Peoplefeeders, Inc. and Subsidiaries - Page 10




                                       - 10 -                                         
          November of 1991, the remaining Square Pan Pizza restaurants were           
          sold to Sbarro, Inc. (Sbarro), an unrelated entity.  The sale of            
          these restaurants to Sbarro resulted in a taxable gain to Square            
          Pan of $1,417,271.                                                          
               At the time of the sale to Sbarro, Partrick discussed the              
          $1,417,271 taxable gain with representatives of Arthur Andersen &           
          Co., who informed Partrick that deductions could be generated               
          that would offset the $1,417,271 taxable gain.                              
               On May 4, 1992, at a special meeting of the board of                   
          directors of Square Pan, the directors adopted a resolution that            
          purported to treat the $3,751,940 difference between                        
          Peoplefeeders’ total cash receipts and Peoplefeeders’ expenses              
          and loan payments that had been paid out of the Intercompany bank           
          account as a $3,751,930 debt obligation of Peoplefeeders to                 
          Square Pan and that purported to cancel that debt obligation as             
          uncollectible.2                                                             
               In the resolution adopted by the board of directors, the               
          stated reason for the cancellation of the purported $3,751,930              
          debt obligation was that no repayments had ever been made by                
          Peoplefeeders on the purported debt obligation and that due to              
          the financial condition of Peoplefeeders there existed no                   
          prospect of collecting any part of the debt obligation.                     



          2    The $10 discrepancy between the $3,751,940 difference and              
          the $3,751,930 purported bad debt obligation is not explained in            
          the record.  Hereinafter, we refer only to $3,751,930.                      



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