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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
GIANT GROUP, LTD.
9000 Sunset Boulevard, 16th Floor, Los Angeles, California 90069
Registrant's telephone number (310) 273-5678
Commission File Number 1-4323
I.R.S. Employer Identification Number 23-0622690
State of Incorporation Delaware
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Name of Each Exchange
Title of Class on Which Registered
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Securities registered pursuant to 12(b) of the Act: Common Stock, New York
$.01 Par Value Stock Exchange
(together with Preferred
Stock Purchase Rights)
Securities registered pursuant to 12(g) of the Act: None
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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.
[X]
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, 1998, 3,180,655 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 on March 20, 1998 was $10.2 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for the annual
meeting of stockholders of the Company to be held June 10, 1998, are
incorporated by reference into Part III of this Report.
Exhibit Index located at page 36 herein.
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PART I
ITEM 1. BUSINESS.
LUXURY YACHTS
GIANT GROUP, LTD. (herein referred to as the "Company" or "GIANT") is a
corporation, which was organized under the laws of the State of Delaware in
1913. The Company's wholly-owned subsidiaries include GIANT MARINE GROUP, LTD.
d/b/a The Ocean Group ("GIANT MARINE"), organized under the laws of the state of
Delaware in 1996. GIANT MARINE is an operating company that was established to
start and operate a new business venture, co-ownership of luxury yachts. GIANT
MARINE's assets include two luxury yachts and related yacht improvements and
equipment.
On October 31, 1996, the Company started a new business and formed a new
wholly-owned subsidiary, GIANT MARINE, which offered the world's first Luxury
Yacht Co-Ownership Program of this type (the "Co-Ownership Program"). The
Co-Ownership Program provided individuals and companies the opportunity for a
Co-Ownership Program of a minimum of one-fourth interest in large ocean cruising
yachts. In addition, a 100% ownership in the luxury yacht was available. This
program also provided for the management of these yachts by The Ocean Group
resulting in a practical and economical way to own these yachts. In 1996, in
furtherance of this Co-Ownership Program, the Company purchased two yachts.
On November 17, 1997, the Company announced that GIANT MARINE would end
the Co-Ownership Program. The advertising in national newspapers and yachting
magazines and two actual presentations at major yacht shows attracted many
interested people, but only one, one-quarter interest was sold. The sale was
rescinded when management and the Board of Directors, after reviewing the amount
of time required to sell the quarter interests in the yachts, concluded that the
potential return on the capital invested did not justify continuing the
Co-Ownership Program. The yachts are now being marketed for sale, and are
included in assets held-for-sale on the Company's consolidated balance sheets.
Until they are sold, the yachts are being chartered.
RALLY'S HAMBURGERS, INC.
GIANT, through its ownership of common stock of Rally's Hamburgers, Inc.
("Rally's"), also is involved in the operation and franchising of double
drive-through hamburger restaurants. Rally's is one of the largest chains of
double drive-through restaurants in the United States. On December 28, 1997, the
Rally's system included 477 restaurants in approximately 18 states, primarily in
the Midwest, comprised of 229 company-owned restaurants and 248 franchised
restaurants, including 27 restaurants in Western markets which are operated as
Rally's restaurants by CKE Restaurants, Inc. ("CKE"), an owner of Carl's Jr., a
competing fast-food restaurant chain (see Item 1. "Business", General
Development of Business, page 4). Two additional company-owned restaurants have
been converted to a Carl Jr.'s format and are not included in the restaurant
count. Rally's restaurants offer high quality fast food served quickly at
everyday prices generally below the regular prices of the four largest hamburger
chains. Rally's serves the drive-through and take-out segments of the
quick-service restaurant market. Rally's opened its first restaurant in January
1985 and began offering franchises in November 1986.
CHECKERS DRIVE-IN RESTAURANTS, INC.
Rally's owns approximately 27% of the outstanding common stock of
Checkers Drive-In Restaurants, Inc. ("Checkers"). Checkers develops, produces,
owns, operates and franchises quick-service 'double drive-through' restaurants.
The restaurants are designed to provide fast and efficient automobile-oriented
service incorporating a 1950's diner and art deco theme with a highly visible,
distinctive and uniform look that is intended to appeal to customers of all
ages. The restaurants feature a limited menu of high quality hamburgers,
cheeseburgers and bacon cheeseburgers, specially seasoned french fries, hot
dogs, chicken sandwiches, as well as related items such as soft drinks and old
fashioned premium milk shakes, at everyday low prices. At December 29, 1997, the
Checkers system included 479 restaurants in 35 states and the District of
Columbia, Puerto Rico and West Bank, Israel, comprised of 230 company-owned and
249 franchised restaurants.
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ITEM 1. BUSINESS. (Cont.)
GENERAL DEVELOPMENT OF BUSINESS
From 1985 through October 1994, GIANT's major operating subsidiaries
were Giant Cement Company ("Giant Cement") and Keystone Cement Company, 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., which was a
marketing agent for resource recovery services for Giant Cement. On October 6,
1994, KCC Delaware Company ("KCC"), a wholly owned subsidiary of GIANT,
organized under the laws of the State of Delaware in 1985, sold 100% of the
stock of its wholly-owned subsidiary, Giant Cement Holding, Inc., through an
initial public offering. The Company received net proceeds of $125.8 million,
which resulted in a gain of $77 million before income taxes of $28.8 million. As
a result of the transaction, GIANT has fully divested its cement and resource
recovery operations.
Beginning in 1987, GIANT, through its equity investment in Rally's, has
been involved in the operation of double drive-through hamburger restaurants and
as of December 31, 1995 owned 48% of Rally's outstanding common stock. In
December 1995, GIANT filed an action against Fidelity National Financial, Inc.
("Fidelity"), CKE, an affiliate of Fidelity, and William P. Foley II ("Foley"),
among others, arising from an attempted hostile takeover of Rally's and GIANT,
by Fidelity and Foley, which indirectly owns and/or controls Carl's Jr., a
competing fast-food restaurant chain. In January 1996, Fidelity and Foley filed
a counterclaim against GIANT and its Board of Directors alleging, among other
claims, that GIANT's Directors breached their fiduciary duties in conjunction
with certain enumerated transactions. On February 14, 1996, Fidelity made an
offer to acquire the Company in a merger by which the Company's stockholders
would acquire Fidelity common stock valued by Fidelity at $12.00 for each
outstanding share of GIANT Common Stock. The Company's Board of Directors
determined that the Company was not for sale and unconditionally rejected the
merger offer. In April, the parties settled their disputes, pursuant to a
Purchase and Standstill Agreement (the 'Agreement"). As a result, Fidelity sold
its investment of 705,000 shares in GIANT to the Company for $6.1 million;
Fidelity and CKE acquired an aggregate of approximately 3,118,000 shares of
Rally's common stock from GIANT for $4.8 million and GIANT recognized a pre-tax
gain of $3.2 million; GIANT granted Fidelity and CKE options to each purchase
1,175,000 shares of Rally's common stock at prices ranging from $3.00 to $4.00
per share; two designees of CKE and Fidelity were elected to Rally's Board and
Fidelity agreed to a 10 year standstill with respect to GIANT and its Common
Stock. In March 1997, 1,175,000 options granted to CKE and Fidelity by GIANT to
purchase Rally's common stock at $4.00 per share were canceled.
On January 22, 1996, the Company announced that it intended to offer to
exchange a new series of GIANT participating, non-voting preferred stock for
Rally's outstanding common stock ("Exchange Offer"). Upon successful completion
of the Exchange Offer, GIANT would have owned 79.9% of Rally's outstanding
common stock. On April 22, 1996, Rally's Board of Directors, after discussions
between a special committee of the Rally's Board and Donald E. Doyle, President
and Chief Executive Officer of Rally's, requested that GIANT terminate the
Exchange Offer. The termination was requested to retain sufficient market
capitalization to allow Rally's easier access to the capital markets to raise
capital in the future. GIANT agreed to the request and terminated the proposed
Exchange Offer.
During the period May 1996 through November 1996, GIANT's investment in
Rally's outstanding common stock decreased to approximately 15% from 48% at
December 31, 1995. The investment percentage decreased because of the following
three reasons: the sale by GIANT, on May 3, 1996, of approximately 768,000
shares of Rally's common stock to Fidelity and approximately 2,350,000 shares of
Rally's common stock to CKE; GIANT did not elect to participate in Rally's
Shareholder Rights Offering, completed in September 1996, and transferred its
4,312,000 available subscription rights to purchase Rally's common stock to an
unaffiliated third party, which subsequently exercised the subscription rights;
and during the fourth quarter of 1996, the election by CKE and Fidelity to
exercise its options previously granted by GIANT pursuant to the Agreement to
purchase 1,175,000 shares of Rally's common stock at the option price of $3.00
per share.
On November 14, 1996, KCC, along with CKE and others, purchased an
aggregate principal amount of $29,900,000 of Checkers $36,100,000 13.75% senior
subordinated debt, due July 31, 1998, from certain current debt holders. These
holders retained approximately $6,200,000 of the principal amount. The total
purchase price for the senior subordinated debt was $29,100,000. KCC purchased
$5,100,000 principal amount of this senior subordinated debt for $5,000,000. On
November 22, 1996, the senior subordinated debt was restructured. As part of the
restructuring, the aggregate principal amount was reduced to $35,800,000, the
interest rate was reduced to 13%, the term of the restructured
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ITEM 1. BUSINESS. (Cont.)
GENERAL DEVELOPMENT OF BUSINESS (Cont.)
credit agreement was extended one year and certain financial covenants were
modified. In addition, scheduled principal payments were deferred to May 1997.
However, during 1997, Checkers made approximately $9,691,000 in principal
payments to holders of the senior subordinated debt. Checkers was able to make
these payments due to proceeds received from the February 1997 private placement
of its common stock and asset sales made during the year. Per the restructured
credit agreement, 50% of the aggregate net proceeds from the sale of assets are
to be paid to the holders of the senior subordinated debt. Because Checkers made
these principal payments of approximately $9,691,000, the next scheduled
principal payment is due July 1999, when the balance is due to be paid in full.
In return for the lenders to agree to this restructured credit agreement,
Checkers issued warrants ("Checkers Warrants") to all holders of the senior
subordinated debt, to purchase an aggregate of 20,000,000 shares of Checkers
common stock at an exercise price of $.75 per share. KCC received 2,849,000
Checkers Warrants, which are exercisable at any time until November 22, 2002.
KCC assigned the Checkers Warrants a value of $1,168,000. The new lenders also
agreed to provide a short-term revolving line of credit up to $2,500,000 to
Checkers, which was canceled in the first quarter of 1997. As of December 31,
1996 and 1997, KCC's investment in Checkers senior subordinated debt was
$3,832,000 and $2,715,000, net of related discount of $1,270,000 and $1,007,000,
respectively.
In June 1997, Rally's and Checkers ended talks for a proposed merger
between the two companies which was previously announced on March 25, 1997.
On November 13, 1997, Rally's and Checkers reached an agreement to enter
into a management services contract in which Checkers will provide accounting,
technology and other services to Rally's.
In December 1997, Rally's acquired 19,100,960 shares of Checkers, from
GIANT, CKE, Fidelity and other parties in exchange for securities of Rally's,
including convertible preferred stock. This transaction gave Rally's an
approximate 27% ownership in Checkers and made Rally's Checker's largest
stockholder. GIANT's ownership in Rally's after the transaction was concluded
amounted to 3,180,718 shares or approximately 13% as of December 31, 1997,
compared to 15% as of December 31, 1996. At the Rally's Annual Meeting in June
1998, it is expected that the stockholders will approve the automatic conversion
of its preferred stock to common stock thereby reducing GIANT's ownership in
Rally's to approximately 11%. GIANT accounted for the investment in Rally's
common stock under the equity method of accounting, as of December 31, 1996 and
through December 1997 when the Checkers exchange transaction occurred. As of
December 31, 1997, GIANT accounted for the investment as a marketable security
classified as an investment available-for-sale. In connection with the exchange
of Rally's stock for Checkers stock, William P. Foley II, Chairman of CKE
Restaurants, Inc. and Fidelity, Inc. was elected Chairman of both Rally's and
Checkers. In addition, James J. Gillespie, a 22 year veteran of the restaurant
business with Long John Silvers and Applebee's, was elected Chief Executive
Officer of both Rally's and Checkers.
In July 1996, KCC entered into an agreement ("NeoGen Agreement") with
Joseph Pike and his company, NeoGen Investors, L.P. ("NeoGen"), to participate
in the development, manufacturing and marketing of Mifepristone, an abortion
inducing drug with other significant potential uses, in the United States and
other parts of the world. The Federal Drug Administration had recently approved
Mifepristone as a safe and effective abortifacient. Under the NeoGen Agreement,
KCC for a cash payment of $6 million, would have obtained a 26% interest in
NeoGen, the entity which held the sublicenses for all potential uses of
Mifepristone. Subsequent to the signing of this contract, in October 1996, KCC
filed suit against Joseph Pike and NeoGen for fraud and breach of the NeoGen
Agreement and also filed suit against the licensors of Mifepristone, the
Population Council, Inc. and Advances in Health Technology, Inc. On November 4,
1996, the Population Council and Advances in Health Technology, filed suit
against Joseph Pike and NeoGen. The suit claimed Joseph Pike had concealed
information that he had been, among other things, convicted of forgery. Under a
settlement reached in 1996 with the Population Council, Joseph Pike agreed to
sell most of his financial stake in Mifepristone and relinquish his management
of the distribution company that was set up to sell and distribute this drug. In
February 1997, a new company called Advances for Choice was established to
oversee the manufacturing and distribution of Mifepristone. In October 1997, KCC
settled their litigation with the Population Council, Inc. and Advances in
Health Technology, Inc. and in November 1997,
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ITEM 1. BUSINESS. (Cont.)
GENERAL DEVELOPMENT OF BUSINESS (Cont.)
KCC, GIANT and Joseph Pike announced the settlement of their litigation. KCC's
action against NeoGen continues. (see Item 3, "Legal Proceedings").
GIANT's management is actively pursuing opportunities to purchase
operating companies, however, as of this date no definitive agreements have been
entered into.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a 'safe
harbor' for forward-looking statements: Certain information included in this
document (as well as information included in oral statements or other written
statements made or to be made by the Company) contains statements that are
forward-looking, such as statements relating to plans for future activities.
Such forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include, but
are not limited to, those relating to the development and implementation of the
Company's business plan, domestic and global economic conditions, activities of
competitors, changes in federal or state tax laws and of the administration of
such laws.
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 executive officer of the Company.
Burt Sugarman, 59, 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 was
Chairman of Rally's Board of Directors from November 1994 through October 1997,
having also served as its Chairman of the Board and Chief Executive Officer from
1990 through February 1994. He remains a Director of Rally's. He is also a
Director of Checkers.
David Gotterer, 69, Vice Chairman and Director. Mr. Gotterer has been
Vice Chairman of the Company since May 1986 and Director of the Company since
1984. Mr. Gotterer is a senior partner in the accounting firm of Mason &
Company, LLP, New York, New York. Mr. Gotterer is also a Director of Rally's.
William H. Pennington, 50, Vice President, Chief Financial Officer,
Secretary and Treasurer. Mr. Pennington, a CPA with an MBA, joined the Company
in October 1997. Mr. Pennington served in senior financial positions as Vice
President, Finance for Earth Tech, Inc. in 1997, Vice President, Finance for BKK
Corporation from 1993 to 1996 and prior to that as Vice President, Controller
for Beneficial Standard Life Insurance Company since 1984. In July 1996, Mr.
Pennington commenced proceedings under Chapter 7 of the Federal bankruptcy laws.
The case was discharged in October 1996.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized this 22nd day of
April, 1998.
GIANT GROUP, LTD.
Registrant
By: /s/BURT SUGARMAN
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Burt Sugarman
Chairman
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