UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
INTERNATIONAL FRANCHISE SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
INTERNATIONAL FRANCHISE SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, JULY 16, 1996
The Annual Meeting of Shareholders of International Franchise Systems, Inc.
will be held at the offices of Reed Smith Shaw & McClay at 1301 K Street, N.W.,
Suite 1100 East Tower, Washington, DC on Wednesday, July 16, 1997 at 10:00 a.m.
for the following purposes:
1. To elect seven Directors for the following year;
2. To vote on adoption of the Company's 1997 Stock Incentive Plan;
3. To vote on adoption of the Company's 1997 Non-Employee Director's
Stock Option Plan; and
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on May 20, 1997 as
the record date for the meeting. Only shareholders of record at that time are
entitled to notice of and to vote at the meeting. If you are present at the
meeting, you may vote in person even though you have previously delivered your
proxy.
The enclosed proxy is being solicited on behalf of the Company.
By Order of the Board of Directors
H. Michael Bush
Secretary
SHAREHOLDERS ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT PROMPTLY IN THE BUSINESS REPLY ENVELOPE PROVIDED. SHAREHOLDERS WHO ARE
PRESENT AT THE MEETING MAY WITHDRAW THEIR PROXY AND VOTE IN PERSON.
<PAGE>
INTERNATIONAL FRANCHISE SYSTEMS, INC.
PROXY STATEMENT
July 16, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the directors of International Franchise Systems, Inc. (the
"Company") for use at the Annual Meeting of Shareholders to be held at the
offices of Reed Smith Shaw & McClay at 1301 K Street, N.W., Suite 1100 - East
Tower, Washington, DC at 10:00 a.m. on Wednesday, July 16, 1997 (the "Annual
Meeting"). The proxy may be revoked at any time prior to voting thereof by
notifying the persons named in the proxy of the intention to revoke, by
execution and delivery of a later dated proxy or by appearing at the Annual
Meeting and voting in person the shares of common stock ("Shares") to which the
proxy relates. Shares will be voted in accordance with the instruction indicated
in a properly executed proxy. If no instructions are indicated, such shares will
be voted as recommended by the directors.
This Proxy Statement and the enclosed proxy were mailed on or about June 7,
1997 to shareholders of record at the close of business on May 20, 1997 (the
"Record Date"). The Company has mailed each Shareholder of record as of the
Record Date an Annual Report that includes audited financial statements for the
year ended December 29, 1996.
The holders of a majority of the Shares entitled to vote present at the
Annual Meeting in person or represented by proxies will constitute a quorum for
the transaction of business. At the close of business on the Record Date, the
Company had 6,727,324 Shares outstanding and entitled to vote. Each Share has
one vote on all matters including those to be acted upon at the Annual Meeting.
In the election of directors, the seven nominees receiving a plurality of
the votes cast at the meeting shall be elected. Approval of all other matters to
be submitted to the shareholders requires the affirmative vote of a majority of
the votes cast at the Meeting. For purposes of determining the number of votes
cast with respect to any voting matter, only those cast "FOR" or "AGAINST" are
included. Abstentions and broker non-votes are counted only for purposes of
determining whether a quorum is present at the Meeting. Crescent Capital, Inc.
("Crescent"), the majority shareholder of the Company, has indicated that it
will vote its shares "FOR" the seven nominees for director listed below. If the
shares of Crescent are voted as so indicated, the election of each of the seven
nominees for the Board of Directors is assured.
The mailing address of the Company is 6701 Democracy Boulevard, Suite 300,
Bethesda, MD 20817. Notices of revocation of proxies should be mailed to that
address.
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OWNERSHIP OF EQUITY SECURITIES
The table below sets forth certain information as of March 1, 1997
regarding the beneficial ownership, as defined in regulations of the Securities
and Exchange Commission, of Common Stock of (i) each person who is known to the
Company to be the beneficial owner of more than 5% of the outstanding shares of
the Company's Common Stock, (ii) each director and nominee for director of the
Company, and (iii) all directors and executive officers as a group. On March 1,
1997, there were 6,727,324 shares of the Company's Common Stock outstanding.
Unless otherwise specified, the named beneficial owner has sole voting and
investment power. The information in the table below was furnished by the
persons listed. "Beneficial Ownership" as used herein has been determined in
accordance with the rules and regulations of the Securities and Exchange
Commission and is not to be construed as a representation that any of such
shares are in fact beneficially owned by any person.
Names and Address of Amount and Nature of Percentage of
Beneficial Owner Beneficial Ownership Class
Crescent Capital, Inc.(1)(2) 4,700,000 69.86%
6701 Democracy Boulevard
Suite 300
Bethesda, MD 20817
Colin Halpern -0- -0-
H. Michael Bush 5,000(3) *
Gerald Halpern -0- -0-
Melvin F. Lazar 10,000(3) *
Robert P. Flack 10,000(3) *
Kenneth R. Franklin 10,000(3) *
Franklen M. Abelman 10,000(3) *
All directors and officers
as a group (7 persons) 45,000 *
* Less than 1%
(1) Woodland Limited Partnership, a limited partnership of which Woodland
Group is the General Partner, owns approximately 92% of Crescent's
issued and outstanding shares of Common Stock. Woodland Group is owned
one-third by Mr. Jay Halpern, one-third by Ms. Nancy Gillon and
one-third by Mrs. Gail Halpern. Gail Halpern is the wife of Colin
Halpern. Jay Halpern and Nancy Gillon are the children of Gail and
Colin Halpern. By reason of their indirect ownership of approximately
92% of the outstanding stock of
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<PAGE>
Crescent, Mr. Jay Halpern, Ms. Gillon and Mrs. Halpern may be deemed
to have a beneficial interest in the shares owned by Crescent. Messrs.
Halpern, Ms. Gillon and Mrs. Halpern disclaim beneficial ownership of
such securities.
(2) On December 18, 1992, the SEC directed by Order that an investigation
be made into possible violations of certain of the federal securities
laws, including laws dealing with manipulation and false disclosure,
by a number of named individuals and entities, with respect to the
securities of seven issuers, including Crescent, and other unnamed
issuers. The investigation of Crescent was initiated prior to the time
current management became affiliated with Crescent. To date, no
actions have been brought against Crescent and, insofar as Crescent is
aware, no actions have been brought against anyone involving the
Company or its securities.
(3) Represents options to purchase shares of Common Stock exercisable
within 60 days of March 1, 1997.
ELECTION OF DIRECTORS
At the Annual Meeting, seven directors are to be elected, each to hold
office until the next annual meeting of Shareholders and until his or her
successor is duly elected and qualified, except in the event of death,
resignation or removal. Unless otherwise specified, proxies solicited hereby
will be voted "FOR" the election of the nominees listed below, except that in
the event any of those named should not continue to be available for election,
discretionary authority may be exercised to vote for a substitute. No
circumstances are presently known that would render any nominee named herein
unavailable. All of the nominees are now members of the Board of Directors.
The nominees, their ages, the year of election of each of the nominees for
the Board of Directors, their principal occupations during the past five years
or more, and directorships of each in public companies in addition to the
Company, are as follows:
Colin Halpern, age 60, has served as Chairman of the Board since December
1993, and served as President of the Company from December 1993 until May 1996.
He also currently serves as President, Secretary, Treasurer and Director of
Crescent Capital, Director of Lafayette Industries, Inc., a manufacturer of
store fixtures, and President, Chief Executive Officer and Chairman of the Board
of Directors of NPS Technologies Group, Inc., all of which are public companies.
He has held these positions since July 1994, January 1992 and August 1983,
respectively. Mr. Halpern serves as Chairman of the Board for Red Hot Concepts,
a public company that operates Chili's restaurants in the United Kingdom and
Australia, from June 1994 to presesnt and from June 1994 to August 1996, he
served as President of Red Hot Concepts. Mr. Halpern also served as Executive
Vice President of Lafayette Industries from January 1992 to December 1996. From
1985 to the present, Mr. Colin Halpern has also served as the Chairman of
Universal Services Group, Inc. Mr. Colin Halpern was formerly the Chairman and
Chief Executive Officer of DRC Industries, Inc., a company which, from November
1975 through October 1985, had a Budget Rent-A-Car master license agreement for
the New York metropolitan area, including LaGuardia and John F. Kennedy
Airports.
In June 1991, the SEC sought and received, and NPS Technologies Group, Inc.
("NPS") consented to the entering of, an order against NPS and its officers and
employees that required NPS to file certain periodic reports with the SEC that
had not been timely filed and
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<PAGE>
permanently restrained and enjoined NPS and such officers and employees from
failing to file in proper form with the SEC accurate and complete reports
required to be filed by NPS pursuant to the rules and regulations of the SEC.
Mr. Colin Halpern is the President and Director of NPS, which is currently
inactive. Since June 1991, certain of NPS' reports have not been timely filed by
NPS and other reports have not been filed in proper form. The SEC has taken no
further action against NPS or any of its officers and employees.
H. Michael Bush, age 42, has served as Chief Financial Officer and
Secretary since joining the Company in November 1995. Since May 1996, Mr. Bush
has also served as Acting President. Mr. Bush is also Chief Financial
Officer/Secretary for Red Hot Concepts, Inc. Prior to joining the Company, Mr.
Bush worked at Mobil Oil Corporation. He served at Mobil in various financial
capacities from 1980 through November 1995, including Manager of Financial
Analysis, Accounting Manager and Senior Tax Planning Advisor. From 1976 through
1980, Mr. Bush worked at Unisys. Mr. Bush is a certified public accountant.
Gerald Halpern, age 64, has served as Executive Vice President and Director
of the Company since December 1993. From April 1991 through December 1993, he
has served as Treasurer of Chinese Pompano, Inc., a fast food restaurant and
delivery company, and is responsible for financial planning and development. He
remains a director of Chinese Pompano, Inc. Mr. Gerald Halpern served as
Executive Vice President of Courter & Co., a mechanical contracting firm from
1988 to 1990. Mr. Gerald Halpern also served for 11 years as President of DRC
Industries. Gerald Halpern and Colin Halpern are brothers. Mr. Gerald Halpern is
also a director of Live Bait.
Melvin F. Lazar, age 57, has been an outside Director of the Company since
December 1993. Mr. Lazar is the founding partner of Lazar, Levine & Company, a
New York City CPA firm which is in its twenty-sixth year of operation. Mr. Lazar
received a Bachelor of Business Administration degree from The City College of
New York in 1960. He is a member of the American Institute of Certified Public
Accountants, the New York State Society of Certified Public Accountants and is
currently serving on the NYSSCPA Committee on Cooperation with Stock Exchanges
and Investment Bankers as well as the Committee on Cooperation with Financial
Media. Mr. Lazar has been licensed in the State of New York as a Certified
Public Accountant since 1964. Mr. Lazar specializes in both litigation support
services and assisting companies with merger and acquisition activities. He has
assisted companies with funding requirements including venture, equity and debt
financing and has serviced public and privately owned companies for over thirty
years. He is also a director of Red Hot Concepts, Inc.
Robert Pace Flack, age 59, has served as a director of the Company since
February 1995. Since December 1995, he has served as Chief Executive Officer,
President and Director of Kona Restaurant Group, Inc. He is also currently
serving as a management consultant for business development and for the food
service industry as a director of Business Development Services, a private
company. From June 1989 to December 1994, Mr. Flack has held several positions
and most recently served as the President and Chief Executive Officer of Sonic
Industries, a NASDAQ listed, fast service, drive-in restaurant chain with over
1,300 outlets, 90% of which are franchised. He has served in senior management
positions with several restaurant companies including El Chico Corporation
(NASDAQ), Pizza Inn, Inc. (AMEX) and Village Kitchen Foods, Inc. Mr. Flack is a
member of the National Restaurant Association and the International Franchise
Association. Mr. Flack is also a director of Red Hot Concepts, Inc. and of
Lincoln National Bank, Oklahoma.
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<PAGE>
Kenneth Ronald Franklin, age 65, has served as a director of the Company
since February 1995. For the past 15 years, Mr. Franklin has served as President
of Franchise Developments, Inc., a consulting firm which assists start-up and
existing franchisors, both public and privately owned, to structure, design and
implement franchise programs. Mr. Franklin sits on the Board of Advisors of many
of the companies for which he provides these services. Mr. Franklin has
conducted seminars nationally and has been a featured speaker on franchising
operations for numerous organizations including the International Franchise
Association, Small Business Administration and Management Centre Europe. In the
past, he has owned various franchised operations and currently is the owner of
an Arby's franchise in St. Louis, Missouri. Mr. Franklin is a director of Safe
Systems, Inc.
Franklen Myles Abelman, age 55, has served as a director of the Company
since February 1995. Mr. Abelman is currently serving as Regional General
Counsel for British American Tobacco. From 1992 through 1995, Mr. Abelman has
served as an independent consultant in franchising, distribution and business
development to entities involved in international development, particularly with
respect to operations in the Far East, Europe and the Middle East. His clients
include public and privately owned companies and franchise operations such as
Roasters Corporation (for which he served as Vice President - International
Development through 1995), Foodmaker, Carvel, Dairy Queen, Pepsico, Inc.,
Medvest and Brown and Williamson. From 1983 to 1992, Mr. Abelman was employed by
Pepsico, Inc. and served as Vice President and General Counsel of Kentucky Fried
Chicken International where he was responsible for managing the legal department
and franchising operations of the Company's international division in 65
countries. Mr. Abelman is a director of Perfect Delivery, Inc. and of Foodco
International, Ltd., both private companies. Mr. Abelman is also a director of
Red Hot Concepts, Inc.
Director Compensation
Directors who are officers or employees of the Company receive no
additional compensation for service as members of the Board of Directors or
committees thereof. Directors who are not officers or employees of the Company
receive such compensation for their services as the Board of Directors may from
time to time determine. Non-employee directors receive an annual fee of $5,000
and a fee of $1,000 for each board, committee, and shareholder meeting attended.
During fiscal years 1995 and 1996, non-employee directors participated in the
1995 Non-Employee Directors Stock Option Plan, which plan was adopted by the
shareholders at the 1996 annual meeting of shareholders. During fiscal year
1996, Messrs. Abelman, Flack. Lazar, Franklin and Halpern each were granted an
option to acquire 10,000 shares of common stock at an exercise price of $.625
under the plan. The options were granted on July 11, 1996 and are exercisable
after the first anniversary of the grant for a period of ten years.
Meetings and Committees of the Board of Directors.
The Board of Directors ("Board") held three meetings during fiscal year
1996. The compensation and Stock Option Committee (the "Compensation
Committee"), which currently consists of Messrs. Lazar, Flack, Franklin and
Abelman, evaluates the performance of and makes compensation recommendations for
senior management and directs the
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<PAGE>
administration of and makes determinations under the Company's Stock Option and
Incentive plans. During fiscal year 1996, the Compensation Committee did not
meet. The Company does not have a standing audit or nominating committee.
Each director attended at least 75% of the aggregate of (i) the total
number of meetings of the Board of Directors held during fiscal year 1996 and
(ii) the total number of meetings held by all committees of the Board of
Directors during fiscal year 1996 on which such person served.
The Board of Directors recommends a vote "FOR" the nominees set forth herein.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the aggregate cash compensation paid by the
Company for the fifty-two weeks ended December 29, 1996 to those executive
officers whose salary and bonus exceeded $100,000 and the Chief Executive
Officer.
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
Other Restricted Securities
Name and Salary Annual(1) Stock Underlying All
Principal Compensation Bonus Compensation Award (s) Options Compensation
Position Year ($) ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Colin Halpern 1996 96,000 0 23,283 0 10,000 0
Chairman (2) 1995 96,000 0 56,043 0 0 0
H. Michael Bush 1996 50,000 10,000(3) 5,000 0 15,000 0
Acting President,
Chief Financial Officer,
Secretary
Gerald Halpern 1996 72,000 0 30,860 0 0 0
Executive Vice 1995 72,000 0 34,814 0 0 0
President
<FN>
(1) For 1996, Colin Halpern includes $15,840 car allowance and $7,443 for
insurance and for 1995 includes $15,840 car allowance, $7443 for
insurance, and $32,760 for housing allowance. For Gerald Halpern, 1996
figure includes $24,960 housing allowance and $5,900 for insurance and
1995 includes $28,914 housing allowance and $5,900 for insurance.
Where no amount is given, the dollar value of perquisites paid to the
named executive officer does not exceed the lesser of $50,000 or 10%
of the total of annual salary and bonus reported for the named
executive officer.
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(2) Colin Halpern has served as President from December 1993 through May
1996.
(3) Represents amounts paid under the Company bonus plan.
</FN>
</TABLE>
Stock Option Grants
The following tables set forth, as to the executive officers, certain
information relating to options for the purchase of Common Stock granted and
exercised during fiscal year 1996 and held at the end of fiscal year 1996.
Option Grants in Last Fiscal Year
Individual Grants
Name Options % of Total Options Exercise Expiration
Granted Granted to Employees in or Base Date
(#) Fiscal Year Price
Colin Halpern 10,000 (1) (1) $ .625 7/11/06
H. Michael Bush 15,000 (2) 100% $1.25 3/8/06
Gerald Halpern --- --- --- ---
(1) Represents options granted under the Company's 1995 Non-Employee
Director Plan. Mr. Colin Halpern was not an executive officer of the
Company at the time of grant. Such options are exercisable after the
first anniversary of the grant until ten years from the date of grant.
(2) 1/3 of such options are exercisable on the first anniversary date of
the grant, 1/3 are exercisable on the second anniversary date of the
grant and the remaining 1/3 are exercisable on the third anniversary
date of the grant. No option is exercisable after the expiration of
ten years from the date of grant.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last
Fiscal Year and FY-End Option Values
Name Shares Value # of securities # of securities Value of Value of
acquired on Realized underlying underlying unexercised unexercised
exercise(#) ($) unexercised options unexercised options in-the-money in-the-money
at FY-End at FY-End option at option at
Exercisable Unexercisable FY-End (1) FY-End (1)
Exercisable Unexercisable
<S> <C> <C> <C> <C>
Colin Halpern 0 0 0 10,000 --- ---
H. Michael Bush 0 0 5,000 10,000 * *
Gerald Halpern --- --- --- --- --- ---
<FN>
* At fiscal year-end, the Company stock was trading at a price less than
the option price.
(1) Represents the difference between the option exercise price and the
closing market price for the Company's Common Stock on December 29,
1996 ($.50).
</FN>
</TABLE>
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CERTAIN TRANSACTIONS
The Company has entered into several transactions with affiliates. The
Company believes that the terms of the transactions with affiliates are on terms
at least as favorable as could have been obtained from unaffiliated third
parties. The Company will require that in the future, transactions with
affiliates will continue to be made on terms the Company believes are at least
as favorable as those obtainable from unaffiliated third parties.
Woodland Limited Partnership
Woodland Limited Partnership ("Woodland") is a partnership controlled by
members of Mr. Colin Halpern's family. Woodland owns approximately 92% of the
outstanding voting stock of Crescent, the holder of approximately 70% of the
voting stock of the Company. Mr. Colin Halpern is the President and sole
director of Crescent. Through its ownership of the stock of Crescent, Woodland
is able to control the election of directors and any other matter submitted for
shareholder approval.
Crescent Capital, Inc.
The Company has advanced funds from time to time to Crescent. As of
December 29, 1996 the total amount due to the Company from Crescent for funds
advanced was $1,839,325. The funds were advanced on a short-term basis and are
not interest bearing. As of December 31, 1995, the total amount due the Company
from Crescent was $1,369,261.
Advances to Colin Halpern
The Company has advanced funds from time to time to Mr. Colin Halpern. At
December 29, 1996, the total amount due to the Company from Mr. Colin Halpern
was $125,016 reflecting a decrease of $9,135 from December 31, 1995.
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<PAGE>
PROPOSAL TO APPROVE THE COMPANY'S
1997 STOCK INCENTIVE PLAN
On December 18, 1996, the Board of Directors of the Company adopted the
International Franchise Systems, Inc. 1997 Stock Incentive Plan (the "Plan")
subject to approval of shareholders being sought herein. The Plan is intended to
recognize the contributions made to the Company by employees (including
employees who are directors), to provide such persons with additional incentive
to devote themselves to the future success of the Company, and to improve the
ability of the Company to attract, retain and motivate individuals upon whom the
Company's sustained growth and financial success depend. The Plan does this by
providing such persons with an opportunity to acquire or increase their
proprietary interests of the Company through the grant of options to acquire the
Company's Common Stock. Options granted under the Plan to employees may be
"incentive stock options" ("ISOs") within the meaning of Section 422(b) of the
Internal Revenue Code of 1986 (the "Code"), or may be options not intended to be
ISOs ("non-qualified stock options").
The key provisions of the Plan are as follows:
Pursuant to the Company's Stock Incentive Plan (the "Stock Plan" or the
"Plan"), officers and key employees of the Company will be eligible to receive
awards of stock options and limited stock appreciation rights. Options granted
under the Stock Plan may be ISOs within the meaning of Section 422 of the Code,
or non-qualified stock options (NQSOs"). Limited Stock Appreciation Rights
("LSARs") may be granted simultaneously with the grant of an option or, in the
case of NQSOs, at any time during its term. The Company has reserved 800,000
shares of the Common Stock for issuance of awards under the Stock plan subject
to anti-dilution and similar adjustments.
The Stock Plan is administered by the Compensation Committee of the
Company's Board of Directors. Subject to the provisions of the Stock Plan, the
Committee will determine the type of award, when and to whom awards will be
granted, and the number of shares covered by each award. The Committee also will
determine the terms, provisions and kind of consideration payable (if any), with
respect to awards. In addition, the Committee will have sole discretionary
authority to interpret the Stock Plan and to adopt rules and regulations for
administering the Plan. In determining the persons to whom awards will be
granted and the number of shares covered by each award, the Committee may take
into account the contribution to the management, growth and/or profitability of
the business of the Company by the respective persons and such other factors as
the Committee may consider relevant.
An option may be granted on such terms and conditions as the Committee may
impose, and generally may be exercised for a specified period not to exceed 10
years from the date of grant. Options must be granted with an exercise price
equal to the "Fair Market Value" (as defined in the Stock plan) on the date of
grant. In the case of ISOs, certain limitations will apply with respect to the
aggregate value of option shares which can become exercisable for the first time
during any one calendar year, and certain additional limitations will apply to
"Ten Percent Stockholders" (as defined in the Stock Plan). The Committee may
provide for the payment of the option price in cash, by delivery of other Common
Stock having a Fair Market Value equal to such option price or by a combination
of these two payment methods.
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The Company's Board of Directors may at any time suspend, amend, modify or
terminate the Plan. However, unless required by the Securities Exchange Act of
1934 or approved by the Company's shareholders, no change may (i) increase the
number of shares as to which options may be granted under the Plan (except for
adjustments provided for in the Plan to reflect stock dividends or other
recapitalizations affecting the number or kind of outstanding shares), (ii)
change in any way the class of employees eligible to receive ISOs under the
Plan, (iii) extend the duration of the Plan, or (iv) become effective if advance
shareholder approval is required by law, regulation, rule or order. In addition,
no such change may adversely affect any option previously granted, except with
the written consent of the optionee or as required by law.
Taxation of ISOs. In general, a recipient of an ISO will not recognize
taxable income upon either the grant or exercise of the ISO. Instead, the option
holder will recognize long-term capital gain or loss on the disposition of the
shares acquired under an ISO, so long as the option holder does not dispose of
those shares within two years from the date the ISO was first granted or within
one year after the shares were transferred to such option holder. Currently for
regular federal income tax purposes, long-term capital gain is taxed at a
maximum rate of 28%, while ordinary income may be subject to a maximum rate of
39.6%. If the option holder satisfies both the foregoing holding periods, the
Company will not be entitled to a deduction by reason of the grant or exercise
of an ISO.
As a general rule, if the option holder disposes of the shares acquired
through the exercise of an ISO before satisfying the holding period requirements
(a "disqualifying disposition"), the gain recognized by the option holder on the
disqualifying disposition will be taxed as ordinary income to the extent of the
difference between (a) the lesser of the fair market value of the shares on the
date of exercise or the amount received for the shares in the disqualifying
disposition, and (b) the adjusted basis of the shares. The Company also will be
entitled to an income tax deduction in that amount. The gain (if any) in excess
of the amount recognized as ordinary income on a disqualifying disposition will
be long-term or short-term capital gain, depending on the length of time the
option holder held the shares prior to the disposition.
The amount by which the fair market value of a share at the time of
exercise exceeds the option price will be included in the computation of the
option holder's "alternative minimum taxable income" in the year the option
holder exercises the ISO. Currently, the maximum alternative minimum tax rate is
28%. If an option holder pays alternative minimum tax with respect to the
exercise of an ISO, the amount of the tax paid will be allowed as a credit
against regular tax liability in subsequent years.
Taxation of Non-Qualified Stock Options. A recipient of a non-qualified
stock option will not recognize taxable income at the time of grant, and the
Company will not be allowed a deduction by reason of the grant. Instead, the
option holder will recognize ordinary income in the taxable year in which the
option holder exercises the non-qualified stock option, in an amount equal to
the excess of the fair market value of the shares received upon exercise at the
time of exercise of such options over the option price of the option. The
Company will also be entitled to an income tax deduction in that amount. Upon
disposition of the shares acquired under an option, an option holder will
recognize long-term or short-term capital gain or loss, depending upon the
length of time the shares were held prior to disposition, equal to the
difference between the amount realized on disposition and the option holder's
basis in a share subject to the option (which ordinarily would be the fair
market value of the option shares on the date the option was exercised).
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<PAGE>
Summary of Benefits under the Stock Incentive Plan. It is not possible to
state the number of options or awards that may be granted in the future to any
particular individual. No options were granted under the Plan during the last
fiscal year.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE ABOVE PROPOSAL.
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<PAGE>
PROPOSAL TO APPROVE THE COMPANY'S
1997 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
On December 18, 1996, the Board of Directors of the Company adopted
International Franchise Systems, Inc. 1997 Non-Employee Directors Stock Option
Plan (the "Plan") subject to approval of shareholders being sought herein. The
Plan is intended to promote the long-term success of the Company by creating a
long-term mutuality of interests between the non-employee directors and the
Company's stockholders and to provide a means through which the Company may
attract able persons to serve as Directors. The Plan does this by providing to
such Directors options to acquire the Company's Common Stock. Options granted to
non-employee directors under the Plan will be non-qualified stock options.
The key provisions of the Plan are as follows:
Pursuant to the Company's Plan, on the first business day of each calendar
quarter, each Director who is not then an employee of the Company or any of its
subsidiaries (a "Non-Employee Director" or "grantee") is automatically granted a
"nonstatutory stock option" (i.e., a stock option which does not qualify under
Sections 422 or 423 of the Internal Revenue Code of 1986 (the "Code")) to
purchase 5,000 shares of Company Common Stock (subject to anti-dilution and
similar adjustments). The aggregate number of shares which may be issued or
delivered and as to which grants of stock options may be made under the Plan is
300,000 shares of the Common Stock, $.01 par value, of the Company subject to
anti-dilution and similar adjustments.
The Plan is administered by the Compensation Committee of the Company's
Board of Directors. The Committee has full discretionary authority to interpret
the Plan and prescribe such rules, regulations and procedures for the
administration of the Plan as it may deem necessary or advisable. However, the
Committee does not have any discretion as to the selection of the Directors to
whom stock options are to be granted, the timing of such grants, the number of
shares subject to any stock option, the exercise price of any stock option, the
periods during which any stock option may be exercised and the term of any stock
option.
The terms and conditions of the grant of stock options are set forth in the
Plan. Each stock option generally is exercisable after the first anniversary of
the grant of such option and no stock option is exercisable after the expiration
of ten years from the date of grant. The purchase price at which each stock
option may be exercised (the "option price") must be one hundred percent (100%)
of the fair market value (as defined in the Plan) of the Common Stock on the
date of grant. The Committee may provide for the payment of the option price in
cash, by delivery of other Common Stock having a Fair Market Value equal to such
option price or by a combination of these two methods.
The Company's Board of Directors may at any time suspend, amend, modify or
terminate the Plan. However, unless required by the Securities Exchange Act of
1934, no such change may be made without shareholder approval where such
approval is required by law, regulation, rule or order. In addition, no such
change may adversely affect any option previously granted, except with the
written consent of the optionee or as required by law.
Taxation of Non-qualified Stock Options. A recipient of a non-qualified
stock option will not recognize taxable income at the time of grant, and the
Company will not be allowed a deduction by reason of the grant. Instead, an
option holder will recognize ordinary income in the taxable year in which the
option holder exercises the non-qualified stock option, in an amount equal to
the excess of the fair market value of the shares received upon exercise at the
time of exercise of such options over the option price of the option. The
Company also will be entitled to an income tax deduction in that amount. Upon
disposition of the shares acquired under an option, the option holder will
recognize long-term or short-term capital gain or loss (depending upon the
length of time the shares were held prior to disposition), equal to the
difference between the amount realized on disposition and the option holder's
basis in the shares subject to the option (which ordinarily would be the fair
market value of the shares subject to the option on the date the option was
exercised).
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<PAGE>
Summary of Benefits under the Plan. It is not possible to state the number
of options or awards that may be granted in the future to any particular
individual. No options were granted under the Plan during the last fiscal year.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE ABOVE PROPOSAL.
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Company from its inception has engaged the firm of Moore Stephens, P.C.
(formerly Mortenson and Associates, P.C.) as its independent public accountants,
and the Board of Directors has selected Moore Stephens, P.C. as auditors of the
Company for 1997.
A representative of Moore Stephens, P.C. will be present at the Annual
Meeting, and will be given the opportunity to make any statement he desires to
make and will be available to respond to questions.
OTHER MATTERS
Management does not know of other matters which are likely to be brought
before the meeting. However, in the event that any other matters properly come
before the Annual Meeting, the persons named in the enclosed proxy are expected
to vote the Shares represented by such proxy on such matters in accordance with
their best judgment.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Meeting and the enclosed proxy is to be borne by the Company.
In addition to the solicitation of proxies by the use of the mails, the
Company may utilize some of its officers and employees (who will receive no
compensation in addition to their regular salaries) to solicit proxies
personally and by telephone. The Company does not currently intend to retain a
solicitation firm to assist in the distribution of proxy statements and the
solicitation of proxies. The Company may request banks, brokers and other
custodians, nominees and fiduciaries to forward copies of the Proxy Statement to
their principals and to request authority for the execution of proxies, and will
reimburse such persons for their expenses in so doing.
SHAREHOLDERS' PROPOSALS
Any proposal which a Shareholder intends to present at the Company's 1998
Annual Meeting of Shareholders must be received by the Company no later than
December 15, 1997 in order to be included in the Company's Proxy Statement and
form of proxy relating to that meeting.
The Company will provide Shareholders, without charge, a copy of the
Company's Annual Report on Form 10-KSB filed with the Securities and Exchange
Commission for the year ended December 29, 1996, including the financial
statements and schedules attached thereto, upon written request to Mr. H.
Michael Bush, at International Franchise Systems, Inc., 6701 Democracy
Boulevard, Suite 300, Bethesda, MD 20817
By order of the Board of Directors
H. Michael Bush
Secretary
June 7, 1997
<PAGE>
Proxy for Annual Meeting of Shareholders July 16, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of International Franchise Systems, Inc. appoints
Gerald Halpern, Melvin F. Lazar and Colin Halpern, and each of them, with full
power of substitution, as proxy to vote all shares of the undersigned in
International Franchise Systems, Inc. at the Annual Meeting of Shareholders to
be held on Wednesday, July 16, 1997 and at any adjournment thereof, with like
effect and as if the undersigned were personally present and voting, upon the
following matters:
1. To elect seven Directors
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary below) (to vote for all nominees listed below)
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line though the nominee's name in the list below)
Colin Halpern H. Michael Bush Gerald Halpern Melvin F. Lazar
Robert P. Flack Kenneth R. Franklin Franklen M. Abelman
2. To approve the International Franchise Systems, Inc. 1997 Stock Incentive
Plan
/ / FOR / / AGAINST / / ABSTAIN
To approve the International Franchise Systems, Inc. 1997 Non-Employee
Director's Stock Option Plan
/ / FOR / / AGAINST / / ABSTAIN
4. Such other matters as may properly come before the meeting at the
discretion of the proxy holders.
(Continued and to be signed on reverse side)
<PAGE>
(Continued from reverse side)
PROXIES WILL BE VOTED AS DIRECTED OR SPECIFIED. IF NO CHOICE IS SPECIFIED, THIS
PROXY WILL BE VOTED (1) FOR THE NOMINATED DIRECTORS, (2) FOR THE PROPOSAL TO
APPROVE THE 1997 STOCK INCENTIVE PLAN, (3) FOR THE PROPOSAL TO APPROVE THE 1997
NON-EMPLOYEE DIRECTOR'S STOCK OPTION PLAN, AND (4) FOR OR AGAINST ANY OTHER
MATTERS THAT PROPERLY COME BEFORE THE MEETING AT THE DISCRETION OF THE PROXY
HOLDER.
Dated: , 1997
Signature of Shareholder
Signature of Shareholder
SIGNATURE(S) MUST CORRESPOND EXACTLY WITH NAME(S) AS IMPRINTED HEREON. When
signing as attorney, executor, administrator, trustee or guardian, please give
the full title as such, and if the signer is a corporation, please sign with the
full corporate name by a duly authorized officer. If stock is held in the name
of more than one person, all named holders must sign the proxy.
