-----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, MMI0A/io5vekzAXeCQVKn7NSUE/StINTgpIKVWnhNWk7MWC/uIW/K3WhIVfw8QO4 QPvWHJb015y/7qy4QjLGBw== 0001016843-01-500158.txt : 20010516 0001016843-01-500158.hdr.sgml : 20010516 ACCESSION NUMBER: 0001016843-01-500158 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010326 FILED AS OF DATE: 20010515 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: SEC FILE NUMBER: 000-19649 FILM NUMBER: 1638322 BUSINESS ADDRESS: STREET 1: PO BOX 18800 CITY: CLEARWATER STATE: FL ZIP: 33762 BUSINESS PHONE: 7275192000 MAIL ADDRESS: STREET 1: 14255 49TH STREET NORTH BLDG I CITY: CLEARWATER STATE: FL ZIP: 33762 10-Q 1 form10-q_12106.txt 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 MARCH 26, 2001 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.) 14255 49TH STREET NORTH, BUILDING 1 SUITE 101 CLEARWATER, FL 33762 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (727) 519-2000 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 9,763,717 shares of Common Stock, par value $.001 per share, outstanding as of March 26, 2001. TABLE OF CONTENTS PART I FINANCIAL INFORMATION PAGE ITEM 1 FINANCIAL STATEMENTS - UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 26, 2001 AND JANUARY 1, 2001.............................3 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME QUARTERS ENDED MARCH 26, 2001 AND MARCH 27, 2000 ................................................4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS QUARTERS ENDED MARCH 26, 2001 AND MARCH 27, 2000 ..............5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...............6 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................................9 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........12 PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS....................................................12 ITEM 2 CHANGES IN SECURITIES................................................14 ITEM 3 DEFAULTS UPON SENIOR SECURITIES......................................14 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................14 ITEM 5 OTHER INFORMATION....................................................14 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.....................................14 2 ITEM 1. FINANCIAL STATEMENTS CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (UNAUDITED)
MARCH 26, JANUARY 1, 2001 2001 --------- --------- CURRENT ASSETS: Cash and cash equivalents $ 1,631 $ 923 Restricted cash 1,527 1,847 Accounts, notes and leases receivable, net 3,738 4,666 Inventory 1,053 996 Prepaid expenses and other current assets 817 2,189 Property and equipment held for sale 8,970 8,774 --------- --------- Total current assets 17,736 19,395 Property and equipment, net 43,934 42,522 Notes receivable, net - less current portion 6,710 4,610 Lease receivable, net- less current portion 8,521 8,957 Intangible assets, net 47,692 48,341 Other assets, net 2,177 2,173 --------- --------- $ 126,770 $ 125,998 ========= ========= CURRENT LIABILITIES: Current maturities of long-term debt and obligations under capital leases $ 5,519 $ 9,362 Accounts payable 5,332 7,374 Reserves for restaurant relocations and abandoned sites 1,691 1,722 Accrued wages 2,013 1,523 Accrued liabilities 7,289 8,404 --------- --------- Total current liabilities 21,844 28,385 Long-term debt, less current maturities 29,238 24,909 Obligations under capital leases, less current maturities 7,239 6,267 Long-term reserves for restaurant relocations and adandoned sites 3,215 3,596 Minority interests in joint ventures 516 532 Deferred revenue 9,013 7,738 Other long-term liabilities 3,683 3,637 --------- --------- Total liabilities 74,748 75,064 STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value, authorized 2,000,000 shares, none issued at March 26, 2001 and January 1, 2001 -- -- Common stock, $.001 par value, authorized 175,000,000 shares, issued 9,763,717 at March 26, 2001 and 9,653,623 at January 1, 2001 10 10 Additional paid-in capital 138,895 138,650 Accumulated deficit (86,383) (87,226) --------- --------- 52,522 51,434 Less: Treasury stock, 48,242 at March 26, 2001 and January 1, 2001, at cost (400) (400) Note receivable - officer (100) (100) --------- --------- Total stockholders' equity 52,022 50,934 --------- --------- $ 126,770 $ 125,998 ========= =========
See accompanying notes to the condensed consolidated financial statements. 3 CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
QUARTER ENDED ------------------------ MARCH 26, MARCH 27, 2001 2000 -------- -------- REVENUES: Restaurant sales $ 31,683 $ 49,511 Franchise revenues and other income 3,612 2,676 -------- -------- Total revenues 35,295 52,187 -------- -------- COSTS AND EXPENSES: Restaurant food and paper costs 10,219 15,504 Restaurant labor costs 10,423 16,411 Restaurant occupancy expenses 2,528 3,837 Restaurant depreciation and amortization 970 958 Other restaurant operating expenses 4,024 5,367 General and administrative expenses 2,854 3,831 Advertising 1,847 3,737 Bad debt expense 179 180 Other depreciation and amortization 924 1,209 Gain on restaurant sales (364) -- -------- -------- Total costs & expenses 33,604 51,034 -------- -------- Operating income 1,691 1,153 OTHER INCOME (EXPENSE): Interest income 449 254 Interest expense (1,246) (1,906) -------- -------- Income (loss) before minority interests, income tax expense and extraordinary item 894 (499) Minority interests in operations of joint ventures (14) 2 -------- -------- Income (loss) before income tax expense and extraordinary item 880 (497) Income tax expense 37 37 -------- -------- Income (loss) from continuing operations before extraordinary item 843 (534) Extraordinary item - gain on early extinguishment of debt, net of income taxes -- 109 -------- -------- Net income (loss) $ 843 $ (425) ======== ======== Comprehensive income (loss) $ 843 $ (425) ======== ======== Basic earnings (loss) per share: Earnings (loss) before extraordinary item $ 0.09 $ (0.06) Extraordinary item -- 0.01 -------- -------- Net earnings (loss) $ 0.09 $ (0.05) ======== ======== Diluted earnings (loss) per share: Earnings (loss) before extraordinary item $ 0.07 $ (0.06) Extraordinary item -- 0.01 -------- -------- Net earnings (loss) $ 0.07 $ (0.05) ======== ======== Weighted average number of common shares outstanding Basic 9,744 9,388 ======== ======== Diluted 11,381 9,388 ======== ========
See accompanying notes to condensed consolidated financial statements 4 CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
QUARTER ENDED ---------------------- MARCH 26, MARCH 27, 2001 2000 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 843 $ (425) Adjustments to reconcile net earnings to net cash provided by operating activies: Depreciation and amortization 1,894 2,167 Gain on early extinguishment of debt -- (109) Amortization of bond costs and discounts -- 81 Provisions for bad debt 179 180 Gain on restaurant sales (364) -- Minority interest in operations of joint ventures 14 (2) Change in assets and liabilities: Decrease (increase) in receivables 988 (297) Decrease (increase) in inventory (23) 76 Decrease in prepaid expenses and other current assets 1,302 1,852 Decrease in other assets -- 38 Decrease in accounts payable (2,042) (75) Decrease in accrued liabilities (1,394) (2,561) ------- ------- Net cash provided by operating activities 1,397 925 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (922) (391) Acquistion of restaurants, net of cash acquired (230) -- Decrease in investments -- 468 Proceeds from disposition of property & equipment 139 471 ------- ------- Net cash provided by (used in) investing activities (1,013) 548 ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt and capital lease obligations (732) (1,231) Decrease in restricted cash 320 734 Repayments of senior notes -- (3,953) Net proceeds from issuance of common stock 245 -- Proceeds from issuance of long-term debt 580 -- Deferred loan costs incurred (59) -- Distributions to minority interests (30) (23) ------- ------- Net cash provided by (used in) financing activities 324 (4,473) ------- ------- Net increase (decrease) in cash 708 (3,000) CASH AT BEGINNING OF PERIOD 923 4,371 ------- ------- CASH AT END OF PERIOD $ 1,631 $ 1,371 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid 1,090 1,180 ======= ======= Issuance of capital lease obligation for equipment 1,610 -- ======= ======= Note receivable accepted for market sale 2,100 -- ======= =======
See accompanying notes to condensed consolidated financial statements. 5 CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1:SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF PRESENTATION - The accompanying unaudited consolidated statements include the accounts of Checkers Drive-In Restaurants, Inc., its wholly-owned subsidiaries, and its joint ventures, collectively referred to as "the Company". The condensed consolidated 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 accounts of our joint ventures have been included with those of the Company in these condensed consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation and minority interests have been established for the outside partners' interests. The Company reports on a fiscal year which will end on the Monday closest to December 31st. Each quarter consists of three 4-week periods, with the exception of the fourth quarter which consists of four 4-week periods. The operating results for the quarter ended March 26, 2001, are not necessarily an indication of the results that may be expected for the fiscal year ending December 31, 2001. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended January 1, 2001. Therefore, it is suggested that the accompanying consolidated financial statements be read in conjunction with the Company's January 1, 2001 consolidated financial statements. (b) PURPOSE AND ORGANIZATION - Our principal business is the operation and franchising of Checkers(R) and Rally's Hamburgers(R) (Rally's) restaurants. At March 26, 2001, there were 424 Rally's restaurants operating in 18 different states and there were 421 Checkers restaurants operating in 22 different states, the District of Columbia, Puerto Rico and the West Bank in the Middle East. Of the 845 total restaurants, 207 are owned by us and 638 are owned by franchisees. Three of the owned restaurants are owned by joint venture partnerships in which we have a 50% to 75% ownership interest. Our restaurants offer high quality food, serving primarily the drive-thru and take-out segments of the quick-service restaurant industry. Checkers commenced operations in April 1986 and began offering franchises in January 1987. Rally's opened its first restaurant in January 1985 and began offering franchises in November 1986. (c) NEW ACCOUNTING PRONOUNCEMENTS - Effective January 2, 2001, we adopted Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 137 and 138, which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 requires that entities recognize all derivatives as either assets or liabilities in the balance sheet and measures those instruments at fair value. Accounting for changes in the fair value of a derivative depends on the intended use and resulting designation of the derivative. For derivatives designated as hedges, changes in the fair value are either offset against the change in fair value of the assets or liabilities through earnings, or recognized in other comprehensive income in the balance sheet until the hedged item is recognized in earnings. We enter into forward purchase contracts to manage our exposure to rising beef prices and other commodity price fluctuations. These contracts are not designated as hedging instruments, and meet the exception for "normal purchases and normal sales" as provided by SFAS 133. Therefore, these contracts are not subject to the requirements of SFAS 133. The implementation of SFAS 133 had no impact on our financial statements. (d) CASH AND CASH EQUIVALENTS - We consider all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents. Restricted cash consists of cash on deposit with various financial institutions as collateral to support the Company's obligations for potential workers' compensation claims. This cash is not available for the Company's use until such time that the applicable states and/or insurance companies permit its release. (e) RECEIVABLES - Receivables consist primarily of royalties, franchise fees, notes due from franchisees, owner fee income, and advances to one of the Company's advertising funds which provides broadcast creative production for use by Company-owned and franchise restaurants. 6 (f) INVENTORY - Inventory which consists principally of food and supplies are stated at the lower of cost (first-in, first-out (FIFO) method) or market. (g) REVENUE RECOGNITION - Franchise fees and area development 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. Franchise fees and area development franchise fees received prior to substantial completion of the Company's obligations are deferred. The Company receives royalty fees from franchisees based on a percentage of each restaurant's gross revenues. Royalty fees are recognized as earned. (h) INCOME TAXES - We account for income taxes under 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. (i) 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. (j) RECLASSIFICATIONS - Certain amounts in the 2000 financial statements have been reclassified to conform to the 2001 presentation. NOTE 2: LIQUIDITY AND CAPITAL RESOURCES We have a working capital deficit of $4.1 million at March 26, 2001 as compared to a $9.0 million deficit at January 1, 2001. The decrease in the deficit is primarily due to the refinancing of the Textron note payable (Note B) coming due June 15, 2001. On May 10, 2001, we issued a note payable to Heller Financial, Inc., refinancing $5.8 million over a 30 month term at a 14% interest rate. Although there can be no assurance, we believe that our existing cash at March 26, 2001, together with cash provided from operations will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months. NOTE 3: LEASE RECEIVABLES We have capital lease receivables for restaurants previously sold which are subject to capital lease and mortgage obligations. The amount of capital lease receivables as of March 26, 2001 was approximately $9.3 million. We have deferred gains of $7.5 million from these sales as of March 26, 2001, since we continue to be responsible for the payment of these obligations to the original lessors and mortgagors. The gain is being recognized over the life of the related capital leases. The deferred gains are included in the balance sheet under the captions accrued liabilities-current and deferred revenue for $0.9 million and $6.6 million, respectively. We have subleased the land associated with the sale of Company-owned restaurants under operating leases. The revenue from these subleases is offset against rent expense, as we continue to be responsible for the rent payments to the original lessors. 7 NOTE 4: LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
MARCH 26, JANUARY 1, 2001 2001 ------- ------- Note payable (Loan A) to Textron Financial Corporation payable in 120 monthly installments, including interest at LIBOR plus 3.7% (8.78% at March 26, 2001) secured by property and equipment $11,541 $11,662 Revolving credit note payable (Loan B) to Textron Financial Corporation payable on June 15, 2001. Installment payments of interest only are due monthly at 30%, secured by real estate, property and equipment, and subordinate to Loan A. On May 10, 2001 we issued a note payable to refinance this note. The replacement note is payable in 30 monthly installments, including interest at 14%, secured by property and equipment 5,873 5,873 Mortgages payable to FFCA Acquisition Corporation secured by thirty- two Company-owned restaurants, payable in 240 aggregate monthly installments of $133,295, including interest at 9.5% 13,723 13,795 Obligations under capital leases, maturing at various dates through January 1, 2018, secured by property and equipment, bearing interest ranging from 10% to 17%. The leases are payable in monthly principal and interest installments ranging from $674 to $11,320 8,837 7,694 Notes payable to former Rally's franchise owners for acquisition of markets, secured by the related assets acquired, with maturities through May 1, 2004, bearing interest at 7.5% and 7.75%. The notes are payable in monthly principal and interest installments of $8,416 and $15,420 712 769 Various notes payable maturing at various dates through November 20, 2005, secured by property and equipment, bearing interest ranging from 7.7% to 9.75%. The notes are payable in monthly principal and interest installments ranging from $1,531 to $18,095 1,310 745 ------- ------- Total long-term debt and obligations under capital leases 41,996 40,538 Less current installments 5,519 9,362 ------- ------- Long-term debt, less current maturities $36,477 $31,176 ======= =======
Although we continue to be obligated, approximately $9.3 million of the mortgage and capital lease obligations noted above pass directly through to franchisees as a result of Company-owned restaurant sales (See Note 3). The revolving credit note payable (Loan B) can be extended until June 15, 2002 at our option, subject to certain conditions. Upon full repayment of the note, and after a 30 day waiting period, the note converts to a revolving line of credit with interest at LIBOR plus 4.5%. The facility for the line will be based upon 50% of the collateral pledged. NOTE 5: ACCOUNTING CHARGES AND LOSS PROVISIONS At the end of fiscal 2000, we had a reserve of $5.3 million relating to restaurant relocations and abandoned sites. This reserve represents management's estimate of future lease obligations and is reviewed and adjusted periodically as more information becomes available regarding the ability to sublease or assign the lease and other negotiations with the landlord. During the first quarter of 2001, the Company made lease and other payments of $394,000, relating to restaurant relocations and abandoned sites. NOTE 6: COMMON STOCK As a result of a ministerial error appearing on the facing page of the Company's registration statement filed with the United States Securities and Exchange Commission in connection with the August 1999 merger of Rally's with and into the Company, a technical issue has arisen as to the effectiveness of that registration statement and the resulting legal ability of any such shareholder to hold the Company liable for the value of the Rally's shares cancelled in the merger. Management believes such possibility to be without substantial merit. 8 NOTE 7: SUBSEQUENT EVENT On April 19, 2001, we were give notice by CKG Restaurants, Inc. of their intent to relinquish the management of eighteen Rally's restaurants in California and three in Arizona on June 30, 2001. In accordance with the original operating agreement entered into on May 22, 1996, we will repossess the restaurants and operate them as Company-owned restaurants. On April 23, 2001, we entered into an operating lease for office premises located at 4800 West Cypress Street, Tampa, Florida 33607. The lease commences on July 1, 2001 and ends on June 30, 2007. It calls for varying monthly payments totaling $1.5 million over the life of the lease, plus property taxes and common area expenses. On May 7, 2001, we exercised our right of first refusal to purchase eight Checkers in the Atlanta area. The purchase price for these restaurants was $1,055,000, and we anticipate taking over the operations within the next 30 to 90 days, upon the completion of satisfactory due diligence. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Checkers Drive-In Restaurants, Inc. ("Checkers"), a Delaware corporation, and its wholly-owned subsidiaries (collectively, the "Company") is one of the largest chains of double drive-thru restaurants in the United States. Our Company is a combination of two separate quick-service restaurant chains, Checkers(R) and Rally's Hamburgers(R) (Rally's), which were merged in August 1999. Although Checkers was the surviving entity for purposes of corporate law, Rally's was considered the surviving entity for accounting purposes since the shareholders of Rally's owned a majority of our outstanding stock immediately following the merger. At March 26, 2001, there were 424 Rally's restaurants operating in 18 different states and 421 Checkers restaurants operating in 22 different states, the District of Columbia, Puerto Rico and the West Bank in the Middle East. Of the 845 total restaurants, 207 are owned by us and 638 are owned by franchisees. Three of our restaurants are owned by joint venture partnerships in which we have a 50%-75% ownership interest. Our restaurants offer high quality food, serving primarily the drive-thru and take-out segments of the quick-service restaurant industry. Checkers commenced operations in April 1986 and began offering franchises in January 1987. Rally's opened its first restaurant in January 1985 and began offering franchises in November 1986. We receive revenues from restaurant sales, franchise fees and royalties. Restaurant food and paper costs, labor costs, occupancy expense, other operating expenses, depreciation and amortization, and advertising and promotion expenses relate directly to Company-owned restaurants. Other expenses, such as depreciation and amortization, and general and administrative expenses, relate to Company-owned restaurant operations and the Company's franchise sales and support functions. Our revenues and expenses are affected by the number and timing of additional restaurant openings and the sales volumes of both existing and new restaurants. 9 RESULTS OF OPERATIONS The table below sets forth the percentage relationship to total revenues, unless otherwise indicated, of certain items included in the Company's condensed consolidated statements of operations and operating data for the periods indicated:
QUARTER ENDED (UNAUDITED) ----------------------- MARCH 26, MARCH 27, 2001 2000 ------ ------ REVENUES: Restaurant sales 89.8% 94.9% Franchise revenues and other income 10.2% 5.1% ------ ------ Total Revenues 100.0% 100.0% COSTS AND EXPENSES: Restaurant food and paper costs (1) 32.2% 31.3% Restaurant labor costs (1) 32.9% 33.1% Restaurant occupancy expenses (1) 8.0% 7.7% Restaurant depreciation and amortization (1) 3.1% 2.0% Other restaurant operating expenses (1) 12.7% 10.8% General and administrative expenses 8.1% 7.3% Advertising (1) 5.8% 7.5% Bad debt expense 0.5% 0.3% Other depreciation and amortization 2.6% 2.3% Gain on the disposition of property and equipment (1.0%) (0.0%) ------ ------ Total costs & expenses 95.2% 97.8% ------ ------ Operating income 4.8% 2.2% OTHER INCOME (EXPENSE): Interest income 1.2% 0.5% Interest expense (3.5%) (3.6%) ------ ------ Income (loss) before minority interests, income tax expense, and extraordinary item 2.5% (0.9%) Minority interests in operations of joint ventures 0.0% 0.0% ------ ------ Income (loss) before income tax expense and extraordinary item 2.5% (0.9%) Income tax expense 0.1% 0.1% ------ ------ Income (loss) from continuing operations before extraordinary item 2.4% (1.0%) Extraordinary item - gain on early extinguishment of debt, net of income taxes 0.0% 0.2% ------ ------ Net income (loss) 2.4% (0.8%) ====== ====== Number of Company-operated restaurants: Restaurants open at the beginning of period 195 367 Opened, closed or transferred, net during the period 12 -- ------ ------ Total company-owned restaurants, end of period 207 367 ====== ====== Number of franchised restaurants: Restaurants open at the beginning of period 659 540 Opened, closed or transferred, net during the period (21) (3) ------ ------ Total franchised restaurant, end of period 638 537 ------ ------ Total all restaurants opened at end of period: 845 904 ====== ======
(1) As a percentage of restaurant sales 10 COMPARISON OF HISTORICAL RESULTS - QUARTER ENDED MARCH 26, 2001 AND QUARTER ENDED MARCH 27, 2000 REVENUES. Total revenues were $35.3 million for the quarter ended March 26, 2001, compared to $52.2 million for the quarter ended March 27, 2000. Company-owned restaurant sales decreased by $17.8 million for the quarter ended March 26, 2001, to $31.7 million, as compared to $49.5 million for the quarter ended March 27, 2000. The primary reason for the decrease is due to the sale of 167 restaurants to franchisees during fiscal 2000. Sales at comparable restaurants, which include only the units that were in operation for the full quarters being compared, increased 12.3% for the quarter ended March 26, 2001 as compared with the quarter ended March 27, 2000. Franchise revenues and fees increased by $1 million, primarily as a result of the Company-owned restaurant sales, resulting in an increase in royalties. COSTS AND EXPENSES. Restaurant food and paper costs totalled $10.2 million or 32.2% of restaurant sales for the quarter ended March 26, 2001, compared to $15.5 million or 31.5% of restaurant sales for the quarter ended March 27, 2000. The increase in these costs as a percentage of restaurant sales was primarily due to the rising beef prices during the period. Restaurant labor costs, which includes restaurant employees' salaries, wages, benefits and related taxes, totalled $10.4 million or 32.9% of restaurant sales for the quarter ended March 26, 2001, compared to $16.4 million or 33.1% of restaurant sales for the quarter ended March 27, 2000. Restaurant labor costs remained consistent as a percentage of restaurant sales. Restaurant occupancy expense, which includes rent, property taxes, licenses and insurance, totalled $2.5 million or 8.0% of restaurant sales for the quarter ended March 26, 2001 compared to $3.8 million or 7.7% of restaurant sales for the quarter ended March 27, 2000. Restaurant occupancy expense remained consistent as a percentage of restaurant sales. Restaurant depreciation and amortization remained consistent for the quarter ended March 26, 2001 as compared to the quarter ended March 27, 2000. Other restaurant expense includes all other restaurant level operating expenses, and specifically includes utilities, maintenance and other costs. These expenses totalled $4.0 million, or 12.7% of restaurant sales for the quarter ended March 26, 2001 compared to $5.4 million, or 10.8% of restaurant sales for the quarter ended March 27, 2000. The increase was primarily related to increases in supplies expense, repairs and maintenance, utilities, as well as support functions. General and administrative expenses were $2.9 million, or 8.1% of total revenues for the quarter ended March 26, 2001 compared to $3.8 million, or 7.3% of total revenues for the quarter ended March 27, 2000. General and administrative expenses increased as a percentage of total revenues due to the decrease in total revenues, resulting from the sale of restaurants in fiscal 2000. Advertising expense decreased to $1.8 million, or 5.8% of restaurant sales for the quarter ended March 26, 2001 from $3.7 million, or 7.5% of restaurant sales for the quarter ended March 27, 2000. The decrease in dollars spent was due to the sale of 167 Company-owned restaurants subsequent to the first quarter of fiscal 2000. The decrease as a percentage of sales was due to the increase in comparable store sales of 12.3%. Bad debt expense for the quarter ended March 26, 2001 remained consistent with the quarter ended March 27, 2000. Other depreciation and amortization decreased by $285,000 to $924,000. The decrease was due primarily to decreased amortization resulting from the early repayment of debt at the end of fiscal 2000. Deferred financing costs were written down as a result of the early repayment, decreasing amortization expense. INTEREST EXPENSE. Interest expense decreased to $1.2 million, or 3.5% of total revenues for the quarter ended March 26, 2001 from $1.9 million, or 3.6% of total revenues for the quarter ended March 27, 2000. This decrease was primarily due to the repayment of $40 million of debt during fiscal 2000. INCOME TAX EXPENSE. The Company's income tax expense of $37,000 for both periods represents estimated state income taxes. No federal income tax expense has been recorded due to the availability of net operating losses from prior years operations. 11 LIQUIDITY AND CAPITAL RESOURCES We have a working capital deficit of $4.1 million at March 26, 2001 as compared to a $9.0 million deficit at January 1, 2001. The decrease in the deficit is primarily due to the refinancing of the Textron note payable (Note B) coming due June 15, 2001. On May 10, 2001, we issued a note payable to Heller Financial, Inc., refinancing $5.8 million over a 30 month term at a 14% interest rate. Cash and cash equivalents increased approximately $708,000 to $1.6 million from the fiscal year ended January 1, 2001. Cash flow from operating activities was $1.4 million, compared to $925,000 during the same period last year. The increase of $472,000 is largely attributable to current quarter profit as compared to the loss during the same period last year, offset by the decreases in the balances of accounts payable and accrued liabilities due to the timing of payments in the current year. Cash flow from investing activities decreased by $1.0 million due primarily to capital expenditures. The capital expenditures related to point-of-purchase menu boards. Cash provided by financing activities was $324,000. We paid down a total of $732,000 on our long-term debt during the quarter. We received $825,000 from the issuance of common stock and long-term debt. We also reduced our restricted cash by $320,000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate and foreign exchange rate fluctuations Our exposure to financial market risks relates to the impact that interest rate changes could have on our debt. An increase in short-term and long-term interest rates would result in a reduction of pre-tax earnings. Substantially all of our business is transacted in U.S. dollars. Accordingly, foreign exchange rate fluctuations have never had a significant impact on the Company and are not expected to in the foreseeable future. Commodity Price Risk We purchase certain products which are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions and other factors which are not considered predictable or within our control. Although many of the products purchased are subject to changes in commodity prices, certain purchasing contracts or pricing arrangements contain risk management techniques designed to minimize price volatility. Typically, we use these types of purchasing techniques to control costs as an alternative to directly managing financial instruments to hedge commodity prices. In many cases, we believe it will be able to address commodity cost increases, which are significant and appear to be long-term in nature by adjusting our menu pricing or changing our product delivery strategy. However, increases in commodity prices could result in lower restaurant-level operating margins. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS JONATHAN MITTMAN ET AL. V. RALLY'S HAMBURGERS, INC., ET AL. In January and February 1994, two putative class action lawsuits were filed, purportedly on behalf of the stockholders of Rally's, in the United States District Court for the Western District of Kentucky, Louisville division, against Rally's, Burt Sugarman and Giant Group, Ltd. and certain of Rally's former officers and directors and its auditors. The cases were subsequently consolidated under the case name Jonathan Mittman et. al. vs. Rally's Hamburgers, Inc., et. al. The complaints allege that the defendants violated the Securities Exchange Act of 1934, among other claims, by issuing inaccurate public statements about Rally's in order to arbitrarily inflate the price of its common stock. The plaintiffs seek unspecified damages. On April 15, 1994, Rally's filed a motion to dismiss and a motion to strike. On April 5, 1995, the Court struck certain provisions of the complaint but otherwise denied Rally's motion to dismiss. In addition, the Court denied plaintiffs' motion for class certification; the plaintiffs renewed this motion, and despite opposition by the defendants, the Court granted such motion for class certification on April 16, 1996, certifying a class from July 20, 1992 to September 29, 1993. Motions for Summary Judgment were filed by the parties in September 2000, and rulings by the Court are pending. The defendants deny all wrongdoing and intend to defend themselves vigorously in this matter. Management is unable to predict the outcome of this matter at the present time or whether or not certain available insurance coverages will apply. 12 FIRST ALBANY CORP. V. CHECKERS DRIVE-IN RESTAURANTS, INC. ET AL. This putative class action was filed on September 29, 1998, in the Delaware Chancery Court in and for New Castle County, Delaware by First Albany Corp., as custodian for the benefit of Nathan Suckman, an alleged stockholder of 500 shares of the Company's common stock. The complaint named the Company and certain of its current and former officers and directors as defendants, including William P. Foley, II, James J. Gillespie, Harvey Fattig, Joseph N. Stein, Richard A. Peabody, James T. Holder, Terry N. Christensen, Frederick E. Fisher, Clarence V. McKee, Burt Sugarman, C. Thomas Thompson and Peter C. O'Hara. The complaint also named Rally's and Giant as defendants. The complaint arose out of the proposed merger announced on September 28, 1998 between Checkers, Rally's and Giant and alleged generally, that certain of the defendants engaged in an unlawful scheme and plan to permit Rally's to acquire the public shares of Checkers stock in a "going-private" transaction for grossly inadequate consideration and in breach of the defendants' fiduciary duties. The plaintiff allegedly initiated the complaint on behalf of all stockholders of Checkers as of September 28, 1998, and sought, among other relief, certain declaratory and injunctive relief against the consummation of the proposed merger, or in the event the proposed merger was consummated, recission of the proposed merger and costs and disbursements incurred in connection with bringing the action. The plaintiff voluntarily dismissed the claim on February 23, 2001. DAVID J. STEINBERG AND CHAILE B. STEINBERG, INDIVIDUALLY AND ON BEHALF OF THOSE SIMILARLY SITUATED V. CHECKERS DRIVE-IN RESTAURANTS, INC., ET AL. This class action was filed on October 2, 1998, in the Delaware Chancery Court in and for New Castle County, Delaware by David J. Steinberg and Chaile B. Steinberg, alleged stockholders of an unspecified number of shares of our common stock. The complaint named Checkers and certain of its current and former officers and directors as defendants, including William P. Foley, II, James J. Gillespie, Harvey Fattig, Joseph N. Stein, Richard A. Peabody, James T. Holder, Terry N. Christensen, Frederick E. Fisher, Clarence V. McKee, Burt Sugarman, C. Thomas Thompson and Peter C. O'Hara. The complaint also named Rally's and Giant as defendants. As with the FIRST ALBANY complaint described above, this complaint arose out of the proposed merger announced on September 28, 1998 between Checkers, Rally's and Giant and alleged generally, that certain of the defendants engaged in an unlawful scheme and plan to permit Rally's to acquire the public shares of Checkers's common stock in a "going-private" transaction for grossly inadequate consideration and in breach of the defendant's fiduciary duties. The plaintiffs allegedly initiated the complaint on behalf of all stockholders of Checkers as of September 28, 1998, and sought, among other relief, certain declaratory and injunctive relief against the consummation of the proposed merger, or in the event the proposed merger was consummated, rescission of the proposed merger and costs and disbursements incurred in connection with bringing the action. The plaintiff voluntarily dismissed the claim on February 23, 2001. GREENFELDER ET AL. V. WHITE, JR., ET AL. On August 10, 1995, a state court complaint was filed in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida, Civil Division, entitled GAIL P. GREENFELDER AND POWERS BURGERS, INC. V. JAMES F. WHITE, JR., CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JARED D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK. A companion complaint was also filed in the same Court on May 21, 1997, entitled GAIL P. GREENFELDER, POWERS BURGERS OF AVON PARK, INC., AND POWER BURGERS OF SEBRING, INC. V. JAMES F. WHITE, JR., CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JARED D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK. The original complaint alleged, generally, that certain officers of Checkers intentionally inflicted severe emotional distress upon Ms. Greenfelder, who is the sole stockholder, president and director of Powers Burgers, Inc., a Checkers franchisee. The present versions of the amended complaints in the two actions assert a number of claims for relief, including claims for breach of contract, fraudulent inducement to contract, post-contract fraud and breaches of implied duties of "good faith and fair dealings" in connection with various franchise agreements and an area development agreement, battery, defamation, negligent retention of employees, and violation of Florida's Franchise Act. The parties reached a tentative settlement on January 11, 2001. In the event the settlement is not consummated, we intend to defend vigorously. CHECKERS DRIVE-IN RESTAURANTS, INC. V. TAMPA CHECKMATE FOOD SERVICES, INC., ET AL. On August 10, 1995, a state court counterclaim and third party complaint was filed in the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida, Civil Division, entitled TAMPA CHECKMATE FOOD SERVICES, INC., CHECKMATE FOOD SERVICES, INC. AND ROBERT H. GAGNE V. CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JAMES F. WHITE, JR., JARED D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK. In the original action filed by the Company in July 1995, against Mr. Gagne and Tampa Checkmate Food Services, Inc., (hereinafter "Tampa Checkmate") a company controlled by Mr. Gagne, Checkers sought to collect on a promissory note and foreclose on a mortgage securing the promissory note issued by Tampa Checkmate and Mr. Gagne and obtain declaratory relief regarding the rights of the respective parties under Tampa Checkmate's franchise agreement with Checkers. The counterclaim, as amended, alleged violations of Florida's Franchise Act, Florida's Deceptive and Unfair Trade Practices Act, and breaches of implied duties of "good faith and fair dealings" in connection with a settlement agreement and franchise agreement between various of the parties and sought a judgment for damages in an unspecified amount, punitive damages, attorneys' fees and such other relief as the court may deem appropriate. 13 The case was tried before a jury in August of 1999. The court entered a directed verdict and an involuntary dismissal as to all claims alleged against Robert G. Brown, George W. Cook, and Jared Brown. The court also entered a directed verdict and an involuntary dismissal as to certain other claims alleged against Checkers and the remaining individual counterclaim defendants, James E. Mattei, Herbert G. Brown and James F. White, Jr. The jury returned a verdict in favor of Checkers, James E. Mattei, Herbert G. Brown and James F. White, Jr. as to all counterclaims brought by Checkmate Food Services, Inc. and in favor of Mr. Mattei as to all claims alleged by Tampa Checkmate and Mr. Gagne. In response to certain jury interrogatories, however, the jury made the following determination: (i) that Mr. Gagne was fraudulently induced to execute a certain unconditional guaranty and that Checkers was therefore not entitled to enforce its terms; (ii) that Checkers, H. Brown and Mr. White fraudulently induced Tampa Checkmate to execute a certain franchise agreement whereby Tampa Checkmate was damaged in the amount of $151,331; (iii) that Checkers, H. Brown and Mr. White violated a provision of the Florida Franchise Act relating to that franchise agreement whereby Tampa Checkmate and Mr. Gagne were each damaged in the amount of $151,331; and (iv) that none of the defendants violated Florida's Deceptive and Unfair Trade Practices Act relating to that franchise agreement. We believe that the responses to the jury interrogatories described above are "advisory" because of certain pre-trial orders entered by the Court. As a result, we believe that the responses contained in the jury interrogatories are not binding on the trial court, and that it is incumbent on the trial court to weigh the evidence and enter its own verdict. The trial court nonetheless determined that the responses to the jury interrogatories described above are binding upon it and entered a final judgment accordingly. We believe that the entry of the judgment was erroneous and we have filed a notice of appeal to the Court of Appeals for the Second District of Florida. On or about July 15, 1997, Tampa Checkmate filed a Chapter 11 petition in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division, entitled IN RE: TAMPA CHECKMATE FOOD SERVICES, INC. In July 1997, Checkers filed an Adversary Complaint in the Tampa Checkmate bankruptcy proceedings entitled CHECKERS DRIVE-IN RESTAURANTS, INC. V. TAMPA CHECKMATE FOOD SERVICES, INC. The Adversary Complaint sought a preliminary and permanent injunction enjoining Tampa Checkmate's continued use of Checkers' marks and trade dress notwithstanding the termination of its franchise agreement on April 8, 1997. Tampa Checkmate filed a counterclaim to Checkers complaint that essentially contained the same claims set forth in the amended counterclaim filed in the state court action. The court granted Checkers' motion for preliminary injunction on July 23, 1998, and Tampa Checkmate de-identified its restaurant. On December 15, 1998, the Court granted Checkers motion to convert Tampa Checkmate's bankruptcy proceedings from a Chapter 11 proceeding to a Chapter 7 liquidation. The bankruptcy court has granted Checkers' motion to lift the automatic stay imposed by 11 U.S.C. ss.362 to allow Checkers to proceed with the disposition of the property which is the subject of its mortgage. The counterclaim in the bankruptcy proceedings remains pending, but we believe the merits of the counterclaim were already determined by state court proceedings described above. DOROTHY HAWKINS V. CHECKERS DRIVE-IN RESTAURANTS, INC. AND KPMG PEAT MARWICK. On March 4, 1999, a state court complaint was filed in the Circuit Court in and for Pinellas County, Florida, Civil Division. The complaint alleges that Mrs. Hawkins was induced into purchasing a restaurant site and entering into a franchise agreement with Checkers based on misrepresentations and omissions made by Checkers. The complaint asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing, violation of Florida's Deceptive Trade Practices Act, fraudulent concealment, fraudulent inducement, and negligent representation. The Company denies the material allegations of the complaint and intends to defend this lawsuit vigorously. We are also involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14 (a) Exhibits: 3.1 By-Laws Certificate of Incorporation and Articles of Incorporation of CheckerCo, Inc., a wholly-owned subsidiary of the Registrant, dated January 16, 2001. 23.1 Consent of KPMG LLP. (b) Reports on 8-K: The following reports on Form 8-K were filed during the quarter covered by this report: None 15 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: May 15, 2001 By: /s/ DANIEL J. DORSCH -------------------- President and Chief Executive Officer 16 MARCH 26, 2001 FORM 10-Q CHECKERS DRIVE-IN RESTAURANTS, INC. EXHIBIT INDEX EXHIBIT # EXHIBIT DESCRIPTION - --------- ------------------- 3.1 By-laws, Certificate of Incorporation and Articles of Incorporation of CheckerCo, Inc., a wholly-owned subsidiary of the Registrant, dated January 16, 2001. 23.1 Consent of KPMG LLP. EX-3.1 2 ex3-1_12106.txt EXHIBIT 3.1 BYLAWS OF CHECKERCO, INC. A FLORIDA CORPORATION ADOPTED JANUARY 17, 2001 INDEX Page No. ARTICLE I - OFFICES............................................................1 1. BUSINESS OFFICES....................................1 2. REGISTERED OFFICE...................................1 ARTICLE II - SHAREHOLDERS......................................................1 1. ANNUAL MEETING......................................1 2. SPECIAL MEETINGS....................................1 3. PLACE OF MEETING....................................1 4. NOTICE OF MEETING...................................1 5. NOTICE OF ADJOURNED MEETING.........................2 6. WAIVER OF NOTICE....................................2 7. RECORD DATE DETERMINATIONS..........................2 8. QUORUM..............................................2 9. VOTING..............................................3 10. PROXIES.............................................3 11. ACTION BY SHAREHOLDERS WITHOUT A MEETING............3 12. SHAREHOLDERS' LIST FOR MEETING......................4 ARTICLE III - DIRECTORS........................................................4 1. POWERS..............................................4 2. NUMBER, TENURE, ELECTION AND QUALIFICATIONS.........4 3. GENERAL STANDARDS FOR DIRECTORS.....................4 4. ELECTION OF DIRECTORS...............................5 5. REGULAR MEETINGS....................................5 6. SPECIAL MEETING.....................................5 7. NOTICE OF ADJOURNED MEETING.........................6 8. WAIVER OF NOTICE....................................6 9. QUORUM AND VOTING...................................6 10. PRESUMPTION OF ASSENT...............................6 11. ACTION WITHOUT A MEETING............................6 12. DIRECTOR CONFLICTS OF INTEREST......................7 13. COMPENSATION OF DIRECTORS...........................7 14. RESIGNATIONS........................................7 15. REMOVAL OF DIRECTORS................................8 16. VACANCIES...........................................8 -i- ARTICLE IV - COMMITTEES........................................................8 1. CREATION............................................8 2. OPERATION...........................................9 ARTICLE V - OFFICERS...........................................................9 1. OFFICERS............................................9 2. ELECTION AND TERM OF OFFICE.........................9 3. RESIGNATION AND REMOVAL.............................9 4. VACANCIES...........................................9 5. PRESIDENT...........................................9 6. VICE PRESIDENT.....................................10 7. SECRETARY..........................................10 8. TREASURER..........................................10 9. SALARIES...........................................10 ARTICLE VI - SHARES AND THEIR TRANSFER........................................10 1. CERTIFICATES FOR SHARES............................10 2. TRANSFER OF SHARES.................................11 3. LOST, DESTROYED OR STOLEN CERTIFICATED SECURITIES..11 ARTICLE VII - BOOKS, RECORDS AND REPORTS......................................12 1. BOOKS AND RECORDS..................................12 2. SHAREHOLDER'S INSPECTION RIGHTS....................12 3. ANNUAL REPORTS.....................................13 4. FINANCIAL STATEMENTS...............................13 5. OTHER REPORTS TO SHAREHOLDERS......................14 ARTICLE VIII - MISCELLANEOUS..................................................14 1. DISTRIBUTIONS TO SHAREHOLDERS......................14 2. CORPORATE SEAL.....................................14 3. EXECUTION OF INSTRUMENTS...........................14 4. INDEMNIFICATION....................................14 ARTICLE IX - AMENDMENTS.......................................................15 -ii- BYLAWS OF CHECKERCO, INC. A FLORIDA CORPORATION ADOPTED JANUARY 17, 2001 ARTICLE I - OFFICES 1. BUSINESS OFFICES. CHECKERCO, INC. (hereinafter referred to as the "Corporation"), may have such offices, either within or without the State of Florida, as the Board of Directors may designate from time to time. The Corporation shall designate an office as its "principal office" in accordance with Florida law. 2. REGISTERED OFFICE. The Corporation shall have and continuously maintain a registered office in the State of Florida, which may be changed from time to time by the Board of Directors or by an Officer of the Corporation so authorized by the Board of Directors. ARTICLE II - SHAREHOLDERS 1. ANNUAL MEETING. The Corporation shall hold an Annual Meeting of the Shareholders for the election of Directors and for the transaction of any proper business. The Annual Meeting of Shareholders shall be held at such time and on such date as the Corporation's Board of Directors shall determine from time to time but not later than thirteen (13) months after the last Annual Meeting of Shareholders. The failure to hold it at the designated time does not affect the validity of any corporate action and shall not work as a forfeiture of or dissolution of the Corporation. 2. SPECIAL MEETINGS. Special meetings of the Shareholders may be called by the President or the Board of Directors and shall be called if the holders of not less than Ten Percent (10%) of the votes entitled to be cast on any issue proposed to be considered at the proposed meeting sign, date and deliver a written demand or several such written demands for the special meeting describing the purpose or purposes for the meeting to the Corporation's Secretary. Only business within the purpose or purposes described in the special meeting notice may be conducted at such special meeting. 3. PLACE OF MEETING. The Board of Directors may designate any place either within or without the State of Florida as the place of meeting for any annual meeting or for any special meeting of the Shareholders. If no designation is made, then the place of the meeting shall be the principal office of the Corporation. 4. NOTICE OF MEETING. Written notice stating the place, date, and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by first class mail, by or at the direction of the President or the Secretary of the Corporation or the persons calling the meeting to each Shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed delivered upon deposit in the United States mail, with postage prepaid, addressed to the Shareholder at the address specified in the Corporation's stock transfer records. 5. NOTICE OF ADJOURNED MEETING. Notice of an adjourned meeting is necessary only if the new place, date and time are not announced at the meeting from which the adjournment is taken or a new record date is fixed for the reconvening of the meeting. At the adjourned meeting, any business may be transacted that might have been transacted on the original date of the meeting. 6. WAIVER OF NOTICE. A Shareholder may waive any notice required by statute, the Articles of Incorporation, or Bylaws before or after the date and time stated in the notice. The waiver must be in writing, be signed by the Shareholder entitled to the notice, and be delivered to the Corporation for inclusion in the minutes or filing with the corporate records. Neither the business to be transacted at nor the purpose of any regular or special meeting of the Shareholders need be specified in any written waiver of notice. A Shareholder's attendance at a meeting waives objection to (a) lack of notice or defective notice of the meeting, unless the Shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting or (b) consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the Shareholder objects to considering the matter when it is presented. 7. RECORD DATE DETERMINATIONS. The Board of Directors may fix the record date for one or more voting groups in order to determine the Shareholders entitled (a) to notice of or to vote at any meeting of Shareholders or any adjournment thereof, (b) to demand a special meeting, (c) to receive any distribution or (d) to take any other action. Such a record date must be a date after the date upon which the Board of Directors made the record date determination. The record date cannot be more than seventy (70) days before the meeting or action requiring a determination of Shareholders. A determination of Shareholders entitled to notice of or to vote at a Shareholders' meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting. 8. QUORUM. Unless otherwise required in the Articles of Incorporation, a majority of the outstanding shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of Shareholders. When a specified item of business is required to be voted on by a class, series of stock, or voting group, a majority of the shares of such class, series or voting group shall constitute a quorum for the transaction of such item of business by that class, series or voting group. This quorum requirement can be changed only by an amendment to the Corporation's Articles of Incorporation. After a quorum has been established, the subsequent withdrawal of -2- Shareholders, so as to reduce the shares represented at the meeting below the number required for the original quorum, does not affect the validity of any action taken at the meeting. 9. VOTING. Each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of Shareholders. If a quorum exists at a meeting of Shareholders, (a) action on a matter, other than the election of Directors, is approved if the votes cast by the holders of the shares represented at the meeting and entitled to vote on the subject matter favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes or voting by classes is required by law; and (b) action on a matter, other than the election of Directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by law. 10. PROXIES. A Shareholder, other person entitled to vote on behalf of a Shareholder pursuant to law, or a Shareholder's attorney-in-fact may vote the Shareholder's shares in person or by proxy. A Shareholder may appoint a proxy to vote or otherwise act for him by signing an appointment form, either personally or by his attorney-in-fact. An executed telegram or cablegram appearing to have been transmitted by such person, or a photographic, photostatic or equivalent reproduction of an appointment form, is a sufficient appointment form. An appointment of a proxy is effective when received by the corporate officer or agent authorized to tabulate votes. An appointment is valid for up to eleven (11) months unless a longer period is expressly provided in the appointment form. An appointment of a proxy is revocable by the Shareholder, except as otherwise provided by law. 11. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of Shareholders may be taken without a meeting, without prior notice, and without a vote, if the action is taken by the holders of shares of each voting group entitled to vote thereon having not less than the minimum number of votes with respect to each voting group that would be necessary to authorize or take such action at a duly constituted meeting. In order to be effective, the action must be evidenced by one or more written consents describing the action taken, dated and signed by approving Shareholders having the requisite number of votes of each voting group entitled to vote thereon, and delivered to the Corporation's principal office in Florida, its principal place of business or its officer or agent having custody of the book in which proceedings of meetings of Shareholders are recorded. No written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the date of the earliest dated consent delivered in the manner required by this section, written consent signed by the number of holders required to take action is delivered to the Corporation in the manner required by this section. Such a written consent has the effect of a meeting vote. Any written consent, once given, may be revoked prior to the date that the Corporation receives the required number of consents to authorize the proposed action. No revocation is effective unless in writing and until received by the Corporation at its principal office -3- in Florida or its principal place of business, or received by the corporate officer or agent having custody of the book in which proceedings of meetings of Shareholders are recorded. Notice of such action must be given to those Shareholders who have not consented in writing or who are not entitled to vote on the action within ten (10) days after obtaining such authorization by written consent. The notice shall fairly summarize the material features of the authorized action and, if the action be such for which dissenter's rights are provided by law, the notice shall contain a clear statement of the right of the Shareholders dissenting therefrom to be paid the fair value of their shares upon compliance with the provisions of Florida law regarding the rights of dissenting shareholders. 12. SHAREHOLDERS' LIST FOR MEETING. After fixing a record date for a meeting, the Corporation shall prepare an alphabetical list of the names of all its Shareholders who are entitled to notice of a Shareholders' meeting, arranged by voting group with the address of, and the number and class and series, if any, of shares held by each. The Shareholders' list must be available for inspection by any Shareholder for a period of ten (10) days prior to the meeting or such shorter time as exists between the record date and the meeting and continuing through the meeting at the Corporation's principal office, at a place identified in the meeting notice in the city where the meeting will be held, or at the office of the Corporation's transfer agent or registrar. A Shareholder or his agent or attorney is entitled on written demand to inspect the list, during regular business hours and at his expense, during the period it is available for inspection; provided that such demand is made in good faith and for a proper purpose, the purpose is described with reasonable particularity and the list is directly connected with the purpose. The Corporation shall make the Shareholders' list available at the meeting, and any Shareholder or his agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment. The Shareholders' list is prima facie evidence of the identity of Shareholders entitled to examine the Shareholders' list or to vote at a meeting of Shareholders. ARTICLE III - DIRECTORS 1. POWERS. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation managed under the direction of, its Board of Directors, subject to any limitation set forth by law or in the Corporation's Articles of Incorporation. 2. NUMBER, TENURE, ELECTION AND QUALIFICATIONS. The number of Directors shall be the number of Directors elected from time to time in accordance with these Bylaws. From time to time, the number of Directors may be increased or decreased by Shareholder action. Each Director shall hold office until the next annual meeting of Shareholders and until his successor shall have been duly elected and qualified, or until his earlier resignation, removal by Shareholders or death. Directors must be natural persons who are eighteen (18) years of age or older. Directors need not be residents of Florida or Shareholders of the Corporation. -4- 3. GENERAL STANDARDS FOR DIRECTORS. A Director shall discharge his duties as a Director, including his duties as a member of any committee of the Board of Directors upon which he may serve, (a) in good faith, (b) with such care as an ordinarily prudent person in a like position would use under similar circumstances, and (c) in a manner he reasonably believes to be in the best interests of the Corporation. In discharging his duties, a Director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by: (i) one or more officers or employees of the Corporation whom the Director reasonably believes to be reliable and competent in the matters presented; (ii) legal counsel, public accountants, or other persons as to matters that the Director reasonably believes are within the person's professional or expert competence; or (iii) a committee of the Board of Directors of which he is not a member if the Director reasonably believes the committee merits confidence. In discharging his duties, a Director may consider such factors as the Director deems relevant, including but not limited to the long-term prospects and interests of the Corporation and its Shareholders, and the social, economic, legal, or other effects of any action on the employees, suppliers, customers of the Corporation or its subsidiaries, the communities and society in which the Corporation or its subsidiaries operate, and the economy of the state and the nation. A Director is not acting in good faith if he has knowledge concerning the matter in question that makes reliance otherwise permitted by this section unwarranted. A Director is not liable for any action taken as a Director, or any failure to take any action, if he performed the duties of his office in compliance with this section. 4. ELECTION OF DIRECTORS. At the annual meeting of Shareholders, Directors shall be elected by a plurality of the votes cast by the shares represented at the meeting and entitled to vote for the election of Directors. If the election of Directors is not held on a day designated in these Bylaws for any annual meeting of Shareholders, or at any adjournment thereof, the Board of Directors may cause the election to be held at a special meeting of Shareholders specifically called for that purpose. 5. REGULAR MEETINGS. The annual meeting of the Board of Directors shall be held without notice immediately after, and at the same place as, the annual election of Directors. The Board of Directors may, from time to time, by resolution appoint the time and place, either within or without the State of Florida, for holding other regular meetings of the Board, if by it deemed advisable; and such regular meetings shall thereupon be held at the time and place so appointed, without the giving of any notice with regard thereto. In case the day appointed for a regular meeting shall fall upon a Saturday, Sunday or legal holiday in the State of Florida, such meeting shall be held on the next succeeding day not a Saturday, Sunday or legal holiday in the State of Florida, at the regularly appointed hour. -5- 6. SPECIAL MEETING. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, any two Directors or the President of the Corporation. Special meetings may be held within or without the State of Florida. Notice of a special meeting must be given at least two (2) days prior to the date of the meeting by written notice delivered personally, by mail, telegram, telecopy or nationally recognized overnight courier service (such as Federal Express, Airborne, UPS, Emory or Purolator) to each Director at his address. Such notice shall be effective upon the earliest of (a) receipt, (b) five days after its deposit in the United States mail, as evidenced by the postmark, if mailed postpaid and correctly addressed, or (c) the date shown on the return receipt or other evidence of delivery, if sent by registered or certified mail, return receipt requested, or overnight courier service, and the delivery receipt is signed by or on behalf of the addressee. Such written notice shall include the date, time and place of the meeting. The notice of a special meeting need not describe the purpose of the special meeting. 7. NOTICE OF ADJOURNED MEETING. Notice of any adjourned meeting shall be given to the Directors who were not present at the time of the adjournment and, unless the date, time and place of the adjourned meeting are announced at the time of the adjournment, to the other Directors also. 8. WAIVER OF NOTICE. A Director can waive the requirement of notice of a meeting of the Board of Directors by signing a waiver of notice either before or after the meeting. The attendance of a Director at a meeting constitutes a waiver of notice of such meeting and a waiver of any and all objections to the time or place of the meeting or the manner in which it has been called or convened, except when a Director states, at the beginning of the meeting or promptly upon arrival at the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened. 9. QUORUM AND VOTING. A majority of the number of Directors in office shall constitute a quorum for any meeting of the Board of Directors. The Board of Directors may permit any or all Directors to participate in a regular or special meeting by, or conduct the meeting through any use of, any means of communication by which all Directors participating may simultaneously hear each other during the meeting. A Director participating in a meeting by this means is deemed to be present in person at the meeting. If a quorum is present when a vote is taken, the affirmative vote of a majority of Directors present is the act of the Board of Directors, unless applicable law, the Articles of Incorporation of the Corporation or these Bylaws require the vote of a greater number of Directors. A majority of the Directors present at a meeting, whether or not a quorum exists, may adjourn the meeting to another time and place. 10. PRESUMPTION OF ASSENT. A Director who is present at a meeting of the Board of Directors or a committee thereof when corporate action is taken is deemed to have assented to the action taken unless (a) he objects at the beginning of the meeting or promptly upon arrival thereat -6- to the holding of the meeting or the transacting of specified business at the meeting or (b) he votes against or abstains from the action taken. 11. ACTION WITHOUT A MEETING. Any action required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting if the action is taken by all the Directors. The action must be evidenced by one or more written consents describing the action taken and signed by each Director. The action is effective when the last Director signs a consent, unless the consent specifies a different effective date. Such a consent has the effect of a meeting vote. 12. DIRECTOR CONFLICTS OF INTEREST. No contract or other transaction between the Corporation and one or more of its Directors or any other corporation, firm, association, or entity in which one or more of its Directors are directors or officers or are financially interested shall be either void or voidable because of such relationship or interest, because such Director or Directors are present at the meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction, or because his or their votes are counted for such purpose, if: (a) the fact of such relationship or interest is disclosed or known to the Board of Directors or committee which authorizes, approves, or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested Directors; (b) the fact of such relationship or interest is disclosed or known to the Shareholders entitled to vote and they authorize, approve, or ratify such contract or transaction by vote or written consent; or (c) the contract or transaction is fair and reasonable as to the Corporation at the time it is authorized by the Board of Directors, a committee, or the Shareholders. Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee thereof which authorizes, approves, or ratifies such contract or transaction. For the purposes of Shareholder action pursuant to this section, a conflict of interest transaction is authorized, approved, or ratified if it receives the vote of a majority of the shares entitled to be counted under this section. Shares owned by or voted under the control of a Director who has a relationship or interest in the transaction may not be counted in a vote of Shareholders to determine whether to authorize, approve, or ratify the transaction. A majority of the shares, whether or not present, that are entitled to be counted in the vote on the transaction constitutes a quorum for the purpose of taking action thereon. 13. COMPENSATION OF DIRECTORS. The Board of Directors may fix the compensation of Directors. Each Director may be paid a stated salary as such or a fixed sum for the attendance at meetings of the Board of Directors or any committee thereof, or both, and may be reimbursed for his expenses of attendance at each such meeting. The Board of Directors may also pay to each Director rendering services to the Corporation not ordinarily rendered by Directors, as such, special compensation appropriate to the value of such services, as determined by the Board of Directors from time to time. None of these payments shall preclude any Director from serving the -7- Corporation in any other capacity and receiving compensation therefor. The Board of Directors may determine the compensation of a Director who is also an Officer for service as an Officer as well as for service as a Director. 14. RESIGNATIONS. A Director may resign at any time by delivering written notice to the Board of Directors or its Chairman or to the Corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date, the Board of Directors may fill the pending vacancy before the effective date if the Board of Directors provides that the successor does not take office until the effective date. 15. REMOVAL OF DIRECTORS. The Shareholders may remove one or more Directors with or without cause. If a Director is elected by a voting group of Shareholders, only the Shareholders of that voting group may participate in the vote to remove him. A Director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. A Director may be removed by the Shareholders at a meeting of the Shareholders, provided the notice of the meeting states that the purpose, or one of the purposes, of the meeting is removal of the Director. 16. VACANCIES. Any vacancy occurring in the Board of Directors, including any vacancy resulting from an increase in the number of Directors, may be filled by the affirmative vote of a majority of the remaining Directors, though less than a quorum of the Board of Directors, or by the Shareholders, whichever acts first. Whenever the holders of shares of any voting group are entitled to elect a class of one or more Directors, vacancies in such class may be filled by the holders of shares of that voting group or by a majority of the Directors then in office elected by such voting group or by a sole remaining Director so elected. If no Director elected by such voting group remains in office, Directors not elected by such voting group may fill vacancies by the affirmative vote of a majority of the remaining Directors, though less than a quorum of the Board of Directors. A vacancy that will occur at a specific later date may be filled before the vacancy occurs but the new Director may not take office until the vacancy occurs. ARTICLE IV - COMMITTEES 1. CREATION. The Board of Directors may, by resolution adopted by a majority of the full Board of Directors, designate from among its members an Executive Committee and one or more other committees each of which, to the extent provided in such resolution, shall have and may exercise all the authority of the Board of Directors, except that no such committee shall have the authority to: (a) approve or recommend to Shareholders actions or proposals required by law to be approved by the Shareholders; (b) fill vacancies on the Board of Directors or any committee thereof; (c) adopt, amend or repeal the Bylaws; (d) authorize or approve the reacquisition of shares unless pursuant to a general formula or method specified by the Board of Directors; (e) authorize or -8- approve the issuance or sale or contract for the sale of shares, or determine the designation and relative rights, preferences, and limitations of a voting group except that the Board of Directors may authorize a committee to do so within the limits specifically prescribed by the Board of Directors. Each committee must have two or more members who serve at the pleasure of the Board of Directors. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate one or more Directors as alternate members of any such committee who may act in the place and stead of any absent member or members at any meeting of such committee. 2. OPERATION. The sections of these Bylaws that govern meetings, notice and waiver of notice, quorum and voting, and action without a meeting requirements of the Board of Directors apply to committees and their members as well. ARTICLE V - OFFICERS 1. OFFICERS. The Officers of the Corporation shall include a President, a Treasurer and a Secretary. Other Officers may be elected by the Board of Directors from time to time. A duly elected Officer may appoint one or more Officers or assistant officers, if authorized to do so by the Board of Directors. The same individual may simultaneously hold more than one office in the Corporation. 2. ELECTION AND TERM OF OFFICE. As far as practicable, the Officers of the Corporation shall be elected at the regular meeting of the Board of Directors following the annual election of Directors. If the election of Officers is not held at such meeting, the election shall be held as soon thereafter as conveniently may be. Each Officer shall hold office until the regular meeting of the Board of Directors following the annual election of Directors in the next subsequent year and until his successor shall have been duly elected and shall have qualified, or until his earlier resignation, removal from office or death. 3. RESIGNATION AND REMOVAL. An Officer may resign at any time by delivering notice to the Corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the effective date if the Board of Directors provides that the successor does not take office until the effective date. The Board of Directors may remove any Officer at any time with or without cause. Any Officer or assistant officer, if appointed by another Officer, may likewise be removed by such Officer. The appointment of an Officer does not itself create contract rights. An Officer's removal does not affect the Officer's contract rights, if any, with the Corporation. An Officer's resignation does not affect the Corporation's contract rights, if any, with the Officer. -9- 4. VACANCIES. A vacancy in any office because of resignation, removal, death or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. 5. PRESIDENT. The President shall be the chief executive officer of the Corporation, and, under the direction of the Board of Directors, shall have general responsibility for the management and direction of the business, properties and affairs of the Corporation. He shall have general executive powers, including all powers required by law to be exercised by a president of a corporation as such, as well as the specific powers conferred by these Bylaws or by the Board of Directors. 6. VICE PRESIDENT. In the absence of the President or in the event of his death, inability or refusal to act, the Vice President, if one has been appointed or elected (or in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their appointment or election, or in the absence of any designation, then in the order of their appointment or election), shall perform the duties of the President and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President. Each Vice President shall have general executive powers as well as the specific powers conferred by these Bylaws. He shall also have such further powers and duties as may from time to time be conferred upon, or assigned to, him by the Board of Directors or the President. 7. SECRETARY. The Secretary shall (a) prepare minutes of meetings of the Board of Directors and Shareholders; (b) authenticate records of the Corporation; (c) keep the minutes of the proceedings of the Board of Directors and the Shareholders in one or more books provided for that purpose; (d) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (e) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized; (f) be the registrar of the Corporation and keep a register of the post office addresses of all Shareholders that shall be furnished to the Secretary by the Shareholders; (g) have general charge of the stock transfer books of the Corporation; and (h) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors. 8. TREASURER. The Treasurer shall (a) have charge and custody of, and be responsible for, all funds and securities of the Corporation; (b) receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositaries as the Board of Directors may select; and (c) in general perform all of the duties as from time to time may be assigned to him by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. -10- 9. SALARIES. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Director of the Corporation. ARTICLE VI - SHARES AND THEIR TRANSFER 1. CERTIFICATES FOR SHARES. Shares may but need not be represented by certificates. Unless otherwise provided by law, the rights and obligations of Shareholders are identical whether or not their shares are represented by certificates. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors. Each certificate for shares shall be consecutively numbered or otherwise identified. Each share certificate must state on its face (a) the name of the Corporation and that the Corporation is organized under the laws of Florida; (b) the name of the person to whom issued; and (c) the number and class of shares and the designation of the series, if any, the certificate represents. Each share certificate (i) must be signed either manually or in facsimile by the Chairman of the Board of Directors, if any, the President or a Vice President and the Secretary, Treasurer or an assistant Secretary or Treasurer and (ii) may bear the corporate seal or its facsimile. If the Corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series must be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the Corporation will furnish the Shareholder a full statement of this information on request and without charge. Any certificate representing shares that are restricted as to the sale, disposition, or other transfer of such shares, shall also state that such shares are restricted as to transfer and shall set forth or fairly summarize on the front or back of the certificate, or shall state that the Corporation will furnish to any Shareholder on request and without charge, a full statement of such restrictions. 2. TRANSFER OF SHARES. If a certificated security in registered form is presented to the Corporation with a request to register transfer or an instruction is presented to the Corporation with a request to register transfer, pledge, or release, the Corporation shall register the transfer, pledge, or release as requested if: (a) the security is indorsed or the instruction was originated by the appropriate person or persons; (b) reasonable assurance is given that those indorsements or instructions are genuine and effective; (c) the Corporation has no duty as to adverse claims or has discharged the duty; (d) any applicable law relating to the collection of taxes has been complied with; and (e) the transfer, pledge, or release is in fact rightful or is to a bona fide purchaser. 3. LOST, DESTROYED OR STOLEN CERTIFICATED SECURITIES. If a certificated security has been lost, apparently destroyed, or wrongfully taken, and the owner fails to notify the Corporation of that fact within a reasonable time after he has notice of it and the Corporation registers a transfer of the -11- security before receiving notification, the owner is precluded from asserting against the Corporation any claim for registering the transfer or any claim to a new security. If the owner of a certificated security claims that the security has been lost, destroyed, or wrongfully taken, the Corporation shall issue a new certificated security or, at the option of the Corporation, an equivalent uncertificated security in place of the original security if the owner (a) so requests before the Corporation has notice that the security has been acquired by a bona fide purchaser; (b) files with the Corporation a sufficient indemnity bond; and (c) satisfies any other reasonable requirements imposed by the Corporation. ARTICLE VII - BOOKS, RECORDS AND REPORTS 1. BOOKS AND RECORDS. The Corporation shall keep as permanent records minutes of all meetings of its Shareholders and Board of Directors, a record of all actions taken by the Shareholders or Board of Directors without a meeting, and a record of all actions taken by a committee of the Board of Directors in place of the Board of Directors on behalf of the Corporation. The Corporation shall maintain accurate accounting records. The Corporation or its agent shall maintain a record of its Shareholders in a form that permits preparation of a list of the names and addresses of all Shareholders in alphabetical order by class of shares showing the number and series of shares held by each. The Corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time. The Corporation shall keep a copy of the following records: (a) its Articles or Restated Articles of Incorporation and all amendments to them currently in effect; (b) its Bylaws or Restated Bylaws and all amendments to them currently in effect; (c) resolutions adopted by its Board of Directors creating one or more classes or series of shares and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; (d) the minutes of all Shareholders' meetings and records of all action taken by Shareholders without a meeting for the past three (3) years; (e) written communications to all Shareholders generally or all Shareholders of a class or series within the past three (3) years, including the financial statements furnished for the past three (3) years; (f) a list of the names and business street addresses of its current Directors and Officers; and (g) its most recent annual report delivered to the Florida Department of State. 2. SHAREHOLDER'S INSPECTION RIGHTS. If a Shareholder gives the Corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy, he is entitled to inspect and copy, during regular business hours at the Corporation's principal office, any of the following records: (a) the Corporation's Articles or Restated Articles of Incorporation and all amendments to them currently in effect; (b) the Corporation's Bylaws or Restated Bylaws and all amendments to them currently in effect; (c) resolutions adopted by the Board of Directors creating one or more classes or series of shares and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; (d) the minutes of all Shareholders' meetings and records of all action taken by Shareholders without a -12- meeting for the past three (3) years; (e) written communications to all Shareholders generally or all Shareholders of a class or series within the past three (3) years, including the financial statements furnished for the past three (3) years; (f) a list of the names and business addresses of the Corporation's current Directors and Officers; and (g) the Corporation's most recent annual report delivered to the Florida Department of State. If (a) a Shareholder makes a demand for inspection in good faith and for a proper purpose, (b) he describes with reasonable particularity his purpose and the records he desires to inspect, (c) the records are directly connected with his purpose, and (d) he gives the Corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy, he is entitled to inspect and copy, during regular business hours at a reasonable location specified by the Corporation, any of the following records of the Corporation: (i) excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the Corporation, minutes of any meeting of the Shareholders, and records of action taken by the Shareholders or Board of Directors without a meeting, to the extent not otherwise subject to inspection pursuant to this section; (ii) accounting records of the Corporation; (iii) the record of Shareholders; and (iv) any other books and records. If a Shareholder gives the Corporation written notice of his demand at least fifteen (15) business days before the date on which he wishes to inspect and copy, he is entitled to inspect and copy, during regular business hours at a reasonable location in Florida specified by the Corporation, (a) the Corporation's Bylaws or Restated Bylaws and all amendments to them currently in effect and (b) a list of the names and business street addresses of the Corporation's current Directors and Officers. 3. ANNUAL REPORTS. On or after January 1 and on or before May 1 of each year, the Corporation shall deliver to the Florida Department of State for filing a sworn annual report, on such forms as the Department of State may prescribe and containing such information as is prescribed by law. Similar reports shall be filed as required by law in those jurisdictions other than the State of Florida where the Corporation may be authorized to transact business. 4. FINANCIAL STATEMENTS. Unless modified by resolution of the Shareholders within 120 days of the close of each fiscal year, the Corporation shall furnish its Shareholders annual financial statements, which may be consolidated or combined statements of the Corporation and one or more of its subsidiaries, as appropriate, that include a balance sheet as of the end of the fiscal year, an income statement for that year, and a statement of cash flows for that year. If financial statements are prepared for the Corporation on the basis of generally accepted accounting principles, the annual financial statements must also be prepared on that basis. If the annual financial statements are reported upon by a public accountant, his report must accompany them. If not, the statements must be accompanied by a statement of the President or the person responsible for the Corporation's accounting records (a) stating his -13- reasonable belief whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and (b) describing any respects in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year. The Corporation shall mail the annual financial statements to each Shareholder within 120 days after the close of each fiscal year or within such additional time thereafter as is reasonably necessary to enable the Corporation to prepare its financial statements if, for reasons beyond the Corporation's control, it is unable to prepare its financial statements within the prescribed period. Thereafter, on written request from a Shareholder who was not mailed the statements, the Corporation shall mail him the latest annual financial statements. 5. OTHER REPORTS TO SHAREHOLDERS. If the Corporation indemnifies or advances expenses of defense to any Director, Officer, employee, or agent otherwise than by court order or action by the Shareholders or by an insurance carrier pursuant to insurance maintained by the Corporation, the Corporation shall report the indemnification or advance in writing to the Shareholders with or before the notice of the next Shareholders' meeting, or prior to such meeting if the indemnification or advance occurs after the giving of such notice but prior to the time such meeting is held, which report shall include a statement specifying the persons paid, the amounts paid, and the nature and status at the time of such payment of the litigation or threatened litigation. If the Corporation issues or authorizes the issuance of shares for promises to render services in the future, the Corporation shall report in writing to the Shareholders the number of shares authorized or issued, and the consideration received by the Corporation, with or before the notice of the next Shareholders' meeting. ARTICLE VIII - MISCELLANEOUS 1. DISTRIBUTIONS TO SHAREHOLDERS. The Board of Directors may authorize and the Corporation may make distributions to its Shareholders subject to restriction by the Articles of Incorporation and the limitations provided by law. Dividends may be paid in cash, in property, or in shares of stock, subject to the provisions of the Articles of Incorporation and applicable law. 2. CORPORATE SEAL. The Board of Directors may provide for a corporate seal, which may be altered at will and used itself or by a facsimile thereof, by impressing or affixing it or in any other manner reproducing it. 3. EXECUTION OF INSTRUMENTS. All bills, notes, checks, other instruments for the payment of money, agreements, indentures, mortgages, deeds, conveyances, transfers, certificates, declarations, receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, proxies, and other instruments or documents may be signed, executed, acknowledged, verified, delivered, or accepted on behalf of the Corporation by such -14- Officers, employees, or agents of the Corporation as the Board of Directors may from time to time direct. 4. INDEMNIFICATION. The Corporation shall indemnify any person who is or was a Director, Officer, employee, or agent of the Corporation or was serving at the request of the Corporation as a Director, Officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, to the full extent permitted by law. The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, Officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a Director, Officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this section. ARTICLE IX - AMENDMENTS The Corporation's Board of Directors may amend or repeal the Corporation's Bylaws unless: (a) the Articles of Incorporation or law reserves the power to amend the Bylaws generally or a particular Bylaw provision exclusively to the Shareholders; or (b) the Shareholders, in amending or repealing the Bylaws generally or a particular Bylaw provision, provide expressly that the Board of Directors may not amend or repeal the Bylaws or that Bylaw provision. The Corporation's Shareholders may amend or repeal the Corporation's Bylaws even though the Bylaws may also be amended or repealed by its Board of Directors. -15- [SEAL OF THE STATE OF FLORIDA] STATE OF FLORIDA DEPARTMENT OF STATE I certify from the records of this office that CHECKERCO, INC. is a corporation organized under the laws of the State of Florida, filed on January 17, 2001, effective January 16, 2001. The document number of this corporation is P01000006533. I further certify that said corporation has paid all fees due this office through December 31, 2001, and its status is active. I further certify that said corporation has not filed Articles of Dissolution. I further certify that this is an electronically transmitted certificate authorized by section 15.16, Florida Statutes, and authenticated by the code, 001A00002819-011801-P01000006533-1/1, noted below. Given under my hand and the Great Seal of the State of Florida, at Tallahassee, the Capital, this the Eighteenth day of January, 2001 Authentication Code: 001A00002819-011801-P01000006533-1/1 [SEAL OF THE STATE OF FLORIDA] /s/ KATHERINE HARRIS KATHERINE HARRIS SECRETARY OF STATE [SEAL OF THE STATE OF FLORIDA] FLORIDA DEPARTMENT OF STATE Katherine Harris Secretary of State January 18, 2001 CHECKERCO, INC. P.O. BOX 18800 CLEARWATER, FL 33762-1800 The Articles of Incorporation for CHECKERCO, INC. were filed on January 17, 2001, effective January 16, 2001, and assigned document number P01000006533. Please refer to this number whenever corresponding with this office. Enclosed is the certification requested. To be official, the certification for a certified copy must be attached to the original document that was electronically submitted and filed under FAX audit number H01000007547. A corporation annual report/uniform business report will be due this office between January 1 and May 1 of the year following the calendar year of the file date year. A Federal Employer Identification (FEI) number will be required before this report can be filed. Please apply NOW with the Internal Revenue Service by calling 1-800-829-3676 and requesting form SS-4. Please be aware if the corporat address changes, it is the responsibility of the corporation to notify this office. Should you have questions regarding corporations, please contact this office at the address given below. Neysa Culligan Document Specialist New Filings Section Division of Corporations Letter Number: 001A00002819 Division of Coporations - P.O. Box 6327 - Tallahassee, Florida 32314 ARTICLES OF INCORPORATION CHECKERCO, INC. The undersigned, acting as incorporator of a Florida corporation under the Florida Business Corporation Act, Chapter 607 of the Florida Statutes (the "Act"), hereby adopts the following Articles of Incorporation for such Corporation: ARTICLE I NAME The name of the Corporation is CheckerCo, Inc. (the "Corporation"). ARTICLE II EFFECTIVE DATE The effective date of these Articles of Incorporation shall be January 16, 2001. ARTICLE III PRINCIPAL PLACE OF BUSINESS AND MAILING ADDRESS The principal place of business of the Corporation is 142255 49th Street North, Clearwater, Florida 33761 and the mailing address of the Corporation is P.O. Box 18800, Clearwater, Florida 33762-1800. ARTICLE IV PURPOSE The Corporation is organized for the purpose of transacting any and all lawful business for which corporations mayh be incorporated under the laws of Florida. ARTICLE V CAPITAL STOCK The Corporation is authorized to issue One Thousand (1,000) shares of common stock, $.001 par value per share. ARTICLE VI INITIAL REGISTERED AGENT AND OFFICE The name of the initial registered agent of the Corporation and the street address of the initial registered office of the Corporation are as follows: CORPORATION SERVICE COMPANY 1201 Hays Street Tallahassee, Florida 32301 ARTICLE VII INITIAL BOARD OF DIRECTORS The Corporation shall have initially three directors to hold office until the first annual meeting of shareholders and until their successors shall have been elected and qualified, or until their earlier resignation, removal from office or death. The number of directors may be either increased or decreased from time to time in accordance with the Bylaws of the Corporation. The name and address of the initla directors of the Corporation are: Keith Sirois Brian Doster Wendy A. Beck 142255 49th Street North 142255 49th Street North 142255 49th Street North Clearwater, Florida 33761 Clearwater, Florida 33761 Clearwater, Florida 33761 ARTICLE VIII INCORPORATOR The name and address of the person signing these Articles as Incorporator are: Kevin H. Graham Shumaker, Loop & Kendrick, LLP 101 East Kennedy Blvd., Suite 2800 Tampa, Florida 33602 ARTICLE IX DIRECTOR LIABILITY AND INDEMNIFICATION No director of the Corporation shall be personally liable to the Corporation or any other person for monetary damages for any statement, vote decision or failure to act regarding corporate management or policy by such director as director, except for liability under the Act and other applicable law. If the Act is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Act as so amended. The Corporation shall, to the full extent permitted by Florida law, indemnify any person who is or was a director of officer of the Corporation or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. The Corporation may, to the full extent permitted by Florida Law, indemnify any person who is or was an employee or agent of the Corporation or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise. IN WITNESS WHEREOF, the undersigned has executed these Articles of Incorporation this 17th day of January, 2001. /s/ KEVIN H. GRAHAM --------------------------------------- Kevin H. Graham, Incorporator CERTIFICATE OF DESIGNATION REGISTERED AGENT/REGISTERED OFFICE Pursuant to the provisions of Section 607.0501, Florida Statutes, the undersigned corporation, organized under the laws of the State of Florida, submits the following statement in designating the registered office/registered agent, in the State of Florida. 1. The name of the corporation is CheckerCo, Inc. 2. The name and address of the registered agent and office are: CORPORATION SERVICE COMPANY 1201 Hays Street Tallahassee, Florida 32301 HAVING BEEN NAMED AS REGISTERED AGENT AND TO ACCEPT SERVICE OF PROCESS FOR THE ABOVE STATED COROPRATION AT THE PLACE DESIGNATED IN THIS CERTIFICATE, I HEREBY ACCEPT THE APPOINTMENT AS REGISTERED AGENT AND AGREE TO ACT IN THIS CAPACITY. I FURTHER AGREE TO COMPLY WITH THE PROVISIONS OF ALL STATUTES RELATING TO THE PROPER AND COMPLETE PERFORMANCE OF MY DUTIES, AND I AM FAMILIAR WITH AND ACCEPT THE OBLIGATION OF MY POSITION AS REGISTERED AGENT. CORPORATION SERVICE COMPANY REGISTERED AGENT SIGNATURE By: /s/ BRIAN COURTNEY ---------------------------- Name: BRIAN COURTNEY, ASST. V.P. -------------------------- DATE: January 17, 2001 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF CHECKERCO, INC. Pursuant to Section 607.1006 of the Florida Statutes, CHECKERCO, INC., a corporation organized and existing under and by virtue of the laws of the State of Florida (the "Corporation"), does hereby certify: NAME. The name of the Corporation is CHECKERCO, INC. AMENDMENTS ADOPTED. The amendment adopted provides for a correction of the Principal Place of Business and Mailing Address of the Corporation and the addresses for the Initial Board of Directors. TEXT OF AMENDMENTS. Article III is hereby amended by deleting such Article III and substituting the following new Article III which reads as follows: "ARTICLE III PRINCIPAL PLACE OF BUSINESS AND MAILING ADDRESS The principal place of business of the Corporation is 14255 49th Street North, Bldg. 1, Clearwater, Florida 33762 and the mailing address of the Corporation is P.O. Box 18800, Clearwater, Florida 33761-1800." Article VII is hereby amended by deleting such Article VII and substituting the following new Article VII which reads as follows: "ARTICLE VII INITIAL BOARD OF DIRECTORS The Corporation shall have initially three directors to hold office until the first annual meeting of shareholders and until their successors shall have been elected and qualified, or until their earlier resignation, removal from office or death. The number of directors may be either increased or decreased from time to time in accordance with the Bylaws of the Corporation. The name and address of the initial directors of the Corporation are: Keith Sirois Brian Doster Wendy A. Beck 14255 49th Street North, Bldg. 1 14255 49th Street North, Bldg. 1 14255 49th Street North, Bldg. 1 Clearwater, Florida 33761 Clearwater, Florida 33761 Clearwater, Florida 33761
ADOPTION OF AMENDMENTS. The foregoing amendment was approved by unanimous written consent of the Board of Directors and all of the shareholders of the Corporation pursuant to Sections 607.0704 and 607.0821, Florida Statutes, on May 9th, 2001. EFFECTIVE DATE. The effective date of the amendments herein certified shall be the date of filing these Articles of Amendment to Articles of Incorporation with the Florida Secretary of State. IN WITNESS WHEREOF, the undersigned TREASURER of the Corporation has executed these Articles of Amendment to Articles of Incorporation as of the 9th day of May, 2001. By: /s/ WENDY A. BECK ------------------------------------ Name: WENDY A. BECK ---------------------------------- Its: TREASURER ---------------------------------- WRITTEN CONSENT TO ACTION OF THE SHAREHOLDERS AND THE BOARD OF DIRECTORS CHECKERCO, INC. MAY 9, 2001 The undersigned, being the sole Shareholder and all of the Directors of CHECKERCO, INC. (the "Corporation"), pursuant to Sections 607.0821 and 607.0704 of the Florida Statutes, do hereby consent to and approve the following written consent to action, which shall be treated for all purposes as resolutions passed at a meeting of the Shareholders and Board of Directors of the Corporation. NOW, THEREFORE, BE IT RESOLVED, that the Corporation's Articles of Incorporation shall be amended as shown on EXHIBIT A attached hereto and incorporated by reference herein. FURTHER RESOLVED, that the appropriate officers of the Corporation are authorized and directed to execute and deliver the Amendment to Articles of Incorporation on behalf of the Corporation and to take such other action as may be necessary or desirable to carry out the purpose and intent of these resolutions. IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals as of the date set forth above. SHAREHOLDER: DIRECTORS: CHECKERS DRIVE-IN RESTAURANTS, INC. By: /s/ WENDY A. BECK /s/ KEITH SIROIS ----------------------------- ------------------------------ Name: WENDY A. BECK Keith Sirois -------------------------- Title: CFO/VP/TREASURER -------------------------- /s/ BRIAN DOSTER ------------------------------ Brian Doster /s/ WENDY BECK ------------------------------ Wendy Beck EX-23.1 3 ex23-1_12106.txt EXHIBIT 23.1 ACCOUNTANTS' CONSENT The Board of Directors and Stockholders Checkers Drive-In Restaurants, Inc.: We consent to incorporation by reference in the registration statement (No. 333-42160) on Form S-8 of Checkers Drive-In Restaurants, Inc. of our report dated March 9, 2001, relating to the consolidated balance sheets of Checkers Drive-In Restaurants, Inc. and subsidiaries as of January 1, 2001 and January 3, 2000, and the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended January 1, 2001, which report appears in the January 1, 2001, annual report on Form 10-K of Checkers Drive-In Restaurants, Inc. /s/ KPMG LLP Tampa, Florida May 15, 2001 -----END PRIVACY-ENHANCED MESSAGE-----