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Brainerd Burger King reign ends after bankruptcy

The shuttered Burger King in Brainerd is one of nine in the state that abruptly closed recently.

The ownership, listed as Red King Foods LLC with Burger King's corporate office, is listed as P3 Foods LLC in bankruptcy documents. P3 Foods has been in bankruptcy court since the fall of a 2016, after doing business as Burger King for eight years.

A spokesman for Burger King, reached by phone Friday morning, said the Brainerd restaurant was a franchise and not corporately owned. In the past, corporate has come back into a community with a corporate store or opened the franchise up to a new owner. A Burger King manager was not available for further comment on the restaurant's fate. The other Burger King restaurants affected by the sudden closing included seven in the Twin Cities area and one in St. Cloud in addition to Brainerd.

The Brainerd restaurant still has "now hiring" signs and posters for meal deals in its windows as though simply closed for the end of day. A small sign on the drive-thru and on the main doors tell prospective customers the news—"We are sorry to say Burger King is closed."

P3 Foods, with a Plainfield, Ill. address, went into voluntary Chapter 11 in U.S. Bankruptcy Court in the Northern District of Illinois in Chicago. After filing for Chapter 11, P3 Foods continued operations. At the end of April, court filings show the bankruptcy court entered 18 orders authorizing P3 Foods to continue to use cash collateral for operating expenses. This allowed the restaurants to remain open for business while making monthly payments toward its $295,707 debt with PNC.

Each Wednesday, since November of 2016, P3 Foods was required by the court to provide total cash receipts and collections, compare them to the actual performance of the previous week and projections. Each month, P3 Foods was expected to provide a balance sheet, with income statements, accounts receivable and accounts payable. Reports were to be sent to Burger King Corp. and Element Financial Corp., which had outstanding loans with P3 Foods. From May 8 through June 9, 2017, in P3 Foods' cash budget report for the nine restaurants, the business listed $307,075 in food and supplies, and $110,061 for staff payroll and nearly $50,000 for managers with $11,736 for the general manager and $12,501 for the CEO. For that time period, $53,417 was listed as rent due to Burger King with another $42,258 as Burger King royalty and $37,563 as Burger King advertising. Store rent for Brainerd was listed at $9,000 along with real estate taxes to Brainerd for $1,927. Projected net surplus of cash as of June 9, 2017, was $335,366. The nine restaurants were identified by number but not name or location in the spreadsheet. As of June 9, 2017, the individual restaurants ranged from a loss of $7,394 to a net surplus of $86, to a high of $135,368. The total projected cash deposits all the restaurants was listed at $999,069 for the time period from May 8 through June 9, 2017.

But things appeared to come to a head at the end of March when Burger King Corp. filed a motion that in effect allowed the corporation to pursue termination of franchise agreements. Those franchise agreements, with a non-exclusive license, allowed P3 Foods to operate the Burger King restaurants with Burger King's name and trademarks. Following a flurry of court motions in April, the restaurant ownership was prohibited from being able to continue to use its cash collateral—which it stated was required to meet expenses incidental to restaurant operations. The closing of the restaurants followed.

On May 1, P3 Foods was before the court and was authorized to disburse $145,165 to satisfy outstanding payroll obligations to employees and to wire $152,272 to pay PNC Equipment Finance, which took over Element Financial's claim.

According to the property tax records with Crow Wing County, the taxpayer of record is Brainerd Enterprises LLP, which has a Rochester address. The restaurant property on 808 W. Washington St. has an estimated land value of $277,000 with $407,700 estimated for the building value. As of May 4, the property was not delinquent on taxes payable in 2018.

P3 Foods is expected back in bankruptcy court Tuesday, May 8.

Bankruptcy court records

On Oct. 3, 2013, P3 Foods and PNC entered into a promissory note for a $704,000 loan.

The following fall, on Oct. 28, 2014, P3 Foods and PNC entered into another loan for $200,000 for the Burger King remodel program loan agreement.

The debt agreement meant PNC had a first priority interest in all the debtor's personal property, fixtures, equipment, furniture, accounts, deposits, cash and more.

On Jan. 15, 2017, Element Financial Corp. filed its claim in the amount of $689,966. On

May 24, 2017, a court record confirmed the transfer of the Element Financial Claim to PNC. In accordance with the court's orders, PNC was receiving $16,428 per month totalling $295,707. As of a May 1 court filing, PNC stated it was still owed $394,259. P3 Foods was represented by Richard L. Hirsh and Anthony Pedolino, identified as P3 Foods general manager signed court documents for the ownership.

On March 29 of this year, Burger King Corp. filed a motion to reject the lease agreement and ask for immediate surrender of property along with relief from an automatic stay to terminate the franchise agreements. Burger King Corp. leased property to P3 Foods for the operation of eight of the restaurants. The court found the lease agreements were rejected as a matter of law as P3 Foods failed to assume or reject the agreements within the 120-day period allowed and did not seek an extension for more time. The court approved Burger King Corp.'s motion on April 12.

P3 Foods made a motion for interim use of cash collateral, which was denied on April 11. The court prohibited P3 Foods from using funds received or in its bank accounts unless previously authorized to do so by court order.

In a flurry of court motions in April, PNC also filed an objection to P3 Food's ability to use cash collateral, which the court also granted. In response, P3 Foods surrendered possession of the Burger King franchises to Burger King Corp. and P3 Foods closed its operations as of April 25.

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