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

Case 1:04-cv-00725-RPM

Document 41-15

Filed 07/01/2005

Page 1 of 26

performance. Tucker Anthony estimated the net present value of our future cash flows of using the management forecast covering the period ending December 31, 2005 and calculated a terminal value based on a range of the multiples of projected 2005 EBITDA. In conducting this analysis. Tucker Anthony applied discount rates ranging from 23.5% to 26.5% and terminal value multiples ranging from 5 . 0 ~ 5 . 5 ~ to EBITDA. Tucker Anthony derived these discount rates on the basis of the Company's most recent capital-raising activities, Tucker Anthony's judgment and experience with limited liquidity microcap companies, and the rates currently obtainable in debt markets. Tucker Anthony derived the range of EBITDA multiples and discount rates on the basis of multiples of EBITDA for the 22 public comparable companies, with significant consideration given to the seven smaller capitilization companies (discussed in the comparable public company trading analysis above) and the 27 comparable transactions (discussed in the selected transactions analysis above). This analysis indicated a discounted cash flow valuation ranging from approximately $13.15 per share to $16.40 per share. Tucker Anthony noted that the merger consideration of $8.50 was below the indicated range. Discounted Cash Flow Analysis, however, is only one of several measures used to determine the fairness, from a financial point of view, of merger consideration, and all of the other analysis indicate that the merger consideration of $8.50 was within the range. The engagement letter between us and Tucker Anthony provides that we are obligated to pay Tucker Anthony a fee of $100,000 upon delivery of the Tucker Anthony fairness opinion to the board prior to its decision to pursue the merger. This fee has been paid. We also agreed to pay a retainer of $10,000 per month beginning May, 2001 and ending on the closing date of the merger. In addition, the engagement letter between us and Tucker Anthony provides that we will reimburse Tucker Anthony for its out-of-pocket expenses and will indemnlfy Tucker Anthony and related persons against liabilities, including liabilities under securities laws, arising out of its engagement. Further, Tucker Anthony provided an asset-liability analysis and rendered an opinion to the board based on that analysis in connection with the tender offer in late 2000. We also used Tucker Anthony as the managing broker during our share repurchase program, in which Tucker Anthony was paid commissions in connection with the shares repurchased by us in that program. Tucker Anthony has consented to the inclusion of this description and to the inclusion of its Fairness Opinion, dated June 21, 2001, as an annex to this proxy statement. See Annex G"Consent of Tucker Anthony Sutro Capital Markets."

Our Management's Forecast During May and June 2001, our management, in connection with the merger, has provided the Schadens and Tucker Anthony with information about us that is not publicly available. These financial projections reflect certain revisions requested by the special committee and included the financial information set forth below, which describes all of the material financial information provided to the Schadens and Tucker Anthony. We do not, as a matter of course, publicly disclose forward-looking information 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 our Chief Financial Officer, John Gallivan, and reviewed by Richard E. Schaden solely for internal use and not for publication or with a view to complying with the published guidelines of the SEC regarding projections or with guidelines established by the American Institute of Certified Public Accountants for prospective financial statements and are included in this proxy statement only because they were furnished by our management to the Schadens and Tucker Anthony. The financial projections necessarily make many assumptions with respect to industry performance, general business and economic conditions, access to markets and distribution 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. We 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. With the exception of the examination of this prospective financial information by Tucker Anthony in
22

TQC00183

Case 1:04-cv-00725-RPM

Document 41-15

Filed 07/01/2005

Page 2 of 26

connection with its fairness opinion, neither our independent auditors nor any other independent accountants or financial advisors have compiled, examined or performed any procedures with respect to this prospective financial information, nor have they expressed any opinion or any form of assurance on this information or its achievability, and assume no responsibility for, and disclaim any association with, the projected financial information. Final Projections
2001 Projected Fiscal Year Ended September 30, 2005 2004. 2002 2003 dollars in thousands, except for per share data

-

Franchise Operations Total Revenue from Franchise Operations ......... Income from Franchise Operations ................ Company Store Operations Total Revenue from Company Owned Stores ...... Income from Company Owned Stores ............. Net Income before Taxes .......................... Net Income.. ...................................... Preferred Stock Dividends.. ....................... Net Income Applicable to Common Stockholders.. Diluted Net income Per Common Share.. .........

$ 8,317

$37,418 $44,512 $51,372 $57,724 $11,335 $15,091 $17,958 $14,282 $ 1,330 $ 5,139 $ 3,237 $ (27) $ 3,210 $ 1.02

$64,288 $20,811

$15,989 $ 1,528 $ (836) $ (526) $ (147) $ (676) $ (0.22)

$14,715 $15,161 $15,621 $ 1,233 $ .1,289 $ 1,328 1,499 $14.521 $ 8,752 $1 $ 5,400 $ 7,244 $ 9,148
$ $ 5,400 $ 1.72

$ $ 7,244 $ 2.31

$ $' 9,148 $ 2.92

Preliminary Projections

2001
Franchise Operations Total Revenue from Franchise Operations ......... Income from Franchise Operations ................ Company Store Operations Total Revenue from Company Owned Stores.. .... Income from Company Owned Stores ............. Net Income before Taxes .......................... Net Income.. ...................................... Preferred Stock Dividends.. ....................... Net Income Applicable to Common Stockholders.. Diluted Net income Per Common Share ...........

Projected Fiscal Year Ended September 3 , 0 2002 2003 2004 2005 dollars inGusands, G e p t for p s h a r e d a t r

$37,418 $ 8,317 $15,989 $ 1,528 $ (836) $ (526) $ (147) $ (676) $ (0.22)

$44,215
$ 9,811

$50,641 $11,635 $14,715 $ 1,233 $ 5,126 $ 3,229 $ $ 3,229 $ 1.03

$56,971 $63,761 $13,103 $14,665 $15,161 $ 1,289 $ 6,658 $ 4,194
$ $ 4,194 $ 1.34

$14,282 $ 1,330 $ 3,618 $ 2,280 $ (27) $ 2,252 $ 0.72

$15,621 $ 1,328 $ 8,385 $ 5,283
$ $ 5,283 $ 1.69

I

Differences
Projected Fiscal Year Ended September 30,

2001 -

dollars in thousands, except for per share data

2002 -

2003, -

2004 -

2005 -

Franchise Operations Total Revenue from Franchise Operations ......... Income from Franchise Operations ................ Company Store Operations ........................ Total Revenue from Company Owned Stores ...... Income from Company Owned Stores ............. Net Income before Taxes .......................... Net Income.. ...................................... Preferred Stock Dividends ................... .:. ... Net Income Applicable to Common Stockholders.. Diluted Net income Per Common Share.. ......... 23

-

$ 297 $ 731 - $ 1,524 $ 3,456 $ $ $

$ $

-

- $ 1,521 $ 957
$

-

958 0.30

$ $ $ $ $ $ $' $

-

3,626 2,171
-

2,171 0.69

$ $ $ $ $ $ $ $ $ $

753 4,855
-

$ 527 $ 6,146 $ $ $ $ 6,136 $ 3,865 $ $ 3,865 $ 1.23

4,841 3,050
-

3,050 0.97

r------TQC00184

7

Case 1:04-cv-00725-RPM

Document 41-15

Filed 07/01/2005

Page 3 of 26

Explanation of Differences Projected revenue from franchised operations increased in 2002, 2003 and 2004 as the result of an increase in the number of projected new openings of 10 in 2002 and 15 in 2004, increasing initial franchise fees in those years and royalty and licensing fees for 2002 through 2005. Openings were reduced by 8 in 2005. Projected franchising expenses decreased by $1.2 &on (3.4%) in 2002, $2.7 million (6.9%) in 2003, $3.9 million (8.9%) in 2004, and $5.6 million (11.4%) in 2005. The revisions to franchise expenses were primarily related to revisions to the estimates of the amount the Company would spend on information technology and revised estimates of the number of new employees the Company would add in subsequent years. The preliminary projections had been weighted on actual fourth quarter 2000 expenses, which included significant one time information technology costs along with an overlap of employee costs in connection with a re-organization of the Company's operations departments. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This proxy statement contains or incorporates by reference 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 us. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements which are other than statements of historical facts, including statements regarding the completion of the merger. When used in this document, the words "anticipate," "believe," "estimate," "expect," "plan," "intend," "project," "predict," `.may," and "should" and similar expressions, are intended to identlfy forward-looking statements. Such statements reflect our current view with respect to future events, including the completion of the merger, and are subject to numerous risks, uncertainties and assumptions. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by the forward-looking statements, including, among others: e delays in receiving required regulatory and other approvals; 0 the failure of shareholders to approve the merger agreement; e general economic or market conditions; ' e changes in business strategy; e availability of financing on acceptable terms to fund future operations; e competitive conditions in our markets; e general economic or market conditions; e changes in technology; and e various other factors, both referenced and not referenced in this proxy statement including those discussed in our periodic and other filings with the SEC. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this proxy statement as anticipated, believed, estimated, expected, planned or intended. Further information about the risks of forward-looking statements applicable to us can be found in our Form lO-QSB/A for the three months ended June 30, 2001 and our Form lO-KSB/A for the year ended September 30, 2000, both of which have been incorporated herein by reference and attached as Annex E and Annex F, respectively, to this proxy statement.

I

24

Case 1:04-cv-00725-RPM

Document 41-15

Filed 07/01/2005

Page 4 of 26

THE SPECIAL MEETING Matters to be Considered The purpose of the special meeting is to vote upon a proposal to approve and adopt the merger agreement. If the merger agreement is approved by our shareholders and the other conditions to the merger are satisfied or waived, Firenze will merge with and into us and all shares currently held by our public shareholders will be converted into the right to receive $8.50 in cash, without interest, other than shares as to which appraisal rights have been validly exercised. Representatives of our independent auditors are not expected to be present at the special meeting. A merger agreement is attached to this proxy statement as Annex A. See also "The Merger Agreement" and "The Merger" beginning on page 31 of this proxy statement. The Special Committee and the board have approved the merger agreement and recommend a vote for adoption and approval of the merger agreement and the merger. The Schaden's, as members of the board with a direct conflict of interest, did not take part in the vote. Required Votes The affirmative vote of at least a majority of the outstanding shares entitled to vote thereon is required to approve and adopt the merger agreement and the merger. The transaction is not structured so that the approval of at least a majority of unaffiliated security holders is required. As of October 5 , 2001 the Schadens were beneficial owners of approximately 67% of the outstanding shares of our common stock, of which all shares are eligible to vote at the special meeting. The Schadens have indicated that they intend to vote their shares in favor of the adoption of the merger agreement, although they are not obligated to do so. Accordingly, the Schadens have sufficient voting power to cause the approval and adoption of the merger agreement and the merger without the affirmative vote of any of our other shareholders. Voting and Revocation of Proxies Shares that are entitled to vote and are represented by a proxy properly signed and received at or prior to the special meeting, unless subsequently properly revoked, will be voted in accordance with the instructions indicated thereon. If a proxy is signed and returned without indicating any voting instructions, shares represented by the proxy will be voted for the proposal to approve and adopt the merger agreement and the merger. The board is not currently aware of any business to be acted upon at the special meeting other than as described in this proxy statement. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before the shares represented by the proxy are voted at the special meeting by: attending and voting in person at the special meeting, giving notice of revocation of the proxy at the special meeting, or delivering to our secretary a written notice of revocation or a duly executed proxy relating to the same shares and matters to be considered at the special meeting, bearing a date later than the proxy previously executed. You may revoke your proxy at any time before it is voted by delivering to the corporate secretary of the company at 1415 Larimer Street, Denver, Colorado 80202, a written and signed revocation or a duly executed proxy bearing a later date. In addition, if you attend the meeting, after notifying the secretary of the meeting, you may vote in person even if you have previously submitted a proxy. Record Date`; Stock Entitled to Vote; Quorwn; Voting at the Special Meeting Only holders of shares at the record date will be entitled to receive notice of and to vote at the special meeting. At the close of business on the record date, there were outstanding and
25

i--------__7 TQC00186

Case 1:04-cv-00725-RPM

Document 41-15

Filed 07/01/2005

Page 5 of 26

entitled to vote 2,337,439 shares. Each holder of record of common stock on the record date will be entitled to one vote for each share held on all matters to be voted upon at the special meeting. The presence, in person or by proxy, at the special meeting of the holders of at least a majority of the shares entitled to vote is necessary to constitute a quorum for the transaction of business. Abstentions will be counted as present for the purpose of determining whether a quorum is present but will not be counted as votes cast in favor of the merger proposal. Abstentions. therefore, will have the same effect as a vote against the merger proposal. Brokerage firms who hold shares in "street name" for customers will not have the authority to vote those shares with respect to the merger if such firms have not keceived voting instructions from a beneficial owner. The failure of a broker to vote shares in the absence of instructions (a "broker non-vote") will be counted as present for the purpose of determining whether a quorum is present but will not be counted as votes cast in favor of the merger proposal. Broker non-votes, therefore, will have the same effect as a vote against the merger. Appraisal Rights Each shareholder has a right to dissent from the merger, and, if the merger is consummated, to receive "fair value" for his or her shares in cash by complying with the provisions of the Colorado Business Corporations Act, including Article 113. The dissenting shareholder must deliver to us, prior to the vote being taken on the merger agreement at the special meeting, written notice of his or her intent to demand payment for his or her shares if the merger is effected and must not vote in favor of approval and adoption of the merger agreement. The full text of Article 113 of the Colorado Business Corporations Act is attached as Annex D hereto. See "Appraisal Rights" at page 44 for a further discussion of the rights and the legal consequences of voting shares in favor of the approval and adoption of the merger agreement and the merger. Solicitation of Proxies We will bear the cost of soliciting proxies from shareholders. In addition to soliciting proxies by mails, our officers and directors and employees, without receiving additional compensation, may solicit proxies by telephone, facsimile or in person. Arrangements may also be made with brokerage firms and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of shares held of record by such persons, and we will reimburse such brokerage firms, custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them. CERTAIN INFORMATION CONCERNING THE COMPANY Recent Developments We have entered into an agreement with Quiznos Canada Corporation, a Canadian Company, and a successer in interest, 626514 British Columbia Ltd. that is our master franchisee in Canada and its principal owner to provide management services and other assistance to the master franchisee. At this time, the Canadian master franchise is financially distressed. In consideration for these services, we will be paid certain management fees and will be issued 20% of the outstanding capital stock of the master franchisee on a fully diluted basis. We will also be reimbursed for the costs of certain of our services. In addition the principal owner of the master franchisee has granted us, subject to certain conditions, a series of options to purchase from it up to an additional 31% of the outstanding capital stock of the master franchisee on a fully diluted basis at a cost determined by various valuation methods that depend upon when the options are exercised. This last option in the series will expire on December 31, 2003. The master franchisee currently has franchised approximately 124 restaurants in Canada. 26

`

TQC00187

Case 1:04-cv-00725-RPM

Document 41-15

Filed 07/01/2005

Page 6 of 26

Certain Transactions Tucker Anthony Incorporated, the parent company of the financial advisor to the special committee, has loaned to Richard E. Schaden approximately $2,000,000 which is secured by Mr. Schaden's shares of our common stock. In addition to his shares of common stock, the loan is secured by Mr. Schaden's personal assets and personal guaranty, as well as a guaranty from us by which we assure Tucker Anthony and its affiliates that upon an event of a default in Mr. Schaden's loan, we will be responsible for the principal and interest on `the loan. The guaranty will only be drawn against US by Tucker Anthony or its affiliates if (a) Mr. Schaden defaults on his payment obligations under the loan or (b) Mr. Schaden's shares of common stock and other collateral and guaranties become insufficient collateral. In the event our guaranty is invoked, we have entered into a reimbursement agreement with Mr. Schaden which requires Mr. Schaden to reimburse us for any expenses or losses suffered by us in connection with the guaranty. One of the conditions of the Tucker Anthony loan is that our common stock remain publicly traded. As such, it is anticipated that the Tucker Anthony loan will have to be refinanced at the time the merger closes. We have initiated discussions with an unaffiliated lender, Aviation Finance Group, LLC, to arrange for such refinancing. Current discussions indicate the new loan to Mr. Schaden will likely be for $2,000,000, payable Over 20 years with an interest rate of 3.2 percentage points over the five-year Treasury interest rate in effect from time to time. We expect to guaranty the loan and secure the guaranty with our corporate jet aircraft. Mr. Schaden is expected to enter into a reimbursement agreement similar to the one described above at the time the loan is advanced.
In the past three fiscal years, we have paid to Tucker Anthony a total not exceeding $952,160 for various financial services. Specifically, in fiscal year 1999, we paid Tucker Anthony $8,200 in commissions in connection with certain share repurchases by US of our common stock. In fiscal year 2000, we paid them less than $2,500 in comrqissions for additional share repurchases of our common stock and an additional $801,460 in connection with our tender offer and other financings. To date this fiscal year, we have paid them $140,000 in connection with this merger.
1

During the current fiscal year through September 5, 2001 Richard E. Schaden has earned $398,675 as salary and $5,163 in profit sharing. Also, in fiscal 2001, Mr. Schaden earned $425,315 in bonus under his employment contract for calendar year 2000, and.$11,850 in auto allowances. In addition, we have accrued $445,062 through July 31, 2001 for 2001 bonus expected to be earned under his employment contract. He has also been paid $28,470 in preferred stock dividends, $9,000 for board of director fees, and reimbursed $22,304 for business and compensatory expenses. During the current fiscal year through September 5, 2001, Richard F. Schaden has earned $91,959 as salary and $3,163 in profit sharing. Also, in fiscal 2001, Mr. Schaden earned $249,188 in bonus under his employment agreement for calendar year 2000, and $14,400 in rent. In addition, we have accrued $222,531 through July 31, 2001 for 2001 bonus expected to be earned under his employment contract. Richard E Schaden is a shareholder of Illinois Food Managers, Inc., which in turn is shareholder in Sub Development, Inc., an area director for the Company whom we have paid $572,347 in commissions from September 30, 2000 through August 31, 2001. He has also been paid $84,870 in preferred stock dividends and $9,000 for board of director fees. During our tender offer, we discussed the possibility of redeeming some or all of Richard E Schaden's shares of our common stock after the merger is complete in a manner that is tax advantageous to Mr. Schaden. These discussions have been preliminary in nature and we have not reached any agreement, nor has Mr. Schaden told us whether he would agree to such a redemption of his shares. We expect to continue these discussions following conclusion of the merger. However, at the present time we do not believe we have the cash availability or financing capacity to complete such a transaction in the foreseeable future. In the merger agreement, we agreed that, to the fullest extent permitted under applicable law, after the effective time of the merger we will, as the surviving corporation, indemnify, defend and hold harmless each of our present and former officers and directors, against all losses, claims, damages, liabilities, costs, fees and expenses, including reasonable fees and disbursements of counsel and judgments, fines, losses, claims, liabilities and amounts paid in settlement arising out of actions or omissions occurring at or prior to the effective time of the merger to the full extent 27

TQCOOl88

Case 1:04-cv-00725-RPM

Document 41-15

Filed 07/01/2005

Page 7 of 26

permitted under applicable Colorado law, the terms of our articles of incorporation or the terms of our bylaws, as in effect on June 21, 2001. As the surviving corporation, we agreed that we will maintain our existing directors' and officers' liability insurance for at least six years following the effective date of the merger. We may substitute policies with substantially equivalent coverage and amounts which contain terms no less favorable to the former directors and officers. In no event will we be required to pay aggregate annual directors and officers premiums in excess of 200% of the aggregate premiums paid by us in the twelve months prior to the date of the merger agreement on an annualized basis; but if we are unable to obtain the amount of insurance required by the merger agreement for the aggregate premium, we will obtain as much insurance as can be obtained for an annual premium not in excess of 200% of the aggregate directors and officers insurance premiums paid by us in the twelve months prior to the date of the merger agreement on an annualized basis. During our tender offer, we discussed the possibility of redeeming some or all of Richard E Schaden's shares of our common stock after the merger is complete in a manner that is tax advantageous to Mr. Schaden. These discussions have been preliminary in nature and we have not reached any agreement, nor has Mr. Schaden told us whether he would agree to such a redemption of his shares. We expect to continue these discussions following conclusion of the merger. Price Range of `Shares; Dividends; and 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 three 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.
Fiscal Period Ended 0 September 3 , 1999(1) Low Close High -

First Quarter ................................................ Second Quarter ............................................. Third Quarter ...............................................

$7.75 7.75 9.50
.

$6.88 6.50 6.94

$6.88 7.25 7.88

Fiscal Year Ended September 30, 2000 Low High - . . , Close

First Quarter .......... :..................................... Second Quarter ............................................. Third Quarter ................................................ Fou,rth Quarter.. ............................................

$9.00 7.94 8.00 7.38

$7.25 5.88 5.88 5.88

$7.38 7.94 7.00 6.44

Fiscal Year Ended September 3 , 2001 0 Low Ctose High -

First Quarter ................................................ Second Quarter ............................................. Third Quarter ............................................... Fourth Quarter ..............................................

$8.00 8.00 8.44 8.72

$6.25 7.00 7.12 8.10

$7.88 7.38 8.32 8.36

(1)In 1999 we changed our fiscal year from December 31 to September 30 resulting in a nine month fiscal year. On October 5 , 2001, we had issued and outstanding 2,337,439 shares of our common stock. On such date, there were approximately 85 holders of record of our common stock. Such number includes shareholders of record who hold stock for the benefit of others. On May 21, 2001, the

Case 1:04-cv-00725-RPM

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Page 8 of 26

last day the shares were traded prior to the announcement of the merger proposal. the last reported sales price per Share as reported on Nasdaq was $7.40. 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. In our tender offer, which closed on December 12, 2000, we purchased 1,699,439 shares, including options and warrants at $8.00 per share. Since December 12, 2000, we have purchased an additional 51,522 shares, including options and warrants, at $8.00 per share in private unsolicited transactions in which we were approached by individual shareholders. In March 2001, Richard E. Schaden purchased 2,000 shares of our common stock from his brother, Tim Schaden, at a price of $8.00 per share. Summary Unaudited Pro Forma Condensed Financial Information The following unaudited pro forma condensed financial information and explanatory notes give effect to the merger and are based on the estimates and assumptions set forth in the notes to such statements. This pro forma information has been prepared using our historical financial statements and should be read in conjunction with the historical financial statements and notes included in the Form lO-KSB/A and the Form 10-QSBIA. The pro forma condensed balance sheet information gives effect to the merger as if it had occurred on June 30, 2001. The pro forma condensed statement of earnings for the year ended September 30, 2000 and for the nine months ended June 30, 2001 gives effect to the merger as if it had occurred on October 1, 1999. The pro forma condensed financial data may not be indicative of actual results that would have been achieved if the merger had occurred on the dates indicated or the results that may be realized in the future.
'

29

TQC00190

Case 1:04-cv-00725-RPM

Document 41-15

Filed 07/01/2005

Page 9 of 26

SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
Nine Months Ended June 30, 2001 F W Year Ended September 30,2000 Pro Foema Pro Forma Pro Pro Forma Historical Adjustments Forma Historical Adjustments (Dollars in thousands, except per share data)

Pro Forma Condensed Statement of Earnings: Income from franchise operations ................... Income from Company store operations ................... Interest expense. ............... Depreciation and amortization Impairment of long lived assets Financing and acquisition related costs ................. Other income (expense). ....... Earnings before income taxes . . Income taxes.. ................. Preferred stock dividends ...... Net earnings (loss) applicable to common stockholders .....
'

$ 6,051

$-

$ 6,051 $ 6,799

1,194 (1,899) (1,960) (579) (138) (687) 1,982 (723) (186)
$ 1,073

1,194 ' 947 (1,899) (2,515) (1,960) (2,378) (579) (1,270) (138) (687) 1?982 (723) (148) (2,283) (877) (1,577) 583 (139)

(1.577) 583 (110) $(1,104)

$ 1,111 $(1,133) --

Weighted average shares outstanding; 3,020 Basic ...................... 3,729 Diluted .................... Diluted net income (loss) per share of common stock ...... $ 0.31

2,242 2,833
$' 0.39

2,522 2,522
$ (0.45)

1,744 1,,744
$ (0.63)

30

i

--

-

-

-

-

-

-

~

_

_

I

_

-

-

I

I

TQC00191

]

g .;a :%

Case 1:04-cv-00725-RPM

Document 41-15

Filed 07/01/2005

Page 10 of 26

Nine Months Ended June 3 . 2001 0 Historical Adjustments Pro Forma (Dollars in thousands, except per share data)

Pro Forma Condensed Balance Sheet Assets Current Assets: Cash and short term investments ...................... Accounts and current portion of notes receivable.. .... Other current assets ................................... Total current assets .................................... Property and equipment, net ........................... Intangible and deferred assets ......................... Deferred tax asset ..................................... Other assets ........................................... Total assets .............................................

Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and accrued liabilities ............... $ 8,906 1,843 Current portion of long term obligations.. ............. 10,749 Total current liabilities ................................. Line of credit.. ........................................ 27,231 Long term obligations ................................. Subordinated debt ...................................... 20,209 Deferred revenue ...................................... 3,374 Warrants subject to put ................................ Stockholders' Equity .................................... (8,709) Total liabilities and stockholders' equity ............... $52,854 Working capital ................................................. *Totaldebt ........................ :. ............................. Book value per common share ................................. $11,408 $29,074 $ (3.45)

-

$15,278 5,249 1,630 22,157 10,177 14,889 4,254 1,377 $52,854

$ 7,228

$( 8,050)

5,249 1,630 14,107 10,177 14,889 4,254 1.377 $ 44,804

$ -

$ 8,906

1.843 10,749 27,231 20,209 3,374 (16,759) $ 44,804
$ 3,358 $ 29,074 $ (9.61)

(1) Adjustment to preferred stock dividends reflects the purchase of 21,000 shares of Class C preferred stock ($.60 per year per share dividend) and 24,677 shares of Class E preferred stock ($1.034 per year per share dividend). The Class A preferred stock will not be redeemed, and the Class D preferred stock does not pay dividends.
(2) The adjustment to stockholders' equity reflects the purchase of 895,720 common shares, options and preferred shares for $8.50 each for a total of $7,613,620; less proceeds of $402,692 from the exercise price of options, plus transaction costs of $780,000, and incremental costs of $59,000 related to the redemption of the Class E and Class D preferred stock. Class C and Class E will be purchased at $8.50 per share, with an additional $50,000 for the Class E to cover liquidation value. The authorized and issued Class D preferred stock will be redeemed for $3.00 per share totaling $9,000. The adjustment reflects the repurchase of all common stock, preferred stock and options not held by the Schadens and their affiliates. See following table for a detailed breakdown of the stockholders' equity adjustment.

(3)The cost of the shares, incremental and transaction costs will be paid with cash. (4) 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.
31

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Calculation of Cost to Repurchase
Shares Outstanding

Loss: Schaden & Affiliate ownership (In thousands)

Shares to be Repurchased

Common Stock .................................. Class A Preferred Stock.. ....................... Class C Preferred Stock.. ....................... Class D-see below ............................. Class E Preferred Stock ......................... Options ......................................... Totals ........................................... Repurchase `Price................................ Total Repurchase $$.. ........................... Less Option Proceeds ........................... Transaction Costs. ............................... Class D-redeemed at face value ............... Class E-incremental costs ...................... Total Costs for Repurchase. ..................... Interests of Certain Persons in the Merger

2,337 146 57 60 155 2,755

-

(1,559) (146) (36)

778

-

-

(35) (83) (1,859)

21 25 72 896
$ 8.50

$7,614 (403) 780 9 50 $8,050

In considering the merger and the fairness of the consideration to be received in the merger, you should be aware that certain of our officers and directors have interests in the merger, which are described below and which may present them with certain actual or potential conflicts of interest. As of October 5, 2001, the directors and executive officers as a group beneficially owned 1,884,923 shares of our common stock on a fully diluted basis, or 57.3% of such shares, which includes 3 16,654 shares issuable upon exercise of outstanding stock options that are currently exercisable or the conversion of shares of preferred stock. The Schadens own approximately 67% of the outstanding shares of common stock and, if acting together, will be able to control all matters requiring approval of our shareholders, including the approval of the merger and the election of directors. Our board was aware of these actual and potential conflicts of interest and considered them along with the other matters described under "Certain Beneficial Ownership of Shares," "Special Factors-Recommendations of the Special Committee and Board of Directors,'' and "Special Factors-Reasons for the Merger and Fairness of the Merger." After the merger, the Schadens and their affiliates will beneficially own 100% of the outstanding shares of our common 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 "Merger Financing." The members of the special committee have been and will be paid $7,500 per month from the date of their engagement until the closing of the merger. To date, each member has been paid $57,500. The members of the special committee will continue to serve as our directors subsequent to the merger. Pursuant to the merger agreement, if the merger is completed, our directors, including members of the special committee (other than the Schadens and the affiliates), will receive the merger consideration less the exercise price for each share of common stock subject to such directors stock options. 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. Richard E. Schaden purchased 2,000 shares from his brother on April 19, 2001 at $8.00 per share in a private 32
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~~C00193
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Case 1:04-cv-00725-RPM

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transaction. 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 merger 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. Currently, the only options to purchase company common stock are held by the Schadens, certain of our directors, including Frederick H. Schaden, members of the special committee and one executive officer. See the table below and "Certain Beneficial Ownership of Shares" on page 39. The options held by the Schadens and their affiliates wl survive the merger and become il obligations of the surviving company with the same terms as they currently have. The holders of the remaining stock options will receive payment from us in cash equal to the merger consideration, less exercise price, for each share of common stock subject to such directors stock options.

Options held by executive OfJicers,directors and afJiliates (All are ten-year options)
Name Grant Date Shares Covered Exercise Price

Richard E. Schaden ........................................ Richard E Schaden ........................................ Frederick Schaden .........................................

John Todd (special committee member) .................... Mark Bromberg (special committee member) ..............

Patrick Meyers .............................................

1/1/00 1/1/00 1/1/00 1/1/99 1/1/98 12/1/96 12/1/95 12/1/94 12/1/93 9/26/00 1/1/00 1/1/99 1/1/98 9/3/97 12/1/96 12/1/95 12/1/94 12/1/93

4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 2,000 1,000 4,000 4,000 4,000 2,000 4,000 4,000 4,000 2,000

$7.375 $7.375 $7.375 $7.625 $4.875 $3.875 $3.75 $4.12 $5.00 $6.50 $7.375 $7.625 $4.875 $4.75 $3.875 $3.75 $4.12 $5.00

Preferred stock held by executive oficers, directors and afiliates

Name

Class of Preferred Stock

Number of Shares

Aggregate Redemption Value

Richard E. Schaden (through voting trust) ................... Richard F. Schaden (through voting trust) ..................... (individually) ................................................. (individually) ................................................. Frederick Schaden ........................................... John Gallivan ................................................ Steve Shaffer ................................................. John Fitchett ...................................................

Class A Class A Class C Class E Class C Class E Class D Class D

73,000 73,000 34,000 34,803 2,000 1,473 1,000 1,000

$14,023 $ 3,000 $ 3,000

* According to the terms of the merger agreement preferred stock owned by the Schadens will not be redeemed.
All of the above listed outstanding options are fully vested. All outstanding options were granted under the Directors' Plan, which provided that options vested upon grant.

Case 1:04-cv-00725-RPM

Document 41-15

Filed 07/01/2005

Page 13 of 26

THE MERGER AGREEMENT
This section of the proxy statement describes material aspects of the merger, including material provisions of the merger agreement. This description of the merger agreement is not complete and is qualified by reference to the merger agreement, a copy of which is.attached to this proxy statement as Annex A and which is incorporated by reference. You are urged to read the entire merger agreement carefully.

The Merger
The merger agreement provides that, upon the terms and subject to the conditions in the merger agreement, and in accordance with Colorado law, Firenze will be merged with and into us. As a result of the merger, Firenze's corporate existence will cease and Quizno's will continue as the surviving corporation in accordance with Colorado law. The merger will become effective at the time the articles of merger are filed with the Secretary of State of the State of Colorado. The merger is expected to occur as soon as practicable after all conditions to the merger have been satisfied or waived.

Our board of directors, based upon the recommendation of the special committee, has approved, and deems it fair to and in the best interests of our public shareholders to consummate the merger of Firenze with and into us. Upon consummation of the merger, each issued and outstanding share of our common stock other than shares beneficially owned by: (1) Richard E. Schaden, (2) Richard E Schaden, (3) their affiliates, and (4) holders who have validly exercised their dissenters' rights, will be cancelled and converted automatically into the right to receive $8.50 per share.
The merger agreement provides that our directors and officers immediately prior to the effective time of the merger will be the directors and officers of the surviving corporation. Subject to the merger agreement, our restated articles of incorporation as in effect immediately prior to the effective time of the merger, will be the restated articles of incorporation of the surviving corporation after the merger. Subject to the merger agreement, our bylaws, as in effect immediately prior to the effective time of the merger, will be the bylaws of the surviving corporation after the merger. Subject to the merger agreement, any vacancy existing in the surviving corporation's board of directors or in any of the surviving corporation's offices, may thereafter be filled in the manner provided by the Colorado Business Corporation Act and the surviving corporation's articles of incorporation and bylaws. Stock Options, Warrants and Preferred Stock At the effective time of the merger, our stock option plans and each outstanding option to purchase shares under our plans, whether vested or unvested, owned by the Schadens or the affiliates will be assumed by the surviving corporation. Each such option so assumed shall continue to have, and be subject to, the same terms and conditions set forth in our employee stock option plan and the applicable stock option agreement immediately prior to the effective time of the merger. At the effective time of the merger, all stock options held by persons other than the Schadens or the affiliates will automatically be converted into the right to receive an amount equal to the merger consideration in cash, less the applicable exercise price, for each share of common stock subject to such options. At the effective time of the merger, each of our outstanding warrants will be assumed by the surviving corporation. Each warrant assumed by the surviving corporation under the merger agreement shall continue to have the rights and privileges set forth in the warrant immediately prior to the effective time of the merger. Our authorized and issued Class C and Class E preferred stock existing as of the date of the merger agreement, other than shares owned by the Schadens and their affiliates will be redeemed by us at a purchase price equal to the merger consideration or the liquidation value of each 34

i

TQC00195

.

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Case 1:04-cv-00725-RPM

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Page 14 of 26

respective class of preferred stock, plus accumulated but unpaid dividends, and, in the case of the Class E preferred stock, a negotiated fee to terminate certain rights held by the Class E shareholders, which termination fee will be subject to approval by our board of directors. Our Class D preferred stock will be redeemed for $3.00 per share. The redemptions will close prior to the effective time, and the preferred stock will be cancelled. Any shares of preferred stock that have not been redeemed prior to the effective time of the merger will be assumed by the surviving %corporation. Conversion of Common Stock Once we and Firenze complete the merger, the following will occur: each share of our common stock, issued and outstanding immediately prior to the effective time, will, automatically, be converted into the right to receive an amount in cash equal to $8.50 per share payable to you without interest; all shares of our common stock, when converted, will no longer be outstanding and will automatically be cancelled and retired; each share of Firenze common stock will be automatically converted into one fully paid share of the common stock of the surviving corporation; each share of our common stock owned by any of our subsidiaries will be cancelled and i l retired and will cease to exist and no consideration w l be paid for it; each holder of a certificate formally representing such shares will cease to have any rights, except the right to receive the merger consideration; we will appoint a transfer agent who will pay the merger consideration to our public shareholders; after the merger is completed, we will send YOU a transmittal form and written instructions for exchanging your share certificates for the merger consideration. Do not send share certificates now.

0

Representations and Warranties The merger agreement contains our representations and warranties relating to: corporate organization,. standing and power; capital structure; 0 consents and approvals required for the merger; 0 absence of certain changes or events; 0 brokers; 0 subsidiaries; 8 authority to execute and validity of the agreement; 0 SEC documents; 0 state takeover statutes; 0 litigation; and 0 taxes. The merger agreement also contains Firenze's representations and warranties of Firenze relating to:
0

0

corporate organization, standing and power; capital structure; consents and approvals required for the merger; state takeover statutes and absence of super majority provision; litigation;

35

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TQC00196

Case 1:04-cv-00725-RPM
taxes; undisclosed liabilities;
0

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subsidiaries; authority to execute and validity of the agreement; new entity status;

0

brokers; employee benefit matters; title to properties; board and shareholders recommendation; and shareholder approval.

Covenants In the merger agreement, we agreed that:
0

our business and the business of our subsidiaries will be conducted only in the usual, regular and ordinary course and in substantially the same manner as previously conducted, and we and our subsidiaries will use their commercially reasonable efforts to preserve their business organization substantially intact, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having significant business dealings with them, in each case consistent with past practice, so that the goodwill and ongoing business is unimpaired, to the fullest extent possible, at the effective time of the merger.

In the merger agreement, Firenze agreed that: Firenze will not carry on any business other than business required to consummate the merger and other transactions contemplated by the merger agreement; and Firenze, or its affiliates, will not take any action that would, or that could reasonably be expected to, result in any of Firenze's representations and warranties set forth in the merger agreement becoming untrue. Directors' and Officers' Indemnification In the merger agreement, we agreed that, to the fullest extent permitted under applicable law, after the effective time of the merger we, as the surviving corporation, will indemnify, defend and hold harmless each of our present and former officers and directors, against all losses, claims, damages, liabilities, costs, fees and expenses, including reasonable fees and disbursements of counsel and judgments, fines, losses, claims, liabilities and amounts paid in settlement arising out of actions or omissions occurring at or prior to the effective time of the merger to the full extent permitted under applicable Colorado law, the terms of our articles of incorporation or the terms of our bylaws, as in effect on June 21, 2001. As the surviving corporation, we agreed that we will maintain our existing directors' and officers' liability insurance for at least six years following the effective date of the merger. We may substitute policies with substantially equivalent coverage and amounts which contain terms no less favorable to the former directors and officers. In no event will we be required to pay aggregate annual directors and officers premiums in excess of 200% of the aggregate premiums paid by us in the twelve months prior to the date of the merger agreement on an annualized basis; but if we are unable to obtain the amount of insurance required by the merger agreement for the aggregate premium, we will obtain as much insurance as can be obtained for an annual premium not in excess of 200% of the aggregate director's and officer's insurance premiums paid by us in the twelve months prior to the date of the merger agreement on an annualized basis. 36

Case 1:04-cv-00725-RPM
Conditions to the Merger

Document 41-15

Filed 07/01/2005

Page 16 of 26

Under the merger agreement, the respective obligation of each party to effect the merger is subject to the satisfaction or waiver, on or prior to the closing date of the merger, of the following conditions: the merger agreement has been approved by the requisite vote of the holders of our common stock; and no final restraining order or permanent injunction or other final order issued by any court of competent jurisdiction or other legal prohibition preventing the consummation of the merger are in effect: provided that, subject to the merger agreement, the parties thereto will use reasonable efforts to have any such injunction, order, restraint or prohibition vacated. Our obligation to consummate the merger is subject to the satisfaction of the following conditions at the effective time of the merger: Tucker Anthony shall not have revoked, modified or changed its fairness opinion in any manner adverse to the holders of our shares. The obligation of Firenze to consummate the merger is subject to the satisfaction of the following conditions at the effective time of the merger: we will not have incurred and still be incurring a material adverse change; and persons holding not more than 170,000 issued and outstanding shares of ours will have exercised dissenters' rights in accordance with the requirements and procedures set forth in the Colorado Business Corporation Act. Termination The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after shareholder approval is obtained: by mutual written consent of Firenze and us; by either Firenze or us: if our shareholders fail to give any required approval of the merger and the transactions contemplated hereby upon a vote at a duly held meeting of our shareholders or at any adjournment thereof; if any court of competent jurisdiction or any governmental, administrative, or regulatory authority, agency or body shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the merger; or if the merger has not been consummated on or before September 30, 2001 and subject to certain conditions in the merger agreement. by Firenze if we have breached in any material respect any representation or warranty contained in the merger agreement, or failed to perform in any material respect any of our covenants, obligations or other agreements contained in the merger agreement; and that breach is not curable or 20 days have elapsed subsequent to notice by Firenze to us of that breach and that breach has not been cured within the 20 day period. by us if Firenze has breached in any material respect any representation or warranty contained in the merger agreement, or failed to perform in any material respect any of our covenants, obligations or other agreements contained in the merger agreement; and that breach is not curable or 20 days have elapsed subsequent to notice by us to Firenze of that breach and that breach has not been cured within the.20 day period; and
37

TQC00198

Case 1:04-cv-00725-RPM

Document 41-15

Filed 07/01/2005

Page 17 of 26

our board of directors determines, in good faith, after consultation with and based on the advice of legal counsel, that the failure to change its recommendation of the adoption of this agreement and the merger could be expected to constitute a breach of its fiduciary duties to our shareholders under applicable law. Effect of Termination In the event of the termination of the merger agreement, by either us or Firenze, as provided in the merger agreement, the merger agreement will become void and have no further effect, without any liability or obligation on the part of either party, except that nothing in the merger agreement will relieve any party to the merger agreement from liability or damages resulting from any intentional breach of the merger agreement. If the merger agreement is validly terminated, none of its provisions survive, except for certain miscellaneous provisions including payment of expenses. Amendment The merger agreement may be amended by the parties, with any amendment in writing and signed on behalf by both parties to the merger agreement, at any time before or after any required approval of matters presented in connection with the merger by our shareholders or the shareholders of Firenze. Provided, however, that after any such approval, there will be made no amendment that by law requires further approval by such shareholders without the further approval of such shareholders. Expenses; Termination Fees Generally, each party will pay its own costs incurred in connection with the merger agreement with the transactions contemplated by the merger. If the merger agreement is terminated by us as a result of the board's fiduciary obligations, we shall pay to Firenze all out-of-pocket expenses incurred by Firenze and its affiliates in connection with the merger agreement and not otherwise reimbursed or paid by us. Fees and Expenses The following is an estimate of expenses incurred or to be incurred in connection with the merger. Legal fees ......................................... $405,000.00 25,000.00 Printing and mailing ............................... Filing fees ......................................... 4,000.00 Financial advisor fees ............................... 182,000.00 Miscellaneous ...................................... 14,000.00 Special Committee ................................. 150,000.00 Class E liquidation. ................................ 50,000.00 Class D redemption ................................ 9,000.00 Total .......................................... $839,000.00

38

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CERTAIN BENEFICIAL OWNERSHIP OF SHARES The following table sets forth certain information, as of October 5, 2001, 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. On such date, there were 2,337,439 shares of our common stock outstanding.
Name and Address Common Stock Owned(1) Common Stock Percentage Preferred Stock Owned and Percentage

Richard E. Schaden ................................ 1415 Larimer Street Denver, CO 80202 Richard E Schaden ................................. 11870 Airport Way Broomfield, CO 80021 Levine Leichtman Capital Partners 11, L.P.. ......... 335 North Maple Drive Suite 240 Beverly Hills, CA 90210 Michael J. Roberts ................................. (jointly with Sandstone Ventures, LLL) 6672 Gunpark Drive East, #lo2 Boulder, Colorado 80301 (4) Mark L. Bromberg .............................. :... J. Eric Lawrence.. .................................. Frederick H. Schaden ............................... John J. Todd.. ...................................... Steven 3. Shaffer ................................... John E Fitchett ..................................... Robert W. Scanlon.. ................................ Sue A. Hoover.. .................................... Robert Elliott ....................................... Patrick E. Meyers ................................... John L. Gallivan.. .................................. All Executive Officers and Directors as a Group (13 persons) ......................................

873,384(2) 920,470(2)
(3)

36.0% 37.1% 14.0%

(3)

227,688

9.7%

0

14,000(5 )
0

* *
1.2%

0 0

.

28,000(5) 1,OOO( 5)

(7)

*

0
(7) (7) 0 0 0 0 (7) (7)

500(6) 0 0 3,873(6) 0 15,723(6)
1,473(6)

* * * * * *
70.6%

1,858,423

* 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 C Cumulative Convertible Preferred Stock and Class E Cumulative Convertible Preferred Stock are currently convertible into our common stock on a 1-for-1 basis. (2) Richard E. Schaden and Richard E 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 stock? and 2,000 shares of our common stock owned by a family member for which the voting trust holds sole voting power. The remaining duration of the (footnotes continued on next page) 39

1
TQC00200

Case 1:04-cv-00725-RPM

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(footnotes continued from previous page)
voting trust agreement is three 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 E Schaden in the table, and he has been given a proxy to vote such shares. Richard E. Schaden has pledged 773.667 shares of common stock to secure a personal loan. Mr. Schaden retains all voting rights with respect to such shares. Richard E. Schaden, individually, beneficially owns an additional 6,339 shares of our common stock held in his own name, 17,378 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 stock, 4,000 shares of our common stock represented by currently exercisable stock options and 34,803 shares of our Class E preferred stock. (3) We issued warrants to Levine Leichtman in connection with their loan to us of $13.8 million to finance our tender offer for shares of our common stock in December 2000. Such warrants permit Levine Leichtman to purchase up to 14% of each class of our capital stock on a fully diluted basis as of the completion of our tender offer at an exercise price of $0.01, subject to certain adjustments for issuances, exchanges or repurchases of our capital stock. (4) The identified parties filed a Schedule 13D with the SEC on August 24, 2001 which indicated the requisite ownership had been acquired on November 30, 2000. ( 5 ) All the shares indicated as owned by Messrs. Bromberg and Todd may be acquired through the exercise of stock options. All the shares indicated as owned by Mr. Frederick Schaden may be acquired through the exercise of stock options or conversion of Class C preferred stock. (6) Steven B. Shaffer, individually and through an affiliated entity, beneficially owns 500 shares of our common stock. Sue A. Hoover, individually, owns 3,873 shares of our common stock. Patrick E. Meyers, individually, beneficially owns 1,723 shares of our common stock and 14,000 shares of our common stock represented by currently exercisable stock options. John L. Gallivan, individually, owns 1,473 shares of our Class E preferred stock. (7) The company has issued and outstanding four classes of Convertible Preferred Stock: the Class A preferred stock, Class C preferred stock, the Class D Subordinated Convertible Preferred Stock and Class E preferred stock. 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 57,000 shares of Class C preferred stock outstanding: 34,000 shares or 59.6% are held by Richard F. Schaden and 2,000 shares or 3.5% are held by Frederick H. Schaden. There are 3,000 shares of Class D preferred stock outstanding, 1,000 shares of which are owned by each of Mr. Shaffer and Mr. Fitchett. There are 59,480 shares of Class E preferred stock outstanding: 34,803 shares or 59% are held liy Richard F. Schaden and 1,473 shares or 2.5% are held by John L. Gallivan. Among all executive officeis and directors as a group, the following preferred shares are beneficially owned: 100% of the Class A preferred stock, 36,000 shares or 63% of the Class C preferre