<PAGE>
[THE QUIZNO'S CORPORATION LOGO]
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF ITS COMMON STOCK
AT A PURCHASE PRICE OF $8.00 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON DECEMBER 11, 2000, UNLESS THE OFFER IS EXTENDED.
The Quizno's Corporation, a Colorado corporation (the "Company"),
invites its stockholders to tender shares of common stock, $.001 par value per
share (the "Shares"), at $8.00 per Share (the "Purchase Price"), net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which together with this Offer to Purchase constitutes the
"Offer"). Although the Offer is being made to all holders of Shares, Richard E.
Schaden, the Chairman of the Board of Directors, President and Chief Executive
Officer of the Company, Richard F. Schaden, Vice President, Secretary and a
director of the Company, and Frederick H. Schaden, a director of the Company
(collectively, the "Schaden Stockholders"), have advised us that they do not
intend to tender any Shares pursuant to the Offer. Whenever this Offer to
Purchase refers to rights "we" have, actions "we" may take or similar matters,
it is referring to rights and actions of the Company.
The Offer is conditioned on, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined below) not
less than 51% of the currently outstanding Shares, other than Shares
beneficially owned by the Schaden Stockholders (the "Minimum Condition"). We
reserve the right to waive the Minimum Condition and all other conditions to the
Offer. All Shares properly tendered and not withdrawn will be purchased at the
Purchase Price, on the terms and subject to the conditions of the Offer.
OUR BOARD OF DIRECTORS HAS APPROVED THE OFFER. HOWEVER, NONE OF THE
COMPANY, OUR BOARD OF DIRECTORS OR THE DEALER MANAGER MAKES ANY RECOMMENDATION
TO YOU AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING YOUR SHARES. YOU MUST
MAKE THE DECISION WHETHER TO TENDER YOUR SHARES AND, IF SO, HOW MANY SHARES TO
TENDER.
The Shares are traded on the SmallCap Market of The Nasdaq Stock
Market, Inc. ("Nasdaq") under the ticker symbol "QUIZ." On November 9, 2000, the
last day the Shares were traded on Nasdaq before the printing of this Offer to
Purchase, the last reported sales price of the Shares on Nasdaq was $6.75 per
Share.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED ON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION OR THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
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The Dealer Manager for the Offer is:
TUCKER ANTHONY CAPITAL MARKETS,
a Division of Tucker Anthony Incorporated
The Information Agent for the Offer is:
MACKENZIE PARTNERS, INC.
November 13, 2000
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CONTENTS
<TABLE>
<S> <C>
SUMMARY TERM SHEET...............................................................................1
INTRODUCTION.....................................................................................8
SPECIAL FACTORS.................................................................................11
1. Background and Purpose of the Offer; Certain Effects of the Offer; Plans
of the Company After the Offer........................................................11
2. Rights of Stockholders in the Event of the Second-Step Transaction....................18
3. Position of Our Board; Fairness of the Offer..........................................18
4. Opinion of Tucker Anthony.............................................................20
5. Interests of Certain Persons in the Offer and the Second-Step Transaction.............25
6. Beneficial Ownership of Shares........................................................27
7. Fees and Expenses.....................................................................29
THE TENDER OFFER................................................................................30
1. Terms of the Offer; Expiration Date...................................................30
2. Acceptance for Payment and Payment for Shares.........................................31
3. Procedures for Accepting the Offer and Tendering Shares...............................32
4. Withdrawal Rights.....................................................................36
5. Certain Federal Income Tax Consequences...............................................37
6. Price Range of Shares; Dividends; Stock Repurchases...................................40
7. Certain Information Concerning the Company............................................41
8. Financing of the Offer................................................................51
9. Dividends and Distributions...........................................................52
10. Effect of the Offer on the Market for the Shares; Nasdaq Listing and
Exchange Act Registration.............................................................52
11. Certain Conditions of the Offer.......................................................54
12. Certain Legal Matters and Regulatory Approvals........................................55
13. Fees and Expenses.....................................................................56
14. Miscellaneous.........................................................................56
</TABLE>
SCHEDULE I Directors and Executive Officers of the Company
SCHEDULE II Opinions of Tucker Anthony
SCHEDULE III Summary of Stockholder Dissenters Rights and Text of Article 113
of the Colorado Business Corporation Act
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SUMMARY TERM SHEET
We are offering to purchase all the outstanding shares of our common
stock at a price, net to the seller in cash, of $8.00 per share. Through a
question and answer format, this Summary Term Sheet will explain to you, the
common stockholders of The Quizno's Corporation, the important terms of the
proposed transaction. This explanation will assist you in deciding whether to
tender your shares to The Quizno's Corporation. This Summary Term Sheet serves
only as an introduction, and we urge you to carefully read the remainder of this
Offer to Purchase and the accompanying Letter of Transmittal in order to fully
educate yourself on the details of the proposed tender offer. Cross-referenced
text refers to sections within this Offer to Purchase.
WHO IS OFFERING TO BUY THE COMMON STOCK OF THE QUIZNO'S CORPORATION?
The Quizno's Corporation, a Colorado corporation, is offering to buy
back its own common stock in a self-tender offer.
WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER? HOW MUCH IS
THE QUIZNO'S CORPORATION OFFERING TO PAY AND WHAT IS THE FORM OF PAYMENT?
We are offering to purchase all the issued and outstanding shares of
common stock of The Quizno's Corporation for $8.00 per share, net to you, in
cash. The Offer is being made to all holders of common stock. We have been
advised that Richard E. Schaden, the Chairman of the Board of Directors,
President and Chief Executive Officer of The Quizno's Corporation, Richard F.
Schaden, Vice President, Secretary and a director of The Quizno's Corporation,
and Frederick H. Schaden, a director of The Quizno's Corporation, who as a group
own approximately 51.6% of the outstanding shares of common stock, do not intend
to tender any of their shares pursuant to the Offer. See "Introduction" and "The
Tender Offer--Terms of the Offer; Expiration Date."
WHAT IS THE PURPOSE OF THE TENDER OFFER?
We believe that the public trading market for the shares has been and
will continue to be characterized by low prices and low trading volume. The
overall purpose of the Offer is to increase stockholder value. More
specifically, we are making the Offer, among other reasons, because we believe
that
the Offer will provide you with an opportunity to achieve liquidity
in cash upon the consummation of the Offer; and
the Offer will provide you with a premium above recent trading
prices.
Depending on the numbers of shares purchased in the Offer, the Offer
could have the effect of taking us private. If fewer than all the shares owned
by the public stockholders are tendered pursuant to the Offer, then our Board of
Directors could take other actions that would result in a second-step
transaction in which all the remaining public stockholders would receive cash
for their shares. However, our Board of Directors has not made any decision to
take the company private or as to
<PAGE>
whether, or when, a second-step transaction such as a merger or a reverse stock
split would be completed. A second-step transaction would require approval by
our Board of Directors and may require approval by our stockholders, depending
on the nature of the second-step transaction. The members of the Schaden family
owning shares would be able to control the outcome of any stockholder vote on a
second-step transaction.
Other purposes for the tender offer are set forth in "Introduction" and
"Special Factors--Background and Purpose of the Offer; Certain Effects of the
Offer; Plans of the Company After the Offer."
WILL I BE CHARGED ANY TRANSFER TAXES, FEES OR COMMISSIONS WHEN I TENDER MY
SHARES?
We will pay all stock transfer taxes payable on the transfer of shares
pursuant to the tender offer. However, if we are going to make payment of the
purchase price to any person other than the registered holder or if any tendered
shares are registered in the name of any person other than the person signing
the Letter of Transmittal, then we will deduct from the purchase price the
amount of any stock transfer taxes payable on account of the transfer, unless we
receive satisfactory evidence that such taxes have been paid or there is an
adequate exemption.
If you are the record owner of your shares and you tender shares to us,
you will not have to pay any brokerage fees or commissions. If you own your
shares through a broker or other nominee, and your broker tenders your shares on
your behalf, then your broker or nominee may charge you a fee or commission for
doing so. You should contact your broker or nominee to determine whether you
will be charged a fee. See "The Tender Offer--Acceptance for Payment and Payment
for Shares" and Instruction 6 of the Letter of Transmittal.
WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER? UNDER WHAT CONDITIONS CAN
THE QUIZNO'S CORPORATION TERMINATE THE TENDER OFFER?
We are not obligated to purchase any shares that are validly tendered
unless that number of shares validly tendered and not withdrawn prior to the
expiration date represents more than 51% of the currently outstanding shares
(other than shares held by Richard E. Schaden, Richard F. Schaden and Frederick
H. Schaden).
We can terminate the tender offer, in our sole discretion, if, among
other things:
any action by any governmental agency or other person is instituted
that challenges or otherwise adversely affects our ability to make or
complete the tender offer or could, in our sole judgment, materially
affect our business;
the board of directors conclude that the exercise of their fiduciary
duties requires that we terminate the offer; or
we no longer continue to have sufficient financing to enable us to
consummate the Offer.
We reserve the right to waive any of the above conditions. Other
conditions are set forth in "The Tender Offer--Certain Conditions of the Offer."
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HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER MY SHARES IN THE OFFER? CAN THE
QUIZNO'S CORPORATION EXTEND THE OFFER PAST THE INITIAL EXPIRATION DATE?
The Offer to purchase your shares expires at 12:00 midnight, New York
City time, on Monday, December 11, 2000.
Yes, we can extend the Offer past this scheduled expiration date in our
sole discretion. If we choose to do so, you will be able to tender your shares
until the end of the day selected as the new expiration date. See "The Tender
Offer--Terms of the Offer; Expiration Date."
CAN THE QUIZNO'S CORPORATION AMEND THE TERMS OF THE TENDER OFFER?
We reserve the right in our sole discretion to amend the tender offer
in any respect. See "The Tender Offer--Terms of the Offer; Expiration Date."
HOW DO I FIND OUT IF THE QUIZNO'S CORPORATION AMENDS THE TERMS OF THE TENDER
OFFER?
We will announce any amendment to the tender offer by making a public
announcement of the amendment. We will announce any extension no later than 9:00
a.m., New York City time, on the next business day after the last previously
scheduled or announced expiration date. In the event of a termination or
postponement of the tender offer, we will also give written or oral notice to
the Depositary.
We will disseminate any public announcement promptly to you in a manner
reasonably designed to inform you of the amendment. Without limiting the manner
in which we may choose to make any public announcement, we will have no
obligation to publish, advertise or otherwise communicate any public
announcement other than by making a release to the Dow Jones News Service or
other national business wire service. See "The Tender Offer--Acceptance for
Payment and Payment for Shares."
HOW DO I GET PAID FOR MY TENDERED SHARES?
We will pay for the shares accepted for payment by depositing the
aggregate purchase price with the Depositary as soon as practicable after the
expiration date of the tender offer. The Depositary will act as your agent and
will transmit to you the payment for all shares accepted for payment. See "The
Tender Offer--Acceptance for Payment and Payment for Shares."
HOW DO I TENDER MY SHARES?
To tender your shares, you must deliver your share certificates,
together with a completed letter of transmittal, to the Depositary on or prior
to the expiration date. If your shares are held in street name, you can tender
the shares by your nominee through the Depositary. For a more detailed
explanation of the tendering procedures, see "The Tender Offer--Acceptance for
Payment and Payment for Shares."
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UNTIL WHEN CAN I WITHDRAW MY PREVIOUSLY TENDERED SHARES?
You can withdraw your tendered shares at any time on or prior to the
expiration date. After the Offer expires, the tender is irrevocable unless we
have not accepted for payment your shares by 12:00 midnight, New York City time,
on Wednesday, January 10, 2001. See "The Tender Offer--Withdrawal Rights."
HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
To withdraw your shares, you must deliver a written, telegraphic or
facsimile transmission of notice of withdrawal to the Depositary that specifies
your name, the number of shares being withdrawn and the name of the registered
holder of the shares, if different from the person who tendered the shares. If
you have tendered pursuant to the procedure for book-entry transfer, the notice
of withdrawal must also specify the name and the number of the account at the
book-entry transfer facility to be credited with the withdrawn shares. See "The
Tender Offer--Withdrawal Rights."
WHAT ARE THE TAX CONSEQUENCES OF THE SALE OF SHARES TO THE QUIZNO'S CORPORATION?
The sale of shares to us is a taxable transaction for federal, and most
likely for state and foreign, income tax purposes as well. We encourage you to
consult with your own tax advisor about the particular effect the tender will
have on you. See "The Tender Offer--Certain Federal Income Tax Consequences."
WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE?
On November 9, 2000, the last full trading day before the printing of
this Offer to Purchase, the closing price per share of the common stock on the
Nasdaq SmallCap Market was $6.75. We encourage you to obtain a current market
quotation for your shares before deciding whether to tender your shares. See
"The Tender Offer--Price Range of Shares; Dividends; Stock Repurchases."
WHAT DOES THE BOARD OF DIRECTORS OF THE QUIZNO'S CORPORATION THINK OF THE TENDER
OFFER?
Our Board of Directors, other than Richard E. Schaden, Richard F.
Schaden, Frederick H. Schaden and J. Eric Lawrence, all of whom refrained from
voting, adopted resolutions approving the tender offer. However, neither we nor
our Board of Directors makes any recommendation to you as to whether to tender
or refrain from tendering shares, and neither we nor our Board of Directors has
authorized any person to make any such recommendation.
We encourage you to make your own decision whether to tender shares
and, if so, how many shares to tender.
See "Special Factors--Background and Purpose of the Offer; Certain
Effects of the Offer; Plans of the Company After the Offer" and "--Interests of
Certain Persons in the Offer and the Second-Step Transaction."
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DID THE BOARD OF DIRECTORS RECEIVE ANY OPINIONS, APPRAISALS OR REPORTS REGARDING
THE FAIRNESS OF THE OFFER?
Yes. Our Board of Directors received a written opinion, dated November
12, 2000, from Tucker Anthony Capital Markets, a division of Tucker Anthony
Incorporated, to the effect that, as of that date and based on and subject to
the assumptions and limitations contained in the opinion, the purchase price per
share of $8.00 to be received in the Offer was fair, from a financial point of
view, to all of the holders of shares of The Quizno's Corporation's common stock
(other than Richard E. Schaden, Richard F. Schaden and Frederick H. Schaden).
DO ANY DIRECTORS OR EXECUTIVE OFFICERS OF THE QUIZNO'S CORPORATION INTEND TO
TENDER SHARES PURSUANT TO THE TENDER OFFER?
We have been advised that Richard E. Schaden, the Chairman of the Board
of Directors, President and Chief Executive Officer of The Quizno's Corporation,
Richard F. Schaden, Vice President, Secretary and a director of The Quizno's
Corporation, and Frederick H. Schaden, a director of The Quizno's Corporation,
who as a group own approximately 51.6% of the outstanding shares of common
stock, do not intend to tender any of their shares pursuant to the Offer. All
other directors and officers have advised us that they have not decided whether
to tender their shares.
See "Introduction," "Special Factors--Background and Purpose of the
Offer; Certain Effects of the Offer; Plans of the Company After the Offer" and
"--Interests of Certain Persons in the Offer and the Second-Step Transaction."
WHAT IS THE TOTAL AMOUNT OF FUNDS THAT THE QUIZNO'S CORPORATION WILL REQUIRE TO
CONSUMMATE THE TENDER OFFER?
Assuming we purchase 1,456,248 shares in the tender offer at a purchase
price of $8.00 per share, all vested stock options (other than those held by the
Schaden Stockholders) exercisable at a price below the offer price are exercised
and tendered, all preferred shares are converted into common stock and tendered
and we purchase the warrants held by Retail & Restaurant Growth Capital, L.P.,
we expect the maximum aggregate cost, including all fees and expenses applicable
to the tender offer, to be approximately $18,200,000. See "The Tender
Offer--Financing of the Offer."
HOW WILL THE QUIZNO'S CORPORATION OBTAIN THE FUNDS TO MAKE PAYMENT?
We will obtain all necessary funds from a new subordinated credit
facility with Levine Leichtman Capital Partners and from available cash. The
maximum amount available to us under this credit facility is $12 million and we
have $6.2 million in available cash. In connection with the subordinated credit
facility, we agreed to issue a warrant to Levine Leichtman Capital Partners to
purchase up to 14% of our common stock and each series of preferred stock as of
nine months following the closing of the Offer. See "The Tender Offer--Financing
of the Offer" and "The Tender Offer--Certain Information About the
Company--Recent Transactions."
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<PAGE>
WILL THE COMPANY CONTINUE AS A PUBLIC COMPANY? WHAT EFFECT WILL THE TENDER OFFER
HAVE ON MY SHARES THAT ARE NOT PURCHASED IN THE OFFER, OR THAT I DO NOT TENDER?
Our purchase of the shares in the Offer will reduce the number of
shares that might otherwise trade publicly and will likely reduce the number of
stockholders. Depending on the number of shares purchased in the Offer, the
Offer could have the effect of taking us private. If fewer than all the shares
owned by the public stockholders are tendered pursuant to the Offer, we may
decide, in our sole discretion, to enter into a merger or other form of
corporate transaction such that any shares not tendered by the stockholders
(other than shares held by Richard F. Schaden, Richard E. Schaden and Frederick
H. Schaden) will be converted into only the right to receive the offer price in
cash. In such an event (or if the number of shares purchased in the Offer
results in our being a private company), we will seek to delist our common stock
from trading on the Nasdaq SmallCap Market and terminate the registration of the
shares under the Securities Exchange Act of 1934, as amended.
We currently have a very small stockholder base for an exchange-traded
public company as indicated by our approximately 150 stockholders of record, a
number substantially below the minimum at which a publicly traded company may
terminate its obligation to file periodic financial reports and other
information pursuant to the Securities and Exchange Act. Even if we do not
complete the Offer or enter into a second-step transaction following the Offer,
we may seek to terminate our registration under the Securities Exchange Act and
delist our securities from the Nasdaq SmallCap Market.
See "Introduction" and "Special Factors--Background and Purpose of the
Offer; Certain Effects of the Offer; Plans of the Company After the Offer."
IF I OBJECT TO THE PRICE BEING OFFERED, WILL I HAVE DISSENTERS' RIGHTS?
You will not have dissenters' rights in the Offer. In the event we
enter into a merger or other form of corporate transaction such that any shares
not tendered by the public stockholders will be converted into the right to
receive the offer price in cash, you may have dissenters' rights and be able to
have the "fair value" of your shares paid to you in cash provided that you
comply with the applicable provisions of the Colorado Business Corporation Act.
See "Special Factors--Rights of Stockholders in the Event of a Second-Step
Transaction." A copy of the Colorado dissenters' rights statute is attached as
Schedule III.
WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
You can call MacKenzie Partners, Inc., the Information Agent for the
Offer, toll-free at (800) 322-2885.
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IMPORTANT
Any stockholder desiring to tender all or any portion of such
stockholders shares should either (1) complete and sign the Letter of
Transmittal (or a copy thereof) in accordance with the instructions in the
Letter of Transmittal and mail or deliver it and any other required documents to
the Depositary and either deliver the certificate(s) evidencing the tendered
shares to the Depositary along with the Letter of Transmittal or deliver such
shares pursuant to the procedure for book-entry transfer set forth in "The
Tender Offer--Procedures for Accepting the Offer and Tendering Shares" or (2)
request such stockholder's broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for such stockholder. Any stockholder
whose shares are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee must contact such broker, dealer, commercial
bank, trust company or other nominee if such stockholder desires to tender such
shares.
Any stockholder who desires to tender shares and whose certificates
evidencing such shares are not immediately available, or who cannot comply with
the procedure for book-entry transfer on a timely basis, may tender such shares
by following the procedure for Guaranteed Delivery set forth in "The Tender
Offer--Procedures for Accepting the Offer and Tendering Shares."
TO PROPERLY TENDER SHARES, STOCKHOLDERS MUST VALIDLY COMPLETE THE
LETTER OF TRANSMITTAL.
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth on the back cover of this Offer to Purchase. Additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may also be obtained from the Information Agent or from brokers,
dealers, commercial banks or trust companies.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF
THE COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING
SHARES PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER
THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL.
IF MADE OR GIVEN, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE QUIZNO'S CORPORATION.
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To the Stockholders of The Quizno's Corporation:
INTRODUCTION
We invite the stockholders of The Quizno's Corporation, a Colorado
corporation (the "Company"), to tender to the Company shares of our common
stock, $.001 par value per share (the "Shares"), at $8.00 per Share (the
"Purchase Price"), net to the seller in cash, without interest thereon, upon the
terms and subject to the conditions set forth in this Offer to Purchase (this
"Offer to Purchase") and in the related Letter of Transmittal (which together
with this Offer to Purchase constitutes the "Offer"). Although the Offer is
being made to all holders of Shares, Richard E. Schaden, the Chairman of the
Board of Directors, President and Chief Executive Officer of the Company,
Richard F. Schaden, Vice President, Secretary and a director of the Company and
Frederick H. Schaden, a director of the Company (collectively, the "Schaden
Stockholders"), have advised us that they do not intend to tender any Shares
pursuant to the Offer. The Offer and withdrawal rights will expire at 12:00
midnight, New York City time, on December 11, 2000, unless the Offer is
extended. See "The Tender Offer--Terms of the Offer; Expiration Date."
All Shares properly tendered and not withdrawn will be acquired in the
Offer at the Purchase Price, upon the terms and subject to the conditions of the
Offer.
The Offer is conditioned on, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined below) not
less than 51% of the currently outstanding Shares, other than Shares
beneficially owned by the Schaden Stockholders (the "Public Shares"), or 742,686
Public Shares (the "Minimum Condition"). We reserve the right to waive the
Minimum Condition and the other conditions to the Offer. See "The Tender
Offer--Certain Conditions of the Offer."
Pursuant to the Offer, we seek to acquire all the issued and
outstanding Public Shares, including any Shares that are issued prior to the
Expiration Date pursuant to conversion or exercise of outstanding preferred
stock, options and warrants. At October 13, 2000, there were (a) 3,007,921
Shares issued and outstanding and (b) approximately 650,000 Shares reserved for
future issuance pursuant to outstanding employee, director and consultant stock
options. In addition, approximately 887,536 Shares are issuable upon conversion
of outstanding preferred stock or upon the exercise of outstanding warrants. The
holders of preferred stock and warrants may tender the Shares they receive upon
conversion or exercise in the Offer. Prior to the announcement of the Offer,
there were approximately 150 holders of record of the issued and outstanding
Shares. The Schaden Stockholders, who beneficially own in the aggregate
1,782,647 Shares, or approximately 51.6% of the issued and outstanding Shares,
have informed us that they do not intend to tender any of their Shares pursuant
to the Offer.
We believe that the public trading market for the Shares has been and
will continue to be characterized by low prices and low trading volume. The
overall purpose of the Offer is to increase stockholder value. More
specifically, we are making the Offer, among other reasons, because we believe
that
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<PAGE>
the Offer will provide you with an opportunity to achieve liquidity
in cash upon consummation of the Offer; and
the Offer will provide you with a premium above recent trading
prices.
Depending on the number of Shares purchased in the Offer, the Offer
could have the effect of taking us private. If fewer than all the Shares owned
by the stockholders other than the Schaden Stockholders (the "Public
Stockholders") are tendered pursuant to the Offer, then our Board of Directors
could take other actions, such as a merger or a reverse stock split that would
result in all the remaining Public Stockholders receiving cash for their shares
("Second-Step Transaction"). However, our Board of Directors has not made any
decision to take the Company private or as to whether, or when, a Second-Step
Transaction of this nature would be completed. A Second-Step Transaction would
require approval by our Board of Directors and may require approval by our
stockholders, depending on the nature of the Second-Step Transaction. The
Schaden Stockholders would likely be able to control the outcome of any
stockholder vote on a Second-Step Transaction. Stockholders would have the right
to exercise dissenters' rights in connection with a Second-Step Transaction. A
copy of the Colorado dissenters' rights statute is attached as Schedule III. It
is contemplated that the consideration payable to the Public Stockholders in any
Second-Step Transaction, if one is initiated, would be cash in an amount equal
to the Purchase Price.
As part of the Offer, individuals holding stock options, other than the
Schaden Stockholders, will be given the opportunity to surrender such options in
exchange for payment from us (subject to any applicable withholding taxes) in
cash equal to the product of (x) the total number of Shares subject to any such
stock option and (y) the excess of the Purchase Price over the exercise price
per Share subject to such stock option, without any interest thereon. None of
the Schaden Stockholders will be surrendering stock options owned by them in
connection with the Offer. With respect to executive officers (other than
executive officers who are also Schaden Stockholders), unvested options are
expected to be exchanged for rights in a stock appreciation plan to be
implemented by us after the Offer is complete.
The Company has directed the trustee of the Company's 401(k) plan to
accept the Offer and the trustee will tender all Shares held by the 401(k) plan.
Approximately 15,000 Shares are currently held by the Company's 401(k) plan.
In connection with the Offer, the Company has agreed to repurchase
warrants held by a Retail Restaurant Growth Capital, L.P. See "The Tender
Offer--Certain Information About the Company--Recent Transactions."
In determining whether to proceed with the Offer, our Board of
Directors considered several factors, several of which are listed below (see
"Special Factors--Position of Our Board; Fairness of the Offer"):
We currently have a very small stockholder base for an
exchange-traded public company as indicated by our approximately 150
stockholders of record, a number substantially below the 300 minimum
at which a publicly traded company may terminate its obligation to
file periodic financial reports and other information pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
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The market for our common stock provides limited liquidity for
stockholders to liquidate or add to their investments and has made it
difficult for us to attract institutional investors or research
coverage. Additionally, because of the limited liquidity available,
we have been unable to utilize the public equity capital markets
effectively as a source of financing.
In determining whether the Purchase Price to be paid to you was fair,
our Board of Directors relied in part on an opinion dated November 12, 2000,
rendered by Tucker Anthony--Capital Markets, a division of Tucker Anthony
Incorporated ("Tucker Anthony" or the "Dealer Manager"), the Company's financial
advisor, to the effect that, and subject to the limitations contained therein,
the $8.00 Purchase Price offered to all of the stockholders in the Offer is
fair, from a financial point of view, to the stockholders (other than the
Schaden Stockholders). See Schedule II.
You will not be obligated to pay brokerage fees or commissions or,
except as otherwise provided in Instruction 6 of the Letter of Transmittal,
stock transfer taxes with respect to our purchase of the Shares pursuant to the
Offer. We will pay all charges and expenses of Harris Trust Company of New York
(the "Depositary"), Tucker Anthony and MacKenzie Partners, Inc. (the
"Information Agent") incurred in connection with the Offer. The Offer provides
those of you who are considering a sale of all or a portion of your Shares to
sell those Shares for cash at the Purchase Price without, where Shares are
tendered by the registered owner thereof directly to the Depositary, the usual
transaction costs associated with open market sales. See "Special Factors--Fees
and Expenses" and "The Tender Offer--Fees and Expenses."
OUR BOARD OF DIRECTORS HAS APPROVED THE OFFER. HOWEVER, NONE OF THE
COMPANY, OUR BOARD OF DIRECTORS OR THE DEALER MANAGER MAKES ANY RECOMMENDATION
TO YOU AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING YOUR SHARES. YOU MUST
MAKE THE DECISION WHETHER TO TENDER YOUR SHARES AND, IF SO, HOW MANY SHARES TO
TENDER. WE HAVE BEEN ADVISED THAT THE SCHADEN STOCKHOLDERS DO NOT INTEND TO
TENDER ANY SHARES PURSUANT TO THE OFFER.
The term "Expiration Date" means 12:00 midnight, New York City time, on
December 11, 2000, unless and until we, in our sole discretion, extend the
period during which the Offer is open, in which event the term "Expiration Date"
means the latest time and date at which the Offer, as so extended by us,
expires. See "The Tender Offer--Terms of the Offer; Expiration Date."
The Purchase Price will be paid net to the tendering stockholder in
cash, without interest thereon, for all Shares purchased. Tendering stockholders
who hold Shares in their own name and who tender their Shares directly to the
Depositary will not be obligated to pay brokerage commissions, solicitation fees
or, subject to Instruction 6 of the Letter of Transmittal, stock transfer taxes
on the purchase of Shares by the Company pursuant to the Offer. Those of you
holding Shares through brokers or banks are urged to consult your brokers or
banks to determine whether transaction costs are applicable if you tender Shares
through the brokers or banks and not directly to the Depositary. HOWEVER, ANY
TENDERING STOCKHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE, SIGN AND RETURN TO
THE DEPOSITARY THE SUBSTITUTE FORM W-9 THAT IS INCLUDED AS PART OF THE LETTER OF
TRANSMITTAL MAY BE SUBJECT TO REQUIRED UNITED STATES FEDERAL INCOME TAX BACK-UP
WITHHOLDING OF 31% OF THE GROSS PROCEEDS
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PAYABLE TO THE TENDERING STOCKHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. See
"The Tender Offer--Certain Federal Income Tax Consequences."
On November 9, 2000, the last day the Shares were traded before the
printing of this Offer to Purchase, the last reported sales price of the Shares
on Nasdaq was $6.75 per Share. See "The Tender Offer--Price Range of Shares;
Dividends; Stock Repurchases."
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
SPECIAL FACTORS
1. BACKGROUND AND PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER;
PLANS OF THE COMPANY AFTER THE OFFER
BACKGROUND OF THE OFFER. We believe that since February 1994, when we
completed our initial public offering, the public market has not responded to
the positive growth of the Company, including our profitability in recent years,
and the Shares have remained very thinly traded and have provided little
liquidity for our stockholders, particularly those stockholders with larger
equity positions in the Company. In addition, because of the low trading volume
and illiquidity of the Shares, we have been unable to utilize the Shares
effectively as a source of financing. For those reasons, we have been unable to
realize the principal benefits of public ownership and we expect no change in
the situation regarding the Shares for the foreseeable future.
On December 29, 1998, Richard E. Schaden and Richard F. Schaden offered
to buy all the outstanding shares of the Company not owned by them for between
$7.84 and $8.20 per share. Our Board of Directors, at a meeting held that same
day, formed a special committee of independent directors to evaluate the
proposal and to make a recommendation to our full Board of Directors regarding
the acceptance or rejection of the proposal. The Schadens subsequently formed
The Schaden Acquisition Company and, through that company, amended their offer
on June 23, 1999 with a revised purchase price of $8.00 per share. The Schadens
and the special committee discussed and negotiated the proposal throughout the
summer, but on August 9, 1999, the special committee reported to our Board of
Directors that the Schadens had withdrawn their proposal, based largely on the
inability of the special committee and the Schadens to reach a mutually
agreeable price per share.
At a special meeting of our Board of Directors on October 1, 1999,
management expressed its belief that the low trading volume of the Shares on the
Nasdaq limited liquidity for stockholders wishing to sell their Shares.
Management believed that the Company's repurchase of Shares would provide better
liquidity for stockholders and recommended that our Board consider either an
open market share repurchase program or a self tender for the Shares. Our Board
considered management's recommendation and discussed the possibility of a self
tender offer for some or all of the outstanding shares as well as a more limited
share repurchase program pursuant to Rule 10b-18 under the Exchange Act. Our
Board authorized repurchase of up to 200,000 Shares under Rule 10b-18. We
repurchased 144,055 Shares in the open market until September 30, 2000, when we
ceased the share repurchase program in order to avoid reducing our net tangible
assets below the threshold required for continued listing on Nasdaq.
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At our Board of Directors meeting held on May 18, 2000, management once
again addressed the continued low trading volume of the Shares as well as
concerns over the average share price, which had declined since we had ceased
the share repurchase program in December 1999. Management reported that it would
reinstate the share repurchase program as a good use of capital and in order to
afford added liquidity to stockholders. Management also expressed its concern
regarding the lack of recognition that Wall Street and investment professionals,
including analysts, were giving to small and micro-cap companies like ours, and
in general the fact that while the share price appeared to be in line with some
of our peers, it did not appear that the share price adequately reflected our
recent financial performance or the strong growth we had experienced. Management
largely felt that the low trading volume of the Shares coupled with our
extremely low market capitalization (or "market cap") of approximately $20 to
$25 million made it unlikely that the share price would increase appreciably in
the foreseeable future.
Over the next two months, management considered possible alternatives
to propose to our Board of Directors and in the course of those considerations
solicited the advice of Cypress Consulting Group ("Cypress"), which had provided
consulting services to the Company on various projects over the last few years,
and Tucker Anthony. At management's request, Tucker Anthony analyzed our current
situation with respect to share price and trading volumes and discussed possible
alternatives with management. Ultimately, in July 2000, Tucker Anthony suggested
that we consider a self tender for outstanding Shares as the alternative most
likely to afford liquidity for stockholders wishing to sell their Shares. Based
on that recommendation, management introduced Tucker Anthony to our Board at a
meeting held on August 8, 2000. Management also introduced Mr. John J. Todd, the
Senior Vice President and Chief Financial Officer for Gateway, Inc., maker of
Gateway computers, to our Board. Mr. Todd had formerly been an executive with
PepsiCo and had agreed to advise our Board concerning the strategic alternatives
suggested by management and Tucker Anthony.
During that meeting, Tucker Anthony made a presentation to our Board
concerning the current share situation and its thoughts on a possible share
repurchase or recapitalization transaction. Tucker Anthony noted that our
historical and projected sales and earnings growth had been and were expected to
remain strong, but that despite that growth and strong operating performance
over the previous six months, the Company's stock had continued to trade between
$6.00 and $6.50 per share, and between $6.00 and $7.25 over the last 12 months.
Tucker Anthony noted that while the Shares had performed in line with certain of
their peer groups, they had lagged the Russell 2000 index and did not seem to be
credited with the Company's strong historical growth and continued growth
potential. Tucker Anthony attributed that lack of recognition by the market to
the Company's extremely low market cap, which in turn made it highly unlikely
that the Company would attract institutional investors or investment analysts.
Tucker Anthony pointed out that currently the Company had no research coverage
and no institutional investors, other than Retail & Restaurant Growth Capital,
L.P. ("RRGC"). It then discussed alternatives to increase the market cap, and
raise the trading volume. Since the Schaden Stockholders were not interested in
selling their shares to a third party, a sale of the Company was not, in Tucker
Anthony's opinion, a viable option, nor was an equity offering to raise the
market cap. The Company could not offer equity sufficient to reach even the
lower range of market cap for small cap companies, estimated to be approximately
$1 billion. Even an equity offering sufficient to raise the Company's market cap
to $400 to $500 million (the median market cap for our peer group) would, in
Tucker Anthony's opinion, be too dilutive to existing stockholders.
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Tucker Anthony concluded its presentation by suggesting that a self
tender transaction was the most viable way to improve stockholder value by
providing stockholders with a premium over the Company's recent stock price, and
providing stockholders with liquidity in an illiquid stock.
After a lengthy discussion with Tucker Anthony and management, our
Board authorized management to more fully evaluate the possibility of a self
tender offer and to seek proposals from potential lenders regarding the
financing of such an offer, as well as to formally engage Tucker Anthony to
assist our Board in evaluating such an offer and particularly the price or
prices that would be required to establish the fairness of the Offer. Our Board
also directed management to retain lawyers and other professionals as might be
necessary to prepare a presentation for our Board if management determined to
seek approval of a self tender transaction. Richard E. Schaden, Richard F.
Schaden and J. Eric Lawrence abstained from voting on the resolution. On August
15, 2000, we formally engaged Tucker Anthony to advise the Company on the
proposed tender offer.
Tucker Anthony and Cypress prepared an initial evaluation of the
Company's value for use in seeking lenders and preparing the next presentation
for our Board. During the next several weeks management, with the assistance of
Cypress, solicited financing for a self tender transaction. Tucker Anthony also
began updating its analysis of our value for purposes of assessing the fair
range of value per share should we proceed forward with the self tender. Richard
E. Schaden and Dean Zuccarello of Cypress contacted various potential lenders
including Levine Leichtman Capital Partners ("Levine Leichtman"). After several
discussions with Levine Leichtman, Mr. Schaden advised certain of our executive
officers that he had received a verbal indication of interest from Levine
Leichtman to finance the self tender transaction using subordinated debt and
that he expected to received a written term sheet and proposed letter agreement
shortly. On September 8, 2000, we received a draft letter agreement from Levine
Leichtman outlining the basic terms of a subordinated loan to finance the self
tender and addressing Levine Leichtman's proposed due diligence investigation of
the Company as well as exclusivity and confidentiality proposals. We negotiated
and entered into the letter agreement on September 21, 2000, and called a
special telephonic meeting of our Board of Directors for September 26, 2000.
At the September 26, 2000, Board meeting, Mr. Todd was nominated and
appointed as a new member of our Board of Directors. Management noted that the
addition of another independent director with significant financial expertise
would help the directors evaluate the proposed self tender transaction and
associated financing. Management and Tucker Anthony, as well as Cypress, then
advised our Board concerning the proposed Levine Leichtman financing. Management
reported that it had signed a letter agreement with Levine Leichtman that would
allow Levine Leichtman to begin its due diligence investigation of the Company.
On October 9, 2000, a special meeting of our Board was held. In
addition to all of the directors, representatives of management, Tucker Anthony
and outside legal counsel to the Company participated in this meeting. At the
meeting, outside legal counsel advised our Board regarding their fiduciary
duties and applicable legal standards in the context of a self tender offer, and
also reviewed with our Board the regulatory process and documentation of a self
tender offer. Outside legal counsel also discussed with our Board the
requirements under Section 7-106-401 of the Colorado Business Corporation Act
("CBCA") regarding distributions to stockholders. Tucker Anthony indicated that
it would provide an opinion to the effect that the Company's total assets would
exceed its total liabilities plus preferred stock liquidation preferences as of
the close of the self tender in satisfaction of Section 7-106-401 of the CBCA.
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Management reported on the progress of the negotiations with Levine
Leichtman for a loan of $12 million, with an interest rate of 13.25% per annum,
through the issuance of secured senior subordinated notes by the Company and
warrants to purchase 14% of the Company's outstanding common stock on a fully
diluted basis. Tucker Anthony then presented its analysis of a specific issuer
tender offer proposal at a purchase price of $8.00 per share, and went through
materials regarding that analysis that had previously been provided to our
Board. Tucker Anthony, based on its analysis, would give a fairness opinion that
the Purchase Price of $8.00 a share was fair, from a financial point of view, to
all of our stockholders (other than the Schaden Stockholders) at the time the
Offer is made.
The independent members of our Board then discussed the possibility of
retaining independent counsel to advise them on the procedural aspects of our
Board approval process. Our Board then voted to approve continued negotiation of
definitive loan agreements with Levine Leichtman on substantially the same terms
as had been presented to our Board. Richard E. Schaden, Richard F. Schaden and
Frederick H. Schaden refrained from voting to ensure procedural fairness of the
transaction evaluation. Mr. Lawrence also refrained from voting based on
independent advice concerning his possible conflict of interest as a
representative and principal of RRGC which held warrants to purchase 411,177
Shares. Our Board agreed to defer taking other actions relating to the proposed
self tender offer until the independent members of our Board had the opportunity
to consult with their counsel on procedural issues.
On October 11, 2000, our Board met again to consider proceeding with
the Offer. Representatives of management, Tucker Anthony and outside legal
counsel to the Company attended this meeting. Mark Bromberg, a director of the
Company, advised our Board that, after consulting with counsel for the
independent directors, he was comfortable with the procedure adopted by the
Company with respect to the self tender transaction assuming that Tucker Anthony
could address fairness of the Purchase Price offered to all stockholders (other
than the Schaden Stockholders) in its fairness opinion. After some discussion
concerning the procedure, the independent directors voted unanimously to
authorize management to prepare the filings and associated documents, and to
retain necessary professional advisors, to commence a self tender transaction
offering $8.00 per Share for all outstanding Shares of the Company's common
stock, subject to review and approval by the independent directors of (1) the
definitive loan documents between the Company and Levine Leichtman; (2) the
final offer to purchase and other filings and documents related to the self
tender transaction; (3) the final fairness opinion prepared by Tucker Anthony;
and (4) an opinion prepared by Tucker Anthony supporting our Board's
determination under Section 7-106-401 of the CBCA.
On November 12, 2000, our Board met to review the various
tender-related materials, including the final opinion, a detailed summary of the
terms of the loan between the Company and Levine Leichtman, and the offer to
purchase as well as the related tender offer materials (all of which had been
sent to the directors on November 3, 2000). Management also provided the
directors with the expected timing of finalizing loan documents with Levine
Leichtman and the time line for the self tender. Management recommended that our
Board authorize the Company to enter into the definitive loan documents, and to
commence the self tender on November 13.
Tucker Anthony presented its final report and analysis of the self
tender transaction and stated it was prepared to issue to our Board its written
opinion that the $8.00 per Share being offered to all of the stockholders was
fair to such stockholders (other than the Schaden Stockholders) from a financial
point of view. Tucker Anthony also reported that it was prepared to issue its
written opinion that, based on the assumptions and qualifications set forth
therein, the Company would meet the asset-liability test set forth
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in Section 7-106-401 of the CBCA following the closing of the Offer. Our Board
and management discussed the final terms of the Levine Leichtman loan. After
discussion, our Board (with Richard E. Schaden, Richard F. Schaden, Frederick H.
Schaden refraining from voting and recusing themselves from the meeting at the
time the vote was taken and J. Eric Lawrence refraining from voting) determined
that the proposed self tender transaction and the underlying Levine Leichtman
loan were advisable and fair to and in the best interests of the Company's
stockholders, and approved the self tender transaction and the Levine Leichtman
loan. Our Board determined that it may in the future consider initiating a
Second-Step Transaction depending on the success of the self tender transaction.
On November 13, 2000, we issued a press release regarding the proposed
Offer.
No limitations were imposed by our Board of Directors or our management
on Tucker Anthony with respect to the investigation made, or the procedures
followed in rendering its advice with respect to the opinion as to the fairness
of the consideration, from a financial point of view, provided to you. Tucker
Anthony's assignment did not include investigating or pursuing any other parties
interested in acquiring control of the Company, and Tucker Anthony did not
solicit any offers for the acquisition of the Company because our Board
instructed Tucker Anthony that the Schaden Stockholders were unwilling to
consider a sale of their interest in the Company.
Because of the engagement of Tucker Anthony to advise us and to render
an opinion as to the fairness of the consideration, from a financial point of
view, with respect to the consideration to be received by you in the Offer, and
the decision by the interested directors (Richard E. Schaden, Richard F.
Schaden, Frederick H. Schaden and J. Eric Lawrence) to refrain from voting on
the Offer at our Board meetings at which it was approved, our Board did not
consider it necessary to form an independent or "special" committee of our Board
composed of directors who are not employees of the Company or to retain any
other unaffiliated representatives to act solely on behalf of the public
stockholders for the purpose of negotiating the terms or structure of the self
tender offer.
During the period between the engagement of Tucker Anthony and the
presentation of its final report to our Board of Directors on November 12, 2000,
we provided extensive information to representatives of Tucker Anthony regarding
the Company and its prospects including, without limitation, the Company's
historical financial results, projected financial results, expansion plans, and
sales and marketing plans. In addition, representatives of Tucker Anthony met
with members of our senior management to discuss the projections and underlying
assumptions thereto provided to, and relied on by, Tucker Anthony in preparing
its analyses.
PURPOSE OF THE OFFER. We believe the repurchase of our common stock is
consistent with our long-term goal of increasing stockholder value. In October
1999, our Board of Directors approved a share repurchase program based on the
view that our Shares were undervalued. Under such program, we repurchased
144,055 Shares. We are now making the Offer because we believe that
(a) the Offer will provide an opportunity to achieve liquidity in cash
by allowing you to sell a substantial portion of your stock at a substantial
premium over the Nasdaq trading price at the time of announcement without the
payment of brokerage commissions;
(b) the Shares are undervalued in the public market in relation to our
historical growth and long-term growth prospects;
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(c) for those of you who hold Shares after the Offer is completed, the
Offer has the potential to increase returns on equity capital by reducing the
number of Shares outstanding and to improve our overall weighted cost of
capital;
(d) after the Offer is completed, we expect to have sufficient cash
flow and access to funding to meet our cash needs for normal operations and
anticipated capital expenditures for the foreseeable future and meet our debt
obligations; and
(e) after considering alternatives, investing in our Shares is an
attractive use to capital and an efficient means to provide value to our
stockholders.
Following the Offer and regardless of whether the Offer is consummated,
the Schaden Stockholders will retain a controlling equity interest in the
Company. Our Board of Directors may determine to pursue a Second-Step
Transaction through which the Company would acquire any remaining equity
interest in the Company not then owned by the Schaden Stockholders.
CERTAIN EFFECTS OF THE OFFER; PLANS OF THE COMPANY AFTER THE OFFER.
Consummation of the Offer and, if deemed desirable by us, the Second-Step
Transaction will permit the Schaden Stockholders to receive the benefits that
result from ownership of all, or a significant amount, of the equity interest in
the Company. Such benefits include management and investment discretion with
regard to the future conduct of the business of the Company, the benefits of the
profits generated by operations and any increase in the Company's value.
Similarly, the Schaden Stockholders will also bear the risk of any decrease in
the value of the Company.
If the Offer and, if deemed desirable by us, the Second-Step
Transaction are consummated, after giving effect to the Offer and the
Second-Step Transaction, the Schaden Stockholders will have close to a 86%
interest in the pro forma net book value and net earnings of the Company
($(14.2) million and $56,000, respectively, based on the unaudited financial
statements of the Company for the nine-month period ended June 30, 2000).
Currently, the Schaden Stockholders have an approximately 51.6% interest in the
net book value and net earnings of the Company ($2.6 million and $824,000,
respectively, based on the unaudited financial statements of the Company as of
June 30, 2000).
Consummation of the Offer and, if deemed desirable by us, the
Second-Step Transaction will also allow the Schaden Stockholders to recapitalize
the Company by increasing its debt-to-equity ratio, thereby leveraging their
equity investment. Such high leveraging may entail high risk to equity
investors. Furthermore, high leveraging and associated high debt service costs
may have an adverse effect on earnings and the value of the Company.
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Under the CBCA and our Charter, the approval of our Board and the
affirmative vote of a majority of the outstanding Shares are required to approve
the Second-Step Transaction at a meeting of the stockholders. The Schaden
Stockholders, who currently own approximately 51.6% of the issued and
outstanding Shares, intend to vote all of their Shares in favor of the
Second-Step Transaction if a stockholder vote is required. Accordingly,
regardless of whether any Shares are purchased pursuant to the Offer, the
Schaden Stockholders have sufficient voting power to cause the approval and
adoption of the Second-Step Transaction immediately after the Offer, without the
affirmative vote of any other stockholders of the Company. If a Second-Step
Transaction is effected, it is contemplated that the consideration payable to
the Public Stockholders will be cash in an amount equal to the Purchase Price.
Under the CBCA, an entity that owns 90% or more of the outstanding shares of
another entity may effect a merger with such other entity without submitting the
merger to a vote of stockholders of the other entity (a "short-form merger").
Accordingly, if the Schaden Stockholders own 90% or more of the Shares that
remain outstanding after completion of the Offer, the Second-Step Transaction
may be effected as a short-form merger, without a vote of the Company's
stockholders. If, however, the percentage of ownership of the Schaden
Stockholders after completion of the Offer is less than 90% of the Shares then
outstanding, a vote of the Company's stockholders will be required under the
applicable laws, and a longer period of time may be required to effect the
Second-Step Transaction. See "Special Factors--Rights of Stockholders in the
Event of the Second-Step Transaction."
After the Second-Step Transaction, if it is initiated, there will be
few, if any, Public Stockholders of the Company. See "The Tender Offer--Effect
of the Offer on the Market for the Shares, Nasdaq Listing and Exchange Act
Registration."
All Shares purchased in the Offer will return to the status of
authorized but unissued shares of capital stock of the Company and may be
reissued from time to time as determined by our Board of Directors. However, we
have no current plans for the issuance of Shares repurchased pursuant to the
Offer.
The Schaden Stockholders have informed our Board of Directors that,
assuming the completion of the Offer and, if deemed desirable by us, the
Second-Step Transaction, they have no present intention to cause the Company to
change its fundamental business, sell or otherwise dispose of the Company or all
or any material part of its business, merge, liquidate or otherwise wind-up its
business. Nevertheless, the Schaden Stockholders may initiate a review of the
Company and its assets, corporate structure, capitalization, operations,
properties and personnel to determine what changes, if any, would be desirable
following the Offer to enhance the operations of the Company.
The Company does not anticipate that following the consummation of the
Offer, the Schaden Stockholders will consider causing the Company to change the
composition of our Board of Directors. The persons who are presently officers of
the Company will continue in their same positions following consummation of the
Offer. Pursuant to our financing agreement with Levine Leichtman, Levine
Leichtman will have the right to appoint a representative of Levine Leichtman to
our Board as a director. As a result of the borrowing incurred in connection
with the financing of the Offer and, if deemed desirable by the Company, the
Second-Step Transaction, our consolidated indebtedness will be substantially
greater. See "The Tender Offer--Financing of the Offer."
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2. RIGHTS OF STOCKHOLDERS IN THE EVENT OF THE SECOND-STEP TRANSACTION
No dissenters' rights are available in connection with the Offer.
Holders of Shares may be entitled to dissenters' rights in connection with the
Second-Step Transaction if such transaction is structured as a merger or a
reverse stock split. A copy of the Colorado dissenters' rights statute and a
discussion of that statute is attached as Schedule III.
Such rights, if the statutory procedures were complied with, could lead
to a judicial determination of the fair value (excluding any element of value
arising from the accomplishment or expectation of the Second-Step Transaction)
required to be paid in cash to such dissenting holders for their Shares. Any
such judicial determination of the fair value of Shares could be based on
considerations other than, or in addition to, the Purchase Price paid in the
Offer and the market value of the Shares, including asset values and the
investment value of the Shares. The value so determined could be more or less
than the Purchase Price per Share pursuant to the Offer or the consideration per
Share to be paid in the Second-Step Transaction.
THE FOREGOING SUMMARY OF THE RIGHTS OF OBJECTING STOCKHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY
STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE DISSENTERS' RIGHTS. THE
PRESERVATION AND EXERCISE OF DISSENTERS' RIGHTS REQUIRE STRICT ADHERENCE TO THE
APPLICABLE PROVISIONS OF THE CBCA. SEE SCHEDULE III ATTACHED HERETO FOR A
DISCUSSION OF DISSENTERS' RIGHTS THAT MAY BE AVAILABLE.
3. POSITION OF OUR BOARD; FAIRNESS OF THE OFFER
POSITION OF OUR BOARD OF DIRECTORS. On November 12, 2000, the
independent members of our Board of Directors approved the Offer. Richard E.
Schaden, Richard F. Schaden, Frederick M. Schaden and J. Eric Lawrence refrained
from voting. Our Board determined that the Offer is fair to you, and in the
Company's best interest. However, our Board does not make any recommendation to
you as to whether to tender or refrain from tendering your Shares. You must make
the decision whether to tender your Shares and, if so, how many Shares to
tender. The Offer is being made to all holders of Shares, including the Schaden
Stockholders. However, none of the Schaden Stockholders intend to tender any
Shares pursuant to the Offer.
FAIRNESS OF THE OFFER. In reaching its determinations referred to
immediately above, our Board of Directors relied on its knowledge of our
business as well as advice of its financial advisors and legal counsel. In
reaching its decision, our Board considered a number of factors, including the
following factors, each of which, in the view of our Board, supported such
determination:
(a) the historical market prices and trading activity of the Shares,
including the fact that the average daily trading volume of the Shares for the
first nine months of calendar year 2000 has been under 7,000 Shares per day. Our
Board also considered the fact that as a micro-cap company, we have limited
prospects for creating institutional interest in our stock or coverage by
analysts of our Company;
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(b) the historical market price and recent trading activity of the
Shares, including the fact that the $8.00 per Share offer represents a
substantial premium over the Nasdaq trading price of the Shares prior to
announcement of the self tender transaction;
(c) the fact that the interested directors refrained from voting on the
transactions at meetings of our Board at which the transactions were approved
and did not place any limitation on the procedures followed by the independent
directors, or the materials and information sought by the independent directors
from management and Tucker Anthony, to evaluate the proposed transactions;
(d) the opinion of Tucker Anthony to our Board that the Purchase Price
to be offered is fair to all the stockholders (other than the Schaden
Stockholders) from a financial point of view; and the report and analysis
presented by Tucker Anthony that included discussion and analysis of historical
trading performance of the Shares, comparable company analysis and discounted
free cash flow analysis based on the Company's historical and projected
operating results, as well as the opinion of Tucker Anthony that the Company's
total assets would exceed its total liabilities plus preferred stock liquidation
preferences after closing of the self tender transaction;
(e) the market price for the Shares as compared to the performance of
the Company;
(f) the very small stockholder base of the Company, as indicated by our
approximately 150 stockholders of record;
(g) the fact that we have not paid a cash dividend since our inception
to our stockholders, and the expectation that no such cash dividends are
expected to be paid in the foreseeable future;
(h) the lack of credible buyers of the Company and financial market
conditions, including that the Schaden Stockholders indicated they have no
interest in selling their Shares to a third party in the foreseeable future,
which made pursuit of other strategic alternatives (such as a sale of the
Company as a going concern) impracticable; and
(i) the intention of the Schaden Stockholders to continue the business
as a going concern, which makes any consideration of liquidation of the Company
or values that ultimately might be obtained from such a liquidation highly
speculative.
With respect to the matters contained in the opinion of Tucker Anthony,
our Board of Directors reviewed the report and adopted the analysis contained
therein and considered the other factors set forth herein in determining that
the Offer is fair. In light of the number and variety of factors that our Board
considered in connection with their evaluation of the Offer, they did not find
it practicable to assign relative weights to the foregoing factors and,
accordingly, did not do so.
In connection with its deliberations, our Board of Directors did not
consider, and did not request that Tucker Anthony evaluate, the Company's
liquidation value. Our Board did not view the Company's liquidation value to be
a relevant measure of valuation given that the Purchase Price exceeded the book
value per Share of the Company on June 30, 2000, and it was our Board's view
that the Company is more valuable as a going concern than its book value of
$0.85 per Share as of June 30, 2000 based on Shares outstanding at that time.
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The Schaden Stockholders also believe the Offer is fair to you based on
(i) the conclusions of, and approval of our Board of Directors, as well as the
basis therefor, which conclusions and basis, as set forth above, are
incorporated by reference herein, and (ii) notwithstanding the fact that the
Tucker Anthony opinion was provided for the information and assistance of our
Board of Directors and that the Schaden Stockholders are not entitled to rely on
such opinion, the fact that our Board of Directors had received the written
opinion of Tucker Anthony that the offer price of $8.00 in cash was fair, from a
financial point of view, to all other stockholders. The Schaden Stockholders
adopted the analysis of our Board of Directors in determining that the Offer is
fair, from a financial point of view, to you. The Schaden Stockholders did not
find it practical to, and did not, quantify or otherwise attach relative weights
to the specific factors they considered.
4. OPINION OF TUCKER ANTHONY
Tucker Anthony was engaged to render an opinion to our Board of
Directors as to the fairness, from a financial point of view, of the proposed
Purchase Price of $8.00 per Share, net to the seller in cash (the "Initial
Offer"), to all of the Company's stockholders (other than the Schaden
Stockholders). See "Special Factors--Background and Purpose of the Offer;
Certain Effects of the Offer; Plans of the Company After the Offer."
On October 9, 2000, in connection with our Board of Directors'
evaluation of the Initial Offer, Tucker Anthony made a presentation to our Board
with respect thereto (the "Report"). As part of the presentation, Tucker Anthony
reviewed with our Board certain of the information and financial data described
below. Final copies of the Report dated October 9, 2000 were delivered to our
Board in connection with its evaluation of the Initial Offer.
Tucker Anthony delivered its written opinions to our Board of Directors
dated November 12, 2000 (the "Tucker Anthony Opinion"). A copy of the Tucker
Anthony Opinion, which sets forth the assumptions made, matters considered and
limitations of review undertaken by Tucker Anthony, is attached as Schedule II
attached hereto.
No limitations were imposed by the Company or our Board of Directors on
the scope of the Tucker Anthony investigation or the procedures to be followed
by Tucker Anthony in rendering the Tucker Anthony Opinion, except that Tucker
Anthony was not authorized to solicit, and did not solicit, any indications of
interest from any third party with respect to a purchase of all or a part of the
Company's business. The Tucker Anthony Opinion does not address nor should it be
construed to address the relative merits of the Offer and the Second-Step
Transaction with any alternative business strategy that may be available to the
Company. In arriving at the Tucker Anthony Opinion, Tucker Anthony did not
ascribe a specific range of value to the Company, but rather made its
determination as to the fairness, from a financial point of view, of the
consideration to be offered to all of the Company's stockholders (other than the
Schaden Stockholders) in the Initial Offer on the basis of the financial and
comparative analyses described below.
THE TUCKER ANTHONY OPINION IS FOR THE USE AND BENEFIT OF OUR BOARD OF
DIRECTORS AND WAS RENDERED TO THEM IN CONNECTION WITH THEIR CONSIDERATION OF THE
INITIAL OFFER AND IS NOT INTENDED TO BE AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY STOCKHOLDER AS TO WHETHER OR NOT
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<PAGE>
TO TENDER SHARES UNDER THE TERMS AND CONDITIONS OFFERED TO SUCH STOCKHOLDER IN
THE OFFER.
Our Board of Directors engaged Tucker Anthony to render the opinion
referred to above because Tucker Anthony regularly engages in the valuation of
businesses and their securities. Tucker Anthony is an investment bank whose
corporate finance activities are focused on small- to middle-market companies.
Tucker Anthony provides a full line of investment banking services to its
clients, ranging from merger and acquisition services, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Our Board requested proposals
from two other investment banking firms and decided to retain Tucker Anthony
based on our Board's evaluation of all the proposals.
The following paragraphs summarize the financial and comparative
analyses performed by Tucker Anthony in connection with its opinion. The summary
does not represent a complete description of the analyses performed by Tucker
Anthony.
In arriving at the Tucker Anthony Opinion, Tucker Anthony: (a) reviewed
certain publicly available historical financial and operating data concerning
the Company including the Annual Reports to Stockholders and Annual Reports on
Form 10-KSB for the nine months ended September 30, 1999 and the previous five
years ended December 31, and the Quarterly Reports on Form 10-QSB filed with the
Commission for the three quarterly periods ended December 31, 1999, March 31,
2000 and June 30, 2000; (b) reviewed certain projected financial information
prepared by management of the Company; (c) reviewed certain publicly available
information concerning the Company; (d) conducted discussions with the senior
management of the Company and consultants to the Company concerning the
Company's business prospects and historical financial results and projected
financial information as presented and described in (a), (b) and (c) above; (e)
conducted discussions with the Board of Directors of the Company; (f) reviewed
the draft financing document by and between the Company, several of the
Company's subsidiaries, and Levine Leichtman and the ancillary documents related
thereto; (g) reviewed the Offer to Purchase and the related draft Letter of
Transmittal; and (h) performed various financial analyses, as Tucker Anthony
deemed appropriate, of the Company using generally accepted analytical
methodologies.
In arriving at the Tucker Anthony Opinion, Tucker Anthony assumed and
relied on the accuracy and completeness of the financial information provided by
the Company and other information used by Tucker Anthony without assuming any
responsibility for independent verification of such information and further
relied on the assurances of management of the Company that they were not aware
of any facts that would make the information provided by the Company inaccurate
or misleading. With respect to the financial projections of the Company, Tucker
Anthony assumed that such projections were prepared in good faith in accordance
with industry practice on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company. In arriving at the Tucker Anthony Opinion,
Tucker Anthony conducted a limited physical inspection of the properties and
facilities of the Company and did not make any evaluations or appraisals of the
assets or liabilities of the Company and was not presented with any such
appraisal. The Tucker Anthony Opinion was necessarily based on financial,
economic, market and other conditions as they existed on, and could be evaluated
as of, its date.
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The preparation of an opinion as to the fairness of the Purchase Price,
from a financial point of view, involves various determinations as to the most
appropriate and relevant methods of financial and comparative analysis and the
application of those methods to the particular circumstances; therefore, such an
opinion is not readily susceptible to summary description. Furthermore, in
arriving at the Tucker Anthony Opinion, Tucker Anthony did not attribute any
particular weight to the analyses or factors considered by it, but rather made
qualitative judgments as to the significance and relevancy of each analysis and
factor. Accordingly, Tucker Anthony believes that its analyses must be
considered as a whole and that considering any portions of its analyses and of
the factors considered by it, without considering all analyses and factors,
could create a misleading or incomplete view of the process underlying the
Tucker Anthony Opinion. In its analyses, Tucker Anthony made numerous
assumptions with respect to industry performance, general business and economic
conditions, and other matters, many of which are beyond the Company's control.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth therein. Additionally,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty.
Subject to the foregoing, the following is a summary of the material financial
analyses presented by Tucker Anthony to our Board of Directors on November 12,
2000.
In connection with the Tucker Anthony Opinion, Tucker Anthony performed
certain financial and comparative analyses. Tucker Anthony considered several
methods to evaluate the fairness of the Purchase Price per Share. These methods
included (i) public company trading analysis; (ii) selected transaction
analysis, including mergers and acquisitions transactions and other take private
transactions; (iii) hypothetical implied trading values based on sales, EBITDA
and earnings; (iv) premiums paid in this transaction compared to average
premiums paid; (v) unleveraged after-tax discounted cash flow valuation
analysis; and (vi) leveraged buy-out/recapitalization analysis (which is
intended to determine the value a financial investor might be willing to pay to
acquire all or, as in the case of the Transaction or other recapitalization
transactions, a controlling and substantial portion of the Company's equity if
it were interested in pursuing such a transaction). Tucker Anthony utilized the
5-year financial forecast provided by the Company's management ("Management
Forecast") and an adjusted forecast ("Sensitivity Case Projections") derived by
Tucker Anthony from the Management Forecast incorporating historical
performance, industry trends and profitability levels of comparable publicly
traded companies (See Comparable Company Analysis below). These analyses were
considered relevant to a financial review of the terms of the Offer to Purchase
Agreement and the strategic alternatives available to the Company. At a number
of meetings of our Board, these analyses were reviewed with our Board. The
material analyses and their findings are summarized below.
Comparable Public Company Trading Analysis. Tucker Anthony reviewed
certain publicly available financial and stock market information relating to 24
selected companies in lines of business believed to be somewhat similar to those
of the Company. The companies selected were in the restaurant business
(collectively, the "Selected Companies"); however, it was noted that there were
no public companies with precisely the same mix of businesses or financial
condition as the Company. Tucker Anthony reviewed companies with a range of
market capitalizations. For the purposes of this analysis, Tucker generally
focused on the Selected Companies with market capitalizations of under $100
million (nine companies; "Small Cap") versus the Company's current market
capitalization of approximately $20 million. However, trading values for the
larger capitalization Selected Companies ("Large Cap") were also considered in
Tucker Anthony's analysis. This analysis indicated that the price multiples,
based on
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latest 12 months' earnings per share (P/E), ranged from 5.0x to 12.1x for the
Small Cap Selected Companies, with a median of 11.5x; the P/E multiples for the
Large Cap Selected Companies ranged from 6.9x to 46.4x, with a median of 13.3x.
These P/E multiples for the Small and Large Cap Selected Companies compare to a
P/E of 16.4x for the Company, based on management's estimated September 30, 2000
earnings. The P/E multiple for the Company, based on management's estimated
September 30, 2000 earnings and a Purchase Price of $8.00 per share is 19.0x.
Based on 2000 year-end estimated earnings per share (based on estimates of First
Call Corporation, a data service that monitors and publishes compilations of
earnings estimates produced by selected research analysts regarding companies of
interest to investors, for the Selected Companies and management estimates for
the Company), the 2000 estimated price earnings multiples ranged from 6.4x to
29.4x for the Large Cap Selected Companies, with a median of 11.9x, as compared
to a projected 13.8x for the Company's calendar year ended December 31, 2000.
Only three of the Small Cap Selected Companies reported a projected P/E
multiple, ranging from 3.7x to 12.9x, with a median of 10.0x. The ratio of firm
value to latest 12 months' revenue ranged from .08x to 7.08x, with a median of
0.35x for the Small Cap Selected Companies, compared to 0.82x for the Company,
and the ratio of the firm value to latest 12 months' earnings before interest,
taxes, depreciation and amortization (EBITDA) for the Small Cap Selected
Companies ranged from 1.8x to 11.2x, with a median of 3.7x, compared to 5.2x for
the Company. The ratio of firm value to latest 12 months' revenue ranged from
0.30x to 3.52x, with a median of 1.16x for the Large Cap Selected Companies and
the ratio of the firm value to latest 12 months' earnings before interest,
taxes, depreciation and amortization (EBITDA) for the Large Cap Selected
Companies ranged from 2.6x to 21.2x, with a median of 6.5x. Based on this
analysis, Tucker Anthony derived an equity value range for the Company of $5.00
to $7.00 per fully diluted share. Tucker Anthony noted that the Purchase Price
of $8.00 was above the indicated range.
Selected Transactions Analysis. Tucker Anthony reviewed and analyzed
selected publicly available financial, operating and stock market information
relating to 19 acquisition transactions in the restaurant industry since 1998
(collectively, the "Selected Transactions"). This analysis indicated that (i)
the price multiples for the Selected Transactions, based on latest 12 months'
assets, ranged from 0.30x and 2.20x, with a median of 1.0x, as compared to 1.02x
for the Company, based on an offer price of $8.00 per share for the entire
equity interest, (ii) the ratio of firm value to latest 12 months' revenues
ranged from .18x to 1.32x for the Selected Transactions, with a median of .74x,
compared to a multiple of 1.01x for the Company, and (iii) the ratio of firm
value to latest 12 months' earnings before interest, taxes, depreciation and
amortization (EBITDA) for the Selected Transactions ranged from 2.9x to 10.8x,
with a median of 6.1x, compared to 6.4x for the Company. Based on this analysis,
Tucker Anthony derived an equity value range for the Company of $6.50 to $8.25
per fully diluted Share. Tucker Anthony noted that the Purchase Price of $8.00
was near the top end of that range.
Future Trading Price Analysis. Based on the Management Forecast and the
Sensitivity Case Projections of sales, EBITDA and net income, Tucker Anthony
calculated the present value of the implied hypothetical future trading values
of the Company's common stock. Tucker Anthony obtained this by multiplying
projected stand-alone sales, EBITDA and earnings per Share for the years ending
December 31, 2000, and fiscal years ended September 2001 and 2002 based on the
Management Forecast by multiples derived from the Comparable Companies current
trading multiples analysis. The Company's implied forward stock price was
discounted at an equity discount rate of 25.0% and 30.0%. The present value of
such implied hypothetical future trading values ranged from $6.50 to $8.25 per
Share using the Management Forecast and $6.50 to $8.00 per Share using the
Sensitivity Case Projections. In connection with this presentation, Tucker
Anthony advised our Board that this analysis was not necessarily indicative
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of future trading ranges and that any estimate of future market prices is
speculative and subject to significant uncertainties and contingencies, all of
which are difficult to predict and beyond the control of Tucker Anthony.
Therefore, the actual trading prices of the Company might be outside the
estimated range and would depend on, and fluctuate with, changes in interest
rates, market conditions and the condition, results of operations and prospects,
financial and otherwise, of the Company and other factors that generally
influence the prices of securities. Tucker Anthony noted that the Purchase Price
of $8.00 was near the top of the indicated range.
Premium Analysis. Tucker Anthony analyzed the premium of the Purchase
Price to the closing price of the common stock over the one-day, four-week
periods closing prices. This analysis resulted in a range of purchase price
premiums for the common stock of (i) 23.08% based on the last trade of the
common stock prior to the Fairness Opinion Date ($6.50 per share on October 19,
2000) and (ii) 20.75% based on the closing price of the common stock four weeks
prior to the Fairness Opinion Date ($6.63 per share on September 22, 2000).
Tucker Anthony compared the premium paid in the Transaction to those paid in all
take private transactions announced during the 1997 to October 6, 2000 time
period, as compiled by the Securities Data Corporation. Premiums over the
closing stock price four weeks prior to the Fairness Opinion Date ranged from
-1.00% to 111.3% during the period, with year-to-date 2000 median premium of
23.9%. Premiums over the closing stock price one day prior to the Fairness
Opinion Date ranged from -13.60% to 117.50% during the period, with a
year-to-date 2000 median premium of 21.00%. Tucker Anthony noted that the
premiums paid in other transactions were in line with the premium being proposed
in the Offer.
Discounted Cash Flow Analysis. Tucker Anthony analyzed the Company's
fully diluted per Share value based on an unleveraged after-tax discounted cash
flow analysis of the projected five-year financial performance of the Company.
Tucker Anthony estimated the net present value of the future cash flows of the
Company using the Management Forecast and Sensitivity Case Projections covering
the period ending September 30, 2005 and calculated a terminal value of the
Company based on a range of the multiples of projected 2005 EBITDA. In
conducting this analysis, Tucker Anthony applied discount rates ranging from 21%
to 22% and terminal value multiples ranging from 5.0x to 5.5x EBITDA. Tucker
Anthony derived the range of EBITDA multiples and discount rates on the basis of
multiples of EBITDA for public Comparable Companies and estimated risk adjusted
cost of capital for the Company. This analysis indicated a discounted cash flow
valuation ranging from approximately $12.70 per share to $14.35 per share in the
Management Forecast Case. This analysis indicated a discounted cash flow
valuation ranging from approximately $10.30 per share to $11.75 per share in the
Sensitivity Case Projections. Tucker Anthony noted that the Purchase Price of
$8.00 was below the indicated range in both cases.
Leveraged Buy-out/Recapitalization Analysis. Tucker Anthony prepared an
analysis based on the same projections utilized in the discounted cash flow
analysis as to the value paid pursuant to a recapitalization transaction. A
range of possible acquisition prices was derived by reviewing the estimated
return on equity investment, which would result from a leveraged buy-out based
on various assumptions, including the financial ratios required by the bank
financing and high yield debt markets, and interest rates. Assuming terminal
values at the end of the fifth year following a buy-out transaction ranging from
5.0x to 5.5x EBITDA and required internal rates of return on equity of 30.0%+,
this methodology indicated that a recapitalization transaction could earn a
purchaser a market return on their investment at a Purchase Price of $7.00 to
$8.00 per Share. Tucker Anthony cautioned our Board that the actual price that a
party would be willing to pay in a leveraged buy-out or recapitalization
transaction
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was dependent on various factors not included in this methodology and,
therefore, that this analysis was not necessarily indicative of actual prices
realizable or of rates of return on shares of the common stock retained in the
Transaction, which rates of return may be more or less favorable than those
indicated in this analysis, are dependent on many contingencies and, therefore,
are speculative.
In connection with Tucker Anthony's analysis, it was concluded that
following the announcement of the Offer, the stock market valuation of the
common stock would be significantly influenced by estimates of the
forward-looking pro forma earnings and EBITDA forecasts, if available. Tucker
Anthony advised our Board that trading in the post-Transaction common stock for
a period following the announcement of the Offer could be characterized by a
redistribution of such securities among the stockholders of the Company
immediately preceding the tender offer and other investors, and, accordingly,
such securities may be subject to downward price pressures during this period
resulting in trading prices below the Purchase Price. In addition, in connection
with the presentation, Tucker Anthony advised our Board that any estimate of
trading ranges is speculative, and subject to uncertainties and contingencies,
all of which are difficult to predict and beyond the control of Tucker Anthony.
The price of the Company's stock will be influenced, both positively and
negatively, by changes in interest rates, market conditions, the terms of
financing for the Transaction, the condition and prospects, financial and
otherwise, of the Company, management's post-transaction strategy with respect
to both the Company's business and the market for the Company's stock and other
factors that generally influence the prices of securities. In addition, the
reduced float of shares, the potential lack of a public market for the
securities and the fact that the Company may not be required to publicly
disclose its financial statements to investors may adversely affect the
liquidity of these Shares and result in greater volatility in trading prices
following the Effective Time.
The engagement letter between the Company and Tucker Anthony provides
that the Company will pay Tucker Anthony a fee of $200,000 upon delivery of the
preliminary Tucker Anthony Opinion, a fee of $200,000 due upon the delivery by
Tucker Anthony to our Board of Directors of the final Tucker Anthony Opinion and
an advisory fee of $400,000 due upon the closing of the Offer. In addition, the
engagement letter between the Company and Tucker Anthony provides that the
Company will reimburse Tucker Anthony for certain of its out-of-pocket expenses
and will indemnify Tucker Anthony and certain related persons against certain
liabilities, including liabilities under securities laws, arising out of its
engagement.
5. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE SECOND-STEP
TRANSACTION
In considering the Offer and the fairness of the consideration to be
received in the Offer and, if deemed desirable by us, the Second-Step
Transaction, you should be aware that certain of our officers and directors have
interests in the Offer which are described below and which may present them with
certain actual or potential conflicts of interest.
As of September 30, 2000, the directors and executive officers as a
group beneficially owned 1,954,290 Shares, or 58.2% of the Shares, which
includes 122,893 Shares issuable upon exercise of outstanding stock options that
are currently exercisable. Even if no Shares are tendered in the Offer, the
Schaden Stockholders together own more than a majority of the outstanding Shares
and, if acting together, will be able to control all matters requiring approval
of the Company's stockholders, including the election of directors. Richard E.
Schaden (President, Chief Executive Officer and director),
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Richard F. Schaden (Vice President, Secretary and director) and Frederick H.
Schaden (a director of the Company) together currently own 51.6% of the
outstanding Shares. Our Board was aware of these actual and potential conflicts
of interest and considered them along with the other matters described under
"Special Factors--Position of Our Board; Fairness of the Offer" and
"--Beneficial Ownership of Shares."
Each of the Schaden Stockholders has advised us that he or she does not
intend to tender any Shares pursuant to the Offer. If we purchase 1,456,248
Shares pursuant to the Offer, then after the purchase of Shares pursuant to the
Offer, the Schaden Stockholders would beneficially own approximately 100% of the
outstanding Shares immediately after the Offer, assuming the exercise or
conversion by such persons of their currently exercisable options and Shares of
preferred stock (in addition, Levine Leichtman will hold warrants to purchase up
to 14% of the outstanding Shares of the Company on a fully-diluted basis - see
"The Tender Offer--Financing of the Offer"). In addition, certain of our other
employees who are not affiliated with the Schaden Stockholders may not tender
their Shares pursuant to the Offer.
Except as described herein, based on our records and on information
provided to us by our directors, executive officers and subsidiaries, neither
the Company nor any associate or subsidiary of the Company nor, to the best of
our knowledge, any of our directors or executive officers or any of our
subsidiaries, nor any associates or affiliates of any of the foregoing, have
effected any transactions involving the Shares during the 60 business days prior
to the date hereof. Except as otherwise described herein, neither the Company
nor, to the best of our knowledge, any of our affiliates, directors or executive
officers are a party to any contract, arrangement, understanding or relationship
with any other person relating, directly or indirectly, to the Offer with
respect to any of our securities, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any such securities, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss or the giving or withholding
of proxies, consents or authorizations.
As part of the Offer, all individuals, other than the Schaden
Stockholders, holding stock options will be given the opportunity to surrender
those options in exchange for payment from the Company (subject to any
applicable withholding taxes) in cash equal to the product of (x) the total
number of Shares subject to any such stock option and (y) the excess of the
Purchase Price over the exercise price per Share subject to any such stock
option, without any interest thereon. None of the Schaden Stockholders will be
surrendering stock options owned by them in connection with the Offer. With
respect to executive officers (other than executive officers who are Schaden
Stockholders), vested options will be treated as described above, and unvested
options are expected to be exchanged for rights in a stock appreciation plan. As
of September 30, 2000, executive officers (other than those who are also Schaden
Stockholders) hold vested options to purchase approximately 52,000 Shares and
unvested options to purchase approximately 110,000 Shares.
Under the CBCA, corporations organized under the laws of Colorado are
permitted to indemnify their current and former directors, officers, employees
and agents under certain circumstances against certain liabilities and expenses
incurred by them by reason of their serving in such capacities. Our Charter
provides that each director and officer will be indemnified by the Company
against liabilities and expenses incurred in connection with any threatened,
pending or completed legal action or proceeding to which he or she may be made a
party or threatened to be made a party by reason of being a director of the
Company or a predecessor company, or serving any other enterprise as a director
or officer at the request of the Company. Our Charter provides that, to the
fullest extent that limitations on the liability of
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directors and officers are permitted by the CBCA, no director or officer of the
Company shall have any liability to the Company or its stockholders for monetary
damages. The CBCA provides that a corporation's charter may include a provision
that restricts or limits the liability of its directors or officers to the
corporation or its stockholders for money damages except: (1) to the extent that
it is proved that the person actually received an improper benefit or profit in
money, property or services for the amount of the benefit or profit in money,
property or services actually received or (2) to the extent that a judgment or
other final adjudication adverse to the person is entered in a proceeding based
on a finding in the proceeding that the person's action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. We have also purchased directors' and
officers' liability insurance for the benefit of these persons.
6. BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information, as of September 30,
2000, regarding the ownership of Shares by each person known by us to be the
beneficial owner of more than 5% of the outstanding Shares, each of our
directors and executive officers, and all of our executive officers and
directors as a group:
<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON STOCK COMMON STOCK OWNED AND
NAME AND ADDRESS OWNED(1) PERCENTAGE PERCENTAGE
---------------- -------- ---------- ----------
<S> <C> <C> <C>
Richard E. Schaden................... 861,177(2) 27.9% (6)
1415 Larimer Street
Denver, CO 80202
Richard F. Schaden................... 921,470(2) 29.1% (6)
11870 Airport Way
Broomfield, CO 80021
Retail & Restaurant
Growth Capital, L.P.................. 411,177(3) 12.1% 0
10000 N. Central Expressway
Suite 1060
Dallas, TX 75231
Brad A. Griffin...................... 10,000(4) * (6)
Mark L. Bromberg..................... 14,000(4) * 0
J. Eric Lawrence..................... 16,000(4) * 0
Frederick H. Schaden................. 28,000(4) * (6)
John J. Todd......................... 1,000(4) * 0
Steven B. Shaffer.................... 27,484(5) * 0
Robert W. Scanlon.................... 7,459(5) * 0
Sue A. Hoover........................ 25,159(5) * 0
Robert Elliott....................... 0 -- 0
</TABLE>
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<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON STOCK COMMON STOCK OWNED AND
NAME AND ADDRESS OWNED(1) PERCENTAGE PERCENTAGE
---------------- -------- ---------- ----------
<S> <C> <C> <C>
Patrick E. Meyers.................... 26,296(5) * 0
John L. Gallivan..................... 17,718(5) * (6)
All Executive Officers and Directors
as a Group (13 persons)............. 1,954,290 58.2% (6)
========= ===== ===
</TABLE>
-------------------------
* Less than 1% of shares outstanding.
(1) The persons named in the table have sole voting power with respect to
all shares of common stock shown as beneficially owned by them. A
person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date as of which the
table is presented, upon the exercise of options or warrants, or
conversion of convertible securities. The record ownership of each
beneficial owner is determined by assuming that options or warrants or
convertible securities that are held by such person and that are
exercisable or convertible within 60 days have been exercised or
converted. The total outstanding shares used to calculate each
beneficial owner's percentage also assumes that such options, warrants
or convertible securities have been exercised or converted. Our Class A
Cumulative Convertible Preferred Stock ("Class A Preferred"), Class C
Cumulative Convertible Preferred Stock ("Class C Preferred") and Class
E Cumulative Convertible Preferred Stock ("Class E Preferred") are
currently convertible into our common stock on a 1-for-1 basis.
(2) Richard E. Schaden and Richard F. Schaden beneficially own, through a
voting trust pursuant to which they are joint voting trustees, 773,667
shares of our common stock and 146,000 shares of our Class A Preferred,
and 4,000 shares of our common stock owned by a family member for which
the voting trust holds sole voting power. The remaining duration of the
voting trust agreement is four years, subject to extension. In the
table, beneficial ownership of shares, other than the 773,667 shares of
common stock, have been allocated equally to each of them. Such 773,667
shares of common stock are allocated to Richard F. Schaden in the
table, and he has been given a proxy to vote such shares. Richard E.
Schaden has withdrawn 773,667 shares of common stock from the voting
trust to use to secure a personal loan, subject, however, to an
agreement to redeposit those shares into the voting trust if they are
no longer necessary to secure such loan. Richard E. Schaden,
individually, beneficially owns 1,084 shares of our common stock
allocated to him under our 401(k) Plan, 4339 shares of our common stock
held in his own name, 5,087 shares of our common stock represented by
currently exercisable stock options and 2,000 shares of our common
stock owned by a family member for which he holds sole voting power.
Richard F. Schaden, individually, beneficially owns 34,000 shares of
our Class C Preferred, 4,000 shares of our common stock represented by
currently exercisable stock options and 34,803 shares of our Class E
Preferred.
(3) We issued two warrants to RRGC in connection with a loan to us that has
since been repaid. One is exercisable for 372,847 shares of common
stock at an exercise price of $3.10, subject to adjustment in certain
circumstances. The other is exercisable for 38,330 shares of common
stock at an exercise price of $5.00 per share, subject to adjustment in
certain circumstances.
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(4) All the shares indicated as owned by Messrs. Lawrence, Bromberg and
Todd may be acquired through the exercise of stock options. All the
shares indicated as owned by Messrs. Frederick Schaden and Griffin may
be acquired through the exercise of stock options or conversion of
Class C Preferred by the holder.
(5) Steven B. Shaffer, individually and through an affiliated entity,
beneficially owns 184 shares of common stock allocated to him under our
401(k) plan and 27,300 shares of our common stock. Robert W. Scanlon,
individually, beneficially owns 384 shares of our common stock
allocated to him under our 401(k) plan, 1,475 shares of our common
stock held in his own name and 5,600 shares of our common stock
represented by currently exercisable stock options. Sue A. Hoover,
individually, beneficially owns 709 shares of our common stock
allocated to her under our 401(k) plan, 11,873 shares of our common
stock held in her own name and 12,400 shares of our common stock
represented by currently exercisable stock options. Patrick E. Meyers,
individually, beneficially owns 323 shares of common stock allocated to
him under our 401(k) plan, 3,973 shares of our common stock held in his
own name and 22,000 shares of our common stock represented by currently
exercisable stock options. John L. Gallivan, individually, owns 994
shares of our common stock allocated to him under our 401(k) plan,
3,445 shares of our common stock held in his own name, 11,806 shares of
our common stock represented by currently exercisable stock options and
1,473 shares of our Class E Preferred.
(6) The Company has issued and outstanding four classes of Convertible
Preferred Stock, the Class A Preferred, Class C Preferred, the
Class D Subordinated Convertible Preferred Stock (the "Class D
Preferred") and Class E Preferred. There are 146,000 shares of Class A
Preferred outstanding: 50% are beneficially owned by Richard F.
Schaden and 50% are beneficially owned by Richard E. Schaden. There
are 167,000 shares of Class C Preferred outstanding: 34,000 shares or
20.4% are held by Richard F. Schaden, 5,000 shares or 2.7% are held
by Brad A. Griffin and 2,000 shares or 1.1% are held by Frederick H.
Schaden. There are 3,000 shares of Class D Preferred outstanding.
There are 59,480 shares of Class E Preferred outstanding: 34,803
shares or 59% are held by Richard F. Schaden and 1,473 shares or 2.5%
are held by John L. Gallivan. Among all executive officers and
directors as a group, the following preferred shares are beneficially
owned: 100% of the Class A Preferred, 41,000 shares or 24.2% of the
Class C Preferred and 36,276 shares or 61% of the Class E Preferred.
None of these classes of preferred stock are publicly traded or
registered under Section 12(b) or 12(g) of the Exchange Act.
7. FEES AND EXPENSES
The following is an estimate of expenses incurred or to be incurred in
connection with the Offer. Also see "The Tender Offer--Fees and Expenses."
<TABLE>
<S> <C>
Legal Fees.................................................... $ 200,000
Printing and Mailing.......................................... 50,000
Filing Fees................................................... 5,000
Investment Banker's Fees...................................... 800,000
Levine Leichtman Capital Partners Fees........................ 800,000
Miscellaneous................................................. 245,000
---------------
TOTAL................................................ $ 2,100,000
===============
</TABLE>
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THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE
Upon the terms and subject to the conditions of the Offer (including,
if the Offer is extended or amended, the terms and conditions of such extension
or amendment), we will purchase all outstanding shares of common stock as are
validly tendered prior to the Expiration Date (as defined below) and not
withdrawn as permitted by "The Tender Offer--Withdrawal Rights" at a price of
$8.00 per Share (the Purchase Price, net to the seller in cash, without interest
thereon. The term "Expiration Date" means 12:00 midnight, New York City time, on
December 11, 2000 unless and until the Company, in its sole discretion shall
have extended the period during which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by the Company, shall expire.
We expressly reserve the right, in our sole discretion, at any time and
from time to time, to extend for any reason the period of time during which the
Offer is open, including the occurrence of any of the conditions specified in
"The Tender Offer--Certain Conditions of the Offer," by giving oral or written
notice of such extension to the Depositary. During any such extension, all
Shares previously tendered and not withdrawn will remain subject to the Offer,
subject to the rights of a tendering stockholder to withdraw such stockholder's
Shares. See "The Tender Offer--Withdrawal Rights."
Subject to the applicable regulations of the Securities and Exchange
Commission (the "Commission"), we also expressly reserve the right, in our sole
discretion, at any time and from time to time, (i) to delay acceptance for
payment of, or, regardless of whether such Shares were theretofore accepted for
payment, payment for, any Shares, pending receipt of any regulatory approval
specified in "The Tender Offer--Certain Legal Matters and Regulatory Approvals,"
(ii) to terminate the Offer and not accept for payment any Shares upon the
occurrence of any of the conditions specified in "The Tender Offer--Certain
Conditions of the Offer," and (iii) to waive any condition or otherwise amend
the Offer in any respect, by giving oral or written notice of such delay,
termination, waiver or amendment to the Depositary and by making a public
announcement thereof. We acknowledge that (i) Rule 13e-4(f) under the Exchange
Act requires us to pay the consideration offered or return the Shares tendered
promptly after the termination or withdrawal of the Offer and (ii) we may not
delay acceptance for payment of, or payment for (except as provided in clause
(i) of the first sentence of this paragraph), any Shares upon the occurrence of
any of the conditions specified in "The Tender Offer--Certain Conditions of the
Offer" without extending the period of time during which the Offer is open.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be made no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 13e-3(e)(2),
13e-4(e)(2) and 13e-4(f) under the Exchange Act, which require that material
changes be promptly disseminated to stockholders in a manner reasonably designed
to inform them of such changes) and without limiting the manner in which we may
choose to make any public announcement, we shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a press release to the Dow Jones News Service or other national business
wire service.
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If we make a material change in the terms of the Offer or other
information concerning the Offer, or if we waive a material condition of the
Offer, we will extend the Offer to the extent required by Rules 13e-3(e)(2),
13e-4(e)(2) and 13e-4(f) under the Exchange Act. The minimum period during which
an offer must remain open following material changes in the terms of the Offer
or information concerning the Offer, other than a change in price or a change in
the percentage of securities sought, will depend on the facts and circumstances
then existing, including the relative materiality of the changed terms or
information. With respect to a change in price or a change in the percentage of
securities sought, a minimum period of ten business days is generally required
to allow for adequate dissemination to stockholders and investor response.
If, prior to the Expiration Date, we should decide to decrease the
number of Shares being sought or to increase or decrease the consideration being
offered in the Offer, such decrease in the number of Shares being sought or such
increase or decrease in the consideration being offered will be applicable to
all stockholders whose Shares are accepted for payment pursuant to the Offer,
and, if at the time notice of any such decrease in the number of Shares being
sought or such increase or decrease in the consideration being offered is first
published, sent or given to holders of such Shares, the Offer is scheduled to
expire at any time earlier than the period ending on the tenth business day from
and including the date that such notice is first so published, sent or given,
the Offer will be extended at least until the expiration of such ten business
day period. For purposes of the Offer, a "business day" means any day other than
a Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
This Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on our stockholder list
and will be furnished, for subsequent transmittal to beneficial owners of
Shares, to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including,
if the Offer is extended or amended, the terms and conditions of any such
extension or amendment), we will accept for payment and pay for (and thereby
purchase) Shares properly tendered and not properly withdrawn prior to the
Expiration Date. For purposes of the Offer, we will be deemed to have accepted
for payment (and therefore purchased) Shares that are properly tendered and not
properly withdrawn only when and if we give written notice to the Depositary of
our acceptance of the Shares for payment pursuant to the Offer. Subject to
applicable rules of the Commission, we expressly reserve the right to delay
acceptance for payment of, or payment for, Shares pending receipt of any
regulatory approvals specified in "The Tender Offer--Certain Legal Matters and
Regulatory Approvals" or in order to comply in whole or in part with any other
applicable law.
In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of (i) the certificates evidencing such Shares (the "Share Certificates") or
timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of
such Shares into the Depositary's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Tender Offer--Procedures for Accepting the Offer and Tendering Shares," (ii) the
Letter of Transmittal (or a facsimile thereof), properly completed and duly
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executed, with any required signature guarantees or, in the case of a book-entry
transfer, an Agent's Message (as defined below) in lieu of the Letter of
Transmittal, and (iii) any other documents required under the Letter of
Transmittal.
For purposes of the Offer, we will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when we give oral or written notice to the Depositary of
our acceptance for payment of such Shares pursuant to the Offer. Upon the terms
and subject to the conditions of the Offer, payment for Shares accepted for
payment pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering stockholders
for the purpose of receiving payments from us and transmitting such payments to
tendering stockholders whose Shares have been accepted for payment. Under no
circumstances will interest on the purchase price for Shares be paid, regardless
of any delay in making such payment.
Certificates for all Shares tendered and not purchased will be returned
(or, in the case of Shares tendered by book-entry transfer, will be credited to
the account maintained with the Book-Entry Transfer Facility by the participant
therein who so delivered the Shares) to the tendering stockholder at our expense
as promptly as practicable after the Expiration Date or termination of the Offer
without expense to the tendering stockholders. UNDER NO CIRCUMSTANCES WILL
INTEREST ON THE PURCHASE PRICE BE PAID BY US BY REASON OF ANY DELAY IN MAKING
PAYMENT. In addition, if certain events occur, we may not be obligated to
purchase Shares pursuant to the Offer. See "The Tender Offer--Procedures for
Accepting the Offer and Tendering Shares" and "--Certain Conditions of the
Offer."
We will pay all stock transfer taxes, if any, payable upon the transfer
to us of Shares purchased pursuant to the Offer. If, however, payment of the
Purchase Price is to be made to, or (in the circumstances permitted by the
Offer) if unpurchased Shares are to be registered in the name of, any person
other than the registered holder, or if tendered certificates are registered in
the name of any person other than the person signing the Letter of Transmittal,
the amount of all stock transfer taxes, if any (whether imposed on the
registered holder or the other person), payable on account of the transfer to
the person will be deducted from the Purchase Price unless satisfactory evidence
of the payment of the stock transfer taxes, or exemption therefrom, is
submitted. See Instruction 6 of the Letter of Transmittal.
If, prior to the Expiration Date, we shall increase the consideration
offered to any holders of Shares pursuant to the Offer, such increased
consideration will be paid to all holders of Shares that are purchased pursuant
to the Offer, whether or not such Shares were tendered prior to such increase in
consideration.
We reserve the right to transfer or assign, in whole or from time to
time in part, to one or more of our affiliates, the right to purchase all or any
portion of the Shares tendered pursuant to the Offer, but any such transferor
assignment will not relieve us of our obligations under the Offer and will in no
way prejudice the rights of tendering stockholders to receive payment for Shares
validly tendered and accepted for payment pursuant to the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES
In order for a holder of Shares validly to tender Shares pursuant to
the Offer, the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, together with any required signature guarantees
(or, in the case of a book-entry transfer, an Agent's Message (as defined below)
in lieu of the Letter of Transmittal) and any other documents required by the
Letter of Transmittal, must be
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received by the Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase and either (i) the Share Certificates evidencing
tendered Shares must be received by the Depositary at such address or such
Shares must be tendered pursuant to the procedure for book-entry transfer
described below and a Book-Entry Confirmation must be received by the Depositary
(including an Agent's Message if the tendering stockholder has not delivered a
Letter of Transmittal), in each case prior to the Expiration Date, or (ii) the
tendering stockholder must comply with the guaranteed delivery procedures
described below. The term "Agent's Message" means a message, transmitted by a
Book-Entry Transfer Facility to, and received by, the Depositary and forming a
part of a Book-Entry Confirmation, which states that such Book-Entry Transfer
Facility has received an express acknowledgment from the participant in such
book-entry confirmation that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and that we may enforce such
agreement against such participant.
STOCKHOLDERS WHO HOLD SHARES THROUGH BROKERS OR BANKS ARE URGED TO
CONSULT THE BROKERS OR BANKS TO DETERMINE WHETHER TRANSACTION COSTS ARE
APPLICABLE IF STOCKHOLDERS TENDER SHARES THROUGH THE BROKERS OR BANKS AND NOT
DIRECTLY TO THE DEPOSITARY.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
BOOK-ENTRY TRANSFER. The Depositary will establish an account with
respect to the Shares at the Book-Entry Transfer Facility for purposes of the
Offer within two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in the system of such Book-Entry
Transfer Facility may make a book-entry delivery of Shares by causing such
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at such Book-Entry Transfer Facility in accordance with such Book-Entry
Transfer Facility's procedures for such transfer. However, although delivery of
Shares may be effected through book-entry transfer at a Book-Entry Transfer
Facility, either the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, together with any required signature guarantees, or
an Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must, in any case, be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date, or the tendering stockholder must comply with the guaranteed
delivery procedure described below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY
TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
SIGNATURE GUARANTEES. Signatures on all Letters of Transmittal must be
guaranteed by a firm that is a member of the Medallion Signature Guarantee
Program, or by any other "eligible guarantor institution," as such term is
defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing referred
to as an "Eligible Institution"), except in cases where Shares are tendered (i)
by a registered holder of Shares who has not completed either the box entitled
"Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. If a Share Certificate is registered in the name of a
person other than the signer of the
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Letter of Transmittal, or if payment is to be returned, to a person other than
the registered holder(s), then the Share Certificate must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear on the Share Certificate, with the
signature(s) on such Share Certificate or stock powers guaranteed by an Eligible
Institution. See Instructions 1 and 5 of the Letter of Transmittal.
GUARANTEED DELIVERY. If a stockholder desires to tender Shares pursuant
to the Offer and the Share Certificates evidencing such stockholder's Shares are
not immediately available or such stockholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such stockholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered, provided that all the following conditions are satisfied:
(a) such tender is made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by us, is received prior to
the Expiration Date by the Depositary as provided below; and
(c) the Share Certificates (or a Book-Entry Confirmation) evidencing
all tendered Shares, in proper form for transfer, in each case together with the
Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, with any required signature guarantees, or an Agent's Message, in the
case of a book-entry transfer, and any other documents required by the Letter of
Transmittal are received by the Depositary within three Nasdaq trading days
after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the
Notice of Guaranteed Delivery made available by us.
In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of the Share Certificates evidencing such Shares, or a Book-Entry Confirmation
of the delivery of such Shares, and the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by the Letter of Transmittal.
DETERMINATION OF VALIDITY. All questions as to the number of Shares to
be accepted, the validity, form, eligibility (including time of receipt) and
acceptance for payment of any tender of Shares will be determined by us in our
sole discretion, which determination shall be final and binding on all parties.
We reserve the absolute right to reject any and all tenders determined by us not
to be in proper form or the acceptance for payment of which may, in the opinion
of our counsel, be unlawful. We also reserve the absolute right to waive any
condition of the Offer or any defect or irregularity in the tender of any Shares
of any particular stockholder, whether or not similar defects or irregularities
are waived in the case of other stockholders. No tender of Shares will be deemed
to have been validly made until all defects and irregularities have been cured
or waived. None of the Company, the Dealer Manager, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. Our interpretation
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of the terms and conditions of the Offer (including the Letter of Transmittal
and the instructions thereto) will be final and binding.
LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificates for the
Shares have been lost, destroyed or stolen, stockholders should contact the
Company's Transfer Agent, Computershare Trust Company Inc., at (303) 986-5400
immediately. In such event, the Transfer Agent will forward additional
documentation necessary to be completed in order to surrender effectively such
lost, destroyed or stolen certificates. The Letter of Transmittal and related
documents cannot be processed until the procedures for replacing lost, destroyed
or stolen certificates have been followed.
OTHER REQUIREMENTS. By executing the Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints our designees as such
stockholder's proxies, each with full power of substitution, in the manner set
forth in the Letter of Transmittal, to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted for
payment by us (and with respect to any and all Shares or other securities issued
or issuable in respect of such Shares on or after November 13, 2000). All such
proxies shall be considered coupled with an interest in the tendered Shares.
Such appointment will be effective when, and only to the extent that, we accept
such Shares for payment. Upon such acceptance for payment, all prior proxies
given by such stockholder with respect to such Shares (and such other Shares and
securities) will be revoked without further action, and no subsequent proxies
may be given or any subsequent written consent executed by such stockholder
(and, if given or executed, will not be deemed to be effective) with respect
thereto. Our designees will, with respect to the Shares for which the
appointment is effective, be empowered to exercise all voting and other rights
of such stockholder as they in their sole discretion may deem proper at any
annual or special meeting of our stockholders or any adjournment or postponement
thereof, by written consent in lieu of any such meeting or otherwise.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO
PAYMENT TO CERTAIN STOCKHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED
PURSUANT TO THE OFFER, EACH SUCH STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH
SUCH STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH
STOCKHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY
COMPLETING THE SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP
WITHHOLDING APPLIES WITH RESPECT TO A STOCKHOLDER, THE DEPOSITARY IS REQUIRED TO
WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH STOCKHOLDER. SEE INSTRUCTION 11 OF THE
LETTER OF TRANSMITTAL.
TENDERING STOCKHOLDER'S REPRESENTATION AND WARRANTY THAT OUR ACCEPTANCE
CONSTITUTES AN AGREEMENT. A tender of Shares pursuant to any of the procedures
described above will constitute the tendering stockholder's acceptance of the
terms and conditions of the Offer, as well as the tendering stockholder's
representation and warranty to us that (a) the stockholder has a "net long
position" (as defined in Rule 14e-4 promulgated by the Commission under the
Exchange Act) in the Shares or equivalent securities at least equal to the
Shares tendered within the meaning of Rule 14e-4 and (b) the tender of Shares
complies with Rule 14e-4. It is a violation of Rule 14e-4 for a person, directly
or indirectly, to tender Shares for that person's own account unless, at the
time of tender (including any extensions thereof), the person so tendering (i)
has a net long position equal to or greater than the amount of (x) Shares
tendered or (y) other securities immediately convertible
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into or exchangeable or exercisable for the Shares tendered and will acquire the
Shares for tender by conversion, exchange or exercise and (ii) will deliver or
cause to be delivered the Shares in accordance with the terms of the Offer. Rule
14e-4 provides a similar restriction applicable to the tender or guarantee of a
tender on behalf of another person. Our acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering stockholder and the Company upon the terms and conditions of the
Offer.
CERTIFICATES FOR SHARES, TOGETHER WITH A PROPERLY COMPLETED LETTER OF
TRANSMITTAL AND ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL, MUST
BE DELIVERED TO THE DEPOSITARY AND NOT TO US. ANY SUCH DOCUMENTS DELIVERED TO US
WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT BE DEEMED TO BE
PROPERLY TENDERED.
4. WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer are irrevocable except
that such Shares may be withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for payment by us pursuant to the Offer, may also be
withdrawn at any time after January 10, 2001. If we extend the Offer, are
delayed in our acceptance for payment of Shares or are unable to accept Shares
for payment pursuant to the Offer, the Depositary may, nevertheless, on behalf
of the Company, retain tendered Shares, and such Shares may not be withdrawn
except to the extent that tendering stockholders are entitled to withdrawal
rights as described in this Section 4.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover page of this Offer to Purchase.
Any such notice of withdrawal must specify the name of the person who tendered
the Shares to be withdrawn, the number of Shares to be withdrawn and the name of
the registered holder of such Shares, if different from that of the person who
tendered such Shares. If Share Certificates evidencing Shares to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such Share Certificates, the serial numbers shown on
such Share Certificates must be submitted to the Depositary and the signature(s)
on the notice of withdrawal must be guaranteed by an Eligible Institution,
unless such Shares have been tendered for the account of an Eligible
Institution. If Shares have been tendered pursuant to the procedure for
book-entry transfer as set forth in the "The Tender Offer--Procedures for
Accepting the Offer and Tendering Shares," any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Shares.
All questions as to the form and validity (including the time of
receipt) of any notice of withdrawal will be determined by us, in our sole
discretion, whose determination will be final and binding. None of the Company,
the Dealer Manager, Depositary, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
Any Shares properly withdrawn will thereafter be deemed not to have
been validly tendered for purposes of the Offer. However, withdrawn Shares may
be re-tendered at any time prior to the Expiration Date by following one of the
procedures described in "The Tender Offer--Procedures for Accepting the Offer
and Tendering Shares."
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5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Sales of Shares by stockholders pursuant to the Offer will be taxable
transactions for federal income tax purposes and in all likelihood will also be
taxable transactions under applicable state, local, foreign and other tax laws.
The federal income tax consequences to a stockholder may vary depending on the
stockholder's particular facts and circumstances.
Under section 302 of the Internal Revenue Code of 1986, as amended (the
"Code"), a sale of Shares pursuant to the Offer will, as a general rule, be
treated as a sale or exchange if the receipt of cash upon such sale (a) is
"substantially disproportionate" with respect to the stockholder, (b) results in
a "complete redemption" of the stockholder's interest in the Company, or (c) is
"not essentially equivalent to a dividend" with respect to the stockholder. If
any one of the three tests is satisfied, a tendering stockholder will recognize
gain or loss equal to the difference between the amount of cash received by the
stockholder pursuant to the Offer and the stockholder's tax basis in the Shares
sold pursuant to the Offer. Recognized gain or loss will be capital gain or
loss, provided the Shares are held as capital assets, which will be long-term
capital gain or loss if the Shares have been held for more than one year at the
time cash is received in the Offer.
Net capital gain recognized by an individual upon the sale of, or
otherwise attributable to, a capital asset that has been held for more than one
year will generally be subject to federal tax at a rate not to exceed 20%.
Capital gain recognized from the sale of, or otherwise attributable to, a
capital asset held for one year or less will be subject to federal tax at the
ordinary income tax rates. In addition, capital gain recognized by a corporate
taxpayer will continue to be subject to federal tax at the ordinary income tax
rates applicable to corporations. The deductibility of capital losses is subject
to certain limitations. State, local, foreign and other taxing jurisdictions may
impose tax in addition to federal tax.
In determining whether any of the tests under section 302 of the Code
are satisfied, stockholders must take into account not only the shares of common
stock they actually own, but also any shares of common stock they are deemed to
own pursuant to the constructive ownership rules of section 318 of the Code.
Pursuant to those constructive ownership rules, a stockholder is deemed to own
common stock actually owned, and in some cases constructively owned, by certain
related individuals or entities, and any common stock that the stockholder has
the right to acquire by exercise of an option or by conversion or exchange of a
security.
The receipt of cash will be "substantially disproportionate" with
respect to a stockholder if, among other things, the percentage of the
outstanding common stock actually and constructively owned by the stockholder
immediately following the sale of Shares pursuant to the Offer (treating as no
longer outstanding all Shares purchased pursuant to the Offer) is less than 80%
of the percentage of the outstanding common stock actually and constructively
owned by such stockholder immediately before the sale of Shares pursuant to the
Offer (treating as outstanding all Shares purchased pursuant to the Offer).
Stockholders should consult their tax advisors with respect to the application
of the "substantially disproportionate" test to their particular facts and
circumstances. The "substantially disproportionate" test presumes that
immediately after the redemption the stockholder owns less than 50% of the total
combined voting power of all shares of stock entitled to vote.
The receipt of cash by a stockholder will result in a "complete
redemption" of the stockholder's interest in us if either (a) all the common
stock actually and constructively owned by the stockholder is
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<PAGE>
sold pursuant to the Offer or otherwise or (b) all the common stock actually
owned by the stockholder is sold pursuant to the Offer or otherwise and the
stockholder is eligible to waive and does effectively waive attribution of all
common stock constructively owned by the stockholder in accordance with section
302(c) of the Code. Reacquisition of common stock may jeopardize the waiver and
favorable tax treatment provided under the complete redemption test.
Even if the receipt of cash by a stockholder fails to satisfy the
"substantially disproportionate" test or the "complete redemption" test, such
stockholder may nevertheless satisfy the "not essentially equivalent to a
dividend" test if the stockholder's sale of Shares pursuant to the Offer results
in a "meaningful reduction" in the stockholder's proportionate interest in the
Company after taking into account the attribution rules of section 318 of the
Code. Whether the receipt of cash by a stockholder will be "not essentially
equivalent to a dividend" will depend on the individual stockholder's facts and
circumstances. In certain circumstances, even a small reduction in a
stockholder's proportionate interest may satisfy this test. For example, the
Internal Revenue Service ("IRS") has indicated in a published ruling that a 3.3%
reduction in the proportionate interest of a small minority (substantially less
than 1%) stockholder in a publicly held corporation who exercises no control
over corporate affairs constitutes such a "meaningful reduction." Stockholders
expecting to rely on the "not essentially equivalent to a dividend" test should,
therefore, consult their tax advisors as to its application in their particular
situations.
If none of the three tests under section 302 of the Code are satisfied,
then, to the extent the Company has sufficient earnings and profits (taking into
account current and accumulated earnings and profits), the tendering stockholder
will be treated as having received a dividend includible in gross income (and
treated as ordinary income) in an amount equal to the entire amount of cash
received by the stockholder pursuant to the Offer (without regard to gain or
loss, if any).
In the case of a corporate stockholder, if the cash paid is treated as
a dividend, the dividend income may be eligible for the 70% dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate stockholder does not satisfy certain
holding period requirements with respect to the Shares or if the Shares are
treated as "debt financed portfolio stock" within the meaning of section 246A(c)
of the Code. Generally, if a dividends-received deduction is available, it is
expected that the dividend will be treated as an "extraordinary dividend" under
section 1059(a) of the Code, in which case such corporate stockholder's tax
basis in Shares retained by such stockholder would be reduced, but not below
zero, by the amount of the nontaxed portion of the dividend. Any amount of the
nontaxed portion of the dividend in excess of the stockholder's basis will
generally be treated as capital gain and will be recognized in the taxable year
in which the extraordinary dividend is received. If a redemption of Shares from
a corporate stockholder pursuant to the Offer is treated as a dividend as a
result of the stockholder's constructive ownership of other common stock that it
has an option or other right to acquire, the portion of the extraordinary
dividend not otherwise taxed because of the dividends-received deduction would
reduce the stockholder's adjusted tax basis only in its Shares sold pursuant to
the Offer, and any excess of such non-taxed portion over such basis would be
currently taxable as gain on the sale of such Shares. Corporate stockholders
should consult their tax advisors as to the availability of the
dividends-received deduction and the application of section 1059 of the Code.
"Backup withholding" at a rate of 31% will apply to payments made to
stockholders pursuant to the Offer unless the stockholder has furnished its
taxpayer identification number in the manner prescribed in applicable Treasury
regulations, has certified that such number is correct, has certified as to no
loss of
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<PAGE>
exemption from backup withholding and meets certain other conditions. Any
amounts withheld from a holder of Shares under the backup withholding rules
generally will be allowed as a refund or a credit against such stockholder's
United States federal income tax liability, provided the required information
is furnished to the IRS. The foregoing discussion may not apply to Shares
acquired pursuant to certain compensation arrangements with the Company.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY AND IS BASED ON THE FEDERAL INCOME TAX LAW NOW IN EFFECT, WHICH IS SUBJECT
TO CHANGE, POSSIBLY RETROACTIVELY. THE TAX CONSEQUENCES OF A SALE PURSUANT TO
THE OFFER MAY VARY DEPENDING ON, AMONG OTHER THINGS, THE PARTICULAR
CIRCUMSTANCES OF THE TENDERING STOCKHOLDER. NO INFORMATION IS PROVIDED HEREIN AS
TO THE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE TRANSACTION CONTEMPLATED
BY THE OFFER. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
SALES MADE BY THEM PURSUANT TO THE OFFER AND THE EFFECT OF THE CONSTRUCTIVE
STOCK OWNERSHIP RULES MENTIONED ABOVE.
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<PAGE>
6. PRICE RANGE OF SHARES; DIVIDENDS; STOCK REPURCHASES
Our common stock is traded on the Nasdaq SmallCap Market under the
symbol "QUIZ." The following table shows high asked, low bid and close price
information for each quarter in the last two fiscal years as reported by Prophet
Information Services, Inc., a provider of online historical stock price data for
all major U.S. securities markets. Such quotations reflect inter-dealer prices,
without retail mark-ups, markdowns or commissions, and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 1999
(NINE MONTHS ONLY)
-------------------------------------------------
HIGH LOW CLOSE
----------- -------------------- --------------
<S> <C> <C> <C>
First Quarter......................... $ 7.75 $ 6.88 $ 6.88
Second Quarter........................ 7.75 6.50 7.25
Third Quarter......................... 9.50 6.94 7.88
FISCAL YEAR ENDED SEPTEMBER 30, 2000
-------------------------------------------------
HIGH LOW CLOSE
----------- -------------------- --------------
First Quarter......................... $ 9.00 $ 7.25 $ 7.38
Second Quarter........................ 7.94 5.88 7.94
Third Quarter......................... 8.00 5.88 7.00
Fourth Quarter........................ 7.38 5.88 6.44
FISCAL YEAR ENDED SEPTEMBER 30, 2001
-------------------------------------------------
HIGH LOW CLOSE
----------- -------------------- --------------
First Quarter
(through November 9, 2000)........ $ 7.375 $ 6.25 $ 6.75
</TABLE>
There were 154 holders of record (and approximately 800 estimated
nonrecord beneficial owners) of our common stock as of October 13, 2000. The
first number includes stockholders of record who hold stock for the benefit of
others.
On November 9, 2000, the last day the Shares were traded prior to the
announcement of the Offer, the last reported sales price per Share as reported
on Nasdaq was $6.75.
We have not declared or paid any dividends on the Shares since our
inception. We do not anticipate paying cash dividends on the Shares in the
foreseeable future. We intend to retain future earnings to finance our
operations and to fund the growth of the business. Any payment of future
dividends will be at the discretion of our Board of Directors and will depend
on, among other things, our earnings, financial condition, capital requirements,
level of indebtedness, contractual restrictions with respect to the payment of
dividends and other factors that our Board of Directors deems relevant.
Between October 1, 1999 and September 30, 2000, we repurchased
approximately 144,005 Shares on the open market. The prices at which Shares were
repurchased ranged from $6.03 to $8.875, and the average price per repurchased
Share was $8.38.
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<PAGE>
7. CERTAIN INFORMATION CONCERNING THE COMPANY
Except as otherwise set forth herein, the information concerning the
Company contained in this Offer to Purchase, including financial information,
has been furnished by us.
GENERAL. We are a Colorado corporation with our principal executive
offices located at 1415 Larimer Street, Denver, Colorado 80202. Our telephone
number is (720) 359-3300.
We incorporated in Colorado in January 1991 as D&R, Inc. We changed our
name to The Quizno's Franchise Corporation in April 1991 and to The Quizno's
Corporation in June 1995. We do business as The Quizno's Corporation and
Quizno's. In January 1991, we purchased certain assets of Quizno's America,
Inc., which had operated, owned and franchised Quizno's restaurants (directly
and through predecessors and affiliates) under the QUIZNO'S(R) name since 1981.
We operate, and offer franchises to individuals or entities ("Franchisees") to
operate, restaurants with carryout facilities that sell submarine and other
sandwiches, salads, other food products and beverages, and related services
("Restaurants"). As of September 30, 2000, there were 972 Restaurants in
operation in the United States and internationally, and agreements were in place
for the opening of an additional 669 franchised restaurants in the United
States. During the last two years, we have grown to become the third largest sub
sandwich chain in the United States.
Additionally, we offer franchises for area director marketing
businesses in which the area director ("Area Director") acts as our sales
representative within a defined geographic area to solicit and identify
prospective Franchisees, to assist us in locating and securing sites for
Restaurants within a territory, and to provide additional support before, during
and after the Restaurants open.
We also offer master franchise rights for international markets, in
which the master Franchisee has the right to function as a franchiser to offer
and sell Restaurant franchises and area director marketing agreements using our
trademarks and service marks in a defined geographic area (usually a country).
We have master franchise agreements in place for Canada, the United Kingdom and
other European countries, Japan, Australia, Taiwan, Mexico and multiple Central
American countries. The Area Director or master Franchisee is required to open a
specified number of Restaurants annually throughout the life of the area
director marketing agreement or master franchise agreement.
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<PAGE>
RECENT DEVELOPMENTS. On December 31, 1996, RRGC made a $2 million loan
to the Company, a portion of which was convertible into 372,847 shares of our
common stock, and with interest accrued at 12.75% per annum. If the loan were
repaid before conversion, RRGC would receive a warrant to purchase the same
number of shares of our common stock at $3.10 per share. On October 8, 1997, we
and RRGC amended the loan agreement to provide for the conversion of $500,000 of
the principal amount of the loan into 100,000 shares of our Class B Preferred
Stock, reducing the outstanding principal amount of the loan to $1.5 million.
The Class B Preferred Stock was non-voting, with a cumulative dividend of
12.75%. In connection with such amendment, we also issued a warrant to RRGC that
granted it the right to purchase up to 42,209 shares of our common stock at
$5.00 per share. Such number of shares of common stock is subject to downward
adjustment if we meet certain net income and other goals. In no case will the
warrant be exercisable for less than 30,041 shares of our common stock. On
January 6, 1999, we paid off the loan from RRGC, issued to RRGC the warrant to
purchase 372,847 shares of common stock referred to above and redeemed the Class
B Preferred Stock held by RRGC.
On November 6, 2000, RRGC agreed to sell its warrants back to the
Company immediately following the expiration of the Offer. The purchase price
for the warrants will be $1,953,577 in cash, which represents the product of the
total number of shares subject to the warrants multiplied by the excess of the
Purchase Price over the exercise price of the warrants. In addition, RRGC agreed
to terminate rights it has under a stockholders agreement and investment
agreement with the Company for the sum of $518,820.
Richard F. Schaden has discussed the possibility with us of selling his
Shares in the Company to us after the self tender transaction is complete. These
discussions have been preliminary in nature, and we have not reached an
agreement concerning any of the terms or conditions of such a sale, nor has Mr.
Schaden told us whether he is certain he wishes to sell his Shares to us. We
expect to continue these discussions following conclusion of the self tender
transaction and, if our Board so decides, a Second-Step Transaction.
On August 25, 2000, we formed a new wholly owned subsidiary named
American Food Distributors, Inc., a Colorado corporation primarily engaged in
the business of purchasing proprietary products from third-party manufacturers
and then reselling those products to a distributor for use in the Restaurants
("AFD"). We plan to purchase and resell virtually all our proprietary products
through AFD. We anticipate that the organization of AFD may result in certain
cost efficiencies and savings that would translate to reduced product prices for
our Franchisees, increased contributions to our national and regional marketing
funds, and increased revenue and earnings for us. At this point, it is
impossible to predict the extent of those amounts or how they will be allocated.
Robert Elliott has entered into an employment agreement with us that
terminates on January 16, 2003. His contract provides that he will serve as our
Executive Vice President for Marketing. Mr. Elliott will devote his full time to
company matters. His annual base salary is $180,000 in 2000, $200,000 in 2001,
and $220,000 for the remainder of the term. Such amount may be adjusted from
time to time by mutual agreement between Mr. Elliott and the Company. The
agreement provides a $25,000 signing bonus payable on his nine month
anniversary, and a second year signing bonus of $10,000 due on his second year
anniversary date. The agreement provides an annual performance bonus equal to a
maximum of 20% of Mr. Elliott's base salary, as well as an automobile allowance
of $650.00 per month. The agreement provides that Mr. Elliott will receive
options to purchase 20,000 shares of the Company's stock. He may receive
additional options or be entitled to
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<PAGE>
participate in other employee benefit or compensation programs as provided by us
from time to time. Either party may terminate the agreement with 30 days'
notice. If we terminate the agreement without cause, we are obligated to pay Mr.
Elliott a severance payment equal to 6 months base salary. During the term of
the agreement and for 6 months after it terminates, Mr. Elliott agrees not to
work for any competitor.
On November 12, 2000, the Board approved new employment agreements with
Richard E. Schaden and Richard F. Schaden. The agreement with Richard E. Schaden
has a three-year term and provides for an annual salary of $481,000. Under the
agreement, Richard E. Schaden will be entitled to an annual bonus equal to four
percent of the Company's earnings before interest, taxes, depreciation and
amortization ("EBITDA") up to the amount of EBITDA projected in the annual
budget approved by the Company's Board of Directors for that calendar year. To
the extent actual EBITDA exceeds budgeted EBITDA for that calendar year, Richard
E. Schaden will be entitled to an annual bonus of twelve percent of the amount
of such excess EBITDA. In the event Richard E. Schaden is terminated by the
Company without cause or his employment agreement is not renewed under terms at
least as favorable as exists as of the expiration date of the employment
agreement, he would be entitled to termination payments equal to three years'
base salary plus bonus (which bonus payment will not be less than $400,000 for
each year in which the severance payment is due). Either party may terminate the
agreement with 30 days' notice.
The agreement with Richard F. Schaden has a three-year term and
provides for an annual salary of $100,000. Under the agreement, Richard F.
Schaden will be entitled to an annual bonus equal to two percent of the
Company's EBITDA up to the amount of EBITDA projected in the annual budget
approved by the Company's Board of Directors for that calendar year. To the
extent actual EBITDA exceeds budgeted EBITDA for that calendar year, Richard F.
Schaden will be entitled to an annual bonus of eight percent of the amount of
such excess EBITDA. In the event Richard F. Schaden is terminated by the Company
without cause or his employment agreement is not renewed under terms at least as
favorable as exists as of the expiration date of the employment agreement, he
would be entitled to termination payments equal to three years' base salary plus
bonus (which bonus payment will not be less than $400,000 for each year in which
the severance payment is due). Either party may terminate the agreement with 30
days' notice.
On November 13, the Company entered into a credit facility with Levine
Leichtman that provides for, among other things, the issuance of a warrant to
purchase up to 14% of the Company's stock on a fully diluted basis. See "The
Tender Offer--Financing of the Offer."
Tucker Anthony, our investment banker and financial advisor, has agreed
to make a personal loan to Richard E. Schaden, in the approximate amount of
$2,100,000 to be secured by Mr. Schaden's shares of common stock in The Quizno's
Corporation. Mr. Schaden currently has a loan with Ferris Baker Watts, Inc.,
which is secured by his common stock. That loan is subject to regulatory
requirements with respect to margin stock. We anticipate that the Offer could
result in the loan no longer complying with the margin agreement requirements
and the potential loss of the collateral. The Tucker Anthony loan will replace
the Ferris Baker Watts loan, and, in addition to his shares of common stock,
will be secured by Mr. Schaden's personal assets, personal guaranty, and a
partial guaranty by Mr. Schaden's father, Richard F. Schaden. In order to
protect against the potential loss of Mr. Schaden's stock as a result of this
transaction (and the potential negative effects to the Company), our Board of
Directors believes it to be in the best interests of our Company to authorize a
guaranty from the Company by which we assure Tucker Anthony that upon an event
of a default in Mr. Schaden's loan, the Company will be responsible for the
principal and interest on the loan. The guaranty would supplement the collateral
and other
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<PAGE>
guaranties. We will enter into a reimbursement agreement with Mr. Schaden which
will require Mr. Schaden to reimburse us for any expenses or losses suffered by
us in connection with the guaranty. We do not expect to incur any such expenses
or losses, as the guaranty would only be drawn against by Tucker Anthony if (a)
Mr. Schaden's shares of common stock became insufficient collateral (in
combination with Mr. Schaden's other collateral and the guaranties described
above) and (b) Mr. Schaden defaulted on his payment obligations under the loan.
This transaction is a conflicting interest transaction under Section
7-108-501 of the CBCA. That statute requires that the Board of Directors provide
10 days written notice of such a proposed authorization of such a loan or
guaranty by the Corporation of any obligation of a director of the Corporation.
The Board of Directors has provided such written notice contemporaneously with
the delivery of the Offer to Purchase. This written Notice states that the Board
of Directors will consider the authorization of such a guaranty eleven days
after the date of the Notice. The Board of Directors is expected to approve the
transaction. If the transaction is approved, the Company will be obligated on a
guaranty addressed to Tucker Anthony.
FINANCIAL INFORMATION. Set forth below is certain summary financial
information relating to us for the periods indicated. In late 1999, we changed
our fiscal year from December 31 to September 30;. therefore, all references to
the year or period ended September 30 relate to the nine months ended September
30, 1999. The summary financial information (other than the ratio of earnings to
fixed charges and book value per share) set forth for the years ended December
31, 1998 and September 30, 1999 has been excerpted or derived from the audited
financial statements contained in our Annual Report on Form 10-KSB for the year
ended September 30, 1999 (the "Form 10-KSB"). The summary financial information
(other than the ratio of earnings to fixed charges and book value per share) set
forth below for the nine months ended June 30, 1999 and June 30, 2000 has been
excerpted or derived from the unaudited financial statements set forth in our
Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000 (the "Form
10-QSB"). The financial information for the nine months ended June 30, 1999 and
June 30, 2000 has not been audited and, in the opinion of management, reflects
all adjustments (consisting of normal recurring adjustments) that are necessary
for a fair presentation of such information. Results for the nine-month periods
are not necessarily indicative of results for the full year. More comprehensive
financial information is included in the Form 10-KSB, the Form 10-QSB and other
documents filed by us
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<PAGE>
with the Commission. The financial information that follows is qualified in its
entirety by reference to such reports and other documents, which are
incorporated herein by reference, including the financial statements and related
notes contained therein. Our Form 10-KSB, Form 10-QSB and other documents may be
examined and copies may be obtained from the offices of the Commission in the
manner set forth below under "Available Information."
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AS AND FOR THE AS AND FOR THE
-------------------------------- --------------------------
12 MONTHS 9 MONTHS 9 MONTHS
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, JUNE 30,
------------ -------------- --------------------------
TITLE 1998 1999 1999 2000
------------------------------------------------- ------------ -------------- ------------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Earnings Statement Data:
Total revenue.................................. $ 20,737 $ 20,948 $ 20,472 $ 29,769
Income from franchise operations............... 1,946 2,350 2,305 3,959
Income from Company store operations........... 561 535 465 889
Other income (expense)......................... (1,763) (797) (825) (3,409)
Earnings before income taxes................... 744 2,088 1,946 1,438
Earnings before cumulative effect
of changed accounting principle............. 892 1,242 1,567 823
Net earnings (loss)............................ 892 (1,527) 1,483 823
Earnings per share:
Basic, before cumulative effect
of change in accounting principle........ 0.30 0.40 0.51 0.27
Basic, after cumulative effect
of change in accounting principle......... 0.30 (0.50) 0.48 0.27
Diluted, before cumulative effect
of change in accounting principle......... 0.26 0.35 0.44 0.24
Diluted, after cumulative effect
of change in accounting principle......... 0.26 (0.55) 0.42 0.24
Balance Sheet Data:
Working capital................................ 2,687 4,871 6,146 4,861
Total assets................................... 13,790 21,775 18,378 37,881
Long-term and subordinated debt................ 2,710 3,323 3,449 17,408
Deferred revenue............................... 4,782 13,722 8,000 14,699
Stockholders' equity........................... 4,096 2,114 4,728 2,569
Other Data:
Book value per common share.................... 1.34 0.69 1.54 0.85
Ratio of earnings to fixed charges............. 3.2 9.7 8.9 2.0
</TABLE>
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<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION. The
following unaudited pro forma condensed financial information and explanatory
notes give effect to the Offer and are based on the estimates and assumptions
set forth in the notes to such statements. This pro forma information has been
prepared using the historical financial statements of the Company and should be
read in conjunction with the historical financial statements and notes thereto
included in the Form 10-KSB and the Form 10-QSB.
The pro forma condensed balance sheet information gives effect to the
Offer as if it had occurred on September 30, 2000. The pro forma condensed
statement of earnings for the year ended December 31, 1999 and for the nine
months ended September 30, 2000 gives effect to the Offer as if it had occurred
on December 31, 1999 and September 30, 2000, respectively. The pro forma
condensed financial data may not be indicative of actual results that would have
been achieved if the Offer had occurred on the dates indicated or the results
that may be realized in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999 NINE MONTHS ENDED JUNE 30, 2000
PRO FORMA PRO FORMA
----------------------------------------- ------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
----------- --------------- ------------- ----------- ------------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Pro Forma Condensed Statement of
Earnings:
Income from franchise operations...... $ 2,350 $ -- $ 2,350 $ 3,959 $ -- $ 3,959
Income from Company store
operations......................... 535 535 889 -- 889
Interest expense...................... (241) (1,396) 3 (1,637) (1,393) $(1,396) 3 (2,789)
Depreciation and amortization......... (921) (210) 4 (1,131) (1,437) (210) 4 (1,647)
Other income (expense)................ 365 365 (579) -- (579)
----------------------- ---------------------------------------- --------------
Earnings before income taxes.......... 2,088 (1,606) 482 1,439 (1,606) (167)
Income taxes.......................... (722) 556 7 (166) (483) 594 7 111
----------------------- ---------------------------------------- --------------
Earnings before preferred dividends
and cumulative effect of changes
in accounting principle............ 1,366 (1,050) 316 956 (1,012) (56)
Preferred stock dividends............. (124) 124 1 -- (132) 132 1 --
----------------------- ---------------------------------------- --------------
Earnings before cumulative effect of
changes in accounting principle.... 1,242 (926) 316 824 (880) (56)
Cumulative effect of changes in
accounting principle............... (2,770) -- (2,770) -- -- --
----------------------- ---------------------------------------- --------------
Net earnings (loss) applicable to
common stockholders................ $ (1,528) $ (926) $ (2454) $ 824 $ (880) $ (56)
======================= ======================================== ==============
Weighted average shares outstanding:
Basic.............................. 3,061 1,552 2,998 1,552
Diluted............................ 3,817 2,312 3,567 2,251
Earnings per share:
Basic, before cumulative effect of
change in accounting principle....... $ 0.40 $ 0.20 $ 0.27 $ (0.08)
Basic, after cumulative effect of
change in accounting principle....... $ (0.50) $ (1.58) $ 0.27 $ (0.04)
Diluted, before cumulative effect
of change in accounting principle.... $ 0.35 $ 0.14 $ 0.24 $ (0.02)
Diluted, before cumulative effect
of change in accounting principle.....$ (0.55 $ (1.06) $ 0.24 $ (0.02)
Ratio of earnings to fixed charges (5) 9.7 1.3 2.0 0.9
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 JUNE 30, 2000
PRO FORMA PRO FORMA
-----------------------------------------------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------- ------------- -------------- ---------------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Pro Forma Condensed Balance Sheet at
June 30, 2000:
Assets
Current Assets:
Cash and short-term investments....... $ 4,891 $(6,200) 3 $ (1,309) $ 5,902 $ (6,200) 3 $ (298)
Accounts & current portion of
notes receivable................. 1,567 1,567 2,975 -- 2,975
Other current assets............... 1,585 1,585 644 -- 644
----------------------- ----------- ----------------------- -------
Total current assets............... 8,043 (6,200) 1,843 9,521 (6,200) 3,321
Property and equipment, net.......... 4,804 4,804 11,423 -- 11,423
Intangible and deferred assets....... 3,389 1,400 4 4,789 7,606 1,400 4 9,006
Deferred tax asset.................... 3,507 -- 3,507 3,546 -- 3,546
Other assets.......................... 2,031 -- 2,031 5,786 -- 5,786
Total assets.......................... $ 21,774 $ (4,800) $ 16,974 $ 37,882 $ (4,800) $33,082
==================== =========== ======================= ========
Liabilities and Stockholders' Equity
Current Liabilities:................
Accounts payable and accrued
liabilities...................... $ 2,615 $ -- $ 2,615 $ 3,205 $ -- $ 3,205
Current portion of long-term
obligations...................... 556 556 1,455 1,455
----------------------- ----------- --------------------------- ----------
Total current liabilities.......... 3,171 -- 3,171 4,660 -- 4,660
Line of credit........................ -- -- -- --
Long-term obligations................. 1,269 1,269 15,954 15,954
Subordinated debt.................. 1,499 12,000 3 13,499 -- 12,000 3 12,000
Deferred revenue................... 13,722 -- 13,722 14,699 -- 14,699
----------------------- ----------- --------------------------- ----------
Total liabilities..................... 19,661 12,000 31,661 35,313 12,000 3 47,313
Stockholders' Equity.................. 2,113 (16,800) 1, 2 (14,687) 2,569 (16,800) 1, 2 (14,231)
----------------------- ----------- --------------------------- ----------
Total liabilities and stockholders'
equity.............................. $ 21,774 $ (4,800) $ 16,974 $ 37,882 $ (4,800) $33,082
======================= ============ =========================== ==========
Working capital....................... $ 4,872 $ (1,328) $ 4,861 $(1,339)
Total debt............................ $ 3,324 $ 15,324 $ 17,409 $29,409
Book value per common share (6)....... $ 0.69 $ (9.46) $ 0.85 $ (9.17)
</TABLE>
-------------------------
(1) Reflects the purchase of 2.3 million common shares, options, warrants
and preferred shares for $8 each, less $2.8 million proceeds from the
exercise price of options and warrants, and the payment of $520,000 for
the cancellation of a warrant put option.
(2) Reflects transaction costs incurred in connection with the Offer of
$2,100,000, of which $700,000 relates to the cost of the shares
purchased and $1,400,000 relates to the financing.
(3) The cost of the shares and the transaction costs are assumed to be
financed with $12,000,000 in new subordinated debt at 13.25%, and
$6,200,000 from available cash.
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(4) The transaction costs associated with the --financing--$1,400,000-- are
recorded as deferred financing costs under "Intangible and deferred
assets" and are being amortized over 60 months.
(5) For purposes of calculation, the ratio of earnings to fixed
charges--"earnings"--consists of earnings before income taxes,
preferred stock dividends, cumulative effect of changes in accounting
principle and interest expense. "Fixed charges" consist of interest
expense.
(6) Book value per share is calculated as total stockholders' equity
divided by the number of shares outstanding at the end of the period,
giving effect in the case of the pro forma amounts to the shares
repurchased as contemplated herein.
(7) The pro forma adjustment for income taxes represents federal and state
income taxes at a combined effective tax rate of 34.6% for the nine
months ended September 30, 1999 and 37.0% for the nine months ended
June 30, 2000.
AVAILABLE INFORMATION. We are subject to the informational filing
requirements of the Exchange Act and, in accordance therewith, are required to
file periodic reports, proxy statements and other information with the
Commission relating to our business, financial condition and other matters.
Information as of particular dates concerning our directors and officers, their
remuneration, stock options granted to them, the principal holders of our
securities and any material interest of such persons in transactions with us is
required to be disclosed in proxy statements distributed to our stockholders and
filed with the Commission. Such reports, proxy statements and other information
should be available for inspection at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and also should be available for inspection at the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048, and
the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials may also be obtained by mail, upon payment of
the Commission's customary fees, by writing to its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549. These materials filed by us with the
Commission are also available at the website of the Commission at
http://www.sec.gov.
CERTAIN ESTIMATES PREPARED BY US. In October, 2000, our management
provided the Schaden Stockholders and Tucker Anthony with certain information
about the Company that is not publicly available. The information provided
included financial projections that contain, among other things, the financial
information set forth below. We do not, as a matter of course, publicly disclose
forward-looking information (such as the financial projections referred to
above) as to future revenues, earnings or other financial information.
Projections of this type are based on estimates and assumptions that are
inherently subject to significant economic, industry and competitive
uncertainties and contingencies, all of which are difficult to predict and many
of which are beyond our control. Accordingly, there can be no assurance that the
projected results would be realized or that actual results would not be
significantly higher or lower than those projected. In addition, these
projections were prepared by us solely for internal use and not for publication
or with a view to complying with the published guidelines of the Commission
regarding projections or with guidelines established by the American Institute
of Certified Public Accountants for prospective financial statements and are
included in this Offer to Purchase only because they were furnished to the
Schaden Stockholders and Tucker Anthony. The financial projections necessarily
make numerous assumptions with respect to industry performance, general business
and economic conditions, access to markets and distribution
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channels, availability and pricing of raw materials and other matters, all of
which are inherently subject to significant uncertainties and contingencies and
many of which are beyond our control. One cannot predict whether the assumptions
made in preparing the financial projections will be accurate, and actual results
may be materially higher or lower than those contained in the projections. The
inclusion of this forward-looking information should not be regarded as fact or
an indication that we, the Schaden Stockholders or anyone who received this
information considered it a reliable predictor of future results, and this
information should not be relied on as such. Neither our independent auditors
nor any other independent accountants or financial advisors have compiled,
examined or performed any procedures with respect to the prospective financial
information contained herein, nor have they expressed any opinion or any form of
assurance on such information or its achievability, and assume no responsibility
for, and disclaim any association with, the projected financial information.
PROJECTED YEAR ENDED:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C>
FRANCHISE OPERATIONS
Total Revenue from Franchise $26,559,075 $28,848,215 $34,283,648 $41,095,010 $48,197,525
Operations
Income From Franchise $6,093,198 $6,617,181 $9,240,242 $12,713,976 $16,147,712
Operations
COMPANY STORE OPERATIONS
Total Revenues from Company $14,533,587 $15,616,759 $15,536,724 $16,008,095 $16,493,768
Owned Stores
Income from Company Owned $1,117,405 $1,126,810 $1,205,098 $1,280,647 $1,381,584
Stores
NET INCOME BEFORE TAXES: $2,601,239 $2,939,267 $4,674,801 $7,994,083 $11,215,525
NET INCOME $1,673,305 $1,955,295 $3,028,692 $5,007,875 $7,068,884
PREFERRED STOCK DIVIDENDS ($171,075) ($171,075) ($157,140) ($157,140) ($157,140)
NET INCOME APPLICABLE TO $1,502,230 $1,784,220 $2,871,552 $4,850,735 $6,911,744
COMMON STOCKHOLDERS
DILUTED NET INCOME PER COMMON $0.42 $0.50 $0.78 $1.27 $1.78
SHARE
</TABLE>
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS. This
Offer to Purchase contains certain forward-looking statements and information
relating to us that are based on the beliefs of management as well as
assumptions made by and information currently available to management. Such
forward-looking statements include, without limitation, our expectation and
estimates as to the operating results for the fiscal year ended
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September 30, 2000 and our business operations, including the introduction of
new products, future financial performance, including net sales and earnings,
cash flows from operations and capital expenditures. In addition, in this and
other portions of this Offer to Purchase, the words "anticipates," "believes,"
"estimates," "expects," "plans," "intends" and similar expressions, as they
relate to us or our management, are intended to identify forward-looking
statements. Such statements reflect our current views with respect to future
events and are subject to certain risks, uncertainties and assumptions. In
addition to factors that may be described in this Offer to Purchase, the
following factors, among others, could cause the actual results to differ
materially from those expressed in any forward-looking statements made by us:
the effect of national and regional economic and market conditions in the United
States and the other countries in which we franchise Restaurants, costs of labor
and employee benefits, costs of marketing, the success or failure of marketing
efforts, costs of food and non-food items used in the operation of the
Restaurants, intensity of competition for locations and Franchisees as well as
customers, perception of food safety, spending patterns and demographic trends,
legal claims and litigation, the availability of financing for us and our
Franchisees at reasonable interest rates, the availability and cost of land and
construction, legislation and governmental regulations, and accounting policies
and practices.
The principal sources of our income are continuing fees, initial
franchise fees and, historically, area director marketing fees. These sources
are subject to a variety of factors that could adversely impact our
profitability 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 income sources identified above. Because
our franchises are still concentrated in certain regions of the United States,
regional economic factors could adversely affect our 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 we franchise the Restaurants will also
impact our profitability. As eating habits change and types of cuisine move in
and out of fashion, our challenge will be to formulate a menu within 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.
As our revenues from foreign operations become more significant, our
profitability could be adversely impacted by international business risks and
political or economic instability in foreign markets. While international
operations involve risks that do not exist in domestic operations, such as
adverse fluctuation in foreign exchange rates, monetary exchange controls,
foreign government regulation of business relationships and uncertainty of
intellectual property protection, we believe that the potential rewards of
expanding the market for our services to selected foreign countries far outweigh
such risks.
Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. We do not intend to update these forward-looking statements.
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8. FINANCING OF THE OFFER
The total amount of funds required by us to consummate the Offer (and
to pay related fees and expenses estimated to be approximately $2,100,000),
assuming that 1,456,248 Shares are validly tendered and not withdrawn and all
public stock options, and warrants exercisable for Shares at a price below the
Offer Price are exercised and all preferred shares are converted, is $18.2
million. We plan to finance the Offer using available cash of $6.2 million and
through borrowings from Levine Leichtman under a new $12.0 million credit
Facility (the "Levine Facility").
The borrowers under the Levine Facility are the Company and its
subsidiaries (other than Quizno's Franchise Company, which will be a guarantor)
(collectively, the "Borrowers"). The Borrowers plan to repay the Levine Facility
when due through internally generated funds.
The Levine Facility provides that Levine Leichtman will loan the
Company $12 million to finance the Offer at an interest rate of $13.25%, with
the first 12 months prepaid in the amount of $1,862,259.84 of additional
principal. The loan has a maturity date that is 60 months following the
completion of the Offer. The Company is required to pay interest only until the
maturity date of the loan. The Company may prepay up to $5 million of the loan
without penalty during the first 9 months of the term of the loan. Thereafter,
the Company cannot prepay until 24 months after the issue date. Between months
24 and 35 of the term of the loan the Company may prepay the loan, but shall
incur prepayment penalties.
The Company is required to meet specified financial covenants for
minimum EBITDA, minimum fixed charge coverage ratio, maximum net debt (net of
cash) to EBITDA, maximum capital expenditures and liquidity. The Company will
also be subject to standard negative covenants.
Levine Leichtman will have a first priority lien in any assets of the
Company not presently collateralized. The Company can acquire new senior debt or
refinance existing senior debt as long as it uses best efforts to obtain a
junior lien for Levine Leichtman on collateralized assets (and so long as such
new or refinanced debt does not result in a covenant violation). If the Company
is unable to grant a junior lien to Levine Leichtman in connection with any
refinanced senior indebtedness, the interest rate on the Levine Facility will
increase by 1%.
In connection with the execution of the Levine Facility, the Company
agreed to issue to Levine Leichtman warrants to purchase up to 14% of each class
of the Company's capital stock on a fully diluted basis as of the closing of the
Offer, subject to certain adjustments for issuances, exchanges or repurchases of
capital stock by the Company, at an exercise price of $0.01 per share. In
addition, Levine Leichtman will be entitled to receive dividends or other
distributions made to other shareholders of capital stock in accordance with its
beneficial ownership represented by the warrants. At any time after the maturity
of the loan or the early payment of the principal balance of the loan, Levine
Leichtman can cause the Company to repurchase the warrant or the shares issued
upon the exercise of the warrant for a price equal to the fair market value of
the shares on the date Levine Leichtman exercises this right plus 14% (subject
ot adjustment) of the amount of any indebtedness issued by the Company to
repurchase shares from Richard F. Schaden and 14% (subject to adjustment) of any
interest paid to Richard F. Schaden (increased by a 5% per annum growth factor),
less the exercise price. Levine Leichtman will have the right to require the
Company to register the shares issuable upon
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the exercise of the warrant with the Commission in the event the Company effects
a Second-Step Transaction and thereafter completes an initial public offering.
Levine Leichtman has the right to participate pro rata in any sale of
shares by Richard E. Schaden and Richard F. Schaden. In addition, Levine
Leichtman, at its option, will have the right to appoint a representative of
Levine Leichtman to the Board as a director of the Company following the
completion of the Offer.
The material documents comprising the Levine Facility have been filed
with the Commission as exhibits to the Company's Tender Offer Statement on
Schedule TO, of which this Offer to Purchase is a part. Copies of the Schedule
TO may be obtained in the manner set forth in the Section entitled "The Tender
Offer - Certain Information Concerning the Company - Available Information."
9. DIVIDENDS AND DISTRIBUTIONS
If, on or after November 13, 2000, we should declare or pay any
dividend on the Shares or make any other distribution (including the issuance of
additional shares of capital stock pursuant to a stock dividend or stock split,
the issuance of other securities or the issuance of rights for the purchase of
any securities) with respect to the Shares that is payable or distributable to
stockholders of record on a date prior to the transfer to our name on our stock
transfer records of the Shares purchased pursuant to the Offer, then, without
prejudice to our rights under "The Tender Offer--Certain Conditions of the
Offer," (i) the Purchase Price payable by us pursuant to the Offer will be
reduced to the extent any such dividend or distribution is payable in cash; and
(ii) any noncash dividend, distribution or right shall be received and held by
the tendering stockholder for our account and will be required to be promptly
remitted and transferred by each tendering stockholder to the Depositary for our
account, accompanied by appropriate documentation of transfer.
10. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NASDAQ LISTING AND
EXCHANGE ACT REGISTRATION
Our purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and will reduce the number of holders
of Shares, which could adversely affect the liquidity and market value of the
remaining Shares held by the public. In the event the Offer is consummated and
followed by a Second-Step Transaction, we will seek to cause the Shares not to
be listed for trading on the Nasdaq and to terminate the registration of the
Shares under the Exchange Act.
The Shares are currently listed for trading on the Nasdaq. In the event
the Offer followed by a Second-Step Transaction is consummated, the Shares will
be delisted from the Nasdaq and deregistered under the Exchange Act. As of June
30, 2000, there were 3,007,921 Shares issued and outstanding and approximately
150 holders of record of the outstanding Shares. In addition, under Section
12(g) of the Exchange Act, registration under the Exchange Act may be terminated
by the issuer if there are fewer than 300 holders of record of a class of
security. In the event the Shares were no longer listed on the Nasdaq, price
quotations might still be available from other sources. The extent of the public
market for the Shares and the availability of such quotations would, however,
depend on the number of holders of Shares remaining at such time, the interest
in maintaining a market in the Shares on the part of securities firms, the
termination of registration under the Exchange Act as described below and other
factors.
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<PAGE>
If more than approximately 180,000 shares are tendered, we believe that
we would no longer meet the net tangible asset requirement for continued listing
on the Nasdaq SmallCap Market, and would, in that event, be traded on the
National Association of Securities Dealers, Inc. Electronic Bulletin Board (the
"Over-the-Counter Market"). We believe that the Over-the-Counter Market will
provide less liquidity for our shares than the Nasdaq. Pursuant to the Nasdaq's
published guidelines, shares of common stock are not eligible to be included for
listing if, among other things, the number of shares publicly held falls below
500,000, the number of record and beneficial holders of shares falls below 300
or the aggregate market value of such publicly held shares is less than $1
million.
We currently have a very small stockholder base for an exchange-traded
public company as indicated by our stockholders of record, a number
substantially below the minimum that triggers the obligation to file periodic
financial reports and other information pursuant to the Exchange Act. Even if we
do not enter into a Second-Step Transaction or complete the Offer, we may seek
to terminate our registration under the Exchange Act and delist our securities
from the Nasdaq SmallCap Market.
The Shares are currently "margin securities" under the rules of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
Among other things, this has the effect of allowing brokers to extend credit on
the collateral of such Shares. Depending on factors similar to those described
above regarding listing and market quotations, following the tender and purchase
of the Shares pursuant to the Offer, the Shares may no longer constitute "margin
securities" for purposes of the Federal Reserve Board's margin regulations. In
such event, Shares could no longer be used as collateral for margin loans made
by brokers.
The Shares are currently registered under the Exchange Act, which
requires, among other things, that we furnish certain information to our
stockholders and to the Commission and comply with the Commission's proxy rules
in connection with meetings of our stockholders. Registration of the Shares
under the Exchange Act may be terminated upon our application to the Commission
if the Shares are not listed on a national securities exchange and there are
fewer than 300 holders of record of the Shares.
The termination of the registration of the Shares under the Exchange
Act would substantially reduce the information required to be furnished by us to
you and to the Commission and would render inapplicable certain provisions of
the Exchange Act, including requirements that we file periodic reports
(including financial statements), the requirements of Rule 13e-3 under the
Exchange Act with respect to "going private" transactions, requirements that our
officers, directors and -10% stockholders file certain reports concerning
ownership of our equity securities and provisions that any profit by such
officers, directors and stockholders realized through purchases and sales of our
equity securities within any six-month period may be recaptured by the Company.
In addition, the ability of our "affiliates" and other persons to dispose of
Shares that are "restricted securities" under Rule 144 under the Securities Act
of 1933, as amended, may be impaired or eliminated. If registration of the
Shares under the Exchange Act were terminated, the Shares would no longer be
"margin securities" or eligible for listing on the Nasdaq or other similar
exchanges. Except as disclosed in this Section 10 and elsewhere in this Offer to
Purchase, we have no other present plans or proposals that relate to or would
result in (i) the acquisition by any person of additional securities of the
Company, or the disposition of securities of the Company, (ii) any extraordinary
corporate transaction, such as a merger, reorganization, liquidation, or sale or
transfer of a material amount of assets, involving the Company, (iii) any
material change in the present dividend policy or indebtedness or capitalization
of the Company, (iv) any other
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material change in our corporate structure or business, or (v) any change in our
Charter, bylaws or instruments corresponding thereto or any other actions that
may impede the acquisition of control of the Company by any person.
We anticipate that following the Offer the Schaden Stockholders will
not cause the Company to change the composition of our Board of Directors. The
persons who are presently our officers will continue in their same positions
following consummation of the Offer.
11. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any provision of the Offer, in addition to the
conditions that the Minimum Condition has been satisfied, we shall not be
required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of, and payment for, Shares tendered, if prior to the acceptance for
payment of Shares, any of the following conditions exist:
(a) there shall have been instituted or pending any material action or
proceeding by any government or governmental, regulatory or administrative
agency, authority or tribunal or any other person, domestic or foreign, before
any court, authority, agency or tribunal that directly or indirectly (i)
challenges the making of the Offer, the acquisition of some or all of the Shares
pursuant to the Offer or otherwise relates in any manner to the Offer, or (ii)
in our reasonable judgment, could materially and adversely affect our business,
condition (financial or other), income, operations or prospects and our
subsidiaries, taken as a whole, or otherwise materially impair in any way our
contemplated future conduct of our business or any of our subsidiaries or
materially impair the contemplated benefits of the Offer to us;
(b) any action taken, or approval withheld, or any statute, rule,
regulation, judgment, order or injunction sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Offer or us or any of our
subsidiaries, by any court or any authority, agency or tribunal that, in our
reasonable judgment, would or might directly or indirectly (i) make the
acceptance for payment of, or payment for, some or all of the Shares illegal or
otherwise restrict or prohibit consummation of the Offer, (ii) delay or restrict
the ability of the Company, or render us unable to accept for payment or pay for
some or all of the Shares, (iii) materially impair the contemplated benefits of
the Offer to us, or (iv) materially and adversely affect our business, condition
(financial or other), income, operations or our prospects and the prospects of
our subsidiaries, taken as a whole, or otherwise materially impair in any way
the contemplated future conduct of our business or any of our subsidiaries;
(c) a tender or exchange offer for any or all of the Shares (other than
the Offer), or any merger, business combination or other similar transaction
with or involving us or any subsidiary, shall have been proposed, announced or
made by any person;
(d) our Board of Directors shall have concluded the exercise of the
directors' fiduciary duties requires that we terminate the Offer, with such
conclusions based on the advice of outside legal and financial advisors as
appropriate; or
(e) if we shall no longer continue to have sufficient financing to
enable us to consummate the Offer.
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<PAGE>
The foregoing conditions are for our sole benefit and may be asserted
by us in the exercise of reasonable judgement regardless of the circumstances
giving rise to any such condition or may be waived by us in whole or in part at
any time and from time to time in our sole discretion. Our failure at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
12. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS
GENERAL. We are not aware of any license or other regulatory permit
that appears to be material to our business that might be adversely affected by
the acquisition of Shares by us pursuant to the Offer or of any approval or
other action by any domestic (federal or state) or foreign governmental,
administrative or regulatory authority or agency that would be required prior to
our acquisition of Shares pursuant to the Offer. Should any such approval or
other action be required, it is our present intention to seek such approval or
action. We do not currently intend, however, to delay the purchase of Shares
tendered pursuant to the Offer pending the outcome of any such action or the
receipt of any such approval (subject to our right to decline to purchase Shares
if any of the conditions in "The Tender Offer--Certain Conditions of the Offer"
shall have occurred). There can be no assurance that any such approval or other
action, if needed, would be obtained without substantial conditions or that
adverse consequences might not result to our business, or that certain parts of
our businesses might not have to be disposed of or held separate or other
substantial conditions complied with in order to obtain such approval or other
action or in the event that such approval was not obtained or such other action
was not taken. Our obligation under the Offer to accept for payment and pay for
Shares is subject to certain conditions, including conditions relating to the
legal matters discussed in this Section 12. See "The Tender Offer--Certain
Conditions of the Offer."
FRANCHISE. We are subject to Federal Trade Commission ("FTC")
regulation and several state laws that regulate the offer and sale of
franchises. We are also subject to a number of state laws that regulate
substantive aspects of the franchiser-franchisee relationship. The FTC's Trade
Regulation Rule on Franchising (the "FTC Rule") requires us to furnish to
prospective Franchisees a franchise offering circular containing information
prescribed by the FTC Rule.
Laws that regulate the offer and sale of franchises and the
franchiser-franchisee relationship presently exist in a substantial number of
states. State laws that regulate the offer and sale of franchises generally
require registration of the franchise offering with state authorities. The
repurchase of Shares pursuant to the self tender transaction could result in our
company having significant negative net worth (or negative stockholders' equity)
under generally accepted accounting principles. There are certain franchise
registration states that would require a franchiser with negative equity to
adopt franchise fee deferral or escrow procedures, which could have a negative
effect on our cash flow and ability to sell franchises. In order to address this
issue, we plan on forming a new subsidiary that will have positive equity, as
will be shown on independently audited financial statements for that subsidiary,
that will act as the franchiser if the self tender transaction results in
negative equity at the parent company level. We believe this procedure is
acceptable in all franchise registration states and under the FTC regulations.
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We are not aware of any other probable pending franchise legislation
that in our view is likely to affect our ability to repurchase the Shares.
LITIGATION. To the best of our knowledge, no lawsuits have been filed
relating to the Offer.
13. FEES AND EXPENSES
Except as set forth below, we will not pay any fees or commissions to
any broker, dealer or other person for soliciting tenders of Shares pursuant to
the Offer.
We have retained Tucker Anthony to act as our financial advisor, as
well as the Dealer Manager, in connection with the Offer. The engagement letter
between us and Tucker Anthony provides that we will pay Tucker Anthony a fee of
$200,000 upon delivery of the preliminary Tucker Anthony Opinion, a fee of
$200,000 due upon the delivery by Tucker Anthony to our Board of Directors of
the final Tucker Anthony Opinion, and an advisory fee of $400,000 upon the
closing of the Offer. In addition, the engagement letter between us and Tucker
Anthony provides that we will reimburse Tucker Anthony for certain of its
out-of-pocket expenses and will indemnify Tucker Anthony and certain related
persons against certain liabilities, including liabilities under securities
laws, arising out of its engagement. Tucker Anthony has not previously had a
material relationship in which it provided or agreed to provide investment
banking or other advisory services to us in the past, but it may render such
services to us in the future.
We have retained MacKenzie Partners, Inc. to act as Information Agent
and Harris Trust Company of New York to act as Depositary in connection with the
Offer. The Information Agent may contact holders of Shares by mail, telephone,
telegraph and personal interviews and may request brokers, dealers and other
nominee stockholders to forward materials relating to the Offer to beneficial
owners. The Information Agent and the Depositary will each receive reasonable
and customary compensation for their respective services, will be reimbursed by
us for certain reasonable out-of-pocket expenses and will be indemnified against
certain liabilities in connection with the Offer, including certain liabilities
under the federal securities laws.
No fees or commissions will be payable by us to brokers, dealers or
other persons (other than fees to the Dealer Manager and the Information Agent
as described above) for soliciting tenders of Shares pursuant to the Offer.
Stockholders holding Shares through brokers or banks are urged to consult the
brokers or banks to determine whether transaction costs are applicable if
stockholders tender Shares through such brokers or banks and not directly to the
Depositary. We, however, upon request, will reimburse brokers, dealers and
commercial banks for customary mailing and handling expenses incurred by them in
forwarding the Offer and related materials to the beneficial owners of Shares
held by them as a nominee or in a fiduciary capacity. No broker, dealer,
commercial bank or trust company has been authorized to act as our agent, the
Dealer Manager, the Information Agent or the Depositary for purposes of the
Offer. We will pay or cause to be paid all stock transfer taxes, if any, on our
purchase of Shares except as otherwise provided in Instruction 6 of the Letter
of Transmittal.
14. MISCELLANEOUS
We are not aware of any jurisdiction in which the making of the Offer
is prohibited by any administrative or judicial action pursuant to any valid
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state statute. If we become aware of any valid state statute prohibiting the
making of the Offer or the acceptance of Shares pursuant thereto, we will make a
good faith effort to comply with any such state statute. If, after such good
faith effort, we cannot comply with any such state statute, the Offer will not
be made to (nor will tenders be accepted from or on behalf of) the holders of
Shares in such state. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of us by the Dealer Manager or one or
more registered brokers or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON OUR BEHALF OR THE DEALER MANAGER NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY
US OR THE DEALER MANAGER.
Pursuant to Rule 13e-3 and Rule 13e-4 of the General Rules and
Regulations under the Exchange Act, we have filed with the Commission the
Schedule 13E-3 and the Schedule 13E-4, together with exhibits, furnishing
additional information with respect to the Offer and may file amendments
thereto. Such statements, including exhibits and any amendments thereto, which
furnish certain additional information with respect to the Offer, may be
inspected at, and copies may be obtained from, the same places and in the same
manner as set forth in "The Tender Offer--Certain Information Concerning the
Company" (except that they will not be available at the regional offices of the
Commission).
-57-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the members of our
Board of Directors as of October 23, 2000 and the year in which they were first
elected our directors. All of our directors hold office until the next Annual
Meeting of the Stockholders and until the election and qualification of their
successors. Each of our executive officers is listed in the subsequent table,
and each was elected at the annual meeting of the Board of Directors, held on
August 8, 2000, to serve for one year or, if earlier or later, until the next
annual meeting of the Board of Directors. Each individual listed below is a
citizen of the United States.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR AGE POSITION(S) WITH COMPANY SINCE
-------------------- --- -------------------------------------- --------
<S> <C> <C> <C>
Richard E. Schaden 36 President, Chief Executive Officer and 1991
Chairman of the Board of Directors
Richard F. Schaden 62 Vice President, Secretary and Director 1991
Frederick H. Schaden 53 Director 1993
J. Eric Lawrence 33 Director 1997
Mark L. Bromberg 49 Director 1997
Brad A. Griffin 50 Director 1999
John J. Todd 40 Director 2000
</TABLE>
BIOGRAPHICAL INFORMATION OF DIRECTORS
Mr. Richard E. Schaden has been President and a director of the Company
since its inception on January 7, 1991. Mr. Schaden had been a principal and the
chief operating officer of Schaden & Schaden, Inc., a company that owned and
operated the Company's franchised restaurants from 1987 to 1994 when it was sold
to the Company. Mr. Schaden graduated magna cum laude from the University of
Colorado with a degree in Business Management and Finance.
Mr. Richard F. Schaden has been a Vice President, Secretary and a
director of the Company since its inception on January 7, 1991. Mr. Schaden had
been a principal of Schaden & Schaden, Inc., a company that owned and operated
the Company's franchised restaurants from 1987 to 1994 when it was sold to the
Company. Mr. Schaden is the founding partner of the law firm of Schaden, Katzman
& Lampert with offices in Bloomfield Hills, Michigan, and Broomfield, Colorado.
Mr. Schaden graduated from the University of Detroit with a B.S. in Aeronautical
Engineering, received his J.D. from the University of Detroit Law School and is
an internationally known, well-published attorney, specializing in aviation law.
Prior to entering the legal profession, Mr. Schaden
I-1
<PAGE>
was an aeronautical engineer for The Boeing Company and Continental Aviation and
Engineering. Mr. Schaden has been on the board of numerous private companies.
Mr. Frederick H. Schaden is an Executive Vice President of the
Automotive Consulting Group of Aon Consulting, Inc. Aon Consulting, Inc. is a
subsidiary of Aon Corporation, a publicly held company with annual revenues of
over $7 billion. He has been employed by Aon for over 25 years and has served as
a senior officer of its affiliates since 1981. Mr. Schaden earned a B.S. in
Business Administration from Xavier University in Cincinnati, Ohio.
Mr. J. Eric Lawrence has been the General Partner of Retail &
Restaurant Growth Capital, L.P. ("RRGC"), a $60 million investment fund focused
on providing growth and expansion capital to small businesses in the retail and
restaurant industries, since December 1995. RRGC is a Small Business Investment
Company, federally licensed by the Small Business Administration. RRGC loaned $2
million to the Company in 1996, which has been paid in full, and Mr. Lawrence
serves on our Board pursuant to a contractual arrangement between the Company
and RRGC. Mr. Lawrence has been extensively involved in the analysis of the
financial, operational and managerial aspects of retail and restaurant companies
throughout his career. Prior to RRGC, he served as Vice President of Strategic
Retail Ventures, Inc., a boutique financial consulting and private investment
firm focusing on the needs of specialty retail and restaurant companies ("SRV"),
from March 1993 to December 1995. Prior to SRV, Mr. Lawrence was a Senior
Consultant with Arthur Andersen, in Dallas, Texas. Mr. Lawrence is a licensed
C.P.A., and is a graduate of Southern Methodist University with a B.B.A. in
Accounting and Minor in Economics, which included study abroad at Oxford
University, Oxford, England.
Mr. Mark L. Bromberg is the President of- Foodservice of the viaLink
Company, a public company providing synchronized database management services to
a wide range of retail clients since May 2000. From November 1997 to- May 2000,
he served as President of Pinnacle Restaurant Group, a privately held company
that owns and operates casual dining restaurants in the southwestern United
States. Mr. Bromberg previously served as a self-employed management consultant
providing strategic planning, positioning and senior management consulting
services to the hospitality industry. He is the former President and C.E.O. of
East Side Mario's Restaurants, Inc., formerly the Dallas-based subsidiary of
PepsiCo, which he grew from one restaurant in 1988 to 30 in 1993 when it was
sold to PepsiCo. Mr. Bromberg has been the founder and President of Prime and
President, which was sold to PepsiCo. Mr. Bromberg has been the founder and
President of a number of casual dining restaurant chains including Mr.
Greenjeans, Ginsberg, & Wong and Lime Rickey's and served as President of Prime
Restaurant Group, the largest privately held casual restaurant chain in Canada.
He holds a B.S. and an M.B.A. from Cornell University and remains highly
involved in food service education as a curriculum advisor and a guest lecturer.
He is a past chairman of the Canadian Restaurant and Foodservice Association and
is a past director of the National Restaurant Association of the U.S. Mr.
Bromberg was elected to the Board of Directors pursuant to a contractual
arrangement with RRGC that required the election of an additional Board member
acceptable to RRGC.
Mr. Brad A. Griffin has been the managing director of GriffCo
Development, which develops, builds, leases and manages commercial and retail
real estate, since 1994. He is also the managing director of Oasis Investment, a
company that manages investment assets and trades Nasdaq and exchange-listed
stocks and options.
I-2
<PAGE>
Mr. John J. Todd was elected to the Board of Directors on September 26,
2000. Mr. Todd is the Senior Vice President and Chief Financial Officer of
Gateway Inc., a position he has held since October 1998. Before joining Gateway,
he had held financial positions with the Allied Signal companies from 1997 to
1998, with Boston Market from 1996 to 1997 and with PepsiCo from 1988 to 1996.
He received his bachelor's degree from Longwood College and his M.B.A. from
William and Mary.
EXECUTIVE OFFICERS
The following table sets forth (i) the names of our current executive
officers, (ii) their ages, and (iii) the capacities in which they serve the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
------------------- --- ------------------------------------------
<S> <C> <C>
Richard E. Schaden 36 President, Chief Executive Officer and
Chairman of the Board of Directors
Steven B. Shaffer 49 Executive Vice President for Operations
Robert W. Scanlon 53 Executive Vice President for Development
Sue A. Hoover 53 Executive Vice President for Corporate
Communications
Robert Elliott 43 Executive Vice President for Marketing
Richard F. Schaden 62 Vice President, Secretary and Director
Patrick E. Meyers 41 Vice President and General Counsel
John L. Gallivan 53 Chief Financial Officer, Treasurer and
Assistant Secretary
</TABLE>
BIOGRAPHICAL INFORMATION OF EXECUTIVE OFFICERS
See "Biographical Information of Directors" above for a description of
the backgrounds of Richard E. Schaden and Richard F. Schaden.
Steven B. Shaffer has been our Executive Vice President for Operations
since May 22, 2000. Prior to that he had been a Franchisee of the Company since
1992, an Area Director of the Company since 1996 and a Senior Vice President of
the Company since October 1998. Mr. Shaffer graduated from the University of
Georgia in 1972.
Robert W. Scanlon has been our Executive Vice President of Development
since October 1998. Mr. Scanlon served as our Senior Vice President of Real
Estate/Design & Construction from August 1997 through September 1998. He also
served as our Senior Vice President of Concept Development and Design from
January 1997 to July 1997 and as our Vice President of Nontraditional
I-3
<PAGE>
Development from May 1996 to December 1996. From June 1990 through April 1996,
he was first Vice President of Sales and Marketing and later Vice President of
Business Development for Carts of Colorado, located in Commerce City, Colorado,
an equipment manufacturer. Mr. Scanlon graduated from the University of Texas,
with a B.S. degree in 1973.
Sue A. Hoover joined us as Director of Marketing in 1991. She was named
Senior Vice President of Marketing in 1997 and was named an Executive Vice
President in October 1998. In February 2000, she became our Executive Vice
President for Corporate Communications. Ms. Hoover graduated from the University
of Iowa with a B.A. degree in 1968.
Robert Elliott became our Executive Vice President of Marketing in
February 2000. Prior to joining us, he was a partner at Bozell Worldwide, Inc.,
an advertising agency in Detroit, Michigan, from 1997 to 1999, and on the
marketing staff of Little Caesar Enterprises, Inc. for over 18 years, including
serving as Vice President - Marketing from 1993 to 1997. Mr. Elliott graduated
from Eastern Michigan University with a B.B.A. degree in 1979.
Patrick E. Meyers joined us in 1997. He had been an associate with the
Denver law firm of Moye, Giles, O'Keefe, Vermeire & Gorrell since September
1991, and was selected as a partner of that firm in 1996. Before that he served
as a judicial law clerk to a Justice of the Colorado Supreme Court from July
1990 to September 1991. Mr. Meyers received his J.D. degree from the University
of California, Hastings College of Law and his B.A. degree from the University
of Colorado - Denver. Mr. Meyers served as a director of the Company from 1993
to 1997, when he resigned to become a full-time employee of the Company.
John L. Gallivan became our Chief Financial Officer in 1994. He was
later elected Treasurer and Assistant Secretary. Prior to his joining the
Company, he was a director and Executive Vice President of Grease Monkey Holding
Corporation of Denver, a franchiser, owner and operator of over 200 ten-minute
oil change and fluid maintenance centers in the United States and Mexico, from
1979 through April 1994. He is a member of the Colorado Society and the American
Institute of C.P.A.s. He graduated from the University of Colorado at Boulder
with a bachelor's degree in accounting.
I-4
<PAGE>
SCHEDULE II
OPINIONS OF TUCKER ANTHONY
November 12, 2000
Board of Directors
The Quizno's Corporation
1415 Larimer Street
Denver, CO 80202
Members of the Board of Directors:
We understand that The Quizno's Corporation (the "Company") proposes to
offer to purchase (the "Tender Offer") at a price of $8.00 per share (the
"Purchase Price"), all of the shares of common stock of the Company, par value
$0.001 per share (the "Common Stock") upon the terms and conditions set forth in
the draft Offer To Purchase dated November 9, 2000 (the "Offer To Purchase").
You have requested our opinion (the "Opinion") as to the fairness, from
a financial point of view, of the Purchase Price offered to all of the
shareholders of the Common Stock, including the non-tendering shareholders
(other than Richard E. Schaden, Richard F. Schaden, and Frederick H. Schaden
(such offerees, the "Unaffiliated Shareholders").
We note that each of the Company's shareholders who are not
Unaffiliated Shareholders, other than RRGC, has informed the Company that such
shareholder has no interest in selling their shares or in pursuing a sale of the
Company to a third party in the foreseeable future, and will not be tendering
any shares pursuant to the Tender Offer (the "Affiliate Strategy").
In connection with our engagement, we were not requested to, and we did
not: (a) actively solicit third-party indications of interest in any sale
transaction; or (b) evaluate the advisability of the Affiliate Strategy from the
perspective of the Company or the Unaffiliated Shareholders.
In connection with the Opinion, we do not express an opinion with
respect to any of the following: (a) the Company's underlying business decision
to proceed with the Tender Offer; (b) the fairness of the terms of any financing
required to complete the Tender Offer; (c) the fairness of the terms of the
purchase of the warrants owned by Retail & Restaurant Growth Capital, L.P.
("RRGC"); (d) the value of any shares not tendered pursuant to the Tender Offer;
and (e) the liquidation value of the Company.
We have undertaken such reviews, analyses, and inquiries as we deemed
necessary and appropriate under the circumstances. Among other things, we have:
(i) reviewed the Company's Annual Reports on Form 10-KSB filed with the
Securities and Exchange Commission (the "Commission") for the fiscal year ended
September 30, 1999 and the previous five fiscal years;
II-1
<PAGE>
(ii) reviewed the Company's Quarterly Reports on Form 10-QSB filed with
the Commission for the nine month period and quarter ended June 30, 2000 and the
previous five fiscal years;
(iii) reviewed certain projected financial information prepared by
management of the Company;
(iv) reviewed certain publicly available information concerning the
Company;
(v) conducted discussions with the senior management of the Company and
consultants to the Company concerning the Company's business prospects and
historical financial results and projected financial information as presented
and described in (i), (ii), (iii), and (iv) above;
(vi) conducted discussions with the Board of Directors of the Company;
(vii) reviewed the draft Securities Purchase Agreement by and between
the Company, several of the Company's subsidiaries, and Levine Leichtman Capital
Partners II, L.P. dated October 27, 2000 (as well as the updated covenants as of
November 1, 2000) and the ancillary documents related thereto;
(viii) reviewed the Offer To Purchase and the related draft Letter of
Transmittal dated November 9, 2000; and
(ix) performed various financial analyses, as we deemed appropriate, of
the Company using generally accepted analytical methodologies, including: (a)
comparing the public trading multiples of companies which we deemed comparable
to the multiples derived from the proposed Purchase Price; (b) comparing the
acquisition multiples reflected in recent transactions for businesses which we
deemed comparable to the multiples derived from the proposed Purchase Price
associated with the Tender Offer; (c) comparing the market premiums paid in
similar transactions to the premium being offered to the Unaffiliated
Shareholders of the Company; (d) comparing the discounted future trading prices
of the Company's common stock (based on current trading multiples and the
application of the projections referred to in clause (iii) above and the use of
sensitivity case projections that take into consideration the Company's
historical performance, the performance of other comparable restaurant
companies, and general industry trends) to the proposed Purchase Price
associated with the Tender Offer; and (e) considering the values derived from a
discounted cash flow analysis using the projections referred to in clause (iii)
above and using sensitivity case projections derived from that discounted cash
flow analysis.
We have assumed, at your direction and with your consent, that: (a) the
final executed form of the transaction documents will not differ in any material
respect from the Offer To Purchase; (b) the Tender Offer will be consummated on
the terms set forth in the Offer To Purchase; (c) the Company will have adequate
financing at closing to consummate the Tender Offer; (d) the cost of purchasing
the RRGC put option will not differ materially from $520,000; (e) the Tender
Offer will comply with applicable foreign, federal, and state laws; and (f)
there have been no material changes in the Company's assets, financial
condition, results of operations, business or prospects since the date of the
last financial statement or information made available to us. In addition, we
have made no assumption concerning, and therefore do not consider, the possible
assertion of claims, outcomes or damages
II-2
<PAGE>
arising out of any pending or threatened litigation, possible unasserted claims
or other contingent liabilities, to which either the Company or its affiliates
is a party or may be subject.
We have not, at your direction and with your consent: (a) performed any
appraisals or valuations of specific assets or liabilities of the Company; (b)
been furnished with any appraisals or valuations of specific assets or
liabilities of the Company; (c) made a comprehensive physical inspection of the
properties or assets of the Company; or (d) undertaken any independent analysis
of any pending or threatened litigation, possible unasserted claims or other
contingent liabilities, to which either the Company or its affiliates is a party
or may be subject.
We have assumed and relied upon the accuracy and completeness of all
information supplied or otherwise made available to us by the Company (including
the estimates and projections of financial results described in clause (iii)
above) or obtained by us from other sources without assuming any responsibility
for independent verification of such information. We have assumed, in reliance
upon the assurances of the Company management, that the information provided
pertaining to the Company has been prepared on a good faith basis in accordance
with industry practice and, with respect to financial planning data, reflects
the best currently available estimates and judgment of the Company's management
as to the expected future financial performance of the Company, and that the
management of the Company is not aware of any information or facts that would
make the information provided to us incomplete or misleading.
As part of our investment banking business, we are regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, tender offers, private placements, going private
transactions, and valuations for corporate and other purposes. We have acted as
financial adviser to the Board of Directors of the Company in connection with
the Tender Offer and will receive a fee for such services, a significant portion
of which is contingent upon the consummation of the Tender Offer. In addition,
the Company has agreed to indemnify us for certain liabilities that may arise
out of our engagement. We bring to your attention that we have not previously
had a material relationship to provide investment banking or other advisory
services to the Company. In the ordinary course of our business, we may trade in
the equity securities of the Company for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
The Opinion is furnished pursuant to our engagement letter dated August
15, 2000. You may use the Opinion solely in connection with your consideration
of the fairness of the Purchase Price being offered to the Unaffiliated
Shareholders and for no other purpose. The Company may not furnish the Opinion
or any other material prepared by us to any other person or persons or use or
refer to the Opinion for any other purpose without our prior written consent,
which consent shall not be unreasonably withheld. The Company may use, refer to,
and reproduce in full the Opinion in any tender offer document mailed to
shareholders of the Company and in any filing with the Commission.
The Opinion is directed to the Board of Directors of the Company. This
letter does not constitute a recommendation to any shareholder with respect to
whether or not to tender shares under the terms and conditions of the Tender
Offer, and should not be relied upon by any shareholder for that purpose.
II-3
<PAGE>
The Opinion is necessarily based upon information available to us,
facts and circumstances and financial, economic, market and other conditions as
they exist and are subject to evaluation on the date of this Opinion. Unless the
Company specifically requests us to do so, we disclaim any undertaking or
obligation to advise any person of any change in any fact or matter affecting
the Opinion that may come or be brought to our attention after the date of the
Opinion.
Based upon and subject to all the foregoing, we are of the opinion that
the Purchase Price offered to all Unaffiliated Shareholders is fair, from a
financial point of view, to such shareholders.
Very truly yours,
TUCKER ANTHONY CAPITAL MARKETS
By: /s/ David P. Prokupek
---------------------
Name: David P. Prokupek
Title: CEO
II-4
<PAGE>
November 12, 2000
Board of Directors
The Quizno's Corporation
1415 Larimer Street
Denver, CO 80202
Members of the Board of Directors:
We understand that The Quizno's Corporation (the "Company") proposes to
offer to purchase (the "Tender Offer") at a price of $8.00 per share (the
"Purchase Price"), all of the shares of common stock of the Company, par value
$0.001 per share (the "Common Stock") upon the terms and conditions set forth in
the draft Offer To Purchase dated November 9, 2000 (the "Offer To Purchase").
You have requested our opinion (the "Opinion") as to whether, after
giving effect to the Tender Offer, in accordance with Colorado Revised Statutes
7-106-401, (i) the Company will be able to pay its debts as they become due in
the usual course of business and (ii) the value of the assets of the Company
will exceed the sum of the liabilities of the Company plus the liquidation
preferences that would be due and payable to the preferred shareholders if the
Company were to be liquidated immediately after the completion of the Tender
Offer.
We note that each of the following shareholders has informed the
Company that such shareholder has no interest in selling their shares or in
pursuing a sale of the Company to a third party in the foreseeable future, and
will not be tendering any shares pursuant to the Tender Offer (the "Affiliate
Strategy"): Richard E. Schaden, Richard F. Schaden, and Frederick H. Schaden.
In connection with the Opinion, we do not express an opinion with
respect to any of the following: (a) the Company's underlying business decision
to proceed with the Tender Offer; (b) the fairness of the terms of any financing
required to complete the Tender Offer; (c) the fairness of the terms of the
purchase of the warrants owned by Retail & Restaurant Growth Capital, L.P.
("RRGC"); (d) the value of any shares not tendered pursuant to the Tender Offer,
calculated at any time subsequent to the completion of the Tender Offer; and (e)
the liquidation value of the Company.
We have undertaken such reviews, analyses, and inquiries as we deemed
necessary and appropriate under the circumstances. Among other things, we have:
(i) reviewed the Company's Annual Reports on Form 10-KSB filed with the
Securities and Exchange Commission (the "Commission") for the fiscal year ended
September 30, 1999 and the previous five fiscal years;
(ii) reviewed the Company's Quarterly Reports on Form 10-QSB filed with
the Commission for the nine month period and quarter ended June 30, 2000 and the
previous five fiscal years;
II-5
<PAGE>
(iii) reviewed certain projected financial information prepared by
management of the Company (the "Management Projections");
(iv) reviewed certain publicly available information concerning the
Company;
(v) conducted discussions with the senior management of the Company and
consultants to the Company concerning the Company's business prospects and
historical financial results and projected financial information as presented
and described in (i), (ii), (iii), and (iv) above;
(vi) conducted discussions with the Board of Directors of the Company;
(vii) reviewed the draft Securities Purchase Agreement by and between
the Company, several of the Company's subsidiaries, and Levine Leichtman Capital
Partners II, L.P. dated October 27, 2000 (as well as the updated covenants as of
November 1, 2000) and the ancillary documents related thereto;
(viii) reviewed the Offer To Purchase and the related draft Letter of
Transmittal dated November 9, 2000; and
(ix) reviewed the officer's certificate from the Chief Financial
Officer of the Company dated as of the date hereof; and
(x) performed various financial analyses, as we deemed appropriate, of
the Company using generally accepted analytical methodologies.
We have assumed, at your direction and with your consent, that: (a) the
final executed form of the transaction documents will not differ in any material
respect from the Offer To Purchase; (b) the Tender Offer will be consummated on
the terms set forth in the Offer To Purchase; (c) the Company will have adequate
financing at closing to consummate the Tender Offer; (d) the cost of purchasing
the RRGC put option will not differ materially from $520,000; (e) the Tender
Offer will comply with applicable foreign, federal, and state laws; and (f)
there have been no material changes in the Company's assets, financial
condition, results of operations, business or prospects since the date of the
last financial statement or information made available to us. In addition, we
have made no assumption concerning, and therefore do not consider, the possible
assertion of claims, outcomes or damages arising out of any pending or
threatened litigation, possible unasserted claims or other contingent
liabilities, to which either the Company or its affiliates is a party or may be
subject.
We have not, at your direction and with your consent: (a) performed any
appraisals or valuations of specific assets or liabilities of the Company; (b)
been furnished with any appraisals or valuations of specific assets or
liabilities of the Company; (c) made a comprehensive physical inspection of the
properties or assets of the Company; or (d) undertaken any independent analysis
of any pending or threatened litigation, possible unasserted claims or other
contingent liabilities, to which either the Company or its affiliates is a party
or may be subject. Our valuation of the Company's assets was based on our review
of the above-referenced materials and the methodology described in Schedule A
hereto.
We have assumed and relied upon the accuracy and completeness of all
information supplied or otherwise made available to us by the Company (including
the Management Projections described in
II-6
<PAGE>
clause (iii) above) or obtained by us from other sources without assuming any
responsibility for independent verification of such information. We have
assumed, in reliance upon the assurances of the Company management, that the
information provided pertaining to the Company has been prepared on a good faith
basis in accordance with industry practice and, with respect to financial
planning data, reflects the best currently available estimates and judgment of
the Company's management as to the expected future financial performance of the
Company, and that the management of the Company is not aware of any information
or facts that would make the information provided to us incomplete or
misleading.
As part of our investment banking business, we are regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, tender offers, private placements, going private
transactions and valuations for corporate and other purposes. We have acted as
financial adviser to the Board of Directors of the Company in connection with
the Tender Offer and will receive a fee for such services, a significant portion
of which is contingent upon the consummation of the Tender Offer. In addition,
the Company has agreed to indemnify us for certain liabilities that may arise
out of our engagement. We bring to your attention that we have not previously
had a material relationship to provide investment banking or other advisory
services to the Company. In the ordinary course of our business, we may trade in
the equity securities of the Company for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
The Opinion is directed to the Board of Directors of the Company. You
may use the Opinion solely in connection with your consideration of the
permissibility of the Tender Offer under Colorado Revised Statutes 7-106-401 and
for no other purpose. The Company may not furnish the Opinion or any other
material prepared by us to any other person or persons or use or refer to the
Opinion for any other purpose without our prior written consent, which consent
shall not be unreasonably withheld. The Company may use, refer to, and reproduce
in full the Opinion in any tender offer document mailed to shareholders of the
Company and in any filing with the Commission.
The Opinion is necessarily based upon information available to us,
facts and circumstances and financial, economic, market and other conditions as
they exist and are subject to evaluation on the date of this Opinion. Unless the
Company specifically requests us to do so, we disclaim any undertaking or
obligation to advise any person of any change in any fact or matter affecting
the Opinion that may come or be brought to our attention after the date of the
Opinion.
II-7
<PAGE>
Based upon and subject to all the foregoing, we are of the opinion
that, after giving effect to the Tender Offer, in accordance with Colorado
Revised Statutes 7-106-401, (i) the Company will be able to pay its debts as
they become due in the usual course of business and (ii) using the methodology
contained in Schedule A attached hereto, the value of the assets of the Company
will exceed the sum of the liabilities of the Company plus the liquidation
preferences that would be due and payable to the preferred shareholders if the
Company were to be liquidated immediately after the completion of the Tender
Offer.
Very truly yours,
TUCKER ANTHONY CAPITAL MARKETS
By: /s/ David P. Prokupek
--------------------------
Name: David P. Prokupek
Title: CEO
II-8
<PAGE>
SCHEDULE A
CRS 7-106-401 ANALYSIS OF ASSETS & LIABILITIES
POST-DISTRIBUTION
(AMOUNTS OTHER THAN PRICE PER SHARE IN 000S)
<TABLE>
<CAPTION>
PRE-TRANSACTION POST-TRANSACTION
--------------- ----------------
<S> <C> <C>
Equity Value
Price Per Share ("Tender Price") $ 8.00
Fully Diluted Shares 3,567
Estimated Equity Value $28,536
Total Liabilities (GAAP) $37,356
Estimated Asset Value(1) $65,892
Beginning Asset Value $65,892
Reduction in Cash $(6,186)
Intangible Assets $ 2,100
Estimated Asset Value--Post Transaction $61,806
Total Liabilities--Post Transaction (GAAP) $51,218
Preference Payments $ 1,577
Total Liabilities and Preference Payments $52,795
TOTAL ESTIMATED ASSET VALUE LESS LIABILITIES AND PREFERENCES $ 9,011
=======
</TABLE>
-------------------------
(1)Assumes fair value of the assets equals estimated equity value plus total
book (GAAP) liabilities.
II-9
<PAGE>
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<PAGE>
SCHEDULE III
SUMMARY OF STOCKHOLDER DISSENTERS RIGHTS AND TEXT OF ARTICLE 113
OF THE COLORADO BUSINESS CORPORATION ACT
THE FOLLOWING IS ONLY A SUMMARY OF THE PROCEDURES FOR
DISSENTING SHAREHOLDERS PRESCRIBED BY SECTIONS 7-113-101
THROUGH 7-113-302 OF THE CBCA AND
IS QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF ARTICLE 113
OF THE CBCA AS SET FORTH BELOW
In the event the Company decides to pursue the Second Step Transaction
in the form of a merger or reverse stock split, under Section 7-113-102 of the
CBCA each record or beneficial shareholder of the Company may be entitled to
dissent from the Second-Step Transaction and demand payment of the fair value of
the shares of common stock owned by such shareholder. In accordance with Section
7-113-202 of the CBCA, in order for a shareholder to exercise Dissenters'
Rights, such shareholder must, prior to the taking of the vote of the
shareholders on the Second-Step Transaction, deliver to the Company written
notice of such shareholder's intent to demand payment for shares in the event
the Second-Step Transaction is approved and shall not vote such shareholder's
shares in favor of the Second-Step Transaction.
In accordance with Section 7-113-203 of the CBCA, within ten days after
the Second-Step Transaction is approved, the Company must deliver a written
dissenter's notice ("Dissenter's Notice") to all shareholders who satisfy the
requirements of Section 7-113-202 of the CBCA. The Dissenter's Notice must state
that the Second-Step Transaction was authorized and the effective date of the
Second-Step Transaction, set forth the address at which the Company will receive
payment demands and where stock certificates shall be deposited, supply a form
for demanding payment, which form shall request an address from the dissenting
shareholder to which payment is to be made, and set the date by which the
Company must receive the payment demand and stock certificates, which date shall
not be less than 30 days after the date the Dissenter's Notice was delivered.
Furthermore, the Dissenter's Notice may require that all beneficial
shareholders, if any, certify as to the assertion of Dissenters' Rights, and be
accompanied by Article 113 of the CBCA.
Pursuant to Section 7-113-204 of the CBCA, a shareholder receiving the
Dissenter's Notice must demand payment in writing and deposit such shareholder's
stock certificates in accordance with the terms of the Dissenter's Notice. A
shareholder who does not comply with the foregoing requirements is not entitled
to the fair value of such shareholder's shares under Article 113 of the CBCA.
Upon the later of the effective date of the Second-Step Transaction, or
upon receipt of a demand for payment by a dissenting shareholder, the Company
must pay each dissenting shareholder who complies with Section 7-113-204 the
amount the Company estimates to be the fair value of such shares, plus accrued
interest in accordance with Section 7-113-206 of the CBCA. The payment must be
accompanied by (i) the Company's balance sheet as of the fiscal year ending not
more than sixteen months before the date of payment, an income statement for
that year, a statement of change in shareholders' equity for that year, and the
latest available interim financial statement; (ii) a statement of
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the Company's estimate of the fair value of the shares; (iii) an explanation by
the Company of how the interest was calculated; (iv) a statement of the
dissenting shareholder's right to demand payment under Section 7-113-209 of the
CBCA; and (v) a copy of Article 113 of the CBCA.
In the event a dissenting shareholder is dissatisfied with the
Company's payment or offer of payment, such dissenting shareholder, pursuant to
Section 7-113-209 of the CBCA, may notify the Company in writing within 30 days
after the Company makes or offers to pay each dissenting shareholder, of such
shareholder's own estimate of the fair value of such shares and the amount of
interest due, and demand payment of such shareholder's estimate, less any
payment already made by the Company under Section 7-113-206, or reject the
Company's offer under Section 7-113-208 and demand payment for the fair value of
the shares and interest due. A dissatisfied dissenting shareholder may effect
the foregoing if: (i) the dissenting shareholder believes that the amount paid
or offered is less than the fair value of the shares or that the interest due is
incorrectly calculated; (ii) the Company has failed to make payment within 60
days after the date set for demanding payment; or (iii) the Company does not
return the deposited stock certificates within the time specified by Section
7-113-207 of the CBCA. In the event a demand for payment under Section 7-113-209
remains unresolved, the Company may commence a court proceeding to determine the
fair value of the shares and accrued interest within 60 days after receiving the
payment demand from a dissenting shareholder.
TITLE 7. COLORADO BUSINESS CORPORATION ACT
ARTICLE 113. DISSENTERS' RIGHTS
PART 1 RIGHT OF DISSENT - PAYMENT FOR SHARES
C.R.S. 7-113-101 (1996)
7-113-101. DEFINITIONS
For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held
in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
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(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section
7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102. RIGHT TO DISSENT
(1) A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the fair value of the shareholder's shares in the
event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the
corporation is a party if:
(I) Approval by the shareholders of that
corporation is required for the merger by
section 7-111-103 or 7-111-104 or by the
articles of incorporation, or
(II) The corporation is a subsidiary that is
merged with its parent corporation under
section 7-111-104;
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose
shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the
property of the corporation for which a shareholder
vote is required under section 7-112-102 (1); and
(d) Consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the
property of an entity controlled by the corporation
if the shareholders of the corporation were entitled
to vote upon the consent of the corporation to the
disposition pursuant to section 7-112-102 (2).
(1.3) A shareholder is not entitled to dissent and obtain payment,
under subsection (1) of this section, of the fair value of the shares of any
class or series of shares which either were listed on a national securities
exchange registered under the federal "Securities Exchange Act of 1934", as
amended, or on the national market system of the national association of
securities dealers automated quotation system, or were held of record by more
than two thousand shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to
determine the shareholders entitled to receive notice
of the shareholders' meeting at which the corporate
action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to
determine shareholders entitled to sign writings
consenting to the corporate action; or
(c) The effective date of the corporate action if the
corporate action is authorized other than by a vote
of shareholders.
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(1.8) The limitation set forth in subsection (1.3) of this section
shall not apply if the shareholder will receive for the shareholder's shares,
pursuant to the corporate action, anything except:
(a) Shares of the corporation surviving the consummation
of the plan of merger or share exchange;
(b) Shares of any other corporation which at the
effective date of the plan of merger or share
exchange either will be listed on a national
securities exchange registered under the federal
"Securities Exchange Act of 1934", as amended, or on
the national market system of the national
association of securities dealers automated quotation
system, or will be held of record by more than two
thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or
cash in lieu of fractional shares.
(2) (Deleted by amendment, L. 96, p. 1321, 30, effective June 1, 1996.)
(2.5) A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the fair value of the shareholder's shares in the
event of a reverse split that reduces the number of shares owned by the
shareholder to a fraction of a share or to scrip if the fractional share or
scrip so created is to be acquired for cash or the scrip is to be voided under
section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
7-113-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(1) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and causes the corporation to receive written notice which states such
dissent and the name, address, and federal taxpayer identification number, if
any, of each person on whose behalf the record shareholder asserts dissenters'
rights. The rights of a record shareholder under this subsection (1) are
determined as if the shares as to which the record shareholder dissents and the
other shares of the record shareholder were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the
shares held on the beneficial shareholder's behalf only if:
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(a) The beneficial shareholder causes the corporation to
receive the record shareholder's written consent to
the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to
all shares beneficially owned by the beneficial
shareholder.
(3) The corporation may require that, when a record shareholder
dissents with respect to the shares held by any one or more beneficial
shareholders, each such beneficial shareholder must certify to the corporation
that the beneficial shareholder and the record shareholder or record
shareholders of all shares owned beneficially by the beneficial shareholder have
asserted, or will timely assert, dissenters' rights as to all such shares as to
which there is no limitation on the ability to exercise dissenters' rights. Any
such requirement shall be stated in the dissenters' notice given pursuant to
section 7-13-203.
7-113-201. NOTICE OF DISSENTERS' RIGHTS
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting, the notice
of the meeting shall be given to all shareholders, whether or not entitled to
vote. The notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and shall be accompanied by a copy of this
article and the materials, if any, that, under articles 101 to 117 of this
title, are required to be given to shareholders entitled to vote on the proposed
action at the meeting. Failure to give notice as provided by this subsection (1)
shall not affect any action taken at the shareholders' meeting for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202 (1).
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to execute
a writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any action taken pursuant to section 7-107-104 for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202 (2).
7-113-202. NOTICE OF INTENT TO DEMAND PAYMENT
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting and if
notice of dissenters' rights has been given to such shareholder in connection
with the action pursuant to section 7-113-201 (1), a shareholder who wishes to
assert dissenters' rights shall:
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(a) Cause the corporation to receive, before the vote is
taken, written notice of the shareholder's intention
to demand payment for the shareholder's shares if the
proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed
corporate action.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104 and if notice of dissenters' rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201 (2), a
shareholder who wishes to assert dissenters' rights shall not execute a writing
consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection
(1) or (2) of this section is not entitled to demand payment for the
shareholder's shares under this article.
7-113-203. DISSENTERS' NOTICE
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized, the corporation shall give a written
dissenters' notice to all shareholders who are entitled to demand payment for
their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section
shall be given no later than ten days after the effective date of the corporate
action creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and
state the effective date or proposed effective date
of the corporate action;
(b) State an address at which the corporation will
receive payment demands and the address of a place
where certificates for certificated shares must be
deposited;
(c) Inform holders of uncertificated shares to what
extent transfer of the shares will be restricted
after the payment demand is received;
(d) Supply a form for demanding payment, which form shall
request a dissenter to state an address to which
payment is to be made;
(e) Set the date by which the corporation must receive
the payment demand and certificates for certificated
shares, which date shall not be less than thirty days
after the date the notice required by subsection (1)
of this section is given;
(f) State the requirement contemplated in section
7-113-103 (3), if such requirement is imposed; and
(g) Be accompanied by a copy of this article.
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7-113-204. PROCEDURE TO DEMAND PAYMENT
(1) A shareholder who is given a dissenters' notice pursuant to section
7-113-203 and who wishes to assert dissenters' rights shall, in accordance with
the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand,
which may be the payment demand form contemplated in
section 7-113-203 (2) (d), duly completed, or may be
stated in another writing; and
(b) Deposit the shareholder's certificates for
certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1)
of this section retains all rights of a shareholder, except the right to
transfer the shares, until the effective date of the proposed corporate action
giving rise to the shareholder's exercise of dissenters' rights and has only the
right to receive payment for the shares after the effective date of such
corporate action.
(3) Except as provided in section 7-113-207 or 7-113-209 (1) (b), the
demand for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the
shareholder's share certificates as required by the date or dates set in the
dissenters' notice is not entitled to payment for the shares under this article.
7-113-205. UNCERTIFICATED SHARES
(1) Upon receipt of a demand for payment under section 7-13-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206. PAYMENT
(1) Except as provided in section 7-113-208, upon the effective date of
the corporate action creating dissenters' rights under section 7-113-102 or upon
receipt of a payment demand pursuant to section 7-113-204, whichever is later,
the corporation shall pay each dissenter who complied with section 7-113-204, at
the address stated in the payment demand, or if no such address is stated in the
payment demand, at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares, the
amount the corporation estimates to be the fair value of the dissenter's shares,
plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall
be accompanied by:
(a) The corporation's balance sheet as of the end of its
most recent fiscal year or, if that is not available,
the corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen months
before the date of payment, an income statement for
that year, and, if the corporation customarily
provides
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such statements to shareholders, a statement of
changes in shareholders' equity for that year and a
statement of cash flow for that year, which balance
sheet and statements shall have been audited if the
corporation customarily provides audited financial
statements to shareholders, as well as the latest
available financial statements, if any, for the
interim or full-year period, which financial
statements need not be audited;
(b) A statement of the corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand
payment under section 7-113-209; and
(e) A copy of this article.
7-113-207. FAILURE TO TAKE ACTION
(1) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 does not occur within sixty days after the date
set by the corporation by which the corporation must receive the payment demand
as provided in section 7-113-203, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice, as provided in section 7-113-203, and the provisions of sections
7-113-204 to 7-113-209 shall again be applicable.
7-113-208. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER ANNOUNCEMENT OF
PROPOSED CORPORATE ACTION
(1) The corporation may, in or with the dissenters' notice given
pursuant to section 7-113-203, state the date of the first announcement to news
media or to shareholders of the terms of the proposed corporate action creating
dissenters' rights under section 7-113-102 and state that the dissenter shall
certify in writing, in or with the dissenter's payment demand under section
7-113-204, whether or not the dissenter (or the person on whose behalf
dissenters' rights are asserted) acquired beneficial ownership of the shares
before that date. With respect to any dissenter who does not so certify in
writing, in or with the payment demand, that the dissenter or the person on
whose behalf the dissenter asserts dissenters' right acquired beneficial
ownership of the shares before such date, the corporation may, in lieu of making
the payment provided in section 7-113-206, offer to make such payment if the
dissenter agrees to accept it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206(2).
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7-113-209. PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OFFER
(1) A dissenter may give notice to the corporation in writing of the
dissenter's estimate of the fair value of the dissenter's shares and of the
amount of interest due and may demand payment of such estimate, less any payment
made under section 7-113-206, or reject the corporation's offer under section
7-113-208 and demand payment of the fair value of the shares and interest due,
if:
(a) The dissenter believes that the amount paid under
section 7-113-206 or offered under section 7-113-208
is less than the fair value of the shares or that the
interest due was incorrectly calculated;
(b) The corporation fails to make payment under section
7-113-206 within sixty days after the date set by the
corporation by which the corporation must receive the
payment demand; or
(c) The corporation does not return the deposited
certificates or release the transfer restrictions
imposed on uncertificated shares as required by
section 7-113-207(1).
(2) A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
7-113-301. COURT ACTION
(1) If a demand for payment under section 7-113-209 remains unresolved,
the corporation may, within sixty days after receiving the payment demand,
commence a proceeding and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the sixty-day period, it shall pay to each dissenter whose demand remains
unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in
subsection (1) of this section in the district court of the county in this state
where the corporation's principal office is located or, if the corporation has
no principal office in this state, in the district court of the county in which
its registered office is located. If the corporation is a foreign corporation
without a registered office, it shall commence the proceeding in the county
where the registered office of the domestic corporation merged into, or whose
shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unresolved parties to the proceeding
commenced under subsection (2) of this section as an action against their
shares, and all parties shall be served with a copy of the petition. Service on
each dissenter shall be by registered or certified mail, to the address stated
in such dissenter's payment demand, or if no such address is stated in the
payment demand, at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares, or as
provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as
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appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers have the powers described in the order appointing them, or
in any amendment to such order. The parties to the proceeding are entitled to
the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if any,
by which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the corporation, or for the fair value,
plus interest, of the dissenter's shares for which the corporation is elected to
withhold payment under section 7-113-208.
7-113-302. COURT COSTS AND COUNSEL FEES
(1) The court in an appraisal proceeding commenced under section
7-113-301 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation; except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any
dissenters if the court finds the corporation did not
substantially comply with the requirements of part 2
of this article; or
(b) Against either the corporation or one or more
dissenters, in favor of any other party, if the court
finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously,
or not in good faith with respect to the rights
provided by this article.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to said counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
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[THE QUIZNO'S CORPORATION LOGO]
November 13, 2000
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and any other
required documents should be sent or delivered by each of our stockholders of
such stockholder's broker, dealer, commercial bank, trust company or other
nominee to the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission By Hand/Overnight Delivery
(For Eligible Institutions Only):
Wall Street Station (212) 701-7636 Wall Street Plaza
P.O. Box 1023 Confirm by Telephone: 88 Pine Street, 19th Floor
New York, NY 10268-1023 (212) 701-7624 New York, NY 10005
</TABLE>
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery
or any other tender offer materials may be directed to the Information Agent or
the Dealer Manager at their respective addresses and telephone numbers listed
below. You may also contact your broker, dealer, commercial bank, trust company
or other nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
[MACKENZIE PARTNERS LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
(800) 322-2885 (Call Toll-Free)
The Dealer Manager for the Offer is:
[TUCKER ANTHONY LOGO]
1225 Seventeenth Street
24th Floor
Denver, Colorado 80202
(303) 382-1112
