FILED PURSUANT TO RULE 424(B) (1)
REGISTRATION NO. 333-38691
PROSPECTUS
100,000 Shares
THE QUIZNO'S CORPORATION
Common Stock
(par value $.001 per share)
This Prospectus relates to 100,000 shares of common stock, par value
$.001 per share ("Common Stock"), of The Quizno's Corporation, a Colorado
corporation (the "Company"), which may be offered for sale from time to time
by certain stockholders of the Company (the "Selling Stockholders"), or by
their pledgees, donees, transferees or other successors in interest, to or
through underwriters or directly to other purchasers or through agents in one
or more transactions at varying prices determined at the time of sale or at
negotiated prices (the "Offering"). See "Plan of Distribution."
The Company is a franchisor and operator of quick service
restaurants ("QSRs") under the name "Quizno's Classic Subs."
The Company will not receive any of the proceeds from the sale of
the shares of Common Stock (the "Shares") by the Selling Stockholders, but
will receive funds upon the exercise of warrants, currently held by the
Selling Stockholders, that are exercisable for the Shares registered hereby
(the "Warrants"). The expenses of registration under the Securities Act of
1933, as amended (the "Securities Act"), of the Shares which may be offered
hereby will be paid by the Company.
The Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "QUIZ". On January 2, 1998, the last sale price of the Common Stock
was reported as $4.56.
SEE "RISK FACTORS" ON PAGE 8 FOR CERTAIN RISKS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
_____________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 9, 1998
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE SUCH DATE.
GENERATE THE TABLE OF CONTENTS AND REMOVE THE DOUBLE SPACING.
__________________
TABLE OF CONTENTS
__________________
Page
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AVAILABLE INFORMATION 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 3
THE COMPANY 4
RISK FACTORS 7
USE OF PROCEEDS 11
SELLING STOCKHOLDERS 12
PLAN OF DISTRIBUTION 12
INDEMNIFICATION OF OFFICERS AND DIRECTORS 13
LEGAL MATTERS 14
EXPERTS 14
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports,
proxy statements and other information concerning the Company filed with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at its office at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as at the Regional Offices of the
Commission at Citicorp Center, 300 West Madison Street, Chicago, Illinois
60661 and Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Shares of the Common Stock are traded on the Nasdaq SmallCap Market. Such
reports, proxy statements and other information can also be inspected and
copied at the offices of The Nasdaq Stock Market, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed a registration statement on Form S-3 (herein,
together with all amendments and exhibits thereto, the "Registration
Statement"), under the Securities Act with respect to the securities offered
pursuant to this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
For further information, reference is made to the Registration Statement and
the exhibits filed as a part thereof. Statements contained herein concerning
any document filed as an exhibit are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit
to the Registration Statement. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCEOF CERTAIN DOCUMENTS BY
REFERENCE
The following documents filed with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Exchange Act of 1934
(the "Exchange Act") by the Company (File No. 000-23174) are incorporated
herein by reference:
(a) the Company's annual report for the fiscal year ended
December 31, 1996 filed on Form 10-KSB, as filed with the Commission on March
31, 1997;
(b) the Company's quarterly reports for the periods ended March
31, June 30, and September 30, 1997, each filed on Form 10-QSB, as filed with
the Commission on May 15, August 12, and October 9, 1997, respectively, ^ and
as amended on Forms 10-QSB/A on August 19, 1997 and October 14, 1997,
respectively;
(c) the Company's current reports dated January 21, April 2, May
28, June 27, July 31, August 13, and November 26, 1997 on Form 8-K, as amended
on December 31, 1997 on Form 8-K/A; and
(d) the description of the Company's Common Stock which is
contained in the Company's Registration Statement on Form 8-A filed under the
Exchange Act, including any amendment or reports filed for the purpose of
updating such description.
All other documents filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Offering pursuant to this
Prospectus shall be deemed to be incorporated by reference and to be a part of
this Prospectus from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
<PAGE>
The Company will provide without charge to each person to whom a
copy of this Prospectus is delivered, upon oral or written request of any such
person, a copy of any or all of the documents incorporated herein by
reference, other than the exhibits to such documents (unless such exhibits are
specifically incorporated by reference into the information that this
Prospectus incorporates). Requests should be directed to the Investor
Relations Department, The Quizno's Corporation, 1099 18th Street, Suite 2850,
Denver, Colorado 80202, telephone (303) 291-0999.
THE COMPANY
GENERAL
The Company is engaged in franchising and, to a lesser extend,
operating QSRs (the "Restaurants") using the registered service mark "Quizno's
" and the name "Quizno's Classic Subs." The Restaurants offer a menu of
submarine style sandwiches, salads, soups, desserts and beverages, including
"Classic Lite" selections of submarine sandwiches and salads designed for
consumers who are looking for a low-fat, healthy alternative to typical fast
food products.
The Company believes that the submarine sandwiches offered in the
Restaurants are distinctive in the market for several reasons. Each submarine
sandwich is prepared after the customer orders and with special ingredients,
recipes and techniques. These ingredients, recipes and techniques are
controlled to provide uniformity of taste and quality among all of the
Restaurants.
One of the most important distinctions of the Quizno's sandwich
product is that it is served to the customer warm. Each sandwich is prepared
open face and run through a conveyor oven that toasts the bread, melts the
cheese and enhances the flavors of the meats.
The Company focuses on the quality of the ingredients contained in
the food products it uses and requires that all of its specified ingredients,
which are generally higher quality than those that other submarine sandwich
shops use, be purchased from approved suppliers. The cheeses used in the
Restaurants are all natural. The Italian style meats include a wine-cured
Genoa salami, pepperoni and capicola, an Italian spiced ham. The turkey
breast is real turkey breast.
The Restaurants also are required to use certain products which are
prepared for the Company in accordance with proprietary recipes developed by
the Company. Foremost among these is Quizno's special recipe soft baguette
style bread and its red-wine based vinaigrette dressing used as a base on most
of the sandwiches. In addition, the Restaurants use the Company's proprietary
recipe tuna mix blend, garlic oil blend, and marinara sauce.
The Restaurants' upscale decor is designed to convey an Italian deli
ambiance and to match the upscale QSR market niche represented by the product.
The typical Restaurant has a seating capacity of 20 to 60 customers at up to
30 tables. Open kitchens allow customers to watch as their sandwiches are
prepared. The decor package for the Restaurants includes framed reproductions
of old Italian food product labels, hand-painted Italian style posters. The
Italian theme is carried through in standard red and green seating fixtures
against a black and white ceramic tile floor. Real wood trim adds a rich
warmth to the dining room not found in typical fast food dining environments.
Besides a pleasant upscale environment for in-house dining, the
Restaurants offer conveniently packaged meals for carry out to serve lunch
time office workers and to serve the home meal replacement segment of the
market.
<PAGE>
Quizno's Restaurants were first opened in 1981 by the Company's
predecessor. As of September 30, 1997, there were 241 Restaurants in
operation, of which 13 are Company owned, and agreements were in place for the
opening of an additional 170 franchised Restaurants. Since its inception, the
Company has incurred losses totaling $2,158,709, through September 30, 1997.
The Company has financed these losses primarily through the sale of common
stock and through the issuance of preferred stock as well as convertible
subordinated debt. For the nine months ended September 30, 1997, the Company
has incurred a loss of $205,000 compared to $475,000 in its prior year. The
Company's trends are positive in that for the three months ended September 30,
1997, it had a profit of $90,000 as compared to a loss of $279,000 for the
same period in the preceding year. As seen in its statement of cash flows for
the nine months ended September 30, 1997, the Company generated cash from
operations of approximately $165,000. The Company believes its ability to
generate cash flow, combined with additional financing if necessary, will
generate sufficient cash to support its operations for the next twelve months.
The Company's principal executive office is located at 1099 18th
Street, Suite 2850, Denver, Colorado 80202, and its telephone number is (303)
291-0999.
RECENT DEVELOPMENTS
During the months of October and November of 1997, the Company
raised $835,000 through a private placement of 167,000 shares of its Class C
Convertible Preferred Stock. Such Class C shares carry a preferred dividend
of 12% per annum until converted and are immediately convertible on a
one-for-one basis into shares of the Company's Common Stock. During such
period, the Company also issued 100,000 shares of its Class B Preferred Stock
to its principal lender upon the conversion of $500,000 of debt principal to
such shares. Such Class B shares carry a preferred dividend of 12.75% per
annum, are redeemable by the Company and are convertible after five years at
the then market value.
As a result of these ^preferred stock sales, and assuming they
occurred as of September 30, 1997, the Company's pro forma Balance Sheet would
be adjusted as follows:
THE QUIZNO'S CORPORATION
Summary Financial Data
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1997 Pro Forma
1997 September 30,
As Reported 1997
-------------- ---------------
<S> <C> <C>
Current assets $ 3,501,036 $ 4,336,036(1)
Property and equipment, net 1,763,742 1,763,742
Other assets 1,942,225 1,942,225
----------- -----------
Total assets $ 7,207,003 $ 8,042,003
============== ==============
</TABLE>
<PAGE>
THE QUIZNO'S CORPORATION
Summary Financial Data
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
September 30, Pro Forma
1997 September 30,
As Reported 1997
-------------- -----------------
<S> <C> <C>
Current liabilities $ 1,575,880 $ 1,575,880
Long-term liabilities 2,202,908 1,702,908(1)
Deferred franchise fees 2,269,756 2,269,756
Stockholders' equity
Preferred stock, $.001 par value, 1,000,000
shares authorized
Class A - 146,000 issued and outstanding,
liquidation value of $6 per share plus unpaid
and accumulated dividends 146 146
Class B - 0 and 100,000 (pro forma) shares
issued and outstanding, liquidation value of $5
per share plus unpaid and accumulated
dividends - 100(1)
Class C - 0 and 167,000 (pro forma) shares
issued and outstanding, liquidation value of $5
per share plus unpaid and accumulated
dividends - 167(1)
Common stock, $.001 par value, 9,000,000 shares
authorized, issued and outstanding 9,904,567 2,905 2,905
Capital in excess of par value 3,314,117 4,648,850
Accumulated deficit (2,158,709) (2,158,709)
------------ ------------
1,158,459 2,493,459
------------ ------------
$ 7,207,003 $ 8,042,003
============== ==============
</TABLE>
(1) Assumes the conversion of $500,000 of the $2 million debt into Class B
Preferred Stock and the sale of $835,000 of Class C Preferred Stock
<PAGE>
On November 12, 1997, The Quizno's Acquisition Company (the
"Company"), a wholly-owned subsidiary of the Company, acquired certain assets
used in the franchise operations and restaurant business known as Bain's Deli
from Bain's Deli Franchise Associates and Jolles #4 Partnership (the
"Sellers"). The Company acquired the rights to operate three company-owned
restaurants and to be the franchisor of sixty operating Bain's Deli
restaurants. The consideration paid by the Company to the Sellers for the
acquisition was valued at $1,235,000, subject to adjustment upward or downward
in certain circumstances. Such consideration is as follows: Sellers were
paid $555,490 at the closing, the Company is obligated to issue Sellers 18,182
shares of its common stock, and a promissory note was issued by the Company to
the Sellers in the principal amount of $579,510, bearing simple interest at
10% per annum, payable by the Company in monthly payments of $10,735.91 for
seventy-two months. The Company has the right to adjust the principal amount
of the promissory note as a setoff in certain circumstances. In addition, the
Company entered into a consulting agreement with Mr. Jordon A. Katz, a
principal of the Sellers, purchased the name "Bain's Deli" from Jolles
Corporation and entered a managing agreement with Jeffrey Jolles, a principal
of Jolles Corporation.
On December 5, 1997, an arbitration involving the Company as a defendant was
scheduled for hearing on January 12, 1998. The Demand for Arbitration was
filed on December 31, 1996 by S2D Subs, LLC, a former franchisee of the
Company (S2d Subs, LLC v. The Quizno's Corporation Case No. 54 11400027 97,
American Arbitration Association). The arbitration also names Richard E.
Schaden, the President, Chief Executive Officer and a Director of the Company,
Richard F. Schaden, A Director and Secretary of the Company, another member of
their family and a former employee of the Company. The allegations of the
plaintiff include breach of contract, fraud, misrepresentation, unfair trade
practices and violation of the Michigan Franchise Investment Law. While the
specific amount sought by the plaintiff is not stated in the Demand for
Arbitration, preliminary discussions between representatives of the parties
suggested plaintiff would settle for approximately $300,000. The Company
rejected any possible settlement at that level. The Company and all the
defendants have denied the allegations and intend to vigorously defend the
action. Management of the Company does not believe that this claim will have
a material adverse affect on the Company. The Company has filed a
counterclaim against S2D, LLC alleging among other things, breach of its
franchise agreement.
RISK FACTORS
Each prospective investor should carefully consider the following
factors inherent in and affecting the business of the Company, and this
offering before making a decision to purchase the Common Stock offered hereby.
NO OPERATING PROFIT TO DATE
The Company began business operations in January 1991 and went
public in early 1994. The Company has not yet earned a profit in any year.
The Company had net losses applicable to common stockholders of $1,075,908 in
1996, $348,512 in 1995 and $754,031 in 1994. See "THE COMPANY - General"
COMPETITION FOR BUSINESS
The restaurant industry is highly competitive with respect to price,
service, food quality and location and there are numerous well-established
competitors possessing substantially greater financial, marketing, personnel
and other resources than the Company. Many of the Company's competitors have
achieved significant national, regional and local brand name and product
recognition and engage in extensive advertising and promotional programs, both
generally and in response to efforts by additional competitors to enter new
markets or introduce new products. The quick service industry is
characterized by the frequent introduction of new products, accompanied by
substantial promotional campaigns.
<PAGE>
Industry data indicates that over the decade of the 1990s, the
number and frequency of Americans eating out has increased. However, such
data also indicates that the number of restaurants, and particularly QSRs,
have increased more rapidly than the number of customers during this decade.
Increasing competition has reduced margins and made consistent profitable
operations more of a challenge.
Culinary fashions among Americans will also impact the Company's
profitability. As eating habits change and types of cuisine move in and out
of fashion, the Company's challenge will be to maintain a menu within the
Company's distinctive culinary style that appeals to an increasing market
share.
In response to flat growth rates and declines in average sales per
restaurant, certain of QSR companies have adopted "value pricing" strategies.
Such strategies could have the effect of drawing customers away from companies
that do not engage in discount pricing and could also negatively impact the
operating margins of competitors that do attempt to match competitors price
reductions. Continuing or sustained price discounting in the quick service
industry could have an adverse effect on the Company.
COMPETITION FOR AND DEPENDENCE ON AREA DIRECTORS, FRANCHISEES AND LOCATIONS
The Company's future success will depend, in part, upon its ability
to attract qualified Area Directors and franchisees, who will be primarily
responsible for the development of the Quizno's concept in their regional or
local area, and upon the ability of its Area Directors and franchisees to
obtain suitable Restaurant locations and sufficient financing to successfully
develop and operate Restaurants. The market for suitable Restaurant locations
is highly competitive because both restaurant and non-restaurant retail
operations compete for prime real estate sites. The Company will train and
work with its Area Directors and franchisees to maintain the quality and
ambiance that are integral to the Quizno's concept. However, no assurance can
be given that the Company's Area Directors and franchisees will be successful.
VIABILITY OF CONCEPT NATIONWIDE
To date, most of the Company's mature franchises are located in
Colorado and Colorado is the Company's most developed market. While
franchisees of the Company have opened over 175 Restaurants in other markets,
there can be no assurance that the Company's concept of a higher quality,
health conscious food product, served in a Italian deli-like ambiance, will
appeal to consumers in other areas of the United States.
ABILITY TO ACHIEVE DESIRED EXPANSION
The Company's growth strategy is to focus on the controlled
development of additional franchised and Company-operated Restaurants in
selected markets across the United States. The Company's ability to expand
will depend on a number of factors, including the availability and cost of
suitable locations, the hiring, training and retraining of skilled management
and other personnel, the availability of adequate financing, the selection and
acceptability of franchisees and other facts, some of which are beyond the
control of the Company. There can be no assurance that the Company or its
franchisees will be able to continue to open the planned new Restaurants or
that, if opened, those Restaurants can be operated profitably. The Company
has not yet been able to institute a program with one or more financial
institutions to provide regular financing to its franchisees. The opening of
additional Restaurants in the same market areas could have the effect of
attracting customers from existing Restaurants located in that area and
thereby reduce sales volumes in existing Restaurants.
<PAGE>
IMPACT OF NATIONAL AND REGIONAL ECONOMIES
The health of national and regional economies has a significant
impact on the restaurant industry. An expanding economy provides disposable
income, which causes customers to eat out more frequently. A national or
regional economic slow down will, in all probability, adversely impact the
operations of restaurants, including those owned and franchised by the
Company. This, in turn, will adversely impact the Company's royalty income
and income from Company-owned Restaurants. The Company's franchises are still
concentrated in a few regions of the U.S., and therefore adverse economic
conditions in those regions may have a materially adverse impact on the
Company's profitability. Finally, because many Company franchisees are in
areas affected by severe winter weather, such weather could adversely impact
the Company's royalty income.
LABOR AND OTHER COSTS
Costs of labor and employee benefits are significant expenses in the
restaurant industry. While such costs have remained stable in recent years, a
significant increase in wages throughout the country could adversely impact
the Company and other restaurant businesses. Costs of food and non-food items
are also significant factors in the restaurant industry and, finally, the cost
of marketing may negatively impact restaurant operations, particularly in
competitive markets where the brand name is not yet established.
CONFLICTS OF INTEREST
Mr. Richard F. Schaden, an officer and director of the Company, owns
interests in entities that hold two Quizno's Area Directorships. Mr.
Frederick H. Schaden, a director of the Company, also owns an interest in one
of those entities. Conflicts of interest may arise with respect to
transactions between the Company and Area Directors in which officers or
directors of the Company hold an interest, such as when loans are made by the
Company to such Area Directors. Company-owned stores will also present
conflict of interest issues, particularly with respect to the location of
Company-owned stores in relation to franchisee-owned stores and the amounts
allocated by the Company for goods and services that are also provided by the
Company to its franchisees for a fee, such as advertising services.
GENERAL LIABILITY INSURANCE
Although the Company carries general liability and commercial
insurance of up to $1,000,000 per occurrence and $2,000,000 in the aggregate,
subject to no deductible, there can be no assurance that this insurance will
be adequate to protect the Company against any general, commercial and/or
product liability claims. Any general, commercial and/or product liability
claim which is not covered by such policy, or is in excess of the limits of
liability of such policy could have a material adverse effect on the financial
condition of the Company. There can be no assurance that the Company will be
able to maintain this insurance on reasonable terms.
DEPENDENCE ON RICHARD E. SCHADEN
The success of the Company's business will be dependent upon Mr.
Richard E. Schaden, its Chief Executive Officer, who is also principal
stockholders of the Company. The Company's anticipated growth also depends
upon its ability to attract and retain skilled management personnel. The
Company has obtained key-man life insurance in the amount of $1,000,000 on Mr.
Schaden's life.
<PAGE>
CONTROL BY EXISTING STOCKHOLDERS
Richard E. and Richard F. Schaden (the "Schadens") own an aggregate
of approximately 54% of the outstanding voting Common Stock of the Company,
and rights to purchase an additional approximately 181,000 shares in the
future. Shareholders do not have cumulative voting rights with respect to the
election of directors. The Schadens have the ability to elect all of the
directors of the Company and to thereby direct or substantially influence the
management, policies and business operations of the Company and to have the
power to control the outcome of any matter submitted to the vote of the
Company's stockholders.
NO DIVIDENDS ANTICIPATED
The Company has never paid any cash dividends on its Common Stock.
The Company anticipates that in the future, earnings, if any, will be retained
for use in the business, and it is not anticipated that cash dividends with
respect to the Common Stock will be paid in the foreseeable future.
POSSIBLE PRICE OF THE COMPANY'S COMMON STOCK
The market price of the Company's Common Stock has been highly
volatile. Factors such as the Company's operating results and the small
volume of shares of its Common Stock that are traded have a significant effect
on the market price of the Company's Common Stock. In addition, market prices
for the securities of many emerging and small capitalization companies have
experience wide fluctuations in response to variation in quarterly operating
results and general economic indicators and conditions, as well as other
factors beyond the control of the Company.
PREFERRED SHARES AVAILABLE FOR ISSUANCE
The Company has one million shares of Preferred Stock authorized.
The Company has issued 146,000 shares of Class A Preferred Stock, 100,000
shares of Class B Preferred Stock and 167,000 shares of Class C Preferred
Stock, upon which monthly dividends are paid. Such Classes of Preferred Stock
are senior to the Common Stock as to dividends and liquidation preferences.
Shares of Preferred Stock may be issued by the Company in the future without
shareholder approval and upon such terms as the Board of Directors may
determine, including the payment of dividends. The rights of the holders of
Common Stock will be subject to and may be affected adversely by the rights of
holders of shares of any Preferred Stock that may be issued in the future.
The availability of Preferred Stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of discouraging a third party from acquiring control of the Company
through the purchase of shares of the Common Stock.
GOVERNMENT REGULATIONS
The restaurant business is subject to extensive federal, state and
local government regulations relating to the development and operation of
restaurants, including regulations relating to building and zoning
requirements and the preparation and sale of food, and laws that govern the
Company's relationship with its employees, such as minimum wage requirements,
overtime and working conditions and citizenship requirements. The failure to
obtain or retain food licenses or substantial increases in the minimum wage
could adversely affect the operation of the Restaurants. The Company is also
subject to federal regulations and certain state laws which regulate the offer
and sale of franchises to its franchisees.
<PAGE>
CONTINUED LISTING AND PENNY STOCK REGULATIONS
The daily trading price of the Company's Common Stock has been
quoted on the Nasdaq SmallCap Market since its initial public offering. There
can be no assurance that quotation on the Nasdaq SmallCap Market will be
maintained. In August 1997, The Nasdaq Stock Market, Inc. issued new listing
maintenance requirements for the Nasdaq SmallCap Market, which may adversely
affect the ability of listed companies to maintain their Nasdaq SmallCap
listings. The Company currently meets the new Nasdaq SmallCap Market listing
maintenance requirements. If the Company fails to meet the maintenance
criteria in the future, the trading price for the Common Stock would not be
carried in many newspapers, and the shares might be subject to certain rules
of the Securities and Exchange Commission relating to "penny stocks." These
rules require that broker-dealers must apply a special suitability standard
for purchasers of stocks of companies subject to such rules and receive the
purchaser's prior written consent for the transaction. These rules, if
applied to the Company's Common Stock in the future, may inhibit the ability
of broker-dealers to sell the Company's Common Stock in the secondary market.
IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Future sales by existing stockholders could adversely affect the
prevailing market price of the Common Stock. As of September 30, 1997 the
Company had 2,904,567 shares of Common Stock outstanding. Of these shares,
approximately 1,300,000 shares are freely transferrable without restrictions.
The remainder, principally owned by insiders, may be sold into the public
market from time to time in the future, and thereby become freely
transferrable. As of September 30, 1997, 6,989 shares had been issued and
approximately 280,000 shares were issuable upon the exercise of outstanding
options. The shareholders of the Company have authorized the Company to issue
options covering up to 460,000 shares of Common Stock. The Company intends to
register Common Stock underlying such options, which are held principally by
the Company's employees, directors and advisors, ^in early 1998. Upon
exercise of such options, the shares would be eligible for immediate sale in
the public market. In addition, 446,000 shares of Common Stock have been
reserved for issuance upon conversion of the outstanding shares of Class A,
Class B and Class C Preferred Stock of the Company, and one of the Company's
major lenders has the right to convert debt or exercise warrants for 415,056
shares of Common Stock.
FORWARD-LOOKING STATEMENTS
Certain of the information discussed in this Prospectus are
forward-looking statements that involve risks and uncertainties that might
adversely affect the Company's operating results in the future in a material
way. Such risks and uncertainties include, without limitation, the risk
factors discussed above. Many of these risks are beyond the control of the
Company.
USE OF PROCEEDS
The net proceeds from the sale of the Shares will be received by the
Selling Stockholders. The Company will not receive any of the proceeds from
any sale of the Shares by the Selling Stockholders. The Company will receive
funds upon the exercise of the Warrants, currently held by the Selling
Stockholders, that are exercisable for the Shares. Such funds, when received
by the Company, will be used for general corporate purposes, including working
capital.
<PAGE>
SELLING STOCKHOLDERS
The table below sets forth information as of September 30, 1997 with
respect to the Selling Stockholders, including names, holdings of shares of
Common Stock prior to the offering of the Shares, the number of Shares being
offered for each account, and the number and percentage of shares of Common
Stock to be owned by the Selling Stockholders immediately following the sale
of the Shares, assuming all of the offered Shares are sold.
<TABLE>
<CAPTION>
SHARES OF
SHARES OF COMMON STOCK
COMMON STOCK TO BE
BENEFICIALLY SHARES OF BENEFICIALLY
OWNED BEFORE COMMON STOCK OWNED AFTER
NAME THE OFFERING(1) BEING OFFERED THE OFFERING
---- --------------- ------------- ------------
<S> <C> <C> <C>
R. David Van Treuren 25,200 25,200 0
William T. Richey 25,000 25,000 0
S. James Horning 18,900 18,900 0
Michael J. Zales 17,800 17,800 0
Mary C. Lloyd 9,500 9,500 0
Neil A. Cox 2,300 2,300 0
Judy L. Clarke 1,300 1,300 0
____________________
</TABLE>
(1) All shares shown are issuable upon the exercise of Warrants currently
owned by such persons and exercisable at $5.00 per share.
RELATIONSHIP BETWEEN THE COMPANY AND THE SELLING STOCKHOLDERS
The Selling Stockholders are unaffiliated with the Company. Each
Selling Stockholder was employed by Rocky Mountain Securities & Investments,
Inc. at the time that entity was the Representative of the underwriters of the
Company's initial public offering. The Warrants currently held by the Selling
Stockholders were initially issued to the Representative as part of its
underwriting compensation.
PLAN OF DISTRIBUTION
Any distribution of the Shares by the Selling Stockholders, or by
their pledgees, donees, transferees or other successors in interest, may be
effected from time to time in one or more of the following transactions: (a)
to underwriters who will acquire the Shares for their own account and resell
them in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of
sale (any public offering price and any discount or concessions allowed or
reallowed or paid to dealers may be changed from time to time); (b) through
brokers, acting as principal or agent, in transactions (which may involve
block transactions) on the Nasdaq Stock Market or on one or more exchanges on
which the Shares are then listed, in special offerings, exchange distributions
pursuant to the rules of the applicable exchanges or in the over-the-counter
market, or otherwise, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices or at
fixed prices; (c) directly or through brokers or agents in private sales at
negotiated prices; or (d) by any other legally available means. In addition,
any securities covered by this Prospectus which qualify for sale pursuant to
Rule 144 of the Securities Act ("Rule 144") may be sold under Rule 144 rather
than pursuant to this Prospectus. All discounts, commissions or fees incurred
in connection with the sale of the Common Stock offered hereby will be paid by
the Selling Stockholders, except that the expenses of preparing and filing
this Prospectus and the related Registration Statement with the Securities and
Exchange Commission, and of registering or qualifying the Common Stock will be
paid by the Company.
<PAGE>
The Selling Stockholders and such underwriters, brokers, dealers or
agents, upon effecting a sale of the Shares, may be considered "underwriters"
as that term is defined by the Securities Act.
Underwriters participating in any offering made pursuant to this
Prospectus (as amended or supplemented from time to time) may receive
underwriting discounts and commissions, discounts or concessions may be
allowed or reallowed or paid to dealers, and brokers or agents participating
in such transaction may receive brokerage or agent's commissions or fees.
If required at the time a particular offering of the Shares is made,
a Prospectus Supplement would be distributed which would set forth the amount
of the Shares being offered and the terms of the Offering, including the
purchase price or public offering price, the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter
for the Shares purchased from the Selling Stockholders, any discounts,
commissions and other items constituting compensation from the Selling
Stockholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers. The Company has been informed that no
underwriter for the Shares has been engaged at this time.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions, if required, only
through registered or licensed brokers or dealers. In addition, in certain
states the Shares may not be sold unless the Shares have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and complied with.
The Company has agreed that it will bear all costs, expenses and
fees in connection with the registration of the Shares.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article 109 of the Colorado Business Corporation Act generally
provides that a corporation may indemnify its directors, officers, employees
and agents against liabilities and action, suit or proceeding whether civil,
criminal, administrative or investigative and whether formal or informal (a
"Proceeding"), by reason of being or having been a director, officer,
employee, fiduciary or agent of the Company, if such person acted in good
faith and reasonably believed that his conduct, in his official capacity, was
in the best interests of the Company (or, with respect to employee benefit
plans, was in the best interests of the participants of the plan), and in all
other cases that his conduct was at least not opposed to the Company's best
interests. In the case of a criminal proceeding, the director, officer,
employee or agent must have had no reasonable cause to believe that his
conduct was unlawful. Under Colorado Law, the Company may not indemnify a
director, officer, employee or agent in connection with a proceeding by or in
the right of the Company if the director is adjudged liable to the Company, or
in a proceeding in which the directors, officer employee or agent is adjudged
liable for an improper personal benefit.
The Company's Articles of Incorporation provide that the company
shall indemnify its directors, and officers, employees and agents to the
fullest extent and in the manner permitted by the provisions of the laws of
the State of Colorado, as amended from time to time, subject to any
permissible expansion or limitation of such indemnification, as may be set
forth in the by-laws of the Company or any shareholders' or directors'
resolution or by contract. Consistent with its Articles of Incorporation, the
Company has entered into agreements to provide indemnification for the
Company's directors and certain officers.
Insofar as indemnification for liabilities under the Act may be
permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the company has been informed that in the opinion
of the Commission, such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
<PAGE>
LEGAL MATTERS
The validity of the Shares offered hereby is being passed upon for
the Company by Lyle B. Stewart, P.C., Denver, Colorado.
EXPERTS
The consolidated financial statements of the Company as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996 appearing in the Form 10-KSB have been audited by Ehrhardt Keefe
Steiner & Hottman P.C., independent auditors, as stated in their report
appearing therein, and have been incorporated herein by reference in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing. With respect to the unaudited interim consolidated
financial information in the Company's quarterly reports for the periods ended
March 31, June 30, and September 30, 1997, each filed on Forms 10-QSB or as
amended on Forms 10-QSB/A, the independent certified public accountants have
not audited or reviewed such consolidated financial information and have not
expressed an opinion or any other form of assurance with respect to such
consolidated financial information.
