-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JFil6KPqH97T4l5N/VR2zAv2vGitQgIzVTwLiGIKPL12bT5CGOugpf1t735QaO8x 55VycUcrTeTBPkoH+jvEpg== 0000949459-97-000336.txt : 19970725 0000949459-97-000336.hdr.sgml : 19970725 ACCESSION NUMBER: 0000949459-97-000336 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970616 FILED AS OF DATE: 19970724 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHECKERS DRIVE IN RESTAURANTS INC /DE CENTRAL INDEX KEY: 0000879554 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 581654960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19649 FILM NUMBER: 97644567 BUSINESS ADDRESS: STREET 1: 600 CLEVELAND ST 8TH FL STREET 2: STE 1050 CITY: CLEARWATER STATE: FL ZIP: 34615 BUSINESS PHONE: 8134413500 10-Q 1 CHECKERS DRIVE-IN RESTAURANTS FORM 10-Q 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 16, 1997 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 60,750,058 shares of Common Stock, par value $.001 per share, outstanding as of July 15, 1997. This document contains 75 pages. Exhibit Index appears at page 21. TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE Item 1 Financial Statements (Unaudited) Condensed Consolidated Balance Sheets June 16, 1997 and December 30, 1996.......................... 3 Condensed Consolidated Statements of Operations Quarter ended June 16, 1997 and June 17, 1996 and Two Quarters ended June 16, 1997 and June 17, 1996....... 5 Condensed Consolidated Statements of Cash Flows Two Quarters ended June 16, 1997 and June 17, 1996........... 6 Notes to Consolidated Financial Statements....................... 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... 12 PART II OTHER INFORMATION Item 1 Legal Proceedings................................................... 19 Item 6 Exhibits and Reports on Form 8-K.................................... 19
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS
(Unaudited) June 16, December 30, 1997 1996 --------------------------------- CURRENT ASSETS: Cash and cash equivalents: Restricted $ 2,566 $ 1,505 Unrestricted 1,346 1,551 Accounts receivable 2,299 1,544 Notes receivable 353 214 Inventory 2,157 2,261 Property and equipment held for sale 5,316 7,608 Income taxes receivable -- 3,514 Deferred loan costs 1,830 2,452 Prepaid expenses and other current assets 803 306 --------------------------------- Total current assets 16,670 20,955 Property and equipment, at cost, net of accumulated depreciation and amortization 93,804 98,188 Intangibles, net of accumulated amortization 11,886 12,284 Deferred loan costs - less current portion 1,867 3,900 Deposits and other non-current assets 687 783 --------------------------------- $124,914 $136,110 =================================
See Notes to Condensed Consolidated Financial Statements 3 CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited) June 16, December 30, 1997 1996 ----------------------------------------- CURRENT LIABILITIES: Short term debt $ -- $ 2,500 Current installments of long-term debt 8,221 9,589 Accounts payable 7,967 15,142 Accrued wages, salaries and benefits 2,172 2,528 Reserves for restructuring, restaurant relocations and abandoned sites 3,216 3,800 Other Accrued liabilities 10,846 13,784 Deferred income 444 337 --------------------------------- Total current liabilities 32,866 47,680 Long-term debt, less current installments 30,494 39,906 Deferred franchise fee income 466 466 Minority interests in joint ventures 1,361 1,455 Other noncurrent liabilities 6,619 6,263 --------------------------------- Total liabilities 71,806 95,770 STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value, authorized 2,000,000 shares, issued and outstanding 87,719 at June 16, 1997 (none at December 30, 1996) 0 -- Common stock, $.001 par value, authorized 100,000,000 shares, issued and outstanding 60,750,058 at June 16, 1997 and 51,768,480 at December 30, 1996 61 52 Additional paid-in capital 109,748 90,339 Warrants 9,463 9,463 Retained earnings (65,764) (59,114) --------------------------------- 53,508 40,740 Less treasury stock, at cost, 578,904 shares 400 400 --------------------------------- Net stockholders' equity 53,108 40,340 --------------------------------- $ 124,914 $ 136,110 =================================
See Notes to Condensed Consolidated Financial Statements 4 CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share amounts) (UNAUDITED)
Quarter Ended Two Quarters Ended June 16, 1997 June 17, 1996 June 16, 1997 June 17, 1996 -------------------------------------------------------------- REVENUES: Net restaurant sales $ 31,753 $ 36,109 $ 64,201 $ 72,318 Franchise revenues and fees 1,714 2,009 3,325 4,108 Modular restaurant packages 246 532 344 647 -------------------------------------------------------------- Total revenues 33,713 38,650 67,870 77,073 -------------------------------------------------------------- COSTS AND EXPENSES: Restaurant food and paper costs 10,404 12,281 21,509 24,663 Restaurant labor costs 9,792 12,751 21,130 25,202 Restaurant occupancy expense 2,506 2,833 5,232 5,657 Restaurant depreciation and amortization 1,899 1,956 3,827 3,958 Advertising expense 1,596 1,245 3,240 2,107 Other restaurant operating expense 3,186 3,418 6,432 6,238 Costs of modular restaurant package revenues 213 649 289 998 Other depreciation and amortization 509 899 1,029 1,667 General and administrative expenses 3,506 4,046 6,899 7,297 -------------------------------------------------------------- Total costs and expenses 33,611 40,078 69,587 77,787 -------------------------------------------------------------- Operating (loss) income 102 (1,428) (1,717) (714) -------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest income 102 339 181 495 Interest expense (1,177) (1,298) (2,519) (2,515) Interest - loan cost amortization (485) (55) (2,655) (90) -------------------------------------------------------------- Loss before minority interests and income tax expense (benefit) (1,458) (2,442) (6,710) (2,824) Minority interests 11 40 (60) 66 -------------------------------------------------------------- Loss before income tax benefit (1,469) (2,482) (6,650) (2,890) Income tax benefit -- (934) -- (1,089) -------------------------------------------------------------- Net loss $ (1,469) $ (1,548) $ (6,650) $ (1,801) ============================================================== Net loss per common share $(0.02) $(0.03) $(0.11) $(0.03) ============================================================== Weighted average number of common shares outstanding 60,750 51,699 57,970 51,613 ==============================================================
5 CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (UNAUDITED)
Two Quarters Ended June 16, 1997 June 17, 1996 ------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (6,650) $ (1,801) Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: Depreciation and amortization 4,856 5,678 Deferred loan cost amortization 2,655 90 Provision for bad debt 201 136 (Gain) loss on sale of property & equipment (8) 105 Minority interests in (losses) earnings (60) 66 Change in assets and liabilities: Increase in receivables (995) (312) Decrease in notes receivable 40 7 Decrease in inventory 165 119 Decrease in costs and earnings in excess of billings on uncompleted contracts 213 143 Decrease in income taxes receivable 3,514 1,585 Increase in prepaid expenses and other (530) (1,462) Increase in deferred income tax assets -- (69) Decrease in deposits and other noncurrent assets 95 20 (Decrease), Increase in accounts payable (6,991) 2,143 Decrease in accrued liabilities (3,898) (3,358) Increase in deferred income 107 18 ------------------------------------- Net cash (used in) provided by operating activities (7,286) 3,108 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (756) (1,745) Proceeds from sale of assets 2,827 1,468 Increase in goodwill (70) -- ------------------------------------- Net cash provided by (used in) investing activities 2,001 (277) ------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments on short term debt (2,500) -- Principal payments on long-term debt (10,776) (3,443) Net proceeds from private placement 19,450 -- Proceeds from investment by minority interests -- 285 Distributions to minority interests (33) (130) ------------------------------------- Net cash provided by (used in) financing activities 6,141 (3,288) ------------------------------------- Net increase in cash 856 (457) CASH AT BEGINNING OF PERIOD 3,056 3,364 ------------------------------------- CASH AT END OF PERIOD $ 3,912 $ 2,907 ===================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -- Interest paid $ 3,003 $ 2,514 =====================================
6 CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (a) BASIS OF PRESENTATION - The accompanying unaudited financial statements 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 necessary to present fairly the information set forth therein have been included. The operating results for the quarter and the two quarters ended June 16, 1997, are not necessarily an indication of the results that may be expected for the fiscal year ending December 29, 1997. 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 December 30, 1996. Therefore, it is suggested that the accompanying financial statements be read in conjunction with the Company's December 30, 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 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 AND ORGANIZATION - The principal business of Checkers Drive-In Restaurants, Inc. (the "Company") is the operation and franchising of Checkers Restaurants. At June 16, 1997, there were 480 Checkers Restaurants operating in 23 different states, the District of Columbia, and Puerto Rico. Of those Restaurants, 233 were Company-operated (including thirteen joint ventures) and 247 were operated by franchisees. The accounts of the joint ventures have been included with those of the Company in these consolidated financial statements. Champion Modular Restaurant Company, a division of the Company, ("Champion") manufactures Modular Restaurant Packages ("MRP's") primarily for the Company and franchisees. The consolidated financial statements also include the accounts of all of the Company's subsidiaries. Intercompany balances and transactions have been eliminated in consolidation and minority interests have been established for the outside 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. (e) RECEIVABLES - Receivables consist primarily of franchise fees, royalties and notes due from franchisees, and receivables from the sale of modular restaurant packages. Allowances for doubtful receivables were $1.8 million at June 16, 1997 and $2.2 million at December 30, 1996. (f) INVENTORY - Inventories are stated at the lower of cost (first-in, first-out (FIFO) method) or market. (g) DEFERRED LOAN COSTS - Deferred loan costs incurred in connection with the Company's November 22, 1996 restructure of its primary credit facility (see Note 2) are being amortized on the effective interest method. 7 (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 (see Note 4). (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) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS - The balance sheets as of June 16, 1997 and December 30, 1996, reflect the fair value amounts which have been determined, using available market information and appropriate valuation methodologies. However, considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Cash and cash equivalents, receivables, accounts payable, and short-term debt - The carrying amounts of these items are a reasonable estimate of their fair value. Long-term debt - Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues that are not quoted on an exchange. (n) EARNINGS PER SHARE - In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128") which is effective for reporting periods ending after December 15, 1997. SFAS 128 replaces the presentation of primary earnings per share and fully diluted earnings per share previously found in Accounting Principles Board Opinion No. 15, "Earnings Per Share" ("APB 15") with basic earnings per share and diluted earnings per share. Due to the net losses for each of the periods ended June 16, 1997 and June 17, 1996, the inclusion of options and warrants would result in an antidilutive per share amount. Therefore, for all periods presented, such options and warrants are excluded from earnings per share calculations under both APB 15 and, on a proforma basis, SFAS 128. (o) RECLASSIFICATIONS - Certain amounts in the 1996 financial statements have been reclassified to conform to the 1997 presentation. 8 NOTE 2 LONG-TERM DEBT Long-term debt consists of the following: (Dollars in thousands)
June 16, December 30, 1997 1996 --------------------------- Notes payable under Loan Agreement $ 26,574 $ 35,818 Notes payable due at various dates, secured by buildings and equipment, with interest at rates primarily ranging from 9.0% to 15.83%, payable monthly 7,610 8,963 Unsecured notes payable, bearing interest at rates ranging from prime to 18% 3,381 3,481 Other 1,150 1,233 --------------------------- Total long-term debt 38,715 49,495 Less current installments 8,221 9,589 --------------------------- Long-term debt, less current installments $ 30,494 $ 39,906 ===========================
On July 29, 1996, the debt under the Company's prior bank loan agreement (the "Loan Agreement") and credit line ("Credit Line") was acquired from a bank group by an investor group led by an affiliate of DDJ Capital Management, LLC (collectively, "DDJ"). The Company and DDJ began negotiations for restructuring of the debt. On November 14, 1996, and prior to consummation of a formal debt restructuring with DDJ, the debt under the Loan Agreement and Credit Line was acquired from DDJ by a group of entities and individuals, most of whom are engaged in the fast food restaurant business. This investor group (the "CKE Group") was led by CKE Restaurants, Inc., the parent of Carl Karcher Enterprises, Inc., Casa Bonita, Inc., and Summit Family Restaurants, Inc. Also participating were most members of the DDJ Group, as well as KCC Delaware Company, a wholly-owned subsidiary of Giant Group, Ltd., which is a principal shareholder of Rally's Hamburgers, Inc. Waivers of all defaults under the Loan Agreement and Credit Line were granted through November 22, 1996, to provide a period of time during which the Company and the CKE Group could negotiate an agreement on debt restructuring. On November 22, 1996, the Company and the CKE Group executed an Amended and Restated Credit Agreement (the "Restated Credit Agreement") thereby completing a restructuring of the debt under the Loan Agreement. The Restated Credit Agreement consolidated all of the debt under the Loan Agreement and the Credit Line into a single obligation. At the time of the restructuring, the outstanding principal balance under the Loan Agreement and the Credit Line was $35.8 million. Pursuant to the terms of the Restated Credit Agreement, the term of the debt was extended by one (1) year until July 31, 1999, and the interest rate on the indebtedness was reduced to a fixed rate of 13%. In addition, all principal payments were deferred until May 19, 1997, and the CKE Group agreed to eliminate certain financial covenants, to relax others and to eliminate approximately $6 million in restructuring fees and charges. The Restated Credit Agreement also provided that certain members of the CKE Group agreed to provide to the Company a short term revolving line of credit of up to $2.5 million, also at a fixed interest rate of 13% (the "Secondary Credit Line"). In consideration for the restructuring, the Restated Credit Agreement required the Company to issue to the CKE Group warrants to purchase an aggregate of 20 million shares of the Companys' common stock at an exercise price of $.75 per share, which was the approximate market price of the common stock prior to the announcement of the debt transfer. As of June 16, 1997, the Company has reduced the principal balance under the Restated Credit Agreement by $9.2 million and has repaid the Secondary Credit Line in full. A portion of the funds utilized to make these principal reduction payments were obtained by the Company from the sale of certain closed restaurant sites to third parties. Additionally, the Company utilized $10.5 million of the proceeds from the February 21, 1997, private placement which is described later in this section for these principal reduction payments. Pursuant to the Restated Credit Agreement, the prepayments of principal made in 1996 and early in 1997 will relieve the Company of the requirement to make any of the regularly scheduled principal payments under the Restructured Credit Agreement which would have otherwise become due in fiscal year 1997. The Amended and Restated Credit Agreement provides however, that 50% of any future asset sales must be utilized to prepay principal. The Company has outstanding promissory notes in the aggregate principal amount of approximately $4.5 million (the "Notes") payable to Rall-Folks, Inc. ("Rall-Folks"), Restaurant Development Group, Inc. ("RDG") and Nashville Twin Drive-Through Partners, L.P. ("N.T.D.T."). The Company had agreed to acquire the Notes issued to Rall-Folks and RDG in consideration of the issuance of an aggregate of approximately 2.8 million shares of Common Stock and the Note issued to NTDT in exchange for a convertible note in the same principal amount and convertible into approximately 927,000 shares of Common Stock pursuant to purchase agreements entered into in 1995 and subsequently amended. 9 All three of the parties received varying degrees of protection on the purchase price of the promissory notes. Accordingly, the actual number of shares to be issued will be determined by the market price of the Company's stock. The Company was not able to consummate these transactions as originally scheduled. Pusuant to the most recent amendment, consumation of the Rall-Folks, RDG and NTDT purchases is to occur prior to December 16, November 25, and November 15, 1997, respectively, subject to extension in certain cases. The Company does not currently have sufficient cash available to pay one or more of these notes if required to do so. NOTE 3: PRIVATE PLACEMENT On February 21, 1997, the Company completed a private placement (the "Private Placement") of 8,771,929 shares of the Company's common stock, $.001 par value, and 87,719 shares of the Company's Series A preferred stock, $114 par value (the "Preferred Stock"). CKE Restaurants, Inc. purchased 6,162,299 of the Company's common stock and 61,623 of the Preferred Stock and other qualified investors, including other members of the CKE Group of lenders under the Restated Credit Agreement, also participated in the Private Placement. The Company received approximately $19.5 million in net proceeds from the Private Placement. The Private Placement purchase agreement requires that the Company submit to its shareholders for vote at its 1997 Annual Shareholders' Meeting the conversion of the Preferred Stock into shares of the Company's common stock based upon the Preferred Stock liquidation preference. If the shareholders do not vote in favor of the conversion, the Preferred Stock will remain outstanding with the rights and preferences set forth in the Certificate of Designation of Series A Preferred Stock of the Company (the "Certificate", a copy of which is an Exhibit hereto), including (i) a dividend preference, (ii) a voting preference, (iii) a liquidation preference and (iv) a redemption requirement. Holders of the Preferred Stock will have the right to receive cash dividends equal to $16.53 per share per annum payable on a quarterly basis beginning August 19, 1997. Such dividends are cumulative and must be paid in full prior to any dividends being declared or paid with respect to the Company's common stock. If the Company is in default with respect to any dividends on the Preferred Stock, then no cash dividends can be declared or paid with respect to the Company's common stock. If the Company fails to pay any two required dividends on the Preferred Stock, then the number of seats on the Company's Board of Directors will be increased by two and the holders of the Preferred Stock will have the right, voting as a separate class, to elect the Directors to fill those two new seats, which new Directors will continue in office until the holders of the Preferred Stock have elected successors or the dividend default has been cured. In the event of any liquidation, dissolution or winding up, but not including any consolidation or merger of the Company, the holders of the Preferred Stock will be entitled to receive a liquidation preference of $114 per share plus any accrued but unpaid dividends (the "Liquidation Preference"). In the event the stockholders do not approve the conversion of the Preferred Stock and the Company subsequently completes a consolidation or merger and the result is a change in control of the Company, then each share of the Preferred Stock will be automatically redeemed for an amount equal to the Liquidation Preference. The Company is required to redeem the Preferred Stock for an amount equal to the Liquidation Preference on or before February 12, 1999. If the redemption does not occur as required, the dividend rate will increase from $16.53 per share to $20.52 per share. Additionally, if there are not then Directors serving which were elected by the holders of the Preferred Stock, the number of directors constituting the Company's Board of Directors will be increased by two and the holders of the Preferred Stock voting as a class will be entitled to elect the Directors to fill the created vacancies. NOTE 4: STOCK OPTION PLANS In August 1991, the Company adopted a stock option plan for employees whereby incentive stock options, nonqualified stock options, stock appreciation rights and restrictive shares can be granted to eligible salaried individuals. An option may vest immediately as of the date of grant and no option will be exercisable after ten years from the date of the grant. 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. In 1994, the Company adopted a stock option plan for non-employee directors, which provides for the automatic grant to each non-employee director upon election to the Board of Directors of a non-qualified, ten-year option to acquire 12,000 shares of the Company's common stock, with the subsequent automatic grant on the first day of each fiscal year thereafter during the time such person is serving as a non-employee director of a non-qualified ten-year option to acquire an additional 3,000 shares of common stock. The Company has reserved 200,000 shares for issuance under this plan. All such options have an exercise price equal to the closing sale price of the common stock on the date of grant. One-fifth of the shares of common stock subject to each initial option grant become exercisable on a cumulative basis on each of the first five anniversaries of the 10 grant of such option. One-third of the shares of common stock subject to each subsequent option grant become exercisable on a cumulative basis on each of the first three anniversaries of the date of the grant of such option. The plans provide that shares granted come from the Company's authorized but unissued or reacquired common stock. The price of the options granted pursuant to these plans will not be less than 100 percent of the fair market value of the shares on the date of the grant. 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. In February 1996, employees (excluding executive officers) granted options in 1993 and 1994 with exercise prices in excess of $2.75 were offered the opportunity to exchange for a new option grant for a lesser number of shares at an exercise price of $1.95, which represented a 25% premium over the market price of the Company's common stock on the date the plan was approved. Existing options with an exercise price in excess of $11.49 could be cancelled in exchange for new options on a four to 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. The offer to employees expired April 30, 1996 and, as a result of this offer, options for 49,028 shares were forfeited in return for options for 15,877 shares at the $1.95 exercise price. During the quarter ended March 24, 1997, the Company granted 285,000 options pursuant to the terms of the 1991 Employee Stock Option Plan referenced above and the Company granted options to purchase a total of 500,000 shares of its common stock as part of compensation packages for two new executive officers, which options were not granted pursuant to the terms of the 1991 Employee Stock Option Plan. During the quarter ended June 16, 1997, 12,000 options were granted pursuant to the terms of the 1994 Stock Option Plan for Non-Employee Directors referenced above. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's stock option plan for employees been determined based on the fair value at the grant date for awards in fiscal 1996 and each of the first two quarters of 1997 consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced by approximately $1.4 million, $680,000 and $43,000 respectively, on a pro forma basis. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and the first two quarters of fiscal 1997, respectively: dividend yield of zero percent for both periods; expected volatility of 64 and 81 percent, risk-free interest rates of 6.5 and 6.0 percent, and expected lives of 3.5 and 2 years, respectively. The compensation cost disclosed above may not be representative of the effects on reported income in future quarters, for example, because options vest over several years and additional awards are made each year. NOTE 5: INCOME TAXES The Company recorded income tax benefits of $558,000 for the quarter ended June 16, 1997 and $934,000 for the quarter ended June 17, 1996, or 38.0% of the losses before income taxes. The Company then recorded a valuation allowance of $558,000 against deferred income tax assets as of June 16, 1997. The Company's total valuation allowances of $29.3 million as of June 16, 1997, is maintained on deferred tax assets which the Company has not determined to be more likely than not realizable at this time. Subject to a review of the tax assets, these valuation allowances will be reversed during periods in the future in which the Company records pre-tax income, in amounts necessary to offset any then recorded income tax expenses attributable to such future periods. NOTE 6: MERGER On March 25, 1997, the Company agreed in principle to a merger transaction pursuant to which Rally's Hamburgers, Inc., a Delaware corporation ("Rally's"), was to become a wholly-owned subsidiary of Checkers. Under the terms of the letter of intent executed by Checkers and Rally's, each share of Rally's common stock would be converted into three shares of Checkers' Common Stock upon consummation of the merger. The transaction was subject to negotiation of definitive agreements, receipt of fairness opinions by each party, receipt of stockholder and other required approvals and other customary conditions and the ability to use the pooling of interests method of accounting for the merger. On June 16, 1997, the Company announced the termination of merger negotiations due to the inability to obtain prior approval from the Securities and Exchange Commission for favorable accounting treatment of the proposed merger. Certain legal, accounting and other expenses totalling $350,000 associated with the proposed transaction were included in general and administrative expenses for the quarter ended June 16, 1997. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company commenced operations on August 1, 1987, to operate and franchise Checkers double drive-thru Restaurants. As of June 16, 1997, the Company had an ownership interest in 233 Company-operated Restaurants and an additional 247 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 16, 1997, there were 219 such Restaurants) and (ii) the Company owns a 10.55% to 65.83% interest in a partnership which owns the Restaurant (a "Joint Venture Restaurant") (as of June 16, 1997, there were 14 such Joint Venture Restaurants). The Company has begun to see the positive effects of aggressive programs implemented at the beginning of fiscal 1997 that are designed to improve food, paper and labor costs. These costs totalled 69.2% and 63.6% of net restaurant revenues in the first and second quarters of 1997, compared to 65.6%, 69.3%, 73.3% and 75.9% of net restaurant revenues in the first, second, third and fourth quarters of fiscal 1996. These improvements in costs were achieved despite an 11.5% decrease in Company owned same store sales in the second quarter of 1997 as compared to the second quarter of the prior year. Although the Company's operating margins for the first half of 1997 were better than the annualized margins for fiscal year 1996, the Company intends to continue to implement programs to further improve those margins. In February 1997, the Company completed a private placement (the "Private Placement") of 8,771,929 shares of the Company's common stock, $.001 par value, and 87,719 shares of the Company's Series A preferred stock, $.001 par value (the "Preferred Stock"). CKE Restaurants, Inc. purchased 6,162,299 of the Company's common stock and 61,623 of the Preferred Stock and other qualified investors, including other members of the CKE Group of lenders under the Restated Credit Agreement, also participated in the Private Placement. The Company received approximately $19.5 million in net proceeds from the Private Placement. The Company used $8 million of the Private Placement proceeds to reduce the principal balance due under the Restated Credit Agreement; $2.5 million was utilized to repay the Secondary Credit Line; $2.3 million was utilized to pay outstanding balances to various key food and paper distributors; and the remaining amount was used primarily to pay down outstanding balances due certain other vendors. The reduction of the debt under the Restated Credit Agreement and the Secondary Credit Line, both of which carry a 13% interest rate will reduce the Company's interest expense by more than $1.3 million annually. In the second quarter of fiscal 1997, the Company, along with its franchisees, experienced a net increase of three (3) operating Restaurants, compared to a net increase of six (6) operating Restaurants in the second quarter of fiscal 1996. Based on information obtained from the Company's franchisees, in 1997, the franchise community expects to open approximately 30 new units. The Company does not currently expect significant further Restaurant closures, choosing instead to focus on improving Restaurant margins. The Company's franchisees as a whole continue to experience higher average per store sales than Company Restaurants. This Quarterly Report on Form 10-Q contains forward looking statements, which are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; the impact of competitive products and pricing; success of operating initiatives; advertising and promotional effort; adverse publicity; availability, changes in business strategy or development plans; quality of management; availability, terms and deployment of capital; the results of financing efforts; food, labor, and employee benefit costs; changes in, or the failure to comply with, government regulations; weather conditions; construction schedules; and risks that any sales growth resulting from the Company's current and future remodeling of restaurants and other operating strategies could be sustained. 12 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.
Quarter Ended Two Quarters Ended (Unaudited) (Unaudited) -------------------------------------------------------------- - - June 16, June 17, June 16, June 17, 1997 1996 1997 1996 ----------------------------------------------------------- Revenues: Net restaurant sales 94.2% 93.4% 94.6% 93.8% Franchise revenues and fees 5.1% 5.2% 4.9% 5.4% Modular restaurant packages 0.7% 1.4% 0.5% 0.8% ----------------------------------------------------------- Total revenue 100% 100% 100% 100% Costs and Expenses: Restaurant food and paper costs (1) 32.8% 34.0% 33.5% 34.1% Restaurant labor costs (1) 30.8% 35.3% 32.9% 34.8% Restaurant occupancy expense (1) 7.9% 7.8% 8.1% 7.8% Restaurant depreciation and amortization (1) 6.0% 5.4% 6.0% 5.5% Advertising expense (1) 5.0% 3.4% 5.0% 2.9% Other restaurant operating expense (1) 10.0% 9.5% 10.0% 8.6% Costs of modular restaurant package revenues(2) 86.5% 122.0% 84.0% 154.4% Other depreciation and amortization 1.5% 2.3% 1.5% 2.2% Selling, general and administrative expense 10.4% 10.5% 10.2% 9.5% ----------------------------------------------------------- Operating (loss) income 0.3% (3.7%) (2.5%) (0.9%) ----------------------------------------------------------- Other income (expense): Interest income 0.3% 0.9% 0.3% 0.6% Interest expense (3.5%) (3.4%) (3.7%) (3.3%) Interest - loan cost amortization (1.4%) (0.1%) (3.9%) (0.1%) Minority interests 0.0% 0.1% (0.1%) 0.1% ----------------------------------------------------------- Loss before income tax benefit (4.4%) (6.4%) (9.8%) (3.7%) Income tax expense (benefit) 0.0% (2.4%) 0.0% (1.4%) ----------------------------------------------------------- Net loss (4.4%) (4.0%) (9.8%) (2.3%) =========================================================== Operating data: System-wide restaurant sales (in 000's): Company-operated $ 31,753 $ 36,109 $ 64,201 $ 72,318 Franchised 41,255 47,182 81,259 89,297 ----------------------------------------------------------- Total $ 73,008 $ 83,291 $145,460 $ 161,615 =========================================================== 1997 1996 -------------------------------- Average annual net sales per restaurant open for a full year (in 000's) (3): Company-operated $619 $620 Franchised $762 $769 System-wide $690 $719 -------------------------------- Number of Restaurants (4) Company-operated 233 243 Franchised 247 264 -------------------------------- Total 480 507 ================================ (1) As a percent of net restaurant sales. (2) As a percent of Modular restaurant package revenues. (3) Includes sales of Restaurants open for entire trailing 13 period year including stores expected to be closed in the following year. (4) Number of Restaurants open at end of period.
13 COMPARISON OF HISTORICAL RESULTS - QUARTER ENDED JUNE 16, 1997 AND QUARTER ENDED JUNE 17, 1996 REVENUES. Total revenues decreased 12.8% to $33.7 million for the quarter ended June 16, 1997, compared to $38.7 million for the quarter ended June 17, 1996. Company-operated net restaurant sales decreased 12.1% to $31.8 million for the quarter ended June 16, 1997, from $36.1 million for the quarter ended June 17, 1996. Net restaurant sales for comparable Company-owned Restaurants for the quarter ended June 16, 1997, decreased 11.5% compared to the quarter ended June 17, 1996. Comparable Company-owned Restaurants are those continuously open during both reporting periods. These decreases in net restaurant sales and comparable net restaurant sales are primarily attributable to a highly competitive environment during the second quarter of 1997 and the Company's 1997 focus on cutting costs and developing a new advertising campaign for the remainder of 1997. Franchise revenues and fees decreased 14.7% to $1.7 million for the quarter ended June 16, 1997, from $2.0 million for the quarter ended June 17, 1996. This was a result of a net reduction of 17 franchised restaurants since June 17, 1996, and opening fewer franchised Restaurants during the quarter ended June 16, 1997, than in the second quarter of 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 53.7% to $246,000 for the quarter ended June 16, 1997, from $532,000 for the quarter ended June 17, 1996. 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 and costs are recognized prior to the opening of a Restaurant or shipment to a convenience store operator. COSTS AND EXPENSES. Restaurant food and paper costs totalled $10.4 million or 32.8% of net Restaurant sales for the quarter ended June 16, 1997, compared to $12.3 million or 34.0% of net restaurant sales for the quarter ended June 17, 1996. The actual decrease in food and paper costs was due primarily to the decrease in net restaurant sales while the decrease in these costs as a percentage of net restaurant sales was due to new purchasing contracts negotiated in the first quarter of 1997. Restaurant labor costs, which includes restaurant employees' salaries, wages, benefits and related taxes, totalled $9.8 million or 30.8% of net restaurant sales for the quarter ended June 16, 1997, compared to $12.8 million or 35.3% of net restaurant sales for the quarter ended June 17, 1996. The decrease in restaurant labor costs as a percentage of net restaurant sales was due primarily to new labor utilization programs implemented in the first quarter of 1997, partially offset by the increase in the federal minimum wage rate. Restaurant occupancy expense, which includes rent, property taxes, licenses and insurance, totalled $2.5 million or 7.9% of net restaurant sales for the quarter ended June 16, 1997, compared to $2.8 million or 7.8% of net restaurant sales for the quarter ended June 17, 1996. This increase in restaurant occupancy costs as a percentage of net restaurant sales was due primarily to the decline in average net restaurant sales relative to the fixed and semi-variable nature of these expenses and the acquisition of interests in 12 Restaurants in the high cost Chicago market in the third quarter of 1996. Restaurant depreciation and amortization decreased 2.9% to $1.9 million for the quarter ended June 16, 1997, from $2.0 million for the quarter ended June 17, 1996, due primarily to fourth quarter 1996 impairments under the Statement of Financial Accounting Standards No. 121 and a net decrease of 10 Company-operated restaurants from June 17, 1996, to June 16, 1997. However, as percentage of net restaurant sales, these expenses increased to 6.0% for the quarter ended June 16, 1997 from 5.4% for the quarter ended June 17, 1997 because of the greater relative decline in sales. Advertising expense increased to $1.6 million or 5.0% of net restaurant sales for the quarter ended June 16, 1997, from $1.2 million or 3.4% of net restaurant sales for the quarter ended June 17, 1996. The increase in this expense was due to decreased utilization of coupons in lieu of advertising dollars in 1997 and the second quarter 1996 capitalization of television production costs that were expensed later in 1996. 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 $3.2 million or 10.0% of net restaurant sales for the quarter ended June 16, 1997, compared to $3.4 million or 9.5% of net restaurant sales for the quarter ended June 17, 1996. The increase in the quarter ended June 16, 1997, as a percentage of net restaurant sales was primarily related to the decline in average net restaurant sales relative to the fixed and semi- variable nature of these expenses. 14 Costs of modular restaurant package revenues totalled $213,000 or 86.5% of modular restaurant package revenues for the quarter ended June 16, 1997, compared to $649,000 or 122.0% of such revenues for the quarter ended June 17, 1996. The decrease in these expenses as a percentage of modular restaurant package revenues was attributable to the elimination of various excess fixed costs in the first quarter of 1997. General and administrative expenses were $3.5 million or 10.4% of total revenues, for the quarter ended June 16, 1997, compared to $4.0 million or 10.5% of total revenues for the quarter ended June 17, 1996. The actual decrease in normal recurring general and administrative expenses of $890,000 was mostly attributable to a reduction in corporate staffing early in 1997. This reduction was partially offset by $350,000 of costs incurred as a result of terminated merger negotiations with Rally's Hamburgers, Inc., resulting in a reported decrease of $540,000. INTEREST EXPENSE. Interest expense decreased to $1.2 million or 3.5% of total revenues for the quarter ended June 16, 1997, from $1.3 million or 3.4% of total revenues for the quarter ended June 17, 1996. This decrease was due to a reduction in the weighted average balance of debt outstanding during the respective periods, partially offset by an increase in the Company's effective interest rates since the second quarter of 1996. INCOME TAX BENEFIT. Due to the loss for the quarter, the Company recorded an income tax benefit of $558,000 or 38.0% of the loss before income taxes which was completely offset by a deferred income tax valuation allowance of $558,000 for the quarter ended June 16, 1997, as compared to an income tax benefit of $934,000 or 38.0% of earnings before income taxes for the quarter ended June 17, 1996. 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 net loss for the quarter was $1.5 million or $.02 per share. This net loss was impacted by the expensing of $485,000 in deferred loan costs and $350,000 in terminated merger costs in the quarter ended June 16, 1997. Net loss before tax, deferred loan cost amortization and terminated merger costs was $634,000 or $.01 per share for the quarter ended June 16, 1997, and $1.5 million or $.03 per share for the quarter ended June 17, 1996, which resulted primarily from an increase in the average restaurant margins, decreases in general and administrative expenses and interest expense, partially offset by a decrease in royalties and franchise fees. COMPARISON OF HISTORICAL RESULTS - TWO QUARTERS ENDED JUNE 16, 1997 AND TWO QUARTERS ENDED JUNE 17, 1996 REVENUES. Total revenues decreased 11.9% to $67.9 million for the two quarters ended June 16, 1997, compared to $77.1 million for the two quarters ended June 17, 1996. Company-operated net restaurant sales decreased 11.2% to $64.2 million for the two quarters ended June 16, 1997, from $72.3 million for the two quarters ended June 17, 1996. Net restaurant sales for comparable Company-owned Restaurants for the two quarters ended June 16, 1997, decreased 10.1% compared to the quarters ended June 17, 1996. Comparable Company-owned Restaurants are those continuously open during both reporting periods. These decreases in net restaurant sales and comparable net restaurant sales are primarily attributable to a highly competitive environment during the first two quarters of 1997 and the Company's 1997 focus on cutting costs and developing a new advertising campaign for the remainder of 1997. Franchise revenues and fees decreased 19.1% to $3.3 million for the two quarters ended June 16, 1997, from $4.1 million for the two quarters ended June 17, 1996. This was a result of a net reduction of 17 franchised restaurants since June 17, 1996, and opening fewer franchised Restaurants during the two quarters ended June 16, 1997, than in the first two quarters of 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 46.9% to $344,000 for the two quarters ended June 16, 1997, from $647,000 for the two quarters ended June 17, 1996. 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 and costs are recognized prior to the opening of a Restaurant or shipment to a convenience store operator. COSTS AND EXPENSES. Restaurant food and paper costs totalled $21.5 million or 33.5% of net Restaurant sales for the two quarters ended June 16, 1997, compared to $24.7 million or 34.1% of net restaurant sales for the two quarters ended June 17, 1996. The actual decrease in food and paper costs was due primarily to the decrease in net restaurant sales while the decrease in these costs as a percentage of net restaurant sales was due to new purchasing contracts negotiated in the first two quarters of 1997. Restaurant labor costs, which includes restaurant employees' salaries, wages, benefits and related taxes, totalled $21.1 million or 32.9% of net restaurant sales for the two quarters ended June 16, 1997, compared to $25.2 15 million or 34.8% of net restaurant sales for the two quarters ended June 17, 1996. The decrease in restaurant labor costs as a percentage of net restaurant sales was due primarily to new labor utilization programs implemented in the first quarter of 1997, partially offset by the increase in the federal minimum wage rate. Restaurant occupancy expense, which includes rent, property taxes, licenses and insurance, totalled $5.2 million or 8.1% of net restaurant sales for the two quarters ended June 16, 1997, compared to $5.7 million or 7.8% of net restaurant sales for the two quarters ended June 17, 1996. This increase in restaurant occupancy costs as a percentage of net restaurant sales was due primarily to the decline in average net restaurant sales relative to the fixed and semi-variable nature of these expenses and the acquisition of interests in 12 Restaurants in the high cost Chicago market in the third quarter of 1996. Restaurant depreciation and amortization decreased 3.3% to $3.8 million for the two quarters ended June 16, 1997, from $4.0 million for the two quarters ended June 17, 1996, due primarily to fourth quarter 1996 impairments under the Statement of Financial Accounting Standards No. 121 and a net decrease of 10 Company-operated restaurants from June 17, 1996, to June 16, 1997. However, as percentage of net restaurant sales, these expenses increased to 6.0% for the quarter ended June 16, 1997 from 5.5% for the quarter ended June 17, 1997 because of the greater relative decline in sales. Advertising expense increased to $3.2 million or 5.0% of net restaurant sales for the two quarters ended June 16, 1997, from $2.1 million or 2.9% of net restaurant sales for the two quarters ended June 17, 1996. The increase in this expense was due to decreased utilization of coupons in lieu of advertising dollars in 1997 and the first and second quarter 1996 capitalization of television production costs that were expensed later in 1996. 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 $6.4 million or 10.0% of net restaurant sales for the two quarters ended June 16, 1997, compared to $6.2 million or 8.6% of net restaurant sales for the quarters ended June 17, 1996. The increase in the two quarters ended June 16, 1997, as a percentage of net restaurant sales was primarily related to the decline in average net restaurant sales relative to the fixed and semi-variable nature of these expenses. The increase in the actual expense by 3.1% was due to certain one-time credits recorded in the first quarter of 1996. Costs of modular restaurant package revenues totalled $289,000 or 84.0% of modular restaurant package revenues for the two quarters ended June 16, 1997, compared to $998,000 or 154.4% of such revenues for the two quarters ended June 17, 1996. The decrease in these expenses as a percentage of modular restaurant package revenues was attributable to the elimination of various excess fixed costs in the first quarter of 1997. General and administrative expenses were $6.9 million or 10.2% of total revenues, for the two quarters ended June 16, 1997, compared to $7.3 million or 9.5% of total revenues for the two quarters ended June 17, 1996. The actual decrease in normal recurring general and administrative expenses of $747,000 was mostly attributable to a reduction in corporate staffing early in 1997. This reduction was partially offset by $350,000 of costs incurred as a result of terminated merger negotiations with Rally's Hamburgers, Inc., resulting in a reported decrease of $397,000. INTEREST EXPENSE. Interest expense was $2.5 million or 3.7% of total revenues for the two quarters ended June 16, 1997, and $2.5 million or 3.3% of total revenues for the two quarters ended June 17, 1996. This consistency was due to a reduction in the weighted average balance of debt outstanding during the respective periods, offset by an increase in the Company's effective interest rates since the second quarter of 1996. INCOME TAX BENEFIT. Due to the loss for the two quarters, the Company recorded an income tax benefit of $2.5 million or 38.0% of the loss before income taxes which was completely offset by a deferred income tax valuation allowance of $2.5 million for the two quarters ended June 16, 1997, as compared to an income tax benefit of $1.1 million or 38.0% of earnings before income taxes for the two quarters ended June 17, 1996. 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 net loss for the two quarters was $6.7 million or $.11 per share. This net loss was significantly impacted by the expensing of $2.7 million in deferred loan costs and $350,000 in terminated merger costs in the two quarters ended June 16, 1997. Net loss before tax, deferred loan cost amortization and terminated merger costs was $3.6 million or $.06 per share for the two quarters ended June 16, 1997, and $1.5 million or $.03 per share for the two quarters ended June 17, 1996. This increased net loss was primarily attributable to lower levels of net restaurant sales and a decrease in royalties and franchise fees, partially offset by an increase in average net margins and a decline in general and administrative expenses. 16 LIQUIDITY AND CAPITAL RESOURCES On July 29, 1996, the debt under the Company's prior bank loan agreement (the "Loan Agreement") and credit line ("Credit Line") was acquired from a Bank Group by an investor group led by an affiliate of DDJ Capital Management, LLC (collectively, "DDJ"). On November 14, 1996, the debt under the Loan Agreement and Credit Line was acquired from DDJ by a group of entities and individuals, most of whom are engaged in the fast food restaurant business. This investor group (the "CKE Group") was led by CKE Restaurants, Inc., the parent of Carl Karcher Enterprises, Inc., Casa Bonita, Inc., and Summit Family Restaurants, Inc. Also participating were most members of the DDJ Group, as well as KCC Delaware Company, a wholly-owned subsidiary of GIANT GROUP, LTD., which is a controlling shareholder of Rally's Hamburgers, Inc. On November 22, 1996, the Company and the CKE Group executed an Amended and Restated Credit Agreement (the "Restated Credit Agreement") thereby completing a restructuring of the debt under the Loan Agreement. The Restated Credit Agreement consolidated all of the debt under the Loan Agreement and the Credit Line into a single obligation. At the time of the restructuring, the outstanding principal balance under the Loan Agreement and the Credit Line was $35.8 million. Pursuant to the terms of the Restated Credit Agreement, the term of the debt was extended by one (1) year until July 31, 1999, and the interest rate on the indebtedness was reduced to a fixed rate of 13%. In addition, all principal payments were deferred until May 19, 1997, and the CKE Group agreed to eliminate certain financial covenants, to relax others and to eliminate approximately $6 million in restructuring fees and charges. The Restated Credit Agreement also provided that certain members of the CKE Group agreed to provide to the Company a short term revolving line of credit of up to $2.5 million, also at a fixed interest rate of 13% (the "Secondary Credit Line"). In consideration for the restructuring, the Restated Credit Agreement required the Company to issue to the members of the CKE Group warrants to purchase an aggregate of 20 million shares of the Companys' common stock at an exercise price of $.75 per share, which was the approximate market price of the common stock prior to the announcement of the debt transfer. As of June 16, 1997, the Company has reduced the principal balance under the Restated Credit Agreement by $9.2 million and has repaid the Secondary Credit Line in full. A portion of the funds utilized to make these principal reduction payments were obtained by the Company from the sale of certain closed restaurant sites to third parties. Additionally, the Company utilized $10.5 million of the proceeds from the February 21, 1997, private placement which is described later in this section. Pursuant to the Restated Credit Agreement, the prepayments of principal made in 1996 and early in 1997 will relieve the Company of the requirement to make any of the regularly scheduled principal payments under the Restructured Credit Agreement which would have otherwise become due in fiscal year 1997. The Amended and Restated Credit Agreement provides however, that 50% of any future asset sales must be utilized to prepay principal. The Company has outstanding promissory notes in the aggregate principal amount of approximately $4.5 million (the "Notes") payable to Rall-Folks, Inc. ("Rall-Folks"), Restaurant Development Group, Inc. ("RDG") and Nashville Twin Drive-Through Partners, L.P. ("N.T.D.T."). The Company had agreed to acquire the Notes issued to Rall-Folks and RDG in consideration of the issuance of an aggregate of approximately 2.8 million shares of Common Stock and the Note issued to NTDT in exchange for a convertible note in the same principal amount and convertible into approximately 927,000 shares of Common Stock pursuant to purchase agreements entered into in 1995 and subsequently amended. All three of the parties received varying degrees of protection on the purchase price of the promissory notes. Accordingly, the actual number of shares to be issued will be determined by the market price of the Company's stock. The Company was not able to consummate these transactions as originally scheduled. Pusuant to the most recent amendment, consumation of the Rall-Folks, RDG and NTDT purchases is to occur prior to December 16, November 25, and November 15, 1997, respectively, subject to extension in certain cases. The Company does not currently have sufficient cash available to pay one or more of these notes if required to do so. On February 21, 1997, the Company completed a private placement (the "Private Placement") of 8,771,929 shares of the Company's common stock, $.001 par value, and 87,719 shares of the Company's Series A preferred stock, $.001 par value (the "Preferred Stock"). CKE Restaurants, Inc. purchased 6,162,299 of the Company's common stock and 61,623 of the Preferred Stock and other qualified investors, including other members of the CKE Group of lenders under the Restated Credit Agreement, also participated in the Private Placement. The Company received approximately $19.5 million in net proceeds from the Private Placement. The Company used $8 million of the Private Placement proceeds to reduce the principal balance due under the Restated Credit Agreement; $2.5 million was utilized to repay the Secondary Credit Line; $2.3 million was utilized to pay outstanding balances to various key food and paper distributors; and the remaining amount was used primarily to pay down outstanding balances due certain other vendors. The reduction of the debt under the Restated Credit Agreement and the Secondary Credit Line, both of which carry a 13% interest rate will reduce the Company's interest expense by more than $1.3 million annually. 17 The Private Placement purchase agreement requires that the Company submit to its shareholders for vote at its 1997 Annual Shareholders' Meeting the conversion of the Preferred Stock into shares of the Company's common stock based upon the Preferred Stock liquidation preference. If the shareholders do not vote in favor of the conversion, the Preferred Stock will remain outstanding with the rights and preferences set forth in the Certificate of Designation of Series A Preferred Stock of the Company (the "Certificate", a copy of which is an Exhibit hereto), including (i) a dividend preference, (ii) a voting preference, (iii) a liquidation preference and (iv) a redemption requirement. Holders of the Preferred Stock will have the right to receive cash dividends equal to $16.53 per share per annum payable on a quarterly basis beginning August 19, 1997. Such dividends are cumulative and must be paid in full prior to any dividends being declared or paid with respect to the Company's common stock. If the Company is in default with respect to any dividends on the Preferred Stock, then no cash dividends can be declared or paid with respect to the Company's common stock. If the Company fails to pay any two required dividends on the Preferred Stock, then the number of seats on the Company's Board of Directors will be increased by two and the holders of the Preferred Stock will have the right, voting as a separate class, to elect the Directors to fill those two new seats, which new Directors will continue in office until the holders of the Preferred Stock have elected successors or the dividend default has been cured. In the event of any liquidation, dissolution or winding up, but not including any consolidation or merger of the Company, the holders of the Preferred Stock will be entitled to receive a liquidation preference of $114 per share plus any accrued but unpaid dividends (the "Liquidation Preference"). In the event the stockholders do not approve the conversion of the Preferred Stock and the Company subsequently completes a consolidation or merger and the result is a change in control of the Company, then each share of the Preferred Stock will be automatically redeemed for an amount equal to the Liquidation Preference. The Company is required to redeem the Preferred Stock for an amount equal to the Liquidation Preference on or before February 12, 1999. If the redemption does not occur as required, the dividend rate will increase from $16.53 per share to $20.52 per share. Additionally, if there are not then Directors serving which were elected by the holders of the Preferred Stock, the number of directors constituting the Company's Board of Directors will be increased by two and the holders of the Preferred Stock voting as a class will be entitled to elect the Directors to fill the created vacancies. In the fiscal year ended December 30, 1996, the Company raised approximately $1.8 million from the sale of various of its assets to third parties, including both personal and excess real property from closed or undeveloped Restaurant locations. Under the terms of the Loan Agreement and the Restated Credit Agreement, approximately 50% of those sales proceeds were utilized to reduce outstanding principal. The Company also received $3.5 million in connection with the reduction of a note receivable which funds were generally used to supplement working capital. During the first half of 1997, the Company sold eight parcels of excess real property and eight MRP's resulting in net proceeds to the Company of $2.8 million. As of June 16, 1997 the Company owns or leases approximately 42 parcels of excess real property which it intends to continue to aggressively market to third parties, and has an inventory of approximately 28 used MRP's which it intends to continue to aggressively market to franchisees and third parties. There can be no assurance that the Company will be successful in disposing of these assets, and 50% of the proceeds from the sale of excess real property must be used to reduce the principal balance under the Restated Credit Agreement. The Company has negative working capital of $16.2 million at June 16, 1997 (determined by subtracting current liabilities from current assets). It is anticipated that the Company will continue to have negative working capital since approximately 86.7% of the Company's assets are long-term (property, equipment, and intangibles), 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 currently does not have significant development plans for additional Company Restaurants during fiscal 1997. The Company implemented aggressive programs at the beginning of fiscal year 1997 designed to improve food, paper and labor costs in the Restaurants. These costs totalled 63.6% of net restaurant revenues in the second quarter of 1997, compared to 72.1% of net restaurant revenues in fiscal 1996, despite an 11.5% decrease in Company owned same store sales in the second quarter of 1997 as compared to the first quarter of the prior year. The Company also reduced the corporate and regional staff by 32 employees in the beginning of fiscal year 1997. 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. Management believes that cash flows generated from operations and the Private Placement should allow the Company to meet its financial obligations and to pay operating expenses in fiscal year 1997. The Company must, however, also successfully consummate the purchase of the Rall-Folks Notes, the RDG Note and the NTDT Note for Common Stock. If the Company is unable to consummate one or more of those transactions, and if the Company is thereafter unable to reach some other arrangements with Rall Folks, RDG or NTDT, the Company may default under the terms of the Restated Credit Agreement. 18 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: uncertainties related to the general economy; competition; costs of food and labor; the Company's ability to 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 in a given period. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS: None, except as previously reported in the Company's Form 10-Q for the quarter ended March 24, 1997. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS: 10.39 Amended and Restated Purchase Agreement dated May 14, 1997 between the Company and Rall-Folks, Inc. 10.40 Amendment No. 3 to Purchase Agreement dated June 2, 1997 between the Company and Restaurant Development Group, Inc. 10.41 Amended and Restated Note Repayment Agreement dated July 17, 1997 between the Company and Nashville Twin Drive-Thru Partners, L.P., et.al. 27 Financial Data Schedule (included in electronic filing only). (B) REPORTS ON 8-K: There were no reports on Form 8-K filed during the quarter covered by this report. 19 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 24, 1997 By: /s/ Joseph N. Stein ----------------------------------------- Joseph N. Stein Executive Vice President, Chief Financial Officer and Chief Accounting Officer 20 June 16, 1997 FORM 10-Q CHECKERS DRIVE-IN RESTAURANTS, INC. EXHIBIT INDEX Exhibit # Exhibit Description --------- ------------------- 10.39 Amended and Restated Purchase Agreement dated May 14, 1997 between the Company and Rall-Folks, Inc. 10.40 Amendment No. 3 to Purchase Agreement dated June 2, 1997 between the Company and Restaurant Development Group, Inc. 10.41 Amended and Restated Note Repayment Agreement dated July 17, 1997 between the Company and Nashville Twin Drive-Thru Partners, L.P., et.al. 27 Financial Data Schedule (included in electronic filing only). 21 EX-10 2 EXHIBIT 10.39 AMENDED AND RESTATED PURCHASE AGREEMENT --------------------------------------- This Amended and Restated Purchase Agreement (the "Agreement") is made and entered into as of this 14th day of May 1997, by and between Rall- Folks, Inc., a Georgia corporation ("Rall-Folks"), and Checkers Drive-In Restaurants, Inc., a Delaware corporation ("Checkers"), and amends and restates in its entirety that certain Purchase Agreement between Rall-Folks and Checkers, dated as of August 2, 1995, as amended by Amendment No. 1 to Purchase Agreement, dated as of October 20, 1995, Amendment No. 2 to Purchase Agreement, dated as of April 11, 1996, and Amendment No. 3 to Purchase Agreement, dated as of June 12, 1996. W I T N E S S E T H: - - - - - - - - - - WHEREAS, Rall-Folks holds three promissory notes of Checkers, each dated May 4, 1994, in the original principal amounts of $1,793,891, $71,036 and 30,536 (the "Notes"); and WHEREAS, Checkers desires to acquire the Notes and Rall- Folks desires to sell the Notes to Checkers, upon the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises, the mutual representations, warranties, covenants and agreements hereinafter contained, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree as follows: ARTICLE I. ---------- PURCHASE AND SALE ----------------- 1.01 PURCHASE AND SALE OF THE NOTES. Subject to and upon the terms and conditions hereinafter set forth and the representations and warranties contained herein, Checkers agrees to purchase from Rall-Folks, and Rall-Folks agrees to sell, assign, transfer and deliver to Checkers, free and clear of any and all liens, encumbrances, liabilities, claims, charges and restrictions of any kind or nature whatsoever, all of Rall-Folks's right, title and interest (which will be good, valid and complete) in and to the Notes. 1.02 NON-ASSUMPTION OF LIABILITIES. None of the provisions of this Agreement will be deemed to create any obligation or liability of Checkers to any person or entity that is not a party to this Agreement, whether under a third-party beneficiary theory, successor liability theory or otherwise. ARTICLE II PURCHASE PRICE 2.01 PURCHASE PRICE. The aggregate purchase price (the "Purchase Price") payable to Rall-Folks for the Notes will be equal to the outstanding balance (principal and accrued interest) due under the Notes on the Closing Date (as hereinafter defined) payable in shares of the common stock of Checkers, par value $.001 per share ("Common Stock"). The number of shares to be issued (the "Stock Payment") shall be equal to the amount determined by dividing the Purchase Price by the arithmetic average (rounded to the nearest penny) of the closing sale price per share of the Common Stock as reported on the Nasdaq Stock Market's National Market for the five full trading days ending on the third business day immediately preceding the Closing Date, as reported in The Wall Street Journal. 2.02 DELIVERY OF SHARES. On the Closing Date, Checkers will deliver one or more certificates in the name of Rall-Folks representing the shares of Common Stock constituting the Stock Payment. 2.03 NO FRACTIONAL SHARES. Notwithstanding anything contained in this Agreement to the contrary, neither certificates nor scrip for fractional shares of the Common Stock shall be issued as part of the Stock Payment. In the event that the number of shares of Common Stock constituting the Stock Payment includes a fractional share, the number of shares shall be rounded up or down to the nearest whole number of shares. ARTICLE III REPRESENTATIONS AND WARRANTIES OF RALL-FOLKS Rall-Folks represents and warrants to Checkers (each of which shall be deemed material and independently relied upon by Checkers) as follows: 3.01 ORGANIZATION AND STANDING. Rall-Folks is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia with full power and authority to own its properties and assets. Rall-Folks is in good standing and duly qualified to conduct business as a foreign corporation in each of the jurisdictions in which the nature of its business or the ownership of its properties requires such qualification and in which failure to be so qualified would have a material adverse effect on the business, operations, assets, financial position or prospects of Rall-Folks. -2- 3.02 CORPORATE AUTHORITY. Subject to receipt of the approval and consent of the stockholders of Rall-Folks and the consent of First Citizens Bank, Newnan, Georgia ("First Citizens Bank"), Rall-Folks has the full power and authority to enter into and perform this Agreement and to consummate the transactions contemplated herein in accordance with the terms of this Agreement. Compliance with the terms and conditions hereof will not (i) violate or conflict with any provision of the Rall-Folks Articles of Incorporation or Rall-Folks By-laws or any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restrictions of any government, governmental agency or court to which Rall-Folks is subject, or (ii) subject to the consent of First Citizens Bank, result in the breach or termination of any provision of, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, require any notice or constitute a breach or default under any note, bond, indenture, lease, agreement or other instrument or obligation to which Rall-Folks is a party or by which any of the properties or assets of Rall-Folks may be subject, bound or affected. No authorization, consent or approval of any public body or authority is necessary to the validity of the transactions contemplated by this Agreement except for the consent of the stockholders of Rall-Folks. Rall-Folks is not otherwise a party to any contract or subject to any other legal restriction that would prevent or restrict complete fulfillment by Rall-Folks of all of the terms and conditions of this Agreement or compliance with any of the obligations under it. 3.03 CORPORATE AUTHORIZATION. Other than obtaining the consent of the stockholders of Rall-Folks, Rall-Folks has taken all necessary corporate actions to authorize and approve the execution, delivery and performance of this Agreement and the transactions contemplated hereby (including approval by the Board of Directors of Rall-Folks). This Agreement constitutes a legal, valid and binding obligation of Rall-Folks, enforceable against Rall-Folks in accordance with its terms. 3.04 TITLE TO THE NOTES. Rall-Folks has good, valid and complete title to the Notes, subject to the rights of First Citizens Bank, as pledgee of the Notes. 3.05 LITIGATION AND DISPUTES. There is no claim, litigation or proceeding pending or, to the knowledge of Rall- Folks, threatened, against or with respect to Rall-Folks, and there exists no basis or grounds for any such suit, action, proceeding, claim or investigation, which affects the title or interest of Rall-Folks to or in the Notes or which would prevent or affect the consummation of the transactions contemplated by this Agreement by Rall-Folks. -3- 3.06 REGISTRATION STATEMENT. None of the information regarding Rall-Folks supplied or to be supplied by Rall-Folks for inclusion (i) in the Registration Statement (as hereinafter defined) or any Resale Registration Statement (as hereinafter defined) to be filed by Checkers with the Securities and Exchange Commission ("SEC") in connection with the registration of the Common Stock issued hereunder, or (ii) in any other documents to be filed with the SEC or any other regulatory authority in connection with the transactions contemplated in this Agreement, as the same may be updated by written notice from Rall-Folks to Checkers from time to time, will at the respective time such documents are filed and, in the case of the Registration Statement or any Resale Registration Statement, when it becomes effective, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading. ARTICLE IV [INTENTIONALLY DELETED] ARTICLE V REPRESENTATIONS AND WARRANTIES OF CHECKERS Checkers represents and warrants to Rall-Folks (each of which shall be deemed material and independently relied upon by Rall-Folks) as follows: 5.01 ORGANIZATION AND STANDING. Checkers is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with full power and authority to own its properties and assets and to conduct its business as now conducted or proposed to be conducted. Checkers is in good standing and duly qualified to conduct business as a foreign corporation in each of the jurisdictions in which the nature of its business or the ownership of its properties requires such qualification and in which failure to be so qualified would have a material adverse effect on the business, operations, assets, financial position or prospects of Checkers. 5.02 CORPORATE AUTHORITY. Checkers has the full power and authority to enter into and perform this Agreement and to consummate the transactions contemplated herein in accordance with the terms of this Agreement. Compliance with the terms and conditions hereof will not violate or conflict with any provision of Checkers' Restated Certificate of Incorporation or By-laws or any constitution, statute, regulation, rule, injunction, judgment, order, decree, -4- ruling, charge or other restrictions of any government, governmental agency or court to which Checkers is subject or result in the breach or termination of any provision of, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, require any notice or constitute a breach or default under any note, bond, indenture, lease, agreement or other instrument or obligation to which Checkers is a party or by which any of the properties or assets of Checkers may be subject, bound or affected. All necessary approvals of the parties under any contracts, commitments or understandings to which Checkers is a party or any other person required to permit the consummation on the part of Checkers of the transactions contemplated in this Agreement (other than the approval of the SEC to the effectiveness of the Registration Statement) have been obtained by Checkers. Checkers is not otherwise a party to any contract or subject to any other legal restriction that would prevent or restrict complete fulfillment by Checkers of all of the terms and conditions of this Agreement or compliance with any of the obligations under it. 5.03 CORPORATE AUTHORIZATION. Checkers has taken all necessary corporate actions to authorize and approve the execution, delivery and performance of this Agreement and the transactions contemplated hereby (including approval by the Board of Directors of Checkers). This Agreement constitutes a legal, valid and binding obligation of Checkers, enforceable against Checkers in accordance with its terms. 5.04 CAPITALIZATION. As of May 1, 1997, the authorized capital stock of Checkers consisted of (i) 100,000,000 shares of Common Stock, of which 60,540,409 shares were issued and outstanding, and (ii) 2,000,000 shares of preferred stock, $.001 par value per share, of which 87,719 shares were issued and outstanding. All of the issued and outstanding shares of Common Stock are, and all of the shares of Common Stock to be issued hereunder will be, validly issued, fully paid, nonassessable and outstanding and not issued in violation of the preemptive rights of any stockholder. 5.05 REQUIRED CONSENTS. Except for the registration of the shares of Common Stock to be issued hereunder with the SEC and under any applicable state blue sky laws, no consents or approvals of any public body or authority and no consents or waivers from any other parties to any agreements or other instruments are required for the lawful consummation on the part of Checkers of the transactions contemplated by this Agreement. 5.06 REGISTRATION STATEMENT. None of the information included (i) in the Registration Statement or any Resale Registration Statement and (ii) in any other documents to be filed with the SEC or any regulatory authority in connection with the transactions contemplated in this Agreement will at the -5- respective time such documents are filed and, in the case of the Registration Statement or any Resale Registration Statement, when it becomes effective, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading, except that no representation or warranty is being made with respect to information supplied by Rall-Folks to Checkers for inclusion therein. All documents which Checkers is responsible for filing with the SEC and any regulatory authority in connection with the Registration Statement or any Resale Registration Statement will comply as to form in all material respects with the provisions of applicable law. ARTICLE VI COVENANTS OF CHECKERS Checkers covenants to Rall-Folks as follows: 6.01 REGISTERED SHARES. The shares of Common Stock to be issued to Rall-Folks pursuant to Section 2.01 of this Agreement shall be issued in accordance with the registration requirements of the Securities Act of 1933, as amended (the "1933 Act") and listed on the Nasdaq Stock Market's National Market. Checkers shall remain in compliance with SEC Rule 144(c). 6.02 PREPARATION OF THE REGISTRATION STATEMENT. On or before April 22, 1996, Checkers shall prepare and file with the SEC a registration statement on Form S-4 (including the related prospectus), and required amendments thereto or supplements to any prospectus contained therein (the "Registration Statement"), relating to the issuance of the shares of Common Stock contemplated to be issued under Section 2.01 of this Agreement, and shall use its commercially reasonable best efforts to have the same declared effective by the SEC as expeditiously as practicable; provided, however, that Checkers shall have the right (i) to defer the initial filing or request for acceleration of effectiveness or (ii) after effectiveness, to suspend effectiveness of any such registration statement, if, in the good faith judgment of the board of directors of Checkers and upon the advice of counsel to Checkers, such delay in filing or requesting acceleration of effectiveness or such suspension of effectiveness is necessary in light of the existence of material non-public information (financial or otherwise) concerning Checkers, disclosure of which at the time is not, in the opinion of the board of directors of Checkers upon the advice of counsel, (a) otherwise required, and (b) in the best interests of Checkers. Checkers shall also take any action required to be taken under any applicable state blue sky laws in connection with the issuance of shares of Common Stock -6- hereunder. No material information about Checkers will be contained in the Registration Statement that is not contained in Checkers previously filed SEC reports, other than information concerning Rall-Folks and the transactions contemplated by this Agreement. The Registration Statement will not cover resales of the Common Stock. When the Registration Statement is declared effective by the SEC, Checkers shall give Rall-Folks prompt notice of such fact and shall supply Rall-Folks with sufficient copies of the Registration Statement to enable Rall-Folks to send copies to each of its stockholders in connection with calling of a meeting of such stockholders for the purpose of voting on this Agreement and the transactions contemplated herein. Notwithstanding the foregoing, in the event that on the date of this Agreement Checkers is negotiating with Rally's Hamburgers, Inc. ("Rally's") to acquire all of the outstanding stock of Rally's through a merger of Rally's with a subsidiary of Checkers or otherwise, then Checkers' obligation to have the Registration Statement declared effective by the SEC as expeditiously as practicable shall be suspended until the closing of the transaction with Rally's or the termination of such negotiations or the termination of any definitive agreement relating to such transaction. 6.03 GUARANTEE OF PROCEEDS FROM THE SALE OF THE COMMON STOCK. In the event that Rall-Folks proceeds in good faith to sell all of the Common Stock constituting the Stock Payment in a reasonably prompt but orderly manner (subject to the limitations set forth in Section 7.07), if the aggregate net proceeds (gross proceeds less brokers' commissions and discounts) from the sale of such stock is less than the Purchase Price, Checkers shall issue to Rall-Folks, at Rall-Folks option, either (i) a promissory note in the amount of the difference between the Purchase Price and the aggregate net proceeds received from the sale of the Common Stock constituting the Stock Payment (such difference is hereinafter referred to as the "Initial Price Differential") or (ii) additional shares of Common Stock with a value equal to the Initial Price Differential. The parties agree that Rall-Folks will be deemed to be proceeding in good faith to sell all of the Common Stock in a reasonably prompt but orderly manner if it sells in each three-month period commencing with the three month period beginning on the day after the Closing Date and continuing in each consecutive three-month period thereafter at least 90% of the lesser of (i) the maximum number of shares permitted to be sold during such period under Rule 144 promulgated under the Securities Act of 1933 or (ii) the maximum number of shares permitted to be sold during such period under Section 7.07 without regard to any upticks (as defined therein). Rall-Folks shall provide Checkers with satisfactory evidence of the fact that the aggregate net proceeds from the sale of such shares was less than the Purchase Price (i.e., broker confirmation slips). Checkers shall deliver the note or issue instructions to its transfer agent to issue the additional Common Stock within two business days after the later of (1) the date Rall-Folks has provided to Checkers satisfactory evidence -7- from which to determine the number of additional shares of Common Stock to be issued (broker confirmation slips), and (2) the date Rall- Folks notifies Checkers in writing of its choice between a note and additional shares of Common Stock. If Rall-Folks determines that a promissory note should be issued, the note shall bear interest at 11%, be for a term of six months, with all principal and accrued interest due at maturity, and be subordinated to Checkers bank debt pursuant to the same subordination provisions contained in the Notes. If Rall-Folks determines that additional Common Stock should be issued, the number of shares to be issued (the "Second Stock Payment") shall be equal to the amount determined by dividing the Initial Price Differential by the arithmetic average (rounded to the nearest penny) of the closing sale price per share of the Common Stock as reported on the NASDAQ Stock Market's National Market (as reported in The Wall Street Journal) for the three (3) full trading days immediately preceding the date on which Checkers issues instructions to its transfer agent to issue such additional shares (such average closing sale price being referred to hereinafter as the "Resale Price" for such shares). Checkers shall promptly prepare and file a registration statement and all necessary or appropriate related state securities law or blue sky filings under which Checkers shall register the Common Stock representing the Second Stock Payment, and Rall-Folks may sell the shares representing the Second Stock Payment, upon the terms and conditions provided in Section 6.04 below. In the event that the aggregate net proceeds from the sale of such shares is less than the Initial Price Differential, Rall-Folks may again determine to have Checkers either issue (A) a promissory note in the amount of the difference between the Purchase Price and the aggregate net proceeds received from the sale of the Common Stock constituting the Stock Payment and the Second Stock Payment (such difference is hereinafter referred to as the "Second Price Differential") or (B) additional shares of Common Stock with a value equal to the Second Price Differential, as provided above with respect to the Initial Price Differential. If Rall-Folks determines that additional Common Stock should be issued, Checkers shall register the same and Rall-Folks may sell the same as provided in Section 6.04 below with respect to the Second Stock Payment. Checkers and Rall-Folks will continue this process until such time as there is no Price Differential realized by Rall-Folks on the sale of any batch of Common Stock issued in payment of a Price Differential on a previous batch of Common Stock. All additional Common Stock issued under this Section 6.03 shall be listed on the Nasdaq Stock Market's National Market. The foregoing notwithstanding, Checkers shall have the option at any time to deliver cash to Rall-Folks in lieu of a note or additional shares in order to pay any Price Differential. Checkers shall have the right to require Rall-Folks at any time to either, at the option of Rall-Folks, sell to Checkers any shares held by Rall-Folks representing part of a Stock Payment at a price per share equal to the Resale Price thereof or terminate any future price -8- protection for such shares pursuant to this Section 6.03. In the event that Checkers exercises the right described in the preceding sentence, Rall-Folks may, in its discretion, sell to Checkers a portion of the shares then held by it and retain the remainder, which remaining shares shall not be subject to the future price protection provisions of this Section 6.03. 6.04 REGISTRATION OF COMMON STOCK CONSTITUTING THE SECOND STOCK PAYMENT. As soon as practicable after the issuance of the Common Stock constituting the Second Stock Payment, if any, Checkers shall prepare and file a registration statement on Form S-3 (if it is eligible to use such form), or such other form as it deems suitable (together with all amendments and supplements thereto, the "Resale Registration Statement"), and all necessary or appropriate related state securities law or blue sky filings (together with all amendments and supplements thereto, the "Blue Sky Filings"), under which Checkers shall register the shares of Common Stock issued hereunder as the Second Stock Payment; provided, however, that in any event such Resale Registration Statement shall be filed within 10 business days after issuance if Checkers utilizes a Form S-3, or 20 business days if it utilizes a Form S-4 or S-1. Checkers shall also use its commercially reasonable best efforts to have the Resale Registration Statement declared effective by the SEC as expeditiously as practicable, and shall keep such Resale Registration Statement and Blue Sky Filings current for such period of time as is required for Rall-Folks to complete the sale of all shares of Common Stock registered therein, so long as Rall-Folks proceeds in good faith to sell such shares in a prompt but orderly manner; provided, however, that Checkers shall have the right (i) to defer the initial filing or request for acceleration of effectiveness, or (ii) after effectiveness, to suspend effectiveness of the Resale Registration Statement (to be later recontinued) if, in the good faith judgment of the board of directors of Checkers and upon the advice of counsel to Checkers, such delay in filing or requesting acceleration of effectiveness or such suspension of effectiveness is necessary in light of the existence of material non-public information (financial or otherwise) concerning Checkers, disclosure of which at the time is not, in the opinion of the board of directors of Checkers upon the advice of counsel, (a) otherwise required, and (b) in the best interests of Checkers. Checkers shall not voluntarily take any action that would cause more than a 90-day delay in filing or requesting acceleration of effectiveness or a 90-day suspension of effectiveness. Checkers shall give Rall-Folks notice of effectiveness and any suspensions and recontinuations of the effectiveness of the Resale Registration Statement. Subject to the foregoing, Checkers shall file all such post effective amendments and supplements to the Resale Registration Statement and Blue Sky Filings as may be necessary, in its judgment, to keep such Resale Registration Statement and Blue Sky Filings current. Rall-Folks may -9- proceed to sell the shares representing the Second Stock Payment beginning on the date the Resale Registration Statement is declared effective by the SEC (the "Effective Date"). Checkers shall pay all expenses related to such registration, except that Rall-Folks shall bear the expenses of commissions or discounts and any fees of Rall-Folks' advisors, including legal counsel. Notwithstanding the foregoing, Checkers shall not be obligated to register shares for sale in the states of Arizona or Nevada, unless the costs of registration in such states, including filing fees and reasonable attorneys' fees, are paid by Rall-Folks. The provisions of this Section 6.04 shall similarly apply to any subsequent stock payments made pursuant to Section 6.03 with respect to any succeeding Price Differential. 6.05 ISSUANCE OF COMMON STOCK FOR NEW NOTES. If Rall- Folks determines that a promissory note should be issued in payment of any Price Differential, and if it is permissible under the rules and regulations of the SEC to do so, Checkers will, at the request of Rall-Folks, promptly thereafter enter into an agreement with Rall-Folks substantially identical to this Agreement pursuant to which Checkers will agree to issue to Rall-Folks, upon the same terms and conditions contained herein, additional shares of Common Stock in payment of such note which Common Stock will be registered by Checkers in a registration statement on Form S-4 prior to the issuance such Common Stock. 6.06 PAYMENT OF INTEREST ON VALUE OF UNSOLD SHARES. Beginning on the Closing Date, and on the same day of each third month thereafter, Checkers shall pay to Rall-Folks in cash an amount equal to 2.5% of the value of the shares of Common Stock received by Rall-Folks as part of the Stock Payment and held by Rall-Folks on such date. The value of such shares shall be deemed to be the Purchase Price less the net sales proceeds from previously sold shares of Common Stock constituting part of the Stock Payment. In the event the shares representing the Stock Payment are sold for an amount less than the Purchase Price, giving rise to an obligation on Checkers' part to issue additional shares constituting the Second Stock Payment pursuant to Section 6.03 hereof, Checkers shall continue to pay to Rall-Folks in cash an amount equal to 2.5% of the value of the shares of Common Stock received by Rall-Folks as part of the Second Stock Payment and held by Rall-Folks on each third monthly anniversary of the Closing Date. The value of such shares shall be deemed to be the Initial Price Differential less the net sales proceeds from previously sold shares of Common Stock constituting part of the Second Stock Payment. In the event the shares representing the Second Stock Payment (or any subsequent stock payment) are sold for an amount less than the Initial Price Differential (or any subsequent price differential), giving rise to an obligation on Checkers' part to issue additional shares constituting a subsequent stock payment pursuant to Section 6.03 hereof, Checkers shall continue to pay to Rall-Folks in cash an amount -10- equal to 2.5% of the value of the shares of Common Stock received by Rall-Folks as part of the subsequent stock payment and held by Rall-Folks on each third monthly anniversary of the Closing Date. The value of such shares shall be deemed to be the applicable price differential less the net sales proceeds from previously sold shares of Common Stock constituting part of the applicable stock payment. 6.07 ACTIONS PRIOR TO CLOSING. From and after the date of execution of this Agreement and until the Closing Date, or until this Agreement shall be terminated as herein provided, Checkers shall not engage in any activity, enter into any transaction or fail to take any action which would be inconsistent with any of the representations and warranties as set forth in Article V of this Agreement as if such representations and warranties were made at a time subsequent to such activity or transaction and all references to the date of this Agreement were deemed to be such later time. 6.08 PAYMENT OF CURRENT INTEREST. Beginning on November 1, 1995, and on the first day of each month thereafter, Checkers shall pay to Rall-Folks an amount equal to the interest due under the Notes for the preceding month. 6.09 ADDITIONAL PAYMENTS. In the event that Checkers has not filed the Registration Statement pursuant to Section 6.02 on or before November 30, 1995, Checkers shall pay to Rall-Folks (i) on November 30, 1995, the amount of $100,000 in cash, to be applied first against any accrued interest due under the Notes, with the remainder, if any, to be applied against the principal due under the Notes and (ii) on February 1, 1996, the amount of $100,000 in cash, to be applied first against any accrued interest due under the Notes, with the remainder, if any, to be applied against the principal due under the Notes. 6.10 PAYMENT OF PRINCIPAL. Beginning on July 15, 1997, and on the 15th day of each month thereafter through November 15, 1997, in the event that the Registration Statement has not yet been declared effective by the SEC, Checkers shall pay to Rall-Folks in cash the amount of One Hundred Thousand Dollars ($100,000.00), to be applied against the principal balance due under the Notes. Notwithstanding any other provision contained in this Agreement or the Notes, if the exchange of Common Stock for the Notes contemplated herein has not occurred prior to December 15, 1997, all remaining principal due under the Notes and any accrued but unpaid interest thereon shall be due and payable on such date, unless the failure to complete the exchange is due to the failure of Rall-Folks or its stockholders to perform their obligations hereunder. 6.11 PAYMENT OF LEGAL EXPENSES. No later than one business day after the execution hereof by Rall-Folks, Checkers shall pay to Rall-Folks Ten -11- Thousand Dollars ($10,000.00) as partial reimbursement for legal fees incurred by Rall-Folks in connection with this Agreement and related matters. ARTICLE VII COVENANTS OF RALL-FOLKS Rall-Folks covenants to Checkers as follows: 7.01 ACTIONS PRIOR TO CLOSING. From and after the date of execution of this Agreement and until the Closing Date, or until this Agreement shall be terminated as herein provided, Rall-Folks shall not (i) sell the Notes to any other corporation or person, (ii) pledge the Notes to any person or otherwise subject the Notes to a lien or encumbrance, (iii) engage in any activity, enter into any transaction or fail to take any action which would be inconsistent with any of the representations and warranties as set forth in Article III of this Agreement as if such representations and warranties were made at a time subsequent to such activity or transaction and all references to the date of this Agreement were deemed to be such later time. 7.02 EXTENSION OF THE TERM OF THE NOTES; ACTION ON THE NOTES. The term of the Notes shall be extended until and the Notes shall be payable on the earlier of (i) the Closing Date or (ii) 20 days after the termination of this Agreement in accordance with the terms hereof; provided however, that in the event the Registration Statement is declared effective by the SEC prior to the termination of this Agreement and the stockholders of Rall-Folks fail to approve this Agreement and the transactions contemplated herein within 30 days after Rall-Folks receives actual notice that the Registration Statement has been declared effective by the SEC, the term of the Notes shall be extended automatically until December 31, 1996. Rall-Folks shall not take any action to collect any amounts due under the Notes, notwithstanding their maturity on August 4, 1995, during the term of the Notes as extended by the preceding sentence. 7.03 REGISTRATION STATEMENT INFORMATION. On request of Checkers, Rall-Folks will furnish to Checkers all information concerning Rall-Folks as is required to be set forth in (i) the Registration Statement and any Resale Registration Statement and (ii) any application or statement made by Checkers to any governmental agency or authority in connection with the transactions contemplated by this Agreement. 7.04 APPROVAL BY STOCKHOLDERS. Promptly after the date on which Rall-Folks receives actual notice that the Registration Statement has been declared effective by the SEC, Rall-Folks shall call a meeting of the -12- stockholders of Rall-Folks, to be held within 30 days after Rall-Folks' receipt of such notice, for the purpose of obtaining the approval of the stockholders of Rall-Folks of this Agreement and the transactions contemplated herein. Rall-Folks shall distribute a copy of the Registration Statement to each stockholder of Rall-Folks along with the notice of such meeting. 7.05 RELEASE BY FIRST CITIZENS BANK. Rall-Folks shall use its commercially reasonable efforts to cause First Citizens Bank to release the Notes from the pledge of Rall-Folks. 7.06 DISSOLUTION OF RALL-FOLKS OR DISTRIBUTION OF COMMON STOCK TO STOCKHOLDERS. Within one year after the Closing, Rall- Folks shall either (i) dissolve and wind up its affairs pursuant to Georgia law or (ii) distribute the shares of Common Stock issued to Rall-Folks pursuant to the terms of this Agreement to the stockholders of Rall-Folks, pro rata in accordance with their proportionate ownership of the stock of Rall-Folks. 7.07 TRANSFERS OF COMMON STOCK. Rall-Folks shall not sell, pledge, transfer or otherwise dispose of the shares of Common Stock to be received by it except in compliance with the applicable provisions of the 1933 Act and the rules and regulations promulgated thereunder, including Rule 145. In order to assure that any sales of the shares of Common Stock issued hereunder will be made in an orderly manner so as not to adversely affect the market for the Common Stock, for a period of two years after the Closing Date, Rall-Folks shall not, without the prior consent of Checkers, (i) sell in excess of 50,000 shares of Common Stock during any calendar week and (ii) sell in excess of 25,000 shares in any one day; provided however, that additional sales in excess of such limits may be made provided the same are made at a price higher than the lowest then current bid price for the Common Stock (on an "uptick"). Checkers may refuse to register or give effect to any sales in excess of such limitation (Rall-Folks shall provide Checkers with evidence that all sales in excess of such limit were made on an uptick). Rall-Folks shall, upon the distribution of any of the Common Stock to any stockholder of Rall-Folks, cause such person to deliver an Agreement to Checkers as a condition of such distribution and the transfer of the ownership of such shares upon the stock register of Checkers, which agreement shall contain the covenants set forth in this Section 7.07 and a proportionate limitation on sales. In the event that Checkers acquires all of the outstanding stock of Rally's through a merger of Rally's with a subsidiary of Checkers or otherwise, then the 25,000 share per day and 50,000 share per week volume limitations set forth above shall be increased to 37,500 shares per day and 75,000 shares per week. -13- ARTICLE VIII MUTUAL COVENANTS OF CHECKERS AND RALL-FOLKS Each of Checkers and Rall-Folks covenants with the other as follows: 8.01 CONFIDENTIALITY. All information furnished by one party to the other in connection with this Agreement or the transactions contemplated hereby shall be kept confidential by such other party (and shall be used by it and its officers, attorneys, accountants and representatives (including brokers) only in connection with this Agreement and the transactions contemplated hereby) except to the extent that such information (i) already is known to such other party when received, (ii) thereafter becomes lawfully obtainable from other sources, (iii) is required to be disclosed in any document filed with the SEC or any other agency of any government, or (iv) as otherwise required to be disclosed pursuant to any federal or state law, rule or regulation or by any applicable judgment, order or decree of any court or by any governmental body or agency having jurisdiction in the premises after such other party has given reasonable prior written notice to the other parties to this Agreement of the pending disclosure of any such information. In the event that the transactions contemplated by this Agreement shall fail to be consummated, it shall promptly cause all copies of documents or extracts thereof containing information and data as to the other party hereto to be returned to such other party. 8.02 PREPARATION OF REGISTRATION STATEMENTS. Each party shall cooperate and consult with the other party hereto in the preparation of the Registration Statement and any Resale Registration Statement to be filed by Checkers with the SEC registering the shares of Common Stock to be issued hereunder. When the Registration Statement, any Resale Registration Statement or any Post-Effective Amendment thereto shall become effective, the information prepared by each party for inclusion therein (i) will comply in all material respects with the applicable provisions of the 1933 Act and the Rules and Regulations promulgated thereunder and (ii) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein are necessary to make the statements contained therein not misleading. In no event shall any party hereto be liable to any other party hereto for any untrue statement of a material fact or omission to state a material fact in any registration statement, or any amendment or supplement thereto, or in any report made in reliance upon, and in conformity with, written information concerning the other party hereto furnished by such other party specifically for use in such registration statement or report. Each party hereto shall advise the other party hereto promptly of the happening of any event which -14- makes untrue any statement of a material fact contained in the Registration Statement or any Resale Registration Statement or any amendment or supplement thereto or that requires the making of a change in the registration statement or any amendment or supplement thereto in order to make any material statement therein not misleading. 8.03 MISCELLANEOUS AGREEMENTS. Subject to the terms and conditions herein provided, each party shall use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, appropriate or desirable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. 8.04 THE CLOSING. The Closing (the "Closing") of the transactions contemplated herein shall take place at the offices of Shumaker, Loop & Kendrick, 101 East Kennedy Boulevard, Suite 2500, Barnett Plaza, Tampa, Florida 33602, at 10:00 a.m., local time on the third business day following the date on which the stockholders of Rall-Folks approve this Agreement and the transactions contemplated herein, or at such other time and place as Checkers and Rall-Folks shall agree (the "Closing Date"). The obligations of Checkers and Rall-Folks to close or effect the transactions contemplated in this Agreement shall be subject to satisfaction, unless duly waived, of the applicable conditions set forth in this Agreement. ARTICLE IX CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CHECKERS AND RALL-FOLKS The respective obligations of each party to effect the transactions contemplated herein shall be subject to the fulfillment or waiver at or prior to the Closing Date of the following conditions: 9.01 LITIGATION. Neither Checkers nor Rall-Folks shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the transactions contemplated herein. 9.02 RALL-FOLKS STOCKHOLDER APPROVAL. This Agreement and the transactions contemplated herein shall have been approved by the affirmative vote of the holders of a majority of the outstanding shares of the common stock of Rall-Folks. 9.03 REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have been declared effective by the SEC and the state securities commission in each jurisdiction in which the Common Stock to be issued hereunder -15- is required to be registered, and shall not be subject to a stop order or any threatened stop order. 9.04 CLOSING DATE. The Closing Date shall be on the third business day following the date on which the stockholders of Rall-Folks approve this Agreement and the transactions contemplated herein after the SEC declares the Registration Statement effective, but in no event shall the Closing Date be extended past December 15, 1997, without the written consent of Rall-Folks. ARTICLE X CONDITIONS PRECEDENT TO OBLIGATIONS OF RALL-FOLKS The obligations of Rall-Folks to effect the transactions contemplated herein shall be subject to the fulfillment or waiver at or prior to the Closing Date of the following conditions: 10.01 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Checkers set forth in Article V of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date (as though made on and as of the Closing Date) except (i) to the extent such representations and warranties are by their expressed provisions made as of a specified date and (ii) for the effect of transactions contemplated by this Agreement. 10.02 PERFORMANCE OF OBLIGATIONS. Checkers shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. 10.03 NO MATERIAL ADVERSE CHANGE. Since January 2, 1996, there shall have been no material adverse change in the financial condition, results of operations, business or prospects of Checkers and its subsidiaries taken as a whole. 10.04 OFFICERS' CERTIFICATE. Checkers shall have furnished to Rall-Folks a certificate dated the Closing Date, signed on behalf of Checkers by its Chief Executive Officer, President, Chief Operating Officer or Chief Financial Officer, to the effect that, to his knowledge and belief, the conditions set forth in Sections 10.01, 10.02 and 10.03 have been satisfied. -16- ARTICLE XI CONDITIONS PRECEDENT TO OBLIGATIONS OF CHECKERS The obligations of Checkers to effect the transactions contemplated herein shall be subject to fulfillment at or prior to the Closing Date of the following conditions: 11.01 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Rall-Folks set forth in Article III of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date (as though made on and as of the Closing Date) except (i) to the extent such representations and warranties are by their expressed provisions made as of a specified date and (ii) for the effect of transactions contemplated by this Agreement. 11.02 PERFORMANCE OF OBLIGATIONS. Rall-Folks shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. 11.03 OFFICERS' CERTIFICATE. Rall-Folks shall have furnished to Checkers a certificate dated the Closing Date, signed on behalf of Rall-Folks by its President and chief financial officer, to the effect that, to the knowledge and belief of each of them, the conditions set forth in Sections 11.01 and 11.02 have been satisfied. 11.04 RELEASE BY FIRST CITIZENS BANK. First Citizens Bank shall have delivered its release of the Notes from the pledge of Rall-Folks. ARTICLE XII DOCUMENTS TO BE DELIVERED AT THE CLOSING BY RALL-FOLKS Rall-Folks shall deliver to Checkers the following documents at the Closing: 12.01 OFFICER'S CERTIFICATE. The certificate referred to in Section 11.03 of this Agreement. 12.02 CERTIFICATE OF SECRETARIAL OFFICER. Certificates of the Secretary or an Assistant Secretary of Rall-Folks, dated the Closing Date, with respect to the incumbency of corporate officers and their signatures, corporate good standing, and the corporate director and stockholder resolutions of Rall-Folks approving this Agreement and the transactions contemplated by this Agreement. -17- 12.03 THE NOTES. The Notes, marked "Paid in Full" over the signature of a duly authorized officer of Rall-Folks. 12.04 OTHER DOCUMENTS. Such other documents as shall be reasonably requested by Checkers and its counsel or required to be delivered pursuant to this Agreement. ARTICLE XIII DOCUMENTS TO BE DELIVERED AT THE CLOSING BY CHECKERS Checkers shall deliver to Rall-Folks the following documents at the Closing: 13.01 OFFICER'S CERTIFICATE. The certificate referred to in Section 10.04 of this Agreement. 13.02 CERTIFICATE OF SECRETARIAL OFFICER. The certificate of the Secretary or Assistant Secretary of Checkers, dated the Closing Date, with respect to the incumbency of corporate officers and their signatures, corporate good standing and the corporate director resolutions authorizing the transactions contemplated by this Agreement. 13.03 STOCK CERTIFICATES. The stock certificates representing the Stock Payment. 13.04 OTHER DOCUMENTS. Such other documents as shall be reasonably requested by Rall-Folks or required to be delivered pursuant to this Agreement. ARTICLE XIV TERMINATION AND ABANDONMENT 14.01 EVENTS OF TERMINATION. This Agreement may be terminated at any time before the Closing Date: (i) by mutual consent of the Boards of Directors of Checkers and Rall-Folks, or the respective Presidents thereof, pursuant to duly delegated authority; (ii) by the Board of Directors of Rall-Folks if any of the conditions precedent found in Articles IX or X of this Agreement have not been met and have not been waived in writing by Rall-Folks; (iii) by the Board of Directors of Checkers if any of the conditions precedent found in Articles IX or XI of this Agreement have not been met and have not been waived in writing by Checkers; (iv) by the Board of Directors of Rall-Folks if there is a breach of or failure by Checkers to perform in any material respect any of the representations, warranties, commitments, covenants or conditions under this -18- Agreement, which breach or failure is not cured within five days after written notice thereof is given to Checkers; (v) by the Board of Directors of Checkers if there is a breach of or failure by Rall-Folks to perform in any material respect any of the representations, warranties, commitments, covenants or conditions under this Agreement, which breach or failure is not cured within five days after written notice thereof is given to the party committing such breach; or (vi) by the Board of Directors of Rall-Folks or by the Board of Directors of Checkers at any time on or after December 16, 1997, if the Closing shall not theretofore have been consummated and completed. In the event of termination and abandonment by any party as above provided in clauses (ii), (iii), (iv), (v) or (vi) of this Section, written notice shall forthwith be given to the other party, which notice shall clearly specify the reason of such party for terminating this Agreement. Termination by either party hereto pursuant to this Section 14.01 shall not restrict or limit in any manner the remedies which the parties might have at law or in equity for any breach of the covenants, representations, or warranties contained in this Agreement. 14.02 SURVIVAL. The provisions in Sections 8.01 and 16.13 of this Agreement shall survive the termination of this Agreement. ARTICLE XV INDEMNIFICATION 15.01 SURVIVAL. All representations, warranties, covenants and agreements of each of the parties hereto set forth in this Agreement or in any other instrument or document delivered by any of the parties hereto pursuant to this Agreement shall survive the Closing and shall remain operative and in full force and effect regardless of any investigations at any time made by or on behalf of any party hereto and shall not be deemed merged in any document or instrument executed or delivered at or after the Closing. 15.02 INDEMNIFICATION BY RALL-FOLKS. From and after the Closing, Rall-Folks shall indemnify, defend and hold harmless Checkers' Group (as hereinafter defined) from, against and with respect to any claim, liability, obligation, loss, damage, assessment, judgment, cost and expense (including, without limitation, reasonable attorney's and accountant's fees and costs and expenses reasonably incurred in investigating, preparing, defending against or prosecuting any litigation or claim, action, suit, proceeding or demand), of any kind or character arising out of or in any manner incident, relating or attributable to (i) the inaccuracy in any representation or breach of warranty of Rall- Folks contained in this Agreement or otherwise made or given in writing in connection with this Agreement, (ii) any failure by Rall-Folks to perform or -19- observe any covenant, agreement or condition to be performed or observed by it under this Agreement or under any certificates or other documents or agreements executed by it in connection with this Agreement, and (iii) any claims arising out of or based upon any untrue statement of a material fact contained in the Registration Statement or any Resale Registration Statement or any prospectus included therein or arising out of or based upon any omission to state therein a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, insofar as such claims arise out of or are based upon information furnished to Checkers in writing by Rall-Folks for use therein. Rall-Folks shall be liable to and shall reimburse Checkers' Group for any payment made by Checkers' Group at any time after the Closing in respect of any liability, obligation or claim to which the foregoing indemnity relates within five (5) days of the date of receipt by Rall-Folks of written demand for payment thereof by Checkers' Group. If any claim covered by the foregoing indemnity be asserted against Checkers' Group, Checkers shall notify Rall-Folks promptly and give it an opportunity to defend the same, and Checkers shall extend reasonable cooperation to Rall-Folks in connection with such defense. In the event that Rall-Folks fails to defend the same within a reasonable time, Checkers shall be entitled to assume the defense thereof and Rall-Folks shall be liable to repay Checkers for all of its expenses reasonably incurred in connection with such defense (including reasonable attorney's fees and settlement payments). For purposes of this Agreement, the term "Checkers' Group" shall mean Checkers and its subsidiaries, parents, officers, directors, employees, agents, representatives, predecessors, successors, attorneys and accountants. 15.03 INDEMNIFICATION BY CHECKERS. From and after the Closing, Checkers shall indemnify, defend and hold harmless Rall- Folks' Group (as hereinafter defined) from, against and with respect to any claim, liability, obligation, loss, damage, assessment, judgment, cost and expense (including, without limitation, reasonable attorney's and accountant's fees and costs and expenses reasonably incurred in investigating, preparing, defending against or prosecuting any litigation or claim, action, suit, proceeding or demand), of any kind or character arising out of or in any manner incident, relating or attributable to (i) the inaccuracy in any representation or breach of warranty of Checkers contained in this Agreement or otherwise made or given in writing in connection with this Agreement, (ii) any failure by any Checkers to perform or observe any covenant, agreement or condition to be performed or observed by it under this Agreement or under any certificates or other documents or agreements executed by it in connection with this Agreement, (iii) any failure by Checkers to comply with the provisions of the 1933 Act or any applicable state securities law in connection with the registration of any of the Common Stock issued hereunder, and (iv) any claims arising out of or based upon any untrue statement -20- of a material fact contained in the Registration Statement or any Resale Registration Statement or any prospectus included therein or arising out of or based upon any omission to state therein a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, other than claims which arise out of or are based upon information furnished by Rall-Folks to Checkers in writing for use therein. Checkers shall be liable to and shall reimburse Rall-Folks' Group for any payment made by Rall-Folks' Group at any time after the Closing in respect of any liability, obligation or claim to which the foregoing indemnity relates within five (5) days of the date of receipt by Checkers of written demand for payment thereof by Rall-Folks' Group. If any claim covered by the foregoing indemnity be asserted against Rall-Folks' Group, Rall-Folks' shall notify Checkers promptly and give it an opportunity to defend the same, and Rall-Folks' Group shall extend reasonable cooperation to Checkers in connection with such defense. In the event that Checkers fails to defend the same within a reasonable time, Rall-Folks' Group shall be entitled to assume the defense thereof and Checkers shall be liable to repay Rall-Folks' Group for all of its expenses reasonably incurred in connection with such defense (including reasonable attorney's fees and settlement payments). For purposes of this Agreement, the term "Rall-Folks' Group" shall mean Rall-Folks and its subsidiaries, parents, officers, directors, employees, agents, representatives, predecessors, successors, attorneys and accountants. ARTICLE XVI MISCELLANEOUS 16.01 BINDING EFFECT. This Agreement shall be binding upon and shall inure to the benefit of the corporate parties hereto and their respective successors and permitted assigns, and of the individual parties hereto and their respective heirs, personal representatives and permitted assigns. 16.02 PUBLICITY. Subject to the other provisions of this Agreement, press releases and other publicity materials relating to the transactions contemplated by this Agreement shall be released by the parties hereto only after review and with the consent of each of Checkers and Rall-Folks; PROVIDED, HOWEVER, Checkers shall have the right, after consulting with Rall-Folks, to make a public announcement of the execution of this Agreement and a disclosure of the basic terms and conditions of this Agreement if advised to do so by its legal counsel in connection with the reporting and disclosure obligations of Checkers under the federal securities laws and/or the NASDAQ National Market System. -21- 16.03 HEADINGS. The headings in this Agreement have been inserted solely for ease of reference and shall not be considered in the interpretation or construction of this Agreement. 16.04 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same instrument. 16.05 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Georgia without regard to any applicable conflicts of law. 16.06 EXPENSES. Except as otherwise herein provided, each of the parties hereto shall pay its respective costs and expenses incurred or to be incurred by it in connection with the negotiations respecting this Agreement and the transactions contemplated by this Agreement, including preparation of documents, obtaining any necessary regulatory approvals and the consummation of the other transactions contemplated in this Agreement. Except as expressly stated otherwise herein, the costs related to the preparation and filing of the Registration Statement, any Resale Registration Statement, and all Nasdaq and state securities law filings shall be paid by Checkers. 16.07 NON-ASSIGNMENT. This Agreement shall not be assignable by any party without the written consent of the others. 16.08 ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and supersedes all other prior agreements, understandings and letters related hereto. 16.09 SINGULAR AND PLURAL. Unless the context of this Agreement otherwise clearly requires, references to the plural include the singular and the singular includes the plural. Wherever the context so requires, the masculine shall refer to the feminine, the neuter shall refer to the masculine or the feminine, the singular shall refer to the plural, and vice versa. 16.10 KNOWLEDGE OF RALL-FOLKS. Wherever any representation, warranty or other statement made in this Agreement is qualified as to the knowledge of Rall-Folks, such qualification shall mean the actual knowledge of Rall-Folks and each of the directors and executive officers of Rall-Folks. 16.11 NOTICES. Any notice or other communications required or permitted by this Agreement shall be in writing and shall be deemed to have been duly given (i) on the date sent if delivered personally or by cable, telecopy, telegram or telex (which is confirmed) or (ii) on the date received if mailed by -22- registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Checkers, to: Checkers Drive-In Restaurants, Inc. 600 Cleveland Street, Suite 1050 Clearwater, Florida 34615 Attention: General Counsel Telecopy No.: (813) 448-0009 with a copy to: Paul R. Lynch, Esquire Shumaker, Loop & Kendrick 101 East Kennedy Boulevard Suite 2800 Tampa, Florida 33602 Telecopy No.: (813) 229-1660 and, (b) if to Rall-Folks, to: Rall-Folks, Inc. Attention: President 6131 Peachtree Parkway Norcross, Georgia 30092 Telecopy No.: (404) 446-6272 with a copy to: Mark D. Kaufman, Esquire Sutherland, Asbill & Brennan 999 Peachtree Street, N.E. Atlanta, GA 30309-3996 Telecopy No.: (404) 853-8806 16.12 RIGHTS OF THIRD PARTIES. This Agreement shall not create any legal rights in any person or entity other than the parties to this Agreement, except for Checkers' Group under Section 15.02 and Rall-Folks' Group under Section 15.03 of this Agreement. 16.13 REMEDIES. Nothing contained in this Agreement shall be construed to restrict or limit in any manner the remedies which the parties might have at law or in equity for any breach of the covenants, representations, or warranties contained in this Agreement. -23- 16.14 AMENDMENT. This Agreement may be amended or supplemented by the parties hereto. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 16.15 WAIVER. Any party hereto may, by written notice to the other parties hereto, (i) extend the time for the performance of any of the obligations or other actions of such other party under this Agreement, (ii) waive any inaccuracies in the representations or warranties of such other party contained in this Agreement or in any document delivered pursuant to this Agreement, or (iii) waive compliance with any of the conditions or covenants of such other party contained in this Agreement, or (iv) waive or modify performance of any of the obligations of such other party under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any of the representations, warranties, covenants, conditions, or agreements contained in the Agreement. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. If, prior to the Closing, any party provides all of the other parties with written notice, which refers specifically to this Section 16.15, that a representation or warranty made by such party in or pursuant to this Agreement is not true, correct and complete and the Closing is consummated notwithstanding such disclosure, such other parties shall be deemed to have waived any claims for indemnification under this Agreement as a result of the inaccuracy of such representation or warranty. 16.16 EFFECTIVENESS. This Amended and Restated Purchase Agreement shall become effective upon execution by all of the parties hereto and the payment by Checkers to Rall-Folks in cash of the amount of One Hundred Thousand Dollars ($100,000.00), to be applied against the principal balance due under the Notes. Such amount shall be paid within three business days following the execution and delivery of this Agreement by both parties hereto. [Remainder of page intentionally left blank.] -24- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized officer as of the day and year first above written. CHECKERS DRIVE-IN RESTAURANTS, INC. By /s/ Joseph N. Stein ------------------------------------------ Name: Joseph N. Stein Title: Executive Vice President RALL-FOLKS, INC. By /s/ Richard J. Pratt ------------------------------------------ Name: Richard J. Pratt Title: President -25- EX-10 3 EXHIBIT 10.40 AMENDMENT NO. 3 TO PURCHASE AGREEMENT THIS AMENDMENT NO. 3, dated as of June 2, 1997, to that certain Purchase Agreement, dated as of August 3, 1995, as amended by Amendment No. 1 to Purchase Agreement, dated as of October 20, 1995, and by Amendment No. 2 to Purchase Agreement, dated as of April 11, 1996 (as amended, the "Agreement"), by and among Restaurant Development Group, Inc., a Delaware corporation ("RDG"), and Checkers Drive-In Restaurants, Inc., a Delaware corporation ("Checkers"). WHEREAS, RDG holds a promissory note of Checkers, dated May 4, 1994, in the principal amount of $1,693,225.27 (the "Note"); and WHEREAS, Checkers and RDG have entered into the Agreement, pursuant to which Checkers has agreed to acquire and RDG has agreed to sell the Note of Checkers held by RDG; and WHEREAS, Checkers has entered into a letter of intent with Rally's Hamburgers, Inc. pursuant to which it is contemplated that Checkers will acquire all of the outstanding stock of Rally's pursuant to a merger of Rally's with a subsidiary of Checkers, in which Rally's stockholders will receive shares of Checkers common stock in exchange for their Rally's common stock; and WHEREAS, Checkers and RDG agree that the closing of this Agreement will be delayed until after the closing of the Rally's transaction and desire to make certain changes in the terms of the Agreement. NOW, THEREFORE, the parties hereto agree as follows: 1. Section 6.02 of the Agreement is hereby amended by adding the following sentence to the end thereof: Notwithstanding the foregoing, in the event that Checkers is negotiating with Rally's Hamburgers, Inc. ("Rally's") to acquire all of the outstanding stock of Rally's through a merger of Rally's with a subsidiary of Checkers or otherwise, then Checkers' obligation to have the Registration Statement declared effective by the SEC as expeditiously as practicable shall be suspended, pending the closing of the transaction with Rally's. 2. Article VI of the Agreement is hereby amended by adding the following Section 6.09: 6.09 PAYMENT OF PRINCIPAL. Beginning on July 15, 1997, and on the 15th day of each month thereafter through October 15, 1997, in the event that the Registration Statement has not yet been declared effective by the SEC, Checkers shall pay to RDG in cash the amount of One Hundred Thousand Dollars ($100,000.00), to be applied against the principal balance due under the Note. Notwithstanding any other provision contained in this Agreement, all remaining principal due under the Note and any accrued but unpaid interest thereon shall be payable on November 15, 1997, if the Registration Statement is not declared effective by the SEC before such date. 3. Section 7.07 of the Agreement is hereby amended by adding the following sentence to the end thereof: In the event that Checkers acquires all of the outstanding stock of Rally's Hamburgers, Inc. ("Rally's") through a merger of Rally's with a subsidiary of Checkers or otherwise, then the 50,000 share volume limitation set forth above shall be increased to 75,000 shares. 4. Section 10.03 of the Agreement is deleted in its entirety. 5. Section 14.01 of the Agreement is hereby amended by changing the date in clause (vi) thereof from "May 31, 1996" to November 25, 1997" each time that it appears. 6. Except as otherwise provided herein, the Agreement shall remain in full force and effect. 7. This Amendment No. 3 may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 8. This Amendment No. 3 shall become effective upon execution by all of the parties hereto and the payment by Checkers to RDG in cash the amount of One Hundred Thousand Dollars ($100,000.00), to be applied against the principal balance due under the Note, and thereafter any reference to the Agreement shall be deemed to be a reference to the Agreement as amended hereby. [Remainder of page intentionally left blank. Signatures appear on the next page.] -2- IN WITNESS WHEREOF, each of the corporate parties hereto have caused this Amendment to the Agreement to be executed by their respective duly authorized officer or officers as of the day and year first above written. CHECKERS DRIVE-IN RESTAURANTS, INC. By /s/ Joseph N. Stein ------------------------------------------ Name Joseph N. Stein Title Executive Vice President RESTAURANT DEVELOPMENT GROUP, INC. By /s/ Nolan Lehmann ------------------------------------------ Name Nolan Lehmann Title Vice President -3- EX-10 4 EXHIBIT 10.41 AMENDED AND RESTATED NOTE REPAYMENT AGREEMENT THIS AMENDED AND RESTATED NOTE REPAYMENT AGREEMENT (the "Agreement") is made and entered into as of this 17th day of July, 1997, and amends and restates in its entirety that certain Note Repayment Agreement, dated as of April 11, 1996 (as amended and restated hereby, the "Agreement"), by and among CHECKERS DRIVE-IN RESTAURANTS, INC., a Delaware corporation ("Checkers"), NASHVILLE TWIN DRIVE-THRU PARTNERS, L.P., a Tennessee limited partnership ("NTDT"), JONES & JONES TWIN DRIVE-THRU, INC., a Tennessee corporation and a general partner of NTDT ("Jones & Jones"), NTD ENTERPRISES, INC., a Tennessee corporation and a general partner of NTDT ("NTD"), and ROLAND L. JONES, an individual ("Jones") (NTDT, Jones & Jones, NTD and Jones are collectively referred to herein as the "NTDT Parties"). WHEREAS, NTDT holds a promissory note of Checkers, dated March 31, 1995, in the original principal amount of $1,354,287.00 (the "Note"); and WHEREAS, Checkers and the NTDT Parties have entered into the Note Repayment Agreement, pursuant to which Checkers was granted the right to repay the Note by delivering to NTDT shares of the common stock of Checkers ("Common Stock"); and WHEREAS, Checkers and NTDT desire to amend and restate the Agreement to provide for an exchange of the Note for a series of subordinated promissory notes, with an aggregate principal amount equal to the outstanding balance due under the Note, which new notes will be convertible by NTDT into shares of Common Stock pursuant to the terms and conditions hereof; NOW, THEREFORE, in consideration of the premises, the mutual representations, warranties, covenants and agreements hereinafter contained, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree as follows: ARTICLE I PURCHASE AND SALE 1.01 PURCHASE AND SALE OF THE NOTE. Subject to and upon the terms and conditions hereinafter set forth and the representations and warranties contained herein, Checkers agrees to purchase from NTDT, and NTDT agrees to sell, assign, transfer and deliver to Checkers, free and clear of any and all liens, encumbrances, liabilities, claims, charges and restrictions of any kind or nature whatsoever, all of NTDT's right, title and interest (which will be good, valid and complete) in and to the Note. 1.02 NON-ASSUMPTION OF LIABILITIES. None of the provisions of this Agreement will be deemed to create any obligation or liability of Checkers to any person or entity other than NTDT, whether under a third-party beneficiary theory, successor liability theory or otherwise. ARTICLE II PURCHASE PRICE The aggregate purchase price (the "Purchase Price") payable to NTDT for the Note will be equal to the outstanding balance (principal and accrued interest) due under the Note on the Closing Date (as hereinafter defined). The Purchase Price shall be payable by delivery at Closing (as hereinafter defined) of promissory notes issued by Checkers to NTDT (the "New Notes") with an aggregate principal balance equal to the Purchase Price. Each of the New Notes shall be issued with an original principal amount of $100,000, except for one New Note which shall be issued in a principal amount equal to the remainder resulting from dividing the Purchase Price by $100,000. The New Notes shall be subordinated to Checkers' primary debt facility, pursuant to the same terms as the Note. The New Notes shall be convertible into shares of the common stock of Checkers, par value $.001 per share ("Common Stock"), as provided in Article III hereof. The New Notes shall be issued in the form attached hereto as Exhibit A. ARTICLE III CONVERSION OF NEW NOTES 3.01 CONVERSION PRIVILEGE AND CONVERSION PRICE. Subject to and upon compliance with the provisions of this Article, at the option of NTDT, each of the New Notes may be converted from time to time (so long as NTDT has not been notified by Checkers that the effectiveness of the Registration Statement (as defined in Section 6.01 hereof) is suspended) at the principal amount thereof into fully paid and nonassessable shares of Common Stock at the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. Checkers shall have the option of paying in cash the balance due under any New Note in lieu of issuing shares of Common Stock upon the exercise by NTDT of its right of conversion with respect to any New Note. If Checkers elects to repay such New Note in cash (including principal and accrued interest), such payment shall be delivered to NTDT within 15 business days after delivery to Checkers of NTDT's notice (delivered pursuant to Section 3.02 hereof) of its intention to convert the New Note. The price at which shares of Common Stock shall be delivered upon conversion (herein called the "Conversion Price") shall be the arithmetic average (rounded to the nearest penny) of the closing sale price per share of -2- the Common Stock as reported on the Nasdaq Stock Market's National Market (as reported in The Wall Street Journal) for the three full trading days ending on the business day immediately preceding the date on which NTDT delivers to Checkers notice of its intent to convert as provided in Section 3.02 hereof. 3.02 EXERCISE OF CONVERSION PRIVILEGE. In order to exercise the conversion privilege, NTDT shall surrender the New Note to be converted, duly endorsed or assigned to Checkers or in blank, at its office at 600 Cleveland Street, Eighth Floor, Clearwater, Florida 34615, accompanied by written notice to Checkers at such office that NTDT has elected to convert such New Note into shares of Common Stock. Provided that NTDT has not been notified by Checkers that the effectiveness of the Registration Statement (as defined in Section 6.01 hereof) is suspended, a New Note shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such New Note for conversion in accordance with the foregoing provisions (the "Conversion Date"), and at such time the rights of NTDT as the holder of such New Note shall cease and NTDT shall be treated for all purposes as the record holder of the Common Stock into which such New Note is convertible at such time. If NTDT shall surrender a New Note along with notice of its election to convert such New Note at a time when the effectiveness of the Registration Statement is suspended, then (i) Checkers shall hold the New Note in trust for the benefit of NTDT until the effectiveness of the Registration Statement is recontinued and (ii) the Conversion Date shall be the day that Checkers gives notice to NTDT that the effectiveness of the Registration Statement is recontinued and the New Note shall be deemed to have been converted immediately prior to the close of business on such date, and at such time the rights of NTDT as the holder of such New Note shall cease and NTDT shall be treated for all purposes as the record holder of the Common Stock into which such New Note is convertible at such time. 3.03 DELIVERY OF SHARES. Within seven business days after any Conversion Date, Checkers shall cause to be delivered to NTDT one or more certificates in the name of NTDT representing the shares of Common Stock issuable upon conversion of the related New Note. Checkers' delivery to NTDT of the fixed number of shares of the Common Stock into which the New Note is convertible shall be deemed to satisfy Checkers' obligation to pay the principal amount of the New Note subject to Checker's obligations set forth in Section 6.02 hereof. Checkers shall also deliver to NTDT with the certificates representing the Common Stock a check in payment of all interest accrued on the converted New Note from the end of the prior interest period through the Conversion Date. -3- 3.04 FRACTIONS OF SHARES. No fractional shares of Common Stock shall be issued upon conversion of a New Note. If more than one New Note shall be surrendered for conversion at one time, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the New Notes so surrendered. In the event that the number of shares of Common Stock to be issued includes a fractional share, the number of shares shall be rounded up or down to the nearest whole number of shares. 3.05 COMPANY TO RESERVE COMMON STOCK. Checkers shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of the New Notes, the full number of shares of Common Stock then issuable upon the conversion of all outstanding New Notes. 3.06 TAXES ON CONVERSIONS. Checkers will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of New Notes pursuant hereto. Checkers shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of NTDT, and no such issue or delivery shall be made unless and until NTDT has paid to Checkers the amount of any such tax, or has established to the satisfaction of Checkers that such tax has been paid. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NTDT NTDT represents and warrants to Checkers (each of which shall be deemed material and independently relied upon by Checkers) as follows: 4.01 ORGANIZATION AND STANDING. NTDT is a partnership duly organized, validly existing and in good standing under the laws of the State of Tennessee with full power and authority to own its properties and assets. 4.02 AUTHORITY. Subject to receipt of the approval and consent of the partners of NTDT, NTDT has the full power and authority to enter into and perform this Agreement and to consummate the transactions contemplated herein in accordance with the terms of this Agreement. 4.03 AUTHORIZATION. Other than obtaining the consent of the partners of NTDT, NTDT has taken all necessary actions to authorize and approve the execution, delivery and performance of this Agreement and the transactions -4- contemplated hereby. This Agreement constitutes a legal, valid and binding obligation of NTDT, enforceable against NTDT in accordance with its terms. 4.04 TITLE TO THE NOTE. NTDT has good, valid and complete title to the Note. 4.05 LITIGATION AND DISPUTES. There is no claim, litigation or proceeding pending or, to the knowledge of NTDT, threatened, against or with respect to NTDT, and there exists no basis or grounds for any such suit, action, proceeding, claim or investigation, which affects the title or interest of NTDT to or in the Note or which would prevent or affect the consummation of the transactions contemplated by this Agreement by NTDT. 4.06 REGISTRATION STATEMENT. None of the information regarding NTDT supplied or to be supplied by NTDT for inclusion (i) in the Registration Statement (as hereinafter defined) or any Resale Registration Statement (as hereinafter defined) to be filed by Checkers with the Securities and Exchange Commission ("SEC") in connection with the registration of the Common Stock issued hereunder, or (ii) in any other documents to be filed with the SEC or any other regulatory authority in connection with the transactions contemplated in this Agreement, as the same may be updated by written notice from NTDT to Checkers from time to time, will at the respective time such documents are filed and, in the case of the Registration Statement or any Resale Registration Statement, when it becomes effective, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading. ARTICLE V REPRESENTATIONS AND WARRANTIES OF CHECKERS Checkers represents and warrants to NTDT (each of which shall be deemed material and independently relied upon by NTDT) as follows: 5.01 ORGANIZATION AND STANDING. Checkers is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with full power and authority to own its properties and assets and to conduct its business as now conducted or proposed to be conducted. Checkers is in good standing and duly qualified to conduct business as a foreign corporation in each of the jurisdictions in which the nature of its business or the ownership of its properties requires such qualification and in which failure to be so qualified would have a material adverse effect on the business, operations, assets, financial position or prospects of Checkers. -5- 5.02 CORPORATE AUTHORITY. Checkers has the full power and authority to enter into and perform this Agreement and to consummate the transactions contemplated herein in accordance with the terms of this Agreement. 5.03 CORPORATE AUTHORIZATION. Checkers has taken all necessary corporate actions to authorize and approve the execution, delivery and performance of this Agreement and the transactions contemplated hereby. This Agreement constitutes a legal, valid and binding obligation of Checkers, enforceable against Checkers in accordance with its terms. 5.04 CAPITALIZATION. As of May 1, 1997, the authorized capital stock of Checkers consisted of (i) 100,000,000 shares of Common Stock, of which 60,540,409 shares were issued and outstanding, and (ii) 2,000,000 shares of preferred stock, $.001 par value per share, of which 87,719 shares were issued and outstanding. All of the issued and outstanding shares of Common Stock are validly issued, fully paid, nonassessable and outstanding and not issued in violation of the preemptive rights of any stockholder. 5.05 REQUIRED CONSENTS. Except for the registration of the New Notes and the shares of Common Stock to be issued hereunder with the SEC and under the blue sky laws of the State of Tennessee, no consents or approvals of any public body or authority and no consents or waivers from any other parties to any agreements or other instruments are required for the lawful consummation on the part of Checkers of the transactions contemplated by this Agreement. 5.06 REGISTRATION STATEMENT. None of the information included (i) in the Registration Statement or any Resale Registration Statement and (ii) in any other documents to be filed with the SEC or any regulatory authority in connection with the transactions contemplated in this Agreement will at the respective time such documents are filed and, in the case of the Registration Statement or any Resale Registration Statement, when it becomes effective, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading, except that no representation or warranty is being made with respect to information supplied by NTDT to Checkers for inclusion therein. All documents which Checkers is responsible for filing with the SEC and any regulatory authority in connection with the Registration Statement or any Resale Registration Statement will comply as to form in all material respects with the provisions of applicable law. -6- ARTICLE VI COVENANTS OF CHECKERS Checkers covenants to NTDT as follows: 6.01 PREPARATION OF THE REGISTRATION STATEMENT. Checkers shall prepare and file with the SEC a registration statement on Form S-4 (including the related prospectus), and required amendments thereto or supplements to any prospectus contained therein (the "Registration Statement"), and all necessary or appropriate related securities law or blue sky filings required in the State of Tennessee (together with all amendments and supplements thereto, the "Blue Sky Filings"), relating to the issuance of the New Notes and the shares of Common Stock issuable upon conversion of the New Notes, and shall use its commercially reasonable best efforts to have the same declared effective by the SEC as expeditiously as practicable, and shall use its commercially reasonable best efforts to keep such Registration Statement and Blue Sky Filings current for such period of time as is required for NTDT to complete the conversion of all of the New Notes into shares of Common Stock, so long as NTDT proceeds in good faith to convert such New Notes and sell the shares of Common Stock received upon conversion in a prompt but orderly manner as described in Section 6.03 hereof; provided, however, that Checkers shall have the right (i) to defer the initial filing or request for acceleration of effectiveness or (ii) after effectiveness, to suspend effectiveness of any such registration statement, if, in the good faith judgment of the board of directors of Checkers and upon the advice of counsel to Checkers, such delay in filing or requesting acceleration of effectiveness or such suspension of effectiveness is necessary in light of the existence of material non-public information (financial or otherwise) concerning Checkers, disclosure of which at the time is not, in the opinion of the board of directors of Checkers upon the advice of counsel, (a) otherwise required, and (b) in the best interests of Checkers. Checkers shall not voluntarily take any action that would cause more than a 90-day delay in filing or requesting acceleration of effectiveness or a 90-day suspension of effectiveness. The Registration Statement will not cover resales of the Common Stock. When the Registration Statement is declared effective by the SEC, Checkers shall give NTDT prompt notice of such fact and shall supply NTDT with sufficient copies of the prospectus contained in such Registration Statement to enable NTDT to send copies to each of its partners in connection with calling of a meeting of such partners for the purpose of voting on this Agreement and the transactions contemplated herein. Checkers shall give NTDT notice of any suspensions and recontinuations of the effectiveness of the Registration Statement. Subject to the foregoing, Checkers shall file all such post effective amendments and supplements to the Registration Statement and Blue Sky Filings as -7- may be necessary, in its judgment, to keep such Registration Statement and Blue Sky Filings current. 6.02 GUARANTEE OF PROCEEDS FROM THE SALE OF THE COMMON STOCK. The parties acknowledge that the intent of this Section is to provide a mechanism under which NTDT will receive cash from (i) the sale of Common Stock issued upon the conversion of the New Notes, (ii) the sale of Common Stock issued pursuant to the terms of this Section 6.02 in payment of a Price Differential (as defined herein), and (iii) the repayment of any New Note or the repurchase of any shares of Common Stock as provided in this Section 6.02, which cash will be equal in the aggregate to, but not in excess of, the Purchase Price. In order to effectuate the foregoing, and provided that NTDT proceeds in good faith (as described in Section 6.03) to convert the New Notes and sell all of the Common Stock received upon the conversion of the New Notes in a reasonably prompt but orderly manner (subject to the limitations set forth in Section 7.06), if the aggregate Net Proceeds (gross proceeds less brokers' commissions and discounts) from the sale of such stock is less than the Purchase Price, Checkers shall issue to NTDT additional shares of Common Stock with a value equal to the difference between the Purchase Price and the aggregate Net Proceeds received from the sale of the Common Stock (such difference is hereinafter referred to as the "Initial Price Differential"). Checkers shall issue instructions to its transfer agent to issue to NTDT the additional shares of Common Stock within five business days after the delivery to Checkers of the last confirmation slip relating to the final sale of the Common Stock issued upon the conversion of all of the New Notes. NTDT shall instruct all brokers selling the Common Stock on its behalf to furnish to Checkers and its counsel a copy of the confirmation slip relating to each sale of Common Stock at the same time as such confirmation slip is provided to NTDT. The number of shares to be issued (the "Stock Payment") shall be equal to the amount determined by dividing the Initial Price Differential by the arithmetic average (rounded to the nearest penny) of the closing sale price per share of the Common Stock as reported on the Nasdaq Stock Market's National Market (as reported in The Wall Street Journal) for the three full trading days immediately preceding the date on which Checkers issues instructions to its transfer agent to issue such additional shares (such average closing sale price being referred to hereinafter as the "Resale Price" for such shares). Checkers shall promptly prepare and file a registration statement and all necessary or appropriate related state securities law or blue sky filings under which Checkers shall register the Common Stock representing the Stock Payment and NTDT may sell the shares representing the Stock Payment upon the terms and conditions provided in Section 6.04 below. In the event that the aggregate Net Proceeds from the sale of such shares is less than the Initial Price Differential, Checkers shall issue additional shares of Common Stock with a -8- value equal to the difference between the Purchase Price and the aggregate Net Proceeds received from the sale of (a) the Common Stock issued to NTDT upon the conversion of the New Notes and (b) the Common Stock constituting the Stock Payment (such difference is hereinafter referred to as the "Second Price Differential"), as provided above with respect to the Initial Price Differential. Checkers shall register the same and NTDT may sell the same as provided in Section 6.04 below with respect to the Stock Payment. Checkers and NTDT will continue this process until such time as there is no Price Differential realized by NTDT on the sale of any batch of Common Stock issued in payment of a Price Differential on a previous batch of Common Stock. Notwithstanding any other provision of this Agreement, Checkers shall have the option at any time to deliver cash to NTDT in lieu of additional shares of Common Stock in order to pay any Price Differential. Checkers also shall have the right to require NTDT at any time to sell to Checkers any shares held by NTDT which were acquired upon conversion of a New Note or which represent part of a Stock Payment at a price per share equal to the applicable Conversion Price or Resale Price thereof. In the event that NTDT should receive aggregate Net Proceeds from the sale of Common Stock issued upon the conversion of the New Notes and/or pursuant to the terms of this Section 6.02 in excess of the Purchase Price, or in the event that once NTDT has received Net Proceeds equal to the Purchase Price it still holds any New Notes or shares of Common Stock delivered by Checkers upon the conversion of a New Note or pursuant to this Section 6.02, then NTDT shall promptly deliver to Checkers such excess Net Proceeds, the remaining New Notes and the excess shares of Common Stock. 6.03 PROCEEDING IN GOOD FAITH TO CONVERT THE NEW NOTES AND SELL THE SHARES OF COMMON STOCK. The parties agree that NTDT will be deemed to be proceeding in good faith to convert the New Notes and sell the Common Stock in a reasonably prompt but orderly manner if it sells in each three-month period commencing with the three month period beginning on the day after the Closing Date and continuing in each consecutive three-month period thereafter at least 90% of the lesser of (i) the maximum number of shares of Common Stock permitted to be sold during such period under Rule 144 promulgated under the Securities Act of 1933 or (ii) the maximum number of shares permitted to be sold during such period under Section 7.06 hereof without regard to sales on upticks (as defined therein). NTDT may convert the New Notes one or more at a time, in its discretion, with one New Note being converted immediately after the sale of all of the shares of Common Stock received upon the conversion of the previously converted New Note. 6.04 REGISTRATION OF COMMON STOCK CONSTITUTING THE STOCK PAYMENTS. As soon as practicable after the issuance of the Common Stock constituting the Stock Payment and any subsequent Stock Payments, if any, Checkers shall prepare and file a registration statement on Form S-3 (if it is eligible to use such -9- form), or such other form as it deems suitable (together with all amendments and supplements thereto, the "Resale Registration Statement"), and all necessary or appropriate related Blue Sky Filings (together with all amendments and supplements thereto), under which Checkers shall register the shares of Common Stock issued in payment of a Price Differential pursuant to Section 6.02. Checkers shall also use its commercially reasonable best efforts to have the Resale Registration Statement declared effective by the SEC as expeditiously as practicable, and shall keep such Resale Registration Statement and Blue Sky Filings current for such period of time as is required for NTDT to complete the sale of all shares of Common Stock registered therein, so long as NTDT proceeds in good faith to sell such shares in a prompt but orderly manner, as provided in Section 6.03; provided, however, that Checkers shall have the right (i) to defer the initial filing or request for acceleration of effectiveness, or (ii) after effectiveness, to suspend effectiveness of the Resale Registration Statement (to be later recontinued) if, in the good faith judgment of the board of directors of Checkers and upon the advice of counsel to Checkers, such delay in filing or requesting acceleration of effectiveness or such suspension of effectiveness is necessary in light of the existence of material non-public information (financial or otherwise) concerning Checkers, disclosure of which at the time is not, in the opinion of the board of directors of Checkers upon the advice of counsel, (a) otherwise required, and (b) in the best interests of Checkers. Checkers shall not voluntarily take any action that would cause more than a 90-day delay in filing or requesting acceleration of effectiveness or a 90-day suspension of effectiveness. Checkers shall give NTDT notice of effectiveness and any suspensions and recontinuations of the effectiveness of the Resale Registration Statement. Subject to the foregoing, Checkers shall file all such post effective amendments and supplements to the Resale Registration Statement and Blue Sky Filings as may be necessary, in its judgment, to keep such Resale Registration Statement and Blue Sky Filings current. NTDT may proceed to sell the shares registered in the Resale Registration Statement beginning on the date the Resale Registration Statement is declared effective by the SEC. Notwithstanding the foregoing, Checkers shall not be obligated to register shares for sale in the states of Arizona or Nevada, unless the costs of registration in such states, including filing fees and reasonable attorneys' fees, are paid by NTDT. 6.05 PAYMENT OF CURRENT INTEREST. Checkers acknowledges that the annual interest rate on the Note is currently 18%, and agrees that the Note shall continue to bear interest at an annual rate of 18% until the Closing Date. Until the Closing Date, Checkers shall continue to pay to NTDT on the first day of each month an amount in cash equal to the interest due under the Note for the preceding month. On the Closing Date, Checkers shall pay in cash the interest accrued through the Closing Date on the Note. Following the Closing Date, the -10- New Notes shall bear interest at an annual rate of 18% until their conversion into Common Stock. Checkers shall pay to NTDT on the first day of each month an amount in cash equal to the interest due under the New Notes for the preceding month. 6.06 PAYMENT OF INTEREST ON VALUE OF UNSOLD SHARES. Beginning on the first day of the month following the Conversion Date with respect to a converted New Note, and on the first day of each month thereafter until all of the shares of Common Stock received upon the conversion of such New Note are sold, Checkers shall pay to NTDT in cash an amount equal to .00049315% (representing an annual rate of 18%) of the value of each such share of Common Stock for each day during such month that the share was held by NTDT. The value of each such share shall be deemed to be the applicable Conversion Price for such share of Common Stock. Similarly, if additional shares of Common Stock are issued by Checkers to NTDT pursuant to the terms of Section 6.02, then beginning on the first day of the month following the issuance of such additional shares and on the first day of each month thereafter until all of the shares of Common Stock issued under Section 6.02 are sold, Checkers shall pay to NTDT in cash an amount equal to .00049315% (representing an annual rate of 18%) of the value of each such share of Common Stock for each day during such month that the share was held by NTDT. The value of each such share shall be deemed to be the applicable Resale Price for such share of Common Stock. 6.07 ADDITIONAL PAYMENTS. Upon the execution hereof by NTDT, Checkers shall pay to NTDT in cash the amount of One Hundred Thousand Dollars ($100,000.00), to be applied against the principal balance due under the Note. Beginning on August 15, 1997, and on the 15th day of each month thereafter through October 15, 1997, in the event that the Registration Statement has not been declared effective by the SEC prior to such date, Checkers shall pay to NTDT in cash the amount of One Hundred Thousand Dollars ($100,000.00), to be applied against the principal balance due under the Note. Notwithstanding any other provision contained in this Agreement, all remaining principal due under the Note and any accrued but unpaid interest thereon shall be payable on November 15, 1997, if the Registration Statement is not declared effective by the SEC before such date. 6.08 PAYMENT OF LEGAL EXPENSES. Upon the execution hereof by NTDT, Checkers shall pay to NTDT Ten Thousand Dollars ($10,000.00) as partial reimbursement for legal fees incurred by NTDT in connection with this Agreement and related matters. 6.09 COVENANT AS TO COMMON STOCK. Checkers covenants that all shares of Common Stock which may be issued upon conversion of the New Notes or pursuant to the terms of Section 6.02 hereof will upon issue be fully paid and -11- nonassessable and, except as provided in Section 3.06, Checkers will pay all taxes, liens and charges with respect to the issue thereof. Checkers will list or cause to have quoted the shares of Common Stock issued upon conversion of the New Notes or pursuant to the terms of Section 6.02 hereof on each national securities exchange or in the over-the-counter market or such other market on which the Common Stock is then listed or quoted. 6.10 EQUAL TREATMENT. Checkers shall not enter into any agreement with any other creditor whose debt is subordinated to Checkers' primary debt facility that provides for the repayment of such creditor's debt under terms more favorable than those contained in this Agreement. ARTICLE VII COVENANTS OF NTDT NTDT covenants to Checkers as follows: 7.01 ACTIONS PRIOR TO CLOSING. From and after the date of execution of this Agreement and until the Closing Date, or until this Agreement shall be terminated as herein provided, NTDT shall not (i) sell the Note to any other corporation or person, (ii) pledge the Note to any person or otherwise subject the Note to a lien or encumbrance, (iii) engage in any activity, enter into any transaction or fail to take any action which would be inconsistent with any of the representations and warranties as set forth in Article III of this Agreement as if such representations and warranties were made at a time subsequent to such activity or transaction and all references to the date of this Agreement were deemed to be such later time. 7.02 EXTENSION OF THE TERM OF THE NOTE; MODIFICATION OF INTEREST RATE. Upon the execution hereof by NTDT, the term of the Note shall be extended until and the Note shall be payable on the earlier of (i) the Closing Date or (ii) November 16, 1997; provided however, that in the event the Registration Statement is declared effective by the SEC prior to November 16, 1997, and the partners of NTDT fail to approve this Agreement and the transactions contemplated herein within 30 days after NTDT receives actual notice that the Registration Statement has been declared effective by the SEC, the term of the Note shall be extended automatically until December 31, 1998 and the interest rate shall be reduced to an annual rate of 12%. Similarly, after the Closing Date, if NTDT does not proceed in good faith (as described in Section 6.03 hereof) to convert the New Notes and sell the Common Stock, the term of the Note shall be extended automatically until December 31, 1998 and the interest rate shall be reduced to an annual rate of 12%. -12- 7.03 REGISTRATION STATEMENT INFORMATION. On request of Checkers, NTDT will furnish to Checkers all information concerning NTDT as is required to be set forth in (i) the Registration Statement and any Resale Registration Statement and (ii) any application or statement made by Checkers to any governmental agency or authority in connection with the transactions contemplated by this Agreement. 7.04 APPROVAL BY PARTNERS. Promptly after the date on which NTDT receives actual notice that the Registration Statement has been declared effective by the SEC, NTDT shall call a meeting of the partners of NTDT, to be held within 30 days after NTDT's receipt of such notice, for the purpose of obtaining the approval of the partners of NTDT of this Agreement and the transactions contemplated herein. NTDT shall distribute a copy of the Registration Statement to each partner of NTDT along with the notice of such meeting. 7.05 DISSOLUTION OF NTDT OR DISTRIBUTION OF COMMON STOCK TO THE PARTNERS. Within one year after the Closing, NTDT shall either (i) dissolve and wind up its affairs pursuant to Tennessee law or (ii) distribute the shares of Common Stock issued to NTDT pursuant to the terms of this Agreement to the partners of NTDT, pro rata in accordance with their proportionate ownership interest in NTDT. 7.06 TRANSFERS OF THE NEW NOTES AND THE COMMON STOCK. Except as permitted herein, NTDT shall not sell, pledge, transfer or otherwise dispose of the New Notes to be received by it hereunder. NTDT shall not sell, pledge, transfer or otherwise dispose of the shares of Common Stock to be received by it upon the conversion of the New Notes except in compliance with the applicable provisions of the 1933 Act and the rules and regulations promulgated thereunder, including Rule 145. In order to assure that any sales of the shares of Common Stock issued hereunder will be made in an orderly manner so as not to adversely affect the market for the Common Stock, for a period of two years after the Closing Date, NTDT shall not, without the prior consent of Checkers, (i) sell in excess of 50,000 shares of Common Stock during any calendar week and (ii) sell in excess of 25,000 shares in any one day; provided however, that additional sales in excess of such limits may be made provided the same are made at a price higher than the lowest then current bid price for the Common Stock (on an "uptick"). Checkers may refuse to register or give effect to any sales in excess of such limitations (NTDT shall provide Checkers with satisfactory evidence that all sales in excess of such limits were made on an uptick). NTDT shall not sell any shares of Common Stock issued hereunder for consideration other than cash. NTDT agrees that it will comply with all of its obligations under Section 6.02 hereof. NTDT shall, upon the distribution of any of the Common Stock to any partner of NTDT, cause such person to deliver an Agreement to Checkers as a -13- condition of such distribution and the transfer of the ownership of such shares upon the stock register of Checkers, which agreement shall contain covenants of such person identical to the covenants of NTDT set forth in this Section 7.06 and a proportionate limitation on sales. ARTICLE VIII MUTUAL COVENANTS OF CHECKERS AND NTDT Each of Checkers and NTDT covenants with the other as follows: 8.01 CONFIDENTIALITY. All information furnished by one party to the other in connection with this Agreement or the transactions contemplated hereby shall be kept confidential by such other party (and shall be used by it and its officers, attorneys, accountants and representatives (including brokers) only in connection with this Agreement and the transactions contemplated hereby) except to the extent that such information (i) already is known to such other party when received, (ii) thereafter becomes lawfully obtainable from other sources, (iii) is required to be disclosed in any document filed with the SEC or any other agency of any government, or (iv) as otherwise required to be disclosed pursuant to any federal or state law, rule or regulation or by any applicable judgment, order or decree of any court or by any governmental body or agency having jurisdiction in the premises after such other party has given reasonable prior written notice to the other parties to this Agreement of the pending disclosure of any such information. In the event that the transactions contemplated by this Agreement shall fail to be consummated, it shall promptly cause all copies of documents or extracts thereof containing information and data as to the other party hereto to be returned to such other party. 8.02 PREPARATION OF REGISTRATION STATEMENTS. Each party shall cooperate and consult with the other party hereto in the preparation of the Registration Statement and any Resale Registration Statement to be filed by Checkers with the SEC registering the shares of Common Stock to be issued hereunder. When the Registration Statement, any Resale Registration Statement or any Post-Effective Amendment thereto shall become effective, the information prepared by each party for inclusion therein (i) will comply in all material respects with the applicable provisions of the 1933 Act and the Rules and Regulations promulgated thereunder and (ii) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein are necessary to make the statements contained therein not misleading. In no event shall any party hereto be liable to any other party hereto for any untrue statement of a material fact or omission to state a -14- material fact in any registration statement, or any amendment or supplement thereto, or in any report made in reliance upon, and in conformity with, written information concerning the other party hereto furnished by such other party specifically for use in such registration statement or report. Each party hereto shall advise the other party hereto promptly of the happening of any event which makes untrue any statement of a material fact contained in the Registration Statement or any Resale Registration Statement or any amendment or supplement thereto or that requires the making of a change in the registration statement or any amendment or supplement thereto in order to make any material statement therein not misleading. 8.03 MISCELLANEOUS AGREEMENTS. Subject to the terms and conditions herein provided, each party shall use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, appropriate or desirable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. 8.04 THE CLOSING. The Closing (the "Closing") of the transactions contemplated herein shall take place at the offices of [JONES & SHOCKLEY, 1319 FIFTH AVENUE NO., NASHVILLE, TENNESSEE], at 10:00 a.m., local time on the third business day following the date on which the partners of NTDT approve this Agreement and the transactions contemplated herein, or at such other time and place as Checkers and NTDT shall agree (the "Closing Date"). The obligations of Checkers and NTDT to close or effect the transactions contemplated in this Agreement shall be subject to satisfaction, unless duly waived, of the applicable conditions set forth in this Agreement. ARTICLE IX CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CHECKERS AND NTDT The respective obligations of each party to effect the transactions contemplated herein shall be subject to the fulfillment or waiver at or prior to the Closing Date of the following conditions: 9.01 LITIGATION. Neither Checkers nor NTDT shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the transactions contemplated herein. 9.02 NTDT PARTNER APPROVAL. This Agreement and the transactions contemplated herein shall have been approved by the partners in NTDT pursuant to the provisions of the partnership agreement of NTDT. -15- 9.03 REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have been declared effective by the SEC and the state securities commission in each jurisdiction in which the New Notes to be issued hereunder is required to be registered, and shall not be subject to a stop order or any threatened stop order. 9.04 CLOSING DATE. The Closing Date shall be on the third business day following the date on which the partners of NTDT approve this Agreement and the transactions contemplated herein after the SEC declares the Registration Statement effective. ARTICLE X CONDITIONS PRECEDENT TO OBLIGATIONS OF NTDT The obligations of NTDT to effect the transactions contemplated herein shall be subject to the fulfillment or waiver at or prior to the Closing Date of the following conditions: 10.01 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Checkers set forth in Article V of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date (as though made on and as of the Closing Date) except (i) to the extent such representations and warranties are by their expressed provisions made as of a specified date and (ii) for the effect of transactions contemplated by this Agreement. 10.02 PERFORMANCE OF OBLIGATIONS. Checkers shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. 10.03 OFFICERS' CERTIFICATE. Checkers shall have furnished to NTDT a certificate dated the Closing Date, signed on behalf of Checkers by its Chief Executive Officer, President, Chief Operating Officer or Chief Financial Officer, to the effect that, to his knowledge and belief, the conditions set forth in Sections 10.01 and 10.02 have been satisfied. ARTICLE XI CONDITIONS PRECEDENT TO OBLIGATIONS OF CHECKERS The obligations of Checkers to effect the transactions contemplated herein shall be subject to fulfillment at or prior to the Closing Date of the following conditions: 11.01 REPRESENTATIONS AND WARRANTIES. The representations and warranties of NTDT set forth in Article IV of this Agreement shall be true and -16- correct in all material respects as of the date of this Agreement and as of the Closing Date (as though made on and as of the Closing Date) except (i) to the extent such representations and warranties are by their expressed provisions made as of a specified date and (ii) for the effect of transactions contemplated by this Agreement. 11.02 PERFORMANCE OF OBLIGATIONS. NTDT shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. 11.03 CERTIFICATE OF MANAGING GENERAL PARTNER. NTDT shall have furnished to Checkers a certificate dated the Closing Date, signed on behalf of NTDT by its managing general partner, to the effect that, to his knowledge and belief, the conditions set forth in Sections 11.01 and 11.02 have been satisfied. ARTICLE XII DOCUMENTS TO BE DELIVERED AT THE CLOSING BY NTDT NTDT shall deliver to Checkers the following documents at the Closing: 12.01 CERTIFICATE OF MANAGING GENERAL PARTNER. A certificate of the managing general partner of NTDT, dated the Closing Date, with respect to the matters set forth in Section 11.03 of this Agreement, as well as the incumbency of the corporate officers of the managing general partner and their signatures, good standing, and the partner resolutions of NTDT approving this Agreement and the transactions contemplated by this Agreement. 12.02 THE NOTE. The Note, marked "Paid in Full" over the signature of a duly authorized officer of NTDT. 12.03 OTHER DOCUMENTS. Such other documents as shall be reasonably requested by Checkers and its counsel or required to be delivered pursuant to this Agreement. ARTICLE XIII DOCUMENTS TO BE DELIVERED AT THE CLOSING BY CHECKERS Checkers shall deliver to NTDT the following documents at the Closing: 13.01 OFFICER'S CERTIFICATE. The certificate referred to in Section 10.03 of this Agreement. -17- 13.02 CERTIFICATE OF SECRETARIAL OFFICER. The certificate of the Secretary or Assistant Secretary of Checkers, dated the Closing Date, with respect to the incumbency of corporate officers and their signatures, corporate good standing and the corporate director resolutions authorizing the transactions contemplated by this Agreement. 13.03 NEW NOTES. The New Notes executed on behalf of Checkers. 13.04 OTHER DOCUMENTS. Such other documents as shall be reasonably requested by NTDT or its counsel or required to be delivered pursuant to this Agreement. ARTICLE XIV TERMINATION AND ABANDONMENT 14.01 EVENTS OF TERMINATION. This Agreement may be terminated at any time before the Closing Date: (i) by mutual consent of Checkers and NTDT; (ii) by NTDT if any of the conditions precedent found in Articles IX or X of this Agreement have not been met and have not been waived in writing by NTDT; (iii) by Checkers if any of the conditions precedent found in Articles IX or XI of this Agreement have not been met and have not been waived in writing by Checkers; (iv) by NTDT if there is a breach of or failure by Checkers to perform in any material respect any of the representations, warranties, commitments, covenants or conditions under this Agreement, which breach or failure is not cured within five days after written notice thereof is given to Checkers; or (v) by Checkers if there is a breach of or failure by NTDT to perform in any material respect any of the representations, warranties, commitments, covenants or conditions under this Agreement, which breach or failure is not cured within five days after written notice thereof is given to NTDT. In the event of termination and abandonment by any party as above provided in clauses (ii), (iii), (iv) or (v) of this Section, written notice shall forthwith be given to the other party, which notice shall clearly specify the reason of such party for terminating this Agreement. Termination by either party hereto pursuant to this Section 14.01 shall not restrict or limit in any manner the remedies which the parties might have at law or in equity for any breach of the covenants, representations, or warranties contained in this Agreement. 14.02 SURVIVAL. The provisions in Sections 8.01 and 16.13 of this Agreement shall survive the termination of this Agreement. -18- ARTICLE XV INDEMNIFICATION 15.01 SURVIVAL. All representations, warranties, covenants and agreements of each of the parties hereto set forth in this Agreement or in any other instrument or document delivered by any of the parties hereto pursuant to this Agreement shall survive the Closing and shall remain operative and in full force and effect regardless of any investigations at any time made by or on behalf of any party hereto and shall not be deemed merged in any document or instrument executed or delivered at or after the Closing. 15.02 INDEMNIFICATION BY NTDT. From and after the Closing, NTDT shall indemnify, defend and hold harmless Checkers' Group (as hereinafter defined) from, against and with respect to any claim, liability, obligation, loss, damage, assessment, judgment, cost and expense (including, without limitation, reasonable attorney's and accountant's fees and costs and expenses reasonably incurred in investigating, preparing, defending against or prosecuting any litigation or claim, action, suit, proceeding or demand), of any kind or character arising out of or in any manner incident, relating or attributable to (i) the inaccuracy in any representation or breach of warranty of NTDT contained in this Agreement or otherwise made or given in writing in connection with this Agreement, (ii) any failure by NTDT to perform or observe any covenant, agreement or condition to be performed or observed by it under this Agreement or under any certificates or other documents or agreements executed by it in connection with this Agreement, and (iii) any claims arising out of or based upon any untrue statement of a material fact contained in the Registration Statement or any Resale Registration Statement or any prospectus included therein or arising out of or based upon any omission to state therein a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, insofar as such claims arise out of or are based upon information furnished to Checkers in writing by NTDT for use therein. NTDT shall be liable to and shall reimburse Checkers' Group for any payment made by Checkers' Group at any time after the Closing in respect of any liability, obligation or claim to which the foregoing indemnity relates within five (5) days of the date of receipt by NTDT of written demand for payment thereof by Checkers' Group. If any claim covered by the foregoing indemnity be asserted against Checkers' Group, Checkers shall notify NTDT promptly and give it an opportunity to defend the same, and Checkers shall extend reasonable cooperation to NTDT in connection with such defense. In the event that NTDT fails to defend the same within a reasonable time, Checkers shall be entitled to assume the defense thereof and NTDT shall be liable to repay Checkers for all of its expenses reasonably incurred in connection with such defense (including reasonable attorney's fees and settlement payments). For purposes of this Agreement, the term "Checkers' Group" shall -19- mean Checkers and its subsidiaries, parents, officers, directors, employees, agents, representatives, predecessors, successors, attorneys and accountants. 15.03 INDEMNIFICATION BY CHECKERS. From and after the Closing, Checkers shall indemnify, defend and hold harmless NTDT's Group (as hereinafter defined) from, against and with respect to any claim, liability, obligation, loss, damage, assessment, judgment, cost and expense (including, without limitation, reasonable attorney's and accountant's fees and costs and expenses reasonably incurred in investigating, preparing, defending against or prosecuting any litigation or claim, action, suit, proceeding or demand), of any kind or character arising out of or in any manner incident, relating or attributable to (i) the inaccuracy in any representation or breach of warranty of Checkers contained in this Agreement or otherwise made or given in writing in connection with this Agreement, (ii) any failure by any Checkers to perform or observe any covenant, agreement or condition to be performed or observed by it under this Agreement or under any certificates or other documents or agreements executed by it in connection with this Agreement, (iii) any failure by Checkers to comply with the provisions of the 1933 Act or any applicable state securities law in connection with the registration of any of the Common Stock issued hereunder, and (iv) any claims arising out of or based upon any untrue statement of a material fact contained in the Registration Statement or any Resale Registration Statement or any prospectus included therein or arising out of or based upon any omission to state therein a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, other than claims which arise out of or are based upon information furnished by NTDT to Checkers in writing for use therein. Checkers shall be liable to and shall reimburse NTDT's Group for any payment made by NTDT's Group at any time after the Closing in respect of any liability, obligation or claim to which the foregoing indemnity relates within five (5) days of the date of receipt by Checkers of written demand for payment thereof by NTDT's Group. If any claim covered by the foregoing indemnity be asserted against NTDT's Group, NTDT shall notify Checkers promptly and give it an opportunity to defend the same, and NTDT's Group shall extend reasonable cooperation to Checkers in connection with such defense. In the event that Checkers fails to defend the same within a reasonable time, NTDT's Group shall be entitled to assume the defense thereof and Checkers shall be liable to repay NTDT's Group for all of its expenses reasonably incurred in connection with such defense (including reasonable attorney's fees and settlement payments). For purposes of this Agreement, the term "NTDT's Group" shall mean NTDT and its subsidiaries, parents, officers, directors, employees, agents, representatives, predecessors, successors, attorneys and accountants. -20- ARTICLE XVI MISCELLANEOUS 16.01 BINDING EFFECT. This Agreement shall be binding upon and shall inure to the benefit of the corporate parties hereto and their respective successors and permitted assigns, and of the individual parties hereto and their respective heirs, personal representatives and permitted assigns. 16.02 PUBLICITY. Subject to the other provisions of this Agreement, press releases and other publicity materials relating to the transactions contemplated by this Agreement shall be released by the parties hereto only after review and with the consent of each of Checkers and NTDT; PROVIDED, HOWEVER, Checkers shall have the right, after consulting with NTDT, to make a public announcement of the execution of this Agreement and a disclosure of the basic terms and conditions of this Agreement if advised to do so by its legal counsel in connection with the reporting and disclosure obligations of Checkers under the federal securities laws and/or the Nasdaq Stock Market. 16.03 HEADINGS. The headings in this Agreement have been inserted solely for ease of reference and shall not be considered in the interpretation or construction of this Agreement. 16.04 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same instrument. 16.05 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Florida without regard to any applicable conflicts of law. 16.06 EXPENSES. Except as otherwise herein provided, each of the parties hereto shall pay its respective costs and expenses incurred or to be incurred by it in connection with the negotiations respecting this Agreement and the transactions contemplated by this Agreement, including preparation of documents, obtaining any necessary regulatory approvals and the consummation of the other transactions contemplated in this Agreement. Except as expressly stated otherwise herein, the costs related to the preparation and filing of the Registration Statement, any Resale Registration Statement, and all Nasdaq and state securities law filings shall be paid by Checkers, except that NTDT shall bear the expenses of any fees of NTDT's advisors, including legal counsel. 16.07 NON-ASSIGNMENT. This Agreement shall not be assignable by any party without the written consent of the others. -21- 16.08 ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and supersedes all other prior agreements, understandings and letters related hereto. 16.09 SINGULAR AND PLURAL. Unless the context of this Agreement otherwise clearly requires, references to the plural include the singular and the singular includes the plural. Wherever the context so requires, the masculine shall refer to the feminine, the neuter shall refer to the masculine or the feminine, the singular shall refer to the plural, and vice versa. 16.10 KNOWLEDGE OF NTDT. Wherever any representation, warranty or other statement made in this Agreement is qualified as to the knowledge of NTDT, such qualification shall mean the actual knowledge of NTDT and each of the directors and executive officers of NTDT. 16.11 NOTICES. Any notice or other communications required or permitted by this Agreement shall be in writing and shall be deemed to have been duly given (i) on the date sent if delivered personally or by cable, telecopy, telegram or telex (which is confirmed) or (ii) on the date received if mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Checkers, to: Checkers Drive-In Restaurants, Inc. 600 Cleveland Street, Eighth Floor Clearwater, Florida 34615 Attention: General Counsel Telecopy No.: (813) 298-2125 with a copy to: Paul R. Lynch, Esquire Shumaker, Loop & Kendrick 101 East Kennedy Boulevard Suite 2800 Tampa, Florida 33602 Telecopy No.: (813) 229-1660 and, (b) if to NTDT, to: Nashville Twin Drive-Thru Partners, L.P. 1314 5th Avenue North, Suite 100 Nashville, Tennessee 37208 Attention: Roland Jones -22- Telecopy No.: with a copy to: Susan Short Jones, Esquire Jones & Shockley 1319 Fifth Avenue No. Nashville, Tennessee 37208 Telecopy No.: 16.12 RIGHTS OF THIRD PARTIES. This Agreement shall not create any legal rights in any person or entity other than the parties to this Agreement, except for Checkers' Group under Section 15.02 and NTDT's Group under Section 15.03 of this Agreement. 16.13 REMEDIES. Nothing contained in this Agreement shall be construed to restrict or limit in any manner the remedies which the parties might have at law or in equity for any breach of the covenants, representations, or warranties contained in this Agreement. 16.14 AMENDMENT. This Agreement may be amended or supplemented by the parties hereto. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 16.15 WAIVER. Any party hereto may, by written notice to the other parties hereto, (i) extend the time for the performance of any of the obligations or other actions of such other party under this Agreement, (ii) waive any inaccuracies in the representations or warranties of such other party contained in this Agreement or in any document delivered pursuant to this Agreement, or (iii) waive compliance with any of the conditions or covenants of such other party contained in this Agreement, or (iv) waive or modify performance of any of the obligations of such other party under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any of the representations, warranties, covenants, conditions, or agreements contained in the Agreement. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. If, prior to the Closing, any party provides all of the other parties with written notice, which refers specifically to this Section 16.15, that a representation or warranty made by such party in or pursuant to this Agreement is not true, correct and complete and the Closing is consummated notwithstanding such disclosure, such other parties shall be deemed to have waived any claims for indemnification under this Agreement as a result of the inaccuracy of such representation or warranty. -23- 16.16 EFFECTIVENESS. This Amended and Restated Purchase Agreement shall become effective upon execution by all of the parties hereto and the payment by Checkers to NTDT in cash of the amount of One Hundred Ten Thousand Dollars ($110,000.00), One Hundred Thousand Dollars ($100,000.00) of which is to be applied against the principal balance due under the Note, as required under Section 6.07 hereof, and Ten Thousand Dollars ($10,000.00) of which is to reimburse NTDT for legal expenses as required under Section 6.08. [Remainder of page intentionally left blank. Next page is signature page.] -24- IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the day and year first above written. CHECKERS DRIVE-IN RESTAURANTS, INC. By: s/s Joseph N. Stein ----------------------------------------------- Name: Joseph N. Stein Title: Executive Vice President NASHVILLE TWIN DRIVE-THRU PARTNERS, L.P. By: Jones & Jones Twin Drive-Thru, Inc., General Partner By: /s/ Roland L. Jones ----------------------------------------- Roland L. Jones, President By: NTD Enterprises, Inc., General Partner By: /s/ David M. Wilds ----------------------------------------- David M. Wilds, President JONES & JONES TWIN DRIVE-THRU, INC. By: /s/ Roland L. Jones ----------------------------------------------- Roland L. Jones, President NTD ENTERPRISES, INC., By: /s/ David M. Wilds ----------------------------------------------- David M. Wilds, President /s/ Roland L. Jones --------------------------------------------------- ROLAND L. JONES, Individually -25- EX-27 5 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements of Checkers Drive-in Restaurants, Inc., for the quarterly period ended June 16, 1997, and is qualified in its entirety by reference to such financial statements. 1,000 OTHER DEC-29-1997 DEC-31-1996 JUN-16-1997 3,912 0 2,652 0 2,157 16,670 132,039 38,235 124,914 32,866 38,715 0 0 61 53,447 124,914 64,695 67,870 61,659 69,587 241 0 5,174 (6,650) 0 (6,650) 0 0 0 (6,650) (.11) .00 Footnote (1): Receivables consist of -- Accounts Receivable - net $2,299 Notes Receivable 353 --------- $2,652 ========= 75
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