UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-23174
THE QUIZNO'S CORPORATION
Colorado 84-1169286
7555 East Hampden Avenue, Suite 601
Denver, Colorado 80231
Registrants' Telephone Number Is (303) 368-9424
Check whether issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Outstanding at
Class
August 12, 1996
Common Stock, $0.001 par value
2,864,757 shares
THE QUIZNO'S CORPORATION
Commission File Number: 000-23174
Quarter Ended June 30, 1996
FORM 10-QSB
Part I FINANCIAL INFORMATION
Consolidated Statements of Operations Page 1
Consolidated Balance Sheets Page 2
Consolidated Statements of Cash Flows Page 4
Consolidated Statement of Stockholders' Equity Page 7
Notes to Consolidated Financial Statements Page 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 10
THE QUIZNO'S CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUE:
Royalty fees $ 395,286 $ 254,152 $ 714,221
$ 463,728
Initial franchise fees 242,500 100,000 497,500 175,000
Area director marketing fees 637,169 266,203 887,655 447,098
Sales by Company owned stores 709,258 784,533 1,337,250 1,451,805
Sales by stores held for resale 3,626 -- 20,572 --
Interest Income 42,735 43,068 83,549 85,888
Other 60,469 61,374 115,639 98,144
2,091,043 1,509,330 3,656,386 2,721,663
EXPENSES:
Sales and royalty commissions 225,462 54,036 359,188 80,513
Franchise advertising and promotion75,213 9,706 163,786 17,157
General and administrative expenses962,166 658,776 1,700,433 1,201,079
Cost of sales at Company stores259,380 254,394 478,074 482,871
Cost of labor at Company stores196,690 330,469 387,703 537,516
Other Company store expenses 235,977 218,768 444,695 485,083
Stores held for resale expenses 8,832 -- 39,361 --
Loss on sale of Company stores 12,538 -- 72,617 --
Depreciation and amortization 67,930 55,988 139,573 110,876
Interest expense 21,509 31,884 38,658 64,680
Provision for loss on stores held for resale -- 34,393
- -- 85,438
2,065,697 1,648,414 3,824,088 3,065,213
Net income (loss) 25,346 (139,084) (167,702) (343,550)
Preferred stock dividends (14,235) (14,235) (28,470) (28,470)
Net income (loss) applicable to
common shareholders $ 11,111 $ (153,319) $ (196,172)$ (372,020)
Net income (loss) per share of common stock$ 0.00 $ (0.05)$
(0.07)$ (0.13)
Weighted average common shares
outstanding 2,864,757 2,862,901 2,864,757
2,862,503
</TABLE>
THE QUIZNO'S CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 791,229 $ 1,684,422
Notes receivable, collected subsequent
to June 30, 1996 398,017 --
Restricted cash 16,339 15,927
Current portion of notes receivable 138,703 304,918
Accounts receivable, net of allowance for
doubtful accounts of $15,977 in 1996 and
$11,777 in 1995 299,808 276,522
Other current assets 243,624 155,973
Assets of stores held for resale -- 144,499
Total current assets 1,887,720 2,582,261
Property and equipment, at cost, net of
accumulated depreciation and amortization of
$159,963 in 1996 and $144,561 in 19951,334,892 1,083,476
OTHER ASSETS:
Intangible assets, net of accumulated
amortization of $517,996 in 1996 and
$414,500 in 1995 484,783 537,149
Deferred assets 516,646 588,051
Deposits 23,87031,454
Notes receivable 728,576 528,484
Total other assets 1,753,875 1,685,138
$ 4,976,487 $ 5,350,875
</TABLE>
(continued on next page)
THE QUIZNO'S CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 531,251 $ 713,446
Accrued liabilities 68,230 53,168
Line of credit 110,000 160,000
Current portion of long term obligations177,995 171,217
Provision for loss on stores sold 12,629 58,000
Total current liabilities 900,105 1,155,831
Long term obligations 461,138 556,958
Other liabilities -- 12,101
Deferred initial franchise fees 1,494,586 1,309,155
Total liabilities 2,855,829 3,034,045
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, liquidation
value of $6 per share plus unpaid and
accumulated dividends, 1,000,000 authorized,
issued and outstanding 146,000 in 1996 and
in 1995 146
146
Common stock, $.001 par value, 9,000,000 shares
authorized, issued and outstanding 2,864,757 in
1996 and 2,864,757 in 1995 2,865 2,865
Capital in excess of par value 3,261,885 3,290,355
Accumulated deficit (1,144,238) (976,536)
Total stockholders' equity 2,120,658 2,316,830
$ 4,976,487 $ 5,350,875
</TABLE>
THE QUIZNO'S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June
30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (167,702)
$ (343,550)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 139,573 110,876
Provision for losses on accounts receivable 4,200
2,877
Reserve for losses on stores sold(45,371) (16,931)
Promissory notes accepted for area director fees(325,712)
- --
Changes in assets and liabilities:
Restricted cash (412) (704)
Accounts receivable (91,033) (158,040)
Other current assets (87,650) (78,374)
Accounts payable 39,610 53,985
Accrued liabilities 15,061 95,714
Deferred franchise costs (150,399) (17,371)
Deferred initial franchise fees 185,431 111
,772
Other (12,101)
- --
Net cash used in operations (496,505) (239,746)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (181,735) (233,472)
Proceeds from sales of stores held for resale --
99,000
Acceptance of notes receivable (135,000) (211,515)
Principal payments received on notes receivable 92,365
- --
Intangible assets (12,389) (52,034)
Change in deposits 7,584 21,487
Investment in stores under development --
- --
Net cash used in investing activities (229,175) (37
6,534)
</TABLE>
(continued on next page)
THE QUIZNO'S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable$ 29,511 $
- --
Principle payments on long term obligations (118,554)
(220,598)
Principle payments on lines of credit(50,000) (50,000)
Proceeds from issuance of common stock-- 4,394
Dividends paid (28,470) (28,470)
Net cash used in financing activities (167,513) (
294,674)
Net decrease in cash (893,193) (910,954)
Cash, beginning of period 1,684,422 3,112,575
Cash, end of period $ 791,229 $ 2,201,621
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest$ 38,658 $
64,680
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
On May 15, 1996, the Company subleased a Company owned
restaurant located in Denver and granted the sublessee an
option to purchase the subleased assets for $95,000 at any
time during the term of the sublease. The rent required to
be paid to the Company under the sublease is based on the
sales of the restaurant. The net book value of the assets
subleased is $148,251, which amount is classified as
property and equipment on the books of the Company and is
being depreciated over the estimated useful life of the
subleased assets. If the option is exercised, the Company
will record a gain or loss at that time equal to the
difference between the purchase price and the depreciated
net book value of the subleased assets.
(continued on next page)
THE QUIZNO'S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page)
During the first quarter of 1996, the Company subleased a
Company owned restaurant located in Detroit and granted the
sublessee an option to purchase the restaurant through
December 31, 1996 for $135,000. During the first quarter of
1996, the assets of the restaurant were reclassified from
Assets of Stores Held for Resale to Property and Equipment,
and written down to the amount of the option price, with the
loss, which had been accrued at December 31, 1995, charged
to Provision for Loss on Stores Held for Resale.
During the first quarter of 1995, the Company issued 2,500
shares of its $.001 par value common stock to Berger
Restaurant Corporation in exchange for the general partner's
interest in Quiz One Limited Partnership owned by Berger
Restaurant Corporation. The shares and the general
partner's interest were valued at $10,000.
(Remainder of page intentionally left blank)
THE QUIZNO'S CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Additional
Preferred Stock Common Stock Paid-In
Accumulated
Shares Amount Shares Amount
Capital Deficit
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995
146,000 $ 146 2,860,000 $ 2,860$ 3,339,495 $ (684,964)
Issuance of common stock
in exchange for general
partnership interest-- -- 2,500 3 9,997 --
Purchase price paid for Quiz
One Limited Partnership
general partner's interest
over historical book value
(goodwill) -- -- -- -- (10,000) --
Issuance of common stock
pursuant to employee
benefit plan -- -- 2,257 2 7,803 --
Preferred stock dividends-- -- -- -- (56,940) --
Net loss -- -- -- --
(291,572)
Balances at December 31, 1995
146,000 1462,864,757 2,865 3,290,355 (976,536)
Preferred stock dividends-- -- -- -- (28,470) --
Net loss -- -- -- --
- -- (167,702)
Balances at June 30, 1996146,000$ 1462,864,757$ 2,865$ 3,261,885 $(1,144,2
38)
</TABLE>
THE QUIZNO'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments necessary for a fair
statement of (a) the results of consolidated operations for the
three and six month periods ended June 30, 1996 and June 30,
1995, (b) the consolidated financial position at June 30, 1996,
(c) the statements of cash flows for the six month periods ended
June 30, 1996 and June 30, 1995, and (d) the consolidated changes
in stockholders' equity for the six month period ended June 30,
1996, have been made.
2. The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information.
Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles
for financial statements. For further information, refer to the
audited consolidated financial statements and notes thereto for
the year ended December 31, 1995, included in the Company's
Annual Report on Form 10-KSB to the Securities and Exchange
Commission filed on March 29, 1996.
3. The results for the three and six month periods ended June
30, 1996 are not necessarily indicative of the results for the
entire fiscal year of 1996.
4. RELATED PARTY TRANSACTIONS
In 1995, the Company sold the Detroit area directorship to
Michigan Restaurant Development Corp., which is 100% owned by a
director and major stockholder of the Company, for $150,000 paid
in cash.
Two directors of the Company, one of whom is a major
stockholder, own more than 50% of the outstanding shares of
Illinois Food Managers, Inc, which owns the Chicago area
directorship and two operating franchises in Chicago, one of
which was sold to an unrelated franchisee in June of 1996.
Two directors and major stockholders of the Company own 55%
of S&K Food Services, Inc., which was a franchisee until such
franchise was sold in October, 1995.
Two directors and major stockholders of the Company loaned
Schaden and Schaden, Inc. (Schaden) $99,243 in 1991 and another
$62,000 in 1994 under notes payable agreements. The notes were
assumed by the Company when it acquired Schaden in 1994.
THE QUIZNO'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Summarized below is a recap of related party transactions
included in the financial statements as of June 30:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Assets
Accounts receivable $24,372 $ 43,591
Current portion of notes receivable
13,734 5,331
Notes receivable 74,708 25,925
Liabilities
Current portion of long
term obligations 6,076 41,810
Long term obligations 13,117 27,350
Revenue
Royalty fees 14,066
26,781
Other income 6,900
16,587
Expenses
General and administrative 36,474 28,517
</TABLE>
5. LITIGATION
On May 24, 1996, an area director filed suit against the
Company seeking damages in connection with the termination of
their area director agreement. The Company denies all claims and
is vigorously defending this action. The case has not yet
reached the discovery stage and the Company has not been able to
assess all merits of the area director's claims, but, based on
the information available at this time, Management believes the
resolution of this matter will not have a material adverse effect
on the financial condition of the Company.
THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company's primary business, and the focus of its
organizational structure, continues to be franchising QUIZNO'S
restaurants. As a franchisor, revenue is derived from; (1) area
director marketing fees, (2) initial franchise fees, and (3)
royalties paid by franchisees. Area director fees occur only
once for each exclusive area sold. Although the Company believes
there are a substantial number of markets remaining to be sold,
eventually such fees are expected to decline as the number of
available remaining markets decline. Initial franchise fees are
one time fees paid upon the sale of a franchise and vary directly
with the number of franchises the Company can sell and open.
Royalties, on the other hand, are ongoing fees paid by every
franchised restaurant and will increase as the number of
franchised restaurants increase. Each of these sources of
revenue contributes to the profitability of the Company, but the
relative contribution of each source will vary as the Company
matures. The Company expects that over time initial franchise
fees and royalties will generate proportionally more revenue than
area director marketing fees.
The following chart reflects the Company's growth in terms of
units, franchise sales, and systemwide sales.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Restaurants open, beginning 116 72 105
66
New restaurants opened 13 9 26 15
Restaurants closed (1) - (3)
- -
Restaurants open, end 128 81 128 81
New franchises sold 30 8 54
17
Initial franchise fees collected$343,000 $145,000 $768,000
$325,500
</TABLE>
<TABLE>
<CAPTION>
As of June 30,
1996 1995
<S> <C> <C>
Franchises sold, not open 89 55
Area Directors 59 36
Company Stores 7 10
Stores held for resale -
- -
</TABLE>
THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations
Comparison of the First Half of 1966 with the First Half of 1995
and the Second Quarter of 1996 with the Second Quarter of 1995
Total revenue increased 39% in the second quarter of 1996 to
$2,091,044 from $1,509,300 for the same period last year. In the
first half, revenue increased 34% to $3,656,387 from $2,721,663
in the first half of 1995.
Franchise related revenue (royalties, franchise and area
director fees) increased 105% in the second quarter and 93% in
the first half.
Royalty fees increased 56% in the second quarter of 1996 to
$395,286 from $254,152 in the same period last year. For the
first half, royalty fees increased 54% compared to the first half
of 1995. Royalty fees are a percentage of each franchisee's
sales paid to the Company weekly or monthly and will increase as
new franchises open, sales increase, and as the average royalty
percentage increases. Company owned stores do not pay royalties.
At June 30, 1996, there were 121 franchises open as compared to
71 at June 30, 1995. The royalty fee is between 4% and 6%,
depending on when the franchise was purchased. The Company has
no immediate plans to further increase its royalty fee.
Initial franchise fees increased 143% in the second quarter
of 1996 to $242,500 from $100,000 in the same period last year.
For the first half, initial franchise fees increased 184%
compared to the first half of 1995. Initial franchise fees are
one time fees paid by franchisees at the time the franchise is
sold, and are not recognized as income until the period in which
all of the Company's obligations relating to the sale have been
substantially performed, which generally occurs when the
franchise opens. In the first half of 1996, the Company opened
26 franchises as compared to 15 franchises opened in the same
period in 1995. The Company's initial franchise fee has been
$20,000 since November 1, 1994. Some of the franchises opened in
the first quarter of 1996 purchased the franchise before November
1, 1994 and paid an initial franchise fee less than $20,000.
Beginning in 1996, the Company will sell an existing franchisee a
second franchise for $15,000, and a third for $10,000. For
franchises to be operated in non-traditional kiosk type locations
with another business, the initial franchise fee is $10,000 for
the first, $7,500 for the second and $5,000 for additional
franchises.
THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
From June 1, 1996 through August 31, 1996, the Company will
sell to approved franchisees one additional franchise for every
currently effective franchise agreement for an initial franchise
fee of $1,000. Such franchises must be opened by December 31,
1996. If the purchaser does not have a franchise currently open,
the first franchise must be open by December 31, 1996 and the
second franchise, purchased under this discount program, must be
opened by December 31, 1997. As of June 30, 1996, the Company
had sold eight such franchises, none of which had opened.
Area director marketing fees increased 139% in the second
quarter of 1996 to $637,167 from $266,203. For the first half,
area director marketing fees increased 99% compared to the first
half of 1995. Area director marketing fees are one time fees
paid to the Company for the right to sell franchises in a
designated, non-exclusive, geographical area. The fee is $.03
(increased to $.035 effective July 1, 1996) per person in the
designated area, plus a training fee of $12,500. The population
based portion of the fee is deemed fully earned by the Company
when the area director marketing agreement is signed and is
recognized as income in that period. During the second quarter,
15 area directorships were sold compared to five in the second
quarter of 1995. In the first half of 1996, the Company sold 19
area directorships as compared to seven area directorships sold
in the first half of 1995. At June 30, 1996, the Company had a
total of 59 area directors who owned areas encompassing a
population base equal to approximately 51% of the population of
the United States.
In 1995, the Company began offering long term financing to
certain area director candidates for up to 50% of the area
director marketing fee. The amount financed is required to be
paid to the Company in installments over five years at 15%
interest. The promissory notes are personally signed by the area
director and secured by collateral unrelated to the area
directorship, usually a second mortgage in the area director's
home. Of the 19 area directorships sold in the first half of
1996, one used this financings for $22,500. A portion, $303,341
as of June 30, 1996, of the area director marketing fees for the
second quarter of 1996, were financed for terms of approximately
30 days.
Sales by Company owned stores decreased by 10% in the second
quarter of 1996 to $709,258 from $784,533 in the second quarter
of 1995. For the first half, sales by Company owned store
decreased by 8% from the first half of 1995. In the second
quarter of 1996, the Company operated six stores for the full
three months, one for one month until its sale to a franchisee in
May, 1996, and one located in a baseball stadium which re-opened
in April, 1996 for three months, a total of 22 store operating
months. In the second quarter of 1995, the Company operated ten
stores for a total of 25 operating months. For the second
quarter, Company stores earned a profit of $17,211 compared to a
loss of $19,098 in the same quarter last year. During the first
half of 1996, the
THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Company earned a profit of $26,778 at Company stores compared to
a loss of $53,665 in the same period last year. The Company has
entered into an agreement to acquire a Quizno's restaurant
located in Denver from a franchisee, which acquisition is
expected to be completed in the third quarter of 1996, and
operate the restaurant as a Company owned store. Management does
not expect to acquire or sell a significant number of Company
stores in 1996.
The net loss from stores held for resale was $18,789 in the
first half of 1996. There were no stores held for resale in the
first half of 1995. The 1996 loss is attributable to one store
taken over during the first quarter from a franchisee and
operated by the Company until it was resold to a new franchisee
in April, 1996.
Sales and royalty commissions expense increased 317% to
$225,462 in the second quarter of 1996 from $54,036 in the second
quarter of 1995. For the first half, sales and royalty
commission increased 346%. Sales and royalty commissions
represent amounts paid to the area directors of the Company under
the area director program implemented in March of 1995. Since
this program was not implemented until the end of the first
quarter of 1995, the related expenses for the first half of 1995
were small. Area directors receive a sales commission equal to
50% of the initial franchise fees received by the Company for
franchises sold and opened in the area director's territory.
Area directors also are paid 40% of the royalties received by the
Company from franchises open in the area director's territory.
In exchange for these payments, the area director is required to
market and sell franchises, provide location selection
assistance, provide on-site opening assistance to new
franchisees, and perform monthly quality control reviews at each
franchise open in the area director's territory. Sales and
royalty commission expense is expected to continue to increase in
direct proportion to the number of franchise openings and the
increase in royalty fee revenue.
Franchise advertising and promotion expenses increased to
$75,213 in the second quarter of 1996 from $9,706 in the second
quarter of 1995, and increased to $163,786 in the first half
compared to $17,157 in the first half of 1995. The increase
reflects the Company's commitment to an aggressive and rapid
franchise sales and development program, which includes
consistent and regular national advertising of the Company's
franchise opportunity combined with regularly scheduled
orientation and discovery days for franchise and area director
candidates.
General and administrative expenses increased 46% to
$962,166 for the second quarter of 1996 from $658,766 in the same
period last year. For the first half, general and administrative
expenses increased 42% from the same period last year. General
and administrative
THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
expenses include all of the operating expenses of the Company.
The increase in general and administrative expenses is primarily
due to the addition of employees to service the rapidly growing
network of Quizno's franchisees and area directors. Wages,
indirect labor costs, and the travel associated with added
franchise support and franchise development personnel represent a
substantial portion of the increase. The Company believes its
general and administrative expenses are adequate and are not
excessive in relation to the size of the Company.
Loss on sale of Company stores was $72,617 in the first half
of 1996. The loss is primarily related to a franchised store in
Missouri that was taken over by the Company from a franchisee and
sold to a new franchisee, all within the first quarter of 1996.
In addition, the Company incurred costs related to the sale of a
Company owned store in Michigan sold in the first quarter of 1996
that were over and above the amount reserved at December 31,
1995. A Company owned store located in Denver was subleased to a
franchisee in the second quarter of 1996 for no gain or loss.
There were no Company stores sold in the first quarter of 1995.
Systemwide Data
Systemwide sales for the second quarter were up 59% to $8.9
million compared to $5.6 million for the same quarter last year.
Year to date systemwide sales were up 33% to $16.1 million over
$12.1 million for the first six months of 1995. Systemwide sales
are the total retail sales of all Quizno's restaurants, including
Company owned restaurants.
Same store sales were down .9% in the second quarter of
1996. The decrease is attributable, in large part, to the fact
that included in the mix are the Company's top volume stores in
Colorado which are approaching their maturity after several years
of double digit growth. Same store sales is based on 38 stores
open all of the second quarter of 1996 and the second quarter of
1995. The Company has changed its method of calculating same
store sales to exclude nontraditional units, units in default of
their franchise agreement for which such default is unlikely to
be cured, units being sold, and the first three months of
operations for new units. Because the Company will continue to
be in an aggressive growth mode for the next few years, it is
anticipated that same store sales will fluctuate as units
operating in evolving markets are tracked. The Company will
continue to concentrate on its overall rapid growth as a primary
goal and to provide interpretation of same store sales from year
to year.
THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Average unit volume for the 1995 calendar year was $321,000,
compared to $363,000 for the 1994 calendar year. In 1994, the
Quizno's restaurant was significantly redesigned to reduce
initial costs, reduce beakeven sales levels, and to fit the units
in spaces 50% to 60% smaller than previously required. The
Company expected reduced sales at these smaller locations, along
with a corresponding reduction in operating costs, including
rent, labor and utilities. Although volumes are lower, the
breakeven point is also lower, resulting in approximately the
same return on sales and a higher return on investment for such
locations.
Liquidity and Capital Resources
Net cash used by operating activities in the first half of
1996 was $496,505 compared to cash used in operating activities
of $239,746 in the same period last year. Of the $496,505 used
in operations in the first half of 1996, $325,712 is attributable
to short term promissory notes of which $398,017 was collected
subsequent to June 30, 1996.
Net cash used in investing activities in the first half of
1996 was $229,175 compared to cash used in investing activities
of $376,534 in the first half of 1995. Cash used by investing
activities in the first half of 1996 primarily related to the
purchase of property and equipment.
Cash used by financing activities in the first half of 1996
was $167,513 compared to cash used by financing activities of
$294,674 in the same period last year. The amounts for both
years represent primarily cash used for the reduction of debt and
the payment of preferred stock dividends.
The Company had cash and cash equivalents of $791,229 and
positive working capital of $987,615 at June 30, 1996. The
Company has a commitment to build and finance a turnkey store in
Florida on behalf of a franchisee, if requested. The Company
currently has no other commitments to build turnkey stores, nor
does the Company any longer offer a turnkey development program
to its franchises.
The Company has made commitments and has plans under way in
which it will provide up to approximately $360,000 in funds to be
used for retail advertising by franchisee advertising
cooperatives in several markets in 1996. Of this amount,
approximately $170,000 will be in the form of interest bearing
loans that will be repaid in 1997. The balance of approximately
$190,000 will be
THE QUIZNO'S CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
grants that will be expensed by the Company in 1996. Through
June 30, 1996, the Company has loaned $34,000 and made grants
totalling $48,613.
Other than the above, the Company's operations as a
franchisor are not capital intensive. The Company has been able
to finance its operations and growth, excluding Company owned
stores, through initial franchise fees, area director fees, and
royalties.
The Company does not expect seasonality to effect its
operations in a materially adverse manner. However, the
Company's restaurant sales, and therefore royalties, during the
months of November through February are generally lower due to
the location of a majority of its restaurants.
(Remainder of page intentionally left blank)
THE QUIZNO'S CORPORATION
Commission File Number: 000-23174
Quarter Ended June 30, 1996
Form 10-QSB
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Previously reported in Form 8-K of the Registrant filed
with the SEC on June 19, 1996.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of the Company was
held on June 7, 1996. At the meeting, the shareholders
voted on four proposals. The results of the voting are
as follows:
<TABLE>
<CAPTION>
Proposal #1 Election of Directors
For Withheld
<S> <C> <C> <C>
Richard E. Schaden 2,379,642
8,499
Richard F. Schaden 2,379,642
8,499
Frederick H. Schaden 2,379,642
8,499
Patrick E. Meyers 2,379,642
8,499
Brownell M. Bailey 2,379,642
8,499
Proposal #2 Increase the number of shares reserved
under the Company's Employee Stock Option
Plan
For Against Abstain Not Voted
2,302,364 31,835 3,797 50,145
Proposal #3 Increase the number of shares reserved
under the Company's Non-Employee Directors
and Advisors Stock Option Plan
For Against Abstain Not Voted
2,295,452 37,847 4,697 50,145
Proposal #4 Ratify the selection by the Board of
Directors of Ehrhardt Keefe Steiner &
Hottman, P.C. as independent auditors of the
Company for the 1996 fiscal year
For Against Abstain
2,377,535 7,009 3,597
</TABLE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3(ii) - Bylaws of the Registrant as
amended through June 30, 1996
(b) Reports of Form 8-K
Form 8-K of the Registrant, dated April 30, 1996,
reporting in Item 5 the signing of three Area
Director Marketing Agreements (filed May 2, 1996).
Form 8-K of the Registrant, dated June 18, 1996,
reporting in Item 5 on certain litigation
involving the Registrant and two of its officers
(filed June 19, 1996).
Form 8-K of the Registrant, dated June 20, 1996,
reporting in Item 5 the signing of three Area
Director Marketing Agreements (filed June 24,
1996) and the result of voting at the Registrant's
annual meeting.
THE QUIZNO'S CORPORATION
Commission File Number: 000-23174
Quarter Ended June 1996
Form 10-QSB
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE QUIZNO'S CORPORATION
By: Original signed by John L. Gallivan
John L. Gallivan
Chief Financial Officer
(Principal Financial and Accounting Officer)
Denver, Colorado
August 14, 1996
219116.001(B&F)
BYLAWS
OF
THE QUIZNO'S CORPORATION
ADOPTED AUGUST 25, 1994, AS AMENDED
ARTICLE ii
Offices and Agents
1. Principal Office. The principal office of the
Corporation may be located within or without the State of
Colorado, as designated by the most recent filing with the
Secretary of State of Colorado. The Corporation may have other
offices and places of business at such places within or without
the State of Colorado as shall be determined by the directors.
2. Registered Office. The registered office of the
Corporation required by the Colorado Business Corporation Act
must be continually maintained in the State of Colorado, and it
may be, but need not be, identical with the principal office, if
located in the State of Colorado. The address of the registered
office of the Corporation may be changed from time to time as
provided by the Colorado Business Corporation Act.
3. Registered Agent. The Corporation shall maintain
a registered agent in the State of Colorado as required by the
Colorado Business Corporation Act. Such registered agent may be
changed from time to time as provided by the Colorado Business
Corporation Act.
ARTICLE I
Shareholders Meetings
1. Annual Meetings. The annual meeting of the
shareholders of the Corporation shall be held at a date and time
fixed by resolution of the board of directors or by the president
in the absence of action by the board of directors. The annual
meeting of the shareholders shall be held for the purpose of
electing directors and transacting such other corporate business
as may come before the meeting. If the election of directors is
not held as provided herein at any annual meeting of the
shareholders, or at any adjournment thereof, the board of
directors shall cause the election to be held at a special
meeting of the shareholders as soon thereafter as it may
conveniently be held.
Notice of an annual meeting need not include a
description of the purpose or purposes of the meeting except when
the purpose of the meeting is to consider (i) an amendment to the
Articles of Incorporation of the Corporation, (ii) a merger or
share exchange in which the Corporation is a party and, with
respect to a share exchange, in which the Corporation's shares
will be acquired, (iii) the sale, lease, exchange or other
disposition, other than in the usual and regular course of
business, of all or substantially all of the property of the
Corporation or of another entity which the Corporation controls,
in each case with or without goodwill, (iv) the dissolution of
the Corporation or (v) any other purpose for which a statement of
purpose is required by the Colorado Business Corporation Act.
2. Special Meetings. Unless otherwise prescribed by
the Colorado Business Corporation Act, special meetings of the
shareholders of the Corporation may be called at any time by the
chairman of the board of directors, if any, by the president, by
resolution of the board of directors or upon receipt of one or
more written demands for a meeting, stating the purpose or
purposes for which it is to be held, signed and dated by the
holders of at least ten percent (10%) of all votes entitled to be
cast on any issue proposed to be considered at the meeting.
Notice of a special meeting shall include a description of the
purpose or purposes for which the meeting is called.
3. Place of Meeting. The annual meeting of the
shareholders of the Corporation may be held at any place, either
within or without the State of Colorado, as may be designated by
the board of directors. Except as limited by the following
sentence, the person or persons calling any special meeting of
the shareholders may designate any place, within or without the
State of Colorado, as the place for the meeting. If no
designation is made or if a special meeting shall be called other
than by the board of directors, the chairman of the board of
directors or the president, the place of meeting shall be the
principal office of the Corporation. A waiver of notice signed
by all shareholders entitled to vote at a meeting may designate
any place as the place for holding such meeting.
4. Notice of Meeting. Written notice stating the
date, time and place of the meeting shall be given no fewer than
ten (10) and no more than sixty (60) days before the date of the
meeting, except that if the number of authorized shares is to be
increased, at least thirty (30) days' notice shall be given.
Notice shall be given personally or by mail, private carrier,
telegraph, teletype, electronically transmitted facsimile or
other form of wire or wireless communication by or at the
direction of the president, the secretary, or the officer or
other person calling the meeting to each shareholder of record
entitled to vote at such meeting. If mailed and if in a
comprehensible form, such notice shall be deemed to be given and
effective when deposited in the United States mail, addressed to
the shareholder at his or her address as it appears in the
Corporation's current record of shareholders, with postage
prepaid. If notice is given other than by mail, and provided
that the notice is in comprehensible form, the notice is given
and effective on the date received by the shareholder. No notice
need be sent to any shareholder if three successive notices
mailed to the last known address of such shareholder have been
returned as undeliverable until such time as another address for
such shareholder is made known to the Corporation by such
shareholder.
When a meeting is adjourned to a different date, time
or place, notice need not be given of the new date, time or place
if the new date, time or place is announced at the meeting before
adjournment. At the adjourned meeting, the Corporation may
transact any business which might have been transacted at the
original meeting. If the adjournment is for more than 120 days,
or if a new record date is fixed for the adjourned meeting, a new
notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting as of the
new record date.
5. Waiver of Notice. A shareholder may waive any
notice of a meeting either before or after the time and date of
the meeting. The waiver shall be in writing, be signed by the
shareholder entitled to the notice and be delivered to the
Corporation for inclusion in the minutes or filing with the
corporate records, but such delivery and filing shall not be
conditions for effectiveness.
A shareholder's attendance at a meeting waives
objection to (i) lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting
objects to holding the meeting because of lack of notice or
defective notice, and (ii) consideration of a particular matter
at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder objects
to considering the matter when it is presented.
6. Fixing of Record Date. In order to determine
shareholders entitled (i) to be given notice of a shareholders
meeting (ii) to demand a special meeting, (iii) to vote, or (iv)
to take any other action, the board of directors may fix a future
date as the record date, such date, in any case, shall not be
more than seventy (70) days and in case of a meeting of
shareholders not less than ten (10) days prior to the date on
which the particular action requiring such determination of
shareholders is to be taken. If no record date is fixed, the
record date shall be the date on which notice of the meeting is
mailed or the date on which a resolution of the board of
directors providing for a distribution is adopted, as the case
may be. When a determination of shareholders entitled to vote at
any meeting of shareholders is made as provided in this Section
6, such determination shall apply to any adjournment thereof.
Notwithstanding the foregoing, the record date for
determining the shareholders entitled to take action without a
meeting or entitled to be given notice of action so taken shall
be the date a writing upon which the action is taken is first
received by the Corporation. The record date for determining
shareholders entitled to demand a special meeting shall be the
date of the earliest of the demands pursuant to which the meeting
is called.
7. Voting List. After fixing a record date for a
shareholder's meeting, the Corporation shall prepare a list of
names of all its shareholders who are entitled to be given notice
of the meeting. The list shall be arranged by voting groups and
within each voting group by class or series, and shall show the
address of, and the number of shares of each class or series that
are held by each shareholder.
The shareholders' list shall be available for
inspection by any shareholder, beginning the earlier of ten (10)
days before the meeting for which the list was prepared or two
(2) business days after notice of the meeting is given and
continuing through the meeting, and any adjournment thereof, at
the Corporation's principal office or at a place identified in
the notice of the meeting in the city where the meeting will be
held.
A shareholder, his agent or attorney, may upon written
demand, inspect and copy the list during regular business hours
and during the period it is available for inspection, provided,
(i) the shareholder has been a shareholder for at least three (3)
months immediately preceding the demand or holds at least five
percent (5%) of all outstanding shares of any class of shares as
the date of the demand, (ii) the demand is made in good faith and
for a purpose reasonably related to the demanding shareholder's
interest as a shareholder, (iii) the shareholder describes with
reasonable particularity the purpose and records the shareholder
desires to inspect, (iv) the records are directly connected with
the described purpose and (v) the shareholder pays a reasonable
charge covering the costs of labor and material for such copies,
not to exceed the cost of production and reproduction.
8. Proxies. At all meetings of shareholders, a
shareholder may vote by proxy by signing an appointment form
either personally or by his or her duly authorized
attorney-in-fact. A shareholder may also appoint a proxy by
transmitting or authorizing the transmission of a telegram,
teletype, or other electronic transmission providing a written
statement of the appointment to the proxy, to a proxy solicitor,
proxy support service organization or other person duly
authorized by the proxy to receive appointments as agent for the
proxy, or to the Corporation. The transmitted appointment shall
set forth or be transmitted with written evidence from which it
can be determined that the shareholder transmitted or authorized
the transmission of the appointment. The proxy appointment form
shall be filed with the Secretary of the Corporation by or at the
time of the meeting. The appointment of a proxy is effective
when received by the Corporation and is valid for eleven (11)
months unless a different period is expressly provided in the
appointment form.
Any complete copy, including an electronically
transmitted facsimile, of an appointment of a proxy may be
substituted for or used in lieu of the original appointment for
any purpose for which the original appointment could be used.
Revocation of a proxy does not affect the right of the
Corporation to accept the proxy's appointment unless (i) the
Corporation had notice that the appointment was coupled with an
interest and notice that the interest is extinguished is received
by the Secretary or other officer or agent authorized to tabulate
votes before the proxy exercises his authority under the
appointment or (ii) other notice of the revocation of the
appointment is received by the Secretary or other officer or
agent authorized to tabulate votes before the proxy exercises his
authority under the appointment. Other notice of revocation may,
in the discretion of the Corporation, be deemed to include the
appearance at a shareholders meeting of the shareholder who
granted the proxy appointment and his voting in person on any
matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a
proxy does not affect the right of the Corporation to accept the
proxy's authority unless notice of the death or incapacity is
received by the Secretary or other officer or agent authorized to
tabulate votes before the proxy exercised his authority under the
appointment.
The Corporation shall not be required to recognize an
appointment made irrevocable if it has received a writing
revoking the appointment signed by the shareholder either
personally or by the shareholder's attorney-in-fact,
notwithstanding that the revocation may be a breach of an
obligation of the shareholder to another person not to revoke the
appointment.
A transferee for value of shares subject to an
irrevocable appointment may revoke the appointment if the
transferee did not know of its existence when he acquired the
shares and the irrevocable appointment was not noted on the
certificate representing the shares.
Subject to the provisions of Article II, Section 10
below or any express limitation on the proxy's authority
appearing on the appointment form, a corporation is entitled to
accept the proxy's vote or other action as that of the
shareholder making the appointment.
9. Voting Rights. Each outstanding share, regardless
of class, is entitled to one vote and each fractional share is
entitled to a corresponding fractional vote, on each matter voted
on at a shareholder's meeting except to the extent that the
voting rights of the shares of any class or classes are limited
or denied by the Articles of Incorporation. Only shares are
entitled to vote. Voting on any question or in any election may
be by voice vote unless the presiding officer shall order, or any
shareholder shall demand, that voting be by ballot.
Cumulative voting in the election of directors shall
not be permitted.
Except as otherwise ordered by a court of competent
jurisdiction upon a finding that the purpose of this Section 9
would not be violated in the circumstances presented to the
court, the shares of the Corporation are not entitled to be voted
if they are owned, directly or indirectly, by another
corporation, domestic or foreign, and the Corporation owns,
directly or indirectly, a majority of the shares entitled to vote
for directors of the other corporation, except to the extent the
other corporation holds the shares in a fiduciary capacity.
Redeemable shares are not entitled to be voted after
notice of redemption is mailed to holders and a sum sufficient to
redeem the shares has been deposited with a bank, trust company,
or other financial institution under an irrevocable obligation to
pay the holders the redemption price on surrender of the shares.
10. Corporation's Acceptance of Votes. If the name
signed on a vote, consent, waiver, proxy appointment, or proxy
appointment revocation corresponds to the name of a shareholder,
the Corporation, if acting in good faith, is entitled to accept
the vote, consent, waiver, proxy appointment, or proxy
appointment revocation and to give it effect as the act of the
shareholder. If the name signed on a vote, consent, waiver,
proxy appointment, or proxy appointment revocation does not
correspond to the name of a shareholder, the Corporation, if
acting in good faith, is nevertheless entitled to accept the
vote, consent, waiver, proxy appointment, or proxy appointment
revocation and to give it effect as the act of the shareholder
if:
(a) The shareholder is an entity and the name signed
purports to be that of an officer or agent of the entity;
(b) The name signed purports to be that of an
administrator, executor, guardian, or conservator representing
the shareholder and, if the Corporation requests, evidence of
fiduciary status acceptable to the Corporation has been presented
with respect to the vote, consent, waiver, proxy appointment or
proxy appointment revocation;
(c) The name signed purports to be that of a receiver
or trustee in bankruptcy of the shareholder and, if the
Corporation requests, evidence of this status acceptable to the
Corporation has been presented with respect to the vote, consent,
waiver, proxy appointment or proxy appointment revocation;
(d) The name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if
the Corporation requests, evidence acceptable to the Corporation
of the signatory's authority to sign for the shareholder has been
presented with respect to the vote, consent, waiver, proxy
appointment or proxy appointment revocation;
(e) Two or more persons are the shareholder as
cotenants or fiduciaries and the name signed purports to be the
name of at least one of the cotenants or fiduciaries and the
person signing appears to be acting on behalf of all the
cotenants or fiduciaries; or
(f) The acceptance of the vote, consent, waiver, proxy
appointment, or proxy appointment revocation is otherwise proper
under rules established by the Corporation that are not
inconsistent with the provisions of this Section 10.
The Corporation is entitled to reject a vote, consent,
waiver, proxy appointment or proxy appointment revocation if the
Secretary or other officer or agent authorized to tabulate votes,
acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's
authority to sign for the shareholder.
The Corporation and its officer or agent who accepts or
rejects a vote, consent, waiver, proxy appointment or proxy
appointment revocation in good faith and in accordance with the
standards of this Section 10 are not liable in damages for the
consequences of the acceptance or rejection.
11. Quorum and Voting Requirements. A majority of the
votes entitled to be cast on a matter by a voting group shall
constitute a quorum of that voting group for action on the matter
unless a lesser number is authorized by the Articles of
Incorporation. Once a share is represented for any purpose at a
meeting, including the purpose of determining that a quorum
exists, it is deemed present for quorum purposes for the
remainder of the meeting and for any adjournment of that meeting,
unless otherwise provided in the Articles of Incorporation or
unless a new record date is or shall be set for that adjourned
meeting.
If a quorum exists, action on a matter other than the
election of directors by a voting group is approved if the votes
cast within the voting group favoring the action exceed the votes
cast within the voting group opposing the action, unless the vote
of a greater number or voting by classes is required by law or
the Articles of Incorporation. For election of directors, those
candidates receiving the most votes shall be elected.
12. Adjournments. If less than a quorum of shares
entitled to vote is represented at any meeting of the
shareholders, a majority of the shares so represented may adjourn
the meeting from time to time without further notice, for a
period not to exceed 120 days at any one adjournment. If a
quorum is present at such adjourned meeting, any business may be
transacted which might have been transacted at the meeting as
originally noticed. Any meeting of the shareholders may adjourn
from time to time until its business is completed.
13. Action by Shareholders Without Meeting. Any
action required or permitted to be taken at a shareholders'
meeting may be taken without a meeting if all of the shareholders
entitled to vote thereon consent to such action in writing.
Action taken under this Section 13 shall be effective as of the
date the last writing necessary to effect the action is received
by the Corporation, unless all of the writings necessary to
effect the action specify a later date as the effective date of
the action, in which case such later date shall be the effective
date of the action. If the Corporation receives writings
describing and consenting to the action signed by all of the
shareholders entitled to vote with respect to the action, the
effective date of the action may be any date that is specified in
all of the writings as the effective date of the action. Any
such writings may be received by the Corporation by
electronically transmitted facsimile or other form of wire or
wireless communication providing the Corporation with a complete
copy thereof, including a copy of the signature thereto. Action
taken under this Section 13 has the same effect as action taken
at a meeting of shareholders and may be described as such in any
document.
Any shareholder who has signed a writing describing and
consenting to action taken pursuant to this Section 13 may revoke
such consent by a writing signed by the shareholder describing
the action and stating that the shareholder's prior consent
thereto is revoked, if such writing is received by the
Corporation before the effectiveness of the action.
14. Meetings by Telecommunication. Any or all of the
shareholders may participate in an annual or special
shareholders' meeting by, or the meeting may be conducted through
the use of, any means of communication by which all persons
participating in the meeting may hear each other during the
meeting. A shareholder participating in a meeting by this means
is deemed to be present in person at the meeting.
ARTICLE II
Board of Directors
1. General Powers. All corporate powers shall be
exercised by or under the authority of, and the business and
affairs of the Corporation shall be managed under the direction
of, the board of directors, except as otherwise provided in the
Colorado Business Corporation Act or the Articles of
Incorporation.
2. Number, Qualifications and Term of Office. The
number of directors of the Corporation shall be fixed from time
to time by resolution of the board of directors, within a range
of no less than three (3) or more than nine (9). A director
shall be a natural person who is eighteen years or older. A
director need not be a resident of the State of Colorado or a
shareholder of the Corporation.
Directors shall be elected at each annual meeting of
shareholders and shall hold such office until the next annual
meeting of shareholders and until his successor is elected and
qualifies. A decrease in the number of directors does not
shorten an incumbent director's term.
3. Resignation, Vacancies. Any director may resign
at any time by giving written notice to the Corporation. A
resignation of a director is effective when the notice is
received by the Corporation unless the notice specifies a later
effective date. Unless otherwise specified in the notice, the
acceptance of such resignation by the Corporation shall not be
necessary to make it effective. Any vacancy on the board of
directors may be filled by the affirmative vote of a majority of
the shareholders or by the affirmative vote of the board of
directors even if less than a quorum is remaining in office. If
elected by the directors, the director shall hold office until
the next annual shareholders' meeting at which directors are
elected. If elected by the shareholders, the director shall hold
office for the unexpired term of his or her predecessor in
office, except that, if the director's predecessor was elected by
the directors to fill a vacancy, the director elected by the
shareholders shall hold office for the unexpired term of the last
predecessor elected by the shareholders.
4. Removal of Directors by Shareholders. Unless
otherwise provided in the Articles of Incorporation, the
shareholders may remove one or more directors with or without
cause. A director may be removed by the shareholders only at a
meeting called for the purpose of removing the director and the
meeting notice states that the purpose, or one of the purposes,
of the meeting is removal of the director.
5. Removal of Directors by Judicial Proceeding. A
director may be removed by the District Court of the Colorado
county where the principal office is located or if the
Corporation has no principal office in the State of Colorado, by
the District Court of the Colorado county in which its registered
office is located, upon a finding by the District Court that the
director engaged in fraudulent or dishonest conduct or gross
abuse of authority or discretion with respect to the Corporation
and that removal is in the best interests of the Corporation.
The judicial proceeding may be commenced either by the
Corporation or by shareholders holding at least ten percent (10%)
of the outstanding shares of any class.
6. Compensation. By resolution of the board of
directors, any director may be paid any one or more of the
following: his expenses, if any, of attendance at meetings; a
fixed sum for attendance at each meeting; a stated salary as
director; or such other compensation as the Corporation and the
director may reasonably agree upon. No such payment shall
preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE III
Meetings of the Board
1. Place of Meetings. The regular or special
meetings of the board of directors shall be held at the
principal office of the Corporation unless otherwise designated.
2. Regular Meetings. The board of directors shall
meet each year after the annual meeting of the shareholders for
the purpose of appointing officers and transacting such other
business as may come before the meeting. The board of directors
may provide, by resolution, for the holding of additional regular
meetings without other notice than such resolution.
3. Special Meetings. Special meetings of the board
of directors may be called at any time by the chairman of the
board, if any, by the president or by a majority of the members
of the board of directors.
4. Notice of Meetings. Notice of the regular
meetings of the board of directors need not be given. Except as
otherwise provided by these Bylaws or the laws of the State of
Colorado, written notice of each special meeting of the board of
directors setting forth the time and the place of the meeting
shall be given to each director not less than two (2) days prior
to the date and time fixed for the meeting. Notice of any
special meeting may be either personally delivered or mailed to
each director at his business address, or by notice transmitted
by telegraph, telex, electronically transmitted facsimile or
other form of wire or wireless communication. If mailed, such
notice shall be deemed to be given and to be effective on the
earlier of (i) three (3) days after such notice is deposited in
the United States mail properly addressed, with postage prepaid,
or (ii) the date shown on the return receipt if mailed by
registered or certified mail return receipt requested. If notice
be given by telex, electronically transmitted facsimile or other
similar form of wire or wireless communication, such notice shall
be deemed to be given and to be effective when sent, and with
respect to a telegram, such notice shall be deemed to be given
and to be effective when the telegram is delivered to the
telegraph company. If a director has designated in writing one
or more reasonable addresses or facsimile numbers for delivery of
notice to him, notice sent by mail, telegraph, telex,
electronically transmitted facsimile or other form of wire or
wireless communication shall not be deemed to have been given or
to be effective unless sent to such addresses or facsimile
numbers, as the case may be. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting
of the board of directors need be specified in the notice or
waiver of notice of such meeting.
5. Waiver of Notice. A director may, in writing,
waive notice of any special meeting of the board of directors
either before, at, or after the meeting. Such waiver shall be
delivered to the Corporation for filing with the corporate
records. Attendance or participation of a director at a meeting
waives any required notice of that meeting unless at the
beginning of the meeting or promptly upon the director's arrival,
the director objects to holding the meeting or transacting
business at the meeting because of lack of notice or defective
notice and does not thereafter vote for or assent to action taken
at the meeting.
6. Quorum, Manner of Acting. At meetings of the
board of directors a majority of the number of directors fixed by
resolution of the board shall constitute a quorum for the
transaction of business. If the number of directors is not
fixed, then a majority of the number in office immediately before
the meeting begins, shall constitute a quorum. If a quorum is
present when a vote is taken, the affirmative vote of a majority
of directors present is the act of the board of directors unless
the vote of a greater number is required by these Bylaws, the
Articles of Incorporation or the Colorado Business Corporation
Act.
7. Presumption of Assent. A director who is present
at a meeting of the board of directors when corporate action is
taken is deemed to have assented to the action taken unless:
(a) the director objects at the beginning of such
meeting or promptly upon his or her arrival, to the holding of
the meeting or the transacting of business at the meeting and
does not thereafter vote for or assent to any action taken at the
meeting;
(b) the director contemporaneously requests that his
or her dissent or abstention as to any specific action taken be
entered in the minutes of such meeting; or
(c) the director causes written notice of his or her
dissent or abstention as to any specific action to be received by
the presiding officer of such meeting before its adjournment or
by the Corporation promptly after adjournment of such meeting.
The right of dissent or abstention as to a specific
action taken in a meeting of a board is not available to a
director who votes in favor of the action taken.
8. Committees. The board of directors may, by a
resolution adopted by a majority of all of the directors in
office when the action is taken, designate one of more of its
members to constitute an executive committee, and one or more
other committees. To the extent provided in the resolution, each
committee shall have and may exercise all of the authority of the
board of directors, except that no such committee shall have the
authority to: (i) authorize distributions; (ii) approve or
propose to shareholders action required by the Colorado Business
Corporation Act to be approved by shareholders; (iii) fill
vacancies on the board of directors or any committee thereof;
(iv) amend the Articles of Incorporation; (v) adopt, amend or
repeal these Bylaws; (vi) approve a plan of merger not requiring
shareholder approval; (vii) authorize or approve the
reacquisition of shares except in accordance with a formula or
method prescribed by the board of directors; or (viii) authorize
or approve the issuance or sale of shares, or a contract for the
sale of shares, or determine the designation, relative rights,
preferences and limitations of a class or series of shares;
except that the board of directors, may authorize a committee or
an officer to do so within limits specifically prescribed by the
board of directors. The conduct of committee meetings shall
comply with the provisions of this Article IV relating to board
of director meetings.
The creation of, delegation of authority to, or action
by a committee does not alone constitute compliance by a director
with the standards of conduct set forth in Article V.
9. Informal Action by Directors. Any action required
or permitted be taken at a board of directors' meeting may be
taken without a meeting if all members of the board consent to
such action in writing. Action taken under this Section 9 is
effective at the time the last director signs a writing
describing the action taken unless the directors establish a
different effective date, and unless, before such time, a
director has revoked his or her consent by a writing signed by
the director and received by the president or secretary. Action
taken pursuant to this Section 9 has the same effect as action
taken at a meeting of the directors and may be described as such
in any document.
10. Telephonic Meetings. Members of the board of
directors may participate in a regular or special meeting by or
conduct the meeting through the use of any means of communication
by which all directors participating may hear each other during
the meeting. A director participating in a meeting by this means
is deemed to be present in person at the meeting.
ARTICLE IV
Standards of Conduct
Each director shall perform his or her duties as a
director, including his or her duties as a member of any
committee, and each officer with discretionary authority shall
discharge his or her duties under that authority, (i) in good
faith, (ii) with the care an ordinarily prudent person in a like
position would exercise under similar circumstances, and in a
manner he or she reasonably believes to be in the best interest
of the Corporation.
In discharging his or her duties, a director or officer
is entitled to rely on information, opinions, reports, or
statements, including financial statements and other financial
data, if prepared or presented by (i) one or more officers or
employees of the Corporation whom the director or officer
reasonably believes to be reliable and competent in the matters
presented, (ii) legal counsel, a public accountant, or other
person as to matters which the director or officer reasonably
believes to be within such persons' professional or expert
competence or (iii) in the case of a director, a committee of the
board of directors of which the director is not a member if the
director reasonably believes the committee merits confidence.
A director or officer is not acting in good faith if he
or she has knowledge concerning the matter in question that makes
reliance otherwise permitted under this Article V unwarranted.
A director or officer is not liable as such to the
Corporation or its shareholders for any action he or she takes or
omits to take as a director or officer, as the case may be, if,
in connection with such action or omission, he or she performed
the duties of the position in compliance with this Article V.
ARTICLE V
Officers and Agents
1. General. The officers of the Corporation shall
consist of a president, secretary and treasurer, appointed
annually by the board of directors. Each officer shall be a
natural person eighteen years of age or older. The board of
directors or the president may appoint such other officers,
assistant officers, committees and agents, including a chairman
of the board, vice chairman of the board, one or more vice
presidents, assistant secretaries and assistant treasurers, as
they may consider necessary. To the extent not provided in these
bylaws, the board of directors or the president, as the case may
be, shall from time to time determine the procedure for the
appointment of officers, their term of office, their authority
and duties and their compensation. One person may hold more than
one office. In all cases where the duties of any officer, agent,
or employee are not prescribed by these Bylaws or by the board of
directors, such officer, agent or employee shall follow the
orders and instructions of the president of the Corporation.
Any officer appointed by the board of directors shall
have the power to execute and deliver on behalf of and in the
name of the Corporation any instrument requiring the signature of
an officer of the Corporation, except as otherwise provided in
these Bylaws or where the execution and delivery thereof shall be
expressly delegated by the board of directors to some other
officer or agent of the Corporation. Unless authorized to do so
by these Bylaws or by the board of directors, no officer, agent
or employee shall have any power or authority to bind the
Corporation in any way, to pledge its credit or to render it
liable pecuniarily for any purpose or in any amount.
2. Appointment and Term of Office. The officers of
the Corporation appointed by the board of directors shall be
appointed at each annual meeting of the board held after each
annual meeting of the shareholders. If the appointment of
officers is not made at such meeting or if an officer or officers
are to be appointed by another officer or officers of the
Corporation, such appointments shall be made as soon thereafter
as practicable. Officers appointed by the president may be
appointed for indeterminate terms.
3. Vacancies. A vacancy in any office, however
occurring, may be filled by the board of directors, or by the
officer or officers authorized by these bylaws or the board of
directors, for the unexpired portion of the officer's term.
4. Resignation. An officer may resign at any time by
giving written notice of resignation to the Corporation. A
resignation of an officer is effective when the notice is
received by the Corporation unless the notice specifies a later
effective date. If a resignation is made effective at a later
date, the board of directors may permit the officer to remain in
office until the effective date and may fill the pending vacancy
before the effective date if the board of directors provides that
the successor does not take office until the effective date, or
the board of directors may remove the officer at any time before
the effective date and may fill the resulting vacancy.
5. Removal. Any officer or agent of this Corporation
may be removed with or without cause by the board of directors,
an officer or officers authorized by the board of directors, or
the officer that appointed such officer or agent.
6. Contract Rights. Appointment of an officer does
not itself create contract rights. An officer's removal does not
affect the officer's contract rights, if any, with the
Corporation. An officer's resignation does not affect the
Corporation's contract rights, if any, with the officer.
7. Chairman of the Board. The chairman of the board,
if any, shall preside as chairman at meetings of the shareholders
and the board of directors. He or she shall, in addition, have
such other duties as the board may prescribe that he or she
perform. At the request of the president, the chairman of the
board may, in the case of the president's absence or inability to
act, temporarily act in his or her place. In the case of death
of the president or in the case of his or her absence or
inability to act without having designated the chairman of the
board to act temporarily in his place, the chairman of the board
shall perform the duties of the president, unless the board of
directors, by resolution, provides otherwise. If the chairman of
the board shall be unable to act in place of the president, the
vice presidents may exercise such powers and perform such duties
as provided in Section 9 below.
8. Vice-Chairman of the Board. The Vice Chairman of
the Board, if any, in the absence of the Chairman of the Board,
shall preside at all meetings of the shareholders and of the
Board of Directors. He shall have such other powers and duties
as may from time to time be prescribed by the Board of Directors.
9. President. Subject to the direction and
supervision of the board of directors, the president shall be the
chief executive officer of the Corporation and shall have general
and active control of its affairs and business and general
supervision of its officer, agents and employees. In the event
the position of chairman or vice-chairman of the board shall not
be occupied or the chairman or vice-chairman shall be absent or
otherwise unable to act, the president shall preside at meetings
of the shareholders and directors and shall discharge the duties
of the presiding officer. The president may sign, with the
secretary or any other proper officer of the Corporation
thereunto authorized by the board of directors, certificates for
shares of the Corporation, any deeds, mortgages, bonds,
contracts, or other instruments which the board of directors has
authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the board of
directors or by these Bylaws to some other officer or agent of
the Corporation, or shall be required by law to be otherwise
signed or executed. Unless otherwise directed by the board of
directors, the president shall attend in person or by substitute
appointed by him, or shall execute on behalf of the Corporation
written instruments appointing a proxy or proxies to represent
the Corporation at, all meetings of the shareholders of any other
corporation in which the Corporation holds any stock. On behalf
of the Corporation, the president may in person or by substitute
or by proxy execute written waivers of notice and consents with
respect to any such meetings. At all such meetings and
otherwise, the president, in person or by substitute or proxy,
may vote the stock held by the Corporation, execute written
consents and other instruments with respect to such stock and
exercise any and all rights and powers incident to the ownership
of said stock.
10. Vice Presidents. Each vice president shall have
such powers and perform such duties as the board of directors may
from time to time prescribe or as the president may from time to
time delegate to him. At the request of the president, in the
case of the president's absence or inability to act, any vice
president may temporarily act in his place. In the case of the
death of the president, or in the case of his absence or
inability to act without having designated a vice president or
vice presidents to act temporarily in his place, the board of
directors, by resolution, may designate a vice president or vice
presidents, to perform the duties of the president. If no such
designation shall be made, the chairman of the board of
directors, if any, shall exercise such powers and perform such
duties, as provided in Section 8 of this Article V, but if the
Corporation has no chairman of the board of directors, or if the
chairman is unable to act in place of the president, any of the
vice presidents appointed by the board of directors may exercise
such powers and perform such duties.
11. Secretary. The secretary shall (i) prepare, or
cause to be prepared, and maintain as permanent records the
minutes of the proceedings of the shareholders and the board of
directors or any committee thereof, a record of all actions taken
by the shareholders or board of directors or any committee
thereof without a meeting and a record of all waivers of notice
of meetings of shareholders and of the board of directors or any
committee thereof, (ii) see that all notices are duly given in
accordance with the provisions of these Bylaws and as required by
law, (iii) serve as custodian of the records and of the seal of
the Corporation and affix the seal to all documents, (iv) keep
at the registered office or principal place of business, a record
containing the names and addresses of all shareholders in a form
that permits preparation of a list of shareholders arranged by
voting group and by class or series of shares within each voting
group, that is alphabetical within each class or series and that
shows the address of, and the number of shares of each class or
series held by, each shareholder, unless such a record shall be
kept at the office of the Corporation's transfer agent or
registrar, (v) maintain at the Corporation's principal office the
originals or copies of the Corporation's Articles of
Incorporation, Bylaws, minutes of all shareholders' meeting and
records of all action taken by shareholders without meeting for
the past three years, all written communications within the past
three years to shareholders as a group or to the holders of any
class or series of shares as a group, a list of the names and
business addresses of the current directors and officers, a copy
of the Corporation's most recent corporate report filed with the
Secretary of State, and financial statements showing in
reasonable detail the Corporation's assets and liabilities and
results of operations for the last three years, (vi) have general
charge of the stock transfer books of the Corporation, unless the
Corporation has a transfer agent, (vii) authenticate records of
the Corporation and (viii) in general, perform all duties
incident to the office of secretary and such other duties as from
time to time may be assigned to him by the president or by the
board of directors. Assistant secretaries, if any, shall have
the same duties and powers, subject to supervision by the
secretary. The directors and/or shareholders may however
respectively designate a person other than the secretary or
assistant secretary to keep the minutes of their respective
meetings.
12. Treasurer. The treasurer shall be the chief
financial officer of the Corporation, shall have care and custody
of all corporate funds, securities, evidences of indebtedness and
other personal property of the Corporation and shall deposit the
same in accordance with the instructions of the board of
directors. The treasurer shall receive and give receipts and
acquittances for money paid in on account of the Corporation, and
shall pay out of the Corporation's funds on hand all bills,
payrolls and other just debts of the Corporation of whatever
nature upon maturity. Such power given to the treasurer to
deposit and disburse funds shall not, however, preclude any other
officer or employee of the Corporation from also depositing and
disbursing funds when authorized to do so by the board of
directors. The treasurer shall, if required by the board of
directors, give the Corporation a bond in such amount and with
such surety or sureties as may be ordered by the board of
directors for the faithful performance of duties of his office.
The treasurer shall have such other powers and perform such other
duties as may be from time to time prescribed by the board of
directors or the president. The assistant treasurers, if any,
shall have the same powers and duties, subject to the supervision
of the treasurer.
The treasurer shall also be the principal accounting
officer of the Corporation and shall prescribe and maintain the
methods and systems of accounting to be followed, keep complete
books and records of account as required by the Colorado Business
Corporation Act, prepare and file all local, state and federal
tax returns, prescribe and maintain an adequate system of
internal audit and prepare and furnish the president and the
board of directors statements of account showing the financial
position of the Corporation and the results of its operations.
13. Assistant Secretaries and Assistant Treasurers.
The Assistant Secretaries and the Assistant Treasurers
respectively (in the order designated by the Board of Directors
or, lacking such designation, by the President), in the absence
of the Secretary or Treasurer, as the case may be, shall perform
the duties and exercise the powers of such Secretary or Treasurer
and shall perform such other duties as the Board of Directors
shall prescribe.
14. Delegation of Duties. Whenever an officer is
absent, or whenever, for any reason, the board of directors may
deem it desirable, the board may delegate the powers and duties
of an officer to any other officer or officers or to any director
or directors.
15. Bond of Officers. The board of directors may
require any officer to give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the
board of directors for such terms and conditions as the board of
directors may specify, including, without limitation, for the
faithful performance of his duties and for the restoration to the
Corporation of all property in his or her possession or under his
or her control belonging to the Corporation.
ARTICLE VI
Share Certificates and the Transfer of Shares
1. Share Certificates. Each share certificate shall
state on its face (i) the name of the Corporation and that it is
incorporated under the laws of the State of Colorado, (ii) the
name of the person to whom the certificate is issued, and (iii)
the number and class of shares and the designation of the series,
if any, the certificate represents. Each share certificate shall
be signed, either manually or in facsimile, by the chairman or
vice-chairman of the board of directors or by the president or
the vice-president and by the treasurer or an assistant treasurer
or by the secretary or an assistant secretary, or such other
officers as the board of directors may designate, by resolution,
and may bear the corporate seal or its facsimile, and such other
information as may be deemed necessary or appropriate. If the
person who signed a share certificate either manually or in
facsimile, no longer holds office when the certificate is issued,
the certificate is nevertheless valid. If the Corporation is
authorized to issue different classes of shares or different
series within a class, the certificate shall state conspicuously
on its front or back that the Corporation will furnish the
shareholder information regarding the designations, preferences,
limitations and relative rights of each class and for each
series, upon written request and without charge.
2. Shares Without Certificates. The board of
directors may authorize the issuance by the Corporation of some
or all of the shares of any or all of its classes or series
without certificates. Said authorization shall not affect shares
already represented by certificates until they are surrendered to
the Corporation. Within a reasonable time after the issuance or
transfer of shares without certificates, the Corporation shall
send to the shareholder a written statement of the information
required by Section 1 of this Article VII.
3. Issuance of Shares. Except as provided in the
Articles of Incorporation, the board of directors may authorize
the issuance of shares for consideration consisting of any
tangible, intangible property or benefit to the Corporation,
including cash, promissory notes, services performed and other
securities of the Corporation. The board of directors shall
determine that the consideration received or to be received for
the shares to be issued is adequate. Such determination, in the
absence of fraud, is conclusive insofar as the adequacy of such
consideration relates to whether the shares are validly issued,
fully paid and nonassessable. The promissory note of a
subscriber or an affiliate of a subscriber for shares shall not
constitute consideration for the shares unless the note is
negotiable and is secured by collateral other than the shares,
having a fair market value at least equal to the principal amount
of the note. For the purposes of this Section 3, "promissory
note" means a negotiable instrument on which there is an
obligation to pay independent of collateral and does not include
a nonrecourse not. Unless otherwise expressly provided in the
Articles of Incorporation, shares having a par value may be
issued for less than the par value.
4. Lost Certificates. The board of directors may
direct a new certificate to be issued in place of a certificate
alleged to have been destroyed or lost if the owner makes an
affidavit or affirmation of that fact and produces such evidence
of loss or destruction as the board may require. The board, in
its discretion, may as a condition precedent to the issuance of a
new certificate require the owner to give the Corporation a bond
as indemnity against any claim that may be made against the
Corporation relating to the certificate allegedly destroyed or
lost.
5. Transfer of Shares.
(a) Shares of the Corporation shall only be
transferred on the stock transfer books of the Corporation by the
holder of record thereof upon the surrender to the Corporation of
the share certificates duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer and
such documentary stamps as may be required by law. In that
event, the surrendered certificates shall be cancelled, new
certificates issued to the persons entitled to them, and the
transaction recorded on the books of the Corporation. The person
in whose name shares stand on the books of the Corporation shall
be deemed by the Corporation to be the owner thereof for all
purposes.
(b) The Articles of Incorporation, by these Bylaws, by
an agreement among shareholders, or among shareholders and the
Corporation, may impose restriction on the transfer or
registration or transfer of shares of the Corporation. A
restriction does not affect shares issued before the restriction
became effective unless the holder of such shares acquired such
shares with knowledge of the restriction, is a party to the
agreement containing the restriction, or voted in favor of the
restriction or otherwise consented to the restriction.
(c) A restriction on the transfer or registration of
transfer of shares is valid and enforceable against the holder or
a transferee of the holder if the restriction is authorized by
the Colorado Business Corporation Act and its existence is noted
conspicuously on the front or back of the certificate or is
contained in the information statement required by Section 2 of
this Article VII above. Unless so noted, a restriction is not
enforceable against a person without knowledge of the
restriction.
6. Registered Shareholders. The Corporation shall be
entitled to treat the registered holder of any shares of the
Corporation as the owner thereof for all purposes, and the
Corporation shall not be bound to recognize any equitable or
other claim to, or interest in, such shares or rights deriving
from such shares on the part of any person other than the
registered holder, including without limitation any purchaser,
assignee or transferee of such shares or rights deriving from
such shares, unless and until such other person becomes the
registered holder of such shares, whether or not the Corporation
shall have either actual or constructive notice of the claimed
interest of such other person.
7. Transfer Agent, Registrars and Paying Agents. The
board may at its discretion appoint one or more transfer agents,
registrars and agents for making payment upon any class of stock,
bond, debenture or other security of the Corporation. Such
agents and registrars may be located either within or outside
Colorado. They shall have such rights and duties and shall be
entitled to such compensation as may be agreed.
ARTICLE VII
Insurance
By action of the board of directors, notwithstanding
any interest of the directors in the action, the Corporation may
purchase and maintain insurance, in such scope and amounts as the
board of directors deems appropriate, on behalf of any person who
is or was a director, officer, employee, fiduciary or agent of
the Corporation, or who, while a director, officer, employee,
fiduciary or agent of the Corporation, is or was serving at the
request of the Corporation as a director, officer, partner,
trustee, employee, fiduciary or agent of any other foreign or
domestic corporation or of any partnership, joint venture, trust,
profit or nonprofit unincorporated association, limited liability
company or other enterprise or employee benefit plan, against any
liability asserted against, or incurred by, him or her in that
capacity or arising out of his or her status as such, whether or
not the Corporation would have the power to indemnify him or her
against such liability under the provisions of the Colorado
Business Corporation Act. Any such insurance may be procured
from any insurance company designated by the board of directors
of the Corporation, whether such insurance company is formed
under the laws of Colorado or is a company in which the
Corporation has an equity interest or any other interest, through
stock ownership or otherwise.
ARTICLE VIII
Miscellaneous
1. Seal. The Corporation's seal, if any, shall be
circular in form and shall contain the name of the Corporation
and the words, "Seal, Colorado."
2. Fiscal Year. The fiscal year of the Corporation
shall be December 31 of each year. Said fiscal year may be
changed from time to time by the board of directors in its
discretion.
3. Amendments. The board of directors shall have
power to make, amend and repeal these bylaws at any regular or
special meeting of the board unless the shareholders expressly
provide that the directors may not amend or repeal such bylaw.
The shareholders also shall have the power to make, amend or
repeal these bylaws at any annual meeting or at any special
meeting called for that purpose.
4. Gender. Whenever required by the context, the
singular shall include the plural, the plural the singular, and
one gender shall include all genders.
5. Invalid Provision. The invalidity or
unenforceability of any particular provision of these bylaws
shall not affect the other provisions herein, and these Bylaws
shall be construed in all respects as if such invalid or
unenforceable provision was omitted.
6. Governing Law. These Bylaws shall be governed by
and construed in accordance with the laws of the State of
Colorado.
7. Definitions. Except as otherwise specifically
provided in these Bylaws, all terms used in these Bylaws shall
have the same definition as in the Colorado Business Corporation
Act.
I, Richard F. Schaden, as Secretary of The Quizno's
Corporation, hereby certify that the foregoing Bylaws were
adopted by the board of directors of the Corporation effective
August 25, 1994, and amended from time to time by such board
through January 18, 1996.
/s/ Richard F. Schaden
Richard F. Schaden, Secretary
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