SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 17, 1996
OR
[ ] 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 0-19649
CHECKERS DRIVE-IN RESTAURANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 58-1654960
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Barnett Bank Building
600 Cleveland Street, Eighth Floor
Clearwater, FL 34615
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (813) 441-3500
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The Registrant had 51,768,480 shares of Common Stock, par value $.001
per share, outstanding as of July 31, 1996.
This document contains 67 pages. Exhibit Index appears at page 28.
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
June 17, 1996 and January 1, 1996............................3
Condensed Consolidated Statements of Operations
Quarters ended June 17, 1996 and June 19, 1995 and
Two Quarters ended June 17, 1996 and June 19, 1995...........5
Condensed Consolidated Statements of Cash Flows
Quarters ended June 17, 1996 and June 19, 1995...............6
Notes to Consolidated Financial Statements.....................8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................14
PART II OTHER INFORMATION
Item 1 Legal Proceedings................................................24
Item 2 Changes in Securities............................................25
Item 3 Defaults Upon Senior Securities..................................25
Item 4 Submission of Matters to a Vote of Security Holders .............25
Item 5 Other Information................................................25
Item 6 Exhibits and Reports on Form 8-K.................................26
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
JUNE 17, JANUARY 1,
1996 1996
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,907,157 $ 3,363,796
Accounts receivable 2,100,530 1,942,544
Notes receivable 8,079,552 2,885,962
Inventory 3,043,462 3,161,996
Property and equipment held for resale 4,261,608 4,338,964
Costs and earnings in excess of (less than) billings on
uncompleted contracts (149,502) (6,262)
Income taxes receivable 1,688,000 3,272,594
Prepaid expenses and other current assets 2,678,216 1,374,794
------------- -------------
Total current assets 24,609,023 20,334,388
Property and equipment, at cost, net of accumulated depreciation
and amortization 115,264,296 119,949,100
Notes receivable from related parties -- 5,182,355
Goodwill and non-compete agreements, net of accumulated amortization
of $3,211,665 at January 1, 1996 and $3,731,437 at June 17, 1996 16,417,441 17,019,078
Deferred income taxes 3,426,659 3,358,000
Deposits and other noncurrent assets 955,515 975,996
------------- -------------
$ 160,672,934 $ 166,818,917
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
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CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS EQUITY
JUNE 17, JANUARY 1,
1996 1996
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Short term debt $ 1,000,000 $ 1,000,000
Current installments of long-term debt 15,300,037 13,170,619
Accounts payable 12,680,023 10,536,745
Accrued wages, salaries and benefits 2,641,904 2,637,830
Reserves for restructuring, restaurant relocations and abandoned sites 2,271,435 2,290,223
Accrued liabilities 8,909,890 13,652,230
Deferred income 488,495 300,000
------------- -------------
Total current liabilities 43,291,784 43,587,647
Long-term debt, less current installments 32,289,377 38,090,278
Deferred franchise fee income 593,000 763,000
Minority interests in joint ventures 770,421 549,255
Other noncurrent liabilities 5,283,335 3,852,729
------------- -------------
Total liabilities 82,227,917 86,842,909
STOCKHOLDERS EQUITY:
Preferred stock, $.001 par value. Authorized 2,000,000 shares, no
shares outstanding
Common stock, $.001 par value, authorized 100,000,000 shares, issued
and outstanding 51,528,480 at January 1, 1996 and 51,768,480 at
June 17, 1996 51,768 51,528
Additional paid-in capital 90,298,598 90,029,213
Warrants to be issued in settlement of litigation 3,000,000 3,000,000
Retained earnings (14,505,349) (12,704,733)
------------- -------------
78,845,017 80,376,008
Less treasury stock, at cost, 578,904 shares 400,000 400,000
------------- -------------
Net stockholders' equity 78,445,017 79,976,008
------------- -------------
$ 160,672,934 $ 166,818,917
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
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CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
JUNE 17, 1996 JUNE 19, 1995 JUNE 17, 1996 JUNE 19, 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Net restaurant sales $ 36,108,696 $ 44,877,816 $ 72,317,814 $ 88,630,803
Royalties 1,877,031 1,688,241 3,525,306 3,248,306
Franchise fees 132,520 231,250 582,856 361,250
Modular restaurant packages 532,051 2,125,610 646,732 2,726,971
---------------------------------------------------------------
Total revenues 38,650,298 48,922,917 77,072,708 94,967,330
---------------------------------------------------------------
COSTS AND EXPENSES:
Restaurant food and paper cost 12,280,475 16,116,251 24,663,162 31,987,620
Restaurant labor costs 12,751,347 13,863,086 25,202,203 27,669,010
Restaurant occupancy expense 2,832,918 2,892,786 5,656,454 5,778,943
Restaurant depreciation and amortization 1,956,318 2,624,795 3,958,409 5,463,485
Advertising expense 1,245,421 2,110,873 2,106,927 4,232,700
Other restaurant operating expense 3,418,152 3,586,702 6,238,094 7,274,747
Costs of modular restaurant package revenues 649,119 2,238,960 998,379 3,280,644
Other depreciation and amortization 899,193 898,388 1,666,410 1,734,317
Selling, general and administrative expenses 4,045,831 5,281,812 7,296,529 9,854,746
---------------------------------------------------------------
Total costs and expenses 40,078,774 49,613,653 77,786,567 97,276,212
---------------------------------------------------------------
Operating Loss (1,428,476) (690,736) (713,859) (2,308,882)
---------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest Income 339,349 139,579 495,873 234,053
Interest Expense (1,352,890) (1,431,464) (2,605,248) (2,646,880)
---------------------------------------------------------------
Loss before minority interests and income
tax benefit (2,442,017) (1,982,621) (2,823,234) (4,721,709)
Minority interests 40,594 34,273 66,382 71,961
---------------------------------------------------------------
Loss before income tax benefit (2,482,611) (2,016,894) (2,889,616) (4,793,670)
Income tax benefit (934,338) (786,000) (1,089,000) (1,870,000)
---------------------------------------------------------------
Net loss $ (1,548,273) $ (1,230,894) $ (1,800,616) $ (2,923,670)
===============================================================
Net loss per common share $ (0.03) $ (0.02) $ (0.03) $ (0.06)
===============================================================
Weighted average number of common shares
outstanding 51,699,432 50,404,363 51,613,450 50,296,666
===============================================================
</TABLE>
5
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CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWO QUARTERS ENDED
JUNE 17, 1996 JUNE 19, 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,800,616) $(2,923,670)
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 5,677,722 7,276,346
Loss on sale of equipment 105,340 17,692
Minority interests in earnings 66,382 71,961
Change in assets and liabilities:
(Increase) decrease in receivables (169,221) 200,976
Decrease in inventory 118,534 802,577
Decrease (increase) in costs and earnings in excess of
billings on uncompleted contracts 143,240 (925,978)
Decrease in income taxes receivable 1,584,594 131,782
Decrease (increase) in prepaid expenses and other (1,372,324) (69,975)
Increase in deferred income taxes (68,659) (883,000)
Decrease (increase) in deposits and other 20,481 (180,606)
Increase (decrease) in accounts payable 2,143,278 (5,139,884)
(Decrease) increase in accrued liabilities (3,357,999) 543,193
Increase in deferred income 18,495 375,000
----------- -----------
Net cash provided (used) by operating activities 3,109,247 (703,586)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,745,304) (1,192,612)
Proceeds from sale of assets 1,467,992 5,279,592
Increase in goodwill and noncompete agreements -- (88,823)
----------- -----------
Net cash provided (used) in investing activities (277,312) 3,998,157
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt -- 4,183,195
Principal payments on long-term debt (3,443,358) (8,377,212)
Proceeds from investment by minority interests 285,000 --
Distributions to minority interests (130,216) (98,425)
----------- -----------
Net cash used by financing activities (3,288,574) (4,292,442)
----------- -----------
Net decrease in cash (456,639) (997,871)
CASH AT BEGINNING OF PERIOD 3,363,796 3,511,525
----------- -----------
CASH AT END OF PERIOD $ 2,907,157 $ 2,513,654
=========== ===========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Supplemental disclosures of cash flows information --
Interest paid $ 2,513,872 $ 2,133,742
Income taxes paid -- $ 180,265
Capital lease obligations incurred -- $ 5,000,000
Schedule of noncash investing and financing activities --
Acquisition of companies:
Fair value of assets acquired -- $ 2,722,738
Liabilities assumed -- (1,895,982)
Stock issued -- (737,933)
----------- -----------
Total cash paid for net assets acquired -- $ 88,823
=========== ===========
</TABLE>
7
<PAGE>
CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION - The accompanying unaudited financial state-
ments have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
information set forth therein have been included. The operating results for the
two quarters ended June 17, 1996, are not necessarily an indication of the
results that may be expected for the year ending December 30, 1996. 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 Company's
Annual Report on form 10-K for the year ended January 1, 1996. Therefore, it is
suggested that the accompanying financial statements be read in conjunction with
the Company's January 1, 1996 consolidated financial statements. As of January
1, 1994, the Company changed from a calendar reporting year ending on December
31st to a year which will generally end on the Monday closest to December 31.
Each quarter consists of three 4-week periods with the exception of the fourth
quarter which consists of four 4-week periods.
(B) PURPOSE OF ORGANIZATION - The principal business of the Company
is the operation and franchising of Checkers restaurants (the "Restaurants"). At
June 17, 1996, there were 507 Restaurants operating in 23 different states and
the District of Columbia. Of those Restaurants, 243 were Company-operated
(including one 51%-owned, three 50%-owned and one 75%-owned joint ventures) and
264 were operated by franchisees. The accounts of the joint ventures have been
included with those of the Company in these consolidated financial statements.
On February 15, 1994, one of the Company's former subsidiaries,
Champion Modular Restaurant Company, was merged into and with the Company and
currently exists as a division of the Company.
Intercompany balances and transactions have been eliminated in
consolidation and minority interests have been established for the outside joint
venture partners' interests.
(C) REVENUE RECOGNITION - Franchise fees are generated from the sale of
rights to develop, own and operate Restaurants. Such fees are based on the
number of potential Restaurants in a specific area which the franchisee agrees
to develop pursuant to the terms of the franchise agreement between the Company
and the franchisee and are recognized as income on a pro rata basis when
substantially all of the Company's obligations per location are satisfied,
generally at the opening of the Restaurant. Franchise fees are nonrefundable.
The Company receives royalty fees from franchisees based on a
percentage of each restaurant's gross revenues. Royalty fees are recognized as
earned.
Champion recognizes revenues on the percentage-of-completion method,
measured by the percentage of costs incurred to the estimated total costs of the
contract.
(D) CASH, AND CASH EQUIVALENTS - The Company considers all highly
liquid instruments purchased with an original maturity of less than three months
to be cash equivalents. Included in cash and cash equivalents are $1,255,000
in restricted funds for workers compensation self-insurance purposes.
(E) RECEIVABLES - Receivables consist primarily of franchise fees and
royalties due from franchisees, and receivables from the sale of modular
restaurant packages. The allowance for doubtful receivables was $1,357,938 at
January 1, 1996 and $1,493,372 at June 17, 1996.
(F) INVENTORY - Inventories are stated at the lower of cost (first-in,
first-out (FIFO) method) or market.
(G) PRE-OPENING COSTS - Labor costs and costs of hiring and training
personnel relating to opening new restaurants are capitalized and amortized over
13 periods. Such costs totalled $161,234 at January 1, 1996 and $97,752 at June
17, 1996.
8
<PAGE>
(H) PROPERTY AND EQUIPMENT - Property and equipment (P & E) are stated
at cost except for P & E that have been impaired, for which the carrying amount
is reduced to estimated fair value. Property and equipment under capital leases
are stated at their fair value at the inception of the lease. Depreciation and
amortization are computed on straight-line method over the estimated useful
lives of the assets.
(I) IMPAIRMENT OF LONG LIVED ASSETS - During the fourth quarter of 1995,
the Company early adopted the 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) which requires the write-down of certain
intangibles and tangible property associated with under performing sites to the
level supported by the forecasted discounted cash flow.
(J) GOODWILL AND NON-COMPETE AGREEMENTS - Goodwill and non-compete
agreements are being amortized over 20 years and 3 to 7 years, respectively, on
a straight-line basis.
(K) INCOME TAXES - The Company accounts for income taxes under the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Under the asset or liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(L) USE OF ESTIMATES - 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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
(M) STOCK SPLIT - The Company declared a three-for-two stock split,
payable in the form of a stock dividend effective June 30, 1993. All share
information and per share information in these financial statements has been
retroactively restated to reflect the split.
(N) RECLASSIFICATIONS - Certain amounts in the 1995 financial statements
have been reclassified to conform to the 1996 presentation.
NOTE 2 LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following:
June 17, January 1,
1996 1996
----------- -----------
<S> <C> <C>
Notes payable under Loan Agreement $34,718,099 $37,021,241
Notes payable due at various dates, secured by buildings and equipment, with
interest at rates primarily ranging from 9.0% to 11.35%, payable monthly 9,317,967 10,578,069
Unsecured notes payable, bearing interest at rates ranging from prime to 12% 3,480,852 3,580,852
Other 72,496 80,735
----------- -----------
Total long-term debt 47,589,414 51,260,897
Less current installments 15,300,037 13,170,619
----------- -----------
Long-term debt, less current installments $32,289,377 $38,090,278
=========== ===========
</TABLE>
On October 28, 1993, the Company entered into a loan agreement with
a group of banks ("Loan Agreement") providing for an unsecured, revolving credit
facility. The Company borrowed approximately $50,000,000 under this facility
primarily to open new Restaurants and pay off approximately $4,000,000 of
previously existing debt.
The Company subsequently arranged for this Loan Agreement to be
converted to a term loan and collateralized the loan with substantially all of
the Company's assets. The outstanding balance was $34,718,099 at June 17, 1996.
The term loan requires monthly principal reductions continuing through July
1998. Beginning in the fifth period of 1996, principal payments are the greater
of fixed monthly amounts or a formula based on Cash Flow as defined under the
Loan Agreement. The remaining aggregate minimum principal repayments are
$5,600,000 in 1996, $7,800,000 in 1997, $4,200,000 for the period January
through July 1998 and a balloon payment of $18,647,540 due July 31, 1998.
9
<PAGE>
Interest is payable monthly at the prime rate plus 2.5% Dividends are prohibited
and the Company is required to maintain certain financial ratios under the Loan
Agreement.
On March 15, 1996, the bank group agreed to advance an additional
sum of up to $1,700,000 to be used by the Company for the payment of various
property taxes ("the Property Tax Loan"). On March 27, 1996, $1,572,737 was
advanced to the Company under the Property Tax Loan. Interest accrues on the
Property Tax Loan at the prime rate plus 2.5% and is secured by existing
collateral. The Property Tax Loan was retired by a portion of an income tax
refund received by the Company during June, 1996. The Company also has a line of
credit with the bank group of up to $1,000,000 through April 1997. The
outstanding balance was $1,000,000 on June 17, 1996. Interest is payable monthly
at the prime rate plus 2.5%. The line of credit has financial covenants and
other requirements.
In early July 1996, DDJ Capital Management LLC ("DDJ") began
negotiating with the bank group for an assignment to it of all of the bank
group's rights under the Loan Agreement. Anticipating the transfer of the Loan
Agreement and the debt thereunder, and due to impairment of its current cash
flow, the Company did not make the $500,000 principal payment due under the Loan
Agreement on July 15, 1996. On July 29, 1996, the Company and the bank group
entered into an amendment to the Loan Agreement providing for the assignment of
all of the rights of the bank group under the Loan Agreement and The Galileo
Fund, L.P. ("Galileo Fund"), an affiliate of DDJ. The amendment also provides
for a temporary waiver of all defaults (the July 15 payment default and failure
to meet certain financial covenants at the end of the second fiscal quarter)
by the Company under the Loan Agreement until August 15, 1996. Upon the
assignment of the Loan Agreement to it, Galileo Fund immediately assigned a
portion of its interests in the Loan Agreement and the amounts due thereunder
to Foothill Capital Corporation, Pearl Street L.P. and Canpartners Investments
IV, LLC (collectively, Galileo Fund, the"Investor Group"). Although no assurance
can be given that it will be successful, and failure would result in a default
under the Loan Agreement, the Company is currently negotiating an amendment to
the Loan Agreement with the Investor Group in order to establish a repayment
schedule and financial covenants with which the Company will be able to comply
in light of its current financial situation.
On August 2, 1995, the Company entered into a purchase agreement (as
amended in October 1995 and April 1996, the "Rall-Folks Agreement") with
Rall-Folks, Inc. ("Rall-Folks") pursuant to which the Company agreed to issue
shares of its Common Stock in exchange for and in complete satisfaction of three
promissory notes of the Company held by Rall- Folks (the "Rall-Folks Notes"). On
the closing date, the Company will deliver to Rall-Folks shares of its Common
Stock with a value equal to the then outstanding balance due under the
Rall-Folks Notes (the "Rall-Folks Purchase Price"). The total amount of
principal outstanding under the Rall-Folks Notes was approximately $1,888,000 as
of January 1, 1996 and $1,788,000 as of June 17, 1996. The Rall-Folks Notes are
fully subordinated to the Company's existing bank debt.
Under the terms of the Rall-Folks Agreement, the Company guaranteed
that if Rall-Folks sells all of the Common Stock issued for the Rall-Folks Notes
in a reasonably prompt manner (subject to certain limitations described below)
Rall-Folks will receive net proceeds from the sale of such stock equal to the
Rall-Folks Purchase Price. If Rall-Folks receives less than such amount, the
Company will issue to Rall-Folks, at the option of Rall-Folks, either (i)
additional shares of Common Stock, to be sold by Rall-Folks, until Rall-Folks
receives an amount equal to the Rall-Folks Purchase Price, or (ii) a six-month
promissory note bearing interest at 11%, with all principal and accrued interest
due at maturity, and subordinated to the Company's bank debt pursuant to the
same subordination provisions, equal to the difference between the Rall-Folks
Purchase Price and the net amount received by Rall-Folks from the sale of the
Common Stock.
On August 3, 1995, the Company entered into a purchase agreement (as
amended in October 1995 and April 1996, the "RDG Agreement") with Restaurant
Development Group, Inc. ("RDG") pursuant to which the Company agreed to issue
shares of its Common Stock in exchange for and in complete satisfaction of a
promissory note of the Company held by RDG (the "RDG Note"). The total amount of
principal outstanding under the RDG Note was approximately $1,693,000 as of
January 1, 1996 and as of June 17, 1996. The RDG Note is fully subordinated to
the Company's existing bank debt. In partial consideration of the transfer of
the RDG Note to the Company, the Company will deliver to RDG shares of Common
Stock with a value equal to the sum of (i) the outstanding balance due under the
RDG Note on the closing date and (ii) $10,000 (being the estimated legal
expenses of RDG to be incurred in connection with the registration of the Common
Stock) (the "RDG Purchase Price").
As further consideration for the transfer of the RDG Note to the
Company, the Company agreed to issue RDG a warrant (the "Warrant") for the
purchase of 120,000 shares of Common Stock at a price equal to the average
closing sale price of the Common Stock for the ten full trading days ending on
the third business day immediately preceding the closing date (such price is
referred to a the "Average Closing Price"); however, in the event that the
average closing price of the Common Stock for the 90 day period after the
closing date is less than the Average Closing Price, the purchase price for the
Common Stock under the Warrant will be changed on the 91st day after the closing
10
<PAGE>
date to the average closing price for such 90 day period. The Warrant will be
exercisable at any time within five years after the closing date.
Under the terms of the RDG Agreement, the Company has guaranteed
that if RDG sells all of such Common Stock issued for the RDG note in a
reasonably prompt manner (subject to certain limitations described below), RDG
will receive net proceeds from the sale of such stock equal to at least 80% of
the RDG Purchase Price. If RDG receives less than such amount, the Company will
issue additional shares of Common Stock to RDG, to be sold by RDG, until RDG
receives an amount equal to 80% of the Purchase Price.
The Rall-Folks Notes and the RDG Notes were due on August 4, 1995.
Pursuant to the Rall-Folks Agreement and the RDG Agreement, the Rall-Folks Notes
and the RDG Note were to be acquired by the Company in exchange for Common Stock
on or before September 30, 1995. The Company and Rall-folks and RDG amended the
Rall- Folks Agreement and the RDG Agreement, respectively, to allow for a
closing in May 1996 (subject to extension in the event closing is delayed due to
review by the Securities and Exchange Commission of the registration statement
covering the Common Stock to be issued in the transaction). Each of the parties
has the right to terminate their respective Agreement if the closing has not
occurred on or before such time (as extended). Pursuant to the Rall-Folks
Agreement and the RDG Agreement, the term of the Notes will be extended until
the earlier of the closing of the repurchase of the Notes or until approximately
one month after the termination of the applicable Agreement by a party in
accordance with its terms. Closing is contingent upon a number of conditions,
including the prior registration under the federal and state securities laws of
the Common Stock to be issued and the subsequent approval of the transaction by
the stockholders of Rall-Folks and RDG of their respective transactions. In the
event the Company complies with all of its obligations under the Rall-Folks
Agreement and the stockholders of Rall-Folks do not approve the transaction, the
term of the Rall-Folks Notes will be extended until December 1996. In the event
the Company complies with all of its obligations under the RDG Agreement and the
stockholders of RDG do not approve the transaction, the term of the RDG Note
will be extended approximately one year.
Under the terms of the Rall-Folks Agreement and the RDG Agreement,
if the transaction contemplated therein is consummated, so long as Rall-Folks
and RDG, respectively, is attempting to sell the Common Stock issued to it in a
reasonably prompt manner (subject to the limitations described below), the
Company is obligated to pay to it in cash an amount each quarter equal to 2.5%
of the value of the Common Stock held by it on such date (such value being based
upon the value of the Common Stock when issued to it).
On April 12, 1996, the Company entered into a Note Repayment
Agreement (the "NTDT Agreement") with Nashville Twin Drive-Thru Partners, L.P.
("NTDT") pursuant to which the Company may issue shares of its Common Stock in
exchange for and in complete satisfaction of a promissory note of the Company
held by NTDT which matured on April 30, 1996 (the "NTDT Note"). The Company will
issue shares of Common Stock to NTDT in blocks of two hundred thousand shares
each, which will be valued at the closing price of the Common Stock on the day
prior to the date they are delivered to NTDT (such date is hereinafter referred
to as the "Delivery Date" and the value of the Common Stock on such date is
hereinafter referred to as the "Fair Value"). The amount outstanding under the
NTDT Note will be reduced by the Fair Value of the stock delivered to NTDT on
each Delivery Date. The Company is obligated to register each block of Common
Stock for resale by NTDT under the federal and state securities laws, and to
keep such registration effective for a sufficient length of time to allow the
sale of the block of Common Stock, subject to limitations on sales imposed by
the Company described below. As each block of Common Stock is sold, the Company
will issue another block, to be registered for resale and sold by NTDT, until
NTDT receives net proceeds from the sale of such Common Stock equal to the
balance due under the NTDT Note. The Company will continue to pay interest in
cash on the outstanding principal balance due under the NTDT Note through the
date on which NTDT receives net proceeds from the sale of Common Stock
sufficient to repay the principal balance of the NTDT Note. On each Delivery
Date and on the same day of each month thereafter if NTDT holds on such
subsequent date any unsold shares of Common Stock, the Company will also pay to
NTDT in cash an amount equal to .833% of the Fair Value of the shares of Common
Stock issued to NTDT as part of such Block of Stock and held by NTDT on such
date. Once the NTDT Note has been repaid in full, NTDT is obligated to return
any excess proceeds or shares of Common Stock to the Company. The Company
delivered the first block of 200,000 shares with a fair value of $228,125 to
NTDT on April 18, 1996. The total amount of principal outstanding under the NTDT
Note was approximately $1,354,000 as of January 1, 1996 and $1,126,162 as of
June 17, 1996. The NTDT Note is fully subordinated to the Company's existing
bank debt. The term of the NTDT Note will be extended until May 31, 1997, so
long as the Company is complying with its obligations under the NTDT Agreement
and NTDT has received at least $1,000,000 from the sale of the Common Stock by
January 31, 1997. Such dates will be extended if NTDT fails to make a
commercially reasonable attempt to sell an average of 10,000 shares of Common
Stock per day on each trading day that a registration statement covering unsold
shares held by NTDT is in effect prior to such dates, or if the Company is
delayed in filing a registration statement (or an amendment or supplement
thereto) due to the failure of NTDT to provide information required to be
provided to the Company under the NTDT Agreement. In the event that the Company
files a voluntary bankruptcy petition, an involuntary bankruptcy petition is
filed against the Company and not dismissed within 60 days, a receiver or
11
<PAGE>
trustee is appointed for the Company's assets, the Company makes an assignment
of substantially all of its assets for the benefit of its creditors, trading in
the Common Stock is suspended for more than 14 days, or the Company fails to
comply with its obligations under the NTDT Agreement, the outstanding balance
due under the NTDT Note will become due and NTDT may thereafter seek to enforce
the NTDT Note.
In order to promote an orderly distribution of the Common Stock to
be issued to and sold by Rall-Folks, RDG and NTDT, the Company has imposed the
following limits on the sales that may be made by Rall-Folks, RDG and NTDT: (i)
each may sell not more than 50,000 shares of Common Stock per week (150,000 in
the aggregate) and (ii) each may sell not more than 25,000 shares in any one day
(75,000 shares in the aggregate), provided that each may sell additional shares
in excess of such limits if such additional shares are sold at a price higher
than the lowest then current bid price for the Common Stock.
The consummation of the transaction with each of RDG, Rall-Folks and
NTDT has been delayed pending the assignment of the Loan Agreement to the
Investor Group and the renegotiation of the Loan Agreement. Pursuant to the
terms of the current Loan Agreement, the Company is obligated to purchase or
repay the Rall-Folks Notes, the RDG Note and the NTDT Note using Common Stock,
and may not repay them or make arrangements to repay them in cash. The Company
is unable to predict at this time what arrangements may be negotiated with the
Investor Group with respect to the Company's obligations under the agreements
and notes with RDG, Rall-Folks and NTDT. In the event that the Company is unable
to negotiate an amendment to the Loan Agreement that is mutually acceptable to
the Company and the Investor Group, the Company will likely default under the
Loan Agreement and be unable to consummate the currently contemplated
transactions with RDG, Rall-Folks and NTDT and will, therefore, likely default
under the RDG Note, the Rall-Folks Notes and the NTDT Note.
NOTE 3: STOCK OPTION PLAN AND WARRANTS
In August 1991, the Company adopted a stock option plan whereby
incentive stock options, nonqualified stock options, stock appreciation rights
and restricted shares can be granted to eligible salaried individuals. All
options expire no later than 10 years from the date of grant. The Company has
reserved 3,500,000 shares for issuance under the plan. At June 17, 1996, the
Company had outstanding nonqualified options at per share prices ranging from
$1.09 to $19.00 to purchase 2,561,697 common shares which vest in years through
1999.
In August 1994, employees granted $11.50, $11.63, $12.33 and $19.00
options were given the opportunity to forfeit those options and be granted an
option to purchase a share at $5.13 for every two option shares retired. As a
result of this offer, options for 662,228 shares were forfeited in return for
options for 331,114 shares at $5.13 per share.
During the first quarter of 1996, the Board of Directors approved a
plan to offer existing employees of the Company (excluding executive officers)
the option of cancelling existing stock options granted to them in 1993 and 1994
with exercise prices in excess of $2.75 in exchange for a new option grant for a
lesser number of shares at an exercise price of $1.95, representing a 25%
premium over the market price of the Company's common stock on the date the plan
was approved. The plan provides that existing options with an exercise price in
excess of $11.49 could be cancelled in exchange for new options on a four for
one basis. Options with an exercise price between $11.49 and $2.75 could be
cancelled in exchange for new options on a three for one basis on the date the
plan was approved. Eligible employees held options for 36,566 shares granted in
1993 and 1994 shares with exercise prices in excess of $11.49, and 365,400
shares with exercise prices between $11.49 and $2.75. The plan required
employees to accept the offer by April 30, 1996. As of the acceptance deadline,
eligible employees had surrendered options for 27,320 shares with an exercise
price in excess of $11.49 and 27,071 shares with exercise prices between $11.49
and $2.75, and new options for 15,877 shares with an exercise price of $1.95
have been issued therefore.
On July 12, 1996, the Company issued incentive stock options to
purchase 934,679 shares at $1.53 per share which vest ratably, 25% on July 12,
1996 and an additional 25% on each July 12th through 1999, to certain employees
of the Company.
On March 31, 1995, the Company agreed to issue 150,000 warrants to
the bank group under the loan agreement described in Note 3. The exercise price
of the warrants is $2.69 per share. The warrants vest in one-third increments on
April 30, 1996, October 30, 1996 and April 30, 1997. These warrants were
transferred to the Investor Group.
As partial consideration for the transfer of a promissory note of
the Company (the "Note") back to the Company, the Company is obligated to
deliver to the holder of the Note a warrant (the "Warrant") for the purchase of
120,000 shares of Common Stock at a price equal to the average closing sale
price of the Common Stock for the ten full trading days ending on the third
business day immediately preceding the closing date (such price is referred to
as the "Average Closing Price"); however, in the event that the average closing
12
<PAGE>
price of the Common Stock for the ninety day period after the closing date is
less than the Average Closing Price, the purchase price for the Common Stock
under the Warrant will be changed on the 91st day after the closing date to the
average closing price for such ninety day period. The Warrant will be
exercisable at any time within five years after the closing date. The Company is
obligated to register the stock acquired by the holders of the Warrant. See Note
2.
The Company expects to issue warrants to purchase 5,100,000 shares
of Common Stock at an exercise price of $1.375 per share in settlement of that
certain litigation entitled LOPEZ ET AL. V. CHECKERS DRIVE-IN RESTAURANTS, INC.,
Case No. 94-282-CIV-T-17C. These warrants have been valued by the Company at
$3,000,000.
NOTE 4: SUBSEQUENT EVENT
As of the close of business July 1, 1996, the Company acquired
certain general and limited partnership interests in 12 Checkers restaurants in
the Chicago area and other assets as a result of the bankruptcy of Chicago
Double Drive-Thru, Inc. ("CDDT"). These assets were received in lieu of past due
royalties, notes receivable and accrued interest from CDDT totalling
approximately $4,100,000.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
The principal business of the Company is the operation and franchising of
Checkers Restaurants. As of June 17, 1996, the Company had an ownership interest
in 243 Company-operated Restaurants and an additional 264 Restaurants were
operated by franchisees. The Company's ownership interest in the
Company-operated Restaurants is in one of two forms: (i) the Company owns 100%
of the Restaurant (as of June 17, 1996, there were 238 such Restaurants) and
(ii) the Company owns a 50%, 51% or 75% interest in a partnership which owns the
Restaurant (a "Joint Venture Restaurant") while the remaining 50%, 49% or 25%,
respectively, is owned by a joint venture partner (as of June 17, 1996, there
were five such Joint Venture Restaurants).
The Financial Statements of the Company include the accounts of the Joint
Venture Restaurants and all of the Company's subsidiaries. On February 15, 1994,
one of the Company's former subsidiaries, Champion Modular Restaurant Company
(Champion) was merged into and with the Company and currently exists as a
division of the Company.
The Company receives revenues from restaurant sales, franchise fees,
royalties and sales of fully-equipped manufactured modular restaurant buildings
("Modular Restaurant Packages"). Cost of restaurant sales relates to food and
paper costs. Other restaurant expenses include labor and all other restaurant
costs for Company-operated Restaurants. Cost of Modular Restaurant Packages
relates to all restaurant equipment and building materials, labor and other
direct and indirect costs of production. Other expenses, such as depreciation
and amortization, and selling, general and administrative expenses, relate both
to Company-operated Restaurant operations and Modular Restaurant Package
revenues as well as the Company's franchise sales and support functions. The
Company's revenues and expenses are affected by the number and timing of
additional Restaurant openings and the sales volumes of both existing and new
Restaurants. Modular Restaurant Package revenues are directly affected by the
number of new franchise Restaurant openings and the number of packages produced
for those openings.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues of the listed items included in the Company's Consolidated Statements
of Operations. Certain items are shown as a percentage of restaurant sales and
modular restaurant package revenue. The table also sets forth certain selected
restaurant operating data.
14
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
(UNAUDITED) (UNAUDITED)
------------------------------------------------------------
JUNE 17, JUNE 19, JUNE 17, JUNE 19,
1996 1995 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Gross restaurant sales 95.3% 93.8% 96.9% 95.9%
Coupons and discounts -1.9% -2.1% -3.1% -2.6%
------------------------------------------------------------
Net Restaurant Sales 93.4% 91.7% 93.8% 93.3%
Royalties 4.9% 3.5% 4.6% 3.4%
Franchise fees 0.3% 0.5% 0.8% 0.4%
Modular restaurant packages 1.4% 4.3% 0.8% 2.9%
------------------------------------------------------------
Total revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Restaurant food and paper costs (1) 33.3% 35.1% 33.0% 35.1%
Restaurant labor costs (1) 34.6% 30.2% 33.7% 30.4%
Restaurant occupancy expense (1) 7.7% 6.3% 7.6% 6.3%
Restaurant depreciation and amortization (1) 5.3% 5.7% 5.3% 6.0%
Advertising expense (1) 3.4% 4.6% 2.8% 4.6%
Other restaurant operating expense (1) 9.3% 7.8% 8.4% 8.0%
Costs of modular restaurant package revenues (2) 122.0% 105.3% 154.4% 120.3%
Other depreciation and amortization 2.3% 1.8% 2.2% 1.8%
Selling, general and administrative expense 10.5% 10.8% 9.5% 10.4%
------------------------------------------------------------
Operating loss -3.7% -1.4% -0.9% -2.4%
------------------------------------------------------------
Other income (expense):
Interest income 0.9% 0.3% 0.6% 0.2%
Interest expense -3.5% -2.9% -3.4% -2.8%
Minority interests 0.1% 0.1% 0.1% 0.1%
------------------------------------------------------------
Loss before income tax benefit -6.4% -4.1% -3.7% -5.0%
Income tax benefit -2.4% -1.6% -1.4% -2.0%
------------------------------------------------------------
Net loss -4.0% -2.5% -2.3% -3.1%
============================================================
Operating data:
System-wide restaurant sales (in 000's):
Company-operated $ 36,107 $ 45,908 $ 72,318 $ 91,081
Franchised 47,182 48,842 89,297 91,984
-----------------------------------------------------------
Total $ 83,289 $ 94,750 $ 161,615 $ 183,065
============================================================
Average annual net sales per restaurant open for a full year (in 000's) (3):
Company-operated $615 $782
Franchised $704 $793
System-wide $661 $787
-----------------------------
Number of restaurants (4):
Company-operated 243 252
Franchised 264 242
-----------------------------
Total 507 494
=============================
(1) As a percent of gross restaurant sales.
(2) As a percent of Modular restaurant package revenues.
(3) Includes sales of Restaurants open for entire trailing 13 period year and stores expected to be closed in the
following year.
(4) Number of Restaurants open at end of period.
</TABLE>
15
<PAGE>
COMPARISON OF HISTORICAL RESULTS - QUARTER ENDED JUNE 17, 1996 AND QUARTER ENDED
JUNE 19, 1995
REVENUES. Total revenues decreased 21.0% to $38,650,298 for the
quarter ended June 17, 1996 compared to $48,922,917 for the quarter ended June
19, 1995. Company-operated net restaurant sales decreased 19.5% to $36,108,696
for the quarter ended June 17, 1996 from $44,877,816 for the quarter ended June
19, 1995. Comparable Company-operated net restaurant sales for the quarter ended
June 17, 1996 decreased 21.3% compared to the quarter ended June 19, 1995.
Comparable Restaurants are those open at least 13 periods. These decreases in
net restaurant sales are primarily attributable to continuing sales pressure
from competitors and the recent inability of the Company to fund a competitive
advertising campaign. In addition, Company-operated net restaurant sales were
negatively impacted by a net decrease of nine Company- operated Restaurants from
June 19, 1995 to June 17, 1996.
Royalties increased 11.2% to $1,877,031 for the quarter ended June
17, 1996, from $1,688,241 for the quarter ended June 19, 1995, due primarily to
an increase in franchised restaurant sales. This increase resulted from a net
addition of 22 franchised Restaurants since June 19, 1995. Comparable franchised
restaurant sales for Restaurants open at least 13 periods for the quarter ended
June 17, 1996 decreased 3.4% as compared to the quarter ended June 19, 1995.
Franchise fees decreased 42.7% to $132,520 for the quarter ended
June 17, 1996 from $231,250 for the quarter ended June 19, 1995. This was a
result of opening fewer franchised Restaurants during the quarter ended June 17,
1996. The Company recognizes franchise fees as revenues when the Company has
substantially completed its obligations under the franchise agreement, usually
at the opening of the franchised Restaurant.
Modular Restaurant Package revenues decreased 75.0% to $532,051 for
the quarter ended June 17, 1996 from $2,125,610 for the quarter ended June 19,
1995 due to decreased sales volume of Modular Restaurant Packages to the
Company's franchisees and the utilization of available used Modular Restaurant
Packages to satisfy orders. Modular Restaurant Package revenues are recognized
on the percentage of completion method during the construction process;
therefore, a substantial portion of the Modular Restaurant Package revenues are
recognized prior to the opening of a Restaurant.
COSTS AND EXPENSES. Restaurant food and paper costs totalled
$12,280,475 or 33.3% of gross restaurant sales for the quarter ended June 17,
1996, compared to $16,116,251 or 35.1% of gross restaurant sales for the quarter
ended June 19, 1995. The decrease in food and paper costs as a percentage of
gross restaurant sales was due primarily to the Company's decrease in beef costs
and paper costs.
Restaurant labor costs, which includes restaurant salaries, wages,
benefits and related taxes, totalled $12,751,347 or 34.6% of gross restaurant
sales for the quarter ended June 17, 1996, compared to $13,863,086 or 30.2% of
gross restaurant sales for the quarter ended June 19, 1995. The increase in
restaurant labor costs as a percentage of gross restaurant sales was due
primarily to the decline in average gross restaurant sales relative to the fixed
and semi-variable nature of these costs.
Restaurant occupancy expense, which includes rent, property taxes,
licenses and insurance, totalled $2,832,918 or 7.7% of gross restaurant sales
for the quarter ended June 17, 1996, compared to $2,892,786 or 6.3% of gross
restaurant sales for the quarter ended June 19, 1995. This increase in
restaurant occupancy costs as a percentage of gross restaurant sales was due
primarily to the decline in average gross restaurant sales relative to the fixed
and semi-variable nature of these expenses.
Restaurant depreciation and amortization decreased 25.5% to
$1,956,318 for the quarter ended June 17, 1996, from $2,624,795 for the quarter
ended June 19, 1995, due primarily to the adoption of Statement of Financial
Accounting Standards No. 121 as of January 1, 1996.
Advertising expense decreased to $1,245,421 or 3.4% of gross
restaurant sales for the quarter ended June 17, 1996, from $2,110,873 or 4.6% of
gross restaurant sales for the quarter ended June 19, 1995. The decrease in this
expense was due to decreased expenditures for advertising.
Other restaurant expenses includes all other Restaurant level
operating expenses other than food and paper costs, labor and benefits, rent and
other occupancy costs which include utilities, maintenance and other costs.
These expenses totalled $3,418,152 or 9.3% of net restaurant sales for the
quarter ended June 17, 1996 compared to $3,586,702 or 7.8% of gross restaurant
sales for the quarter ended June 19, 1995. The increase in the quarter ended
June 17, 1996 as a percentage of gross restaurant sales, was primarily related
to the decline in average net restaurant sales relative to the fixed and semi-
16
<PAGE>
variable nature of these expenses, partially offset by reduced repairs and
maintenance expenditures.
Costs of Modular Restaurant Package revenues totalled $649,119 or
122.0% of Modular Restaurant Package revenues for the quarter ended June 17,
1996, compared to $2,238,960 or 105.3% of such revenues for the quarter ended
June 19, 1995. The increase in these expenses as a percentage of Modular
Restaurant Package revenues was attributable to the decline in the number of
units produced relative to the fixed and semi-variable nature of many expenses.
The Company and franchisees opened fewer restaurants for the quarter ended June
17, 1996 than in the comparable quarter of 1995.
Selling, general and administrative expenses decreased to $4,045,831
or 10.5% of total revenues, for the quarter ended June 17, 1996, from $5,281,812
or 10.8% of total revenues for the quarter ended June 19, 1995. The decrease in
these expenses was primarily attributable to the reduction in corporate
personnel and related costs.
INTEREST EXPENSE. Interest expense decreased to $1,352,890 or 3.5%
of total revenues for the quarter ended June 17, 1996, from $1,431,464 or 2.9%
of total revenues for the quarter ended June 19, 1995. This decrease was due to
a lower average debt principal balance outstanding during the quarter ended June
17, 1996 than in the comparable quarter of 1995, partially offset by an increase
in the Company's effective interest rates.
MINORITY INTEREST IN EARNINGS. The Company recorded minority
interest in earnings of $40,594 for the quarter ended June 17, 1996, as compared
to minority interest in earnings of $34,273 for the quarter ended June 19, 1995.
The increase in minority interest in earnings for the quarter ended June 17,
1996 is due primarily to the lower number of joint venture Restaurants at June
17, 1996.
INCOME TAX BENEFIT. Due to the loss for the quarter, the Company
recorded an income tax benefit of $934,338, or 37.6% of the loss before income
taxes for the quarter ended June 17, 1996, as compared to an income tax benefit
of $786,000, or 39.0% of earnings before income taxes for the quarter ended June
19, 1995. The effective tax rates differ from the expected federal tax rate of
35.0% due to state income taxes and job tax credits.
NET LOSS. The increase in the net loss for the quarter ended June
17, 1996, when compared to the net loss for the quarter ended June 19, 1995, is
due primarily to a decrease in the average net restaurant sales and margins, a
decrease in Modular Restaurant Package revenues and margins partially offset by
an increase in royalties, decreases in restaurant food and paper costs as a
percentage of sales, depreciation and amortization, advertising expense,
selling, general and administrative expenses, and interest expense.
COMPARISON OF HISTORICAL RESULTS - TWO QUARTERS ENDED JUNE 17, 1996 AND TWO
QUARTERS ENDED JUNE 19, 1995
REVENUES. Total revenues decreased 18.8% to $77,072,708 for the
quarters ended June 17, 1996 compared to $94,967,330 for the two quarters ended
June 19, 1995. Company-operated net restaurant sales decreased 18.4% to
$72,317,814 for the quarters ended June 17, 1996 from $88,630,803 for the two
quarters ended June 19, 1995. Comparable Company-operated restaurant sales for
the two quarters ended June 17, 1996 decreased 25.9% compared to the two
quarters ended June 19, 1995. Comparable restaurants are those open at least 13
periods. These decreases in net restaurant sales are primarily attributable to
continuing sales pressure from competitors and severe weather conditions in
January and February of 1996 and the inability of the Company to fund a
competitive advertising campaign during the second quarter of 1996. In addition,
Company-operated net restaurant sales were negatively impacted by a net decrease
of nine Company-operated Restaurants from June 19, 1995 to June 17, 1996.
Royalties increased 8.5% to $3,525,306 for the quarters ended June
17, 1996, from $3,248,306 for the quarters ended June 19, 1995, due primarily to
an increase in franchised restaurant sales. This increase resulted from a net
addition of 22 franchised Restaurants since June 19, 1995. Comparable franchised
restaurant sales for Restaurants open at least 13 periods for the two quarters
ended June 17, 1996 decreased 2.9% as compared to the two quarters ended June
19, 1995.
Franchise fees decreased 61.3% to $582,856 for the two quarters
ended June 17, 1996 from $361,250 for the two quarters ended June 19, 1995. This
was a result of opening fewer franchised Restaurants during the two quarters
ended June 17, 1996. The Company recognizes franchise fees as revenues when the
Company has substantially completed its obligations under the franchise
agreement, usually at the opening of the franchised Restaurant.
Modular Restaurant Package revenues decreased 76.3% to $646,732 for
the two quarters ended June 17, 1996 from $2,726,971 for the two quarters ended
June 19, 1995 due to decreased sales volume of Modular Restaurant Packages to
the Company's franchisees and the utilization of available used Modular
Restaurant Packages to satisfy orders. Modular Restaurant Package revenues are
recognized on the percentage of completion method during the construction
process; therefore, a substantial portion of the Modular Restaurant Package
17
<PAGE>
revenues are recognized prior to the opening of a Restaurant.
COSTS AND EXPENSES. Restaurant food and paper costs totalled
$24,663,162 or 33.0% of gross restaurant sales for the two quarters ended June
17, 1996, compared to $31,987,620 or 35.1% of gross restaurant sales for the two
quarters ended June 19, 1995. The decrease in food and paper costs as a
percentage of gross restaurant sales was due primarily to the Company's decrease
in beef costs and paper costs.
Restaurant labor costs, which includes restaurant salaries, wages,
benefits and related taxes, totalled $25,202,203 or 33.7% of gross restaurant
sales for the two quarters ended June 17, 1996, compared to $27,669,010 or 30.4%
of gross restaurant sales for the two quarters ended June 19, 1995. The increase
in restaurant labor costs as a percentage of gross restaurant sales was due
primarily to the decline in average gross restaurant sales relative to the fixed
and semi-variable nature of these costs.
Restaurant occupancy expense, which includes rent, property taxes,
licenses and insurance, totalled $5,656,454 or 7.6% of gross restaurant sales
for the two quarters ended June 17, 1996, compared to $5,778,943 or 6.3% of
gross restaurant sales for the two quarters ended June 19, 1995. This increase
in restaurant occupancy costs as a percentage of gross restaurant sales was due
primarily to the decline in average gross restaurant sales relative to the fixed
and semi- variable nature of these expenses.
Restaurant depreciation and amortization decreased 27.6% to
$3,958,409 for the two quarters ended June 17, 1996, from $5,463,485 for the two
quarters ended June 19, 1995, due primarily to the adoption of Statement of
Financial Accounting Standards No. 121 as of January 1, 1996.
Advertising decreased to $2,106,927 or 2.8% of restaurant sales for
the two quarters ended June 17, 1996, from $4,232,700 or 4.6% of restaurant
sales for the quarter ended June 19, 1995. The decrease in this expense was due
to decreased expenditures for advertising.
Other restaurant expenses includes all other Restaurant level
operating expenses other than food and paper costs, labor and benefits, rent and
other costs which includes utilities, maintenance and other costs. These
expenses totalled $6,238,094 or 8.4% of gross restaurant sales for the two
quarters ended June 17, 1996 compared to $7,274,747 or 8.0% of gross restaurant
sales for the two quarters ended June 19, 1995. The increase in the two quarters
ended June 17, 1996 as a percentage of gross restaurant sales, was primarily
related to the decline in average gross restaurant sales relative to the fixed
and semi-variable nature of many expenses, partially offset by reduced repairs
and maintenance expenditures.
Costs of Modular Restaurant Package revenues totalled $998,379 or
154.4% of Modular Restaurant Package revenues for the two quarters ended June
17, 1996, compared to $3,280,644 or 120.3% of such revenues for the two quarters
ended June 19, 1995. The increase in these expenses as a percentage of Modular
Restaurant Package revenues was attributable to the decline in the number of
units produced relative to the fixed and semi-variable nature of many expenses.
The Company and franchisees opened fewer restaurants for the two quarters ended
June 17, 1996 than in the comparable quarter of 1995.
Selling, general and administrative expenses decreased to $7,296,529
or 9.5% of total revenues, for the quarter ended June 17, 1996, from $9,854,746
or 10.4% of total revenues for the two quarters ended June 19, 1995. The
decrease in these expenses was primarily attributable to the reduction in
corporate personnel and related costs partially offset by the recognition to
expense of previously deferred franchise costs of $115,657 associated with the
above mentioned $390,000 of income from terminations of Area Development
Agreements.
INTEREST EXPENSE. Interest expense decreased to $2,605,248 or 3.4%
of total revenues for the two quarters ended June 17, 1996, from $2,646,880 or
2.8% of total revenues for the two quarters ended June 19, 1995. This decrease
was due to a lower average debt principal balance outstanding during the two
quarters ended June 17, 1996 than in the comparable quarter of 1995, partially
offset by an increase in the Company's effective interest rates.
MINORITY INTEREST IN EARNINGS. The Company recorded minority
interest in earnings of $66,382 for the two quarters ended June 17, 1996, as
compared to minority interest in earnings of $71,961 for the two quarters ended
June 19, 1995. The increase in minority interest in earnings for the quarter
ended June 17, 1996 is due primarily to the lower number of joint venture
Restaurants at June 17, 1996.
INCOME TAX BENEFIT. Due to the loss for the two quarters, the
Company recorded an income tax benefit of $1,089,000, or 37.7% of the loss
18
<PAGE>
before income taxes for the two quarters ended June 17, 1996, as compared to an
income tax benefit of $1,870,000, or 39.0% of earnings before income taxes for
the two quarters ended June 19, 1995. The effective tax rates differ from the
expected federal tax rate of 35.0% due to state income taxes and job tax
credits.
NET LOSS. The decrease in the net loss for the two quarters ended
June 17, 1996, when compared to the net loss for the quarter ended June 19,
1995, is due primarily to an increase in royalties and decreases in restaurant
food and paper costs as a percentage of sales, decreases in depreciation and
amortization, selling, general and administrative expenses, and advertising
partially offset by a decrease in the average net restaurant sales and margins,
a decrease in franchise store openings, a decrease in Modular Restaurant Package
revenues and margins.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the IPO in November 1991, the primary sources of the
Company's liquidity and capital resources were cash flows from operations and
bank financing, as well as capital and operating leases. Following the IPO,
until approximately late 1993, the Company utilized the proceeds of the IPO and
its second public stock offering in May 1992, in addition to cash flows from
operations, to provide funds for operations and capital expenditures. Beginning
in late 1993, the proceeds from the two stock offerings had been fully utilized,
and the Company negotiated a credit facility with a group of banks, described
below, to provide additional funds primarily for the development of new
Restaurants.
On October 28, 1993, the Company entered into a loan agreement with
a group of banks ("Loan Agreement") providing for an unsecured, revolving credit
facility. The Company borrowed approximately $50,000,000 under this facility
primarily to open new Restaurants and pay off approximately $4,000,000 of
previously existing debt.
The Company subsequently arranged for this Loan Agreement to be
converted to a term loan and collateralized the loan with substantially all of
the Company's assets. The outstanding balance was $34,718,099 at June 17, 1996.
The term loan requires monthly principal reductions continuing through July
1998. Beginning in the fifth period of 1996, principal payments are the greater
of fixed monthly amounts or a formula based on Cash Flow as defined under the
Loan Agreement. The remaining aggregate minimum principal repayments are
$4,500,000 in 1996, $7,800,000 in 1997, $4,200,000 for the period January
through July 1998 and a balloon payment of $18,218,099 due July 31, 1998.
Interest is payable monthly at the prime rate plus 2.5%. Dividends are
prohibited, and the Company is required to maintain certain financial ratios
under the Loan Agreement.
On March 15, 1996 the bank group agreed to advance an additional sum
of up to $1,700,000 to be used by the Company for the payment of various
property taxes (the "Property Tax Loan") On March 27, 1996, $1,572,737 was
advanced to the Company under the Property Tax Loan. Interest accrued on the
Property Tax Loan at the prime rate plus 2.5% and is secured by the existing
collateral. The Property Tax Loan was retired by a portion of an income tax
refund received by the Company during June, 1996. The Company also has a line of
credit with the bank group of up to $1,000,000 through April 1997. The
outstanding balance was $1,000,000 on June 17, 1996. Interest is payable monthly
at the prime rate plus 2.5%. The line of credit has financial covenants and
other requirements.
In early July 1996, DDJ Capital Management LLC ("DDJ") began
negotiating with the bank group for an assignment to it of all of the bank
group's rights under the Loan Agreement. Anticipating the transfer of the Loan
Agreement and the debt thereunder, and due to impairment of its current cash
flow due to reduced sales revenues, the Company did not make the $500,000
principal payment due under the Loan Agreement on July 15, 1996. On July 29,
1996, the Company and the bank group entered into an amendment to the Loan
Agreement providing for the assignment of all the rights of the bank group under
the loan Agreement and The Galileo Fund, L.P. ("Galileo Fund"), an affiliate
of DDJ. The amendment also provides for a temporary waiver of all defaults
(the July 15 payment default and failure to meet certain financial covenants
at the end of the second fiscal quarter) by the Company under the Loan Agreement
until August 15, 1996. Upon the assignment of the Loan Agreement to it, Galileo
Fund immediately assigned a portion of its interests in the Loan Agreement and
the amounts due thereunder to Foothill Capital Corporation, Pearl Street L.P.
and Canpartners Investments IV, LLC (collectively, Galileo Fund, the "Investor
Group"). Although no assurance can be given that it will be successful, and
failure would result in a default under the Loan Agreement, the Company is
currently renegotiating an amendment to the Loan Agreement with the Investor
Group to establish a repayment schedule and financial covenants with which the
Company will be able to comply in light of its current financial situation. The
Company also intends to seek to improve its current liquidity by obtaining the
consent of the Investor Group to the retention by the Company of funds
anticipated to be received in August 1996 upon the prepayment of certain
promissory notes received in connection with previous asset sales as well as the
proceeds from certain asset sales that the Company expects to consummate in the
near future, and/or additional funds from the Investor Group or other lenders.
Under the current terms of the Loan Agreement, such funds from note repayments
and asset sales are required to be paid to the Investor Group.
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On August 2, 1995, the Company entered into a purchase agreement (as
amended in October 1995 and April 1996, the "Rall-Folks Agreement") with
Rall-Folks, Inc. ("Rall-Folks") pursuant to which the Company agreed to issue
shares of its Common Stock in exchange for and in complete satisfaction of three
promissory notes of the Company held by Rall- Folks (the "Rall-Folks Notes"). On
the closing date, the Company will deliver to Rall-Folks shares of its Common
Stock with a value equal to the then outstanding balance due under the
Rall-Folks Notes (the "Rall-Folks Purchase Price"). The total amount of
principal outstanding under the Rall-Folks Notes was approximately $1,788,000 as
of June 17, 19966. The Rall- Folks Notes are fully subordinated to the Company's
existing bank debt.
Under the terms of the Rall-Folks Agreement, the Company guaranteed
that if Rall-Folks sells all of the Common Stock issued for the Rall-Folks Notes
in a reasonably prompt manner (subject to certain limitations described below)
Rall-Folks will receive net proceeds from the sale of such stock equal to the
Rall-Folks Purchase Price. If Rall-Folks receives less than such amount, the
Company will issue to Rall-Folks, at the option of Rall-Folks, either (i)
additional shares of Common Stock, to be sold by Rall-Folks, until Rall-Folks
receives an amount equal to the Rall-Folks Purchase Price, or (ii) a six-month
promissory note bearing interest at 11%, with all principal and accrued interest
due at maturity, and subordinated to the Company's bank debt pursuant to the
same subordination provisions, equal to the difference between the Rall-Folks
Purchase Price and the net amount received by Rall-Folks from the sale of the
Common Stock.
On August 3, 1995, the Company entered into a purchase agreement (as
amended in October 1995 and April 1996, the "RDG Agreement") with Restaurant
Development Group, Inc. ("RDG") pursuant to which the Company agreed to issue
shares of its Common Stock in exchange for and in complete satisfaction of a
promissory note of the Company held by RDG (the "RDG Note"). The total amount of
principal outstanding under the RDG Note was approximately $1,693,000 as of June
17, 1996. The RDG Note is fully subordinated to the Company's existing bank
debt. In partial consideration of the transfer of the RDG Note to the Company,
the Company will deliver to RDG shares of Common Stock with a value equal to the
sum of (i) the outstanding balance due under the RDG Note on the closing date
and (ii) $10,000 (being the estimated legal expenses of RDG to be incurred in
connection with the registration of the Common Stock) (the "RDG Purchase
Price").
As further consideration for the transfer of the RDG Note to the
Company, the Company agreed to issue RDG a warrant (the "Warrant") for the
purchase of 120,000 shares of Common Stock at a price equal to the average
closing sale price of the Common Stock for the ten full trading days ending on
the third business day immediately preceding the closing date (such price is
referred to a the "Average Closing Price"); however, in the event that the
average closing price of the Common Stock for the 90 day period after the
closing date is less than the Average Closing Price, the purchase price for the
Common Stock under the Warrant will be changed on the 91st day after the closing
date to the average closing price for such 90 day period. The Warrant will be
exercisable at any time within five years after the closing date.
Under the terms of the RDG Agreement, the Company has guaranteed
that if RDG sells all of such Common Stock issued for the RDG Note in a
reasonably prompt manner (subject to certain limitations described below), RDG
will receive net proceeds from the sale of such stock equal to at least 80% of
the RDG Purchase Price. If RDG receives less than such amount, the Company will
issue additional shares of Common Stock to RDG, to be sold by RDG, until RDG
receives an amount equal to 80% of the Purchase Price.
The Rall-Folks Notes and the RDG Notes were due on August 4, 1995.
Pursuant to the Rall-Folks Agreement and the RDG Agreement, the Rall-Folks Notes
and the RDG Note were to be acquired by the Company in exchange for Common Stock
on or before September 30, 1995. The Company and Rall-folks and RDG amended the
Rall- Folks Agreement and the RDG Agreement, respectively, to allow for a
closing in May 1996 (subject to extension in the event closing is delayed due to
review by the Securities and Exchange Commission of the registration statement
covering the Common Stock to be issued in the transaction). Each of the parties
has the right to terminate their respective Agreement if the closing has not
occurred on or before such time (as extended). Pursuant to the Rall-Folks
Agreement and the RDG Agreement, the term of the Notes will be extended until
the earlier of the closing of the repurchase of the Notes or until approximately
one month after the termination of the applicable Agreement by a party in
accordance with its terms. Closing is contingent upon a number of conditions,
including the prior registration under the federal and state securities laws of
the Common Stock to be issued and the subsequent approval of the transaction by
the stockholders of Rall-Folks and RDG of their respective transactions. In the
event the Company complies with all of its obligations under the Rall-Folks
Agreement and the stockholders of Rall-Folks do not approve the transaction, the
term of the Rall-Folks Notes will be extended until December 1996. In the event
the Company complies with all of its obligations under the RDG Agreement and the
stockholders of RDG do not approve the transaction, the term of the RDG Note
will be extended approximately one year.
Under the terms of the Rall-Folks Agreement and the RDG Agreement,
if the transaction contemplated therein is consummated, so long as Rall-Folks
and RDG, respectively, is attempting to sell the Common Stock issued to it in a
reasonably prompt manner (subject to the limitations described below), the
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Company is obligated to pay to it in cash an amount each quarter equal to 2.5%
of the value of the Common Stock held by it on such date (such value being based
upon the value of the Common Stock when issued to it).
On April 12, 1996, the Company entered into a Note Repayment
Agreement (the "NTDT Agreement") with Nashville Twin Drive-Thru Partners, L.P.
("NTDT") pursuant to which the Company may issue shares of its Common Stock in
exchange for and in complete satisfaction of a promissory note of the Company
held by NTDT which matured on April 30, 1996 (the "NTDT Note"). The Company will
issue shares of Common Stock to NTDT in blocks of two hundred thousand shares
each, which will be valued at the closing price of the Common Stock on the day
prior to the date they are delivered to NTDT (such date is hereinafter referred
to as the "Delivery Date" and the value of the Common Stock on such date is
hereinafter referred to as the "Fair Value"). The amount outstanding under the
NTDT Note will be reduced by the Fair Value of the stock delivered to NTDT on
each Delivery Date. The Company is obligated to register each block of Common
Stock for resale by NTDT under the federal and state securities laws, and to
keep such registration effective for a sufficient length of time to allow the
sale of the block of Common Stock, subject to limitations on sales imposed by
the Company described below. As each block of Common Stock is sold, the Company
will issue another block, to be registered for resale and sold by NTDT, until
NTDT receives net proceeds from the sale of such Common Stock equal to the
balance due under the NTDT Note. The Company will continue to pay interest in
cash on the outstanding principal balance due under the NTDT Note through the
date on which NTDT receives net proceeds from the sale of Common Stock
sufficient to repay the principal balance of the NTDT Note. On each Delivery
Date and on the same day of each month thereafter if NTDT holds on such
subsequent date any unsold shares of Common Stock, the Company will also pay to
NTDT in cash an amount equal to .833% of the Fair Value of the shares of Common
Stock issued to NTDT as part of such Block of Stock and held by NTDT on such
date. Once the NTDT Note has been repaid in full, NTDT is obligated to return
any excess proceeds or shares of Common Stock to the Company. The Company
delivered the first block of 200,000 shares with a fair value of $228,125 to
NTDT on April 18, 1996. The total amount of principal outstanding under the NTDT
Note was approximately $1,126,162 as of June 17, 1996. The NTDT Note is fully
subordinated to the Company's existing bank debt. The term of the NTDT Note will
be extended until May 31, 1997, so long as the Company is complying with its
obligations under the NTDT Agreement and NTDT has received at least $1,000,000
from the sale of the Common Stock by January 31, 1997. Such dates will be
extended if NTDT fails to make a commercially reasonable attempt to sell an
average of 10,000 shares of Common Stock per day on each trading day that a
registration statement covering unsold shares held by NTDT is in effect prior to
such dates, or if the Company is delayed in filing a registration statement (or
an amendment or supplement thereto) due to the failure of NTDT to provide
information required to be provided to the Company under the NTDT Agreement. In
the event that the Company files a voluntary bankruptcy petition, an involuntary
bankruptcy petition is filed against the Company and not dismissed within 60
days, a receiver or trustee is appointed for the Company's assets, the Company
makes an assignment of substantially all of its assets for the benefit of its
creditors, trading in the Common Stock is suspended for more than 14 days, or
the Company fails to comply with its obligations under the NTDT Agreement, the
outstanding balance due under the NTDT Note will become due and NTDT may
thereafter seek to enforce the NTDT Note.
In order to promote an orderly distribution of the Common Stock to
be issued to and sold by Rall-Folks, RDG and NTDT, the Company has imposed the
following limits on the sales that may be made by Rall-Folks, RDG and NTDT: (i)
each may sell not more than 50,000 shares of Common Stock per week (150,000 in
the aggregate) and (ii) each may sell not more than 25,000 shares in any one day
(75,000 shares in the aggregate), provided that each may sell additional shares
in excess of such limits if such additional shares are sold at a price higher
than the lowest then current bid price for the Common Stock. See "Risk Factors"
below for a discussion of certain risks associated with the proposed sales of
such Common Stock by Rall-Folks, RDG and NTDT.
The consummation of the transaction with each of RDG, Rall-Folks and
NTDT has been delayed pending the assignment of the Loan Agreement to the
Investor Group and the renegotiation of the Loan Agreement. Pursuant to the
terms of the current Loan Agreement, the Company is obligated to purchase or
repay the Rall-Folks Notes, the RDG Note and the NTDT Note using Common Stock,
and may not repay them or make arrangements to repay them in cash. The Company
is unable to predict at this time what arrangements may be negotiated with the
Investor Group with respect to the Company's obligations under the agreements
and notes with RDG, Rall-Folks and NTDT. In the event that the Company is unable
to negotiate an amendment to the Loan Agreement that is mutually acceptable to
the Company and the Investor Group, the Company will likely default under the
Loan Agreement and be unable to consummate the currently contemplated
transactions with RDG, Rall-Folks, and NTDT and will, therefore, likely default
under the RDG Note, the Rall-Folks Notes and the NTDT Note.
Pending the renegotiation of the Loan Agreement, no predictions can
be made concerning the Company's development of additional Restaurants.
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The Company has previously had significant working capital due to
the proceeds from its two public stock offerings. As of December 31, 1993, these
proceeds had been utilized to purchase long-term property and equipment. The
Company had negative working capital of $18,682,761 at June 17, 1996 (determined
by subtracting current liabilities from current assets). It is anticipated that
negative working capital for the Company will continue to be the case since
approximately 84.7% of the Company's assets are long-term (property, equipment,
goodwill and other), and since all operating trade payables, accrued expenses,
and property and equipment payables are current liabilities of the Company. The
Company has not reported a profit for any quarter since September 1994.
The Company has implemented numerous cost cutting and efficiency
enhancing programs into the Restaurants. The focus was to create strategic
alliances in several key purchasing and service areas along with leveraging
system wide service contracts for Company Restaurants. Overall, the Company
believes fundamental steps have been taken to improve the Company's
profitability, but there can be no assurance that it will be able to do so. In
light of the current level of revenues from Restaurant sales, management does
not believe that cash flows from operations will be sufficient to allow the
Company to pay its operating expenses and the reductions currently required to
be made in 1996 under the Loan Agreement and the Company's other long-term debt
obligations. Management is currently negotiating with the Investor Group for an
amendment to the terms of the Loan Agreement to provide for a substantial
reduction in the amount of principal that must be repaid in fiscal 1996.
Management also believes that without additional funds for advertising and
maintenance, revenues will continue to be adversely affected, further decreasing
the ability of the Company to pay its obligations. Management is, therefore,
also seeking to improve its current liquidity by obtaining the consent of the
Investor Group to the retention by the Company of funds anticipated to be
received in August 1996 upon the prepayment of certain promissory notes received
in connection with previous asset sales as well as the proceeds from certain
certain asset sales that the Company expects to consummate in the near future,
and/or additional funds from the Investor Group or other lenders. Following any
successful renegotiation of the terms of the Loan Agreement, the Company must
also successfully consummate the purchase of the Rall-Folks Notes, the RDG Note
and the NTDT Note for Common Stock. There can be no assurance that the Company
will be able to do so and if it cannot, and if the Company is unable to reach
some other arrangements with Rall-Folks, RDG or NTDT, the Company will likely
default in its payment obligations under such Note or Notes, and will likely
be put into default under the terms of the Loan Agreement.
INFLATION
The Company does not believe inflation has had a material impact on
earnings. Substantial increases in costs could have a significant impact on the
Company and the industry. If operating expenses increase, management believes it
can recover increased costs by increasing prices to the extent deemed advisable
considering competition.
SEASONALITY
The seasonality of restaurant sales due to consumer spending habits
can be significantly affected by the timing of advertising and competitive
market conditions. While certain quarters can be stronger, or weaker, for
restaurant sales when compared to other quarters, there is no predominant
pattern.
GOVERNMENT REGULATIONS
The Company is subject to state and federal labor laws that govern
its relationships with its employees, such as requirements for minimum wage,
overtime, working conditions and health insurance. Significant numbers of the
food service personnel in the fast food industry are paid at rates related to
the federal minimum wage. Accordingly, increases in the federal minimum wage
would increase the Company's labor costs. Additionally, significant numbers of
food personnel are not covered by employer sponsored health insurance.
Implementation of federal or state laws or regulations requiring employers such
as the Company to provide health benefits to all employees would also increase
the Company's labor costs. The extent, timing and effect of any possible
legislation in these areas is not reasonably estimable at this time.
RISK FACTORS
The Company's prior operating results are not necessarily indicative
of future results. The Company's future operating results may be affected by a
number of factors, including: continued average restaurant sales declines;
uncertainties related to the general economy; competition; costs of food and
labor; the Company's ability to successfully renegotiate the Loan Agreement and
obtain adequate capital and to continue to lease or buy successful sites and
construct new restaurants; and the Company's ability to locate capable
franchisees. The price of the Company's Common Stock can be affected by the
above. Additionally, any shortfall in revenue or earnings from levels expected
by securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
The Company is currently engaged in various transactions in which it
is anticipated that approximately 3,800,000 shares of Common Stock will be
issued by the Company (representing approximately 7% of the shares outstanding
after such issuance) as consideration for various assets, primarily the
Rall-Folks Notes, the RDG Note and the NTDT Note (the "Notes") described above
under "Liquidity and Capital Resources." The number of shares to be issued will
be determined by dividing the outstanding balance due under the Notes
(approximately $4,607,000 as of June 17, 1996) or the purchase price for the
assets ($301,000) by the average of the closing sale price per share of the
Common Stock for a set number of days prior to the closing date for each
transaction. The shares will either be available for immediate sale by the
persons and entities to whom they are issued, or the Company will be required to
immediately register them for sale under the federal and state securities laws.
Further, in connection with each of the transactions described
above, the Company agreed to certain price protection provisions in the various
purchase agreements which guarantee that the persons and entities to whom such
Common Stock is issued will receive a set amount, generally 100%, of the amount
due to them at closing from the sale of the Common Stock issued to them. If they
receive less, the Company is obligated to issue additional shares of Common
Stock to them which they may sell until such time as they have received the full
amount guaranteed to be received by them. The Company is unable to predict the
prices at which the Common Stock will be sold and whether it will be sold under
circumstances which will require the Company to issue additional shares.
In addition to the foregoing, the Company has previously issued
shares of Common Stock in acquisition transactions with various franchisees and
others and, in connection therewith, has granted registration rights to such
persons for such stock. As a result of the exercise of such rights by such
persons, the Company currently has an obligation to register for resale by such
persons approximately 300,000 shares of Common Stock, with approximately 700,000
additional shares being subject to registration for resale upon demand.
As described above under "Liquidity and Capital Resources," in order
to promote an orderly distribution of the Common Stock to be issued to and sold
by Rall-Folks, RDG and NTDT, the Company has imposed the following limits on the
sales that may be made by Rall-Folks, RDG and NTDT: (i) each may sell not more
than 50,000 shares of Common Stock per week (150,000 in the aggregate) and (ii)
each may sell not more than 25,000 shares in any one day (75,000 shares in the
aggregate), provided that each may sell additional shares in excess of such
limits if such additional shares are sold at a price higher than the lowest then
current bid price for the Common Stock ("on an uptick"). While it is anticipated
that the foregoing limits will allow an orderly distribution of the Common Stock
to be issued to and sold by Rall-Folks, RDG and NTDT, the effect of a continuous
offering of an average of 30,000 shares per day by Rall-Folks, RDG and NTDT is
undeterminable at this time. There can be no assurance that the same will not
have an adverse effect on the market price for the Common Stock.
As described above under "Liquidity and Capital Resources", in the
event that the Company is unable to negotiate an amendment to the Loan Agreement
that is mutually acceptable to the Company and the Investor Group, the Company
will likely default under the Loan Agreement and be unable to consummate the
currently contemplated transactions with RDG, Rall-Folks and NTDT.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Except as described below, the Company is not a party to any
material litigation and is not aware of any threatened material litigation:
The Company, its directors, certain of its officers and its outside
auditors are defendants in a proceeding styled IN RE CHECKERS SECURITIES
LITIGATION, Master File No. 93-1749-CIV-T-17A, filed on October 13, 1993 in the
United States District Court for the Middle District of Florida, Tampa Division.
The complaint alleges, generally, that the Company issued materially false and
misleading financial statements which were not prepared in accordance with
generally accepted accounting principles, in violation of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and
Florida common law and statute. The allegations, including an allegation that
the Company inappropriately selected the percentage of completion method of
accounting for sales of modular Restaurant buildings, are primarily directed to
certain accounting principles followed by a Checkers' division, Champion Modular
Restaurant Company, a producer of modular Restaurant building packages for use
by Checkers and its franchisees. The plaintiffs seek to represent a class of all
purchasers of the Company's common stock between November 22, 1991 and October
3, 1993, and seek an unspecified amount of damages. The Company believes that
this lawsuit is unfounded and without merit, and intends to defend it
vigorously. No estimate of any possible loss or range of loss resulting from the
lawsuit can be made at this time.
The Company, one of its directors and a former officer/director are
defendants in a proceeding styled LOPEZ, ET AL. V. CHECKERS DRIVE-IN
RESTAURANTS, INC., Case No. 94-282-CIV-T-17C, filed on February 18, 1994 in the
United States District Court for the Middle District of Florida, Tampa Division.
The complaint alleges, generally, that the defendants made certain materially
false and misleading public statements concerning the pricing practices of
competitors and analysts' projections of the Company's earnings for the year
ended December 31, 1993, in violation of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The plaintiffs seek
to represent a class of all purchasers of the Company's common stock between
August 26, 1993 and March 15, 1994, and seek an unspecified amount of damages.
Although the Company believes this lawsuit is unfounded and without merit, in
order to avoid further expenses of litigation, the parties have reached an
agreement in principle for the settlement of this class action. The agreement
for settlement provides for various of the Director and Officer liability
insurance carriers to pay $8,175,000 cash and for the Company to issue warrants,
valued at approximately $3,000,000, for the purchase of 5,100,000 shares of the
Company's common stock at a price of $1.375 per share. The warrants will be
exercisable for a period of four years after the effective date of the
settlement. The settlement is subject to the execution of an appropriate
stipulation of settlement and other documentation as may be required or
appropriate to obtain approval of the settlement by the court, notice to the
class of pendency of the action and proposed settlement, and final court
approval of the settlement.
On August 10, 1995, a state court complaint was filed in the Circuit
Court of the Sixth Judicial Circuit in and for Pinellas County, Florida, Civil
Division, entitled GAIL P. GREENFELDER AND POWERS BURGERS, INC. V. JAMES F.
WHITE, JR., CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E.
MATTEI, JARED D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK, Case No.
95-4644-CI-21. The original complaint alleged, generally, that certain officers
of the Company intentionally inflicted severe emotional distress upon Ms.
Greenfelder, who is the sole stockholder, president and director of Powers
Burgers, a Checkers franchisee. The original complaint further alleged that Ms.
Greenfelder and Powers Burgers were induced into entering into various
agreements and personal guarantees with the Company based upon
misrepresentations by the Company and its officers and that the Company violated
provisions of Florida's Franchise Act and Florida's Deceptive and Unfair Trade
Practices Act. The original complaint alleged that the Company is liable for all
damages caused to the plaintiffs. The plaintiffs seek damages in an unspecified
amount in excess of $2,500,000 in connection with the claim of intentional
infliction of emotional distress, $3,000,000 or the return of all monies
invested by the plaintiffs in Checkers franchises in connection with the
misrepresentation of claims, punitive damages, attorneys' fees and such other
relief as the court may deem appropriate. On November 27, 1995 the court granted
the Company's motion to dismiss the plaintiff's claims of intentional infliction
of emotional distress. The plaintiffs subsequently filed an amended complaint
with additional allegations that, generally, certain officers negligently
inflicted emotional distress upon Ms. Greenfelder and tortiously interfered with
various contracts and business relationships, and that the Company negligently
retained various officers in the Company's employ and breached various covenants
of good faith and fair dealing in connection with franchise agreements between
the parties. On March 26, 1996 the court dismissed each of those claims. The
Company believes that this lawsuit is unfounded and without merit, and intends
to defend it vigorously. No estimate of any possible loss or range of loss
resulting from the lawsuit can be made at this time.
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On August 10, 1995, a state court counterclaim and third party
complaint was filed in the Circuit Court of the thirteenth Judicial Circuit in
and for Hillsborough County, Florida, Civil Division, entitled TAMPA CHECKMATE
FOOD SERVICES, INC., CHECKMATE FOOD SERVICES, INC. AND ROBERT H. GAGNE V.
CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JAMES F.
WHITE, JR., JARED D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK, Case No.
95-3869. In the original action, filed by the Company in July 1995 against Mr.
Gagne and Tampa Checkmate Food Services, Inc. a company controlled by Mr. Gagne,
the Company is seeking to collect on a promissory note and foreclose on a
mortgage securing the promissory note issued by Tampa Checkmate and Mr. Gagne,
and obtain declaratory relief regarding the rights of the respective parties
under Tampa Checkmate's franchise agreement with the Company. The counterclaim
and third party complaint allege, generally, that Mr. Gagne, Tampa Checkmate and
Checkmate Food Services, Inc. were induced into entering into various franchise
agreements with and personal guarantees to the Company based upon
misrepresentations by the Company. The counterclaim and third party complaint
seeks damages in the amount of $3,000,000 or the return of all monies invested
by Checkmate, Tampa Checkmate and Gagne in Checkers franchises, punitive
damages, attorneys' fees and such other relief as the court may deem
appropriate. The counterclaim was dismissed by the court on January 26, 1996
with the right to amend. On February 12, 1996 the counterclaimants filed an
amended counterclaim alleging violations of Florida's Franchise Act, Florida's
Deceptive and Unfair Trade Practices Act, and breaches of implied duties of
"good faith and fair dealings" in connection with a settlement agreement and
franchise agreement between various of the parties. The amended counterclaim
seeks a judgement for damages in an unspecified amount, punitive damages,
attorneys' fees and such other relief as the court may deem appropriate. The
Company intends to vigorously prosecute its complaint in the original action.
The Company believes the amended counterclaim by the counterclaimants is
unfounded and without merit, and intends to defend it vigorously. No estimate of
any possible loss or range of loss resulting from the lawsuit can be made at
this time.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on June
11, 1996. At the Meeting, the following actions were taken by the stockholders:
1. Barry M. Alpert and Clarence V. McKee were elected as Directors
to serve until the Annual Meeting in 1999 and until their successors are elected
and qualified or until their earlier resignation, removal from office or death.
The votes cast for and against each were as follows:
FOR AGAINST
--- -------
Barry M. Alpert 42,777,492 809,642
Clarence V. McKee 42,749,311 837,823
(Note: Mr. Alpert resigned from the Board of Directors on July 22, 1996.)
2. The appointment of KPMG Peat Marwick as the Company's independent
auditors for the year 1996 was ratified and approved. The voting on the proposal
was as follows:
For 42,959,741
Against 355,496
Abstain 271,897
Broker Non-Votes 0
Item 5. Other Information
None
25
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits:
4.25 Tenth Amendment Agreement dated as of May 26, 1996, between
the Company and each of the banks party to the Amended and
Restated Credit Agreement, dated as of April 12, 1995.
4.26 Eleventh Amendment Agreement dated as of July 29, 1996,
between the Company and each of the banks party to the Amended
and Restated Credit Agreement, dated as of April 12, 1995.
10.51 Employment Agreement between the Company and James T. Holder,
dated July 26, 1996.
10.52 Employment Agreement between the Company and Michael T. Welch,
dated July 26, 1996.
27 Financial Data Schedule
(b) Reports on 8-K:
The following reports on Form 8-K were filed during the quarter
covered by this report:
The Company filed a Report on Form 8-K with the Commission
dated April 23, 1996, reporting under Item 5 the resignation
of Herbert G. Brown as Chairman of the Board and as a Director
of the Company on April 23, 1996 and certain other intended
changes to the Board of Directors of the Company.
The Company filed a Report on Form 8-K with the Commission
dated May 20, 1996, reporting under Item 5 the resignation of
Keith J. Kinsey as Executive Vice President, Chief Operating
Officer and Chief Financial Officer of the Company, effective
May 24, 1996, and the appointment of James T. Holder as Chief
Financial Officer of the Company.
The Company filed a Report on Form 8-K with the Commission
dated June 13, 1996, reporting under Item 5 the existence of a
default judgement entered against it in the U.S. District
Court for the Northern District of Illinois, Eastern Division,
in a proceeding entitled Ihor Kleban vs. Checkers Drive-In
Restaurants, Inc., Meridian Restaurant Group, Inc., Burling
Bank, S.V.S. Restaurant Management, Inc., International Double
Drive-Thru, Inc. Andrew Sun, John Young, Thomas J. Singer,
John D. Terzakis, individually and d/b/a Midwest Properties,
Willobrook Restaurant Corporation, James W. Thompson, Jr.,
Joseph P. Tedesco, Jr., John A. Garity III, Esg., and
Greenscape Landscaping, Inc., case number 95C-2920, and the
June 28, 1996 vacation of the default judgement by the court.
26
<PAGE>
SIGNATURE
- ---------
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.
CHECKERS DRIVE-IN RESTAURANTS, INC.
-----------------------------------
(Registrant)
Date: July 31, 1996
/s/ James T. Holder
-------------------------------------
James T. Holder
Chief Financial Officer and Principal
Accounting Officer
27
<PAGE>
JUNE 17, 1996 FORM 10-Q
CHECKERS DRIVE-IN RESTAURANTS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT # EXHIBIT DESCRIPTION
--------- -------------------
<S> <C>
4.25 Tenth Amendment Agreement dated as of May 26, 1996, between the
Company and each of the banks party to the Amended and Restated Credit
Agreement, dated as of April 12, 1995.
4.26 Eleventh Amendment Agreement dated as of July 29, 1996, between the
Company and each of the banks party to the Amended and Restated Credit
Agreement, dated as of April 12, 1995.
10.51 Employment Agreement between the Company and James T. Holder, dated
July 26, 1996.
10.52 Employment Agreement between the Company and Michael T. Welch,
dated July 26, 1996.
27 Financial Data Schedule
</TABLE>
28
TENTH AMENDMENT AGREEMENT
THIS TENTH AMENDMENT AGREEMENT (this "Amendment") is made on May 29, 1996,
among CHECKERS DRIVE-IN RESTAURANTS, INC., a Delaware corporation (the
"Borrower") the undersigned guarantors (the "Guarantors") , the banks (the
"Banks") party to the Amended and Restated Credit Agreement referred to below,
and WACHOVIA BANK OF GEORGIA, N.A., a national banking association, acting IN
ITS capacity as agent for itself and for the other Banks (the "Agent")
RECITALS:
The Borrower, the Banks and the Agent executed and delivered that certain
Amended and Restated Credit Agreement dated as of April 12, 1995 (as amended or
otherwise modified, including, without limitation, the Amendment Agreement dated
as of July 26, 1995 (the "First Amendment"), the Second Amendment Agreement
dated as of October 2, 1995 (the "Second Amendment") , the Third Amendment dated
as of January 2, 1996 (the "Third Amendment") , the Fourth Amendment Agreement
dated as of January 31, 1996 (the "Fourth Amendment") , the letter agreement
dated February 29, 1996 (the "Fifth Amendment"), the letter agreement dated
March 8, 1996 (the "Sixth Amendment") , the letter agreement dated March 11 ,
1996 (the "Seventh Amendment") , the letter agreement dated March 13, 1996 (the
"Eighth Amendment") and the Ninth Amendment Agreement dated as of March 15, 1996
(the "Ninth Amendment") , collectively, the "Credit Agreement") and the other
Loan Documents referenced therein.
The Borrower and the Guarantors have requested and the Banks and the Agent
have agreed to certain amendments to the Credit Agreement.
NOW, THEREFORE, for and in consideration of the above premises and other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged by the parties hereto, the Borrower, the Guarantors, the Banks and
the Agent hereby covenant and agree as follows:
1. DEFINED TERMS. Unless otherwise specifically defined herein, each
capitalized term used herein which is defined in the Credit Agreement shall have
the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof," "hereunder," "herein" and "hereby" and each other similar reference
and each reference to "the Agreement" and each other similar reference contained
in this Amendment shall from and after the date hereof refer to the Credit
Agreement as heretofore amended and as amended hereby.
<PAGE>
2 AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement is hereby
amended as follows:
(a) By deleting the definition of "Base Amount" from Section 1.01 of the
Credit Agreement and by substituting the following new definition in lieu
thereof:
"Base Amount" means, with respect to the minimum Consolidated
Tangible Net Worth :required by this Agreement, an amount equal to
the sum of (a) $59,000,000 PLUS (b) an amount equal to all Debt of
Borrower that is converted to Capital Stock in the Borrower after
January 1, 1996 and any other forgiveness, compromise, settlement or
conversion of any Debt or any type of contingent obligation that
would have the effect of increasing Consolidated Tangible Net Worth.
(b) By deleting the definition of "Tax Refund" from Section 1.01 of the
Credit Agreement and by substituting the following new definition in lieu
thereof:
"Tax Refund" shall mean the federal tax refund shown on the
Borrower's 1995 Form 1139 in the amount of $2,545,185.40.
(c) By deleting the reference to "$11,500,000" that is contained in
Section 5. 11 (a) of the Credit Agreement and by substituting in lieu thereof a
reference to "$10,647,849."
(d) By deleting from Section 5.11 the proviso paragraph following
subsection (n) thereof that reads as follows:
Provided, however, Liens permitted by the foregoing paragraphs (a)
through (m) (exclusive of paragraph (k)) shall at no time secure
Debt in an aggregate amount greater than 17.0% of Consolidated
Tangible Net Worth.
(e) By adding the following new sentence to the end of Section 5.25 to the
Agreement that reads as follows:
If any Debt of the Borrower is converted to Capital Stock in the
Borrower or any other forgiveness, compromise, settlement or
conversion of any Debt or any type of contingent obligation occurs
to the extent permitted by this Agreement, then the Borrower shall
promptly notify the Agent and the Banks in writing of such
conversion, forgiveness, compromise or settlement and shall identify
the holder of such Debt and the date on which such conversion,
forgiveness, compromise or settlement occurred. If the Debt of the
-2-
<PAGE>
Borrower that is converted, forgiven, compromised or settled was
disputed, unliquidated or contingent in amount, then the Borrower
shall confirm in such notification to the Agent and the Banks the
amount at which the disputed, unliquidated or contingent Debt was
mutually agreed upon between the Borrower and the holder of such
Debt.
3. LIMITED WAIVER OF DEFAULT. An Event of Default has occurred and exists
under the Credit Agreement as a result of the Borrower's breach of the proviso
paragraph immediately following subsection (n) of Section 5.11 of the Credit
Agreement (the "Designated Default"). The Designated Default exists because the
Liens permitted by paragraphs (a) through (m) (exclusive of paragraph (k))
secure Debt in an aggregate amount greater than 17.0% of Consolidated Tangible
Net Worth. The Borrower represents and warrants that the Designated Default is
the only Default or Event of Default that exists under the Credit Agreement and
the other Loan Documents as of the date hereof. The Agent and the Banks each
hereby waives the Designated Default in existence on the date hereof. In no
event shall such waiver be deemed to constitute a waiver of (a) any Default or
Event of Default other than Designated Default in existence on the date of this
Amendment or (b) the Borrower obligation to comply with all of the terms and
conditions of the Credit Agreement and the other Loan Documents from and after
the date hereof. Notwithstanding any prior, temporary mutual disregard of the
terms of any contracts between the parties, the Borrower agrees that it shall be
required strictly to comply with all of the terms of the Loan Documents on and
after the date hereof.
4. AMENDMENT FEE. Notwithstanding anything to the contrary contained in
Section 12(c) and Section 17 of the Ninth Amendment, the Borrower and the
Guarantors each jointly and severally agrees to pay to the Agent, for the
ratable benefit of the Banks, on the date hereof in immediately available funds,
the $45,000 amendment fee that was due and owing by the Borrower and the
Guarantors in connection with the Ninth Amendment.
5. LEGAL FEES AND EXPENSES OF THE AGENT AND THE BANKS.
(a) Notwithstanding anything to the contrary that is contained in Section
12(b) of the Ninth Amendment or any of the other Loan Documents, the Borrower
and the Guarantors jointly and severally agree to pay to the Agent, for the
ratable benefit of the Banks, $15,000 per week, commencing June 5, 1996, and on
the first day of each week thereafter, to reimburse the Agent and the Banks for
the legal fees and expenses incurred to Jones, Day, Reavis & Pogue, as special
legal counsel to the Agent and the Banks, in the approximate amount of $130,000;
PROVIDED that Borrower and the Guarantors jointly and severally agree to
-3-
<PAGE>
reimburse the Agent in full for the foregoing legal fees and expenses of Jones,
Day, Reavis & Pogue, to the extent that such fees are not sooner paid pursuant
to the preceding sentence, on the earlier of: (i) the receipt by the Borrower of
the Tax Refund (and the Borrower agrees that it shall reimburse the Agent for
such fees from the $250,000 portion of the Tax Refund that the Borrower is
authorized to retain under Section 11(c) of the Ninth Amendment) or (ii) the
date on which the Loans become due and payable in full (whether at stated
maturity, on acceleration or otherwise).
(b) In addition to the legal fees and expenses referenced in Section 5(b)
above, the Borrower and the Guarantors each jointly and severally agrees to pay,
ON DEMAND, all costs and expenses incurred by the Agent and the Banks in
connection with the preparation, negotiation and execution of this Amendment,
any prior amendments to the Credit Agreement and any other Loan Documents
executed pursuant to the Credit Agreement, any prior amendments thereto or this
Amendment and any and all amendments, modifications, and supplements to any of
the foregoing, including, without limitation, the costs and attorneys' fees of
the Agent's and each Bank's legal counsel. The Borrower and the Guarantors each
acknowledge and agree that the legal fees and expenses of Parker, Hudson, Rainer
& Dobbs, legal counsel to the Agent and the Banks, that have been incurred or
may be incurred in connection with the Credit Agreement or any prior amendments
thereto, this Amendment or any of the other Loan Documents are jointly and
severally payable by the Borrower and the Guarantors, ON DEMAND, and that such
payment is not conditioned upon the Borrower's receipt of any proceeds under
Section 12 (d) of the Ninth Amendment.
6. REPRESENTATIONS AND WARRANTIES. The Borrower and each Guarantor hereby
restates and renews each and every representation and warranty heretofore made
by it in the Credit Agreement and the other Loan Documents as fully as if made
on the date hereof and with specific reference to this Amendment and all other
instruments and documents executed and/or delivered in connection herewith and
represents and warrants that (i) no Default or Event of Default exists except
for the Event of Default :referenced in Section 3 of this Amendment and (ii) the
Borrower has no right of offset, defense, counterclaim, claim or objection
arising out of or with respect to any of the obligations arising under the
Credit Agreement and the other Loan Documents.
7. BINDING OBLIGATIONS. Except as set forth expressly hereinabove, all
terms of the Credit Agreement and the other Loan Documents shall be and remain
in full force and effect, and shall constitute the legal, valid, binding and
enforceable obligations of the Borrower. The amendments contained herein shall
be deemed to have prospective application only, unless otherwise specifically
stated herein.
-4-
<PAGE>
8. RATIFICATION AND REAFFIRMATION. The Borrower and each Guarantor hereby
restates, ratifies and reaffirms each and every term, covenant and condition set
forth in the Credit Agreement and the other Loan Documents effective as of the
date hereof as the same may have been expressly amended hereby.
9. COUNTERPARTS; TELECOPIED SIGNATURES. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Any signature delivered by telecopier shall be
deemed to constitute an original signature hereto.
10. NO NOVATION, ETC. Except as otherwise expressly provided in this
Amendment, nothing herein shall be deemed to amend or modify any provision of
the Loan Agreement or any of the other Loan Documents, each of which shall
remain in full force and effect. Neither this Amendment nor any prior amendment
to the Loan Agreement is intended to be, nor shall it be construed to create, a
novation or accord and satisfaction, and the Loan Agreement as herein modified
shall continue in full force and effect.
11. SECTION TITLES. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto evidenced hereby.
12. FURTHER ASSURANCES. The Borrower and each Guarantor agrees to
take such further actions as the Agent shall reasonably request in connection
herewith to evidence the amendments herein contained to the Credit Agreement.
13. AMENDMENT TO CONSTITUTE LOAN DOCUMENT. This Amendment shall be deemed
to be a Loan Document for all purposes under the Credit Agreement. The Borrower
and each of the Guarantors agree that a default under, or the breach of any
covenant or other term of, this Amendment shall constitute a Default under the
Credit Agreement.
14. EFFECTIVENESS; GOVERNING LAW. This Amendment shall be effective upon
the Borrower's and Guarantor's execution of this Amendment in Atlanta, Georgia,
and the acceptance of this Amendment in writing by the Agent and the Banks
(notice of which acceptance is hereby waived by the Borrower and the
Guarantors), whereupon this Amendment shall become a contract made in Georgia
and governed by and construed and interpreted in accordance with, the internal
laws of the State of Georgia.
15. WAIVERS. THROUGH THE DATE OF THIS AMENDMENT, EACH OF BORROWER AND
GUARANTORS HEREBY KNOWINGLY AND VOLUNTARILY, FOREVER RELEASES, ACQUITS AND
-5-
<PAGE>
DISCHARGES THE AGENT AND THE BANKS, AND THEIR RESPECTIVE DIRECTORS, OFFICERS,
AND OTHER AGENTS (COLLECTIVELY, THE "LENDER GROUP") (A) FROM AND OF ANY AND ALL
CLAIMS ARISING FROM ACTS OR OMISSIONS OF THE LENDER GROUP THAT MAY HAVE OCCURRED
PRIOR TO THE DATE HEREOF THAT THE LENDER GROUP (1) IS IN ANY WAY RESPONSIBLE FOR
THE PAST, CURRENT OR FUTURE CONDITION OR DETERIORATION OF THE BUSINESS
OPERATIONS AND/OR FINANCIAL CONDITION OF THE BORROWER OR ANY GUARANTOR, OR (2)
BREACHED ANY AGREE TO LOAN MONEY OR MAKE OTHER FINANCIAL ACCOMMODATIONS
AVAILABLE TO THE BORROWER OR TO FUND ANY OPERATIONS OF THE BORROWER AT ANY TIME,
AND (B) FROM AND OF ANY AND ALL OTHER CLAIMS, DAMAGES, LOSSES, ACTIONS,
COUNTERCLAIMS, SUITS, JUDGMENTS, OBLIGATIONS, LIABILITIES, DEFENSES, AFFIRMATIVE
DEFENSES, SETOFFS, AND DEMANDS OF ANY KIND OR NATURE WHATSOEVER, IN LAW OR IN
EQUITY, WHETHER PRESENTLY KNOWN OR UNKNOWN, WHICH THE BORROWER OR ANY GUARANTOR
MAY HAVE HAD, NOW HAVE, OR WHICH IT CAN, SHALL OR MAY HAVE FOR, UPON, OR BY
REASON OF ANY MATTER, COURSE OR THING WHATSOEVER RELATING TO, ARISING OUT OF,
BASED UPON, OR IN ANY MANNER CONNECTED WITH, ANY TRANSACTION, EVENT,
CIRCUMSTANCE, ACTION, FAILURE TO ACT, OR OCCURRENCE OF ANY SORT OR TYPE, WHETHER
KNOWN OR UNKNOWN, WHICH OCCURRED, EXISTED, WAS TAKEN, PERMITTED, BEGUN, OR
OTHERWISE RELATED OR CONNECTED TO OR WITH ANY OR ALL OF THIS AMENDMENT, THE
LOANS, THE CREDIT AGREEMENT, THE PRIOR AGREEMENT, ANY OR ALL OF THE LOAN
DOCUMENTS AS, AND/OR ANY DIRECT OR INDIRECT ACTION OR OMISSION OF THE LENDER
GROUP ARISING FROM ACTS OR OMISSIONS OF THE LENDER GROUP THAT MAY HAVE OCCURRED
PRIOR TO THE DATE HEREOF. THE BORROWER AND EACH GUARANTOR FURTHER AGREES THAT
FROM AND AFTER THE DATE HEREOF, IT WILL NOT ASSERT TO ANY PERSON OR ENTITY THAT
ANY DETERIORATION OF THE BUSINESS OPERATIONS OR FINANCIAL CONDITION OF THE
BORROWER OR ANY SUCH GUARANTOR WAS CAUSED BY ANY BREACH OR WRONGFUL ACT OF THE
LENDER GROUP WHICH MAY HAVE OCCURRED PRIOR TO THE DATE HEREOF.
IN WITNESS WHEREOF, the Borrower, the Guarantors, the Banks and the Agent
have caused this Amendment to be duly executed by their respective duly
authorized officers, on the date and year first above written.
BORROWER:
CHECKERS DRIVE-IN RESTAURANTS, INC.
By: /s/James T. Holder
---------------------------------
James T. Holder, Vice
President
[Signatures continued on following page]
-6-
<PAGE>
GUARANTORS:
INNERCITYFOODS RESTAURANTS
COMPANY
By: /s/James T. Holder
---------------------------------
James T. Holder, Vice
President
INNERCITYFOODS LEASING COMPANY
By: /s/James T. Holder
---------------------------------
James T. Holder, Vice
President
INNERCITYFOODS JOINT VENTURE
COMPANY
By: /s/James T. Holder
---------------------------------
James T. Holder, Vice
President
AGENT AND BANKS:
WACHOVIA BANK OF GEORGIA, N.A.,
In its capacity as a Bank and as the Agent
By: /s/Edward H. Hutchison
-----------------------------------
Title: Senior Vice President
--------------------------------
BARNETT BANK OF PINELLAS
COUNTY, BY BARNETT BANKS, INC.
as Attorney-in-Fact for Barnett
Bank of Pinellas County
By: /s/Julie Smith
-----------------------------------
Title: Loan Workout Officer
--------------------------------
[Signatures continued on following page]
-7-
<PAGE>
THE BOATMEN'S NATIONAL BANK OF
ST. LOUIS
By: /s/Robert Patton
-----------------------------------
Title: Vice President
--------------------------------
PNC BANK, KENTUCKY, INC.
By: /s/John Pendergrass
-----------------------------------
Title: Vice President
--------------------------------
NBD BANK
By: /s/ Tim Hanchett
-----------------------------------
Title: Vice President
--------------------------------
FIRST ALABAMA BANK
By: /s/ Ronald L. Miller
-----------------------------------
Title: Vice President
--------------------------------
-8-
ELEVENTH AMENDMENT AGREEMENT
THIS ELEVENTH AMENDMENT AGREEMENT (this "Amendment") is made on July 29,
1996, among CHECKERS DRIVE-IN RESTAURANTS, INC., a Delaware corporation (the
"Borrower"), the undersigned guarantors (the "Guarantors") , the banks (the
"Banks") party to the Amended and Restated Credit Agreement referred to below,
and WACHOVIA BANK OF GEORGIA, NA, a national banking association, acting in its
capacity as agent for itself and for the other Banks (the "Agent");
RECITALS:
Borrower, the Banks and the Agent are parties to (i) a certain Amended and
Restated Credit Agreement dated as of April 12, 1995, as last amended by a Tenth
Amendment Agreement, dated May 29, 1996 (as amended, the "Credit Agreement"),
and (ii) the other Loan Documents referenced in the Credit Agreement.
Borrower and the Guarantors have requested, and the Banks and the Agent
have agreed to, certain amendments to the Credit Agreement as hereinafter set
forth.
NOW, THEREFORE, for and in consideration of the above premises and other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged by the parties hereto, Borrower, Guarantors, the Banks and Agent
hereby covenant and agree as follows:
1. DEFINED TERMS Unless otherwise specifically defined herein, each
capitalized term used herein which is defined in the Credit Agreement shall have
the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof," "hereunder," "herein" and "hereby" and each other similar reference
and each reference to "the Agreement" and each other similar reference contained
in this Amendment shall from and after the date hereof refer to the Credit
Agreement as heretofore amended and as amended hereby.
2. AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement is hereby
amended as follows, but with each such amendment to be effective if and only if
each of the Banks signatory hereto sells and assigns to the Proposed Assignee
(as hereinafter defined), and receives from the Proposed Assignee the purchase
price for, such Bank's respective rights and interests under the Loan Documents:
(a) By deleting Section 7.09 of the Credit Agreement in its entirety and by
substituting the following in lieu thereof:
Section 7.09. RESIGNATION OR REMOVAL OF AGENT. Subject to the
appointment and acceptance of a successor Agent as provided below,
the Agent may resign at any time by giving not Ice thereof to the
Banks and Borrower, and the Agent may be removed at any time with or
without cause by the Required Banks. if a Bank which is serving as
Agent assigns all of its rights and interests hereunder pursuant to
Section 9.08 hereof, such assignment shall operate as, and shall be
deemed notice to the other Banks and to the Borrower of, the Agent's
resignation. Upon any such resignation or :removal, the Required
Banks or their respective assignees shall have the right to appoint
<PAGE>
a successor Agent. If no successor Agent shall have been so
appointed by the Required Banks or their respective assignees and
shall have accepted such appointment within 30 days after the
retiring Agent's notice of resignation, the Required Banks' removal
of the retiring Agent, or the retiring Agent Is notice of
assignment, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent
shall be discharged from its duties and obligations hereunder.
Notwithstanding the foregoing, if each Bank shall assign all of its
respective rights and interests hereunder pursuant to Section 9.08
hereof to the assignee or assignees, then such assignee or
assignees, or their respective designee, shall automatically be
deemed to be, and shall have all of the powers, rights and
privileges of, the Agent as of the effective date of such
assignment. After any retiring Agent's resignation or removal
hereunder as Agent, the provisions of this Article VII shall
continue in effect for its benefit in respect of any actions taken
or omitted to be taken by it while it was acting as the Agent
hereunder.
(b) By deleting the first sentence of Section 9.08 (b) of the Credit
Agreement and by substituting the following new sentence in lieu thereof:
(b) Any Bank (or assignee of a Bank) may at any time sell to one
or more Persons (each a "Participant") participating interests in
any Loan owing to such Bank, any Note held by such Bank, any
Commitment hereunder or any other interest of such Bank hereunder.
(c) By deleting Section 9.08(c) of the Credit Agreement and by
substituting the following in lieu thereof:
(c) Any Bank or assignee of any Bank (in either case, a
"Transferor") may at any time assign to one or more banks or other
financial institutions (each an "Assignee") all, or a proportionate
part of all, of its rights and obligations under this Agreement, the
Notes and the other Loan Documents (but in no event shall such
Assignment of any portion of the principal balance of any Note
(other than the Revolving Participated Note) be less than either (i)
the entire principal amount of such Note or (ii) $2,000,000), and
such Assignee shall assume all rights and obligations of the
Transferor hereunder pursuant to an agreement executed by such
Assignee, such Transferor and the Agent in form and substance
satisfactory to the Agent (an "Assignment Agreement") . Upon (a)
execution of the Assignment Agreement by such Transferor, such
Assignee and the Agent, (b) payment by such Assignee to such
Transferor of an amount equal to the purchase price agreed between
such Transferor and such Assignee, and (c) payment of a processing
and recordation fee of $2,000 to the Agent, such Assignee shall for
all purposes be a Bank party to this Agreement and shall have all
-2-
<PAGE>
the rights and obligations of a Bank under this Agreement to the
same extent as if it were an original party hereto with a Commitment
as set forth in the Assignment Agreement, and the Transferor shall
be released from its obligations hereunder to a corresponding
extent, and no further consent or action by the Borrower, the Banks
or the Agent shall be required. Upon the consummation of any
transfer to an Assignee pursuant to this paragraph (c), the
Transferor, the Agent and the Borrower shall make appropriate
arrangements so that, if required, a new Note is issued to such
Assignee.
3. LIMITED WAIVER OF DEFAULTS. Borrower acknowledges that Events of
Default have occurred and now exist under the Credit Agreement (i) as a result
of Borrower's breach of certain financial covenants (the "Financial Covenant
Defaults") and (ii) as a result of the Borrower's failure to make certain
payments due on the Syndicated Term Loans, including the payment due on July 15,
1996 (the "Payment Defaults") (the Financial Covenant Defaults and the Payment
Defaults are hereinafter referred to collectively as the "Designated Defaults").
Borrower represents and warrants that the Designated Defaults are the only
Defaults or Events of Default that exist under the Credit Agreement and the
other Loan Documents as of the date hereof. Subject to the assignment by all of
the Banks signatory hereto of all of their respective rights and interests under
the Loan Documents to the Proposed Assignee (as hereinafter defined), the Agent
and the Banks each hereby waives the Designated Defaults in existence on the
date hereof through August 15, 1996, provided that on August 15, 1996, Borrower
shall be required to be in compliance with all covenants set forth in the Credit
Agreement, including all financial covenants, and Borrower shall be required to
pay to the Agent for the benefit of the Banks all amounts necessary to cure the
Payment Defaults. In no event shall such waiver be deemed to constitute a waiver
of (a) any Default or Event of Default other than the Designated Defaults in
existence on the date of this Amendment or (b) Borrower's obligation to comply
with all of the terms and conditions of the Credit Agreement and the other Loan
Documents from and after the date hereof. Notwithstanding any prior, temporary
mutual disregard of the terms of any contracts between the parties, the Borrower
agrees that it shall be required strictly to comply with all of the terms of the
Loan Documents on and after the date hereof.
4. CONSENT TO ASSIGNMENTS. Borrower hereby consents to the assignments by
the Banks of all of their respective rights and interests, and any or all of
their obligations, under the Credit Agreement and the other Loan Documents,
including, without limitation, all of the Loans and Commitments, to The Galileo
Fund, L.P. and DDJ Capital Management LLC, or either of them (collectively, the
"Proposed Assignee"), and agrees that such assignments may be evidenced by
execution by each Bank of an assignment in form acceptable to Agent and the
Proposed Assignee, and waives any requirement under Section 9.08 (c) of the
Credit Agreement that such assignments be effectuated by an assignment in the
form attached to the Credit Agreement (as in effect prior to giving effect to
this Amendment) as EXHIBIT D. From and after the date of such assignments to the
Proposed Assignee, the Proposed Assignee shall be substituted for the Banks
under the Credit Agreement.
-3-
<PAGE>
5 SURRENDER OF WARRANTS. Effective upon any assignment by all, but not
less than all, Banks of their respective interests under the Credit Agreement to
the Proposed Assignee, each Bank shall surrender to Borrower such Bank's Warrant
Agreement for transfer to the Proposed Assignee and Borrower shall concurrently
therewith execute and deliver in favor and in the name of the Proposed Assignee
a certificate or certificates representing such Warrant Agreement.
6. PAYMENT OF PORTION OF EXTENSION FEES WITH INTEREST. Borrower
acknowledges and agrees that $100,000 of the fees referred to in Section 13 of
the Ninth Amendment Agreement dated as of March 15, 1996, among Borrower, Banks
and Agent (the "Ninth Amendment") has been earned, is due and payable in full on
the sooner to occur of payment in full of all Loans or July 31, 1998 (as set
forth in Section 13 of the Ninth Amendment), constitutes a part of the
obligations and is secured by all of the Collateral. Borrower ratifies and
reaffirms its obligation to pay all fees (collectively the "Extension Fees") set
forth in Section 13 of the Ninth Amendment. In addition, Borrower agrees that
the portion of the Extension Fees in the amount of $100,000, which has been
fully earned as of the date hereof, shall bear interest from and after the date
of this Amendment until paid in full, on the unpaid balance thereof from time to
time outstanding, at a variable rate per annum applicable from time to time to
the Syndicated Terms Loans and calculated in the same manner as interest is
calculated with respect to the Syndicated Term Loans. All such interest shall be
due and payable monthly, in arrears, at the time and in the manner that interest
is due and payable with respect to the Syndicated Term Loans.
7. REPRESENTATIONS AND WARRANTIES. Borrower and Guarantors each hereby
restates and renews each and every representation and warranty heretofore made
by it in the Credit Agreement or the other Loan Documents as fully as if made on
the date hereof and with specific reference to this Amendment and all other
instruments and documents executed and delivered in connection herewith and
represents and warrants that (i) no Default or Event of Default exists except
for the Designated Defaults referenced in Section 3 of this Amendment, (ii) as
of the date hereof, the aggregate principal balance of Loans outstanding under
the Credit Agreement, exclusive of accrued interest, fees (including the
Extension Fees), costs and attorneys, fees chargeable to the Borrower under the
Loan Documents, totalled $35,718,098.88, (iii) the Borrower has no right of
offset, defense, counterclaim, recoupment, claim or objection arising out of or
with respect to any of the Obligations arising under the Credit Agreement or the
other Loan Documents (and, to the extent any right of offset, defense,
counterclaim, recoupment, claim or objection may exist, the same are irrevocably
waived), (iv) each of the Loan Documents is a valid and enforceable obligation
of Borrower, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization and similar laws affecting creditors,
rights generally, moratorium laws from time to time in effect and equitable
principles :restricting the availability of equitable remedies, and (v) there
are no proceedings pending, or to the best of Borrower's knowledge, threatened
against or affecting Borrower before any federal, state or other governmental
agency, authority, administrative or regulatory body, arbitrator, court or other
tribunal, foreign and domestic, which singly or in the aggregate, could
materially and adversely affect any of the Loans or any of the Loan Documents
-4-
<PAGE>
other than litigation disclosed in filings with Borrower under the applicable
securities laws or otherwise disclosed to the public through press releases or
other written disclosures, litigation threatened by unpaid vendors, franchisees
and landlords of premises used or occupied by Borrower and a pending
administrative action by the Florida Department of Labor and Employment Security
to revoke Borrower's self-insured status (which administrative action has been
settled subject to the performance of certain covenants by Borrower). None of
the obligations are subject to any ad-verse claims assertable by Borrower for
disallowance, impairment, reduction or subordination, in whole or in part.
8. RATIFICATION AND REAFFIRMATION. Borrower and Guarantors each hereby
restates, ratifies and reaffirms each and every term, covenant and condition set
forth in the Credit Agreement and the other Loan Documents effective as of the
date hereof as the same may have been expressly amended herein.
9. COUNTERPARTS; TELECOPIED SIGNATURES. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Any signature delivered by telecopier shall be
deemed to constitute an original signature hereto.
10. BINDING OBLIGATIONS; NO NOVATION. Except as otherwise expressly
provided in this Amendment, nothing herein shall be deemed to amend or modify
any provision of the Credit Agreement or any of the other Loan Documents, each
of which shall remain in full force and effect as a legal, valid and binding
obligation of Borrower and Guarantors enforceable against them in accordance
with the terms thereof. Neither this Amendment nor any prior amendment to the
Credit Agreement is intended to be, nor shall it be construed to create, a
novation or accord and satisfaction.
11. SECTION TITLES. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto evidenced hereby.
12. FURTHER ASSURANCES. Borrower and each Guarantor agrees to take
such further actions as the Agent shall reasonably request in connection
herewith to evidence the amendments herein contained to the Credit Agreement.
13. AMENDMENT TO CONSTITUTE LOAN DOCUMENT. This Amendment shall be
deemed to be a Loan Document for all purposes under the Credit Agreement.
Borrower and each of the Guarantors agree that a default under, or the breach of
any covenant or other term of, this Amendment shall constitute a Default under
the Credit Agreement.
14. EFFECTIVENESS; GOVERNING LAW. This Amendment shall be effective upon
execution of this Amendment by Borrower and Guarantors, and the acceptance of
this Amendment in writing by the Banks and by the Agent in Atlanta, Georgia
(notice of which acceptance is hereby waived by the Borrower and the
Guarantors), whereupon this Amendment shall become a contract made in Georgia
and governed by, and construed and interpreted in accordance with, the internal
laws of the State of Georgia.
-5-
<PAGE>
15. COVENANT NOT TO SUE. Effective upon the sale by each Bank signatory
hereto of all of its rights and interests under the Credit Agreement to the
Proposed Assignee, and the substitution of such Proposed Assignee or its
designee as the successor Agent under the Credit Agreement and the other Loan
Documents pursuant to the provisions of Section 7. 09 of the Credit t Agreement,
each Bank signatory hereto acknowledges that it will have no further claims
against Borrower or any Guarantor under any of the Loan Documents by virtue of
the fact that each Bank has sold to the Proposed Assignee all such claims, with
the exception of rights of each Bank signatory hereto and the existing Agent to
indemnification from Borrower and Guarantors under the Loan Documents as in
effect on the date hereof (and without regard to any amendments to the Loan
Documents hereafter made by the parties thereto) , which ]rights to
indemnification shall survive any such assignments to the Proposed Assignee and
the resignation of the existing Agent. Accordingly, each Bank signatory hereto
covenants that it will not sue Borrower or any Guarantor after the effective
date of its assignment to the Proposed Assignee and the appointment of a
successor Agent in connection therewith, except for suits by such Bank or the
existing Agent for indemnification by Borrower and Guarantors under the Loan
Documents as in effect on the date hereof (and WIthout regard to any amendments
to the Loan Documents hereafter made by the parties thereto) ; PROVIDED,
HOWEVER, that (i) in no event shall Borrower be obligated to indemnify any Bank
as a consequence of any suits among the Banks and (ii) in no event shall the
ongoing indemnification of the existing Agent or the Banks signatory hereto
permit any such Banks or the existing Agent to recover legal fees and expenses
incurred through the date hereof. The provisions of this paragraph 15 are solely
for the benefit of Borrower, Guarantors, the Banks signatory hereto and Wachovia
as the existing Agent on the date hereof and former Agent after the date hereof,
shall constitute an agreement among them that shall survive any sale by the
Banks signatory hereto of their respective rights and interests under the Loan
Documents and the resignation of Wachovia as Agent, and may not be amended or
modified other than by a written agreement duly executed by Borrower,
Guarantors, the Banks signatory hereto and Wachovia as the existing or former
Agent.
16. WAIVERS AND RELEASES. THROUGH THE DATE OF THIS AMENDMENT, EACH OF
BORROWER AND GUARANTORS HEREBY KNOWINGLY AND VOLUNTARILY, FOREVER RELEASES,
ACQUITS AND DISCHARGES THE AGENT AND THE BANKS, AND THEIR RESPECTIVE DIRECTORS,
OFFICERS, AND OTHER AGENTS (COLLECTIVELY, THE "LENDER GROUP") (A)FROM AND OF ANY
AND ALL CLAIMS ARISING FROM ACTS OR OMISSIONS OF THE LENDER GROUP THAT MAY HAVE
OCCURRED ON OR BEFORE THE DATE HEREOF THAT THE LENDER GROUP (1) IS IN ANY WAY
RESPONSIBLE FOR THE PAST, CURRENT OR FUTURE CONDITION OR DETERIORATION OF THE
BUSINESS OPERATIONS AND/OR FINANCIAL CONDITION OF BORROWER OR ANY GUARANTOR, OR
(2) BREACHED ANY AGREEMENT TO LOAN MONEY OR MAKE OTHER FINANCIAL ACCOMMODATIONS
AVAILABLE TO BORROWER OR TO FUND ANY OPERATIONS OF BORROWER AT ANY TIME, AND (B)
FROM AND OF ANY AND ALL OTHER CLAIMS, DAMAGES, LOSSES, ACTIONS, COUNTERCLAIMS,
SUITS, JUDGMENTS, OBLIGATIONS, LIABILITIES, DEFENSES, AFFIRMATIVE DEFENSES,
SETOFFS, AND DEMANDS OF ANY KIND OR NATURE WHATSOEVER, IN LAW OR IN EQUITY,
WHETHER KNOWN OR UNKNOWN, LIQUIDATED OR UNLIQUIDATED, OR DISPUTED OR UNDISPUTED,
WHICH BORROWER OR ANY GUARANTOR MAY NOW RAVE OR EVER HAD BY REASON OF ANY
TRANSACTION OR OCCURRENCE ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS
AMENDMENT, THE LOANS, THE CREDIT AGREEMENT, THE PRIOR AGREEMENT, OR ANY OF THE
-6-
<PAGE>
OTHER LOAN DOCUMENTS. BORROWER AND EACH GUARANTOR FURTHER AGREES THAT FROM AND
AFTER THE DATE HEREOF, IT WILL NOT ASSERT TO ANY PERSON OR ENTITY THAT ANY
DETERIORATION OF THE BUSINESS OPERATIONS OR FINANCIAL CONDITION OF BORROWER OR
ANY SUCH GUARANTOR WAS CAUSED BY ANY BREACH OR WRONGFUL ACT OF ANY OF THE LENDER
GROUP WHICH MAY HAVE OCCURRED ON OR PRIOR TO THE DATE HEREOF.
IN WITNESS WHEREOF, Borrower, Guarantors, the Banks and Agent have caused
this Amendment to be duly executed by their respective duly authorized officers,
on the date and year first above written.
BORROWER:
CHECKERS DRIVE-IN RESTAURANTS, INC.
By: /s/James T. Holder
---------------------------------
James T. Holder, Vice
President
GUARANTORS:
INNERCITYFOODS RESTAURANTS
COMPANY
By: /s/James T. Holder
---------------------------------
James T. Holder, Vice
President
INNERCITYFOODS LEASING COMPANY
By: /s/James T. Holder
---------------------------------
James T. Holder, Vice
President
INNERCITYFOODS JOINT VENTURE
COMPANY
By: /s/James T. Holder
---------------------------------
James T. Holder, Vice
President
AGENT AND BANKS:
WACHOVIA BANK OF GEORGIA, N.A.,
In its capacity as a Bank and as the Agent
By: /s/Edward H. Hutchison
-----------------------------------
Title: Senior Vice President
--------------------------------
[Signatures continued on following page]
-7-
<PAGE>
BARNETT BANK OF PINELLAS
COUNTY, BY BARNETT BANKS, INC.
as Attorney-in-Fact for Barnett
Bank of Pinellas County
By: /s/Julie Smith
-----------------------------------
Title: Loan Workout Officer
--------------------------------
THE BOATMEN'S NATIONAL BANK OF
ST. LOUIS
By: /s/Robert Patton
-----------------------------------
Title: Vice President
--------------------------------
PNC BANK, KENTUCKY, INC.
By: /s/John Pendergrass
-----------------------------------
Title: Vice President
--------------------------------
NBD BANK
By: /s/Tim Hanchett
-----------------------------------
Title: Vice President
--------------------------------
FIRST ALABAMA BANK
By: /s/Ronald L. Miller
-----------------------------------
Title: Vice President
--------------------------------
-8-
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Employment Agreement") is made and
entered into as of the 26th day of July, 1996 (the "Commencement Date"), by and
between CHECKERS DRIVE-IN RESTAURANTS, INC., a Delaware corporation (the
"Company"), and JAMES T. HOLDER, an individual ("Employee").
W I T N E S S E T H
WHEREAS, the Company develops, produces, owns, operates and
franchises quick-service "double drive-thru" restaurants under the name
"Checkers" (such activities, together with all other activities of the Company
and its subsidiaries, as conducted at or prior to the termination of this
Employment Agreement, and any future activities reasonably related thereto which
are contemplated by the Company and/or its subsidiaries at the termination of
this Employment Agreement identified in writing by the Company to Employee at
the date of such termination, are hereinafter referred to as the "Business
Activities");
WHEREAS, the Company desires to employ Employee upon the terms and
subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
promises, covenants and conditions herein contained and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
Section 1. EMPLOYMENt. The Company hereby employs Employee, and Employee
hereby accepts employment with the Company, all upon the terms and subject to
the conditions set forth in this Employment Agreement.
Section 2. CAPACITY AND DUTIES. Employee is and shall be employed in the
capacity of Vice President, Chief Financial Officer, General Counsel and
Secretary of the Company and its subsidiaries and shall have such other duties,
responsibilities and authorities as are assigned to him by the President so long
as such additional duties, responsibilities and authorities are consistent with
Employee's position and level of authority as Vice President, Chief Financial
Officer, General Counsel and Secretary of the Company. Subject to the advice and
general directions of the President, and except as otherwise herein provided,
Employee shall devote substantially all of his business time, best efforts and
attention to promote and advance the business of the Company and its
subsidiaries and to perform diligently and faithfully all the duties,
responsibilities and obligations of Employee to be performed by him under this
Employment Agreement. Employee's duties shall include all of those duties being
performed by Employee as of the date hereof.
During the Employment Period (as hereinafter defined),
Employee shall not be employed in any other business activity, whether or not
such activity is pursued for gain, profit or other pecuniary advantage;
provided, however, that this restriction shall not be construed as preventing
Employee from investing his personal assets in a business which does not compete
- 1 -
<PAGE>
with the Company or its subsidiaries or with any other company or entity
affiliated with the Company, where the form or manner of such investment will
not require services of any significance on the part of Employee in the
operation of the affairs of the business in which such investment is made and in
which his participation is solely that of a passive investor or advisor.
Section 3. TERM OF EMPLOYMENT. The term of employment of Employee by the
Company pursuant to this Employment Agreement shall be for the period (the
"employment Period") commencing on the Commencement Date and ending on the one
year anniversary of the Commencement Date, or such earlier date that Employee's
employment is terminated in accordance with the provisions of this Employment
Agreement; provided however, that the Employment Period shall automatically be
extended for a successive one year period, with Employee's written consent,
unless the Company gives Employee thirty (30) days written notice prior to the
end of such year that it does not intend to extend the term of the Employment
Period.
Section 4. PLACE OF EMPLOYMENT. Employee's principal place of work shall
be located at the principal offices of the Company, currently located in
Clearwater, Florida, provided that the principal offices of the Company may be
moved from time to time in the discretion of the Board of Directors.
Section 5. COMPENSATION. During the Employment Period, subject to all the
terms and conditions of this Employment Agreement and as compensation for all
services to be rendered by Employee under this Employment Agreement, the Company
shall pay to or provide Employee with the following:
Section 5.1. BASE SALARY. The Company shall pay to employee a base
annual salary at the rate of One Hundred Eighty Thousand Dollars ($180,000.00)
per year through the end of the term of the Agreement and any extensions
thereof, payable at such intervals (at least monthly) as salaries are paid
generally to other executive officers of the Company.
Section 5.2. BONUS. Employee shall be eligible to receive an annual
cash bonus pursuant to the cash bonus plan adopted by the Company, and available
generally to employees of similar position. The Company reserves the right to
modify or eliminate the cash bonus plan at any time.
Section 5.3. VACATION AND OTHER BENEFITS. Employee shall be entitled
to Three (3) weeks vacation during each calendar year. Vacation days not used
may not be carried into subsequent years. The Company shall provide Employee
with the other benefits specified on Exhibit 5.03 attached hereto.
Section 6. ADHERENCE TO STANDARDS. Employee shall comply with the written
policies, standards, rules and regulations of the Company from time to time
established for all executive officers of the Company consistent with Employee's
position and level of authority.
Section 7. REVIEW OF PERFORMANCE. The President shall periodically review
and evaluate the performance of Employee under this Employment Agreement with
Employee.
- 2 -
<PAGE>
Section 8. EXPENSES. The Company shall reimburse Employee for all
reasonable, ordinary and necessary expenses (including, but not limited to,
automobile and other business travel and customer entertainment expenses)
incurred by him in connection with his employment hereunder in accordance with
the written policy and guidelines established by the Company for executive
officers; provided, however, Employee shall render to the Company a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
Section 9. TERMINATION WITH CAUSE BY THE COMPANY. This Employment
Agreement may be terminated with Cause (as hereinafter defined) by the Company
provided that the Company shall (i) give Employee the Notice of Termination (as
hereinafter defined) and (ii) pay Employee his annual base salary through the
Date of Termination (as hereinafter defined) at the rate in effect at the time
the Notice of Termination is given plus any bonus or incentive compensation
which has been earned or has become payable pursuant to the terms of any
compensation or benefit plan as of the Date of Termination, but which have not
yet been paid.
Section 10. TERMINATION WITHOUT CAUSE BY THE COMPANY OR FOR GOOD REASON BY
EMPLOYEE. This Employment Agreement may be terminated by the Company (i) at the
end of the Term of Employment, (ii) during the Term of Employment without cause
as hereinafter defined, or (iii) by reason of the death or Disability Reason (as
hereinafter defined) provided that the Company shall continue to pay to Employee
(or the estate of Employee in the event of termination due to the death of
employee) the compensation and other benefits described in Section 5 of this
Employment Agreement, except for annual cash bonuses or incentive compensation
for six (6) months from the Date of Termination. Employee's right to terminate
his employment for Good Reason shall not be affected by his incapacity due to
physical or mental illness. In the event of termination by the Company by reason
of Employee's death or Disability, medical, hospitalization or disability
benefits coverage comparable to that provided by the company during Employee's
lifetime shall be provided to Employee, his spouse and dependents for twelve
(12) months from the Date of Termination, and for eighteen (18) months from the
Date of Termination with respect to medical and hospitalization benefits for the
Employee and his family. The benefits provided under this Section 10 shall be no
less favorable to Employee in terms of amounts, deductibles and costs to him, if
any, than such benefits provided by the Company to him and shall not be
interpreted so as to limit any benefits to which Employee, as a terminated
employee of the Company, or his family may be entitled under the Company's life
insurance, medical, hospitalization or disability plans following his Date of
Termination or under applicable law.
In the event of Termination by the Employee for Good Reason, the
Company shall continue to pay to Employee the compensation and other benefits
described in Section 5 of this Employment Agreement, except for annual cash
bonuses or incentive compensation for six (6) months from the Date of
Termination, and shall continue to provide medical, hospitalization or
disability benefits coverage to Employee, his spouse and dependents for twelve
(12) months from the Date of Termination.
- 3 -
<PAGE>
In the event that within a period of one (1) year of a Change in
Control, this Employment Agreement is terminated by the Company for any reason
other than for cause (or the Company gives notice that it is not renewing the
Employment Agreement pursuant to Section 3), the Company shall continue to pay
to Employee the compensation and other benefits described in Section 5 of this
Employment Agreement, except for annual cash bonuses or incentive compensation
for twelve (12) months from the Date of Termination, and shall continue to
provide medical, hospitalization or disability benefits coverage to Employee,
his or her spouse and dependents for a period of eighteen (18) months from the
Date of Termination.
Section 11. DEFINITIONS. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 12 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
Section 11.1. "Disability" shall mean a physical or mental illness
which, in the judgment of the company after consultation with the licensed
physician attending Employee, impairs Employee's ability to substantially
perform his duties under this Employment Agreement as an employee and as a
result of which he shall have been absent from his duties with the Company on a
full-time basis for six (6) consecutive months.
Section 11.2. A termination with "Cause" shall mean a termination of
this Employment Agreement by reason of a good faith determination by the Board
that Employee (i) failed to substantially perform his duties with this Company
(other than a failure resulting from his incapacity due to physical or mental
illness) after a written demand for substantial performance has been delivered
to him by the Board, which demand specifically identifies the manner in which
the Board believes he has not substantially performed his duties; (ii) has
engaged in conduct the consequences of which are materially adverse to the
company, monetarily or otherwise; or (iii) has materially breached the terms of
this Employment Agreement. No act, or failure to act, on Employee's part shall
be grounds for termination with Cause unless he has acted or failed to act with
an absence of good faith or without a reasonable belief that his action or
failure to act was in or at least not opposed to the best interests of the
Company. Employee shall not be deemed to have been terminated with cause unless
there shall have been delivered to Employee a letter setting forth the reasons
for the Company's termination of the Employee with cause.
Section 11.3. "Good Reason" shall mean the occurrence of any of the
following events without Employee's prior express written consent: (i) any
material change in Employee's status, title, authorities or responsibilities
under this Employment Agreement which represents a demotion from such status,
title, position or responsibilities which are materially inconsistent with his
status, title, position or work responsibilities set forth in this Employment
Agreement; or any removal of Employee from, or failure to appoint, elect,
reappoint or reelect Employee to, any of such positions, except in connection
with the termination of his employment with Cause, or as a result of his death
or Disability; provided, however, that no change in title, authorities or
responsibilities customarily attributable solely to the Company ceasing to be a
- 4 -
<PAGE>
publicly traded corporation shall constitute Good Reason hereunder; (ii) the
failure by the Company to continue in effect any incentive, bonus or other
compensation plan in which Employee participates, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to the failure to continue such plan, or the failure by the
Company to continue Employee's participation therein, or any action by the
Company which would directly or indirectly materially reduce his participation
therein or reward opportunities thereunder; provided, however, that Employee
continues to meet all eligibility requirements thereof; (iii) the failure by the
Company to continue in effect any employee benefit plan (including any medical,
hospitalization, life insurance or disability benefit plan in which Employee
participates), or any material fringe benefit or prerequisite enjoyed by him
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to the failure to continue such
plan, or the failure by the Company to continue Employee's participation
therein, or any action by the Company which would directly or indirectly
materially reduce his participation therein or reward opportunities thereunder,
or the failure by the Company to provide him with the benefits to which he is
entitled under this Employment Agreement; provided, however, that Employee
continues to meet all eligibility requirements thereof; (iv) any other material
breach by the Company of any provision of this Employment Agreement; (v) the
failure of the Company to obtain a satisfactory agreement from any successor or
assign of the Company to assume and agree to perform this Employment Agreement,
as contemplated in Section 22 hereof; (vi) any purported termination of
employee's employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of this Employment Agreement; and for purposes of
this Employment Agreement, no such purported termination shall be effective; or
(vii) any Change of Control as hereinafter defined) of the Company.
Section 11.4. Change of Control. "Change of Control" shall be deemed
to have occurred when: (i) securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding voting securities
are acquired pursuant to a tender offer or an exchange offer by a person or
entity which is not a wholly-owned subsidiary of the Company or any of its
affiliates; (ii) a merger or consolidation is consummated in which the Company
is a constituent corporation and which results in less than 50% of the
outstanding voting securities of the surviving or resulting entity being owned
by the then existing stockholders of the Company; (iii) a sale is consummated by
the Company of substantially all of the Company's assets to a person or entity
which is not a wholly-owned subsidiary of the Company or any of its affiliates;
(iv) a Control Purchase (as defined in Section 8 of the Plan) has occurred; (v)
during any period of two consecutive years, individuals who, at the beginning of
such period, constituted the Board cease, for any reason, to constitute at least
a majority thereof, unless the election or nomination for election for each new
director was approved by the vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period; (vi) an
Approved Transaction (as defined in Section 8 of the Plan) has occurred; or
(vii) a merger or consolidation with Rally's Hamburgers, Inc, CKE Restaurants,
Inc., or any entity affiliated with either or them.
Section 11.5. Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specified termination provision
in this Employment Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Employee's employment under the provision so indicated; provided, however, no
such purported termination shall be effective without such Notice of
- 5 -
<PAGE>
Termination; provided further, however, any purported termination by the Company
or by Employee shall be communicated by a Notice of Termination to the other
party hereto in accordance with Section 13 of this Employment Agreement.
Section 11.6. Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination (which, in the case of a
termination pursuant to section 10 of this Employment Agreement shall not be
less than sixty (60) days, and in the case of a termination pursuant to Section
11 of this Employment Agreement shall not be more than sixty (60) days, from the
date such Notice of Termination is given); provided, however, that if within
thirty (30) days after any Notice of Termination is given the party receiving
such Notice of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date finally
determined by either mutual written agreement of the parties or by the final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been taken).
Section 12. FEES AND EXPENSES. The Company shall pay all legal fees and
related expenses (including the costs of experts, evidence and counsel) incurred
by Employee as a result of a contest or dispute over Employee's termination of
employment if such contest or dispute is resolved in Employee's favor.
Section 13. NOTICES. For the purposes of this Employment Agreement,
notices and all other communications provided for in the Employment Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with established national reputation,
shipping prepaid or billed to sender, in either case addressed to the respective
addresses last given by each party to the other (provided that all notices to
the Company shall be directed to the attention of the President with a copy to
the Secretary of the Company) or to such other address as either party may have
furnished to the other in writing in accordance herewith. All notices and
communication shall be deemed to have been received on the date of delivery
thereof, or on the second day after deposit thereof with an expedited courier
service, except that notice of change of address shall be effective only upon
receipt.
Section 14. LIFE INSURANCE. The Company may, at any time after the
execution of this Employment Agreement, apply for and procure as owner and for
its own benefit, life insurance on Employee, in such amounts and in such form or
forms as the Company may determine. Employee shall, at the request of the
Company, submit to such medical examinations, supply such information, and
execute such documents as may be required by the insurance company or companies
to whom the Company has applied for such insurance. Employee hereby represents
that to his knowledge he is in excellent physical and mental condition and is
not under the influence of alcohol, drugs or similar substance.
Section 15. PROPRIETARY INFORMATION AND INVENTIONS. Employee understands
and acknowledges that:
- 6 -
<PAGE>
Section 15.1. TRUST. Employees employment creates a relationship of
confidence and trust between Employee and the Company with respect to certain
information applicable to the business of the Company its subsidiaries
(collectively, the "Group") or applicable to the business of any franchisee,
vendor or customer of any of the Group, which may be made known to Employee by
the Group or by any franchisee, vendor or customer of any of the Group or
learned by Employee during the employment Period.
Section 15.2. PROPRIETARY INFORMATION. The Group possesses and will
continue to possess information that has been created, discovered, or developed
by, or otherwise become known to, the Group (including, without limitation,
information created, discovered, developed or made known to by Employee during
the period of or arising out of my employment by the Company) or in which
property rights have been or may be assigned or otherwise conveyed to the Group,
which information has commercial value in the business in which the Group is
engaged and is treated by the Group as confidential. Except as otherwise herein
provided, all such information is hereinafter called "Proprietary Information",
which term, as used herein, shall also include, but shall not be limited to,
data, functional specifications, computer programs, know-how, research,
technology, improvements, developments, designs, marketing plans, strategies,
forecasts, new products, unpublished financial statements, budgets, projections,
licenses, franchises, prices, costs, and customer, supplier and potential
acquisition candidates lists. Notwithstanding anything to the contrary, the term
"Proprietary Information" shall not include (i) information which is in the
public domain, (ii) information which is published or otherwise becomes part of
the public domain through no fault of Employee, (iii) information which Employee
can demonstrate was in Employee's possession at the time of disclosure and was
not acquired by Employee directly or indirectly from any of the Group on a
confidential basis, (iv) information which becomes available to Employee on a
non-confidential basis from a source other than any of the Group and which
source, to the best of employee's knowledge, did not acquire the information on
a confidential basis or (v) information required to be disclosed by any federal
or state law, rule or regulation or by any applicable judgment, order or decree
or any court or governmental body or agency having jurisdiction in the premises.
All Proprietary Information shall be the sole property of the
Group and their respective assigns. Employee assigns to the Company any rights
Employee may have or acquire in such Proprietary Information. At all times, both
during Employee's employment by the Company and after its termination, Employee
shall keep in strictest confidence and trust all Proprietary Information, and
Employee shall not use or disclose any Proprietary Information without the
written consent of the Group, except as may be necessary in the ordinary course
of performing Employee's duties as an employee of the Company.
Section 16. SURRENDER OF DOCUMENTS. Employee shall, at the request of the
Company, promptly surrender to the Company or its nominee any Proprietary
Information or document, memorandum, record, letter or other paper in his
possession or under his control relating to the operation, business or affairs
of the Group.
Section 17. PRIOR EMPLOYMENT AGREEMENTS. Employee represents and warrants
that Employee's performance of all the terms of this employment Agreement and as
an employee of the Company does not, and will not, breach any employment
agreement, arrangement or understanding or
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any agreement, arrangement or understanding to keep in confidence proprietary
information acquired by Employee in confidence or in trust prior to Employee's
employment by the Company. Employee has not entered into, and shall not enter
into, any agreement, arrangement or understanding, either written or oral, which
is in conflict with this Employment Agreement or which would be violated by
Employee entering into, or carrying out his obligations under, this Employment
Agreement.
Section 18. RESTRICTIVE COVENANT. Employee acknowledges and recognizes
Employee's possession of Proprietary Information and the highly competitive
nature of the business of the Group and, accordingly, so long as the Company is
not in default under this Agreement agrees that in consideration of the premises
contained herein Employee will not, during the period of Employee's employment
by the Company and (i) for a period of one (1) year following the Date of
Termination if this Employment Agreement is terminated by the Company with Cause
or by the Employee other than for Good Reason or (ii) six (6) months following
the Termination Date if this Employment Agreement is terminated by the Company
other than with Cause or by the Employee for Good Reason, (a) directly or
indirectly engage in any Competitive Business (as hereinafter defined) in the
United States, whether such engagement shall be an employer, officer, director,
owner, employee, consultant, stockholder, partner or other participant in any
Competitive Business, (b) assist others in engaging in any Competitive Business
in the manner described in the foregoing clause (a), or (c) induce employees of
the Company to terminate their employment with the Company or engage in any
Competitive Business in the United States; provided, however, that the ownership
of the outstanding capital stock of a corporation whose shares are traded on a
national securities exchange or on the over-the-counter market or the ownership
and/or operation of a Checkers Restaurant under a franchise agreement with the
Company shall not be deemed engaging any Competitive Business. "Competitive
Business" shall mean any restaurant providing exclusively drive-thru or
drive-in, fast food, primarily featuring hamburgers, cheeseburgers, hot dogs or
other food items offered by a Checkers Restaurant, or any other business that is
the same as or similar to the Checkers Restaurant concept as it exists on the
date of this Employment Agreement or on the Termination Date.
Section 19. REMEDIES. Employee acknowledges and agrees that the Company's
remedy at law for a breach or a threatened breach of the provisions herein would
be inadequate, and in recognition of this Fat, in the event of a breach or
threatened breach by Employee of any of the provisions of this Employment
Agreement, it is agreed that the Company shall be entitled to, equitable relief
in the form of specific performance, a temporary restraining order, a temporary
or permanent injunction or any other equitable remedy which may then be
available, without posting bond or other security. Employee acknowledges that
the granting of a temporary injunction, a temporary restraining order or other
permanent injunction merely prohibiting Employee from engaging in any Business
Activities would not be an adequate remedy upon breach or threatened breach of
this Employment Agreement, and consequently agrees upon any such breach or
threatened breach to the granting of injunctive relief prohibiting Employee from
engaging in any activities prohibited by this Employment Agreement. No remedy
herein conferred is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to any other
remedy given hereunder now or hereinafter existing at law or in equity or by
statute or otherwise.
Section 20. SUCCESSIVE EMPLOYMENT NOTICE. Within five (5) business days
after the Termination Date, Employee shall provide notice to the Company of
Employee's next intended
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<PAGE>
employment. If such employment is not known by employee at such date, Employee
shall notify the Company immediately upon determination of such information.
Employee shall continue to provide the company with notice of employee's place
and nature of employment and any change in place or nature of employment during
the period ending (i) two (2) years after the Termination Date if this
Employment Agreement is terminated by the Company for Cause or by the Employee
other than for Good Reason or (ii) six (6) months after the Termination Date if
this employment Agreement is terminated by the company other than for Cause or
by the Employee for Good Reason. Failure of employee to provide the company with
such information in an accurate and timely fashion shall be deemed to be a
breach of this Employment Agreement and shall entitle the Company to all
remedies provided for in this Employment Agreement as a result of such breach.
Section 21. SUCCESSORS. This Employment Agreement shall be binding on the
Company and any successor to any of its businesses or assets. Without limiting
the effect of the prior sentence, the Company shall use its best efforts to
require any successor or assign (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Employment Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession or assignment had taken
place. As used in this Employment Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor or assign to its business and/or assets
as aforesaid which assumes and agrees to perform this Employment Agreement or
which is otherwise obligated under this Agreement by the first sentence of this
Section 22, by operation of law or otherwise.
Section 22. INDEMNIFICATION AGREEMENT. Upon the execution of this
Employment Agreement, the Company and employee shall each execute and deliver to
the other an Indemnification Agreement dated as of the date hereof.
Section 23. BINDING EFFECT. This Employment Agreement shall inure to the
benefit of and be enforceable by Employee's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts would still be payable to him
hereunder if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Employment
Agreement to Employee's estate.
Section 24. MODIFICATION AND WAIVER. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by Employee and such officer as
may be specifically designated by the Board. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Employment Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
Section 25. HEADINGS. Headings used in this Agreement are for convenience
only and shall not be used to interpret or construe its provisions.
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Section 26. WAIVER OF BREACH. The waiver of either the Company or Employee
of a breach of any provision of this Employment Agreement shall not operate or
be construed as a waiver of any subsequent breach by either the Company or
Employee.
Section 27. AMENDMENTS. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same is in
writing and signed by all of the parties hereto.
Section 28. SEVERABILITY. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability. It is
expressly understood and agreed that while the Company and Employee consider the
restrictions contained in this Employment Agreement reasonable for the purpose
of preserving for the Company the good will, other proprietary rights and
intangible business value of the Company if a final judicial determination is
made by a court having jurisdiction that the time or territory or any other
restriction contained in this employment Agreement is an unreasonable or
otherwise unenforceable restriction against Employee, the provisions of such
clause shall not be rendered void but shall be deemed amended to apply as to
maximum time and territory and to such other extent as such court may judicially
determine or indicate to be reasonable.
Section 29. GOVERNING LAW. This Employment Agreement shall be construed
and enforced pursuant to the laws of the State of Florida.
Section 30. ARBITRATION. Any controversy or claim arising out of or
relating to this Employment Agreement or any transactions provided for herein,
or the breach thereof, other than a claim for injunctive relief shall be settled
by arbitration in accordance with the commercial Arbitration Rules of the
American Arbitration Association (the "Rules") in effect at the time demand for
arbitration is made by any party. The evidentiary and procedural rules in such
proceedings shall be kept to the minimum level of formality that is consistent
with the Rules. One arbitrator shall be named by the Company, a second shall be
named by Employee and the third arbitrator shall be named by the two arbitrators
so chosen. In the event that the third arbitrator is not agreed upon, he or she
shall be named by the American Arbitration Association. Arbitration shall occur
in Tampa, Florida or such other location agreed to by the Company and employee.
The award made by all or a majority of the panel of arbitrators shall be final
and binding, and judgment may be entered in any court of law having competent
jurisdiction. The award is subject to confirmation, modification, correction, or
vacation only as explicitly provided in Title 9 of the United States Code. The
prevailing party shall be entitled to an award of pre- and post-award interest
as well as reasonable attorneys' fees incurred in connection with the
arbitration and any judicial proceedings related thereto.
Section 31. EXECUTIVE OFFICER STATUS. Employee acknowledges that he shall
be deemed to be an "executive officer" of Checkers for purposes of the
Securities Act of 1993, as amended (the "1933 Act"), and the Securities Exchange
Act of 1934, as amended (the "1934 Act") and that he shall comply in al respects
with all the rules and regulations under the 1933 Act and the 1934 act
applicable to him in a timely and non-delinquent manner. In order to assist the
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<PAGE>
company in complying with its obligations under the 1933 Act and 1934 Act,
Employee shall provide to the Company such information about Employee as the
Company shall reasonably request including, but not limited to, information
relating to personal history and stockholdings. Employee shall report to the
General Counsel of the Company or other designated officer of the Company all
changes in beneficial ownership of any shares of the Company Common Stock deemed
to be beneficially owned by Employee and/or any members of Employee's immediate
family.
Section 32. COUNTERPARTS. This employment Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute but one document.
Section 33. EXHIBITS. The Exhibits attached hereto are incorporated herein
by reference and are an integral part of this Employment Agreement.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
by the Company and the Employee as of the date first above written.
CHECKERS DRIVE-IN RESTAURANTS, INC.
By: /S/ ALBERT J. DIMARCO
-------------------------------
Albert J. DiMarco, President
EMPLOYEE
/S/ JAMES T. HOLDER
----------------------------------
James T. Holder
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EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Employment Agreement") is made and
entered into as of the 26th day of July, 1996 (the "Commencement Date"), by and
between CHECKERS DRIVE-IN RESTAURANTS, INC., a Delaware corporation (the
"Company"), and MICHAEL T. WELCH, an individual ("Employee").
W I T N E S S E T H
WHEREAS, the Company develops, produces, owns, operates and
franchises quick-service "double drive-thru" restaurants under the name
"Checkers" (such activities, together with all other activities of the Company
and its subsidiaries, as conducted at or prior to the termination of this
Employment Agreement, and any future activities reasonably related thereto which
are contemplated by the Company and/or its subsidiaries at the termination of
this Employment Agreement identified in writing by the Company to Employee at
the date of such termination, are hereinafter referred to as the "Business
Activities");
WHEREAS, the Company desires to employ Employee upon the terms and
subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
promises, covenants and conditions herein contained and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
Section 1. EMPLOYMENT. The Company hereby employs Employee, and Employee
hereby accepts employment with the Company, all upon the terms and subject to
the conditions set forth in this Employment Agreement.
Section 2. CAPACITY AND DUTIES. Employee is and shall be employed in the
capacity of Vice President, Marketing, R & D of the Company and its subsidiaries
and shall have such other duties, responsibilities and authorities as are
assigned to him by the President so long as such additional duties,
responsibilities and authorities are consistent with Employee's position and
level of authority as Vice President, Marketing, R & D of the Company. Subject
to the advice and general directions of the President, and except as otherwise
herein provided, Employee shall devote substantially all of his business time,
best efforts and attention to promote and advance the business of the Company
and its subsidiaries and to perform diligently and faithfully all the duties,
responsibilities and obligations of Employee to be performed by him under this
Employment Agreement. Employee's duties shall include all of those duties being
performed by Employee as of the date hereof.
During the Employment Period (as hereinafter defined),
Employee shall not be employed in any other business activity, whether or not
such activity is pursued for gain, profit or other pecuniary advantage;
provided, however, that this restriction shall not be construed as preventing
Employee from investing his personal assets in a business which does not compete
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with the Company or its subsidiaries or with any other company or entity
affiliated with the Company, where the form or manner of such investment will
not require services of any significance on the part of Employee in the
operation of the affairs of the business in which such investment is made and in
which his participation is solely that of a passive investor or advisor.
Section 3. TERM OF EMPLOYMENT. The term of employment of Employee by the
Company pursuant to this Employment Agreement shall be for the period (the
"employment Period") commencing on the Commencement Date and ending on the one
year anniversary of the Commencement Date, or such earlier date that Employee's
employment is terminated in accordance with the provisions of this Employment
Agreement; provided however, that the Employment Period shall automatically be
extended for a successive one year period, with Employee's written consent,
unless the Company gives Employee thirty (30) days written notice prior to the
end of such year that it does not intend to extend the term of the Employment
Period.
Section 4. PLACE OF EMPLOYMENT. Employee's principal place of work shall
be located at the principal offices of the Company, currently located in
Clearwater, Florida, provided that the principal offices of the Company may be
moved from time to time in the discretion of the Board of Directors.
Section 5. COMPENSATION. During the Employment Period, subject to all the
terms and conditions of this Employment Agreement and as compensation for all
services to be rendered by Employee under this Employment Agreement, the Company
shall pay to or provide Employee with the following:
Section 5.1. BASE SALARY. The Company shall pay to employee a base
annual salary at the rate of One Hundred Twenty-Eight Thousand Two Hundred Sixty
Dollars ($128,260.00) per year through the end of the term of the Agreement and
any extensions thereof, payable at such intervals (at least monthly) as salaries
are paid generally to other executive officers of the Company.
Section 5.2. BONUS. Employee shall be eligible to receive an annual
cash bonus pursuant to the cash bonus plan adopted by the Company, and available
generally to employees of similar position. The Company reserves the right to
modify or eliminate the cash bonus plan at any time.
Section 5.3. VACATION AND OTHER BENEFITS. Employee shall be entitled
to Two (2) weeks vacation during each calendar year. Vacation days not used may
not be carried into subsequent years. The Company shall provide Employee with
the other benefits specified on Exhibit 5.03 attached hereto.
Section 6. ADHERENCE TO STANDARDS. Employee shall comply with the written
policies, standards, rules and regulations of the Company from time to time
established for all executive officers of the Company consistent with Employee's
position and level of authority.
Section 7. REVIEW OF PERFORMANCE. The President shall periodically review
and evaluate the performance of Employee under this Employment Agreement with
Employee.
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<PAGE>
Section 8. EXPENSES. The Company shall reimburse Employee for all
reasonable, ordinary and necessary expenses (including, but not limited to,
automobile and other business travel and customer entertainment expenses)
incurred by him in connection with his employment hereunder in accordance with
the written policy and guidelines established by the Company for executive
officers; provided, however, Employee shall render to the Company a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
Section 9. TERMINATION WITH CAUSE BY THE COMPANY. This Employment
Agreement may be terminated with Cause (as hereinafter defined) by the Company
provided that the Company shall (i) give Employee the Notice of Termination (as
hereinafter defined) and (ii) pay Employee his annual base salary through the
Date of Termination (as hereinafter defined) at the rate in effect at the time
the Notice of Termination is given plus any bonus or incentive compensation
which has been earned or has become payable pursuant to the terms of any
compensation or benefit plan as of the Date of Termination, but which have not
yet been paid.
Section 10. TERMINATION WITHOUT CAUSE BY THE COMPANY OR FOR GOOD REASON BY
EMPLOYEE. This Employment Agreement may be terminated by the Company (i) at the
end of the Term of Employment, (ii) during the Term of Employment without cause
as hereinafter defined, or (iii) by reason of the death or Disability Reason (as
hereinafter defined) provided that the Company shall continue to pay to Employee
(or the estate of Employee in the event of termination due to the death of
employee) the compensation and other benefits described in Section 5 of this
Employment Agreement, except for annual cash bonuses or incentive compensation
for six (6) months from the Date of Termination. Employee's right to terminate
his employment for Good Reason shall not be affected by his incapacity due to
physical or mental illness. In the event of termination by the Company by reason
of Employee's death or Disability, medical, hospitalization or disability
benefits coverage comparable to that provided by the company during Employee's
lifetime shall be provided to Employee, his spouse and dependents for twelve
(12) months from the Date of Termination, and for eighteen (18) months from the
Date of Termination with respect to medical and hospitalization benefits for the
Employee and his family. The benefits provided under this Section 10 shall be no
less favorable to Employee in terms of amounts, deductibles and costs to him, if
any, than such benefits provided by the Company to him and shall not be
interpreted so as to limit any benefits to which Employee, as a terminated
employee of the Company, or his family may be entitled under the Company's life
insurance, medical, hospitalization or disability plans following his Date of
Termination or under applicable law.
In the event of Termination by the Employee for Good Reason, the
Company shall continue to pay to Employee the compensation and other benefits
described in Section 5 of this Employment Agreement, except for annual cash
bonuses or incentive compensation for six (6) months from the Date of
Termination, and shall continue to provide medical, hospitalization or
disability benefits coverage to Employee, his spouse and dependents for twelve
(12) months from the Date of Termination.
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<PAGE>
In the event that within a period of one (1) year of a Change in
Control, this Employment Agreement is terminated by the Company for any reason
other than for cause (or the Company gives notice that it is not renewing the
Employment Agreement pursuant to Section 3), the Company shall continue to pay
to Employee the compensation and other benefits described in Section 5 of this
Employment Agreement, except for annual cash bonuses or incentive compensation
for twelve (12) months from the Date of Termination, and shall continue to
provide medical, hospitalization or disability benefits coverage to Employee,
his or her spouse and dependents for a period of eighteen (18) months from the
Date of Termination.
Section 11. DEFINITIONS. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 12 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
Section 11.1. "Disability" shall mean a physical or mental illness
which, in the judgment of the company after consultation with the licensed
physician attending Employee, impairs Employee's ability to substantially
perform his duties under this Employment Agreement as an employee and as a
result of which he shall have been absent from his duties with the Company on a
full-time basis for six (6) consecutive months.
Section 11.2. A termination with "Cause" shall mean a termination of
this Employment Agreement by reason of a good faith determination by the Board
that Employee (i) failed to substantially perform his duties with this Company
(other than a failure resulting from his incapacity due to physical or mental
illness) after a written demand for substantial performance has been delivered
to him by the Board, which demand specifically identifies the manner in which
the Board believes he has not substantially performed his duties; (ii) has
engaged in conduct the consequences of which are materially adverse to the
company, monetarily or otherwise; or (iii) has materially breached the terms of
this Employment Agreement. No act, or failure to act, on Employee's part shall
be grounds for termination with Cause unless he has acted or failed to act with
an absence of good faith or without a reasonable belief that his action or
failure to act was in or at least not opposed to the best interests of the
Company. Employee shall not be deemed to have been terminated with cause unless
there shall have been delivered to Employee a letter setting forth the reasons
for the Company's termination of the Employee with cause.
Section 11.3. "Good Reason" shall mean the occurrence of any of the
following events without Employee's prior express written consent: (i) any
material change in Employee's status, title, authorities or responsibilities
under this Employment Agreement which represents a demotion from such status,
title, position or responsibilities which are materially inconsistent with his
status, title, position or work responsibilities set forth in this Employment
Agreement; or any removal of Employee from, or failure to appoint, elect,
reappoint or reelect Employee to, any of such positions, except in connection
with the termination of his employment with Cause, or as a result of his death
or Disability; provided, however, that no change in title, authorities or
responsibilities customarily attributable solely to the Company ceasing to be a
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<PAGE>
publicly traded corporation shall constitute Good Reason hereunder; (ii) the
failure by the Company to continue in effect any incentive, bonus or other
compensation plan in which Employee participates, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to the failure to continue such plan, or the failure by the
Company to continue Employee's participation therein, or any action by the
Company which would directly or indirectly materially reduce his participation
therein or reward opportunities thereunder; provided, however, that Employee
continues to meet all eligibility requirements thereof; (iii) the failure by the
Company to continue in effect any employee benefit plan (including any medical,
hospitalization, life insurance or disability benefit plan in which Employee
participates), or any material fringe benefit or prerequisite enjoyed by him
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to the failure to continue such
plan, or the failure by the Company to continue Employee's participation
therein, or any action by the Company which would directly or indirectly
materially reduce his participation therein or reward opportunities thereunder,
or the failure by the Company to provide him with the benefits to which he is
entitled under this Employment Agreement; provided, however, that Employee
continues to meet all eligibility requirements thereof; (iv) any other material
breach by the Company of any provision of this Employment Agreement; (v) the
failure of the Company to obtain a satisfactory agreement from any successor or
assign of the Company to assume and agree to perform this Employment Agreement,
as contemplated in Section 22 hereof; (vi) any purported termination of
employee's employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of this Employment Agreement; and for purposes of
this Employment Agreement, no such purported termination shall be effective; or
(vii) any Change of Control as hereinafter defined) of the Company.
Section 11.4. Change of Control. "Change of Control" shall be deemed
to have occurred when: (i) securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding voting securities
are acquired pursuant to a tender offer or an exchange offer by a person or
entity which is not a wholly-owned subsidiary of the Company or any of its
affiliates; (ii) a merger or consolidation is consummated in which the Company
is a constituent corporation and which results in less than 50% of the
outstanding voting securities of the surviving or resulting entity being owned
by the then existing stockholders of the Company; (iii) a sale is consummated by
the Company of substantially all of the Company's assets to a person or entity
which is not a wholly-owned subsidiary of the Company or any of its affiliates;
(iv) a Control Purchase (as defined in Section 8 of the Plan) has occurred; (v)
during any period of two consecutive years, individuals who, at the beginning of
such period, constituted the Board cease, for any reason, to constitute at least
a majority thereof, unless the election or nomination for election for each new
director was approved by the vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period; (vi) an
Approved Transaction (as defined in Section 8 of the Plan) has occurred; or
(vii) a merger or consolidation with Rally's Hamburgers, Inc, CKE Restaurants,
Inc., or any entity affiliated with either or them.
Section 11.5. Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specified termination provision
in this Employment Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Employee's employment under the provision so indicated; provided, however, no
such purported termination shall be effective without such Notice of
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<PAGE>
Termination; provided further, however, any purported termination by the Company
or by Employee shall be communicated by a Notice of Termination to the other
party hereto in accordance with Section 13 of this Employment Agreement.
Section 11.6. Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination (which, in the case of a
termination pursuant to section 10 of this Employment Agreement shall not be
less than sixty (60) days, and in the case of a termination pursuant to Section
11 of this Employment Agreement shall not be more than sixty (60) days, from the
date such Notice of Termination is given); provided, however, that if within
thirty (30) days after any Notice of Termination is given the party receiving
such Notice of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date finally
determined by either mutual written agreement of the parties or by the final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been taken).
Section 12. FEES AND EXPENSES. The Company shall pay all legal fees and
related expenses (including the costs of experts, evidence and counsel) incurred
by Employee as a result of a contest or dispute over Employee's termination of
employment if such contest or dispute is resolved in Employee's favor.
Section 13. NOTICES. For the purposes of this Employment Agreement,
notices and all other communications provided for in the Employment Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with established national reputation,
shipping prepaid or billed to sender, in either case addressed to the respective
addresses last given by each party to the other (provided that all notices to
the Company shall be directed to the attention of the President with a copy to
the Secretary of the Company) or to such other address as either party may have
furnished to the other in writing in accordance herewith. All notices and
communication shall be deemed to have been received on the date of delivery
thereof, or on the second day after deposit thereof with an expedited courier
service, except that notice of change of address shall be effective only upon
receipt.
Section 14. LIFE INSURANCE. The Company may, at any time after the
execution of this Employment Agreement, apply for and procure as owner and for
its own benefit, life insurance on Employee, in such amounts and in such form or
forms as the Company may determine. Employee shall, at the request of the
Company, submit to such medical examinations, supply such information, and
execute such documents as may be required by the insurance company or companies
to whom the Company has applied for such insurance. Employee hereby represents
that to his knowledge he is in excellent physical and mental condition and is
not under the influence of alcohol, drugs or similar substance.
Section 15. PROPRIETARY INFORMATION AND INVENTIONS. Employee understands
and acknowledges that:
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Section 15.1. TRUST. Employees employment creates a relationship of
confidence and trust between Employee and the Company with respect to certain
information applicable to the business of the Company its subsidiaries
(collectively, the "Group") or applicable to the business of any franchisee,
vendor or customer of any of the Group, which may be made known to Employee by
the Group or by any franchisee, vendor or customer of any of the Group or
learned by Employee during the employment Period.
Section 15.2. PROPRIETARY INFORMATION. The Group possesses and will
continue to possess information that has been created, discovered, or developed
by, or otherwise become known to, the Group (including, without limitation,
information created, discovered, developed or made known to by Employee during
the period of or arising out of my employment by the Company) or in which
property rights have been or may be assigned or otherwise conveyed to the Group,
which information has commercial value in the business in which the Group is
engaged and is treated by the Group as confidential. Except as otherwise herein
provided, all such information is hereinafter called "Proprietary Information",
which term, as used herein, shall also include, but shall not be limited to,
data, functional specifications, computer programs, know-how, research,
technology, improvements, developments, designs, marketing plans, strategies,
forecasts, new products, unpublished financial statements, budgets, projections,
licenses, franchises, prices, costs, and customer, supplier and potential
acquisition candidates lists. Notwithstanding anything to the contrary, the term
"Proprietary Information" shall not include (i) information which is in the
public domain, (ii) information which is published or otherwise becomes part of
the public domain through no fault of Employee, (iii) information which Employee
can demonstrate was in Employee's possession at the time of disclosure and was
not acquired by Employee directly or indirectly from any of the Group on a
confidential basis, (iv) information which becomes available to Employee on a
non-confidential basis from a source other than any of the Group and which
source, to the best of employee's knowledge, did not acquire the information on
a confidential basis or (v) information required to be disclosed by any federal
or state law, rule or regulation or by any applicable judgment, order or decree
or any court or governmental body or agency having jurisdiction in the premises.
All Proprietary Information shall be the sole property of the
Group and their respective assigns. Employee assigns to the Company any rights
Employee may have or acquire in such Proprietary Information. At all times, both
during Employee's employment by the Company and after its termination, Employee
shall keep in strictest confidence and trust all Proprietary Information, and
Employee shall not use or disclose any Proprietary Information without the
written consent of the Group, except as may be necessary in the ordinary course
of performing Employee's duties as an employee of the Company.
Section 16. SURRENDER OF DOCUMENTS. Employee shall, at the request of the
Company, promptly surrender to the Company or its nominee any Proprietary
Information or document, memorandum, record, letter or other paper in his
possession or under his control relating to the operation, business or affairs
of the Group.
Section 17. PRIOR EMPLOYMENT AGREEMENTS. Employee represents and warrants
that Employee's performance of all the terms of this employment Agreement and as
an employee of the Company does not, and will not, breach any employment
- 7 -
<PAGE>
agreement, arrangement or understanding or any agreement, arrangement or
understanding to keep in confidence proprietary information acquired by Employee
in confidence or in trust prior to Employee's employment by the Company.
Employee has not entered into, and shall not enter into, any agreement,
arrangement or understanding, either written or oral, which is in conflict with
this Employment Agreement or which would be violated by Employee entering into,
or carrying out his obligations under, this Employment Agreement.
Section 18. RESTRICTIVE COVENANT. Employee acknowledges and recognizes
Employee's possession of Proprietary Information and the highly competitive
nature of the business of the Group and, accordingly, so long as the Company is
not in default under this Agreement agrees that in consideration of the premises
contained herein Employee will not, during the period of Employee's employment
by the Company and (i) for a period of one (1) year following the Date of
Termination if this Employment Agreement is terminated by the Company with Cause
or by the Employee other than for Good Reason or (ii) six (6) months following
the Termination Date if this Employment Agreement is terminated by the Company
other than with Cause or by the Employee for Good Reason, (a) directly or
indirectly engage in any Competitive Business (as hereinafter defined) in the
United States, whether such engagement shall be an employer, officer, director,
owner, employee, consultant, stockholder, partner or other participant in any
Competitive Business, (b) assist others in engaging in any Competitive Business
in the manner described in the foregoing clause (a), or (c) induce employees of
the Company to terminate their employment with the Company or engage in any
Competitive Business in the United States; provided, however, that the ownership
of the outstanding capital stock of a corporation whose shares are traded on a
national securities exchange or on the over-the-counter market or the ownership
and/or operation of a Checkers Restaurant under a franchise agreement with the
Company shall not be deemed engaging any Competitive Business. "Competitive
Business" shall mean any restaurant providing exclusively drive-thru or
drive-in, fast food, primarily featuring hamburgers, cheeseburgers, hot dogs or
other food items offered by a Checkers Restaurant, or any other business that is
the same as or similar to the Checkers Restaurant concept as it exists on the
date of this Employment Agreement or on the Termination Date.
Section 19. REMEDIES. Employee acknowledges and agrees that the Company's
remedy at law for a breach or a threatened breach of the provisions herein would
be inadequate, and in recognition of this Fat, in the event of a breach or
threatened breach by Employee of any of the provisions of this Employment
Agreement, it is agreed that the Company shall be entitled to, equitable relief
in the form of specific performance, a temporary restraining order, a temporary
or permanent injunction or any other equitable remedy which may then be
available, without posting bond or other security. Employee acknowledges that
the granting of a temporary injunction, a temporary restraining order or other
permanent injunction merely prohibiting Employee from engaging in any Business
Activities would not be an adequate remedy upon breach or threatened breach of
this Employment Agreement, and consequently agrees upon any such breach or
threatened breach to the granting of injunctive relief prohibiting Employee from
engaging in any activities prohibited by this Employment Agreement. No remedy
herein conferred is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to any other
remedy given hereunder now or hereinafter existing at law or in equity or by
statute or otherwise.
Section 20. SUCCESSIVE EMPLOYMENT NOTICE. Within five (5) business days
after the Termination Date, Employee shall provide notice to the Company of
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<PAGE>
Employee's next intended employment. If such employment is not known by employee
at such date, Employee shall notify the Company immediately upon determination
of such information. Employee shall continue to provide the company with notice
of employee's place and nature of employment and any change in place or nature
of employment during the period ending (i) two (2) years after the Termination
Date if this Employment Agreement is terminated by the Company for Cause or by
the Employee other than for Good Reason or (ii) six (6) months after the
Termination Date if this employment Agreement is terminated by the company other
than for Cause or by the Employee for Good Reason. Failure of employee to
provide the company with such information in an accurate and timely fashion
shall be deemed to be a breach of this Employment Agreement and shall entitle
the Company to all remedies provided for in this Employment Agreement as a
result of such breach.
Section 21. SUCCESSORS. This Employment Agreement shall be binding on the
Company and any successor to any of its businesses or assets. Without limiting
the effect of the prior sentence, the Company shall use its best efforts to
require any successor or assign (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Employment Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession or assignment had taken
place. As used in this Employment Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor or assign to its business and/or assets
as aforesaid which assumes and agrees to perform this Employment Agreement or
which is otherwise obligated under this Agreement by the first sentence of this
Section 22, by operation of law or otherwise.
Section 22. INDEMNIFICATION AGREEMENT. Upon the execution of this
Employment Agreement, the Company and employee shall each execute and deliver to
the other an Indemnification Agreement dated as of the date hereof.
Section 23. BINDING EFFECT. This Employment Agreement shall inure to the
benefit of and be enforceable by Employee's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts would still be payable to him
hereunder if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Employment
Agreement to Employee's estate.
Section 24. MODIFICATION AND WAIVER. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by Employee and such officer as
may be specifically designated by the Board. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Employment Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
Section 25. HEADINGS. Headings used in this Agreement are for convenience
only and shall not be used to interpret or construe its provisions.
- 9 -
<PAGE>
Section 26. WAIVER OF BREACH. The waiver of either the Company or Employee
of a breach of any provision of this Employment Agreement shall not operate or
be construed as a waiver of any subsequent breach by either the Company or
Employee.
Section 27. AMENDMENTS. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same is in
writing and signed by all of the parties hereto.
Section 28. SEVERABILITY. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability. It is
expressly understood and agreed that while the Company and Employee consider the
restrictions contained in this Employment Agreement reasonable for the purpose
of preserving for the Company the good will, other proprietary rights and
intangible business value of the Company if a final judicial determination is
made by a court having jurisdiction that the time or territory or any other
restriction contained in this employment Agreement is an unreasonable or
otherwise unenforceable restriction against Employee, the provisions of such
clause shall not be rendered void but shall be deemed amended to apply as to
maximum time and territory and to such other extent as such court may judicially
determine or indicate to be reasonable.
Section 29. GOVERNING LAW. This Employment Agreement shall be construed
and enforced pursuant to the laws of the State of Florida.
Section 30. ARBITRATION. Any controversy or claim arising out of or
relating to this Employment Agreement or any transactions provided for herein,
or the breach thereof, other than a claim for injunctive relief shall be settled
by arbitration in accordance with the commercial Arbitration Rules of the
American Arbitration Association (the "Rules") in effect at the time demand for
arbitration is made by any party. The evidentiary and procedural rules in such
proceedings shall be kept to the minimum level of formality that is consistent
with the Rules. One arbitrator shall be named by the Company, a second shall be
named by Employee and the third arbitrator shall be named by the two arbitrators
so chosen. In the event that the third arbitrator is not agreed upon, he or she
shall be named by the American Arbitration Association. Arbitration shall occur
in Tampa, Florida or such other location agreed to by the Company and employee.
The award made by all or a majority of the panel of arbitrators shall be final
and binding, and judgment may be entered in any court of law having competent
jurisdiction. The award is subject to confirmation, modification, correction, or
vacation only as explicitly provided in Title 9 of the United States Code. The
prevailing party shall be entitled to an award of pre- and post-award interest
as well as reasonable attorneys' fees incurred in connection with the
arbitration and any judicial proceedings related thereto.
Section 31. EXECUTIVE OFFICER STATUS. Employee acknowledges that he shall
be deemed to be an "executive officer" of Checkers for purposes of the
Securities Act of 1993, as amended (the "1933 Act"), and the Securities Exchange
Act of 1934, as amended (the "1934 Act") and that he shall comply in al respects
with all the rules and regulations under the 1933 Act and the 1934 act
applicable to him in a timely and non-delinquent manner. In order to assist the
- 10 -
<PAGE>
company in complying with its obligations under the 1933 Act and 1934 Act,
Employee shall provide to the Company such information about Employee as the
Company shall reasonably request including, but not limited to, information
relating to personal history and stockholdings. Employee shall report to the
General Counsel of the Company or other designated officer of the Company all
changes in beneficial ownership of any shares of the Company Common Stock deemed
to be beneficially owned by Employee and/or any members of Employee's immediate
family.
Section 32. COUNTERPARTS. This employment Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute but one document.
Section 33. EXHIBITS. The Exhibits attached hereto are incorporated herein
by reference and are an integral part of this Employment Agreement.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
by the Company and the Employee as of the date first above written.
CHECKERS DRIVE-IN RESTAURANTS, INC.
By: /S/ ALBERT J. DIMARCO
-------------------------------
Albert J. DiMarco, President
EMPLOYEE
/S/ MICHAEL T. WELCH
-----------------------------------
Michael T. Welch
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CHECKERS DRIVE-IN RESTAURANTS, INC. FOR THE QUARTERLY
PERIOD ENDED JUNE 17, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-START> JAN-02-1996
<PERIOD-END> JUN-17-1996
<CASH> 2,907
<SECURITIES> 0
<RECEIVABLES> 11,868
<ALLOWANCES> 0
<INVENTORY> 3,043
<CURRENT-ASSETS> 24,609
<PP&E> 115,264
<DEPRECIATION> 0
<TOTAL-ASSETS> 160,673
<CURRENT-LIABILITIES> 43,292
<BONDS> 32,289
<COMMON> 52
0
0
<OTHER-SE> 78,393
<TOTAL-LIABILITY-AND-EQUITY> 160,673
<SALES> 72,965
<TOTAL-REVENUES> 77,073
<CGS> 68,824
<TOTAL-COSTS> 77,787
<OTHER-EXPENSES> 66,382
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,605
<INCOME-PRETAX> (2,890)
<INCOME-TAX> (1,089)
<INCOME-CONTINUING> (1,801)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,801)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> .00
<FN>
Footnotes: (1) Receivables consist of -
Accounts Receivable $ 2,100
Notes receivable 8,080
Income taxes receivable 1,688
--------
$11,868
========
(2) PP&E is net of accumulated depreciation of $30,929.
</FN>
</TABLE>
