Wiggin and Dana's Franchise Law Blog

Things at Friendly Not So Friendly?

The President and CEO of Friendly Ice Cream, John Cutter, has resigned, after leading the restaurant chain since 2003 and serving as president and COO from 1998 to 2003, this article reports. The interim acting CEO is Donald Smith, who was CEO from 1988 to 2003. Mr. Smith is also facing a pending lawsuit filed in 2003 by the chain's co-founder, 89-year-old S. Prestley Blake, accusing Mr. Smith of using a joint operating agreement for a corporate jet to funnel $3.5 million from Friendly to The Restaurant Co., another company for which Mr. Smith served as CEO. Friendly stated that there was "no connection whatsoever" between the lawsuit and Cutter's resignation.

In Memoriam

James Conway, co-founder of Mister Softee Inc., passed away on Sunday after a battle with cancer. Mister Softee (for the few of you who have not enjoyed the summer treat) sells soft-serve ice cream from its distinctive trucks which play copyrighted music while driving through neighborhoods. James and his brother, William, started the Philadelphia-area ice cream company in 1956. With the help of a local dairy, an advertising company and a friend, the brothers created the ice cream, the jingle and the Mister Softee trademark. After the brothers decided to franchise, James handled sales and marketing and William took care of the accounting and administration. Today, about 350 franchise dealers operate 600 trucks in 15 states. The Philadelphia Inquirer reports that during summers, Mr. Conway ate at least a spoonful of ice cream every day.

Down-Size Me

In his blog, Morgan Spurlock offered an explanation and an apology of sorts for his speech last Friday at Hatboro Horsham High School. He insisted that it was not his intent to insult or demean anyone and he was “deeply sorry” if anyone in attendance was offended. In response to “points made in the media,” Spurlock explained that the only person he called “retarded” was himself when he was unable to hear a question from the audience.

Spurlock felt it was necessary to set the record straight as to the amount of profanity used during the speech. According to Spurlock, he only said five “dirty” words during the entire speech and that the two “F-Bombs” may have been two too many. Presumably, the two F-Bombs are a subset within the larger set of five dirty words. Of course, Spurlock’s invective is more properly characterized as “obscenity” rather than “profanity” but we don’t need to get into that here. Spurlock also elucidated his comments about teachers smoking pot in the balcony. He stated, “It has been said that I insulted the faculty, when in actuality, all I was doing was making a joke at their expense for the enjoyment of the students.” Definitely not an insult.

Super-Size Mouth

According to this article, Morgan Spurlock, director of the McDonald’s documentary “Super-Size Me,” continues to speak his mind, much to the chagrin of officials at a Philadelphia area high school. Spurlock gave a profanity-laced, politically incorrect speech to 700 students as part of the high school’s first-ever health fair. During his hourlong presentation, Spurlock joked about the intelligence of McDonald's employees, teachers smoking marijuana in the balcony and special education students. Students apparently enjoyed the speech, giving Spurlock a standing ovation and mobbing him for autographs. School officials, however, cancelled a second speech scheduled for community members. Spurlock said he’s never had a complaint after giving similar talks at other high schools and colleges. He also said he had been told shortly before the speech not to talk about McDonald’s, because a member of the school’s education foundation, which sponsored the appearance, owns a McDonald’s franchise.

IN MEMORIAM- BYRON FOX

Byron Fox
1931-2005
A Giant of Franchise Law

Contributions on Byron's behalf to support cancer research for children can be made at:

The Jimmy Fund
10 Brookline Place West
6th Floor
Brookline, MA 02445
http://www.jimmyfund.org

Krispy Kreme's Jack McAleer Retires

John N. "Jack" McAleer, Krispy Kreme's executive vice president, retired last week after 24 years with the company. McAleer, the son of a Krispy Kreme mega-franchisee who bought the company in 1981, follows six other executives that left Krispy Kreme in the last three months. Although the company's spokeswoman could not be reached for comment about McAleer's departure, some speculate that McAleer's decision to retire may be linked to the SEC's investigation into Krispy Kreme's accounting practices and the company's internal probe, which resulted in the discharge of six executives in June.

Red Robin CEO Resigns Amidst Expenses Investigation

Michael Snyder, the chief executive of Red Robin Gourmet Burgers Inc., resigned after an internal investigation concluded that he misused charter airplanes and corporate expense accounts. According to Forbes.com, the company said the investigation identified various expenses by Snyder that were inconsistent with company policies or "lacked sufficient documentation." Snyder has agreed to reimburse the company for some of the expenses. Dennis Mullen has been named the new chairman and CEO of the Colorado-based burger chain.

Wendy’s Names New CEO

In other Wendy's news, after just one year, Bill Moreton, the CEO, is leaving to join Potbelly Sandwich Works, a Chicago restaurant chain. Moreton was named CEO and president of Wendy’s Baja Fresh Mexican Grill chain in April 2004. Wendy’s has named Brion Grube, a 15-year veteran of Wendy’s, as Moreton’s replacement.

Co-Founder of AAMCO Dies

Robert Morgan, the co-founder of AAMCO Transmissions, passed away on February 11 at his home in Gladwyne. Mr. Morgan was 87 years old.

Hollywood Entertainment's New CEO

Bloomberg.com reports that F. Bruce Giesbrecht has been named Hollywood Entertainment Corp.'s new CEO after its previous CEO resigned.
The company also plans to make a recommendation on Blockbuster's bid for the company on February 17.

Too Hot in the Kitchen for the Doughnut Maker

After being Krispy Kreme Doughnuts, Inc.'s CEO for the past 6 years and working for the company since 1977, Scott Livengood is being replaced by Stephen Cooper, the specialist who led Enron and Laidlaw out of bankruptcy. Bloomberg.com reports that Livengood has decided to retire after the SEC lauched its federal investigation into the company's financial practices (see Blog entries of 12/17/2004 and 12/28/2004) and the company's stock price fell 76%. Fund managers speculate that Livingood failed because he had little experience in running a public company or because he expanded Krispy Kreme too quickly. Others, including plaintiffs in a shareholder class action, accuse Livengood and other officers of the company of knowingly filing false financial reports.

In any event, investors hope that the introduction of new management will be enough to turn the troubled company around.

Looking for a CFO

Today both Gymboree and Domino’s Pizza announced in unrelated statements that their CFOs were stepping down. Gymboree CFO Myles McCormick resigned on Tuesday, December 14. The statement did not provide any explanation for the resignation. Meanwhile, Domino’s Pizza announced the retirement of CFO Harry Silverman. The company has not identified Silverman’s replacement, however, because his retirement from the company will be phased out over a two-year transition.

McDonald's New CEO

The New York Times reports that in a statement published on Friday, new McDonald's CEO James Skinner promised to continue to implement the strategy responsible for 18 months of growth at McDonald's. This strategy includes continued marketing of McDonald's salads, which have recently increased McDonald's sales in Europe. According to the article, the maintenance of strong sales will require McDonald's to strike a balance between offering premium foods and offering low cost foods. Mr. Skinner said that 37% of McDonald's customers make their food choices based on cost alone. USA Today speculates in this article on the challenges that lie ahead for Mr. Skinner and McDonald's.

Meanwhile, Charlie Bell, McDonald's former CEO who resigned last week to attend to health issues, has returned to his native Australia to be with friends and family.

Charlie Bell Resigns Post at McDonald's

Just seven months after his appointment as McDonald's CEO, Charlie Bell has resigned to continue his battle with colorectal cancer, the Wall Street Journal reports (subscription required). Mr. Bell took over the leadership at the burger franchise company immediately after the sudden death of CEO Jim Cantalupo. Bell, 44, was diagnosed shortly after he assumed the role of CEO; he maintained his position while getting treatments. McDonald's did not comment on Bell's health when it announced his resignation last night after a board meeting in Chicago. McDonald's vice chairman, Jim Skinner, 60, will succeed Bell.

Hooters' Former President Convicted

According to the St. Petersburg Times, former Hooters President Lynn Stewart was convicted on Friday of two counts of tax evasion and two counts of filing a false tax return. The case is apparently part of a nationwide crackdown on the use of offshore accounts to avoid payment of income taxes. Stewart faces a maximum sentence of five years imprisonment for each tax evasion count and three years for each false tax return count.

A Wave of Resignation

Yesterday we posted a story on Pattye Moore's resignation as President of Sonic Corp., and today two more resignations have been announced. After a difficult year dealing with accounting issues, de-listing from NASDAQ and shareholder lawsuits, AFC Enterprises' President and COO Dick Holbrook announced his resignation effective at the end of this year. Mr. Holbrook was a founding principal of AFC in 1992. AFC currently owns three franchise brands -- Church's Chicken, Popeye's Chicken & Biscuits and Cinnabon. The company recently announced the sale of Cinnabon to Carvel Corp.'s parent company, Roark (see blog entry for September 9) and last year sold its U.S. franchise rights for Seattle's Best Coffee to Starbucks (see blog entry for July 15). Holbrook, like Moore, will remain on the company's board of directors into 2005.

In a less cordial fashion, InterContinental Hotels Group. PLC announced that its CEO, Richard North, will quit at the end of this month because he is not "the right person to lead it as it switches its strategic focus to developing its brands from selling off assets," according to this article from the Miami Herald. North, however, appears to agree. According to a written statement he issued, "someone else whose whole business background has been developing and managing brands may be better placed to ensure the company . . . creates maximum value for shareholders." InterContinental is the umbrella for a number of hotel brands operated or franchised by InterContinental's affiliates, including Crowne Plaza, Holiday Inn and Candlewood Suites.

Sonic's President Resigns

Pattye Moore, president of Sonic Corp. since 2002, announced that she will resign to spend more time with her family. Moore will remain a consultant on brand development and marketing issues for the next two years and will remain on Sonic's Board of Directors until the end of 2005. In July 2004, Restaurants & Institutions magazine named Ms. Moore one of nine executives whose decisions would "impact the balance of power." A portion of Ms. Moore's statement regarding her departure is available in this Yahoo Finance article.

You Picked a Fine Time to Leave Me

In the wake of an SEC investigation and tumbling stock prices, Krispy Kreme's Chief Operating Officer has announced that he will resign his position at Krispy Kreme to assume the COO role at Restoration Hardware. John Tate has been the COO of Krispy Kreme since 2002 when he was promoted from CFO. Scott Livengood, the company's CEO, has now assumed Tate's duties. According to the Wall Street Journal (subscription required), Tate's departure represents another setback for the troubled company, whose stock slipped 53 cents yesterday to $13.04. Krispy Kreme's stock value has declined 74% since its peak in August of last year. Mr. Tate did not comment on the reasons for his departure.

Best Western President Steps Down

Tom Higgins, the President and CEO of Best Western, announced that he would not renew his contract in August. Higgins would only say that he decided to move on to new challenges. Best Western has named David Kong, the Executive Vice President of International Operations, acting president and CEO while it conducts a nationwide search for a new executive.

Burger King Names New CEO

Continental Airline executives are finding a place in franchising. Last month, former Continental Airline Senior Vice President, David Samuel Coats, was named interim CEO at Schlotzsky's in Austin. Today, Burger King announced that Gary Brenneman, the former Chief Operating Officer of Continental Airlines, would fill the CEO position recently vacated by Brad Blum. Brenneman is credited with turning Continental Airlines around. He has also served as the CEO of PricewaterhouseCoopers Consulting and, more recently, as the chief executive of a private equity firm, TurnWorks, Inc.

Portrait of a Bodybuilder as a Young Man

Joe Gold, the founder of Gold's Gym and World Gym, died in Los Angeles on July 12. He was 82. Gold was responsible for two fitness chains, as well as the design of a line of fitness equipment. In the mid-1960's, Gold opened Gold's Gym in Los Angeles only to sell it, along with the name, six years later. The new owners franchised Gold's Gym and opened hundreds of sites. In 1977, Gold founded World Gym and began franchising the concept. It grew to more than 300 locations.

Burger King Faces Changes Inside and Out

On July 2, Brad Blum, Burger King's ninth CEO in 15 years, resigned from his position after 18 months on the job. Although same store sales rose in May, the company experienced a decrease in same store sales in 11 of the last 12 months. Business Week Onbline reports that many restaurants are struggling with substantial debt service and the owners of more than 600 Burger King restaurants are in financial distress. Analysts are now speculating that Wendy's (with sales of $7.35 billion last year) may soon overtake Burger King in the number 2 position for burger chains in the U.S.

IHOP Founder Dies at 76

Al Lapin Jr. founded the International House of Pancakes with his brother Jerry in 1958 with one restaurant in Los Angeles, California. He expanded the chain through franchising and his holdings were estimated at $40 million in 1970. Just three years later, according to this Newsday.com article, Lapin was forced to sell his interest in the company for $50,000 when a number of economic factors threatened to ruin the chain. While Lapin tried other concepts, he never again experienced the level of success of IHOP and he ultimately filed for bankruptcy protection in 1989. Lapin died yesterday in Los Angeles.

For a look at IHOP's history, click here.

7-Eleven Inc. Names New COO

7-Eleven, the convenience store franchisor, has named Gary Rose as its new COO. After 36 years with the company, Rose will execute the company's strategy at the store level and planning the company's development in North America.

Century 21 Names New CEO

In other executive news, Century 21 named Thomas Kunz as its new CEO. Mr. Kunz was most recently the president of one of Century 21's franchisees in Southern California. He has also worked for Century 21 for more than 20 years.

A Shift in Leadership at Baja Fresh

Wendy's International announced that Bill Moreton has been named the new CEO at its subsidiary, Baja Fresh. Moreton replaces Greg Dollarhyde, who has led the company since 1998. The company hopes under Moreton's leadership to achieve its goals of reaching 700 restaurants by 2008. In other Wendy's news, the company is introducing two new looks for its restaurants -- called "simple" and "fresh." Entrepreneur.com reports that the new designs are likely to run existing franchisees about $100,000 in renovations.

Burger King's Second in Command

Burger King's Second in Command Resigns After One Year on the Job. The New York Times (registration required) reports that Bob Nilsen, Burger King's president for the last year, has tendered his resignation. Brad Blum, the company's CEO and the man who hired Nilsen in January 2003, announced Nilsen's resignation yesterday but did not elaborate on the reasons for his departure. The burger giant, however, continues to struggle to increase its sales; Burger King's sales showed a chain-wide decline of 2% for the fiscal year ending in June. The company recently fired its advertising agency.

Interview with KFC's CEO. USA

Interview with KFC's CEO. USA Today presents an interesting interview with Gregg Dedrick, the new CEO for Kentucky Fried Chicken. Mr. Dedrick, 44, answers questions regarding KFC's recent "healthy eating" advertising campaign that was pulled after the FTC launched an investigation into the commercial's claims -- stating that KFC believes that all of the ads' claims were true. He also discusses KFC's struggling sales and plans to introduce salad offerings and other menu changes -- stating that KFC has been "playing catch-up on some of these things." The chain is looking to add value meals and to respond to customer demands that KFC offerings fit within their budgets.

Round Table Pizza Cleans House.

Round Table Pizza Cleans House. The Miami Herald reports that after a few rocky years with its franchisees, Round Table Pizza is working on an expansion strategy. Round Table is a 512-unit chain of pizza restaurants headquartered in Concord, California. Round Table's growth peaked at 545 restaurants in 1988. In 1996, in the midst of Round Table's plans to expand the franchise, some Round Table franchisees initiated a lawsuit against the franchisor seeking a longer franchise term, explanation of the franchise fees and less restrictive covenant not to compete. The company resolved some of these disputes in mediation and elected to improve the look of its existing stores in lieu of expansion. As part of the process, Round Table repurchased a number of the older locations -- it now owns 23% of its entire chain. Now, despite the tough conditions for pizza restaurants today, Round Table plans to roll out 30 new restaurants in the next year.

Bruegger's New CEO Breathes New

Bruegger's New CEO Breathes New Life into Bagel Business. James Greco, the new CEO of Bruegger's Bagels, is excited about his plans to expand the Burlington, VT franchise company and to update the company's look and menu. Bruegger's has 250 stores in 18 states. As part of the Bruegger's overhaul, Greco plans to add new menu items, including new sandwiches, and to switch Bruegger's to a higher grade of coffee and potato chips. The company plans to open 100 new Bruegger's locations in the next three years.

Pick-Ups Plus, Inc. Appoints New

Pick-Ups Plus, Inc. Appoints New Management Team. The leading operator and franchisor of retail automotive parts and accessories stores appointed Merritt Jesson as the CEO and Chairman of the Board, and Sean Hayes as the Director of Business Development. According to the Business Wire, the two new appointees are hoping to work with the Board of Directors and existing franchisees in developing a national franchising plan to assist in growing the company's buying power. Pick-Ups Plus currently has six franchises and two company-owned stores and is aggressively pursuing expansion.

Sport Clips Names New COO.

Sport Clips Names New COO. Bernard J. Brozek has been named the COO for Sport Clips, Inc., according to Yahoo Finance. Brozek has previously worked for Pepsico, Taco Bell and KFC and helped in the launch of Pizza Hut Express. According to Brozek, he decided to leave the food industry because "Fast food franchising has completed its growth cycle." Sport Clips offers haircuts in stores equipped with TVs at each station tuned to sports programs. The company currently has 120 stores and plans to open more than 100 more in the next year.

Church's Chicken Names New COO.

Church's Chicken Names New COO. Nana Mensah has been named the new COO of Church's Chicken according to Primezone Media Network. Mensah has been in the business for 15 years with such companies as Long John Silver's and PepsiCo. Church's Chicken is a division of AFC Enterprises, Inc. which franchises and operates over 4,000 restaurants in over 35 countries.

Shakey's names new Executive VP:

Shakey's names new Executive VP: In a release yesterday, Shakey's Inc. announced that Sonia Barajas-Najera, formerly a controller and corporate director, will now serve as the company's Executive Vice-President and Chief Operating Officer.

Yum! appoints new health officer:

Yum! appoints new health officer: In response to increased awareness of and sensitivity to obesity in the U.S., Yum! Brands has created a new corporate role -- "chief scientific, health, and regulatory affairs officer." Dr. Al Baroudi, appointed to the new position, is charged with overseeing the development and execution of programs for scientific and regulatory trade for all of Yum! Brands' worldwide business, as well as managing health, nutrition and animal welfare issues.

California Pizza Kitchen CEO resigns:

California Pizza Kitchen CEO resigns: California Pizza Kitchen Inc. yesterday announced that Fred Hipp, President & CEO, has decided to resign from the company effective immediately. Co-founders Richard Rosenfeld and Larry Flax will assume leadership of the company (which they jointly held from 1985 at the company's founding through 1996). Press release at BusinessWire.

Church's CMO resigns: AdAge reports

Church's CMO resigns: AdAge reports that the chief marketing officer of Church's Chicken has resigned, adding to the current difficulties of parent company AFC Enterprises. Besides running into resistance over Church's ad campaign to change its slogan, AFC is currently selling its Seattle's Best Coffee and Torrefazione chains to Starbucks. The company is also dealing with allegations of securities fraud filed with the U.S. District Court in Atlanta.