<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] for fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 1-4323
GIANT GROUP, LTD.
(Exact name of registrant as specified in its charter)
Delaware 23-0622690
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
150 El Camino Drive, Suite 303, Beverly Hills, California 90212
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 273-5678
Securities registered pursuant to 12(b) of the Act:
Name of Each Exchange
Title of Class on Which Registered
------------------ -----------------------
Common Stock, $.01 New York Stock Exchange
Par Value
Securities registered pursuant to 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 20, 1995, 5,179,726 shares of the Registrant's Common Stock,
par value $.01 per share, were outstanding, and the aggregate market value of
the Registrant's Common Stock held by non-affiliates (based on the closing
price on the New York Stock Exchange -Composite Transactions on March 20, 1995)
was approximately $26,850,000.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the Company's definitive Proxy Statement for
the May 12, 1995 Annual Meeting of Stockholders are incorporated by
reference into Part III hereof.
Exhibit Index located at Page 30 herein.
<PAGE> 2
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on 8-K
2
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
GIANT GROUP, LTD. (herein referred to as the "Company" on a
consolidated basis or "GIANT" on a separate company basis) is a corporation
organized under the laws of the State of Delaware in 1913. GIANT is a holding
company which has owned both majority and minority interests in various
operating subsidiaries. From 1985 through October 1994, GIANT's major
operating subsidiaries were Giant Cement Company ("Giant Cement") and Keystone
Cement Company ("Keystone"), which manufactured portland and masonry cements
sold to ready-mix concrete plants, concrete product manufacturers, building
material dealers, construction contractors and state and local government
agencies. From 1987 through October 1994, GIANT also owned Giant Resource
Recovery Company, Inc. ("GRR"), which was a marketing agent for resource
recovery services for Giant Cement. GIANT also, through its equity interest in
Rally's Hamburgers, Inc., ("Rally's"), (NASDAQ:RLLY) has been involved in the
operation and franchising of double drive-thru hamburger restaurants.
In October 1994, GIANT completed the sale of its cement and resource
recovery operations for $140 million in cash, before commissions and expenses,
through an initial public offering of 100% of the stock of Giant Cement
Holding, Inc., the parent company of Giant Cement, Keystone and GRR. At
December 31, 1994, GIANT directly owned 7,430,000 shares (48% of the amount
outstanding) of the common stock of Rally's. Rally's was founded in 1984 and
as of March, 1995 is the largest chain of double drive-thru hamburger
restaurants in the United States which has 537 owned or franchised restaurants
operating in 23 states.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
GIANT is a holding company that was most recently involved in two
industries, domestic manufacturing and sale of portland masonry cements and
related aggregates, and the operation of double drive-thru hamburger
restaurants. The cement operations were sold in October 1994, and therefore
GIANT's principal activity consists of its 48% interest in its significant
equity investee, Rally's Hamburgers, Inc.
Information concerning the Company's net sales, operating income and
assets for each of the years in the three-year period ended December 31, 1994
is included in Item 6, "Five-Year Summary of Consolidated Financial Data",
herein.
NARRATIVE DESCRIPTION OF BUSINESS
GIANT's assets consist primarily of cash and temporary investments and
an investment representing 48% of the outstanding shares of Rally's Hamburgers.
Rally's is the largest chain of double drive-thru restaurants in the United
States. The restaurants offer high quality food served quickly and at every
day low prices generally below the regular prices of the four largest hamburger
chains. Rally's serves the drive-thru and take-out segments of the
quick-service restaurant market, which has been the fastest growing segment in
the restaurant industry over the past several years. Rally's opened its first
restaurant in January 1985 and began offering franchises in November 1986.
3
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GIANT's management is actively pursuing investment opportunities to
deploy the cash the Company generated through the sale of the cement
operations. Investment opportunities are investigated and reviewed on an on
going basis. Currently GIANT has eight employees.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the executive officers of the Company, together
with their ages, their positions with the Company and the year in which they
first became an officer of the Company.
Burt Sugarman, 56, Chairman of the Board, President and Chief
Executive Officer. Mr. Sugarman has been Chairman of the Board of the Company
since 1983, and President and Chief Executive Officer since May 1985. Mr.
Sugarman has been Chairman of the Board of Rally's Hamburgers, Inc., (NASDAQ)
since November 1994, having served as its Chairman of the Board and Chief
Executive Officer from 1990 through February 1994. Mr. Sugarman is also a
Director of Rally's Hamburgers, Inc.
David Gotterer, 66, Vice Chairman. Mr. Gotterer has been Vice
Chairman of the Company since May 1986. He is a senior partner in the
accounting firm of Mason & Company, LLP, New York, New York. He is a Director
of PlyGem Industries, Inc. (New York Stock Exchange), and a Director of Rally's
Hamburgers, Inc. (NASDAQ).
Cathy Wood, 48, Vice President, Chief Financial Officer, Secretary and
Treasurer. Ms. Wood joined the Company in January 1995 and assumed the
position of Vice President, Chief Financial Officer, Secretary and Treasurer in
March 1995. Prior to joining the Company, Ms. Wood served in various
capacities for Wherehouse Entertainment, Inc. a $500 million specialty retail
chain, including Senior Vice President and Chief Financial Officer from 1993 to
1994.
ITEM 2. PROPERTIES
GIANT has executive offices in leased premises in Beverly Hills,
California.
ITEM 3. LEGAL PROCEEDINGS
Mittman v. Rally's Hamburger, Inc., et al., Case No
C94-0039-L(CS)("Mittman"). In January and February 1994, two class action
lawsuits were filed on behalf of the shareholders of Rally's Hamburgers, Inc.
in the United States District Court, Western District of Kentucky, against
Rally's, Burt Sugarman and the Company, and certain of Rally's officers and
directors. The Complaints allege violations of the Securities Exchange Act of
1934, and other related claims, with respect to Rally's common stock and seek
unspecified damages. Rally's and certain of Rally's officers and directors
moved to dismiss the complaint for failure to state a proper claim. The
Company among others, moved to dismiss the complaint for lack of personal
jurisdiction. The court has not ruled yet on those motions. Management is
unable to predict the outcome of this matter at the present time or whether or
not certain available insurance coverages will apply, but vigorously denies any
wrong doing with respect to the allegations. Rally's and the Company intend
to defend themselves vigorously in this matter.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the New York Stock Exchange
(Symbol: GPO). On March 7, 1995 the approximate number of record holders of
the Company's common stock was 2,250. The high and low sale prices for such
stock during each calendar quarter in 1994 and 1993 are set forth below. No
dividends were paid on the common stock in either year. The Company expects
that earnings will be retained in its business, and no cash dividends will be
paid on its common stock for the foreseeable future.
<TABLE>
<CAPTION>
SALES PRICE
CALENDAR QUARTERS OF COMMON STOCK
---------------------------- ------------------------------------------
1994 1993
--------------- ------------------
High Low High Low
<S> <C> <C> <C> <C>
First ...................... 14 5/8 10 3/8 12 1/8 9 7/8
Second ..................... 14 1/8 10 1/2 11 1/8 8
Third ...................... 11 1/8 9 1/4 10 1/2 8 1/2
Fourth ..................... 10 3/4 6 3/4 11 1/4 7 5/8
</TABLE>
5
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993* 1992* 1991* 1990*
-----------------------------------------------------------------------------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating results
Investment income $ 1,507 $ 1,377 $ 1,887 $ 2,880 $ 2,872
Gain (loss) on investments (1,065) 542 841 2,164 (200)
General and administrative
expenses (4,628) (3,574) (4,799) (3,704) (5,044)
Interest expense (4,007) (4,854) (4,948) (5,816) (6,492)
Loss on extinguishment of debt 1,343 - - - -
Equity in earnings (loss)
of affiliates (8,898) (3,855) 3,121 2,030 1,241
Write-down of carrying value
of investment in affiliate (19,396) - - - -
Income (loss) from
continuing operations (34,350) (7,161) (2,127) (3,161) (4,386)
Income (loss) from
discontinued operations 6,598 4,522 (3,971) (3,752) 5,973
Gain on sale discontinued
operations 48,223 - - - 14,861
Net income (loss) 20,471 (2,639) (6,098) (6,913) 16,448
Per common share: (Note 1)
Loss from continuing operations $ (5.26) $ (1.38) $ (.41) $ (.60) $ (.52)
Net income (loss) $ 3.22 $ (.51) $ (1.18) $ (1.31) $ 2.56
Cash dividends - - - - -
Weighted average common shares 6,463 5,180 5,189 5,295 6,767
Financial position at year-end:
Total assets 100,895 110,616 113,683 125,579 126,534
Long-term debt 1,816 44,489 44,532 54,574 51,769
Shareholders' equity 69,942 47,467 50,313 57,095 65,280
</TABLE>
Note 1 Primary per share earnings (loss) are based upon the weighted average
common shares outstanding, adjusted for the dilutive effect of
outstanding stock options in 1990 and 1994.
* Certain 1993, 1992, 1991 and 1990 amounts have been reclassified to
conform to the 1994 presentation.
6
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Effective October 6, 1994, KCC Delaware, a wholly owned subsidiary of
the Company, sold 100% of the stock of its wholly owned subsidiary Giant Cement
Holding, Inc. through an initial public offering (IPO). The net proceeds from
the IPO were $125,822,000 million and resulted in a gain of $76,990,000 before
income taxes of $28,767,000. As a result of the transaction the Company has
fully divested its cement and resource recovery operations.
RESULTS OF OPERATIONS
1994 VERSUS 1993
Investment income increased $130,000 to $1,507,000 as a result of
higher average levels of funds invested in 1994 versus 1993.
Declines in the fair market value of the Company's marketable
securities in 1994, resulted in losses of $1,065,000 compared to a gain of
$542,000 in 1993. The losses were the result of the general decline in fixed
income securities in early 1994, which was due to increases in prevailing
interest rates.
General and administrative expenses increased from $3,574,000 in 1993
to $4,628,000 in 1994. The increase in expense related primarily to increased
compensation, legal and insurance costs incurred during the year.
Interest costs decreased $847,000 to $4,007,000 in 1994. The decrease
was primarily the result of the prepayment in November, 1994 of the Company's
7% Convertible Subordinated Debentures, due April 15, 2006 and 14.5%
Subordinated Notes, due April 15, 1995. The early retirement of debt required
$43,781,000, which was obtained as a result of the sale of the cement
companies, and resulted in a loss on extinguishment of debt of $1,343,000.
Equity in losses of the Company's 48% owned affiliate, Rally's,
increased from $3,855,000 in 1993 to $8,898,000 in 1994 as a result of Rally's
operating losses, which included charges of $17,259,000 in 1994 and $12,551,000
in 1993, relating to Rally's restructuring their operations.
In December 1994, as a result of market declines in the value of
Rally's common stock and Rally's continuing operating losses, the Company
recognized a loss on its investment of $19,396,000. The amount of the
write-down represented the Company's investment in excess of its share of the
underlying net assets of Rally's.
The income tax benefits recorded for 1994 and 1993 relate to federal
income taxes and have been recorded at an estimated annual rate of 34%. The
1994 tax benefit was reduced by a valuation allowance of $9,070,000 relating to
the impairment loss on the Company's investment in Rally's (See Note 10 to the
consolidated financial statements).
Income from the discontinued cement operations increased 46% to
$6,598,000 primarily as a result of improved cement pricing in 1994, as
compared to the prior year. Results of discontinued operations are reflected
through the date of sale in 1994 and for the full year in 1993 and 1992. The
sale of discontinued operations resulted in a gain of $48,223,000, net of
income taxes of $28,767,000.
7
<PAGE> 8
Net income for the year increased from a loss of $2,639,000 to income
of $20,471,000 primarily as a result of the gain on sale of discontinued
operations, offset by the Company's write-down of its investment in Rally's.
RESULTS OF OPERATIONS
1993 VERSUS 1992
Investment income decreased $510,000 or 27% as a result of lower
average investments in marketable debt securities at lower average interest
rates compared to 1992. Gains on investments in 1993 and 1992 were the result
of increases in the general market value of fixed income securities as a result
of decreases in the prevailing interest rates in those years. Other revenue in
1992 included a $975,000 recovery from the Company's insurance company relating
to legal costs and settlements incurred in 1991.
General and administrative costs decreased $1,225,000 or 26% in 1993
as a result of a decrease in corporate compensation and other costs. Interest
expense declined $94,000 or 2% as a result of the redemption in January 1992 of
$10,000,000 if its 14.5% Notes and reduced interest rates on short-term
borrowings.
Equity in earnings (loss) of the Company's 38% owned affiliate,
Rally's, declined from earnings of $3,121,000 in 1992 to a loss of $3,855,000
in 1993. Rally's losses in 1993 were the result of charges totalling
$17,400,000 to reflect the cost of a restructuring plan and the closing of 26
restaurants, litigation settlements, advertising costs and other matters.
Rally's results were also impacted by lower restaurant sales volumes.
Income from the discontinued cement operations improved from a loss of
$3,971,000 in 1992 to income of $4,522,000 in 1993, primarily as a result of
improved cement shipping volumes and selling prices in 1993 as compared to
1992.
Net loss decreased from $6,098,000 in 1992 to $2,639,000 in 1993
primarily as a result of improved results of discontinued operations, offset by
declines in equity in earnings of affiliate.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities totalled $70,973,000 at December 31,
1994 compared with $21,068,000 at December 31, 1993. At December 31, 1994 and
1993 the Company had working capital of $42,867,000 and $14,051,000, with
current ratios of 2.5 to 1 and 1.7 to 1, respectively. The Company's increase
in working capital resulted from the net cash proceeds of $125,822,000 received
from the sale of its discontinued operations. The proceeds of the sale were
used to repay long-term debt and to purchase additional marketable securities.
Income taxes payable at December 31, 1994 of $25,435,000, relates primarily to
taxes due on the gain on sale of discontinued operations.
The Company owns 7,430,000 shares of Rally's Hamburgers, Inc. common
stock, which it acquired from 1987 to 1994, including 2,500,000 shares
purchased in October 1994 for $10,000,000. At December 31, 1994, the Company's
$25,497,000 investment in Rally's represents 48% of their outstanding common
stock. In 1995, the Company purchased $10,400,000 in principal amount of
Rally's 9.875% Senior Notes at an aggregate purchase price of $4,796,000.
8
<PAGE> 9
The Company's Board Directors has authorized the open market or
private purchase of its common stock. Net of its income tax obligations, the
Company has cash and marketable securities of approximately $45 million to
pursue stock repurchases and other investment opportunities.
Through the liquidity and capital created by the Company's divestiture
of the cement operations, the Company intends to make investments that create
increased value for its shareholders. The Company is attempting to select the
best opportunities available, and structure the appropriate financing of such
investments, realizing that capital is a scarce commodity with competing
investment options. Management has no definitive investment opportunities at
this time and it is uncertain whether an appropriate investment can be
identified and financed in the near future.
9
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS for the years 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
Income:
Investment income $ 1,507,000 $ 1,377,000 $ 1,887,000
Gain on investments - 542,000 841,000
Other 209,000 41,000 994,000
------------ ------------ -----------
1,716,000 1,960,000 3,722,000
------------ ------------ -----------
Cost and expenses:
General and administrative
expenses 4,628,000 3,574,000 4,799,000
Interest expense 4,007,000 4,854,000 4,948,000
Loss on investments 1,065,000 - -
Loss on extinguishment of debt 1,343,000 - -
Depreciation 390,000 527,000 319,000
------------ ------------ -----------
11,433,000 8,955,000 10,066,000
------------ ------------ -----------
Operations of affiliate:
Equity in earnings (loss) of
affiliate (8,898,000) (3,855,000) 3,121,000
Write down in carrying value
of investment in affiliate (19,396,000) - -
------------ ------------ -----------
(28,294,00) (3,855,000) 3,121,000
------------ ------------ -----------
Loss from continuing operations
before income taxes (38,011,000) (10,850,000) (3,223,000)
Credit for income taxes (3,661,000) (3,689,000) (1,096,000)
------------ ------------ -----------
Loss from continuing operations (34,350,000) (7,161,000) (2,127,000)
Income (loss)from discontinued
operations, net of income taxes 6,598,000 4,522,000 (3,971,000)
Gain on sale of discontinued
operations, net of income taxes 48,223,000 - -
------------ ------------ -----------
Net income (loss) $ 20,471,000 $ (2,639,000) $(6,098,000)
============ ============ ===========
Per common share:
Loss from continuing operations $ (5.26) $ (1.38) $ (.41)
============ ============ ===========
Net income (loss) $ 3.22 $ (.51) $ (1.18)
============ ============ ===========
Weighted average common shares 6,463,000 5,180,000 5,189,000
</TABLE>
See accompanying notes to consolidated financial statements.
10
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GIANT GROUP, LTD.
CONSOLIDATED BALANCE SHEETS, December 31, 1994 and 1993
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1994 1993
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,472,000 $ 4,123,000
Marketable securities 47,501,000 16,945,000
Net current assets - discontinued
operations - 11,797,000
Other current assets 690,000 22,000
------------ ------------
Total current assets 71,663,000 32,887,000
Net non-current assets - discontinued
operations - 28,848,000
Investment in affiliate 25,497,000 43,706,000
Property, plant and equipment, net 3,570,000 4,066,000
Deferred income taxes - 636,000
Deferred charges and other assets 165,000 473,000
------------ ------------
Total assets $100,895,000 $110,616,000
============ ============
LIABILITIES
Current liabilities:
Short-term borrowings $ 1,917,000 $ 16,742,000
Accrued expenses 1,251,000 1,843,000
Income taxes payable 25,435,000 75,000
Current maturities of long-term debt 193,000 176,000
------------ ------------
Total current liabilities 28,796,000 18,836,000
Long-term debt, net of current maturities 1,623,000 44,313,000
Deferred income taxes 534,000 -
----------- ------------
Total liabilities 30,953,000 63,149,000
----------- ------------
Contingent liabilities (Note 12)
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized
12,500,000 shares in 1994 and 25,000,000
shares in 1993, issued 6,966,000 shares $ 69,000 $ 69,000
Capital in excess of par value 33,508,000 33,508,000
Retained earnings 52,128,000 31,657,000
------------ ------------
85,705,000 65,234,000
Less common stock in treasury; 1,786,000
shares, at cost 15,763,000 15,763,000
Reduction for additional pension liability - 2,004,000
------------ ------------
Total shareholders' equity 69,942,000 47,467,000
------------ ------------
Total liabilities and
shareholders' equity $100,895,000 $110,616,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
11
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GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Operations:
Net income (loss) $20,471,000 $(2,639,000) $(6,098,000)
Adjustments to reconcile net income (loss) to
net cash used by continuing operations -
Discontinued operations (6,598,000) (4,522,000) 3,971,000
Gain on sale of discontinued operations (48,223,000) - -
Loss on extinguishment of debt 1,343,000 - -
Depreciation 390,000 527,000 319,000
(Gain) loss on investments 1,065,000 (542,000) (841,000)
Equity in (earnings) loss of affiliate 8,898,000 3,855,000 (3,121,000)
Write-down in carrying value of investment
in affiliate 19,396,000 - -
Provision for deferred taxes (242,000) (1,672,000) (852,000)
Amortization of deferred charges and other 249,000 175,000 166,000
Accretion of discounts on marketable securities (571,000) - -
Changes in operating assets and liabilities:
Other assets (375,000) 1,977,000 1,556,000
Accrued expenses (3,570,000) (142,000) (188,000)
----------- ----------- -----------
Net cash used by continuing operations (7,767,000) (2,983,000) (5,088,000)
Net cash provided by discontinued operations 11,186,000 11,435,000 6,719,000
----------- ----------- -----------
Net cash provided by operations 3,419,000 8,452,000 1,631,000
----------- ----------- -----------
Investing:
Sales of marketable securities 26,740,000 44,122,000 50,541,000
Purchases of marketable securities (58,083,000) (42,683,000) (42,914,000)
Proceeds from sale of discontinued operations 125,822,000 - -
Purchase of property, plant and equipment:
Continuing operations (656,000) - (911,000)
Discontinued operations (5,845,000) (5,462,000) (3,125,000)
Investment in affiliate (10,085,000) - -
Restricted investments - discontinued
operations (1,951,000) - -
Collection of note receivable - - 2,615,000
----------- ----------- -----------
Net cash provided (used) by investing 75,942,000 (4,023,000) 6,206,000
----------- ----------- -----------
Financing:
Proceeds from (repayment of)
short-term borrowings (14,825,000) 165,000 5,223,000
Repayment of long-term debt (43,957,000) (160,000) (10,147,000)
Repayment of debt - discontinued operations (1,230,000) (1,375,000) (1,179,000)
Purchase of treasury shares - - (1,050,000)
Other - - (6,000)
----------- ----------- -----------
Net cash used by financing (60,012,000) (1,370,000) (7,159,000)
----------- ----------- -----------
Increase in cash and
cash equivalents 19,349,000 3,059,000 678,000
Cash and Cash Equivalents:
Beginning of period 4,123,000 1,064,000 386,000
----------- ----------- -----------
End of period $23,472,000 $ 4,123,000 $ 1,064,000
=========== =========== ===========
Supplemental Information for Continuing Operations:
Cash (paid) received for:
Interest $(4,606,000) $(4,736,000) $(4,786,000)
Income taxes (2,585,000) 1,365,000 2,966,000
</TABLE>
See accompanying notes to consolidated financial statements.
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GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years 1994, 1993 and 1992
<TABLE>
<CAPTION>
Reduction for
Capital in Common Additional
Common Excess of Retained Stock in Pension
Stock Par Value Earnings Treasury Liability
------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1992................. $46,000 $31,368,000 $40,394,000 $(14,713,000) $ -
Net loss for 1992........................ (6,098,000)
Three-for-two stock split................ 23,000 (29,000)
Purchase of 115,000 treasury shares...... (1,050,000)
Increase in equity in net assets of
affiliate from issuance of its common
stock, net of deferred income taxes
of $719,000............................ 1,397,000
Reduction in equity to reflect additional
minimum pension liability, net of
deferred income taxes of $528,000...... (1,025,000)
------- ----------- ----------- ------------ -----------
Balance, December 31, 1992............... 69,000 32,736,000 34,296,000 (15,763,000) (1,025,000)
Net loss for 1993........................ (2,639,000)
Increase in equity in net assets of
affiliate from issuance of its
common stock, net of deferred income
taxes of $398,000...................... 772,000
Reduction in equity to reflect additional
minimum pension liability, net of
deferred income taxes of $505,000...... (979,000)
------- ----------- ----------- ------------ -----------
Balance, December 31, 1993............... 69,000 33,508,000 31,657,000 (15,763,000) (2,004,000)
Net income for 1994...................... 20,471,000
Reversal of the reduction in equity
to reflect the minimum pension liability
as a result of the sale of
discontinued operations.............. 2,004,000
------- ----------- ----------- ------------ -----------
Balance, December 31, 1994............... $69,000 $33,508,000 $52,128,000 $(15,763,000) $ 0
======= =========== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
GIANT GROUP, LTD. is a holding company that was formerly involved in the
domestic manufacture and sale of portland and masonry cements and related
aggregates (See Note 2). These operations were sold on October 6, 1994. The
Company owns a 48% interest in Rally's Hamburgers, Inc. an operator and
franchisor of double drive-thru hamburger restaurants. Its continuing source
of revenue is investment income.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of GIANT
GROUP, LTD. and its subsidiaries, which are wholly owned. Investments in
affiliates (20% to 50% owned) are accounted for by the equity method. The
effects of changes in the Company's equity in the net assets of affiliates
resulting from their issuance of capital stock are charged or credited to
capital in excess of par value. All significant intercompany accounts and
transactions have been eliminated.
MARKETABLE SECURITIES:
In 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". No adjustment was required to reflect the adoption of the new
standard. Investments in marketable equity securities, U.S. Government
obligations and corporate bonds are considered available for sale. These
investments are carried at market and adjustments for unrealized gains and
losses are reported as a separate component of shareholders' equity.
The amortized cost of debt securities classified as available for sale
is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization and interest are included in interest income. The
cost of securities sold is based on the specific identification method.
PROPERTY, PLANT AND EQUIPMENT:
Depreciation for financial reporting purposes is provided principally
by the straight-line method over the estimated useful lives of the assets,
ranging from three to twenty years.
CASH EQUIVALENTS:
For purposes of the consolidated statements of cash flows, short-term
investments purchased with an original maturity date of three months or less
are considered to be cash equivalents. Cash equivalents are recorded at market
value and consist of short-term U.S. Government obligations.
EARNINGS PER SHARE:
Primary earnings per share is based upon the weighted average common
shares outstanding during the respective periods, adjusted for the dilutive
effect of outstanding common stock options. Fully diluted earnings per share
is not presented as it approximates primary earnings per share.
RECLASSIFICATIONS:
Certain 1993 and 1992 amounts have been reclassified to conform to the
1994 presentation.
14
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. DISCONTINUED OPERATIONS:
On October 6, 1994, KCC Delaware, a wholly owned subsidiary of the
Company, sold 100% of the stock of its wholly owned subsidiary Giant Cement
Holding, Inc. (GCHI) through an initial public offering. The net proceeds of
this transaction of $125,822,000 (net of $2,000,000 contributed to GCHI on the
date of sale) resulted in a gain of $76,990,000 before income taxes of
$28,767,000. At December 31, 1994, a receivable of $200,000 related to income
tax liabilities of GCHI, payable to the Company pursuant to their Tax Sharing
Agreement, is included in other current assets.
GCHI is engaged in the manufacture and sale of portland and masonry
cements and construction aggregates, and its operating results through the date
of sale have been included as discontinued operations in the accompanying
consolidated statements of operations and cash flows for all periods presented.
Net assets from discontinued operations have been segregated on the December
31, 1993 balance sheet.
The condensed statements of operations related to the discontinued
operations through the date of sale are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Total operating revenues $69,352,000 $81,900,000 $72,256,000
Costs and expenses 59,355,000 74,429,000 78,020,000
----------- ----------- -----------
Income (loss) before income
taxes 9,997,000 7,471,000 (5,764,000)
Income tax expense (benefit) 3,399,000 2,949,000 (1,793,000)
----------- ----------- -----------
Net income (loss) $ 6,598,000 $ 4,522,000 $(3,971,000)
=========== =========== ===========
</TABLE>
The effective tax rates varied from the federal tax rates primarily due
to state income taxes in all years presented offset by percentage depletion in
1994.
Postretirement medical and life insurance is provided to substantially
all employees of GCHI. Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (FAS 106). Adoption of FAS 106
resulted in a postretirement expense in 1993 of $2,147,000 versus $1,003,000 if
the expense would have been recorded on a pay as you go basis. The expense on
a pay as you go basis was $1,096,000 in 1992.
3. MARKETABLE SECURITIES:
<TABLE>
<CAPTION>
At December 31: 1994 1993
---- ----
<S> <C> <C>
Equity securities $ 0 $ 13,000
Debt securities 47,501,000 16,640,000
Accrued interest 0 292,000
----------- -----------
Total carrying amount $47,501,000 $16,945,000
=========== ===========
</TABLE>
As of December 31, 1994, the Company had an investment in a short-term
U.S. Government obligation maturing in 1995. Equity and debt securities at
December 31, 1993 were carried at cost less a provision for other then
temporary declines in market value. The fair value of the securities were not
materially different from book value as of December 31, 1994 and 1993.
15
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The gains (losses) on investments were comprised of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Equity securities $ (2,000) $(132,000) $(90,000)
Debt securities (1,063,000) 674,000 931,000
----------- --------- --------
Net gain (loss) $(1,065,000) $ 542,000 $841,000
=========== ========= ========
</TABLE>
In 1994, proceeds from sales of securities totalled $26,740,000, of
which proceeds of $20,135,000 related to sales of securities which resulted in
losses of $1,297,000 and proceeds of $6,605,000 related to sales of securities
which resulted in gains of $232,000.
4. INVESTMENT IN AFFILIATE:
The Company's investment in Rally's Hamburgers, Inc. (Rally's) of
$25,497,000 and $43,706,000 at December 31, 1994 and 1993, respectively,
represented 48% and 38% of Rally's outstanding common stock. Rally's is an
operator and franchisor of double drive-thru hamburger restaurants.
The Company purchased 2,500,000 shares of Rally's in October 1994 at a
price of $4 per share. Issuances of common stock by Rally's in 1993 reduced
GIANT's ownership percentage by approximately 2%. The effect on GIANT's equity
in the net assets of Rally's attributable to such stock issuances, has been
recorded as an adjustment to capital in excess of par value, net of the related
deferred income taxes. At December 31, 1994, the Company owned 7,430,000
shares of Rally's, the quoted market value of which was $22,291,000.
In December 1994, as a result of the decline in the quoted market value
of Rally's common stock and Rally's continued operating losses, the Company
recognized an impairment loss on this investment through a charge to operations
of $19,396,000. The amount of the write-down represented the unamortized
portion of the Company's investment in excess of its equity in the underlying
net assets of Rally's. The excess cost of the investment over underlying
equity in net assets was $20,004,000 at December 31, 1993.
Summarized financial information for Rally's follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1994 1993
---- ----
<S> <C> <C>
Financial position:
Current assets $ 14,276,000 $ 25,003,000
Current liabilities (21,076,000) (24,089,000)
------------ ------------
Working capital (deficiency) (6,800,000) 914,000
Noncurrent assets 157,079,000 160,394,000
Long-term debt and other noncurrent
liabilities (96,792,000) (98,781,000)
------------ ------------
Stockholders' equity $ 53,487,000 $ 62,527,000
============ ============
</TABLE>
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Operating results:
Revenues $186,318,000 $174,346,000 $120,648,000
Operating costs 200,954,000 181,396,000 105,591,000
Income (loss) from operations (14,636,000) (7,050,000) 15,057,000
Net income (loss) (19,273,000) (8,907,000) 9,279,000
GIANT's share (8,898,000) (3,855,000) 3,121,000
</TABLE>
The Company's share of Rally's net income (loss) includes amortization
of $435,000, $580,000 and $630,000 in 1994, 1993 and 1992, respectively, of the
excess cost of the investment over underlying equity in net assets.
In 1995, the Company purchased $10,400,000 in principal amount of
Rally's 9.875% Senior Notes at an aggregate purchase price of $4,796,000.
5. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
At December 31 (at cost): 1994 1993
---- ----
<S> <C> <C>
Land $ 120,000 $ 292,000
Leasehold improvements 165,000 200,000
Equipment and furnishings 4,718,000 4,681,000
------------ ------------
5,003,000 5,173,000
Less accumulated depreciation
and depletion 1,433,000 1,107,000
------------ ------------
$ 3,570,000 $ 4,066,000
============ ============
</TABLE>
6. DEBT:
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
7% Convertible Subordinated Debentures,
due April 15, 2006 (net of $650,000
held in treasury) $ - $34,350,000
14.5% Subordinated Notes due April 15, 1995 - 8,950,000
Term Note due December 18, 1996, interest
at 9.25% 1,816,000 1,992,000
------------ -----------
1,816,000 45,292,000
Less:
Unamortized discount:
7 % Convertible Subordinated Debentures - (657,000)
14 1/2% Subordinated Notes - (146,000)
Current maturities (193,000) (176,000)
------------ -----------
$ 1,623,000 $44,313,000
============ ===========
</TABLE>
In November of 1994, the Company prepaid the Company's 7% Convertible
Subordinated Debentures, due April 15, 2006 and 14.5% Subordinated Notes, due
April 15, 1995. The early retirement of the debt required the use of
$43,781,000 of the proceeds of the sale of the Company's cement operations and
resulted in a loss on extinguishment of debt of $1,343,000.
17
<PAGE> 18
Equipment having a net book value of $3,322,000 at December 31, 1994
has been pledged as collateral for the Term Note. Aggregate maturities of
long-term debt for the years 1995 and 1996 are $193,000, and $1,623,000,
respectively.
Short-term margin borrowings from stockbrokers were $1,917,000 with
interest at 7.6% and $16,742,000 with interest at 5.0% at December 31, 1994 and
1993, respectively. Margin borrowings are collateralized by marketable
securities and a portion of the Company's Rally's common stock.
7. STOCK SPLIT:
On September 16, 1992, the Board of Directors declared a 3 for 2
common stock split effective November 10, 1992. All common share and per share
amounts have been restated to reflect the stock split.
8. COMMON STOCK OPTIONS
Under the terms of the Company's 1985 Incentive Stock Option Plan,
options to purchase 750,000 shares of the Company's common stock may be granted
to key employees of the Company and its subsidiaries, at a price not less than
the market value on the date of grant. Under the terms of the Company's 1985
Non-qualified Stock Option Plan, options to purchase 3,000,000 shares of the
Company's common stock may be granted to officers, directors, managerial and
supervisory employees and consultants to the Company and its subsidiaries, at a
price not less than 85% of the market value on the date of grant. Options
granted under both plans may be for terms of up to ten years, and may be
exercised at any time or from time to time, as determined at the time of grant
by the Board of Directors. At December 31, 1994 and 1993, 1,411,000 and
1,441,000 shares, respectively, were reserved for options which may be granted
under the stock option plans. All common share and per share amounts have been
adjusted to give retroactive recognition to the 1992 stock split.
A summary of options under the plans for 1994, 1993 and 1992 is as
follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
--------- ------------
<S> <C> <C>
Balance, January 1, 1992 (all exercisable) 2,254,000 $6.33 - 7.58
Options granted 38,000 8.50 - 11.00
Options cancelled (8,000) 7.58
----------
Balance, December 31, 1992 (all exercisable) 2,284,000 6.33 - 11.00
Options granted 5,000 9.13
----------
Balance, December 31, 1993 (all exercisable) 2,289,000 6.33 - 11.00
Options granted 30,000 11.00
----------
Balance, December 31, 1994 (all exercisable) 2,319,000 6.33 - 11.00
==========
</TABLE>
9. PREFERRED STOCK:
Authorized preferred stock consists of 2,000,000 shares, $.01 par
value, issuable in one or more series with such dividend rates, liquidation
preferences, and redemption, conversion and voting right restrictions as may be
determined by the Company's Board of Directors. No preferred stock was issued
at December 31, 1994 or 1993.
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES:
The credit for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current federal $ (3,419,000) $(2,017,000) $ (244,000)
Deferred federal (242,000) (1,672,000) (852,000)
------------ ----------- -----------
$ (3,661,000) $(3,689,000) $(1,096,000)
============ =========== ===========
</TABLE>
The following is a reconciliation between the credits for income taxes
and the amount computed by applying the federal statutory rate of 34% to
pre-tax income:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory tax on pre-tax loss $(12,924,000) $(3,689,000) $(1,096,000)
Increase in valuation allowance 9,070,000 - -
Other, net 193,000 - -
------------ ----------- -----------
Credit for income taxes $ (3,661,000) $(3,689,000) $(1,096,000)
============ =========== ===========
</TABLE>
For years prior to 1993, the Company provided for income taxes under
Statement of Financial Accounting Standards No. 96. Effective January 1, 1993,
the Company adopted Statement of Financial Accounting Standards No. 109, which
superseded Statement No. 96. No adjustment was required to reflect adoption of
the new standard.
The gross deferred tax assets and liabilities relate to the following
at December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Investment in affiliate $ 9,070,000 $ -
Tax credit carryforwards - 4,057,000
Net operating loss carryforwards - 1,356,000
Other 66,000 838,000
----------- -----------
Gross deferred tax assets 9,136,000 6,251,000
Valuation allowance (9,070,000) (2,342,000)
----------- -----------
Net deferred tax assets 66,000 3,909,000
----------- -----------
Depreciation 600,000 431,000
Investment in affiliate - 630,000
Other - 2,212,000
----------- -----------
Gross tax liabilities 600,000 3,273,000
----------- -----------
Net deferred tax asset (liability) $ (534,000) $ 636,000
=========== ===========
</TABLE>
The $9,070,000 valuation allowance at December 31, 1994 relates to the
tax benefit associated with the recognition in 1994, of the $19,396,000
unrealized impairment loss on the Company's investment in Rally's and Rally's
net losses. These losses would have to be realized through the sale of Rally's
common stock or future Rally's earnings in order for the Company to realize the
tax benefit.
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At the beginning of 1994 the Company had approximately $1,820,000 of
energy and investment tax credit carryforwards, and $2,237,000 of alternative
minimum tax credit carryforwards, all of which were used in 1994 to reduce
taxes payable. In 1993, the Company also had $27,121,000 of net operating loss
carryforwards available to reduce future state taxable income expiring over 15
years. The valuation allowance of $2,342,000 at December 31, 1993 related
primarily to the state net operating loss carryforwards and federal energy tax
credit carryforwards. Since the loss carryforwards relate to states in which
the Company no longer does business, the balance of the deferred tax asset and
related valuation allowance was written off in 1994.
11. LEASES:
The Company leases office and hangar space under operating leases which
have remaining terms of up to three years. The leases generally include
renewal options. Total rental expense for the years 1994, 1993 and 1992
amounted to $271,000, $284,000 and $288,000, respectively.
Future minimum rental commitments under noncancelable leases with a
remaining term in excess of one year as of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995 $199,000
1996 190,000
1997 47,000
--------
$436,000
========
</TABLE>
12. CONTINGENT LIABILITIES:
In January 1994, two class action lawsuits were filed on behalf of the
shareholders of Rally's Hamburgers, Inc. in the United States District Court,
Western District of Kentucky, against Rally's, its controlling shareholders,
Burt Sugarman and the Company, and certain of Rally's officers and directors.
The Complaints allege violations of the Securities Exchange Act of 1934 with
respect to Rally's common stock and seek unspecified damages. Management is
unable to predict the outcome of this matter at the present time or whether or
not certain available insurance coverages will apply. Rally's and the Company
intend to defend themselves vigorously in this matter.
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. UNAUDITED QUARTERLY FINANCIAL DATA:
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1994 QUARTER ENDED
---- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Income $ 331 $ 138 $ 13 $ 1,234
Costs and expenses 2,862 2,696 2,245 3,630
Equity in loss of affiliate (850) (490) (1,845) (25,109)(1)
Loss from continuing operations (2,232) (2,011) (2,691) (27,416)
Income (loss) from discontinued
operations (397) 3,456 3,538 48,224 (2)
Net income (loss) (2,629) 1,445 847 20,808
Per common share:
Loss from continuing operations (.43) (.30) (.40) (4.22)
Net income (loss) (.51) .23 .15 3.24
</TABLE>
<TABLE>
<CAPTION>
1993 QUARTER ENDED
---- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Income $ 809 $ 430 $ 281 $ 440
Costs and expenses 2,315 2,213 2,143 2,284
Equity in earnings (loss)
of affiliate 425 850 (1,175) (3,955)
Loss from continuing operations (714) (616) (2,004) (3,827)
Income (loss) from discontinued
operations (845) 2,335 2,011 1,021
Net income (loss) (1,559) 1,719 7 (2,806)
Per common share:
Loss from continuing operations (.14) (.08) (.39) (.74)
Net income (loss) (.30) .29 .00 (.54)
</TABLE>
(1) Includes an impairment loss on the Company's investment in affiliate of
$19,396,000.
(2) Net of tax gain from sale of discontinued operations.
21
<PAGE> 22
Report of Independent Accountants
Board of Directors and Shareholders
GIANT GROUP, LTD.
We have audited the accompanying consolidated balance sheets of GIANT GROUP,
LTD. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Rally's Hamburgers,
Inc. for the years ended December 31, 1994, 1993, or 1992, the investment in
which is accounted for by the equity method. The Company's equity in Rally's
net assets of $25,497,000 and $23,702,000 at December 31, 1994, and 1993,
respectively, and equity of $(8,463,000), $(3,275,000)and $3,751,000 in the net
income (loss) of Rally's for the years ended December 31, 1994, 1993 and 1992,
respectively, are included in the accompanying financial statements. Those
financial statements of Rally's were audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed herein, insofar as
it relates to the aforementioned amounts included for Rally's, is based upon
the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of GIANT GROUP, LTD. and
subsidiaries as of December 31, 1994 and 1993, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 12 to the consolidated financial statements, two class
action lawsuits have been filed against Rally's in which the Company is named
as an additional defendant, the outcome of which is uncertain at this time.
Accordingly, no provision for any liability that may result upon adjudication
has been made in the financial statements of either Rally's or the Company.
The report of Rally's auditors referred to above also includes an explanatory
paragraph with respect to this matter.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for postretirement health benefits in 1993.
Coopers & Lybrand LLP
Philadelphia, Pennsylvania
March 10, 1995
22
<PAGE> 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 and 13.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE
COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
The information required by these items, other than information set forth
in this Form 10-K under Item I, "Executive Officers of Registrant," is omitted
because the Company is filing a definitive proxy statement pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Report which includes the required information. The required
information contained in the Company's proxy statement is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report:
(1) The following financial statements and schedules of the Company's 48%
owned investee, Rally's Hamburgers, Inc., are attached:
23
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 2, 1994 AND JANUARY 1, 1995
(In thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1,
1994 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1) $ 4,071 $ 2,707
Investments (Note 5) 13,107 4,085
Royalties receivable, net of a reserve for doubtful accounts of
$169 and $402 at January 2, 1994 and January 1, 1995, respectively (Note 4) 872 1,016
Accounts and other receivables, net of a reserve for doubtful accounts of $90
and $176 at January 2, 1994 and January 1, 1995, respectively (Note 4) 2,612 3,893
Inventory, at lower of cost or market (Note 1) 929 943
Current portion of notes receivable, including $108 from related parties at
January 2, 1994 and January 1, 1995 (Note 4) 348 250
Prepaid expenses and other current assets 3,064 1,382
---------- ----------
Total current assets 25,003 14,276
Assets held for sale (Note 3) 7,537 10,930
Net property and equipment, at historical cost (Notes 1, 2, 6 and 9) 121,113 114,948
Notes receivable, less current portion, including $312 and $197 from related
parties at January 2, 1994 and January 1, 1995, respectively (Note 4) 848 441
Intangible and other assets, less accumulated amortization and reserves of $2,448
and $7,984 at January 2, 1994 and January 1, 1995, respectively (Notes 1 and 2) 30,896 30,760
---------- ----------
Total assets $185,397 $171,355
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,473 $ 8,263
Accrued liabilities (Note 7) 8,892 10,089
Note payable (Note 2) 2,175 -
Current maturities of long-term debt and obligations under capital leases
(Notes 9 and 10) 3,968 2,494
Deferred income taxes (Note 11) 312 -
Accrued income taxes (Note 11) 269 230
---------- ----------
Total current liabilities 24,089 21,076
Deferred income taxes (Note 11) 1,212 -
Senior notes, net of discount of $1,010 and $897 at January 2, 1994 and
January 1, 1995, respectively (Notec 8) 83,990 84,103
Long-term debt, less current maturities (Note 9) 4,023 2,105
Obligations under capital leases, less current maturities (Note 10) 5,803 5,439
Other liabilities 3,753 5,145
---------- ----------
Total liabilities 122,870 117,868
---------- ----------
Commitments and contingencies (Notes 2, 8, 9 and 10)
Shareholders' equity (Notes 1, 2 and 12):
Common stock, $.10 par value, 25,000,000 shares authorized, 13,268,000 and 15,837,000
shares issued at January 2, 1994 and January 1, 1995, respectively 1,327 1,584
Additional paid-in capital 50,634 60,610
Less: Treasury shares, 239,000 at January 2, 1994 and January 1, 1995 (2,009) (2,009)
Retained earnings (deficit) 12,575 (6,698)
---------- ----------
Total shareholders' equity 62,527 53,487
---------- ----------
Total liabilities and shareholders' equity $185,397 $171,355
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
24
<PAGE> 25
RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 3, 1993, JANUARY 2, 1994, AND JANUARY 1, 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------
JANUARY 3, JANUARY 2, JANUARY 1,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Restaurant sales $112,894 $165,829 $178,476
Royalty fees 6,579 7,674 7,294
Franchise fees 475 571 328
Area development fees 700 272 220
-------- -------- --------
Total revenues 120,648 174,346 186,318
-------- -------- --------
COSTS AND EXPENSES:
Restaurant costs of sales 39,148 58,345 62,518
Restaurant operating expenses exclusive of depreciation and amortization
and other operating expenses shown separately below 43,095 70,504 77,292
General and administrative expenses 11,768 18,344 18,848
Advertising and promotion expenses 6,203 11,589 10,898
Depreciation and amortization 5,377 10,063 14,139
Provision for restructuring program, other restaurant closures,
and other charges (Note 3) - 12,551 17,259
-------- -------- --------
Total costs and expenses 105,591 181,396 200,954
-------- -------- --------
Income (loss) from operations 15,057 (7,050) (14,636)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (1,150) (7,270) (9,742)
Interest income 166 2,186 477
Other 187 651 (354)
-------- -------- --------
Total other (expense) (797) (4,433) (9,619)
-------- -------- --------
Income (loss) before unusual item and income taxes 14,260 (11,483) (24,255)
Litigation settlement (Note 10) - 2,000 -
-------- -------- --------
Income (loss) before income taxes 14,260 (13,483) (24,255)
PROVISION (BENEFIT) FOR INCOME TAXES (Note 11) 4,981 (4,576) (4,982)
-------- -------- --------
Net income (loss) $ 9,279 $ (8,907) $ (19,273)
========= ========= =========
Earnings (loss) per common and common equivalent share $ 0.76 $ (0.67) $ (1.42)
========= ========= =========
Weighted average shares outstanding 12,264 13,207 13,564
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
25
<PAGE> 26
RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Treasury Stock and
Contingent Shares
Common Stock(A) (A)
--------------------------------- ------------------- Additional Retained
Shares Shares Paid-In Earnings Total
Authorized Issued Amount Shares Amount Capital (Deficit) Equity
---------- ------ ------ ------ ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 29, 1991 15,000 11,498 $1,150 (419) $(2,879) $26,155 $12,203 $36,629
Amendment to the Charter(B) 10,000 - - - - - - -
Issuance of common stock - 1,022 102 - - 14,244 - 14,346
Contingent shares earnout - - - 132 638 - - 638
Tax benefit of nonqualified
stock options - - - - - 391 - 391
Net income - - - - - - 9,279 9,279
------ ------ ------ ---- ------ ------- -------- -------
Balances at January 3, 1993 25,000 12,520 1,252 (287) (2,241) 40,790 21,482 61,283
Issuance of common stock - 235 24 - - 1,314 - 1,338
Acquisitions (Note 2) - 513 51 - - 8,475 - 8,526
Contingent shares earnout - - - 48 232 - - 232
Tax benefit of nonqualified
stock options - - - - - 55 - 55
Net loss - - - - - - (8,907) (8,907)
------ ------ ------ ---- ------ ------- -------- -------
Balances at January 2, 1994 25,000 13,268 1,327 (239) (2,009) 50,634 12,575 62,527
Issuance of common stock (Note 1) - 2,569 257 - - 9,976 - 10,233
Net loss - - - - - - (19,273) (19,273)
------ ------ ------ ---- ------- ------- -------- -------
Balances at January 1, 1995 25,000 15,837 $1,584 (239) $(2,009) $60,610 $ (6,698) $53,487
====== ====== ====== ==== ======= ======= ======== =======
</TABLE>
(A) On September 10, 1992, the Company effected a 3-for-2 stock split paid in
the form of a 50% stock dividend for all shares then outstanding. The
effect of this stock split has been reflected for all periods presented.
(B) On May 13, 1992, stockholders of the Company approved a proposal to amend
the Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 15,000,000 shares to 25,000,000.
The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.
26
<PAGE> 27
RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------
JANUARY 3, JANUARY 2, JANUARY 1,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS PROVIDED FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ 9,279 $ (8,907) $(19,273)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,377 10,063 14,139
Provision for restructuring program, other
restaurant closures and other charges - 12,551 17,259
Provision for losses on receivables 216 207 377
Other 59 518 568
Changes in assets and liabilities net of effects
from business combinations:
(Increase) decrease in assets:
Receivables (233) (1,633) (1,810)
Inventory (191) (187) (14)
Prepaid expenses and other current assets (182) (1,182) 752
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 5,518 132 226
Accrued income taxes (431) (732) (39)
Deferred income taxes 2,163 (1,490) (1,524)
Other liabilities (569) 717 (1,824)
-------- -------- --------
Net cash provided by operating activities 21,006 10,057 8,837
-------- -------- --------
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
(Increase) decrease in investments (10) (12,836) 9,022
Notes receivable 191 730 429
Preopening costs (2,355) (2,068) (832)
Capital expenditures (31,612) (56,805) (19,808)
Proceeds from the sale of property and equipment - - 2,525
(Increase) in other assets (2,310) (8,245) (3,999)
Acquisition of businesses, net of cash acquired (9,684) (1,331) -
Investment in Beaman (132) (990) (1,836)
Tax benefit of nonqualified stock options 391 55 -
-------- -------- --------
Net cash used in investing activities (45,521) (81,490) (14,499)
-------- -------- --------
CASH FLOWS PROVIDED FROM (USED IN) FINANCING ACTIVITIES:
Payment of organization and development costs (139) (29) (4)
Net borrowings (repayments) under line of credit 4,300 (8,500) -
Proceeds from debt 12,104 2,631 -
Principal payments of debt (9,009) (3,791) (5,538)
Proceeds from the issuance of senior notes - 83,899 -
Proceeds from the issuance of common stock,
net of costs of issuance 14,342 1,338 10,233
Principal payments on capital lease obligations (392) (493) (393)
-------- -------- --------
Net cash provided from financing activities 21,206 75,055 4,298
-------- -------- --------
Net increase (decrease) in cash (3,309) 3,622 (1,364)
CASH AND CASH EQUIVALENTS, beginning of period 3,758 449 4,071
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ 449 $ 4,071 $ 2,707
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
27
<PAGE> 28
RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular dollars in thousands, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) FINANCIAL STATEMENT PRESENTATION AND ORGANIZATION
The consolidated financial statements include Rally's
Hamburgers, Inc. and its wholly-owned subsidiaries, each of which is
described below. Rally's Hamburgers, Inc. and its subsidiaries are
collectively referred to herein as the context requires as "Rally's"
or the "Company". All significant intercompany accounts and
transactions have been eliminated.
Rally's Hamburgers, Inc., Rally's of Ohio, Inc. and Self
Service Drive Thru, Inc. own and operate Rally's restaurants in
various states. Rally's Management, Inc. provides overall corporate
management of the Company's businesses. Rally's Finance, Inc. was
organized for the purpose of making loans to Rally's franchisees to
finance the acquisition of restaurant equipment and modular buildings.
RAR, Inc. was organized for the purpose of acquiring and operating a
corporate airplane. Rapid, Inc. was organized for the purpose of
promoting the Rally's Hamburgers brand. The Company's wholly-owned
subsidiary, ZDT Corporation, was formed to own the Zipps brand and
franchise system.
On December 17, 1992, the Company (through its wholly-owned
subsidiary MAC 1, Inc.) entered into an agreement for the acquisition
of all the common stock of Beaman Corporation ("Beaman"). Beaman is a
manufacturer of modular buildings and a supplier of Rally's modular
restaurant buildings. At the date of the agreement, Beaman was in
reorganization under Chapter 11 of the United States Bankruptcy Code.
On January 19, 1994, the Bankruptcy Court approved the Beaman Plan of
Reorganization giving the Company control of Beaman. On January 30,
1995, the Company sold all of the shares of common stock of Beaman for
approximately $3.1 million, of which approximately $2.7 million has
been paid in cash and the remainder will be paid pursuant to a
non-interest bearing, unsecured promissory note with two equal
payments due on January 30, 1997 and 1998. This sale resulted in a
pre-tax loss of approximately $300,000. Rally's investment in Beaman
at January 1, 1995 has been included under the caption Assets held for
sale at its net realizable value in the accompanying consolidated
financial statements.
B) REVENUE RECOGNITION
The Company recognizes franchise fees as income on the date a
restaurant is opened, at which time the Company has performed its
obligations relating to such fees. Area development fees are
generated from the awarding of exclusive rights to develop, own and
operate Rally's restaurants in certain geographic areas pursuant to an
Area Development Agreement. Such fees are recognized as income on a
pro rata basis as the restaurants are opened or upon the cancellation
or expiration of an Area Development Agreement. Both franchise fees
and area development fees are non-refundable. The Company also
receives royalty fees from franchisees in the amount of 4% of each
franchised restaurant's gross revenues, as defined in the Franchise
Agreement. Royalty fees are recognized as earned.
C) PROPERTY AND EQUIPMENT
Property and equipment are depreciated using the straight-line
method for financial reporting purposes and accelerated methods for
income tax purposes. The estimated useful lives for financial
reporting purposes are the shorter of 20 years or the lease life for
buildings and property held under capital leases, eight years for
furniture and equipment, five years for software and computer systems
and the life of the lease for leasehold improvements. Expenditures
for major renewals and betterments are capitalized while expenditures
for maintenance and repairs are expensed as incurred.
28
<PAGE> 29
D) INTEREST COSTS
Interest costs incurred during the construction of restaurants
are capitalized as a component of the cost of the restaurants and are
amortized on a straight-line basis over the estimated useful lives of
the restaurants. The amounts capitalized for the fiscal years ended
January 3, 1993, January 2, 1994 and January 1, 1995 were
approximately $230,000, $1.7 million and $490,000, respectively.
E) PRE-OPENING COSTS
Pre-opening costs, including the cost of training, start-up
supervision, uniforms and certain smallwares, are deferred and
amortized over three months beginning with the restaurant's first full
month of operation. Effective July 4, 1994, the Company revised its
estimate of the future benefit period of costs associated with opening
its new restaurants from 12 months to 3 months which the Company
believes more closely matches the period benefited by such
expenditures. The impact of the change for the year ended January 1,
1995, was an increase in amortization expense of approximately
$286,000. Preopening costs are included under the caption Prepaid
expenses and other current assets in the accompanying balance sheets.
F) INVENTORY
Inventory is valued at latest invoice cost which approximates
the lower of first-in, first-out cost or market.
G) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
JANUARY 3, JANUARY 2, JANUARY 1,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest paid (net of amount capitalized) $1,080 $6,950 $9,760
Income taxes paid 2,422 1,001 163
Capital lease obligations incurred 3,800 - -
</TABLE>
The purchase of the businesses described in Note 2 were recorded as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------
JANUARY 2, JANUARY 1,
1994 1995
---------- ----------
<S> <C> <C>
Assets acquired $12,913 $ -
Cash paid (1,229) -
Common stock issued (8,526) -
------- ----
Net liabilities assumed $ 3,158 $ -
======= ====
</TABLE>
For purposes of the consolidated statement of cash flows, the
Company considers all highly liquid debt instruments with a maturity
of three months or less at the date of purchase to be cash
equivalents. Cash equivalents at January 2, 1994 and January 1, 1995
were $1.5 million and $1.1 million, respectively.
H) EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are calculated based upon the weighted
average shares and common equivalent shares outstanding during the
periods.
29
<PAGE> 30
I) INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1, AMORTIZATION
1994 1993 PERIODS
---------- ---------- ------------
<S> <C> <C> <C>
Goodwill $13,329 $13,208 20-25 years
Reacquired franchise rights, franchised
restaurant conversion costs, location
advantage, and other intangible assets
(Note 2) 14,096 17,488 10-25 years
Senior notes offering costs (Note 8) 2,955 2,960 7 years
Non-compete agreements 1,988 1,776 3-5 years
Workers' compensation deposits - 1,785 N/A
Organization and development costs 445 449 5 years
Other 531 1,078 1-5 years
Less accumulated amortization and reserves (2,448) (7,984)
------- -------
Total $30,896 $30,760
======= =======
</TABLE>
Subsequent to its acquisition, the Company evaluates whether later
events and circumstances have occurred that indicate the remaining
estimated useful life of goodwill and other intangibles may warrant
revision or that the remaining balance of goodwill and other
intangibles may not be recoverable. When factors indicate that
goodwill or other intangibles should be evaluated for possible
impairment, the Company uses an estimate of the related markets
undiscounted cash flows over the remaining life of the goodwill and
other intangibles in measuring whether the goodwill and other
intangibles are recoverable. At January 2, 1994, no such events or
circumstances existed. At January 1, 1995, the Company reserved
approximately $3.2 million of goodwill, territory rights and other
intangible assets related to markets which the Company plans to
franchise or divest in the near term (see Note 3). Based on these
decisions, such amounts are not considered realizable based on the
Company's policy.
J) RECLASSIFICATION
Certain items have been reclassified in the accompanying
consolidated financial statements for prior periods in order to be
comparable with the classification adopted for the fiscal year ended
January 1, 1995. Such reclassifications had no effect on previously
reported net income.
2. ACQUISITIONS
In May 1994, the Company entered into an agreement for
exchange of properties and waiver of certain rights with Checkers
Drive-In Restaurants, Inc. pursuant to which it acquired, leased, or
received an assignment for existing leases for five Checkers
restaurants, converting them to Rally's restaurants, and an additional
13 existing Checkers restaurant locations. In exchange, Checkers
acquired one Company-owned restaurant, two additional Company-owned
Rally's locations and Rally's agreement to allow three Rally's
franchisees operating 18 Rally's restaurants to sell such restaurants
to Checkers. The agreement also settled certain claims of Checkers
that Rally's had infringed in certain limited ways on Checkers trade
dress. The acquisition of these restaurants and locations has been
accounted for as a purchase. The purchase price of approximately $3.2
million has been allocated in the accompanying balance sheet as Net
property and equipment (approximately $600,000) and as Intangible and
other assets (approximately $2.6 million). The intangible and other
asset amounts are being amortized over the initial term of the
underlying leases, predominately ten years. This non-cash transaction
has been excluded from the consolidated statement of cash flows.
On July 16, 1993, the Company acquired three Rally's
restaurants operating in Bakersfield, California and three restaurants
in development in Stockton and Fresno, California, from a franchisee
in exchange for 100,000 shares of the Company's Common Stock, valued
at approximately $1.4 million, plus cash consideration of
30
<PAGE> 31
approximately $1.0 million and the assumption of a secured note of
approximately $300,000, to a bank bearing interest at prime plus 1/2%.
On January 8, 1993, the Company acquired West Coast
Restaurants, a general partnership which operated seven Rally's
restaurants and owned the exclusive right to develop additional
Rally's restaurants in Los Angeles County, California. The
transaction was consummated through the issuance of 413,000 shares of
the Company's Common Stock, valued at $7.2 million, and cash of
$266,000 in exchange for all of the common stock of the corporate
general partners of West Coast Restaurants, the assumption of $2.2
million in notes payable to certain of West Coast Restaurants former
partners and the assumption of approximately $750,000 in Other
liabilities. The notes were subsequently paid on January 8, 1994.
The above acquisitions in California have been accounted for
as purchases in 1993. The purchase price paid for the assets acquired
and the liabilities assumed have been allocated in the accompanying
balance sheet as Net property and equipment (approximately $4.5
million) and as intangible and other assets (approximately $8.6
million). The Other asset amounts include reacquired franchise and
territory rights which are being amortized over 20 years.
The impact on operations of these acquisitions were not
significant for any of the periods presented, and, therefore, proforma
amounts are not presented giving effect to these acquisitions.
On June 12, 1992, the Company acquired substantially all of
the assets of Zipps Drive Thru, Inc., and two affiliated corporations
(Metro East Zipps, Inc. and Illinois Zipps Properties, Inc.),
collectively referred to as "Zipps", for approximately $10.6 million
and obtained a non-competition covenant from Zipps' founder, president
and principal stockholder for $1.0 million. In addition, the Company
assumed approximately $3.0 million of current liabilities of Zipps and
Zipps' lease obligations, including capital lease obligations of $3.8
million. Zipps was the owner and franchisor of a 46-restaurant (29
company-operated and 17 franchised) chain of double drive-thru
hamburger restaurants based in St. Louis, Missouri. The Company's
wholly-owned subsidiary, ZDT Corporation, was formed to own the Zipps
brand and franchise system.
The acquisition of Zipps was accounted for as a purchase. The
purchase price for the assets acquired and liabilities assumed was
allocated as Net property and equipment (approximately $8.3 million)
and as other assets (approximately $11.3 million). Goodwill of $6.9
million is included in Intangible and other assets and is being
amortized over 25 years.
Unaudited proforma information for the year ended January 3,
1993, has been provided below to reflect the impact on the Company's
historical operations as if the Zipps acquisition had occurred at the
beginning of fiscal 1992. The unaudited proforma financial
information is not necessarily indicative either of the results of
operations that would have occurred had the Zipps acquisition occurred
during the periods presented or of the future results of operations of
the consolidated entities.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 3, 1993
-----------------
<S> <C>
Revenue $129,842
Income from operations 16,284
Net income 9,829
Earnings per share .77
Weighted average shares outstanding 12,817
</TABLE>
3. RESTRUCTURING PROGRAM, OTHER RESTAURANT CLOSURES, AND OTHER CHARGES
Certain charges in fiscal 1994 and fiscal 1993 have
aggregated and segregated into the caption "Restructuring program,
other restaurant closures, and other charges" in the accompanying
Statements of
31
<PAGE> 32
Operations. These charges represent the impact of management
decisions which have been made over time in response to the Company's
sales and profit performance and the then-current revenue building and
profit enhancing strategies.
In summary and chronologically, the decisions that have been
reached in 1993 were to reduce the carrying value of certain
underperforming assets in non-core markets ($.7 million) and to exit
certain new markets and close certain other underperforming
restaurants ($11.9 million); and in 1994 to abandon additional real
estate development projects and certain investment in infrastructure
($5.3 million) and to abandon additional projects, infrastructure and
franchise or otherwise dispose of up to 60 Company restaurants ($12.0
million).
See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations" -- "Restructuring Program, Other
Restaurant Closures, and Other Charges".
4. RELATED PARTY TRANSACTIONS
A) ISSUANCE OF COMMON STOCK
On August 24, 1994, the Company entered into a restricted common
stock subscription agreement to sell to GIANT GROUP, LTD. (GIANT)
2,500,000 shares of its common stock for $10,000,000, or $4.00 per
share, a modest premium to the then current market price of its common
stock. Both companies obtained fairness opinions from investment
banking firms. The Company and GIANT completed the transaction on
October 25, 1994 and the Company subsequently issued the common
shares. This transaction increased GIANT'S investment in Rally's from
approximately 38% to approximately 47% of the Company's outstanding
common stock. There is no limitation on the Company's use of these
funds. The underlying shares of the Company's common stock have not
been registered with the Securities and Exchange Commission and,
therefore, are not freely tradable.
B) OTHER TRANSACTIONS
The Company has dealt with certain companies or individuals which
are related parties by virtue of having stockholders in common, by
being officers/directors or because they are controlled by significant
stockholders or officers/directors of the Company. Such transactions
are summarized below. Information with respect to related party rent
is disclosed in Note 10. The Company and its franchisees each pay
1/2% of sales to the Rally's National Advertising Fund (the "Fund"),
established for the purpose of creating and producing advertising for
the chain. The Fund is not included in the consolidated financial
statements, although the Company's contribution to it are included in
the Advertising and promotion expenses in the consolidated statements
of income.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------
JANUARY 2, JANUARY 1,
1994 1995
---------- ----------
BALANCE SHEET AMOUNTS
---------------------
<S> <C> <C>
Royalties receivable $ 58 $227
Accounts receivable 681 193
Interest receivable 17 -
Notes receivable 420 305
Accounts payable 111 200
Note payable 6 -
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
JANUARY 3, JANUARY 2, JANUARY 1,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE AMOUNTS
---------------
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C> <C> <C>
Royalty fees $2,098 $2,049 $2,129
Rental income 264 183 195
Interest income 14 100 93
------ ------ ------
$2,376 $2,332 $2,417
====== ====== ======
EXPENSE AMOUNTS
---------------
Legal $ 231 $ 412 $ 923
Other 72 134 14
------ ------ ------
$ 303 $ 546 $ 937
====== ====== ======
</TABLE>
5. INVESTMENTS
Excess funds are being invested in U.S. Treasury and
investment grade corporate debt securities. These securities are
deemed as "available-for-sale" under SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities" effective for fiscal years
beginning after December 15, 1993 and are reported at fair value.
Unrealized holding gains and losses, excluding those losses considered
to be other than temporary, are reported as a net amount in a separate
component of shareholders' equity. No net unrealized losses were
reported for any period presented. Provisions for declines in market
value are made for losses considered to be other than temporary. No
such provision was necessary for the years ended January 3, 1993 and
January 2, 1994. The provision for the year ended January 1, 1995 was
$95,000. The market value of the portfolio was determined based on
quoted market prices for these investments. Realized gains or losses
from the sale of investments are based on the specific identification
method.
The carrying value and market value of investments at January
2, 1994 and January 1, 1995 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
CARRYING HOLDING HOLDING MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- -------
<S> <C> <C> <C> <C>
January 2, 1994:
----------------
United States government and its agencies $ 1,977 $ - $ 24 $ 1,953
Corporate debt instruments 11,130 166 105 11,191
------- ---- ---- -------
Total $13,107 $166 $129 $13,144
======= ==== ==== =======
January 1, 1995:
----------------
United States government and its agencies $ 3,131 $ - $ - $ 3,131
Corporate debt instruments 954 - - 954
------- ---- ---- -------
Total $ 4,085 $ - $ - $ 4,085
======= ==== ==== =======
</TABLE>
The contractual maturities of those investments at January 1,
1995 were as follows:
<TABLE>
<CAPTION>
CARRYING MARKET
VALUE VALUE
-------- ------
<S> <C> <C>
1995 $3,131 $3,131
1999 482 482
2000 472 472
------ ------
$4,085 $4,085
====== ======
</TABLE>
The proceeds from the sale of investments and related gross
gains and losses for the twelve months ended January 2, 1994 and January 1, 1995
were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
JANUARY 2, JANUARY 1,
1994 1995
---------- ----------
<S> <C> <C>
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C> <C>
Proceeds from the sale of investments $125,793 $ 17,798
Gross gains realized 709 137
Gross losses realized (114) (364)
</TABLE>
34
<PAGE> 35
6. NET PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------
JANUARY 2, JANUARY 1,
1994 1995
---------- ----------
<S> <C> <C>
Land $ 18,224 $ 17,674
Buildings and leasehold improvements 70,698 76,433
Equipment, furniture and fixtures 49,334 52,144
Reserves for restructure and other closures (4,912) (9,007)
-------- --------
133,354 137,244
Less accumulated depreciation (18,547) (27,814)
-------- --------
114,807 109,430
-------- --------
Property held under capital lease 7,681 7,243
Less accumulated amortization (1,375) (1,725)
-------- --------
6,306 5,518
-------- --------
Net property and equipment $121,113 $114,948
======== ========
</TABLE>
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1,
1994 1995
---------- ----------
<S> <C> <C>
Payroll and payroll taxes $2,616 $ 2,429
Restructuring liabilities 1,436 600
Workers compensation 726 1,231
Other 4,114 5,829
------ -------
$8,892 $10,089
====== =======
</TABLE>
8. SENIOR NOTES
On March 9, 1993, the Company sold $85 million of 9 7/8%
Senior, Notes due 2000 (the "Notes"). The Company is required to make
a mandatory sinking fund payment on June 15, 1999 to retire 33 1/3% in
aggregate principal amount of the Notes issued. The Notes are carried
net of the related discount, which is being amortized over the life of
the Notes. Interest is payable June 15 and December 15. The Notes
include certain restrictive covenants which limit the Company's
ability to obtain additional borrowings and its ability to pay
dividends.
35
<PAGE> 36
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 15
1994 1995
---------- ----------
<S> <C> <C>
Notes payable to banks, maturing at various dates through September 30, 2000, secured by
property and equipment, bearing interest ranging from 1/2% above prime to 11.16%. The
notes are payable in monthly principal and interest installments ranging from $848 to
$41,033. $ 2,993 $ 2,388
Notes payable to finance companies due at various dates through 1998, secured by certain
equipment, bearing interest at rates ranging from 7.6% to 9%. The notes are payable in
monthly principal and interest installments ranging from $2,951 to $11,707. 3,157 915
Note payable to company for acquisition of certain markets, secured by certain property and
equipment, maturing November 30, 1998, bearing interest of 8.3%. The note is payable in
monthly principal and interest installments of $11,494. 548 468
Secured notes payable to a bank used to finance equipment and/or modular buildings for
franchisees (the Franchisee Loans), maturing at various dates through July 15, 2000, bearing
interest at prime plus 1/2%. The notes are payable in principal installments of $6,432.
Interest is payable monthly (see (i) below) 650 338
Unsecured note payable to a bank due June 6, 1994, bearing interest at 7.3%. 115 -
Unsecured note payable to company for acquisition of certain markets, due May 3, 1994, bearing
interest at 7.3%. 39 -
------- -------
7,502 4,109
Less - Current portion (3,479) (2,004)
------- -------
$ 4,023 $ 2,105
======= =======
</TABLE>
At January 1, 1995, the prime rate was 8.5%. The weighted
average interest rate on short-term borrowings for the years ended
January 2, 1994 and January 1, 1995 were 6.5% and 7.7%, respectively.
This rate was computed by using the daily weighted average borrowings
for each period. There were no short-term borrowings in the year
ended January 3, 1993.
The following are the maturities of long-term debt for each of
the next five years and thereafter:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1995 $2,004
1996 951
1997 552
1998 237
1999 237
Thereafter 128
------
$4,109
======
</TABLE>
Included in "Current maturities" is certain mortgage financing
related to properties expected to be sold within the next fiscal year.
The Company is also in default of certain covenants of this
indebtedness; however, such defaults do not accelerate payment. Terms
of such agreements do require that proceeds be utilized to first
liquidate balances outstanding. The Company is subject to certain
restrictive covenants under its debt agreements.
(i) Rally's Finance, Inc. ("RFI") entered into an agreement with a
bank whereby RFI borrowed from time to time, from the bank and, in
turn, loaned the amounts so borrowed to the Company's franchisees for
purposes of financing equipment and/or modular buildings (the
"Franchisee Loans"). RFI is presently charging prime plus
36
<PAGE> 37
1 1/2% to 2% on the Franchisee Loans. The Franchisee Loans are
secured by the respective equipment and/or modular buildings. In
November 1993, RFI converted this revolving credit to a term loan.
RFI's note to the bank is secured by the Franchisee Loans, and by a
guarantee by Rally's Hamburgers, Inc. RFI initial financing
transactions have been excluded from the statement of cash flows.
10. COMMITMENTS AND CONTINGENCIES
(A) LEASE COMMITMENTS
The Company leases certain land and buildings generally under
agreements with terms of or renewable to 15 to 20 years. Some of
the leases contain contingent rental provisions based on
percentages of gross sales. The leases generally obligate the
Company for the cost of property taxes, insurance and maintenance.
Following is a schedule by year of future minimum lease
commitments under all leases at January 1, 1995:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL LEASES OPERATING LEASES
----------- -------------- ----------------
<S> <C> <C>
1995 $ 1,089 $ 7,785
1996 1,018 7,578
1997 893 7,123
1998 778 6,560
1999 750 6,158
Thereafter 6,801 32,572
------- -------
Total minimum lease commitments 11,329 $67,776
=======
Less amounts representing interest, discounted
at rates ranging from 10% to 12% (5,400)
-------
Present value of minimum lease payments 5,929
Current portion of capital lease obligations (490)
-------
Long-term lease obligations $ 5,439
=======
</TABLE>
Rent expense consists of:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------
JANUARY 3, JANUARY 2, JANUARY 1,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rentals - related parties $ 275 $ 251 $ 261
Contingent rentals - related parties 6 - -
Minimum rentals - others 2,398 4,817 6,514
Contingent rentals - others 135 195 136
------ ------ ------
$2,814 $5,263 $6,911
====== ====== ======
</TABLE>
(B) OTHER COMMITMENTS
The estimated cost of completing capital projects currently
committed or under construction at January 1, 1995, was
approximately $600,000.
The Company is contingently liable on certain franchisee lease
commitments totaling approximately $800,000.
(C) LITIGATION
On January 24, 1994, four shareholders of the Company (Jonathan
Mittman, Steve and Dina Horowitz and John Hannan) brought suit
against the Company, certain of its directors and executive
officers, and certain others in the United States District Court
for the Western District of Kentucky. The defendants named in the
case are the Company, Burt Sugarman, GIANT GROUP, LTD., Wayne M.
Albritton, Donald C. Moore, Charles W. Klausman, Edward C. Binzel,
Gena L. Morris, Patricia L. Glaser and Arthur Andersen LLP, the
Company's independent auditors. Binzel was subsequently dismissed
from the action. The plaintiffs seek to represent a class of
persons who purchased shares of the Company's Common Stock
37
<PAGE> 38
from July 20, 1992 to September 29, 1993. On February 14, 1994,
Edward L. Davidson and Rich Sweeney filed a Complaint alleging claims
essentially identical to those set forth in the Mittman action.
Subsequent to the filing, the Edward L. Davidson and Rich Sweeney
Complaint was consolidated with the Jonathan Mittman Complaint. On
April 15, 1994, the Company filed a Motion to Dismiss and Motion to
Stay Discovery. The Court has not yet ruled on the Motion to Dismiss
and permitted only limited discovery.
The suit claims that the defendants violated certain provisions of
the federal securities laws by making material misstatements or
omissions about, among other issues, the Company's financial
condition, expansion plans and prospects for future success, which
inflated the price of the Common Stock during the class period. The
plaintiffs seek an unspecified amount of damages, attorneys' fees and
other relief. The Company denies all allegations of wrongdoing made
by the plaintiffs and intends to defend the suits vigorously. Because
these matters are in a preliminary stage, the Company is unable to
determine whether a resolution adverse to the Company will have a
material adverse effect on its results of operations or financial
condition.
On May 8, 1992, Zipps franchisees owning three restaurants in the
Decatur, Illinois area ("Illinois Zipps Franchisees") filed suit in
the Circuit Court of Madison County, Illinois ("Madison County
Action") against Zipps, certain of its current and former executive
officers and the Company. The complaint alleged that the defendants
interfered with plaintiff's existing and prospective economic
advantage and violated the Illinois Antitrust Act in connection with
the Company's acquisition of Zipps which was proposed at the date of
the complaint. The complaint further alleged that Zipps and its
executive officers violated the Illinois Franchise Disclosure Act of
1987 by failing to update the Zipps Uniform Offering Circular with
respect to certain items allegedly related to the acquisition. The
complaint requests unspecified damages, rescission of the plaintiff's
franchise agreements and the repurchase by Zipps of all Zipps units
and sites presently owned or operated by the plaintiffs. The
complaint has been amended to add ZDT Corporation ("ZDT") the
Company's wholly-owned subsidiary, as a defendant, asserts breach of
contract claims and an Illinois Franchise Act Disclosure claim against
ZDT, and asserts liability against Rally's for the acts of ZDT
pursuant to an alter ego claim. On January 4, 1995, the trial court
dismissed the antitrust count against all defendants in the Madison
County Action. The case is in the discovery stage and no trial date
has been set. The Company believes that the allegations against it
are without merit. The predecessor company (Zipps) and its
controlling shareholder have agreed to indemnify the Company against
losses, damages and expenses, exclusive of attorneys' fees, resulting
to the Company in connection with certain aspects of the litigation.
On December 1, 1992, ZDT filed an action against the Illinois Zipps
Franchisees in U.S. District Court, Eastern District of Missouri,
("St. Louis, Missouri Action") seeking a declaratory judgment that the
franchise agreements of the Illinois Zipps Franchisees were terminated
as of December 3, 1992, that ZDT is not in material breach of its
duties and obligations under such agreements, seeking payment of past
due royalty fees from the Illinois Zipps Franchisees, seeking to
enjoin the continued use of the Zipps service mark by the Illinois
Zipps Franchisees and seeking to recover damages sustained by ZDT as a
result of the continued use of such marks. Defendants in this action
have counterclaimed for breach of contract against ZDT. An April 3,
1995 trial date has been set.
In September 1993, the Company recorded a change of $2.0 million in
connection with the litigation and settlement of a lawsuit with
International Shortstop, Inc.
The Company is involved in other litigation matters incidental to
its business. With regard to the suits described in the first
paragraph of this section, the Company is unable to determine whether
a resolution adverse to the Company will have a material adverse
effect on its results of operations or financial condition. With
respect to other suits, management does not believe the litigation in
which it is involved will have a material adverse effect upon its
results of operations or financial condition.
11. INCOME TAXES
The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", (SFAS 109)
prospectively as a change in accounting principle effective January 4,
1993. Due to the
38
<PAGE> 39
nature of the predominant cumulative differences in the Company's book
and tax bases of assets and liabilities, which relate to items that
were both timing differences under Accounting Principles Board Opinion
11, "Accounting for Income Taxes" (APB11), and temporary differences
under SFAS 109, the cumulative impact of adoption was insignificant.
Prior business combinations were not restated as either financial
reporting and tax bases of acquired businesses were the same at
inception or bases differences relate to goodwill. The asset and
liability method contemplated by SFAS 109 requires recognition of
deferred tax assets and liabilities for the expected future tax
consequences of substantially all temporary differences between the
tax bases and financial reporting bases of assets and liabilities
(excluding goodwill).
The major components of the Company's computation of deferred
tax assets and liabilities at January 2, 1994 and January 1, 1995 are
as follows:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1,
1994 1995
---------- ----------
<S> <C> <C>
Excess of tax depreciation over book depreciation $ 7,182 $11,994
Acquired intangibles with no tax basis 2,520 2,303
Other 990 47
------- -------
Gross deferred tax liabilities 10,692 14,344
------- -------
Net operating loss carryforwards - 8,885
Amounts accrued for financial reporting purposes
not yet deductible for tax purposes 4,720 6,890
Alternative minimum tax and targeted jobs tax
credit carryforwards 2,602 1,181
Other 1,846 834
------- -------
Gross deferred tax assets 9,168 17,790
Less valuation allowance - 3,446
------- -------
Net deferred tax liability $ 1,524 $ -
======= =======
</TABLE>
The primary changes from January 2, 1994 in the components of
the above assets and liabilities and, therefore, the deferred tax
provision of approximately $1,524,000, relate to the Company's changes
in business strategies, restructuring, and other restaurant closings
(see Note 3) offset by current year tax depreciation in excess of book
depreciation. The alternative minimum tax credit carryforward has no
expiration. The net operating loss carryforwards will expire in 2009.
The targeted jobs tax carryforward expires $118,000 in 2006, $184,000
in 2007, $200,000 in 2008, and $300,000 in 2009. A valuation
allowance of $3,446,000 has been established due to the uncertainty of
realizing the benefit associated with the net operating loss
carryforwards generated in the current year.
Income tax expense consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------
JANUARY 3, JANUARY 2, JANUARY 1,
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
Current $3,198 $ (76) $(3,458)
Deferred 1,783 (4,500) (1,524)
------ ------- -------
Total tax (benefit) expense $4,981 $(4,576) $(4,982)
====== ======= =======
</TABLE>
The amounts for the year ending January 2, 1994 and January 1,
1995, were computed in accordance with SFAS 109; the prior year
presented was calculated in accordance with APB 11.
The primary components of deferred income tax provisions in
prior years relate to the use of accelerated depreciation methods for
income tax purposes and differences in the periods that area
development and franchise fees are recognizable for financial
reporting and tax purposes. Except for the effects of the reversal of
its cumulative temporary differences and continued application of
accelerated depreciation methods for tax purposes, the Company is not
currently aware of any factors which would cause significant
differences between taxable income and pre-tax book income in future
years. However, there can be no assurances that there will be
39
<PAGE> 40
no significant differences in the future between taxable income and
pre-tax book income if circumstances change.
A reconciliation of the provisions for income taxes with the
federal statutory rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
JANUARY 3, JANUARY 2, JANUARY 1,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Provision (benefit) computed at statutory rate $4,848 $(4,584) $(8,247)
State and local income taxes, net of federal
income tax benefit 346 162 162
Valuation allowance - - 3,446
Other (213) (154) (343)
------ ------- -------
$4,981 $(4,576) $(4,982)
====== ======= =======
</TABLE>
12. STOCK OPTION PLANS
The Company currently has two stock option plans in effect,
the 1990 Stock Option Plan (the "Employees' Plan") and the 1990 Stock
Option Plan for Non-Employee directors (the "Directors' Plan").
Options to purchase an aggregate of 3.8 million shares of the
Company's common stock may be granted under these plans, at a price
not less than the market value on the date of grant. Outstanding
options expire either five years or ten years after grant depending on
their grant date. Options are exercisable over various periods
ranging from 30 months to five years after grant depending on their
grant dates.
On August 26, 1994, the Board of Directors authorized an
option exchange program, subject to shareholder approval, pursuant to
which options to purchase 1,042,000 common shares at prices ranging
from $8.00 to $21.50 per share were terminated. These options were
reissued, subject to shareholder approval, at $4.125 per share, which
was the closing price of the Company's common stock on August 26,
1994.
A summary of stock option transactions reflecting the stock
option exchange program is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- ---------------------------------
OPTION PRICE OPTION PRICE
SHARES PER SHARE TOTAL SHARES PER SHARE TOTAL
------ ------------ ------- ------ ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding (exercisable) at
December 29, 1991 1,256 $2.67 - $9.33 $ 7,281 550 $2.67 - $6.50 $ 3,095
Granted (became exercisable) in 1992 750 $5.83 - $21.50 11,923 324 $4.67 - $9.33 1,907
Exercised in 1992 (152) $2.67 - $6.50 (881) (152) $2.67 - $6.92 (881)
Terminated in 1992 (61) $5.83 - $6.50 (441) (3) $6.00 (21)
------ -------- ---- -------
Options outstanding (exercisable) at
January 3, 1993 1,793 $2.67 - $21.50 17,882 719 $2.67 - $9.33 4,100
Granted (became exercisable) in 1993 487 $9.75 - $21.00 6,507 421 $5.83 - $21.50 3,947
Exercised in 1993 (224) $2.67 - $12.33 (1,237) (224) $2.67 - $12.33 (1,237)
Terminated in 1993 (146) $5.29 - $21.00 (1,947) (18) $5.29 - $15.67 (127)
------ -------- ---- -------
Options outstanding (exercisable) at
January 2, 1994 1,910 $2.67 - $21.50 21,205 898 $2.67 - $21.50 6,683
Granted (became exercisable) in 1994 1,925 $2.875- $11.25 10,600 105 $5.83 - $21.50 1,257
Exercised in 1994 (34) $2.66 - $6.92 (169) (34) $2.66 - $6.92 (169)
Terminated in 1994 (1,576) $4.125- $21.50 (21,295) (213) $8.375- $21.50 (3,242)
------ -------- ---- -------
Options outstanding (exercisable) at
January 1, 1995 2,225 $2.67 - $6.50 $ 10,341 756 $2.67 - $6.50 $ 4,529
====== ======== ==== =======
</TABLE>
40
<PAGE> 41
13. UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED JANUARY 2, 1994
Revenues $36,873 $45,407 $46,900 $45,166
Income (loss) from operations 2,440 4,834 (1,162) (13,162)
Net income (loss) 1,416 2,606 (2,875) (10,054)
Earnings (loss) per share .11 .20 (.22) (.77)
FISCAL YEAR ENDED JANUARY 1, 1995
Revenues $42,805 $48,464 $48,959 $46,090
Income (loss) from operations (477) 884 (4,124) (10,919)
Net loss (1,862) (931) (4,495) (11,985)
Loss per share (.14) (.07) (.34) (.79)
</TABLE>
14. SUBSEQUENT EVENT
On February 13, 1995, the Company acquired all of the shares
of common stock of Hampton Roads Foods, Inc. (a Louisiana corporation)
and certain of the assets of HRF, Inc. (a Virginia corporation),
collectively referred to as "HRF", for approximately $7.2 million, of
which approximately $2.1 million was paid in cash and the remainder
will be paid over the next six years pursuant to a secured promissory
note, bearing interest at 9%. In addition, the Company assumed
approximately $413,000 of notes payable and HRF's lease obligations,
including capital lease obligations of approximately $1.3 million.
HRF owned and operated a total of ten Rally's restaurants and owned
the exclusive right to develop additional Rally's restaurants in the
Hampton and Norfolk, Virginia area. The acquisition of HRF will be
accounted for as a purchase in 1995.
41
<PAGE> 42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rally's Hamburgers, Inc.:
We have audited the accompanying consolidated balance sheets of
Rally's Hamburgers, Inc. (a Delaware corporation) and subsidiaries as of
January 2, 1994 and January 1, 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three fiscal
years in the period ended January 1, 1995. These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Rally's Hamburgers,
Inc. and subsidiaries as of January 2, 1994 and January 1, 1995 and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended January 1, 1995, in conformity with generally accepted
accounting principles.
As discussed further in Note 10, two class action suits have been
filed against the Company, the outcomes of which are uncertain at this time.
Accordingly, no provisions for any liabilities that may result upon
adjudication have been made in the accompanying financial statements.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 3, 1995
42
<PAGE> 43
RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended January 3, 1993
Accounts receivable $ 8 $ - $ - $ - $ 8
Royalties receivable 423 216 - 568 71
---- ---- ---- ---- ----
$431 $216 $ - $568 $ 79
==== ==== ==== ==== ====
Fiscal Year Ended January 2, 1994
Accounts receivable $ 8 $ 82 $ - $ - $ 90
Royalties receivable 71 125 - 27 169
---- ---- ---- ---- ----
$ 79 $207 $ - $ 27 $259
==== ==== ==== ==== ====
Fiscal Year Ended January 1, 1995
Accounts receivable $ 90 $ 86 $ - $ - $176
Royalties receivable 169 291 - 58 402
---- ---- ---- ---- ----
$259 $377 $ - $ 58 $578
==== ==== ==== ==== ====
</TABLE>
<PAGE> 44
(2) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<S> <C>
3.1.1 Restated Certificate of Incorporation of the Company, as amended through May 21, 1987
(filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1987, and incorporated herein by reference).
3.1.2 Certificate of Amendment to Restated Certificate of Incorporation of the Company, dated
June 1, 1990 (filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, and incorporated herein by reference).
3.1.3 Certificate of Amendment to Restated Certificate of Incorporation of the Company, dated
November 9, 1992 (filed as Exhibit 1 to the Company's Current Report on Form 8-K, dated
November 10, 1992, and incorporated herein by reference).
3.1.4* Certificate of Amendment to Restated Certificate of Incorporation, dated May 9, 1994.
3.2 By-laws of the Company, as amended (filed as Exhibit 3.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1990, and incorporated herein by reference).
4.1.1 Indenture, together with Form of Note, dated as of April 15, 1985 between the Company and
Manufacturers Hanover Trust Company, as trustee, for 14.5% Subordinated Notes due 1995 (filed
as Exhibit 4(a) to the Company's Registration Statement on Form S-2
(Registration No. 2-96654), and incorporated herein by reference).
4.1.2* Satisfaction and discharge of 14.5% Subordinated Notes due April 15, 1995.
4.2.1 Indenture, together with Form of Note, dated as of April 15, 1986, between the Company and
National Westminster Bank, USA, as trustee, for 7% Convertible Subordinated Debentures due
2006 (filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1986, and incorporated herein by reference).
4.2.2* Discharge of the Company's 7% Convertible Subordinated Debentures.
10.1.1 1985 Incentive Stock Option Plan (filed as Exhibit A to the Company's Proxy Statement for the
1986 Annual Meeting of Stockholders (the "1986 Proxy Statement"), and incorporated herein
by reference).
10.1.2* 1985 Non-Qualified Stock Option Plan, as amended.
10.2.1 Stock Purchase Agreement, dated April 12, 1990, by and among KCC Delaware Company, a Delaware
corporation, Golden State Newsprint Company, Inc., a Delaware corporation, and Smurfit International
B.V., a Netherlands corporation ("Smurfit International") (filed as
Exhibit 1 to the Company's Current Report on Form 8-K, dated May 8, 1990, and incorporated herein
by reference).
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<S> <C>
10.2.2 Guaranty, dated April 12, 1990, executed by the Company in favor of Smurfit International (filed as
Exhibit 2 to the Company's Current Report on Form 8-K, dated May 8, 1990, and incorporated herein by
reference).
10.3 Employment Agreement dated July 24, 1993, between the Company and Burt Sugarman (filed as
Exhibit 10(d)(1) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference).
10.4 Employment Agreement dated May 19, 1992, between Keystone Cement and Gary Pechota (filed as
Exhibit 10(d)(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference).
10.5.1 Loan and Security Agreement, dated November 23, 1993, between Giant Cement Company ("Giant Cement")and
The CIT Group/Equipment Financing, Inc. ("CIT") (filed as Exhibit 1 to the Company's Current Report on
Form 8-K, dated November 30, 1993, and incorporated herein by reference).
10.5.2 Continuing Guaranty Agreement, dated November 23, 1993, from the Company to CIT (filed as Exhibit 2
to the Company's Current Report on Form 8-K, dated November 30, 1993, and incorporated herein by reference).
10.5.3 Stock Pledge Agreement, dated November 23, 1993, between the Company and CIT (filed as Exhibit 3 to the
Company's Current Report on Form 8-K, dated November 30, 1993, and incorporated herein by reference).
10.5.4 Collateral Value Maintenance Agreement, dated November 23, 1993, between Giant Cement and CIT
(filed as Exhibit 4 to the Company's Current Report on Form 8-K, dated November 30, 1993, and
incorporated herein by reference).
10.5.5 S.C. Mortgage, Security Agreement, and assignment of leases and rents, dated November 23, 1993,
between Giant Cement and CIT (filed as Exhibit 5 to the Company's Current Report on Form 8-K, dated
November 30, 1993, and incorporated herein by reference).
10.5.6 North Carolina Deed of Trust, Security Agreement and Assignment of Rents, dated November 23, 1993
among Giant Cement, CIT and William B. Stoebig, as Trustee (filed as Exhibit 6 to the Company's Current
Report on Form 8-K, dated November 30, 1993, and incorporated herein by reference).
10.5.7* First Amendment to Loan and Security Agreement, dated October 6, 1994 between Giant Cement and CIT.
10.6.1 Credit Agreement, dated November 23, 1993, between Giant Cement and Keystone Cement Company
("Keystone Cement") and General Electric Capital Corporation ("GECC") (filed as Exhibit 7 to the
Company's Current Report on Form 8-K, dated November 30, 1993, and incorporated herein by reference).
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<S> <C>
10.6.2 Borrower Security Agreement, dated November 23, 1993, from Giant Cement to GECC (filed as Exhibit 8
to the Company's Current Report on Form 8-K, dated November 30, 1993, and incorporated herein by reference).
10.6.3 Guarantee Agreement, dated November 23, 1993, among the Company, KCC Delaware Company, Keystone Cement,
Giant Resource Recovery Company, Inc. and GECC (filed as Exhibit 9 to the Company's Current Report on
Form 8-K, dated November 30, 1993, and incorporated herein by reference).
10.6.4* First Amendment to Credit Agreement, dated as of September 29, 1994, among Giant Cement, Keystone Cement and GECC.
10.7 Tax Sharing and Indemnification Agreement, dated as of September 27, 1994 between the Company and
Giant Cement Holding, Inc. ("GCHI") (filed as Exhibit 1 to the Company's Current Report on Form 8-K,
dated October 14, 1994, and incorporated herein by reference).
10.8 Indemnification and Release Agreement, dated as of September 27, 1994, among the Company, KCC
Delaware Company and GCHI (filed as Exhibit 2 to the Company's Current Report on Form 8-K, dated
October 14, 1994 and incorporated herein by reference).
11* Statement re: Computation of Per Share Earnings.
21* List of Subsidiaries.
23.1 * Consent of Coopers & Lybrand LLP
23.2 * Consent of Arthur Andersen LLP
27* Financial Data Schedules
(B) REPORTS ON FORM 8-K:
During the quarter ended December 31, 1994, the Company filed the following report on Form 8-K:
For an event of October 6, 1994 to report on Item 2 the sale of Giant Cement Holding, Inc.
(C) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K:
Described in Item 14 (a) (3) of this Annual Report on From 10-K.
(D) SEPARATE FINANCIAL STATEMENTS AND SCHEDULES
See Item 14 (a) (2) for financial statements for 50% or less owned persons and schedules included.
</TABLE>
_________________________
* Filed herewith
45
<PAGE> 47
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
GIANT GROUP, LTD.
-----------------
Registrant
Date: March 28, 1995 By: /s/Burt Sugarman
--------------------------
Burt Sugarman
Chairman
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Date: March 28, 1995 By: /s/ Burt Sugarman
--------------------------
Burt Sugarman
Chairman of the Board,
Chief Executive Officer
Date: March 28, 1995 By: /s/Terry Christensen
----------------------------
Terry Christensen
Director
Date: March 28, 1995 By: /s/ Robert Wynn
-----------------------------
Robert Wynn
Director
Date: March 28, 1995 By: /s/David Gotterer
----------------------------
David Gotterer
Director
Date: March 28, 1995 By: /s/Cathy Wood
----------------------------
Cathy Wood
Vice President, Chief
Financial Officer
46
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit
No. Description of Exhibit
-------
<S> <C>
3.1.4 Certificate of Amendment to Restated Certificate of Incorporation, dated May 9, 1994.
4.1.2 Satisfaction and discharge of 14.5% Subordinated Notes due April 15, 1995.
4.2.2 Discharge of the Company's 7% Convertible Subordinated Debentures.
10.1.2 1985 Non-Qualified Stock Option Plan, as amended.
10.5.7 First Amendment to Loan and Security Agreement, dated October 6, 1994 between Giant Cement and CIT.
10.6.4 First Amendment to Credit Agreement, dated as of September 29, 1994, among Giant Cement, Keystone Cement and GECC.
11 Statement re: Computation of Per Share Earnings.
21 List of Subsidiaries.
23.1 Consent of Coopers & Lybrand LLP
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedules
</TABLE>
<PAGE> 1
CERTIFICATE OF AMENDMENT Exhibit 3.1.4
OF
RESTATED CERTIFICATE OF INCORPORATION
OF GIANT GROUP, INC.
The undersigned, the duly elected and presently acting Vice Chairman
and Secretary, respectively, of GIANT GROUP, INC., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certify as follows:
FIRST: That the Board of Directors of the Corporation has
adopted the following resolution and the therein specified amendent
to the Corporation's Restated Certificate of Incorporation:
"RESOLVED, that Article FOURTH, Clause A, of the
Corporation's Restated Certificate of Incorporation be
amended and restated in its entirety as set forth below and
that such amendment be submitted for their approval at the
Corporation's 1994 Annual Meeting of Stockholders;
'FOURTH: (A) The total number of shares of all classes
of stock which the Corporation shall have authority to issue is
Fourteen Million Five Hundred Thousand (14,500,000) shares,
consisting of Two Million (2,000,000) shares designated as Preferred
Stock of the par value of One Cent ($.01) per share (the "Preferred
Stock"), and Twelve Million Five Hundred Thousands (12,500,000) shares
designated as Common Stock of the par value of One Cent ($.01) per share
(the "Common Stock").' "
SECOND: That the stockholders of the Corporation have adopted
and approved the foregoing amendment at an annual meeting called
and held in accordance with the provisions of Section 222 of the
General Corporation Law of the State of Delaware.
<PAGE> 2
THIRD: That the foregoing amendment was duly adopted
in accordance with the applicable provisions of Section 242 of
the General Corporation law of the State of Delaware.
IN WITNESS WHEREOF, this Certificate of Amendment has been
signed by David Gotterer and Terry L. Kinder, the duly elected and presently
acting Vice Chairman and Secretary, respectively, of GIANT GROUP, LTD., as of
the 9th day of May, 1994.
/s/ DAVID GOTTERER
------------------------------------
David Gotterer, Vice Chairman
ATTEST: /s/ TERRY L. KINDER
---------------------------
Terry L. Kinder, Secretary
<PAGE> 1
Exhibit 4.1.2
SATISFACTION AND DISCHARGE
WHEREAS, GIANT GROUP, LTD. (formerly known as Giant Portland & Masonry
Cement Company), a Delaware corporation (the "Company"), executed and delivered
its Indenture (the "Indenture"), dated as of April 15, 1985 to Manufacturers
Hanover Trust Company (Chemical Bank, successor), as trustee (the "Trustee");
WHEREAS, the Company issued $30,000,000 aggregate principal amount of
its 14-1/2% Subordinated Notes due 1995 (the "Notes") pursuant to the
Indenture;
WHEREAS, pursuant to Section 12.01 of the Indenture, the Company
deposited with the Trustee, in trust, on the date hereof, funds sufficient to
redeem on November 10, 1994 (the "Redemption Date") all of the Notes
outstanding on the Redemption Date;
WHEREAS, the Company caused the notice of redemption to be mailed on
behalf of the Company to each registered holder of the Notes, a copy of which
notice is hereto attached as Exhibit A;
WHEREAS, the Company has requested that the Trustee execute proper
instruments acknowledging satisfaction and discharge of the Indenture.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS;
That the Trustee, in consideration of the premises and of One Dollar
($1) to it in hand paid by the Company, receipt of which is hereby
acknowledged, does hereby acknowledge that the Indenture is satisfied and
discharged, except for the obligations of the Company to the Trustee under
Section 7.06 which shall survive the satisfaction and discharge of the
Indenture.
IN WITNESS WHEREOF, Chemical Bank has caused this Satisfaction and
Discharge to be signed and acknowledged by one of its Senior Trust Officers,
has caused its corporate seal to be
<PAGE> 2
affixed hereunto, and the same to be attested by one of its Trust Officers, as
of the 10th day of November, 1994.
CHEMICAL BANK
By: /s/
----------------------------------
Senior Trust Officer
Attest: /s/
-------------------------
Trust Officer
<PAGE> 1
EXHIBIT 4.2.2
DISCHARGE
WHEREAS, GIANT GROUP, LTD., a Delaware corporation (the "Company")
executed and delivered its Indenture (the "Indenture"), dated as of April 15,
1986 to National Westminster Bank USA (Shawmut Bank, N.A., successor), as
trustee (the "Trustee");
WHEREAS, the Company issued $35,000,000 aggregate principal amount of its
7% Convertible Subordinated Debentures due April 15, 2006 ("Debentures")
pursuant to the Indenture;
WHEREAS, pursuant to Section 8.01 of the Indenture, the Company deposited
with the Trustee, in trust, on the date hereof, funds sufficient to redeem on
November 7, 1994 ("Redemption Date") all of the Debentures outstanding on the
Redemption Date;
WHEREAS, the Company caused the notice of redemption to be mailed on
behalf of the Company to each registered holder of the Debentures, a copy of
which notice is hereto attached as Exhibit A;
WHEREAS, the Company has requested that the Trustee acknowledge in writing
the discharge of the Company's obligations under the Indenture, except for the
surviving obligations under the Indenture, except for the surviving obligations
specified below.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS:
That the Trustee, in consideration of the premises and of One Dollar ($1)
to it in hand paid by the Company, receipt of which is hereby acknowledged,
does hereby acknowledge that the Company's obligations under the Indenture are
discharged, except for the obligations for the Company under Sections 2.03,
2.04, 2.05, 2.06, 2.07, 4.01, 4.04, 4.06, 7.08 and Article 10 which shall
survive until the Debentures are no longer outstanding and except for the
obligations of the Company under Sections 7.07 and 8.03 which shall survive the
discharge of the Indenture.
IN WITNESS WHEREOF, Shawmut Bank N.A. has caused this Discharge to be
signed and acknowledged by one of its Vice Presidents or Assistant Vice
Presidents, has caused its corporate
<PAGE> 2
seal to be affixed hereunto, and the same to be attested by one of its Trust
Officers, as of the 11th day of October, 1994.
SHAWMUT BANK, N.A.
By /s/
-----------------------------
Vice President
Attest: /s/
------------------------
Trust Officer
<PAGE> 1
Exhibit 10.1.2
GIANT GROUP, LTD.
1985 NON-QUALIFIED STOCK OPTION PLAN, AS AMENDED
1. Purpose and Effect.
(a) The purpose of this plan (the "Plan") is to induce officers,
directors and other senior executives and management and supervisory personnel
of and consultants to GIANT GROUP, LTD., a Delaware corporation ("GIANT") and
its subsidiaries (GIANT and its subsidiaries being hereinafter collectively
referred to as the "Company"), who are in a position to make material
contributions to the Company's success, to remain in the service of the Company,
to offer them incentives and rewards in recognition of their share in the
Company's progress, and to encourage them to continue to promote the best
interests of the Company through the grant of them of options (the "Options")
for the purchase of the "Common Stock, $.01 par value, of GIANT (the "Common
Stock"). The Plan is also intended to aid the Company in competing with other
enterprises for the services of new senior executives needed to help insure
continued development. For purposes of this Plan, the term "subsidiaries"
shall include all corporations at least 50% of the voting stock of which is
owned directly or indirectly by GIANT.
(b) In the event that this Plan is not approved by the stockholders of
GIANT, this Plan and all Options granted and to be granted hereunder shall be
null and void, and the Company shall have no obligation of any nature
whatsoever to any employee, director or other person arising out of either this
Plan or any Options granted or to be granted hereunder.
2. Administration.
(a) The Plan shall be administered by the Board of Directors of GIANT
(the "Board"), provided, however, that the Board may, in the exercise of its
discretion, designate from among its members a Compensation Committee (the
"Committee"), and may delegate to the Committee full power and authority,
subject to such orders or resolutions not inconsistent with the provisions of
the Plan as may from time to time be issued or adopted by the Board, to
interpret the provisions and supervise the administration of the Plan.
(b) Each Option shall be evidenced by an Option Certificate which shall
contain such terms and conditions (consistent with the terms and conditions of
this Plan) as may be approved by the Board or the Committee, as the case may be,
and shall be signed by an officer of GIANT and the optionee (the "Optionee").
(c) Subject to any applicable provisions of GIANT's By-Laws, all
decisions made by the Board or the Committee pursuant to the provisions of the
Plan and related orders or
<PAGE> 2
-2-
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, stockholders, employees and Optionees.
3. Shares Subject to the Plan.
(a) The shares of GIANT Common Stock to be delivered upon exercise
of Options granted under the Plan shall be made available, at the discretion of
the Board, either from the authorized but unissued shares of the GIANT Common
Stock or from the shares of Common Stock reacquired by GIANT and held in
treasury.
(b) Subject to adjustments made pursuant to the provisions of
Paragraph (c) of this Section 3, the aggregate number of shares to be delivered
upon exercise of all Options which may be granted under this Plan shall be
2,000,000(1) shares. If an Option granted under the Plan shall expire or
terminate for any reason during the term of the Plan, the shares subject to but
not delivered under such Option shall be available for the grant of other
Options.
(c) In the event of a merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, or other change in corporate
structure affecting the Common Stock, appropriate adjustments shall be made in
the aggregate number of shares subject to the Plan and in the number and
exercise price of shares subject to unexercised Options previously granted
under the plan.
4. Eligibility and Participation.
The persons eligible to receive Options shall consist of officers,
directors and other senior executives and management and supervisory personnel
of and consultants to the Company. Subject to the limitations of the Plan, the
Board or the Committee, as the case may be, shall select the persons to be
granted Options, determine the number and exercise price of the shares subject
to each Option, and determine the time when each Option shall be granted. More
than one Option may be granted to the same person.
5. Term of Plan and Option Period.
The term during which Options may be granted under this Plan shall
commence on August 28, 1995 and expire on August 27, 1995; provided, however,
that if the Plan is not approved by stockholders of GIANT by August 27, 1986
all Options granted hereunder shall be and become null and void. Subject to
the provisions of the Plan with respect to death, retirement and termination of
employment, the maximum period during which each Option
----------------
(1) Increased from 600,000 to 1,000,000 shares on May 8, 1987.
Increased from 1,000,000 to 2,000,000 shares on May 16, 1988.
<PAGE> 3
-3-
may be exercised shall be fixed by the Board or the Committee, as the case may
be, at the time such Option is granted but shall in no event exceed ten (10)
years.
6. Exercise Price.
(a) The price at which shares of Common Stock may be purchased upon
exercise of a particular Option shall be not less than eighty-five percent
(85%) of the fair market value of such shares on the date such Option is
granted, as determined by the Board or the Committee, as the case may be.
(b) For purposes of determining the fair market value of a share of
Common Stock on the date of grant, if the Common Stock (i) is then listed on
any national securities exchange, the fair market value shall be the closing
price per share of the Common Stock on such exchange at the close of the
trading session on the date of grant, (ii) is then listed on NASDAQ (but not on
any national securities exchange), the fair market value shall be the closing
price per share of the Common Stock on NASDAQ on the date of grant or (iii) is
then traded on the over-the-counter market (but not on a national securities
exchange or NASDAQ), the fair market value shall be the average of the closing
bid and asked prices of the Common Stock as reported by the National Quotation
Bureau, Inc. or other entity then publishing bid and asked prices for the
Common Stock for the date of grant, or, if unavailable, then the last trading
date on which bid and asked quotations were published immediately preceeding
the date of grant.
7. Exercise of Options.
(a) Each Option granted under this Plan may be exercised at any
time or from time to time, as determined at the time of grant and, except in
case of death, retirement or termination of employment or service as
hereinafter provided, only during the continuance of the Optionee's employment
or service with the Company. Subject to the foregoing limitations and the
terms and conditions of the Option Certificate, each Option shall be
exercisable with respect to such number of shares as shall be fixed by the
Board or the Committee, as the case may be; provided, however, that if the
Board or the Committee grants an Option or Options exercisable in more than one
installment, and if the employment or service of an Optionee holding such
Option is terminated, the Option shall be exercisable as to such number of
shares as to which the Optionee had the right to exercise on the date of
termination of employment or service.
(b) No shares of COmmon Stock shall be delivered pursuant to the
exercise of any Option, in whole or in part, until qualified for delivery under
such laws and regulations as may be deemed by the Board or the Committee, as
the case may be, to be applicable thereto and until payment in full of the
exercise price therefor is received by the Company.
<PAGE> 4
-4-
(c) When exercising Options in whole or in part, Optionees may pay
the exercise price in cash, in shares of GIANT Common Stock or by means of any
other consideration acceptable to the Board or the Committee. For purposes of
valuing any shares of GIANT Common Stock used to exercise any Option in whole
or in part, such shares shall be valued as provided in Section 6(b). Shares of
GIANT Common Stock used to exercise any Option granted hereunder shall be free
and clear of all liens, pledges, claims, encumbrances and restrictions of any
kind or nature whatsoever, other than restrictions imposed upon such shares
pursuant to the provisions of the Securities Act of 1933, as amended.
(d) No Optionee, or legal representative, legatee, or distributee
of an Optionee, shall be deemed to be a holder of any shares subject to any
Option granted hereunder unless and until the stock certificate or certificates
therefor have been issued and delivered.
8. Non-Transferability of Options.
An Option granted under the Plan may not be transferred except by will
or the laws of descent and distribution and, during the lifetime of the person
to whom granted, may be exercised only by such person.
9. Death, Retirement and Termination of Employment.
Any Option, the period of which has not theretofore expired, shall
terminate at the time of death of the person to whom granted or of the
retirement or termination for any reason of such person's employment or service
with the Company, and no shares of Common Stock may thereafter be delivered
pursuant to such Option, except that:
(a) upon involuntary termination of employment or services
(other than by death, disability or for cause), at the discretion of
the Board or the Committee, as the case may be, an Optionee may,
within twelve (12)(2) months after the date of such retirement or
termination, purchase all or part of the shares with respect to which
such Optionee is entitled to exercise such Option in accordance with
the provisions of Section 7 hereof, but in no event after the
expiration of the term of the Option ("cause" for purposes of this
Plan shall mean (i) willful disregard of duties, (ii) habitual absence
from employment or service, (iii) drunkenness, or (iv) dishonesty);
(b) upon retirement, an Optionee may within two (2) months
after the date of such retirement, purchase all or part of the shares
with respect to which such Optionee is entitled to exercise such
Option in accordance with the
---------------
(2) Increased from two months on November 23, 1994.
<PAGE> 5
-5-
provisions of Section 7 hereof, but in no event after the expiration
of the term of the Option;
(c) upon the "disability" of any Optionee, the Optionee
may within six (6) months after the date of such termination of
employment, but in no event after the expiration of the term of the
Option, exercise such Option in accordance with the provisions of
Section 7 hereof (for purposes of the Plan the term "disability"
shall mean a physical or mental disability as defined in Section 105
of the Code); and
(d) upon the death of any Optionee while in active employ-
ment or service, the person or persons to whom such Optionee's rights
under the Option are transferred by will or the laws of descent and
distribution may, within eighteen (18)(3) months after the date of
such Optionee's death, but in no event after the expiration of the
term of the Option, purchase all or any part of the shares with
respect to which the Option was exercisable on the date of termination
of employment or service in accordance with the provisions of Section 7
hereof.
10. Amendments and Discontinuance.
The Board may amend, suspend, or discontinue the Plan, but may not,
without the prior approval of GIANT's stockholders, make any amendments which
would (i) make any material change in the class of eligible persons as defined
in the Plan, (ii) increase the total number of shares for which Options may be
granted under the Plan, (iii) extend the term of the Plan or the maximum option
period, (iv) decrease the minimum option price, or (v) permit adjustments in
the number and option price of shares granted under the Plan except as
permitted by the provisions of Paragraph (c) of Section 3 above.
Adopted August 28, 1985 by Board of Directors
Amended February 19, 1986, July 24, 1993 and November 23, 1994 by Board of
Directors
Approved April 28, 1986 by Shareholders
Amended May 8, 1987 and May 16, 1988 by Shareholders
---------------
(3) Increased from six months on July 24, 1993.
<PAGE> 1
Exhibit 10.5.7
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment")
is made and entered into this 6th day of October, 1994, by and between GIANT
CEMENT COMPANY, a Delaware corporation (hereinafter referred to as "Borrower"),
with its chief executive office and principal place of business at Highway 453,
Harleyville, South Carolina 29448 and THE CIT GROUP/EQUIPMENT FINANCING, INC.,
a New York corporation (hereafter referred to as "Lender"), with an office at
900 Ashwood Parkway, Suite 600, Atlanta, Georgia 30338.
W I T N E S S E T H:
WHEREAS, Lender and Borrower are parties to a certain Loan and Security
Agreement dated November 23, 1993 (the "Loan Agreement"), pursuant to which
Lender has made a certain term loan to Borrower; and
WHEREAS, in order to induce Lender to enter into the Loan Agreement,
Borrower's parent corporation, Giant Group, Ltd., a Delaware corporation
("Group"), executed and delivered that certain Continuing Guaranty Agreement
dated November 23, 1993, in favor of Lender (the "Original Guaranty")
guaranteeing any and all Obligations at any time owing by Borrower to Lender;
WHEREAS, Borrower is no longer a wholly owned subsidiary of Group and
Group has requested that Lender release it from its obligations under the
Guaranty and certain other Security Documents; and
<PAGE> 2
WHEREAS, Borrower is now a wholly owned subsidiary of Giant Cement
Holding, Inc., a Delaware corporation ("Holding"); and
WHEREAS, Holding has agreed to execute and deliver to Lender its
absolute and unconditional guaranty of all of the Obligations at any time owing
by Borrower to Lender (the "New Guaranty"); and
WHEREAS, simultaneously with the delivery of the New Guaranty to
Lender, Lender has agreed to release Group from its obligations under the
Original Guaranty and certain other Security Documents; and
WHEREAS, the parties desire to amend the Loan Agreement to reflect the
termination of the Original Guaranty and certain other Security Documents, the
substitution of Holding as the guarantor of the Obligations and as otherwise
more particularly set forth hereinafter.
NOW, THEREFORE, for and in consideration of TEN DOLLARS ($10.00) in
hand paid and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
1. DEFINITIONS. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meaning ascribed to such terms in the
Loan Agreement.
2. AMENDMENTS TO LOAN AGREEMENT.
(a) Amendment to Section 1. Section 1 of the Loan Agreement is
hereby amended as follows:
-2-
<PAGE> 3
(i) By deleting the definitions of "Collaterial Value Maintenance
Agreement," "Rally's Stock" and "Stock Pledge Agreement" in their entirety.
(ii) By deleting the definitions of "Guarantor," "Guaranty" and
"Security Documents" in their entirety and by substituting in lieu thereof
the following:
Guarantor - Holding and any other person who hereafter shall
guarantee the whole or any part of the Obligation.
Guaranty - that certain Continuing Guaranty Agreement dated
October 6, 1994, from Holding shall unconditionally guarantee payment
of the Obligations.
Holding - Giant Cement Holding, Inc., a Delaware corporation.
Security Document - the Mortgages, the Guaranty and all other
instruments and agreement now or at any time hereinafter securing the
whole or any part of the Obligations.
(iii) By inserting the following definition in the appropriate
alphabetical order
Net Income - the net income of Borrower for the period in
question after giving effect to deduction of or provision for all
operating expenses, all taxes and reserves (including reserves for
deferred taxes) and all other proper deductions, all determined in
accordance with GAAP, provided that there shall be excluded: (i) any
restoration of any contingency reserve, except to the extent that
provision for such reserve was made out of income during such period,
(ii) any net gains or losses on the sale or other disposition, not in
the ordinary course of business, of capital assets, provided that
there shall also be excluded any related charges for taxes thereon,
(iii) any net gain arising from the collection of the proceeds of any
insurance
-3-
<PAGE> 4
policy, (iv) any write-up of any asset, and (iv) any other
extraordinary item.
(b) Amendment to Section 2. Section 2 of the Loan Agreement is hereby
amended by deleting Section 2.3 in its entirety and by substituting in lieu
thereof the following:
2.3 Mandatory Prepayments. Borrower shall be obligated to
prepay the principal balance of the Note by an amount equal to (a) the
Net Proceeds received by Borrower from any sale or other disposition
of Equipment to the extent that such Net Proceeds are required to be
turned over to Borrower in accordance with Section 7.2 hereof, or any
sale of any Real Property Collateral and (b) the Net Proceeds received
by Borrower from any condemnation of any of the Collateral (except to
the extent any such Net Proceeds from the condemnation of any Real
Property Collateral are used for the reconstruction of the Real
Property Collateral in accordance with the terms of the Mortgages).
Nothing in this Section 2.3 shall be deemed to authorized Borrower to
sell any Equipment except as authorized by Section 7.2 hereof, or any
Real Property Collateral, except as authorized by the Mortgages.
(c) Amendment to Section 9. Section 9 of the Loan Agreement is hereby
amended as follows:
(i) By deleting Section 9.1(J) in its entirety and by
substituting in lieu thereof the following:
(J) Promptly after the sending or filing thereof, as the case
may be, copies of any proxy statements, financial statements or
reports which any Guarantor hereafter makes available to its
shareholders and copies of any regular, periodic and special reports
or registration statements which any Guarantor files with the
Securities and Exchange Commission or any governmental authority which
may be substituted therefor, or any national securities exchange.
-4-
<PAGE> 5
(ii) By deleting Section 9.1(O) in its entirety and by
substituting in lieu thereof the following: "(O) [OMITTED
INTENTIONALLY]."
(iii) By deleting Section 9.2(D) in its entirety and by
substituting in lieu thereof the following:
(D) Guarantee, assume, endorse or otherwise, in any way, become
directly or contingently liable with respect to the Indebtedness
of any Person except by endorsement of instruments or items of
payment for deposit or collection and except as set forth in that
certain Guaranty Agreement (Keystone Cement Company Obligations)
dated as of November 23, 1993, by and among Borrower, Group, KCC
and Giant Resource Recovery Company, Inc., a Delaware corporation
(collectively, "Keystone Guarantors") whereby Keystone Guarantors
guaranteed any and all obligations owing by Keystone Cement
Company, a Pennsylvania corporation, to General Electric Capital
Corporation.
(iv) By deleting Section 9.3(B) in its entirety and by
substituting in lieu thereof the following:
(B) Borrower shall maintain an Adjusted Tangible Net Worth as
follows for the period corresponding thereto:
<TABLE>
<CAPTION>
Adjusted Tangible Net Worth Period
--------------------------- ------
<S> <C>
$20,000,000 Date hereof through
March 30, 1995
$20,000,000 plus thirty March 31, 1995 through
percent (30%) of Borrower's March 30, 1996
Net Income for the period from
the date on which the First
Amendment to this Agreement
becomes effective through
December 31, 1994
$20,000,000 plus thirty March 31, 1996 through
percent (30%) of Borrower's March 30, 1997
Net Income for its fiscal
year ended December 31, 1995
</TABLE>
-5-
<PAGE> 6
$20,000,000 plus thirty March 31, 1997, through
percent (30%) of Borrower's March 30, 1998
Net Income for its fiscal
year ended December 31, 1996
$20,000,000 plus thirty March 31, 1998 through
percent (30%) of Borrower's March 30, 1999
Net Income for its fiscal
year ended December 31, 1997
For purposes of this Section 9.3(B), the Adjusted Tangible Net
Worth Borrower is required to maintain will be increased on March 31
of each year based upon Borrower's Net Income for the immediately
preceding fiscal year as shown on the supplemental consolidating
schedule to the audited financial statements of Borrower for such
fiscal year required pursuant to Section 9.1 (I) hereof, which
schedule shall agree to the financial statements as certified by a
firm of independent certified public accountants of recognized
national standing or otherwise acceptable to Lender. If such audited
financial statement and schedule is not timely delivered by Borrower
to Lender on or before March 31 of any year for the immediately
preceding fiscal year, then the Adjusted Tangible Net Worth Borrower is
required to maintain will be increased on such March 31 based upon the
Net Income of Borrower as shown in Borrower's unaudited financial
statement for the immediately preceding fiscal year until the audited
financial statement and schedule for such fiscal year have been
delivered by Borrower as required by Section 9.1(I). Upon Borrower's
delivery of its audited financial statements and consolidating
schedule, the Adjusted Tangible Net Worth Borrower is required to
maintain will then be adjusted to reflect an increase based upon
Borrower's audited Net Income.
(d) Amendment to Section 10. Section 10 of the Loan
Agreement is hereby amended by deleting Section 10.1(N) therefrom in its
entirety and by substituting in lieu thereof the following: "(N) [OMITTED
INTENTIONALLY]."
3. Acknowledgement Regarding Change in Ownership. Lender hereby
acknowledges that Borrower is no longer a wholly owned subsidiary of Group,
that Borrower has become a wholly owned subsidiary of Holding and that such
change in ownership of Borrower
-6-
<PAGE> 7
does not constitute an Event of Default under Section 11(K) of the Loan
Agreement.
4. Termination of Security Documents and Release of Cash
Collateral and Rally's Stock. Lender and Borrower hereby acknowledge and agree
that, simultaneously with the effectiveness of this Amendment: (i) the Original
Guaranty, the Stock Pledge Agreement and the Collateral Value Maintenance
Agreement are terminated and of no further force or effect, (ii) the Rally's
Stock and the Original Guaranty will be promptly released by Lender and
delivered to Group at the New York offices of Reid & Priest, counsel to
Borrower and Group, and (iii) Lender will promptly release the Cash Collateral
(as defined in the Collateral Value Maintenance Agreement) and distribute same
at the direction of Borrower given by written notice to Lender.
Notwithstanding the foregoing clause (iii), Borrower acknowledges and agrees
that the Cash Collateral to be released by Lender is Cash Collateral pledged by
Group as security for the Original Guaranty and does not include the Cash
Collateral (as defined in the Loan Agreement) pledged by Borrower to Lender to
satisfy the requirements of Section 9.1(T) of the Loan Agreement, which Cash
Collateral Lender will retain.
5. Commitment Fee. Borrower shall pay to Lender a Commitment Fee
of $22,500, which shall be deemed fully earned upon the execution of this
Amendment, shall be paid concurrently with the execution of this Amendment and
shall not be subject to rebate except as may be required by Applicable Law.
Such fee shall compensate Lender for the cost associated with the origination,
-7-
<PAGE> 8
structuring, processing, approving and closing of the transactions contemplated
by this Amendment, including, but not limited to, administrative,
out-of-pocket, general overhead and lost opportunity costs, but not including
any expenses for which Borrower has agreed to reimburse Lender pursuant to any
other provisions of this Amendment or any of the Loan Documents, such as, by
way of example, legal fees and expenses.
6. Ratification and Reaffirmation. Borrower hereby ratifies and
reaffirms each of the Loan Documents and all of Borrower's covenants, duties
and liabilities thereunder.
7. Acknowledgements and Stipulations. Borrower acknowledges and
stipulates that the Loan Agreement and the other Loan Documents executed by
Borrower are legal, valid and binding obligations of Borrower that are
enforceable against Borrower in accordance with the terms thereof; all of the
Obligations are owing and payable without defense, offset or counterclaim (and
to the extent there exists any such defense, offset or counterclaim on the date
hereof, the same is hereby waived by Borrower); the security interests and
liens granted by Borrower in favor of Lender are duly perfected, first priority
security interests and liens; and the unpaid principal amount of the Loan on
and as of September 27, 1994, totalled $7,737,435.83.
8. Representations and Warranties. Borrower represents and
warrants to Lender, to induce Lender to enter into this Amendment, that no
Default or Event of Default exists on the date hereof; the execution, delivery
and performance of this Amendment have been
-8-
<PAGE> 9
duly authorized by all requisite corporate action on the part of Borrower and
this Amendment has been duly executed and delivered by Borrower; and except as
may have been disclosed in writing by Borrower to Lender prior to the date
hereof, all of the representations and warranties made by Borrower in the Loan
Agreement are true and correct on and as of the date hereof.
9. Conditions Precedent. The effectiveness of (i) the amendments
contained in paragraphs (a) - (d) of Section 2 hereof and (ii) Lender's
agreement to terminate or release its interest in the Cash Collateral (as
defined in the Collateral Value Maintenance Agreement), the Rally's Stock and
certain Security Documents, as more particularly described in Section 4 hereof,
is subject to the satisfaction of each of the following conditions precedent,
in form and substance satisfactory to Lender, unless satisfaction thereof is
specifically waived in writing by Lender;
(a) the execution and delivery to Lender by Holding of the
New Guaranty together with evidence satisfactory to Lender in its sole
discretion of Holding's corporate authority to execute and deliver the New
Guaranty;
(b) the completion of an initial public offering of the
stock of Holding evidenced by: (i) the full execution and delivery of (A) a
certain Underwriting Agreement (U.S. Version) (the "U.S. Underwriting
Agreement") between Holding, Group, KCC Delaware Company, a Delaware
corporation ("KCC"), and PaineWebber Incorporated, as representative of several
underwriters ("PaineWebber") to be executed on or about the date hereof and (B)
-9-
<PAGE> 10
a certain Agreement Among International Underwriters the "International
Underwriting Agreement"; the U.S. Underwriting Agreement and the International
Underwriting Agreement being referred to collectively as the "Underwriting
Agreements") between Holdings, Group, KCC and PaineWebber to be executed on or
about the date hereof; (ii) an agreement as to the purchase price of said
shares between Holding, Group, KCC and PaineWebber as set forth in a fully
executed Price Determination Agreement in substantially the form of Exhibit A
attached hererto; (iii) the payment of the purchase price for said shares on or
before the Closing Date (as defined in the Underwriting Agreements; (iv) the
receipt by Holding of not less than $2,000,000 from the sale of the initial
10,000,000 shares of Holding stock offered; (v) the delivery by Borrower to
Lender of the final, effective S-1 Registration Statement, together with all
amendments thereto, submitted by Holding to the Securities and Exchange
Commission containing representations and assurances satisfactory to Lender in
its sole discretion that, within forty-five (45) days from the Closing Date (as
defined in the Underwriting Agreements), Holding will receive any and all
proceeds from the sale of any overallotment of Holding shares; and (vi) the
execution and delivery by Borrower, Holding or any other party of such
additional documents or certificates as Lender deems necessary to evidence
receipt by Holding of the sums specified in clause (iv) and (v) above;
(c) The execution and delivery by Borrower to Lender of a compliance
certificate in form and content satisfactory to Lender
-10-
<PAGE> 11
in its sole discretion pursuant to which Borrower certifies that no Default or
Event of Default exists under the Loan Agreement;
(d) The execution and delivery by Group and Lender of a Termination,
Release and Receipt Agreement in form and content satisfactory to Lender in its
sole discretion pursuant to which, among other things, Group acknowledges its
receipt of the Original Guaranty, the Rally's Stock and certain Cash Collateral
(as defined in the Collateral Value Maintenance Agreement) and releases any
and all claims it amy have against Lender; and
(e) Lender shall have received the favorable written opinion of Reid &
Priest, counsel to Borrower and Holding, regarding Borrower, Holding, this
Amendment and the transactions contemplated by this Amendment and any of the
other Loan Documents, in form satisfactory to lender and its counsel.
10. EXPENSES OF LENDER. Borrower agrees to pay, on DEMAND, all costs
and expenses incurred by Lender in connection with the preparation, negotiation
and execution of this Amendment and any other Loan Documents executed pursuant
hereto and any and all amendments, modifications, and supplements thereto,
including, without limitation, the costs and fees of Lender's legal counsel.
11. RELEASES OF CLAIMS. To induce Lender to enter into this
Amendment, Borrower hereby releases, acquits and forever discharges Lender, and
the officers, directors, agents, employees, successors and assigns of Lender
from all liabilities, claims, demands, actions or causes or actions of any kind
(if there be any), whether absolute or contingent, disputed or undisputed, at
law or in
-11-
<PAGE> 12
equity, or known or unknown that it now has or ever had against Lender arising
under or in connection with any of the Loan Documents or otherwise.
12. Effectiveness; Governing Law. This Amendment shall be effective upon
Lender's acceptance (Notice of which is hereby waived by Borrower) in Atlanta,
Georgia. Upon such acceptance, this Amendment shall be governed by and
construed in accordance with the internal laws of the State of Georgia.
13. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
14. No Novation, etc.. Except as otherwise expressly provided in this
Amendment, nothing herein shall be deemed to amend or modify any provision of
the Loan Agreement, any of the Other Agreements or any of the Security
Documents or any of the other Loan Documents, each of which shall ramain in
full force and effect. This Amendment is not intended to be, nor shall it be
construed to create, a novation or accord and satisfaction, and the Loan
Agreement as herein modified shall continue in full force and effect.
Notwithstanding any prior mutual temporary disregard of any of the terms of any
of the Loan Documents, the parties agree that the terms of each of the Loan
Documents shall be strictly adhered to on and after the date hereof.
15. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
taken together shall be one and the same instrument.
-12-
<PAGE> 13
16. WAIVER OF JURY TRIAL. THE PARTIES HERETO EACH HEREBY WAIVES THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, COUNTERCLAIM OR PROCEEDING ARISING
OUT OF OR RELATED TO THIS AMENDMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal in New York, New York, and delivered by their
respective duly authorized officers on the date first written above.
ATTEST: GIANT CEMENT COMPANY
("Borrower")
/s/ By /s/
---------------------- -----------------------------
Assistant Secretary
[CORPORATE SEAL] Title: Vice President
----------------------
Accepted in Atlanta, Georgia,
this 6th day of October, 1994:
--------------------------------
THE CIT GROUP/EQUIPMENT
FINANCING, INC. ("Lender")
By: /s/
----------------------------
Title: Vice President
---------------------
-13-
<PAGE> 1
Exhibit 10.6.4
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "First Amendment") is
made as of this 29th day of September, 1994 by and among GIANT CEMENT COMPANY,
a Delaware corporation ("Giant"), KEYSTONE CEMENT COMPANY, a Pennsylvania
corporation ("Keystone"; Keystone and Giant being herein collectively called
"Borrowers" and individually called "Borrower"), and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation ("Lender").
Statement of Facts
WHEREAS, Lender and Borrowers are parties to that certain Credit
Agreement, dated as of November 23, 1993 (the "Credit Agreement"), pursuant
to which Lender has committed to make certain Revolving Credit Loans and Letter
of Credit Obligations available to or at the request of Borrowers; and
WHEREAS, KCC Delaware Company ("KCC"), the owner of all of the
outstanding securities of Giant Cement Holding, Inc., a Delaware corporation
("Holding"), the direct parent company of the Borrowers, intends to sell all of
such outstanding securities of Holding in an initial public offering (the
"IPO") of Holding, and to contribute additional capital to Holding;
WHEREAS, Giant Group, Ltd. ("Group") is the parent company of KCC;
WHEREAS, the sale by KCC of the Holding securities in the IPO may be
deemed a change of control of Borrowers (the "Change of Control");
WHEREAS, Borrowers have requested that Lender consent to the Change
in Control, and Lender is willing to consent to such change in control in
accordance with the terms and conditions set forth below; and
WHEREAS, as a result of the Change in Control, Lender and Borrowers
desire to modify the Credit Agreement in certain respects in accordance with
the terms and conditions set forth herein.
NOW, THEREFORE, in consideratioan of the premises, the covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Borrowers and Lender do
hereby agree that all capitalized terms used herein shall have the meanings
ascribed thereto in the Credit Agreement (except as otherwise expressly defined
or limited herein) and do hereby further agree as follows:
Statement of Terms
1. Amendments to Credit Agreement. Subject to the fulfillment of
the conditions precedent to the effectiveness of this First Amendment which
are set forth below, the Credit Agreement shall be amended as follows:
<PAGE> 2
(a) The Credit Agreement shall be amended by deleting
Section 6.17 thereof in its entirety.
(b) The Credit Agreement shall be amended by deleting
Section 6.18 thereof in its entirety and by substituting in lieu
thereof the following new Section 6.18:
"6.18 Change in Control. Borrowers shall not permit
any Borrower to cease for any reason to be a wholly-
owned subsidiary of Holding, not shall Borrowers permit
the acquisition after September 29, 1994 by any Person,
or by any two or more Persons acting in concert, of
beneficial ownership (within the meaning of Rule 13d-3
of the Securities and Exchange Commission) of forty
percent (40%) or more of the outstanding Voting Stock
Holding."
(c) The Credit Agreement shall be further amended by
deleting all references in Schedule 4.1 thereof to the term "Group"
and by substituting in lieu thereof the term "Holding", such that all
financial statements, proxy statements, notices and other reports of
Holding (rather than Group and KCC) shall be delivered to Lender as
provided in Schedule 4.1.
(d) The Credit Agreement Agreement shall be further amended
by adding the following definition to Annex A thereof:
"Holding" shall mean Giant Cement Holding, Inc., a
Delaware corporation, and its successors and permitted
assigns."
(e) The Credit Agreement shall be further amended by
deleting the definitions of "Guarantors" and "Tax Sharing Agreement"
in Annex A thereof and by subtituting in lieu thereof the following new
definitions of such terms:
"Guarantors" shall mean GRR, Holding, and each other
Person who may execute a guarantee or a support, put or
other similar agreement in favor of Lender in
connection with the transactions contemplated by the
Agreement."
"Tax Sharing Agreement" shall mean the tax sharing
agreement, entered or to be entered into among Holding
and all (or substantially all) of its subsidiaries
(including the Borrowers and GRR)."
(f) The Credit Agreement shall be further amended by
deleting Schedule 10.9 to the Credit Agreement and by replacing in lieu
thereof Schedule 10.9 attached hereto and incorporated herein and
therein by reference.
-2-
<PAGE> 3
2. Consent; Waiver of Default. Subject to the fulfillment of
the conditions precedent to the effectiveness of this First Amendment which are
set forth below, Lender hereby consents to the Change in Control and,
accordingly, waives any Default or Event of Default arising under Section 6.18
of the Credit Agreement as a result of the Change in Control. The foregoing
waiver applies only to the Change in Control as defined herein and shall not
constitute Lender's consent to or waiver of any other or future Defaults or
Events of Default under the Credit Agreement, as amended by this First
Amendment.
3. Substitution of Guarantors. Subject to the fulfillment of
the conditions precedent to the effectiveness of this First Amendment which are
set forth below, Lender hereby consents to the substitution of Holding for
Group and KCC as guarantors of the Obligations under or in connection with the
Credit Agreement. Upon the effectiveness of this First Amendment and without
any further action by Lender, each of Group and KCC shall be released from any
and all of their respective obligations to Lender under that certain Guaranty
Agreement (Giant Cement Company Obligations) dated as of November 23, 1993
executed by Group, KCC, Keystone and GRR in favor of Lender and that certain
Guaranty Agreement (Keystone Cement Company Obligations) dated as of
November 23, 1993 executed by Group, KCC, Giant and GRR (such guaranty
agreements are collectively referred to as the "Existing Guaranty Agreements").
Notwithstanding any of the foregoing, nothing contained herein shall release
any of Giant, Keystone or GRR from any of its obligations under the Existing
Guaranty Agreements to which it is a party.
4. No Other Amendments. Except for the amendments expressly
set forth and referred to in Section 1 above, the Credit Agreement shall remain
unchanged and in full force and effect. Nothing in this First Amendment is
intended, or shall be construed, to constitute a novation or an accord and
satisfaction of any of Borrowers' Obligations under or in connection with the
Credit Agreement or to modify, affect or impair the perfection or continuity of
Lender's security interests in, security titles to or other liens on any
Collaterl for the Obligations.
5. Representations and Warranties. To induce Lender to
enter into this First Amendment, each Borrower does hereby warrant, represent
and covenant to Lender that: (a) each representation or warranty of such
Borrower set forth in the Credit Agreement as amended by this First Amendment
is hereby restated and reaffirmed as true and correct in all material respects
on and as of the date hereof and after giving effect to the IPO and the Change
in Control (except to the extent that any such representation or warranty
expressly relates to a prior specific date or period), and no Default or Event
of Default has occurred and is continuing as of this date under the Credit
Agreement as amended by this First Amendment and after giving effect to
the IPO and the Change in Control; and (b) said Borrower has the power and is
duly authorized to enter into, deliver and perform this First Amendment and
this First Amendment is the legal, valid and binding obligation of said
Borrower enforceable against it in accordance with its terms.
6. Conditions Precedent to Effectiveness of this First
Amendment. The effectiveness of this First Amendment (including without
limitation the amendments provided in Section 1 above, the consents and waivers
set forth in Section 3 above, and the consent and releases set forth in Section
3 above) is subject to the truth and accuracy in all material respects of the
representations and warranties of Borrowers contained in Section 5 above and
to the fulfillment of the following additional conditions precedent by October
31, 1994:
-3-
<PAGE> 4
(a) Lender shall have received one or more counterparts of this
First Amendment duly executed and delivered by Borrowers;
(b) Each of Giant, Keystone and GRR (each in its capacity as a
Guarantor) shall have consented to the execution, delivery and
performance of this First Amendment and all of the transactions
contemplated hereby (including without limitation the release
contemplated by Section 3 above) by signing one or more counterparts
of this First Amendment in the appropriate space indicated below and
returning same to lender;
(c) Lender shall have received from Holding one or more
counterparts of duly completed Guaranty Agreements executed by
Holding with respect to each Borrower's Obligations to Lender, which
Guaranty Agreements shall be in form and substance satisfactory to
Lender;
(d) Lender shall have received from Holding one or more
counterparts of a duly executed and completed closing certificate in
form and substance satisfactory to Lender;
(e) Lender shall have received an opinion of the primary outside
counsel for the Borrowers, GRR and Holding with respect to the
authorization, execution, delivery and enforceability of the Loan
Documents described in clauses (a), (b) and (c) above and otherwise
in form and substance satisfactory to Lender;
(f) Lender shall have received a copy of the Certificate of
Incorporation of Holding (certified by the Secretary of State of the
state of its incorporation) together with current good standing
certificates for Holding issued by the Secretary of State of Holding's
jurisdiction of incorporation and the other jurisdictions where
Holding is qualified to do business a a foreign corporation;
(g) Lender shall have received a certified copy of any replacement
Tax Sharing Agreement to be entered into among Holding, the Borrowers
and GRR;
(h) Lender shall have received a newly completed and executed
letter from Holding to its independent accountants authorizing such
accountants to discuss Holding's and its Subsidiaries' financial
affairs with Lender, which letter shall be in substantially the form
of Exhibit I to the Credit Agreement (subject to such changes therein
as may be deemed necessary or appropriate by Lender);
(i) The truthfulneess, completeness and accuracy of all documents,
materials and other information submitted by or on behalf of the
Borrowers, Holding, KCC or Group to Lender in support to their
request for this First Amendment; the absence of any change in the
executive management of Holding and the Borrowers from that
previously disclosed to Lender; and the absence of any material change
in the Change in Control or the IPO from that previously disclosed to
Lender by the Borrowers;
-4-
<PAGE> 5
(j) The absence of any Default or Event of Default arising from the
Change in Control or the IPO (other than the violation of Section 6.18 of the
Credit Amendment);
(k) The consummation of the Change in Control and the IPO, each in
accordance with the terms set forth in the Preliminary Prospectus dated August
31, 1994 (the "PRELIMINARY PROSPECTUS,") relating to the issuance of 10,000,000
shares of common stock of Holding (but subject to such changes therein as are
acceptable to Lender).
7. EFFECTIVE DATE. If the aforesaid conditions precedent to the
effectiveness of this First Amendment are fulfilled to Lender's satisfaction by
the deadline stated in Section 6 above (subject to any waivers granted by
Lender in writing in its discretion), the First Amendment shall be deemed
effective from and after the date of this First Amendment first set forth
above.
8. COUNTERPARTS. This First Amendment may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
when taken together shall constitute one and the same instrument.
9. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE.
10. BINDING EFFECT. This First Amendment shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns. Each of Group and KCC is entitled to the benefit of
Section 3 of this First Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed and delivered as of the day and year specified at the
beginning hereof.
BORROWERS:
GIANT CEMENT COMPANY
By: /s/
-----------------------
Title: Vice President
--------------------
(Signatures continued on next page)
<PAGE> 6
(Signatures continued from preceding page)
KEYSTONE CEMENT COMPANY
By: /s/
---------------------------------------
Title: Vice President
-----------------------------------
LENDER:
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/
---------------------------------------
Title: Vice President - Commercial Finance
-----------------------------------
-6-
<PAGE> 1
Exhibit 11
GIANT GROUP, LTD.
Statement Re: Computation of Per Share Earnings
----------
1994 1993 1992
---- ---- ----
Net income (loss) $20,471,000 $(2,639,000) $(6,098,000)
Interest expense reduction,
net of tax (2) 342,000 - -
----------- ----------- -----------
Income (loss) attributable
to common shares 20,813,000 $(2,639,000) $(6,098,000)
=========== =========== ===========
Weighted average number
of common shares (1) 6,463,000 5,180,000 $ 5,189,000
=========== =========== ===========
Primary earnings (loss)
per common share $3.22 $(.51) $(1.18)
=========== =========== ===========
(1) Assumes issuance of common shares for exercise of outstanding common
stock options in 1994.
(2) Reduction of interest expense, net of tax relates to assumed retirement
of debt with option exercise proceeds in excess of that amount required
to retire twenty percent of the Company's outstanding stock in 1994.
<PAGE> 1
Exhibit 21
SUBSIDIARIES
Corporation State of Incorporation Ownership
----------- ---------------------- ---------
KCC Delaware Company, Inc. Delaware 100%
N2S Corp. Delaware 100%
Rally's Hamburgers, Inc. Delaware 49% (1)
(1) At December 31, 1994.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We cnsent to the incorporation by reference into the Registration Statement of
GIANT GROUP, LTD. on Form S-8 (File No. 33-16848) of our reports dated
March 10, 1995, on our audits of the consolidated financial statements of GIANT
GROUP, LTD., as of December 31, 1994 and 1993 and for the years ended
December 31, 1994, 1993 and 1992 which reports are included in this Annual
Report on Form 10-K. Such reports include explanatory paragraphs regarding
(1) an uncertainty relating to the outcome of two class action lawsuits,
and (2) a change in accounting method with respect to postretirement health
benefits in 1993.
COOPERS & LYBRAND L.L.P.
------------------------
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
March 27, 1995
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated March 3, 1995, on the financial statements of Rally's
Hamburgers, Inc., included in this Form 10-K into the GIANT GROUP, LTD.'s
previously filed Registration Statement File No. 33-16848.
ARTHUR ANDERSEN LLP
-------------------
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 1994 INCOME STATEMENT AND BALANCE SHEET AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS FILED IN
ITEM 8 TO THE COMPANY'S 1994 FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 23,472
<SECURITIES> 47,501
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 71,663
<PP&E> 5,003
<DEPRECIATION> 1,433
<TOTAL-ASSETS> 100,895
<CURRENT-LIABILITIES> 28,796
<BONDS> 1,623
<COMMON> 69
0
0
<OTHER-SE> 69,873
<TOTAL-LIABILITY-AND-EQUITY> 100,895
<SALES> 0
<TOTAL-REVENUES> 1,716
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,426
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,007
<INCOME-PRETAX> (38,011)<F1>
<INCOME-TAX> (3,661)
<INCOME-CONTINUING> (34,350)
<DISCONTINUED> 54,821<F2>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,471
<EPS-PRIMARY> $3.22
<EPS-DILUTED> 0
<FN>
<F1>INCLUDES EQUITY IN LOSS OF AFFILIATE OF $8,898 AND AN IMPAIRMENT LOSS ON
ITS INVESTMENT IN AFFILIATE OF $19,396.
<F2>INCLUDES GAIN ON SALE OF DISCONTINUED OPERATIONS OF $48,223 NET OF INCOME
TAXES.
</FN>
</TABLE>
