Free Motion for Summary Judgment - District Court of Colorado - Colorado

Case 1:04-cv-00725-RPM

Document 45-6

Filed 07/21/2005

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Case 1:04-cv-00725-RPM

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Crt.!s6ro@

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NOTICE
ThinfornadonpreseNed hercinis highlysensitive cootidential.lt is to beu6d and oDlyby rhose whohcvesig|eda Co!fi&f|riality Agrelrpnt conncrion ftr aarsactiotr h vith outlincd herein,andfor thesolepurpos considcdng businets opponunilydesclibd of hqEin. Ihis fte documenr published is solelyfor infornarional purposes orderto acquai prospecrive in lenders wirh (heb{sincss oppononiry dcscribcd hercin. Thc iDformnlioD ainedherEin slppliedby o0r clientcompany ThCypss 6roup co and is mslts no guataotees ftprscniadons to thcaccuracy complelencss thc infoirnntiot. ot or of as An) pfi)sftcctirtlcndcrir slronglyrccobuncnded perfonn owh ducdiligcncercvrcwat to his hiso\rncoit and.xFnsepriorto anylinarci'lg Cyprcss Gtoup Clienr Company. ofa Th( Companv a reporllng ri corDpany undcrthcSecunlilsE.IchlngaAct of I 934.lnd is .uhjrcr to loriou\ sirrc andlcdct-{lrulesrcgarding disclosurc or rading throtth theusc of. the of. mitedal noopoblic infonration- Recipicnr atry not infoamation agEes lo Us nonpublic rcgardinS Conpon).' rktation of a'lv suteor fderal lhe ih scclririe,!b% ircluding $,ithout linliklion lhc dissriniurion use such of or of for information purposca sccudriG tndint. lnt(hBtioh is bcin8furnishcd rolely in connection dteconsrderetior C)Dress $irh ofa c,foop CI!'d Conp.l')) ,,}d sbalib3l'ctd rs 'sccrrf ard -confidelri.f . :\-oponionof it shallbc JN.l,\cd (, orhcA..r tr k) lhosc oftheprosFciivrLcndcr cnDlo\e':s agcnts and whose Inoull'tllc o[ lhdintirmE$t)n rcqoin:d usl: claluatc ClicnlCompany wboshall is lhe tir lo ard Js\unlc \lnN ohlSl,lronr lh. prorpqc&rc thc dr ltris trndcr und|..' Agrd:nEnl. I}11\Cl,tli.r..aljr, lrtrjir!\r Rcrrcu ma) not trr.rcpa{tuccd.duplic.lcd.ot rc\calcd ir wholc \!r ln !rn. or us.dro3n\ othcr conscnt TheCyprcss nnnncr \^.ithout priorwrirlen of rhc Group or lheC).Fnrc\\ Croup ClirntCon[anrruprestntcdrhisbusincss in opponuni$. :\ll rnlilnruronrhrll hc irn'mpt rdtu l! se or ot mcd.d!srrolcd. othcnr'i disposed st rheclecdon ol nt! C_lnruis Cntut'.,r it\ Cli..ntConlprni. slNoidrhcrch. no,I'L'rcstin rhcClieDl (-,'|n['rn]

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QulzruftSsurs

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Tableof Contents
SLIDE PRESEMATIOII EXECT.TIVE SUMMARY

COMPANYHISTORY coMPA:tY STRATEGy FOS|TTONI\c..._..-.. /
CorscEPr .-. STRATICYj
POSiTIONING CONCEPT

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COMPAXYOWNERSHIPMARKETCAPITALIZATION / COMPAIiY FROFII,E I\DUSTRY / COMPETITIOI{
DEVELOPI!EliT...-.....FkA\.c,fiIsEDEwl-oPi\,IEI\1.
h.TERNANON^! DE\q OPVE

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I8 ]8 .....,. '...,,.,,'..,,.,.,.' '...,...'

Lli|T trCONOMtCS,.".....-.--ll jr\AGEME\T / ORGANTZATIOT'i._.,.........,........_..-

APPE\'DIXA,.-.._...,,,............ APPE\DIX 8

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-...76 ..,.....-....,..
APPENDTX D

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,.-..-.-.,-...-,...*....-...,,-........-..-...28

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Clulznohlbsurs

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APPEI\I'IX F

ORGA\E CH1'RT.....,,...._,....,.... {TrolrAL

TQCor6C4

ClulznohOsugs

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TheQuizno's Corporation

Corporute Mission|
To become leadr $e sandwich the in segrnenr srvirgthe besrsandwichin the by matketplace .onesuccassful .. storcandonesarisfied customr a time. at

Compan,History:
The firsl QUIZNO'Sopened nertheColorado Stare Capibl in Dcnvetin 1981. It guickly became popularlunchspotfor oflice wo.kn Iookingfor a quick, lastt, affordablluncb on a ! rrgularbasisRick Schaden Dick Schaden. Company's purchascd and the a cuncntrnajo.ity shareholdds, in franchise l9S? andopened moreQUlZliO'S restauranE btween two l9ET and I99l. rn 1991.theSchadens acquird rhenl8-unir chainfrom the founderandthenfranchisoa.In the 1994.QUIZNO'Swert public i'l ar jrjdal public offeringof 55 million dollars.raisioga netof S1.l milliondollars theCompany. for i6 Since trO in 1994. QUZNO'Shasgrownfrorh40 unitsto app.oximalely unitsby theendof 1998. 500

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Cornpsn, Positioniry:
The QUIZNO'Sconceptis lbsitionedas rheQualiryIeade. sandwich the sgment, QUIZNO'S restautants offcr a distinctiE mglu .1.lgnature aven-baked subrnarioc slyle sandiviche6 prepaid order.rlong with a menuof salads, to and soups. desserts beverages, including 'tlassic ligbf' selections of sandwiches sal6ds for consurters and whoale looking for designed a lorvettar. tleatthieialrctnaaive rypicaltasl foodproducls. ro on QUIZNO'S ClassicSubsareuniquebecause arc served proprietatyrecipebaguenthey sl1/le brcadandmostaredrcssed p.epatd with a red-winetalian dressing exclusivelyfor tlle qro Company usinga proprietary recige.Sandtuiches seneil rrorl'a,prcpared b! baking them ir, o con e)or orerr to mav lhe checsa, toastlh. breadstul fiaxi,''ize thc f/4'.oat oJ the ?he QUZNO'S rstalrrants desigd to conr).r, llaljan deli feetinwirl, hand-paiDled are halian stylcpoirers.red andgreen seaingand fixturcsagainst warmneighborbood a deli inlerior design.

Qullroh!3surs

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Profile: Company
PnenoRico andCsnadt Therc cunntlyhas500 unitsoperating 35 states. TheCompany in curenlly open- Tbes 8re 390 franchises arepresently new franchises in additionto lhoae sold erpectedto openoverthe nexrI 2 ro I 8 months. the 500exiting unils, $e Company Of with by operatcs approximately unitsascompanyrestaurants the rcmainiog475 opemted 25 franchisees.

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ChainW k tules

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Finqnciql Prqfile: TheCompany's primary busiress the is franchising ofQuia|o s resraurants. AsI lranchisor. revenue derived is f(om: (l r areadirectormarketing fees,(2) initial lianchiscfres.and(3) royalties paid by its fmnchisces.Areadireciorfeesoccuronly oncefor eacb erclusiwarea sold.andale cxpected declineasthe number lo of temaioirrg avsilablmlrtets declines. Inilial franchise fesareonetime fees. paid uponthesaleof a franchise vary and directly*,ith thenumberof franchises the Company selland open. Initial can franchise feescolleced bt $e Company

TOTALREVENUE

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arcrEcorded its balance as on shee( differcd initial franchise in accordance genemlly wih fues. accepred principals, accountng undlSuch asthfranchise tirn oDens. rhose arerccorded incoraF. fees lhen as
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ClnlznoECguse

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Cashflow from operadons tends to exceed iocomefrom opetations net for the santeperiod.due lo ftanchis sales exceeding franchise openings ihis ar stageof the Company's lroMh cycle. Royaitiesareongoingfeespaid by e!er-'\' franchised rcst6urant increase rhe and as numberof franchised reltauranls opn increases.Eachof lhesesources of rvenue contribuleto the profitabilil)-of the Company.brt the relarive contlibution ofeach source evolve \{ill as the Companymaturs.Overdme. injfi fees,rd toyaldeswill gerrcrate proponionately morercvenue thanarca dircctor tnarkedngfees.

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t$ 000's) _ *lB!Sb$9_89.'enu"_ _cgryery.lSr9!!9-EBITDA

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FIT l2Brln @st.) 612-274 s 6.676
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FyE 12Brl99 (Prol.) S 2o,a11 $ t6ll s 5.184

,

s l-201

s 2,704

Pro.jectSummam:
TheCorDpaDy seeks ?-S:0 mjllioD ;DdebtfinanciDgto facilitate the privatebuy-ourof the 5! Company's publicly heldstock.lo refinance eristng debtand lo supportlllture dveloprnent. Thecurcnt rnajori$,rharcholdcrs. Rict Schaden Dicl Schaden. atrd aloag *itl somesmall numberof cu[enl maragemenL nor be cashed in this traDsacdon. will oul

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TQColttl

QulzndrCsuls

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I

of Sourcs Uses Fuidt: &

Sources: SeniorDettt Tol4lSourcet Uses; Acquire S(ock TraDsacdon Costs Totaa Sourcet

sl?.000

! s?0.000 820-M)

gtLua
s16.000 1.000

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l.5oo tn 0!ll i

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Project Rutionale: is Managemen( rationale thepmposed s for transaction asfollows: > Enhance MaxlmireSharcholder / Vrlue > Nlore Flerlble MaurgenFnt Dccisionltaklng > ReducdCost of Capital to th Companf > Rduced CostofAdr{nistmtioo

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fQo0165r cor{ftDaNTrAL

QulznobEsurs

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CON{PANYHISTORY
TheQUIZNO'S concep( bom in Denverin lhe kitchenof a popularneighborhood ltalian was resuurant.Tlte owner developed recipes QUIZ\O'S coreproducb by combiningtheir tbe lor specialrecipeEuropan baguett-slyle breadwith their proprienry rcd-winevinegarltalian dressirg.Theyused abundanr ponions meats cheeles thenlheytoasted and ofrhe 6ncst and lheir newclassic saJldwih sub ovo05. crearions theirpizza in The first QUILi{O'S opcned neartheColoradoSrate Capitalin Dcnverin 1981. lt quickly became populat lunchspol for office wo*ets looking for a quick, tasty,affordableluch on a a reSular basis. pBrchaseia Rick Schaden Dck Schaden. cunent Company's ahd i:he majo.ity sharEholders, franchise 198?andopened morE in bet\ren two restaulants 198?andl99l. ln QUIZNO'S 1991.,hSchaders ,cquiEd the DeDi 8-uni, chai! trorDlhe fouder ard lher franchisor- For th nexttwo years.Management focused putring[aining, purchasing marketing and on systems placcandbean in growingihe chainrsgionallyin Colotadoand lo surrounding states. ln 1994.QUIZNO'S wntpublic in an iniri&l public offeringof$5 million doll6rs,raisinga flet of S4.1million dollarsfor theCompany.Thcapita.l raisdin $e ihitial public offering vas usedto developa system nationslgrowth. Sinceils IPO in 1994.QUIZNO'S hasSlown for frorn 40 units lo approxirnaely50Ounirsin thinv-five stats. PuenoRico and Canada.

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QutnobOsurs

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/ COIIIPANY STRATEGY POSITIONING
Corcept Stategy; sandwich narkel. QUtrNO'S TheCompany stnvesro bethelcaderin theQuality/ Upscale in a uniquemanrcrto that quatitvpaodlJcl. itseJfb] providinga higher diffeaenriaes Fepared blieves of its compqkofs.Managenlent theaorrectwayto build a nadonal ,97&'Nj chai, is lo enrue a suong. f.anchise cohsistent myally stteam naintaining by rheconectbal.ncebetwear taptd groath ,nd unir levcle.onomi6.

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As a result. comerstone a ofQUZNO S philosoph-v buildin! a srong nadooal in chainis thepropetbalance betwEen uoit leveleconomics. includingunil level retumon lth'cslment. rapldclustering ,rnd to of resl6uran6 attainope$ting cfficicnciesandtrldfilark recognition. Vanagemeht hada dualfocusof has increasing sales lnit whilesrrenghenine its percentage coouibution margir at unil level.

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wifi regard(o O\r rhcpast24 months. chaiDhasbegun realizeits first efficiencies &e to as purchasing freighi.loweringcostof goods asmuchas5%.erpressed a perceotege and sold ils Additionallv. t99E&e QUZNO'Sirnple.rEnted [i.srnado.&] advertieing ofsales. iD with carnpaign ninenadonalcabletelevition ch.nhels:CNN. CNN Hldline Neps.TNT. CmofcoodsMd t8s. Dscovery.A&E ESPN.USA 8rd ils has Lifcrime.As a resuli. QLTVNO'S 3en rerutuon irvesunentat the unit lev9lbeconE oneof lhehigheg iD lhe industry,excceding 389[. Thisrnakes QUZNO'S a snorB ro in competkor rhetwo industryleadG rcms ofRol. Slarbuck lnd PapaJohns, lD addition hervilyon to ROl.thechainhasfocused wirh a low. afterieb! calh unirs developing Ilo* breal evgnlevel,giving newunirsandne,t ownalsin newharkets thebesl franchise and oppo(unily for success lrori/th.

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ConceptPositioning:
TheQUZNO'S concept positioned rheQualityleader thequick sedice sahdwich i! in as This ernerging segmenr. niche,calledlhe ''Adult Sandwich" segrnent, widely regarded is b, rnajorgrowthchannelfor theupcomingdecade.As a rcsultofgrowing indusry analysts a 8s public awareness the high far,cholesrerol salrcontentof typical fast food pFducts, the of and Company believes consume arelookingfor a freshand tastyaftemative rypical fasr 6tl to foods.which QUUNO'S offers.The useof quick service resraunntsby coDsul'Ers expegted is to increase over5% in 1999,for lhe 40 yearin a row. As consumer by frcquercyincrases, ftany consumeE denianding higherquality expcrienctwith regardto producl,serviceand are a amosphere. driving theminto the"Aduft Sandwich" sgmenr rhus!o QUUNO'S. ad Thesubmatine sardwiches arE offere-d OUIZNO'S.eslaurarts distinctivein tho sra*er for in ieveralrasons.Eachsubrnarine is afterthe custoEprorders with and sand*,ich prpared ipcial infredienls.te.ipes andtechniques. These ingedients,recipes techniques and are ontrolled Fovide unifomiry ofuste ald qualiiy of the productseryed aI QUXa,{O'S to at rcstaunni5. Oneof the rno6t irbponr distincdorsofde QUIUNO'SsaDdwich Uoduct ir rhal it is slrved loasled varlrl. E3chsands,ich prpared and lo lhc oustgmcr is openfacernd ruo througrlan oventhart6a3t3 brsd,nelb thecheese cnharccsrh9llavor of $o maa, the and QUZNO'S focuses the or qu.lity of i|rgrdients con|,inedir r,he food products ir t ssandtequires that all ofits s0eci6ed ingiienls, whichale gcnerally higher quality than thoc that other submarine sand*ich shops uso,tr purchascd ftom apptoved sudien. The cheeses usedare natural. Italian
T(po1666 CO.\AtoEN'TTAL

Qulzndhfisurs
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atrd meab includewinetured Crenoa salami.pepperoni capicola,an Italian spicedham The prodact, turkey breast& tu*ey brelsl. not a recor.rtdluted All QUIZNO'S rstauranb rquircd are in to usecertainprgduclsprepard with proprietary accordance recipes. Forcmost amongth.s is QUIZNO'S sFcial recipe.soft baeuett-style brc-sd ltalian and its rpd-winebased vinaigrEtrc dressiq, which is usedas the bascoo mosrsandwiches. I'| addirion,QUIZNO'S r9sl.lrrmts use the Company'sproprietarytllna mix blend.gadic oil blnd.and rnalinara ddcoris desigted QUIZNO'S npscale by ro conry ar ltalian deli ambiaDce to matchthe upscale and QSR marketnichereplEsented 5rr The the produc(. Opnkirchcnssllow ausromers watchastfieir sandwiche6 prepanEd. to dcotpackage includesreproducrions old llatian food productlabels,andhaod-painted of Italian'styleposrers.Thellalian dtemeis prevalent lhroughoutthc resrauranl¢ly updated to providea warm.neighborhood atmo6pbere. deli dining. QUZNO'S rertaurants ln addidonro a pleasant offer upscale environmen! in-house for conveniertly packaCad lunchdmeoilice workersandthe honr mealsfor cirryout. to serve rnealreplacernent segtnent the rnark1. of

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busirEss disuict strct BesideS andcentml resburants also aft Iocations, QUIZNO'S wberg a! ir they locatd mallfoodcouns while to oprare smaller in spaces desigred dle ambiancc ddcor a and as rtaining sarnc "QUENO'S uadirional QUENO'Srcstaurant. stauranc typically are smaller uniu Exprss ar locations esrablished such non-tradiiioMl as pla?rs, andsewice sports convenience hospitals, college ard camplres. facilities, unia offera full nrnu QUUNO'SExp.ss wirhanextcnsive vorietyof QUZNO'S Soups, and salads dessens ar sardwiches. also Exprcss will typically units availableat share Express unils.QUIZNO'S QUZNO'S conmonara pdmarily takcout. seating mayhave or designed at for limitedseatirg venues
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Clutznol6surs

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COMPANYOWNERSHIP T{ARKET CAPITALIZATION /
Common Sh3rcs Crrnnlt! ouasrardlos Pcrce.!.ol O$nrshiP's Curren|It oursondtrlg

Compsny Orvnership

ruI}Dilulrd &d!

of Prcenarge O$ncBhip Fullv Dilut.d

Richstd E. Schaden Richard Schaden F. Retail& Resourant Growth Capiral Employees Directors Others TOTAL S}IARES

7?9.580 776.667

25.6% 25.5

854.166

t9.5Ec

883,667 203 415,056 9.s

5.724

.tq

290,160 6.1% 10E.000 2 57o

1.489.029

4E.E

1.811.951 41.59, 4.361"000

1_-oil.000

Shin3

ilarket Capitaliation

Folly Dllul.il Bl'l!

Based currnt price on share of s7.:-5 ( NASDAQ Quiz') osof I 2/l0/98

51D00-000

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TQC!|6!9

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COMPANYPROFILE
TbeQUZNTO'S quiet Coaporation ngsged freichisingand.lo a ]cJscr exlent,operldDg is in 'Quizno's'and"Quiarc's srvice rsEuran$ using nanes the Classic Subs.'l QUIZNO'S offersa menuofsubmarine desse(s bvemges. and including slylesandwiches. s4bds.soups. 'ClassicLiIe'- selections submarine of for consumers ar who designed sandeiches salads and lookingfor a low-fat beakhy prodocas. aliernative .r9ical fastfood lo TheCompany cunntlyhasapproximarcll onitsoperaaing 35 states, in Ilrerto Ricoard 500 Canada. TheE arepresently newfranchises in addilionlo thosecurrcntlyoFn. 390 sold TlEscfranchises expected openorr tl neiaI 2 lo I 8 nordts. Of the500exidngurits, are to thecompatyoprates approximately uni$ ascompany restauratus theremrining475 25 with opmred franchisees. by
Tlre Company is orgarizcd in 2 se{16dEate goducing se'|leDts;CornpanyOpetared 1FJwP'd,e Restluants and Franchising.From lheselwo arEas. therc ar four main sourcsof levenues

(CompanyOpe!"rtions) Incorr From Operltions of Rastaurants FraDchis lncome (Franchislng) Fee Royrttl / LicnsiD8tncotne(Franchisint) ( Dcvlopn|ent Income Fnnchising) trc prirnar), TheCompany's business tlte franchising Quizno'sRestaurarts. ! ftanchisor, is As of rcvenoe deovedfrom: { l) arsadirsctorrnarkering is fecs.{2) inirial ftanctrkcfees. (3) and paidby ils franchisees. royaltics Areadire.rorfeesoccuronly onccfor each area exclusive sold.andareeipected decline rhahulnbrof rernaining to as available markcts declines. lnilial franchisc ateonetirnfeespaid lpon rhesaleof . f.ahchise corehre dircdy fees and wirh thenumber franchises Compantcansllandopen. hitial frdnchise collecred of lhe fees by theCompany recodedon its balance alr fces,in sht dcfenedinirial franchisc as accordaoce generally with acoepred accounring pnncipals. until suchtime asthe francbise opens. thenthose a$ rccordd income.Thercforc. fees as cashflow from operations lcndsto exceed income nel from oper*ionsfor thesame period,dueto franchise sdesexceeding fr8nchise oFDingsat this stage rheCompany's of growlhcycle. Royaltie$, $c otherhandon ale ongoing paidby everyfranchised fes rcstauraDt inq8swith thenumber ahd of franchised rcstaumlts.Eachof these contribuEto lhepofiability of the sources revenue of Company. threlativeconEibution each.sourc v5r_v theCohpary tn6tures.O\rt but u,itl as of tirninirial feesandfoyaltieswill generarc proponionalel!morc&venuethall are3 director ma*cdng fees.

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(lulzndrOsuas

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havefive o( rnore lvhile othermature segmnrs. as rhehsm6urgd pizzasegpEn6. such and sand$ich segoenlhasonly witb moretian 1.000 udts. thesubmarine esBblished chains. each 1,800 uni$. This, havingapprcximately Nvochains wirh mo(erhanl.OO0 uni$. rhesecond gtowint segmenl the of combincd {,ith rhefact$al thesand\pich is segmen( lhc fastesl a restauranr for to induslry.presnts unique a opponuniry rheCompany become fiqrkel leader lrithinitssegmenr, an TheCompaoy compctcs $e sandwich of in segmenr thefastfoodindustry. irdustrylong sandwich dominakdby hamburger chains.Sub\}a]- rhenalionslareeslaubmarine ycars ctdently ha! morethatr12.000 ard rcliaurantchain.hastmwn silniflcdnrlyin rccent s8ndwich s8ment i9 domestic unirsopn.TheCompany belielesrfiatthesubmarine !',ill to underdereloped thatdemlndfor submari stylessndwichs cohu0ue 8row. and ne 1.800units. Mosi Blirnpice. (hesecond larlcsl submarine chain hasaPProximatcly sandwich and of theolhersubmsrim sardwichchains havefewerthao:00 unilseach areprimatily in conccntrared thirhonc marhets. Miami SubS in noaida,Cousins@ wisco|lsin. in i.e.. Togo'scin Califomis Tubby in N{ichigan. and s@
PIZ'A COMPAN}' NUIIIAER of t!\lTs 8.698 .1.4J I 1.900 1.il? 601

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BoundTable PapaJohn's 3o/"
Lit$e Caesaf 2Oo/"

Plzza Hul 4f,1" Domino's 231"
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QuiZndslbsuns

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HATlSURGER McDonald's Kine Bur,cr 3. 5. l:.380 't.4t4 :.94-1 1.913

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SUB.SANDI'i,CH

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!.r?5 500 t00 l9: 135 97

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3./c

Subs Couein's 1.h Tubby's 1%

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150/o

rQCll6aa

78%
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TheCompany majorcomperilors, s includingBlimpie.havefoltowedSubwa)@ ctosely ttle in styleandqualiryofthe producr. crertinglirrle, ifany. differenriation rhemarket.Subway@ in offers! Iow"cost, commodit,v-i,pe paodudin a fasrfoodstylerestaurant timitedsearing. wilh TheCompany posilioned h6s Classic Subs beiween Eaditional foodstyle $e fasr QUlZfiO'S rcstaumna its submarine of sandwich compedlors full-service and dioing.f(rrsing on a highe. qualiry producl. ov[batingandmole in invidng ambianc i$ stores thunique as sellirg pmposidons thebrandof In addilionto comlrcrition consuners its restaurants. Company fot the competes otht in wirh franchisors franchises. Company for positioned to compete The bebeves is it wetl for fra[chisas sevcral for reasohs. ftahchise androyalris The charged the Cornpa$y by fes ale lo*r rhanrhose its majorcompctiiors. total costofotniog a eUUNO'S rcstauranl of The is lowerrhanlhal of hamblr.ger foodandfull-sewice frsl diningrEstauranr.Theiatio ofsales Fev.nue openbt costsperresraurant alsoteoer for QUUNO'Srsstauranrs a najority to than is of ils compedlors. Finally.the ambiance restauraD6 pridein owneGhip offersa franchisee of lhat is unique theQUIZNO'S !o concepr.

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operated units and of of is QUIZIIO'S developrnenl comprised developrnent franchise vehrcl unitswill coldnue (o be &e do$itatll developrnent oprated units.Franchis company for $e Compary !hfuture. in

Frunchise Developmenl:
donesdcally. employingafl Ate{ Directormatltetingprogrsm. Undet QUUNo's develops in this proetam.theconpany granb .n AreaDircctorrheright to se[ QUIZNo'S franchises r of a specifiedmarkct. EachAJesDirectoris granted spccilicrna*ct for thc payrnen! a oneof at dme AreaDircclo( fee.cunentlycalculated S.07ceotsperPeconfor the population a otr market. Tenitoriesarbasd Nielsontelevisio[ marke6. QUZNO'S Atea Directon sell owno$ in locadngsitesandsupponttE franchises behalfof QUIZ|iO'S, sssistf.anchise on for wifiin thcir terdiory. As compensation their efforls,QUUNO'S ara ongoingopemtions generated within fheir spccifiedtetriloly and 50%of the diEclors earn40% ofthe royalties franchis for sale. Each fe Arca Dirctoragrlsto a developmeni schedule by which tbcy arerEquilEd to of devclopa givoDDumbet ftanchise rcstaulanseacb quarter.with that number ircrcasingoverlhe lifc of lhe schedule- cornpany The cunentlyhas80 Atea Dirctorsactivelydeteloping morE than 100nrartets. to They arexpecied sell in in excess of40o franchises 1998.TheCompany cunendyhas3m franchises tgg6 ts!t7 {998 1gg920002qrl sold in additionto ftos opentoday. These fianchises expecleito openovel the next l2 ro l8 monrhs.For the pastlhle years, aIe an of QUtzNO's hasaddd average 2G25 new areadirecrorter.itorieseachyear. incralingdveloprnent numberof markets The schedules. combinationwith an increasing in grcwih that QUUNO'S hts underdevelopment Afta Dirctors.haveddventhe rapid by to expcriefted in the last24 months is expected conrinuo drive that gowh ai a raPid and ro pace thenext24 months. in

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Dewlopment: CompanJthtn units. will unils Thecompany continue develop to Company al a slower Pace franchised role Cornpaty uhirs playanimpo(ant in trainirg,R&D andftanchisorMdnagement bliews a rcstaurant divisionhas become the relations crdibility.In addition. Cornpany and franchise genetating ROIandROEfor high to flow. coDlriburor earnings casb consistcn! and
shareholdeG. divisionslowly,clustaringunitsin corc plansto SrowtheCompanjrestaumnts Management cui"ndy has25 mffkets to Bainmanagament ma*edng efficieocies.TheCompany and to Company uni6 ard plans add3 in 1999. I ntem atio n ol Developm ent : is developmed suategy desiged to build the QUzl\O'S brand The complry s i emarional to of the parentCotlpany is it contirlues intemationally. while not overtaxintthe resources ftanchisee a concePl developtie domestic arl,rket. To dut end.thCompaty uses mast. Thc companysckslocal rnlsGrfranchisees e3chcountrywho takeon fte lesponsibilityfo! in ard developing supportinS theiro\rn martet with limitd ongoingsupportfrom ThQuizno's oi havestrongrcstauranl Corpomlion. Qualifiedcandidares well futdd andgeoerally 8r rcceivs retajl managenlent backlroundwithin their homem4tket. TheCompdny gEnerated within interltationaltenitodesfor useof approxirnalel!30%of all fmnchise revenue marks. systems. product, and QUIZ\O'S and in herearecunentlymaster trancbise agreernents placeto develop Qutzno'sin Canada Japan. 'I

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Udirt op.n - 123(l2lI419Et

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of mlrginsandlow stln-up coslsis driving ar Quizno'scombinarion hi!6 conuibution industryladingROIal theunit level. These factonalsodrivea low cashflow b.ak-even for franchise owners a shonpay-back priod,providing atuacrivc and an franchisc investDenl.
Alemge unit sales vadable costsi Food and paper fabor Other{excluding roJali-Y) Totrl variable costs 6rott Mdrgin

s 335.000
30.6%

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63J&

(22?.800i t0/,2M

Rnl Urilides Ofiet (excluding debi srvice) Tora, fired cosrs Operrritlg incomc Stanupcosts; Construcdon Euiprnent Other lexcluding franchisr fees) Total stan up costs RETLIRN ON INVESTMEIIT

?6,000 9.600

t_a!E!) tl'Jgg

(54-7E0)

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$ 57,500 60,442 r6.?50 $_i3L692

3&te

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MANAGEMENTORGANIZATION /
Execulive Sumnoies: Presldent CEO RichardE. Schaden. & ha5 reltonal chainof l8 QUIZNO'SClassic Mr. Schaden led QUIZ\O'S frorn a Defiver-based in Subsresrauaan$ l99l to an intemadoDal chainol almosl500locationstoday. Along tlle consistent growthquanerafterquattetand profirability fot way. he hasachieved double-digir q$aners. wilhhis roors aQUIZNO'S franchise. Schaden's ha5been Mr. focus rhelastlive as unit on building a solid testaum[tCompany. successful at a dule. To that end.QUfanO'S one performance slrongtoday-with costof sales do\rn morethanfive pointsin unit economic is thelastl8 months same and $an l1% )ear-to-date. store sales moae 0r

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E. RidardSchaden CE.0/Presidenl Scanlon Bob -Development E.V,P,

Iuark LaraFie. Clief OperstiBq Oflicer from li ofexpenence theLittle I!lr. htanie joinedQUlz|,iOS in 1998. bringing years Caesar's reskurant chatn.AsCroupVicc Pesident Franchising Li(lc Caesar's for of it E trp.iser.1n...Mr. Larede playedakey rc)e)n thechair's gtowth fmtn 400 testaurants which I 993 to morelhan4.000in I 996. He personally ove.sawmorcthan3.000restaumnts, represented morethanSl billion io annualsales. Mr. lrmmie wasalsoa pannerand CEOof hanchises operating53 PeerOroupEntetpdses, C. which held four Uttle Caesar's Ltr in four slatcs. _restaurants Jobn L. calliv.o. ChiefFinancial Ofiicer public Mr. Calliranjoined successful shonlf aftertheCompany's QUIZ\O S in 1994. affering.Priorto tha(. served chief Finan.ial ofquick lube he ofhcer of. publicfraochisor as shopsfor l7-years.frornrbechain'sincepdonrhiouehits growttrlo 200 unirsio the U.s. Itd Mexico. Al QUlz\O'S. Mr. Gallivarhasnlaraged financial lEquird public ofa all rctivities perfomancemodelsandhas lo Company. helped engineer bas QUlzliO s strongunir

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for anangpd sigdficant third pa(y fioanci0goff.archises. Duritlg his lenuleat QUIZNO'S. wide saies ols18.6 milliod it 1994througho 1998'when Mr- C.llivan hasoversen systm system widesals erpecEdto eiceedSl00 miuion. ale Bob Scanlon.ExeculiyeVicc Presidentof Development joined QUU^O'S in 1996bringing20 years exprience thanaging of in new Mr- Scanlon business developocnt sales aErtetingopentionsin the foodservict industry. He and and all and including spe five yeqrsrt Cansof Colorado, wherchemanagd sals rnarl(ctin8, parbcrship. At QUZNO'S, Mr. wo*iDg with TacoBell andPizzaHui in thePepsico package He hasplayeda Scarlonhasimplennted updated an storedesitn andequipmehl andnewrhenu boarddsign. Hc kcy rcle in the roll-outof ar'upd6ted logo,sigMgepackage o\rlseesnewstorcopeni4gs. whichavcmged rnorthan40 Perquatttovt lhe lasl six quaners. a recotdof 50 openings 3to and in quaner199E. Vicr Preslde of Marketioe SueHoover. Exccutive joined QUZNO'S soonafterMr. Schadeo Ms. Hoover boughtthe chainin l99l alld har relations frurchisctale$supportih het ard managed adrenising,publictEl.rions.investor ail top role aslheColnpany's marteing uofessional.ln thcarlyyeatsof the chEin'serowh, she by wasinstumentafin havlngQUIZ\O S rccoFi?edss a }lot Concept /Vdlior's Raslaurant A?r'x anda Hot Prospecrry Rcstaurahts lnstituiorc. Shelaunched & QUIZNO'S6nt rnsd(et l99l andthechain's,ir!t nationeltelevision in b.ordcrsrddvenjsiryin rLeDDver pro$am vendo.-supported merketing ad\enisingin 1998. Shedeveloped fiNl QUTZNO'S rhe promotion programs. and in 1992 conrinues bea keynegolialor veodor to in

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Ot r QLIZ:IOS

tro
156

w.
)n

1229

:.129

:!an
1.766

t t
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EAI.T.D .

sl9TMiltbn 5 ]{)0.580 I 58E nr.0l* LNC lt6,t,r9

! 120Moion

t 506M{isn 36:.0@ 52* 3.00*

s 335.00{ s

14r.000 t

351.000 s

sz*
I t.003
2.64* l.@i

s r,590.6?l s 2.74?.95t t

5.4t6.629 s ro.t52,845 s 17.66?.?9?5 269n,6:3

s s i.486.495 s 12,10?.66: ?0,244-?63 11,03t.404 t . 1 0 . 0 3 1 . 5 2 ? 51.532.152 s 5 s 607.rrs 5 s.r84.0'5 s ?.63i.469 512,r83.05i

G&A.ToofRevenue
80.0% 1t,o% 60.0% 50.0% 4n.o 30.0% 20.0% 10-o t-o%

EtsIIDA

19S6 1397 1998 1999 2000 mO1

T(Xr'1675

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SUMMARY PROJECT
the of to seeks $l?-S?0 millionin debtfinancing facilitale ptivatebuy-out the TheCompany ftNre developrnenl publiclyheldslock, refinance existing andto suppon deb! to Company's slongwith some small shareholders. Schadeo Dick Schaden. and Tle currcnt rnajority Rick managcrnenl notbecashed in thisaansacdonwill out number current of
Sources & Us'js o! Futttk:

Soarces: SniorDebr Tol4l Sources Uss:AcquirStock Tmnssction Costs Total Sowces

sl?,000 s20,000 8r7,&n
$1,0@

$20,un
$ 1,500

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$16,000 $20,000
$17,000 $20,000

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Project Rationale: Nranagemenfs rationalefor the proposd is transacdon 8sfollows: > Enhances/ Maxirdres Sharoholdi value > More Fleiible Managencnt DecislonM.lriog > ReducedCost of Capltsl aothe Compaoy > Realuced Cost ol Aalministlarion

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T(X!r.7, CONFIDE]{TIAL

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.APPENDIX A
Sunmary Financial Statenettts 19951998

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- r t r I r fRArvor{}EoPRAno s:
Co.linu!'tg fe6...... ..... lr{t:d ter.||l.ra fos....,..-....... 4.66 dt*kr marLall,lg les. O | h o r . . . . . . . , . , , , , . ..,,. . . . Sal66androy8llycommiss'oG Ad/s.nistrt md PrDndL,t..,,. Gflsraldd admh sbativ...
tlrt Incoi!. ftln lrahchls op..d

I 9@

ll,.oLQ.slnP(Iot
199t lJO
3i% t8% 11% $r,!90,07i I,t64,5O0 |,421,t56

L

1992

- r t ! l l r - , r
!99!

$1,o46J20 580,350 1,379.640

roler ...........---............................................ :--53i53-i6f r3vnu...
253.173 79,074 2% 80%

4.ltadih ,1a.t24 2ts,2@

t5,9r2,398 8% 24% 28,[,507 2525.91? 21% 79:.131 6% 9% 100%* 7,887,147100% 12374,313 10o%
b% 25'fi, J2,741,555 35y. 2.269,001 29% 2.139.080 27% 9!6

2W.

x

2,3t6,474

o

30% @h 58%

4.188.510 199,2&5

2%

-6fr
1i*
100%

coltP,/r{vsr@ oPE&aroa.si
l.(D6,317 coil ot sales who{y et orhad 6krs.........-........................ 33% StS.O15 36% 1309.62:t 1l'/6 2 034,434

&%

a912ll 30% 3lo@.,...,..,.......-,..,.,,...-..-..,, oo.toftaboral$Dllyownd 1.1?8,267 3s% olhs {ro[y dn6d nrocsxpn..3..................................-.. ............ .-- 3.0t8i21-r02% rotlr*p;6...,.....................................
tGl hco[. Alm onnod stot

717.11a 4% 85?.4?2 32% 2.5e3,07 sl}

1 087,10i 25% 1132200 35% 3,179.9!5 eln

1.560926 23'1" ?'163!l]--!4 e1!9 6.9!9!

231,371 (3O7.813) (288..$q {a0,063} (680,728' --'ii:i2t6al 0.018,68) 0 ---jil6rT6t (56,940) (l1.075,9()t)

119,545 1210222\ (406,144) (290,0r9) (307,173) (l.oo4,Jo8) -----i66-:G-

1.29,1O58 c,553,0S9) 1672.1111 {354.23) (340,577) {1,52730r) --Tdiio-d-

----lE-5E-0
{93.998) ----i6rF5i 771

-i76i:ifi-

0

1221,75s) t97S36
t63 49't

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5 yar Forecesl1999 201)3

TQ(nr6St

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f

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lf

llf

f

8LOW$ PFqEglEOSUia ARYtX@t|sSrA!:t Emi A{D CASI|

t!

RE.Ios
!9t9

r|}ot-A

!l

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tr

lr
20!z

I

Il
29C!

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I

FRArrCfltSr OPtRAnOr,tS:

3909

?oQl

C o . t h r h g a s . . . . . . . . . . . . . . . . . . . . . - . . . . . . . . . . . . . . . . . . . . . - . . . . , . - . . .5!142 . 3 7 8 . 0 3i6 66% 329,513.m7 . 1 1 $ 19.,140.02 7,845.960 25% tdual{raichtst6s....-.-.-'............................................5375,680 6,910,640 r,5@,0@ 1.500,(I,o . ...-...,. 2,000.000 m. ....-.......... Ars. dlructor e{ngt .6....,........,..-

O(nr.,......,.....,.-.,.....,,,,.-,.-,,.,.-....,

1

$53.a55,7t2 N% 340,368.021 9.848.3,10 l5% a.602,360 !6% 2% 1.54t.000 3% r5o0.00o 3% 1

6.593,05r 32% 10,61t,701 3f SCo! and reyrlt cdtlnl$lon la?,t52 49?J92 2% Adv.tldng.nd p|onDlion.-.... 914.304 3% t50,388 T.rvd.--,,..,,--..--.,.-..-.... ?,fs2,774 3f GorEl dd sdttltt*a|tuo..... Iolal 6x!n5............,,.......,,..,....----.,--,.., -,..- J .... .dom... . -.. .. i.lhcdr.ftlrn6.mtll..6t

ra*

14.9S5,2tA3?* 5&t,{70 t,049352 AL

19.A7 ,020 037.64a 124f ,qO
3

x
2A%

2\24&A8O 30% 765.r76 1,424,424 2!4
2f,L

coIPAt ! stoRE oPER'|ftot s: 100% t00% 1''628'739 lo0.]. 11.290385 100'6 10.64?.335 100% 10,961312 s.b. bvconpsv osdd !tot!.-- -......-----.....-.... 0.611339
.......-. Erpn r3o3ol cqrpaoy mna 3I4c . .. ., .......,|i|.t Incoff tom codpl'rt fln.d .toll.. ....... .. ..-.-...:

ollrEi l|lcorc G$lsg: -............. htd sat6 byEiof.. for8sa1s..................-.........1.543.949
E!p6n6* Etabd b alxat hdd L,t rE.|.. .,... -.... Prdisbr ftr !d dUs-...... . . .. .. .. . ......... .. O08........-.-..--..--...-..----.,... {i.664.567} (82s,00o)

0 0 (8?1.?3t) ,47.128) 128,7511 .--- -..- ... .. . - (802.t22] {8?7300) oie.ctuor t'd anDdE [on-.'---, (337,ZlOl .... .. ,-.-.------]Fq3j50E tntsEt Ngol|6!..,,..,.,,......,,....,,.,...,....... (2.129'599) t2,t33,607t r.idotl.'lrtlo|n ldDrn!.).-..-...-.-....-.-............... 4,024.84,4 6.420.523 laatrcottrt tona.r.r-..........,_...,,.-,_._.......,,.......-...,. 1224f,18tsl h c o r E r . r o 3 . . . . . . . . . . . . . . . . . . ' . . . . . . . . . . . . . . . . . . . . . . . . . . .1.1.,.1 5.5.,.0 . 4 ) . . .. . . 9 t a t l r c o n | . . . - . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 6 1 ,4.1?3,3tO 750 {rm,000) Prstund3bck dlvid!ds....-..

--i6sfi6-

0 0 11,207,?25' .151.316) (s33,0) Q84.112) (2.440.10S)

{.t h@n'. appltcloLto conndr.t!.rriol&......-'jgl91l!9 unx'o!.n d, ndrrr.....................-....--.*-.---:----jlq 799 .....'...... ........,.... . Tdrrlmlt oFn.....,...----,.........
. > 1 : ; 9
tl lrdode! OB Esdta lrcm n'whbtnadontl sstlr |ta.dl6s conlel!

ta,ot3?a

(3,816,52l) 7,124,W lr0,000) t0,964.904 46S

--sEh6-

0 o56i,005) (55.!12) (9S3,456) {234,392) 12.u1,75'5t ir1.S00.321 . (5r15.113) 9.@5rO! (r60,000)

o 0 (1,997.80?) (53820) (1.053.456) 1r76,2441 --iF;*o@i

rs379.ig8 G.8a?.7191 --oldifr{ o60,0!0) t t2.63ir79

------.!99-

-u:!it' !03
, ,530,088 22,4A1,1A?

.-..ffi

c28

dcu16d kr 1998 e'ld lgsg

I

4t

.....-....... ... 1S.i37.' !14 N.r r|c'trr. l|r ctth 'o. t p.rlod......'-.. haotrit|to pittod .... .... .. .. ............ 3'009q o{ Carl,betbrcs c.rn bdirc.rod ot !.rtod.'...... ...,..-..... ......... :S;E FC|rti tud, ltonr o!.r.ltont

i5,810.806 a.137Arl ir3354250 36,298n59

s8,53283? r3.951250 iia,,I,r,18f l93l{.Ei9

s3tt.ot72t5 tr2.725..89

@:5t{6-

3ts,507.16r 34,0t7:76 tt6,760,709

t6.0r0g?2

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APPENDIX C
t0-KsB 1997

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U.S.SN,CURITIES AND EXCHANGECOMMISSION
W$hiDgtotr, D.C. 20549

Forn I0.KSB pq ANNUAL REPORT rj PtruUANT TO SECTTON OR l5(d) OF THE SECTJRITIES EXCHANGE OFI 934 ACT ForrheFiscal Year Ended Decembe. . I 997 3I r UNDER SECTTON3 OR l 5(d) OF THESECURImS [ ] TMNSIIION REPORT EXCHANGE ACT OF 1934 PERIOD FROM FORT}IE TRANSIT]ON TO
Con4rissioo Nurtbq 00&23I 74 File (NaEc oisrndl busincss irsut! asspecifi.din its chane!)
Cobrrdo (Strt! oro$cr.jurtsdicdoo of mcortor{ion orgrnizadoD) or l0S9lt(h Sr...! Sdtr 2851, raddB ofhircDal Elrccutitc Ofic..) &Ll l6yr86 EDploy.r 0.R-S. ld.ntific.don No-) (zb Codc,

nrEQutaro's coiPoR{noN

!!2!r

r.r.pno*i*lffir.dins r.." c{&) turu.e,
SECURTTIES REGISTERED PURSUANTTOSICNON I:(b) O! THE ACT: SECURITII,S RECISTERED PURSU^M TO SECTIOii l!(g) OF THE ACT: conmon Srsl(. 5.001D!. v!lu.

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CheckPhcthcr thc issu.r ( l) fil.d al! relons required bc filcd by Sec.ion13or l5(d) of rhe 1o Secarities Exchange during pa$ I i monthi(orfor such shoncr_period theregijtrinr was Act &a tha requircdro ,ite suchrelorB). and(?) hasbeen subj.rl ro suahfiling rcquiremmts the pan 90 for da]s. Yslxl No [] Chcck if therc is !o disclosucof delinquent filcrs irt responsc lrcm 405 of RcsularionS-B to conrained this fonn.andr|odisciosurc beconrained. drebesr in io \r,ili ofreeistantt kiowlecee- ra definiive prox-v infomationsralelncnrs or incorpora&d b],r.fer.ncsinPanill ofrhis Forn I o-kSB or anl alnendmcrlt thisFonnI0-KSB.Il !o Thelegistranfs revenuc rhefiscal yea,.ending for 31, v, Decerhbc! 1997 asS12.107,662. Theaggrcgate market value stockheldby non.affiliatcs ofthelegjstlanlscommon ofthe regisrranr asof M-arch I 998wEs 13. (for approxirnaiell$7.?98.000 purposs oflhc foregoing calculaiol od!. each theregistmrts 0l and is ro omcers dircctors deemed bc anamli6re). There.Jlere 2.934.?24 olrcgisraras cormoD srockoutstanding of March?3, 1998. sbarcs as Documen$ iDcorporared rf.rance: Ponions bJ ofthe lcgisaanr's Prox-v Statenent will be tha! filcd r\i!h $e Sectnides Exchange wirh rhr rcgiflEnts annuol and Coomissionin connecdon mccing ofnockholdersue incorporared referm.eih PsnIII ofthis ForErt0.l(SB. by Tmnsltiond S|Drll Bulinqs Discloslre forlD.t (Chckonc): !-es I J No [X]
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TABLEOFCONTENTS

PARTI ]TEMI. ITEM:. ITEM3, ITEt!'t4. PARTII ITEM5. ITEN,I 6, ITEiVl7, ITE}I8,

P-AGE NO. DESCRtrnON BUSINESS. . . . . . . . . . . . . . . . . . - . . . . . . . . . . . . . . . . . . . . . I . OF D E S C R I P TOOP R O P E R n.' . . . . . . . . . . . I FN . .. . .. . ......t1

LEGAL PROCEEDINGS. . . . . . - - - . . . . . . . . . . . . . . . . . . . : . , . . . . . . . . . . . 11 .. ., SUBMISSION \4{TTERS -AVOTE OF TO OF SECLIRIT'I' HOLDERS . . . _. . . . . . . . . . . . . . . . . . . . ll

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MARKET FOR COMMON EQUITY ANDRELATED S T O C K H O L D E R E R S . . . .......... . . .- . . . . . . . . . .. . _ . . ._ . .. . . l : MATT MANAGEMENT'S AND DISCUSSION ANALYSIS oR PI-AN OPEMTION. . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . lj OF F N A N C I A L A T E N { E.N.I.S. . . . . . . . . . . . . . . . . . - . . . . . . . . . . . . . . . . . . 1 - i ST . . CHA.\-GEs A}iD DISAOREEMENTS IN \I,ITH ACCO1JNTANTS ON.ACCOUNTING.4.1..ID FNANCIAL

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DlsclosuRE

..........3:

PART III ITEV19.

DIRECTORS. EXECLITIVE OFFICERS. AND PROMOTERS COIiTROL PERSONSi COMPLTANCE wITl{ s E c T r o)N ( AO F H E X C H A NA C T. . . . . . . . . . . . . . . . . . . . . . . . . . 2 j 5 ) T E GE E X E C U T IC O I . I P E N S A.T .I .O.N. . . . . . . . . . . . . . . . . . . . . . . . . . . - . . 1 1 VE . . . SECURITY O\TNERSHIP CERTAN{ OIBENETTCIAL o \ r " \ r E A N D r . { N A O E i l t E.N.r. . . . . . . . . . . . . . . . . . . _ . . . . . . . . .- . t j Rs l . . CERTAIN RELATIONSHIPS R.ELATED AND TR{NSACTTONS ........................-ti .. EXHIBITS ANDREPORTS FORM ON 8.K ........:3

ITE\I IO. ITE\' I L ITETII ]. ITEM]J.

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ITEM I. TheRcs!.urauls

PARTI DESCRIPTION BUSIlvf,SS OF

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TheCompany engaged iaDchisirgand. a lesser to quickservice is ex!en!, oprating in resrauranB "Quizro's" thenane"Quizro's qsidg rcgislerd (the'Rc$aulaDE') |'QSR") service and lhc ma* Classic Subs."TheRcstauras offeramenu of$brnalinestvle sandwiches. saiads, soup6, dcsscrts bevgrages. and "Classic including Lite" selecdons submarine sandwiches salads degigned eqnsunets of and fqr whqatE
looking for a lo\}.fal. healthl akernative rypicd fast foodproducls. to The Companybelieves dresubmarioe rhat sandwiches ofercd in rhc Resauraa:s disrincdvc i! 8rc the harkel for severalreasoB. Eachsubmainessldwich is plepded affer the customerordels Eld with specialilgrediellE. recipesaDdrechoiques,Thesei4tedignrs, recipsard tecbtiqucs are conlt!olled to prolidc uniformir-vof rasre quality amo! all ofrhe ReJaura$s. alrd Oneofthe $osI impona dinincaions ofthe Quizlo's sandwichproductis thar it is servedto lh customcrwalm. Eachsandwich prcpared is openfaccandrun tlEoug! a conve.",oa tltatloastslhe hrea4 oven melrr the cheese er raDces flavoB ofthe mea6. alrd the The Companyfocuscson rhr qualitv ofrhc ing.cdienrs contaiocdin rh food Foducrs ir uscsgd requiies that sll of its spesifiedingedienrs.which are generallyhigher qualiry rhan those thst other submaline sandwichshops usc.bepurhasediom approved supplim. fhc checses usedin thc Re$auranrs arcall narulal. Thc ltaliar srylcmcalsincludca *inc-cured Gcnoa sal.Jni,p?FroDi ad capicola" l6lian all spicedhan1.The orke' brcan is re.l turkeybrasl The Restaurants arereguired uscenair productsprepared lhe CompaDy accordance also ro io! itr wili! proprietaryrecipes deveioFd ahe lheseis Quizro's specialrecipesofi by Company.Focrros! among baguetre s!1e breadandits red.winebased vinaisrcnedrcssingusdasa baseor mo$ of the sandwiches" Io addition. rhe Reslaurants the Compaly! proprictaryrecipetuna mix blend, garlic oil blend, and use

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The Reslaula s'upsc8ledecoris dcsigncdto conveyan ltalian deli ambianceand to march the upscaleQSR mark! niche reprcsenrd rhe product. Opcnkitchcnsallow customers u,ltch as their bI to sand\riches prepafed.Thedecorpackagc thc Restaurarts ale for includesrcproducrions ofold Italian food p.oducalabels. and hand-pai cd ltalian sa-vie posLr' The laaliar thcme is prcvalcnr alroughout ahe Rcstaurant.Real wood trim addsa .ich warmthro the dining room nor found in lyical fast food dining cn\'itonmen$, Besidesa pleasantupscale for environment io-housadinin& rhe Re$a[ants offer conveniently packaged neals for can-r'out to servclunchtime office workeas lo servethe homemeal reDlaccment rnd segment the malket. of The Restaurants also located mall food counsandaredesigredto oparate small?r spaces are in in *hile lcraining ihe samaarnbianccanddecoros a rraditionaiQuizlo's Rastaurarn.',Ouiaro's ExDtlss. Re$aurantsarc q?icall) $naller unic enablished!r suchnon.lradlional locationsas convanimcr sLnd gasoline stations,sponsfacilities.hogilals, ard collegecdnpuses.Quizro'sExpress unirsoffera full metu
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\'ilh q cratersive varilty ofQuizio'sssDdwichcs, Soups. salads dessens aLo qvailablc Quizro's ald arE at Exptrssulits. Quizlo'sE4[.5s unitswill tFically daic conmona&5scaling nrayhavcve4. limiled ctr pairllrilf fot takcout. scating veaues ar dcdgncd predcccssor. of Malch 2.1. Restauru$rerc fir$ opencd I98l by lheCornpaq_'s in As Quizno's 1998.ihere wer 341 Re$auranrs opcrarjon (bcludingBains Dcli iestauranE), of which lrere in 20 Coslpany-o*4tc4 agr.eeEeffsvrerei!phcefortheopedn-s addirioralI76 Fanchised aDd ofan Restawants. Brh's D.li Acqristtion On No\tcmter 12. 1997,thc Cotnpan! rhroughirs wholl].owrd sub6idi6rt. The Quizro,s AcqukicionColnpa!,',aaquiFd caruin aJsets u5ed rhcfarcldse opcrauons re$auralr busircss ilt ard kno\rdas"BaiosDcli." TheCoqp6ny acquircd dg}l! to op.6tcthrc.co!tpan!,-o\'Dad thc rcsraurants dnd to bethe franchisor of49 opsatiDg Dcli Bain'sDeli rciaurads.BaiD's Estauan$arclocaledpri[cipalt..r pEscdcc rb4 rcgion TheCompan-v in theEa$sf! UnitedStsres, lhcl.forc .lhancc rbcColllpsry's abd in subseqrenily alccred !o purcllasc ofrhc 3 company.oenrd not 2 unirsandto lltfuca thc purchasc pricc pursunttocanaindghtsxndarthcAssatPurchLreAgreernen TIECompa4'i endstocncourageexisdng BainsfialchGecs conrert o 6air unirs Quizlo'sReslauranis. rnayofrerincndves asteDporar\. to and such $iversof rovahies, rEduced no inirialfratrchisE andfinancing o! fets, progarnsarrahged tkough third. panl' Ienders. Conccpt{!d Str.acgy TheCompany's matkerin-q stratg], to posiriorthaRlsraursnc is bc$teen foodandfirli-servicc fasl dining. TheCompan), bclieves consurnrs lookingfof haahhy raslvrhemarivqs e?ica.lfasl rbat ard are to foods:in paniculsr. lhcytl looking Enahemadv fasrfoodhamburgers frledfoods.At lhesame ro for and time, theCompany bclieves many busf families lookirgfor a rnore are convenient reasonably priccd atld alremadve full-se.vicc to djhirg. Quiano's ofrcrsall $ conveniencc oilvpical fa$ foodin re.msofquict dcker times.affordabilir)", canf our ald homemealreplac.rneDl and options,but wirh a frcsh, ra$-y alr.&ativerofa$ foodproductsIo terms full-sewicc dining benefits. of euiao! offetsrnorecomfonable didng rcoaas rlon fastfoodrcs&ura conccpts Ndl asothardjriDgop ols -. suchascatedrgand drln as deliv.r-v- gercrally nor ardlablc in thc fastfood alcDa.Ducro thc CompaDy,s uDiqucquick senicc producl rheCompany blieves is wel,positioned fill a growing il ro richc in rhr restaumht busilcssthstis developing betwaen foodandfull-scrvice tan concept accommodares dining. ThcQqiano's also a va.ict] ofdining opdons from comfonablc in.housc diningro lunahtilrccanl' ou!to holncmcalreptacerncnt. goal Tht Company's islo builda *rong andconsiste$l)'profildblc nationwide chainofRcsrauran$_ 1997. CoDparybetamc third-largesr ln the the chain.Sincat 993-tte priihar.v submaine sandwich vehicle for achjeving Company,s planned tie gro*$ hasbee.lj6 ArcoDircclor&arketingprogram. Urdcr this prograrn. Company the gran6 an AreaDirectorrh! righr ro sell Quizno's fi'anchiscs behalf of thc on Company a specilied rna*el area" AresDir.c!o, is requir.dto sellandop.n a specifid in The of number franchisd aruuallt,droughour life ofthe Aa Dirccror R.s6utants rh mrrkctingagrclrnc Thc Corbpanlr's rernues deriledfrom a ao-valtt_ all sales fnnchisedRcstauEnts. ara on ar iniial franchise from cach fces fiom A.cr Direcrors thlraltt oftcrriroial fr$chisc sold. andtecscollcclcd fot Restauranrnarkcdng rieht& Franchisees AreaDitecroFpay feesro rh Cornpanyonly once in and connecriot with exedttion ofFiarEhise Agrccde s aDd AreaDirectoa Ma*eting Agrcefienls. Royaldes prc\,idea long.temr condnuilgsource ofrevcdua. fees Franchisc androyaticsa|cexpecred jDctsasc lo aj

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Thc incrcases. Conpany may also lclrurchasecenain thc numbct of li"lchised Rcsraulas in oparation is Gnirorics in thc fun,Ie. Thcroyslty!"arc cunrntly 6%fo. faditional Restalr.nts,burwill irqease to 796 o'l April ), 1998eljd dlc toyait rale js 8% fo! Quiao s Explessisdrs; hoq,cvq, a small nunbcr of mtcsal 4% or 5%. that franchisers opeErcunderolderagreements serlowertoyait-v Area Dlractor Mlrkting AgrameDts ("Are3Direcro.s")aocxclusiveEnirot-v ('Tcrilory') The Compalyoff.rs to qualifiedcandidaEs puFuartto at Ara DitectotMa*aiagA!rc.qert wirhin *,hicb .o scll &anchised Tbc Area' Res(au.aars proglamwas e$ablished theConpan], ilrJanua4\' 1993 andresEucNrcd inDccember Drecror marketing by lhe to 1994. This proeramis designed assisr Company acceleratiE Eurling andsalcoffranchises rhe in Tenitory is basedolr arras ofdo.nilan! and rhe selecdon ofRestaura locarions thTenitoD. Each in influence of local televisionbroadcasr sratiorsas delinedb-rrtie televisionbroadcasliildustr! . The Company'serowh $aregy clusteisRestsuranrs poniculartelcvision mrrkets in order to facilitac in implemcntatioo its adr.exisidg grarr!. of pro EachAJea rhe Dileclo! pa!,s CornpaD) feebrscdonthelotal ofthe po!'olationin the territor-v.At a plus presenl.drefc is $.07pcr pcrson locar.d\ itdn lhercniror-v, a Eainingfeeof$ 10,000(rcduccdftoEt portionof thc feis decmed firtly earncdby the S15,@0cffectiveJarlua4 l, 1998).Thepopulaiion ba-sd Company$'henpaidaodis notref$dablc, |o AreaDiEcrorsarercquiladrc markcrfianchis* tor Rcstauran6 bc locat.d wilhin the Tcrritorl . The Area Direcior agreesto opcn. throughrhe saleof fianchises.a specifiednu$ber of ftanc[ised withi! ftc Tenirorydi:uing rcnoofthe AreaDircciorMarkctingAgelmant' TIlc salcsard Restauranis rhe opeiing schedules lo$er in the firsr yealsoftr delelopme period. Th. Arca Direclor Markcti[g arc Agreement doesnot gia theAreaDilectortheexclusircright to malkerfratrchisGor solicit franchisees in the Tenitoq , blt i! do.s grantthcAre6Diredor tlle rigit to rcceivecen6i. feesand.oyalties,dcscriH Restquranrs in more detail below'. and established tbe Telritor), from all franchised Company-ouncd itr The duringihe rermofthe AieaDjrectorMa*crins Agreement. Compqnv rsewes righ underrheArea rhe Direcior Nla*edng Agrccrnnt marke! scll franchis.s.td to esrablish o and Cohpany-owncdRestarrants in a Tenitor!", Thc Company. ofMarch 24, t 998.has76Aea DirectoBwhoseTenitoriescoverapproximately as 71%olthe popularion th ofrhc UnitcdSrares all ofcansda-As ofMarch I, 1998, CompaoyhadArea aad Direclor Mar*cting AgrcetnerE for Terriroriesin dle follov,ing stares: Alabama'Adzona- Adnsas, Califomia. Cololado,Connecdculflodda- Ceo.gia.ldaho.Illinois. Indiana,lowa, Karsas. Kentuck).', Louisiana.Malvland, Michiga[ Minnesora.Mississippi,lvlissouri. Mo an4 Ncbiaska,Ncvada.Ncw Mexico. NronhCarolina,Nonh Dakoa Ohiq OklahorE.OregonPedsylvania SouthCarolina.Sourh Dakota.Tennesscc. Wisconsin, Wyoming.TheCornpany had Tcxss.Urah, Virginia.\t,ashinglon, and also Arco Dirrctor Ma.ketiogAgremenrs plac. in PuenoRicoandBrirish Columbia,CarEda. in 'l{inimum Performance Tle ArcaDirccro!I{a*eriDgAgreemeDts increasing set Lei'els' thatrcquirt Restauran$ cach-vcar lhe AreaDirectorro sellandopen specified of in duriDg lem the a number tranchised experience the Atca Direcrorprogramto \rilh ofthe AreaDitlctor Ma.kering Agreem.nr.Thc Conpany's dateindicaEsthat *hile some will schedulcs, Are. Direcrors exc.cdtheit development olherswill fail to fie.r their schcdules. its planning. Company allolved a cenainperccntage AraDitrctols for hrs of lo the \\'houill not mectrheirdelelopment Dclaysitl thcsalcandopcningofRestauraDts occurfo! cao schedulcman] reasohs.Themostcommoar delaysin theseledjonor acquisitionofan approprjatelocsrionfor are
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dr. Rcstsulsil, d.lays i! negodatilgthc te tDsoflhc leasc6r!ddclays in francbisee financings. The CoEpa4r Bla], GrEdnat ar Arer DirccrorMmkding Agrccmentif thc tuea Di.e.{o! fails ro meer rhe developrn.inschedulc. thc Comprnywolld rhenhsverheright to rescllthe Tcnirory ro . de\*.Area and Direcbr. MostAJcaDrcctors arercqlj;d ro bainrair ano6ce withi! lhe Terriaory.lo additio[ througha rcquiredmontl y minimummarketing expendinre. Aje, Direcroris rquired!o activelypromotethe rh wi$in dle Tcnitory. TheAreaDteclo. is requircdto visil with Fospecdv. saleofcompany franchises ftanchisces Gfci apFopriarc and within &c Tenitory to thc CottDanr.. Rcstaur"afis locations franchised lor consideradon.Tbe AreaDircrcrmustalsoperformmonahly qualitv assuraice for irspectiors of the Rcsraurants irs areaandassisr in wirhir irs areain oDcning.The ComFry! tanchise rales fr"anchisees maredals madcavailable $e ArcaDi!ec&r. are ao EachAreaDirccroris paida codrsrissioo ol40/o ofthe royaltvfeescollected rheCompaDf by from bepayabl Companyolancd each franchised Restauralt orfor&yaliies thltwouldorlrcrwise by Rstaurafts opercdandoperarcd in theTcrdtor-v duringrle ter& ofthe A'.a Directot Ma*ering Agrcrttcrt so long at perfol'ls periodicinspeerio$6!d othersrviccswidl respect suchRestauran6.In &e A.ea D;rector to cenainci.cumstances. Area Directoas entitledto a.oongoingcorninission 17. oo Eoss salesof of are Restaumtls opcnand opcraring theTenitor,ron the daterhe Ara Director Mar*qiDg Alrecmeltl is in erminatedlhlough ei$er rheiniriallcro oid. undedying fraDchise ageernent five yca$ (15 yean for or A.ea DiEctor Agreenents whichcvcri-sless. This approach 1998). execuied beforcJanuary rcwardsrhe ,A,tea Directorfor selecting and higherqua.liry frdnchises higherqualiiy locations while discouraging thc .Area DiEctor froh selecdng localions aretoo closciogethe.. In addirionlo thc foregoing, Ar.. rltar the Dircctoris enlirledto receive comrnission soq/o a olthe iDiiial feepaidto theComparyfur cachfi'arichiic of
sold and open lijthiil the Te.rirory.

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TheCompany a progmm up has rmder whichit qill finance ro 50%of&e AIeaDircclorMa*c!i[g Feesfor cenain approved who have the experierrce skill sougit by thc Arca Dircctorcardidares ard Company its AraaDi.ecto6.burdonothavesufficienicashto payrhefeein full. TheAreaDirccroris fo! legured lo ptsonalhsigna promissory duetheCompanl_ theaDounrIiDarced. for rrhich will bear noG interestat 15%per year. be repaidin nonthl]' in allmenBorrr five vears. Tlre promissory end nore is securedbl Ihe Area DirecrorMarracdrg Agrcement b.r other eollate'f.jurrgJated $e busjDess. ard 10 t! picallt a second noflgagein $c Ar.a Dirccto/shome. FrarchiseProgrrrD ("Franchisees" "O\rncrs") to establish TheCompany authoiz.s individuals comparies and or and operate Restaurants an approved purslamto rhc termsofa Franchise 6t locatioD Agreemenl Underrhe Franchise AgreemenltheCompany to undanakes tErformor haveperformed cenainsrrviceswitb rcspccl to thcopening operarioD Restsuanl ln coniecrion and wirh rheopeningofa Restauaanl ofa those sewices (i) include re\ iewand (ii) proposed approvalofthe Resauram locarion- reviewandapprovsl ofconslrucdon plansfor theRestrurar! (iii) identificarion sourclsofsupplyfor irems\.\,hich ordiDa.iiynecessan of arc to opcrate Renaurant. anoperations a (i\,.) providirgdetailcdinsuucrions with r*pcct lo opeQtion manual of Ih. Renaurant. taining widr rcspccrto lhe Comp6nJ.'s (v) methodof operaaions, including oprarjng procedurs. preparation food plomolionprograms, techriques. conFols, maragcment publicaclations. and ard (vi)pre-opening provides assi$ance. Aflar opening ofthe Re$au.ant. Compa'l], tha coBrirNing advice andconsuladonl^iti respcqto operation ofrhe Raslaumnt. Fromaimeto time-thccompanytaliesovcr the operadons storefiom an ulFuccessfirl ofa aDd franchisec opsmtcsthe slor! u il a ncw fratchiseeis
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al found. Thc Company's invesinad in suchoperariorE bc rccovcrcd lhe time thestole is trarsfered may to the rcw i'anchisrr. is The cunenrFanchise tor the Owne/sfi.st Restaurant S20,C{0. I 5,000for the second. fee S and ofre8ibiarchisc araledrcd 10,000 tbc thirdandahy addirional for agreetDcrllle CorDpary $ fta'tc}r'lse unils. As ofApril I . I 998.tht Offtcr alsopat5lh! Corn!,any continuingro],als-' fecfor QuizDo's Exprcss a franchises).Older forms of Franchise fee of 7yoof the Owner'sgrosssalcs(8% for Quizro'sE (press prcvideroyally rates bcrwee!47oand6y.. "Gross sa.lcs' defidcd63all saleswhetharon is Agreement of credit or for cash-urd ali rcveluesfrom anysource caused tha opcratio[ ofrhe Re$auraft whcthcr b,v dirccrly o: indir.ctly rclatingto theResaurant's ta\ operalo!. Sales andanl.orherstateor fede,alux is also exccpred.Th. OwDer paysanadvmisingfeeto lheComparyin anamoul equalro loloto 4% ofth grosssales.which fees are usedby 6e ComlanJ- advqnisingrnarkedDg, lor Franchisee's ard public rclalions programs mateials ro enhatceaid build thc imageandgoodwill ofthe Quiano'ss-vstem. and Thereale certainolherfeesthatrnustbepaidby tha Fnnchisaa the Company orderto reimblrrse to i! the Companvfor cosrs ircurcd in conrecrion ofa wiih rhcesrablishm.nt Restaurant. tolal average Thc cosr lo a Franchisee opening Rc$aunntEngcsbetween for a and S37,600 S190.450. includingfundsto cover the inirial fmrchise fec. *irh nost of rhe variarionarFibutable dillcrencesin tbe costsof leasehold lo improvemenrs the Restaufaot. of theRcstauranq v,herher unir is a Faditiolal or Exprcss for ,nd rhe sizc Rcstaulant, Thc Cornpanl- developed has and as altd cenainirems,such baead dressings salads sandwicheE for $ hichale preparcd useio rheResraur6nrs uponre.iFs developd tre Company whicb arc for basd b-\: and providcdroOwners undr private the to The label"Quizno's." O$neris required purchasc thoscircmsfrom specir:ed vendoFfor saleandusin lhe ResEurant. FiaDchise Agrecrrcnt The alsorequircsthc Ownerlo acquirespeciliedequipme andinvemory. csrabli$ andmaintainspecified lo signage ro operate snd ihc Re*auran! accordance the$andards requiremants wiu outlincdin rheCornpany's in and manual. opernrjons Tt. Company entered anag.eemerf l}Jlh a narioml foodproduars las tbal into disEibDror allo$s O\$ers lo obtainmeatproducls. non-fooditemsnec.ss6r)for operationof produce othcr lood ard and franchised Restdurarts pdcesmorefavomblc at thanthose$al couldbeob@ined individual Owncrs. by Ail of rhepurchasiDg offeredill theRestauranB donecenfally b! ofthe ingredienE lhc foodproducts for is the Company,which allo*s for betterqualil]. conllol by the Compan]. EachOwler then conta.ts thc disdbdor direclly lo obrainthe items needcd lh. Owner's Resrauranr. \'hich arc dclivecd by the for distributor. The disuiburorbills rbc Ov,Ilerdirectlyfor all iremsordered-Ifthe natiolrl food prodlcts disriburor no loogerproridcd rhis senicc ro the Corhpaniand its franchisces. Companybeliwes the jn adequaE scrliceswouldbea\ailablero it $.ithoula signiircanlincrcase cosls. altemative The Conpanyretains ighr to apprc\thetennsoflhe O\r'ner's rhe lease.A la$'firm sele$edb.,i &e Compan.mustnegoriale lcase par!of rhaapprola process. costsfor revie$ of rhele$c by rhe I as Thc rhelawyerselected theConD,ant al lheel(pense by olthe O\ne.. TheCompany rcsewas dghl rhc a$ also lo e er inro a telsedirecrl-\$ith eachlardlordondthenro subleasc rheFranchisee. ro Tk Ouner.orperson designaied theOl\nrandapproved theCompa'l\.,, required devote b)_ bt is lo his or her fuil timc. atteodonandeffons lo the performance ofthe ONner'sduriasunderthe lranchise (o .{greemenl relating theopenrionofrhc Restalmnt.TheO$neragrees theFlanchisc ao in Agraement use his or her bestefon5 to produce in ma\imumvolumeofgoss sales theRestaum The Rasrauranl must be opemtcd continuously suchdaysaDd on duringsuchminimumhoutsasareaaquired the Compar!:/, b,v unless rc$aicted Ol^rer's lcas!or otherrulesapplicabl ihe Rcsraurarl to b]'
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Case 1:04-cv-00725-RPM

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with rhe Thc Ownq arccsto rnni rin book and lacod3 for th Rlsraund in accordance Ilc rcqlrirmcfis spcifcations fonhAoIndmclo dmeby tbr Colupanf,. Fraichisee rcquitEdbv and set is llhe! andiD Agftme to baresporEiblc submitingallrcquircd for raports lheCompan-v to $r Franchise the mann..or forrnar rcquiEdb-v Compan). dre In ordel ro providefor proper for linancialraacking planning O*ne$, the Companybcgan aDd providiriga resrauant bookkeeping service irs Restau!.fiO\r[c.s in I 994. This scrviceis inreqded rc !o assure OI^4lers accuEte the fiiancialGcor&aswall !s roallowtheCompany k!c? accuiare ro havc sJ.srcm wide slatistics. Francbis.agecments afrer Februd, lO 1995,requireOe,,neB rrscrhis to exeauted bookkcepitgservice thefirst year opqations lheO$n./s tr$ unirfor a fe. of$80 pr wcek(S85 for of for per wektor fancbiscarecrnes cxecuedsftcr Ma$h 31, l99t). This scrvic. provid.s for a tlvenue souce from faanchi5cd rcstawants is expected tecomeprofirable ahcnumbcrof Resta&ana and to as serricedinqgascs. submiicopies Thc O*ner must advenising prodtotio[al ofall proposed or tnarctia& apFoval by for giveits *ritret| rpprovaltoanv_advrtisirg pronolional the Codpanyplior ro usc.Th. Comproy musr or mar.dalsbrforelhe Owner aulhorizrd usesuch is ro materials. TheCohpaoy cxpects Restaurants lhat opradng wirhinia fi'aochisc s],stem cmphasize will qualiry "submarinc"sandq/iches. ord.r In rcgarding lo sadsrycu$omer.xpctarions mcllus and seFicc, the Cohpant rquires $rb$amial unifonhi$amoog R.sralrdnts. Reiaus smustcortoEnto th! decor all All .nd nenu specificalioni lha Companl-. Owneris not allo$/cd sellaqy goodsor services a gt of The ro Resuuranl othcrthanrhose goods senices a4d sprcificdbI $c Cornpsr)'.. FranchiseM.rk.ting Prograrns ltr otdd ro facjJibre marlierjr! otfraDchked ihe R.snuran6.thc Companv dcvocs rcsourccs lor print bedia, sales national ard slaff-ma*cdDgmaterials. traahshowr. In additio[ the Corrlpanyhas programs markciii5 frarc[i*, $'hicherediscusscd speciJic !o bciovJ. Discoven'Dav. Discover-1 is a day-long Dat eve regtrlallvscheduled Dc'lilr ro inrroduce in potcntialO\ nrsftomrbrcughout countr-v rheQuiatos conccpt. rha to Tolj Ftte Phop.lirla Tlc Conrpan_v iasralled lol, ttcpior.line {i -800-D!U.SUBS) whjcb has a ringsdirccdyinrorhcFrenchise Seles is into Depanmc'll Theinformation enieied a darabase ofowne. inqu;ricsand5ninformarional packag. mailedlo rhecallt.. gplgHQlsgs.Theconpan-'.program hasan housestt[ougbourrhe r_v ongoing ofbosring open cou in conj0ncrion uith irs Arca Directors.lndiriduals \r,hohavecxpressed imerestin the Coopary,s ao franchisc irvitcd to opnhouss. arc ComputcrizEd Basc Data ofFrancbise has lnooiries.TheCompan_s inlralleda compuerDetwork $ithin il! Franchise Sal.sDepantun for rhcpurpos.ot o|ganizing. managirg, tncking individual3 and $ ho inquircabout Cofipanysfranchbe, rhe NarionalAdvenisine.TheConpanycontinues advlnke nadonally Devrftanchisa on a to fot regolarandcortsisrcru in ,ational.aegional localpubtiaarions. basis and

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Case 1:04-cv-00725-RPM

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Filed 07/21/2005

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Cohprry Owrd f, eatrursltt qErrntl!'owt6and TheConpany I Ren.urarts, opcracs9 Quiz'o's monlylocared Denver. in and I Bain sDeli tc$au".nr loeacd Bo$ott.In 199?, in gcnerarcd Companyorxned RcsrauraDE 5291.651 in

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While $e Company expecbro add ne\r Compantowrced Restauraltstom djne-ro{ime. rhe Company expecls mostolirs grol'lh in &e forcareable firur. to resukftom fie developmenr of&aachiscd Restaurants. ln addidorl rltc Conpany.6om rim. to tim.. acquircs assutes $e optalion of tanchisd or Restaunnts thcfrarchise.hasbea thar suctessirllyfor reasors urubla10operare r&rclarcdlo thelocarior or the mrrkel ID suchcases. Cornpany nTically operate Rcstaurar[ make ary required tha will the lmprovemenrs rrpairs.rc-salf, beginlocalgorerharkcrh&andultimarely add fasfcr rl Rc$aurantro a neF qualifiedoqler. Occasionally Compar], daJ-incua 1he shon&nn losscs suchcgses.Horvever,lha in rot alry stream provided thelongtrmb-\, lew o\r,ner no.uajly offselor dxcaed suchlosses. v,/ill ovir the ar|y Adveriising $afdevelopsadveftisihg foa campaignl uscat sll levelsto suppoltco.rsuDcr Quizro'sadvenbing sales all ofits locario.s.Th. advenising paidro$c Company Ownets90c5 a "narional" in fees by inro fuhd lo bc uscdto devclopadv.nisiig to anractcuslornen lhe Resraurauts !o crcatcawaleness to ald oflhe Qui2io's brandimage.Campaigfls uJingrbe,'national'irnd ar. cEar.d wirh televisiorl iadio dcvclopcd andprinr elemenl5. wbichareavailablc cach localQuizto'sna*el ln I99E,rhcComlEnybcgara cabl ro televisioncampaigD sclccled in tna*.rs throughoul Ullred SElcs. $e EachResrauranl excepr Q|rizno's for Expres! is Restauranrs.requiEdto sperdarothcr joloofsrlcs fo-rlocaladvenising orpromorions. rnediascbedulcsfo. Funds bcused Flrchase rna), to produced Coml|an). T\'. |adio.prinr ads.or any otherapprovcd mdia.A limitednumbe!of rharliats with a concelnariooof tesEuran6 have forocd scpaEte which coiDcjdcwitb the a