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25 Fatburgers sold in bankruptcy auction

Chain still faces legal hurdles over Ch. 11 filings

Twenty-five Fatburger locations up for sale as part of ongoing bankruptcy proceedings brought in a better-than-expected $7.4 million in an auction last week, but the chain remains embroiled in legal challenges.

Parent company Fatburger Corp. and its chief executive, Andrew Wiederhorn, are battling eight lawsuits filed by unsecured creditors who are charging the fraudulent transfer of company assets prior to the bankruptcy filing of two corporate operating subsidiaries.

Wiederhorn said the lawsuits were “beyond frivolous,” saying the unsecured creditors are not likely to recover much, if anything, of what they are owed.

“It’s a desperate attempt to recover what they can,” he said.

The lawsuits, however, are not expected to impact the proposed sale of the 25 units, the net result of which was about 50 percent better than what had been anticipated, Wiederhorn said.

The restaurants for sale include the corporate locations operated by subsidiaries Fatburger Restaurants of California Inc. and Fatburger Restaurants of Nevada Inc., which both filed Chapter 11 bankruptcy protection in April 2009. Parent company Fatburger Corp. is not part of the bankruptcy filing.

EARLIER: Bidders lined up for Fatburger units

Only one of the 26 corporate locations in Nevada and California that were included in the April 21 auction did not sell. That location in a Newport, Calif., shopping center was an underperforming unit and has closed, Wiederhorn said.

According to National Franchise Sales, which handled the auction, 34 bidders competed for the 25 restaurants. The sale is expected to be finalized by the court within a few weeks.

All of the restaurants sold will remain Fatburgers, said Alan Gallup, a National Franchise Sales asset recovery specialist.

“Fatburger is a 60 year, iconic brand with a significant following,” he said in a statement. “Despite interest from several national and emerging chains, the units clearly had more value as franchised Fatburger locations and going concerns, than as conversion locations.”

Adam Levin, managing partner of investment firm Criterion Capital Partners LLC, led a group of investors that acquired 10 of the Fatburger locations in California.
Levin declined to comment until the sale was finalized on whether the group intended to operate the locations or sell them.

Criterion Capital Partners’ portfolio also includes a Papa John’s franchise operation, as well as the social media network Bebo and other investments.

Two of the California Fatburger locations went to bidder Momentum Partners Inc., another new franchisee for the brand.

In Nevada, Fatburger president and chief operating officer Don Berchtold acquired two units in Las Vegas to operate as franchise locations.

Existing franchisee David Talla also acquired up three locations in Las Vegas. New franchisees Han Kim and Badih Mouannes picked up five and three Nevada locations, respectively.

Following court approval of the sale, Wiederhorn said he expects the brand will emerge from bankruptcy within a few weeks.

In the meantime, the Fatburger chain continues to grow, opening 18 units in 2010 with another 25 franchise locations expected to open in 2011, including international units.

Wiederhorn said Fatburger also last week signed a franchise agreement with a South Korean group that plans to open 20 locations there.

Santa Monica, Calif.-based Fatburger Corp. operates or franchises 104 locations worldwide.

Contact Lisa Jennings at [email protected].

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