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, 1999
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
(Exact name of registrant as specified in its charter)
Colorado 84-1169286
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1415 Larimer Street
Denver, Colorado 80202
(Address of principal executive offices)
(720) 359-3300
(Registrant's telephone number, including area code)
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 2, 1999
------------------------------ ----------------
Common Stock, $0.001 par value 3,062,115 shares
<PAGE>
THE QUIZNO'S CORPORATION
Commission File Number: 000-23174
Quarter Ended June 30, 1999
FORM 10-QSB
Part I - FINANCIAL INFORMATION
Consolidated Statements of Income................................Page 1
Consolidated Balance Sheets......................................Page 3
Consolidated Statements of Cash Flows............................Page 5
Consolidated Statement of Stockholders' Equity...................Page 7
Notes to Consolidated Financial Statements.......................Page 8
Management's Discussion and Analysis or Plan of Operation.......Page 10
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FRANCHISE OPERATIONS:
Revenue
Continuing fees ....................... $2,847,698 $1,457,467 $5,353,196 $2,574,780
Initial franchise fees ................ 849,603 646,067 1,618,357 1,208,067
Area director and master franchise fees 442,444 479,985 914,590 1,052,985
Other ................................. 96,860 198,188 196,851 377,005
Interest .............................. 78,633 44,848 143,740 73,530
---------- ---------- ---------- ----------
Total revenue ........................ 4,315,238 2,826,555 8,226,734 5,286,367
---------- ---------- ---------- ----------
Expenses
Sales and royalty commissions ......... 1,302,214 896,454 2,475,654 1,649,724
Advertising and promotion ............. 12,593 56,113 42,638 100,165
General and administrative ............ 2,178,465 1,391,289 4,111,086 2,761,891
---------- ---------- ---------- ----------
Total expenses ....................... 3,493,272 2,343,856 6,629,378 4,511,780
---------- ---------- ---------- ----------
Net income from franchise operations ... 821,966 482,699 1,597,356 774,587
---------- ---------- ---------- ----------
COMPANY STORE OPERATIONS:
Sales .................................. 2,111,782 1,472,898 4,130,367 3,214,307
---------- ---------- ---------- ----------
Expenses
Cost of sales ......................... 635,599 426,629 1,244,683 970,916
Cost of labor ......................... 559,811 328,967 1,107,346 766,718
Other store expenses .................. 718,603 550,916 1,397,005 1,202,903
---------- ---------- ---------- ----------
Total expenses ....................... 1,914,013 1,306,512 3,749,034 2,940,537
---------- ---------- ---------- ----------
Net income from Company store
operations ............................ 197,769 166,386 381,333 273,770
---------- ---------- ---------- ----------
</TABLE>
(continued on next page)
(Unaudited)
- 1 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OTHER INCOME (EXPENSE):
Sales by stores held for resale ...... $ 208,845 $ 415,384 $ 432,839 $ 415,384
Expenses related to stores held
for resale .......................... (300,329) (510,658) (617,750) (510,658)
Sale of Japan master franchise ....... 307,934 -- 1,168,801 --
Gain (loss) on sale of Company stores 4,685 -- (68,243) --
Provision for bad debts .............. (95,767) (50,913) (248,981) (84,590)
Other ................................ (120,342) (5,993) (116,951) (7,292)
Depreciation and amortization ........ (224,291) (145,158) (495,283) (289,768)
Interest expense ..................... (77,381) (103,073) (165,065) (181,080)
----------- ----------- ----------- -----------
Total other expense ................ (296,646) (400,411) (110,633) (658,004)
Net income before provision for
income taxes ........................ 723,089 248,674 1,868,056 390,353
Provision for income taxes ........... (242,231) -- (605,002) --
----------- ----------- ----------- -----------
Net income ........................... 480,858 248,674 1,263,054 390,353
Preferred stock dividends ............ (39,285) (55,222) (84,945) (110,445)
----------- ----------- ----------- -----------
Net income before cumulative effect
of a change in accounting principle . 441,573 193,452 1,178,109 279,908
Cumulative effect of a change in
accounting principle (net of taxes)
(Note 8) ............................ -- -- (84,090) --
----------- ----------- ----------- -----------
Net income applicable to common
shareholders ........................ $ 441,573 $ 193,452 $ 1,094,019 $ 279,908
=========== =========== =========== ===========
Net income per share-diluted
Net income before cumulative effect
of a change in accounting principle . $ 0.13 $ 0.08 $ 0.33 $ 0.12
Cumulative effect of a change in
accounting principle ................ -- -- (0.02) --
----------- ----------- ----------- -----------
Diluted net income per share of common
stock ............................... $ 0.13 $ 0.08 $ 0.31 $ 0.12
=========== =========== =========== ===========
Net income per share-basic
Net income before cumulative effect of
a change in accounting principle .... $ 0.14 $ 0.06 $ 0.39 $ 0.09
Cumulative effect of a change in
accounting principle ................ -- -- (0.03) --
----------- ----------- ----------- -----------
Basic net income per share of
common stock ........................ $ 0.14 $ 0.06 $ 0.36 $ 0.09
=========== =========== =========== ===========
Weighted average common shares
outstanding
Diluted ............................ 3,770,275 3,166,858 3,773,306 3,162,141
=========== =========== =========== ===========
Basic .............................. 3,058,288 3,022,745 3,058,005 3,018,242
=========== =========== =========== ===========
</TABLE>
(Unaudited)
- 2 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1999 1998
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents ................. $ 1,004,097 $ 702,258
Short term investments .................... 4,213,360 1,541,423
Accounts receivable, net of allowance
for doubtful accounts of $80,000 in
1999 and $20,000 in 1998 ................. 1,185,497 857,280
Current portion of notes receivable ....... 883,944 1,212,522
Deferred tax asset ........................ 81,260 81,260
Other current assets ...................... 343,903 266,100
Assets of stores held for resale and
investment in area directorship ........... 1,127,679 690,030
----------- -----------
Total current assets ........................ 8,839,740 5,350,873
----------- -----------
Property and equipment at cost, net of
accumulated depreciation and amortization of
$1,262,583 in 1999 and $780,004 in 1998 .... 4,021,541 3,535,222
----------- -----------
OTHER ASSETS:
Intangible assets, net of accumulated
amortization of $925,505 in 1999 and
$867,343 in 1998 ......................... 833,545 1,553,522
Deferred assets ........................... 2,560,216 1,854,179
Deposits and other assets ................. 188,802 119,883
Notes receivable, net of allowance for
doubtful accounts of $140,177 in 1999
and 1998 ................................. 1,934,393 1,375,872
----------- -----------
Total other assets .......................... 5,516,956 4,903,456
----------- -----------
Total assets ................................ $18,378,237 $13,789,551
=========== ===========
(Unaudited)
- 3 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1999 1998
------------ ------------
CURRENT LIABILITIES:
Accounts payable .......................... $ 1,466,183 $ 1,317,085
Accrued liabilities ....................... 584,857 532,324
Current portion of subordinated debt ...... 214,366 244,084
Current portion of long term obligations .. 428,066 370,404
Income taxes payable ...................... -- 200,000
------------ ------------
Total current liabilities ................... 2,693,472 2,663,897
Long term obligations ....................... 1,251,650 964,984
Subordinated debt (Note 6) .................. 1,555,020 1,130,916
Deferred revenue ............................ 8,000,017 4,781,946
------------ ------------
Total liabilities ........................... 13,500,159 9,541,743
------------ ------------
Minority interest in consolidated subsidiary 150,177 151,601
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 1,000,000
shares authorized:
Series A issued and outstanding 146,000 in
1999 and 1998 ($876,000 liquidation
preference) ............................. 146 146
Series B issued and outstanding 0 in 1999
and 100,000 in 1998 ($500,000 liquidation
preference) ............................. -- 100
Series C issued and outstanding 167,000 in
1999 and 1998 ($835,000 liquidation
preference) ............................. 167 167
Common stock, $.001 par value; 9,000,000
shares authorized; issued and outstanding
3,062,115 in 1999, 3,054,459 in 1998 ..... 3,062 3,054
Capital in excess of par value ............ 4,518,069 5,065,247
Retained earnings (accumulated deficit) ... 206,457 (972,507)
------------ ------------
Total stockholders' equity .................. 4,727,901 4,096,207
------------ ------------
Total liabilities and stockholders' equity .. $ 18,378,237 $ 13,789,551
============ ============
(Unaudited)
- 4 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
----------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................. $ 1,178,964 $ 390,353
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of a change in accounting
principle ................................. 125,507 --
Depreciation and amortization .............. 495,283 289,768
Provision for bad debts .................... 248,981 42,147
Issuance of stock for services ............. -- 5,083
Deferred income taxes ...................... (25,062) --
Promissory notes accepted for area
director fees ............................. (307,279) (644,226)
Loss on disposal of Company store .......... 72,928 --
Changes in assets and liabilities:
Accounts receivable ....................... (466,145) (69,501)
Other current assets ...................... (52,162) 29,757
Accounts payable .......................... 320,610 (151,496)
Accrued liabilities ....................... 52,533 (345,603)
Income taxes payable ...................... (371,512) --
Deferred franchise costs .................. (444,897) (394,898)
Deferred initial franchise fees and other
deferred fees ............................ 2,942,421 1,981,251
----------- -----------
Net cash provided by operations ......... 3,770,170 1,132,635
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .......... (760,205) (7,546)
Investment in turnkey stores ................ (568) (315,513)
Issuance of other notes receivable .......... (6,513) (445,116)
Short term investments ...................... (2,671,937) (757,186)
Purchase of Company owned stores ............ -- (508,875)
Principal payments received on notes
receivable ................................. 793,672 603,423
Investment by minority interest owners ...... (1,424) --
Intangible and deferred assets and deposits . (309,558) (67,536)
Other investments ........................... (703,242) (21,626)
----------- -----------
Net cash (used in) provided by investing
activities ............................. (3,659,775) (1,519,975)
----------- -----------
(continued on next page)
(Unaudited)
- 5 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Six Months Ended
June 30,
----------------------------
1999 1998
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock ................. 40,322 533,814
Principal payments on long term obligations . (1,599,454) (166,081)
Redemption of Class B Preferred Stock ....... (500,000) --
Financing costs ............................. (2,647) (31,972)
Dividends paid .............................. (84,945) (110,445)
Proceeds from issuance of notes payable ..... 2,338,168 921,355
----------- -----------
Net cash provided by financing activities 191,444 1,146,671
----------- -----------
Net increase in cash ......................... 301,839 759,331
Cash, beginning of period .................... 702,258 561,287
----------- -----------
Cash, end of period .......................... $ 1,004,097 $ 1,320,618
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for interest ... $ 165,065 $ 103,073
=========== ===========
Cash paid during the period for income taxes $ 937,275 $ --
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the first quarter of 1998, the Company sold the area directorship rights
for Canada for $704,000. The Company received $176,000 in cash and $528,000 in
the form of a note receivable bearing 6% interest and due in five quarterly
principal installments of $105,600 plus accrued interest. The note was replaced
in the fourth quarter of 1998 when the same group purchased the master franchise
rights for the United Kingdom for $510,000. The Company received $200,000 in
cash and the remaining balance of $310,000 was added to the balance due on the
original note of $322,156. A new note for $632,156 was executed. The new note
bears interest at 6% and requires four quarterly payments of $164,010 beginning
March 20, 1999.
During the first quarter of 1999, the Company sold the franchising rights and
obligations for all but 14 of its Bain's Deli's franchise agreements to Bain's
Deli Corporation for $850,000, $800,000 of which was in the form of a promissory
note.
(Unaudited)
- 6 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Retained
Preferred Stock Common Stock Additional Earnings
---------------------------- --------------------------- Paid-in (Accumulated
Shares Amount Shares Amount Capital Deficit)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1998 ..... 413,000 $ 413 2,923,294 $ 2,923 $ 4,663,744 $(2,085,122)
Issuance of common
stock for exercise
of options and
pursuant to the
employee benefit
plan ................ -- -- 51,165 51 222,473 --
Issuance of common
stock for exercise
of options by
underwriter ......... -- -- 80,000 80 399,920 --
Preferred stock
dividends ........... -- -- -- -- (220,890) --
Net income ........... -- -- -- -- -- 1,112,615
----------- ----------- ----------- ----------- ----------- -----------
Balances at
December 31, 1998 ... 413,000 413 3,054,459 3,054 5,065,247 (972,507)
Issuance of common
stock for exercise
of options and
pursuant to the
employee benefit plan -- -- 7,656 8 37,667 --
Redemption of Series B
Preferred Stock ..... (100,000) (100) -- -- (499,900) --
Preferred stock
dividends ........... -- -- -- -- (84,945) --
Net income ........... -- -- -- -- -- 1,178,964
----------- ----------- ----------- ----------- ----------- -----------
Balances at
June 30, 1999 ....... 313,000 $ 313 3,062,115 $ 3,062 $ 4,518,069 $ 206,457
=========== =========== =========== =========== =========== ===========
</TABLE>
(Unaudited)
- 7 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
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,
1999 and June 30, 1998, (b) the consolidated financial position at June 30,
1999, (c) the consolidated statements of cash flows for the six month periods
ended June 30, 1999 and June 30, 1998, and (d) the consolidated changes in
stockholders' equity for the six month period ended June 30, 1999 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, 1998, included in the Company's Annual Report on Form
10-KSB to the Securities and Exchange Commission filed on March 31, 1999.
3. The results for the three and six month periods ended June 30, 1999 are not
necessarily indicative of the results for the entire fiscal year of 1999.
4. The Company is obligated to pay an opening commission to the area director
who sold the franchise at the time the franchise opens for business. These
commissions are expensed at the time the related franchise opens for business
and are not accrued as a liability of the Company until that time. At June
30, 1999, there were 458 franchises sold but not yet open with related
opening commissions totaling $1,899,700 ($1,443,997 at December 31, 1998).
5. Beginning in the second quarter of 1998 the Company has reclassified royalty
fee revenue to a new statement of operations account called continuing fees.
Continuing fees are comprised of royalty fee revenue plus other fees
generated from the licensing of the Quizno's trademarks to vendors and
suppliers of the Quizno's franchise system. See Management's Discussion and
Analysis or Plan of Operation for details.
6. On January 6, 1999, the Company paid $500,000 to redeem all of its
outstanding Class B Preferred Stock and paid off the remaining principal of
its 12.75% convertible subordinated debt. As required by the loan agreement,
the Company issued a warrant to the lender to purchase 372,847 shares of its
common stock at an exercise price of $3.10. The funds used for this payoff
were obtained through the borrowing of $1,853,931 from an unrelated
noteholder. This note accrues interest at the rate of 7.75% per annum and
requires 84 monthly payments of $28,665.40 per month starting February 15,
1999. The note is collateralized by all of the restaurant equipment and
furniture and fixtures existing at six of the Company's stores. The Company
is required to maintain certain annual cash flow covenants under the
agreement.
(Unaudited)
- 8 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
7. There are various claims and lawsuits pending by and against the Company,
which, in the opinion of the management, and supported by advice from legal
counsel, will not result in any material adverse effect in excess of amounts
accrued in the accompanying consolidated financial statements.
8. During April 1998, Statement of Position 98-5, "Reporting in the Costs of
Start-Up Activities" was issued. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 was
required to be adopted by the first quarter of 1999. Upon adoption, the
Company was required to write-off $125,507 ($84,090 net of applicable taxes)
in preopening related costs that were deferred on the balance sheet as of
December 31, 1998. This write-off was reported as a cumulative effect of a
change in accounting principle.
(Unaudited)
- 9 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The Company earned net income applicable to common shareholders of $441,573, or
$0.13 per diluted share, in the second quarter of 1999 compared to $193,452, or
$0.08 per diluted share, in the second quarter of 1998. Net income for the
second quarter of 1999 was composed of income from franchise operations of
$821,966, income from Company owned store operations of $197,769, other income
and expense totaling ($296,646), income taxes of ($242,231) and preferred
dividends of ($39,285). For the six months ended June 30, 1999, the Company
earned net income applicable to common shareholders of $1,094,019, or $0.31 per
diluted share compared to $279,908, or $0.12 per diluted share, in the six
months ended June 30, 1998. Net income for the six months ended June 30, 1999,
was composed of income from franchise operations of $1,597,356, income from
Company owned store operations of $381,333, other income and expense totaling
($110,633), income taxes of ($605,002), preferred dividends of ($84,945) and a
cumulative effect of a change in accounting of ($84,090).
The Company's primary business is the franchising of Quizno's Restaurants. As a
franchisor, revenue is principally derived from: (1) area director and master
franchise fees, (2) initial franchise fees, and (3) continuing fees. Area
director and master franchise fees occur when a country or exclusive area is
sold, and are expected to decline as the number of remaining available markets
declines. 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. Continuing fees, on the other hand, increase as the number of
franchised restaurants open 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. Over time initial fees and
continuing fees will generate proportionately more revenue than area director
and master franchise fees.
The following tables reflects the Company's revenue growth by source and number
of restaurants for the second quarter and first six months of 1999 compared to
the comparable periods in 1998:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Continuing fees ............... $ 2,847,698 $ 1,457,467 $ 5,353,196 $ 2,574,780
Initial franchise fees ........ 849,603 646,067 1,618,357 1,208,067
Area director and master
franchise fees ............... 442,444 479,985 914,590 1,052,985
Other ......................... 96,860 198,188 196,851 377,005
Interest ...................... 78,633 44,848 143,740 73,530
----------- ----------- ----------- -----------
Total franchise revenue ....... 4,315,238 2,826,555 8,226,734 5,286,367
Sales by Company owned stores . 2,111,782 1,472,898 4,130,367 3,214,307
Sales by Stores held for resale 208,845 415,384 432,839 415,384
----------- ----------- ----------- -----------
Total Revenue ................. $ 6,635,865 $ 4,714,837 $12,789,940 $ 8,916,058
=========== =========== =========== ===========
</TABLE>
- 10 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Restaurants open, beginning .. 509 361 494 327
New restaurants opened ....... 68 39 120 78
Restaurants reopened ......... 1 -- 1 --
Restaurants closed, to reopen (2) -- (4) --
Restaurants closed, Quizno's . (6) (5) (11) (10)
Restaurants closed, Bains .... (2) (4) (2) (4)
Restaurants sold, Bains (1) .. -- -- (30) --
------------- ------------- ------------- -------------
Restaurants open, end ........ 568 391 568 391
============= ============= ============= =============
Franchises sold, domestic .... 112 77 247 200
Franchises sold, international 14 9 27 31
------------- ------------- ------------- -------------
Total ........................ 126 86 274 231
============= ============= ============= =============
Initial franchise fees collected $1.8 million $1.2 million $4.1 million $3.2 million
Systemwide sales $40.2 million $23.2 million $74.5 million $42.7 million
Avg. unit volume for 1998 (2) - - - $339,000
Same store sales (2) Up 3.4% Up 9.6% Up 6.4% Up 9.4%
</TABLE>
<PAGE>
(1) During the first quarter of 1999, the Company sold the franchising rights
for all but 14 of its Bain's Deli franchise agreements to Bain's Deli
Corporation.
(2) Same store sales are based on 229 stores open since the beginning of 1998.
Stores that transferred ownership during this period or are in substantial
default of the franchise agreement are excluded along with non-traditional
units located in convenience stores and gas stations. Because the Company
is and will continue to be in an aggressive growth mode over the next few
years, it is anticipated that same store sales will fluctuate as units are
included from more start up markets.
Results of Operations
Comparison of the first half of 1999 with the first half of 1998 and the second
quarter of 1999 with the second quarter of 1998
Franchise revenue increased 53% in the second quarter of 1999 to $4,315,238 from
$2,826,555 in the same quarter last year. For the first half of 1999, franchise
revenue increased 56% to $8,226,734 from $5,286,367 last year. Total revenue
increased 41% in the second quarter of 1999 to $6,635,865 from $4,714,837 in the
same quarter last year. For the first half of 1999, total revenue increased 43%
to $12,789,940 from $8,916,058 last year.
- 11 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
Continuing fees increased 95% in the second quarter of 1999 to $2,847,698 from
$1,457,467 in the second quarter of 1998. For the first half of 1999, continuing
fees increased 108% to $5,353,196 from $2,574,780 in 1998. Continuing fees are
comprised of royalties and licensing fees.
Royalty fees are a percentage of each franchisee's sales paid to the Company and
will increase as new franchises open, as the average royalty percentage
increases, and as average unit sales increase. At June 30, 1999 there were 540
franchises open, as compared to 369 at June 30, 1998. The royalty is 5% for
agreements entered into prior to February 11, 1995, 6% for agreements entered
into from February 11, 1995 to March 31, 1998, and 7% for all franchise
agreements entered into after March 31, 1998. The royalty for Quizno's Express
units is 8%. The Company has no immediate plans to increase the royalty rate.
Royalty fees were $2,279,985 for the second quarter of 1999 compared to
$1,232,467 for the same period last year, an increase of 85%. For the first half
of 1999, royalty fees were $4,135,905 for 1999 compared to $2,349,780 for the
same period last year, an increase of 76%.
Included are 13 and 48 Bain's franchises at June 30, 1999 and 1998,
respectively, acquired in November 1997, which pay royalties at various rates up
to 5%, and account for $15,579 and $45,333 in royalty revenue for the second
quarter of 1999 and 1998, respectively, and $54,379 and $144,081 in royalty
revenue for the first half of 1999 and 1998, respectively. The Company records
royalty revenue from Bain's franchisees when the funds are collected.
Licensing fees are fees generated through the licensing of the Quizno's
trademarks for use by others and fees received from product companies to sell
proprietary products to the Company's restaurant system. Licensing fees are
expected to continue and to increase as systemwide sales and the awareness and
value of the Quizno's brand increases. Licensing fees were $567,713 in the
second quarter of 1999 and $225,000 in the comparable 1998 quarter. For the
first half of 1999, licensing fees were $1,217,291 in 1999 and $225,000 in the
comparable 1998 period.
Initial franchise fees increased 32% in the second quarter of 1999 to $849,603
from $646,067 in the same quarter last year. For the first half of 1999, initial
franchise fees increased 34% to $1,618,357 from $1,208,067 in the same period
last year. Initial franchise fees are one-time fees paid by franchisees at the
time the franchise is purchased. Initial franchise fees 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. The Company's share of initial franchise fees sold by foreign
master franchises is recognized when received. In the first half of 1999, the
Company opened 120 franchises as compared to 75 franchises and three Company
stores opened in the same period last year. The average initial franchise fee
per unit has declined as more international units are included, for which the
Company's share of the initial franchise fee is approximately 30%.
- 12 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
Initial franchise fees collected by the Company are recorded as deferred initial
franchise fees until the related franchise opens. Deferred initial franchise
fees at June 30, 1999 were $7,043,947 and represent 458 franchises sold but not
yet in operation, compared to $4,129,913 at June 30, 1998 representing 306
franchises sold but not open. Direct costs related to the franchise sale,
primarily sales commissions paid to area directors, are deferred on the books of
the Company and recorded as an expense at the same time as the related initial
franchise fee is recorded as income. Deferred costs paid with respect to initial
franchise fees deferred at June 30, 1999 were $1,371,123. Approximately 50% of
all initial franchisee fees received by the Company are paid to area directors
for sales and opening commissions. The Company has not sold or opened any Bain's
franchises, nor does it expect to in the future.
Area director and master franchise fees decreased 8% in the second quarter of
1999 to $442,444 from $479,985 in the same quarter last year. For the first half
of 1999, area director and master franchise fees decreased 13% to $914,590 from
$1,052,985 in the same period last year. Area fees are one-time fees paid to the
Company for the right to sell franchises on behalf of the Company in a
designated, non-exclusive area, including international markets. Master
franchise fees are one-time fees paid to the Company for the exclusive rights to
sell franchises and area directorships directly in a defined international
market. The Company is paid a portion, typically 30%, of franchise fees,
royalties, and area director fees for sales by the master franchisee.
Domestic area fees were $347,444 in the second quarter of 1999 compared to
$479,985 in the same quarter last year. For the first half of 1999, domestic
area fees were $628,521 compared to $498,985 in the same period last year. The
fee for U.S. areas was $.05 per person from January 1997 through December 1997,
$.06 from January 1998 through February 1998, and $.07 since March 1, 1998. In
addition, each area director is required to pay a training fee of $10,000. 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. In the first half of 1999, the Company sold 4 area directorships,
including two existing area directors who purchased additional territory,
compared to the sale of seven sales of area directorships, including eight
existing area directors who purchased additional territory, in the first half of
1998. At June 30, 1999, the Company had a total of 81 area directors who owned
areas encompassing approximately 74% of the population of the United States.
International master franchise fees were $95,000 in the second quarter of 1999
and $0 for the quarter ended June 30, 1998. For the first half of 1999,
international master franchise fees were $286,069 compared to $554,000 in the
same period last year.
In the first half of 1999, the Company sold the master franchise rights to part
of Australia for $221,069 and the rights to part of Central America for
$115,000. The Company has deferred $50,000 of these fees in that period until
the Company's obligations are completed. In the first half of 1998, the Company
sold all of the area directorship rights for Canada to its Canadian master
franchisee for $704,000, recognizing $554,000 as income in that period. As part
of the agreement, the Canadian master franchisee was allowed to retain 100% of
the initial franchise fees from franchises sold in Canada in 1998 only.
- 13 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
The Company offers area and master applicants financing for up to 50% of the
area fee. The amount financed is required to be paid to the Company in
installments over not more than five years at interest rates between 6% and 15%.
The promissory notes are personally signed and, depending on the personal
financial strength of the Area Director or master franchisee, secured by
collateral unrelated to the area directorship, usually a second mortgage. Of the
six domestic and international areas sold in 1999, four used this financing for
$307,279, representing 34% of the area director fees recognized in 1999. In the
first half of 1998, the Canadian master franchisee used the financing for the
purchase of the Canadian area directorships in the amount of $528,000. Of the
additional area directorships sold in the first half of 1998, two area directors
financed a total of $150,643.
The area director and master franchise agreements set increasing minimum
performance levels that require the area director or master franchisee to sell
and open a specified number of franchised restaurants in each year during the
term of the area agreement. The Company's experience with the program to date
indicates that while some area directors will exceed their development
schedules, others will fail to meet their schedules. In its planning, the
Company has allowed for a certain percentage of area directors and master
franchisees that will not meet their development schedule. Delays in the sale
and opening of restaurants can occur for many reasons. The most common are
delays in the selection or acquisition of an appropriate location for the
restaurant, delays in negotiating the terms of the lease and delays in
franchisee financing. The Company may terminate an area agreement if the area
director or master franchisee fails to meet the development schedule, and the
Company would then have the right to resell the territory to a new area director
or master franchisee.
Other revenue decreased by 51% in the second quarter of 1999 to $96,860 from
$198,188 in the second quarter of 1998. For the six months ended June 30,1999,
other revenue decreased by 48% to $196,851 from $377,005 in the comparable
period of 1998. Other revenue is primarily amounts paid by equipment suppliers
for design and construction and bookkeeping fees charged franchisees for which
the Company provided bookkeeping services. Since 1995, the Company's franchise
agreement requires all new franchisees to utilize the Company's bookkeeping
services, or a firm designated by the Company to provide bookkeeping services,
for their first 12 months of operations. Bookkeeping fees were $7,010 in the
first quarter of 1999 compared to $66,153 in the first quarter of 1998. For the
six months ended June 30, 1999, bookkeeping fees were $18,179 compared to
$178,606 in the comparable period of 1998. The Company out-sourced the
bookkeeping to an unaffiliated party beginning in the second quarter of 1998 and
now earns only a small administrative fee relative to the bookkeeping function.
This party will perform all of the functions and incur all of the costs
previously paid by the Company to perform the bookkeeping functions.
Sales and royalty commissions expense increased to $1,302,214 in the second
quarter of 1999 from $896,454 in the same quarter last year. For the six months
ended June 30, 1999, sales and royalty commissions expense increased to
$2,475,654 from $1,649,724 in the same period last year. For the second quarter
and first half of 1999, sales and royalty commissions expense increased 45% and
50%, respectively, when compared to the same periods in 1998. Sales and royalty
commissions are amounts paid to the domestic Area Directors of the Company,
commissions paid to other sales agents and employees, and costs related to sales
promotions and incentives.
- 14 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
The Company's U.S. Area Directors receive commissions equal to 50% of the
initial franchise fees and 40% of royalties received by the Company from
franchises sold, opened, and operating 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 opening assistance to
new owners, and perform monthly quality control reviews at each franchise open
in the Area Director's territory.
The Area Director is entitled to receive commissions during the term of the Area
Director Agreement and in some cases, upon expiration of the Area Director
Agreement, in which case the commission paid is reduced to 1% of sales for 5
years.
The Company's foreign master franchisees retain 70% of all initial fees and
royalties paid from franchises sold, open and operating in the master
franchisee's territory, except the Canadian master franchisee who retained 100%
of initial franchise fees for franchises sold in 1998 only, as discussed above.
Under the master franchise agreement, the Company has no obligation to provide
services that will result in any incremental cost to the Company, other than an
initial training trip to the country by an employee of the Company.
General and administrative expenses increased 57% to $2,178,465 in the second
quarter of 1999 from $1,391,289 in the same quarter last year. For the six
months ended June 30, 1999, general and administrative expenses increased 49% to
$4,111,086 from $2,761,891 in the same period last year. As a percent of
franchise revenue, general and administrative expenses have fallen from 80% in
1995, 74% in 1996, 58% in 1997, 49% in 1998 and 50% in the first half of 1999.
General administrative expenses include all operating costs of the Company. The
increase is primarily due to the addition of employees to service the rapidly
growing network of Quizno's Franchisees and Area Directors. Although general and
administrative expenses will likely continue to increase as the Company grows,
management expects the rate of increase to continue to decline.
The Company believes its general and administrative expenses are adequate and
are not excessive in relation to the size and growth of the Company.
Company stores earned $197,769 on sales of $2,111,782 in the second quarter of
1999 compared to $166,386 on sales of $1,472,898 in the same quarter last year.
For the six months ended June 30, 1999, Company stores earned $381,333 on sales
of $4,130,367 compared to $273,770 on sales of $3,214,307 in the same period
last year. During the first half of 1999 the Company operated stores for a total
of 140.9 store operating months, compared to 100 store operating months in the
first half of 1998. At June 30, 1999 the Company had 24 (16 at June 30, 1998)
operating Company stores. The Company acquired 8 Subs and Stuff units in
Wichita, KS in August of 1998, all of which were converted to Quizno's in 1998.
- 15 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Stores held for resale lost $91,484 on sales of $208,845 for the second quarter
of 1999 compared to a loss of $95,274 on sales of $415,384 in the second quarter
of 1998. For the six months ended June 30, 1999, stores held for resale lost
$184,911 on sales of $432,839 compared to a loss of $95,274 on sales of $415,384
in the comparable period of 1998. At the beginning of the second quarter of
1998, the Company reclassified six stores to stores held for resale from Company
stores. At June 30, 1999, the Company operated four stores held for resale.
Three stores held for resale are expected to be sold in 1999. The fourth store
was closed in early July 1999.
Japan master franchise represents payments received in the second quarter and
first half of 1999 of $341,424 and $1,423,348, respectively, for the master
franchise rights. In the first quarter of 1999, the Company also received
$22,000 for the Company's share of an area director marketing agreement sold in
Japan. In the second quarter and first half of 1999, the Company incurred direct
costs related to the revenue totaling $33,490 and $276,547, respectively,
resulting in net revenue of $307,934 and $1,168,801, respectively. The Company
received $350,000 in 1998. The payments are recognized as revenue when received.
Although the Company plans to continue to enter into master franchise agreements
internationally, it does not expect such transactions to be of the magnitude of
the Japanese transaction.
Loss on sale of Company stores was $68,243 in the first half of 1999 primarily
resulting from the January 1999 closure of one store held for resale. The store
was a Bain's unit.
Provision for bad debts was $95,767 in the second quarter of 1999 and $50,913 in
the same quarter last year. For the six months ended June 30, provision for bad
debts was $248,981in 1999 and $84,590 in 1998. The 1999 provision provides a
reserve of approximately 5% of the Company's accounts and notes receivable
balances at June 30, 1999.
Depreciation and amortization was $224,291 in the second quarter of 1999 and
$145,158 in the same quarter last year. For the six months ended June 30,
depreciation and amortization was $495,283 in 1999 and $289,768 in 1998. The
increase is due to the acquisition and development of eight new Company-owned
restaurants and certain other tangible and intangible assets with short lives
expensed beginning in late 1998 and 1999.
Interest expense was $77,381 in the second quarter of 1999 and $103,073 in the
same quarter last year. For the six months ended June 30, interest expense was
$165,065 in 1999 and $181,080 in 1998. The decrease is primarily attributable to
the interest on debt related to financing new Company owned stores and stores
held for resale at the end of the first quarter of 1998 and a decrease in the
Company's effective interest rate. On January 6, 1999, the Company paid $500,000
to redeem all of its outstanding Class B Preferred Stock and paid off the
remaining principal of its 12.75% convertible subordinated debt. The funds used
for this payoff were obtained through the borrowing of $1,853,931 from an
unrelated noteholder. This note accrues interest at the rate of 7.75% per annum.
- 16 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Provision for income taxes was $242,231 and $605,002 in the second quarter and
first half of 1999, respectively. There was no income tax provision or benefit
recorded in the first half of 1998. The Company's taxable income has
historically exceeded its book income primarily because initial franchise fees
the Company receives are taxable income in the year received and are book income
in the year the franchise opens. Consequently, the Company will not pay income
taxes on this income when it is recognized for financial reporting purposes. In
the fourth quarter of 1998, the Company used all of its tax net operating loss
carryforwards and incurred a tax liability.
Cumulative effect of a change in accounting principle was $84,090 (net of
applicable taxes of $41,417) in the first quarter of 1999. During April 1998,
Statement of Position 98-5, "Reporting in the Costs of Start-Up Activities" was
issued. SOP 98-5 requires costs of start-up activities and organization costs to
be expensed as incurred. SOP 98-5 was required to be adopted in the first
quarter of 1999. Upon adoption, the Company was required to write-off $125,507
in preopening related costs that were deferred on the balance sheet as of
December 31, 1998.
Liquidity and Capital Resources
Net cash provided by operating activities was $3,770,170 in the first half of
1999 compared to cash provided by operating activities of $1,132,635 in the
first half of 1998. The primary reasons for the improvement are an increase in
deferred initial franchise fees resulting from franchise sales in excess of
franchise openings and the net income improvement.
Net cash used in investing activities was $3,659,775 in the first half of 1999
compared to cash provided by investing activities of $1,519,975 in the first
half of 1998. The primary reasons for the change were an increase in purchases
of property and equipment related to the conversion and development of Company
owned stores, an increase in other investments and the short-term investment of
$2,671,937 of excess cash.
Net cash provided by financing activities was $191,444 in the first half of 1999
compared to cash provided by financing activities of $1,146,671 in the first
half of 1998. The amount provided in 1999 was primarily from the net proceeds of
long-term borrowing and repayments.
In the first quarter of 1998, the Company tested a program under which its Area
Directors had the right to elect to have all future Franchisee leases in the
Area Director's territory signed by The Quizno's Realty Company ("QRC"), a
wholly owned subsidiary of the Company. As a condition of the lease, the
landlord agrees not to look beyond QRC for payments. These locations would then
be subleased by QRC to the Franchisee, whose personal liability is limited to
one year. The Franchisee pays QRC an indemnification fee of $165 per month, pays
a one-time lease-processing fee to QRC of $2,200, and pays a security deposit to
QRC equal to two months rent. Effective March 1, 1998, the Company transferred
cash and other assets having a book value of approximately $500,000 to QRC in
exchange for stock and a promissory note. As of June 30, 1999, 10 leases had
been executed under this program, and the Company is evaluating whether to
continue the program in the future.
- 17 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
As it has in the past, the Company will continue to consider acquisitions of
other chains, the purchase of Quizno's restaurants from its franchisees, and the
purchase of Quizno's area directorships from its Area Directors. From time to
time, the Company will make offers and enter into letters of intent for such
transactions subject to the completion of due diligence. In all such cases, the
Company will identify the sources of cash required to complete such transactions
prior to entering into a binding agreement.
On December 31, 1996, the Company completed a debt financing for $2 million of
which $500,000 was converted to preferred stock in December 1997. The $1,500,000
loan was payable interest only at 12.75%, $15,937.50 per month, through June
1998, interest and principal payments of $34,141 from July 1998 through November
2001, and a final balloon payment of $587,295 on December 31, 2001. In
connection with the loan, the lender had the right to convert a portion of the
loan into 372,847 shares of the Company's common stock at $3.10 per share. On
January 6, 1999 the Company paid off the loan and redeemed the preferred stock
at a cost of $1,854,000. These funds were borrowed from a financial institution
and is repayable over 7 years at an interest rate of 7.75%. As required by the
loan agreement, the Company issued a warrant to the lender to purchase 372,847
shares of its common stock at an exercise price of $3.10. The note is
collateralized by all of the restaurant equipment and furniture and fixtures
existing at six of the Company's stores. The Company is required to maintain
certain annual cash flow covenants under the agreement.
As discussed in the Company's 1998 Form 10-KSB, on December 29, 1998, the
Company received a proposal from the majority shareholders of the Company to
merge the Company into a new company owned by them, pursuant to which all of the
Company's shareholders other than themselves, would receive cash for their
Company shares. On August 10, 1999, the Company announced that the proposal had
been withdrawn. An agreement regarding all the terms of the transaction could
not be reached with the Special Committee of the Board of Directors evaluating
the offer.
Year 2000 Disclosure
The Company uses current versions of widely used publicly available software for
its accounting and other data processing requirements. The providers of the
software utilized by the Company have stated that there will be no failures in
the programs used by the Company resulting from the year 2000. The Company uses
a small amount of customized software, all of which has been developed by the
Company in the last twelve months, and has been written to be functional in the
year 2000. The Company has not yet determined the impact, if any, that year 2000
issues may have on its vendors. However, the Company believes there are adequate
alternative vendors that can supply products and services to the Company if
necessary. Finally, the Company's business, quick service restaurants, is not
highly dependent upon electronic data processing. In conclusion, the Company
does not believe it has material risk from year 2000 issues.
- 18 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
Forward-Looking Statements
Certain of the information discussed in this Form 10-QSB, and in particular in
the section entitled "Management's Discussion and Analysis or Plan of
Operation," 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
effect of national and regional economic and market conditions in the United
States and in other countries in which franchises are sold, costs of labor and
employee benefits, costs of marketing, costs of food and non-food items used in
the operation of the restaurants, intensity of competition of locations and
franchisees, as well as customers, perception of food safety, legal claims, and
the availability of financing for the Company and its franchisees. Many of these
risks are beyond the control of the Company. In addition, specific reference is
made to the "Risk Factors" contained in the Company's Prospectus, dated January
9, 1998, related to the Registration Statement on Form S-3 filed by the Company
(Registration No. 333-38691) and to the Company's annual report filed on Form
10-KSB for year ended December 31, 1998.
As described earlier, the Company's principal sources of income are royalty
fees, initial franchise fees, and area director marketing and master franchise
fees. These sources are subject to a variety of factors that could adversely
impact the profitability of the Company in the future, including those mentioned
in the preceding paragraph. The continued strength of the U.S. economy is a key
factor to the restaurant business because consumers tend to immediately reduce
their discretionary purchases in economically difficult times. An economic
downturn would adversely affect all three of the above-identified sources of
income. Because many of the Company's franchises are concentrated in a few
regions of the U.S., regional economic factors could adversely affect the
Company's profitability. Weather, particularly severe winter weather, will
adversely affect royalty income and could affect the other sources cited above.
Culinary fashions among Americans and people in other countries in which
franchises are sold 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 formulate a menu with the Company's distinctive culinary
style that appeals to an increasing market share. Finally, the intense
competition in the restaurant industry continues to challenge participants in
all segments of this industry.
- 19 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
Commission File Number: 000-23174
Quarter Ended June 30, 1999
Form 10-QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are various claims and lawsuits pending by and against the Company, which,
in the opinion of the management, and supported by advice from legal counsel,
will not result in any material adverse effect in excess of amounts accrued in
the accompanying consolidated financial statements.
Item 2. Changes in Securities and Use of Proceeds
Sales of Unregistered Securities
Securities Amount of
Sold Date Consideration Purchasers Exemption
------------ --------- ------------- ------------- --------------
465 shares of 5/6/99 $3,192 Quizno's 401(k) Section 4 (2)
common stock Plan
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulations S-B
EXHIBIT NO. DESCRIPTION
----------- -----------
3.4 Bylaws of the Company, amended through May 6, 1999
(b) Reports on Form 8-K:
Form 8-K of the Company, dated April 1, 1999, related to a press release
reported in Item 5 announcing the 1998 financial results.
Form 8-K of the Company, dated June 28, 1999, reported in Item 5 an update to
the previously announced going private proposal.
- 20 -
<PAGE>
THE QUIZNO'S CORPORATION AND SUBSIDIARIES
Commission File Number: 000-23174
Quarter Ended June 30, 1999
Form 10-QSB
PART II - OTHER INFORMATION
(continued)
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: /s/ John L. Gallivan
John L. Gallivan
Chief Financial Officer
(Principal Financial and Accounting Officer)
Denver, Colorado
August 16, 1999
- 21 -
Exhibit 3.4
BYLAWS
OF
THE QUIZNO'S CORPORATION
ADOPTED AUGUST 25, 1994, AS AMENDED
ARTICLE I
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 II
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 that 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 III
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 IV
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 V
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 VI
Officers and Agents
1. General.
(a) 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.
(b) 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.
(c) Any officer of the Corporation with the title of
President, Chief Operating Officer, Chief Financial Officer or General
Counsel shall be authorized hereby to execute and deliver on behalf of
and in the name of the Corporation any lease, contract or other
agreement, obligating the Corporation to make periodic payments for
goods or services obtained by the Corporation in the ordinary course of
its business. The execution and delivery of any such instrument by any
one of such officers shall legally bind the Corporation, without the
necessity of a resolution of the Board of Directors. Any vendor of
goods or services to the Corporation shall be justified in relying on
the authority of the signature of any of such officers to bind the
Corporation upon receipt of a certified copy of this provision.
(d) The Chief Financial Officer of the Corporation shall be
authorized hereby to open any account at a banking institution, to
legally bind the Corporation to the terms such institution customarily
requires of its account holders, and to designate the officers with
signing authority on such account, provided, however, that at least two
officers of the Corporation shall be necessary to sign checks on or
withdraw funds from such account in excess of $10,000. The execution
and delivery of any instrument agreeing to such terms or designating
such signatories by the Chief Financial Officer shall legally bind the
Corporation, without the necessity of a resolution of the Board of
Directors. Any banking institution shall be justified in relying on the
authority of the signature of the Chief Financial Officer to bind the
Corporation upon receipt of a certified copy of this provision.
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 by or 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 VII
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 VIII
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 IX
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" and "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 May 6, 1999.
/s/ Richard F. Shaden, Secretary
-----------------------------
Richard F. Schaden, Secretary
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