Lyle B. Stewart, P.C.
3751 South Quebec Street
Denver, Colorado 80237
Tel.: 303-267-0920
Fax: 303-267-0922
September 17, 1999
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 September 27, 1999. 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 September 17, 1999.
Copies of the two stock option plans regarding which the shareholders
are being asked to approve increases of shares authorized for issuance at the
upcoming Annual Meeting and about which information is included in the Proxy
Statement, the Employee Stock Option Plan and the Restated and Amended
Non-Employee Directors and Advisors Stock Option Plan, 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. 333-45549), which covers both of these Plans, promptly after
the Annual Meeting, if the proposals are approved, to increase the number of
shares authorized under the Plans that are registered with the Commission.
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
September 27, 1999
To the Shareholders of
The Quizno's Corporation:
The 1999 Annual Meeting of Shareholders (the "Annual Meeting") of The
Quizno's Corporation, a Colorado corporation (the "Company"), will be held on
Monday, September 27, 1999, at 10:00 a.m. (Denver time), at the Oxford Hotel,
1600 17th Street, Denver, Colorado 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 320,000 to 670,000 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 Employee Stock Option Plan;
3) to ratify and approve an increase from 140,000 to 200,000 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;
4) to ratify the selection by the Board of Directors of Ehrhardt
Keefe Steiner & Hottman, P.C. as independent auditors of the Company for the
1999 fiscal year; 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 Tuesday, September
14, 1998, 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 December 31, 1998, a Proxy Statement and a proxy card accompany this
notice. These materials will be sent to shareholders on or about September 17,
1999.
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,
/s/ Richard F. Schaden
RICHARD F. SCHADEN
Secretary
Denver, Colorado
September 14, 1999
THE QUIZNO'S CORPORATION
1415 Larimer Street
Denver, Colorado 80202
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held on September 27, 1999
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 1999 Annual Meeting of Shareholders to be
held on Monday, September 27, 1999, 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 December 31, 1998 (the "Annual Report"), will be mailed to
shareholders on or about September 17, 1999. 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) approve an increase from
320,000 to 670,000 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 Employee Stock Option Plan; (iii) to
approve an increase from 140,000 to 200,000 in the number of shares of the
Company's Common Stock, reserved for issuance upon exercise of options pursuant
to the Company's Non-Employee Directors and Advisors Stock Option Plan; (iv)
ratify the selection by the Board of Ehrhardt Keefe Steiner & Hottman, P.C. as
the Company's auditors for the year ending December 31, 1999 ("Fiscal 1999");
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 other matters 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 two proposals in items (ii) and
(iii) above, and the ratification of Ehrhardt Keefe Steiner & Hottman, P.C. as
the Company's auditors for Fiscal 1999.
Richard F. Schaden and Richard E. Schaden (the "Schadens") have informed the
Company that they may offer one or more nominations for election to the Board of
Directors of the Company from the floor at the Annual Meeting. Nominations for
the Company's Board of Directors will be accepted from the floor. However, the
proxies solicited by this Proxy Statement are not being solicited to vote in any
way on any such nominees and such proxies will not be voted in any way in
response to such nomination or nominations. The proxies solicited by this Proxy
Statement will be voted for the six Board nominees, unless a submitted proxy
card specifically withholds its authorized votes from one or more of the Board
nominees. Only those shareholders who are present at the Annual Meeting in
person or by proxy, other than the proxy solicited by this Proxy Statement, will
be able to vote on any such nominations on a ballot to be handed out at the
Annual Meeting. Under Colorado law and the Company's Bylaws, the nominees,
whether from the Board or from the floor, receiving the most votes are elected
Directors.
THE SCHADENS WILL VOTE ONLY THEIR OWN SHARES AT THE ANNUAL MEETING AND WILL NOT
SOLICIT PROXIES FOR ANY NOMINEE THEY MAY PROPOSE AT THE ANNUAL MEETING. THE
ABOVE IS NOT A SOLICITATION OF A PROXY BY THE COMPANY OR ITS MANAGEMENT IN
SUPPORT OF ANY NOMINATION OR NOMINATIONS TO BE MADE AT THE ANNUAL MEETING BY THE
SCHADENS.
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 Tuesday,
September 14, 1999 (the "Record Date"), will be entitled to notice of, and to
vote at, the Annual Meeting. As of the Record Date, there were 3,061,773 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 two
proposals in items (ii) and (iii) above, and the ratification of Ehrhardt Keefe
Steiner & Hottman, P.C. as the Company's auditors for Fiscal 1999. 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.
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 SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's equity securities (common stock and three classes of
preferred stock) as of September 14, 1999 , (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.
- --------------------------------------------------------------------------------
Class A Class C Class D
Class A Preferred Class C Preferred Class D Preferred
Common Common Preferred Stock Preferred Stock Preferred Stock
Stock Stock Stock Percentage Stock Percentage Stock Percentage
Name Owned(1) Percentage Owned Owned Owned Owned Owned Owned
- ------- ---------- ------------ --------- ---------- --------- ---------- ---------- ----------
Richard E.
Schaden 859,264(2) 27.3% 73,000 50% 0 0 0 0
1415 Larimer
Street
Denver, CO
80202
Richard F.
Schaden 882,667(2) 27.8% 73,000 50% 34,000 20.4% 0 0
11870 Airport
Way
Broomfield,
CO 80021
Retail &
Restaurant 415,056(3) 11.9% 0 0 0 0 0 0
Growth
Capital, L.P.
10000 N. Central
Expressway
Suite 1060
Dallas, TX
75231
Brownell M.
Bailey 42,000(4) 1.3% 0 0 20,000 12.0% 0 0
10 Parkway
Drive
Englewood,
CO 80110
Mark L.
Bromberg 10,000(4) * 0 0 0 0 0 0
1801 Kings
Isle Drive
Plano, TX
75093
J. Eric
Lawrence 12,000(4) * 0 0 0 0 0 0
10000 N.
Central
Expressway
Suite 1060
Dallas, TX
75231
Frederick H.
Schaden 24,000(4) * 0 0 2,000 1.1% 0 0
100 South
Wacker
Drive, Suite
860
Chicago,
IL 60606
Robert W.
Scanlon 6,273(4) * 0 0 0 0 0 0
1415 Larimer
Street
Denver, CO
80202
Sue A. Hoover 23,074(4) * 0 0 0 0 0 0
1415 Larimer
Street
Denver, CO
80202
John L.
Gallivan 13,297(4) * 0 0 0 0 0 0
1415 Larimer
Street
Denver, CO
80202
Scott K.
Adams 21,606(4) * 0 0 0 0 0 0
1415 Larimer
Street
Denver, CO
80202
John F.
Fitchett 6,273(4) * 0 0 0 0 1,000 25%
1415 Larimer
Street
Denver, CO
80202
All Executive
Officers and
Directors as
a Group (11
persons) 1,900,028 55.8% 146,000 100% 56,000 33.5% 1,000 25%
* Indicates less than 1% of the shares outstanding
(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. The Company's Class
A and Class C Preferred Stock are currently convertible into Quizno's
Common Stock.
(2) Richard E. Schaden and Richard F. Schaden hold all of their Common Stock
and Preferred Stock of the Company in a voting trust pursuant to which they
are joint voting trustees (excluding 724 shares allocated to Richard E.
Schaden under the Company's 401(K) Plan, 2,913 shares owned by Richard E.
Schaden as a result of exercising Company stock options and 34,000 shares
of Class C Convertible Preferred Stock owned by Richard F. Schaden).
However, each of them, individually, has been given a proxy by the voting
trust to vote 50% of the shares owned by the voting trust. The remaining
duration of the voting trust agreement is 5 years, subject to extension. Of
the shares indicated as owned by each of them, 73,000 may be acquired by
conversion of Class A Convertible Preferred Stock, 34,000 may be acquired
by Richard F. Schaden by conversion of Class C Convertible Preferred Stock,
and 4,960 may be acquired by Richard E. Schaden through the exercise of
options.
(3) Retail & Restaurant Growth Capital, L.P. ("RRGC"), in connection with a
loan to the Company that has since been repaid, has been issued two
Warrants by the Company. 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,
Fitchett and Scanlon may be acquired through the exercise of options by the
holder. All of the shares indicated as owned by Messrs. Bailey and
Frederick Schaden may be acquired through the exercise of options or
conversion of Class C Convertible Preferred Stock by the holder. All of the
shares indicated as owned by Messrs. Gallivan and Adams and Ms. Hoover may
be acquired through the exercise of options by the holder, except for 1,794
shares, 2,482 shares and 8,000 shares held by each of them, respectively.
ELECTION OF DIRECTORS
Nominees
The Board currently consists of six (6) members: Richard E. Schaden,
Richard F. Schaden, Frederick H. Schaden, Brownell M. Bailey, Mark L. Bromberg
and J. Eric Lawrence. Mr. Richard E. Schaden and Mr. Richard F. Schaden have
been on the Company's Board of Directors since 1991. Messrs. Bailey and
Frederick Schaden were elected to the Board in December 1993, just before the
Company's initial public offering. Messrs. Lawrence and Bromberg were elected to
the Board in 1997. 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:
Position(s) with Director
Nominee Age Company Since
- ----------------- ------ ---------------------- --------------
Richard E. Schaden 35 President, Chief
Executive Officer
and Director 1991
Richard F. Schaden 61 Vice President,
Secretary and
Director 1991
Frederick H. Schaden 53 Director 1993
J. Eric Lawrence 32 Director 1997
Brownell E. Bailey 46 Director 1993
Mark L. Bromberg 48 Director 1997
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. Brownell M. Bailey is a self-employed real-estate development
consultant, land planner and design engineer. He has been self-employed for over
five years. Prior employment included the management of field operations and
contract services for the acquisition, development and construction of resort
properties, including residential, mixed use, and commercial projects. Mr.
Bailey has a B.A. degree from Union College and a B.S. degree in Urban Planning
and Engineering from Worcester Polytechnic Institute.
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 nearly $6
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."
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.
Nominations from the Floor
As discussed above, the Schadens have informed the Company that they may
offer one or more nominations for election to the Board of Directors of the
Company from the floor at the Annual Meeting. They are discussing possible
service on the Company's Board with several persons who would bring useful
expertise to the Board. However, at the time of the mailing of this Proxy
Statement, such discussions were not yet complete and none of such persons have
yet agreed to serve on the Board. Under Colorado law and the Company's Bylaws,
the nominees receiving the most votes are elected Directors. Since the Schadens
hold a majority of the outstanding shares of Common Stock, if there are more
than six nominees, only nominees who they vote for will be elected Directors.
THE SCHADENS WILL VOTE ONLY THEIR OWN SHARES AT THE ANNUAL MEETING AND WILL NOT
SOLICIT PROXIES FOR ANY NOMINEE THEY MAY PROPOSE AT THE ANNUAL MEETING. THE
ABOVE DESCRIPTION OF THE CURRENT FACTUAL SITUTATION IS NOT A SOLICITATION OF A
PROXY BY THE COMPANY OR ITS MANAGEMENT IN SUPPORT OF ANY NOMINATION OR
NOMINATIONS TO BE MADE AT THE ANNUAL MEETING BY THE SCHADENS.
Board Committees and Meetings
Messrs. Frederick Schaden and Bailey are members of the Compensation
Committee of the Board of Directors. Messrs. Richard E. Schaden, Bromberg and
Bailey are members of the Audit Committee of the Board Directors. There is no
Nominating Committee of the Board of directors.
The Board held a total of four regular meetings and three special meeting
during 1998.
During 1998, 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/implementation of
such recommendations.
During 1998, the Compensation Committee held four regular meetings. The
Compensation Committee is responsible for initiating, evaluating and
recommending to the Board matters relating to employee compensation and the
Company's employee benefit plans.
During 1998, 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.
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, such
directors receive an annual grant of options to purchase 4,000 shares of Company
Common Stock, which immediately vest.
During 1998, the Company paid each of its non-employee directors, Messrs.
Bailey, Bromberg, Lawrence and Frederick Schaden ("Outside Directors"), $2,000,
as compensation for their attendance at Board and Committee meetings. For their
service during 1998, the Outside Directors each received a grant of options to
purchase 4,000 shares of Company Common Stock that immediately vested.
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 the
Company as legal counsel since the Company's initial public offering.
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 35 President, Chief Executive Officer and Director
Mark R. Laramie 48 Chief Operating Officer
Robert W. Scanlon 52 Executive Vice President for Development
Sue A. Hoover 52 Executive Vice President for Marketing
Richard F. Schaden 61 Vice President, Secretary and Director
Patrick E. Meyers 39 Vice President and General Counsel
John L. Gallivan 52 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.
Mark R. Laramie joined the Company in 1998 as the Chief Operating Officer.
Prior to joining the Company, he was a managing member and owner of Great Lakes
Restaurant Group, LLC from November 1997 through August 1998. From July 1996
through October 1997, Mr. Laramie was a managing member of Peer Group, LLC, a
franchisee of Little Caesars Pizza in Michigan. Mr. Laramie was also employed by
Little Caesars Enterprises, Inc. from August 1980 through June 1996, and
achieved the position of Group Vice President of Franchising. He received his
B.S. degree from Eastern Michigan University in 1973.
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 the Company 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. Ms. Hoover graduated from the University of Iowa with
a B.A. in 1968.
Patrick E. Meyers joined the Company 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 joined the Company as 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.
Executive Compensation
Set forth below is information about the compensation during 1998 of the
Company's Chief Executive Officer, the four most highly compensated executive
officers of the Company at the end of 1998, other than the CEO, and additionally
the two most highly compensated non-executive officers (the "Named Officers").
Summary Compensation Table. The following table provides certain summary
information for fiscal 1998, 1997, and 1996, concerning compensation awarded or
paid to, or earned by, the Named Officers:
Annual Compensation Long-Term and Other Compensation
------------------------------ ------------------------------------------------
Option 401(K) Plan
Name and Position Year Salary Bonus Other(1) Shares(2) Contributions (3)
- ----------------- -------- -------- -------- ---------- ----------- -------------------
Richard E. Schaden 12/31/96 $108,500 $ 0 $11,039 0 $ 2,160
President and 12/31/97 $108,500 $125,731 $10,168 4,000 $ 2,534
Chief Executive 12/31/98 $181,452 $130,625 $15,361 5,164 $ 2,000
Officer
Richard F. Schaden 12/31/96 $ 83,500 $ 0 $ 0 0 $ 0
Vice President 12/31/97 $ 83,500 $ 75,439 $ 0 0 $ 0
and Secretary 12/31/98 $ 83,500 $ 78,375 $ 0 0 $ 0
Robert W. Scanlon, 12/31/96 $ 49,110 $ 5,316 $ 0 4,000 $ 0
Executive Vice 12/31/97 $ 79,998 $ 13,276 $ 0 4,000 $ 1,168
President for 12/31/98 $ 85,783 $ 28,115 $ 0 5,164 $ 3,418
Development
Sue A. Hoover, 12/31/96 $ 24,000 $ 0 $ 0 0 $ 600
Executive Vice 12/31/97 $ 33,000 $ 0 $ 0 4,000 $ 654
President for 12/31/98 $ 90,479 $ 13,968 $ 0 9,164 $ 3,016
Marketing
John L. Gallivan 12/31/96 $ 85,000 $ 6,100 $ 0 4,000 $ 5,100
Chief Financial 12/31/97 $ 79,165 $ 9,400 $ 0 4,000 $ 2,376
Officer and 12/31/98 $ 90,945 $ 11,961 $ 0 5,164 $ 3,080
Treasurer
Scott K. Adams 12/31/96 $ 62,936 $ 64,747 $ 0 9,773 $ 0
Senior Vice 12/31/97 $220,347 $ 0 $ 0 4,000 $ 37
President for 12/31/98 $258,293 $ 0 $ 0 5,164 $ 0
Development (4)
John F. Fitchett, 12/31/96 $ 55,385 $ 0 $ 0 4,000 $ 0
Senior Vice 12/31/97 $ 82,176 $ 30,778 $ 0 4,000 $ 1,143
President for 12/31/98 $ 92,004 $ 21,651 $ 0 5,164 $ 2,102
the East Region
- -----------------------------------------------------------------------
- ------
(1) The Company provides Mr. Richard E. Schaden with an automobile allowance
for both business and personal use and pays $1,200 annually in term life
insurance premiums on his behalf.
(2) The Company, as an incentive for its eligible employees to endeavor to
enhance the Company's performance and assure its future success, grants
options to purchase shares of its Common Stock to successful employees from
time to time under its Employee Stock Option Plan. All options indicated in
this table have been granted under such Plan.
(3) The Company has provided its employees with a 401(K) Employee's Savings
Plan, pursuant to which the Company contributes to each eligible employee's
account an amount equal to 50% of such employee's annual contribution, up
to 6% of such employee's total annual compensation. The Company has issued
shares of its Common Stock for 50% of its annual contribution to each
account under its 401(K) Plan. Beginning in 1999, the limit on the amount
of an employee's total annual compensation that will receive a 50% match
has been amended to be $10,000.
(4) Mr. Adams terminated his employment with the Company in 1998.
Stock Option Awards. The Company adopted its Employee Stock Option Plan (the
"Employee Plan") in 1993. The purposes of the Employee Plan are to enable the
Company to provide opportunities for certain officers and key employees to
acquire a proprietary interest in the Company, to increase incentives for such
persons to contribute to the Company's performance and further success, and to
attract and retain individuals with exceptional business, managerial and
administrative talents, who will contribute to the progress, growth and
profitability of the Company. As of June 30, 1999, the Company had issued 22,017
shares upon exercise of options under the Employee Plan, had options covering
522,909 shares outstanding, and had 647,983 shares currently reserved for
issuance under the Employee Plan, including 350,000 shares authorized by the
Board of Directors of February 4, 1999 and subject to the ratification of the
shareholders at this Annual Meeting.
Option information for 1998 relating to the Named Officers is set forth
below:
Option Grants in 1998
----------------------------
Number of
Shares of Percentage
Common Stock of Total
Underlying Options
Options Granted to
Granted in Employees in Exercise Expiration
Name 1998 1998 Price Date
- ------------------ ------------ ------------ ---------- -----------
Richard E. Schaden 5,164 4.4% $5.37 (1)
Richard F. Schaden 0 N.A. N.A. N.A.
Robert W. Scanlon 5,164 4.4% $4.875 (1)
Sue A. Hoover 5,165 4.4% $4.875 (1)
Sue A. Hoover 4,000 3.4% $7.25 11/05/08(2)
John L Gallivan 5,164 4.4% $4.875 (1)
Scott K. Adams 5,164 4.4% $4.875 (1)
John F. Fitchett 5,164 4.4% $4.875 (1)
(1) The options have two expiration dates. In each case, the options covering
75% of the underlying shares expire September 17, 1999, and the options
covering 25% of the underlying shares expire May 9, 2001.
(2) The options vest in equal amounts annually over five years.
Option Exercises and Year-End Values in 1998
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Year-End Options at Year-End(1)
Shares Value --------------------------------- ---------------------------------
Name Exercised Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ----------- ---------- ------------- --------------- ------------- ---------------
Richard E. Schaden 0 0 1,087 5,164 $3,654 $11,645
Richard F. Schaden 0 0 0 0 0 0
Robert W. Scanlon 0 0 2,400 10,764 $10,200 $37,001
Sue A. Hoover 0 0 10,800 12,364 $29,350 $18,047
John L. Gallivan 0 0 7,006 12,364 $27,827 $44,347
Scott K. Adams 0 0 15,451 16,424 $52,605 $59,829
John F. Fitchett 0 0 2,400 10,764 $10,200 $37,001
(1) The dollar values are calculated by determining the difference between
$7.625 per share, the fair market value of the Common Stock at December 31,
1998, and the exercise price of the respective options.
Employment Contracts. Richard E. Schaden has entered into an Employment
Agreement with the Company that terminates on December 31, 2003. His Agreement
provides that he will serve as President and Chief Executive Officer of the
Company. Mr. Schaden will devote his full time to the Company. His annual base
salary was increased to $220,000, effective July 21, 1998. Such amount may be
adjusted from time to time by mutual agreement between Mr. Schaden and the Board
of Directors. The Agreement provides an annual bonus equal to 10% of any
positive increase in earnings before interest, taxes, depreciation and
amortization for such full calendar year 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
Company business. The Agreement provides that the Company will pay one-half of
Mr. Schaden's medical insurance coverage and one-half of the cost of disability
insurance. The Company will pay for $1,000,000 of term life insurance for Mr.
Schaden, payable to his designated beneficiary. The Company 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 the Company 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 the Company. Mr. Schaden will not devote his full time to the Company, but
will devote such time to the Company as the Company requests. 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. Schaden may take
on special projects for the Company 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 such full calendar year over the level
of such amount for the prior full calendar year. The Company may terminate the
Agreement for cause upon ninety days' notice. Mr. Schaden may terminate the
Employment Agreement upon ninety days' notice.
None of the other Named Officers have an employment agreement with the
Company.
CERTAIN TRANSACTIONS
On December 31, 1996, Retail & Restaurant Growth Capital, L.P. ("RRGC") made
a $2,000,000 loan to the Company, a portion of which was convertible into
372,847 shares of the Company's 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 the Company's Common Stock at
$3.10 per share. On October 8, 1997, the Company 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 the Company's 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, the Company also issued a Warrant to RRGC that
granted it the right to purchase up to 42,209 shares of the Company's Common
Stock at $5.00 per share. Such number of shares of Common Stock is subject to
downward adjustment if the Company meets certain net income and other goals. In
no case will the warrant be exercisable for less than 30,041 shares of the
Company's Common Stock. On January 6, 1999, the Company 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 the Company acquired
by merger all of the assets and obligations of Schaden & Schaden, Inc., a
Colorado corporation ("SSI"), owned by Richard E. Schaden and Richard F.
Schaden. The assets of SSI included five wholly-owned Quizno's Classic Subs
Restaurants located in and near Denver, a majority interest in a sixth Quizno's
Classic Subs Restaurant located near Denver, and interests in two Area Directors
for the Company owning three Quizno's Classic Subs Restaurants in the Chicago
area and two Quizno's Classic Subs Restaurants in Michigan as well as other
assets. The consideration paid by the Company to the Schadens, as selling
shareholders, was $1,139,000, of which $263,000 was paid in cash and $876,000
was paid by issuing Company's 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 Company's Common Stock. The Company
may call the Class A Preferred Stock upon 60 days notice. During 1997 and 1998
each preferred shareholder received dividends of $28,470 annually.
Richard F. Schaden and Frederick H. Schaden, directors of the Company, each
own an interest in one of the Company's Area Directors, Illinois Food
Management, Inc. ("IFM"). The Company also owns approximately 12% of IFM. The
Area Directorship is managed by an adjacent Area Director and, during 1997 and
1998, all sales, opening and royalty commissions were paid to the managing Area
Director. The Company made no payments to IFM. In early 1996, IFM requested that
the Company convert to a promissory note certain amounts owed to the Company by
IFM. As a result of such request, IFM has issued to the Company a promissory
note for $63,547 payable over 6 years with an interest rate of 12% per annum. At
December 31, 1998, $58,149 was owed to the Company on this promissory note.
During 1997 and 1998, payments on such note were $4,655 and $6,212,
respectively. IFM is also indebted to the Company for $18,187 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 18
months. IFM also is indebted to the Company for $14,270 in accounts receivable
for wages, accounting fees, royalties and other amounts paid by the Company on
behalf of IFM. In 1999, IFM contributed its area directorship to an entity which
became the successor Area Director.
In 1995 the Company sold the Area Director rights for the Detroit, Michigan
area to a company wholly-owned by Richard F. Schaden. The fee to the Company was
$150,000, which was consistent with the then fees received for the sale of Area
Directorships to unaffiliated parties, and was paid in cash. During 1997 and
1998, the Company paid the Area Director $9,259 and $27,664 in royalties,
respectively. Mr. Schaden sold the Area Directorship in 1998 to an entity owned
by Scott Adams, a former Company employee, and the Company approved the transfer
of the Area Director Marketing Agreement.
In 1997, the Company purchased a Restaurant from a company in which Sue
Hoover, the Company's Executive Vice President of Marketing, was a 42.5%
shareholder. The Restaurant paid royalties to the Company of $2,027 in 1997. The
purchase price was $80,000 of which $15,000 was paid in cash and $65,000 paid by
issuance of the Company's promissory note bearing interest at 11% and payable
over 4 years. During 1997 and 1998, the Company made payments pursuant to the
promissory note totaling $18,839 and $18,993, respectively.
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 the Company's
insurance policies, including the directors and officers policies that the
Company has purchased.
INCREASE OF SHARES RESERVED FOR ISSUANCE
UNDER EMPLOYEE STOCK OPTION PLAN
The Company adopted its Employee Stock Option Plan (the "Employee Plain") in
1993. The purposes of the Employee Plan are to enable the Company to provide
opportunities for certain employees to acquire a proprietary interest in the
Company, to increase incentives for such persons to contribute to the Company's
performance and further success, and to attract and retain individuals with
exceptional business, managerial and administrative talents, who will contribute
to the progress, growth and profitability of the Company.
Currently, the Company's shareholders have approved the reservation of
320,000 shares of the Company's Common Stock for issuance under the Employee
Plan. At a Board of Directors meeting held on February 4, 1999, the Board
authorized the amendment of the Plan to increase the number of shares of Common
Stock reserved under the Plan by 350,000 to 670,000 shares immediately. As
permitted by applicable law, the shareholder vote to approve such increase may
be obtained up to twelve months after such Board authorization. On that same
date, the Compensation Committee of the Board of Directors authorized the grant
of options covering 248,000 shares of Common Stock to 27 senior employees under
a new long-term option program that will vest over three years beginning on the
third anniversary of the grant. As of June 30, 1999, the total 670,000 shares
that have been or could be issued under the Plan had an aggregate market value
of $4,773,750. As of June 30, 1999, the Company had issued 22,017 shares upon
exercise of options under the Employee Plan, had options covering 522,909 shares
outstanding, and had 647,983 shares currently reserved for issuance under the
Employee Plan. As of June 30, 1999, outstanding options were held by 51
employees of the Company, and outstanding options covering 187,119 shares had
vested. The exercise price of granted options range from $3.125 to $7.75. 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
Employee Plan be ratified and approved.
The following table sets forth the Named Officers and other persons who were
granted options under the Plan on February 4, 1999, which grants are subject to
the vote of the shareholders solicited hereby:
Shares Covered by
Name and Position Option Grants (1)
------------------- -------------------
Richard E. Schaden,
President and Chief
Executive Officer 33,000
Richard F. Schaden,
Vice President and
Secretary 0
Robert W. Scanlon,
Executive Vice
President for Development 9,000
Sue A. Hoover, Executive
Vice President for
Marketing 6,000
John L. Gallivan,
Chief Financial
Officer and Treasurer 14,000
Scott K. Adams,
Senior Vice President
for Development (2) 0
John F. Fitchett,
Senior Vice President
for the East Region 9,000
Executive Group (7
persons) 112,000
Non-Executive
Directors Group 0
Non-Executive Officer
and Employee Group 136,000
- --------------
(1) The exercise price of all of these grants were made at or above the closing
price of the Common Stock on the Nasdaq Small Cap Market on the date of the
grant.
(2) Mr. Adams terminated his employment with the Company in 1998.
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 the Company are
eligible for ISOs. Currently, there are 282 such officers and employees. The
Committee (defined below) 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 each option grant may differ and are
set forth in the optionee's individual stock option agreement. Such options
generally vest over a period of several 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 the Company's Common Stock, by
delivery of options granted under the Employee Plan or a combination of any of
these methods.
The Employee Plan is administered by the Compensation Committee of the Board
(the "Committee"). The Committee is made up of two or more directors who are
"Non-Employee Directors" as defined in Rule 16b-3 issued under the Securities
Exchange Act of 1934 (the "Act"). The Committee may correct any defect supply
any omission, or reconcile any inconsistency in the Employee Plan or any stock
option agreement, subject to the requirements of the Code. The Board, without
further action of the shareholders of the Company, except as may be required by
the Code or in certain instances where an optionee's consent is required, may at
any time suspend or terminate the Employee Plan in whole or in part or amend the
Employee Plan in such respects as the Board may deem appropriate in the best
interests of the Company.
Optionees are not taxed on the grant (or generally on the exercise) of ISOs.
The difference between the exercise price of an ISO and the fair market value of
a share of Common Stock received upon the exercise of the ISO may be subject to
the federal alternative minimum tax. If an optionee exercises an ISO and
disposes of any shares of Common Stock received by such optionee as a result of
such exercise within two years of the date of grant or within one year after the
issuance of such shares to such optionee, the Company is entitled to a tax
deduction and the optionee will be taxed, as ordinary income, on the lesser of
the gain on sale or the difference between the exercise price and the fair
market value of a share at the time of exercise. The optionee will also have a
capital gain to the extent that the sale price exceeds the fair market value on
the date of exercise. If the shares are not sold by the optionee before the end
of those periods, the optionee will have a capital gain or capital loss upon
sale of the shares to the extent that the sale price differs from the exercise
price. No tax effect will result to the Company by reason of grant or exercise
of ISOs, or upon the disposition of shares after expiration of two years from
the date of grant or one year from the date of exercise.
NQOs are not taxed upon grant. The optionee is taxed, as ordinary income, on
the exercise of such option to the extent that the 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 the
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.
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 60,000 shares to 200,000 shares.
The Company has currently reserved 140,000 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 June 30, 1999, such shares had an aggregate market value of
$997,500. As of June 30, 1999, options to purchase 136,000 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.
The Directors/Advisors Plan provides that any person who is a non-employee
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 non-employee 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. There are currently four
directors and three advisors covered by the Directors/Advisors Plan. See
"Election of Directors." Each of those seven persons will receive a grant of
options covering 4,000 shares of Company Common Stock on January 1, 2000, if
they then are serving on the Board or the Advisory Board.
The Directors/Advisors Plan is administered by the Committee. However, the
Committee 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.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has appointed Ehrhardt Keefe Steiner & Hottman, P.C., independent
certified public accountants, as auditors to examine the financial statements of
the Company for Fiscal 1999 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, P.C. 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 the Company's
directors, officers (including a person performing a policy-making function) and
persons who own more than 10% of a registered class of the Company's 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 of the Company. Directors, officers and
10% Holders are required by SEC regulations to furnish the Company with copies
of all of the Section 16(a) reports they file. Based solely upon such reports,
the Company believes that during 1998 its directors, advisors, officers and 10%
Holders complied with all filing requirements under Section 16(a) of the
Exchange Act, except for Mr. Steven Shaffer, an Executive Vice President, who
inadvertently failed to file his Form 3 in a timely manner, and who
inadvertently failed to file a Form 4 related to the exercise of options, which
was remedied in his Form 5 for 1998.
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 2000 annual meeting, they must be
received by the Company not later than December 31, 1999. 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.
THE QUIZNO'S CORPORATION
1415 Larimer Street
Denver, Colorado 80202
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
September 27, 1999
The undersigned hereby appoints each of Patrick E. Meyers and John L.
Gallivan, 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
1999 Annual Meeting of Shareholders to be held on September 27, 1999, 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 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 Brownell M. Bailey.
To withhold authority to vote for any individual nominee, write that
individual's name in the space below:
2. To ratify and approve an increase from 320,000 to 670,000 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 Employee Stock Option
Plan.
For __ Against __ Abstain __
3. To ratify and approve an increase from 140,000 to 200,000 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 __
4. Ratify the selection by the Board of Directors of Ehrhardt Keefe Steiner &
Hottman, P.C., as independent auditors of the Company for the 1999 fiscal
year.
For __ Against __ Abstain __
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.
Exhibit A
THE QUIZNO'S CORPORATION
EMPLOYEE STOCK OPTION PLAN
ARTICLE I
Purpose
The purposes of this Employee Stock Option Plan (the "Plan") are to enable The
Quizno's Corporation (the "Company") to (i) provide opportunities for certain
persons, including directors, officers and key employees of the Company, as
determined by the Committee, as defined below (the "Eligible Participants"), to
acquire a proprietary interest in the Company, (ii) increase incentives for the
Eligible Participants to contribute to the Company's performance and future
success and (iii) attract and retain individuals with exceptional business,
managerial and administrative talent upon whom, in large measure, the sustained
progress, growth and profitability of the Company depend.
ARTICLE II
Plan Overview
The Plan provides for the grant of Incentive Stock Options, as defined below,
and Stock Options which do not qualify as Incentive Stock Options ("Nonqualified
Stock Options"), as contemplated by Sections 421 and 422 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
(the
"Code").
ARTICLE III
Definitions
For Plan purposes, except where the context clearly indicates otherwise, the
following terms shall have the following meanings:
"Adoption Date" shall have the meaning set forth in Article XIII.
"Board" shall mean the Board of Directors of the Company.
"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, each of whom is a Disinterested Person.
"Common Stock" shall mean the Common Stock, $.001 par value per share, of the
Company.
"Disinterested Person" shall mean an administrator of this Plan who is not, at
the time he exercises discretion in administering the Plan, eligible, and has
not at any time within one year prior thereto been eligible, to be selected as
an Eligible Participant of this Plan or any other plan of the Company entitling
such participant a right to acquire stock, stock options or stock appreciation
rights of the Company; provided, however, that Committee members may be eligible
for grants or awards under this or another Plan of the Company which constitute
"Formula Awards," as that term is defined in section 16b-3 of the Securities
Exchange Act of 1934.
"Effective Date" shall have the meaning set forth in Article XIII.
"Eligible Participant" shall have the meaning set forth in Article VI.
"Exercise Price" shall have the meaning set forth in Article VII.
"Fair Market Value" of the Common Stock shall mean the value per share of the
Company's Common Stock, determined without regard to any restriction other than
a restriction which, by its terms, will never lapse, as determined through the
good faith efforts of the Committee, consistent with applicable requirements of
the Code.
"Incentive Stock Option" or "ISO" shall mean a stock option granted under this
Plan which complies with all the terms and conditions for an Incentive Stock
Option, as set forth in Section 422 of the Code.
"Nonqualified Stock Option" or IINQOII shall mean a stock option granted under
this Plan which does not comply with one or more requirements for an Incentive
Stock Option.
"Option" shall mean an Incentive Stock Option or a Nonqualified Stock Option
granted under this Plan.
"Option Shares" shall mean shares of the Company's Common Stock received by an
optionee upon exercise of an option.
"Optionee" shall mean an Eligible Participant who has been granted
one or more options.
"Reorganization" shall have the meaning set forth in Article IX.
"Special Exercise Price" shall have the meaning set forth in Article
VII.
"Stock Adjustment" shall have the meaning set forth in Article VIII.
"Stock Option Agreement" shall mean the written agreement entered into by the
Company and each Optionee evidencing the terms and conditions of an Option.
"Ten Percent Share Owner" shall mean an employee of the Company who owns,
whether outright or by attribution under Section 424(d) of the Code, Common
Stock possessing more than ten percent of the total combined voting power of all
classes of stock of the Company.
ARTICLE IV
Administration
4.1 The Committee. The Committee shall administer the Plan and shall have full
power and authority to, in addition to other powers set forth herein,
construe and interpret the Plan, establish any and all rules and
regulations for the operation of the Plan, establish any and all rules and
regulations for the operation of the Committee and the performance by the
Committee of its purposes and functions, and perform all other acts,
including the delegation of administrative responsibilities, that it deems
reasonable and proper.
The Committee shall hold its meetings at such times and places as it shall deem
advisable. A majority of the members of the Committee shall constitute a quorum
of the Committee. All actions of the Committee shall be taken by a majority of
its members. Any action of the Committee may be taken by a written instrument
signed by a majority of the Committee's members, and any action so taken shall
be as effective as if it had been taken by a vote of the Committee.
4.2 Powers of the Committee. The Committee, without limitation and in its sole
discretion, shall have full power and authority to, among other things:
(a) determine those persons who are Eligible Participants;
(b) determine any conditions precedent and other applicable criteria in
allocating and granting Options;
(c) determine the number and type of each Option and the number of shares of
Common Stock covered by each option;
(d) determine the Exercise Price of each option (subject to the terms and
conditions set forth in this Plan and in any Stock Option Agreement);
(e) determine the grant date of any option;
(f) impose any vesting restrictions or other restrictions on exercise of an
Option;
(g) accelerate the exercise or vesting date of an option;
(h) impose cancellation, transfer, forfeiture and other repurchase
restrictions and limitations on any option or Option Shares; and
(i) determine any and all other terms, provisions and/or conditions regarding
the grant or exercise of an Option or the exchange, gift, transfer, pledge
or other disposition of Options or Option Shares.
The terms and conditions of each Stock Option Agreement shall be determined
solely in the discretion of the Committee, subject to the terms and conditions
of this Plan. The terms and conditions of each option and the related Stock
option Agreement may be different as among optionees and/or as among Options
granted to the same optionee.
4.3 Corrective Measures. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan, any Option or Stock
Option Agreement, in the manner and to the extent it shall deem necessary,
including amendments hereto or thereto approved by not less than a
majority of the Committee; provided, however, that any such Committee
action shall be effective only if (i) any stockholder consent required by
applicable provisions of the Code is obtained, and (ii) such action is
otherwise consistent with the applicable provisions of the Code.
4.4 Decisions Final. Any decision made or action taken by the Committee or the
Board arising out of or in connection with the interpretation and
administration of the Plan shall be final and conclusive and shall be
binding upon all Optionees and their successors or assigns.
ARTICLE V
Number of Shares Subject to the Plan
The aggregate number of shares of Common Stock available for grants of Options
under this Plan shall be 320,000 shares, subject to adjustment in accordance
with Article VIII of the Plan, and the aggregate number of shares of Common
Stock for which options may be granted under this Plan shall not exceed such
number. Such shares may be either authorized but unissued shares or treasury
shares. If an Option or portion thereof shall expire or terminate for any reason
without having been exercised, the unpurchased shares covered by such option
shall be available for future grants of options; provided, however, that in no
event shall the Committee have any obligation to make such shares available for
the granting of other Options under the Plan.
ARTICLE VI
Eligibility
Consistent with this Plants purposes and the terms herein, options may be
granted to persons, including directors, officers and key employees of the
Company ("Eligible participants") at times and based on criteria the Committee,
in its sole discretion, determines are appropriate.
ARTICLE VII
Option Terms and conditions
All Options granted under this Plan shall be evidenced by a Stock Option
Agreement in substantially the form attached hereto, or such other form as the
Committee shall approve from time to time. The Stock Option Agreement shall be
subject to the provisions of the Plan and such other provisions as the Committee
may adopt, including the following provisions:
7.1 Exercise Price. The exercise price per share for each Option granted under
this Plan shall be set forth in the Stock Option Agreement; provided,
however, that the exercise price per share for any Option shall not be
less than the Fair Market Value of a share of Common Stock on the date
such option is granted (the "Exercise Price"). The Committee shall be
authorized to grant Nonqualified Stock Options which shall have an
exercise price per share which is below the Fair Market Value of a share
of Common Stock on the date such Option is granted at the "Special
Exercise Price").
7.2 Term of Option. No Option shall be granted pursuant to the Plan after the
date ten (10) years after the earlier of the Adoption Date and the
Effective Date. Options which are outstanding after such date will,
however, remain in effect until such options are exercised or expire
pursuant to their terms. An Option shall not be exercisable after the
expiration of ten years from the date such option is granted.
7.3 Assignability of Option. An Option shall be exercisable only by the
Optionee, his guardian or legal representative during his or her lifetime
and shall not be assignable or transferable by the Optionee otherwise than
by will or the laws of descent and distribution. Executors,
administrators, heirs, successors and assigns of the optionee shall be
bound by the terms of the Stock Option Agreement and this Plan.
7.4 Time of Exercise. Each Option granted under this Plan shall be exercisable
on the date or dates, and during the period, and for the number of shares
specified in the Stock option Agreement. The Committee may establish
vesting provisions applicable to an Option such that the option becomes
fully exercisable, for example, in a series of cumulating portions. The
Committee may, upon request, permit the accelerated exercise of any
option, the exercise of all or a portion of which is !subject to vesting
provisions. Also, exercise of an option shall be accelerated upon the
occurrence of an event of acceleration as described in any applicable
Stock Option Agreement or this Plan.
7.5 Exercise. An Option or portion thereof shall be exercised by delivery of a
written notice of exercise to the Secretary of the Company and payment of
the full Exercise Price or the Special Exercise Price. Until the
certificates for Option Shares represented by an exercised option are
issued to an (Optinee, such Optionee shall have none of the rights of a
stockholder. No Option Shares shall be delivered upon any exercise of an
Option until the requirements of all applicable .laws, rules and
regulations have, in the opinion of the Company's counsel, been satisfied.
Under normal circumstances, certificates for Option Shares to be delivered
upon exercise of an option shall be delivered within thirty (30) days
following exercise of an option.
7.6 Payment. The Exercise Price or the Special .Exercise Price payable upon
exercise of an option or portion -thereof may be paid:
(a) in United States dollars in cash or by check, bank draft or money order,
(b) by delivery of shares of Common Stock with an aggregate value equal to the
Exercise Price, or the Special Exercise Price,
(c) by delivery of options with an aggregate net value (i.e., the aggregate
value of the Common Stock subject to such Options less the aggregate
Exercise Price or the Special Exercise Price of such Options), or
(d) by a combination of both (a), (b) or (c) above.
If the optionee delivers shares of Common Stock or Options as payment of the
Exercise Price or the Special Exercise price upon exercise of an Option, the
Committee shall determine acceptable methods for tendering such shares or
Options by the optionee, and may impose such limitations and prohibitions on the
use of Common Stock or options for such purposes as it deems appropriate. Any
Option tendered as payment of the Exercise ]?rice or the Special Exercise Price
shall be canceled by the Company upon receipt.
7.7 Termination of Service. Subject to the terms set forth in any employment or
other binding agreement, in the event an Optionee's Current Position, as
defined below, with the Company shall terminate (i) "for cause," as defined
below, while holding one or more Options, that portion of each option which
has not already been exercised shall expire coincident with the termination
of the Optionee's Current Position, or (ii) for a reason other than "for
cause," other than by reason of disability (Dr. death as discussed below,
any options or portion thereof which are exercisable on the date of such
termination shall be exercisable until a date three (3) months after such
date of -termination or shall expire coincident with such three (3) month
period, except to the extent the Committee shall determine otherwise. For
purposes hereof, "Current Position" shall mean -the Optionee's position
with the Company as an employee, director, officer or independent
contractor. For purposes hereof ' "for cause" shall mean termination of an
optionee's Current Position with the Company because of such Optionee's (i)
misfeasance, waste of corporate assets, gross negligence or ,willful
continued failure to substantially perform his reasonably ,assigned duties
or (ii) engagement in dishonest or illegal ,conduct that is demonstrably
injurious to the Company. Upon the termination of an Optionee's Current
Position with the ,Company by reason of disability (within the meaning of
Section 22(e)(3) of the Code)or death, the Option may be exercised within
one (1) year after such termination.
For the purposes of this Plan, it shall not be considered a termination of a
Current Position when an optionee is placed by the Company on military or sick
leave or such other type of leave of absence that is deemed by the Committee to
continue intact the employment relationship.
Notwithstanding anything in this Section VII. 7.7 to the contrary, the
committee, in its sole discretion, may waive any restrictions, including
applicable exercise periods.
7.8 Special Rules for Incentive Stock Options.
(a) Employment Status. An ISO must be granted for a reason connected with
employment, as defined in the Code, by the Company and shall not be
exercisable unless the optionee was, at all times during the period
beginning on the date of the grant of the option and ending on the date
three (3) months (one year if the Optionee is disabled, within the meaning
of Section 22(e)(3) of the Code) before the exercise of the Option, an
employee of the Company, except that such employment requirement does not
apply in the event of an Optionee's death as provided in Section 421(c)(1)
of the Code. ISO's may not be granted to Company directors who are not also
employees.
(b) Ten Percent Stockholder. No ISO shall be granted under this Plan to a Ten
Percent Share Owner unless (a) such ISO is granted at an Exercise Price
equal to not less than 110% of Fair Market Value of the Common Stock on the
date of grant, and (b) such ISO expires on a date not later than five years
from the date of grant.
(c) Aggregate Value of Options. The aggregate Fair Market Value (determined at
the time the ISO is granted) of ISO's granted by the Company (under this
and all other Plans) to an optionee which are exercisable for the first
time by such optionee in any single calendar year shall not exceed
$100,000.
(d) Notification of Disqualifying Dispositions. Any Optionee who disposes of
Option Shares acquired pursuant to the exercise of an ISO during the period
within two years from the date such option is granted or within one year
after the transfer of the Option Shares to such Optionee pursuant to the
ISO's exercise (the "ISO Nontransfer Periods") shall notify the Company of
such disposition and of the amount realized upon such disposition.
ARTICLE VIII
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 V 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 IX
Corporate Reorganization or Initial Public Offering
9.1 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, (i) if the Common Stock is not publicly traded, the Fair Market Value of
the shares covered by such Option or (ii) if the Common Stock is publicly
traded, the average of the daily Closing Price, as defined below, per share of
Common Stock 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 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 Common Stock is listed or admitted for
trading or, (b) if the Common Stock is not listed or admitted for trading on any
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 Common Stock, in either case as
reported on the Automatic Quotation System of NASDAQ or a similar service if
NASDAQ is no longer reporting such information. Any cash payment which the
Company may be required to make pursuant to such Committee authorization shall
be made within sixty days following such authorization and fully discharge any
and all obligation 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.
9.2 Initial Public offering. Notwithstanding the registration with the
Securities and Exchange Commission of any Common Stock pursuant to a plan
for the initial public offering of Common Stock (the IIIPO Plan"), the
applicable vesting schedule shall continue to apply to all Options. Upon
the registration of any Common Stock, and notwithstanding anything herein
to the contrary, the Optionee must comply with all securities laws which
apply to such optionees and any stock received upon exercise of any
Options.
ARTICLE X
Securities and Other Regulation
10.1 Applicable Law. The obligation of the Company to issue Common Stock upon
the exercise of options shall be subject to all applicable laws,
regulations, rules and orders which shall then be in effect and required
by governmental entities and the stock exchanges on which the Common Stock
may then be traded.
10.2 Disclosures and Certificate Legend. Any person exercising an option shall
make such representations and furnish such information as may, in the
opinion of counsel for the Company, be appropriate to permit the Company
to issue the Option shares in compliance with the provisions of the
Securities Act of 1933 and any applicable state securities laws or any
comparable laws. If appropriate under applicable law, the Company may
legend the stock certificates evidencing the shares in a manner that is
the same or similar to that which follows: "The securities evidenced by
this certificate have been issued to the registered owner in reliance upon
written representations that these shares have been purchased for
investment. These shares may not be sold, transferred, or assigned unless,
in the opinion of the Company and its legal counsel, such sale, transfer,
or assignment will not be in violation of the Securities Act of 1933, as
amended, applicable rules and regulations of the Securities and Exchange
Commission, and any applicable state securities laws."
Nothing contained herein shall be deemed to require the Company to file any
registration statement under the securities Act of 1933 or other applicable
securities laws with respect to any options or Option Shares.
ARTICLE XI
Amendment and Termination of Plan
11.1 Amendment or Termination. The Board, without further approval of the
stockholders of the Company, except as otherwise provided herein, may at
any time and from time to time suspend or terminate the Plan in whole or
in part, or amend the Plan in such respects as the Board may deem
appropriate and in the best interests of the Company; provided, however,
that no such amendment shall be made more than once every six months,
other than to comport with changes in the Code, or without approval of a
majority of the stockholders entitled to vote thereon which would:
(a) change the class of persons from which Eligible Participants are selected;
(b) increase the total number of shares of Common Stock which may be issued
pursuant to Options, except as provided in Article VIII;
(c) reduce the Exercise Price;
(d) extend the period for granting options; or
(e) otherwise materially increase the benefits accruing to Optionees.
11.2 No Impairment. No amendment, suspension or termination of the Plan shall,
without the Optionee's written consent, alter or impair any of the rights
or obligations under any Option therefore granted to such optionee under
this Plan.
11.3 Conforming Amendments. The Board may amend the Plan, subject to the
limitations cited above, in such manner as it deems necessary to permit
the granting of Options meeting the requirements of future amendments, if
any, to the Code.
ARTICLE XII
Miscellaneous Provisions
12.1 Right to Continued Employment. No person shall have any claim or right to
be granted an Option, and the grant of options shall not be construed as
giving an Optionee the right to be retained in the employ of, or retain
any other relationship with, the Company. Further, the Company expressly
reserves the right at any time to dismiss an optionee with or without
cause, free from any liability or claim under the Plan, except as provided
herein or in another binding agreement.
12.2 Rights as Stockholders. Optionees and their heirs, successors or assigns
shall not have any rights with respect to any shares of Common Stock
subject to an Option until the date of the issuance of stock certificates
for such Option Shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property)
or other rights distributed with respect to the Common Stock for which the
record date is prior to the date such stock certificate is issued, except
as provided in Article VIII.
12.3 Non-Transferability. Except by will or the laws of descent and
distribution, or as otherwise provided herein, no right or interest in any
option granted under the Plan shall be assignable or transferable, and no
right or interest of any Optionee shall be subject to attachment or
garnishment proceedings.
12.4 Withholding Taxes. To cover applicable withholding for income and
employment taxes in the event of the exercise of an NQO or upon a
disqualifying disposition during the ISO Nontransfer Periods, or at such
other times as it may be necessary, the Company shall withhold shares of
Common Stock otherwise to be received by the optionee equal in value to
the federal and state withholding taxes due upon said exercise. The
withholding by the Company for such tax liability shall be mandatory;
provided, however, the payment of such liability by the Company on behalf
of the optionee does not cause the Company to be in violation of any loan
covenant or other agreement or law to which it may be subject. In such
event, the Optionee must satisfy such liability in cash upon the request
of the Company and comply with all applicable securities laws.
12.5 Plan Expenses. Any expenses of administering the Plan shall be borne by
the Company.
12.6 Use of Exercise Proceeds. The Payment received from optionee from the
exercise of options shall be used for the general corporate purposes of
the Company.
12.7 No Liability of Committee Members and Indemnification Thereof. No member
of the Committee shall be personally liable by reason of any contract or
other instrument executed by him or on his behalf in his capacity as a
member of the Committee, nor for any mistake of judgment made in good
faith, and the Company shall indemnify and hold harmless each member of
the Committee and each other officer, employee or director of the Company
to whom any duty or power relating to the administration or interpretation
of the Plan may be allocated or delegated, against any cost and expense,
including legal fees and costs, or liability, including any sum paid in
settlement of a claim with the approval of the Board, arising out of any
act or omission to act in connection with the Plan unless arising out of
such person's own fraud or bad faith, provided that within fifteen (15)
business days after the institution of any such action, suit or proceeding
by service of process on the Committee member, such member shall give the
Company written notice thereof and an opportunity, at the Company's
expense, to undertake to defend the same before such Committee member
undertakes such defense on his own behalf, and provided that the Committee
member cooperates with the Company in such defense and takes no actions
(including inaction) which would materially prejudice the Company. The
foregoing right to indemnification shall be in addition to such other
rights as the Committee member or other person may enjoy as a matter of
law or by reason of insurance coverage of any kind. Rights granted
hereunder shall be in addition to and not in lieu of any rights to
indemnification to which the Committee member or other person may be
entitled pursuant to the articles or bylaws of the Company.
12.8 Severability. In the event any provision of the Plan shall be held to be
illegal, invalid or unenforceable for any reason, the illegality,
invalidity or unenforceability of such provision shall not affect the
remaining provisions of the Plan, but shall be fully severable and the
Plan shall be construed and enforced as if the illegal, invalid or
unenforceable provision had never been included herein.
ARTICLE XIII
Board of Director Adoption and Stockholder Approval of the Plan
This Plan was adopted by the Board on November 30, 1993 (the "Adoption Date")
and shall be approved by the Company's stockholders at the first stockholders'
meeting following such date which shall be within twelve (12) months of the
Adoption Date. The Plan shall be effective as of December 1, 1993 (the
"Effective Date"). Stockholder approval shall comply with all applicable
provisions of the Company's charter, bylaws, and applicable state law
prescribing the method and degree of stockholder approval required for the
issuance of corporate stock or options. In the event stockholder approval is not
obtained within the requisite period, the Plan shall have no force or effect.
Exhibit B
THE QUIZNO'S CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS AND ADVISORS
(As Amended Through February 6, 1997)
The purposes of The Quizno's Corporation's Amended and Restated Stock Option
Plan for Non-Employee Directors and Advisors (the "Plan") are to (i) enable The
Quizno's Corporation (the "Company") to attract and retain qualified
non-employee 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 non-employee 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 who, on the
date of the Committee's decision to grant, or the date of the granting of, an
Option hereunder, is not an officer or an employee of the Company.
"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 Non-Employee
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 140,000, 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.