<PAGE>
As filed with the Securities and Exchange Commission on June 17, 1998.
Registration No. 333-__________________
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET N.W.
WASHINGTON, D.C. 20549
-----------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
SCHLOTZSKY'S, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2654208
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
203 COLORADO STREET 78701
AUSTIN, TEXAS (Zip Code)
(Address of Principal Executive Offices)
SCHLOTZSKY'S, INC.
1993 STOCK OPTION PLAN
SCHLOTZSKY'S, INC.
EMPLOYEE STOCK PURCHASE PLAN
(Full title of the plans)
MONICA GILL COPY TO:
CHIEF FINANCIAL OFFICER PHILLIP M. SLINKARD, ESQ.
203 COLORADO STREET GENERAL COUNSEL
AUSTIN, TEXAS 78701 203 COLORADO STREET
(512) 236-3600 AUSTIN, TEXAS 78701
(Name, address and telephone number (512) 236-3600
including area code, of agent for service)
-----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- - ------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED(1) PER SHARE(2)(3) OFFERING PRICE (2)(3) FEE(3)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, no par
value per share 900,000 $15.50 $13,950,000 $4,227.27
- - ------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 416 of the Securities Act of 1933 (the
"Securities Act"), this Registration Statement is deemed to include
additional shares of Common Stock issuable under the terms of the 1993 Stock
Option Plan and the Employee Stock Purchase Plan to prevent dilution
resulting from any future stock split, stock dividend or similar transaction.
(2) Estimated solely for the purpose of calculating the
registration fee.
(3) Calculated pursuant to Rule 457(c) and (h) of the Securities
Act. Accordingly, the price per share of the Common Stock offered hereunder
pursuant to the 1993 Stock Option Plan and the Employee Stock Purchase Plan
is based on the average bid and asked price of the Common Stock on NASDAQ on
June 11, 1998.
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
EXPLANATORY NOTE
The information required by Items 1 and 2 of Part I of Form S-8 to be
contained in the Section 10(a) prospectus is omitted from this Registration
Statement on Form S-8 in accordance with Rule 428 of the Securities Act of
1933, as amended (the "Securities Act"), and the Note to Part I of Form S-8.
PART II
INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The registrant hereby incorporates by reference in this Registration
Statement the following documents previously filed by the registrant with the
Securities and Exchange Commission (the "Commission"):
(1) the registrant's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1997;
(2) the registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998; and
(3) the descriptions of the Common Stock, no par value per share, of the
registrant (the "Common Stock") set forth in the registration
statement filed pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and all amendments and
reports which have been filed for the purpose of updating such
descriptions.
All documents filed by the registrant with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, subsequent to the
date of this Registration Statement, shall be deemed to be incorporated
herein by reference and to be a part hereof from the date of the filing of
such documents until such time as there shall have been filed a
post-effective amendment that indicates that all securities offered hereby
have been sold or that deregisters all securities remaining unsold at the
time of such amendment.
ITEM 4. DESCRIPTION OF SECURITIES.
The information required by this item is not applicable to this
Registration Statement.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
The information required by this item is not applicable to this
Registration Statement.
ITEM 6. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Registrant has authority under Articles 2.02 (A) (16) and 2.02-1 of the
Texas Business Corporation Act (the "TBCA") to indemnify its directors and
officers to the extent provided for
II-1
<PAGE>
in such statute. The Registrant's Articles of Incorporation and Bylaws allow
indemnification of directors and officers to the extent permitted by said
provisions of the TBCA.
The TBCA provides in part that a corporation may indemnify a director or
officer or other person who was, is, or is threatened to be made a named
defendant or respondent in a proceeding because the person is or was a
director, officer, employee or agent of the corporation, if it is determined
that such person (i) conducted himself in good faith; (ii) reasonably
believed, in the case of conduct in his official capacity as a director or
officer of the corporation, that his conduct was in the corporation's best
interests, and, in all other cases, that his conduct was at least not opposed
to the corporation's best interest; and (iii) in the case of any criminal
proceeding, had no reasonable cause to believe that his conduct was unlawful.
A corporation may indemnify a person under the TBCA against judgments,
penalties (including excise and similar taxes), fines, settlements, and
reasonable expenses actually incurred by the person in connection with the
proceeding. If the person is found liable to the corporation or is found
liable on the basis that personal benefit was improperly received by the
person, the indemnification is limited to reasonable expenses actually
incurred by the person in connection with the proceeding, and shall not be
made in respect of any proceeding in which the person shall have been found
liable for willful or intentional misconduct in the performance of his duty
to the corporation.
A corporation may also pay or reimburse expenses incurred by a person in
connection with his appearance as a witness or other participation in a
proceeding at a time when he is not a named defendant or respondent in the
proceeding.
Reference is also made to the Articles of Incorporation, which limit or
eliminate a director's liability for monetary damages to the Registrant or
its shareholders for acts or omissions in the director's capacity as a
director, except that the articles of incorporation do not eliminate the
liability of a director for (i) a breach of the director's duty of loyalty to
the Registrant or its shareholders, (ii) an act or omission not in good faith
that constitutes a breach of duty of the director to the Registrant of an act
or omission that involves intentional misconduct or a knowing violation of
the law, (iii) a transaction from a director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of
the director's office, or (iv) an act or omission for which the liability of
a director is expressly provided for by an applicable statute. The
Registrant's Bylaws further provide that the Registrant may indemnify its
officers and directors to the fullest extent permitted by law.
Pursuant to a policy of directors' and officers' liability and corporation
reimbursement insurance, with total annual limits of $5,000,000 the
registrant's officers and directors are insured, subject to the limits,
retention, exceptions and other terms and conditions of such policy, against
liability for any actual or alleged breach of duty, neglect, error,
misstatement, misleading statement, omission or other act done or wrongfully
attempted while acting in their capacities as directors or officers of the
registrant.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
The information required by this item is not applicable to this
Registration Statement.
II-2
<PAGE>
ITEM 8. EXHIBITS.
The following documents are filed as a part of this Registration Statement.
<TABLE>
Exhibit
Number Description of Exhibit
------- ----------------------
<S> <C>
* 4.1 -- Articles of Incorporation of the Registrant, as
amended.
* 4.2 -- Bylaws of the Registrant, as amended.
+ 4.3(a) -- Schlotzsky's, Inc. 1993 Third Amended and Restated
Stock Option Plan of the Registrant and form of
Incentive Stock Option Agreement.
4.3(b) -- Amendments to 1993 Third Amended and Restated Stock
Option Plan
* 4.4 -- Specimen Stock Certificate evidencing the common stock.
* 4.5 -- Form of Non-Qualified Option Agreement under the
Registrant's 1993 Third Amended and Restated Stock
Option Plan.
4.6 -- Schlotzsky's, Inc. Employee Stock Purchase Plan.
5.1 -- Opinion of Hughes & Luce, LLP regarding legality of
securities being registered.
23.1 -- Consent of Hughes & Luce, LLP (included in the firm's
opinion filed as Exhibit 5.1).
23.2 -- Consent of Independent Accountant.
* 24.1 -- Power of Attorney (see signature page of this
Registration Statement).
</TABLE>
* Filed as an Exhibit to the registrant's Form S-1 filed October 12, 1995
+ Filed as an Exhibit to the registrant's Form S-1 filed September 19, 1997
ITEM 9. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material
change to such information in the Registration Statement;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof; and
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the
termination of the offering.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of
the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to section 15(d) of the Exchange Act)
that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
C. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all the requirements
for filing on Form S-8 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austin, Texas, on June 16, 1998:
SCHLOTZSKY'S, INC.
By: /s/ JOHN C. WOOLEY
---------------------------
John C. Wooley
Chairman of the Board
and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints John C. Wooley and Monica Gill, each of them,
his or her true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same with all exhibits, thereto, and
all documents in connection therewith, with the Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated:
II-4
<PAGE>
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ John C. Wooley
- - ------------------------
John C. Wooley Chairman of the Board and President June 15, 1998
(Principal Executive Officer)
/s/ Jeffrey J. Wooley
- - ------------------------
Jeffrey J. Wooley Senior Vice President, Secretary, June 15, 1998
Director
/s/ Monica Gill
- - ------------------------
Monica Gill Chief Financial Officer (Principal June 15, 1998
Financial Officer)
/s/ John L. Hill, Jr.
- - ------------------------
John L. Hill, Jr. Director June 16, 1998
/s/ Azie Taylor Morton
- - ------------------------
Azie Taylor Morton Director June 16, 1998
/s/ John M. Rosillo
- - ------------------------
John M. Rosillo Director June 16, 1998
/s/ Raymond A. Rodriguez
- - ------------------------
Raymond A. Rodriguez Director June 15, 1998
/s/ Floor Mouthaan
- - ------------------------
Floor Mouthaan Director June 17, 1998
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
Sequential
Exhibit Page
Number Description of Exhibit Number
- - ------ ---------------------- ----------
<S> <C> <C>
4.1 -- Articles of Incorporation of the Registrant, as amended. N/A
4.2 -- Bylaws of the Registrant, as amended. N/A
4.3(a) -- Schlotzsky's, Inc. 1993 Third Amended and Restated Stock Option Plan of
the Registrant and form of Incentive Stock Option Agreement. N/A
4.3(b) -- Amendments to 1993 Third Amended and Restated Stock Option Plan. --
4.4 -- Specimen Stock Certificate evidencing the common stock. N/A
4.5 -- Form of Non-Qualified Option Agreement under the Registrant's 1993
Third Amended and Restated Stock Option Plan. N/A
4.6 -- Schlotzsky's, Inc. Employee Stock Purchase Plan. --
5.1 -- Opinion of Hughes & Luce, LLP regarding legality of securities being
registered. --
23.1 -- Consent of Hughes & Luce, LLP (included in the firm's opinion filed as
Exhibit 5.1). N/A
23.2 -- Consent of Independent Accountant. --
24.1 -- Power of Attorney (see signature page of this Registration Statement). N/A
</TABLE>
II-6
<PAGE>
AMENDMENT TO THIRD AMENDED AND RESTATED STOCK OPTION PLAN
The Third Amended and Restated Stock Option Plan is amended by deleting
paragraph 3 thereof and inserting in lieu thereof the following paragraphs:
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board, except to the extent the Board delegates its authority to a committee of
the Board (the "Committee") which, must consist solely of directors, and with
respect to grants to directors or officers, must consist solely of two or more
Non-Employee Directors, as defined in Rule 16b-3, promulgated pursuant to
Section 16 of the 1934 Act ("Rule 16b-3") and must consist only of "Outside
Directors" in compliance with Section 162(m)(4)(C) of the Code for purposes of
grants to the chief executive officer and other executive officers whose
compensation limit may otherwise exceed the deduction limit of Section 162(m) of
the Code. The Compensation Committee may create a subcommittee for purposes of
Grants to officers and directors if the Committee would otherwise not qualify.
References herein to the "Committee" shall include any such subcommittee. All
references in this Plan to the Administrator shall mean the Board, unless it has
delegated its authority to the Committee, in which event Administrator shall
mean the Committee. With respect to the Grants of Options to directors,
officers and beneficial owners of more than 10% of a class of equity security
registered pursuant to the 1934 Act, the Plan shall be administered in such
manner as will enable compliance with Rule 16b-3. Grants made to executive
officers subject to Section 162(m) of the Code shall be contingent on
shareholder approval of the material terms of the Plan to the extent required
under Section 162(m).
Subject to the terms of the Plan, the Board, the Committee or the
shareholders, as the case may be, shall have concurrent authority to determine
the persons to whom Options shall be granted, the number of shares covered by
each Option, the price per share specified in each Option, the time or times at
which Options shall be granted and the terms and provisions of the instruments
by which Options shall be evidenced. The Administrator is authorized to
interpret the provisions of the Plan or of any Option or Option agreement and to
make all rules and determinations which it deems necessary or advisable for the
administration of the Plan, provided, however, that all such interpretations,
rules and determinations shall be made and prescribed in the context of
preserving the tax status under Code Section 422 of those Options which are
designated as Incentive Stock Options. Subject to the foregoing, the
interpretation and construction by the Administrator of any provisions of the
Plan or of any Option granted under it shall be final. No member of the Board
or the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any Option granted under it.
<PAGE>
SECOND AMENDMENT TO THIRD AMENDED AND RESTATED STOCK OPTION PLAN
The Third Amended and Restated Stock Option Plan is amended by deleting
paragraphs 8 and 14 thereof and inserting in lieu thereof the following
paragraphs:
8. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 10, 11, 12, 13 and 19, each Option shall expire on the date specified
by the Administrator, consistent with the terms of the specific Grant, but not
more than ten years from the date of grant, provided, however, that for
optionees who own more than 10% of the total combined voting power of all
classes of share capital of the Company or a subsidiary, each INCENTIVE STOCK
Option shall terminate not more than five years from the date of the Grant.
Subject to Paragraph 18, the Administrator may extend the term of any previously
granted Option provided that such Option, as extended, expires within ten years
of its original date of grant.
14. ASSIGNABILITY. UNLESS ASSIGNMENT TO IMMEDIATE FAMILY MEMBERS IS
SPECIFICALLY PERMITTED IN AN OPTION AGREEMENT EVIDENCING A NON QUALIFIED STOCK
OPTION (WHICH MAY BE INCLUDED IN THE AGREEMENT ONLY WITH THE CONSENT OF THE
ADMINISTRATOR), no Option shall be assignable or transferable by the optionee
except by will or by the laws of descent and distribution or if such Option is
not an Incentive Stock Option, pursuant to a qualified domestic relations order
as defined by the Code or Title I of the Employee Retirement Income Security
Act, or the rules thereunder, and during the lifetime of the optionee each
Option shall be exercisable only by him or his legal representative, except in
the case of Incentive Stock Options, only as permitted by Section 422(b)(5) of
the Code. Such Option shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise, except as provided above) and shall
not be subject to execution, attachment or similar process. Any attempted
transfer, assignment, pledge, hypothecation or other disposition of any Option
or of any rights granted thereunder contrary to the provisions of this Plan, or
the levy of any attachment or similar process upon an Option, shall be null and
void.
<PAGE>
THIRD AMENDMENT TO THIRD AMENDED AND RESTATED STOCK OPTION PLAN
The Third Amended and Restated Stock Option Plan is amended by deleting
paragraph 5 thereof and inserting in lieu thereof the following paragraphs:
5. STOCK. The stock subject to the Options shall be authorized but
unissued shares of Common Stock of the Company, no par value (the "Common
Stock"), or shares of Common Stock reacquired by the Company, including shares
purchased in the open market. The aggregate number of shares which may be
issued pursuant to the Plan is 1,450,000, subject to adjustment as provided in
paragraph 15; provided however, that the number of shares with respect to which
Options may be granted to any single executive officer of the Company during any
fiscal year shall not exceed 300,000 shares of Common Stock. In the event any
Option granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable in
whole or in part, the unpurchased shares subject thereto, shall again be
available for Grants of Options under the Plan, provided that an Option that
expires or terminates for any reason or ceases to be exerciseable in the fiscal
year in which it is granted will continue to be counted against the individual
limit on Options granted to a single executive officer in any fiscal year. The
shares issued upon exercise of Options granted under the Plan may be authorized
and unissued shares or shares held by the Company in its treasury, or both.
<PAGE>
SCHLOTZSKY'S, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Schlotzsky's, Inc. Employee
Stock Purchase Plan, effective as of July 1, 1998.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Subsidiaries with an opportunity to purchase Common Stock of the
Company. It is the intention of the Company to have the Plan qualify as an
"Employee Stock Purchase Plan" under section 423 of the Code. The provisions of
the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. DEFINITIONS.
(a) "ACQUIRED COMPANY" shall mean any company 50% or more of whose
stock or assets has been acquired by the Company or 50% or more of whose
assets have been acquired by a Subsidiary.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMON STOCK" shall mean the common stock, no par value, of the
Company.
(e) "COMPANY" shall mean Schlotzsky's, Inc., a Texas corporation, or
any successor which adopts this Plan.
(f) "COMPENSATION" for the Offering Period shall mean the regular
straight-time earnings paid to the Employee by the Employer.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of a leave of
absence that meets the requirements of paragraph 10(b). An Employee who was
employed by an Acquired Company on the date of such acquisition and at the
time of such acquisition was hired by an Employer will be deemed to have
Continuous Status as an Employee from the date of employment by the
Acquired Company, absent any interruption or termination of service.
(h) "EMPLOYEE" shall mean any person, including an officer, who is
customarily employed for at least twenty (20) hours per week and for more
than five (5) months in the calendar year by an Employer and whose wages
are determined, in the sole judgment of the Employer, at the time of
payment to be subject to withholding for purposes of federal income taxes.
<PAGE>
(i) "EMPLOYER" shall mean the Company and each of its Subsidiaries,
excluding any Subsidiary that has declined to participate in the Plan.
(j) "ENROLLMENT DATE" shall mean the first day of each Offering
Period.
(k) "EXERCISE DATE" shall mean the last day of each Offering Period.
(l) "EXERCISE PRICE" shall have the meaning as defined in paragraphs
7(b) and 7(c).
(m) "OFFERING PERIOD" shall mean the period of six (6) months during
which an option granted pursuant to the Plan may be exercised, as described
in paragraph 4.
(n) "PARTICIPANT" shall mean an Eligible Employee in Continuous
Status as an Employee who has been offered the opportunity to purchase
Common Stock hereunder and who has elected to participate herein.
(o) "PARTICIPANT ACCOUNT" shall mean that separate account maintained
hereunder to record the amount that a Participant has contributed to the
Plan.
(p) "PLAN" shall mean the Schlotzsky's, Inc. Employee Stock Purchase
Plan.
"PLAN CUSTODIAN" shall mean the party appointed by the Plan
administrator or any successor appointed by the Plan administrator.
(r) "SIX MONTHS OF SERVICE" shall mean a consecutive one
hundred-eighty (180) day period of Continuous Status as an Employee,
beginning the date on which an Employee commences employment with an
Employer, a Subsidiary or an Acquired Company.
(s) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which at the time of the granting of the option pursuant to paragraph 7,
not less than 50% of the total combined voting power of all classes of
stock are held by the Company or a Subsidiary, whether or not such
corporation now exists or is hereafter organized or acquired by the Company
or a Subsidiary.
3. ELIGIBILITY.
(a) GENERAL RULE. Any Employee, as defined in paragraph 2, who has
completed Six Months of Service and is employed by an Employer on a given
Enrollment Date shall be eligible to participate in the Plan as an
"Eligible Employee," subject to the requirements of paragraphs 3(b) and
5(a) and the limitations imposed by section 423(b) of the Code. Any
Eligible Employee who terminates employment and rehires with an Employer
prior to an Enrollment Date within one year from the date of the Employee's
termination shall not be required to complete another Six Months of
Service.
<PAGE>
(b) EXCEPTIONS. Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option to purchase Common
Stock under the Plan if:
(i) Immediately after the grant, such Employee (or any other
person whose stock would be attributed to such Employee pursuant to
section 424(d) of the Code) would own stock (including for purposes of
this paragraph 3(b) any stock he holds outstanding options to
purchase) possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of any
Subsidiary computed in accordance with the Code Section 423(b)(3), or
(ii) Such option would permit such Employee's right to purchase
stock under all employee stock purchase plans (described in section
423 of the Code) of the Company and its Subsidiaries to accrue at a
rate which exceeds Twenty-five Thousand Dollars ($25,000) of the fair
market value of such stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at
any time, in accordance with the provisions of Code Section
423(b)(8).
4. OFFERING PERIODS. The first Offering Period begins July 1, 1998, and
shall end December 31, 1998, unless terminated earlier in accordance with
paragraph 19. Absent action by the Board, each subsequent Offering Period shall
be for a period of six (6) months, and shall commence on each January 1 and July
1. The Board shall have the power to change the duration of the Offering Periods
with respect to future offerings without stockholder approval if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period to be affected.
5. PARTICIPATION.
(a) An Eligible Employee may become a Participant in the Plan by
completing a subscription agreement, in a form prescribed by the Plan
administrator ("Subscription Agreement"), and filing it with the Company's
Human Resources Department prior to an applicable Enrollment Date, unless a
later time for filing the Subscription Agreement is set by the Board for
all eligible Employees with respect to a given Offering Period.
(b) An Eligible Employee may waive his right to participate for any
Offering Period by declining to authorize a payroll deduction. Such
declination must be filed in writing in the time and manner specified by
the Company. The filing of a written declination shall result in the
Employee's waiver of participation for the current Offering Period and all
subsequent offering periods and shall be irrevocable with respect to the
current Offering Period. Except as otherwise provided in this paragraph,
an Employee's waiver of participation for a specified Offering Period shall
not, in and of itself, adversely impact the right of such Employee to
participate in the Plan during any subsequent Offering Periods.
6. PAYMENT FOR COMMON STOCK.
<PAGE>
(a) At the time a Participant files his or her Subscription
Agreement, such Participant shall elect to have payroll deductions made on
each pay date during the Offering Period at the rate of not less than 1% of
and not to exceed fifteen percent (15%) of the Compensation which he or she
receives on each pay date during the Offering Period, provided that the
aggregate amount of such payroll deductions during the Offering Period
shall not exceed fifteen percent (15%) of the Participant's aggregate
Compensation during said Offering Period.
(b) All payroll deductions made by a Participant shall be credited to
his or her Participant Account under the Plan.
(c) A Participant may discontinue or change the rate of his or her
payroll deductions during the Offering Period by completing and filing with
the Human Resources Department of the Company a new Subscription Agreement.
Such change or discontinuance shall be effective as soon as
administratively feasible after the Company's receipt of the new
Subscription Agreement.
7. GRANT OF OPTION.
(a) On the Enrollment Date of each Offering Period each Eligible
Employee in such Offering Period shall be granted an option to purchase on
each Exercise Date during such Offering Period up to a number of whole
shares of the Company's Common Stock determined by dividing fifteen percent
(15%) of the Eligible Employee's Compensation by the Exercise Price on the
Exercise Date for such Offering Period; provided, however, that the number
of shares subject to such option shall be reduced, if necessary, to a
number of shares which would not exceed the limitations described in
paragraph 3(b) or paragraph 12(a) hereof. In addition, the maximum number
of shares any Participant may be granted an option to purchase in any
Offering Period is one thousand (1000) shares. The Exercise Price of a
share of the Company's Common Stock shall be determined as provided in
paragraph 7(b) herein.
(b) The exercise price per share of the shares offered in a given
Offering Period shall be the lesser of (i) 85% of the fair market value of
a share of the Common Stock on the Exercise Date or (ii) 85% of the fair
market value of a share of the Common Stock on the Enrollment Date of such
Offering Period. The fair market value of the Company's Common Stock on a
given date shall be the closing price of such Stock as reported by the
Nasdaq Stock Market (or reported on such other national exchange on which
it may, from time to time, be reported) for the Exercise Date or the
Enrollment Date, as the case may be, (or if the Common Stock did not trade
on such date, for the most recent trading day preceding the Exercise Date
or the Enrollment Date, as the case may be, on which the Common Stock
traded), unless the Common Stock ceases to be traded on a national
exchange. If the Common Stock ceases to be traded on a national exchange,
its fair market value shall be determined by the Board in its discretionor
the Board may discontinue the Plan and refund all uninvested payroll
deduction accounts. Notwithstanding any provision of the Plan to the
contrary, no determination made with respect to the fair market value of
Common Stock shall be inconsistent with Code Section 423 or the regulations
thereunder.
8. EXERCISE OF OPTION. The Participant's option for the purchase of
Common Stock
<PAGE>
will be exercised automatically on each Exercise Date of each Offering
Period, and the maximum number of whole shares subject to such option will be
purchased at the applicable exercise price with the funds in his or her
Participant Account and held in the Participant Account unless prior to such
Exercise Date the Participant has withdrawn from the Offering Period pursuant
to paragraph 10. Any unused payroll deductions from a Participant Account
will carry forward to the next offering period unless requested to be
refunded by the Participant. During a Participant's lifetime a Participant's
option to purchase shares hereunder is exercisable only by such Participant.
9. DELIVERY AND VOTING. Shares issued pursuant to the exercise of the
option will be held in custody by the Plan Custodian until withdrawal by the
Participant. The Participant may request a certificate for full shares held in
his or her Participant Account immediately after the Exercise Date or as of the
10th of any month thereafter. A Participant shall be entitled to vote any shares
held by the Plan Custodian in his or her Participant account by furnishing
instructions to the Plan Custodian. Unless directions are given by the
Participant, the shares shall not be voted.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A Participant may withdraw all, but not less than all, of the
payroll deductions credited to his or her Participant Account and not yet
used toward the exercise of his or her option under the Plan at any time by
giving written notice to the Company on a form prescribed by the Plan
administrator. Withdrawal shall be effective no earlier than the date such
notice is received by the Board or the committee appointed by the Board
pursuant to paragraph 13. All of the Participant's unused payroll
deductions credited to his or her Participant Account will be paid to such
Participant promptly after receipt of his or her notice of withdrawal. A
withdrawal of a Participant's Participant Account shall terminate the
Participant's participation for the Offering Period in which the withdrawal
occurs, and no further payroll deductions for the purchase of shares will
be made during that Offering Period.
(b) Upon termination of the Participant's Continuous Status as an
Employee of the Company for any reason, he or she will be deemed to have
elected to withdraw from the Plan and any full shares held by the Plan
Custodian for the Participant will be issued in the name of the
Participant and mailed together with a check for any fractional shares.
Any funds credited to his or her Participant Account and not then used
toward the exercise of his or her option will be returned to such
Participant and his or her option will be cancelled; provided, however,
that a Participant who goes on a leave of absence shall be permitted to
remain in the Plan with respect to an Offering Period which commenced prior
to the beginning of such leave of absence. If such Participant is not
guaranteed re-employment by contract or statute and the leave of absence
exceeds ninety (90) days, such Participant shall be deemed to have
terminated employment on the ninety-first day of such leave of absence.
Payroll deductions for a Participant who has been on a leave of absence
will resume upon return to work at the same rate as in effect prior to such
leave unless changed by such Participant or unless the leave of absence
begins in one Offering Period and ends in a subsequent Offering Period, in
which case the Participant shall not
<PAGE>
be permitted to re-enter the Plan until a new Subscription Agreement is
filed with respect to any Offering Period which commences after such
Participant has returned to work from the leave of absence.
(c) A Participant's withdrawal from one Offering Period will not have
any effect upon his or her eligibility to participate in a different
Offering Period or in any similar Plan which may hereafter be adopted by
the Company.
11. INTEREST. No interest shall accrue on the payroll deductions of a
Participant in the Plan.
12. STOCK.
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 250,000 (two
hundred fifty thousand) shares, subject to adjustment upon changes in
capitalization of the Company as provided in paragraph 18. Either
authorized and unissued shares or issued shares heretofore or hereafter
reacquired by the Employer may be made subject to purchase under the Plan,
in the sole and absolute discretion of the Board. Further, if for any
reason any purchase of Common Stock under the Plan is not consummated,
shares subject to such purchase agreement may be subjected to a new
Subscription Agreement under the Plan. If, on a given Exercise Date, the
number of shares with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make
a pro rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to be
equitable. In such event, the Company shall give written notice of such
reduction of the number of shares which each Employee shall be allowed to
purchase. Notwithstanding anything to the contrary herein, the Company
shall not be obligated to issue Common Stock hereunder if, in the opinion
of counsel for the Company, such issuance would constitute a violation of
Federal or state securities laws.
(b) The Participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised and the
shares purchased.
(c) Shares to be delivered to a Participant under the Plan will be
registered in the name of the Participant or, at the prior written request
of the Participant, in the names of the Participant and his or her spouse.
13. ADMINISTRATION. The Plan shall be administered by the Board or a
committee appointed by the Board. If a committee is appointed by the Board,
such committee shall have all of the powers of the Board with respect to the
Plan except for those powers set forth in paragraph 19 hereof. Members of the
Board who are eligible employees are permitted to participate in the Plan;
provided, however, that (i) members of the Board who are Eligible Employees may
not vote on any matter affecting the administration of the Plan or the grant of
any option pursuant to the Plan, and (ii) if a committee is appointed by the
Board to administer the Plan, no committee member will be eligible to
participate in the Plan. The Board or a committee appointed
<PAGE>
hereunder shall have the following powers and duties:
(a) To direct the administration of the Plan in accordance with the
provisions herein set forth;
(b) To adopt rules of procedure and regulations necessary for the
administration of the Plan provided the rules are not inconsistent with the
terms of the Plan;
(c) To determine all questions with regard to rights of Employees and
Participants under the Plan, including, but not limited to, rights of
eligibility of an Employee to participate in the Plan;
(d) To enforce the terms of the Plan and the rules and regulations it
adopts;
(e) To direct the distribution of the shares of Common Stock
purchased hereunder;
(f) To furnish the Employer with information which the Employer may
require for tax or other purposes;
(g) To engage the service of counsel (who may, if appropriate, be
counsel for the Employer) and agents whom it may deem advisable to assist
it with the performance of its duties;
(h) To prescribe procedures to be followed by Participants in
electing to participate herein;
(i) To receive from each Employer and from Employees such information
as shall be necessary for the proper administration of the Plan;
(j) To maintain, or cause to be maintained, separate accounts in the
name of each Participant to reflect the Participant's Participant Account
under the Plan; and
(k) To interpret and construe the Plan.
14. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who
is to receive any shares from the Participant's Participant Account under
the Plan in the event of such Participant's death subsequent to an Exercise
Date on which an option is exercised but prior to the issuance of such
shares. In addition, a Participant may file a written designation of a
beneficiary who is to receive any cash from the Participant's Participant
Account under the Plan in the event of such Participant's death prior to
the Exercise Date of the option.
<PAGE>
(b) Such designation of beneficiary may be changed by the Participant
at any time by written notice. In the event of the death of a Participant
and in the absence of a beneficiary validly designated under the Plan who
is living at the time of such Participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the
estate of the Participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such shares and/or cash to the spouse or to any one
or more dependents or relatives of the Participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as
the Company may designate.
15. TRANSFERABILITY. Neither any monies credited to Participant's
Participant Account nor any rights with regard to the exercise of an option to
receive shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in paragraph 14 hereof) by the Participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with paragraph 10.
16. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such funds. The Plan shall not be
construed as creating any trust or fiduciary relationship.
17. REPORTS. Individual Participant Accounts will be maintained for each
Participant in the Plan. Statements of Participant Account will be given to
participating Employees promptly following an Exercise Date, which statements
will set forth the amounts of payroll deductions, the per share purchase price,
the number of shares purchased and the remaining cash balance, if any.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If an option under this
Plan is exercised subsequent to any stock dividend, stock split, spin-off,
recapitalization, merger, consolidation, exchange of shares or the like,
occurring after such option was granted, as a result of which shares of any
class shall be issued in respect of the outstanding shares, or shares shall be
changed into a different number of the same or another class or classes, the
number of shares to which such option shall be applicable and the option price
for such shares shall be appropriately adjusted by the Company. Any such
adjustment, however, in the Common Stock shall be made without change in the
total price applicable to the portion of the Common Stock purchased hereunder
which has not been fully paid for, but with a corresponding adjustment, if
appropriate, in the price for each share of Common Stock.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. In the event
of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation,
each option under the Plan shall be assumed or an equivalent option shall
be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Board determines, in the exercise of
its sole discretion and in lieu of such assumption or
<PAGE>
substitution, that (i) the Participant shall have the right to exercise
the option; or (ii) the Plan shall be terminated and any uninvested
payroll deduction amount refunded to Participant. If the Board makes an
option fully exercisable, in lieu of assumption or substitution in the
event of a merger or sale of assets, the Board shall notify the Participant
that the option shall be fully exercisable for a period of thirty (30) days
from the date of such notice, and the option will terminate upon the
expiration of such period.
19. AMENDMENT OR TERMINATION. The Board may at any time and for any
reason terminate or amend the Plan. The Plan shall automatically terminate on
the Exercise Date that Participants become entitled to purchase a number of
shares greater than the number of shares available for purchase under paragraph
12. In the event of an automatic termination, reserved shares remaining as of
such Exercise Date shall be sold to Participants on a pro rata basis, as
described in paragraph 12.
Except as specifically provided in the Plan, as required to comply with
Code section 423, or as required to obtain a favorable ruling from the
Internal Revenue Service, no amendment may make any change in any option
theretofore granted which adversely affects the rights of any Participant.
20. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. SHAREHOLDER APPROVAL. The Plan is adopted subject to shareholder
approval within 12 months of the adoption of the Plan.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Act, the rules and regulations
promulgated under both sets of laws, and the requirements of any stock exchange
upon which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute, such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan becomes effective on July 1, 1998. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
paragraph 19.
24. NO RIGHTS IMPLIED. Nothing contained in this Plan or any modification
or amendment to the Plan or in the creation of any Participant Account, or the
execution of any
<PAGE>
participation election form, or the issuance of any shares of Stock, shall
give any Employee or Participant any right to continue employment, any legal
or equitable right against the Employer or Company or any officer, director,
or Employee of the Employer or Company, except as expressly provided by the
Plan.
25. SEVERABILITY. In the event any provision of the Plan shall be held to
be illegal or invalid for any reason, the illegality or invalidity 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 or invalid provision
had never been included herein.
26. NOTICE. Any notice required to be given herein by the Employer, the
Company or the Board shall be deemed delivered, when (a) personally delivered,
or (b) placed in the United States mails, in an envelope addressed to the last
known address of the person to whom the notice is given.
27. WAIVER OF NOTICE. Any person entitled to notice under the Plan may
waive the notice.
28. SUCCESSORS AND ASSIGNS. The Plan shall be binding upon all persons
entitled to purchase Common Stock under the Plan, their respective heirs,
legatees, and legal representatives upon the Employer, its successors and
assigns.
29. HEADINGS. The titles and headings of the paragraphs are included for
convenience of reference only and are not to be considered in construction of
the provisions hereof.
30. LAW. All questions arising with respect to the provisions of this
Agreement shall be determined by application of the laws of the State of Texas
except to the extent Texas law is preempted by Federal statute. The obligation
of the Employer to sell and deliver Common Stock under the Plan is subject to
applicable laws and to the approval of any governmental authority required in
connection with the authorization, issuance, sale or delivery of such Common
Stock.
31. NO LIABILITY FOR GOOD FAITH DETERMINATIONS. Neither the members of
the Board nor any member of the committee (nor their delegates) shall be liable
for any act, omission, or determination taken or made in good faith with respect
to the Plan or any right to purchase shares of Common Stock granted under it,
and members of the Board and the committee (and their delegates) shall be
entitled to indemnification and reimbursement by the Company in respect of any
claim, loss, damage, or expense (including attorneys' fees, the costs of
settling any suit, provided such settlement is approved by independent legal
counsel selected by the Company, and amounts paid in satisfaction of a judgment,
except a judgment based on a finding of bad faith) arising therefrom to the full
extent permitted by law and under any directors and officers liability or
similar insurance coverage that may from time to time be in effect.
32. PARTICIPATING EMPLOYERS. This Plan shall constitute the employee
stock purchase plan of each Subsidiary which shall be deemed to have adopted
this Plan until and unless its board of directors declines in writing to do so.
A Subsidiary may withdraw from the Plan as of any Enrollment Date by giving
written notice to the Board, which notice must be received by the
<PAGE>
Board at least thirty (30) days prior to such Enrollment Date.
IN WITNESS WHEREOF, this Stock Purchase Plan has been executed as of
May 29, 1998.
SCHLOTZSKY'S, INC.
By: /s/ John C. Wooley
--------------------------------------
John C. Wooley,
President and Chief Executive Officer
<PAGE>
June 17, 1998
Schlotzsky's, Inc.
203 Colorado Street
Austin, Texas 78701
Ladies and Gentlemen:
We have acted as special counsel to Schlotzsky's, Inc., a Texas corporation
(the "Company"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of 900,000 shares (the "Shares") of the Company's
common stock, no par value per share, issuable upon the exercise of stock
options to be granted pursuant to the Company's Third Amended and Restated 1991
Stock Option Plan, as amended, and issuable upon purchase pursuant to the
Company's Employee Stock Purchase Plan (collectively, the "Plans"), as described
in the Registration Statement of the Company on Form S-8 (the "Registration
Statement") filed with the Securities and Exchange Commission on June 17, 1998.
In rendering this opinion, we have examined and relied upon executed
originals, counterparts or copies of such documents, records and certificates
(including certificates of public officials and officers of the Company) as we
considered necessary or appropriate for enabling us to express the opinions set
forth herein. In all such examinations, we have assumed the authenticity and
completeness of all documents submitted to us as originals and the conformity to
originals and completeness of all documents submitted to us as photostatic,
conformed, notarized or certified copies.
Based on the foregoing, we are of the opinion that the Shares will be, if
and when issued and paid for pursuant to the Plans, validly issued, fully paid
and nonassessable, assuming the Company maintains an adequate number of
authorized but unissued shares of common stock available for such issuance, and
further assuming that the consideration actually received by the Company for the
Shares exceeds the par value thereof.
This opinion may be filed as an exhibit to the Registration Statement. In
giving this consent, we do not admit that we are included in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ Hughes & Luce, L.L.P.
-------------------------
<PAGE>
June 17, 1998
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the registration statement
(No. 333-______) on Form S-8 of Schlotzsky's, Inc. of our report dated April
10, 1998, on our audits of the consolidated financial statements and
financial statement schedule of Schlotzsky's, Inc. and subsidiaries as of
December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996
and 1995, which report is included in the December 31, 1997 annual report on
Form 10-K/A of Schlotzsky's, Inc.
/s/ COOPERS & LYBRAND
-------------------------------
Coopers & Lybrand
Austin, Texas
June 17, 1998
