Lyle B. Stewart, P.C.
3751 South Quebec Street
Denver, Colorado 80237
Tel.: 303-267-0920
Fax: 303-267-0922
May 22, 2000
United States Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549-1004
Re: The Quizno's Corporation
Commission File No. 000-23174
Definitive Proxy Material
Dear Sir or Madam:
On behalf of my client, The Quizno's Corporation (the "Corporation"),
and pursuant to Rule 101(a)(1)(iii) under Regulation S-T promulgated by the U.S.
Securities and Exchange Commission, we are filing herewith the definitive copy
of the Proxy Statement and form of Proxy Card relating to the upcoming annual
meeting of the Corporation, scheduled for June 22, 2000. The form of Proxy Card
is attached at the end of the enclosed Proxy Statement. The Company will mail
its definitive Proxy Statement to its shareholders, accompanied by a copy of its
Annual Report to Shareholders on or about May 22, 2000.
Copies of the two compensation plans regarding which the shareholders
are being asked to vote at the upcoming Annual Meeting and about which
information is included in the Proxy Statement, the Restated and Amended
Directors and Advisors Stock Option Plan and the Class D Subordinated
Convertibles Preferred Stock, are attached hereto, as Exhibit A and Exhibit B,
respectively, after the form of Proxy Card, as required by Item 10 of Schedule
14A. As also required by Instruction 5 of Item 10, the Commission is advised
that the Corporation will file a new registration statement pursuant Paragraph
E of the General Instructions to Form S-8, incorporating the contents of the
currently effective Registration Statement on Form S-8 (Reg. No. 333-94215),
which registers the shares to be issued upon the exercise of options granted
under the Restated and Amended Non-Employee Directors and Advisors Stock Option
Plan, promptly after the Annual Meeting, if the proposal to increase the
authorized shares under that Plan is approved.
If you have any questions with respect to this filing, please contact
the undersigned at the telephone numbers above.
Very truly yours,
/s/ Lyle B. Stewart
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[Amendment No. ______]
Filed by Registrant X
Filed by a Party other than the Registrant __
Check the appropriate box:
__ Preliminary Proxy Statement
__ Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
X Definitive Proxy Statement
__ Definitive Additional Materials
__ Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
The Quizno's Corporation
-----------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
The Quizno's Corporation
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
__ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. Set forth amount on which
filing fee is calculated and state how it was determined.
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
__ Fee paid previously with preliminary materials.
__ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
THE QUIZNO'S CORPORATION
1415 Larimer Street
Denver, Colorado 80202
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
June 22, 2000
To the Shareholders of
The Quizno's Corporation:
The 2000 Annual Meeting of Shareholders (the "Annual Meeting") of The
Quizno's Corporation, a Colorado corporation (the "Company"), will be held on
Thursday, June 22, 2000, at 10:00 a.m. (Denver time), at the Oxford Hotel, 1600
17th Street, Denver, CO 80202, for the following purposes:
1) to elect six directors of the Company to serve until the next annual
meeting of shareholders or until their successors are duly elected and
qualified;
2) to ratify and approve an increase from 200,000 to 300,000 in the
number of shares of the Company's Common Stock, reserved for issuance upon
exercise of options pursuant to the Company's Restated and Amended Non-Employee
Directors and Advisors Stock Option Plan;
3) to ratify and approve the creation of the Company's Class D
Subordinated Convertible Preferred Stock, reserved for sale to a limited number
of highly qualified employees as an incentive to continue as their employment
with the Company;
4) to ratify the selection by the Board of Directors of Ehrhardt Keefe
Steiner & Hottman PC as independent auditors of the Company for the fiscal year
2000; and
5) to transact such other business as may properly come before the
Annual Meeting, or any adjournment(s) or postponement(s) thereof.
The Board of Directors has fixed the close of business on Monday,
May 15, 2000, as the record date for determining the shareholders entitled to
notice of, and to vote at, the Annual Meeting. A complete list of shareholders
entitled to vote at the Annual Meeting will be available, upon written demand,
for inspection during normal business hours by any shareholder of the Company
prior to the Annual Meeting, for a proper purpose, at the Company's offices
located at the address set forth above. Only shareholders of record on the
record date are entitled to notice of, and to vote at, the Annual Meeting and
any and all adjournments or postponements thereof.
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended September 30, 1999, a Proxy Statement and a proxy card accompany
this notice. These materials will be sent to shareholders on or about May 19,
2000.
Shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, please
complete and sign the enclosed proxy card and return it promptly. If you choose,
you may still vote in person at the Annual Meeting even though you previously
submitted a proxy card.
By Order of the Board of Directors,
Denver, Colorado RICHARD F. SCHADEN
May 19, 2000 Secretary
THE QUIZNO'S CORPORATION
1415 Larimer Street
Denver, Colorado 80202
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held on June 22, 2000
This Proxy Statement and the accompanying proxy card are being furnished
to the shareholders of The Quizno's Corporation (the "Company"), in connection
with the solicitation of proxies by and on behalf of the Board of Directors of
the Company (the "Board") for use at its 2000 Annual Meeting of Shareholders to
be held on Thursday, June 22, 2000, at 10:00 a.m. (Denver time), at the Oxford
Hotel, 1600 17th Street, Denver, Colorado 80202, and at any adjournment(s) or
postponement(s) thereof (the "Annual Meeting"). This Proxy Statement, the
accompanying proxy card and the Company's Annual Report to Shareholders for the
fiscal year ended September 30, 1999 (the "Annual Report"), will be mailed to
shareholders on or about May 19, 2000. The Annual Report is not incorporated by
reference into the Proxy Statement, and is not to be considered a part of the
Company's proxy solicitation materials.
PURPOSE OF ANNUAL MEETING
At the Annual Meeting, shareholders will be asked to (i) elect six
directors of the Company to serve until the next annual meeting of shareholders
or until their successors are duly elected and qualified; (ii) ratify and
approve an increase from 200,000 to 300,000 in the number of shares of the
Company's common stock, par value $.001 per share (the "Common Stock"), reserved
for issuance upon exercise of options pursuant to the Company's Non-Employee
Directors and Advisors Stock Option Plan; (iii) ratify and approve the creation
of the Company's Class D Subordinated Convertible Preferred Stock, reserved for
sale to a limited number of highly qualified employees as an incentive to
continue as their employment with the Company; (iv) ratify the selection by the
Board of Ehrhardt Keefe Steiner & Hottman, P.C. as the Company's auditors for
the year ending September 30, 2000 ("Fiscal 2000"); and (v) transact such other
business as may properly come before the Annual Meeting. The six candidates
receiving the most votes shall be elected, if a quorum is present. The proposals
in items (ii) and (iii) above will be approved by shareholders if a majority of
votes present or represented and entitled to vote at the meeting vote in favor
of the proposals. Action on the other matters to be voted upon will be approved
by the shareholders if the number of votes cast for the action exceeds the
number of votes cast against the action, and a quorum is present. The Board
recommends a vote "FOR" the election of the six nominees for director of the
Company listed below, the approval of the proposals in items (ii) and (iii)
above, and the ratification of Ehrhardt Keefe Steiner & Hottman, P.C. as the
Company's auditors for Fiscal 2000.
QUORUM AND VOTING RIGHTS
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. Only shareholders of record at the close of business on Monday,
May 15, 2000 (the "Record Date"), will be entitled to notice of, and to vote at,
the Annual Meeting. As of the Record Date, there were 2,986,721 shares of Common
Stock outstanding and entitled to vote. Holders of Common Stock as of the Record
Date are entitled to one vote for each share held.
All shares of Common Stock represented by properly executed proxies
will, unless such proxies have previously been revoked, be voted in accordance
with the instructions indicated in such proxies. If no such instructions are
indicated, such shares will be voted in favor of (i.e., "FOR") the election of
the nominees for director of the Company listed below, the approval of the
proposals in items (ii) and (iii) above, and the ratification of Ehrhardt Keefe
Steiner & Hottman, P.C. as the Company's auditors for Fiscal 2000. Abstentions
and broker non-votes will not be counted as votes cast and will have no effect
on the result of a vote on matters identified in items (i) and (iv) above,
although both will count towards the presence of a quorum. In voting on the
proposals described in items (ii) and (iii), abstentions will be treated as "no"
votes, and broker non-votes will again not be counted as votes cast. Any
shareholder executing a proxy has the power to revoke such proxy at any time
prior to its exercise. A proxy may be revoked prior to exercise by (a) filing
with the Company a written revocation of the proxy, (b) appearing at the Annual
Meeting and casting a vote contrary to that indicated on the proxy or (c)
submitting a duly executed proxy bearing a later date.
- 1 -
The cost of preparing, printing, assembling and mailing this Proxy
Statement and other material furnished to shareholders in connection with the
solicitation of proxies will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, officers, directors and regular
employees of the Company may solicit proxies by written communication, by
telephone, telegraph or personal call. Such persons are to receive no special
compensation for any solicitation activities. The Company will reimburse banks,
brokers and other persons holding Common Stock in their names, or those of their
nominees, for their expenses in forwarding proxy solicitation materials to
beneficial owners of Common Stock.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's equity securities (common stock and four classes of
preferred stock) as of May 15, 2000, (a) by each person known to the Company to
own beneficially more than 5% of the Company's Common Stock, (b) each of the
Company's Named Officers and directors and (c) by all executive officers and
directors of the Company named herein as a group.
- 2 -
Preferred
Common Common Stock
Stock Stock Owned and
Name and Address Owned(1) Percentage Percentage
- --------------------------- ----------- ----------- ----------
Richard E. Schaden 860,877(2) 28.0% (6)
1415 Larimer Street
Denver, CO 80202
Richard F. Schaden 921,470(2) 29.4% (6)
11870 Airport Way
Broomfield, CO 80021
Retail & Restaurant 415,056(3) 12.2% 0
Growth Capital, L.P.
10000 N. Central Expressway
Suite 1060
Dallas, TX 75231
Brad A. Griffin 5,000(4) * (6)
207 Canyon Blvd.
Suite 300
Boulder, CO 80302
Mark L. Bromberg 14,000(4) * 0
1801 Kings Isle Drive
Plano, TX 75093
J. Eric Lawrence 16,000(4) * 0
10000 N. Central Expressway
Suite 1060
Dallas, TX 75231
Frederick H. Schaden 28,000(4) * (6)
100 South Wacker Drive
Suite 860
Chicago, IL 60606
Robert W. Scanlon 5,948(5) * 0
1415 Larimer Street
Denver, CO 80202
Sue A. Hoover 24,982(5) * 0
1415 Larimer Street
Denver, CO 80202
26,131(5) * 0
Patrick E. Meyers
1415 Larimer Street
Denver, CO 80202
All Executive Officers and 1,916,059 57.6 % (6)
Directors as a Group (11
persons)
- ------------------------
* Less than 1% of shares outstanding
Footnotes on next page.
- 3 -
(1) The persons named in the table have sole voting power with respect to all
shares of Common Stock shown as beneficially owned by them. A person is
deemed to be the beneficial owner of securities that can be acquired by such
person within sixty (60) days from the date hereof, upon the exercise of
options or warrants or conversion of convertible securities. The record
ownership of each beneficial owner is determined by assuming that options or
warrants or convertible securities that are held by such person and that are
exercisable or convertible within sixty (60) days have been exercised or
converted. The total outstanding shares used to calculate each beneficial
owner's percentage also assumes such options, warrants or convertible
securities have be exercised or converted. Our Class A Cumulative
Convertible Preferred Stock, Class C Cumulative Convertible Preferred Stock
and Class E Cumulative Convertible Preferred Stock are currently convertible
into Quizno's Common Stock.
(2) Richard E. Schaden and Richard F. Schaden beneficially own, through a voting
trust pursuant to which they are joint voting trustees, 1,547,334 shares of
our common stock and 146,000 shares of our Class A Cumulative Convertible
Preferred Stock, and 4,000 shares of our common stock owned by a family
member for which the voting trust holds sole voting power. The remaining
duration of the voting trust agreement is 4 years, subject to extension. In
the table, beneficial ownership of shares owned by the voting trust have
allocated equally to each of them. Richard E. Schaden, individually,
beneficially owns 784 shares of our common stock allocated to him under our
401(k) Plan, 4339 shares of our common stock held in his own name, 5,087
shares of our common stock represented by currently exercisable stock
options, and 2,000 shares of our common stock owned by a family member for
which he holds sole voting power. Richard F. Schaden, individually,
beneficially owns 34,000 shares of our Class C Cumulative Convertible
Preferred Stock, 4,000 shares of our common stock represented by currently
exercisable stock options, and 34,803 shares of our Class E Cumulative
Convertible Preferred Stock.
(3) Retail & Restaurant Growth Capital, L.P. ("RRGC"), in connection with a loan
to us that has since been repaid, has been issued two Warrants by us. One is
exercisable for 372,847 shares of Common Stock at an exercise price of
$3.10, subject to adjustment in certain circumstances. The other is
exercisable for 42,209 shares of Common Stock at an exercise price of $5.00
per share, subject to adjustment in certain circumstances.
(4) All of the shares indicated as owned by Messrs. Lawrence, Bromberg, and
Griffin may be acquired through the exercise of stock options. All of the
shares indicated as owned by Mr. Frederick Schaden may be acquired through
the exercise of stock options or conversion of Class C Convertible Preferred
Stock by the holder.
(5) Robert W. Scanlon, individually, beneficially owns 473 shares of our common
stock allocated to him under our 401(k) Plan, 1,475 shares of our common
stock held in his own name, and 4,000 shares of our common stock represented
by currently exercisable stock options. Sue A. Hoover, individually,
beneficially owns 709 shares of our common stock allocated to her under our
401(k) Plan, 11,873 shares of our common stock held in her own name, and
12,400 shares of our common stock represented by currently exercisable stock
options. Patrick E. Meyers, individually, beneficially owns 158 shares of
common stock allocated to him under our 401(k) Plan, 3,973 shares of our
common stock held in his own name, and 22,000 shares of our common stock
represented by currently exercisable stock options.
(6) The Company has issued and outstanding four classes of Convertible Preferred
Stock, the Class A Cumulative Convertible Preferred Stock (the "Class A
Preferred"), the Class C Cumulative Convertible Preferred Stock (the "Class
C Preferred"), the Class D Subordinated Convertible Preferred Stock (the
"Class D Preferred"), and the Class E Cumulative Convertible Preferred Stock
(the "Class E Preferred"). There are 146,000 shares of Class A Preferred
outstanding: 50% are beneficially owned by Richard F. Schaden and 50% are
beneficially owned by Richard E. Schaden. There are 167,000 shares of Class
C Preferred outstanding: 34,000 shares or 20.4% are held by Richard F.
Schaden, 5,000 shares or 2.7% are held by Brad A. Griffin, and 2,000 shares
or 1.1% are held by Frederick H. Schaden. There are 4,000 shares of Class D
Preferred outstanding. There are 59,480 shares of Class E Preferred
outstanding: 34,803 shares or 59% are held by Richard F. Schaden and 1,473
shares or 2.5% are held by John L. Gallivan. Among all Executive Officers
and Directors as a group, the following preferred shares are beneficially
owned: 100% of the Class A Preferred, 41,000 shares or 24.2% of the Class C
Preferred, and 36,276 shares or 61% of the Class E Preferred. None of these
classes of preferred stock are publicly traded or registered under Sections
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended.
- 4 -
ELECTION OF DIRECTORS
Nominees
The Board currently consists of six (6) members: Richard E. Schaden,
Richard F. Schaden, Frederick H. Schaden, Mark L. Bromberg, J. Eric Lawrence and
Brad A. Griffin. Richard E. Schaden is the son of Richard F. Schaden. Frederick
H. Schaden is the brother of Richard F. Schaden. The Board proposes that the six
current directors, listed below as nominees, be re-elected as directors of the
Company to hold office until the next annual meeting of shareholders or until
their successors are duly elected and qualified. Each nominee has consented to
serve, if elected to the Board. In the event that any nominee is unable to serve
as a director at the time of the Annual Meeting (which is not expected), proxies
with respect to which no contrary direction is made will be voted "FOR" such
substitute nominee as shall be designated by the Board to fill the vacancy.
The names of the nominees, their ages at the Record Date and certain
other information about them are set forth below:
Nominee Age Position(s) with Company Director Since
- --------------------- ----------- ----------------------------------- --------------
Richard E. Schaden 36 President, Chief Executive Officer 1991
and Director
Richard F. Schaden 62 Vice President, Secretary and 1991
Director
Frederick H. Schaden 53 Director 1993
J. Eric Lawrence 33 Director 1997
Mark L. Bromberg 49 Director 1997
Brad A. Griffin 50 Director 1999
Mr. Richard E. Schaden has been President and a Director of the Company
since its inception on January 7, 1991. Mr. Schaden had been a principal and the
chief operating officer of Schaden & Schaden, Inc., a company that owned and
operated Quizno's franchised restaurants from 1987 to 1994 when it was sold to
the Company. Mr. Schaden graduated Magna Cum Laude from the University of
Colorado with a degree in Business Management and Finance. See "Certain
Transactions."
Mr. Richard F. Schaden has been a Vice President, Secretary and a
Director of the Company since its inception on January 7, 1991. Mr. Schaden had
been a principal of Schaden & Schaden, Inc., a company that owned and operated
Quizno's franchised restaurants from 1987 to 1994 when it was sold to the
Company. Mr. Schaden is the founding partner of the law firm of Schaden, Katzman
& Lampert with offices in Bloomfield Hills, Michigan and Broomfield, Colorado.
Mr. Schaden graduated from the University of Detroit with a Bachelor of Science
in Aeronautical Engineering, received his Juris Doctorate from the University of
Detroit Law School and is an internationally known, well-published attorney,
specializing in aviation law. Prior to entering the legal profession, Mr.
Schaden was an aeronautical engineer for Boeing Aircraft and Continental
Aviation and Engineering. Mr. Schaden has been on the board of numerous private
companies. See "Certain Transactions."
Mr. Frederick H. Schaden is an Executive Vice President of the
Automotive Consulting Group of Aon Consulting, Inc. Aon Consulting, Inc. is a
subsidiary of Aon Corporation, a publicly held company with annual revenues of
over $7 billion. He has been employed by Aon for over 25 years and has served as
a senior officer of its affiliates since 1981. Mr. Schaden earned a B.S. in
Business Administration from Xavier University in Cincinnati, Ohio. See "Certain
Transactions."
- 5 -
Mr. J. Eric Lawrence has been the General Partner of Retail & Restaurant
Growth Capital, L.P. ("RRGC"), a $60 million investment fund focused on
providing growth and expansion capital to small businesses in the retail and
restaurant industries, since December 1995. RRGC is a Small Business Investment
Company, federally licensed by the Small Business Administration. RRGC loaned
$2,000,000 to the Company in 1996, which has been paid in full, and Mr. Lawrence
serves on the Board pursuant to a contractual arrangement between the Company
and RRGC. Mr. Lawrence has been extensively involved in the analysis of the
financial, operational and managerial aspects of retail and restaurant companies
throughout his career. Prior to RRGC, he served as Vice President of Strategic
Retail Ventures, Inc., a boutique financial consulting and private investment
firm focusing on the needs of specialty retail and restaurant companies from
March 1993 to December 1995. Prior to SRV, Mr. Lawrence was a Senior Consultant
with Arthur Andersen, in Dallas, Texas. Mr. Lawrence is a licensed C.P.A., and
is a graduate of Southern Methodist University with a B.B.A. in Accounting and
Minor in Economics, which included study abroad at Oxford University, Oxford,
England.
Mr. Mark L. Bromberg has been a self-employed management consultant
providing strategic planning, positioning and senior management consulting
services to the hospitality industry, for over five years. Mr. Bromberg is the
former President & CEO of East Side Mario's Restaurants Inc., the Dallas based
subsidiary of Pepsico which he grew from one restaurant in 1988 to 30 in 1993
when it was sold to Pepsico. Mr. Bromberg has been the founder and President of
a number of causal dining restaurant chains, including Mr. Greenjeans, Ginsberg
& Wong and Lime Rickey's and served as President of Prime Restaurant Group, the
largest privately-held restaurant chain in Canada. He holds a B.S. and an M.B.A.
from Cornell University and remains highly involved in foodservice education as
a curriculum advisor and guest lecturer. He is a past chairman of the Canadian
Restaurant and Foodservice Association and is a past director of the National
Restaurant Association of the U.S. Mr. Bromberg was elected to the Board of
Directors pursuant to a contractual arrangement with RRGC that required the
election of an additional Board member acceptable to RRGC.
Mr. Brad A. Griffin has been the managing director of GriffCo
Development, which develops, builds, leases and manages commercial and retail
real estate, since 1994. He is also the managing director of Oasis Investment, a
company that manages investment assets and trades Nasdaq and exchange listed
stocks and options.
Board Committees and Meetings
Messrs. Richard E. Schaden, Bromberg and Frederick Schaden are members
of the Audit Committee of the Board of Directors. There is no Compensation
Committee or Nominating Committee of the Board of Directors.
The Board held a total of three regular meetings and seven special
meetings during fiscal 1999.
During fiscal 1999, the Audit Committee held one meeting. The Audit
Committee is primarily responsible for reviewing recommendations made by the
Company's independent auditors and evaluating the Company's adoption and
implementation of such recommendations.
During fiscal 1999, all members of the Board attended over 75% of the
aggregate number of regular and special meetings of the Board and of their
respective committees.
- 6 -
Director Compensation
Directors who are not officers or employees of the Company are paid $500
per day for each Board and Committee meeting they attend and they are reimbursed
for their reasonable expenses of attending such meetings. In addition, all
directors receive an annual grant of options to purchase 4,000 shares of Company
Common Stock, which immediately vest.
During fiscal 1999, we paid each of our four non-employee directors
$1,500 (except for J. Eric Lawrence, who was paid $1,000), as compensation for
their attendance at regular Board and Committee meetings. For their service
during fiscal 1999, these outside Directors each received a grant of options to
purchase 4,000 shares of Common Stock that immediately vested. In addition,
during fiscal 1999, a Special Committee of the Board of Directors, composed of
two independent members of the Board of Directors, was constituted to review and
evaluate a proposal to take our company private. Such proposal was ultimately
withdrawn. For their service on such Committee, Mr. Mark Bromberg was paid
$44,719, plus out-of-pocket disbursement, and Mr. Brownell Bailey (a former
Director) was paid $43,226 plus out-of-pocket disbursements.
Advisory Board
The Board of Directors have appointed three members to an Advisory Board
of persons with substantial experience in areas of importance to the franchise
restaurant industry and public companies. The Advisory Board members attend
Board meetings and provide Directors with the benefit of their expertise. They
do not vote on matters before the Board. They are compensated in the same manner
as Directors who are not officers or employees of the Company are compensated.
The three current members of the Advisory Board are Mr. Lewis G. Rudnick, Mr.
Bruce H. Gulbas and Mr. Lyle B. Stewart. Their backgrounds are as follows:
Lewis G. Rudnick is an internationally recognized authority on
franchising and distribution law and has practiced in this area for 32 years. He
is counsel to the International Franchise Association, was a member of the
Governing Committee of the American Bar Association Forum on Franchising from
1977-1984 and served as Forum Chairman from 1981-1983. He is an editor of the
Journal of International Franchising and Distribution Law and the Franchise
Legal Digest, has authored and edited numerous articles and books on franchising
law and is a frequent speaker on the topic of franchising and distribution law.
He has testified before Congress and other legislative bodies on the subject of
franchising.
Bruce H. Gulbas has been the President and owner of National Restaurant
Supply Co. since 1976. He is a graduate of the University of Texas where he
obtained his BBA degree in marketing. He currently serves on the Boards of
Directors of Food Service Dealers Association ("FEDA") and Allied Buying
Corporation (a national food service equipment buying group). He is also a
member of Young Presidents Organization (YPO).
Lyle B. Stewart is an experienced securities attorney who has
represented public companies for over 25 years. He has written articles for
legal periodicals and spoken on securities law matters. He was appointed by the
Governor of Colorado to the Colorado Securities Board in 1995 for a four-year
term and served as its Chairman from 1995 to 1998. He has represented us as
legal counsel since our initial public offering.
- 7 -
EXECUTIVE OFFICERS
The following table sets forth (i) the names of the executive officers,
(ii) their ages, and (iii) the capacities in which they serve the Company:
Name Age Position(s) with the Company
- -------------------- ------ ----------------------------------------
Richard E. Schaden 36 President, Chief Executive Officer, and
Chairman of the Board of Directors
Robert W. Scanlon 53 Executive Vice President for Development
Sue A. Hoover 53 Executive Vice President for Corporate
Communications
Robert Elliott 43 Executive Vice President for Marketing
Richard F. Schaden 62 Vice President, Secretary and Director
Patrick E. Meyers 41 Vice President and General Counsel
John L. Gallivan 53 Chief Financial Officer, Treasurer and
Assistant Secretary
Executive Officer's Biographical Information
See "Director's Biographical Information" above for a description of the
backgrounds of Richard E. Schaden and Richard F. Schaden.
Robert W. Scanlon has been our Executive Vice President of Development
since October 1998. Mr. Scanlon served as our Senior Vice President of Real
Estate/Design & Construction from August 1997 through September 1998. He also
served as our Senior Vice President of Concept Development and Design from
January 1997 to July 1997 and as our Vice President of Nontraditional
Development from May 1996 to December 1996. From June 1990 through April 1996,
he was first Vice President of Sales and Marketing and later Vice President of
Business Development for Carts of Colorado, located in Commerce City, Colorado,
an equipment manufacturer. Mr. Scanlon graduated from the University of Texas,
with a B.S. degree in 1973.
Sue A. Hoover joined us as Director of Marketing in 1991. She was named
Senior Vice President of Marketing in 1997 and was named an Executive Vice
President in October 1998. In February 2000, she became our Executive Vice
President for Corporate Communications. Ms. Hoover graduated from the University
of Iowa with a B.A. in 1968.
Robert Elliott became our Executive Vice President of Marketing in
February 2000. Prior to joining us, he was a partner at Bozell Worldwide, Inc.,
an advertising agency in Detroit Michigan from 1997 to 1999, and on the
marketing staff of Little Caesar Enterprises, Inc. for over 18 years, including
serving as Vice President - Marketing from 1993 to 1997. Mr. Elliott graduated
from Eastern Michigan University with a BBA degree in 1979.
Patrick E. Meyers joined us in 1997. He had been an associate with the
Denver law firm of Moye, Giles, O'Keefe, Vermeire & Gorrell since September
1991, and was selected as a partner of that firm in 1996. Before that he served
as a judicial law clerk to a Justice of the Colorado Supreme Court from July
1990 to September 1991. Mr. Meyers received his J.D. degree from the University
of California, Hastings College of Law and his B.A. degree from the University
of Colorado - Denver. Mr. Meyers served as a director of the Company from 1993
to 1997, when he resigned to become a full-time employee of the Company.
John L. Gallivan became our Chief Financial Officer in 1994. He was
later elected Treasurer and Assistant Secretary. Prior to his joining the
Company, he was a director and Executive Vice President of Grease Monkey Holding
Corporation of Denver, a franchisor, owner, and operator of over 200 ten minute
oil change and fluid maintenance centers in the U.S. and Mexico from 1979
through April 1994. He is a member of the Colorado Society and the American
Institute of CPAs. He graduated from the University of Colorado at Boulder with
a bachelors degree in accounting.
- 8 -
Executive Compensation
Set forth below is information about the compensation of our Chief
Executive Officer, and our four most highly compensated executive officers
during fiscal 1999 other than the CEO (the "Named Officers"). Fiscal 1999
contained only nine months because we changed our fiscal year end to September
30 from December 31 during 1999.
Summary Compensation Table. The following table provides certain summary
information for fiscal 1999, 1998, and 1997, concerning compensation awarded or
paid to, or earned by, the Named Officers:
Long-Term and Other
Annual Compensation Compensation
---------------------------------------- -------------------------------
Option 401(k) Plan
Name and Position Year Salary Bonus Shares(1) Contribution(2)
- ----------------- ---- ------ ----- --------- ---------------
Richard E. Schaden, 12/31/97 $108,500 $125,731 4,000 $2,534
President and Chief 12/31/98 $181,452 $130,625 5,164 $2,000
Executive Officer 9/30/99 $196,710 $ 1,500(3) 33,000 $2,329
Mark R. Larimie, 12/31/98 $ 35,865 $ 0 8,000 $ 0
Chief Operating Officer(4) 9/30/99 $112,450 $ 18,000 36,000 $ 0
Robert W. Scanlon, 12/31/97 $ 79,998 $ 13,276 4,000 $1,168
Executive Vice President of 12/31/98 $ 85,783 $ 28,115 5,164 $3,418
Development 9/30/99 $ 78,000 $ 10,289 9,000 $5,885
Sue A. Hoover, 12/31/97 $ 33,000 $ 0 4,000 $ 654
Executive Vice President 12/31/98 $ 90,479 $ 13,968 9,164 $3,016
of Marketing 9/30/99 $ 73,125 $20,826 6,000 $3,962
Patrick E. Meyers, 12/31/97 $68,546 $1,500 8,000 $ 0
Vice President and General 12/31/98 $84,000 $ 24,674 5,164 $ 0
Counsel 9/30/99 $72,768 $ 24,632 14,000 $2,500
Richard F. Schaden, 12/31/97 $83,500 $ 75,439 0 $ 0
Vice President and 12/31/98 $83,500 $ 78,375 0 $ 0
Secretary 9/30/99 $62,625 $ 0(3) 0 $ 0
------
(1) As an incentive for our eligible employees to work to enhance our
performance and assure our future success, we grant options to purchase shares
of Common Stock to successful employees from time to time under our Employee
Stock Option Plan. All options indicated in this table have been granted under
that Plan.
(2) We provide our employees with a 401(k) Employee's Savings Plan, pursuant to
which we contribute to each eligible employee's account an amount equal to 100%
of such employee's annual contribution, up to 6% of such employee's total annual
compensation. We have issued shares of Common Stock for 50% our annual
contribution to each account under the 401(k) Plan.
- 9 -
(3) The Company is contractually obligated to pay both Mr. Richard E. Schaden
and Mr. Richard F. Schaden a bonus based upon any positive increase in earnings
before interest, taxes, depreciation and amortization for each full calendar
year over the level of such amount for the prior full calendar year during the
term of their respective employment agreements. See "Employment Contracts"
below. During 1999, there was a change in accounting principle resulting from a
change in the Securities and Exchange Commission's position regarding the
recognition of area director fees as income. The Commission's position shifted
from one permitting immediate recognition to one requiring amortization of such
fees into income over several years. As a result, we took a charge against
earnings in fiscal 1999 of $2,769,592. The impact on the Schadens from this
change was that they received no bonuses under their employment contracts for
fiscal 1999. However, in future years a portion of their bonuses will result
from amortized income from area director fees that had been taken into income,
and therefore counted towards their bonuses in years prior to the accounting
change and the charge against income described above.
(4) Mr. Larimie left the employment of the Company after the end of fiscal 1999.
Stock Option Awards. We adopted our Employee Stock Option Plan (the "Employee
Plan") in 1993. The purposes of the Employee Plan are to enable us to provide
opportunities for certain officers and key employees to acquire a proprietary
interest in us, to increase incentives for such persons to contribute to our
performance and further success, and to attract and retain individuals with
exceptional business, managerial and administrative talents, who will contribute
to our progress, growth and profitability. As of March 31, 2000, we had issued
109,596 shares upon exercise of options under the Employee Plan and have 560,404
shares currently reserved for issuance under the Employee Plan.
Options granted under the Employee Plan include both incentive stock options
("ISOs"), within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-qualified stock options ("NQOs"). Under
the terms of the Employee Plan, all officers and employees of our company are
eligible for ISOs. Our company determines in its discretion which persons will
receive ISOs, the applicable exercise price, vesting provisions and the exercise
term thereof. The terms and conditions of option grants do differ and are set
forth in the optionees individual stock option agreement. Such options generally
vest over a period of one or more years and expire after up to ten years. In
order to qualify for certain preferential treatment under the Code, ISOs must
satisfy the statutory requirements thereof. Options that fail to satisfy those
requirements will be deemed NQOs and will not receive preferential treatment
under the Code. Upon exercise, shares will be issued upon payment of the
exercise price in cash, by delivery of shares of Common Stock, by delivery of
options granted under the Employee Plan or a combination of any of these
methods.
Option information for fiscal 1999 relating to the Named
Officers is set forth below:
Option Grants in Fiscal 1999
------------------------------
Number of Shares
of Common Stock Percentage of Total
Underlying Options Granted to
Options Granted in Employees in Exercise Expiration
Name Fiscal 1999 Fiscal 1999 Price Date
- -------------------------- ------------------- ------------------- --------- -----------
Richard E. Schaden 33,000 13.3% $7.975 (1)
Mark R. Laramie(2) 36,000 14.5% $7.25 (1)
Robert W. Scanlon 9,000 3.6% $7.25 (1)
Sue A. Hoover 6,000 2.4% $7.25 (1)
Patrick E. Meyers 14,000 5.6% $7.25 (1)
- -----------
- 10 -
(1) One-third of all options granted to the Named Officers and others in 1999
vest on each of the second, third and fourth anniversary of the grant date,
February 4, 1999, if the employee remains with our company on that date.
Vested options terminate if not exercised on February 4, 2004 or 90 days
after an employee leaves our company.
(2) Mr. Larimie left the employment of the Company after the end of fiscal 1999.
Option Exercises and Year-End Values in Fiscal 1999
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year-End at Year-End(1)
Shares Value ----------------------------- ------------------------------
Name Exercised Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------- ----------- ---------- ------------ -------------- ------------ --------------
Richard E. Schaden 0 0 4,961 34,291 $13,656 $ 3,240
Mark R. Laramie(2) 0 0 1,600 42,400 $ 400 $24,280
Robert W. Scanlon 3,873 $11,619 4,000 14,291 $17,800 $26,743
Sue A. Hoover 0 0 16,273 12,891 $47,323 $19,269
Patrick E, Meyers 0 0 25,873 15,291 $97,979 $12,693
- --------------
(1) The dollar values are calculated by determining the difference between $7.88
per share, the fair market value of the Common Stock at September 30, 1999,
and the exercise price of the respective options.
(2) Mr. Larimie left the employment of the Company after the end of fiscal 1999.
Employment Contracts. Richard E. Schaden has entered into an Employment
Agreement with us that terminates on December 31, 2003. His contract provides
that he will serve as our President and Chief Executive Officer. Mr. Schaden
will devote his full time to company matters. His annual base salary is
$220,000. Such amount may be adjusted from time to time by mutual agreement
between Mr. Schaden and the Board of Directors. The contract provides an annual
bonus equal to 10% of any positive increase in earnings before interest, taxes,
depreciation and amortization for each full calendar year during the term of the
agreement over the level of such amount for the prior full calendar year. Mr.
Schaden will receive a monthly automobile allowance of up to $620.00 plus up to
$150.00 for insurance coverage. He will also receive a per diem travel allowance
of $30.00 per day while traveling on business. The contract provides that we
will pay one-half of Mr. Schaden's medical insurance coverage and one-half of
the cost of disability insurance. We will pay for $1,000,000 of term life
insurance for Mr. Schaden, payable to his designated beneficiary. We may
terminate the Employment Agreement for cause upon ninety days notice. Mr.
Schaden may terminate the Employment Agreement upon ninety days notice.
Richard F. Schaden entered into an Employment Agreement with us in 1993
that terminated by its terms on December 31, 1998. At a Board Meeting on May 6,
1999, the Board of Directors approved the extension of Mr. Schaden's 1993
Employment Agreement for an additional two years, retroactive to January 1,
1999. This Agreement provides that he will serve as Vice President and Secretary
of our company. Mr. Schaden will not devote his full time to company matters,
but will devote such time to company matters as we request. His current base
salary is $83,500 per year, which may be adjusted from time to time by mutual
agreement between Mr. Schaden and the Board of Directors. Mr.
- 11 -
Schaden may take on special projects for us at the direction of the Board of
Directors and receive additional compensation for such projects. The Agreement
provides an annual bonus equal to 6% of any positive increase in earnings before
interest, taxes, depreciation and amortization for each full calendar year
during the term of the agreement over the level of such amount for the prior
full calendar year. We may terminate the Agreement for cause upon ninety days'
notice. Mr. Schaden may terminate the Employment Agreement upon ninety days'
notice.
CERTAIN TRANSACTIONS
On December 31, 1996, Retail & Restaurant Growth Capital, L.P. ("RRGC")
made a $2,000,000 loan to our company, a portion of which was convertible into
372,847 shares of the our Common Stock, and with interest accrued at 12.75% per
annum. If the loan were repaid before conversion, RRGC would receive a warrant
to purchase the same number of shares of our Common Stock at $3.10 per share. On
October 8, 1997, we and RRGC amended the loan agreement to provide for the
conversion of $500,000 of the principal amount of the loan into 100,000 shares
of our Class B Preferred Stock, reducing the outstanding principal amount of the
loan to $1,500,000. The Class B Preferred Stock was non-voting, with a
cumulative dividend of 12.75%. In connection with such amendment, we also issued
a Warrant to RRGC that granted it the right to purchase up to 42,209 shares of
the Common Stock at $5.00 per share. Such number of shares of Common Stock is
subject to downward adjustment if we meet certain net income and other goals. In
no case will the warrant be exercisable for less than 30,041 shares of the
Common Stock. On January 6, 1999, we paid off the loan from RRGC, issued to RRGC
the Warrant to purchase 372,847 shares of Common Stock referred to above and
redeemed the Class B Preferred Stock held by RRGC.
Effective October 1, 1994, a wholly-owned subsidiary of our company
acquired by merger all of the assets and obligations of Schaden & Schaden, Inc.,
a Colorado corporation, or "SSI", owned by Richard E. Schaden and Richard F.
Schaden. The assets of SSI included interests in several Quizno's Classic Subs
restaurants and interests in two area directorships. The consideration paid by
us to the Schadens, included $876,000 that was paid in our Class A Preferred
Stock. The Class A Preferred Stock is non-voting, bears a 6.5% cumulative
dividend, and became convertible on November 1, 1997 into 146,000 shares of the
Common Stock. We may call the Class A Preferred Stock upon 60 days notice.
During fiscal 1999 and 1998 each preferred shareholder received dividends of
$28,470 annually.
Richard F. Schaden and Frederick H. Schaden, directors of our company,
each own an interest in Illinois Food Management, Inc. ("IFM") that owns
approximately 50% of our Chicago Area Director. We also own approximately 12%
of IFM. In fiscal 1998 and 1999, respectively, we paid the Area Director
$139,358 and $142,634, respectively, as commissions on the sale of new
franchises and royalties. In early 1996, IFM requested that we extend the
payment terms relating to amounts owed to us by IFM as a result of its
operations as an Area Director. As a result of such request, we agreed to defer
payment of $63,547. IFM issued to us a promissory note in such amount payable
over 6 years with an interest rate of 12% per annum. At September 30, 1999,
$55,547 was owed to us on this promissory note. During fiscal 1998 and 1999,
accrued interest payments on the note were $6,212 and $8,000, respectively. IFM
is also indebted to us for $13,075 in connection with the resale of a Restaurant
once operated by IFM. IFM is reducing this debt by offsetting commissions on
royalty fees from that location paid to the managing Area Director. The debt is
expected to be reduced to zero in approximately 26 months.
In 1997, we purchased a Restaurant from a company in which Sue Hoover,
our Executive Vice President of Corporate Communications, was a 42.5%
shareholder. The purchase price was $80,000 of which $15,000 was paid in cash
and $65,000 paid by issuance of a promissory note bearing interest at 11% and
payable over four years. During fiscal 1998 and 1999, our company made payments
pursuant to the promissory note totaling $18,993 and $14,245, respectively.
- 12 -
On October 13, 1999, we purchased a 1997 Cessna Citation 525. As of the
same date, we entered into an interchange agreement with Richard F. Schaden,
P.C., which is 100% owned by Richard F. Schaden. Mr. Schaden, through his
company, owns a 1980 Cessna 560 Citation V. Under the interchange agreement, the
parties agreed to lease each aircraft to each other, on an as-needed basis,
without charge, although the parties will pay the operational costs of the
airplane. We also will pay Mr. Schaden or his company to provide services
related to the airplane operations, including for pilot and management services.
We do not anticipate that such payments will be material.
We entered into a Development Agreement, dated November 4, 1999, with
Pink Sand Corporation, which is principally owned by Richard F. Schaden, for the
development rights to the United States Territory of Guam and the Commonwealth
of the Northern Mariana Islands. The Development Agreement requires Pink Sand to
open five Restaurants during the term of the Agreement. So long as Pink Sand
meets the development schedule, it will have the exclusive rights to develop
Restaurants in the territory. The development fee, paid upon execution of the
Agreement, was $42,500. The fee equals one hundred percent of the first initial
franchise fee and fifty percent of the aggregate initial franchise fees due for
all of the other Restaurants that Pink Sand must develop under the Agreement.
Each time Pink Sand signs a franchise agreement for a Restaurant to be developed
within the territory, we will apply the Development Fee in increments equal to
fifty percent of the initial franchise fee due for that Restaurant to reduce the
additional amount Pink Sand must pay.
In 1995, we sold the Area Director rights for the Detroit, Michigan area
to a company wholly-owned by Richard F. Schaden. The fee paid to us was
$150,000, which is consistent with the then fees received for the sale of area
directorships to unaffiliated parties, and was paid in cash. During 1998, we
paid the Area Director $27,664 in royalties. Mr. Schaden sold the area
directorship in 1998 to an entity owned by Scott Adams, an employee of our
company, and we approved the transfer of the area director marketing agreement.
Thomas Schaden, a brother of Richard F. Schaden and Frederick H.
Schaden, is in the insurance brokerage business and has acted as a broker for
our insurance policies, including the directors and officers policies that we
have purchased.
INCREASE OF SHARES RESERVED FOR ISSUANCE UNDER
NON-EMPLOYEE DIRECTORS AND ADVISORS STOCK OPTION PLAN
The Company adopted the Restated and Amended Non-Employee Directors and
Advisors Stock Option Plan (the "Directors/Advisors Plan") in 1993. The purposes
of the Directors/Advisors Plan are to enable the Company to attract, retain, and
to provide incentives to non-employee directors and advisors who will serve and
advise the Company regarding the establishment and satisfaction of long-term
strategic objectives. The Board is recommending to the shareholders that the
number of shares currently reserved for issuance under the Directors/Advisors
Plan be increased by 100,000 shares to 300,000 shares.
The Company has currently reserved 200,000 shares of its Common Stock
for issuance upon the exercise of options granted or available for grant to
non-employee directors and advisory board members under the Directors/Advisors
Plan. As of May 1, 2000, such shares had an aggregate market value of
$1,275,000. As of May 1, 2000, options to purchase 172,000 shares had been
granted under this Plan. The exercise prices of granted options range from $3.44
to $7.63. The Board is recommending to the shareholders that the increase by the
Board of Directors in the number of shares authorized and reserved for issuance
under the Directors/Advisors Plan be ratified and approved.
- 13 -
The Directors/Advisors Plan provides that any person who is a director
of the Company or a member of the Advisory Board will be granted on January 1 of
each year that such person serves in such capacity, options to purchase 4,000
shares of Company Common Stock at their fair market value on the date of the
grant, subject to the overall limit of the number of shares issuable under the
Directors/Advisors Plan. In the year of a director's election or an Advisory
Board member's appointment, the option will be pro-rated to length of service in
that year. Such options are immediately exercisable and expire ten years from
the date of grant. Upon exercise, shares will be issued upon payment of the
exercise price in cash, by delivery of shares of the Company's Common Stock, a
combination of these two methods or by delivery of options granted under the
Directors/Advisors Plan. Options which expire, or are canceled or terminated
without having been exercised may, in the discretion of the Board, be re-granted
to other non-employee directors or members of the Advisory Board under the
Directors/Advisors Plan. All six directors and the three advisors are covered by
the Directors/Advisors Plan. See "Election of Directors." Each of those nine
persons will receive a grant of options covering 4,000 shares of Company Common
Stock on January 1, 2001, if they then are serving on the Board or the Advisory
Board.
The Directors/Advisors Plan is administered by the Board of Directors.
However, the Board has no authority to set terms or conditions of options and
the Directors/Advisors Plan is a formula plan as described in Rule 16b-3 issued
under the Act. The Board, without further adoption of the shareholders of the
Company, except as may be required by the Code, may at any time suspend or
terminate the Directors/Advisors Plan in whole or in part, or amend the
Directors/Advisors Plan in such respects as the Board may deem appropriate in
the best interests of the Company.
Options issued under the Directors/Advisors Plan are NQOS. NQOs are not
taxed upon grant. The optionee is taxed, as ordinary income, on the exercise of
such option to the extent that fair market value on the date of exercise exceeds
the exercise price. The optionee's basis for determining capital gain or capital
loss upon the sale of the shares is the higher of their fair market value on the
date of exercise and the exercise price. The Company is entitled to a deduction
equal to the ordinary income realized by the optionee upon the exercise of NQOS.
APPROVAL OF ISSUANCE OF CLASS D SUBORDINATED
CONVERTIBLE PREFERRED STOCK
In 1999, the Board of Directors approved the recommendation of
management to create a class of Company convertible preferred stock that could
be used to provide incentive to any of our employees and officers who have
demonstrated outstanding efforts in benefiting our profitability, to continue
their efforts on our behalf by providing such employees with the opportunity to
purchase a substantial equity interest in the Company at a substantial discount.
Pursuant to the requirements for listed companies of The Nasdaq Stock Market,
Inc., which govern the Nasdaq SmallCap Market where our common stock is listed
for trading, such an arrangement involving the issuance of common stock to
officers of the Company requires shareholder approval, unless the arrangement is
broad based among other employees. Thus, the Board of Directors is soliciting
the shareholders approval of this arrangement.
In 1999, four of our officers were offered the opportunity to purchase
1,000 shares of Class D Subordinated Convertible Preferred Stock, each at the
purchase price of $3.00 per share. All four officers took advantage of this
opportunity. One executive officer, Mark R. Laramie, was among those who made
such purchases.
The program approved by the Board of Directors authorizes 10,000 shares
of Class D Subordinated Convertible Preferred Stock to be issued from time to
time. The terms of the Class D Subordinated Convertible Preferred Stock provide
that each share of Class D Preferred Stock shall be convertible into twenty-five
(25) shares of the Corporation's common stock, par value $.001 per share (the
"Common Stock"), at any time after (i) the Corporation's earnings before income
tax, depreciation and amortization for a fiscal year (excluding such earnings
derived from extraordinary asset acquisitions after June 1, 1999, and
nonrecurring or unusual transactions, as determined by our Chief Executive
Officer) equal or exceed $12,000,000, and (ii) our Chief Executive Officer has
approved such conversion (the "Conversion Vesting Date"), provided, however that
in no case shall any such conversion be permitted to occur before March 31,
2001, or after the Redemption Date (defined below). Such conversion rights are
subject to and protected by standard anti-dilution provisions.
- 14 -
At the option of the Company, shares of Class D Preferred Stock may be
redeemed, in whole or in part, on or after March 31, 2005, at a redemption price
of $3.00 per share, so long as the holder of such shares of Class D Preferred
Stock is given sixty (60) days notice prior to such redemption (the "Redemption
Date"). The holder of record of each share of Class D Preferred Stock shall
receive no dividends, whether in cash, stock or other property, except in case
of liquidation or winding up of our corporate affairs.
In the event of any voluntary or involuntary liquidation, or winding up
of our affairs, the holders of the issued and outstanding Class D Preferred
Stock shall be entitled to receive for each share, before any distribution of
our assets shall be made to the holders of shares of common stock, a dollar
amount equal to $3.00. The payment of such liquidation distribution shall be
subordinated to the payment of required liquidation distributions on all other
classes or series of preferred stock of the Company then outstanding, and shall
only be paid if the payment of the required liquidation distributions have been
made to all holders of any other classes or series of preferred stock then
outstanding.
Except as otherwise expressly provided in the Colorado Business
Corporation Act, holders of Class D Preferred Stock shall have no right to vote
for the election of directors or for any other purpose.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has appointed Ehrhardt Keefe Steiner & Hottman PC, independent
certified public accountants, as auditors to examine the financial statements of
the Company for Fiscal 2000 and to perform other appropriate accounting services
and is requesting ratification of such appointment by the shareholders. Ehrhardt
Keefe Steiner & Hottman, P.C. has served as the Company's auditors since October
1993.
A representative of Ehrhardt Keefe Steiner & Hottman PC is expected to
attend the Annual Meeting and will have an opportunity to make a statement if he
desires to do so and to respond to appropriate questions.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires that our
directors, our officers (including a person performing a policy-making function)
and persons who own more than 10% of a registered class of our equity securities
("10% Holders") to file with the Securities and Exchange Commission ("SEC")
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities. Directors, officers and 10% Holders are required by
SEC regulations to furnish us with copies of all of the Section 16(a) reports
they file. Based solely upon such reports, we believe that during fiscal 1999
its directors, advisors, officers and 10% Holders complied with all filing
requirements under Section 16(a) of the Exchange Act, except for Messrs. Mark R.
Laramie, Mark L. Bromberg, J. Eric Lawrence, Frederick H. Schaden, Brownell E.
Bailey (a former Director), and Lewis G. Rudnick, Bruce H. Gulbus and Lyle B.
Stewart (Advisory Board members), who inadvertently failed to file their Forms 5
for fiscal 1999 in a timely manner, as a result of our change of the date of our
fiscal year end.
- 15 -
SHAREHOLDER PROPOSALS
Shareholders may submit proposals on matters appropriate for shareholder
action at the Company's annual meetings consistent with regulations adopted by
the SEC. For such proposals to be considered for inclusion in the proxy
statement and form of proxy relating to the 2001 annual meeting, they must be
received by the Company not later than January 31, 2001. Such proposals should
be addressed to the Company at 1415 Larimer Street, Denver, CO 80202, Attn:
Patrick E. Meyers, Vice President and General Counsel.
OTHER MATTERS
Management does not intend to present, and has no information as of the
date of preparation of this Proxy Statement that others will present, any
business at the Annual Meeting other than business pertaining to matters set
forth in the Notice of Annual Meeting and Proxy Statement. However, if other
matters requiring the vote of the shareholders properly come before the Annual
Meeting, it is the intention of the persons named in the enclosed proxy to vote
the proxies held by them in accordance with their best judgment on such matters,
except for any vote on nominations to the Board of Directors from the floor.
Such persons shall not vote their proxies in any manner on any such nominees.
ANNUAL REPORT ON FORM 10-KSB
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON SOLICITED BY
THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB (INCLUDING THE FINANCIAL STATEMENTS AND
THE SCHEDULES THERETO, IF ANY, BUT EXCLUDING EXHIBITS) AS FILED WITH THE
SECURITIES AND EXCHANGE CONMSSION FOR ITS MOST RECENT FISCAL YEAR. SUCH WRITTEN
REQUEST SHOULD BE ADDRESSED TO THE INVESTOR RELATIONS DEPARTMENT AT THE ADDRESS
OF THE COMPANY APPEARING ON THE FIRST PAGE OF THIS PROXY STATEMENT.
- 16 -
THE QUIZNO'S CORPORATION
1415 Larimer Street
Denver, Colorado 80202
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
June 22, 2000
The undersigned hereby appoints each of Richard E. Schaden and Patrick
E. Meyers, individually, as proxy and attorney-in-fact for the undersigned with
full power of substitution to vote on behalf of the undersigned at the Company's
2000 Annual Meeting of Shareholders to be held on June 22, 2000, and at any
adjournment(s) or postponement(s) thereof, all shares of the Common Stock, $.001
par value, of the Company standing in the name of the undersigned or which the
undersigned may be entitled to vote as follows, hereby revoking any proxy or
proxies heretofore given by the undersigned:
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder(s). If no direction is made, this proxy
will be voted "for" Items 1, 2, 3 and 4. In their sole discretion, the proxies
are authorized to vote upon such other business as may properly come before the
Annual Meeting or any adjournments or postponements thereof, as they determine
in their sole discretion is in the best interest of the Company, except for any
vote on nominations to the Board of Directors from the floor. Such proxies shall
not vote their proxies in any manner on any such nominees from the floor.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
1. ELECTION OF DIRECTORS
FOR all nominees (except as indicated below)
WITHHOLD AUTHORITY to vote for all nominees
Nominees: Richard E. Schaden, Richard F. Schaden, Frederick H. Schaden, J. Eric
Lawrence, Mark L. Bromberg and Brad A. Griffin.
To withhold authority to vote for any individual nominee, write that
individual's name in the space below:
- --------------------------------------------------------------------------------
2. Ratify and approve an increase from 200,000 to 300,000 in the number of
shares of the Company's Common Stock authorized and reserved for issuance upon
exercise of options pursuant to the Company's Amended and Restated Non-Employee
Directors and Advisors Stock Option Plan.
For __ Against __ Abstain __
3. Ratify and approve the creation of the Company's Class D Subordinated
Convertible Preferred Stock, reserved for sale to a limited number of highly
qualified employees as an incentive to continue as their employment with the
Company;
For __ Against __ Abstain __
4. Ratify the selection by the Board of Directors of Ehrhardt Keefe Steiner &
Hottman PC, as independent auditors of the Company for the 2000 fiscal year.
For __ Against __ Abstain __
- 17 -
Please sign exactly as name appears at left:
Dated:_________________________
_______________________________
Signature
_______________________________
Signature (if held jointly)
When shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as such.
If a corporation, please sign in the
corporate name by president or other
authorized officer. If a partnership, please
sign in partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- 18 -
EXHIBIT A
THE QUIZNO'S CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN FOR
DIRECTORS AND ADVISORS
(As Amended Through November 4, 1999)
The purposes of The Quizno's Corporation's Amended and Restated Stock Option
Plan for Directors and Advisors (the "Plan") are to (i) enable The Quizno's
Corporation (the "Company") to attract and retain qualified directors and
advisors who will serve and advise the Company regarding the establishment and
satisfaction of long-term, strategic objectives, (ii) furnish an incentive to
directors and advisors of the Company by making ownership in the Company
available to them and (iii) amend and restate the Company's original
Non-Employee Director Stock Option Plan, adopted by the Board on the November
30, 1993 and approved by the stockholders on December 20, 1993, under which no
options were granted. Options granted under the Plan do not qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
ARTICLE I
Definitions
For Plan purposes, except where the context clearly indicates otherwise, the
following terms shall have the following meanings:
"Advisors" shall mean any person or persons appointed or designated by
resolution of the Board as an advisor to the Company or the Board.
"Board" shall mean the Board of Directors of the Company.
"Closing Price," see definition in "Fair Market Value."
"Committee" shall mean the Compensation Committee of the Board, or such other
Committee of the Board as the Board shall designate from time to time, which
other Committee shall consist of three or more directors appointed by the Board
from time to time.
"Company" shall mean The Quizno's Corporation.
"Eligible Participant" shall mean any Advisor or member of the Board.
"Option" shall mean a right to purchase Shares granted pursuant to the Plan and
evidenced by an option certificate or stock option agreement in such form as the
Committee may adopt for general use from time to time.
"Optionee" shall mean an Eligible Participant to whom an Option is granted
pursuant to this Plan.
"Plan" shall mean The Quizno's Corporation Stock Option Plan for Directors and
Advisors.
"Shares" shall mean shares of the Company's common stock, par value $.001.
"Fair Market Value" of the Shares shall mean the average of the daily Closing
Price, as defined below, per Share for the ten (10) consecutive trading days
commencing fifteen (15) trading days before such date. For purposes hereof,
"Closing Price" shall mean, with respect to each share of the Company's common
stock for any day, (a) the last reported sale price or, in case no such sale
takes place on such day, the average of the closing bid and asking price, in
either case as reported on the principal national securities exchange on which
the Shares are listed or admitted for trading or, (b) if the Shares are not
listed or admitted for trading on national securities exchange, the last
reported sale price, or in the case no such sale takes place on such day, the
average of the highest reported bid and the lowest reported asked quotation for
the Shares, in either case as reported on the Automatic Quotation System of
NASDAQ or a similar service if NASDAQ is no longer reporting such information.
If no such market exists for the Shares, and no such market has existed for the
Shares for ninety (90) days or more, the Board shall make a good faith
determination of the Fair Market Value.
ARTICLE II
Shares Subject to the Plan
The aggregate number of Shares which may be delivered upon exercise of Options
granted under the Plan shall not exceed 200,000, subject to appropriate
adjustment in the event the number of issued Shares shall be increased or
reduced by a change in par value, combination, split-up, merger,
reclassification, distribution of a dividend payable in stock, or the like.
Shares covered by Options which have lapsed or expired may, in the Board's
discretion, again be made subject to grants pursuant to the Plan.
ARTICLE III
Option Grants
3.1 Grant of Options. During the term of this Plan, all Advisors and
directors shall automatically be granted an Option to purchase 4,000
Shares (pro-rated on a quarterly basis for service before an Advisor's
or director's initial January 1 and subject to appropriate adjustment
in the event the number of issued Shares shall be increased or reduced
by a change in par value, combination, split-up, merger,
reclassification, distribution of a dividend payable in stock, or the
like) on (i) the date of their initial appointment or designation by
the Board as an Advisor or their initial election to the Board, as the
case may be, and (ii) every January 1 subsequent to that appointment,
designation or election; provided, however, that such Advisor or
director continues to hold such position of Advisor or director on such
January 1. An Advisor or director may waive their right to the automatic
grant of an Option as provided herein by notifying the Company in
writing at least ten (10) business days prior to the grant date.
3.2 Stock Option Agreement. Each Option shall be evidenced by a written
instrument, in such form as the Committee shall from time to time
approve, which shall state the terms and conditions of the Option in
accordance with the Plan and also shall contain such additional
provisions as may be necessary or appropriate under applicable laws,
regulations and rules.
ARTICLE IV
Terms of Options
4.1 Exercise Price. The Option exercise price per Share shall be one hundred
percent (100%) of the "Closing Price," as defined in Article I above, of
a Share on the date the Option is granted.
4.2 Transfer--Restrictions. All Options shall be exercisable during an
Optionee's lifetime only by such optionee. Options shall not be
transferable other than by will or the laws of descent and distribution.
No Option shall be subject, in whole or in part, to attachment,
execution or levy of any kind.
4.3 Vesting. All Options granted shall vest and be exercisable on the grant
date.
4.4 Expiration. All Options shall expire ten (10) years from the grant date
or, if an Optionee ceases to be a director or an Advisor of the Company
for any reason, all Options held by such optionee shall terminate upon
the earlier of (i) three years after the date on which he or she ceased
to be a director or an Advisor, as the case may be, or (ii) ten (10)
years from the date of grant.
4.5 No Rights as Stockholder. No Optionee shall have any rights to dividends
or other rights of a stockholder of the Company prior to the purchase of
such Shares upon the exercise of the Option.
ARTICLE V
Delivery of Shares
No Shares will be delivered upon exercise of an Option until the exercise price
of the option is paid in full (i) in cash, (ii) by the delivery to the Company
of Shares with a Fair Market Value equal to the exercise price of the Option,
(iii) by delivery of a combination of (i) and (ii) with an aggregate Fair Market
Value equal to the exercise price or (iv) by delivery of an Option or Options to
purchase Shares with a net aggregate value (i.e., the aggregate value of all
Shares subject to the exercised options less the aggregate exercise price of
such Options) equal to the exercise price.
Share certificates issued to Optionees upon exercise of Options may, at the sole
discretion of the Committee, be issued subject to, and bear language limiting
their transfer otherwise than in accordance with, the Plan and applicable state
and federal law, including the then existing regulations under Section 16(b) of
the Securities and Exchange Act of 1934, as amended.
ARTICLE VI
Continuation of Service
Neither this Plan nor the grant of any Option hereunder shall confer upon any
Optionee the right to continue as a director or Advisor of the Company or
obligate the Company to nominate any Optionee for election as a director or
appointment or designation an as Advisor at any time.
ARTICLE VII
Fundamental Transactions
7.1 Merger, Consolidation or Change of Control. In connection with any
merger, consolidation, change in control or similar reorganization,
excluding an initial public offering ("Reorganization"), the Committee
may in its discretion:
(a) Negotiate a binding agreement whereby any acquiring or successor
corporation will assume each Option then outstanding or substitute an
equivalent option meeting the requirements of Section 424(a) of the Code
for each Option outstanding;
(b) Accelerate any applicable vesting provisions; or
(c) Authorize cash payments to Optionees equal to the difference between the
aggregate Exercise Price of each Option then outstanding irrespective of
the Option's current exercisability and the Fair Market Value of the
Shares covered by such Option. Any cash payment which the Company may
be required to make pursuant to such Committee authorization shall be
made within sixty (60) days following such authorization and fully
discharge any and all obligations the Company may have in connection
with the Options. Notwithstanding the forgoing, the Committee shall
have no obligation to take any action with respect to any Option in
connection with a Reorganization.
7.2 Initial Public Offering. Notwithstanding the registration with the
Securities and Exchange Commission of any Shares pursuant to a plan for
the initial public offering of the Company's common stock, the
applicable vesting schedule shall continue to apply to all Options.
Upon the registration of any of the Company's common stock, the optionee
must comply with all applicable federal and state securities laws which
apply to such Optionees and any stock received upon exercise of any
options.
ARTICLE VIII
Plan Administration
8.1 Administration by Committee. The Plan shall be administered by the
Committee. The Committee shall be empowered, subject to the provisions
of the Plan and to any other directives issued by the Board, to
prescribe, amend and rescind rules and regulations of general
application relating to the operation of the Plan and to make all other
determinations necessary or desirable for its proper administration.
Decisions of the Committee shall be final, conclusive and binding upon
all parties, including the Company, the stockholders and the Eligible
Participants.
8.2 Indemnification. Neither the Company, any subsidiary thereof, nor any
director or officer thereof, nor the Committee nor any member of the
Committee shall be liable for any act, omission, interpretation,
construction or determination made in connection with the Plan in good
faith. The Committee and each of its members shall be entitled to
indemnification and reimbursement by the Company in respect of any
claim, loss, damage or expense (including reasonable attorneys, fees and
costs) arising therefrom to the full extent permitted by law and under
any directors and officers liability insurance coverage which may be in
effect from time to time.
ARTICLE IX
Amendment and Discontinuance
The Board is authorized to make such changes in the Plan as it, in its sole
discretion, deems necessary. The Board may at any time suspend or discontinue
the Plan. No action of the Board or of the stockholders, however, shall alter or
impair any Option therefore granted under the Plan except as herein provided.
ARTICLE X
Adjustments
In the event of a stock dividend, stock split or other subdivision,
consolidation, reorganization or similar change in the outstanding shares of
Common Stock or capital structure of the Company (collectively, a "Stock
Adjustment"), the following shall occur under the Plan: (i) the number of shares
of Common Stock reserved or otherwise available under Article II for Options,
and subject to outstanding Options, shall be adjusted proportionately (and
automatically reduced by any fraction resulting from such adjustment); and (ii)
the Exercise Price per share of outstanding Options shall be adjusted so that
the aggregate Exercise Price payable pursuant to each outstanding Option after
the Stock Adjustment shall equal the aggregate amount so payable prior to the
Stock Adjustment. In the event of any dispute concerning such adjustment, the
decision of the Committee shall be conclusive. if a Stock Adjustment is made,
the Committee shall notify all Optionees of such adjustment within thirty (30)
days of making such an adjustment, which notification shall state the adjusted
number of shares of Common Stock for which a particular Option is exercisable.
ARTICLE XI
Miscellaneous
10.1 No Obligation or Entitlement. It is expressly understood that this Plan
grants powers to the Committee but does not require their exercise; nor
shall any person, by reason of the adoption of this Plan, be deemed to
be entitled to the grant of any Option; nor shall any rights be deemed
to accrue under the Plan except as Options may actually be granted
hereunder.
10.2 Other Grants. The adoption of this Plan shall not preclude the Board
from granting options to purchase Shares to any person in connection
with his or her service on the Board without reference to, and outside
of, this Plan.
10.3 Expenses. All expenses of the Plan, including the cost of maintaining
records, shall be borne by the Company.
ARTICLE XII
Plan Adoption and Term
This Plan shall become effective upon the (i) adoption by the Board and (ii)
approval by the Company's stockholders at an Annual Meeting of Stockholders.
This Plan shall continue in effect for ten years from the date of its initial
approval by the Company's stockholders. No Option may be granted hereunder after
such ten-year period, but Options granted within such ten-year period may extend
beyond the termination date of the Plan.
EXHIBIT B
SS: Form D-4
Submit in Duplicate
Submit in duplicate
Filing Fee: $25.00
document must be typewritten
Mail To:
Colorado Secretary of State
Corporations Office
1560 Broadway, Suite 200
Denver, Colorado 80202
(303) 894-2251
ARTICLES OF AMENDMENT
of the
ARTICLES OF INCORPORATION
of
THE QUIZNO'S CORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act,
the undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is: The Quizno's Corporation.
SECOND: The following amendment to the Amended and Restated Articles
of Incorporation was duly authorized by the Board of Directors without
shareholder action at a meeting held on May 6, 1999 in accordance with the
provisions of Section 7-106-102 of the Colorado Business Corporation Act.
THIRD: Article II of the Amended and Restated Articles of
Incorporation of the Corporation is hereby amended by adding the
following paragraph to Article II:
"Class D Subordinated Convertible Preferred Stock.
a. General. Ten thousand (10,000) shares of authorized preferred stock is
hereby designed as the Class D Subordianted Convertible Preferred Stock
(the "Class D Preferred Stock").
b. Conversion.
(i) Subject to the following paragraphs, each share of Class D Preferred
Stock shall be convertible into twenty-five (25) shares of the
Corporation's common stock, par value $.001 per share (the "Common
Stock"), at any time after (i) the Corporation's earnings before income
tax, depreciation and amortization for a fiscal year (excluding such
earnings derived from extraordinary asset acquisitions after June 1, 1999,
and nonrecurring or unusual transactions, as determined by the
Corporation's Chief Executive Officer) equal or exceed $12,000,000, and
(ii) the Corporation's Chief Executive Officer has approved such
conversion (the "Conversion Vesting Date"), provided, however that in no
case shall any such conversion be permitted to occur before March 31,
2001, or after the redemption date provided for in paragraph c below.
(ii) If at any time the Corporation reorganizes, consolidates, merges,
exchanges shares, or sells, leases, exchanges or transfers all or
substantially all of its assets, then as a part of such reorganization,
consolidation, merger, share exchange or sale, lease, exchange or
transfer, provision shall be made so that each holder of shares of Class D
Preferred Stock will thereafter be entitled (but only after the occurrence
of the Conversion Vesting Date) to receive upon conversion of his shares
of Class D Preferred Stock, the number of shares of stock or other
securities or property of the Corporation, or successor corporation
resulting from such reorganization, consolidation, merger, share exchange
or sale, lease, exchange or transfer, which the holder would have received
had he converted his shares of Class D Preferred Stock immediately prior
to the effective time of such reorganization, consolidation, merger, share
exchange or sale, lease, exchange or transfer. In the event of a
distribution, including a stock dividend, in shares of Common Stock, or
any reclassification, subdivision (stock split) or combination (reverse
stock split) of Common Stock, the conversion rate set forth in clause (i)
above shall be adjusted so that the holder of Class D Preferred Stock
shall receive the kind and amount of shares of Common Stock, or other
securities or property, upon conversion, which the holder would have
received had he converted his shares of Class D Preferred Stock
immediately prior to such distribution, reclassification, subdivision or
combination.
c. Redemption. At the option of the Corporation, shares of Class D
Preferred Stock may be redeemed, in whole or in part, on or after March
31, 2005, at a redemption price of $3.00 per share, so long as the holder
of such shares of Class D Preferred Stock is given sixty (60) days notice
of such redemption.
d. Dividends. The holder of record of each share of Class D Preferred
Stock shall receive no dividends, whether in cash, stock or other
property, except as provided in paragraph e below.
e. Liquidation or Dissolution. In the event of any voluntary or
involuntary liquidation, or winding up of the affairs of the Corporation,
the holders of the issued and outstanding Class D Preferred Stock shall be
entitled to receive for each share of Class D Preferred Stock, before any
distribution of the assets of the Corporation shall be made to the holders
of shares of Common Stock, a dollar amount equal to $3.00. The payment of
the liquidation distribution provided herein shall be subordinated to the
payment of required liquidation distributions on all other classes or
series of Preferred Stock of the Corporation then outstanding, and shall
only be paid if the payment of the required liquidation distributions have
been made to all holders of any other classes or series of Preferred Stock
of the Corporation then outstanding. A reorganization, consolidation or
merger of the Corporation, a share exchange, a sale, lease, exchange or
transfer of all or substantially all of its assets as an entirety, or any
purchase or redemption of stock of the Corporation of any class, shall not
be regarded as a "liquidation, dissolution, or winding up of the affairs
of the Corporation" within the meaning of this paragraph e.
f. Voting Rights. Except as otherwise expressly provided in the Colorado
Business Corporation Act, holders of Class D Preferred Stock shall have no
right to vote for the election of directors or for any other purpose."
IN WITNESS WHEREOF, The Quizno's Corporation has caused these
Articles of Amendment to its Articles of Incorporation to be signed by its
President and Chief Executive Officer, effective as of the date of filing with
the Secretary of State of the State of Colorado.
THE QUIZNO'S CORPORATION
By /s/ Richard E. Schaden
----------------------
Its President and Chief
Executive Officer