AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 28, 1999
BY AND BETWEEN
CHECKERS DRIVE-IN RESTAURANTS, INC.,
A DELAWARE CORPORATION,
AND
RALLY'S HAMBURGERS, INC.,
A DELAWARE CORPORATION.
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
January 28, 1999, is by and between Checkers Drive-In Restaurants, Inc., a
Delaware corporation ("Checkers"), and Rally's Hamburgers, Inc., a Delaware
corporation ("Rally's").
RECITALS
WHEREAS, the respective Boards of Directors of Checkers and Rally's
have determined that a business combination between Checkers and Rally's is in
the best interests of their respective companies and stockholders and have
adopted resolutions approving this Agreement and the transactions contemplated
hereby and declaring their advisability;
WHEREAS, Checkers and Rally's desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated hereby;
WHEREAS, for federal income tax purposes, it is intended that the
business combination shall qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, concurrently with the execution hereof, Rally's, on the one
hand, and CKE Restaurants, Inc. ("CKE"), Santa ▇▇▇▇▇▇▇ Restaurant Group, Inc.
("SBR"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇ and GIANT GROUP, LTD. ("GIANT") (collectively, the
"Consenting Rally's Stockholders"), on the other hand, are entering into a
Voting Agreement substantially in the form of Exhibit A hereto (the "Rally's
Voting Agreement") in which each Consenting Rally's Stockholder grants an
irrevocable proxy with respect to the approval and adoption of this Agreement,
and all other matters contemplated hereby or in furtherance hereof, for all
shares of the voting stock of Rally's which each is entitled (i) to vote at a
meeting of Rally's stockholders to consider the Merger (the "Rally's Meeting")
or (ii) to express consent or dissent thereon in writing without a meeting;
WHEREAS, Rally's is willing in this Agreement to grant to Checkers its
irrevocable proxy with respect to the approval and adoption of this Agreement,
an amendment to Checkers' Certificate of Incorporation to effect a one-for-12
reverse stock split and all other matters contemplated hereby or in furtherance
hereof for all outstanding shares of the voting stock of Checkers of which
Rally's is the record or beneficial owner as of the date hereof and any shares
of the voting stock of Checkers of which Rally's becomes the record or
beneficial owner after the date hereof and prior to the record date for the
meeting of Checkers' stockholders to consider the Merger (the "Checkers
Meeting");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
subject to the terms and conditions set forth herein, Checkers and Rally's
hereby agree as follows:
ARTICLE 1
THE MERGER; CLOSING; EFFECTIVE TIME
1.1 THE MERGER.
(a) Subject to the terms and conditions contained in this Agreement, at
the Effective Time (as defined in Section 1.3), Rally's shall be merged with and
into Checkers (the "Merger"), and the separate corporate existence of Rally's
shall thereupon cease, in accordance with the applicable provisions of the
Delaware General Corporation Law (the "DGCL"). Following the Merger, Checkers
shall continue as the surviving corporation (sometimes hereinafter referred to
as the "Surviving Corporation"). As used in this Agreement, the term
"Subsidiary" shall mean, with respect to Checkers or Rally's, any corporation or
other legal entity of which such party controls or owns, directly or indirectly,
more than 50% of the stock or other equity interest entitled to vote on the
election of members to the board of directors or similar governing body.
(b) At the Effective Time, the corporate existence of Checkers, with
all its rights, privileges, powers and franchises, shall continue unaffected and
unimpaired by the Merger. The Merger shall have the effects specified in Section
259 of the DGCL.
1.2 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Christensen,
Miller, Fink, Jacobs, ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, 2121 Avenue of the Stars,
▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 9:00 a.m., local time, as soon as
practicable, but in no event later than the third business day immediately
following the date on which the last of the conditions specified in Article 7 is
satisfied or waived in accordance herewith, or at such other date, time and
place as Checkers and Rally's may agree in writing. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
1.3 EFFECTIVE TIME. Subject to the terms and conditions of this
Agreement, at or as promptly as practicable after the Closing, the parties
hereto shall cause a certificate of merger with respect to the Merger in
appropriate form (the "Certificate of Merger"), executed in accordance with the
relevant provisions of the DGCL, to be filed with the Secretary of State of the
State of Delaware as provided in the DGCL. Upon the effectiveness of such
filing, or at such other time as may be specified in such filings, the Merger
shall become effective in accordance with the DGCL. The time and date at which
the Merger becomes effective is herein referred to as the "Effective Time."
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ARTICLE 2
GOVERNING DOCUMENTS, DIRECTORS AND OFFICERS
OF SURVIVING ENTITIES
2.1 CERTIFICATE OF INCORPORATION. At the Effective Time and without any
further action on the part of Checkers or Rally's, the certificate of
incorporation of Checkers shall be the certificate of incorporation of Checkers
until thereafter amended as provided therein and under applicable law.
2.2 BY-LAWS. At the Effective Time and without any further action on
the part of Checkers or Rally's, the by-laws of Checkers shall be the by-laws of
Checkers until thereafter amended or repealed in accordance with their terms and
as provided in the certificate of incorporation of Checkers and under applicable
law.
2.3 DIRECTORS AND OFFICERS. The directors of Checkers and Rally's at
the Effective Time shall, from and after the Effective Time, be the directors of
Checkers, and the officers of Checkers at the Effective Time shall, from and
after the Effective Time, remain the officers of Checkers, until, in each case,
their respective successors shall have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the certificate of incorporation and by-laws of Checkers.
ARTICLE 3
CONVERSION OF SHARES
3.1 CONVERSION OF SHARES.
(a) At the Effective Time, each share of Rally's Common Stock, $.10 par
value per share (the "Rally's Common Stock"), issued and outstanding immediately
prior to the Effective Time (other than Rally's Common Stock held by Checkers,
by Rally's in its treasury or by any wholly owned Subsidiary of Checkers or
Rally's (collectively, the "Excluded Shares")), shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into and
represent, without interest, but subject to Section 3.3, 1.99 shares of Checkers
Common Stock, $.001 par value per share (the "Checkers Common Stock"), (the
"Merger Consideration").
(b) At the Effective Time, all of Rally's Common Stock issued and
outstanding immediately prior to the Effective Time (other than the Excluded
Shares), by virtue of the Merger and without any action on the part of the
holders thereof, shall no longer be outstanding and shall be canceled and
retired and shall cease to exist, and each registered holder of any such Rally's
Common Stock shall thereafter cease to have any rights with respect to such
Rally's Common Stock, except that each holder (other than holders of Excluded
Shares) will have the right to receive, upon the surrender of the certificate or
certificates, if any, representing such Rally's Common Stock in accordance with
Section 3.2, without interest, the Merger Consideration for such Rally's Common
Stock.
(c) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, each Excluded Share shall no longer
be outstanding, shall be canceled and retired without payment of any
consideration therefor, and each registered holder thereof shall thereafter
cease to have any rights with respect to such Rally's Common Stock.
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(d) At the Effective Time, each share of Checkers Common Stock issued
and outstanding immediately prior to the Effective Time shall remain issued and
outstanding and shall not be affected by the Merger, except that each share of
Checkers Common Stock held by Rally's shall, by virtue of the Merger and without
any action on the part of Rally's or Checkers, no longer be outstanding and
shall be canceled and retired, and shall become authorized but unissued shares
of Checkers Common Stock.
3.2 SURRENDER AND PAYMENT.
(a) Prior to the Effective Time, Checkers shall appoint an agent (the
"Exchange Agent") for the purpose of exchanging certificates representing
Rally's Common Stock for the Merger Consideration. At the Effective Time,
Checkers will deposit with the Exchange Agent, for the benefit of holders of
shares of Rally's Common Stock, certificates representing shares of Checkers
Common Stock constituting the aggregate Merger Consideration to be paid in
respect of the Rally's Common Stock. Promptly after the Effective Time, Checkers
shall send, or shall cause the Exchange Agent to send, to each holder of record
of a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Rally's Common Stock a form of letter of
transmittal for use in such exchange (which form shall specify that the delivery
shall be effected, and risk of loss and title shall pass, only upon proper
delivery of the certificates, if any, representing Rally's Common Stock to the
Exchange Agent), advising such holder of the terms of the exchange effected by
the Merger and the procedure for surrendering to the Exchange Agent such
certificate for the Merger Consideration.
(b) Each holder of Rally's Common Stock that has been converted into
the Merger Consideration, upon surrender to the Exchange Agent of the
certificate or certificates, if any, representing such Rally's Common Stock,
together with a properly completed letter of transmittal covering such Rally's
Common Stock and such other documents as may be reasonably required by Checkers
or the Exchange Agent, will be entitled to receive the Merger Consideration
payable in respect of such Rally's Common Stock, and the certificate so
surrendered shall be canceled. Until so surrendered, each such certificate
shall, after the Effective Time, represent for all purposes only the right to
receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a
person other than the registered holder of the Rally's Common Stock represented
by the certificate or certificates, if any, surrendered in exchange therefor, it
shall be a condition to such payment that the certificate or certificates, if
any, so surrendered shall be properly endorsed or otherwise be in proper form
for transfer and that the person requesting such payment shall pay to the
Exchange Agent any transfer or other taxes required as a result of such payment
to a person other than the registered holder of such Rally's Common Stock or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
(d) After the Effective Time, there shall be no further registration of
transfers of Rally's Common Stock. If after the Effective Time certificates
representing Rally's Common Stock are presented to either the Surviving
Corporation or, subject to the provisions of Section 3.2(e), the
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Exchange Agent, they shall be canceled and exchanged for the Merger
Consideration in accordance with the procedures set forth in this Article 3.
(e) Any portion of the Merger Consideration deposited with the Exchange
Agent pursuant to Section 3.2(a), and any portion of the proceeds from the sale
of fractional shares issuable in connection with the Merger, that remains
unclaimed by the holders of Rally's Common Stock entitled thereto 12 months
after the Effective Time shall be returned by the Exchange Agent to Checkers or
an Affiliate (as defined below) designated by Checkers, and any such holder who
has not exchanged his Rally's Common Stock for the Merger Consideration in
accordance with this Article 3 prior to that time shall thereafter look only to
Checkers for such holder's claim for the Merger Consideration, and the holder's
pro rata share of the aggregate cash received by Checkers upon the sale of
fractional shares otherwise issuable in connection with the Merger and any
dividends or distributions with respect to Checkers Common Stock paid after the
Effective Time. Notwithstanding the foregoing, Checkers shall not be liable to
any holder of Rally's Common Stock for any amount paid to a public authority
pursuant to applicable abandoned property laws. For purposes of this Agreement,
an "Affiliate" of a specified person is a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the person specified.
(f) No dividends or other distributions with respect to Checkers Common
Stock constituting part of the Merger Consideration shall be paid to the holder
of any unsurrendered certificates representing Rally's Common Stock until such
certificates are surrendered as provided in this Section 3.2. Upon such
surrender, there shall be paid (to the extent due and not yet paid), without
interest, to the person in whose name the certificates representing Checkers
Common Stock into which such Rally's Common Stock were converted are registered,
any dividends and other distributions in respect of Checkers Common Stock that
are payable on a date subsequent to, and the record date for which occurs after,
the Effective Time.
3.3 FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of Checkers Common Stock shall be issued in the Merger, but in lieu
thereof each holder of Rally's Common Stock otherwise entitled to a fractional
share shall be entitled to receive, from the Exchange Agent in accordance with
the provisions of this Section 3.3, a pro rata portion of the net cash proceeds
received by the Exchange Agent upon the sale of fractional shares issuable in
connection with the Merger. As soon as practicable after the determination of
the amount of cash, if any, to be paid to holders of Rally's Common Stock in
lieu of any fractional share, the Exchange Agent shall promptly pay all such
amounts without interest to all holders of Rally's Common Stock entitled
thereto.
3.4 NO FURTHER RIGHTS. At and after the Effective Time, each holder of
a certificate or certificates that represented issued and outstanding Rally's
Common Stock (other than Excluded Shares) immediately prior to the Effective
Time shall cease to have any rights as a stockholder of Rally's, except for the
right to receive the Merger Consideration upon surrender of the holder's
certificate or certificates; provided that the rights of holders of options or
warrants to
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acquire Rally's Common Stock shall be governed by Section 6.11 and Section 3.6
of this Agreement, respectively.
3.5 CERTAIN ADJUSTMENTS. The exchange ratio set forth in Section 3.1(a)
shall be appropriately adjusted in the event of any changes in the shares of
Checkers Common Stock or Rally's Common Stock by reason of any stock dividend,
reclassification, recapitalization, stock split, combination or exchange of
shares, or any similar event occurring prior to the Effective Time (each, an
"Adjustment Event"), to provide to the holders of Rally's Common Stock the same
economic effect and percentage ownership of Checkers Common Stock as
contemplated by this Agreement prior to such Adjustment Event.
3.6 WARRANTS. Outstanding warrants to purchase Rally's Common Stock
will, by reason of the Merger, be converted into warrants to purchase the Merger
Consideration upon payment of the applicable warrant exercise price, and in all
other respects such warrants will not be affected by the Merger.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CHECKERS
Checkers represents and warrants to Rally's as follows:
4.1 ORGANIZATION AND STANDING.
(a) Checkers is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and is duly
qualified to do business, and in good standing, in each jurisdiction in which
the character of the properties owned or leased by it or the conduct of its
business requires it to be so qualified, except where the failure to be so
qualified or to be in good standing would not have a Material Adverse Effect on
Checkers. For purposes of this Agreement, the term "Material Adverse Effect"
means, with respect to any person, an effect that is, or would reasonably be
expected to be, materially adverse to the business, assets, liabilities,
financial condition or results of operations of such person and its Subsidiaries
taken as a whole or to the ability of such party to perform its obligations
hereunder; provided, however, that fluctuations in the market price of Rally's
Common Stock or Checkers Common Stock shall not be deemed to have a Material
Adverse Effect on Rally's or Checkers, as the case may be.
(b) Checkers has furnished to Rally's complete and correct copies of
the organizational documents (each an "Organizational Document") of Checkers and
each of its Subsidiaries, as amended through the date hereof. Such
Organizational Documents are in full force and effect and no other
Organizational Documents are applicable to or binding upon Checkers or any
Subsidiary of Checkers.
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4.2 AUTHORIZATION, VALIDITY AND EFFECT.
(a) Checkers has the requisite corporate power and authority to execute
and deliver this Agreement, a joint purchasing agreement (as contemplated by
Section 7.1(g)) and all other agreements and documents contemplated hereby or
thereby to be executed and delivered by it, and, subject to approval by Checkers
stockholders, to consummate the transactions contemplated hereby and thereby.
Subject to approval and adoption by Checkers' stockholders of this Agreement,
the execution and delivery of this Agreement, the joint purchasing agreement and
such other agreements and documents, and the consummation of the transactions
contemplated herein and therein, have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of Checkers. This
Agreement has been duly and validly executed and delivered by and represents the
legal, valid and binding obligation of Checkers, enforceable against it in
accordance with its terms, except as the enforcement hereof may be limited by
bankruptcy, insolvency or other laws affecting the enforcement of creditor's
rights generally.
(b) The Board of Directors of Checkers has: (i) approved and adopted,
and declared advisable, this Agreement; (ii) recommended to its stockholders
that they approve and adopt this Agreement; and (iii) duly approved the
transactions contemplated by this Agreement for purposes of Article 9 of
Checkers' Certificate of Incorporation and Section 203 of the DGCL such that the
restrictions on "business combinations" set forth in Article 9 of Checkers'
Certificate of Incorporation and Section 203 of the DGCL will not apply to such
transactions.
4.3 CAPITALIZATION.
(a) The authorized capital stock of Checkers consists of: (i)
150,000,000 shares of Checkers Common Stock, of which, as of the date hereof,
73,408,047 shares are issued and outstanding, and 578,904 shares are held in
Checkers' treasury; and (ii) 2,000,000 shares of Preferred Stock, $.001 per
value per share, none of which is outstanding as of the date hereof. As of the
date hereof, Checkers had outstanding options and warrants representing the
right to acquire from Checkers not more than 33,695,815 shares of Checkers
Common Stock. Each such option or warrant, the holder thereof, the grant date,
exercise price, the vesting date and other material terms thereof and the
instrument or plan pursuant to which such option or warrant was issued are
described in SECTION 4.3(B) OF THE DISCLOSURE MEMORANDUM delivered to Rally's
three business days prior to the execution hereof (the "Checkers Disclosure
Memorandum").
(b) Except as set forth in Section 4.3(a), there are no shares of
capital stock or other equity securities of Checkers outstanding, and except as
set forth in SECTION 4.3(B) OF THE CHECKERS DISCLOSURE MEMORANDUM, no
outstanding options, warrants or rights to subscribe for, securities or rights
convertible into or exchangeable for, or contracts, commitments or arrangements
by which Checkers is or may be required to issue or sell additional shares of
Checkers Common Stock or any other equity interest in Checkers (collectively,
the "Checkers Equity Rights").
(c) Except as described in SECTION 4.3(C) OF THE CHECKERS DISCLOSURE
MEMORANDUM, since September 7, 1998, Checkers has not (i) issued any shares of
Checkers Common Stock or
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Checkers Equity Rights, other than pursuant to the exercise of options and
warrants that were issued and outstanding on September 7, 1998, (ii) purchased,
redeemed or otherwise acquired, directly or indirectly through one or more
Subsidiaries, any of Checkers Common Stock or (iii) declared, set aside, made or
paid to the stockholders of Checkers dividends or other distributions on the
outstanding shares of Checkers Common Stock.
4.4 CHECKERS SUBSIDIARIES.
(a) SECTION 4.4(A) OF THE CHECKERS DISCLOSURE MEMORANDUM lists all
Subsidiaries of Checkers. All of the outstanding shares of capital stock of each
Subsidiary of Checkers are duly and validly issued, fully paid and
non-assessable and are owned by Checkers either directly or indirectly through
another wholly owned Subsidiary of Checkers free and clear of all claims, liens,
charges, encumbrances, defaults or equities of whatever character ("Liens"). No
equity securities of any Subsidiary of Checkers may be required to be issued
(other than to Checkers) by reason of any (i) option, warrant or right to
subscribe therefor, (ii) convertible security or securities or rights
exchangeable therefor or (iii) contracts, commitments, understandings or
arrangements. There are no contracts, commitments, understandings or
arrangements by which Checkers or any Subsidiary of Checkers is or may be
obligated to sell, vote or otherwise transfer any shares of the capital stock of
any Subsidiary.
(b) Each Subsidiary of Checkers is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated
or organized, has the corporate power and authority necessary for it to own or
lease its properties and assets and to carry on its business as it is now being
conducted, and is duly qualified to do business and in good standing in the
jurisdictions in which the ownership of its property or the conduct of its
business requires it to be so qualified, except for such jurisdictions in which
the failure to be so qualified and in good standing would not have a Material
Adverse Effect on Checkers.
(c) Other than as set forth in SECTION 4.4(C) OF THE CHECKERS
DISCLOSURE MEMORANDUM and except for interests in Subsidiaries, neither Checkers
nor any Subsidiary thereof owns, directly or indirectly, any interest or
investment (whether equity or debt) in any corporation, limited liability
company, partnership, joint venture, business trust or other legal entity.
4.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) None of the execution and delivery by Checkers of this Agreement or
any other agreement contemplated herein, nor the consummation by Checkers of the
transactions contemplated herein or therein, nor compliance by Checkers with any
of the provisions hereof or thereof, will: (i) conflict with or result in a
breach of any provision of the Organizational Documents of Checkers or any
Subsidiary thereof; (ii) constitute or result in the breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any Lien upon, any property or assets of Checkers or any
Subsidiary thereof pursuant to any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which any of them is a
party
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or by which any of them or their respective properties or assets may be subject,
and that would, in any such event, have a Material Adverse Effect on Checkers;
or (iii) subject to receipt of the requisite approvals referred to in Section
4.5(b), violate any order, writ, injunction, decree, statute, rule or regulation
of any governmental, quasi-governmental, judicial, quasi-judicial or regulatory
authority with jurisdiction, domestic or foreign (each, a "Governmental
Authority") applicable to Checkers, any Subsidiary thereof, or any of their
respective properties or assets where such violation would have a Material
Adverse Effect on Checkers.
(b) Other than (i) in connection or compliance with the provisions of
applicable state and federal securities laws and the rules and regulations of
the Securities and Exchange Commission (the "Commission") thereunder, (ii)
notices and completion of the applicable waiting periods under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (iii) filings with the Secretary of State of the State of Delaware
required to effect the Merger, (iv) in connection or compliance with the
applicable requirements of the Code and state, local and foreign tax laws, (v)
as set forth in SECTION 4.5(B) OF THE CHECKERS DISCLOSURE MEMORANDUM and (vi)
where the failure to give such notice, make such filing or receive such order,
authorization, exemption, consent or approval would not have a Material Adverse
Effect on Checkers, no notice to, filing with, authorization of, exemption by or
consent or approval of any Governmental Authority is necessary for the
consummation by Checkers of the transactions contemplated in this Agreement or
the joint purchasing agreement.
4.6 CHECKERS REPORTS; FINANCIAL STATEMENTS.
(a) Checkers has filed all forms, reports and documents required to be
filed by it with the Commission since January 3, 1995 (collectively, the
"Checkers Reports") pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder. As of their respective dates as subsequently amended
prior to the date of this Agreement, the Checkers Reports (i) complied as to
form in all material respects with the applicable requirements of the Exchange
Act and the rules and regulations promulgated thereunder and (ii) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
(b) Each of the audited consolidated financial statements and unaudited
consolidated interim financial statements of Checkers (including any related
notes and schedules) included (or incorporated by reference) in its Annual
Report on Form 10-K for the fiscal year ended December 29, 1997, as amended (the
"Checkers Form 10-K"), and its Quarterly Report on Form 10-Q for the period
ended September 7, 1998 (the "Checkers Form 10-Q"), copies of which have been
provided to Rally's (collectively, the "Checkers Financial Statements"), have
been prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis (except as disclosed therein)
and fairly present, in all material respects, the consolidated financial
position and the consolidated results of operations, changes in stockholders'
equity and cash flows of Checkers and its consolidated Subsidiaries as of the
dates and for the periods indicated (subject to normal year-end adjustments in
the case of the interim unaudited financial statements).
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(c) As of the date of this Agreement, except as set forth in Checkers
Reports or SECTION 4.6(C) OF THE CHECKERS DISCLOSURE MEMORANDUM: (i) no event
has occurred since December 29, 1997 (y) which if such event had occurred prior
to December 29, 1997 would have been required to be disclosed in Checkers Form
10-K or (z) which could have a Material Adverse Effect on Checkers; (ii)
Checkers has not engaged in any transaction with any of its affiliates; and
(iii) neither Checkers nor any Subsidiary of Checkers has any material
outstanding claims against it, liabilities or indebtedness, contingent or
otherwise, nor does there exist any condition, fact or circumstances which
Checkers reasonably anticipates will create such claim or liability, other than
claims or liabilities incurred subsequent to December 29, 1997 in the ordinary
course of business, consistent with past practices, and which individually and
in the aggregate do not have and are not reasonably anticipated to have a
Material Adverse Effect on Checkers.
(d) Since December 29, 1997 and except as disclosed in SECTION 4.6(D)
OF THE CHECKERS DISCLOSURE MEMORANDUM or Checkers Reports, Checkers and its
Subsidiaries have conducted their respective businesses only in the ordinary
course and consistent with past practices.
(e) Since December 29, 1997, except as disclosed in SECTION 4.6(E) OF
THE CHECKERS DISCLOSURE MEMORANDUM and Checkers Reports, there has been no event
or condition that has caused or is reasonably anticipated to cause a Material
Adverse Effect on Checkers.
4.7 TAX AND ACCOUNTING MATTERS.
(a) For purposes of this Section 4.7: (i) the term "Taxes" shall
include all federal, state, county, local or foreign taxes, charges, levies,
imposts or other assessments of any nature whatsoever, including corporate
income tax, corporate franchise tax, payroll tax, sales tax, use tax, property
tax, excise tax, withholding tax, and environmental tax, together with any
interest thereon and any penalties or additions to tax relating thereto imposed
by any governmental taxing authority for which Checkers or any other member of
the Checkers Group (as defined below in this Section 4.7(a)) may be directly or
contingently liable in its own right, as collection agent for taxes imposed on
another person, as a result of any guaranty or election, or as a transferee of
the assets of, or as successor to, any person, or pursuant to any applicable
law; (ii) the term the "Checkers Group" shall mean, individually and
collectively, Checkers, any Subsidiary of Checkers, and any individual, trust,
corporation, partnership, limited liability company or other entity as to which
Checkers may be liable for Taxes for which Checkers or such individual or entity
may be directly or contingently liable in its own right, as a result of any
guaranty or election, or as a transferee of the assets of, or as successor to,
any person, or pursuant to any applicable law; and (iii) the term "Returns"
shall mean all returns, reports, estimates, declarations of estimated tax,
information statements and other filings relating to, or required to be filed in
connection with, any Taxes, including, without limitation, information returns
or reports with respect to backup or employee withholding and other payments to
third parties.
(b) Except as indicated in SECTION 4.7(B) OF THE CHECKERS DISCLOSURE
MEMORANDUM: (i) all Returns required to be filed by or on behalf of any member
of the Checkers Group have been duly filed on a timely basis and all such
Returns are true, correct and complete in all material
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respects; (ii) all Taxes that have been shown as due and payable on the Returns
that have been filed by or on behalf of each member of the Checkers Group have
been timely paid, and no other Taxes are payable by any member of the Checkers
Group with respect to items or periods covered by such Returns (whether or not
shown on or reportable on such Returns); (iii) the amounts set forth as
provisions for current and deferred taxes and/or accrued liabilities in the
Checkers Financial Statements are sufficient for the payment of all unpaid Taxes
accrued for or applicable to all periods ended on the respective dates of the
Checkers Financial Statements and all years and periods prior thereto, and each
of the amounts set forth on the Checkers Financial Statements in respect of
current Taxes and deferred Taxes has been correctly determined in accordance
with GAAP; (iv) no member of the Checkers Group is delinquent in the payment of
any Taxes or has requested any extension of time within which to file any
Return, which Return has not since been filed, accompanied by payment of all
Taxes shown as due and payable thereon; (v) there is no dispute or claim
concerning any Tax liability of any member of the Checkers Group either (A)
claimed or raised by any governmental taxing authority in writing or (B) as to
which any director or officer of any member of the Checkers Group (or employees
responsible for Taxes of any such member of the Checkers Group) has knowledge
based upon personal contact with any agent of such authority, other than those
Taxes, identified in SECTION 4.7(B) OF THE CHECKERS DISCLOSURE MEMORANDUM, being
contested in good faith by appropriate proceedings; (vi) no member of the
Checkers Group has waived any statute of limitations in respect of Taxes or
granted any extension of the limitations period applicable to any claim for
Taxes; (vii) Checkers is not liable for the Taxes of any person, including,
without limitation, as a result of the application of United States Treasury
Regulation Section 1.1502-6, any analogous provision of state, local or foreign
law (including, without limitation, principles of unitary taxation), or as a
result of any contractual arrangement, whether with any third party or with any
taxing authority; (viii) Checkers is not nor has it ever been a party to any tax
sharing agreement with any corporation or limited liability company which is not
currently a member of the Checkers Group; (ix) no claim has ever been made by
any governmental taxing authority in any jurisdiction where any member of the
Checkers Group does not file Returns that it is or may be subject to taxation by
such jurisdiction; (x) there are no Liens on any of the assets of any member of
the Checkers Group that arose in connection with any failure (or alleged
failure) to pay any Taxes; (xi) each member of the Checkers Group has withheld
and paid over all Taxes required to have been withheld and paid over and
complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party; (xii) no director or officer of any member of
the Checkers Group (or employees responsible for Taxes of such member) expects
any governmental taxing authority to assess any additional Taxes for any period
for which Returns have been filed; (xiii) SECTION 4.7(B) OF THE CHECKERS
DISCLOSURE MEMORANDUM lists all Returns (relating to any type of Tax and to any
taxable period) filed with respect to Checkers that have been audited and
indicates those Returns that currently are the subject of audit; (xiv) Checkers
has delivered or made available to Rally's correct and complete copies of all
federal, state, local and foreign income and franchise Tax Returns filed with
respect to Checkers for all taxable periods for which the applicable statute of
limitations for the assessment of any Tax has not yet expired, and has provided
representatives of Rally's access to all Returns (relating to any type of Tax
and to any taxable period) filed with respect to Checkers; (xv) Checkers has
delivered to Rally's all examination reports and statements of deficiency
assessed
11
against or agreed to by each member of the Checkers Group since January 1, 1995;
(xvi) Checkers is not and has never been a "United States real property holding
corporation" within the meaning of Section 897(c) of the Code; (xvii) no member
of the Checkers Group is a "consenting corporation" under Section 341(f) of the
Code; (xviii) no member of the Checkers Group has entered into any compensatory
agreement with respect to the performance of services as to which payment or
vesting thereunder (including payment or vesting as a result of the transactions
contemplated hereunder) would result in a nondeductible expense to the Checkers
Group pursuant to Section 280G of the Code or an excise tax to the recipient of
such payment pursuant to Section 4999 of the Code; (xix) Checkers has not
agreed, nor is it required, to make any adjustment under Section 481(a) of the
Code by reason of a change in accounting method or otherwise that would require
the recognition of income pursuant to such adjustment in any post-closing
period; (xx) SECTION 4.7(B) OF THE CHECKERS DISCLOSURE MEMORANDUM sets forth a
list of each joint venture, limited liability company, partnership or other
arrangement or contract which is treated as a partnership for federal income tax
purposes in which Checkers holds a direct or indirect ownership interest as of
the date hereof or during any taxable period as to which the statute of
limitations on the assessment of income or franchise tax has not yet expired;
and (xxi) any past due property taxes for which Checkers or any Subsidiary of
Checkers is liable do not exceed $100,000.
4.8 PROPERTIES. Except as disclosed or reserved against in the Checkers
Financial Statements and except for circumstances that would not have a Material
Adverse Effect on Checkers, Checkers and each Subsidiary thereof has good title
to all of the material properties and assets, tangible or intangible, reflected
in Checkers Financial Statements as being owned by Checkers and its Subsidiaries
as of the dates thereof, free and clear of all Liens, except such imperfections
or irregularities of title as do not affect the use thereof in any material
respect and statutory liens securing payments not yet delinquent. All leased
buildings and all leased fixtures, equipment and other property and assets that
are material to the business of Checkers on a consolidated basis are held under
leases or subleases that are valid instruments enforceable in accordance with
their respective terms. All leases to which Checkers or any Subsidiary thereof
is a party were entered into in the ordinary course of business. None of such
leases is with an Affiliate or contains any material terms or conditions which
make any such lease unreasonably onerous or commercially unreasonable.
4.9 COMPLIANCE WITH LAWS. Except as disclosed in the Checkers Reports
and except for environmental matters, which shall be covered by Section 4.16 and
which shall not be covered by this Section 4.9, Checkers and each Subsidiary
thereof: (i) is in compliance with all laws, regulations, reporting and
licensing requirements and orders applicable to its business or employees
conducting its business, the breach or violation of which would have a Material
Adverse Effect on Checkers; and (ii) has received no notification or
communication from any Governmental Authority (y) asserting that it or any of
its Subsidiaries is not in compliance with any of the statutes, regulations or
ordinances that such Governmental Authority enforces, which noncompliance would
have a Material Adverse Effect on Checkers or (z) threatening to revoke any
license, franchise, permit or authorization of any Governmental Authority, which
revocation would have a Material Adverse Effect on Checkers.
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4.10 EMPLOYEE BENEFIT PLANS.
(a) Except as listed in SECTION 4.10 OF THE CHECKERS DISCLOSURE
MEMORANDUM, none of Checkers, any of the Subsidiaries of Checkers or any of
their respective ERISA Affiliates (as defined below) maintains, is a party to,
participates in or has any liability or contingent liability with respect to:
(i) any "employee welfare benefit plan" or "employee pension
benefit plan" (as those terms are defined in Sections 3(l) and 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
respectively); or
(ii) any retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation pay,
severance pay, bonus or benefit arrangement, insurance or hospitalization
program or any other fringe benefit arrangements for any current or former
employee, director, consultant or agent, whether pursuant to contract,
arrangement, custom or informal understanding, which does not constitute an
employee benefit plan (as defined in Section 3(3) of ERISA).
For purposes of this Agreement, the term "ERISA Affiliate" means, with
respect to any person, any corporation, trade or business which, together with
such person, is a member of a controlled group of corporations or a group of
trades or businesses under common control within the meaning of sections 414(b),
(c), (m) or (o) of the Code.
(b) A true and correct copy of each of the plans, arrangements and
agreements listed in SECTION 4.10 OF THE CHECKERS DISCLOSURE MEMORANDUM
(referred to collectively as "Checkers Employee Benefit Plans"), and all
contracts relating thereto, or to the funding thereof, including, without
limitation, all trust agreements, insurance contracts, administration contracts,
investment management agreements, subscription and participation agreements, and
record keeping agreements, each as in effect on the date hereof, has been
supplied or made available to Rally's. In the case of any Checkers Employee
Benefit Plan which is not in written form, Rally's has been supplied with an
accurate description of such Checkers Employee Benefit Plan as in effect on the
date hereof. A true and correct copy of the most recent annual report, actuarial
report, accountant's opinion relating to the plan's financial statements,
summary plan description and Internal Revenue Service determination letter with
respect to each Checkers Employee Benefit Plan, to the extent applicable, and a
current schedule of assets (and the fair market value thereof assuming
liquidation of any asset which is not readily tradable) held with respect to any
funded Checkers Employee Benefit Plan has been supplied or made available to
Rally's, and there have been no material changes in the financial condition of
the respective plans from that stated in the annual reports and actuarial
reports supplied.
(c) As to all Checkers Employee Benefit Plans:
(i) Such Plans comply and have been administered in form and in
operation in all material respects with all applicable requirements of law, and
no event has occurred which will or could cause any such Checkers Employee
Benefit Plan to fail to comply with such requirements
13
and no notice has been issued by any governmental authority questioning or
challenging such compliance.
(ii) Such Plans which are employee pension benefit plans comply
in form and in operation with all applicable requirements of Sections 401(a) and
501(a) of the Code; there have been no amendments to such Plans which are not
the subject of a favorable determination letter issued with respect thereto by
the Internal Revenue Service; and no event has occurred which will or could give
rise to disqualification of any such Plan under such sections or to a tax under
Section 511 of the Code.
(iii) None of the assets of any such Plan (other than Checkers
401(k) plan and employee stock purchase plan) are invested in employer
securities or employer real property.
(iv) There have been no "prohibited transactions" (as described
in Section 406 of ERISA or Section 4975 of the Code) with respect to any such
Plan and none of Checkers, any of its Subsidiaries or any of their respective
ERISA Affiliates has engaged in any prohibited transaction.
(v) There have been no acts or omissions by Checkers, any of its
Subsidiaries or any of their respective ERISA Affiliates which have given rise
to or may give rise to fines, penalties, taxes or related charges under section
502 of ERISA or Chapters 43, 47 or 68 of the Code for which Checkers or any of
its Subsidiaries may be liable.
(vi) None of the payments contemplated by such Plans would, in
the aggregate, constitute excess parachute payments (as defined in section 280G
of the Code) and neither the execution of this Agreement nor the consummation of
the transactions contemplated by this Agreement would accelerate the payment,
vesting or funding of benefits under any of such Plans.
(vii) There are no actions, suits or claims (other than routine
claims for benefits) pending or, to the actual knowledge of Checkers' President
and Chief Executive Officer or Chief Financial Officer ("Checkers' Knowledge"),
threatened involving any such Plan or the assets thereof and no facts exist
which could give rise to any such actions, suits or claims (other than routine
claims for benefits).
(viii) No such Plan is subject to Title IV of ERISA and no such
Plan is a multi-employer plan (within the meaning of Section 3(37)) of ERISA.
(ix) None of Checkers or any of its Subsidiaries has any
liability or contingent liability for providing, under any such Plan or
otherwise, any post-retirement medical or life insurance benefits, other than
statutory liability for providing group health plan continuation coverage under
Part 6 of Title I of ERISA and Section 4980B of the Code.
(x) Accruals for all obligations under such Plans are reflected
in the financial statements of Checkers in accordance with GAAP.
(xi) To Checkers' Knowledge, there has been no act or omission
that would impair the ability of Checkers or any of its Subsidiaries (or any
successor thereto) to unilaterally amend or terminate any Employee Benefit Plan.
14
4.11 MATERIAL CONTRACTS.
(a) Set forth in SECTION 4.11 OF THE CHECKERS DISCLOSURE MEMORANDUM is
a list, as of the date hereof, of the following agreements:
(i) each agreement pursuant to which Checkers or any of its
Subsidiaries is entitled to receive amounts in excess of $100,000 (or the fair
market equivalent thereof in goods or services) on an annual or annualized
basis; each agreement pursuant to which Checkers or any of its Subsidiaries is
obligated to pay an amount in excess of $100,000 (or the fair market equivalent
thereof in goods or services) on an annual or annualized basis; and each
agreement, the term of which exceeds two years and which may not be canceled by
Checkers or any of its Subsidiaries without penalty on one year or less notice,
and pursuant to which Checkers or any of its Subsidiaries is entitled to receive
(in cash, services or property) or will be obligated to pay, during the
unexpired term thereof, an amount in excess of $100,000 (or the fair market
equivalent thereof in goods or services);
(ii) each franchise, partnership, limited liability company,
joint venture or trust agreement to which Checkers or any of its Subsidiaries is
a party;
(iii) each agreement limiting the right of Checkers or any of its
Subsidiaries to engage in or compete with any person in any business or
geographical area;
(iv) each agreement or other arrangement of or involving Checkers
or any of its Subsidiaries with respect to indebtedness for money borrowed,
including letters of credit, guaranties, indentures, swaps and similar
agreements;
(v) each management, consulting, employment, severance or similar
agreement requiring the payment of compensation in excess of $ 100,000 annually,
to which Checkers or any of its Subsidiaries is a party and which may not be
terminated by Checkers or such Subsidiary without penalty on 90 days (or less)
notice;
(vi) each lease or other agreement with respect to real property
leased by Checkers or any of its Subsidiaries and which: requires Checkers or
any of its Subsidiaries to pay an amount or amounts in excess of $100,000 on
annual or annualized basis; or has an unexpired term which exceeds two years and
may not be canceled by Checkers or any of its Subsidiaries without penalty on
one year or less notice and which requires Checkers or any of its Subsidiaries
to pay, during the unexpired term, an amount in excess of $100,000;
(vii) each collective bargaining agreement to which Checkers or
any of its Subsidiaries is a party;
15
(viii) each agreement with any Affiliate of Checkers (other than
employment agreements and agreements between Checkers and any Subsidiary
thereof) to which Checkers or any of its Subsidiaries is a party which involves
total payments or liabilities to or from Checkers or any of its Subsidiaries in
excess of $60,000;
(ix) each guaranty or indemnification (other than for money
borrowed) or other similar agreement to which Checkers or any of its
Subsidiaries is a party; and
(x) each stockholder agreement, voting trust agreement, share
purchase agreement, registration rights agreement or other similar agreement to
which Checkers is a party or other agreement granting rights to one or more of
the stockholders of Checkers, restricting the voting or transferability of
Checkers Common Stock or otherwise pertaining to Checkers Common Stock or any
interest (economic or voting) therein.
(b) Except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Checkers, each contract identified
in SECTION 4.11 OF THE CHECKERS DISCLOSURE MEMORANDUM (the "Checkers Contracts")
is in full force and effect and is a legal, valid and binding contract or
agreement of Checkers, and there is no default or breach or, to Checkers'
Knowledge, any event that, with the giving of notice or lapse of time or both,
would result in a material default or breach) by Checkers, any of its
Subsidiaries or, to Checkers' Knowledge, any other party in the timely
performance of any obligation to be performed or paid thereunder or any other
material provision thereof. To Checkers' Knowledge, none of its franchisees or
suppliers will terminate or reduce any of their agreements with Checkers, which
termination or reduction would have a Material Adverse Effect on Checkers.
(c) Except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Checkers, none of Checkers
Contracts will terminate, become terminable by the other party thereto, or have
the terms thereof become amended or amendable by the other party thereto without
the consent of Checkers, as a result of the execution and delivery of this
Agreement, the joint purchasing agreement or any of the other agreements or
documents contemplated hereby or thereby or the consummation of the transactions
contemplated hereby or thereby.
4.12 LEGAL PROCEEDINGS. Except as set forth in SECTION 4.12 OF THE
CHECKERS DISCLOSURE MEMORANDUM, there are no actions, suits or proceedings
instituted or pending or, to Checkers' Knowledge, threatened, against Checkers
or any of its Subsidiaries or against any property, asset, interest or right of
any of them, that involve more than $100,000 in controversy, whether or not
covered by insurance, or that seek relief other than money damages from Checkers
or any of its subsidiaries, or that would have, either individually or in the
aggregate, a Material Adverse Effect on Checkers if adversely decided. Neither
Checkers nor any of its Subsidiaries is subject to any judgment, order, writ,
injunction or decree that would have a Material Adverse Effect on Checkers.
16
4.13 CERTAIN INFORMATION.
(a) When the Registration Statement (as defined in Section 6.4) to be
filed with the Commission by Checkers pursuant to Section 6.4 or any
post-effective amendment thereto shall become effective, and at all times
subsequent thereto up to and including the Effective Time, such Registration
Statement and all amendments or supplements thereto, with respect to all
information set forth therein furnished by Checkers relating to Checkers or its
Subsidiaries, shall comply as to form in all material respects with the
provisions of all applicable securities laws. Any written information supplied
or to be supplied by Checkers specifically for inclusion in the Joint Proxy
Statement/Prospectus, at the time it is sent to Checkers stockholders, or the
Registration Statement at the time it is filed with the Commission and when it
is declared effective by the Commission, will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were made
not misleading.
(b) If at any time prior to the Effective Time, any event occurs of
which Checkers has knowledge and which is required to be described in the
Registration Statement or any supplement or amendment thereto, Checkers will
file and disseminate, as required, a supplement or amendment which complies as
to form in all material respects with the provisions of all applicable
securities laws. Prior to its filing with the Commission, the Registration
Statement and each amendment or supplement thereto shall be delivered to Rally's
and its counsel.
(c) All documents that Checkers is responsible for filing with the
Commission or any other Governmental Authority in connection with the
transactions contemplated hereby shall comply as to form in all material
respects with the provisions of applicable law and the applicable rules and
regulations thereunder.
4.14 NO BROKERS. Checkers has not entered into a contract, arrangement
or understanding with any person or firm that may result in the obligation of
Checkers or any of its Subsidiaries to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement, or the consummation of the transactions contemplated
hereby or thereby, except that Checkers has retained Credit Suisse First Boston
Corporation as its financial advisor.
4.15 OPINION OF FINANCIAL ADVISOR. The Independent Committee of the
Board of Directors of Checkers has received the opinion (the "Checkers Opinion")
of Credit Suisse First Boston Corporation (the "Checkers Financial Advisor") to
the effect that, as of the date hereof and based upon and subject to certain
matters stated in such opinion, the 1.99 exchange ratio set forth in Section
3.1(a) is fair to Checkers from a financial point of view. A copy of such
written opinion and any amendments or supplements thereto shall be delivered to
Rally's as promptly as practicable after receipt thereof by Checkers.
4.16 ENVIRONMENTAL. Except as disclosed in SECTION 4.16 OF THE CHECKERS
DISCLOSURE MEMORANDUM and except insofar as inaccuracies in the following
statements would not
17
have a Material Adverse Effect on Checkers (and with respect to properties
formerly owned or leased by Checkers or any of its Subsidiaries, only with
respect to such period of ownership or lease): (i) the properties owned or
leased by Checkers or any of its Subsidiaries and properties formerly owned or
leased by Checkers or any of its Subsidiaries for which Checkers has contractual
liability (the "Checkers Properties") are or were, as the case may be, in
compliance in all material respects with all applicable federal, state and local
environmental and hazardous waste laws and regulations; (ii) no enforcement
actions are pending or threatened against Checkers or any of its Subsidiaries
and no notice of potential liability or administrative or judicial proceedings
(including notices regarding clean up of off-site third party hazardous waste
sites) has been received by Checkers or such Subsidiary; (iii) there does not
now exist on any Checkers Properties currently owned or leased by Checkers, and
there has not occurred on, from or under Checkers Properties, a material
disposal or release of, Hazardous Substances, Hazardous Wastes or Contaminants
(as such terms are defined in SECTION 4.16 OF THE CHECKERS DISCLOSURE
MEMORANDUM; (iv) Checkers Properties contain no unregistered underground storage
tanks; (v) neither Checkers nor any of its Subsidiaries nor any of their
respective predecessors has any contingent liability in connection with the
release of any Hazardous Substances, Hazardous Wastes or Contaminants into the
environment; and (vi) neither Checkers or any of its Subsidiaries nor any of
their respective predecessors has (A) given any release or waiver of liability
that would waive or impair any claim based on Hazardous Substances, Hazardous
Wastes or Contaminants to any current or prior tenant or owner of any real
property owned or leased at any time by either Checkers or any of its
Subsidiaries or to any party who may be potentially responsible for the presence
of Hazardous Substances, Hazardous Wastes or Contaminants on any such real
property; or (B) made any promise of indemnification to any party regarding
Hazardous Substances, Hazardous Wastes or Contaminants that may be located on
any real property owned or leased at any time by either Checkers or any
Subsidiary or any of their respective predecessors. SECTION 4.16 OF THE CHECKERS
DISCLOSURE MEMORANDUM contains a description of environmental indemnities of
which either Checkers or any of its Subsidiaries is a beneficiary.
4.17 PERSONNEL. Except as set forth in SECTION 4.17 OF THE CHECKERS
DISCLOSURE Memorandum, there is no outstanding liability for arrears of wages,
payroll taxes or failure to comply with applicable employment laws and there are
no labor disputes existing, or to Checkers' Knowledge, threatened, involving
strikes, work stoppages, slow downs or lockouts. There are no grievance
proceedings or claims of unfair labor practices filed or, to Checkers'
Knowledge, threatened to be filed with the National Labor Relations Board
against Checkers or any of its Subsidiaries. To Checkers' Knowledge, there is no
union representation or organizing effort pending or threatened against Checkers
or any Subsidiary. Neither Checkers nor any Subsidiary has agreed to recognize
any union or other collective bargaining unit except those governed by the terms
of the agreements listed in SECTION 4.11 OF THE CHECKERS DISCLOSURE MEMORANDUM.
4.18 TAKEOVER STATUTES. Except for Article 9 of Checkers' Certificate
of Incorporation, Sections 607.0901--607.0903 of the Florida 1989 Business
Corporation Act and Section 203 of the DGCL, no "fair price," "moratorium,"
"control share acquisition" or other anti-takeover statute or regulation enacted
under any federal or state or foreign law, applicable to Checkers is applicable
to the Merger or the other transactions contemplated hereby.
18
4.19 INTELLECTUAL PROPERTY. Except as set forth in SECTION 4.19 OF THE
CHECKERS DISCLOSURE MEMORANDUM: (i) Checkers and each of its Subsidiaries owns
or possesses or has all Intellectual Property necessary to conduct its business
as conducted; (ii) neither Checkers nor any of its Subsidiaries has received any
unresolved notice of, or is aware of any fact or circumstance that would give
any third party a right to assert, infringement or misappropriation of, or
conflict with, asserted rights of others or invalidity or unenforceability of
any Intellectual Property owned by Checkers or any of its Subsidiaries; (iii)
the use of such Intellectual Property to conduct the business and operations of
Checkers and its Subsidiaries as conducted does not infringe on the rights of
any person; (iv) no person is challenging or infringing on or otherwise
violating any right of Checkers or any of its Subsidiaries with respect to any
Intellectual Property owned by and/or licensed to Checkers or any of its
Subsidiaries; (v) neither the execution of this Agreement nor the consummation
of the transactions contemplated hereby will result in a loss or limitation in
(x) the rights and licenses of Checkers or any of its Subsidiaries to use or
enjoy the benefit of any Intellectual Property employed by them in connection
with their business as conducted (y) the amount of any royalties or other
benefits received by Checkers or any of its Subsidiaries from Intellectual
Property owned by it.
4.20 INSURANCE. Checkers and its Subsidiaries maintain, with reputable
insurers, insurance in such amounts, including deductible arrangements, and of
such a character as is usually maintained by reasonably prudent managers of
companies engaged in the same or similar business.
4.21 YEAR 2000 COMPLIANCE. Except as set forth in SECTION 4.21 OF THE
CHECKERS DISCLOSURE MEMORANDUM, Checkers' information systems are designed to be
used prior to, during and after the calendar year 2000 A.D., and its information
systems will accurately receive, provide and process date/time data (including
but not limited to calculating, comparing and sequencing) from, into and between
the twentieth and twenty-first centuries, including the years 1999 and 2000, and
leap year calculations, and will not malfunction, cease to function, or provide
invalid or incorrect results as a result of time/date data.
4.22 VOTING REQUIREMENTS. The affirmative vote of the holders of a
majority of the outstanding shares of Checkers Common Stock is the only vote of
the holders of any class or series of Checkers capital stock necessary to
approve and adopt this Agreement, the Merger and the other transactions
contemplated hereby.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF RALLY'S
Rally's represents and warrants to Checkers as follows:
5.1 ORGANIZATION AND STANDING.
(a) Rally's is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and is duly
qualified to do business, and is in good standing,
19
in each jurisdiction in which the character of the properties owned or leased by
it or the conduct of its business requires it to be so qualified, except where
the failure to be so qualified or to be in good standing would not have a
Material Adverse Effect on Rally's.
(b) Rally's has furnished to Checkers complete and correct copies of
its Certificate of Incorporation and By-laws and of the Certificate of
Incorporation and By-laws or similar Organizational Documents of each of its
Subsidiaries, as amended through the date hereof. Such Organizational Documents
are in full force and effect and no other organizational documents are
applicable to or binding upon Rally's or any Subsidiary of Rally's.
5.2 AUTHORIZATION, VALIDITY AND EFFECT.
(a) Rally's has the requisite corporate power and authority to execute
and deliver this Agreement, the Rally's Voting Agreement and all other
agreements and documents contemplated hereby or thereby to be executed and
delivered by it, and, subject to stockholder approval, to consummate the
transactions contemplated hereby and thereby. Subject to approval and adoption
by Rally's stockholders of this Agreement, the execution and delivery of this
Agreement, the Rally's Voting Agreement and such other agreements and documents,
and the consummation of the transactions, contemplated herein and therein, have
been duly and validly authorized by all necessary corporate action in respect
thereof on the part of Rally's. This Agreement has been duly and validly
executed and delivered by Rally's and represent the legal, valid and binding
obligation of Rally's enforceable against it in accordance with their respective
terms, except as the enforcement hereof may be limited by bankruptcy, insolvency
or other laws affecting the enforcement of creditor's rights generally.
(b) The Board of Directors of Rally's has duly approved the
transactions contemplated by this Agreement for the purposes of Section 203 of
the DGCL, such that the restrictions on "business combinations" set forth in
Section 203 of the DGCL will not apply to such transactions.
5.3 CAPITALIZATION.
(a) The authorized capital stock of Rally's consists of: (i) 50,000,000
shares of Rally's Common Stock, of which, as of the date hereof, 29,335,243
shares are issued and outstanding and 273,445 shares are held in Rally's
treasury; and (ii) 5,000,000 shares of Preferred Stock, $.10 per value per share
(the "Rally's Preferred Stock"), none of which is outstanding as of the date
hereof. All of the outstanding shares of Rally's Common Stock are duly and
validly issued and outstanding and are fully paid and non-assessable. As of the
date hereof, Rally's had outstanding options and warrants representing the right
to acquire from Rally's not more than 11,740,544 shares of Rally's Common Stock,
subject to adjustment. Each such option or warrant, the holder thereof, the
grant date, exercise price, the vesting date and other material terms thereof
and the instrument or plan pursuant to which such option or warrant was issued
are described in SECTION 5.3(B) OF THE DISCLOSURE MEMORANDUM delivered to
Checkers three business days prior to the execution hereof (the "Rally's
Disclosure Memorandum").
20
(b) Except as set forth in Section 5.3(a), there are no shares of
capital stock or other equity securities of Rally's outstanding, and except as
set forth in SECTION 5.3(B) OF THE RALLY'S DISCLOSURE MEMORANDUM, no outstanding
options, warrants or rights to subscribe for, securities or rights convertible
into or exchangeable for, or contracts, commitments or arrangements by which
Rally's is or may be required to issue or sell additional Rally's Common Stock
or any other equity interest in Rally's (collectively, "Rally's Equity Rights").
(c) Except as described in SECTION 5.3(C) OF THE RALLY'S DISCLOSURE
MEMORANDUM, since September 6, 1998, Rally's has not (i) issued any Rally's
Common Stock or Rally's Equity Rights, other than pursuant to the exercise of
options and warrants that were issued and outstanding on September 6, 1998, (ii)
purchased, redeemed or otherwise acquired, directly or indirectly through one or
more Subsidiaries, any Rally's Common Stock or (iii) declared, set aside, made
or paid to the stockholders of Rally's dividends or other distributions on the
outstanding Rally's Common Stock.
5.4 RALLY'S SUBSIDIARIES.
(a) SECTION 5.4(A) OF THE RALLY'S DISCLOSURE MEMORANDUM lists all
Subsidiaries of Rally's. All of the outstanding shares of capital stock of each
Subsidiary of Rally's are duly and validly issued, fully paid and non-assessable
and are owned by Rally's either directly or indirectly through another wholly
owned Subsidiary of Rally's free and clear of all Liens. No equity securities of
any Subsidiary may be required to be issued (other than to Rally's) by reason of
any (i) option, warrant or right to subscribe therefor, (ii)convertible security
or securities or rights exchangeable therefor, or (iii) contracts, commitments,
understandings or arrangements. There are no contracts, commitments,
understandings or arrangements by which Rally's or any Subsidiary of Rally's is
or may be obligated to sell, vote or otherwise transfer any shares of the
capital stock of any Subsidiary of Rally's.
(b) Each Subsidiary of Rally's is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated
or organized, has the corporate power and authority necessary for it to own or
lease its properties and assets and to carry on its business as it is now being
conducted, and is duly qualified to do business and in good standing in the
jurisdictions in which the ownership of its property or the conduct of its
business requires it to be so qualified, except for such jurisdictions in which
the failure to be so qualified and in good standing would not have a Material
Adverse Effect on Rally's.
(c) Other than as set forth in SECTION 5.4(C) OF THE RALLY'S DISCLOSURE
MEMORANDUM and except for interests in Subsidiaries, neither Rally's nor any
Subsidiary thereof owns, directly or indirectly, any interest or investment
(whether equity or debt) in any corporation, limited liability company,
partnership, joint venture, business, trust or other legal entity.
5.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Neither the execution and delivery by Rally's of this Agreement,
the Rally's Voting Agreement or any other agreement contemplated herein or
therein to which it is a party nor the
21
consummation by Rally's of the transactions contemplated herein or therein, nor
compliance by Rally's with any of the provisions hereof or thereof will: (i)
conflict with or result in a breach of any provision of the Organizational
Documents of Rally's or any Subsidiary thereof; (ii) constitute or result in the
breach of any term, condition or provision of, or constitute a default under, or
give rise to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any Lien upon, any property or assets of
Rally's or any Subsidiary thereof pursuant to, any note, bond, mortgage,
indenture, license, agreement, lease or other instrument or obligation to which
any of them is a party or by which any of them or any of their properties or
assets may be subject, and that would, in any such event, have a Material
Adverse Effect on Rally's; or (iii) subject to receipt of the requisite
approvals referred to in Section 5.5(b), violate any order, writ, injunction,
decree, statute, rule or regulation of any Governmental Authority, applicable to
Rally's or any Subsidiary thereof or any of their respective properties or
assets which violation would have a Material Adverse Effect on Rally's; or (iv)
constitute or result in a Change of Control, as that term is used and defined in
the Indenture, dated as of March 1, 1993, by and among Rally's, as issuer,
certain of its subsidiaries, as subsidiary guarantors, and Chase Manhattan Trust
Company, N.A., as successor trustee (the "Indenture"), or require Rally's,
Checkers or any other person to make a Change of Control Offer pursuant to
Section 4.14 of the Indenture, or otherwise give rise to any obligation to offer
to purchase the securities issued pursuant to the Indenture.
(b) Other than (i) in connection or compliance with the provisions of
applicable state and federal securities laws, and the rules and regulations of
the Commission thereunder, (ii) notices and completion of the applicable waiting
period under the HSR Act, (iii) filings with the Secretary of State of the State
of Delaware required to effect the Merger, (iv) in connection or compliance with
the applicable requirements of the Code, and state, local and foreign tax laws,
(v) as set forth in SECTION 5.5(B) OF THE RALLY'S DISCLOSURE MEMORANDUM and (vi)
where the failure to give such notice, make such filing or receive such order,
authorization, exemption, consent or approval would not have a Material Adverse
Effect on Rally's, no notice to, filing with, authorization of, exemption by or
consent or approval of any Governmental Authority is necessary for the
consummation by Rally's of the transactions contemplated in this Agreement or
the Rally's Voting Agreement.
5.6 RALLY'S REPORTS; FINANCIAL STATEMENTS.
(a) Rally's has filed all forms, reports and documents required to be
filed by it with the Commission since January 2, 1995 (collectively, the
"Rally's Reports") pursuant to Section 13 or 15(d) of the Exchange Act, and the
rules and regulations promulgated thereunder. As of their respective dates as
subsequently amended prior to the date of this Agreement, the Rally's Reports
(i) complied as to form in all material respects with the applicable
requirements of the Exchange Act and the rules and regulations promulgated
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.
(b) Each of the audited consolidated financial statements and unaudited
consolidated interim financial statements of Rally's (including any related
notes and schedules) included (or
22
incorporated by reference) in its Annual Report on Form 10-K for the fiscal year
ended December 28, 1997, as amended (the "Rally's Form 10-K"), and its Quarterly
Report on Form 10-Q for the period ended September 6, 1998 (the "Rally's Form
10-Q"), copies of which have been provided to Checkers (collectively, the
"Rally's Financial Statements"), have been prepared in accordance with GAAP
applied on a consistent basis (except as disclosed therein) and fairly present,
in all material respects, the consolidated financial position and the
consolidated results of operations, changes in stockholders' equity and cash
flows of Rally's and its consolidated Subsidiaries as of the dates and for the
periods indicated (subject to normal year-end adjustments in the case of the
interim unaudited financial statements).
(c) As of the date of this Agreement, except set forth in the Rally's
Reports or SECTION 5.6(C) OF THE RALLY'S DISCLOSURE MEMORANDUM: (i) no event has
occurred since December 28, 1997 (y) which if such event had occurred prior to
December 28, 1997 would have been required to be disclosed in the Rally's Form
10-K or (z) which could have a Material Adverse Effect on Rally's; (ii) Rally's
has not engaged in any transaction with any of its affiliates and (iii) neither
Rally's nor any Subsidiary of Rally's has any material outstanding claims
against it, liabilities or indebtedness, contingent or otherwise, nor does there
exist any condition, fact or circumstances which Rally's reasonably anticipates
will create such claim or liability, other than claims or liabilities incurred
subsequent to December 28, 1997 in the ordinary course of business, consistent
with past practices, and which individually and in the aggregate do not have and
are not reasonably anticipated to have a Material Adverse Effect on Rally's.
(d) Since December 28, 1997 and except as disclosed in SECTION 5.6(D)
OF THE RALLY'S DISCLOSURE MEMORANDUM or the Rally's Reports, Rally's and its
Subsidiaries have conducted their respective businesses only in the ordinary
course and consistent with past practices.
(e) Since December 28, 1997, except as disclosed in SECTION 5.6(E) OF
THE RALLY'S DISCLOSURE MEMORANDUM and the Rally's Reports, there has been no
event or condition that has caused or is reasonably anticipated to cause a
Material Adverse Effect on Rally's.
5.7 TAX AND ACCOUNTING MATTERS.
(a) For purposes of this Section 5.7: (i) the term "Taxes" shall
include all federal, state, county, local or foreign taxes, charges, levies,
imposts or other assessments of any nature whatsoever, including corporate
income tax, corporate franchise tax, payroll tax, sales tax, use tax, property
tax, excise tax, withholding tax, and environmental tax, together with any
interest thereon and any penalties or additions to tax relating thereto imposed
by any governmental taxing authority for which Rally's or any other member of
the Rally's Group (as defined below in this Section 5.7(a)) may be directly or
contingently liable in its own right, as collection agent for taxes imposed on
another person, as a result of any guaranty or election, or as a transferee of
the assets of, or as successor to, any person, or pursuant to any applicable
law; (ii) the term the "Rally's Group" shall mean, individually and
collectively, Rally's, any Subsidiary of Rally's, and any individual, trust,
corporation, partnership, limited liability company or other entity as to which
Rally's may be liable for Taxes for which Rally's or such individual or entity
may be directly or contingently liable in its
23
own right, as a result of any guaranty or election, or as a transferee of the
assets of, or as successor to, any person, or pursuant to any applicable law;
and (iii) the term "Returns" shall mean all returns, reports, estimates,
declarations of estimated tax, information statements and other filings relating
to, or required to be filed in connection with, any Taxes, including, without
limitation, information returns or reports with respect to backup or employee
withholding and other payments to third parties.
(b) Except as indicated in SECTION 5.7(B) OF THE RALLY'S DISCLOSURE
MEMORANDUM: (i) all Returns required to be filed by or on behalf of any member
of the Rally's Group have been duly filed on a timely basis and all such Returns
are true, correct and complete in all material respects; (ii) all Taxes that
have been shown as due and payable on the Returns that have been filed by or on
behalf of each member of the Rally's Group have been timely paid, and no other
Taxes are payable by any member of the Rally's Group with respect to items or
periods covered by such Returns (whether or not shown on or reportable on such
Returns); (iii) the amounts set forth as provisions for current and deferred
taxes and/or accrued liabilities in the Rally's Financial Statements are
sufficient for the payment of all unpaid Taxes accrued for or applicable to all
periods ended on the respective dates of the Rally's Financial Statements and
all years and periods prior thereto, and each of the amounts set forth on the
Rally's Financial Statements in respect of current Taxes and deferred Taxes has
been correctly determined in accordance with GAAP; (iv) no member of the Rally's
Group is delinquent in the payment of any Taxes or has requested any extension
of time within which to file any Return, which Return has not since been filed,
accompanied by payment of all Taxes shown as due and payable thereon; (v) there
is no dispute or claim concerning any Tax liability of any member of the Rally's
Group either (A) claimed or raised by any governmental taxing authority in
writing or (B) as to which any director or officer of any member of the Rally's
Group (or employees responsible for Taxes of any such member of the Rally's
Group) has knowledge based upon personal contact with any agent of such
authority, other than those Taxes, identified in SECTION 5.7(B) OF THE RALLY'S
DISCLOSURE MEMORANDUM, being contested in good faith by appropriate proceedings;
(vi) no member of the Rally's Group has waived any statute of limitations in
respect of Taxes or granted any extension of the limitations period applicable
to any claim for Taxes; (vii) Rally's is not liable for the Taxes of any person,
including, without limitation, as a result of the application of United States
Treasury Regulation Section 1.1502-6, any analogous provision of state, local or
foreign law (including, without limitation, principles of unitary taxation), or
as a result of any contractual arrangement, whether with any third party or with
any taxing authority; (viii) Rally's is not nor has it ever been a party to any
tax sharing agreement with any corporation or limited liability company which is
not currently a member of the Rally's Group; (ix) no claim has ever been made by
any governmental taxing authority in any jurisdiction where any member of the
Rally's Group does not file Returns that it is or may be subject to taxation by
such jurisdiction; (x) there are no Liens on any of the assets of any member of
the Rally's Group that arose in connection with any failure (or alleged failure)
to pay any Taxes; (xi) each member of the Rally's Group has withheld and paid
over all Taxes required to have been withheld and paid over and complied with
all information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder, or
other third party; (xii) no director or officer of any member of the Rally's
Group (or
24
employees responsible for Taxes of such member) expects any governmental taxing
authority to assess any additional Taxes for any period for which Returns have
been filed; (xiii) SECTION 5.7(B) OF THE RALLY'S DISCLOSURE MEMORANDUM lists all
Returns (relating to any type of Tax and to any taxable period) filed with
respect to Rally's that have been audited and indicates those Returns that
currently are the subject of audit; (xiv) Rally's has delivered or made
available to Checkers correct and complete copies of all federal, state, local
and foreign income and franchise Tax Returns filed with respect to Rally's for
all taxable periods for which the applicable statute of limitations for the
assessment of any Tax has not yet expired, and has provided representatives of
Checkers access to all Returns (relating to any type of Tax and to any taxable
period) filed with respect to Rally's; (xv) Rally's has delivered to Checkers
all examination reports and statements of deficiency assessed against or agreed
to by each member of the Rally's Group since January 2, 1995; (xvi) Rally's is
not and has never been a "United States real property holding corporation"
within the meaning of Section 897(c) of the Code; (xvii) no member of the
Rally's Group is a "consenting corporation" under Section 341(f) of the Code;
(xviii) no member of the Rally's Group has entered into any compensatory
agreement with respect to the performance of services as to which payment or
vesting thereunder (including payment or vesting as a result of the transactions
contemplated hereunder) would result in a nondeductible expense to the Rally's
Group pursuant to Section 280G of the Code or an excise tax to the recipient of
such payment pursuant to Section 4999 of the Code; (xix) Rally's has not agreed,
nor is it required, to make any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise that would require the
recognition of income pursuant to such adjustment in any post-closing period;
(xx) SECTION 5.7(B) OF THE RALLY'S DISCLOSURE MEMORANDUM sets forth a list of
each joint venture, limited liability company, partnership or other arrangement
or contract which is treated as a partnership for federal income tax purposes in
which Rally's holds a direct or indirect ownership interest as of the date
hereof or during any taxable period as to which the statute of limitations on
the assessment of income or franchise tax has not yet expired; and (xxi) any
past due property taxes for which Rally's or any Subsidiary of Rally's is liable
do not exceed $100,000.
5.8 PROPERTIES. Except as disclosed or reserved against in the Rally's
Financial Statements and except for circumstances that would not have a Material
Adverse Effect on Rally's, Rally's and each Subsidiary thereof has good title to
all of the material properties and assets, tangible or intangible, reflected in
the Rally's Financial Statements as being owned by Rally's and its Subsidiaries
as of the dates thereof, free and clear of all Liens, except such imperfections
or irregularities of title as do not affect the use thereof in any material
respect and statutory liens securing payments not yet delinquent. All leased
buildings and all leased fixtures, equipment and other property and assets that
are material to the business of Rally's on a consolidated basis are held under
leases or subleases that are valid instruments enforceable in accordance with
their respective terms. All leases to which Rally's or any Subsidiary thereof is
a party were entered into in the ordinary course of business. None of such
leases is with an Affiliate or contains any material terms or conditions which
make any such lease unreasonably onerous or commercially unreasonable.
5.9 COMPLIANCE WITH LAWS. Except as disclosed in the Rally's Reports
and except for environmental matters, which shall be covered by Section 5.16
hereof and which shall not be covered by this Section 5.9, Rally's and each
Subsidiary thereof: (i) is in compliance with all
25
laws, regulations, reporting and licensing requirements and orders applicable to
its business or employees conducting its business, the breach or violation of
which would have a Material Adverse Effect on Rally's; and (ii) has received no
notification or communication from any Governmental Authority (y) asserting that
it or any of its Subsidiaries is not in compliance with any of the statutes,
regulations or ordinances that such Governmental Authority enforces, which
noncompliance would have a Material Adverse Effect on Rally's or (z) threatening
to revoke any license, franchise, permit or authorization of any Governmental
Authority, which revocation would have a Material Adverse Effect on Rally's.
5.10 EMPLOYEE BENEFIT PLANS.
(a) Except as listed in SECTION 5.10 OF THE RALLY'S DISCLOSURE
MEMORANDUM, none of Rally's, any of the Subsidiaries of Rally's or any of their
respective ERISA Affiliates maintains, is a party to, participates in or has any
liability or contingent liability with respect to:
(i) any "employee welfare benefit plan" or "employee pension
benefit plan" (as those terms are defined in Sections 3(l) and 3(2) of ERISA
respectively); or
(ii) any retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation pay,
severance pay, bonus or benefit arrangement, insurance or hospitalization
program or any other fringe benefit arrangements for any current or former
employee, director, consultant or agent, whether pursuant to contract,
arrangement, custom or informal understanding, which does not constitute an
employee benefit plan (as defined in Section 3(3) of ERISA).
(b) A true and correct copy of each of the plans, arrangements, and
agreements listed in SECTION 5.10 OF THE RALLY'S DISCLOSURE MEMORANDUM (referred
to collectively as "Rally's Employee Benefit Plans"), and all contracts relating
thereto, or to the funding thereof, including, without limitation, all trust
agreements, insurance contracts, administration contracts, investment management
agreements, subscription and participation agreements, and record keeping
agreements, each as in effect on the date hereof, has been supplied or made
available to Checkers. In the case of any Rally's Employee Benefit Plan which is
not in written form, Checkers has been supplied with an accurate description of
such Rally's Employee Benefit Plan as in effect on the date hereof. A true and
correct copy of the most recent annual report, actuarial report, accountant's
opinion relating to of the plan's financial statements, summary plan description
and Internal Revenue Service determination letter with respect to each Rally's
Employee Benefit Plan, to the extent applicable, and a current schedule of
assets (and the fair market value thereof assuming liquidation of any asset
which is not readily tradable) held with respect to any funded Rally's Employee
Benefit Plan has been supplied or made available to Checkers, and there have
been no material changes in the financial condition of the respective plans from
that stated in the annual reports and actuarial reports supplied.
(c) As to all Rally's Employee Benefit Plans:
26
(i) Such Plans comply and have been administered in form and in
operation in all material respects with all applicable requirements of law, and
no event has occurred which will or could cause any such Rally's Employee
Benefit Plan to fail to comply with such requirements and no notice has been
issued by any governmental authority questioning or challenging such compliance.
(ii) Such Plans which are employee pension benefit plans comply
in form and in operation with all applicable requirements of Sections 401(a) and
501(a) of the Code; there have been no amendments to such Plans which are not
the subject of a favorable determination letter issued with respect thereto by
the Internal Revenue Service; and no event has occurred which will or could give
rise to disqualification of any such Plan under such sections or to a tax under
Section 511 of the Code.
(iii) None of the assets of any such Plan (other than Rally's
employee stock purchase plan) are invested in employer securities or employer
real property.
(iv) There have been no "prohibited transactions" (as described
in Section 406 of ERISA or Section 4975 of the Code) with respect to any such
Plan and none of Rally's, any of its Subsidiaries or any of their respective
ERISA Affiliates has engaged in any prohibited transaction.
(v) There have been no acts or omissions by Rally's, any of its
Subsidiaries or any of their respective ERISA Affiliates which have given rise
to or may give rise to fines, penalties, taxes or related charges under section
502 of ERISA or Chapters 43, 47 or 68 of the Code for which Rally's or any of
its Subsidiaries may be liable.
(vi) None of the payments contemplated by such Plans would, in
the aggregate, constitute excess parachute payments (as defined in section 280G
of the Code) and neither the execution of this Agreement nor the consummation of
the transactions contemplated by this Agreement would accelerate the payment,
vesting or funding of benefits under any of such Plans.
(vii) There are no actions, suits or claims (other than routine
claims for benefits) pending or, to the actual knowledge of Rally's President
and Chief Executive Officer or Chief Financial Officer ("Rally's Knowledge"),
threatened involving any such Plan or the assets thereof and no facts exist
which could give rise to any such actions, suits or claims (other than routine
claims for benefits).
(viii) No such Plan is subject to Title IV of ERISA and no such
Plan is a multi-employer plan (within the meaning of Section 3(37)) of ERISA.
(ix) None of Rally's or any of its Subsidiaries has any liability
or contingent liability for providing, under any such Plan or otherwise, any
post-retirement medical or life insurance benefits, other than statutory
liability for providing group health plan continuation coverage under Part 6 of
Title I of ERISA and Section 4980B of the Code.
27
(x) Accruals for all obligations under such Plans are reflected
in the financial statements of Rally's in accordance with GAAP.
(xi) To Rally's Knowledge, there has been no act or omission that
would impair the ability of Rally's or any of its Subsidiaries (or any successor
thereto) to unilaterally amend or terminate any Employee Benefit Plan.
5.11 MATERIAL CONTRACTS.
(a) Set forth in SECTION 5.11 OF THE RALLY'S DISCLOSURE MEMORANDUM is a
list, as of the date hereof, of the following agreements:
(i) each agreement pursuant to which Rally's or any of its
Subsidiaries is entitled to receive amounts in excess of $100,000 (or the fair
market equivalent thereof in goods or services) on an annual or annualized
basis; each agreement pursuant to which Rally's or any of its Subsidiaries is
obligated to pay an amount in excess of $100,000 (or the fair market equivalent
thereof in goods or services) on an annual or annualized basis; and each
agreement, the term of which exceeds two years and which may not be canceled by
Rally's or any of its Subsidiaries without penalty on one year or less notice,
and pursuant to which Rally's or any of its Subsidiaries is entitled to receive
(in cash, services or property) or will be obligated to pay, during the
unexpired term thereof, an amount in excess of $100,000 (or the fair market
equivalent thereof in goods or services);
(ii) each franchise, partnership, limited liability company,
joint venture or trust agreement to which Rally's or any of its Subsidiaries is
a party;
(iii) each agreement limiting the right of Rally's or any of its
Subsidiaries to engage in or compete with any person in any business or
geographical area;
(iv) each agreement or other arrangement of or involving Rally's
or any of its Subsidiaries with respect to indebtedness for money borrowed,
including letters of credit, guaranties, indentures, swaps and similar
agreements;
(v) each management, consulting, employment, severance or similar
agreement requiring the payment of compensation in excess of $100,000 annually,
to which Rally's or any of its Subsidiaries is a party and which may not be
terminated by Rally's or such Subsidiary without penalty on 90 days (or less)
notice;
(vi) each lease or other agreement with respect to real property
leased by Rally's or any of its Subsidiaries and which: requires Rally's or any
of its Subsidiaries to pay an amount or amounts in excess of $100,000 on annual
or annualized basis; or has an unexpired term which exceeds two years and may
not be canceled by Rally's or any of its Subsidiaries without penalty on one
year or less notice and which requires Rally's or any of its Subsidiaries to
pay, during the unexpired term, an amount in excess of $100,000;
28
(vii) each collective bargaining agreement to which Rally's or
any of its Subsidiaries is a party;
(viii) each agreement with any Affiliate of Rally's (other than
employment agreements and agreements between Rally's and any Subsidiary thereof)
to which Rally's or any of its Subsidiaries is a party which involves total
payments or liabilities to or from Rally's or any of its Subsidiaries in excess
of $60,000;
(ix) each guaranty or indemnification (other than for money
borrowed) or other similar agreement to which Rally's or any of its Subsidiaries
is a party; and
(x) each stockholder agreement, voting trust agreement, share
purchase agreement, registration rights agreement or other similar agreement to
which Rally's is a party or other agreement granting rights to one or more of
the stockholders of Rally's, restricting the voting or transferability of
Rally's Common Stock or otherwise pertaining to Rally's Common Stock or any
interest (economic or voting) therein.
(b) Except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Rally's, each contract identified
in SECTION 5.11 OF THE RALLY'S DISCLOSURE Memorandum (the "Rally's Contracts")
is in full force and effect and is a legal, valid and binding contract or
agreement of Rally's, and there is no default or breach or, to Rally's
Knowledge, any event that, with the giving of notice or lapse of time or both,
would result in a material default or breach by Rally's, any of its Subsidiaries
or, to Rally's Knowledge, any other party in the timely performance of any
obligation to be performed or paid thereunder or any other material provision
thereof. To Rally's Knowledge none of its franchisees or suppliers will
terminate or reduce any of their agreements with Rally's, which termination
would have a Material Adverse Effect on Rally's.
(c) Except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Rally's, none of the Rally's
Contracts will terminate, become terminable by the other party thereto, or have
the terms thereof become amended or amendable by the other party thereto without
the consent of Rally's, as a result of the execution and delivery of this
Agreement or any of the other agreements or documents contemplated hereby or
thereby to which Rally's is a party or the consummation of the transactions
contemplated hereby or thereby.
5.12 LEGAL PROCEEDINGS. Except as disclosed in SECTION 5.12 OF THE
RALLY'S DISCLOSURE MEMORANDUM, there are no actions, suits, investigations or
proceedings instituted, pending or, to Rally's Knowledge, threatened, against
Rally's or any of its Subsidiaries, or against any property, asset, interest or
right of any of them, that involve more than $100,000 in controversy, whether or
not covered by insurance, or that seek relief other than money damages from
Rally's or any of its Subsidiaries, or that would have, either individually or
in the aggregate, a Material Adverse Effect on Rally's if adversely decided.
Neither Rally's nor any of its Subsidiaries is subject to any judgment, order,
writ, injunction or decree that would have a Material Adverse Effect on Rally's.
29
5.13 CERTAIN INFORMATION.
(a) When the Registration Statement (as defined in Section 6.4) to be
filed with the Commission by Checkers pursuant to Section 6.4 or any
post-effective amendment thereto shall become effective, and at all times
subsequent to such effectiveness up to and including the Effective Time, such
Registration Statement and all amendments or supplements thereto, with respect
to all information set forth therein furnished by Rally's relating to Rally's or
any of its Subsidiaries, shall, if Rally's has approved the contents and
presentation of such information, comply as to form in all material respects
with the provisions of all applicable securities laws. Any written information
supplied or to be supplied by Rally's specifically for inclusion in the Joint
Proxy Statement/Prospectus, at the time it is sent to Rally's stockholders, or
the Registration Statement, at the time it is filed with the Commission and when
it is declared effective by the Commission, will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) If at any time prior to the Effective Time, any event occurs of
which Rally's has knowledge and which is required to be described in the
Registration Statement or any supplement or amendment thereto, Rally's will
provide Checkers with sufficient supplemental written information to enable
Checkers to file and disseminate, as required, a supplement or amendment to the
Registration Statement.
(c) All documents that Rally's is responsible for filing with the
Commission or any other Governmental Authority in connection with the
transactions contemplated hereby shall comply as to form in all material
respects with the provisions of applicable law and the applicable rules and
regulations thereunder.
5.14 NO BROKERS. Except as disclosed in SECTION 5.14 OF THE RALLY'S
DISCLOSURE MEMORANDUM, Rally's has not entered into any contract, arrangement or
understanding with any person or firm that may result in the obligation of
Rally's, any of its Subsidiaries or Checkers to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, or thereby except that Rally's has retained ▇▇▇▇▇▇▇▇ & Co.
Inc. as its financial advisor.
5.15 OPINION OF FINANCIAL ADVISOR. Rally's has received the opinion
(the "Rally's Opinion") of ▇▇▇▇▇▇▇▇ & Co. Inc. (the "Rally's Financial Advisor")
to the effect that, as of the date hereof, the 1.99 exchange ratio set forth in
Section 3.1(a) is fair, from a financial point of view, to the stockholders of
Rally's who are not affiliated with eitherCheckers or Rally's. A copy of such
written opinion and any amendments or supplements thereto shall be delivered to
Checkers as promptly as practicable after receipt thereof by Rally's.
5.16 ENVIRONMENTAL. Except as disclosed in SECTION 5.16 OF THE RALLY'S
DISCLOSURE MEMORANDUM and except insofar as inaccuracies in the following
statements would not have a Material Adverse Effect on Rally's (and with respect
to properties formerly owned or leased
30
by Rally's or any of its Subsidiaries, only with respect to such period of
ownership or lease): (i) the properties owned or leased by Rally's or any of its
Subsidiaries and properties formerly owned or leased by Rally's or any of its
Subsidiaries for which Rally's has contractual liability (the "Rally's
Properties") are or were, as the case may be, in compliance in all material
respects with all applicable federal, state and local environmental and
hazardous waste laws and regulations; (ii) no enforcement actions are pending or
threatened against Rally's or any of its Subsidiaries and no notice of potential
liability or administrative or judicial proceedings (including notices regarding
clean up of off-site third party hazardous waste sites) has been received by
Rally's or such Subsidiary; (iii) there does not now exist on any Rally's
Properties currently owned or leased by Rally's, and there has not occurred on,
from or under Rally's Properties, a material disposal or release of, Hazardous
Substances, Hazardous Wastes or Contaminants (as such terms are defined in
SECTION 5.16 OF THE RALLY'S DISCLOSURE MEMORANDUM); (iv) Rally's Properties
contain no unregistered underground storage tanks; (v) neither Rally's nor any
of its Subsidiaries nor any of their respective predecessors has any contingent
liability in connection with the release of any Hazardous Substances, Hazardous
Wastes or Contaminants into the environment; and (vi) neither Rally's or any of
its Subsidiaries nor any of their respective predecessors has (A) given any
release or waiver of liability that would waive or impair any claim based on
Hazardous Substances, Hazardous Wastes or Contaminants to any current or prior
tenant or owner of any real property owned or leased at any time by either
Rally's or any of its Subsidiaries or to any party who may be potentially
responsible for the presence of Hazardous Substances, Hazardous Wastes or
Contaminants on any such real property; or (B) made any promise of
indemnification to any party regarding Hazardous Substances, Hazardous Wastes or
Contaminants that may be located on any real property owned or leased at any
time by either Rally's or any Subsidiary or any of their respective
predecessors. SECTION 5.16 OF THE RALLY'S DISCLOSURE MEMORANDUM contains a
description of environmental indemnities of which either Rally's or any of its
Subsidiaries is a beneficiary.
5.17 PERSONNEL. Except as set forth in SECTION 5.17 OF THE RALLY'S
DISCLOSURE MEMORANDUM, there is no outstanding liability for arrears of wages,
payroll taxes or failure to comply with applicable employment laws and there are
no labor disputes existing, or to Rally's Knowledge, threatened, involving
strikes, work stoppages, slow downs or lockouts. There are no grievance
proceedings or claims of unfair labor practices filed or, to Rally's Knowledge,
threatened to be filed with the National Labor Relations Board against Rally's
or any of its Subsidiaries. To Rally's Knowledge, there is no union
representation or organizing effort pending or threatened against Rally's or any
Subsidiary. Neither Rally's nor any Subsidiary has agreed to recognize any union
or other collective bargaining unit except those governed by the terms of the
agreements listed in SECTION 5.11 OF THE RALLY'S DISCLOSURE MEMORANDUM.
5.18 TAKEOVER STATUTES. Except for Section 203 of the DGCL, no "fair
price," "moratorium," "control share acquisition" or other similar anti-takeover
statute or regulation enacted under any federal, state or other law applicable
to Rally's is applicable to the Merger or the other transactions contemplated
hereby.
5.19 INTELLECTUAL PROPERTY. Except as set forth in SECTION 5.19 OF THE
RALLY'S DISCLOSURE MEMORANDUM: (i) Rally's and each of its Subsidiaries owns or
possesses or has
31
all rights and licenses in, all patents, patent rights, licenses, inventions
(whether or not patentable or reduced to practice), copyrights (whether
registered or unregistered), know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), registered and unregistered trademarks, service marks and trade
names and other intellectual property rights (collectively, "Intellectual
Property") necessary to conduct its business as conducted; (ii) neither Rally's
nor any of its Subsidiaries has received any unresolved notice of, or is aware
of any fact or circumstance that would give any third party a right to assert,
infringement or misappropriation of, or conflict with, asserted rights of others
or invalidity or unenforceability of any Intellectual Property owned by Rally's
or any of its Subsidiaries; (iii) the use of such Intellectual Property to
conduct the business and operations of Rally's and its Subsidiaries as conducted
does not infringe on the rights of any person; (iv) no person is challenging or
infringing on or otherwise violating any right of Rally's or any of its
Subsidiaries with respect to any Intellectual Property owned by and/or licensed
to Rally's or any of its Subsidiaries; (v) neither the execution of this
Agreement nor the consummation of the transactions contemplated hereby will
result in a loss or limitation in (x) the rights and licenses of Rally's or any
of its Subsidiaries to use or enjoy the benefit of any Intellectual Property
employed by them in connection with their business as conducted or (y) the
amount of any royalties or other benefits received by Rally's or any of its
Subsidiaries from Intellectual Property owned by it.
5.20 INSURANCE. Rally's and its Subsidiaries maintain, with reputable
insurers, insurance in such amounts, including deductible arrangements, and of
such a character as is usually maintained by reasonably prudent managers of
companies engaged in the same or similar business.
5.21 YEAR 2000 COMPLIANCE. Except as disclosed in SECTION 5.21 OF THE
RALLY'S DISCLOSURE MEMORANDUM, Rally's information systems are designed to be
used prior to, during and after the calendar year 2000 A.D., and its information
systems will accurately receive, provide and process date/time data (including
but not limited to calculating, comparing and sequencing) from, into and between
the twentieth and twenty-first centuries, including the years 1999 and 2000, and
leap year calculations, and will not malfunction, cease to function, or provide
invalid or incorrect results as a result of time/date data.
5.22 VOTING REQUIREMENTS. The affirmative vote of the holders of a
majority of the outstanding shares of Rally's Common Stock is the only vote of
the holders of any class or series of Rally's capital stock necessary to approve
and adopt this Agreement, the Merger and the other transactions contemplated
hereby.
ARTICLE 6
COVENANTS AND AGREEMENTS
6.1 INTERIM OPERATIONS OF CHECKERS. Prior to the earlier of the
Effective Time or the termination of this Agreement, except as contemplated by
any other provision of this Agreement, unless Rally's has previously consented
in writing thereto (which consent shall not be unreasonably withheld or
delayed), Checkers and its Subsidiaries will each
32
conduct its operations according to its ordinary course of business consistent
with past practice and will each use its reasonable best efforts to preserve
intact its business organization, to keep available the services of its officers
and employees and to maintain existing relationships with licensors, licensees,
suppliers, contractors, distributors, customers and others having business
relationships with it to the end that its goodwill and ongoing business will not
be impaired in any material respect at the Effective Time. Without limiting the
generality of the foregoing, Checkers shall not, and shall not permit any
Subsidiary thereof to:
(a) grant any general increase in compensation or benefits to its
employees or to its officers, except in the ordinary course consistent with past
practice or as required by law; pay any bonus compensation except in the
ordinary course consistent with past practice or in accordance with the
provisions of any applicable program or plan adopted by the Checkers Board or
any Subsidiary of Checkers prior to the date hereof; enter into or amend the
terms of any severance agreements with its officers; or effect any change in
retirement benefits for any class of its employees or officers (unless such
change is required by applicable law) that would materially increase the
retirement benefit liabilities of Checkers and its Subsidiaries on a
consolidated basis;
(b) amend, alter or revise any existing employment contract,
understanding, arrangement or agreement with any person receiving compensation
(including salary and bonus) in excess of $100,000 per year (unless such
amendment is required by law) to increase the compensation (including bonus) or
benefits payable thereunder or pursuant thereto or enter into any new employment
contract, understanding, arrangement or agreement with any person having a
salary thereunder in excess of $100,000 that Checkers or such Subsidiary does
not have the unconditional right to terminate without liability (other than
liability for services already rendered) at any time on or after the Effective
Time;
(c) adopt any new employee benefit plan or make any change in or to any
existing Checkers Employee Benefit Plan other than any such change that (i) is
required by law, (ii) in the opinion of counsel is necessary or advisable to
maintain the tax qualified status of any such, plan, or (iii) would not
materially increase, in the aggregate, the employee benefit plan liabilities of
Checkers and its Subsidiaries, taken as a whole;
(d) except as disclosed in SECTION 6.1(D) OF THE CHECKERS DISCLOSURE
MEMORANDUM, sell, lease or otherwise dispose of any of its assets (including
capital stock of its Subsidiaries) or acquire any business or assets in a single
transaction or a series of similar transactions, except in the ordinary course
of business for an amount not exceeding $100,000 in the aggregate;
(e) except as disclosed in SECTION 6.1(E) OF THE CHECKERS DISCLOSURE
MEMORANDUM, incur any indebtedness for borrowed money or make any loans,
advances or capital contributions to, or investments (other than non-controlling
investments in the ordinary course of business) in, any other person other than
a Subsidiary, or issue or sell any debt securities, other than borrowings in
connection with acquisitions permitted by subsection 6.1(d);
33
(f) except as disclosed in SECTION 6.1(F) OF THE CHECKERS DISCLOSURE
MEMORANDUM, authorize, commit to or make capital expenditures in an amount
exceeding $100,000 in the aggregate;
(g) mortgage or otherwise encumber or subject to any Lien any material
amount of properties or assets owned by Checkers or any Subsidiary thereof as of
the date of this Agreement except for such of the foregoing as are in the normal
course of business;
(h) make any material change to its accounting (including tax
accounting) methods, principles or practices, except as may be required by GAAP;
(i) amend or propose to amend its Organizational Documents;
(j) declare or pay any dividend or distribution with respect to its
capital stock;
(k) other than pursuant to options or warrants or other securities or
commitments outstanding as of the date hereof and listed in SECTION 4.3(B) OF
THE CHECKERS DISCLOSURE MEMORANDUM, issue, sell, deliver or agree to issue,
sell, deliver (whether through issuance or granting of options, warrants,
commitments, subscriptions or rights to purchase) any capital stock or split,
combine, reclassify or subdivide the capital stock;
(1) make any tax election or settle or compromise any material tax
liability for an aggregate amount greater than reflected on Checkers Financial
Statements;
(m) directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or other securities or any capital stock of Rally's;
(n) enter into any new lines of business or otherwise make material
changes to the operation of its business;
(o) except as to liabilities accrued as of the date of this Agreement,
pay or agree to pay in settlement or compromise of any suits or claims of
liability against Checkers, its directors, officers, employees or agents, more
than an aggregate of $100,000 for all such suits and claims; provided, however,
in the event Checkers does not effect such settlement or compromise because
Rally's has declined to consent thereto, and this Agreement is subsequently
terminated by Checkers pursuant to Section 8.1 hereof, Rally's shall indemnify
and hold Checkers harmless against all liabilities and expenses reasonably
incurred in connection with such matter to the extent in excess of the amount
for which Checkers could have settled or compromised such matter if Rally's had
granted such consent;
(p) enter into any agreement providing for the acceleration of any
party's rights or payment or performance or other consequence as a result of a
change in control of Checkers;
34
(q) take any action or agree, in writing or otherwise, to take any of
the foregoing actions or any action which would make any representation or
warranty in Article 4 hereof materially untrue or incorrect; or
(r) commit to any of the foregoing.
6.2 INTERIM OPERATIONS OF RALLY'S. Prior to the earlier of the
Effective Time or the termination of this Agreement, except as contemplated by
any other provision of this Agreement, unless Checkers has previously consented
in writing thereto (which consent shall not be unreasonably withheld or
delayed), Rally's and its Subsidiaries will each conduct its operations
according to its ordinary course of business consistent with past practice and
will each use its reasonable best efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain existing relationships with licensors, licensees, suppliers,
contractors, distributors, customers and others having business relationships
with it to the end that its goodwill and ongoing business will not be impaired
in any material respect at the Effective Time. Without limiting the generality
of the foregoing, Rally's shall not, and shall not permit any of its
Subsidiaries to:
(a) grant any general increase in compensation or benefits to its
employees or to its officers, except in the ordinary course consistent with past
practice or as required by law; pay any bonus compensation except in the
ordinary course consistent with past practice or in accordance with the
provisions of any applicable program or plan adopted by the Rally's Board or any
Subsidiary of Rally's prior to the date hereof; enter into or amend the terms of
any severance agreements with its officers; or effect any change in retirement
benefits for any class of its employees or officers (unless such change is
required by applicable law) that would materially increase the retirement
benefit liabilities of Rally's and its Subsidiaries on a consolidated basis;
(b) amend, alter or revise any existing employment contract,
understanding, arrangement or agreement with any person receiving compensation
(including salary and bonus) in excess of $100,000 per year (unless such
amendment is required by law) to increase the compensation (including bonus) or
benefits payable thereunder or pursuant thereto or enter into any new employment
contract, understanding, arrangement or agreement with any person having a
salary thereunder in excess of $100,000 that Rally's or such Subsidiary does not
have the unconditional right to terminate without liability (other than
liability for services already rendered) at any time on or after the Effective
Time;
(c) adopt any new employee benefit plan or make any change in or to any
existing Rally's Employee Benefit Plan other than any such change that (i) is
required by law, (ii) in the opinion of counsel is necessary or advisable to
maintain the tax qualified status of any such, plan, or (iii) would not
materially increase, in the aggregate, the employee benefit plan liabilities of
Rally's and its Subsidiaries, taken as a whole;
(d) except as disclosed in SECTION 6.2(D) OF THE RALLY'S DISCLOSURE
MEMORANDUM, sell, lease or otherwise dispose of any of its assets (including
capital stock of its Subsidiaries) or acquire
35
any business or assets in a single transaction or in a series of similar
transactions, except in the ordinary course of business for an amount not
exceeding $100,000 in the aggregate;
(e) except as disclosed in SECTION 6.2(E) OF THE RALLY'S DISCLOSURE
MEMORANDUM, incur any indebtedness for borrowed money or make any loans,
advances or capital contributions to, or investments (other than non-controlling
investments in the ordinary course of business) in, any other person other than
a Subsidiary, or issue or sell any debt securities, other than borrowings in
connection with acquisitions permitted by subsection 6.2(d);
(f) except as disclosed in SECTION 6.2(F) OF THE RALLY'S DISCLOSURE
MEMORANDUM, authorize, commit to or make capital expenditures in an amount
exceeding $100,000 in the aggregate;
(g) mortgage or otherwise encumber or subject to any Lien any material
amount of properties or assets owned by Rally's or any Subsidiary thereof as of
the date of this Agreement except for such of the foregoing as are in the normal
course of business;
(h) make any material change to its accounting (including tax
accounting) methods, principles or practices, except as may be required by GAAP;
(i) amend or propose to amend its Organizational Documents;
(j) declare or pay any dividend or distribution with respect to its
capital stock;
(k) other than pursuant to options or warrants or other securities
commitments outstanding as of the date hereof and listed in SECTION 5.3(B) OF
THE RALLY'S DISCLOSURE MEMORANDUM, issue, sell, deliver or agree to issue, sell,
deliver (whether through issuance or granting of options, warrants, commitments,
subscriptions or rights to purchase) any capital stock or split, combine,
reclassify or subdivide the capital stock;
(1) make any tax election or settle or compromise any material tax
liability for an aggregate amount greater than reflected on the Rally's
Financial Statements;
(m) directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or other securities or any capital stock of
Checkers;
(n) enter into any new lines of business or otherwise make material
changes to the operation of its business;
(o) except as to liabilities accrued as of the date of this Agreement,
pay or agree to pay in settlement or compromise of any suits or claims of
liability against Rally's, its directors, officers, employees or agents, more
than an aggregate of $100,000 for all such suits and claims; provided, however,
in the event Rally's does not effect such settlement or compromise because
Checkers has
36
declined to consent thereto, and this Agreement is subsequently terminated by
Rally's pursuant to Section 8.1, Checkers shall indemnify and hold Rally's
harmless against all liabilities and expenses reasonably incurred in connection
with such matter to the extent in excess of the amount for which Rally's could
have settled or compromised such matter if Checkers had granted such consent;
(p) enter into any agreement providing for the acceleration of any
party's rights or payment or performance or other consequence as a result of a
change in control of Rally's;
(q) take any action or agree, in writing or otherwise, to take any of
the foregoing actions or any action which would make any representation or
warranty in Article 5 hereof materially untrue or incorrect; or
(r) commit to any of the foregoing.
6.3 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the earlier of the Effective Time and the termination of
this Agreement, Checkers and Rally's shall keep each other advised of all
material developments relevant to the transactions contemplated hereby and may
make or cause to be made such investigation, if any, of the business and
properties of the other and of their respective financial and legal condition as
Checkers or Rally's may reasonably deem necessary or advisable to familiarize
itself and its advisors with such business, properties and other matters;
provided, however, that such investigation shall be reasonably related to the
transactions contemplated hereby and shall not interfere unnecessarily with
normal operations. Checkers and Rally's each agree to furnish the other and
their respective advisors with such financial and operating data and other
information with respect to its businesses, properties and employees as Checkers
or Rally's, as applicable, shall from time to time reasonably request.
(b) Checkers and Rally's acknowledge that in the course of such
investigation, each will be providing the other and its representatives with
information which is proprietary and confidential. Checkers and Rally's each, on
behalf of itself and its representatives, agrees that it will treat as
confidential all information provided to it by the other which the other
designate as such in writing ("Confidential Information"), and that it will use
such Confidential Information solely in connection with the Merger and the other
transactions contemplated by this Agreement. In the event the Agreement is
terminated, Checkers and Rally's will return and/or destroy without retaining
any copies thereof, as requested by the party which provided the Confidential
Information to it, all such Confidential Information. The foregoing restrictions
shall not apply to any information which: (a) has not been designated as
Confidential Information; (b) which the recipient has obtained from sources
other than the other party hereto, which sources, to the best of the recipient's
knowledge and belief, are not subject to any confidentiality undertaking and did
not acquire such information from sources which are subject to such an
undertaking; or (c) has become known to the public other than through a
violation of this Section 6.3(b). The parties acknowledge that the foregoing
provisions shall not apply to information received by directors of Checkers or
Rally's who
37
receive such information in their capacity as a directors of the other, all of
which information is subject to customary standards of confidentiality.
6.4 STOCKHOLDERS' MEETINGS; JOINT PROXY STATEMENT/PROSPECTUS;
REGISTRATION STATEMENT.
(a) Checkers and Rally's, acting through their respective Boards of
Directors, shall, in accordance with applicable law and their respective
Certificates of Incorporation and By-Laws, promptly and duly give notice of
Meetings of their respective stockholders (the "Stockholders' Meetings") to
consider and act upon this Agreement, the Rally's Voting Agreement and the
transactions and other documents contemplated herein and therein and, as soon as
practicable following the date upon which Checkers Registration Statement on
Form S-4 required to be filed with the Commission in connection with the
issuance of Checkers Common Stock pursuant to the Merger (the "Registration
Statement") becomes effective, mail to their respective stockholders the Joint
Proxy Statement/Prospectus contained in the Registration Statement and relating
to the Stockholders' Meetings (the "Joint Proxy Statement/Prospectus") in
accordance with the requirements of the DGCL, the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations thereunder and
Regulation 14A under the Exchange Act. The Joint Proxy Statement/Prospectus
shall contain the recommendation of Checkers' Board of Directors and Rally's
Board of Directors to their respective stockholders that they vote in favor of
the approval and adoption of this Agreement.
(b) As soon as practicable following the date hereof, Checkers and
Rally's shall prepare and file with the Commission, pursuant to Regulation 14A
of the Exchange Act, a Joint Proxy Statement/Prospectus with respect to: at the
Stockholders' Meetings, the Merger and all matters required to be submitted to
their respective stockholders in order to consummate the transactions
contemplated hereby; and at the Checkers Meeting, (i) an amendment top Checkers'
Certificate of Incorporation to increase in the number of authorized shares of
Checkers Common Stock, (ii) an amendment to Checkers' Certificate of
Incorporation to effect a one-for-12 reverse stock split (the "Reverse Split"),
(iii) adoption of Checkers' 1999 Stock Option Plan and approval of amendments to
Checkers' 1994 Stock Option Plan for Non-Employee Directors, and (iv) such other
matters as Checkers, with the approval of Rally's (such approval not to be
unreasonably withheld or delayed), determines to be appropriate to bring before
the Checkers stockholders. Rally's shall cooperate with Checkers in preparing
the Joint Proxy Statement/Prospectus and shall provide Checkers with all
information about Rally's that is required to be included in the Joint Proxy
Statement/Prospectus under the rules and regulations of the Commission under the
Securities Act and the Exchange Act, as the case may be.
(c) As soon as practicable following receipt of final comments from the
staff of the Commission on the Joint Proxy Statement/Prospectus (or advice that
such staff will not review such filing), Checkers shall use its reasonable best
efforts to file the Registration Statement, to have the Registration Statement
declared effective by the Commission and to maintain the effectiveness of such
Registration Statement until the Effective Date.
38
(d) The parties shall cooperate in taking any action reasonably
necessary to allow the Joint Proxy Statement/Prospectus to also serve as a
prospectus for the Registration Statement. Promptly after the effectiveness of
the Registration Statement, Checkers and Rally's shall mail the Joint Proxy
Statement/Prospectus to all of their respective stockholders. Checkers and
Rally's shall cooperate with each other in the preparation of the Joint Proxy
Statement/Prospectus and the Registration Statement and shall advise the other
in writing if, at any time prior to the date(s) of the Stockholders' Meetings,
any such party shall obtain knowledge of any facts that might make it necessary
or appropriate to amend or supplement the Joint Proxy Statement/Prospectus or
the Registration Statement in order to make the statements contained or
incorporated by reference therein not misleading or to comply with applicable
law. Notwithstanding the foregoing, each party shall be responsible for the
information and disclosures which it makes or incorporates by reference in all
regulatory filings, the Joint Proxy Statement/Prospectus and the Registration
Statement.
6.5 NOTIFICATION. Checkers and Rally's shall, after obtaining knowledge
of the occurrence, non-occurrence or threatened occurrence or non-occurrence of
any fact or event that would cause or constitute a material breach or failure of
any of the representations and warranties, covenants or conditions set forth
herein, or that would constitute or result in a Material Adverse Effect to such
party, notify the other parties in writing thereof with reasonable promptness.
6.6 ACQUISITION PROPOSAL.
(a) From the date hereof until the Effective Time or the termination
hereof, Checkers and Rally's and their respective Subsidiaries will not, and
will not authorize, permit or cause their respective officers, directors,
employees or other agents to, directly or indirectly, (i) take any action to
solicit, initiate or encourage any Acquisition Proposal (as hereinafter
defined), (ii) waive any provision of any standstill or similar agreements
entered into by Rally's or Checkers or any of them with respect to Rally's or
Checkers, (iii) engage in negotiations regarding or disclose any nonpublic
information relating to any other party, respectively, or (iv) afford access to
their respective properties, books or records to any person that may be
considering making, or has made, an Acquisition Proposal. Nothing contained in
this Section 6.6 shall prohibit Rally's or Checkers and their respective Boards
of Directors from (i) taking and disclosing a position with respect to a tender
offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated by the
Commission under the Exchange Act, or (ii) furnishing information to, or
entering into negotiations with, any person or entity that makes an unsolicited
bona fide proposal to acquire such party pursuant to a merger, consolidation,
share exchange, purchase of a substantial portion of the assets, business
combination or other similar transaction, if, and only to the extent that, (A)
such Board of Directors determines in the good faith exercise of its informed
business judgment and after receiving the advice and recommendation of its
special committee of the Board of Directors that the Acquisition Proposal is or
could be more advantageous to their respective stockholders than the
transactions contemplated by this Agreement (a "Superior Proposal"), (B) prior
to furnishing such information to, or entering into discussions or negotiations
with, such person or entity, such party provides written notice to the other
parties hereto to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person or entity, and (C) subject to
any confidentiality agreement with such person or entity (which such party
determined in good faith was required to be executed in order for
39
the Board of Directors to comply with its fiduciary duties to its stockholders
imposed by law) such party keeps the other parties hereto informed of the status
of any such negotiations or discussions.
(b) The term "Acquisition Proposal" as used herein means any offer or
proposal for, or any indication of interest in, a merger or other business
combination involving Rally's or Checkers, or any of their respective
Subsidiaries, or the acquisition of any equity interest in, or a substantial
portion of the assets of, any such party, other than the transactions
contemplated by this Agreement.
6.7 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, the parties hereto shall (a) within ten business days hereof, make
their respective filings and use their reasonable best efforts to cause any
required third party filings to be made, and thereafter make any other required
submissions, under the HSR Act; (b) use their reasonable best efforts to
cooperate with each other in (i) determining which filings are required to be
made prior to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
Governmental Authorities in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
timely making all such filings and timely seeking all such consents, approvals,
permits or authorizations; and (c) use their reasonable best efforts to take, or
cause to be taken, all other action and do, or cause to be done, all other
things necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement and satisfy the conditions to the
transactions contemplated hereby. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement, subject to the remaining provisions hereof, the officers and
directors of the parties shall promptly take all such necessary action.
6.8 INDEMNIFICATION AND INSURANCE.
(a) Checkers shall: (i) indemnify and hold harmless each present
employee, agent, director or officer of Rally's and its Subsidiaries and anyone
who becomes an employee, agent, director or officer of Rally's after the date
hereof and prior to the Effective Time ("Indemnified Parties") from and against
any and all claims arising out of or in connection with activities in such
capacity, or on behalf of, or at the request of, Rally's or any of its
Subsidiaries, and shall advance expenses incurred with respect to the foregoing,
as they are incurred, to the fullest extent permitted under applicable law; and
(ii) assume any indemnification agreements to which Rally's or any of its
Subsidiaries is a party.
(b) Checkers shall keep in effect provisions substantially similar to
the provisions in Rally's Certificate of Incorporation and by-laws providing for
exculpation of director and officer liability and its indemnification of or
advancement of expenses to the Indemnified Parties to the fullest extent
permitted under the DGCL, which provisions shall not be amended except as
required by applicable law or except to make changes permitted by law that would
enhance the Indemnified Parties right to indemnification or advancement of
expenses.
40
(c) If, after the Effective Time, Checkers or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers all or substantially all of its property and assets to
any person, then, in each such case, proper provision shall be made so that the
successors and assigns of Checkers assume all of the obligations set forth in
this Section 6.8. The provisions of this Section 6.8 are intended to be for the
benefit of and to grant third party rights to, and shall be enforceable by, each
person who is now or who becomes prior to the Effective Time an employee, agent,
director or officer of Rally's or any of its Subsidiaries (and his or her heirs
and representatives).
(d) Checkers will cause to be maintained for a period of not less than
four years from the Effective Time directors and officers liability insurance
("D&O Insurance"), to the extent commercially available, on terms and conditions
no less advantageous to the Indemnified Parties than Rally's existing D&O
Insurance, as the case may be. Notwithstanding the foregoing: (i) in satisfying
its obligation under this Section 6.8(d), Checkers shall not be obligated to pay
premiums in excess of 125% of the premium paid or to be paid by Rally's for
1997, which amounts are disclosed in SECTIONS 6.8(D)OF THE RALLY'S DISCLOSURE
MEMORANDUM, but provided further that Rally's shall nevertheless be obligated to
provide such coverage as may be obtained for 125% of the premium to be paid by
Rally's for such insurance for 1997; and (ii) this provision shall be deemed
satisfied as long as Checkers maintains under its own D&O Insurance coverage
meeting the requirements of the first sentence of this Section 6.8(d) with
separate coverage limits applicable to Rally's officers and directors with
respect to acts and occurrences prior to the Effective Time.
6.9 PUBLICITY. Checkers and Rally's shall, subject to their respective
legal obligations (including requirements of national securities exchanges and
other similar regulatory bodies), consult with each other regarding the text of
any press release regarding the transactions contemplated hereby before issuing
any such press release and in making any filings with any Governmental Authority
or with any national securities exchange with respect thereto.
6.10 TAXES. Checkers shall pay any and all transfer taxes (including,
without limitation, any real estate transfer taxes) incurred in connection with
the Merger, whether such taxes are imposed on Checkers, Rally's, their
respective Subsidiaries or their stockholders, except transfer taxes in
connection with the registration of Checkers Common Stock in a name other than
the name of the holder of Rally's Common Stock in respect of which Checkers
Common Stock is to be issued. Checkers and Rally's each agree to treat the
Merger as a reorganization within Section 368(a)(1) of the Code.
6.11 OPTIONS.
(a) Checkers shall, prior to the Effective Time, adopt a new stock
option plan (the "1999 Option Plan") with terms substantially similar to those
of Checkers 1991 Stock Option Plan, as amended. In addition, Checkers shall,
prior to the Effective Time, amend its 1994 Stock Option Plan for Non-Employee
Directors (the "Director Option Plan" and together with the 1999 Option
41
Plan, the "Option Plans") and shall submit the Option Plans to Checkers
stockholders for their approval at the Checkers Meeting.
(b) Each outstanding option to acquire Rally's Common Stock ("Rally's
Options") shall at the Effective Time be converted into and become an option
("Roll-Over Options") to purchase that number of shares of Checkers Common Stock
determined by multiplying the number of shares subject to the Rally's Options by
the exchange ratio set forth in Section 3.1. The vesting and term of the
Roll-Over Options shall be that of the Rally's Options it replaces.
(c) Outstanding options to acquire Checkers Common Stock will remain
unchanged.
6.12 NASDAQ. As promptly as practicable after the date hereof, Checkers
shall make all required filings with NASDAQ and shall use all commercially
reasonable efforts to cause the shares of Checkers Common Stock issuable as a
result of the Merger to be quoted on the NASDAQ National Market immediately
following the Effective Time. Checkers and Rally's shall fully cooperate with
each other and take all commercially reasonable steps as may be required in
order to maintain trading of Checkers Common Stock on the NASDAQ National Market
after the Effective Time.
6.13 ANCILLARY AND OTHER AGREEMENTS. Each of Rally's and Checkers shall
use its best efforts to cause, respectively:
(a) The Rally's Voting Agreement to be implemented in accordance with
its terms; and
(b) The joint purchasing agreement (as such term is hereinafter
defined), the execution and delivery of which are conditions to the consummation
of the Merger, to be executed and delivered as promptly as practicable, and in
any event at or prior to Closing, to be effective as of the Effective Time.
6.14 AFFILIATES. At least ten (10) days prior to the Closing, Rally's
shall identify to Checkers all persons who would be deemed to be affiliates of
Rallys for purposes of Rule 145 under the Securities Act (the "Rule 145
Affiliates"), and Checkers shall have received an agreement substantially in the
form of Exhibit B to this Agreement from each Rule 145 Affiliate.
6.15 CHECKERS MANAGEMENT. Checkers shall have duly taken all requisite
corporate action so that, effective at the Effective Time:
(a) The Checkers Board shall consist of the members of the respective
Board of Directors of Rally's and Checkers immediately prior to the Effective
Time.
(b) The Chairman of the Checkers Board shall be ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
(c) The other officers of Checkers shall remain the officers of
Checkers immediately prior to the Effective Time and their titles shall remain
the same.
42
6.16 PROXY FOR CHECKERS SHARES HELD BY RALLY'S.
(a) Rally's hereby appoints Checkers, with full power of
substitution and resubstitution, as Rally's irrevocable attorney-in-fact and
proxy (Checkers together with its substitutes are referred to collectively as
the "Proxy") for and in the name of Rally's to vote, in the Proxy's absolute,
sole and binding discretion, all shares of Checkers Common Stock (y) that
Rally's is entitled to vote at the Checkers Meeting, and at any adjournments
thereof, or (z) as to which Rally's is entitled to express consent or dissent to
corporate action in writing without a meeting upon the Merger, the Merger
Agreement and all other matters contemplated by the Merger Agreement, revoking
any proxy heretofore given. The Proxy is further authorized to vote, in the
Proxy's absolute, sole and binding discretion, upon such other business as may
properly come before the Checkers Meeting or be presented to the Checkers
stockholders for their consent or dissent. Rally's intends this Proxy to be
irrevocable and coupled with an interest and will take such further action and
execute such other instruments as may be necessary to effectuate the intent of
this agreement.
(b) If for any reason the proxy granted pursuant to Section
6.16(a) of this Agreement shall be determined invalid, unenforceable or
ineffective with respect to any or all of its Checkers Common Stock, Rally's
agrees:
(i) to vote all of its Checkers Common Stock on all matters as to which
Rally's is entitled to vote at the Checkers Meeting in the manner specified in
writing by the Proxy, which manner shall be determined in its absolute, sole and
binding discretion, provided, however, that Rally's shall not be obligated to
vote any of its Checkers Common Stock in a manner prohibited by the terms of an
injunction issued by any court having jurisdiction;
(ii) to express consent or dissent to corporate action in writing
without a meeting on all of its Checkers Common Stock in the manner specified in
writing by the Proxy, which manner shall be determined in the Proxy's absolute,
sole and binding discretion, provided, however, that Rally's shall not be
obligated to vote any of its Checkers Common Stock in a manner prohibited by the
terms of an injunction issued by any court having jurisdiction;
(iii) notice by the Proxy of action to be taken pursuant to paragraphs
(a) and (b) of this Section 6.16 shall be delivered to Rally's on or prior to
the date and time on which such votes, consents or dissents are to be cast;
(iv) Rally's agrees to refrain from granting any proxy or authorization
to any person with respect to the voting of its Checkers Common Stock, except
pursuant to this Agreement, or taking any action contrary to or in any manner
inconsistent with the terms of this Agreement; and
(v) Rally's further agrees to execute all additional writings, consents
and authorizations as may be reasonably requested by Checkers to evidence the
agreements contained in this Section 6.16.
43
ARTICLE 7
CONDITIONS TO CONSUMMATION OF THE MERGER
7.1 CONDITIONS TO OBLIGATIONS OF THE PARTIES. The respective
obligations of Checkers and Rally's to effect the Merger shall be subject to the
satisfaction or waiver at or prior to the Closing of each of the following
conditions:
(a) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(b) None of the parties hereto shall be subject to any order or
injunction of a court or Governmental Authority of competent jurisdiction that
prohibits the consummation of the transactions contemplated by this Agreement.
In the event any such order or injunction shall have been issued, each party
agrees to use its reasonable best efforts to have any such order overturned or
injunction lifted.
(c) All consents, authorizations, orders and approvals of (or filings
or registrations with) any Governmental Authority required in connection with
the execution, delivery and performance of this Agreement (each a "Regulatory
Authorization") shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed after
the Effective Time and except where the failure to have obtained or made any
such consent, authorization, order, approval, filing or registration would not
have a Material Adverse Effect on Checkers following the Effective Time.
(d) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and remain in effect.
(e) This Agreement and the Merger shall have been duly approved by the
requisite vote under the DGCL of holders of outstanding voting securities of
Checkers and Rally's representing a majority of the votes entitled to be voted
on the matter.
(f) Checkers and Rally's shall have received an opinion of Christensen,
Miller, Fink, Jacobs, ▇▇▇▇▇▇, Weil & ▇▇▇▇▇▇▇, LLP to the effect that the Merger
qualifies as a tax free reorganization under the Code.
(g) Checkers shall have entered into a joint purchasing agreement with
CKE Restaurants, Inc., on terms and conditions satisfactory to Checkers and
Rally's in the exercise of reasonable judgment, providing for joint purchasing
by Checkers (for its Checkers and Rally's operations) and CKE Restaurants, Inc.
(for its Carl's, Jr., Hardee's and other restaurant operations) of all items
presently being jointly purchased and such additional items as may reasonably be
added in the future, including food, paper, beverage, signs building materials,
kitchen equipment and construction services.
44
(h) Checkers and Rally's shall have received an opinion of Christensen,
Miller, Fink, Jacobs, ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇, LLP to the effect that the
consummation of this Agreement and the transactions contemplated hereby will not
constitute or result in a Change of Control, as that term is used and defined in
the Indenture, or require Rally's, Checkers or any other person to make a Change
of Control Offer pursuant to Section 4.14 of the Indenture, or otherwise give
rise to any obligation to offer to purchase the securities issued pursuant to
the Indenture.
7.2 CONDITIONS TO OBLIGATION OF RALLY'S. The obligation of Rally's to
effect the Merger shall be subject to the satisfaction or waiver at or prior to
the Closing of each of the following additional conditions:
(a) The representations and warranties of Checkers set forth in this
Agreement which are qualified as to materiality and the representations and
warranties contained in Section 4.3 shall be true and correct in all respects,
and the representations and warranties of Checkers set forth in this Agreement
which are not qualified as to materiality shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (except for any such
representations and warranties made as of a specified date, which shall be true
and correct in all respects or all material respects, as the case may be, as of
such date); provided, however that, except with respect to the representations
and warranties in Section 4.3, this condition shall be deemed satisfied unless
the failure of such condition to be satisfied would have a material adverse
effect on the benefits that the stockholders of Rally's are reasonably expected
to receive in the Merger.
(b) The agreement of Checkers contained in Section 6.1(k) shall have
been duly performed and complied with in all respects and each of the agreements
and covenants of Checkers to be performed and complied with by Checkers pursuant
to this Agreement prior to the Effective Time shall have been duly performed and
complied with in all material respects; provided, however, that except for the
agreements contained in Sections 6.1(k), this condition shall be deemed
satisfied unless the failure of such condition to be satisfied would have a
material adverse effect on the benefits that the stockholders of Rally's are
reasonably expected to receive in the Merger.
(c) Checkers shall have delivered to Rally's a certificate, dated as of
the Closing Date and signed on its behalf by its chief executive officer and
chief financial officer, as to the satisfaction by it of the conditions set
forth in Sections 7.2(a) and 7.2(b), together with any other certificates or
documents which Rally's or its counsel may reasonably request in connection with
the consummation of the Merger and the other transactions contemplated herein.
7.3 CONDITIONS TO OBLIGATION OF CHECKERS. The obligation of Checkers to
effect the Merger shall be subject to the satisfaction or waiver at or prior to
the Closing of each of the following additional conditions:
45
(a) The representations and warranties of Rally's set forth in this
Agreement which are qualified as to materiality and the representations and
warranties contained in Section 5.3 shall be true and correct in all respects,
and the representations and warranties of Rally's set forth in this Agreement
which are not qualified as to materiality shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (except for any such
representations and warranties made as of a specified date, which shall be true
and correct in all respects or all material respects, as the case may be, as of
such date); provided, however that, except with respect to the representations
and warranties in Section 5.3, this condition shall be deemed satisfied unless
the failure of such condition to be satisfied would have a Material Adverse
Effect on the benefits that the stockholders of Checkers are reasonably expected
to receive in the Merger.
(b) The agreement of Rally's contained in Section 6.2(k) shall have
been duly performed and complied with in all respects and each of the agreements
and covenants of Rally's to be performed and complied with by Rally's pursuant
to this Agreement prior to the Effective Time shall have been duly performed and
complied with in all material respects; provided, however, that except for the
agreements contained in Section 6.2(k), this condition shall be deemed satisfied
unless the failure of such condition to be satisfied would have a Material
Adverse Effect on the benefits that the stockholders of Checkers are reasonably
expected to receive in the Merger.
(c) Rally's shall have delivered to Checkers a certificate, dated as of
the Closing Date and signed on its behalf by its chief executive officer and
chief financial officer, as to the satisfaction by it of the conditions set
forth in Sections 7.3(a) and 7.3(b), together with any other certificates or
documents which Checkers or its counsel may reasonably request in connection
with the consummation of the Merger and the other transactions contemplated
herein.
(d) At least ten (10) days prior to the Closing, Rally's shall have
delivered to Checkers letters identifying all persons who would be deemed to be
Rule 145 Affiliates of Rally's, and Checkers shall have received an agreement
substantially in the form of Exhibit B to this Agreement from each Rule 145
Affiliate.
(e) All agreements relating to the Rally's Common Stock, voting or
otherwise, to which Affiliates of Rally's are parties (other than this
Agreement), including those listed in SECTIONS 5.3(B) AND 5.11(A)(X) OF THE
RALLY'S DISCLOSURE MEMORANDUM, shall have been terminated without any liability
to Rally's or Checkers other than those liabilities fully satisfied prior to the
Closing.
ARTICLE 8
TERMINATION OF AGREEMENT
8.1 TERMINATION. Notwithstanding any other provision of this Agreement,
this Agreement may be terminated at any time prior to the Effective Time:
46
(a) by mutual written consent of Checkers and Rally's, whether or not
their respective stockholders have approved this Agreement and the Merger;
(b) by Checkers or Rally's, upon written notice to the other party, if
the Merger shall not have been consummated on or prior to June 30, 1999 (the
"Termination Date");
(c) by Checkers or Rally's, upon written notice to the other parties,
if a Governmental Authority of competent jurisdiction shall have issued an
injunction, order or decree enjoining or otherwise prohibiting the consummation
of the transactions contemplated by this Agreement, and such injunction, order
or decree shall have become final and non-appealable or if a Governmental
Authority has otherwise made a final determination that any required Regulatory
Authorization would not be forthcoming; provided, however, that the party
seeking to terminate this Agreement pursuant to this clause has used all
required efforts as specified in Section 8.1(b) to remove such injunction, order
or decree;
(d) by Checkers or Rally's, if any condition to such party's
obligations to consummate the transactions contemplated hereby is incapable of
being satisfied on or prior to the Termination Date; provided, however, that the
terminating party has not breached the terms of this Agreement; or
(e) by either Checkers or Rally's if, in the exercise of its good faith
business judgment, the Board of Directors of the terminating party determines
that such termination is required by reason of the receipt of a Superior
Proposal.
8.2 EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement pursuant to
Section 8.1, the respective obligations of the parties under this Agreement will
terminate except for Sections 6.1(o), 6.2(o), 6.3(b), 8.2, 9.2, 9.4, 9.5, 9.6,
9.10, 9.11, 9.12 and 9.13; provided, however, that the termination of this
Agreement will not relieve any party from liability for any breach of this
Agreement.
(b) The parties acknowledge that in the event this Agreement is
terminated by Checkers or Rally's by reason of Section 8.1(a) hereof, each
non-terminating party shall be entitled to reimbursement from the terminating
party of the non-terminating party's reasonable and documented transaction
costs, including without limitation, legal and accounting expenses and amounts
paid or payable to its financial advisor in connection with obtaining the
Checkers Opinion or the Rally's Opinion, as applicable.
ARTICLE 9
MISCELLANEOUS AND GENERAL
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained herein shall survive the Effective Time
or the
47
termination of this Agreement. The covenants and agreements contained herein
shall survive the Effective Time.
9.2 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses except as
expressly provided herein and except that the filing fees in connection with the
HSR Act filings shall be shared equally by Checkers and Rally's.
9.3 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by any party hereto without the prior
written consent of the other parties hereto.
9.4 THIRD PARTY BENEFICIARIES. Except as set forth in Article 3 and
Section 6.8 (each of which shall inure to the benefit of the persons or entities
benefitting from the provisions thereof, which persons are intended to be third
party beneficiaries thereof; provided, however, that no person shall have third
party beneficiary or other rights under Article 3 of this Agreement if the
Merger has not been consummated, regardless of the reason that the Merger has
not been consummated), each party hereto intends that this Agreement shall not
benefit or create any right or cause of action in or on behalf of any person
other than the parties hereto.
9.5 NOTICES. Any notice or other communication provided for herein or
given hereunder to a party hereto shall be sufficient if in writing, and sent by
facsimile transmission (electronically confirmed), delivered in person, mailed
by first class registered or certified mail, postage prepaid, or sent by Federal
Express or other overnight courier of national reputation, addressed as follows:
If to Checkers: Checkers Drive-In Restaurants, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ I
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
P. O. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: C. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Rally's: Rally's Hamburgers, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ I
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
48
with a copy to: Christensen, Miller, Fink, Jacobs, ▇▇▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇▇▇, LLP
2121 Avenue of the Stars, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address with respect to a party as such party shall notify the
other parties in writing as above provided.
9.6 COMPLETE AGREEMENT. This Agreement and the other documents and
agreements delivered by the parties in connection herewith contain the complete
agreement among the parties hereto with respect to the Merger and the other
transactions contemplated hereby and thereby and supersede all prior agreements
and understandings among the parties hereto with respect thereto.
9.7 CAPTIONS; REFERENCES. The captions contained in this Agreement are
for convenience of reference only and do not form a part of this Agreement. When
a reference is made in this Agreement to a clause, a Section, a subsection or an
Article, such reference shall be to such clause, Section, subsection or Article
of this Agreement unless otherwise indicated.
9.8 AMENDMENT. At any time, the parties hereto, by action taken by
their respective Board of Directors or pursuant to authority delegated by their
respective Boards of Directors, may amend this Agreement. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
9.9 WAIVER. At any time prior to the Effective Time, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto, or
(c) waive compliance with any of the agreements or conditions contained herein,
to the extent permitted by applicable law. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
writing signed on behalf of such party. No party may assert a claim with respect
to a matter so waived.
9.10 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its rules of conflict of laws.
9.11 SEVERABILITY. Any term or provision of this Agreement that is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without rendering invalid, illegal or unenforceable the
remaining terms and provisions of this Agreement or affecting the validity,
legality or enforceability of any of the terms or provisions of this Agreement
in any other jurisdiction. If any
49
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
9.12 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
9.13 CONSENT TO JURISDICTION. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the federal and state courts located in the State of Delaware or the County
of Los Angeles, State of California, (the "Designated Courts") for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such Designated Courts), waives any objection to the laying of venue
of any such litigation in the Designated Courts and agrees not to plead or claim
in any Designated Court that such litigation brought therein has been brought in
an inconvenient forum.
9.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first above written.
CHECKERS DRIVE-IN RESTAURANTS, INC.,
a Delaware corporation
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
RALLY'S HAMBURGERS, INC.,
a Delaware corporation
By: /S/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Executive Vice President and
Chief Financial Officer
50
LIST OF EXHIBITS
A. Rally's Voting Agreement
B. Form of Rule 145 Affiliate Letter
51
CHECKERS DISCLOSURE MEMORANDUM INDEX
4.3(b) Options, warrants, rights
4.3(c) Issuances of Securities
4.4(a) Subsidiaries
4.4(c) Investments, etc.
4.5(b) Filings and Consents
4.6(c) Financial Statements
4.6(d) Ordinary Course
4.6(e) Material Adverse Effect
4.7(b) Taxes
4.10 ERISA
4.11 Material Contracts
4.12 Legal Proceedings
4.16 Environmental
4.17 Personnel
4.19 Intellectual Property
4.21 Year 2000 compliance
6.1(d) Dispositions or acquisitions of assets
6.1(e) Incurrence of indebtedness
6.1(f) Capital expenditures
52
RALLY'S DISCLOSURE MEMORANDUM INDEX
5.3(b) Options, warrants, rights
5.3(c) Issuances of Securities
5.4(a) Subsidiaries
5.4(c) Investments, etc.
5.5(b) Filings and Consents
5.6(d) Ordinary Course
5.6(c) Financial Statements
5.6(e) Material Adverse Effect
5.7(b) Taxes
5.10 ERISA
5.11 Material Contracts
5.12 Legal Proceedings
5.16 Environmental
5.17 Personnel
5.19 Intellectual Property
5.21 Year 2000 Compliance
6.2(d) Dispositions or acquisitions of asset
6.2(e) Incurrence of indebtedness
6.2(f) Capital expenditures
53
