What is the 'Allocation Agreement' that Checkers entered into with Holdings?

According to Checkers' 2025 Franchise Disclosure Document, the Allocation Agreement is an intercompany agreement that Checkers entered into with Holdings on October 12, 2018. Under the terms of this agreement, Checkers jointly and severally unconditionally guarantees the payment and performance of obligations related to the 2017 Senior Credit Facility. This means Checkers is responsible for ensuring all obligations, including principal and interest, are paid as due with respect to the 2017 Senior Credit Facility.

For a prospective franchisee, this agreement highlights the financial interconnectedness between Checkers and its parent company, Holdings. It indicates that Checkers has taken on significant debt obligations, which could impact the company's financial stability and, by extension, the franchisee's business. The franchisee should be aware that Checkers' financial health is tied to its ability to meet these debt obligations guaranteed under the Allocation Agreement.

This type of arrangement is not uncommon in franchise systems where the parent company incurs debt to finance operations or acquisitions. However, it's crucial for potential franchisees to understand the implications of such agreements. In this case, Checkers has recorded the debt obligation as a "related party credit facility" with an offsetting amount against "additional paid-in capital" in its consolidated balance sheets. This accounting treatment reflects the nature of the intercompany debt and its impact on Checkers' financial statements.

Prospective franchisees should carefully review Checkers' financial statements and ask detailed questions about the Allocation Agreement and the 2017 Senior Credit Facility. Understanding the terms of the agreement, the outstanding debt, and Checkers' ability to meet its obligations is essential for assessing the overall financial risk associated with investing in a Checkers franchise.