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THE QUIZNO'S CORPORATION
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The Quizno's Corporation
1415 Larimer Street
Denver, Colorado
December 13, 2001
To our Shareholders:
On November 5, 2001, we sent our shareholders a notice of special meeting and proxy
statement describing a proposal to approve and adopt a merger agreement between us and
Firenze Corp., pursuant to which Firenze will be merged into us. If the merger is
approved, our public shareholders who do not exercise dissenters' rights will receive $8.50
per share for each share of our common stock that they own. The special meeting of
shareholders' was originally scheduled for November 30, 2001. It has been adjourned and is
currently set to reconvene Friday December 14, 2001 at 10:00 am, at which time it will be
adjourned again and will reconvene at 10:00 am December 21, 2001, at the Oxford Hotel in
Denver, Colorado.
Richard E. Schaden is the president and chief executive officer and chairman of our
board of directors and Richard F. Schaden is our vice president and corporate secretary and
a member of our board of directors. The Schadens are also the sole shareholders, officers
and directors of Firenze. The Schadens, therefore, have a direct conflict of interest with
respect to the proposed transaction. The Schadens own approximately 67% of our outstanding
common stock. In light of this conflict of interest, our board of directors formed the
special committee. The special committee is composed of three of our directors who are not
affiliated with Firenze. The special committee negotiated the terms of the merger
agreement on behalf of the board and us. In connection with the execution of the merger
agreement, both the board and the special committee determined that the merger and the
merger agreement are fair to and in the best interests of our public shareholders.
Our proxy statement described various letters and proposals received from a
shareholder in September and October 2001, and correspondence from the committee responding
to those proposals. The shareholder, Fagan Capital, Inc., generally outlined its
willingness to purchase shares from our minority shareholders, but only if certain
conditions were met, including the requirement that we grant Fagan a put option, which in
turn required approval by one of our lenders, Levine Leichtman Capital Partners II, L.P.
under the terms of the existing loan which was entered into in connection with our tender
offer in December 2000. The other proposed conditions included board representation for
the minority shareholders, or alternatively that the Schadens grant Fagan an option to
acquire all of our shares (including those owned by the Schadens) for $15 per share. None
of the proposals was in the form of a definitive offer that could be accepted to create a
binding transaction between Fagan and us. Fagan asserted that it was prepared to discuss
proposals that could result in our shareholders receiving in excess of $10 per share. As
noted in the proxy statement, the special committee considered and evaluated the Fagan
proposals, and determined it could not agree to the proposals, particularly the requirement
of a put option. Levine Leichtman had informed the special committee it would not consent
to the put option. The committee notified Fagan, however, that the committee would
facilitate a discussion between Levine Leichtman and Fagan, would review any agreement
reached between Fagan and Levine Leichtman, and would enter into negotiations with Fagan
under appropriate circumstances. The committee requested that any subsequent offer from
Fagan be made in the form of a binding offer with definitive documents.
On October 26, 2001 Fagan's counsel, Schulte, Roth & Zabel, LLP, responded to the
special committee noting the benefits of the Fagan proposal, asked the special committee to
announce its withdrawal of support for the Schaden proposal and commence negotiations with
Fagan. The letter also noted the necessity of a third party consent to the put option
included in the Fagan proposal, but declined the invitation to negotiate directly with
Levine Leichtman.
By letter dated October 29, 2001, Brobeck, Phleger & Harrison, LLP responded to the
Schulte letter on behalf of the special committee. The committee had asked Levine
Leichtman if it would consent to the put option condition, and Levine Leichtman declined.
The committee again noted that the terms of Fagan's current proposal would cause an event
of default under the Levine Leichtman facility. The committee also offered to facilitate
discussions between Fagan and Levine Leichtman to allow Fagan to make a feasible proposal
which the committee would help negotiate. The committee informed Fagan that it remained
willing to negotiate an offer with Fagan whenever Fagan presented to the special committee
an offer which would be acceptable to the independent third parties whose consent would be
required. Such consent would have been required from Levine Leichtman, and may have been
required from AMRESCO, with whom we had a loan agreement dating back to 1999, depending on
the form of the offer made by Fagan. The special committee also noted that although it
could not force the Schadens to negotiate with Fagan, the committee remained willing to
facilitate a meeting with the Schadens if it would result in a higher price for the
minority shareholders. Finally, the special committee noted that it remained willing to
consider any definitive proposals Fagan actually made.
Schulte responded by letter dated November 1, 2001, reiterating some prior arguments
and noting the potential higher price and non-coercive features of the Fagan proposal. It
alleged the committee breached its obligations to the minority shareholders because it
failed to negotiate Fagan's purportedly 25 percent higher proposal on the grounds that
Levine Leichtman's approval was required for the put option. Schulte also challenged our
disclosure of the Fagan proposal as focusing only on Fagan's put option condition. It also
noted that William Fagan had scheduled a meeting with Richard E. Schaden and expressed hope
that progress could be made at the meeting. No proposals were made by Schulte to obtain
the third party consent necessary to implement the Fagan proposal. Schulte expressed the
view that no prudent businessman would make a minority investment without a necessary
liquidity provision, such as the put option proposed by Fagan.
On November 5, 2001, Richard E. Schaden met with William Fagan in Denver, Colorado.
Mr. Fagan proposed a number of possible transactions between Fagan and Firenze, which
seemed to suggest that the minority shareholders be allowed to remain shareholders in a
private company or alternatively, that minority shareholders be permitted to voluntarily
sell their shares to us for $8.50 per share. As a third alternative, a voting trust for
minority shareholders would be created, where Fagan would act as trustee, and where we
would grant a right for the voting trust to put its shares to us for fair market value at a
future date. Mr. Fagan also proposed that he would buy additional shares of stock of the
company for a premium so that the company could use the money to pay the minority
shareholders a higher price. He suggested that he would purchase shares at $10.63 per
share if he could have a right to put the newly issued shares back to us at fair market
value in the future.
Mr. Schaden indicated he was not interested in pursuing a transaction with Mr.
Fagan. Mr. Schaden believed it was not in our best interest to continue as a public
company, or as a private company with a potentially large number of minority shareholders.
Mr. Schaden agreed with the committee's analysis and conclusion that the public market has
not responded to our positive growth. Hence, he believed we had not realized the
principal benefits of public ownership. In reaching that conclusion, Mr. Schaden relied on
the factors relied upon by the committee and discussed below. Mr. Schaden also understood
that our common stock has remained very thinly traded, providing little liquidity for our
shareholders. He believed that minority shareholders in a private company would have
virtually no liquidity. For that reason, Mr. Schaden did not want to pursue Mr. Fagan's
first alternative. Mr. Fagan's second alternative also held out the prospect of remaining
minority or public shareholders, which Mr. Schaden did not believe was in our interest.
The third alternative, the voting trust, required a put option, which was unacceptable
because it would have required approval from Levine Leichtman, which as discussed was not
available. There were no agreements or understandings reached.
On November 13, 2001, a lawsuit titled Sebesta v. Schaden, et al., was commenced by
---------------------------
Edward C. Sebesta against us, Richard E. Schaden, Richard F. Schaden, and four other
present or former directors, in the District Court for the City and County of Denver. The
complaint alleges that the defendants breached their fiduciary duties by wrongfully
supporting the proposed merger with Firenze and by failing to adequately disclose
information concerning proposals made by Fagan, the special committee's responses and
alleged conflicts of interest. Plaintiff sought a temporary restraining order or TRO to
preclude us from holding our November 30, 2001 shareholders' meeting until corrective
disclosures were made and disseminated. On November 28, 2001, the court heard and denied
plaintiff's motion, finding that the plaintiff had not satisfied any of the requirements
for obtaining injunctive relief. The Court specifically held "...the plaintiff has come
into this Court with unclean hands seeking relief when, in fact, the plaintiff, and its
agents, have been less than candid, less than accurate in its representations, in terms of
its own offer in terms of it being conditional, and any request for relief would not serve
the public's interest". We filed an answer denying any wrongdoing.
On November 27, 2001, three days before the scheduled shareholders' meeting and on
the eve of the TRO hearing, Fagan delivered a letter to the special committee which
outlined in general terms apparently three different proposals. It became a major focus of
the hearing for the TRO described in the paragraph above. The first appeared to propose to
amend the current merger to provide $9.50 per share to minority shareholders, allowing them
an option to continue as shareholders after the merger, with Fagan buying shares in the
surviving entity and no put option required. Fagan also expressed its continued interest
in purchasing the minority shares for $10.63 per share, but only if we agreed to the put
option, and alternatively indicated its willingness to explore purchasing all of the shares
(including the shares held by the Schadens and their affiliates) for $15 per share. Fagan
stated that its proposal would expire on December 10, 2001. The committee noted that all
three of the apparent proposals required third party consents as follows:
o the $9.50 proposal would require the Schadens to agree to amend the Firenze merger
agreement
o the $10.63 proposal would require consent from Levine Leichtman which had previously
been refused
o the $15 proposal would require the separate consents of AMRESCO and Levine Leichtman
under the terms of their respective existing loan agreements and a willingness
of the Schadens to sell their shares
There was no indication by Fagan that the third parties had approved or been
approached. The committee further noted that since the proposals were general in nature
and did not specify a particular form or structure, it could not determine what other
consents or approvals might be required.
The committee responded to Fagan on November 28, 2001. It stated that it had engaged
in a lengthy, detailed process attempting to determine whether Fagan would ever be prepared
to make a bona fide offer in a form that could be accepted for the benefit of our minority
shareholders, and noted that Fagan had failed to make such an offer. The committee
expressed its concern that the timing of Fagan's November 27 letter was designed more to
disrupt the shareholders' meeting, and that it was not a sincere expression of interest in
acquiring the minority shares. The committee noted that the letter did not contain
sufficient information to constitute a binding offer that the committee could recommend.
Nevertheless, the committee told Fagan it was willing to immediately pursue a transaction
with Fagan that would ensure the minority shareholders would receive $9.50 per share, with
no put option which would require third party consent. It noted that time was of the
essence since there was a binding agreement providing the minority shareholders $8.50 in
cash scheduled to close on November 30, 2001. The committee once again asked Fagan for a
binding offer with definitive documents and stated it was prepared to negotiate such an
offer through the close of business on November 29, 2001.
The committee did not receive an offer in the requested form of a binding offer with
definitive documents that could be accepted by us. The committee considered this a
necessary and typical requirement for a company to accept a superior offer and meet the
requirements of the Firenze merger agreement commonly referred to as a "fiduciary out".
Instead, on November 29, the special committee received a three-page letter from
Fagan covering a number of topics. Among other things, the letter asserted that Fagan had
made an "UNCONDITIONAL $9.50 OFFER" and referred to the $10.63 and $15 or higher
proposals. It asked that the committee propose a transaction structure and provide a form
of definitive agreement. Fagan also requested written confirmation that our board of
directors (including the Schadens) support the transaction. While asserting the $9.50
proposal was unconditional, the November 29 letter did not remove the conditions in the
November 27 proposal, including that:
o the current merger be amended
o the holders be allowed to continue as shareholders following the merger
o Fagan not purchase the shares from the holders directly, but instead purchase shares
of the surviving company's common stock
o "the foregoing proposal is subject to reaching a mutually satisfactory definitive
agreement providing for standard terms"
The committee met by telephone on November 29th to consider the various proposals
from Mr. Fagan. The committee noted that the Fagan November 29 letter did not cure the
deficiencies noted in the committee's November 28 letter and described in more detail in
the prior three paragraphs. It also noted that the committee had been requesting such a
binding offer from Fagan for almost three months, since at least September 7, 2001.
Nonetheless, it decided to continue discussions with Mr. Fagan in an attempt to see if a
feasible binding agreement could be reached that would be of greater benefit to the company
and its shareholders than the current agreement at $8.50 per share. The committee
responded in writing that same day. It noted that Fagan failed to provide the requested
definitive legal documentation for execution and again asked Fagan for a definitive offer.
Given the last minute nature of the proposal, it requested funds in escrow or a personal
guaranty to provide certainty. Fagan responded by letter the next morning, November 30,
2001. Fagan repeated the requests of its November 29, 2001, letter but did not provide the
documentation asked for by the committee.
We determined to delay the shareholders' meeting to provide additional disclosure to
our shareholders on the recent developments. We adjourned the shareholders' meeting until
10:00 am the following Tuesday, December 4, 2001.
On December 3, 2001, Fagan sent to the special committee a signed form of investment
agreement and personal guaranty of Fagan's obligations signed by William and Laura Fagan.
Among other things, the investment agreement provided that:
o Parties were Fagan, us and Firenze
o Firenze and we would amend the Firenze merger agreement in a number of respects and
in a form acceptable to Fagan
o Fagan would fund Firenze to have it buy shares from minority shareholders who wished
to sell their shares for $9.50 per share
o Fagan would receive an equivalent number of shares in the surviving company
o Minority shareholders who did not wish to sell their shares would be allowed to
remain shareholders
o We must agree not go private or delist from trading without the affirmative vote of
the majority of the minority shareholders
o The proposal would expire 5:00 pm (CST) on December 5, 2001
The investment agreement, guaranty letter and cover letter are exhibits to a Form SC 13D/A
filed with the Securities Exchange Commission by Fagan and various other shareholders on
December 6, 2001.
The committee met on December 3, 2001 and consulted with its financial advisor and
Brobeck on the merits of the Fagan proposal. It noted that the proposal would require the
approval of Firenze since it would amend the existing merger agreement between Firenze and
us. The committee instructed Brobeck to explore with Schulte and counsel for Firenze
whether changes to the proposed agreement could be made to make it mutually acceptable.
Brobeck asked Schulte whether the covenant against going private or delisting could be
shortened or deleted. Schulte indicated a willingness to discuss with Fagan shortening the
covenant against going private or delisting but no definitive timeframe was set. Brobeck
also noted that the proposed investment agreement would require approval from the Schadens
and Schulte indicated that Fagan was willing to be flexible with regard to various
structures, although no information was provided which indicated that any change to the
proposed form would eliminate the necessity of the Schadens' approval. Brobeck asked
Schadens' counsel if Firenze would raise its $8.50 offer and whether the Schadens would
support a $9.50 offer in the form proposed by Fagan. The Schadens' counsel responded that
Firenze would not raise its price and would not respond to a hypothetical proposal from
Fagan. No material progress was made with either Fagan or Firenze.
The committee reconvened that evening and heard presentations from us, Richard E.
Schaden and Schadens' counsel. Mr. Schaden indicated that the uncertainty associated with
the various delays to their proposed transaction was likely impeding the company's ability
to carry on its business. We likewise noted that the many allegations in the press were
negatively affecting our ability to sell franchises. Mr. Schaden also noted that the
Firenze merger was a more certain deal in that it was not subject to third party consents
or other conditions that were unlikely to be satisfied. The committee asked several
questions of Mr. Schaden. In response to a request, Mr. Schaden declined to increase the
merger consideration above $8.50. Mr. Schaden renewed his position that the Schaden's
shares were not for sale. Mr. Schaden declined to indicate whether he would support the
Fagan $9.50 proposal until he knew the definitive terms, structure and conditions. Mr.
Schaden, Schadens' counsel and we then left the meeting.
The committee then reviewed and discussed the current state of the proposals as
alternatives to the current binding merger agreement with Firenze, and concluded as follows:
o the $9.50 proposal appeared to be a possibility if a modification could be reached on
the limitations requested by Fagan on us going private or delisting from trading
o Fagan was free to launch an unconditional $9.50 per share tender offer, without the
consent or approval of the special committee or us
o the Schadens refused to increase the price of the current merger
o the $10.63 proposal was not possible without the consent of Levine Leichtman, which
had been refused
o the $15.00 proposal was not possible since the Schadens did not wish to sell
The committee noted it was hampered by the lack of definitive terms and conditions of
the Fagan $9.50 proposal. It determined the best opportunity for compromise was to propose
to Fagan and the Schadens a shortening of the time period of the requested limitations on
the company going private, and ask if either had ideas to bridge the differences. The
committee decided that Mr. Bromberg should call Mr. Fagan to negotiate and Brobeck should
call Schulte and Schadens' counsel again to see if an agreement could be reached. No
significant changes were made by any of the parties.
The committee reconvened on December 4, 2001 to further consider the fairness of the
existing merger agreement and whether any changes could be made to any of the Fagan
proposals to deliver additional value to the minority shareholders. Among other things,
the committee reanalyzed its conclusion that it was not in the interests of us and our
shareholders to remain public, for the reasons expressed in the proxy statement and saw no
reason to change its conclusion. Those reasons included:
o our small public float and limited institutional following in our stock or coverage
by analysts;
o our low trading volume
o the Schadens' indication that they were unwilling to sell their shares of our common
stock to a third party
o the board's conclusion that there is little likelihood that the liquidity of our
common stock will improve in the future
o the poor performance of our stock price since our initial public offering
Based on its review of the historical stock performance and the analysis of its
financial advisor, the special committee believes that:
o absent special transactions such as the self tender offer in late 2000 and the
current merger agreement, the stock price is likely to trade below $8.50 per
share
o the low volume means that any attempt by our shareholders to sell shares in any
volume would likely depress the price
As a result, the committee determined it would be difficult for the shareholders to
obtain $8.50 for a significant number of shares.
Upon the announcement of the Firenze merger, the stock price moved up to the range of
$8.50. The committee believes that the publicity generated by the various Fagan proposals
moved the price closer to the $9.00 range. When Fagan announced it was unlikely a
transaction would be completed, the price tended back to the $8.50 level. The committee
believes that absent a transaction involving the stock, it is likely the stock price would
decrease and return to lower volume. This analysis supports the conclusion that $8.50 per
share in cash is fair to the minority shareholders.
The Schadens, us and Firenze expressly adopted and agreed with the committee's
analysis and its conclusion.
It reviewed its conclusions of the prior meeting that there was no available
alternative to the current merger which could be implemented, and decided this had not
changed. However, the committee decided to continue its efforts to develop a transaction
with Fagan which would result in our shareholders receiving $9.50 a share. On the same
date, two members of the special committee called Mr. Fagan and informed him that his
proposal would not be accepted, principally because of the proposed restriction on going
private and the prohibition on delisting from securities trading.
We adjourned the December 4, 2001 shareholders' meeting.
On December 5, 2001, Fagan delivered a letter to the committee noting its proposal
had expired and indicating it could not enter into an agreement that would allow us to go
private or effect a transaction which would cause it to cease to be a shareholder. Fagan
he said it would not initiate further contacts with the committee, but that it was still
interested in pursuing a transaction with us.
On December 6, 2001, the special committee met to explore alternatives to structure a
transaction that could actually get done, meet our objectives and get additional cash
consideration to the minority shareholders. It also determined to establish a process to
reach a final result in our best interests and in the best interests of our shareholders.
These results are detailed in the next two paragraphs.
On December 7, 2001, Brobeck contacted Schulte to indicate that the committee was
still interested in a transaction with Fagan, and that a definitive proposal would be
made. Later that day, the committee sent Fagan a form of definitive agreement, which if
signed by Fagan, would result in our minority shareholders receiving $9.50 per share from
Fagan for each of their shares. The agreement was intended to firmly obligate Fagan to pay
our shareholders $9.50 a share and contains various provisions designed to assure that the
transaction actually occurs, including a requirement that Fagan escrow the merger price.
The agreement would not limit our ability to go private or effect a transaction that would
cause Fagan to cease to be a shareholder. The material terms of the proposed merger
agreement provided that:
o Fagan would create a new company into which we would be merged
o we would be the surviving company
o if approved by our shareholders, each shareholder other than the Schadens, certain of
their affiliates, the Fagans and Levine Leichtman, would receive $9.50 per
share in cash for each share of their stock
o Fagan would pay the $9.50 for each share of stock repurchased, and would escrow the
amount estimated to be needed to buy the minority shares
o Fagan would receive one share for every share repurchased from the minority
shareholders, so that at the end of the transaction, Fagan would own
approximately 30% of us
In the committee's opinion, the principal differences from Fagan's last proposal were:
o Fagan would be required to purchase all the minority shares for $9.50 per share
o Fagan would be required to pay the purchase price
o the agreement would not limit our ability to go private or effect a transaction that
would cause Fagan to cease to be a shareholder
Although in a prior letter to Fagan, the committee had offered to substitute a
personal guaranty from William and Laura Fagan for escrowed funds, this accommodation was
due to Mr. Fagan's claim that he could not escrow the funds within the time period
requested by the committee. The committee believed, however, that escrowed funds would
help ensure that a Fagan transaction would close, if the current $8.50 merger were to be
terminated. Given the new time frame for Fagan to respond to the December 7 merger offer,
the committee felt Fagan had ample time to comply with an escrow requirement and therefore
did not offer Fagan a guaranty option.
The committee said it would be available to negotiate the agreement until 5:00 pm the
following Tuesday, December 11, 2001, and encouraged Fagan and its representatives to be
present at the committee's counsel's offices on December 11 to adequately respond to any
last minute changes. The committee indicated it would not extend the deadline. The
committee informed Fagan that the Schadens and Firenze had agreed not to oppose the
transaction as set forth in the documents sent to Fagan. They also informed Fagan that
Firenze waived the condition of its merger with us related to any material adverse change
and dissenters' rights and that the Schadens would take all corporate and shareholder
action as may be necessary for Firenze to approve the Firenze merger.
The committee set the 5:00 pm December 11, 2001 deadline because of the numerous
proposals Fagan made since the announcement of the Firenze merger -- none of which
developed into a transaction. The committee was concerned that Fagan's actions have
delayed the process, increased the overall transaction costs to us and caused deal risk to
the minority shareholders and that Fagan did not intend to enter into a transaction more
favorable to our minority shareholders. It continues to be concerned by the conditions
attached to Fagan's proposals and, especially in its most recent proposals, their timing
and proximity to our special shareholders' meeting.
In an interview that appeared in the Rocky Mountain News on December 11, 2001, Mr.
Fagan is quoted as saying "It's grossly deficient...If they stick to their 5 pm deadline,
I'd say there's 0 percent chance we'll have an agreement." He is also quoted as saying,
"If the company would grant me standard minority shareholder protection, we could get a
deal done. There is no such thing as making a minority investment in a private company
without that."
By letter dated December 10, 2001, Schulte explained that Fagan had been unable to
review the materials until the 10th. It alleges that the committee has no interest in
seriously considering an alternative proposal and reiterated previous arguments as to why
Fagan's prior proposed agreement was superior. The letter states six conditions before
Fagan would consider a detailed response:
(i) Fagan would like to further discuss alternatives to a coercive transaction,
including allowing the minority shareholders to retain their interests in the
surviving company or at least a meaningful vote with respect to the transaction;
furthermore, Fagan's counsel noted that Fagan was open to structuring the transaction
such that the company could become a private company;
(ii) Schulte indicated that before it could consider if the agreement sent by
the special committee on December 7, 2001 constituted a serious offer, it first
needed for the committee to be ready to disclose the current voting results of the
minority shareholders, as well as explain the rationale for any changes to the terms
of the existing Schaden proposal and an explanation as to why Fagan must become an
actual party to the merger agreement as opposed to merely funding the purchase price
as originally contemplated in the earlier Fagan proposal;
(iii) Schulte indicated that no third party would expend substantial time and
money to provide a superior transaction for minority holders unless it had some
protection against an immediate squeeze out; therefore, Schulte indicated that it
would like to discuss various alternatives and suggested that alternatives could
include precluding the Schadens from squeezing out Fagan for some reasonable period
of time and using an investment banker, as opposed to the courts, to run a fair
market determination process;
(iv) Schulte indicated that the 5:00 p.m. Tuesday deadline was unreasonably
short and shouldn't be adhered to by the special committee in light of the pending
Fagan proposals;
(v) Schulte indicated that in light of the large percentage of minority
shareholders that have expressed an intent to dissent from the Schaden transaction,
potential for a better transaction exists and that additional time should be allotted
to bring a more favorable transaction to the minority shareholders, and further
suggested that delaying action until after the company published its 2001 financial
results would facilitate this objective and allow the parties to reassess the
fairness of the current proposal; and
(vi) Schulte suggested that Fagan needed to better understand the Schadens'
willingness to support an alternative proposal before Fagan could expend more time
and money on such a proposal.
Two members of the special committee repeatedly called Mr. Fagan on the afternoon of
December 11th to determine what conditions Mr. Fagan would require on "squeezed-out"
protection to see if a deal could still be consummated and sent a fax and e-mail to that
effect. Mr. Fagan did not return any of the calls. Schulte did e-mail Brobeck near the
end of the business day reiterating the request for the committee to respond in writing,
but to the committee's disappointment, Fagan was unavailable to talk in person prior to the
proposal deadline to see if a superior deal could be reached.
Following these events, the special committee met during the day and evening on
December 11th with its financial advisor and legal counsel and it reviewed and discussed
its original recommendation, based on the factors discussed above. As a result, the
special committee determined not to change its recommendation that the Firenze merger is
fair and in the best interests of our public shareholders.
The Quizno's Corporation
The correspondence between the
special committee and Fagan from June 2001
through December 11, 2001 is attached as Exhibit A.
The merger agreement sent to Fagan by the
committee is attached as Exhibit B.
EXHIBIT A
Correspondence Between
the Special Committee of the Quizno's
Board of Directors and Fagan Capital Inc. and Related
Parties from June 2001 to December 11, 2001
- ---Original Message-----
From: Bill Fagan [mailto:bill.fagan@verizon.net]
Sent: Tuesday, December 11, 2001 11:01 PM
To: Mark Bromberg; Eric Lawrence; john todd
Cc: Andre Weiss
Subject: Fw: Quiznos and Fagan Capital
Gentlemen: I have just read your fax to me of late today. Below is my
lawyer's email to your lawyer in response. Of course we remain very
seriously interested in a transaction. However, over the last several
months, we have made multiple detailed and creative proposals in writing
(and in person with Rick Schaden), have spent a ton of time and money, and
the consistent response we get back is "the Special Committee can't do that"
(which really means "Quizno's won't do that"). We're frustrated.
As my lawyer explained earlier, we need a response in writing to the points
we have raised in our recent communications. Last minute "rush" phone calls
based on artificial deadlines are not productive, and certainly not in the
best interest of your constituents. Please also give us a detailed reason
why you didn't even bother to negotiate my signed and fully funded
definitive agreement, which as you well know was incontrovertibly superior
in every respect to the Schadens' proposal, from the minority holders' point
of view-and the law says your responsibility is to consider the minority
holders' point of view, not anyone else's.
So please address our issues in writing. This should help us to understand
where you are coming from, should help preclude any misunderstandings, and
is consistent with your approach of requiring us to put our proposals in
detailed written form. Promptly after receipt of an appropriate and
detailed response, I will be happy to negotiate with you by phone, or in
person in Dallas at any time the rest of this week or weekend, as long as I
have some advance notice to clear my schedule. Please understand that
December is my busiest time of year due to tax loss selling in the stock
market. If you are both serious and empowered by the Schadens, I look
forward to working with you to craft a transaction that is both perfectly
fair to Quizno's and in the best interest of its minority shareholders.
Thank you,
Bill Fagan
- ----- Original Message -----
From: "Andre Weiss" mailto:Andre.Weiss@srz.com Andre.Weiss@srz.com
To: mailto:jharris@brobeck.com jharris@brobeck.com
Cc: mailto:rplumridge@brobeck.com rplumridge@brobeck.com;
mailto:fci2@swbell.net> fci2@swbell.net;
mailto:
wfagan@swbell.net
Sent: Tuesday, December 11, 2001 5:54 PM
Subject: Re: Quiznos and Fagan Capital
On behalf of FCI, I have been asked to reiterate the request in last
evening's letter, namely that the Committee respond to the requests in
writing. Frankly, given the timing imposed by the Committee, I expected to
have had that response when I arrived at my office this morning.
If the Committee so desires, FCI is willing to address the issues seriatim,
with the need to develop an approach that clearly establishes the Fagan
proposal as an alternative to the Schaden deal first; although I would
disagree with your characterization that the other items included in the
Committee's Agreement are of lesser importance.
The Committee and its counsel have seen several communications from FCI and
engaged in several discussions with FCI on this item. The Committee should
be in a position to make a firm written proposal to FCI now that can be
delivered promptly. Once Bill has received that proposal, he will be in a
position to speak to the Committee to determine whether a transaction on the
proposed terms can be worked out.
- -----Original Message-----
From: Mark Bromberg [mailto:mbromberg@vialink.com]
Sent: Tuesday, December 11, 2001 4:11 PM
To: 'fci2@swbell.net'; 'wfagan@swbell.net'
Cc: 'andre.weiss@srz.com'; 'rplumridge@brobeck.com';
"
Subject: Quiznos and Fagan Capital
Bill:
Although we forwarded a copy of a proposed transaction to you and your
attorneys last Friday, December 7, we received a copy of the response letter
from Schulte, Roth early this morning. The special committee has held
extensive discussions among ourselves to determine what we might be able to
offer to help facilitate a transaction which is in the best interests of the
minority shareholders of Quizno's.
In that regard, we have been attempting to contact you methodically since 1
PM this afternoon, and have succeeded only in reaching a variety of voice
mail systems and answering machines. In addition, we contacted your home
and your executive assistant at Fagan Capital. In each instance, we were
advised that you are not available, and to continue attempting to contact
you through all of your active telephone numbers.
This afternoon at approximately 3:38PM, we received a fax from your
executive assistant, advising that you were not available, and suggesting
that we respond to your attorney's letter in writing, indicating when we
might be available to discuss matters with you.
The special committee has been and continues to be very interested in trying
to facilitate a transaction which is in the minority's best interests, yet
we are unable to do so in the absence of any direct communication between us
and you or your attorneys. In particular, we are interested in
understanding exactly what time period you are seeking with respect to the
"squeezing out protection" which you might require were you to complete the
transaction which we understand you have reviewed. Please feel free to
contact me or Eric Lawrence to continue discussions; we cannot act in a
vacuum.
Eric Lawrence and Mark Bromberg
For the Special Committee
SCHULTE ROTH & ZABEL LLP
919 Third Avenue
New York, NY 10022
(212) 756-2000
fax (212) 593-5955
www.srz.com
Andre Weiss E-mail
(212) 756-2431
andre.weiss@srz.com
December 10, 2001
VIA FACSIMILE
Mr. Richard R. Plumridge, Esq.
Brobeck, Phleger & Harrison LLP
370 Interlocken Boulevard
Suite 500
Broomfield, Colorado 80021
Re: The Quizno's Corporation ("Quizno's")
Dear Richard:
We received the Agreement and Plan of Merger delivered to us at
approximately 6:00 p.m. Friday evening. Because of the late hour of
delivery, other commitments that both Bill Fagan and I had this weekend and
the absence of any advance notification of timing, we were not able to review
the materials until today. In the interest of avoiding any misunderstanding
on FCI's position, I am transmitting this letter to you on FCI's behalf.
Based on our initial review, it is incontrovertible that the
Committee has no interest in seriously considering an alternative to the
Schaden transaction. The FCI proposals have been devised so that they
represent a distinct and materially beneficial alternative to the Schaden
transaction. FCI furnished, at the Committee's insistence, a signed
definitive agreement and guaranty containing a substantially better price
($9.50 versus $8.50) and substantially better terms ( a non-coercive proposal
versus an involuntary squeeze-out). You indicated only two matters of
Committee concern and then refused to engage in any meaningful dialogue
towards addressing any of the Committee's concerns. The Agreement
transmitted continues to reflect the Committee's obvious indifference to the
interests of the Quizno's minority shareholders. Rather than some vague
insinuations, FCI challenges the Committee to disclose publicly and with
specificity those features that make the FCI offer obviously unacceptable to
the Special Committee.
To borrow from your own terminology, in attempting to put FCI to
the test, the Committee has failed its test and its solemn responsibility,
namely to support only a fair transaction for the benefit of the minority
shareholders of Quizno's. Furthermore, by presenting the Agreement without
appropriate advance notice, although this notice was personally committed to
by you to me, by radically changing the proposed structure without
explanation and by imposing a two business day deadline (one that you
acknowledged the Committee itself did not and could not comply with), the
Committee is doing a grave disservice to the constituents that the Committee
is supposed to serve, the minority shareholders of Quizno's who are being
forced out of their investment.
Before FCI determines whether to undertake a detailed response to
the proposal reflected by the Agreement, the Special Committee must provide
VCI immediate written clarification on the following issues:
1. The Agreement contemplates a coercive transaction. FCI has
stated on several occasions, both in letters and conversations, that FCI
believes that a coercive transaction whereby the other minority shareholders
are forced out of Quizno's despite their overwhelming objections can hardly
be said to serve their interests. As FCI has indicated several times, even
the price of $9.50 per share falls significantly short of FCI's view as to
the fair market value of Quizno's.
FCI prefers not to participate in a transaction that forces out
the minority shareholders and relegates them to their dissenters' rights and
doesn't understand how the Special Committee can insist on an obviously
unfair structure. As I advised you earlier last week, FCI would be
interested in discussing alternatives to that approach, including allowing
the minority shareholders to retain their interests in the surviving company
or providing the minority shareholders with a meaningful vote with respect to
the transaction. Also, FCI believes that remaining public is in the best
interest of the minority shareholders, FCI is nonetheless open to structuring
the transaction such that Quizno's becomes a private company.
2. In order for FCI to consider the Agreement delivered to FCI
to constitute a serious offer, the Committee must be ready to disclose
immediately to FCI the current voting results from the minority
shareholders. In addition, a brief review of the Agreement reveals changes
to the terms of the agreement with the Schadens. An immediate detailed
explanation of the rationale for those changes will be necessary to provide
the Committee with FCI's response. Finally, FCI requires an explanation as
to why the Committee has restructured the transaction so that the merger is
effected through an FCI vehicle. FCI had proposed to fund the higher
purchase price and sees no reason that it must become a party to the merger
to effectuate that objective.
3. Moreover, frankly, we also don't see how FCI can consider
your Agreement to constitute a serious offer as opposed to an exercise in
attempting to cosmetically improve on the Committee's record. Your proposed
transaction provides no bar to the Schadens' squeezing out the minority
shareholders of the Surviving Company (namely, FCI) following and FCI
transaction. It is ludicrous for the Special Committee to believe that FCI
or any third party would expend substantial time and money to provide a
superior transaction for minority holders, but be vulnerable to the Schadens'
deciding at any time to squeeze FCI out after FCI closes its transaction.
That simply makes no sense whatsoever. Furthermore, how does it serve
Quizno's interests to go through an anticipated appraisal proceeding with
respect to this transaction and permit another appraisal proceeding covering
the same shares in an appraisal proceeding where FCI dissents.
FCI has indicated to you that it would be willing to discuss
alternatives to that approach that would also make it clear that the FCI
transaction is an alternative to the Schaden transaction and not merely a
prelude to yet another Schaden transaction. Alternatives could include that
the Schadens would be precluded from squeezing FCI out for some reasonable
period of time and that a fair market value determination process run by an
investment banker would be used in lieu of the expensive and unpredictable
court-run appraisal process (fair market value could be determined similarly
to the method used in the Levine Leichtman documents).
4. Your letter indicates a 5:00 p.m. Tuesday deadline. We are
puzzled as to the pressure by the Special Committee on a deadline at this
stage. As you well know, the necessary legal predicates for insisting on a
deadline are not present. FCI has put on the table a superior price for the
minority shares and has even suggested a higher price subject to minority
protections, in the one case, and subject to a financing condition in the
other case. We see no basis for the Committee to attempt to terminate its
fiduciary obligations merely because the Agreement is not signed by that
date. FCI will not be bond by an unreasonable deadline to abandon its
efforts to bring a superior opportunity to the Quizno's minority
shareholders. Inasmuch as it took the Committee five business days to merely
respond to FCI's agreement, which you demanded be delivered to you in a
signed form, it does not even pass minimal legal standards for discharging
the Committee's obligations to Quizno's minority shareholders, to give FCI
two business days to finalize an agreement.
Your references to introducing "additional deal risk" at a time
of "great uncertainty in the public markets" rings hollow inasmuch as the
NASDAQ composite index has risen over 40% since mid-September and your
minority holders have voted overwhelmingly against the deal. The only
parties in a hurry to rush the Schaden transaction to a close (in fact, it
appears that the only parties willing to close at all) are the Schadens and
the Committee.
5. Consider again that at this time holders of two-thirds of the
minority shareholders have publicly announced their intent to dissent from
the transaction. We are certain that prior to the adjournments of the
meeting, Quizno's had in hand a complete tally of all the minority votes
voting on the transaction. In its prior correspondence, FCI has ventured a
guess that the negative votes well exceeded two-thirds of the minority-owned
shares. Therefore, given the potential for a better transaction and the
overwhelming disapproval by the minority shareholders of the Schaden
transaction, additional time should be allotted to bringing the best
potential transaction to the minority shareholders.
In fact, FCI has suggested in its earlier correspondence to the Special
Committee that given the tremendous growth experienced by Quizno's over the
recent year and since the transaction was last formally approved nearly half
a year ago, and given a fairness opinion based on financial statements that
at best were updated through March 30, 2001, the Special Committee and,
particularly Quizno's minority shareholders, would be well served to delay
any further action until Quizno's publishes its 2001 financial results. If
those results continue to reflect the steep improvement in growth, FCI
believes that even better bids can be achieved than the ones already received
by the Special Committee. Delaying for a few more weeks would also give the
Committee the opportunity to reassess the fairness of any proposal currently
on the table and give Quizno's the opportunity to improve on those proposals
and to properly amend and remail the Quizno's proxy statement in order to
properly disclose the events of the past several weeks.
6. The included letter provides for the Schaden group to agree
not to impede the transaction. While I understand that due to some legal
considerations that were contemplated by that letter, that letter it falls
far short of a commitment to vote in favor of the FCI transaction. FCI is
certainly not going to put itself in a position where it expends even more
money and time on a transaction sponsored by the Special Committee, only to
find out subsequently that the Schadens may block it. If that legal
commitment cannot be obtained, it will be necessary for the Schadens to meet
directly with Bill Fagan so that he can understand their intentions. As
indicated in our earlier correspondence, Bill will be available to meet with
them at his offices in Dallas this week.
Please contact me to discuss the foregoing.
Very truly yours,
Andre Weiss
Brobeck, Phleger & Harrison llp
370 Interlocken Boulevard
December 7, 2001 Suite 500
Broomfield, Colorado 80021
direct 303.410.2014
fax 303.410.2199
rplumridge@brobeck.com
VIA FACSIMILE AND E-MAIL www.brobeck.com
Andre Weiss, Esq.
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Re: The Quizno's Corporation (the "Company")
Dear Andre:
Enclosed is an Agreement and Plan of Merger for a Newco to be formed by the
Fagans under which they buy all minority shares of Quizno's except their own
at $9.50 per share in cash (the "Proposed Transaction"). Subject to further
developments in the process described below, it is our understanding that the
Company, the Special Committee and the Schadens are willing to proceed with
the Proposed Transaction as drafted. We have also enclosed a form of letter
from the Schadens relating to the Proposed Transaction. Counsel for the
Schadens indicates that they are obtaining signed copies and we will forward
them to you when received.
The Special Committee is dedicated to reaching an agreement that is in the
best interests of the Company and its shareholders. To date, the process
involving Fagan Capital, Inc. has been disruptive and unclear, which
unfortunately has delayed the process, increased the overall transaction
costs and injected additional deal risk to the minority shareholders at a
time of great uncertainty in the public markets.
The Special Committee has decided to establish a process to reach a final
result in the best interests of the Company and its shareholders. The
Special Committee intends to be available to negotiate with FCI final
definitive documents until 5:00 p.m. on Tuesday, December 11, 2001 (the
"Deadline"). The Special Committee does not intend to consider any proposals
after the Deadline.
In order to enhance Mr. Fagan's chances of successfully completing a
transaction with the Company for the benefit of its shareholders, we
encourage you and your client to be physically present on Tuesday, December
11, 2001 at the law offices of Brobeck, Phleger & Harrison LLP, located at
370 Interlocken Boulevard, Suite 500, Broomfield, Colorado 80021. This will
allow Mr. Fagan and you to adequately respond to any last minute changes as
the Deadline approaches.
We are concurrently informing Firenze's counsel of the Special Committee's
process.
We ask that you promptly call us to discuss any questions you may have and
hope to see you and your clients in person next Tuesday at our law offices.
In the meantime, we shall continue to remain available at all times to
discuss and negotiate on the Proposed Transaction.
Very truly yours,
Brobeck, Phleger & Harrison LLP
By: ________________________________
Richard R. Plumridge,
On behalf of the Special Committee of the Board of Directors for The
Quizno's Corporation
RRP/bsp
cc: Mark Bromberg (via email)
J. Eric Lawrence (via email)
John Todd (via email)
Patrick Meyers, Esq. (via email)
Dean Kristy, Esq. (via email)
Jeff Harris, Esq.
SCHULTE ROTH & ZABEL LLP
919 Third Avenue
New York, NY 10022
(212) 756-2000
fax (212) 593-5955
www.srz.com
Andre Weiss E-mail
(212) 756-2431
andre.weiss@srz.com
December 6, 2001
VIA FACSIMILE
Richard R. Plumridge, Esq.
Brobeck, Phleger & Harrison LLP
370 Interlocken Boulevard, Suite 500
Broomfield, Colorado 80021
Re: The Quizno's Corporation
Dear Richard:
Last evening, Bill Fagan advised the Quizno's Special Committee
that FCI's offer had expired by its terms. In that letter, Bill indicated
FCI's ongoing interest in pursuing a transaction with Quizno's. This
morning, you telephoned me to indicate that the Committee would respond to
the FCI proposal, although it had expired.
This letter confirms my statements to you that, given that the
past conduce by the Committee and Quizno's does not even resemble good faith
negotiations, FCI requires that any effort by the Committee to reinitiate
contact will be done through formal proposals. Those proposals will have t
have been approved by the Special Committee and by all necessary parties
(including, if require, the Board of Directors and the Schaden group) before
FCI would be willing to authorize the expenditure of any more time or
effort. This approach is only fair in light of history here and the
conditions previously placed on FCI.
Very truly yours,
Andre Weiss
/cmd
cc: Mr. William S. Fagan
FAGAN CAPITAL, INC.
5201 N. O'CONNOR BLVD., SUITE 440
IRVING, TEXAS 75039
December 5, 2001
The Special Committee of Quizno's Corporation
c/o The Quizno's Corporation
1415 Larimer Street
Denver, Colorado 80202
Attention: Mark Bromberg
Gentlemen:
Reference is made to the Investment agreement and Guaranty delivered to
Quizno's this past Monday December 3, 2001. At your insistence, Fagan
Capital Inc. executed both of those instruments, and my wife and I personally
executed the Guaranty. By its terms, both of those instruments expired at
5:00 p.m. (CST) today.
Our $9.50 offer was a clearly superior alternative to the Schaden offer, and
unlike our $10.63 offer, you could not take the position that Quizno's
mezzanine lender had to consent to the acceptance of the $9.50 offer. The
acceptance or rejection of our $9.50 offer was solely in the hands of the
Special Committee, the Board and the Schadens. We believe our offer would
have had the overwhelming support of the minority holders; those who wanted
out at $9.50 could get their $9.50 in cash immediately, and those who wanted
to stay in for the ride could do so, continuing in a public company format.
In your November 28, 2001 letter to me, you expressed skepticism over the
seriousness of our intentions since our offer was not yet in the form of a
definitive agreement. You stated: "Nonetheless, we are prepared to pursue
immediately a transaction with FCI where each of the Quizno's minority
shareholders will be certain to receive $9.50 per share in cash with no put
option which would require third party consent...As expressed in our letter of
October 22, 2001, and as we did with Firenze, we request that your proposal
be made immediately in the form of a binding offer with definitive
documentation. We are prepared to negotiate a definitive document binding on
FCI..."
We delivered a signed definitive agreement to you on Monday December 3, 2001
that met your criteria. Our attorney then addressed by phone and email the
only issues raised by your attorney - that FCI was flexible as to deal
structure (such as converting our offer to a tender offer, as suggested by
your counsel) and FCI was willing to entertain other approaches as long as
they reflected FCI's proposal for what it was - an alternative to the Schaden
proposal, not a prelude to another going private transaction by the
Schaden's. Nonetheless all of our communication did not even amount to a
negotiation. Nothing was suggested by the Committee, other than that we
remove section 5.08 and allow the Schadens to take the company private and
squeeze us out at any time after we completed our $9.50 offer! It is
inconceivable that any bidder would agree to such a provision, and you have
created a situation where it is impossible to present an alternative for the
minority shareholders to consider.
Since then, Quizno's has essentially declared radio silence. We do not see
how the Committee served the best interests of the Company's minority
shareholders by allowing a superior offer, in for form of a signed definitive
agreement, to die on the vine - not to mention our even higher offers which
were met with no encouragement whatsoever.
Quizno's is worth many multiples of, not merely a few dollars more than, the
$8.50 price being forced on us. And you are going to force us to go through
a multi-year and very expensive legal battle to get our appropriate
compensation; and that's just plain wrong and unfair. We have already
acknowledged that our $9.50 offer was also woefully inadequate price-wise,
but at least it was superior to $9.50 and it offered shareholders a choice;
it was not coercive. In any event, in legal proceedings we fully expect to
show that shareholders are entitled to compensation equal to many times the
$8.50 price.
Since the financial statements and projections that the Committee's
investment banker based it "fairness opinion" on are stale for a company
that's growing and changing as fast as Quizno's is, we implore you to at a
minimum delay the merger at least a few more weeks, until you and the
minority shareholders have had the opportunity to review the latest audited
financial information which Quizno's is due to file as its annual report on
Form 10-K. You should also get your investment banker to update his fairness
opinion, based on the new financial information, for his and your protection.
As noted, FCI's offered has expired. In light of all Quizno's actions over
the last several months regarding negotiations with us, including most
recently your silence regarding FCI's definitive agreement and your allowing
of the deadline on it to pass, we have reluctantly and finally concluded that
we will be blocked in any further effort to bring value to the minority
holders. We don't understand why Quizno's won't deal with us and entertain
our premium offers, especially given our great admiration for the Schadens
and the company. In any event, unless we receive further communications from
you directly or via press release, you will receive no further offers and
will not hear from us further on this matter prior to the Firenze merger.
We've made our case.
However, please be very clear about the fact that, if you are interested, we
expect to remain very interested in pursuing a transaction with the company
before you close the merger, including any of the $9.50, $10.63 or $15.00
offers previously stated. In fact, we would be exceedingly interested in
pursuing a purchase of the entire company, in conjunction with our capital
partner, and if you would permit us to perform due diligence, I am confident
we could offer a very large premium to the $8.50 price, to all shareholders.
We think it would be worth your time to permit us to proceed. Please advise,
and if you are interested, we would be prepared to commence due diligence
promptly and solely at our expense.
Very truly yours,
FAGAN CAPITAL, INC.
By:___________________
William S. Fagan, President
Cc: Andre Weiss
Richard Plumridge
Pat Meyers
FAGAN CAPITAL, INC.
5201 N. O'CONNOR BLVD., SUITE 440
IRVING, TEXAS 75039
PHONE 972-869-3430
FAX 972-869-4066
wfagan@swbell.net
November 30, 2001
The Special Committee of Quizno's Corporation
c/o The Quizno's Corporation
1415 Larimer Street
Denver, Colorado 80202
Attention: Mark Bromberg
Gentlemen:
We received the letter from the Special Committee last evening at
8:00 p.m. (Eastern time) demanding that a definitive agreement executed by
FCI be delivered by no later than 12:00 a.m. (Mountain time) that night! We
are stunned by the eagerness of the Committee not to "deprive" the minority
holders of the $8.50 per share merger consideration, when already holders of
about 65% of the minority shares have publicly stated their intention to
dissent from the merger. To be blunt, the $8.50 consideration is
mind-bogglingly inadequate and the minority shareholders and the financial
press know it but the Special Committee won't admit it. I acknowledge that
the $9.50 per share in our offer (as well as the $10.63 and $15.00 per share
proposals) are also woefully inadequate and if the Schaden merger is
permitted to go forward, FCI will ask for and expect to receive many
multiples of the $8.50 per share in appraisal proceedings. However, unlike
the Schadens, I am not proposing a forced squeeze-out of the minority as
sanctified by your Committee.
In my phone call with you that ended at about 10:15PM Central
Time Thursday night, we discussed the fairness of the Schaden merger. I
asked you whether the fact that Rick Schaden wouldn't sell me his shares at
$15 might have a bearing on your perception of whether a forced squeeze-out
of minority holders at $8.50 is fair, and you responded that it was
irrelevant, because Rick didn't want to sell his shares, or at least not at
that price. The price at which the controlling shareholder is willing to
sell should be critical to you.
And then when I stated that I didn't want to sell my shares
either, you said I didn't have to. And that's not the first time you said
that to me. Don't you understand that the minority is being forced out of
the Company? If the Schadens wanted to merely offer $8.50 per share on a
non-coercive basis, we would not have undertaken the efforts that we have.
You, as the Chairman of the Special Committee, must be clear as to the
implications of the Schaden transaction. We are being forced out so that the
Schadens can benefit from the Company that we have all invested in. Don't
even entertain the notion that having appraisal rights is the same thing as
continuing as a stockholder, and you should have taken that into account in
your deliberations.
Irrespective of the above issues, FCI is still willing to enter
into a definitive agreement promptly to buy at $9.50 per share any and all
minority Quizno's shares from holders who wish to get cash and is willing to
arrange for the preparation of such agreement. Furthermore, Laura Fagan and
William Fagan are willing to jointly and severally guaranty the obligation to
fund FCI's proposed transaction. It is necessary that we have responses to
the following requests which we requested previously in our letter but which
were ignored by the Committee:
1. Advise us as to which structure Quizno's wants pursue (tender offer by
FCI, or amended merger agreement by Quizno's along with a
stock purchase agreement between FCI and Quizno's).
2. Provide written confirmation that our proposed $9.50 per share
non-coercive offer has the support of the Special Committee
and the Board of Directors of Quizno's, including the
Schadens. It would be wasteful for FCI and Quizno's to
pursue a transaction if we were not assured that Quizno's
would accept it.
3. Confirm that the Special Committee is not interested in pursuing any of
the higher priced alternatives made by FCI in its earlier
letter, although FCI remains quite eager to pursue these if
you can arrange for it.
The answers to these questions are imperative for FCI to properly
instruct its attorneys so that the definitive documents may be drafted
efficiently and effectively.
If the Special Committee truly supports the best interest of the
minority shareholders, the Special Committee should delay today's
shareholders' meeting in deference to the overwhelming consensus of the
minority shareholders, and the strong possibility that we can work together
to provide a tangible superior alternative in short order.
Very truly yours,
FAGAN CAPITAL, INC.
By:__________________
William S. Fagan, President
Cc: Andre Weiss (fax) 212-593-5955
John Moye (fax) 303-292-4510
Richard Plumridge (fax) 303-410-2199
Lexi Methvin (fax) 303-410-2199
Special Committee
Of
The Quizno's Corporation
November 29, 2001
William S. Fagan
President
Fagan Capital, Inc.
5201 N. O'Connor Blvd., Suite 440
Irving, Texas 75039
Dear Bill,
We have received midday your response to our November 28, 2001 letter.
It is our goal to provide the greatest benefit possible to our minority
shareholders. We would like to believe that your primary goal is to complete
a transaction that would benefit the minority shareholders rather than to
disrupt the existing agreement. After careful review of your letter we
continue to believe that you have not been responsive to our requests,
including our request that you provide us with definitive documentation for
execution. In addition, we believe that you have inaccurately portrayed the
actions of the Special Committee. You should assume we disagree with the
factual assertions in your letter. Nevertheless, in the interest of
maximizing value to our minority shareholders we are willing to try once
again to clearly state what is required in order for us to effectively
complete a transaction with you.
Our letter of November 28, 2001 clearly states that in order for us to pursue
your proposal you needed to provide us with definitive, executable
documentation. To date you have failed to provide us with any documentation
which if signed by Quizno's would be binding on FCI and provide value to the
minority shareholders. We do not wish to have any further miscommunication
with you on this point. IN order for you to demonstrate you are serious in
your proposal, we require that you provide us with definitive documents
executed by you no later than midnight (Mountain time) tonight. Unless you
comply with this request, which we made numerous times including in our
October 23, 2001 and November 28, 2001 letters, we cannot and will not
deprive the minority shareholders of their right to receive $8.50 a share.
It is not the Special Committee's obligation to draft a definitive agreement
for you and will not do so. I am sure you have at your disposal competent
attorneys who can advise you and guide you through this process. We remind
you once again that the agreement with Firenze, which the Special Committee
has approved, is publicly available.
Given the last minute nature of your proposal (the timing of which is
extraordinary), our letter of November 28, 2001 informed you of our
requirement that you put sufficient funds into escrow in order to fund the
transaction. Your letter today indicates your unwillingness to do this. We
will not continue discussions with you at this late date unless this
requirement is met. In the alternative, we will accept a joint and several
personal guaranty of the performance of FCI's obligations from you and your
wife to secure the funding obligation.
If you have any questions, please feel free to contact our counsel, Richard
Plumridge at (303) 410-2014 or Lexi Methvin at (303) 881-6854.
Best Regards,
Mark Bromberg
Chairman
Cc: Richard R. Plumridge
Lexi Methvin
Andre Weiss
FAGAN CAPITAL, INC.
5201 N. O'CONNOR BLVD., SUITE 440
IRVING, TEXAS 75039
PHONE 972-869-3430
FAX 972-869-4066
November 29, 2001
The Special Committee of Quizno's Corporation
c/o The Quizno's Corporation
1415 Larimer Street
Denver, Colorado 80202
Attn: Mark Bromberg
Gentlemen:
FCI appreciates your November 28, 2001 response to our proposal
of November 27, 2001. We trust that the Committee has properly reflected on
our proposal and the alternatives presented. Before addressing how to
proceed with the Committee's apparent acceptance of our UNCONDITIONAL $9.50
OFFER, we would like to set the record straight in response to your
inaccurate statement that we don't have a sincere interest in acquiring
Quizno's minority shares. In fact, the record will show that we've bent over
backwards to try to offer Quizno's minority shareholders a substantially
better deal than the offer you are supporting, and we are still interested in
doing so.
FCI made a very clear, fully financed and binding commitment to
offer $10.63 per share to the Quizno's minority shareholders over two months
ago. After several weeks, you reported to us that our $10.63 offer was
blocked by your mezzanine lender despite the fact that all FCI asked for was
a put on the same terms that such lender was granted last year. FCI made it
clear that we would defer exercise of such put until after the lender had
been paid in full, effectively subordinating our put to both the lender's
loan and its put. Frankly since our put poses no risk to the lender, we
can't understand its objections to our request.
It is especially troubling that less than one year ago and in
full anticipation of a subsequent going-private proposal by the Schadens, the
Directors (including the Special Committee members) sought a lender to
provide financing for such going-private proposal and then gave such lender
sweeping rights to block virtually any offer made by any other party who
might wish to compete with the Schadens! This lender can not only prevent
any third party (such as FCI) from obtaining the same benefits which were
afforded the lender (such as the put we requested), but you have informed us
that the lender can block virtually any debt or equity transaction involving
Quizno's. You have placed the Schadens in a position to take the Company
private just as the cash flows really started exploding, and at a price that
the overwhelming majority of non-Schaden shareholders find very objectionable.
Further, as you know, FCI spent substantial time and money
meeting your requests during the fall of 2001, trying to put together a
transaction that would benefit the Quizno's minority shareholders prior to
the mailing of the current proxy statement. Those efforts to reach a
mutually agree superior offer were halted on November 5th, after my in-person
meeting with Rick Schaden. As you know, after many requests since February
2001 by me to meet with him, in late October Rick Schaden finally called to
invite me to meet with him in Denver, ostensibly to see if we could reach an
agreement that would be beneficial to all parties. You, in fact, advised me
that Mr. Schaden would suggest constructive alternatives at such meeting. At
the November 5th meeting, and tat the request of Schaden and John Moye, I
outlined in good faith some alternatives for resolving our differences and
providing better alternatives to shareholders. After my presentation of
numerous approaches, I was then summarily informed by Schaden, without any
negotiation or the proffer of any ideas on his part, that he would not
propose or even consider any alternatives, since the Schaden offer was "to
far along" and he didn't want to disrupt the transaction that he currently
had on the table. Later that day, I learned that Quizno's had actually been
filing their final proxy with the SEC while our meeting was taking place.
Quizno's participation in the meeting was disingenuous.
Notwithstanding these matters, we are delighted that you are
willing to pursue immediately a definitive transaction at $9.50 per share
with no put. Given certain mischaracterizations of our offer, we wish to
emphasize that OUR $9.50 OFFER IS NOT A CONDITIONAL OFFER, and it appears
that you agree that neither the special committee nor the mezzanine lender
has any basis to reject such offer and must accept it as superior to the
similarly unconditional but inferior Schaden $8.50 offer.
In light of the events to date, it is understandable that we are
leery of wasting more time and money on wild goose chases. Therefore, please
advise us promptly as to which structure the Committee would like to pursue
(tender offer by FCI, or amended merger agreement by Quizno's along with a
stock purchase agreement between FCI and Quizno's). Please promptly furnish
us with a draft agreement with standard provisions incorporating such
structure. To ensure that this effort is not merely another useless
exercise, we also require written confirmation that the Board of Quizno's
(not just the Special Committee) supports the $9.50 offer. As you have
previously advised us, the Special Committee lacks the authority to bind
Quizno's to approve and FCI proposal without Schaden approval. Therefore, it
is critical to know where the Schadens stand now.
Again, we wish to reiterate that in addition to our UNCONDITIONAL
$9.50 OFFER, we are still interested in offering much more that $9.50 per
share if the Schadens and your mezzanine lender would consent to giving us
standard minority shareholders protections including a put. Further, we
would be keenly interested in purchasing the entire Company for at least $15
per share, although since no one knows better than the Schadens that the
Company is probably worth at least twice that much, we would be shocked (and
delighted!) if they would seriously enter into negotiations to sell us the
Company at such price.
Finally, as you have already acknowledged in writing, FCI has
proven its financial wherewithal to complete a purchase of minority shares.
To underscore that capability, I am willing to personally guarantee the
availability of such financing. It is disingenuous that your November 28
letter adds a brand new condition to any prospective negotiations - that you
want an escrow account to be funded to ensure that FCI can complete the
purchase of such shares. An escrow was never raised by you in the past and
it is neither necessary nor acceptable at this late date.
We look forward to completing a transaction promptly with you, as
we view Quizno's as an incredible cash-flow machine, and as we've said many
times, we think Rick and Dick Schaden and their team are among the most
brilliant business people in the United States and have executed superbly
thus far. We are honored to be their partners, and hope to continue to be
their partners for a very long time. We certainly understand why the
Schadens want to take the Company private at these prices; we share their
views about the great future of the company and hope to move forward on
friendly terms. Thank you.
Very truly yours,
FAGAN CAPITAL, INC.
By:__________________
William S. Fagan, President
Cc: Andre Weiss (fax) 212-593-5955
John Moye (fax) 303-292-4510
Richard Plumridge (fax) 303-410-2199
Lexi Methvin (fax) 303-410-2199
Special Committee
Of
The Quizno's Corporation
1415 Larimer
Denver, Colorado 80202
November 28, 2001
William S. Fagan
President
Fagan Capital, Inc.
5201 N. O'Connor Blvd., Suite 440
Irving, Texas 75039
Dear Mr. Fagan:
Thank you for your letter of November 27, 2001 which was received yesterday
evening. As you will recall, we have been engaged in a lengthy, detailed
process attempting to determine whether FCI is finally prepared to make a
bona fide binding offer in a form that could be accepted for the benefit of
Quizno's minority shareholders. After many months and on the eve of our
shareholder vote and closing of our existing binding agreement, you have
still failed to do so. We are concerned that the timing of your letter is
designed more to disrupt the shareholder meeting and closing than it is a
sincere expression of interest in acquiring Quizno's minority shares. In
this respect we note that your letter does not contain sufficient information
to constitute a binding offer which the Special Committee could recommend on
behalf of the minority shareholders. We have been requesting that type of
detailed information at least since my letter of September 7, 2001 to you.
Nonetheless, we are prepared to pursue immediately a transaction with FCI
where each of the Quizno's minority shareholders will be certain to receive
$9.50 per share in cash, with no put option which would require third party
consent. As you know, time is of the essence, since we have a fully
committed agreement guaranteeing the minority shareholders $8.50 per share in
cash scheduled to close on Friday November 30. As expressed in our letter of
October 22, 2001 and as we did with Firenze, we request that your proposal be
made immediately in the form of a binding offer with definitive
documentation. We are prepared to negotiate a definitive document binding on
FCI by the close of business on Thursday, November 29, 2001.
In order to protect the minority shareholders, we ask you to confirm that the
$9.50 offer to the shareholders would be unconditional and that the funds
necessary would be placed immediately in escrow. We and our counsel are
available immediately and continuously to complete negotiations if FCI is
willing to make a binding commitment.
If you have any questions, please feel free to contact our counsel, Richard
Plumridge at (303) 410-2014 or Lexi Methvin at (303) 410-2022.
Best Regards,
Mark Bromberg
Chairman
Cc: Richard R. Plumridge
Lexi Methvin
Andre Weiss
FAGAN CAPITAL, INC.
5201 N. O'CONNOR BLVD., SUITE 440
IRVING, TEXAS 75039
PHONE 972-869-3430
FAX 972-869-4066
wfagan@swbell.net
November 27, 2001
The Special Committee of Quizno's Corporation
c/o The Quizno's Corporation
1415 Larimer Street
Denver, Colorado 80202
Attn: Mark Bromberg
Gentlemen:
In light of Special Committee's responses to our earlier
proposal, dated September 21, 2001, Fagan Capital Inc. ("FCI") hereby renews
its proposal on the following terms:
1. The current merger would be amended to provide for a cash consideration
to minority holders of $9.50 per share of Quizno's common stock.
2. The merger would be non-coercive, allowing holders to continue to be
shareholders of the surviving company following the merger.
3. FCI would fund the purchase price for the minority shares and receive a
number of newly-issued shares of the surviving company's common stock equal
to the number of shares that the minority holders of Quizno's common stock
elected to cash out in the merger.
4. FCI's offer would not be contingent on any put option.
5. FCI stands ready to pay at least $10.63 per share if Quizno's is
willing to grant FCI a fair market value put option with appropriate
protective provisions along the lines previously proposed. In the
alternative, FCI is also willing to pay $!5.00 per share for all of the
outstanding equity of Quizno's, subject to obtaining satisfactory financing
and necessary regulatory approvals and consents, as ell as other standard
closing conditions.
The foregoing proposal is subject to reaching a mutually
satisfactory definitive agreement providing for standard terms.
FCI is willing to move expeditiously to a definitive agreement
and closing.
As provided in FCI's October 2, 2001 letter, FCI has proven to
the Special Committee its ability to finance its proposal through funds it
manages.
This proposal has been structured to minimize the delay in
consummating the merger. FCI would also be willing to proceed using another
structure, such as a tender offer, approved and recommended by the Quizno's
Special Committee.
The proposal set forth in this letter eliminates the Special
Committee's only stated bar to approving the FCI proposal. This proposal is
clearly superior to the Schadens' proposal and should be accepted by the
Committee promptly.
This offer expires at 5:00 p.m. CST on Monday, December 10,
2001. As always, we are happy to respond to any relevant questions or
comments. Again, we are willing to consider alternative structures and
approaches, and we reiterate our request for negotiations. Please contact me
at the above number, or FCI's attorney Andre Weiss at 212-756-2431.
Very truly yours,
FAGAN CAPITAL, INC.
By:__________________
William S. Fagan, President
Cc: Andre Weiss (fax) 212-593-5955
John Moye (fax) 303-292-4510
Richard Plumridge (fax) 303-410-2199
Lexi Methvin (fax) 303-410-2199
Securities and Exchange Commission, Division of Corporation Finance
SCHULTE ROTH & ZABEL
919 Third Avenue
New York, NY 10022
(212) 756-2000
fax(212) 598-5955
Andre
Weiss
E-mail
(212)
756-2431
andre.weiss@srz.com
November 1, 2001
VIA FACSIMILE
Richard R. Plumridge, Esq.
Brobeck, Phleger & Harrison LLP
370 Interlocken Boulevard
Suite 500
Broomfield, CO 80021
Re: The Quizno's Corporation
Dear Richard:
On behalf of FCI, I am responding to certain of the statements in your
letter of October 29, 2001.
1. I never stated that I was told that the SEC filings would be put
on hold indefinitely. I was told by your associate, in response to my
concern that FCI was being misled by the Committee, that I should not be
concerned as the Schaden proposal was not proceeding through the SEC
process. I should have been advised that, rather than awaiting FCI's
response to Mark Bromberg's letter, the Committee had determined to proceed
with the process.
2. On the issue of my so-called unsolicited legal advise to the
Committee, our firm represents FCI, a substantial minority shareholder of the
Company. That shareholder has made a proposal, not subject to any financing
condition, at a price that is 25 percent higher than an offer the Committee
had already accepted. Rather than focus (and, by the way, disclose) the
offer and its non-coercive features, the Committee elected to focus on (and
disclose) only the FCI rejection by the Committee due to FCI's request for a
[illegible text] Levine Leichtman. FCI is well within its rights to direct
its counsel to comment on the manner in which the special committee
[illegible text].
3. Perhaps most troublesome is your statement that "the special
committee has not refused to negotiate." The statement is directly
contradicted by Mr. Bromberg's October 22, 2001 letter, in which he states
"the Special Committee would be pleased to review and enter into negotiations
under appropriate circumstances." As I previously pointed out, those
appropriate circumstance have never been specified. Also, your associate
advised me that the Committee would not negotiate unless third party consent
was obtained in advance. The Committee is clearly hiding behind the Levine
Leichtman refusal as a basis for not negotiating. A minority shareholder of
Quizno's would want the Committee, faced with a non-coercive offer that is
substantially higher than the proposal it has already deemed to be "fair", to
be pleading with FCI to negotiate a proposal rather than, by a letter,
rejecting negotiations.
4. Whether it was the Committee that approved the Levine Leichtman
facility or the members of the Committee in their capacity as Directors is
irrelevant. What is [illegible text] compete with the Schaden's offer from
obtaining a necessary liquidity provision, without which no prudent
businessman would make the minority investment. (The proof the necessity is
that it was a condition to the Levine Leichtman financing.)
I now understand that Bill Fagan has scheduled a meeting with Rick
Schaden during which we hope progress can be made. Nevertheless, FCI's view
stands that the Committee has failed to discharge its responsibilities to the
minority shareholders of Quizno's. The mere expenditure of "time and effort"
in focusing on the consent issue cannot be considered sufficient in light of
FCI's superior offer. The failure by the Committee and the Company to
disclose the [illegible text] minority shareholders reaction when they
comprehend the extent to which the Schaden offer is below the FCI offer. We
trust that such omission will not pass SEC scrutiny once the SEC becomes
aware of the underlying facts.
Very truly yours,
Andre Weiss
/cmd
cc: William Fagan
Brobeck
Attorneys at Law
October 29, 2001 Brobeck, Phleger & Harrison LLP
370 Interlocken Boulevard
VIA FACSIMILE AND MAIL Suite 500
Broomfield, Colorado 80021
DIRECT 303.410.2014
FAX 303.410.2199
rplumridge@brobeck.com
www.brobeck.com
Andre Weiss, Esq.
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Re: The Quizno's Corporation
Dear Andre,
On behalf of the Special Committee, I am responding to your October 26, 2001
letter to Mark Bromberg. First, as a point of order, future communications
to the special committee from you should be addressed to Lexi Methvin or
myself as counsel to the Special Committee. As in the past, Mr. Fagan should
continue to feel free to contact Mr. Bromberg directly.
Your letter makes certain statements of fact, as well as telling the
committee what you believe is the proper standard for the committee to use in
evaluating Mr. Fagan's proposal. This letter is intended only to respond to
certain of your statements of fact which are inaccurate. We will not deal
with your unsolicited legal advice to the Special Committee, except to note
that it is inappropriate and incorrect.
Your statement that we made a representation that all filings with the SEC
would be indefinitely put on hold is not correct. It was stated that while
the Special Committee was continuing to evaluate Mr. Fagan's proposal, we
understand that Quizno's would not make additional filings with the SEC.
Subsequently, the Special Committee informed Mr. Fagan of its inability to
obtain necessary third party approvals of the condition to Mr. Fagan's
proposal.
The Special Committee has been extremely diligent in performing its duties.
It actively pursued with Quizno's and Levine Leichtman whether the conditions
to Mr. Fagan's proposal could be met to allow a feasible offer to be made by
Mr. Fagan to the minority stockholders. The committee also offered to
facilitate discussions between Mr. Fagan and Levine Leichtman to allow Mr.
Fagan to actually make a feasible proposal which the committee would be
pleased to negotiate. We are surprised that instead of pursuing a proposal
which could actually be performed, you have chosen to write a letter casting
legally and factually inaccurate aspersions on the Special Committee.
You state that the Special Committee has refused to negotiate with Mr.
Fagan. The Special Committee has not refused to negotiate and your statement
to the contrary is offensive to the committee members who have spent a great
deal of time analyzing Mr. Fagan's proposal and speaking directly with him.
As the Special Committee has informed Mr. Fagan, it remains willing to
negotiate an offer with Mr. Fagan when Mr. Fagan presents to the Special
Committee an offer which would be acceptable to the independent third parties
whose consent will be required. We note that the Special Committee cannot
force Mr. Schaden to negotiate with Mr. Fagan and that point is very clearly
stated in the proxy statement. The Special Committee also remains willing to
facilitate a meeting with Mr. Schaden if it would result in a higher price
for the minority shareholders.
You state that the Special Committee approved the Levine Leichtman facility.
At the time that Quizno's entered into the facility, the Special Committee
had not been established so this is clearly not correct.
The fact that Quizno's is subject to the terms and conditions of the Levine
Leichtman facility and the terms of Mr. Fagan's proposal would cause an event
of default. The Special Committee does not have the authority or power to
alter this circumstance.
Your statement that "the committee is unwilling to and does not even have the
authority to enter in negotiations except..." is completely without
foundation. In facet, the committee proactively agreed to facilitate
discussions with Levine Leichtman in an attempt to remove the primary third
party barrier to an actual offer to minority shareholders. The Special
Committee remains willing to consider any definitive proposals Mr. Fagan
makes. H cannot expect the committee to work miracles for him to meet
conditions he has imposed on third parties over which the committee has no
control.
If you have any questions, please fee free to contact either Lexi Methvin or
myself.
Best regards,
Richard R. Plumridge
Cc: Mr. Mark Bromberg
Lexi Methvin, Esq.
SCHULTE ROTH & ZABEL LLP
919 Third Avenue
New York, NY 10022
(212) 756-2000
fax (212) 593-5955
www.srz.com
Andre Weiss E-mail
(212) 756-2431
andre.weiss@srz.com
October 26, 2001
VIA FACSIMILE
The Quizno's Corporation
1415 Larimer Street
Denver Colorado 80202
Attention: Mr. Mark Bromberg, Chairman of the Special Committee
Re: The Quizno's Corporation
Dear Mr. Bromberg:
Bill Fagan has asked me to respond to your letter of October 22,
2001 for our client FCI. First, however, Bill has also asked be to convey
his appreciation for your statements to him of your personal efforts and
desire to discharge your obligations fully to the minority shareholders and
for arranging for Rick Schaden to contact Bill to set up a meeting. As you
know, Bill has been asking for such a meeting for months. Bill expects to
arrange for that meeting based on an understanding that the Company will
suspend processing the Schaden proposal pending the outcome of those
discussions, and FCI will likewise continue to hold in abeyance its various
legal and other actions. As you know, the Committee's counsel advised me
last week that Quizno's had suspended those efforts. We are now faced with
yet another SEC filing contrary to that representation.
I now turn to addressing your letter. Rather than unduly
elevating the issue of the feasibility of the FCI proposal, the Committee
should focus intently on the essence of the matter, namely that the FCI
proposal is a fully financed proposal at a price that is 25% higher than the
one that the Committee accepted from the Schadens. It is, to say the least,
bizarre that the Company and the Committee chose to delete this information
from its most recent SEC filing. How can the Committee imagine that
disclosure of an offer of this magnitude would not be material to the
minority shareholders of the Company? In addition, the filing failed to
point out that the FCI proposal is non-coercive, in contrast to the Schaden
proposal, and that the Committee had refused to enter into negotiations or
even specify what are the appropriate circumstances for those negotiations.
Instead, the Committee dwells on the only condition to the FCI
proposal, namely the requirements of a put virtually identical to the put
that Quizno's granted to Levine Lichtman to support the Schaden proposal. It
is unconscionable for the Committee to reject the FCI proposal merely because
of a bar that the Committee allowed to be created in furtherance of the
Schaden proposal Effectively, the Committee has created a wildly uneven
playing field favoring the Schadens to the disadvantage of the minority
shareholders. In any event, irrespective of the perceived feasibility of the
FCI proposal, FCI believes that the Committee, in serving the interest of the
minority shareholders of the Company, should announce that the Committee is
withdrawing its support for the Schaden proposal and has commenced
negotiations with FCI.
Furthermore, FCI doesn't believe it makes any sense to initiate
negotiations with Levine Lichtman at this time. There is not transaction for
which Levine Lichtman approval can even be sought. In fact, your letter
states that the Committee is unwilling to and does not even have the
authority to enter into negotiations excepted "under appropriate
circumstances," which circumstances the Committee has not identified.
If by your letter you were suggesting that FCI remunerate Levine
Lichtman for any waiver, the amount of the remuneration would be deducted
from the amount that FCI is willing to pay the minority shareholders to
obtain Levine Lichtman's consent. In that event, FCI, of course, has to know
at what price and on what terms would the FCI proposal be acceptable.
Conversely, if Levine Lichtman's concerns are not at odds with those of the
minority shareholders, then FCI is very confident that an accommodation can
be reached with Levine Lichtman once an agreement is reached with the Company
and the Schadens.
FCI looks forward to resolving this matter and giving the
minority shareholders the opportunity to participate in a superior
transaction.
Very truly yours,
Andre Weiss
/cmd
cc: Mr. William S. Fagan (via facsimile)
Lexi Methvin, Esq. (via facsimile)
Special Committee
Of
The Quizno's Corporation
October 22, 2001
William S. Fagan
President
Fagan Capital, Inc.
5201 N. O'Connor Blvd., Suite 440
Irving, Texas 75039
Dear Bill,
Thank you for your proposal to acquire the outstanding minority shares of
common stock of the Quizno's Corporation ("Quizno's"). As the Special
Committee (the "Special Committee") to the board of directors of Quizno's, we
have carefully reviewed and analyzed your letter dated October 2, 2001,
including the condition to your proposal that Quizno's grant you a put option.
The Special Committee has carefully reviewed all aspects of your proposal,
including the proposed condition. As part of our review, with the assistance
of our independent financial advisors, we have carefully analyzed the
financial implications of the proposed put option on the company and we have
conducted substantive discussions with Quizno's lenders, as well as with
company management. As a result of our analysis and of our discussions, the
Special Committee was informed by Levine Lichtman that the proposed put
option is a violation of several of the covenants in their agreements with
Quizno's and that they are unwilling, at this time, to consent to such a
condition. As I am sure you can appreciate, the negative impact of a default
under the Levine Lichtman facility makes your proposal as structured
unfeasible for further consideration.
While at this time we are unable to agree to the condition you outlined in
your October 2, 2001 letter, we would be pleased to facilitate a discussion
between you and Levine Lichtman in the hope that a mutually satisfactory
agreement can be achieved. We encourage you to contact Levine Lichtman
directly to discuss their specific concerns.
Once you have reached a mutually satisfactory agreement with Levine Lichtman,
the Special Committee would be please to review it and enter into
negotiations under appropriate circumstances. As we did with Firenze, we
request that any offer you make be in the form of a binding offer with
definitive documentation.
If you have any questions, please feel free to contact our counsel, Richard
Plumridge at (303) 410-2014 or Lexi Methvin at (303) 410-2022.
Best Regards,
Mark Bromberg
Chairman
Cc: Richard R. Plumridge
Lexi Methvin
Holly Stein Sollod
Andre Weiss
FAGAN CAPITAL, INC.
5201 N. O'CONNOR BLVD., SUITE 440
IRVING, TEXAS 75039
PHONE 972-869-3430
FAX 972-869-4066
October 2, 2001
The Special Committee of Quizno's Corporation
c/o The Quizno's Corporation
1415 Larimer Street
Denver, Colorado 80202
Attn: Mark Bromberg
Dear Mark:
Pursuant to your request, this letter addresses two issues:
1) Further information regarding Fagan Capital Inc.'s (FCI) capability of
financing of the transaction.
2) Details of the "put" provision requested in FCI's proposal.
Financing:
The total maximum purchase price is estimated as follows: The Schadens'
proxy states that 790,065 shares and 155,378 options are expected to be
purchased. However FCI, its employees and the Fagans (as defined below)
already own 116,100 shares, none of which are the subject of FCI's offer (but
all of which would be subject to the Put Option and any other agreements
entered into between FCI and Quizno's), which reduces the maximum number of
shares to be purchased to 673,965, plus the 155,378 options. The FCI
proposal therefore involves a maximum potential purchase of 673,965 shares at
$10.63 per share (total cost $7,164,248), plus 155,378 options at $10.63 per
option net of an aggregate $654,748 option strike price (total cost
$996,920); therefore the maximum grand total purchase price is $8,161,162.
Although subject to change, FCI presently contemplates that the acquisition
will be made via a newly formed limited partnership ("LP"), with FCI acting
as the general partner. FCI anticipates that a portion of the capital to be
contributed will come from related parties, specifically William S. Fagan and
his wife Laura A. Fagan (collectively "Fagans"), in their individual
capacities. FCI also reserves the right to invite a small number of
accredited investors to contribute to LP, although FCI would not approach any
such investors until it is clear that an agreement with Quizno's is going to
be reached.
The Fagans have selected accounts held at one of their brokerage firms, Bear
Steams Securities Corp., to demonstrate that they have the financial capacity
to support the FCI proposal. Attached herewith is a letter from Bear Steams
stating that the Fagans collectively have cash and marketable securities, net
of associated debt (a term Bear refers to as "liquidating equity"), in an
amount sufficient to fund the FIC offer in full if necessary. The vast
majority of this "liquidating equity" is in cash equivalents.
Put Provision:
FCI contemplates requiring a put option virtually identical to the one that
Quizno's gave to Levine Leichtman in connection with its mezzanine
financing. We note that the Levine Leichtman put option was a mandatory
aspect of their agreement to provide financing, and it was that financing
that has facilitated the Schadens' attempt to take the company private.
Specifically, FCI suggests the following language, which is identical to the
language in the Levine Common Warrant Agreement, adjusted only to substitute
FCI for Levine, to adjust dates as appropriate, to eliminate illiquidity as a
factor in "Fair Market Value" and to substitute Shares for Warrants;
otherwise, there are no substantive differences between the following
language and the Levine language.
PUT OPTION. At any time after 10-1-2006, FCI shall have the right (the "PUT
OPTION"), exercisable at its sole option, to require the Company to purchase
all Quizno's common Shares held by FCI, at the Fair Market Value thereof (the
"PUT OPTION PRICE");, PROVIDED, HOWEVER, that any exercise of the Put Option
must be for at lease twenty-five (25%) of the Shares held by FCI. If FCI
wishes to exercise the Put Option, it shall furnish to the Company a written
notice notifying the Company of its election to exercise the Put Option and
specifying a Business Day within thirty (30) days of the date of delivery of
such notice as the date of purchase. Upon the receipt by the Company of such
written notice, the Company shall be obligated to purchase from the Holder,
on such specified date of purchase, such Shares at the Put Option Price. The
Company shall bear all costs and expenses incurred in connection with the
determination of the Fair Market Value for purposes of the Put Option Price,
including, without limitation, all fees and expenses of any investment
banking firm, valuation or accounting firm(s) engaged in connection with such
determination and any legal fees and expenses incurred by FCI in connection
with such determination. In connection with the exercise of the Put Option,
the Per Share Schaden Purchase Amount (as defined in the Levine Common
Warrant Agreement) will be paid in connection with the determination of Fair
Market Value.
"FAIR MARKET VALUE" per share of Common Stock means, as of any specified
date; (i) if the Common Stock is publicly traded on such date, the Current
Market Price (as defined in the Levine Common Warrant Agreement) per share;
or (ii) if the Common Stock is not publicly traded (or deemed not to be
publicly traded) on such date, the fair market value per share of Common
Stock as determined by an independent valuation of the Company, its
Subsidiaries and their respective businesses conducted by an investment
banking firm of recognized national standing selected by the mutual written
agreement of the Company and FCI; PROVIDED, HOWEVER, that if the Company and
FCI are unable to mutually agree on any such investment banking firm within
ten (10) days after the date upon which the right or obligation to select an
investment banking firm arises, each of FCI and the Company shall, within
three (3) Business Days thereafter, select one investment banking firm, and
the two (2) selected firms shall, within three (3) Business Days of their
selection, select a third investment banking firm which shall make the
relevant determination (which determination shall be final and binding)
within ten (10) Business Days of the submission of this matter to such third
firm; and PROVIDED FURTHER, HOWEVER, that, in determining the fair market
value per share of Common Stock, such investment banking firm shall not give
effect or take into account any "minority discount" or illiquidity factors
but shall value the Company in its entirety on an enterprise basis using any
variety of industry recognized valuation techniques commonly used to value
businesses. Notwithstanding the foregoing, the Fair Market Value per share
of Common Stock shall be increased by the Per Share Schaden Purchase Amount.
In addition, you have specifically asked FCI to address how it would propose
to structure this put to avoid problems with Amresco. Without communicating
with Amresco, it is difficult to predict its concerns. As a consequence, we
would request a meeting with Amresco, as part of the finalization of a
Quizno's FCI Agreement. We would attempt to satisfy any legitimate concerns
that Amresco puts forward.
If Amresco's principal concern is that the put would require Quizno's to make
a substantial payment to FCI while amounts are still owing to Amresco, thus
reducing Amresco's cushion for repayment, we believe that the cost to prepay
Amresco upon exercise of the put is minor, eliminating any objections they
should have.
We have reviewed the Amresco loan documents, and we understand that there are
multiple loans, all originated around 10-1-99 for a total of $14mm, all to be
amortized over 9 years and 5 months. The majority, but not all, of the loans
have a large prepayment penalty if prepaid prior to 10-1-06, the loans will
have a total unpaid balance of roughly $4.5mm, and thus if prepaid at such
time the prepayment penalty would be $45,000. In exchange for the tremendous
benefits that FCI is offering Quizno's minority shareholders, we believe that
the Directors of Quizno's should authorize repayment of the loan on 10-01-06.
If Amresco takes the position that the put constitutes debt, and that there
is currently a prohibition against further debt in Amresco's loan covenants,
we are confident that Quizno's should have no problem negotiating a covenant
waiver given FCI's willingness to agree that no payments whatsoever may be
made pursuant to the put unless Amresco is either repaid in full or Amresco
waives (at the time) such right.
Please contact us if you have further questions.
Sincerely,
Fagan Capital Inc.
By:____________________
William S. Fagan, President
Cc: Lexi Methvin
Andre Weiss
FAGAN CAPITAL, INC.
5201 N. O'CONNOR BLVD., SUITE 440
IRVING, TEXAS 75039
PHONE 972-869-3430
FAX 972-869-4066
wfagan@swbell.net
September 21, 2001
The Special Committee of Quizno's Corporation
c/o The Quizno's Corporation
1415 Larimer Street
Denver, Colorado 80202
Gentlemen:
This responds to your letter to Fagan Capital Inc. (FCI) of
September 7, 2001 and several subsequent phone conversations between the
Special Committee and FCI, in which representatives of the Committee have
discussed FCI's interest in acquiring the shares held by minority holders of
Q.
In order to avoid any question that FCI's proposal is
incontrovertibly superior to that of the Schaden family, and that the Special
Committee can no longer consider the Schadens' offer to be fair and in the
best interest of the shareholders, FCI is simplifying its proposal as follows:
1. FCI would offer to purchase any and all shares of Quizno's
stock, other than those held by insiders, for a cash price of $10.63 per
share of Common Stock. Such offer would not be contingent on any minimum
number of shares electing to sell to FCI. Such offer represents a 25%
premium to the Schaden offer.
2. FCI's acquisition would be conducted pursuant to an agreement
with Quizno's incorporating standard representations and warranties and
conditions to closing, plus appropriate safeguards that would preclude
affiliate arrangements going forward unless their terms are independently
determined to be arm's length.
3. As FCI has advised you, FCI is capable of funding its
proposal through funds it manages. FCI will provide independent
verification, on a confidential basis, of its ability to fund this proposal,
in conjunction with the execution and delivery of the letter of intent
described below. Inasmuch as that verification entails confidential
financial information, FCI is reluctant to reveal that information until
Quizno's exhibits a concrete commitment to abandoning the Schaden proposal in
favor of our superior proposal.
4. As to corporate governance following the offer, FCI would
expect to receive ongoing access to the same type of information as would be
provided to directors and insiders and is willing to discuss the
appropriateness of either Director or nonvoting observer status on the Board
of Directors and Committees of the Board of Directors of Q. FCI wishes to be
helpful to the company going forward to help maximize value for all
shareholders.
5. As a minority investor in an essentially private company
following the Closing, FCI would require liquidity protection very similar to
that afforded Levine Leichtman, including tag-along rights and a fair market
value put option. We firmly believe that Quizno's is obliged to offer FCI
the same type of protections that it offered to Levine Leichtman to further
the Schaden's efforts to finance last December's tender offer and the
currently proposed squeeze-out merger. However, importantly, FCI is so
confident of Quizno's long-term future, that FCI is willing to defer exercise
of such put for a minimum of five years. We are confident that, with
Quizno's support and given the remoteness of the date of this protection, any
Change of Control or restrictive covenants found in the AMRESCO and Levine
Leichtman agreements alluded to in your letter could be addressed.
The foregoing proposal is subject to reaching a mutually
satisfactory definitive agreement. We would envision first entering into a
letter of intent in which representations, warranties, and closing conditions
would be more detailed out, and which would provide that FCI be reimbursed
for its costs and expenses on the same basis as the Schadens' expenses are
being borne by Quizno's. FCI is willing to move expeditiously to a
definitive agreement and closing.
We are quite frustrated in that we have made numerous
unsuccessful attempts to engage the Schadens in direct discussions since the
fall of 2000, including failed attempts in the last two weeks as well. I
trust they understand that as controlling shareholders they too have
fiduciary duties to the minority shareholders and will meet with us in order
to fulfill their obligations. We wish to make it very clear that FCI will
not abandon its efforts. We continue to believe that a privately negotiated
solution constitutes the most efficient way to meet everyone's goals.
Please note, however, that FCI is willing to work with the
Committee and the Schadens on modifying this proposal or developing an
alternative which simultaneously allows the Schadens to meet their
objectives, allows FCI to own a substantial interest in Quizno's for the long
term, and offers minority shareholders an alternative to being squeezed out
unfairly.
This offer expires at 5PM CST on Wednesday September 26, 2001.
If concrete progress has not been made toward an agreement with the company
by such time, we will take our case directly to the public. As always, we
are happy to answer appropriate questions if this proposal needs
clarification. Please contact me at the above number, or my attorney Andre
Weiss at 212-756-2431.
Very truly yours,
FAGAN CAPITAL INC.
By:_____________________
Cc: Andre Weiss 212-593-5955
Lexi Methvin 303-410-2199
John Moye 303-292-4510
Special Committee
Of
The Quizno's Corporation
September 7, 2001
William S. Fagan
President
Fagan Capital, Inc.
5201 N. O'Connor Blvd., Suite 440
Irving, Texas 75039
Dear Bill,
Thank you for taking the time to speak with us yesterday. As the Special
Committee (the "Special Committee") to the board of directors of The Quizno's
Corporation ("Quizno's"), we have carefully reviewed your letter dated
September 3, 2001. It is our understanding, based on your letter and our
conversation, that your willingness to offer in excess of $8.50 per share for
all outstanding minority shares of Quizno's common stock is conditioned on,
among other things, your obtaining liquidity provisions.
At this time, the Special Committee is unable to fully evaluate the proposal
briefly outlined in your letter. The liquidity provisions you have made
reference to would likely cause Quizno's to breach its existing credit
facilities with AMRESCO and Levine Leichtman (which agreements are publicly
filed). In order to evaluate the feasibility of your proposal in light of
these credit facilities we would need to receive a detailed and specific
offer from you in the form of a term sheet which embodies all material aspect
of the offer, including but not limited to liquidity rights, board
representation, financing surety, conditions to closing and representations
and warranties. We will also need sufficient evidence of your ability to
finance any offer you make. Please note that the Special Committee has
focused on the main proposal set forth in your September 3, 2001 letter as
that is the proposal which is within the powers of the Special Committee to
negotiate. Any of the other options relate to the Schadens as the majority
shareholders.
In addition, the Special Committee would be happy to continue discussions
with respect to any transaction that is likely to deliver additional value to
the Quizno's shareholders.
If you have any questions, please feel free to contact our counsel, Richard
Plumridge at (303) 410-2014 or Lexi Methvin at (303) 410-2022.
Best Regards,
Mark Bromberg
Chairman
Cc: Richard R. Plumridge
Lexi Methvin
Holly Stein Sollod
Andre Weiss
FAGAN CAPITAL, INC.
5201 N. O'CONNOR BLVD., SUITE 440
IRVING, TEXAS 75039
PHONE 972-869-3430
FAX 972-869-4066
September 3, 2001
Board of Directors
The Quizno's Corporation
Denver, CO
VIA FAX
Gentlemen:
Fagan Capital, Inc. (FCI) is pleased to present the board of Quizno's with a
superior offer to acquire all the shares held by minority shareholders, which
offer will help the board further its dual goals of maximizing value for both
Quizno's and all of its minority shareholders.
The preliminary proxy materials describing the Schaden's offer to take the
company private at $8.50 per share, states that the Special Committee
approved the Schaden's offer and felt that such offer was "in the best
interests of shareholders" because among other things (1) the offer was at a
significant premium to recent trading prices and presented a good option for
shareholders to cash out of a very illiquid stock, (2) shareholders would not
likely be offered any other source of liquidity due to the Schaden's
expressed desire to not sell their shares, (3) the Committee had negotiated
the Schaden's offer up from $8.00 to $8.50 and such $8.50 offer was believed
to be the highest price that the Schadens would offer and that further
negotiation with the Schadens would not result in an increase to the proposed
purchase price per share, and (4) no competing offers or proposals to all
shareholders by third parties had been received.
FCI is pleased to provide a solution to these obstacles to shareholder value.
FCI's OFFER.
FCI is willing to pay minority holders $10.00 per share in cash at the
closing of a tender offer, plus a deferred payment equal to 10% of FCI's
future realized profits on any such shares purchased. The cash portion of
this offer alone, represents a very substantial premium to the Schaden's
$8.50 offer. Plus, this offer gives the minority holders the opportunity to
both pocket a substantial amount of cash and still potentially profit from
future appreciation in QUIZ stock without assuming any risk of loss. It's a
win-win for the minority shareholders and that's why we believe the Board
should and will endorse our offer as unequivocally superior to the Schaden's
offer.
FCI is prepared to commence such offer immediately following the execution of
definitive documentation; FCI is prepared to demonstrate that its clients are
presently holding far more than enough cash (none of which is from
borrowings) to purchase all shares tendered; as such there will be no
financing contingencies in such documentation. Nor will there be a due
diligence contingency in such documentation.
Recently FCI discussed various alternative proposals with MR. Michael
Roberts, your largest minority shareholder who has filed a 13D expressing his
grievance over the Schaden's $8.50 offer. We believe that Mr. Roberts would
be quite pleased to have FCI's superior alternative available to him,
although FCI does not know whether Mr. Roberts would tender into this
proposed offer. You'll have to talk to him yourselves.
FCI has performed very extensive analyses and projections regarding
Quizno's. The Schadens should be commended for truly creating a
money-machine. We believe that QUIZ stock is well on its way to being worth
$100 or more per share within 8 to 10 years, perhaps sooner. Therefore,
FCI's offer to pay 10% of its future realized profits to tendering
shareholders could be of great value to them - combined with the $10 upfront
payment, FCI's offer could easily end up paying to shareholders 200% to 300%
of the consideration offered by the Schadens.
In order to provide tendering shareholders a measure of certainty regarding
their ability to collect 10% of FCI's future realized profits, and in order
to ensure fair dealings between majority and minority QUIZ shareholders, FCI
will need to have an agreement with Quizno's whereby the shares it controls
would have a liquidity provision similar to that possessed by Levine
Leichtman, in which the shares can be sold at some point in time back to QUIZ
(or to a third party pursuant to tag-along rights) at fair market value as
determined by a nationally recognized investment bank. Because we envision
being long term holders of QUIZ, we are perfectly willing to wait at least
five years before being able to sell any stock back to the company; therefore
the company shouldn't have to be concerned that this provision might create
liquidity problems for Q.
Naturally, we would also like to negotiate board representation for the
minority shareholders, commensurate with their collective percentage
ownership of the company. That likely translates into two directors to be
elected by the minority shareholders. We are open to discussing the
possibility of either a monitoring position or an independent committee, as
discussed in more detail later in this letter, in lieu of actual voting board
seats at this time.
While the Schadens prefer to operate Quizno's as a private company, we
believe we should nonetheless be able to have a rewarding and productive
relationship with the Schadens as co-investors, just as many private
companies have with their capital partners. We respect the Schadens
tremendously for their operating skills and the value they have created in
this company. We also know that we bring valuable financing expertise to the
table, which should help maximize long term value for all shareholders. As
Eric Lawrence knows, we are quite good with creative and complex financing
and legal strategies, and believe we could bring such expertise to bear for
the benefit of Quizno's when it's time to seek new financing or the sale of
the company.
The proxy materials state that the Schadens are unwilling to increase their
offer beyond $8.50 per share. However, should the Schadens choose to amend
their merger proposal to one that the Special Committee feels is superior to
FCI's offers, be advised that at any time after public announcement of such
improved offer, FCI may amend its offer as well.
ALTERNATIVES:
FCI does not wish to burden the board with too many options to consider, but
FCI can't "get inside your heads", so the following represents some other
ideas you may wish to consider if you don't wish to proceed with the above
offer.
Alternative #1:]
Subject to definitive documentation, FCI is willing to pay $1,000,000 cash to
the Schadens in exchange for a one-year option to purchase all of their QUIZ
stock at $15 per share. This will give FCI time to arrange the financing for
the purchase of the entire company at this price; or FCI may merely arrange
to sell the stock to a strategic buyer at a hoped-for premium to the $15
exercise price. The Schadens keep the $1,000,000 option payment even in FCI
doesn't exercise the option. Granted, the one-year nature of the option is a
bit long; however the $15 price represents such a tremendous premium to the
present board-sanctioned $8.50 valuation, that we believe the one year period
is more than justified.
Alternative #2:
While we believe the board simply cannot approve the Schaden merger proposal
if a clearly superior proposal, such as the one proposed in this letter, is
available to the company, we recognize that the Schadens' personal preference
may be to have the company repurchase as many minority-held shares as
possible, as long as such offer is fair to shareholders. Therefore, in the
spirit of cooperation, FCI is open to negotiating an agreement whereby FCI
agrees to not commence any sort of offer (including the offers discussed in
this letter) and to not purchase any more shares of Quizno's (except as notes
below), in a scenario along the following lines: Quizno's would commence a
voluntary tender or a merger, and in either event the company would
immediately de-register with the SEC subsequent to the closing of the offer.
Minority shareholders would be offered t he following choices: 1) they can
accept the offer proposed by the company (or exercise appraisal rights if
available), or 2) they can remain as long term shareholders, subject to a
"voting" agreement whereby FCI (perhaps jointly with Mr. Roberts) as the lead
minority shareholder(s) would exercise all such voting rights, represent all
minority holders on the board or via a nonvoting "monitor" position
(including some sort of mechanism like the one proposed in Alternative #3
below to deal with proposed related party transactions), and whereby FCI
would exercise on their behalf the Levin-like liquidity option on a one-time
only basis covering all minority shareholders. This should keep things
smooth and manageable from the Schadens' perspective.
Also, given the substantial time and expense that FCI has already incurred
since the fall of 2000 in attempting in vain to negotiate some sort of
reasonable deal to avoid being squeezed out of its ownership in the company,
and given the fact that FCI already has and will continue to put forth
considerable effort to maximize the value of Quizno's for all shareholders,
FCI would like to be able to purchase some additional shares of Quizno's
stock in this scenario in order to be more motivated and more aligned with
the Schadens. We can discuss this matter at more length if you like this
alternative.
This scenario should be attractive to the Board because it is clearly more
fair to shareholders than any type of unilateral squeeze out merger,
regardless of price, and because it should still allow the company to retire
a substantial number of shares at today's valuation (rather than leaving all
minority shares outstanding to be retired at some future time and at probably
a much higher valuation), and because it likely minimizes the risk of a very
substantial award against the company in appraisal proceedings (which we
believe could occur if FCI mounted a very aggressive stance in such
proceedings, which it otherwise intends to do).
Alternative #3:
In light of FCI's offers above, we think the board simply cannot approve a
unilateral squeeze out of minority shareholders at an inferior valuation.
However, while we don't think you should or will ignore FCI's superior
proposals, we recognize that you might do so and, in lieu of the
Schaden-proposed merger, launch another voluntary stock buyback by the
company, do a reverse split, and/or deregister with the SEC and stop making
public filings - to put pressure on remaining shareholders and "wear them
down" over time. This strategy might allow the company to slowly buy out
minority shareholders at unfair prices as they tire or wondering when they
might receive any value for their shares and what unpleasant things might be
happening to them behind their backs. FCI believes such strategy leaves the
board very vulnerable to shareholder lawsuits, especially in light of FCI's
offers above. Also the board should be aware that if the company pursues
this or a similar plan, FCI reserves the right to commence an offer to
minority holders at any time, with or without any agreement with the company
regarding board seats of liquidity options. Further FCI and its clients
(along with Mr. Roberts and other minority shareholders) will on an ongoing
basis, vigorously monitor and enforce minority shareholders rights including
but not limited to examination of any transactions (in the future and in the
past) between Quizno's and the Schaden family. Given the above issues, we
believe that if the board chooses this strategy, it would be doing a service
to itself, to the company, to the Schadens and to all minority shareholders,
by appointing and maintaining an independent committee composed of 2 or 3 of
the largest minority shareholders whose job it would be to investigate and
negotiate any related party transaction involving the Schadens and Quizno's.
The existence of such Committee would provide a productive and low-cost forum
to negotiate and resolve such proposed transactions - this should avert
prolonged, distracting, and expensive lawsuits involving directors' breaches
of fiduciary duty, minority shareholder oppression, etc. Again, we think the
appointment of such Committee would be a win-win, as it would save everyone
time and money.
FCI'S OFFERS PURSUANT TO THIS LETTER OR ANY SUBSEQUENT NEGOTIATIONS, DO NOT
IN ANYWAY REPRESENT FCI'S OR ITS CLIENTS BELIEFS AS TO THE PRESENT FAIR VALUE
OF QQUIZNO'S STOCK FOR PURPOSES OF APPRAISAL RIGHTS OR ANY OTHER LEGAL
PROCEEDING, AND SUCH OFFERS CANNOT BE USED AGAINST FCI OR ITS CLIENTS IN SUCH
PROCEEDINGS. FCI AND ITS CLIENTS INTEND TO ASSERT AND DEFEND A FAR HIGHER
VALUATION IN ANY SUCH PROCEEDINGS.
FCI reserves the right to forward a copy of this letter to Mr. Roberts or to
any other shareholder, or to make it public by any means including a press
release.
Please contact us at your earliest convenience.
Sincerely,
William S. Fagan, President
CC: Holly Stein Sollod - Holland and Hart
Jeffrey Sabin - Schulte Roth
FAGAN CAPITAL, INC.
5201 N. O'CONNOR BLVD. SUITE 440
IRVING, TEXAS 75039
PHONE 972-869-3430
FAX 972-869-4066
wfagan@swbell.net
06/04/2001
Mr. Rick Schaden
Quizno's
Dear Rick:
I have been unable to reach you by phone this week, and since this is a
matter of some urgency, I am putting this in writing. This letter is
confidential.
Quizno's is a great company and we have no interest in selling our stock at
$8.00/share. As you know, we have tried unsuccessfully several times in the
past to engage you in discussions about our participating as a substantial
shareholder in Quizno's for the long term. At this point, we feel we have no
other good choices and as such, we are working on an offer which we intend to
submit to the full board including the members of the Special committee, to
purchase any and all shares of Quizno's at a significant premium to your $8
price. Importantly, this offer will not be contingent on the Schaden family
selling any stock or otherwise on our obtaining control of the company.
We still remain open to discussing a joint bid with you for the non-Schaden
shares. If you have a sincere interest in discussing this matter, then we
need to talk and reach an oral agreement no late than Friday June 8, to be
followed promptly by a written agreement; otherwise we will proceed
independently.
I'm not easy to reach, but voice mail me promptly if you'd like to discuss,
and suggest a good time to call you back. Thank you.
Sincerely,
/s/ William S. Fagan
Exhibit B
AGREEMENT AND PLAN OF MERGER
by and between
_____________, Inc.
and
THE QUIZNO'S CORPORATION
TABLE OF CONTENTS
Page
ARTICLE I The Merger.........................................................1
Section 1.1 The Merger.................................................1
Section 1.2 Effective Time.............................................2
Section 1.3 Effects of the Merger......................................2
Section 1.4 Articles of Incorporation and By-laws......................2
Section 1.5 Directors and Officers.....................................2
Section 1.6 Vacancies..................................................3
Section 1.7 Company Stock Options and Warrants.........................3
Section 1.8 Preferred Stock............................................3
Section 1.9 Deposit of Funds by Newco..................................4
ARTICLE II Effect of the Merger on the Capital Stock of the Constituent
Corporations; Exchange of Certificates.......................................4
Section 2.1 Effect on Capital Stock....................................4
Section 2.2 Surrender of Certificates..................................5
ARTICLE III Representations and Warranties...................................7
Section 3.1 Representations and Warranties of the Company..............7
Section 3.2 Representations and Warranties of Newco and the Fagan
Parties 11
ARTICLE IV Covenants Relating to Conduct of Business........................14
Section 4.1 Conduct of Business of the Company........................14
Section 4.2 Conduct of Business of Newco..............................14
ARTICLE V Additional Agreements.............................................14
Section 5.1 Shareholder Approval; Preparation of Proxy Statement......15
Section 5.2 Reasonable Efforts; Notification..........................15
Section 5.3 Indemnification...........................................16
Section 5.4 Fees and Expenses.........................................17
Section 5.5 Public Announcements......................................17
Section 5.6 Purchases of Common Stock of the Other Party..............18
Section 5.7 Characterization for Federal Income Tax Purposes..........18
ARTICLE VI Conditions Precedent.............................................18
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger 18
Section 6.2 Conditions of the Company.................................18
ARTICLE VII Termination, Amendment and Waiver...............................18
Section 7.1 Termination...............................................18
Section 7.2 Effect of Termination.....................................19
Section 7.3 Amendment.................................................20
Section 7.4 Extension; Waiver.........................................20
ARTICLE VIII General Provisions.............................................20
Section 8.1 Nonsurvival of Representations and Warranties.............20
Section 8.2 Notices...................................................20
Section 8.3 Definitions...............................................21
Section 8.4 Interpretation............................................22
Section 8.5 Counterparts..............................................22
Section 8.6 Entire Agreement; No Third-Party Beneficiaries............22
Section 8.7 Governing Law.............................................22
Section 8.8 Assignment................................................22
Section 8.9 Enforcement of the Agreement..............................22
Section 8.10.............................................Attorneys'
Fees23
Section
8.11................................................Severability23
24
DENSERV1\RRP\41683.03
1
DENSERV1\RRP\41683.03
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of December ___, 2001
by and between _____________, a [Colorado] corporation ("Newco"), and THE
QUIZNO'S CORPORATION, a Colorado corporation (the "Company").
WHEREAS, Newco was formed on December ___, 2001, for the sole
purpose of entering into the transactions contemplated by this Agreement and
has been formed by William Fagan, Laura Fagan and Fagan Capital Inc., a
________________ corporation (the "Fagan Parties");
WHEREAS, the respective Boards of Directors of Newco and the
Company have approved, and deem it fair to, advisable and in the best
interests of their respective companies and shareholders to consummate the
merger of Newco with and into the Company (the "Merger"), upon the terms and
subject to the conditions of this Agreement and Plan of Merger (this
"Agreement"), whereby each issued and outstanding share of the Company's
common stock, $0.001 par value (a "Company Share"), not owned by the Company,
Newco or the Surviving Owners as defined in Schedule 2.1, will be paid nine
dollars fifty cents ($9.50) per share ("Merger Consideration");
WHEREAS, the Board of Directors of the Company, based upon the
recommendation of the Special Committee (as defined), has determined that the
Merger Consideration is fair to the holders of such Company Shares and has
resolved to recommend that the holders of the Company Shares approve the
Merger and adopt this Agreement upon the terms and subject to the conditions
set forth in this Agreement; and
WHEREAS, Newco and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties
agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions hereof
and in accordance with the Colorado Business Corporation Act (the "CBCA"),
Newco will be merged with and into the Company at the Effective Time (as
defined). Following the Merger, the separate corporate existence of Newco
will cease and the Company will continue as the surviving corporation (the
"Surviving Corporation") and will continue its corporate existence in
accordance with the CBCA.
Section 1.2 Effective Time. The closing of the Merger (the "Closing") will
take place at the offices of the Company upon the satisfaction or, to the
extent permitted hereunder, waiver of the conditions set forth in Article VI,
and on the date of the meeting of the Company's shareholders to approve the
Merger (the "Company Shareholders Meeting"), or, at such other time and place
or such other date as agreed to by Newco and the Company (the "Closing
Date"). Newco and the Fagan Parties agree to take all corporate and
shareholder action as may be necessary for Newco to approve the Merger. The
Eagan Parties further agree to vote all Company Shares, as well as all shares
of Newco capital stock, held by any of them or their Affiliates in favor of
the Merger. As soon as practicable following the Closing the Surviving
Corporation will file the Articles of Merger required by the CBCA with
respect to the Merger and other appropriate documents (the "Articles of
Merger") executed in accordance with the relevant provisions of the CBCA.
The Merger will become effective at such time as the Articles of Merger is
duly filed with the Colorado Secretary of State (the time the Merger becomes
effective being the "Effective Time").
Section 1.3 Effects of the Merger. The Merger will have the effects set
forth in Section 7-111-106 of the CBCA. If at any time after the Effective
Time, the Surviving Corporation considers or is advised that any further
assignments or assurances in law or otherwise are necessary or desirable to
vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, all rights, title and interests in all real estate and other
property and all privileges, powers and franchises of Newco and the Company,
the Surviving Corporation and its proper officers and directors, in the name
and on behalf of Newco and the Company, will execute and deliver all such
proper deeds, assignments and assurances in law and do all things necessary
and proper to vest, perfect or confirm title to such property or rights in
the Surviving Corporation and otherwise to carry out the purpose of this
Agreement, and the proper officers and directors of the Surviving Corporation
are fully authorized in the name of the Company, Newco or otherwise to take
any and all such action.
Section 1.4 Articles of Incorporation and By-laws.
(a) The Restated Articles of Incorporation of the Company, as in effect
immediately prior to the Effective Time, will be, from and after the
Effective Time, the Articles of Incorporation of the Surviving Corporation,
until thereafter altered, amended or repealed as provided therein and in
accordance with applicable law.
(b) The by-laws of the Company, as in effect immediately prior to the
Effective Time, will become, from and after the Effective Time, the by-laws
of the Surviving Corporation, until thereafter altered, amended or repealed
as provided therein and in accordance with applicable law.
Section 1.5 Directors and Officers. The directors and officers of the
Company immediately prior to the Effective Time will become, from and after
the Effective Time, the directors and officers of the Surviving Corporation,
until their respective successors are duly elected or appointed and qualified
or their earlier resignation or removal, in accordance with the Surviving
Corporation's articles of incorporation or by-laws.
Section 1.6 Vacancies. If at the Effective Time a vacancy exists in the
Board of Directors or in any of the offices of the Surviving Corporation,
such vacancy may thereafter be filled in the manner provided by the CBCA and
the Articles of Incorporation and By-laws of the Surviving Corporation.
Section 1.7 Company Stock Options and Warrants.
(a) Stock Option Plans. At the Effective Time, the Company's Employee
Stock Option Plan (the "Employee Plan"), the Company's Amended and Restated
Stock Option Plan for Directors and Advisers (the "Directors Plan"), and each
outstanding option to purchase Shares under such plans owned by the Surviving
Owners whether vested or unvested, will be assumed by the Surviving
Corporation. Each such option so assumed by the Surviving Corporation under
this Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Employee Plan or the Directors Plan, as the case
may be, and the applicable stock option agreement immediately prior to the
Effective Time. At the Effective Time, each outstanding option to purchase
Shares under the Employee Plan or the Directors Plan which is not owned by
the Surviving Owners will automatically be converted into the right to
receive an amount in cash equal to nine dollars and fifty cents per share
($9.50), less the applicable exercise price of such option, without interest
thereon, upon surrender of the certificate formerly representing such option
to the Company.
(b) Assumption of Warrants. At the Effective Time, each outstanding
Warrant of the Company will be assumed by the Surviving Corporation. Each
such Warrant so assumed by the Surviving Corporation under this Agreement
shall continue to have the rights and privileges set forth in the Warrant
immediately prior to the Effective Time.
Section 1.8 Preferred Stock. The Company's shares of Class C, Class D and
Class E Preferred Stock issued and outstanding as of the date of this
Agreement which are not owned by the Surviving Owners may be redeemed by the
Company prior to the Effective Time. The redemption price with respect to
the Class C Preferred Stock and the Class E Preferred Stock is not expected
to exceed the greater of (i) the Merger Consideration (paid assuming the
shares of Class C and Class E Preferred Stock are converted into Company
Shares in accordance with their respective terms) or (ii) the liquidation
value of the respective class of Preferred Stock, plus accumulated but unpaid
dividends, and, in the case of the Class E Preferred Stock, a negotiated fee
to terminate certain rights held by the Class E shareholders, which
termination fee will be subject to approval by the Company's Board of
Directors. The redemption price with respect to the Class D Preferred Stock
is not expected to exceed the liquidation value of such Preferred Stock. All
shares of the Company's Class A, Class C, Class D and Class E Preferred Stock
that have not been redeemed prior to the Effective Time will be assumed by
the Surviving Corporation and shall continue to have, and be subject to, the
rights and preferences applicable to the Class A, Class C, Class D and Class
E shares, respectively, immediately prior to the Effective Time.
Section 1.9 Deposit of Funds by Newco. Prior to the execution of this
Agreement, Newco deposited funds in the amount of $[6,300,000] (representing
the estimated total Merger Consideration payable upon the surrender of and
payment for Company Shares in accordance with Section 2.1(a) and the
conversion and cancellation of certain stock options pursuant to
Section 1.7(a) above) into the following escrow account established by the
Company with [Wells Fargo] in connection with the Merger (the "Company Escrow
Account"):
[Identify account]
Such funds shall be held in the Company Escrow Account until the Effective
Time, at which time funds, except for the funds for the option shares and the
Dissenting Shares (as defined below), will be transferred out of the Company
Escrow Account to an account established by the Transfer Agent (as defined
below) and thereafter used to pay the Merger Consideration with respect to
the Company Shares that are surrendered pursuant to Section 2.1(a) and the
funds for the option shares and the Dissenting Shares will be transferred out
of the Company Escrow Account to a separate account established by the
Company for the amounts due to the dissenting shareholders and the amounts
due to the holders of certain stock options which are to be converted and
canceled pursuant to Section 1.7(a). If the funds and any interest thereon
held in the Company Escrow Account are inadequate to make the payments
described above, then Newco (or after the Effective Time, Fagan (as defined
below)) shall deposit with the Transfer Agent such additional funds as may be
necessary to make such payments. In the event the Agreement is terminated,
all funds held in the Company Escrow Account (or such other accounts as such
Newco deposited funds may be located as contemplated by this Section 1.9,
including any interest thereon) will be promptly returned to Newco.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
Section 2.1 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any Company
Shares:
(a) Conversion of Company Shares. At the Effective Time, each Company
Share issued and outstanding immediately prior to the Effective Time, other
than Dissenting Shares and other than Company Shares owned by the Company,
any of the Company's subsidiaries or the Surviving Owners, will, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into the right to receive an amount in cash equal to nine dollars
and fifty cents ($9.50) per share payable to the holder thereof, without
interest thereon, upon surrender of the certificate formerly representing
such Company Shares in accordance with Section 2.2. All such Company Shares,
when so converted, will no longer be outstanding and will automatically, by
virtue of the Merger, be canceled and retired, and each holder of a
certificate formerly representing such shares will cease to have any rights
with respect thereto, except the right to receive the Merger Consideration.
The Surviving Corporation will issue to William Fagan ("Fagan") so many of
the Surviving Corporation's Shares as are equal to the Company Shares
cancelled as a result of the Merger pursuant to this Section 2.1(a).
(b) Company Shares Owned by Surviving Owners. At the Effective Time, the
Company Shares owned by the Surviving Owners will become fully paid and
nonassessable shares of the Surviving Corporation.
(c) Newco Capital Stock. Each share of Newco capital stock issued and
outstanding immediately prior to the Effective Time will, by virtue of the
Merger and without any action on the part of the holder thereof, be cancelled
and retired and shall cease to exist, and no consideration shall be delivered
in exchange therefor.
(d) Cancellation of Subsidiary-Owned Stock. Each Company Share owned by
any of the Company's subsidiaries, shall be cancelled and retired and shall
cease to exist, and no consideration shall be delivered in exchange therefor.
(e) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, each Company Share that is issued and outstanding immediately prior
to the Effective Time and that is held by a shareholder who has properly
exercised and perfected appraisal rights under Article 113 of the CBCA (the
"Dissenting Shares"), will not be converted into or exchangeable for the
right to receive the Merger Consideration, but will be entitled to receive
such consideration as shall be determined pursuant to Article 113 of the
CBCA, but the holder thereof will not be entitled to vote or to exercise any
other rights of a shareholder of the Company; provided, however, that if such
holder fails to perfect or has effectively withdrawn or lost its right to
appraisal and payment under the CBCA, each Company Share owned by such holder
will thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the Merger
Consideration, without any interest thereon, in accordance with Section
2.1(a), and such shares will no longer be Dissenting Shares. With respect to
the payment which the Surviving Corporation is required to make to holders of
Dissenting Shares, as determined pursuant to Article 113 of the CBCA, the
first $9.50 paid for each Dissenting Share shall be paid by Fagan (whether
out of the Company Escrow Account or otherwise); any additional funds which
are necessary to make such payments shall be provided by the Surviving
Corporation. At such time as the required payment for Dissenting Shares has
been made, the Surviving Corporation shall issue a like number of shares of
its common stock to Fagan for each $9.50 paid by Fagan to a Dissenting
Shareholder pursuant to this Section 2.1(e). At such time as payment has
been made for all Dissenting Shares, all funds held in the Company Escrow
Account, if any, shall be returned to Fagan.
Section 2.2 Surrender of Certificates.
(a) Transfer Agent. Prior to the Effective Time, the Company will engage
Computershare Trust Co., Inc., or such other bank or trust company reasonably
acceptable to the Company, to act as exchange agent (the "Transfer Agent")
for the payment of the Merger Consideration upon surrender of Certificates
(as defined).
(b) Payment of Merger Consideration. The Company Escrow Account will cause
there to be deposited with the Transfer Agent (whether by transfer or
otherwise) prior to or at the Effective Time cash in an amount equal to the
aggregate consideration to be paid upon the surrender of the Company Shares
pursuant to Section 2.1(a). Such funds shall be invested as reasonably
directed by the Surviving Corporation in reasonably prudent investments
pending payment thereof by the Transfer Agent to holders of the surrendered
Company Shares. Earnings from such investments shall be the sole and
exclusive property of the Surviving Corporation and no part of such earnings
shall accrue to the benefit of holders of Company Shares and any Taxes
payable on such earnings shall be the sole obligation of the Surviving
Corporation.
(c) Exchange Procedure. As soon as practicable after the Effective Time,
the Transfer Agent will mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time represented
outstanding Company Shares (the "Certificates"), other than the Company, any
of Company's subsidiaries, Newco and any Surviving Owner, (i) a letter of
transmittal (which will specify that delivery will be effected, and risk of
loss and title to the Certificates will pass, only upon delivery of the
Certificates to the Transfer Agent and will be in a form and have such other
provisions as the Company may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for the Merger
Consideration to be paid to the holders of the Certificates. Upon surrender
of a Certificate for cancellation to the Transfer Agent or to such other
agent or agents as may be appointed by the Surviving Corporation, together
with the letter of transmittal, duly executed, and such other documents as
may reasonably be required by the Transfer Agent, the holder of such
Certificate will be entitled to receive in exchange therefor the Merger
Consideration, and the surrendered Certificate will forthwith be canceled.
If the any part of the Merger Consideration is to be paid to a Person (as
defined below) other than the Person in whose name the Certificate is
registered, it will be a condition of exchange that the Certificate will be
properly endorsed or otherwise in proper form for transfer and that the
Person requesting the exchange will pay any transfer or other taxes required
by reason of the exchange to a Person other than the registered holder of
such Certificate or establish to the reasonable satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate will be
deemed at any time after the Effective Time to represent only the right to
receive, upon surrender of such Certificate, the cash to be paid for such
Company Shares.
(d) No Further Ownership Rights in Company's Shares. The Merger
Consideration to be paid upon the surrender of Certificates in accordance
with the terms of this Article II will be deemed to have been exchanged and
paid in full satisfaction of all rights pertaining to the Company Shares
theretofore represented by such Certificates and there will be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the Company Shares that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Corporation for any reason, such Certificate will be
canceled and exchanged as provided in this Article II.
(e) At any time following six (6) months after the Effective Time, the
Surviving Corporation shall be entitled to require the Transfer Agent to
deliver to it any funds (including any earnings with respect thereto) which
had been made available to the Transfer Agent and which had not been
disbursed to holders of the Certificates, and thereafter such holders shall
be entitled to look only to the Surviving Corporation (subject to abandoned
property, escheat or other similar laws) and only as general creditors
thereof with respect to the Merger Consideration payable upon due surrender
of their Certificates, without any interest thereon. Notwithstanding the
foregoing, neither Newco, the Surviving Corporation nor the Exchange Agent
shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
ARTICLE III
Representations and Warranties
Section 3.1 Representations and Warranties of the Company. The Company
represents and warrants to Newco as follows, except as expressly contemplated
by this Agreement:
(a) Organization; Standing and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Colorado and has the requisite corporate power and authority to carry on
its business as now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification necessary, other than in such jurisdictions where the failure
to be so qualified to do business or in good standing (individually, or in
the aggregate) would not have a Material Adverse Effect (as defined below) on
the Company.
(b) Subsidiaries. Except as set forth in the exhibits to the Company SEC
Documents (as defined in Section 3.1(f)), the Company does not own, directly
or indirectly, any capital stock or other ownership interest in any
subsidiary which would be required to be listed as a subsidiary of the
Company under the rules of the Securities and Exchange Commission (the "SEC")
with the filing by the Company of an Annual Report on Form 10-K. The
Company's subsidiaries that are corporations are corporations duly organized,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation and have the requisite corporate power and
authority to carry on their respective businesses as they are now being
conducted and to own, operate and lease the assets they now own, operate or
hold under lease, except where the failure to be so organized, existing or in
good standing would not have a Material Adverse Effect on the Company. The
Company's subsidiaries that are limited liability companies are companies
duly organized, validly existing and in good standing under the laws of their
respective jurisdictions of formation and have the requisite company power
and authority to carry on their respective businesses as they are now being
conducted and to own, operate and lease the assets they now own, operate or
hold under lease, except where the failure to be so organized, existing or in
good standing would not have a Material Adverse Effect on the Company. All
the outstanding shares of capital stock or membership interests of the
Company's subsidiaries that are owned by the Company or its subsidiaries have
been duly authorized and validly issued and are fully paid and non-assessable
and were not issued in violation of any preemptive rights or other
preferential rights of subscription or purchase of any Person other than
those that have been waived or otherwise cured or satisfied. All such stock
and ownership interests are owned of record and beneficially by the Company
or by a direct or indirect wholly owned subsidiary of the Company, free and
clear of all liens, pledges, security interests, charges, claims, rights of
third parties and other encumbrances of any kind or nature ("Liens"), except
as set forth on Schedule 3.1(b).
(c) Capital Structure. The authorized capital stock of the Company is as
disclosed in the Company SEC Documents and as set forth on Schedule 3.1(c).
Except as disclosed in the Company SEC Documents or as set forth on Schedule
3.1(c), no shares of capital stock of the Company are authorized, reserved
for issuance or issued and outstanding. All issued and outstanding shares of
Company common stock have been duly authorized and are validly issued, fully
paid, nonassessable and free of preemptive rights. Except as disclosed in
the Company SEC Documents or as set forth in Schedule 3.1(c), the Company
does not have outstanding any subscription, option, put, call, warrant or
other right or commitment to issue or any obligation or commitment to redeem
or purchase, any of its authorized capital stock or any securities
convertible into or exchangeable for any of its authorized capital stock.
Except as disclosed in the Company SEC Documents or as set forth on Schedule
3.1(c), there are no shareholder agreements, voting agreements, voting trusts
or other similar arrangements to which the Company is a party which have the
effect of restricting or limiting the transfer, voting or other rights
associated with the capital stock of the Company.
(d) Authority; Non-contravention. The Company has the requisite corporate
power and authority to enter into this Agreement and, subject to approval of
the Merger and this Agreement by the holders of a majority of the outstanding
Company Shares as of the record date for the Company Shareholders Meeting
("Company Shareholder Approval"), to consummate the transactions contemplated
hereby and to take such actions, if any, as shall have been taken with
respect to the matters referred to in Section 3.1(h). The execution and
delivery of this Agreement by the Company and the consummation by the Company
of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of the Company, subject to
Company Shareholder Approval. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws or judicial
decisions now or hereafter in effect relating to creditors' rights generally,
(ii) the remedy of specific performance and injunctive relief may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought and (iii) the enforceability of any
indemnification provision contained herein may be limited by applicable
federal or state securities laws. The execution and delivery of this
Agreement by the Company do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of or "put" right with
respect to any obligation or to loss of a material benefit under, or result
in the creation of any Lien, upon any of the properties or assets of the
Company or any of its significant subsidiaries under, any provision of (i)
the Articles of Incorporation or By-laws of the Company or any provision of
the comparable organizational documents of its significant subsidiaries, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, lease, or
other agreement, instrument, permit, concession, franchise or license
applicable, to the Company or any of its subsidiaries or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation or arbitration award applicable
to the Company or any of its subsidiaries or their respective properties or
assets, other than, in the case of clause (ii), any such conflicts,
violations, defaults, rights or Liens that individually or in the aggregate
would not have a Material Adverse Effect on the Company and would not
materially impair the ability of the Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
by this Agreement.
(e) Government Approval. No consent, approval, order or authorization of,
or registration, declaration, or filing with, any court, administrative
agency or commission or other governmental authority or agency, domestic or
foreign, including local authorities (each a "Governmental Entity"), is
required by or with respect to the Company in connection with the execution
and delivery of this Agreement by the Company or the consummation by the
Company of the transactions contemplated by this Agreement, except for (i)
the filing by the Company of a pre-merger notification and report form under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act") (if required), (ii) the filing with the SEC of (A) a proxy
statement relating to the Company Shareholder Approval (such proxy statement
as amended or supplemented from time to time, the "Proxy Statement") and (B)
such reports under Section 13(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with this
Agreement and the transactions contemplated hereby, and (iii) the filing of
the Articles of Merger with the Colorado Secretary of State with respect to
the Merger as provided in the CBCA and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business and such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained
or made would not have a Material Adverse Effect on the Company.
(f) SEC Documents. The Company has filed all required reports, schedules,
forms, statements and other documents with the SEC since December 31, 1997
(such documents, together with all exhibits and schedules thereto and
documents incorporated by reference therein, collectively referred to herein
as the "Company SEC Documents"). As of their respective dates, the Company
SEC Documents complied in all material respects with the requirements of the
Securities Act of 1933 ("Securities Act") or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Company SEC Documents, and none of the Company SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The consolidated financial statements of the
Company included in the Company SEC Documents complied in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles ("GAAP") (except, in the case
of unaudited statements, as permitted by Form 10-Q of the Exchange Act)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Exchange Act Regulation S-X) and fairly present the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and other adjustments described therein).
(g) Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Documents, since June 30, 2001, the Company has conducted its
business only in the ordinary course consistent with past practice, and there
has not been any entry by the Company or any of its subsidiaries into any
employment, severance or termination agreement with any such executive
officer other than in the ordinary course of business, consistent with past
practice.
(h) State Takeover Statutes. The Company has taken all action to assure
that no takeover or similar provision of the CBCA, will apply to the Merger
or any of the other transactions contemplated hereby. Except for the Company
Shareholder Approval, no other shareholder action on the part of the Company
is required for approval of the Merger, this Agreement and the transactions
contemplated by this Agreement. The Company has also taken such other action
with respect to any anti-takeover provisions in its By-laws or Articles of
Incorporation to the extent necessary to consummate the Merger on the terms
set forth in this Agreement.
(i) Brokers. Except for Tucker Anthony Sutro Capital Markets, Inc.
("Tucker"), whose fees are to be paid by the Company, no broker, any
investment banker or other Person, is entitled to receive from the Company or
any of its subsidiaries any investment banking, broker's, finder's or other
similar fee or commission in connection with this Agreement or the
transactions contemplated by this Agreement, including any fee for any
opinion rendered by any investment banker. The engagement letter dated May
1, 2001, between the Company and Tucker, which was provided to Newco prior
to the date of this Agreement, constitutes the entire understanding of the
Company and Tucker with respect to the matters referred to therein, and has
not been amended or modified, nor will it be amended or modified prior to the
Effective Time.
(j) Litigation. Except as publicly disclosed, there is no claim, suit,
action, proceeding or investigation pending or, to the best of the Company's
knowledge, threatened against or affecting the Company or any of its
subsidiaries that could reasonably be expected to have a Material Adverse
Effect on the Company or prevent, hinder or materially delay the ability of
the Company to consummate the transactions contemplated by this Agreement,
nor is there any judgment, decree, injunction, rule or order by any
Governmental Entity or arbitrator outstanding against the Company or any of
its subsidiaries having any such effect.
(k) Taxes. Each of the Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax (as defined below)
purposes of which the Company or any of its subsidiaries is or has been a
member, has timely filed all Tax Returns (as defined below) required to be
filed by it and has timely paid or deposited (or the Company has paid or
deposited on its behalf) all Taxes which are required to be paid or deposited
except where the failure to do so would not have a Material Adverse Effect on
the Company and its subsidiaries, taken as a whole. Each of the Tax Returns
filed by the Company or any of its subsidiaries is accurate and complete in
all material respects. The most recent consolidated financial statements of
the Company contained in the filed Company SEC Documents reflect an adequate
reserve for all Taxes payable by the Company and its subsidiaries for all
taxable periods and portions thereof through the date of such financial
statements whether or not shown as being due on any Tax Returns. No
deficiencies for any Taxes have been proposed, asserted or assessed against
the Company or any of its subsidiaries; no requests for waivers of the time
to assess any such Taxes have been granted or are pending; and there are no
tax liens upon any assets of the Company or any of its subsidiaries. There
are no current examinations of any Tax Return of the Company or any of its
subsidiaries being conducted and there are no settlements or any prior
examinations which could reasonably be expected to adversely affect any
taxable period for which the statute of limitations has not run. As used
herein, "Tax" or "Taxes" will mean all taxes of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, estimated, excise, severance, stamp, occupation, premium, value
added, property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any
Governmental Entity, domestic or foreign. As used herein, "Tax Return" will
mean any return, report, statement or information required to be filed with
any Governmental Entity with respect to Taxes.
Section 3.2 Representations and Warranties of Newco and the Fagan Parties.
Newco and the Fagan Parties each represent and warrant to the Company as
follows, except as expressly contemplated by this Agreement:
(a) Organization; Standing and Power. Newco is a corporation duly
organized, validly existing and in good standing under the laws of the State
of [Colorado] and has the requisite corporate power and authority to carry on
its business as now being conducted. Newco is duly qualified to do business
and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary, other than in such jurisdictions where the failure
to be so qualified to do business (individually or in the aggregate) would
not have a Material Adverse Effect on Newco.
(b) Subsidiaries. Newco does not own, directly or indirectly, any capital
stock or other ownership interest in any subsidiary.
(c) Capital Structure. The authorized capital stock of Newco consists of
________ (__________) shares of Newco Common Stock, _____ par value ("Newco
Common Stock"). As of the date of this Agreement, ____________ (_____)
shares of Newco Common Stock are issued and outstanding and the sole
shareholders of Newco are __________________ and __________________. Except
as stated, no shares of capital stock or other equity or voting securities of
Newco are reserved for issuance or outstanding. All outstanding shares of
capital stock of Newco are validly issued, fully paid and nonassessable and
not subject to preemptive rights. Except as described above, as of the date
of this Agreement there are no outstanding or authorized securities, options,
warrants, calls, rights, commitments, preemptive rights, agreements,
arrangements or undertakings of any kind to which Newco is a party, or by
which it is bound, obligating Newco to issue, deliver or sell, or cause to be
issued, delivered or sold, any shares of capital stock or other equity or
voting securities of, or other ownership interests in, Newco or obligating
Newco to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
(d) Authority; Non-contravention. Newco has the requisite corporate power
and authority to enter into this Agreement, to consummate the transactions
contemplated hereby and to take such actions, if any, as shall have been
taken with respect to the matters referred to in Section 3.2(g). The
execution and delivery of this Agreement by Newco and the consummation by
Newco of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Newco. This Agreement has been
duly executed and delivered by Newco and each of the Fagan Parties and
constitutes a valid and binding, obligation of Newco and the Fagan Parties,
enforceable against Newco and the Fagan Parties in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws or judicial decisions now or
hereafter in effect relating to creditors' rights generally, (ii) the remedy
of specific performance and injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought and (iii) the enforceability of any indemnification
provision contained herein may be limited by applicable federal and state
securities laws. The execution and delivery of this Agreement by Newco and
the Fagan Parties do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not,
conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with respect to
any obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of Newco or any
Fagan Party, under any provision of (i) the Articles of Incorporation or
By-laws of Newco or any Fagan Party or any provision of any comparable
organizational documents of any of their respective subsidiaries, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
Newco or any Fagan Party or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance,
rule or regulation or arbitration award applicable to Newco or any Fagan
Party or their respective properties or assets, other than, in the case of
clause (ii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not have a Material Adverse Effect on
Newco or any Fagan Party and would not materially impair the ability of Newco
or any Fagan Party to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
(e) Government Approval. No consent, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity is
required by or with respect to Newco or any Fagan Party in connection with
the execution and delivery of this Agreement by Newco or any Fagan Party or
the consummation by Newco or any Fagan Party of the transactions contemplated
hereby, except for the filing of the Articles of Merger with the Colorado
Secretary of State with respect to the Merger as provided in the CBCA and
appropriate documents with the relevant authorities of other states in which
Newco is qualified to do business and such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under the "takeover" or "blue sky" laws of various states and such other
consents, approvals, orders, authorizations, registrations, declarations and
filings the failure of which to be obtained or made would not have a Material
Adverse Effect on Newco.
(f) New Entity. Newco was formed on December ___, 2001 and since the date
of inception, Newco has not conducted any business other than action taken in
connection with the Merger.
(g) State Takeover Statutes; Absence of Supermajority Provision. Newco has
taken all action to assure that no takeover or similar provision of any
applicable state law, will apply to the Merger or any of the other
transactions contemplated hereby. No additional shareholder action on the
part of Newco is required for approval of the Merger, this Agreement and the
transactions contemplated hereby. There are no anti-takeover provisions in
the By-laws or Articles of Incorporation of Newco applicable to the
transactions.
(h) Brokers. No broker, investment banker or other Person, is entitled to
receive from Newco any investment banking, broker's, finder's or other
similar fee or commission in connection with this Agreement or the
transactions contemplated by this Agreement, including any fee for any
opinion rendered by any investment banker.
(i) Litigation. There is no claim, suit, action, proceeding or
investigation pending or, to the best of Newco's knowledge, threatened
against or affecting Newco, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against
Newco.
(j) Employee Benefit Matters. As used in this Section 3.2(j), "Newco" will
include Newco as defined in the preamble of this Agreement and any member of
a controlled group or affiliated service group, as defined in Section 414(b),
(c), (m) and (o) of the Code, of which Newco is a member. Newco has no
employee benefit plan or arrangement.
(k) Taxes. Newco has not filed any Tax Returns.
(l) Title to Properties. Newco does not own or lease any real or personal
property.
(m) Undisclosed Liabilities. Newco does not have any liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise), required by GAAP to be set forth on a financial statement or in
the notes thereto or which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Newco.
(n) Board and Stockholder Recommendation. The Board of Directors of Newco,
at a meeting duly called and held, has by vote of those directors present (i)
determined that this Agreement and the transactions contemplated hereby,
including the Merger and the transactions contemplated thereby, are fair to
and in the best interests of the shareholders of Newco, and (ii) resolved to
recommend that the holders of the Newco Common Stock approve the Merger and
the transactions contemplated thereby.
(o) Shareholder Approval. The shareholders of Newco have authorized the
execution and delivery of this Agreement and have approved the Merger and the
transactions contemplated by this Agreement.
(p) Absence of Special Rights. Newco and each of the Fagan Parties
acknowledges and agrees that as of the Effective Time (i) the securities of
the Surviving Corporation shall be delisted from Nasdaq Stock Market and
shall cease to trade in any public securities market, (ii) the Surviving
Corporation will terminate its reporting obligations under the Securities
Exchange Act of 1934, as amended, (iii) the Surviving Corporation shall have
no obligation to register its securities under the Securities Act of 1933, as
amended (the "Act") or take any other action which would result in the
development of a public market for its securities, (iv) the Fagan Parties
shall be minority shareholders of the Surviving Corporation and (v) except
for its rights under this Agreement and its rights generally as a shareholder
under Colorado law or other applicable laws, the Fagan Parties shall have no
contractual rights or other arrangements with the Surviving Corporation or
any of its Affiliates which relate to the securities owned by the Fagan
Parties. Without limitation, the Fagan Parties shall not have the right to
cause the Surviving Corporation or any other person to redeem or purchase the
securities of the Surviving Corporation owned by the Fagan Parties.
(q) Transfer Restrictions. The Fagan Parties agree that any transfer of
the Surviving Corporation's securities which they or any of them may propose
must be to a single purchaser and must relate to all securities of the
Surviving Corporation then owned by them or any of them. Newco and the Fagan
Parties agree that a legend describing the restrictions contained in this
Section 3.2(q) shall appear on all certificates representing securities of
the Surviving Corporation and that any subsequent holder of such certificates
shall be bound by such restrictions.
ARTICLE IV
Covenants Relating to Conduct of Business
Section 4.1 Conduct of Business of the Company.
Ordinary Course. During the period from the date of this
Agreement to the Effective Time (except as otherwise specifically
contemplated by the terms of this Agreement), the Company will and will cause
its subsidiaries to carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent therewith, use all reasonable efforts
to preserve intact their current business organizations, keep available the
services of their current officers and employees and preserve their
relationships with customers, suppliers, licensors, licensees, distributors
and others having business dealings with them, in each case consistent with
past practice, to the end that their goodwill and ongoing businesses will be
unimpaired to the fullest extent possible at the Effective Time.
Section 4.2 Conduct of Business of Newco.
(a) Ordinary Course. Newco has been formed specifically to complete the
transactions contemplated by this Agreement. During the period from the date
of this Agreement to the Effective Time (except as otherwise specifically
contemplated by the terms of this Agreement), Newco will not carry on any
business other than business required to consummate the Merger and other
transactions contemplated by this Agreement.
(b) Other Actions. Newco will not take, and will cause its Affiliates not
to take, any action that would, or that could reasonably be expected to,
result in any of the representations and warranties of Newco set forth in
this Agreement becoming untrue.
ARTICLE V
Additional Agreements
Section 5.1 Shareholder Approval; Preparation of Proxy Statement.
(a) Shareholder Meetings. The Company will, as soon as practicable
following the execution and delivery of this Agreement on dates to be agreed
upon between Newco and the Company, which dates will be set taking into
account the status of pending regulatory matters pertaining to the
transactions contemplated hereby, duly call, give notice of, convene and hold
the Company Shareholders Meeting, in accordance with applicable law, for the
purpose of approving the Merger, this Agreement and the transactions
contemplated hereby. Subject to the provisions of Section 6.1 and Section
6.2 the Company will, through its Board of Directors, recommend to its
shareholders the approval and adoption of the Merger. The Company and Newco
will coordinate and cooperate with respect to the timing of the Company
Shareholders Meeting and will endeavor to hold such meetings as soon as
practical after the date hereof.
(b) Board Recommendation. The Board may modify its recommendation of the
merger if the Board determines in good faith that the failure to modify its
recommendation could be expected to constitute a breach of the Board's
fiduciary duties to the Company's shareholders under applicable law.
(c) Preparation of Proxy Statement/Schedule 13E-3. As soon as practicable
following the date of this Agreement, the Company will prepare and file with
the SEC the Proxy Statement/Schedule 13E-3. Newco will provide the Company
with the information concerning Newco required to be included in the Proxy
Statement/Schedule 13E-3. The Company will use its reasonable efforts to
cause the Proxy Statement/Schedule 13E-3 to be mailed to the Company's
shareholders as promptly as practicable after the Proxy Statement/Schedule
13E-3 has been approved by the SEC. The Company will notify Newco promptly
of the receipt of any written or oral comments from the SEC or its staff and
of any request by the SEC or its staff for amendments or supplements to the
Proxy Statement or for additional information and will supply Newco with
copies of all correspondence between the Company or any of its
representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Proxy Statement/Schedule 13E-3 or the Merger.
(d) Stock Transfer Records. The Company will cause the Transfer Agent to
make stock transfer records relating to the Company available to the extent
reasonably necessary to effectuate the intent of this Agreement.
Section 5.2 Reasonable Efforts; Notification.
(a) Reasonable Efforts. Upon the terms and subject to the conditions set
forth in this Agreement, except to the extent otherwise required by United
States regulatory considerations and otherwise provided in this Section
5.2(a), each of the parties agrees to use reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper
or advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger, and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions or
non-actions, waivers, consents and approvals from Governmental Entities and
the making of all necessary registrations and filings (including filings with
Governmental Entities, if any) and the taking of all reasonable steps as may
be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated
or reversed and (iv) the execution and delivery of any additional instruments
(including any required supplemental indentures) necessary to consummate the
transactions contemplated by this Agreement.
Notwithstanding the foregoing, neither party will be required to
agree to any consent, approval or waiver that would require such party to
take an action that would impair the value that such party reasonably
attributes to the Merger and the transactions contemplated thereby. In
connection with and without limiting the foregoing, each of the Company and
Newco and its respective Board of Directors will (i) take all action
necessary to ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to the Merger, (ii) if any state takeover
statute or similar statute or regulation becomes applicable to the Merger,
take all action necessary to ensure that the Merger may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such statute or regulation on the Merger
and (iii) reasonably cooperate with each other in the arrangements for
refinancing any indebtedness of, or obtaining any necessary new financing
for, the Company and the Surviving Corporation.
(b) Notice of Breach. The Company will give prompt notice to Newco, and
Newco will give prompt notice to the Company, of (i) any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate
in any respect or (ii) the failure by it to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement; provided, however, that no such
notification will affect the representations or warranties or covenants or
agreements of the parties or the conditions to the obligations of the parties
hereunder.
Section 5.3 Indemnification.
(a) It is understood and agreed that, subject to the limitations on
indemnification contained in the CBCA, the Company shall, to the fullest
extent permitted under applicable law and regardless of whether the Merger
becomes effective, indemnify and hold harmless, and after the Effective Time,
the Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify, defend and hold harmless each current or former
director or officer of the Company and its subsidiaries (the "Indemnified
Parties") against all losses, claims, damages, liabilities, costs, fees and
expenses, including reasonable fees and disbursements of counsel and
judgments, fines, losses, claims, liabilities and amounts paid in settlement
(provided, that any such settlement is effected with the written consent of
the Surviving Corporation, such consent not to be unreasonably withheld)
arising out of actions or omissions occurring at or prior to the Effective
Time to the full extent permitted under applicable law, the terms of the
Company's Articles of Incorporation or the By-laws, as in effect at the date
hereof.
(b) If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other Person and will not be the
continuing or surviving corporation or entity of such consolidation or merger
or (ii) transfers all or substantially all of its properties and assets to
any Person, then and in each such case, proper provisions will be made so
that the successors and assigns of the Surviving Corporation, which will be
financially responsible Persons or entities, assume the obligations set forth
in this Section 5.3.
(c) The Surviving Corporation shall maintain the Company's existing
officers' and directors' liability insurance for a period of not less than
six (6) years after the Effective Date, provided, that the Surviving
Corporation may substitute therefor policies of substantially equivalent
coverage and amounts containing terms no less favorable to such former
directors or officers; provided, further, that in no event shall the
Surviving Corporation be required to pay aggregate premiums for insurance
under this Section 5.3 in excess of two hundred percent (200%) of the
aggregate premiums paid by the Company in the twelve months prior to the date
of this Agreement, on an annualized basis for such purpose; and provided,
further, that if the Surviving Corporation is unable to obtain the amount of
insurance required by this Section 5.3 for such aggregate premium, the
Surviving Corporation shall obtain as much insurance as can be obtained for
an annual premium not in excess of two hundred percent (200%) of the
aggregate premiums paid by the Company in the twelve months prior to the date
of this Agreement, on an annualized basis for such purpose.
(d) All rights and obligations under this Section 5.3 will be in addition
to any rights that an Indemnified Party may have under the Articles of
Incorporation or By-Laws of the Company as in effect on the date hereof, or
pursuant to any other agreement, arrangement or document in effect prior to
the date hereof. The provisions of this Section 5.3 are intended to be for
the benefit of, and will be enforceable by, the parties hereto and each
Indemnified Party, his or her heirs and his or her representatives. This
Section 5.3 will be binding upon all successors and assigns of the Company,
Newco and the Surviving Corporation.
Section 5.4 Fees and Expenses. Except as provided in Article VII and Article
VIII, all fees and expenses incurred in connection with the Merger, this
Agreement and the transactions contemplated hereby will be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
Section 5.5 Public Announcements. Newco, the Fagan Parties and the Company
will consult with each other before issuing any press release or otherwise
making any public statements with respect to the transactions contemplated by
this Agreement and will not issue any such press release or make any such
public statement prior to such consultation, except that each party may
respond to questions from shareholders and may respond to inquiries from
financial analysts and media representatives in a manner consistent with its
past practice and each party may make such disclosure as may be required by
applicable law or by obligations pursuant to any listing agreement with any
national securities exchange without prior consultation to the extent such
consultation is not reasonably practicable.
Section 5.6 Purchases of Common Stock of the Other Party. During the period
from the date hereof through the Effective Time, except as otherwise allowed
under this Agreement, neither Newco nor any of its Affiliates will purchase
any Company Shares, and neither the Company nor any of its subsidiaries or
other Affiliates will purchase any shares of Newco Common Stock.
Section 5.7 Characterization for Federal Income Tax Purposes. For federal
income tax purposes, it is intended that the formation of Newco be ignored
and that the entire transaction contemplated by this Agreement be treated as
a redemption of certain shares of the Company for cash within the meaning of
Section 302(b) of the Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE VI
Conditions Precedent
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. The Company Shareholder Approval shall have been
obtained.
(b) No Injunctions or Restraints. No final restraining order or permanent
injunction or other final order issued by any court of competent jurisdiction
or other legal prohibition preventing the consummation of the Merger are in
effect; provided, however, that the parties hereto will, subject to Section
5.2(a), use reasonable efforts to have any such injunction, order, restraint
or prohibition vacated.
Section 6.2 Conditions of the Company. The obligation of the Company to
consummate the Merger is further subject to the satisfaction at the Effective
Time of the following condition: Tucker shall not have revoked, modified or
changed its fairness opinion in any manner adverse to the holders of the
Company Shares to whom the fairness opinion is addressed.
ARTICLE VII
Termination, Amendment and Waiver
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of matters presented
in connection with the Merger by the shareholders of the Company or by the
shareholders of Newco:
(a) by mutual written consent of Newco and the Company; or
(b) by either Newco or the Company:
(i) if the shareholders of the Company fail to give any required approval
of the Merger and the transactions contemplated hereby upon a vote at a
duly held meeting of shareholders of the Company or at any adjournment
thereof; or
(ii) if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger; or
(c) by Newco, if the Company fails to perform in any material respect any
of its covenants, agreements or obligations under this Agreement which breach
is incapable of being cured or cannot be or has not been cured within 20 days
after Newco has given written notice of such breach to the Company; provided
that no breach by the Company shall relieve Newco from closing if the breach
was previously known to Newco or its Affiliates prior to the date of this
Agreement or is the result of actions by Newco or its Affiliates; or
(d) by the Company, if Newco breaches in any material respect any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this Agreement
which breach is incapable of being cured or cannot be or has not been cured
within 20 days after the non-breaching party has given written notice of such
breach; or
(e) by the Company, if the Merger shall not have been consummated on or
before February 28, 2002, unless the failure to consummate the Merger is the
result of a material breach of this Agreement by the Company; or
(f) by the Company if its Board of Directors determines, in good faith,
after consultation with and based upon the advice of legal counsel, that the
failure to change its recommendation of the adoption of this Agreement and
the Merger could be expected to constitute a breach of its fiduciary duties
to the Company's shareholders under applicable law.
Section 7.2 Effect of Termination.
(a) In the event of termination of this Agreement by the Company as
provided in Section 7(e), the Company shall pay to Newco within five business
days of such termination all out-of-pocket expenses incurred by Newco and its
Affiliates in connection with this Agreement and not otherwise reimbursed or
paid by the Company.
(b) In the event of termination of this Agreement by either the Company or
Newco as provided in Section 7.1, this Agreement will forthwith become void
and have no effect, without any liability or obligation on the part of Newco
or the Company, other than (i) the provisions of Section 5.5, Section 7.2(a)
and Article VIII and (ii) such termination will not relieve any party hereto
for any intentional breach prior to such termination by a party hereto of any
of its representations or warranties or any of its covenants or agreements
set forth in this Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the shareholders of the Company or the shareholders of
Newco; provided, however, that after any such approval, there will be made no
amendment that by law requires further approval by such shareholders without
the further approval of such shareholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or the other acts of the other parties,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto or (c) subject to the
proviso of Section 7.3, waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party to any
such extension or waiver will be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise will
not constitute a waiver of such rights.
ARTICLE VIII
General Provisions
Section 8.1 Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants or agreements in this Agreement or in
any instrument delivered by the Company or Newco pursuant to this Agreement
will survive the Effective Time, except any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time,
including but not limited to the covenants and agreements contained in
Sections 3.2(p) and 3.2(q).
Section 8.2 Notices. Any notice and similar communications concerning this
Agreement ("Notice") will be in writing and will be either (a) delivered in
person (including by a nationally recognized courier service such as Federal
Express); or (b) sent to the other party by certified mail with return
receipt requested. Notices will be delivered or sent as follows or to such
other address as a party may hereafter establish by Notice given in the
manner prescribed in this Section.
(a) if to Newco or any Fagan Party, to
[-------------------]
5201 North O'Connor Boulevard, Suite 440
Irving, Texas 75039
with a copy to:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention: Andre Weiss
(b) if to the Company, to
The Quizno's Corporation
1415 Larimer Street
Denver, Colorado 80202
Attn: Patrick Meyers
and:
Brobeck, Phleger & Harrison
370 Interlocken Blvd. Suite 500
Broomfield, Colorado 80021
Attn: Richard Plumridge
Section 8.3 Definitions. For purposes of this Agreement:
(a) an "Affiliate" is any person who controls, is controlled by, or is
under common control with the designated person;
(b) "knowledge" means, with respect to any matter stated herein to be "to
the Company's knowledge," or similar language, the actual knowledge of the
Chairman of the Board, the Chief Executive Officer, President, any Vice
President, Chief Financial Officer or General Counsel of the Company, and
with respect to any matter stated herein to be "to Newco's knowledge," or
similar language, the actual knowledge of the Chairman of the Board, the
Chief Executive Officer, President, any Vice President or Chief Financial
Officer of Newco.
(c) "Material Adverse Effect" or "Material Adverse Change" means, when used
in connection with any Person, any change or effect that is materially
adverse to the business, properties, assets, financial condition or results
of operations of that Person and its subsidiaries, taken as a whole;
provided, however, that none of the following conditions or events shall be
deemed in themselves, either alone or in combination, to constitute a
Material Adverse Effect or a Material Adverse Change in the Company: (i) the
announcement or pendency of the Merger, (ii) conditions affecting the general
industry in which the Company participates or the U.S. economy as a whole,
(iii) compliance with the terms of, or the taking of any action required or
contemplated by, this Agreement, or (iv) a change in the market price or
trading volume of the Company common stock.
(d) "Person" means an individual, corporation, partnership, joint venture,
limited liability company, association, trust, unincorporated organization or
other entity; and
(e) a "subsidiary" of a Person means any corporation, partnership or other
legal entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are directly or indirectly owned by such first
mentioned Person.
Section 8.4 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference will be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The
titles and headings herein are for convenience only. In case of ambiguity or
inconsistency, the text rather than the titles or headings will control.
Whenever the word "include", "includes" or "including" are used in this
Agreement, they will be deemed to be followed by the words "without
limitation".
Section 8.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
Section 8.6 Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof and (b) except for the
provisions of Article II and Section 5.3, are not intended to confer upon any
Person other than the parties any rights or remedies hereunder.
Section 8.7 Governing Law. This Agreement will be governed by, and construed
in accordance with, the laws of the State of Colorado, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
Section 8.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties
without the prior written consent of the other parties. This Agreement will
be binding upon, inure to the benefit of, and be enforceable by, the parties
and their respective successors and assigns.
Section 8.9 Enforcement of the Agreement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties will be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
United States located in the State of Colorado or in any other Colorado state
court, this being in addition to any other remedy to which they are entitled
at law or in equity. In addition, each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any Federal or state court
sitting in the District of Colorado in the event any dispute between the
parties hereto arises out of this Agreement solely in connection with such a
suit between the parties, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from
any such court and (c) agrees that it will not bring any action relating to
this Agreement in any court other than a Federal or state court sitting in
the State of Colorado or in the District of Colorado. The parties agree that
any action or proceeding arising out of this Agreement will be heard by a
court sitting without a jury and thus hereby waive all rights to a trial by
jury.
Section 8.10 Attorneys' Fees. In the event of any dispute hereunder, or
any default in the performance of any term or condition of this Agreement,
the prevailing party will be entitled to recover all costs and expenses
associated therewith, including reasonable attorneys' fees.
Section 8.11 Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein will not in any way be affected or
impaired thereby. The parties will endeavor in good faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid
provisions, the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
DENSERV1\RRP\41683.03
IN WITNESS WHEREOF, Newco and the Company have caused this
Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
NEWCO CORP. THE QUIZNO'S CORPORATION
By:_________________________________ By:_________________________________
Title: _______________________________ Title: _______________________________
Acknowledged and Agreed to this _______ day of December 2001.
......
William Fagan
......
Laura Fagan
FAGAN CAPITAL INC.
......
Title: ......
SCHEDULE 2.1
(Surviving Owners)
Richard E. Schaden
Richard F. Schaden
Frederick Schaden
Timothy M. Schaden
Patricia Wisdom
Patrick Meyers
Levine Leichtman Capital Partners II, L.P.
Voting Trust Agreement dated July 14, 1994, as amended
Fagan Capital, Inc.
William Fagan
Laura Fagan
SCHEDULE 3.1(b)
(Liens on Subsidiary Stock)
All issued and outstanding shares of capital stock in the Company's
subsidiaries have been pledged to secure the repayment of debt owed to Levine
Leichtman Capital Partners II, L.P. and to Amresco Commercial Finance, Inc.
SCHEDULE 3.1(c)
(Capital Structure, Shareholder Agreements, Voting Agreements, Voting Trusts)
Capital Structure
Common Stock, $.001 par value; 9,000,000 shares authorized; 2,337,439 shares
issued and outstanding at June 21, 2001.
Preferred Stock, $.001 par value; 1,000,000 shares authorized;
146,000 Series A shares issued and outstanding;
57,000 Series C shares issued and outstanding;
3,000 Series D shares issued and outstanding; and
59,000 Series E shares issued and outstanding.
Except as disclosed in the Company SEC Documents, there are no (i)
subscriptions, options, puts, calls, warrants or other rights or commitments
to issue, redeem or purchase any of the Company's authorized capital stock or
securities convertible into or exchangeable for authorized capital stock or
(ii) shareholder agreements, voting agreements, voting trusts or similar
arrangements to which the Company is a party which have the effect of
restricting or limiting the transfer, voting or other rights associated with
the Company's capital stock.
