SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 28, 1997
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______ to ________
--------------------
COMMISSION FILE NUMBER 0-17980
--------------------
RALLY'S HAMBURGERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1210077
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
10002 Shelbyville Road, Suite 150, Louisville, Kentucky 40223
Registrant's telephone number, including area code: 502/245-8900
Indicate by check mark whether 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 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 the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
CLASS - Common stock, Par value $.10 per share OUTSTANDING AT
NOVEMBER 7, 1997 - 20,876,181 shares
<PAGE>
RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information PAGE NO.
<S> <C> <C> <C>
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 29, 1996 and September 2
28, 1997 (Unaudited)
Consolidated Statements of Operations (Unaudited) for
the Quarter 3 and Nine Months Ended September 29, 1996
and September 28, 1997
Consolidated Statements of Cash Flows (Unaudited) for the Nine 4
Months Ended September 29, 1996 and September 28, 1997
Notes to Consolidated Financial Statements (Unaudited) 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and 12
Results of Operations
PART II. Other Information
ITEM 1. Legal Proceedings 19
ITEM 4. Submission of Matters to a Vote of Security Holders 19
ITEM 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 29, 1996 AND SEPTEMBER 28, 1997 (In
thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 29, SEPTEMBER 28,
1996 1997
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,285 $ 3,180
Restricted cash 1,649 1,413
Investments 1,958 1,732
Royalties receivable, net of reserve for doubtful accounts of $1,405 and $944 at
December 29, 1996 and September 28, 1997, respectively 437 528
Accounts and other receivables, including $565 and $789 from related parties at
December 29, 1996 and September 28, 1997, respectively, net of reserve for doubtful
accounts of $301 and $316 at December 29, 1996 and September 28, 1997, respectively 1,698 1,334
Inventory, at lower of cost or market 794 848
Prepaid expenses and other current assets 999 1,096
Assets held for sale 596 244
-------------- ------------
Total current assets 10,416 10,375
Assets held for sale 1,426 1,076
Property and equipment, at historical cost, less accumulated depreciation of $39,188 and
$43,190 at December 29, 1996 and September 28, 1997, respectively 69,806 68,861
Notes receivable, including $127 and $0 from related parties at December 29, 1996 and
September 28, 1997, respectively, net of reserve for doubtful accounts of $853 and $654
at December 29, 1996 and September 28, 1997, respectively 773 1,018
Goodwill, less accumulated amortization of $2,243 and $2,669 at December 29, 1996 and
September 28, 1997, respectively 10,482 10,055
Reacquired franchise and territory rights, less accumulated amortization of $1,984 and
$2,711 at December 29, 1996 and September 28, 1997, respectively 11,439 13,038
Other intangibles, less accumulated amortization of $2,459 and $2,822 at December 29, 1996
and September 28, 1997, respectively 4,769 4,406
Other assets, less accumulated amortization of $1,101 and $1,320 at December 29, 1996 and
September 28, 1997, respectively 3,147 2,688
-------------- --------------
Total assets $ 112,258 $ 111,517
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable $ 4,884 $ 5,842
Accrued interest and other accrued liabilities 13,600 14,839
Current maturities of long-term debt and obligations under capital leases 1,484 1,202
-------------- --------------
Total current liabilities 19,968 21,883
Senior notes, net of discount of $429 and $349 at December 29, 1996 and September 28, 1997, 57,897 57,977
respectively
Long-term debt, less current maturities 4,775 4,201
Obligations under capital leases, less current maturities 5,408 5,336
Other liabilities 4,845 3,941
-------------- --------------
Total liabilities 92,893 93,338
-------------- --------------
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized, no shares issued -- --
Common stock, $.10 par value, 50,000,000 shares authorized, 20,788,000 and 20,847,000 shares
issued at December 29, 1996 and September 28, 1997, respectively 2,079 2,085
Additional paid-in capital 71,023 71,839
Less: Treasury shares, 273,000 at December 29, 1996 and September 28, 1997 (2,108) (2,108)
Retained deficit (51,629) (53,637)
-------------- --------------
Total shareholders' equity 19,365 18,179
-------------- --------------
Total liabilities and shareholders' equity $ 112,258 $ 111,517
============== ==============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
2
<PAGE>
RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
------------------------------------- ------------------------------------
SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28,
1996 1997 1996 1997
------------------ ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
REVENUES:
Restaurant sales $ 37,081 $ 37,146 $ 123,360 $ 104,957
Franchise revenues and fees 1,489 1,199 4,479 3,680
Owner fee income 211 177 211 570
------------------ ----------------- ----------------- ----------------
Total revenues 38,781 38,522 128,050 109,207
------------------ ----------------- ----------------- ----------------
COSTS AND EXPENSES:
Restaurant cost of sales 12,188 12,326 43,053 34,334
Restaurant operating expenses, exclusive of
depreciation and amortization and advertising
and promotion expenses shown separately below 16,405 15,857 55,489 44,688
General and administrative expenses 3,696 4,149 13,001 11,306
Advertising and promotion expenses 1,465 2,934 6,380 7,197
Depreciation and amortization 2,318 2,357 7,620 6,881
Owner expense 322 279 322 858
Provision for restaurant closures and other charges (245) 77 509 579
------------------ ----------------- ----------------- ----------------
Total costs and expenses 36,149 37,979 126,374 105,843
------------------ ----------------- ----------------- ----------------
Income from operations 2,632 543 1,676 3,364
------------------ ----------------- ----------------- ----------------
OTHER INCOME (EXPENSE):
Interest expense (2,053) (1,844) (6,512) (5,578)
Interest income 23 252 402 619
Other 12 16 (21) 2
------------------ ----------------- ----------------- ----------------
Total other (expense) (2,018) (1,576) (6,131) (4,957)
------------------ ----------------- ----------------- ----------------
Income (loss) before income taxes and extraordinary 614 (1,033) (4,455) (1,593)
items
PROVISION (BENEFIT) FOR INCOME TAXES 502 115 (994) 415
------------------ ----------------- ----------------- ----------------
Income (loss) before extraordinary items 112 (1,148) (3,461) (2,008)
EXTRAORDINARY ITEM (net of tax benefit of $302 and tax
expense of $1,515 for the 1996 quarter and nine months
ended, respectively) 302 -- 4,824 --
------------------ ----------------- ----------------- ----------------
Net income (loss) $ 414 $ (1,148) $ 1,363 $ (2,008)
================== ================= ================= ================
Earnings (loss) per common share:
Income (loss) before extraordinary item $ 0.01 $ (.06) $ (0.22) $ (0.10)
Extraordinary item 0.02 -- 0.31 --
------------------ ----------------- ----------------- ----------------
Earnings (loss) per common share $ 0.03 $ (.06) $ 0.09 $ (0.10)
================== ================= ================= ================
Weighted average shares outstanding 15,896 20,565 15,833 20,552
================== ================= ================= ================
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
3
<PAGE>
RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 5)
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 29, SEPTEMBER 28,
1996 1997
----------------- ----------------
<S> <C> <C>
CASH FLOWS PROVIDED FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ 1,363 $ (2,008)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 7,940 7,808
Provision for restaurant closures and other charges 509 579
Provision (benefit) for losses (gains) on receivables 548 (440)
Extraordinary items, before tax expense of $1,515 (6,339) --
Amortization of compensatory stock options and warrants -- 725
Other 913 (283)
Changes in assets and liabilities, net of effects from business combinations:
(Increase) decrease in assets:
Receivables (597) (210)
Inventory 285 (51)
Prepaid expenses and other current assets 69 (124)
Other assets (157) 221
Increase (decrease) in liabilities:
Accounts payable, accrued interest and other accrued liabilities (4,391) 1,675
Accrued income taxes 57 (22)
Other liabilities (1,080) (994)
----------------- ----------------
Net cash (used in) provided by operating activities (880) 6,876
----------------- ----------------
CASH FLOWS PROVIDED FROM (USED IN) INVESTING ACTIVITIES:
Decrease in investments 4,933 226
Notes receivable 362 183
Pre-opening costs (74) (196)
Capital expenditures (1,321) (4,368)
Proceeds from the sale of property and equipment and assets held for sale 3,903 1,197
Acquisition of a market, net of cash acquired -- (2,172)
--------------- --------------
Net cash provided by (used in) investing activities 7,803 (5,130)
----------------- ----------------
CASH FLOWS PROVIDED FROM (USED IN) FINANCING ACTIVITIES:
Decrease in restricted cash 14 236
Principal payments of debt (5,436) (882)
Senior notes retirement (11,053) --
Proceeds from the issuance of common stock, net of costs of issuance 10,442 100
Principal payments on capital lease obligations (401) (305)
----------------- ----------------
Net cash used in financing activities (6,434) (851)
----------------- ----------------
Net increase in cash 489 895
CASH AND CASH EQUIVALENTS, beginning of period 8,811 2,285
----------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 9,300 $ 3,180
================= ================
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
4
<PAGE>
RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular dollars in thousands, except per share amounts)
1. FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for interim financial information. Accordingly, they do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
Therefore, it is suggested that the accompanying financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the fiscal year
ended December 29, 1996 ("10-K"). Except as disclosed herein, there has
been no material change in the information disclosed in the notes to the
consolidated financial statements included in the 10-K. Forward looking
statements contained herein should be read in conjunction with the
cautionary statements contained in the 10-K.
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 is one of the largest chains of double drive-thru restaurants in
the United States. At September 28, 1997, the Rally's system included 481
restaurants in 18 states, primarily in the Midwest and the Sunbelt,
comprised of 229 Company-owned and operated restaurants, 226 franchised
restaurants and 26 Company-owned restaurants in Western markets which are
operated as Rally's restaurants by CKE Restaurants, Inc. ("CKE"), a
significant shareholder of the Company, under an operating agreement which
began July 1996. Two additional Company-owned stores covered by the
operating agreement have been converted to the Carl's Jr. format and are
not included in the above store count. The Company's restaurants offer high
quality fast food. The Company primarily serves the drive-thru and take-out
segments of the quick-service restaurant industry. The Company opened its
first restaurant in January 1985 and began offering franchises in November
1986.
Rally's Hamburgers, Inc., Rally's of Ohio, Inc., Self Service Drive Thru,
Inc. and Hampton Roads Foods, Inc. own and operate Rally's restaurants in
various states. Additionally, Rally's Hamburgers, Inc. operates as
franchisor of the Rally's brand. 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 and is currently inactive. The Company's wholly-owned subsidiary,
ZDT Corporation, was formed to own the Zipps brand and franchise system.
MAC I was organized for the purpose of acquiring a manufacturer of modular
buildings and is currently inactive. The manufacturing business was sold in
January 1995.
5
<PAGE>
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates when actual transactions anticipated are consummated. In
addition, despite management diligence, changes in estimates do and will
continue to occur due to changes in available relevant data and
consummation of the events and transactions. The statements are prepared on
a going concern basis. Certain of the most significant estimates include,
among other things, useful lives assigned to depreciable/amortizable
assets, fair value less costs to sell of long-lived assets held for sale,
fair value of long-lived assets held for use, future net occupancy costs
related to closed/disposable properties, accruals for the Company's
self-insured and high deductible insurance programs and disclosures
regarding commitments and contingencies.
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments considered necessary to
present fairly, when read in conjunction with the 10-K, the Company's
financial position as of September 28, 1997 and the results of its
operations for the quarter and nine months ended September 29, 1996 and
September 28, 1997, and cash flows for the nine months ended September 29,
1996 and September 28, 1997. The results of operations for such interim
periods are not necessarily indicative of the results to be expected for
the full year.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128")
which is effective for both interim and annual periods ending after
December 15, 1997. SFAS 128 replaces the standards for computing earnings
per share previously found in Accounting Principles Board Opinion No. 15,
"Earnings Per Share". Due to the Company's reported net income (loss)
positions in the periods presented, the inclusion of options and warrants
as required by SFAS 128 result in either an insignificant or an
antidilutive impact on all periods presented. Therefore, the adoption of
SFAS 128 is expected to have no effect on earnings (loss) per share as
reported for the quarters and nine months ended September 29, 1996 and
September 28, 1997.
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 current period. Such reclassifications had
no effect on previously reported net income.
2. ACQUISITION
On July 9, 1997, the Company acquired from Arkansas Investment Group, Inc.
("AIGI") (an Arkansas corporation) substantially all the operating assets
employed in the operation of AIGI's franchised Rally's restaurants for
approximately $2.8 million. The cash disbursed in payment of the purchase
price was reduced by certain amounts owed by AIGI to the Company. Actual
cash disbursed was approximately $2.2 million. In addition, the Company
assumed five of AIGI's ground lease obligations and five of its ground and
building lease obligations, and entered into three additional ground
leases. AIGI owned and operated a total of ten Rally's restaurants in the
Little Rock, Arkansas market. The acquisition of the AIGI operating assets
was accounted for as a purchase. The Company believes that the $2.8 million
represents the fair value of the acquired assets. The impact on operations
of this acquisition was not significant for any of the periods presented,
and therefore, proforma amounts are not presented giving effect to this
acquisition.
6
<PAGE>
3. RESTRICTED CASH
Restricted cash consists of amounts held in various Certificates of Deposit
as collateral for Letters of Credit and Automated Clearing House ("ACH")
transactions.
4. INVESTMENTS
Excess funds have been invested in U.S. Treasury and investment grade
corporate debt securities. These securities are deemed as
"available-for-sale" under Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" 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. There were no
unrealized holding gains or losses at December 29, 1996 and September 28,
1997. Provisions for declines in market value are made for losses
considered to be other than temporary. No such provision was necessary for
any period presented. 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 is equal to the market value of investments at December
29, 1996 and September 28, 1997 and consists of the following:
December 29, 1996
United States government and its $ 500
agencies
Corporate debt instruments 1,458
=============
Total $ 1,958
=============
September 28, 1997
United States government and its $ 500
agencies
Corporate debt instruments 1,232
=============
Total $ 1,732
=============
The proceeds from the sale of investments and related gross gains and
losses for the quarters ended September 29, 1996 and September 28, 1997
were as follows:
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
------------------------------------------- ------------------------------------------
SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28,
1996 1997 1996 1997
-------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Proceeds from the sale
of investments $ -- $ 536 $ 4,933 $ 2,180
Gross gains realized -- -- -- --
Gross losses realized -- -- -- --
</TABLE>
7
<PAGE>
5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
NINE MONTHS ENDED
------------------------------
SEPTEMBER 29, SEPTEMBER 28,
1996 1997
--------------- -------------
Interest paid (net of amount capitalized) $ 5,052 $ 3,822
Income taxes paid 463 401
Capital lease obligations incurred 111 386
Interest incurred during the construction of restaurants is capitalized as
a component of the cost of the restaurants and is amortized on a
straight-line basis over the estimated useful lives of the restaurants. The
amount of interest capitalized in all quarters was insignificant.
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or
less at the date of purchase to be cash equivalents.
6. COMMITMENTS AND CONTINGENCIES
Litigation
In January and February 1994, two putative class action lawsuits were
filed, on behalf of the shareholders of Rally's in the United States
District Court for the Western District of Kentucky, against Rally's, Burt
Sugarman and GIANT GROUP, LTD. ("GIANT") and certain of Rally's present and
former officers and directors and its auditors. The complaints allege
defendants violated the Securities Exchange Act of 1934, as amended, among
other claims, by issuing inaccurate public statements about the Company in
order to arbitrarily inflate the price of Rally's Common Stock, and seek
unspecified damages, including punitive damages. On April 15, 1994, Rally's
filed a motion to dismiss and a motion to strike. On April 5, 1995, the
Court struck certain provisions of the complaint but otherwise denied
Rally's motion to dismiss. Subsequently, the defendants have filed an
answer which denies all of the plaintiffs material allegations. In
addition, the Court denied plaintiffs' motion for class certification; the
plaintiffs renewed this motion, and the Court certified the class on April
16, 1996. In October 1995, the plaintiffs filed a motion to disqualify
Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP
("Christensen, Miller") as counsel for defendants based on a purported
conflict of interest allegedly arising from the representation of multiple
defendants, as well as Ms. Glaser's association with Christensen, Miller.
That motion was denied on September 19, 1996. Two settlement conferences
have been conducted; and no settlement conferences have been scheduled in
the near future. The parties are completing the final phase of facts
discovery which should be completed by the end of the year. No trial date
has been scheduled yet. Management is unable to predict the outcome of this
matter at the present time or whether or not certain available insurance
coverages will apply. However, the defendants deny all wrongdoing and
intend to defend themselves vigorously in this matter. The Company is
unable to determine whether a resolution adverse to the Company will have a
material effect on its results of operations or financial condition.
Accordingly, no provisions for any liabilities that may result upon
adjudication have been made in the accompanying financial statements. An
estimate of defense costs reimbursable under the Company's directors' and
officers' insurance is included in "Other Assets" in the accompanying
consolidated financial statements.
8
<PAGE>
In February 1996, Harbor Finance Partners ("Harbor") commenced a derivative
action, purportedly on behalf of Rally's, against GIANT, Burt Sugarman,
David Gotterer and certain of Rally's other officers and directors before
the Delaware Chancery Court. Harbor named Rally's as a nominal defendant.
Harbor claims that the directors and officers of both Rally's and GIANT,
along with GIANT, breached their fiduciary duties to the public
shareholders of Rally's by causing Rally's to repurchase certain Rally's
Senior Notes at an inflated price. Harbor seeks "millions of dollars" in
damages, along with rescission of the repurchase transaction. In the fall
of 1996, all defendants moved to dismiss the action. On April 3, 1997, the
Chancery Court denied defendants' motions. The parties are presently
engaged in discovery. GIANT and the other defendants deny all wrongdoing
and intend to vigorously defend the action. It is not possible to predict
the outcome of this action at this time.
In December 1994, Rally's entered into two franchise agreements with Kader
Investments, Inc. ("Kader") for the development and operation of Rally's
Hamburgers restaurants in Anaheim, California and Tustin, California.
Rally's assisted the franchisee in developing and opening the restaurants.
On November 27, 1996, Kader filed a six-count Complaint against Rally's in
the California Superior Court for Orange County (Case No. 772257) alleging
among other things, breach of contract, breach of the implied covenant of
good faith and fair dealing, fraud and unfair competition. Rally's filed an
Answer denying all material allegations, and filed a Cross-Complaint
alleging breach of contract. The parties are presently engaged in mediation
in an attempt to resolve their dispute. Because of such mediation, the
trial date may be delayed beyond its presently scheduled December date.
While the Company believes it has meritorious defenses against the suit, it
is unable to determine whether a resolution adverse to the Company would
have a material effect on its results of operations or financial condition.
Accordingly, no provisions for any liabilities have been made in the
accompanying financial statements.
The Company is involved in other litigation matters incidental to its
business. With respect to such other suits, management does not believe the
litigation in which it is involved will have a material effect upon its
results of operations or financial condition.
Other Commitments
The Company is contingently liable on certain franchisee lease/loan
commitments totaling approximately $311,000.
The Company, from time to time, negotiates purchase contracts for certain
items used in its restaurants in the normal course of business. Although
some of these contracts contain minimum purchase quantities, such
quantities do not exceed expected usage over the term of such agreements.
7. ASSETS HELD FOR SALE
Assets held for sale include land and modular buildings idled by the prior
years' slowdowns in the Company's expansion plans and land associated with
the closure of stores. The Company has recorded, in prior years,
significant charges resulting from restructurings, other restaurant
closings and certain other charges more fully discussed in the 10-K.
9
<PAGE>
8. IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed of " (SFAS 121), at the beginning of the fourth quarter,
1995. This Statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 requires that
impairment for long-lived assets and identifiable intangibles to be held
and used, if any, be based on the fair value of the assets. Long-lived
assets and certain identifiable intangibles to be disposed of are to be
reported at the lower of carrying amount or fair value less cost to sell.
For purposes of applying this Statement, the Company determines fair value
utilizing the present value of expected future cash flows using a discount
rate commensurate with the risks involved.
Long-lived assets considered for impairment under SFAS 121 are required to
be grouped at the "lowest level for which there are identifiable cash flows
that are largely independent of the cash flows of other groups." The
Company believes the most correct application of this standard is obtained
by examining individual restaurants where circumstances indicate that an
impairment issue may exist. In addition, if an asset being tested for
recoverability was acquired in a business combination accounted for using
the purchase method, the goodwill that arose in that transaction is
included as part of the asset being evaluated and in determining the amount
of any impairment.
The $509,000 charge for the nine months ended September 29, 1996 included
in the caption, "Provision for restaurant closures and other charges,"
includes $754,000 relating primarily to two additional restaurants which
were determined to be impaired in 1996. No additional long-lived assets
have been determined to be impaired in 1997. As required by the Standard,
the Company will continue to periodically review its assets for impairment
where circumstances indicate that such impairment may exist.
9. REPURCHASE OF SENIOR NOTES
On January 29, 1996, the Company repurchased, in two transactions, at a
price of $678.75 per $1,000 principal amount, $22 million face value of its
9 7/8% Senior Notes due in the year 2000 from GIANT. The price paid in each
transaction represented the market closing price on January 26, 1996. The
first transaction involved the repurchase of $16 million face value of the
Notes for $11.1 million in cash. The second transaction involved the
purchase of $6 million face value of Notes in exchange for a $4.1 million
short-term note, due in three installments of principal and interest,
issued by Rally's. The Company paid the final installment on this note,
together with accrued interest thereon, on September 27, 1996. The
repurchase resulted in an extraordinary gain, net of tax, of $4.8 million
or $.31 per share. An additional $4.7 million face amount of the Senior
Notes were retired during the fourth quarter, 1996 at an aggregate gain of
$200,000. The remaining outstanding Notes are publicly traded and at
September 28, 1997 had a market value of $55.1 million based on the quoted
market price for such notes.
These purchases reduced total interest expense by approximately $537,000
and $1.4 million for the quarter and nine months ended September 29, 1996,
respectively, and $705,000 and $2.1 million for the quarter and nine months
ended September 28, 1997, respectively.
10
<PAGE>
10. PROPOSED EXCHANGE OFFER
On September 21, 1997, a letter of intent was signed whereby the Company
agreed in principle to acquire approximately 19.0 million shares of the
Common Stock of Checkers Drive-In Restaurants, Inc. (Checkers) in exchange
for Rally's Common Stock and a new series of Rally's Preferred Stock which
will be convertible into Rally's Common Stock if such approval is granted
by Rally's stockholders. These shares are held of record by CKE
Restaurants, Inc., Fidelity National Financial, Inc. and GIANT GROUP, LTD.
and certain of its affiliates and related parties. Rally's would become
Checkers largest stockholder with approximately 27% of the outstanding
Checkers Common Stock. The acquisition is subject to negotiation of
definitive agreements, receipt of fairness opinions and other required
approvals and customary conditions. Due diligence is proceeding, and the
transaction is expected to close in the fourth quarter.
11. SUBSEQUENT EVENT
Effective in early November, the Company entered into an employment
agreement with James J. Gilllespie where he will serve as Chief Executive
Officer. Additionally, William P. Foley, Il has been appointed Chairman of
the Board of Rally's. Mr. Foley is also Chairman of Checkers, CKE
Restaurants, Inc. and Fidelity National Financial, Inc.
11
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
For the quarter ended September 28, 1997, the Company reported a net loss of
$1.1 million or $.06 per share compared with net income of $414,000 or $.03 per
share for the same period of the prior year. Total revenues decreased to $38.5
million from $38.8 million in the prior year due primarily to same store sales
declines in both Company-owned and franchised units, partially offset by an
increase in equivalent Company-owned units in operation as discussed below.
Income from operations was $543,000 compared to $2.6 million for the third
quarter of 1996. The majority of this decrease in operating income is
attributable to a $1.5 million increase in advertising expenses during the
quarter. The Company has continued the favorable trend in labor costs during the
quarter. Sales did not correspondingly increase as expected from the Company's
increased advertising spending as advertising expenses increased from 4% to 7.9%
of sales.
For the nine months ended September 28, 1997, the Company reported a net loss of
$2.0 million or $.10 per share compared with net income of $1.4 million or $.09
per share for the prior year. Total revenues decreased to $109.2 million in 1997
compared with $128.1 million in 1996 due primarily to same store sales declines
and fewer stores in operation as discussed in the nine months analysis below.
Income from operations was $3.4 million compared to $1.7 million for the prior
year. The Company attributes this improvement in operating income to favorable
store level cost performance. Food, paper and labor costs improved 4.6%, as a
percentage of sales, versus prior year.
Sales continue to be the major challenge confronting the Company in improving
bottom line results. Incremental advertising dollars did not increase sales
during the quarter and year to date ended September 28, 1997. The Company will
be revamping its marketing strategy during the fourth quarter, including the
selection of a new advertising agency and evaluation of additional near term
promotional opportunities. The Company also plans to expand the testing of a new
image design and the adding of inside dining areas to certain stores in the
fourth quarter.
During the quarter, the Company opened thirteen units, including the acquisition
of the ten-store Arkansas market from a franchisee, and sold one unit to a
franchisee. Franchisees opened nine units, including the acquisition of one
store from the Company, and closed thirteen units, ten of which were sold to the
Company.
Results of Operations
Rally's revenues are derived primarily from Company-owned and operated
restaurant sales and royalty fees from franchisees. The Company also receives
revenues from the award of exclusive rights to develop Rally's restaurants in
certain geographic areas (area development fees) and the award of licenses to
use the Rally's brand and confidential operating system (franchise fees).
Systemwide sales consist of aggregate revenues of Company-owned and franchised
restaurants (including CKE-operated). Company revenue also includes payments
resulting from an operating agreement with CKE, referred to as Owner fee income
in the accompanying consolidated financial statements. Restaurant cost of sales,
restaurant operating expenses, depreciation and amortization, and advertising
and promotion relate directly to Company-owned and operated restaurants. General
and administrative expenses relate to both Company-owned and operated
restaurants and franchise operations. Owner expenses relate to CKE-operated
restaurants and consist primarily of depreciation and amortization.
12
<PAGE>
The table below sets forth the percentage relationship to total revenues, unless
otherwise indicated, of certain items included in the Company's consolidated
statements of operations and operating data for the periods indicated:
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
----------------------------------------- ---------------------------------------
SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28,
1996 1997 1996 1997
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues
Restaurant sales 95.6% 96.4% 96.3% 96.1%
Franchise revenues and fees 3.8 3.1 3.5 3.4
Owner fee income .6 .5 .2 .5
------------------- ------------------ ------------------- -------------------
100.0% 100.0% 100.0% 100.0%
=================== =================== =================== ===================
Costs and expenses
Restaurant cost of sales (1) 32.9% 33.2% 34.9% 32.7%
Restaurant operating expenses (1) 44.2 42.7 45.0 42.6
General and administrative expenses 9.5 10.8 10.2 10.4
Advertising and promotion expenses (1) 4.0 7.9 5.2 6.9
Depreciation and amortization (1) 6.3 6.4 6.2 6.6
Owner expense (2) 152.6 157.6 152.6 150.5
Provision for restaurant closures and
other (.6) .2 .4 .5
Income from operations 6.8 1.4 1.3 3.1
Total other (expense) (5.2) (4.1) (4.8) (4.5)
------------------- ------------------- ------------------- -------------------
Net income (loss) before income taxes
and extraordinary items 1.6% (2.7)% (3.5)% (1.5)%
=================== =================== =================== ===================
Number of restaurants:
Restaurants open at the beginning of
period 485 473 481 467
------------------- ------------------- ------------------- -------------------
Company restaurants opened (closed or
transferred), net during period (4) 12 (4) 20
Franchised restaurants opened (closed or
transferred), net during period (4) (4) 0 (6)
------------------- ------------------- ------------------- -------------------
Total restaurants opened (closed or
transferred), net during period (8) 8 (4) 14
------------------- ------------------- ------------------- -------------------
Total restaurants open at end of period 477 481 477 481
=================== =================== =================== ===================
</TABLE>
(1) As a percentage of restaurant sales.
(2) As a percentage of owner fee income.
13
<PAGE>
Three Months Ended September 29, 1996 Compared with Three Months Ended September
28, 1997
Systemwide sales decreased 7% to $75.3 million for the quarter compared with
$81.3 million a year ago. This decrease is primarily attributable to systemwide
same store sales declines of 9%. Company same store sales declined 7% and
franchise same store sales were down 10% for the quarter. Management plans to
revamp its marketing strategy during the fourth quarter in order to boost same
store sales.
Total Company revenues decreased 1% to $38.5 million for the quarter compared
with $38.8 million a year ago. Company-owned and operated restaurant sales
increased slightly to $37.2 million for the current year quarter from $37.1
million primarily due to approximately 14 additional equivalent units in
operation during the current year quarter, partially offset by same store sales
declines of 7%. The increase in equivalent units is primarily attributable to
the Company's acquisition of ten Arkansas stores from a franchisee in July 1997.
Franchise revenues and fees declined 20% primarily due to same store sales
declines of 10% and the sale of the ten-store Arkansas market to the Company in
1997.
Restaurant cost of sales, as a percentage of sales, increased to 33.2% for 1997
compared with 32.9% for the comparable quarter of the prior year. This increase
as a percentage of sales is primarily due to lower vendor rebates as a result of
reduced usage.
Restaurant operating expenses were 42.7% of sales compared with 44.2% for the
comparable quarter of the prior year. This decrease is primarily due to
management's cost reduction actions in the labor area and to a favorable change
in estimated workers compensation insurance costs during the quarter. Also,
previously identified and implemented changes in staffing levels and labor
deployment in certain stores are continuing to yield savings in management and
crew labor. Management believes that these cost reduction actions should
continue to favorably influence ongoing operating expense performance.
General and administrative expenses in the third quarter of 1997, on both a
dollar and percentage of revenues basis, were higher than 1996. This increase is
primarily attributable to higher training and legal costs and the amortization
of warrants granted to CKE in December 1996, partially offset by a reduction in
non-restaurant staffing levels and in bonuses payable for the quarter.
Advertising expenses were higher, on both a dollar and percentage of sales
basis, for the third quarter of 1997 versus 1996. Advertising spending rose
during the quarter to 7.9% of sales as a result of the acceleration of
television spending for product promotions versus limited spending of only 4% in
1996. Incremental advertising was not absorbed by the revenue results discussed
above.
Depreciation and amortization, on both a dollar and a percentage of revenues
basis, was essentially flat between quarters.
Owner expenses of approximately $300,000 for the third quarter of 1997,
essentially flat versus 1996, represent the Company's segregated ownership cost
related to the 28 units operated by CKE. These expenses consist primarily of
depreciation and amortization associated with the properties.
Provision for restaurant closures and other consists of expenses of $77,000 in
the third quarter of 1997 and income of $245,000 in the prior year period. The
current year charges relate primarily to surplus property writedowns. The income
for the prior year quarter is primarily attributable to a $232,000 favorable
change in estimate associated with the sale of the assets of the Company's
five-store Montgomery, Alabama market during the quarter.
14
<PAGE>
Interest expense decreased 10% in the third quarter of 1997 to $1.8 million
compared to $2.0 million in 1996 primarily due to the early extinguishment of
debt in the fourth quarter of 1996. See Note 9 to the accompanying consolidated
financial statements for further discussion.
Interest income increased by $229,000 in the third quarter of 1997 to $252,000,
due primarily to increases in the average daily invested amounts and to interest
on an Internal Revenue Service refund related to prior tax years.
In total, excluding the third quarter 1996 tax provision of $302,000 associated
with the extraordinary gain, the Company's net tax provision for the prior and
current year quarters were $200,000 and $115,000, respectively. These net
provisions represent state taxes expected to be payable for both years. The
Company's tax status regarding non-recognition of the benefit of currently
recordable book losses due to uncertainty of ultimate realization remained
unchanged.
The extraordinary item in the third quarter of 1996 is related to a gain
recognized, net of taxes, on the early retirement of debt. See Note 9 to the
accompanying consolidated financial statements for further discussion.
Nine Months Ended September 29, 1996 Compared with Nine Months Ended September
28, 1997
Systemwide sales declined 13% for the first nine months of 1997 to $220.6
million compared with $254.7 million a year ago. This decrease is primarily
attributable to systemwide same store sales declines of 10%.
Total Company revenues decreased 15% to $109.2 million in 1997 compared with
$128.1 million in 1996. Company-owned and operated restaurant sales decreased
$18.4 million to $105 million primarily due to an 11% decline in same store
sales during the first nine months of 1997 and to a decline of approximately
$10.5 million due to the Company's operating agreement with CKE, as discussed in
Note 1 to the accompanying consolidated financial statements, somewhat offset by
an increase of $1.4 million due to the Company's acquisition of the ten-store
Arkansas market as previously discussed. Franchise revenues and fees decreased
by 18% for the year primarily due to approximately 11 fewer equivalent units in
operation during the period and to franchise same store sales declines of 8%.
Restaurant cost of sales, as a percentage of sales, decreased to 32.7% for 1997
compared with 34.9% for 1996. This decline is primarily due to the impact of
implemented cost reduction strategies, partially offset by lower vendor rebates,
as discussed above in the quarterly comparison.
Restaurant operating expenses, as a percentage of sales, decreased to 42.6% for
1997 compared with 45% for 1996. This decrease is primarily due to management's
cost reduction actions in the labor area and better fixed cost coverage in
stores operated by the Company during the current year, primarily the result of
the CKE operating agreement covering certain high fixed cost restaurants in
Western markets.
General and administrative expenses, as a percentage of revenues, were higher
than 1996 primarily due to reduced sales leverage. On a dollar basis, general
and administrative expenses decreased 13% to $11.3 million in 1997. This dollar
decrease was primarily attributable to the transfer of operational
responsibility for certain restaurants in Western markets to CKE, a reduction in
non-restaurant staffing levels, a reduction in bonuses payable and lower bad
debt expense for the first nine months, partially offset by the amortization of
warrants granted to CKE and higher training and legal related costs in the
current year quarter, as discussed above.
15
<PAGE>
Advertising expenses were higher, on both a dollar and percentage of sales
basis, for 1997 compared to the same period of 1996. See earlier discussion as
the increase is consistent with the quarterly results.
Depreciation and amortization on a year-to-date basis decreased to $6.9 million
compared with $7.6 million for the same period of the prior year. This decrease
is primarily due to a segregation into Owner expense of depreciation and
amortization associated with the CKE-operated properties.
Owner expenses of approximately $900,000 in 1997 represent the Company's
segregated ownership cost related to the 28 units operated by CKE. These units
were operated by CKE for only the last three months of the prior nine-month
period resulting in Owner expenses of approximately $300,000 for 1996. These
expenses consist primarily of depreciation and amortization associated with the
properties.
The Provision for restaurant closures and other of $579,000 for the first nine
months of 1997 resulted primarily from charges for expenses of matching
incremental franchisee advertising during the second quarter, for expenses
associated with the terminated merger negotiations with Checkers Drive-In
Restaurants, Inc. and for surplus asset writedowns. The Provision of $509,000
for the comparable period in the prior year relates primarily to a $754,000
charge for the estimated impairment of two restaurants under SFAS 121, partially
offset by a $232,000 favorable change in estimate associated with the sale of
the assets of the Company's five-store Montgomery market during the third
quarter of 1996. No additional long-lived assets have been determined to be
impaired under SFAS 121 in the first nine months of 1997.
Interest expense decreased 14% on a year-to-date basis to $5.6 million compared
to $6.5 million for the same period in the prior year primarily due to the early
extinguishment of debt in 1996. See Note 9 to the accompanying consolidated
financial statements for further discussion.
Interest income increased from $402,000 in 1996 to $619,000 in 1997. See earlier
discussion as the increase is consistent with the quarterly results.
In total, excluding the tax benefit of $1.5 million for the first nine months of
1996 associated with the extraordinary gain, the Company's net tax provision for
the prior year and current year periods were $521,000 and $415,000,
respectively. These net provisions represent state taxes expected to be payable
for both years. The Company's tax status regarding non-recognition of the
benefit of currently recordable book losses due to uncertainty of ultimate
realization remained unchanged.
The extraordinary item in the first nine months of 1996 represents the gain
recognized, net of taxes, on the early retirement of debt. See Note 9 to the
accompanying consolidated financial statements for further discussion.
Liquidity and Capital Resources
The Company's cash flow provided by operating activities was approximately $6.9
million for the first nine months of 1997 compared with cash flow used in
operating activities of approximately $880,000 for the same period in the prior
year. This increase resulted primarily from higher net income from operations in
1997 and favorable changes in working capital related primarily to differences
in the timing of accounts payable and higher advertising accruals for the
current year period.
Capital expenditures of approximately $4.4 million for the first nine months of
1997 were funded primarily through operating activities, sales of surplus
properties and existing cash balances. Approximately $2.8 million of these
expenditures were for the construction or conversion of new stores
16
<PAGE>
and for the reopening of three units previously closed. Eleven of these stores
opened in the first nine months of the year, including three units re-opened.
Remaining capital expenditures were for the testing of a new image design and
the addition of side-dining areas for selected units and the purchase and
installation of certain replacement equipment.
The Company had no new units under construction at September 28, 1997. Two new
units are expected to open by the end of the fourth quarter, for a total of ten
new units for the year in addition to eleven units acquired from franchisees and
the three units re-opened which had been previously closed. In addition, the
Company plans to further expand testing of image enhancement and side-dining in
selected stores during the fourth quarter. Full year capital expenditures are
expected to be in the range of approximately $6 to $7 million, inclusive of
replacement capital.
Principal payments of debt and capital leases totaled approximately $1.2 million
during the first nine months of 1997. The Company is required to make a
mandatory sinking fund payment on June 15, 1999 calculated to retire 33 1/3% in
aggregate principal amount of the Senior Notes issued with the balance maturing
on June 15, 2000. Such sinking fund requirement, due to debt repurchases in the
prior year, is now approximately $1.6 million.
The Company is actively marketing the assets included in the caption "Assets
Held for Sale" in the accompanying consolidated balance sheets and expects
realization in cash over the next 3 to 24 months, although actual timing of such
cash flows cannot be predicted. The assets contained in this caption are
recorded at management's current estimate of net realizable value. There can be
no assurances that these values will be realized. Approximately $1.2 million was
generated during the first nine months of 1997 from the sale of such assets.
In July 1997, the Company completed the acquisition of substantially all the
operating assets employed in the operation of ten franchised Rally's restaurants
in the Little Rock, Arkansas market. The total purchase price was approximately
$2.8 million, of which approximately $2.2 million was paid in cash with the
remainder paid in consideration of certain amounts owed by the franchisee to the
Company. See Note 2 to the accompanying consolidated financial statements for
further discussion.
During the first nine months of the year, the Company received funds of $532,000
completing the sale/leaseback financing on three fee properties which are the
subject of an aggregate amount of $1.4 million of sale/leaseback financing. The
interest rate on such facility is approximately 12.5%.
The Company completed its Shareholder Rights Offering on September 20, 1996. The
Offering raised over $10.8 million in gross proceeds, offset by legal and other
issuance costs of approximately $437,000. In addition to the approximate $10.8
million of gross proceeds provided by the Offering, the Warrants issued as part
of the Offering, exercisable at $2.25, could provide approximately $10.8 million
for the Company's future growth, if all warrants are exercised. As of September
28, 1997, 4,816,835 Warrants were outstanding. Any proceeds generated from the
exercise of such warrants may be used for new store construction, refurbishment
of some existing restaurants and for other general corporate purposes, including
possible further debt reduction.
On December 20, 1996, the Company issued warrants to purchase an aggregate of
1,500,000 restricted shares of its Common Stock to CKE and Fidelity National
Financial, Inc. These warrants have a three-year term and are not exercisable
until December 20, 1997. The exercise price is $4.375 per share, the closing
price of the Common Stock on December 20, 1996. The underlying shares of Common
Stock have not been registered with the Securities Exchange Commission and,
therefore, are not freely
17
<PAGE>
tradable. If these warrants are exercised, the Company will receive
approximately $6.6 million in additional capital.
On September 21, 1997, a letter of intent was signed whereby the Company agreed
in principle to acquire approximately 19.0 million shares of the Common Stock of
Checkers Drive-In Restaurants, Inc. ("Checkers") in exchange for Rally's Common
Stock and a new series of Rally's Preferred Stock which will be convertible into
Rally's Common Stock if such approval is granted by Rally's stockholders. Upon
consummation of the transaction, Rally's would become Checkers' largest
stockholder with approximately 27% of the outstanding Checkers' Common Stock.
The acquisition is subject to negotiation of definitive agreements, receipt of
fairness opinions and other required approvals and other customary conditions.
Due diligence is proceeding, and the transaction is expected to close in the
fourth quarter.
The Company believes existing cash balances and cash flow from operations should
be sufficient to fund its current operations and obligations. The ability of the
Company to satisfy its obligations under the Senior Notes, however, continues to
be dependent upon, among other factors, the Company successfully increasing
revenues and profits.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings - See Note 6 to Part I, Item 1 which is incorporated
herein by reference.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on August 7,
1997. At the meeting, stockholders elected a board of eight directors
and ratified the appointment of Arthur Andersen LLP as the Company's
independent auditors.
Results of the voting in connection with each item were as follows:
Election of Directors For Withheld
--------------------------- ------------------ ---------------
Burt Sugarman 13,867,360 130,946
Donald E. Doyle 13,871,841 126,465
Terry N. Christensen 13,872,040 126,266
Willie D. Davis 13,871,525 126,781
William P. Foley, II 13,875,691 122,615
David Gotterer 13,874,675 123,631
Ronald B. Maggard 13,875,841 122,465
C. Thomas Thompson 13,874,923 123,383
For Against Abstain
------------ ---------- --------------
Ratification of accountants 13,905,591 62,416 30,299
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
---------------- -----------------------------------------------
4.5 Other Debt Instruments - Copies of debt
instruments for which the related debt is less
than 10% of the Company's total assets will
be furnished to the Commission upon request.
10.17 Employment Agreement between the Company and
Anthony Lavely dated August 25, 1997.
10.18 Employment Agreement between the Company and
James J. Gillespie dated, November 10, 1997.
(b) Reports on Form 8-K:
There were no Form 8-K reports filed during the third quarter of
1997.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RALLY'S HAMBURGERS, INC.
Date: November 5, 1997 By: /s/ William P. Foley, II
-----------------------------------
William P. Foley, II
Chairman of the Board
20
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into and effective as of
25th day of August, 1997, by and between RALLY'S HAMBURGERS, INC., a Delaware
corporation (the "Company") and ANTHONY M. LAVELY ("Lavely").
RECITALS:
A. Lavely has considerable expertise and experience in marketing goods and
services. The Company desires to employ Lavely, and Lavely desires to
accept such employment, as the Company's Senior Vice President, Sales and
Marketing.
B. The parties hereto desire to enter into this Agreement to establish the
terms and conditions of the such employment relationship between Lavely and
the Company and to provide that Lavely will not engage in activities that
are detrimental to the Company or any of its "Affiliates" (as defined in
Section 12.1).
AGREEMENT:
NOW, THEREFORE, Lavely and the Company hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs Lavely, effective as of the date
hereof, and Lavely accepts employment by the Company and agrees to serve
the Company upon the terms and conditions hereinafter set forth.
2. TERM. The term of Lavely's employment under this Agreement shall be the
two-year period commencing on the date hereof (the "Term"), unless Lavely's
employment is terminated prior to the expiration as provided in Section 6.
3. TITLE. Lavely's position with the Company shall be designated as Senior
Vice President, Sales and Marketing.
4. SERVICES. So long as he is employed by the Company, Lavely agrees (a) to
devote his full business time and energy to the business and affairs of the
Company, (b) to perform his duties as Senior Vice President, Sales and
Marketing diligently and to the best of his ability, and not do anything
that would be detrimental to the best interests of the Company, (c) to use
his best efforts, skill and ability to promote the interests of the
Company, and (d) to perform such duties as may be assigned to him by the
President or Board of Directors of the Company ("Board").
<PAGE>
5. COMPENSATION AND BENEFITS. For all services to be rendered by Lavely during
the Term, the Company shall pay compensation and provide benefits to Lavely
as follows:
5.1 Salary. The Company shall pay Lavely an annual salary of $175,000
("Salary"), which shall be paid in installments consistent with the
Company's policies.
5.2 Bonus. For each full calendar quarter of the Term, commencing with the
fourth quarter of calendar year 1997, the Company shall pay Lavely a
bonus in an amount equal to (i) ten percent (10%) of Lavely's Salary
then in effect, multiplied by (ii) the full percentage point increase
in gross sales of the Company's products from the Company's owned
restaurants over the corresponding quarter of the preceding calendar
year (the "Bonus"). Such Bonus shall be paid within 30 days following
the expiration of the calendar quarter for which such Bonus may be
earned. In the event Lavely's employment is terminated during the
Term, Lavely shall be entitled to receive such Bonus only with respect
to the full calendar quarter preceding the date of such termination.
5.3 Stock Options. Simultaneously with the execution hereof, the Company
and Lavely executed and delivered Stock Option Agreements in the form
of Exhibit A attached hereto, pursuant to which Lavely was granted
options to purchase 100,000 shares of common stock of the Company,
pursuant to the terms, provisions and conditions set forth in the
Company's 1990 Employee Stock Option Plan.
5.4 Employee Benefit Plans. Lavely shall be entitled to participate in all
employee benefit plans which the Company now maintains or which it may
hereafter establish and maintain during the Term for its officer level
employees in general. Participation in such plans shall be subject to
the same eligibility requirements, and be in accordance with the same
terms and conditions, as are applicable to the other officers of the
Company.
5.5 Business Expenses. The Company shall reimburse Lavely for all
reasonable, direct, out-of-pocket ordinary and necessary business
expenses incurred by Lavely in the performance of his services
hereunder and for which Lavely properly accounts in accordance with
the Company's regulations and procedures.
5.6 Relocation. In connection with Lavely's relocation to Louisville,
Kentucky from Lexington, Kentucky, the Company shall pay to Lavely the
following:
(a) The actual and reasonable costs of the transportation of Lavely's
household goods from Lexington, Kentucky to Louisville, Kentucky;
(b) Costs actually expended, not to exceed $1,000 in the aggregate,
for required structural, termite, radon and similar inspections
of Lavely's present residence;
(c) Within 10 days following the date hereof, $15,000 to cover any
financing costs of a permanent residence in Louisville, Kentucky;
and
(d) Temporary housing costs and storage costs of Lavely's household
goods actually expended during the four month period commencing
on the date hereof.
<PAGE>
Except for the amount described in (c), above, all amounts payable to Lavely
hereunder will be paid promptly upon submission by Lavely of supporting
documentation. Additionally, all such amounts payable hereunder shall be subject
to applicable withholding taxes, to the extent required by law.
5.7 Business Items. During the Term, the Company, at its expense, will
provide to Lavely a pager, computer and a cellular phone; provided,
however, that Lavely shall be responsible for and pay or reimburse the
Company for any personal use of such cellular phone.
5.8 Attorney's Fees. Upon submission of appropriate documentation, the
Company shall reimburse Lavely for the actual, reasonable costs, not
to exceed $2,000, incurred by Lavely with respect to any review of
this Agreement prior to the date hereof by Lavely's legal counsel.
6. EVENTS CAUSING TERMINIATION OF EMPLOYMENT. Lavely's employment with the
Company shall terminate upon the occurrence of any one of the following
events:
6.1 Causes. Lavely is discharged for "cause," which, for purposes of this
Agreement, shall mean:
(a) the repeated wilful failure by Lavely to perform his duties
hereunder or the repeated gross negligence or illegal conduct of
Lavely in the performance of such duties;
(b) the repeated refusal to comply with reasonable and lawful
instructions of the President of the Company or the Board;
(c) Lavely's repeated wilful actions contrary to the Company's
interests, as reasonably determined by the Board; or
(d) the conviction of Lavely of a felony or other crime of moral
turpitude.
6.2 Disability. Lavely is under a "disability" which, for purposes of this
Agreement, means a physical or mental condition resulting from injury,
disease or mental disorder which, after reasonable accommodation,
renders him incapable of performing the services provided hereunder in
a manner reasonably satisfactory to the Board and which the Board
determines, in the reasonable exercise of its judgment based on
competent medical and other evidence, will be of continued and
indefinite duration.
6.3 Death. Lavely dies.
6.4 Notice. The Company terminates Lavely for any other or no reason.
6.5 Voluntary Termination by Lavely. Lavely gives notice to the Company
that he is terminating his employment hereunder or, without such
notice, Lavely terminates his employment hereunder.
7. BENEFITS UPON TERMINATION OF EMPLOYMENT
7.1 Termination Without Cause. If Lavely's employment is terminated during
the Term pursuant to the provisions of Section 6.4, then the Company
shall continue to pay Lavely his installments of Salary then in effect
for the longer of the remainder of the Term, or the one year period
following the date of such termination; provided, that Lavely shall
execute a release of the Company with respect to any and all matters
occurring prior to the date of such termination.
7.2 Other Termination. Except as provided in Section 7.1 above, the
Company shall have no obligation to make any payments to Lavely upon
any termination of his employment, except for his Salary to the date
of such termination and any Bonus earned prior to the date of such
termination.
8. COVENANT NOT TO COMPETE. For the period Lavely is employed by the Company,
whether during or after the Term, and for a 12-month period thereafter, he
will not, directly or indirectly, within any geographic area where the
Company or any of its Affiliates conduct their businesses, provide services
of the type performed by Lavely hereunder for any business whose primary
products are hamburgers, whether for himself, or as an employee, partner,
shareholder, director, officer, principal, agent, consultant or in any
other relationship or capacity; provided, that the purchase of publicly
traded securities of a corporation engaged in such business shall not in
itself be deemed violative of this Agreement so long as Lavely does not
own, directly or indirectly, more than 1% of the securities of such
corporation.
9. DISCLOSURE OF INFORMATION. Lavely agrees that at no time hereafter will he
divulge, furnish or make accessible to anyone any confidential information
or trade secrets with respect to the customers or business operations of
the Company or its Affiliates.
10. SOLICITATION OF EMPLOYEES. Lavely agrees that from and after the date
hereof he shall not entice or induce, directly or indirectly, any employee
of the Company or any of its Affiliates to leave the employ of the Company
or any such Affiliate to work with him or with any person or entity with
whom he is or becomes affiliated.
11. CUMLATIVE REMEDIES; ENFORCEABILITY. Lavely agrees that each of the
covenants and agreements contained in Sections 10, 11 or 12, taken as a
whole, are reasonable in their scope and duration and that he shall not
raise any issue of reasonableness of the scope or duration of any covenants
or agreements in any proceedings to enforce such covenants and agreements.
Lavely agrees that the Company may not be adequately compensated by damages
for a breach by Lavely of any of the covenants contained in Sections 10, 11
or 12, and that the Company shall be entitled to injunctive relief and
specific performance in addition to all other remedies. If any court shall
finally determine that the restraints provided for in Sections 10, 11 or 12
are too broad as to the area, activity or time covered, the area, activity
or time covered may be reduced to whatever extent the court deems
reasonable and such covenant shall be enforced as to such reduced area,
activity or time. The 12 month period referred to in Section 8 shall be
extended by any length of time that Lavely is in breach of the covenants
set forth in such Section.
12. MISCELLANEOUS
12.1 Affiliates. As used herein, the term "Affiliates" shall have the same
definition as in Rule 405 of the General Rules and Regulations of the
Securities Act of 1933, as amended.
12.2 Survival. This Agreement shall extend to and be binding upon Lavely,
his legal representatives, heirs and assigns, and upon the Company,
its successors and assigns.
12.3 Waiver of Breach. The waiver by the Company of a breach of any
provision of this Agreement by Lavely shall not operate or be
construed as a waiver of any subsequent breach by Lavely.
<PAGE>
12.4 Entire Agreement; Cancellation of Prior Agreements. This instrument
contains the entire agreement of the parties. It may not be changed
orally, but only by an amendment in writing signed by the party
against whom enforcement is sought. All prior agreements or
understandings concerning Lavely's employment by the Company are
hereby canceled and declared null and void as of the date hereof,
including without limitation, the provisions of that certain offer
letter, dated August 18, 1997, from the Company to Lavely.
12.5 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the Commonwealth of Kentucky.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day,
month and year first above written.
RALLY'S HAMBURGERS, INC.
By: /s/ Donald E. Doyle
----------------------
Title: President & CEO
(the "Company")
/s/ Anthony M. Lavely
----------------------
ANTHONY M. LAVELY
("Lavely")
<PAGE>
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of November 10,
1997 (the "Effective Date"), by and among RALLY'S HAMBURGERS, INC., a Kentucky
corporation ("Rally's"), CHECKERS DRIVE-IN RESTAURANTS, INC., a Florida
corporation ("Checkers"), and JAY GILLESPIE, an individual (the "Executive").
Rally's and Checkers are sometimes referred to herein singularly as a "Company"
and collectively as the "Companies." In consideration of the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Companies each employ the Executive to serve in an executive
and managerial capacity as their Chief Executive Officer, and the Executive
accepts such employment and agrees to perform such reasonable
responsibilities and duties commensurate with the aforesaid positions, as
directed by the Boards of Directors of the Companies or as set forth in the
Articles of Incorporation and/or the Bylaws of the Companies, for all
locations in which the Companies have offices. In addition, the Boards of
Directors of each Company, or any appropriate committee of such Board,
shall recommend to the shareholders of such Company that Executive be
elected to serve as a director on the Board of such Company for each year
during the Term (as defined below).
2. Term. The term of employment under this Agreement shall be for a period of
two (2) years (the "Term") commencing on the Effective Date, subject to
termination pursuant to Section 4, below. This Agreement shall
automatically be renewed each year for an additional one (1) year term
unless the Companies notify the Executive that they are terminating this
Agreement prior to November 10th of such year.
3. Compensation.
3.1. Annual Salary. During the Term of this Agreement, the Companies shall
pay Executive an aggregate minimum base annual salary, before
deducting all applicable withholdings, of Two Hundred Eighty-Two
Thousand Five Hundred Dollars ($282,500) per year (the "Base Salary"),
payable at the times and in the manner dictated by the Companies'
standard payroll policies. The Boards of Directors of Checkers and
Rally's shall determine how the Base Salary under this Section 3.1 and
the Incentive Bonus earned by the Executive under 3.2(a), below shall
be allocated between the Companies.
3.2. Other Compensation and Benefits. During the Term, as additional
compensation, the Executive shall be entitled to participate in and
receive the following:
(a) Incentive Bonus. The Executive shall be entitled to participate
in the Companies' Incentive Bonus Plan, pursuant to which the
Executive shall be entitled to earn up to a maximum of fifty
percent (50%) of his Base Salary (the "Incentive Bonus"). The
Incentive Bonus will be based on certain performance criteria
determined in good faith by the Companies' respective Boards of
Directors. The Incentive Bonus shall be pro-rated for any partial
employment period. Any Incentive Bonus due for a given year of
the term shall be paid no later than April 15th of the following
year.
(b) Benefits. Executive shall be entitled to choose to participate in
and receive all benefits under either (i) Rally's or (ii)
Checker's employee benefit plans or programs (including, without
limitation, medical, dental, disability, and group life), any
retirement savings plans or programs (including, without
limitation, employee stock purchase plans), and such other
perquisites of office as Rally's or Checkers may, from time to
time and in their sole discretion, make available generally to
employees of similar rank as Executive, subject to such
eligibility provisions as may be in effect from time to time.
(c) Stock Options. Rally's hereby grants to Executive options to
purchase 300,000 shares of Rally's Common Stock, in accordance
with and pursuant to the terms of Rally's Stock Option Plan (the
"Plan"). The exercise price for such options shall be the closing
price on the Effective Date of Rally's Common Stock publicly
traded on NASDAQ, as stated in the Wall Street Journal. The above
described options shall vest and become exercisable in three (3)
equal installments of 100,000 shares each on each of the first
three (3) anniversaries of the Effective Date. Notwithstanding
the above, if the Term is not extended for an addition one (1)
year pursuant to Section 2, above, then 200,000 shares of options
shall vest and become exercisable on the second anniversary of
the Effective Date.
(d) Moving Expenses/Monthly Stipend. Rally's and/or Checkers, as the
Companies so determine, shall pay all of Executive's reasonable
moving expenses from Dallas, Texas to the location at which
Executive shall initially perform his primary duties hereunder or
any subsequent relocation of Executive required by the Companies.
In addition, in order to assist Executive with such transition
expenses, Rally's and/or Checkers, as the Companies so determine,
shall pay Executive the sum of One Thousand Dollars ($1,000) per
month commencing on the Effective Date and continuing for the
five (5) consecutive months thereafter.
(e) Commencement Bonus. On the Effective Date, Rally's and/or
Checkers, as the Companies so determine, shall pay Executive a
one time commencement bonus of Fifty Thousand Dollars ($50,000).
The Companies shall deduct from all compensation payable under this Agreement to
Executive any taxes or withholdings the Companies are required to deduct
pursuant to state and Federal laws or by mutual agreement among the parties.
3.3. Vacation. Executive will be entitled to paid vacation time in
accordance with the Companies' personnel policies and procedures made
available to the Companies' executive employees of similar rank, as
the same may change from time to time, or as otherwise determined by
the respective Boards of Directors of the Companies. In addition,
Executive shall be entitled to such holidays consistent with the
Companies' standard policies or as the Companies' respective Boards of
Directors may approve.
3.4. Expense Reimbursement. In addition to the compensation and benefits
provided herein, the Companies shall, upon receipt and approval of
appropriate documentation, reimburse Executive each month for his
reasonable travel, lodging, entertainment, promotion and other
ordinary and necessary business expenses. The arrangement set forth in
this Section 3.4 is intended to constitute an accountable plan within
the meaning of Section 162 of the Internal Revenue Code, as amended
(the "Code") and the accompanying regulations, and the Executive
agrees to comply with all reasonable guidelines established by the
Companies from time to time to meet the requirements of Section 162 of
the Code and the accompanying regulations.
4. Termination.
4.1. For Cause. Notwithstanding any other provisions to the contrary
contained herein, the Companies may terminate this Agreement
immediately for cause upon written notice to the Executive, in which
event the Companies shall be obligated to pay the Executive that
portion of the Base Salary and the Incentive Bonus, if any, due him
through the date of termination. For purposes of this Agreement,
"cause" shall mean: (a) material default or other material breach by
Executive of Executive's obligations hereunder; (b) the willful and
habitual failure by Executive to perform the duties that Executive is
required to perform under this Agreement or the Companies' corporate
policies, provided such corporate policies have previously been
delivered to Executive; or (c) misconduct, dishonesty,
insubordination, or other act by Executive that in any way has a
direct, substantial and adverse effect on either Company's reputation
or their respective relationships with their customers or employees,
including, without limitation, (i) use of alcohol or illegal drugs
such as to interfere with the Executive's obligations hereunder, (ii)
conviction of a felony or of any crime involving moral turpitude or
theft, and (iii) material failure by Executive to comply with
applicable laws or governmental regulations pertaining to Executive's
employment hereunder.
4.2. Without Cause. Notwithstanding any other provisions to the contrary
contained herein, the Companies, on the one hand, and the executive,
on the other hand, may terminate this Agreement immediately without
cause by giving written notice to the other. If the Companies
terminate this Agreement under this Section 4.2, it shall continue to
pay to the Executive (i) the Base Salary and (ii) the Incentive Bonus
earned by the Executive in the prior year, for the unexpired Term of
this Agreement. The amount payable to Executive hereunder shall be
paid to the Executive in lump sum or as otherwise directed by the
Executive. If the Executive terminates this Agreement under this
Section 4.2, the Companies shall only be obligated to pay to the
Executive the Base Salary due him through the date of termination.
4.3. Disability. Notwithstanding any other provisions to the contrary
contained herein, if the Executive fails to perform his duties
hereunder on account of illness or other incapacity for a period of
six (6) consecutive months, the Companies shall have the right upon
written notice to the Executive to terminate this Agreement, without
further obligation, by paying Executive the Base Salary without offset
for the remainder of the Term of this Agreement in a lump sum or as
otherwise directed by Executive.
4.4. Death. Notwithstanding any other provisions to the contrary contained
herein, if the Executive dies during the Term of this Agreement, this
Agreement shall terminate immediately, and the Executive's legal
representatives or designated beneficiary shall be entitled to receive
the Base Salary to the date of Executive's death in a lump sum or as
otherwise directed by Executive's legal representatives or designated
beneficiary, whichever the case may be.
4.5. Termination by Companies Following Change of Control. In the event of
a Change of Control (as defined below) of either Company, the
Companies shall require any Successor (as defined below) to assume and
agree to perform this Agreement in the same manner and to the same
extent that such Company would be required to perform if the Change of
Control had not occurred. Upon the assumption of this Agreement by the
Successor, and its agreement to perform the duties and obligations of
such Company hereunder, that Company shall be released from any
further liability under this Agreement. As used herein, a "Change of
Control" of either Company shall mean the acquisition by a
"Successor," whether directly or indirectly, by purchase, merger,
consolidation or otherwise, of all or substantially all of the common
stock, business and/or assets of such Company; provided, however, that
a Change of Control shall not be deemed to have occurred as a result
of an increased ownership interest in either Company by Carl Karcher
Enterprises, Inc. or Fidelity National Financial, Inc., or any of
their respective affiliates, or a transfer of any such ownership
interests by any such entity to any of its affiliates.
4.6. Effect of Termination. Termination for any cause shall not constitute
a waiver of the Companies' rights under this Agreement as specified in
Section 6 nor a release of Executive from any obligation hereunder
except his obligation to perform his day-to-day duties as an
Executive.
5. Non-Delegation of Executive's Rights. The obligations, rights and benefits
of Executive hereunder are personal and may not be assigned or transferred
in any manner whatsoever, nor are such obligations, rights or benefits
subject to involuntary alienation, assignment or transfer.
6. Covenants of Executive.
6.1. Confidentiality. Executive acknowledges that in his capacity as an
Executive of each Company he will occupy a position of trust and
confidence, and he further acknowledges that he will have access to
and learn substantial information about each Company and its
respective operations that is confidential or not generally known in
the industry including, without limitation, information that relates
to purchasing, sales, customers, marketing, such Company's financial
position and financing arrangements. Executive agrees that all such
information is proprietary or confidential or constitutes trade
secrets and is the sole property of such Company. Accordingly, during
the Executive's employment by each Company and for a period of two (2)
years thereafter, Executive will keep confidential, and will not
without such Company's permission reproduce, copy or disclose to any
other person or firm, any such information or any documents or
information relating to such Company's methods, processes, customers,
accounts, analyses, systems, charts, programs, procedures,
correspondence, or records, or any other documents used or owned by
such Company, nor will Executive advise, discuss with or in any way
assist any other person or firm in obtaining or learning about any of
the items described in this section, either alone or with others,
outside the scope of his duties and responsibilities with such Company
unless otherwise required by law or court ordered subpoena.
6.2. Competitive Activities During Employment. Executive agrees that during
his employment by the Companies, he will devote substantially all his
business time and effort to and give undivided loyalty to the
Companies. Executive will not, during his employment by the Companies,
engage in any way whatsoever, directly or indirectly, in any business
that is competitive with either Company, nor solicit, or in any other
manner work for or assist any business which is competitive with
either Company. During his employment by the Companies, Executive will
undertake no planning for or organization of any business activity
competitive with the work he performs as an executive of either
Company, and Executive will not, during his employment by the
Companies, combine or conspire with any other employee of either
Company or any other person for the purpose of organizing any such
competitive business activity.
6.3. Remedy for Breach. Executive acknowledges that the Companies will be
irrevocably damaged if all of the provisions of this Section 6 are not
specifically enforced. Accordingly, the Executive agrees that, in
addition to any other relief to which the Companies may be entitled,
the Companies will be entitled to seek and obtain injunctive relief
from a court of competent jurisdiction for the purpose of restraining
the Executive from any actual or threatened breach of this Section 6.
The Executive's obligations under this Section 6 shall survive the
Executive's termination of employment with the Companies for the
periods of time specified in this Section 6.
7. Return of Documents. Upon termination of this Agreement, Executive shall
return immediately to the appropriate Company all records and documents of
or pertaining to such Company and shall not make or retain any copy or
extract of any such record or document.
8. Improvements and Inventions. Any and all improvements or inventions which
Executive may conceive, make or participate in during the period of his
employment shall be the sole and exclusive property of the Companies.
Executive will, whenever requested by either Company during the period of
his employment, execute and deliver any and all documents which such
Company shall deem appropriate in order to apply for and obtain patents for
improvements or inventions or in order to assign and convey to such Company
the sole and exclusive right, title and interest in and to such
improvements, inventions, patents or applications.
9. Miscellaneous.
9.1. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement between the parties with respect to Executive's employment
with the Companies and supersedes any and all prior or contemporaneous
agreements or understandings, whether oral or written, relating to the
such employment. This Agreement may be amended, modified,
supplemented, or changed only by a written document signed by all
parties to this Agreement.
9.2. Governing Law and Venue. Any dispute arising exclusively from the
relationship between Rally's and the Executive under this Agreement
shall be governed by Kentucky law, and venue for any such dispute
shall be in Clay County, Kentucky. Any dispute arising exclusively
from the relationship between Checkers and the Executive under this
Agreement shall be governed by Florida law, and venue for any such
dispute shall be in Pinellas County, Florida. Any dispute under this
Agreement involving both Companies and the Executive shall be governed
either by Kentucky law or Florida law, and venue for any such dispute
shall be either in Clay County, Kentucky or Pinellas County, Florida.
9.3. Attorneys' Fees. In any litigation, arbitration, or other proceeding
by which one party either seeks to enforce its rights under this
Agreement (whether in contract, tort, or both) or seeks a declaration
of any rights or obligations under this Agreement, the prevailing
party shall be entitled to recover from the non-prevailing party
reasonable attorney fees, together with any costs and expenses, to
resolve the dispute and to enforce the final judgment.
9.4. Severability. If any section, subsection or provision hereof is found
for any reason whatsoever to be invalid or inoperative, that section,
subsection or provision shall be deemed severable and shall not affect
the force and validity of any other provision of this Agreement. If
any covenant herein is determined by a court to be overly broad
thereby making the covenant unenforceable, the parties agree and it is
their desire that such court shall substitute a reasonable judicially
enforceable limitation in place of the offensive part of the covenant
and that as so modified the covenant shall be as fully enforceable as
if set forth herein by the parties themselves in the modified form.
The covenants of each Company and the Executive in this Agreement
shall each be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim or cause
of action of the Executive against either Company or of either Company
against the Executive, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the
Companies or the Executive of the covenants in this Agreement.
9.5. Notices. Any notice, request, or instruction to be given hereunder
shall be in writing and shall be deemed given when personally
delivered or three (3) days after being sent by United States
certified mail, postage prepaid, with return receipt requested, to the
parties at their respective addresses set forth below:
To Rally's:
Rally's Hamburgers, Inc.
10002 Shelbyville Road, Suite 150
Louisville, Kentucky 40223
Attn: William P. Foley, II
To Checkers:
Checkers Drive-In Restaurants, Inc.
600 Cleveland Street
Clearwater, Florida 34615
Attn: William P. Foley, II
To Executive:
Jay Gillespie
115 Twin Lakes Drive
Double Tree, Texas 75067
9.6. Waiver. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a
waiver thereof or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this
Agreement.
9.7. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties and their permitted assigns. Neither this
Agreement nor any of the rights of the parties hereunder may be
transferred or assigned by either party, except that if there is a
Change of Control of a Company and the Successor assumes, either
expressly or by operation of law, such Company's obligations under
this Agreement, then such Company shall assign its rights and
obligations hereunder to such Successor subject to the terms of
Section 4.5 of this Agreement. Any assignment or transfer in violation
of this Section 9.7 shall be void.
9.8. Captions and Headings. The captions and headings are for convenience
of reference only and shall not be used to construe the terms or
meaning of any provisions of this Agreement.
9.9. Potential Conflicts of Interests. In the event that the assumption by
Executive of the duties of Chief Executive Officer of both Companies
creates a conflict of interest, the Companies shall indemnify, defend
and hold harmless Executive from and against any and all claims,
losses, damages, causes of action or other proceedings, and any and
all other liabilities of any nature whatsoever, which arise out of or
relate to such alleged conflict. Nothing contained in this Section 9.9
shall be deemed to be an admission by the Companies that such a
conflict exists, and notwithstanding the Companies agreement to abide
by the terms of this Section 9.9, the Companies expressly disclaim
that such a conflict exists.
<PAGE>
IN WITNESS WHEREOF the parties have executed this Employment Agreement as
of the date set forth above.
RALLY'S:
RALLY'S HAMBURGERS, INC., a
Kentucky corporation
By: /s/ William P. Foley, II
--------------------------
Its: Chairman of the Board
CHECKERS:
CHECKERS DRIVE-IN RESTAURANTS, INC.,
a Florida corporation
By: /s/ William P. Foley, II
--------------------------
Its: Chairman of the Board
EXECUTIVE:
/s/ Jay Gillespie
------------------------------
Jay Gillespie
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of 9/28/97 and the Consolidated Statement of
Operations for the 9 months ended 9/28/97.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-28-1997
<PERIOD-START> Dec-30-1996
<PERIOD-END> Sep-28-1997
<EXCHANGE-RATE> 1
<CASH> 4,593
<SECURITIES> 1,732
<RECEIVABLES> 2,880 <F1>
<ALLOWANCES> 0
<INVENTORY> 848
<CURRENT-ASSETS> 10,375
<PP&E> 68,861 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 111,517
<CURRENT-LIABILITIES> 21,883
<BONDS> 67,514
0
0
<COMMON> 2,085
<OTHER-SE> 16,094
<TOTAL-LIABILITY-AND-EQUITY> 111,517
<SALES> 104,957
<TOTAL-REVENUES> 109,207
<CGS> 34,334
<TOTAL-COSTS> 105,843
<OTHER-EXPENSES> (2)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,578
<INCOME-PRETAX> (1,593)
<INCOME-TAX> 415
<INCOME-CONTINUING> (2,008)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,008)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
<FN>
<F1> The asset values for receivables and PP&E represent net amounts.
</FN>
</TABLE>
