agreement have been
stricken out or otherwise eliminated (whether or not any other words or phrases
have been added) and the stricken words initialed by the party against whom the
words are construed, this Agreement shall be construed as if the words so
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<PAGE>
stricken out or otherwise eliminated were never included in this Agreement and
no implication or inference shall be drawn from the fact that those words were
stricken out or otherwise eliminated.
(i) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
(j) SEVERABILITY. The invalidity or unenforceability of any one or
more of the words, phrases, sentences, clauses, or sections contained in this
Agreement shall not affect the validity or enforceability of the remaining
provisions of this Agreement or any part of any provision, all of which are
inserted conditionally on their being valid in law, and in the event that any
one or more of the words, phrases, sentences, clauses or sections contained in
this Agreement shall be declared invalid or unenforceable, this Agreement shall
be construed as if such invalid or unenforceable word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted or shall be enforced as nearly as possible according to their
original terms and intent to eliminate any invalidity or unenforceability. If
any invalidity or unenforceability is caused by the length of any period of time
or the size of any area set forth in any part of this Agreement, the period of
time or area, or both, shall be considered to be reduced to a period or area
which would cure the invalidity or unenforceability.
(k) GOVERNING LAW. This Agreement is made and executed and shall be
governed by the laws of the State of Florida, without regard to its conflicts of
laws principles.
(1) NO THIRD PARTY BENEFICIARIES. All obligations of the Company
under this Agreement are imposed solely and exclusively for the benefit of
Physician, and no other person will have standing to enforce, be entitled to or
be deemed to be the beneficiary of any of these obligations.
(m) LITIGATION; PREVAILING PARTY. In the event of any arbitration or
litigation, including appeals, with regard to this Agreement, the prevailing
party shall be entitled to recover from the non-prevailing party all reasonable
fees, costs, and expenses of counsel (at pre-trial, trial and appellate levels).
(n) JURISDICTION; VENUE; INCONVENIENT FORUM; JURY TRIAL. ANY SUIT,
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY
ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE
STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
FLORIDA IN DADE COUNTY, AND THE PARTIES ACCEPT THE EXCLUSIVE PERSONAL
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<PAGE>
JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING.
IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR LATER HAVE
TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT BROUGHT IN THE
STATE OF FLORIDA, AND FURTHER, KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE
ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE OF FLORIDA
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY WAIVES ALL RIGHTS TO ANY
TRIAL BY JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT.
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<PAGE>
Each of the parties have duly executed this Agreement as of the
Execution Date.
COMPANY:
QPQ CORPORATION, a Florida
Corporation
Date: February 21, 1997 By: /s/ Mitchell Rubinson
----------------- ----------------------------------
Mitchell Rubinson, Chairman & CEO
PHYSICIAN:
Date: February 21, 1997 /s/ Jack B. Drimmer
----------------- ----------------------------------
Jack B. Drimmer, M.D.
16
<PAGE>
SCHEDULE 3(A)(I)
----------------
ADJUSTMENT TO BASE COMPENSATION
JACK B. DRIMMER, M.D.
1. If Physician shall attain the one hundred percent (100%) of Physician's
Collections Productivity Target of $260,000, there shall be no adjustment
to Physician's Base Compensation.
2. This calculation and reduction, if any, shall be made on a noncumulative
basis and the Adjusted Compensation for purposes of this Section shall be
the Adjusted Compensation for that year without application of any prior
year Compensation Reduction. The application of this paragraph is
illustrated by the following example:
e.g. First Year Base Compensation = $100,000.00
----------------------------
Second Year = $234,000.00
-----------
(attain 90% of Collection Target
$260,000 x 90%)
Base Compensation: $100,000.00
Less: Compensation Reduction
($260,000 - 234,000 = $26,000
$26,000 x 40%) $(10,400.00)
------------
Base Compensation - Year 2 $ 89,600.00
===========
17
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, entered into as of February 21, 1997
(the "Execution Date"), is by and among QPQ CORPORATION, a Florida corporation
(the "Buyer"); JACK DRIMMER, M.D., P.A., a Florida professional association (the
"Company"); and, the holders of the Company's capital stock listed on EXHIBIT A
(collectively referred to as the "Stockholders" and individually as a
"Stockholder").
PRELIMINARY STATEMENTS
----------------------
1. The Stockholders own of record and beneficially all of the issued
and outstanding capital stock of the Company, consisting of fifty (50) shares of
the Company's Common Stock, zero ($0.00) par value per share (the shares are
referred to in this Agreement as the "Company Shares").
2. The Stockholders desire to sell all of the Company Shares to
Buyer, and Buyer desires to acquire all of the Company Shares.
NOW, THEREFORE, in order to consummate the purchase and sale of the
Company Shares and in consideration of the mutual agreements contained in this
Agreement, the parties agree as follows:
AGREEMENT
---------
SECTION 1
---------
SALE OF SHARES AND PURCHASE PRICE
---------------------------------
1.1 TRANSFER OF COMPANY SHARES. At the Closing, each Stockholder shall
deliver or cause to be delivered to Buyer certificates representing all of the
Company Shares owned by that Stockholder, as listed on Exhibit A. Those stock
certificates shall be duly endorsed in blank for transfer or shall be presented
with stock powers duly executed in blank, with signature guarantees and other
documents which may be reasonably required by Buyer to effect a valid transfer
of the Company Shares by the Stockholders, free and clear of any and all liens,
encumbrances, charges or claims. Each Stockholder, by execution of this
Agreement, appoints Buyer as his attorney-in-fact to effectuate transfer of the
Company Shares at the Closing (as defined below).
1.2 PURCHASE PRICE AND PAYMENT. In consideration of the sale by
Stockholders to Buyer of the Company Shares, in reliance upon the
representations and warranties of the Company and the Stockholders contained in
this Agreement and made at the Closing, and subject to the satisfaction of all
<PAGE>
of the conditions contained in this Agreement, Buyer agrees that at the Closing
it will deliver to each Stockholder the amount specified in EXHIBIT A-1 by bank
cashier check or by wire transfer of immediately available funds (the "Closing
Funds") plus a promissory note in substantially the same form as specified in
Exhibit A-1. The Closing Funds and promissory note, when added together, shall
be collectively, the 'Purchase Price".
1.3 TIME AND PLACE OF CLOSING. The closing of the purchase and sale
provided for in this Agreement (the "Closing") shall be held at the offices of
Buyer at 1000 Lincoln Avenue, Suite 204, Miami Beach, Florida on February 12,
1997 or at another place or an earlier or later date or time as may be mutually
agreed upon by the parties.
1.4 FURTHER ASSURANCES. The Stockholders from time to time after the
Closing, at the request of Buyer and without further consideration, shall
execute and deliver further instruments of transfer and assignment and take all
other action as Buyer may reasonably require to more effectively transfer and
assign to, and vest in, Buyer the Company Shares and all rights to the Company
Shares, and to fully implement the provisions of this Agreement.
SECTION 2
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE COMPANY AND STOCKHOLDERS
-------------------------------
2.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement
to Buyer to enter into this Agreement and consummate the contemplated
transactions, the Company and each of the Stockholders jointly and severally
make to Buyer the representations and warranties contained in this Section 2;
provided, however, that no Stockholder shall have any right of indemnity or
contribution from the Company with respect to any breach of representation or
warranty under this Agreement.
2.2 ORGANIZATION AND QUALIFICATIONS OF THE COMPANY. The Company is a
professional association duly organized, validly existing and in good standing
under the laws of Florida with full corporate power and authority to own or
lease its properties and to conduct its business in the manner and in the places
where those properties are owned or leased or that business is currently
conducted or proposed to be conducted. The copies of the Company's Articles of
Incorporation as amended to date, certified by Florida's Secretary of State, and
of the Company's by-laws, as amended to date, certified by the Company's
Secretary, and delivered to Buyer's counsel, are complete and correct, and no
amendments to them are pending. The Company is not in violation of any term of
its Articles of Incorporation or By-laws. The Company is not required to be
licensed or qualified to conduct its business or own its property in any other
jurisdiction.
2
<PAGE>
2.3 CAPITAL STOCK OF THE COMPANY; BENEFICIAL OWNERSHIP.
(a) The authorized capital stock of the Company consists of fifty (50)
shares of Common Stock, zero ($0.00) par value per share, of which fifty (50)
shares are duly and validly issued, outstanding, fully paid and non-assessable
and of which zero (0) shares are authorized but unissued. There are no
outstanding options, warrants, rights, commitments, preemptive rights or
agreements of any kind for the issuance or sale of, or outstanding securities
convertible into, any additional shares of capital stock of any class of the
Company. None of the Company's capital stock has been issued in violation of any
federal or state law. Except as described in SCHEDULE 2.3(A), there are no
voting trusts, voting agreements, proxies or other agreements, instruments or
undertakings with respect to the voting of the Company Shares to which the
Company or any of the Stockholders is a party.
(b) Stockholder owns beneficially and of record all of the Company
Shares free and clear of any liens, restrictions or encumbrances.
2.4 AUTHORITY OF THE COMPANY. The Company has full right, authority
and power to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by the Company pursuant to this
Agreement and to carry out the contemplated transactions. The execution,
delivery and performance by the Company of this Agreement and each other
agreement, document and instrument have been duly authorized by all necessary
action of the Company and no other action on the part of the Company or the
Stockholders is required. This Agreement and each agreement, document and
instrument executed and delivered by the Company pursuant to this Agreement
constitutes, or when executed and delivered will constitute, valid and binding
obligations of the Company enforceable in accordance with their terms. The
execution, delivery and performance by the Company of this Agreement and each
agreement, document and instrument:
(a) does not and will not violate any provision of the Articles of
Incorporation or by-laws of the Company;
(b) does not and will not violate any laws of the United States, or
any state or other jurisdiction applicable to the Company or require the Company
to obtain any approval, consent or waiver of, or make any filing with, any
person or entity (governmental or otherwise) that has not been obtained or made;
and
(c) does not and will not result in a breach of, constitute a default
under, accelerate any obligation under, or give rise to a right of termination
of any indenture or loan or credit agreement or any other agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award to which the Company is a
party or by which the property of the Company is bound or affected, or result in
the creation or imposition of any mortgage, pledge, lien, security interest or
other charge or encumbrance on any of the Company's assets or the Company
Shares, except as specifically identified on SCHEDULE 2.4(III).
3
<PAGE>
2.5 REAL AND PERSONAL PROPERTY.
--------------------------
(a) LEASED REAL PROPERTY. All of the real property leased by the
Company is identified on SCHEDULE 2.5(A) (referred to as the "Leased Real
Property").
(b) PERSONAL PROPERTY. A complete description of the machinery,
furniture, personalty and equipment of the Company is contained in SCHEDULE
2.5(B). Except as specifically disclosed in that Schedule or in the Base Balance
Sheet (as defined below), the Company has good and marketable title to all of
its personal property. None of the Company's personal property or assets is
subject to any mortgage, pledge, lien, conditional sale agreement, security
title, encumbrance or other charge except as specifically disclosed in that
Schedule or in the Base Balance Sheet. The Base Balance Sheet reflects all
personal property of the Company. Except as otherwise specified in SCHEDULE
2.5(B), all leasehold improvements, furnishings, machinery, personalty and
equipment of the Company are in good repair, have been well maintained, and
substantially comply with all applicable laws, ordinances and regulations, and
those furnishings, personalty, machinery and equipment are in good working
order. Neither the Company nor any of the Stockholders knows of any pending or
threatened change of any law, ordinance or regulation which could adversely
affect the Company, or any of its businesses.
2.6 FINANCIAL STATEMENTS. The Company has delivered to Buyer Form 1120 for
the years ended 9/30/96 and 9/30/95 which are prepared on the cash method of
accounting and copies of which are attached as SCHEDULE 2.6 . These tax returns
are complete and correct in all material respects and present fairly in all
material respects the financial condition of the Company at the dates of those
statements and the results of its operations for the periods covered thereby. As
of the date of the last tax return, the Company had no liabilities (which
liabilities, when taken individually or in the aggregate, were material) of any
nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted, known or unknown (including without limitation, liabilities as
guarantor or otherwise with respect to obligations of others, liabilities for
taxes due or then accrued or to become due, or contingent or potential
liabilities relating to activities of the Company or the conduct of its business
prior to September 30, 1996.
As of the Execution Date and as of the date of the Closing, the Company
has not had and will not have any liabilities of any nature, whether accrued,
absolute, contingent or otherwise, asserted or unasserted, known or unknown
(including without limitation, liabilities as guarantor or otherwise with
respect to obligations of others, or liabilities for taxes due or then accrued
or to become due or contingent or potential liabilities relating to activities
of the Company or the conduct of its business prior to Execution Date or the
date of the Closing, as the case may be, regardless of whether claims had been
asserted as of those dates), except liabilities: (i) reflected in Schedules
furnished to Buyer under this Agreement on the Execution Date; or, (ii) incurred
after the date of the last tax return in the ordinary course of business of the
Company consistent with the terms of this Agreement.
4
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2.7 TAXES.
(a) The Company has paid or caused to be paid all federal, state, local,
foreign, and other taxes, including without limitation, income taxes, estimated
taxes, alternative minimum taxes, excise taxes, sales taxes, use taxes,
value-added taxes, gross receipts taxes, franchise taxes, capital stock taxes,
employment and payroll-related taxes, withholding taxes, stamp taxes, transfer
taxes, windfall profit taxes, environmental taxes and property taxes, whether or
not measured in whole or in part by net income, and all deficiencies, or other
addition to tax, interest, fines and penalties owed by it (collectively,
"Taxes"), required to be paid by it through the Execution Date, whether disputed
or not.
(b) The Company has, in accordance with applicable law filed all federal,
state, local and foreign tax returns required to be filed by it through the
Execution Date, and all these returns correctly and accurately contain the
amount of any Taxes relating to the applicable period. A list of all federal,
state, local and foreign income tax returns filed with respect to the Company
for taxable periods ended on or after September 30, 1994 is provided in Schedule
2.7(B), and that Schedule indicates those returns that have been audited or
currently are the subject of an audit. For each taxable period of the Company
ended on or after September 30, 1994 the Company has delivered to Buyer correct
and complete copies of all federal, state, local and foreign income tax returns,
examination reports and statements of deficiencies assessed against or agreed to
by the Company.
(c) Neither the Internal Revenue Service nor any other governmental
authority is now asserting or, to the knowledge of the Company or any
Stockholder, threatening to assert against the Company any deficiency or claim
for additional Taxes. No claim has ever been made by an authority in a
jurisdiction where the Company does not file reports and returns that the
Company is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Taxes. The Company has never
entered into a closing agreement pursuant to Section 7121 of the Internal
Revenue Code of 1986, as amended (the "Code").
(d) Except as described in SCHEDULE 2.7(D), there has not been any audit
of any tax return filed by the Company, no audit is in progress, and the Company
has not been notified by any tax authority that any audit is contemplated or
pending. Except as described in Schedule 2.7(D): (I) no extension of time with
respect to any date on which a tax return was or is to be filed by the Company
is in force; (ii) no waiver or agreement by the Company is in force for the
extension of time for the assessment or payment of any Taxes; and, (iii) no
agreement with any taxing authority is in force for an extension of the statute
of limitations for an audit.
(e) The Company has never been (or has never had any liability for unpaid
Taxes because it once was) a member of an "affiliated group" (as defined in
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Section 1504(a) of the Code). Except as described in Schedule 2.7(E), the
Company has never filed, and has never been required to file, a consolidated,
combined or unitary tax return with any other entity. Except as described in
SCHEDULE 2.7(E), the Company does not own and has never owned a direct or
indirect interest in any trust, partnership, corporation or other entity. Except
as described in SCHEDULE 2.7(E), the Company is not a party to any tax sharing
agreement.
(f) For purposes of this Agreement, all references to Sections of the Code
shall include any predecessor provisions to those Sections and any similar
provisions of federal, state, local or foreign law.
2.8 COLLECTABILITY OF ACCOUNTS RECEIVABLE. All of the accounts receivable
of the Company less than 90 days old existing at the Execution Date (less the
reserve for bad debts set forth on the Base Balance Sheet) are or will be at the
Closing valid and enforceable claims, fully collectible and subject to no setoff
or counterclaim, subject to historic discounts and reductions. The Company has
no accounts or loans receivable from any person, firm or corporation which is
affiliated with the Company or from any director, officer or employee of the
Company, except as disclosed on SCHEDULE 2.8, and all accounts and loans
receivable from any of these persons, firms or corporations shall be paid in
cash prior to the Closing.
2.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE 2.9, since
the date September 30, 1996 there has not been:
(a) Any change in the financial condition, properties, assets,
liabilities, business or operations of the Company, which change by itself or in
conjunction with all other changes, whether or not arising in the ordinary
course of business, has been materially adverse with respect to the Company;
(b) Any contingent liability incurred by the Company as guarantor or
otherwise with respect to the obligations of others or any cancellation of any
material debt or claim owing to, or waiver of any material right of the Company;
(c) Any mortgage, encumbrance or lien placed on any of the properties of
the Company which remains in existence on the Execution Date or will remain on
the Closing Date;
(d) Any obligation or liability of any nature, whether accrued, absolute,
contingent or otherwise, asserted or unasserted, known or unknown (including
without limitation liabilities for Taxes due or to become due or contingent or
potential liabilities relating to services provided by the Company or the
conduct of the business of the Company since September 30, 1996 regardless of
whether claims have been asserted), incurred by the Company;
(e) Other than in the ordinary course, any purchase, sale or other
disposition, or any agreement or other arrangement for the purchase, sale or
other disposition, of any of the properties or assets of the Company or the
Company's business;
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(f) Any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the properties, assets or business of the
Company;
(g) Any declaration, setting aside or payment of any dividend by the
Company, or the making of any other distribution in respect of the capital stock
of the Company, or any direct or indirect redemption, purchase or other
acquisition by the Company of its own capital stock;
(h) Any labor trouble or claim of unfair labor practices involving the
Company; any change in the compensation payable or to become payable by the
Company to any of its officers, employees, agents or independent contractors
other than normal merit increases in accordance with its usual practices; or any
bonus payment or arrangement made to or with any of its officers, employees,
agents or independent contractors;
(i) Any change with respect to the officers or management of the Company;
(j) Any payment or discharge of a material lien or liability of the
Company which was not shown on the or incurred in the ordinary course of
business thereafter;
(k) Any obligation or liability incurred by the Company to any of its
officers, directors, stockholders or employees, or any loans or advances made by
the Company to any of its officers, directors, stockholders or employees, except
normal compensation and expense allowances payable to officers or employees;
(l) Any change in accounting methods or practices, credit practices or
collection policies used by the Company;
(m) Any other transaction entered into by the Company other than
transactions in the ordinary course of business; or
(n) Any agreement or understanding whether in writing or otherwise, for
the Company to take any of the actions specified in paragraphs (a) through (m)
above.
2.10 ORDINARY COURSE. Since the date of the Base Balance Sheet, the
Company has conducted its business only in the ordinary course and consistently
with its prior practices.
2.11 BANKING RELATIONS. All of the arrangements which the Company has with
any banking institution are completely and accurately described in SCHEDULE
2.11, indicating with respect to each of these arrangements the type of
arrangement maintained (e.g., checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized.
2.12 INTELLECTUAL PROPERTY.
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(a) Except as described in SCHEDULE 2.12(A), the Company has exclusive
ownership of, or exclusive license to use, all patent, copyright, trade secret,
trademark, or other proprietary rights (collectively, "Intellectual Property")
used or to be used in the business of the Company as presently conducted or
contemplated. All of the rights of the Company in the Intellectual Property are
freely transferable. There are no claims or demands of any other person
pertaining to any. of the Intellectual Property and no proceedings have been
instituted, or are pending or threatened, which challenge the rights of the
Company. The Company has the right to use, free and clear of claims or rights of
other persons, all patient lists, processes, computer software, systems, data
compilations, research results and other information required for or incident to
its services or its business as presently conducted or contemplated.
(b) All patents, patent applications, trademarks, trademark applications
and registrations and registered copyrights which are owned by or licensed to
the Company or used or to be used by the Company in its business as presently
conducted or contemplated, and all other items of Intellectual Property which
are material to the business or operations of the Company, are listed in
SCHEDULE 2.12(B).
(c) All licenses or other agreements under which the Company is granted
rights in Intellectual Property are listed in SCHEDULE 2.12(C). All these
licenses or other agreements are in full force and effect, there is no material
default by any party to those licenses or agreements, and, except as described
in SCHEDULE 2.12(C), all of the rights of the Company under those licenses and
agreements are freely assignable. To the knowledge of Company, the licensors
under these licenses and other agreements have and had all requisite power and
authority to grant the rights purported to be conferred thereby. True and
complete copies of all these licenses or other agreements, and any amendments to
them, have been provided to Buyer.
(d) All licenses or other agreements under which the Company has granted
rights to others in Intellectual Property owned or licensed by the Company are
listed in SCHEDULE 2.12(D). All of these licenses or other agreements are in
full force and effect, there is no material default by any party to them, and,
except as described on SCHEDULE 2.12(D), all of the rights of Company under
those licenses and agreements are freely assignable. True and complete copies of
all licenses or other agreements, and any amendments to them, have been provided
to Buyer.
(e) The Company has taken all steps required in accordance with sound
business practice to establish and preserve its ownership of all Intellectual
Property rights with respect to its services and technology.
(f) The present and contemplated business, activities and products of the
Company do not infringe any Intellectual Property of any other person. No
proceeding charging the Company with infringement of any adversely held
Intellectual Property has been filed or is threatened to be filed. The Company
is not making unauthorized use of any confidential information or trade secrets
of any person, including without limitation, any former employer of any past or
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present employee of Company. Except as described in SCHEDULE 2.12(F), neither
the Company nor, to the knowledge of the Company and the Stockholders, any of
their employees have any agreements or arrangements with any persons other than
the Company related to confidential information or trade secrets of those
persons or restricting any employee's ability to engage in business activities
of any nature.
2.13 CONTRACTS. Except for contracts, commitments, plans, agreements and
licenses described in Schedule 2.13 (true and complete copies of which have been
delivered to Buyer), neither the Company, all of the physicians, nurses,
technicians and allied health care professionals employed or engaged by the
Company (those individuals shall be collectively, the "Health Care Providers")
nor any Stockholder is a party to or subject to:
(a) any plan or contract providing for bonuses, pensions, options, stock
purchases, deferred compensation, retirement payments, profit sharing,
collective bargaining or the like, or any contract or agreement with any labor
union;
(b) any employment contract or contract for services which requires the
payment of more than One Thousand Dollars ($1,000.00) annually or which is not
terminable within thirty (30) days by the Company without liability for any
penalty or severance payment;
(c) any contract or agreement for the purchase of any service, commodity,
material or equipment, except as otherwise disclosed in another schedule to this
Agreement;
(d) any other contracts or agreements creating any obligations of the
Company not specifically disclosed elsewhere under this Agreement;
(e) any contract or agreement which by its terms does not terminate or is
not terminable without penalty by the Company or its successors within one year
after the Execution Date;
(f) any contract containing covenants limiting the freedom of the Company
to compete in any line of business or with any person or entity;
(g) any contract or agreement for the purchase of any fixed asset whether
or not that purchase is in the ordinary course of business;
(h) any license agreement (as licensor or licensee);
(i) any indenture, mortgage, promissory note, loan agreement, guaranty or
other agreement or commitment for the borrowing of money which directly or
indirectly may affect the Company;
(j) any contract or agreement with any officer, employee, director or
stockholder of the Company or with any persons or organizations controlled by or
affiliated with any of them; or
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(k) any contracts, agreements and understandings (collectively, the
"Provider Agreements") with any party regarding the provision of medical
services to patients, including without limitation, any Provider Agreements with
HMOs, PPOS, third party payors, IPAS, PHOS, MSOS, employers, labor unions,
hospitals, clinics, ambulatory surgery centers, Medicare intermediaries and
Medicaid intermediaries.
The Company is not in default under any contracts, commitments, plans,
agreements or licenses described in that Schedule nor has any knowledge of
conditions or facts which with notice or passage of time, or both, would
constitute a default.
2.14 LITIGATION, INVESTIGATIONS, ORDERS AND DECREES . Except as listed on
Schedule 2.14 or SCHEDULE 2.15, there are no actions, suits, claims,
governmental investigations or arbitration proceedings pending or, to the best
of the Company's knowledge, threatened against or affecting the Stockholders,
the Company's employed or engaged physicians, nurses, technicians and allied
health care professional (individually, a "Health Care Provider" and
collectively, the "Health Care Providers") , the Company or the business,
assets, prospects or financial condition of the Company or the Stockholders that
may have an adverse effect on the Company, the Health Care Providers or the
Stockholders or any of the Company's assets, and to the best of the Company's
knowledge, there are no facts or circumstances which are reasonably likely to
create a basis for any of the foregoing. Except as listed on Schedule 2.14,
there are no outstanding orders, decrees or stipulations issued by any local,
state or federal judicial authority in any proceeding to which the Company or
any of the Health Care Providers or the Stockholders are or were a party which
may have an adverse effect on any of them. Except as set forth on SCHEDULE 2.14,
neither the Company nor any of its Affiliates (as defined in Section 2.22) has
any claims against any of the Health Care Providers or the Stockholders and none
of the Health Care Providers or the Stockholders have any claims against the
Company or any of its Affiliates, and to the best of the Company's and the
Stockholders' knowledge, there are no facts or circumstances which are
reasonably likely to create a basis for any of the foregoing.
2.15 MEDICAL MALPRACTICE. Except as set forth on SCHEDULE 2.15, there are
no pending, and to the best of the Company's knowledge and belief, there are no
threatened litigation, arbitration, claim or governmental, administrative or
other proceedings (formal or informal), including, without limitation, any
malpractice claims, Health Care Financing Administration, Agency for Health Care
Administration, Office of the Inspector General, Department of Insurance,
Department of Professional Regulation or Board of Medicine investigations,
suits, notices of intent to institute, arbitration or proceedings, either
administrative or judicial, involving the Company, the Stockholders or any of
the Health Care Providers.
2.16 INSURANCE. The physical properties and assets of the Company are
insured to the extent disclosed in SCHEDULE 2.16 (including all professional
liability insurance policies) and all those insurance policies and arrangements
are disclosed in that Schedule. Those insurance policies and arrangements are in
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full force and effect, all premiums with respect to those policies and
arrangements are currently paid, and the Company is in compliance in all
material respects with their terms. That insurance is adequate and customary for
the business engaged in by the Company and is sufficient for compliance by the
Company with all requirements of law and all agreements and leases to which the
Company is a party.
2.17 EQUITY INVESTMENTS. Except as set forth on SCHEDULE 2.17, neither the
Company nor any of the Stockholders own, directly or indirectly, of record or
beneficially, either directly or indirectly, any capital stock, other equity,
ownership or proprietary interest in any corporation, partnership, association,
trust, joint venture or other entity engaged in any business related to the
health care industry.
2.18 POWERS OF ATTORNEY. Neither the Company nor any Stockholder has any
outstanding power of attorney.
2.19 FINDER'S FEE. Except as provided in Schedule 2.19, the Company has
not incurred or become liable for any broker's commission or finder's fee
relating to or in connection with the transactions contemplated by this
Agreement.
2.20 LICENSES; PERMITS; COMPLIANCE. The Company and each of the
Stockholders and Health Care Providers possess all licenses and other required
governmental or official approvals, permits, consents and authorizations (as
listed on SCHEDULE 2.20 attached to this Agreement), the failure of which to
possess would, individually or in the aggregate, have a material adverse effect
on the business, financial condition, operations, prospects or results of
operations of the Company. The Company, the Health Care Providers and the
Stockholders are in compliance with: (i) the terms of all contractual
obligations which directly or indirectly affect the Company; (ii) all laws,
ordinances, statutes and regulations where noncompliance could have an adverse
effect on the Company or its businesses, prospects or assets; and, (iii) all
judgments, orders, rulings or other decisions of any governmental or other
regulatory authority, court or arbitrator having jurisdiction over the
Stockholders or the Company. The Company has furnished to Buyer true and correct
copies of all correspondence from all governmental authorities asserting that
the Company, the Health Care Providers or the Stockholders are not, was not or
may not have been in compliance with all applicable laws, rules, regulations,
judgments, orders or decrees.
2.21 CORPORATE RECORDS; COPIES OF DOCUMENTS. The corporate record books of
the Company accurately record all corporate action taken by the stockholders and
board of directors and committees. The copies of the corporate records of the
Company, as made available to Buyer for review, are true and complete copies of
the originals of those documents. The Company has made available for inspection
and copying by Buyer and its counsel true and correct copies of all documents
referred to in this Section or in the Schedules delivered to Buyer pursuant to
this Agreement.
2.22 TRANSACTIONS WITH INTERESTED PERSONS. Except as disclosed on SCHEDULE
2.22, neither the Company nor any of its "Affiliates" (such term shall
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hereinafter have the meaning set forth in Rule 405 promulgated by the SEC under
the Securities Act of 1933, as amended), nor the Stockholders nor any of the
Stockholders, Affiliates have any direct or indirect material interest or
familial or business relationship in any of the Stockholders, or the Company's
customers, patients, suppliers, vendors, payors or landlords. All of the
Company's rights with respect to the Assets are based upon and derived from
arm's length transactions unrelated to any of their Affiliates and all of the
Assumed Obligations do not exceed the fair market value of the products,
services or rights being received in exchange toy the discharge of those
obligations.
2.23 EMPLOYEE BENEFIT PROGRAMS.
(a) SCHEDULE 2.23 to this Agreement sets forth a list of every Employee
Program (as defined below) that has been maintained (as that term is further
defined below) by the Company since its inception.
Each Employee Program which has been maintained by the Company and which
has at any time been intended to qualify under Section 401(a) or 501(c)(9) of
the Internal Revenue Code of 1986, as amended (the "Code"), has received a
favorable determination or approval letter from the IRS regarding its
qualification under that section and has, in fact, been qualified under the
applicable section of the Code from the effective date of that Employee Program
through and including the Closing (or, if earlier, the date that all of such
Employee Program B assets were distributed). No event or omission has occurred
which would cause any Employee Program to lose its Qualification under the
applicable Code section.
There has not been any failure of any party to comply with any laws
applicable with respect to the Employee Programs that have been maintained by
the Company. With respect to any Employee Program now or heretofore maintained
by the Company, there has occurred no "prohibited transaction," as defined in
Section 406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code, or breach of any duty under ERISA or
other applicable law (including, without limitation, any health care
continuation requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan), which could result, directly
or indirectly (including without limitation through any obligation of
indemnification or contribution), in any taxes, penalties or other liability to
the Company or any Affiliate (as defined below). No litigation, arbitration, or
governmental administrative proceeding (or investigation) or other proceeding
(other than those relating to routine claims for benefits) is pending or, to the
best knowledge of the Company and the Stockholders, threatened with respect to
any Employee Program.
The Company has not incurred any liability under Title IV of ERISA which
has not be paid in full prior to the Closing. There has been no "accumulated
funding deficiency" (whether or not waived) with respect to any Employee Program
ever maintained by the Company and subject to Code Section 412 or ERISA Section
302. With respect to any Employee Program maintained by the Company and subject
to Title IV of ERISA, there has been no (nor will be any as a result of the
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transaction contemplated by this Agreement) (i) "reportable event," within the
meaning of ERISA Section 4043, or the regulations thereunder (for which notice
the notice requirement is not waived under 29 C.F.R. Part 2615); or, (ii) event
or condition which presents a material risk of plan termination or any other
event that may cause the Company to incur liability or have a lien imposed on
its assets under Title IV of ERISA. All payments and/or contributions required
to have been made (under the provisions of any agreements or other governing
documents or applicable law) with respect to all Employee Programs ever
maintained by the Company, for all periods prior to the Closing, either have
been made or have been accrued. No Employee Program maintained by the Company
and subject to Title IV of ERISA (other than a Multiemployer Plan) has any
"unfunded benefit liabilities" within the meaning of ERISA Section 4001(a)(18),
as of the Closing Date. The Company has not ever maintained a Multiemployer
Plan. None of the Employee Programs ever maintained by the Company has ever
provided health care or any other non-pension benefits to any employees after
their employment was terminated (other than as required by part 6 of subtitle B
of title I of ERISA) or has ever promised to provide those post-termination
benefits.
The Company and each Employee Program that is a welfare plan subject to
Part 6 of Title I of ERISA and Code Section 4980B, as applicable, have complied
in all material respects with their respective requirements of such statutes in
each and every case. There is no provision in any of Company's Employee Programs
or in any other agreement that would preclude the Company from amending or
terminating any of its Employee Programs.
With respect to each Employee Program maintained by the Company within the
past five years, complete and correct copies of the following documents (if
applicable to that Employee Program) have previously been delivered to Buyer:
(i) all documents embodying or governing that Employee Program, and any funding
medium for the Employee Program (including, without limitation, trust
agreements) as they may have been amended to the date hereof; (ii) the most
recent IRS determination or approval letter with respect to such Employee
Program under Code Section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three most
recently filed IRS Forms 5500, with all applicable schedules and accountants'
opinions attached thereto; (iv) the summary plan description for such Employee
Program (or other descriptions of such Employee Program provided to employees)
and all modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy) related to such Employee Program; (vi) any documents
evidencing any loan to an Employee Program that is a leveraged employee stock
ownership plan; and (vii) with respect to any Multiemployer Plan, any
participation or adoption agreement relating to the Company's participation in
or contributions under such plan.
Each Employee Program maintained by the Company as of the date of this
Agreement is subject to termination by the Board of Directors of the Company
without any further liability or obligation on the part of the Company to make
further contributions to any trust maintained under any such Employee Program
following such termination.
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For purposes of this SECTION 2.23:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(40)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are not
subject to ERISA; and (B) all stock option plans, bonus or incentive award
plans, severance pay policies or agreements, deferred compensation agreements,
supplemental income arrangements, vacation plans, and all other employee benefit
plans, agreements, and arrangements not described in (A) above. In the case of
an Employee Program funded through an organization described in Code Section
501(c)(9), each reference to such Employee Program shall include a reference to
such organization;
(ii) an entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides (or has promised to provide) benefits
under such Employee Program, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under such Employee
Program, or if such Employee Program provides benefits to or otherwise covers
employees of such entity (or their spouses, dependents, or beneficiaries);
(iii) An entity is an "Affiliate" of the Company for purposes
of this Section 2.23 if it would have ever been considered a single employer
with the Company under ERISA Section 4001(b) or part of the same "controlled
group" as the Company for purposes of ERISA Section 302(d)(8)(C); and,
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements.
2.24 ENVIRONMENTAL MATTERS. Except as provided in SCHEDULE 2.24 and except
for biohazardous materials which have been disposed of in compliance with all
applicable laws and regulations, neither the Company nor any of the Stockholders
has ever generated, transported, used, stored, treated, disposed of, or managed
any Hazardous Waste (as defined below); and (i) no Hazardous Material (as
defined below) has ever been or is threatened to be spilled, released, or
disposed of at any site presently or formerly owned, operated, leased, or used
by the Company or the Stockholders, or has come to be located in the soil or
groundwater at any such site; (ii) no Hazardous Material has ever been
transported from any site presently or formerly owned, operated, leased, or used
by the Company or the Stockholders for treatment, storage, or disposal at
any-other place; (iii) neither the Company nor any of the Stockholders presently
owns, operates, leases, or uses, nor has either of them ever owned, operated,
leased, or used any site on which underground storage tanks are or were located;
and, (iv) no lien ever has been imposed by any governmental agency or any
property, facility, machinery, or equipment owned, operated, leased, or used by
the Company or the Stockholders in, connection with the presence of any
Hazardous Material.
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Neither the Company nor any of the Stockholders has any liability under,
nor has the Company or any of the Stockholders ever violated in any material
respect, any Environmental Law (as defined below); and: (i) the Company and the
Stockholders and any property owned, operated, leased, or used by the Company
and any facilities and operations on that property, are presently in compliance
in all respects with all applicable Environmental Laws; (ii) neither the Company
nor any of the Stockholders has ever entered into or been subject to any
judgment, consent, decree, compliance order, or administrative order with
respect to any environmental or health and safety matter or received any request
for information, notice, demand letter, administrative inquiry, or formal or
informal compliant or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law; and, (iii) the
Company has no reason to believe that any of the items enumerated in clause (ii)
of this paragraph will be forthcoming.
No site owned, operated, leased, or used by the Company contains any
asbestos or asbestos-containing material, any polychlorinated biphenyls (PCBS)
or equipment containing PCBS, or any urea formaldehyde foam insulation.
The Company and the Stockholders have provided to Buyer copies of all
documents, records, and information available to the Company or the Stockholders
concerning any environmental or health or safety matter relevant to the Company
or the Stockholders, whether generated by others or by the Company, including,
without limitation, environmental audits, environmental risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control is plans, and reports, correspondence, permits, licenses,
approvals, consents, and other authorizations related to environmental or health
or safety matters issued by any governmental agency.
For purposes of this Section 2.24: (i) "Hazardous Material,, shall mean
and include any hazardous material, hazardous substance, petroleum product, oil,
toxic substance, pollutant, or contaminant, as defined or regulated under any
Environmental Law, or any other substance which may pose a threat to the
environmental or to human health or safety, including without limitation,
bio-hazardous materials; (ii) "Hazardous Waste" shall mean and include any
hazardous waste as defined or regulated under any Environmental Law; (iii)
"Environmental Law" shall mean any environmental or health and safety-related
law, regulation, rule, ordinance, or by-law at the foreign, federal, state, or
local level, whether existing as of the date of this Agreement, previously
enforced, or subsequently enacted; and (iv) the Company shall mean and include
the Company, its respective predecessors and all other entities for whose
conduct the Company is or may be held responsible under any Environmental Law.
2.25 LIST OF DIRECTORS AND OFFICERS. SCHEDULE 2.25 contains a true and
complete list of all current directors and officers of the Company. in addition,
SCHEDULE 2.25 contains a list of all managers, employees and consultants of the
Company who, individually, have received or are scheduled to receive
compensation from the Company for the period ending December 31, 1996. In each
case that Schedule shall include the current job title and aggregate annual
compensation of each individual.
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2.26 DISCLOSURE; ACCURACY OF DOCUMENTS AND EXHIBITS. The representations,
warranties and statements contained in this Agreement and in the certificates,
exhibits and schedules delivered by the Company pursuant to this Agreement to
Buyer do not contain any untrue statement of a material fact, and, when taken
together, do not omit to state a material fact required to be stated therein or
necessary in order to make those representations, warranties or statements not
misleading in light of the circumstances under which they were made. There are
no facts known to the Company or any Stockholder which presently or may in the
future have a material adverse affect on the business, properties, prospects,
operations or condition of the Company which have not been specifically
disclosed in this Agreement or in a Schedule furnished with this Agreement,
other than general economic conditions affecting the health care industry.
All contracts, instruments, agreements and other documents delivered by
the Company and the Stockholders to Buyer or its agents for Buyer's or its
agents, review in connection with this Agreement and the contemplated
transactions, including articles of incorporation, by-laws, corporate minutes,
stock record books and tax returns, are true, correct and complete copies of all
those contracts, instruments, agreements and other documents. All Exhibits and
Schedules to this Agreement are true, correct and complete as of the Closing.
2.27 NON-FOREIGN STATUS. The Company is not a "foreign person" within the
meaning of Section 1445 of the Code and Treasury Regulations Section 1.1445-2.
2.28 EMPLOYEES; LABOR MATTERS; REGULATORY COMPLIANCE The Company employs
the Stockholder and a total of twelve (12) full-time employees and one (1)
part-time employee and-generally enjoys good employer-employee relationships.
The Company is not delinquent in payments to any of its employees for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed for it through the Execution Date or amounts required to be reimbursed
to those employees. Upon termination of the employment of any of those
employees, neither the Company, nor Buyer will by reason of the transactions
contemplated under this Agreement or anything done prior to the Closing be
liable to any of those employees for so-called "severance pay" or any other
payments, except as described in SCHEDULE 2.28. The Company has no policy,
practice, plan or program of paying severance pay or any form of severance
compensation in connection with the termination of employment, except as
described in that Schedule. The Company is in compliance with all applicable
laws and regulations including, without limitation, labor laws, employment laws,
fair employment practice laws, occupational health and safety laws, disabilities
laws, sexual harassment laws, work place safety and health laws, terms and
conditions of employment and wage and hours laws and environmental laws. There
are no charges of employment discrimination or unfair labor practices, nor are
there any strikes, slowdowns, stoppages of work, or any other concerted
interference with normal operations which are existing, pending or threatened
against or involving the Company. No question concerning labor representation
exists respecting any employees of the Company. There are no grievances,
complaints or charges that have been filed against the Company under any dispute
resolution procedure (including, but not limited to, any proceedings under any
16
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dispute resolution procedure under any collective bargaining agreement) that
might have an adverse effect on the Company or the conduct of its business, and
there is no arbitration or similar proceeding pending and no claim therefor has
been asserted. No collective bargaining agreement is in effect or is currently
being or is about to be negotiated by the Company. The Company has not received
any information indicating that any of its employment policies or practices is
currently being audited or investigated by any federal, state or local
government agency. The Company is, and at all times since November 6, 1986 has
been, in compliance with the requirements of the Immigration Reform Control Act
of 1986.
2.29 PROVIDER AGREEMENTS; SUPPLIERS; CHANGES. SCHEDULE 2.29 sets forth any
third party payor arrangement or agreement or Provider Agreement which accounts
for more than one percent (1%) of the collections of the Company for the twelve
months ended September 30, 1996. The relationships of the Company with its TPAs
are good commercial working relationships. None of the TPAs has cancelled,
materially modified, or otherwise terminated its relationship with the Company,
or has during the last twelve months decreased materially its use of the
services of the Company, nor to the knowledge of Company, do any TPAs have any
plan or intention to do any of the foregoing. Further, the Company has not
received notice that any health plan, insurance company, employer or any other
TPA which has done business with the Company since January 1, 1996 intends to
terminate, limit or restrict its relationship with the Company.
2.30 TRANSFER OF SHARES. No holder of stock of the Company has at any time
transferred any stock to any employee of the Company, which transfer constituted
or could be viewed as compensation for services rendered to the Company by that
employee.
2.31 STOCK REPURCHASE. The Company has not redeemed or repurchased any of
its capital stock. There has been no employee compensation by any means not
reflected in the financial statements.
2.32 LICENSING AND CREDENTIAL INFORMATION. Attached as EXHIBIT B to this
Agreement are complete and accurate copies of all licenses and all credentialing
documents and correspondence relating to or about the Company and the Health
Care Providers. The Company and the Health Care Providers are duly licensed
under the laws of the State of Florida and have complied with all laws, rules
and regulations relating to the rendering of services in their respective
specialty areas. No Health Care Provider has ever: (i) had his or her
professional license, Drug Enforcement Agency number, Medicare provider status
or staff privileges at any hospital or medical facility suspended, relinquished,
terminated or revoked; (ii) been reprimanded, sanctioned or disciplined by any
licensing board or any federal, state or local society or agency, governmental
body, hospital, third party payor or specialty board; or, (iii) had a final
judgment or settlement without judgement entered against him or her in
connection with a malpractice or similar action for an amount in excess of Five
Thousand Dollars ($5,000.00).
17
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2.33 HEALTH CARE FACILITIES. The Company and the Health Care Providers
maintain in good standing staff memberships or similar affiliations with the
health care facilities (the "Health Care Facilities") as described on SCHEDULE
2.33.
2.34 GOOD HEALTH. To the best of the Company's knowledge, all of the
employed and engaged Health Care Providers are in good physical and mental
health for their respective ages and do not suffer from any illnesses or
disabilities which could prevent any of them from fulfilling their
responsibilities under the respective contracts, agreements or understandings
with the Company. To the best of the Company's and the Stockholders' knowledge,
none of the employed and engaged Health Care Providers use or abuse any
controlled substances at any time or are under the influence of alcohol or are
affected by the use of alcohol during the time period required to perform their
duties and obligations under any contracts, agreements or understandings with
the Company.
SECTION 3
---------
Not Used in this Agreement
SECTION 4
---------
RESTRICTIVE COVENANTS
---------------------
4.1 MAKING OF COVENANTS AND AGREEMENTS. The Company and the Stockholders
jointly and severally hereby make the covenants and agreements in this Section 4
and the Stockholders agree to cause the Company to comply with those agreements
and covenants. No Stockholder shall have any right of indemnity or contribution
from the Company with respect to the breach of any covenant or agreement under
this Agreement.
4.2 RESTRICTIVE COVENANTS. The Stockholders recognize that to assure the
Buyer that it will realize the value inherent in the transactions contemplated
in connection with this Agreement (including, but not limited to, the
acquisition of the Company's medical practice on a "going concern" basis),.it is
necessary for the Stockholders to enter into this Agreement. The Stockholders
also acknowledge that the terms of this Agreement are inherently reasonable in
all respects, notwithstanding the fact that the terms of this Agreement could
restrict them from earning income in the field in which they currently practice.
Accordingly, each of the Stockholders agrees with the Buyer that for a five-year
period following the Closing Date anywhere within five (5) miles from any
location where any of the Stockholders provided Physician Services (the
"Restricted Area"); either on their own behalf or as a principal, partner,
stockholder, officer, employee, agent, consultant, independent contractor,
director or trustee of any person, partnership, entity, firm or corporation or
otherwise:
(a) except in their capacity as employees of the Buyer, own, manage,
operate, control or otherwise engage an a Competing Business (as defined below),
or receive any compensation in any capacity from any Competing Business;
18
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(b) other than as a patient himself or as the Buyer directs, have any
business relationship, in any capacity whatsoever, with any IPA, PHO, or any
other form of an integrated delivery system, competing medical practice or
medical services delivery system which is operated in or affiliated in any
manner with medical practices in the Restricted Area;
(c) attempt to solicit or solicit the patients or facilities serviced by
the Buyer to terminate, curtail or restrict their relationship with the Buyer or
attempt to provide or provide those patients or facilities with medical services
previously furnished to them by any of the Stockholders while employed by the
Buyer during the Term of their Employment Agreements and any Renewal Terms;
(d) otherwise divert or attempt to divert from the Buyer any business or
business opportunity whatsoever; or,
(e) attempt to solicit or solicit any person employed or contracted by the
Buyer, or any of their affiliates, to leave their employment or not fulfill
their contractual responsibility, whether or not the employment or contracting
is full-time or temporary, pursuant to a written or oral agreement, or for a
determined period or at will.
The term "Competing Business" shall mean any business which is competitive
with the Buyer, which is specifically agreed to by the parties to be the
management, provision and operation of medical services, the operation and
management of a management services organization ("MSO") available for contract
to physicians, hospitals, healthcare facilities, integrated delivery systems,
PHOS, IPAs and physician networks; and, the acquisition and operation of primary
care and specialty physician offices.
4.3 RESTRICTIVE COVENANT REMEDIES. Each of the Stockholders acknowledge
that: (i) a breach by the Company or any of the Stockholders of the provisions
of Section 4.2 would cause the Buyer irreparable harm; and, (ii) monetary
damages in an action at law would not provide an adequate remedy in the event of
a breach. Accordingly, the Stockholders, jointly and severally, agree that, in
addition to any other remedies (legal, equitable or otherwise) available to the
Buyer, Buyer may seek and obtain injunctive relief against the breach or
threatened breach of the provisions of Section 4.2 (without the necessity of any
bond or other security being posted) as well as all other rights and remedies
available at law and equity including, without limitation, the right to be
indemnified by the Stockholders for all claims, damages, actions, suits
whatsoever for a breach of Section 4.2 and if the Buyer prevails in that action,
its reasonable attorneys' fees, expenses and costs incurred in enforcing any
provisions of Section 4.2. at pretrial, trial and appellate levels. Nothing
contained in this Section 4.3 shall be construed as prohibiting the Buyer and
all other injured parties from pursuing all other remedies available to them for
a breach or threatened breach of the provisions of Section 4.2.
The Stockholders further acknowledge and agree that the covenants
contained in this Article are necessary for the protection of the Buyer's
19
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legitimate business and professional duties, ethical obligations and interests,
and are reasonable in scope and content. In the event of any breach or violation
by the Stockholders of any of the provisions of Section 4.7, the running of such
five-year period (but not the Company's and any of the Stockholders, obligations
thereunder) shall be tolled during the continuation of any breach or violation.
4.4 TERMINATION OF EMPLOYMENT AGREEMENT. In the event the Employment
Agreement entered into between Stockholder and Buyer is terminated by
Stockholder due to Company's breach, and Company has failed to remedy such
breach in accordance with the terms and conditions of the Employment Agreement,
then Sections 4.2 and 4.3 shall not apply to Stockholder.
4.5 NO SOLICITATION OF OTHER OFFERS. Neither the Company, the
Stockholders, nor any of their representatives will, directly or indirectly,
solicit, encourage, assist, initiate discussions or engage in negotiations with,
provide any information to, or enter into any agreement or transaction with, any
person, other than Buyer, relating to the possible acquisition of the Company
Shares, the Company, or any of its assets.
4.6 CONFIDENTIALITY. The Company and the Stockholders agree that, unless
and until the Closing has been consummated, each of the Company, the
Stockholders and their officers, directors, agents and representatives will hold
in strict confidence, and will not use, any confidential or proprietary data or
information obtained from Buyer with respect to its business or financial
condition except for the purpose of evaluating, negotiating and completing the
transaction contemplated hereby. Information generally known in Buyer's industry
or which has been disclosed to the Company, or the Stockholders by third parties
which have a right to do so shall not be deemed confidential or proprietary
information for purposes of this agreement. If the transaction contemplated by
this Agreement is not consummated, the Company, and the Stockholders will return
to Buyer (or certify that they have destroyed) all copies of data and
information, including but not limited to financial information, customer lists,
business and corporate records, worksheets, test reports, tax returns, lists,
memoranda, and other documents prepared by or made available to the Company or
the Stockholders in connection with the transaction.
4.7 TAX RETURNS. The Company and the Stockholders shall cooperate with
Buyer to permit the Company in accordance with applicable law to promptly
prepare and file on or before the due date or any extension of all federal,
state and local tax returns required to be filed by the Company with respect to
taxable periods ending on or before the Closing.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement to
the Company and the Stockholders to enter into this Agreement and consummate the
20
<PAGE>
contemplated transactions, Buyer hereby makes the representations and warranties
to the Company and the Stockholders contained in this Section 5.
5.2 ORGANIZATION OF BUYER. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of Florida with full corporate
power to own or lease its properties and to conduct its business in the manner
and in the places where those properties are owned or leased or that business is
conducted by it.
5.3 AUTHORITY OF BUYER. Buyer has full right, authority and power to enter
into this Agreement, and each agreement, document and instrument to be executed
and delivered by Buyer pursuant to this Agreement and to carry out the
contemplated transactions. The execution, delivery and performance by Buyer of
this Agreement, and each other agreement, document and instrument have been duly
authorized by all necessary corporate action of Buyer and no other action on the
part of Buyer is required in connection therewith. This Agreement, and each
other agreement, document and instrument executed and delivered by Buyer
pursuant to this Agreement constitute, or when executed and delivered will
constitute, valid and binding obligations of Buyer enforceable in accordance
with their terms.
(a) does not and will not violate any provision of the Articles of
Incorporation or by- laws of Buyer.
(b) does not and will not violate any laws of the United States or of any
state or any other jurisdiction applicable to Buyer or require Buyer to obtain
any approval, consent or waiver of, or make any filing with, any person or
entity (governmental or otherwise) which has not been obtained or made; and,
(c) does not and will not result in a breach of , constitute a default
under, accelerate any obligation under, or give rise to a right of termination
of any indenture, loan or credit agreement, or other agreement mortgage, lease,
permit, order, judgment or decree to which Buyer is a party and which is
material to the business and financial condition of Buyer and its parent and
affiliated organizations on a consolidated basis.
5.4 LITIGATION. There is no litigation or, to its knowledge, threatened
against Buyer which would prevent or hinder the consummation of the transactions
contemplated by this Agreement.
5.5 FINDER'S FEE. Buyer has not incurred or become liable for any broker's
commission or finder's fee relating to or in connection with the transactions
contemplated by this Agreement.
5.6 SOLVENCY OF BUYER. Buyer is solvent as of the date of this Agreement
and paying its bills as they become due.
21
<PAGE>
SECTION 6
---------
COVENANTS OF BUYER
------------------
6.1 MAKING OF COVENANTS AND AGREEMENT. Buyer hereby makes the covenants
and agreements in this Section 6.
6.2 CONFIDENTIALITY. Buyer agrees that, unless and until the Closing has
been consummated, Buyer and its officers, directors, agents and representatives
will hold in strict confidence, and will not use any confidential or proprietary
data or information obtained from the Company or the Stockholders with respect
to the business or financial condition of the Company except for the purpose of
evaluation, negotiating and completing the transaction contemplated . hereby.
Information generally known in the industries of the Company or which has been
disclosed to Buyer by third parties which have a right to do so shall not be
deemed confidential or proprietary information for purposes of this Agreement.
If the transaction contemplated by this Agreement is not consummated, Buyer will
return to the Company (or certify that it has destroyed) all copies of data and
information, including but not limited to financial information, customer lists,
business and corporate records, worksheets, test reports, tax returns, lists,
memoranda, and other documents prepared by or made available to Buyer in
connection with the transaction.
6.3 CONSUMMATION OF AGREEMENT. Buyer shall use its best efforts to perform
and fulfill all conditions and obligations on its part to be performed and
fulfilled under this agreement, to the end that the transactions contemplated by
this agreement shall be fully carried out. To this end, Buyer will obtain prior
to the Closing all necessary authorizations or approvals of its Board of
Directors.
SECTION 7
---------
CONDITIONS FOR CLOSING AND
PROCEDURE FOR CLOSING
---------------------
7.1 CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligation of Buyer to
consummate this Agreement and the contemplated transactions are subject to the
fulfillment, prior to or at the Closing, of the following conditions precedent:
(a) REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Company and the Stockholders contained in this Agreement
shall be true and correct as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing; and the Company and each of the
Stockholders shall, on or before the Closing, have performed all of their
obligations under this Agreement which by the terms are to be performed on or
before the Closing.
(b) NO MATERIAL CHANGE. There shall have been no material adverse change
in the financial condition, prospects, properties, assets, liabilities, business
or operations of the Company since the Execution Date, whether or not in the
ordinary course of business.
22
<PAGE>
(c) APPROVAL OF BUYER'S COUNSEL. All actions, proceedings, instruments and
documents required to carry out this Agreement and the contemplated transactions
and all related legal matters contemplated by this Agreement shall have been
approved by counsel for Buyer, and that counsel shall have received on behalf of
Buyer all other certificates, opinions, and documents in form satisfactory to
counsel, as Buyer may reasonably require from the Company and the Stockholders
to evidence compliance with the terms and conditions of this Agreement as of the
Closing and the correctness as of the Closing of the representations and
warranties of the Stockholders and the Company and the fulfillment of their
respective covenants.
(d) NO LITIGATION. There shall have been no determination by Buyer, acting
in good faith, that the consummation of the transactions contemplated by this
Agreement has become inadvisable or impracticable by reason of the institution
or threat by any person or any federal, state or other governmental authority of
litigation, proceedings or other action against Buyer, the Company or
Stockholder or any material adverse change in the laws or regulations applicable
to the Company.
(e) CONSENTS. The Company or the Stockholders shall have made all filings
with and notifications of governmental authorities, regulatory agencies and
other entities required to be made by the Company or the Stockholders in
connection with the execution and delivery of this Agreement, the performance of
the contemplated transactions and the continued operation of the business of the
Company by Buyer subsequent to the Closing; and the Company, the Stockholders
and Buyer shall have received all authorizations, waivers, consents and permits,
in form and substance reasonably satisfactory to Buyer, from all third parties,
including, without limitation, applicable governmental authorities, regulatory
agencies, lessors, lenders and contract parties, required to permit the
continuation of the business of the Company and the consummation of the
transactions contemplated by this Agreement, and to avoid a breach, default,
termination, acceleration or modification of any material indenture, loan or
credit agreement or any other material agreement, contract, instrument,
mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award as a result of, or in connection
with, the execution and performance of this Agreement.
(f) EMPLOYEE PROGRAMS. The Company shall have taken all steps necessary
under the relevant documents and applicable law to maintain the qualification of
each Employee Program identified on SCHEDULE 2.23 notwithstanding the purchase
of the Company Shares by Buyer.
(g) RESIGNATIONS. The Company shall have delivered to Buyer the
resignations of all of the Directors of the Company and of all officers of the
Company as may be requested by Buyer at least five days prior to the Closing,
those resignations to be effective at the Closing.
23
<PAGE>
(h) SATISFACTION OF OBLIGATIONS. On or before the Closing Date, the
Company shall have paid in full all of its outstanding debts and obligations,
including without limitation, all pension plan contribution, professional fees
(accounting and legal fees), taxes and accounts payable and the Company shall
provide the Buyer with evidence of those satisfactions.
7.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS. The
obligation of the Company and the Stockholders to consummate this Agreement and
the contemplated transactions is subject to the fulfillment, prior to or at the
Closing, of the following conditions precedent:
(a) REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of Buyer contained in Section 5 shall be true and correct in all
material respects as through made on and as of the Closing and Buyer shall, on
or before the Closing, have performed all of its obligations under this
Agreement which by the terms are to be performed on or before the Closing.
(b) APPROVAL OF THE COMPANY'S COUNSEL. All actions, proceedings,
instruments and documents required to carry out this Agreement and the
contemplated transactions and all related legal matters contemplated by this
agreement shall have been approved by Stanley H. Kuperstein, Esq. of Geiger
Kasden, et. al. in its capacity as counsel for the Company and the Stockholders,
and that counsel shall have received on behalf of the Company and the
Stockholders all other certificates, opinions and documents in form satisfactory
to that counsel as the Company may reasonably require from Buyer to evidence
compliance with the terms and conditions of this Agreement as of the Closing and
the correctness as of the Closing of the representations and warranties of Buyer
and the fulfillment of its covenants.
(c) NO LITIGATION. There shall have been no determination by the Company,
acting in good faith, that the consummation of the transactions contemplated by
this Agreement has become inadvisable or impracticable by reason of the
institution or threat by any person or any federal, state or other governmental
authority of material litigation, proceedings or other action against Buyer, the
Company, or any Stockholder.
7.3 PROCEDURE AT THE CLOSING. At the Closing, the parties agree to take
the following steps in the order listed below (provided, however, that upon
their completion all of these steps shall be deemed to have occurred
simultaneously):
(a) legal counsel for the Company and the Stockholders shall deliver a
legal opinion to the Buyer in substantially the form of EXHIBIT C attached to
this Agreement;
(b) legal counsel for the Buyer shall deliver a legal opinion to the
Company and the Stockholders in substantially the form of EXHIBIT G attached to
this Agreement;
(c) the Company shall execute and deliver resolutions adopted by the board
of directors of the Company approving the transactions contemplated by this
Agreement, certified by the corporation secretary of the Company;
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<PAGE>
(d) the Buyer shall execute and deliver resolutions adopted by the board
of directors of the Buyer approving the transactions contemplated by this
Agreement, certified by the corporation secretary of the Buyer;
(e) the Company shall deliver to the Buyer a Certificate of the Company's
President dated as of the Closing to the effect that the statements contained in
Sections 7.1(a) and (b) are true and correct;
(f) the Buyer shall deliver to the Company a Certificate of the Buyer's
President dated as of the Closing Date to the effect that the statements
contained in Section 7.2(a) are true and correct;
(g) the Buyer shall deliver the Closing Funds to the Company;
(h) each of the Stockholders shall execute and deliver to the Buyer a
Physician Employment Agreement, in substantially the form of EXHIBIT D attached
to this Agreement;
(i) the Company and each of the Stockholders shall execute and deliver to
the Buyer general releases of all claims which any of them may have against the
Company in he form of Exhibit F attached to this Agreement;
(j) each of the Stockholders shall deliver their respective stock
certificates to the Buyer and shall execute and deliver stock powers of attorney
and any other documentation necessary to effectuate a transfer of their shares
of Company Stock to the Buyer;
(k) the Buyer hall deliver to the Company a Certificate of Good Standing
issued by the Secretary of State of Florida; and,
(n) the Company shall deliver to the Buyer a Certificate of Good Standing
of Florida.
SECTION 8
---------
TERMINATION OF AGREEMENT; RIGHTS TO PROCEED
-------------------------------------------
This section not used.
SECTION 9
---------
25
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RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING
--------------------------------------------
9.1 SURVIVAL OF WARRANTIES. Each of the representations, warranties,
agreements, covenants and obligations in this Agreement or in any schedule,
exhibit, certificate or financial statement delivered by any party to the other
party incident to the contemplated transactions are material, shall be deemed to
have been relied upon by the other party and shall survive the Closing for a
period of one year, except that any representation, warranty or covenant in
relation to federal, state, local, foreign and all other taxes shall survive the
Closing for a period of three years regardless of any investigation and shall
not merge in the performance of any obligation by either party to this
Agreement.
SECTION 10
----------
INDEMNIFICATION
---------------
10.1 INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders jointly and
severally agree subsequent to the Closing to indemnify and hold the Company,
Buyer and its subsidiaries and affiliates and persons serving as officers,
directors, partners or employees of the Company or Buyer (individually a "Buyer
Indemnified Party" and collectively the "Buyer Indemnified Parties") harmless
form and against any damages, liabilities, losses, taxes, fines, penalties,
costs, and expenses (including, without limitation, reasonable fees of counsel)
of any kind or nature whatsoever (whether or not arising out of third-party
claims and including all amounts paid in investigation, defense or settlement of
the foregoing) which may be sustained or suffered by any of them arising out of
or based upon any of the following matters:
(a) fraud, intentional misrepresentation or a deliberate or wilful breach
by the Company or any Stockholder of any of their representations, warranties or
covenants under this Agreement or in any certificate, schedule or exhibit
delivered pursuant to this Agreement;
(b) any other breach of any representation, warranty or covenant of the
Company or any Stockholder under this Agreement or in any certificate, schedule
or exhibit delivered pursuant to this Agreement, or by reason of any claim,
action or proceeding asserted or instituted growing out of any matter or thing
constituting a breach of those representations, warranties or covenants; and
(c) any liability of the Company for Taxes arising from an event or
transaction prior to the Closing or as a result of the Closing which have not
been paid or provided for by the Company, including without limitations, any
increase in Taxes due to the unavailability of any loss or deduction claimed by
the Company.
10.2 LIMITATIONS ON INDEMNIFICATION BY THE STOCKHOLDERS. No
indemnification shall be payable pursuant to Subsection 10.1(b) above to any
Buyer Indemnified Party, unless the total of all claims for indemnification
pursuant to Section 10.1 shall exceed Ten Thousand Dollars ($10,000.00) in the
aggregate, whereupon the full amount of claims shall be recoverable in
accordance with the terms of this Agreement.
26
<PAGE>
10.3 INDEMNIFICATION BY BUYER. Buyer agrees to indemnify and hold the
Stockholders (individually a "Stockholder Indemnified Party" and collectively
the "Stockholder Indemnified Parties") harmless from and against any damages,
liabilities, losses and expenses (including, without limitation, reasonable fees
of counsel) of any kind or nature whatsoever (whether or not arising out of
third-party claims and including all mounts paid in investigation, defense or
settlement of the foregoing) which may be sustained or suffered by any of them
arising out of or based upon any breach of any representation, warranty or
covenant made by Buyer in this Agreement or in any certificate delivered by
Buyer under this Agreement, or by reason of any claim, action or proceeding
asserted or instituted growing out of any matter or thing constituting that
breach, including, without limitation, fraud, intentional misrepresentation or a
deliberate or wilful breach by the Buyer of any of its representations,
warranties or covenants under this Agreement or in any certificate, schedule or
exhibit delivered pursuant to this Agreement;
10.4 LIMITATION ON INDEMNIFICATION BY BUYER. No indemnification pursuant
to Section 10.3 shall be payable to the Stockholders, unless the total of all
claims for indemnification pursuant to Section 10.3 shall exceed Ten Thousand
Dollars ($10,000.00) in the aggregate, whereupon the full amount of all claims
shall be recoverable in accordance with the terms of this Agreement.
10.5 NOTICE; DEFENSE OF CLAIMS. An indemnified party may make claims for
indemnification under this Agreement by giving written notice of the claim to
the indemnifying party within the period in which indemnification claims can be
made under this Agreement. The notice shall summarize the bases for the claim
for indemnification and any claim or liability being asserted by a third party.
Within twenty (20) days after receiving any notice, the indemnifying party shall
give written notice to the indemnified party stating whether it disputes the
claim for indemnification and whether it will defend against any third party
claim or liability at its own cost and expense. If the indemnifying party fails
to give notice that it disputes an indemnification claim within twenty (20) days
after receipt of notice of the claim, it shall be deemed to have accepted and
agreed to the claim, which shall become immediately due and payable. The
indemnifying party shall be entitled to direct the defense against a third party
claim or liability with counsel selected by it (subject to the consent of the
indemnified party, which consent shall not be unreasonably withheld) as long as
the indemnifying party is conducting a good faith and diligent defense. The
indemnified party shall at all times have the right to fully participate in the
defense of a third party claim or liability at its own expense directly or
through counsel; provided, however, that if the named parties to the action or
proceeding include both the indemnifying party and the indemnified party and the
indemnified party is advised that representation of both parties by the same
counsel would be inappropriate under applicable standards of professional
conduct, the indemnified party may engage separate counsel at the expense of the
indemnifying party. If no notice of intent to dispute and defend a third party
claim or liability is given by the indemnifying party, or if that good faith and
27
<PAGE>
diligent defense is not being or ceases to be conducted by the indemnifying
party, the indemnified party shall have the right, at the expense of the
indemnifying party, to undertake the defense of that claim or liability (with
counsel selected by the indemnified party), and to compromise or settle it,
exercising reasonable business judgment. If the third party claim or liability
is one that by its nature cannot be defended solely by the indemnifying party,
then the indemnified party shall make available all information and assistance
as the indemnifying party may reasonably request and shall cooperate with the
indemnifying party in that defense, at the expense of the indemnifying party.
SECTION 11
----------
MISCELLANEOUS
-------------
11.1 FEES AND EXPENSES. Each of the parties will bear its own expenses in
connection with the negotiation and the consummation of the transactions
contemplated by this Agreement, and no expenses of the Company, or the
Stockholders relating in any way to the purchase and sale of the Company Shares
under this Agreement and the contemplated transactions, including without
limitation legal, accounting or other professional expenses of the Company or
Stockholder, shall be charged to or paid by the Company or Buyer.
11.2 GOVERNING LAW. This Agreement shall be construed under and governed
by the internal laws of the State of Florida without regard to its conflict of
laws provisions.
11.3 NOTICES. Any notice, request, demand or other communication required
or permitted under this Agreement shall be in writing and shall be deemed to
have been given if delivered or sent by facsimile transmission, upon receipt, or
if sent by registered or certified mail, upon the sooner of the date on which
receipt is acknowledged or the expiration of three days after deposit in United
States post office facilities properly addressed with postage prepaid. All
notices to a party will be sent to the addresses listed below or to any other
address or person as a party may designate by notice to each other party under
this Agreement:
if to the Buyer: QPQ Corporation
1000 Lincoln Road, Suite 204
Miami Beach, Florida
Attention: Mitchell Rubinson
Chairman/CEO
with a copy to: Ziskind & Arvin, P.A.
444 Brickell Avenue, Suite 905
Miami, FL 33131
28
<PAGE>
if to the Company or:
Stockholder than Jack B. Drimmer, M.D.
3600 Mystic Point Drive
Apt. 1618
Aventura, FL 33180
with a copy to: Stanley Kuperstein, Esq.
Geiger,Kasdin, Heller, Kuperstein,
Chames & Weil, P.A.
1428 Brickell Avenue, 6th Floor
Miami, FL 33131
Any notice given under this Agreement may be given on behalf of any party
by his counsel or other authorized representatives.
11.4 ENTIRE AGREEMENT. This Agreement, including the Schedules and
Exhibits referred to in this Agreement and the other writings specifically
identified in this Agreement or contemplated by this Agreement, is complete,
reflects the entire agreement of the parties with respect to its subject matter,
and supersedes all previous written or oral negotiations, commitments and
writings. No promises, representations, understandings, warranties and
agreements have been made by any of the parties to this Agreement except as
referred to in this Agreement or in its Schedules and Exhibits or in other
writings; and all inducements to the making of this Agreement relied upon by
either party to this Agreement have been expressed in this Agreement or in the
Schedules or Exhibits or in other writings.
11.5 ASSIGNABILITY; BINDING EFFECT. This Agreement shall only be
assignable by Buyer to a corporation or partnership controlling, controlled by
or under common control with Buyer upon written notice to the Company and the
Stockholders. This Agreement may not be assigned by the Stockholders or the
Company without the prior written consent of Buyer. This Agreement shall be
binding upon and enforceable by, and shall inure to the benefit of, the parties
to this Agreement and their respective successors and permitted assigns.
11.6 CAPTIONS AND GENDER. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision of this Agreement. The use in this Agreement of the masculine
pronoun in reference to a party to this Agreement shall be deemed to include the
feminine or neuter, as the context may require.
11.7 EXECUTION IN COUNTERPARTS. For the convenience of the parties and to
facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
29
<PAGE>
11.8 AMENDMENTS. This Agreement may not be amended or modified, nor may
compliance with any condition or covenant contained in this Agreement be waived,
except by a writing duly and validly executed by each party to this Agreement,
or in the case of a waiver, the party waiving compliance.
11.9 This Section not used.
11.10 SEVERABILITY. The invalidity or unenforceability of any one or more
of the words, phrases, sentences, clauses, or sections contained in this
Agreement shall not affect the validity or enforceability of the remaining
provisions of this Agreement or any part of any provision, all of which are
inserted conditionally on their being valid in law, and in the event that any
one or more of the words, phrases, sentences, clauses or sections contained in
this Agreement shall be declared invalid or unenforceable, this Agreement shall
be construed as if the invalid or unenforceable word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted or shall be enforced as nearly as possible according to their
original terms to eliminate any invalidity or unenforceability. If any
invalidity or unenforceability is caused by the length of any period of time or
the size of any area contained in any part of this Agreement, the period of time
or area, or both, shall be considered to be reduced to a period or area which
cure the invalidity or unenforceability.
11.11 LITIGATION; PREVAILING PARTY. Except as otherwise required by
applicable law or as expressly provided in this Agreement, in the event of any
litigation, including appeals, with regard to this Agreement, the prevailing
party shall be entitled to recover from the non-prevailing party all reasonable
fees, costs, and expenses of counsel (at pre-trial, trial and appellate levels).
11.12 PUBLICITY. Subject to applicable law, all press releases and other
publicity, except as required by applicable law, concerning the transactions,
contemplated by this Agreement will be subject to the review and approval of the
Company, the Stockholders and the Buyer, provided that the approval shall not be
unreasonably withheld or delayed.
11.13 NO BREACH. The parties agree that the execution of this Agreement
shall not be deemed to be an assignment of any contract where consent to that
assignment is required by the terms of that contract provided that the foregoing
shall not affect the Company's and the Stockholders' respective obligations to
obtain all consents as provided in this Agreement.
11.14 CONSTRUCTION. This Agreement shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Agreement to be drafted, including any presumption of superior knowledge or
responsibility based upon a party's business or profession or any professional
training, experience, education or degrees of any member, agent, officer of
employee of any party. If any words in this Agreement have been stricken out or
otherwise eliminated (whether or not any other words or phrases have been added)
and the stricken words initialed by the party against whom the words are
construed, then this Agreement shall be construed as if the words so stricken
out or otherwise eliminated were never included in this Agreement and no
implication or inference shall be drawn from the fact that those words were
stricken out or otherwise eliminated.
30
<PAGE>
11.15 JURISDICTION; VENUE; INCONVENIENT FORUM; JURY TRIAL.
---------------------------------------------------
ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT
ENTERED BY ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS
OF THE STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF FLORIDA IN DADE COUNTY, AND THE PARTIES ACCEPT THE EXCLUSIVE PERSONAL
JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING.
IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMISSION BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR LATER HAVE
TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT BROUGHT IN THE
STATE OF FLORIDA, AND FURTHER, KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE
ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE OF FLORIDA
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY WAIVES ALL RIGHTS TO ANY
TRIAL BY JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT.
SECTION 12
----------
FURTHER REPRESENTATIONS AND WARRANTIES OF BUYER
-----------------------------------------------
12.1 REPRESENTATION AND WARRANTIES OF BUYER. Until the promissory note
described in EXHIBIT A-1 (the "Note") has been paid in full and Stockholder's
employment with the Buyer pursuant to the Employment Agreement between Buyer and
Stockholder (the "Employment Agreement") terminates, other than without cause by
the Stockholder or for cause by Buyer, or its term expires, Buyer represents and
warrants to Stockholder the following:
(a) The Company shall be maintained in good standing with the
Secretary of State of the State of the Florida and its status shall remain
active;
(b) The Buyer shall grant a first lien security interest in the
Assets and in the 50 shares of no par value common stock of the Company owned by
the Buyer (the "Shares") pursuant to a Pledge and Security Agreement attached
hereto as Exhibit E; and
(c) The current malpractice insurance policy of the Company and the
Stockholder will be continued to be maintained in good standing without cost or
expense to Stockholder.
31
<PAGE>
12.2 PATIENT FILES. Included within the Assets owned by the Company are
patient files and records (the "Patient Records"), the custody of which will
remain with the Company until the later to occr of the payment in full of the
Note and the termination or expiration of the Employment Agreement. In the event
that an "Event of Default" occurs as defined in the Pledge and Security
Agreement, then the custody of the Patient Records shall be immediately
transferred to Stockholder or such other person or entity as requested by
Stockholder without any payment by Stockholder to Buyer.
32
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed as of the Execution Date.
BUYER:
QPQ CORPORATION,
a Florida Corporation
By: /s/ Mitchell Rubinson
-----------------------------------
Mitchell Rubinson, Chairman/CEO
COMPANY:
JACK B. DRIMMER, M.D., P.A.
a Florida professional association
By: /s/ Jack B. Drimmer
-----------------------------------
Jack B. Drimmer, M.D., President
STOCKHOLDERS:
/s/ Jack B. Drimmer
--------------------------------------
Jack B. Drimmer, M.D.
33
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
Exhibit A: List of Stockholders, Holdings and Consideration to be Paid
<S> <C> <C>
A-1 Promissory Note
B: Copies of all Licenses and all Credentialing Documents and Correspondence
Relating to the Company and the Company's Health Care Providers
C: Opinion of Counsel for the Company and the Stockholders
D: Employment Agreement
E: Pledge and Security Agreement
F: Releases
G: Opinion of Counsel for Buyer
Schedule 2.3(a) Voting Agreements, etc.
2.4(iii) Breach of Loans or Credit Agreements
2.5(a) Leased Real Property
2.5(a) (ii) Consents
2.5(a) (iii) Condition of Leased Real Property
2.5(a) (iv) Compliance with the Law
2.5(b) Personal Property
2.6 Financial Statements
2.7(b) Tax Disclosures
2.7(d) Tax Audits
2.7(e) Tax Matter Affiliations
2.8 Affiliated Accounts Receivable
34
<PAGE>
2.9 Material Changes
2.11 Banking Arrangements
2.12(a) Exceptions to Intellectual Property Ownership
2.12(b) Intellectual Property
2.12(c) All Licenses of Company for Intellectual Property
2.12(d) All Licenses of Company Granted to Others for Intellectual Property
2.12(f) Confidentiality Agreements
2.13 Contracts, etc.
2.14 Litigation
2.15 Medical Malpractice Litigation
2.16 Insurance
2.17 Equity Investments
2.20 Licenses, Permits
2.22 Transactions with Interested Persons
2.23 Employee Benefit Programs
2.24 Environmental Matters
2.25 Officers and Directors
2.28 Employee Termination Payments
2.29 Material Third Party Payers and Providers
2.33 Health Care Facilities
3.3 Finder's Fees
35
</TABLE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-14561) of QPQ Corporation and Subsidiaries of our report dated
March 27, 1997, with respect to the consolidated financial statements
incorporated by reference in this Annual Report (Form 10- KSB) for the year
ended December 31, 1996
MOORE STEPHENS LOVELACE, P.L.
Orlando, Florida
April 1, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANT
We consent to the incorporation by reference in the registration statement of
QPQ Corporation on Form S-3 (File No. 333-14561) of our report, which includes
an explanatory paragraph relating to the Company's ability to continue as a
going concern as described in Note 2 to the consolidated financial statements,
dated March 29, 1996, an our audits of the consolidated financial statements of
QPQ Corporation as of and for the year ended December 31, 1995, which report is
included in the Company's 1996 Annual Report on Form 10-KSB.
Coopers & Lybrand L,L,P.
Miami, Florida
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QPQ CORPORATION FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 438,731
<SECURITIES> 0
<RECEIVABLES> 171,972
<ALLOWANCES> 0
<INVENTORY> 57,718
<CURRENT-ASSETS> 1,077,060
<PP&E> 2,627,591
<DEPRECIATION> (639,340)
<TOTAL-ASSETS> 3,393,987
<CURRENT-LIABILITIES> 838,085
<BONDS> 0
0
0
<COMMON> 76,535
<OTHER-SE> 2,179,367
<TOTAL-LIABILITY-AND-EQUITY> 3,393,987
<SALES> 2,093,145
<TOTAL-REVENUES> 2,093,145
<CGS> 3,532,435
<TOTAL-COSTS> 3,532,435
<OTHER-EXPENSES> 1,390,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,844
<INCOME-PRETAX> (2,866,982)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,866,982)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,866,982)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
