<PAGE> 1
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. One)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
CARL KARCHER ENTERPRISES INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
DONALD E. DOYLE
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
Set forth the amount on which the filing fee is calculated and state how
it was determined.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$89,457.02
2) Form, Schedule or Registration Statement No.:
Form S-4 Registration No. 33-52523
3) Filing Party:
CKE Restaurants Inc.
4) Date Filed:
4-11-94
<PAGE> 2
CARL KARCHER ENTERPRISES, INC.
1200 NORTH HARBOR BOULEVARD
ANAHEIM, CALIFORNIA 92801
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
APRIL 25, 1994
To the Shareholders of Carl Karcher Enterprises, Inc.
A Special Meeting of Shareholders of Carl Karcher Enterprises, Inc.
("Enterprises") will be held at Enterprises' principal executive offices, 1200
North Harbor Boulevard, Anaheim, California, on Monday, April 25, 1994 at 9:30
a.m. for the following purposes:
1. To vote upon a proposal to approve a Plan of Reorganization and
Agreement of Merger pursuant to which Enterprises will become a
wholly-owned subsidiary of a new Delaware holding company called CKE
Restaurants, Inc. (the "Company"), Enterprises' shares will be
converted into shares of the Company and certain other changes
affecting shareholders' rights will be made (the "Reincorporation
Proposal").
2. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Shareholders of record at the close of business on April 13, 1994 will be
entitled to vote at the meeting. A list of the shareholders entitled to vote at
the meeting will be maintained at the corporate headquarters in the city of
Anaheim (at the address shown above) for at least twenty days prior to the
meeting.
By Order of the Board of Directors,
Daniel W. Holden
Secretary
Anaheim, California
April 14, 1994
To assure that your shares will be voted at the meeting, you are requested
to sign the attached proxy and return it promptly in the enclosed postage-paid,
addressed envelope. No additional postage is required if mailed in the United
States. If you attend the meeting you may vote in person even though you have
sent in your proxy.
<PAGE> 3
PRELIMINARY COPY
CARL KARCHER ENTERPRISES, INC.
CKE RESTAURANTS, INC.
------------------------
PROXY STATEMENT AND PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS
APRIL 25, 1994
This Proxy Statement and Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Directors of Carl Karcher
Enterprises, Inc., a California corporation ("Enterprises"), for use at a
Special Meeting of Shareholders to be held on April 25, 1994 (the "Meeting").
This Proxy Statement and Prospectus also serves as the Prospectus of CKE
Restaurants, Inc., a Delaware corporation (the "Company"), under the Securities
Act of 1933 with respect to the issuance of up to 20,053,942 shares of Common
Stock, $.01 par value, of the Company ("Company Common Stock"), to the
shareholders of Enterprises in connection with the proposed formation of the
Company as a Delaware holding company for Enterprises as described herein.
This Proxy Statement and Prospectus does not cover any resales of Company
Common Stock received by Enterprises shareholders upon the implementation of the
holding company structure as described herein. No person is authorized to make
any use of this Proxy Statement and Prospectus in connection with any such
resale or in connection with the offer of any other securities.
It is anticipated that the mailing of this Proxy Statement and Prospectus
and accompanying form of Proxy to shareholders will begin on or about April 14,
1994.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS APRIL 14, 1994.
<PAGE> 4
AVAILABLE INFORMATION
Attached to this Proxy Statement and Prospectus are the following materials
previously filed by Enterprises with the Securities and Exchange Commission:
(1) Enterprises' Annual Report on Form 10-K for the fiscal year ended
January 25, 1993, attached as Appendix I hereto;
(2) Enterprises' Proxy Statement for its Annual Meeting of
Shareholders held on June 16, 1993, attached as Appendix II hereto;
(3) Certain selected portions of Enterprises' Fiscal 1993 Annual
Report to its Shareholders, attached as Appendix III hereto;
(4) Enterprises' Quarterly Reports on Form 10-Q for the quarters ended
May 17, August 9 and November 1, 1993, attached as Appendices IV, V and VI
hereto; and
(5) Enterprises' Current Report on Form 8-K dated September 7, 1993
attached as Appendix VII hereto.
Each of the foregoing appendices is hereby expressly made part of this
Proxy Statement and Prospectus except to the extent that a statement contained
in the body of this Proxy Statement and Prospectus modifies or supercedes a
statement in any such appendix. Any such statement in any such appendix shall
not be deemed, except as so modified or superceded, to constitute a part of this
Proxy Statement and Prospectus.
This Proxy Statement does not contain all of the information set forth in
the Registration Statement that the Company has filed with the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933 in connection
with the proposal to establish a holding company structure described herein. The
Registration Statement, including exhibits, may be inspected or copied at
prescribed rates at the Public Reference Section of the SEC at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the SEC's
Regional Offices in New York, 7 World Trade Center, New York, New York 10048,
and Chicago, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Enterprises is subject to the information, reporting and proxy statement
requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements and other information with
the SEC. Reports, proxy statements and other information concerning Enterprises
can be inspected at the SEC's office at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and the SEC's Regional Offices in New
York, 7 World Trade Center, New York, New York 10048, and Chicago, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material,
can be obtained from such facilities and the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, at
prescribed rates.
In connection with the reincorporation described herein, the Company will
become subject to the same information, reporting and proxy statement
requirements under the Exchange Act as currently apply to Enterprises, and
copies of materials will be available for inspection and copying at the offices
of the SEC set forth above. In addition, the Company's shares of Common Stock
have been authorized for listing on the New York Stock Exchange, and copies of
such material that are available for inspection and copying at the offices of
the SEC set forth above can also be inspected at the office of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT AND PROSPECTUS AND IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT AND PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL A SECURITY, OR A SOLICITATION OF A PROXY, IN ANY JURISDICTION IN
WHICH, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT AND PROSPECTUS NOR
ANY DISTRIBUTION OF THE SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF ENTERPRISES OR OF THE COMPANY SINCE THE DATE OF THIS PROXY STATEMENT
AND PROSPECTUS.
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<PAGE> 5
SOLICITATION OF PROXIES
At the Meeting, the shareholders of Enterprises will be asked (1) to
approve the principal terms of a Plan of Reorganization and Agreement of Merger
substantially in the form of Appendix A hereto (the "Merger Agreement") pursuant
to which Enterprises will become a wholly-owned subsidiary of the Company and
the outstanding shares of Common Stock of Enterprises, without par value
("Enterprises Common Stock"), will be converted into shares of Company Common
Stock (the "Reincorporation Proposal"), and (2) to transact such other business
as may properly come before the Meeting. Your Board of Directors is asking for
your proxy for use at the Meeting. A shareholder giving a proxy may revoke it at
any time before it is exercised. Any proxy that is not revoked will be voted at
the Meeting in accordance with the shareholder's instructions indicated on the
proxy card. If no instructions are marked on the proxy card, the shares
represented thereby will be voted in favor of the Reincorporation Proposal.
Although management does not know of any other matter to be acted upon at the
Meeting, shares represented by valid proxies will be voted by the persons named
on the proxy card in accordance with their best judgment with respect to any
other matters that may properly come before the Meeting.
The cost of preparing, assembling and mailing the Notice of Special
Meeting, this Proxy Statement and the enclosed proxy card (estimated to be
$350,000, of which $136,000 had been incurred by Enterprises through April 7,
1994) will be paid by Enterprises. Enterprises has retained D.F. King to solicit
proxies, by mail, in person, or by telephone, at an estimated cost of $10,000,
plus reimbursement of reasonable out-of-pocket expenses. In addition, following
the mailing of this Proxy Statement, directors, officers and regular employees
of Enterprises may solicit proxies by mail, telephone, telegraph or personal
interview; such persons will receive no additional compensation for such
services. Brokerage houses and other nominees, fiduciaries and custodians
nominally holding shares of Enterprises Common Stock of record will be requested
to forward proxy soliciting material to the beneficial owners of such shares and
will be reimbursed by Enterprises for their charges and expenses in connection
therewith. It is anticipated that the mailing of proxy materials will begin on
or about April 14, 1994.
RECORD DATE AND VOTING
Holders of Enterprises Common Stock of record at the close of business on
April 13, 1994, are entitled to notice of, and to vote at, the Meeting. There
were shares of Enterprises Common Stock outstanding at the record
date. A shareholder giving a proxy may revoke it at any time before it is voted
by filing with Enterprises' Secretary either a written notice of revocation or a
duly executed proxy bearing a later date or by appearing at the Meeting and
voting in person. Unless a proxy is revoked, shares represented by a proxy will
be voted. On matters for which no contrary voting instructions are given, shares
will be voted in accordance with the recommendations of the Board of Directors
as shown on the proxy. On a matter for which the "ABSTAIN" or "WITHHOLD VOTE"
instruction is given, shares will be voted neither "FOR" nor "AGAINST." Each
shareholder will be entitled to one vote per share on the Reincorporation
Proposal. Approval of the Reincorporation Proposal requires the affirmative vote
of the holders of a majority of the number of shares of Enterprises Common Stock
outstanding on the Record Date.
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<PAGE> 6
PRINCIPAL HOLDERS OF SECURITIES
The following table lists the shareholders known to Enterprises to be the
beneficial owners of more than 5% of the shares of Enterprises Common Stock
outstanding as of January 31, 1994.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF SHAREHOLDER BENEFICIAL OWNERSHIP CLASS(1)
--------------------------------------------- -------------------- ----------
<S> <C> <C>
Cannae Limited Partnership(2)................ 4,343,752(3) 23.3%(3)
3811 W. Charleston, Suite 210
Las Vegas, Nevada 89102
Carl N. Karcher.............................. 2,075,073(4) 11.1(4)
700 North Clementine
Anaheim, California 92805
Brinson Partners, Inc........................ 1,625,200(5) 8.7(5)
Brinson Trust Company
Brinson Holdings, Inc.
c/o Brinson Partners, Inc.
209 South LaSalle
Chicago, Illinois 60604-1295
Dito-Devcar, Inc............................. 1,199,072(6) 6.4(6)
Dito-Devcar, LP
Pickup Charitable Unitrust #1
Pickup TMP Charitable Trust
Pickup DRP Charitable Trust
c/o Mr. Richard H. Pickup
500 Newport Center Drive, Suite 550
Newport Beach, California 92660
</TABLE>
- ---------------
(1) Calculated based on the 18,676,587 shares of Enterprises Common Stock
outstanding on January 31, 1994.
(2) Based on a Schedule 13D, as restated by amendments thereto, filed by the
following persons and entities as a group, who have agreed to become Class B
Limited Partners of Cannae Limited Partners (the "Partnership"): (a) Folco
Development Corporation ("Folco"), c/o William P. Foley II, 2100 S.E. Main
Street, Suite 400, Irvine, California 92714; (b) Daniel V., Inc. and the
Daniel P. Lane Revocable Trust U/D/T July 10, 1992 (collectively, the
"Daniel Entities"), 3811 W. Charleston, Suite 210, Las Vegas, Nevada 89102;
(c) Frank P. Willey ("Willey"), 2100 S.E. Main Street, Suite 400, Irvine,
California 92714; (d) Ce Mar Las Vegas X, Inc., 1700 Lamb Boulevard, Las
Vegas, Nevada 89115; (e) Robert L. Berry and Nancy L. Berry, Trustees of the
Berry Living Trust dated November 5, 1987, 2100 S.E. Main Street, Suite 400,
Irvine, California 92714; (f) Max Hickman, 2100 S.E. Main Street, Suite 400,
Irvine, California 92714; and (g) Vince Salvatore and Anna M. Salvatore,
Trustees of the Salvatore Family Trust dated November 8, 1991, 22932 Calle
Azoria, Mission Viejo, California 92692. Such restated Schedule 13D also
states that the following persons will become Class B Limited Partners upon
completion of certain documents and the making of certain capital
contributions to the Partnership: (a) Lawrence Calida, 2100 S.E. Main
Street, Suite 400, Irvine, California 92714; (b) Wayne Diaz, 5925 Stoneridge
Drive, P.O. Box 10425, Pleasanton, California 94588; (c) Carl Strunk, 2100
S.E. Main Street, Suite 400, Irvine, California 92714; (d) Ron Maggard, 5700
Division Street, Suite 204, Riverside, California 92506 and (e) Daniel M.
Culnane, 17352 Daimler Street, Second Floor, Irvine, California 92714. The
aggregate number of shares set forth above includes: (1) 3,820,002 shares
held by the Partnership; (2) 463,750 shares held by Folco; (3) 50,000 shares
held in the aggregate by the Daniel Entities; and (4) 10,000 shares held by
Willey. The restated Schedule 13D states that the Class A Limited Partner of
the Partnership is Carl N. Karcher, as sole trustee of the Carl N. and
Margaret M. Karcher Trust (the "Trust") (see the table above and related
footnotes). In its Schedule 13D, the Trust and Mr. and Mrs. Karcher disclaim
beneficial ownership of the Partnership's shares. The General Partner of the
Partnership is Bognor Regis, Inc., a Nevada corporation. According to the
Schedule 13D, William P. Foley II is the President of Bognor Regis, Inc. and
owns and controls Folco.
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(3) The restated Schedule 13D states that each of the Class B Limited Partners
described in Footnote (2) have sole voting and shared dispositive power with
respect to such shares.
(4) Based on a Schedule 13D, as restated by amendments thereto, filed by the
Trust, which states (w) that the Trust is the beneficial owner of 1,630,362
shares; (x) that the Trust has the right to make an optional prepayment of
$3,000,000 to the Partnership no later than June 10, 1994 and upon such
prepayment the Partnership will transfer back to the Trust 411,112 shares;
(y) that 33,000 shares are held of record by the Carl N. and Margaret M.
Karcher Foundation, the beneficial ownership of which the Trust, and Mr. and
Mrs. Karcher disclaim and (z) that Mr. Karcher is individually the
beneficial owner of 539 shares and Mrs. Karcher individually is the
beneficial owner of 60 shares. Mr. Karcher is described as the sole Trustee
of the Trust and as having the sole right to vote the Trust's shares and,
subject to certain limitations set forth in the Trust's governing
instruments, to dispose of the Trust's shares. Mr. Karcher and Margaret M.
Karcher, his wife, are described as the lifetime beneficiaries of the Trust.
The Trust and Mr. and Mrs. Karcher disclaim any beneficial ownership in the
3,820,002 shares owned by the Partnership.
(5) Based on a Schedule 13G and amendments thereto filed by Brinson Partners,
Inc. on behalf of the named entities and includes 746,293 shares held by
Brinson Partners, Inc. and 878,907 shares held by Brinson Trust Company.
(6) Based on a Schedule 13D, as restated by amendments thereto, filed by the
following persons and entities as a group: (a) Dito-Devcar, Inc. with
respect to 1,004,000 shares; (b) Dito-Devcar, LP with respect to 6,500
shares; (c) Pickup Charitable Unitrust #I with respect to 38,500 shares; (d)
Pickup TMP Charitable Trust with respect to 75,036 shares and (e) Pickup DRP
Charitable Trust with respect to 75,036 shares.
All of the shareholders in the foregoing table together hold 8,831,985
shares, or 47.3% of the outstanding shares of Enterprises' Common Stock. If such
shareholders vote in favor of the Reincorporation Proposal, the Reincorporation
Proposal would almost certainly be approved.
RECENT DEVELOPMENTS
BOSTON CHICKEN DEVELOPMENT AGREEMENT
In January 1994, Enterprises entered into the Development Agreement with
Boston Chicken, Inc. ("BCI") that grants rights to Enterprises, as a franchisee
of BCI, to develop and operate 200 Boston Chicken Stores (with an option, at the
Enterprises' election, to develop 100 more stores) in three designated areas of
California (the "Designated Markets"). The Designated Markets comprise a
specified market area around Sacramento, the County of San Diego and nine
counties in the greater Los Angeles area (including the counties of Los Angeles,
Orange, Riverside, Santa Barbara, San Bernardino and San Luis Obispo).
Enterprises plans to achieve a rapid and cost-effective roll-out of Boston
Chicken Stores by first converting a number of Carl's Jr. Restaurants. Of the
first 50 Boston Chicken Stores, Enterprises anticipates that between 30 and 40
will be converted Carl's Jr. Restaurants. By converting these selected Carl's
Jr. Restaurants, management's strategy is designed to accelerate the development
of Boston Chicken Stores in the Designated Markets, achieve a sales and profit
shift to surrounding Carl's Jr. locations and eliminate certain underperforming
Carl's Jr. restaurants. The Company does not currently anticipate converting any
additional Carl's Jr. Restaurants to Boston Chicken Stores after the initial 30
to 40 conversions are completed.
Boston Chicken Stores specialize in complete meals featuring rotisserie
roasted chicken, fresh-baked chicken pot pies, a variety of chicken sandwiches,
chicken soup and fresh vegetables, salads and other side dishes, including real
mashed potatoes, corn, stuffing and creamed spinach, as well as beverages and
desserts. Boston Chicken Stores offer meals with the convenience and value
associated with fast food, but the quality and freshness associated with
traditional home cooking. The signature menu item is chicken that is marinated
and then slow-roasted in rotisserie ovens in full view of the customer. The
Company believes that the Boston Chicken Store concept has proven to be
successful to date in other areas of the United States and is well suited to
California consumer tastes.
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<PAGE> 8
NEW YORK STOCK EXCHANGE LISTING
In April 1994, the shares of Common Stock were authorized for listing on
the New York Stock Exchange under the symbol "CKR" Enterprises' shares of Common
Stock are currently quoted on the NASDAQ National Market System.
SUMMARY OF REINCORPORATION PROPOSAL
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus, and is qualified in its entirety by the
detailed information contained elsewhere herein, the Appendices hereto and the
documents referred to herein, to which reference is made for a more complete
discussion of the matters summarized below.
GENERAL
The Company is a wholly-owned subsidiary of Enterprises recently organized
under the laws of the State of Delaware. The Company has two wholly-owned
subsidiaries, Boston Pacific, Inc. ("Boston Pacific"), which was formed to
develop, own and operate Boston Chicken Stores, and a newly-formed California
subsidiary ("California Subsidiary"), organized solely for purposes of effecting
the merger (the "Merger") contemplated by the Reincorporation Proposal. As a
result of the Merger, California Subsidiary will be merged into Enterprises,
California Subsidiary will disappear, and Enterprises will be the surviving
entity and a wholly-owned subsidiary of the Company along with Boston Pacific.
Upon the consummation of the Merger, shareholders of Enterprises will
become stockholders of the Company and will receive one share of Common Stock of
the Company in exchange for each share of Common Stock of Enterprises held by
them. See "REINCORPORATION PROPOSAL."
REASONS FOR FORMATION OF HOLDING COMPANY
In January 1994, Enterprises entered into an area development agreement
with Boston Chicken, Inc. ("BCI") that grants rights to Enterprises, as a
franchisee of BCI, to develop and operate 200 Boston Chicken Stores (with an
option, at Enterprises' election, to develop 100 more stores) in three
designated areas of California. Management believes that it would be in the best
interests of the Company to conduct the operations of its Carl's Jr. Restaurants
and Boston Chicken Stores through separate subsidiaries. Upon the adoption and
implementation of the Reincorporation Proposal, the Company will be the holding
company for both Enterprises, the subsidiary through which the Company will
conduct its Carl's Jr. Restaurant operations, and Boston Pacific, the subsidiary
through which the Company will conduct its Boston Chicken Store operations. See
"REASONS FOR FORMATION OF DELAWARE HOLDING COMPANY -- Operation of Carl's Jr.
Restaurants and Boston Chicken Stores through Separate Subsidiaries."
REASONS FOR REINCORPORATION IN DELAWARE
By reincorporating in the State of Delaware, the Company will be able to
avail itself of that state's practice of developing and implementing flexible
corporation laws that are conducive to the operational needs and independence of
corporations domiciled in that state. These laws include the ability to
eliminate the liability of directors for certain breaches of their fiduciary
duty. See "REASONS FOR FORMATION OF DELAWARE HOLDING COMPANY -- Delaware
Corporation Law" and "-- Elimination of Director Liability," "SIGNIFICANT
DIFFERENCES BETWEEN THE ARTICLES OF INCORPORATION OF ENTERPRISES AND THE
CERTIFICATE OF INCORPORATION OF THE COMPANY," and "SIGNIFICANT DIFFERENCES
BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND DELAWARE."
REDUCED VULNERABILITY TO TAKEOVERS
If the Reincorporation Proposal is adopted and implemented, the Company's
Certificate of Incorporation and Bylaws would include various features intended
to render more difficult certain unsolicited or hostile
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<PAGE> 9
attempts to take over the Company. Although these features are intended to
ensure that stockholders of the Company receive a fair price for their shares by
encouraging any person who might seek to acquire control of the Company first to
consult with the Company's Board of Directors and to negotiate the terms of any
tender offer or proposed business combination, they may also discourage hostile
takeover attempts or tender offers for control of the Company that might be
approved by many or even a majority of the Company's stockholders. See
"REINCORPORATION PROPOSAL -- General," "REASONS FOR FORMATION OF DELAWARE
HOLDING COMPANY -- Reduced Vulnerability to Takeovers" and "-- Possible
Disadvantages," "SIGNIFICANT DIFFERENCES BETWEEN THE ARTICLES OF INCORPORATION
OF ENTERPRISES AND THE CERTIFICATE OF INCORPORATION OF THE COMPANY," and
"SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND
DELAWARE."
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the number of shares
of Enterprises Common Stock outstanding on the Record Date is required to
approve the Reincorporation Proposal.
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors of Enterprises believes that the Reincorporation
Proposal is in the best interests of Enterprises' shareholders and recommends a
vote in favor of the proposal. See "REINCORPORATION PROPOSAL."
FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a tax-free reorganization under
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986, as
amended. Assuming such tax treatment, no gain or loss will be recognized by the
shareholders of Enterprises upon the conversion of their shares of Enterprises
Common Stock into shares of Company Common Stock, and the basis of the shares of
Company Common Stock received by such shareholder of Enterprises will be the
same as the basis of the shares of Enterprises Common Stock held by such
shareholder immediately prior to the Merger. Shareholders should consult their
own tax advisors regarding the federal, state, local and foreign tax
consequences of the Merger. See "CERTAIN FEDERAL TAX CONSIDERATIONS."
DISSENTERS' RIGHTS OF APPRAISAL
Dissenters' rights are not available to shareholders of Enterprises with
respect to the Merger.
EXCHANGE OF CERTIFICATES
After the Merger, each outstanding certificate representing a share or
shares of Enterprises Common Stock will continue to represent the same number of
shares of the Company. It will not be necessary for shareholders of Enterprises
to exchange their existing stock certificates for stock certificates of the
Company. See "REINCORPORATION PROPOSAL -- General."
REINCORPORATION PROPOSAL
General. The Board of Directors of Enterprises believes that the best
interests of Enterprises and its shareholders will be served by the merger
contemplated by the Reincorporation Proposal (the "Merger"). Enterprises has
caused the Company to be organized as a new Delaware corporation . Immediately
prior to the Merger, the Company will have no assets or liabilities except (1) a
nominal amount of cash paid in by Enterprises for shares of Common Stock of the
Company, (2) the stock of a newly-formed California subsidiary ("California
Subsidiary"), having no assets or liabilities other than a nominal amount of
cash, and (3) the stock of a recently formed California Subsidiary, Boston
Pacific, which was formed to develop, own and operate Boston Chicken Stores in
Southern California and metropolitan Sacramento.
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<PAGE> 10
When the Merger becomes effective (the "Effective Time"), California
Subsidiary will be merged into Enterprises, California Subsidiary will
disappear, and Enterprises will survive the Merger and become a wholly-owned
subsidiary of the Company. Each outstanding share of Enterprises Common Stock
will be converted by operation of law into one share of Company Common Stock. As
a result of the Merger, the shareholders of Enterprises will become stockholders
of the Company and their rights will become subject to the Certificate of
Incorporation and Bylaws of the Company, which will be substantially in the
forms of Appendices B and C hereto. Following the Merger, the Company will be
the holding company for Enterprises, the subsidiary through which the Company
will conduct its Carl's Jr. Restaurant operations, and Boston Pacific, the
subsidiary through which the Company will conduct its Boston Chicken Store
operations. By establishing this holding company structure, the Company believes
that the management of these two chains will be facilitated, the operations of
the two businesses will be kept distinct, and, consequently, the Company will be
able to more effectively develop the growth of both.
The Certificate of Incorporation and Bylaws of the Company include various
features (the "Antitakeover Provisions") intended to render more difficult
certain unsolicited or hostile attempts to take over the Company. The Board
believes that such attempts would disrupt the Company, divert the attention of
the Company's directors, officers and employees and adversely affect the
Company's operations. These features include, among other things, the
establishment of a classified Board of Directors with staggered terms of office,
the requirement of a supermajority vote of stockholders to approve certain
business combinations, the continuation of cumulative voting of shares for
directors and the elimination of the right of stockholders to call special
stockholders' meetings or to act by written consent. These matters are described
more fully below and in Appendices B and C hereto.
Approval of the Reincorporation Proposal would also afford the directors of
Enterprises, all of whom would become directors of the Company, protection
against certain liability for monetary damages arising out of certain breaches
of their fiduciary duties as directors, as described more fully below and in
Appendices B and C. The Certificate of Incorporation contains an authorized
capital of 50,000,000 shares of Common Stock, $.01 par value, and 5,000,000
shares of Preferred Stock, $.01 par value, which is substantially more
authorized shares than Enterprises currently has. After approval of the
Reincorporation Proposal, the Board of Directors, without further stockholder
approval, would have the authority to issue the additional authorized shares of
Common Stock, from time to time, at prices the Board deems appropriate. The
Board would also be authorized to issue such series and classes of Preferred
Stock with such terms (including dividend and interest rates, conversion prices,
voting rights, redemption prices, maturity dates and similar matters) as the
Board deems appropriate. Such provisions will allow the Company the flexibility
to sell Common Stock, securities convertible into Common Stock and Preferred
Stock to finance operations and future expansion. See "SIGNIFICANT DIFFERENCES
BETWEEN THE ARTICLES OF INCORPORATION OF ENTERPRISES AND THE CERTIFICATE OF
INCORPORATION OF THE COMPANY -- Authorized Shares of Stock." The provision of
the Company's Certificate of Incorporation relating to the limitation of
director liability, and the increase in authorized capitalization, together with
the Antitakeover Provisions are hereinafter referred to as the "Charter
Provisions." THE REINCORPORATION PROPOSAL, THE PROPOSED ANTITAKEOVER PROVISIONS,
THE INCREASED AUTHORIZED CAPITALIZATION AND THE LIMITATION ON DIRECTOR LIABILITY
CONSTITUTE ONE PROPOSAL FOR SHAREHOLDER APPROVAL. A VOTE FOR THE REINCORPORATION
PROPOSAL WILL THEREFORE ALSO CONSTITUTE A VOTE FOR THE MERGER AGREEMENT AND ALL
OF THE CHARTER PROVISIONS.
After the Merger, each outstanding certificate representing a share or
shares of Enterprises Common Stock will continue to represent the same number of
shares of the Company. THUS, IT WILL NOT BE NECESSARY FOR SHAREHOLDERS OF
ENTERPRISES TO EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR STOCK CERTIFICATES
OF THE COMPANY. A par value of $.01 has been established for shares of the
Company Common Stock for the purpose of reducing certain filing fees in the
State of Delaware. The proposed Antitakeover Provisions are permitted under
Delaware law.
It is possible, of course, that the reincorporation transaction and the
adoption of the Antitakeover Provisions will discourage hostile takeover
attempts or tender offers for control of the Company that might be
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approved by many, or indeed by a majority, of the Company's stockholders. See
"REASONS FOR FORMATION OF DELAWARE HOLDING COMPANY -- Possible Disadvantages,"
below. More specifically, the beneficial ownership of the Company Common Stock
by the stockholders named under "PRINCIPAL HOLDERS OF SECURITIES," coupled with
the Supermajority Vote Requirements set forth in Article XI of the Certificate
of Incorporation of the Company and described below under "SIGNIFICANT
DIFFERENCES BETWEEN THE ARTICLES OF INCORPORATION OF ENTERPRISES AND THE
CERTIFICATE OF INCORPORATION OF THE COMPANY -- Increased Shareholders Vote
Required in Certain Business Combinations and Other Transactions," will
effectively enable such stockholders to veto certain proposed transactions that
many stockholders of the Company might desire or believe to be beneficial.
It is also possible that the provisions of the Company's Certificate of
Incorporation with respect to the limitation of liability of directors could
result in one or more directors avoiding liability for monetary damages under
circumstances where many stockholders believe liability should be imposed.
In accordance with California law, the affirmative vote of the holders of
at least a majority of the outstanding shares of Enterprises' Common Stock is
required for approval of the Reincorporation Proposal, including approval of the
principal terms of the Merger Agreement, the Charter Provisions and the other
terms of the proposed Merger. The proposed reincorporation transaction and the
adoption of the Charter Provisions were unanimously approved by Enterprises'
Board of Directors at its meeting held on March , 1994.
ACCORDINGLY, THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE REINCORPORATION
PROPOSAL.
The discussion contained herein is qualified in its entirety by, and should
be read in conjunction with, the Merger Agreement, the Certificate of
Incorporation and the Bylaws of the Company, copies of which are attached hereto
as Appendices A, B and C, respectively.
No Change in the Business or Physical Location of Enterprises. The
establishment of a Delaware holding company will cause the shareholders of
Enterprises to be stockholders of a company with a different legal domicile and
will effect certain other changes of a legal nature, the most significant of
which are described in this Proxy Statement. However, the proposed establishment
of a holding company will not result in any change in the business, management,
location of the principal executive offices, assets, liabilities or net worth of
the Company (other than due to the costs of the transaction). Although the
Certificate of Incorporation of the Company will permit the Board of Directors
to change the authorized number of directors from time to time, initially the
authorized number of directors will remain at nine and the composition of the
Board of the Company will remain composed of those persons elected as directors
of Enterprises. If the Reincorporation Proposal is approved, however, such
directors will be assigned to one of three classes at the Annual Meeting of the
Company to be held in June 1994 and will serve initial terms of either one, two
or three years, depending on their class.
Right of Dissenting Shareholders. Dissenters' rights are not available to
shareholders of Enterprises with respect to the proposed Merger.
Federal Income Tax Consequences of the Merger. Enterprises has been advised
by legal counsel that the Merger should qualify as a tax-free reorganization.
See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS."
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REASONS FOR FORMATION OF DELAWARE HOLDING COMPANY
OPERATION OF CARL'S JR. RESTAURANTS AND BOSTON CHICKEN STORES THROUGH SEPARATE
SUBSIDIARIES
In January 1994, Enterprises entered into an area development agreement
with Boston Chicken, Inc. ("BCI") that grants rights to Enterprises, as a
franchisee of BCI, to develop and operate 200 Boston Chicken Stores (with an
option, at Enterprises' election, to develop 100 more stores) in three
designated areas of California. These areas comprise a specified market area
around Sacramento, the County of San Diego and nine counties in the greater Los
Angeles area (including the counties of Los Angeles, Orange, Riverside, Santa
Barbara, San Bernardino and San Luis Obispo).
After entering into this development agreement, management determined that
it would be in the best interests of the Company to conduct the operations of
its Carl's Jr. Restaurants and Boston Chicken Stores through separate
subsidiaries. Following the Merger, the Company will be the holding company for
Enterprises, the subsidiary through which the Company will conduct its Carl's
Jr. Restaurant operations, and Boston Pacific, the subsidiary through which the
Company will conduct its Boston Chicken Store operations. Both Enterprises and
Boston Pacific will have separate management teams overseeing their operations.
These management teams will report directly to the executive officers of the
Company. See "MANAGEMENT." Management believes that the establishment of two
separate management teams in two separate subsidiaries, with the holding
company's executive officers supervising both, will promote the development of
both operations. The Company will be able to more easily keep the operations of
the two entities distinct. This structure will also facilitate the financing of
one of the two entities when the other does not have any financing requirements
at the time. In addition, the Company expects to be able to more efficiently
monitor and manage the revenues and costs associated with each operation, as
well as corporate overhead, through the establishment of the holding company
structure. The Company also anticipates that the establishment of the holding
company may help insulate the holding company and each subsidiary from the
liabilities of the other entities. The operational advantages that the Company
is seeking through the establishment of a holding company structure could be
achieved without the adoption of the Antitakeover Provisions also being proposed
for shareholder approval concurrently herewith. See "Reduced Vulnerability to
Takeovers" below.
DELAWARE CORPORATION LAW
The State of Delaware has long been the leader in adopting, construing and
implementing comprehensive, flexible corporation laws that are conducive to the
operational needs and independence of corporations domiciled in that state. The
corporation law of Delaware is widely regarded as the most extensive and well-
defined body of corporate law in the United States. Both the legislature and the
courts in Delaware have demonstrated an ability and a willingness to act quickly
and effectively to meet changing business needs. The Delaware judiciary has
acquired considerable expertise in dealing with complex corporate issues.
Moreover, the Delaware courts have repeatedly shown their willingness to
accelerate the resolution of such complex corporate legal issues within the very
limited time available to meet the needs of parties engaged in corporate
litigation. It is anticipated that the Delaware General Corporation Law will
continue to be interpreted and construed in significant court decisions, thus
lending predictability to the Company's corporate legal affairs.
Furthermore, many of the Charter Provisions, including the institution of a
classified Board of Directors, the elimination of the right of stockholders to
call special meetings of stockholders, the granting of authority to the Board of
Directors, without stockholder approval, to establish and change the authorized
number of directors and the limitation of director liability for certain
breaches of fiduciary duty are permitted under Delaware law, but are not
permitted under California law. See "SIGNIFICANT DIFFERENCES BETWEEN THE
CORPORATION LAWS OF CALIFORNIA AND DELAWARE."
ELIMINATION OF DIRECTOR LIABILITY
In 1986, Delaware adopted new legislation permitting corporations
incorporated under its laws to adopt provisions in their certificates of
incorporation limiting or eliminating the liability of directors for certain
breaches of their fiduciary duty. The Board of Directors believes that such a
limitation on director liability, which is not presently permitted under
Enterprises' Articles of Incorporation, is extremely important in attracting and
retaining qualified directors, especially in the present climate of limited
availability of insurance for officers and directors against such liability.
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REDUCED VULNERABILITY TO TAKEOVERS
The Reincorporation Proposal, including the Antitakeover Provisions, is
intended to reduce the Company's vulnerability to unsolicited or hostile
attempts to obtain control of the Company and to increase the likelihood that
stockholders will receive a fair price for their shares in transactions relating
to such attempts. The Board of Directors does not know of any pending or
contemplated attempt by any outsider to acquire control of Enterprises, but is
aware that other companies and their shareholders have been subjected to various
tactics that would be contrary to the best interests of Enterprises and its
shareholders. For example, outsiders frequently accumulate substantial stock
positions in public corporations in order to force a merger or other business
combination in which certain of the corporation's shareholders receive less
valuable consideration for their shares than other shareholders or to force the
corporation itself to repurchase the outsider's block at a premium. Such a
premium is often obtained through express or implied threats of disruptive
tactics. In some instances, the accumulation of stock is a prelude to a proposal
to restructure the corporation or to sell all or a portion of its assets to
repay debt incurred by the outsider to purchase the shares. In many cases, such
persons have sought representation on the corporation's board of directors in
order to increase the likelihood that their proposals will be implemented. If
the corporation resists these efforts to obtain representation or declines to
repurchase their stock at a premium, such persons may commence proxy contests to
try to elect themselves or their nominees to the board of directors to replace
directors elected by other shareholders or even to replace the entire board.
The suddenness of a tender or exchange offer or other hostile attempt to
acquire control of Enterprises may often deprive the shareholders of an adequate
opportunity to evaluate the merits of the proposed transaction. Shareholders may
be tempted or encouraged to act hastily without adequate evaluation of available
alternatives that may maximize the value of their investments. Forming a
considered judgment with respect to such a proposal requires, among other
things, an assessment of its fairness, an analysis of its tax implications for
shareholders and the corporation, and consideration of the impact of the
transaction on the corporation, its shareholders, employees and others. Takeover
bids that have not been approved by the Board of Directors may be timed to take
advantage of temporarily depressed stock prices or designed to foreclose or
minimize the possibility of more favorable competing bids. In addition, such
bids may involve the acquisition of only a controlling interest in the
corporation's stock without affording all shareholders the opportunity to sell
on the same terms. If the buyer does not acquire all outstanding shares through
the initial transaction, the remaining shareholders may find the value of their
investment reduced by the adoption of corporate policies and practices
significantly different from those upon which they based their investment
decision. There is no guarantee that in any subsequent transaction the remaining
shareholders will receive a fair price for their shares or a price that is equal
to the price paid to obtain control. It must be noted, of course, that
shareholders could still be subject to similar problems, uncertainties and time
pressures with respect to such a proposal approved by the Board of Directors,
but the Board believes such problems are more likely to be alleviated if such a
proposal is first reviewed and evaluated by the Board of Directors.
The Antitakeover Provisions are designed to encourage any person who might
seek to acquire control of the Company first to consult with the Company's Board
of Directors and to negotiate the terms of any tender offer or proposed business
combination. The Board believes that, for the protection of the Company's
stockholders, any proposed acquisition of control of the Company, and any
proposed business combination in which the Company might be involved, should be
thoroughly studied by the Company's Board of Directors to assure that such
transaction would be in the best interests of the Company and its stockholders
and that all of the Company's stockholders be treated fairly. In general, the
proposed Antitakeover Provisions require stockholder approval by at least
66 2/3% of the voting power of outstanding shares for certain corporate actions
(for example, approval of Business Combinations (as defined below) involving an
Interested Stockholder (as defined below) or the amendment of certain charter or
bylaw provisions), but in most instances dispense with such supermajority
requirement if the proposal is approved by 66 2/3% of the directors. Thus, in
determining the advisability of the Antitakeover Provisions, shareholders should
consider that the Antitakeover Provisions will, in certain circumstances
described below, frustrate the ability of holders of a majority of the
outstanding shares of Company Common Stock to effect certain corporate
transactions. See "SIGNIFICANT DIFFER-
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ENCES BETWEEN THE ARTICLES OF INCORPORATION OF ENTERPRISES AND THE CERTIFICATE
OF INCORPORATION OF THE COMPANY."
As noted above, the Reincorporation Proposal, including the adoption of the
Antitakeover Provisions, is not being proposed in response to any present
attempt known to the Board of Directors to acquire control of Enterprises, to
obtain representation on Enterprises' Board of Directors or to take significant
corporate action. Rather, the Board of Directors believes that the
Reincorporation Proposal and the Antitakeover Provisions are prudent and in the
best interests of Enterprises and its shareholders and should be adopted for
their protection. The Board further believes that it is appropriate to adopt the
proposed Antitakeover Provisions at a time when no such transaction is pending
or known by the Board to be contemplated, since their existence would reduce the
likelihood of an unsolicited or hostile attempt to acquire control of the
Company in an unfair or inequitable manner and thus reduce the likelihood that
the Company would be required to incur significant expense and be subject to
substantial disruption in connection with such an attempt. Certain additional
benefits and detriments of the Antitakeover Provisions are discussed below under
"Possible Disadvantages" and "SIGNIFICANT DIFFERENCES BETWEEN THE ARTICLES OF
INCORPORATION OF ENTERPRISES AND THE CERTIFICATE OF INCORPORATION OF THE
COMPANY" below.
The Board of Directors does not have any current plans to propose
amendments to the Company's charter documents that may have "antitakeover"
implications, other than as described in this Proxy Statement. The Articles of
Incorporation and Bylaws of Enterprises do not currently contain provisions
intended by the Company to have "antitakeover" effects.
POSSIBLE DISADVANTAGES
The significant limitations on director liability resulting from approval
of the Reincorporation Proposal could have the effect of excusing one or more
directors from personal monetary liability for damages under circumstances where
a shareholder believes that such liability is warranted. The Board of Directors
believes, however, that this possibility is outweighed by the importance of
being able to attract and retain qualified directors who might otherwise be
unwilling to serve because of the risks of liability involved.
To the extent the Reincorporation Proposal is effective in discouraging any
takeover attempts, it will be to the advantage of stockholders only to the
extent any enhanced power of the Board of Directors is utilized wisely and for
the benefit of all stockholders. Also, approval of the Antitakeover Provisions
could discourage or frustrate future attempts (for example, by means of tender
offers for, or open market purchases of, Company Common Stock) to acquire
control of the Company that are not approved by a majority of the Independent
Directors (as defined below), but which the holders of a majority of outstanding
shares may believe to be in their best interests. For example, the Antitakeover
Provisions under certain circumstances described more fully below require the
approval of 66 2/3% of the Company's stockholders for certain significant
transactions involving the Company. See "SIGNIFICANT DIFFERENCES BETWEEN THE
ARTICLES OF INCORPORATION OF ENTERPRISES AND THE CERTIFICATE OF INCORPORATION OF
THE COMPANY -- Increased Shareholder Vote Required in Certain Business
Combinations and Other Transactions." As a result of the adoption of the
Antitakeover Provisions, a small group of the current shareholders could
effectively prevent approval of such transactions. See "PRINCIPAL HOLDERS OF
SECURITIES."
In addition, because tender offers are often made at a substantial premium
above market price, and as large purchases made in the open market often result
in temporary increases in the market price of such shares, stockholders might
not be afforded the opportunity to sell their shares at such premium prices if
the proposed Antitakeover Provisions should discourage such tender offers or
open market purchases. The proposed Antitakeover Provisions could also delay or
frustrate the assumption of control by a holder of a large block of the
Company's shares or a change in the composition of the incumbent Board of
Directors, even if many stockholders considered such actions to be beneficial.
Furthermore, adoption of the Antitakeover Provisions will not necessarily ensure
or guarantee that stockholders will receive a price for their shares in
connection with an acquisition of control of the Company that reflects the value
of such shares, or that the price received will be fair or equitable, although
in the opinion of the Board of Directors the likelihood that the
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price will reflect such value and be fair and equitable will be increased by
adoption of the Antitakeover Provisions.
The institution of a classified Board of Directors makes it more difficult
for stockholders who do not approve of the policies of the Board to elect a
majority of the members. In addition, the three-year term for incumbent
directors may make directors less responsive to the desires of individual
stockholders.
CERTAIN DEFINITIONS
The Certificate of Incorporation of the Company includes definitions of the
following terms, which are summarized below:
"Affiliate" means a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
another person.
"Associate," when used to indicate a relationship with any person, means
(i) any corporation or organization of which such person is a director, officer
or partner or is, directly or indirectly, the owner of 20% or more of any class
of voting stock, (ii) any trust or other estate in which such person has at
least a 20% beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity, and (iii) any relative or spouse of such
person, or any relative of such spouse, who has the same residence as such
person.
"Beneficially Owns" generally means, with respect to any security, the sole
or shared power, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, to vote or dispose of such security,
as more specifically defined in Rule 13d-3 under the Exchange Act.
"Business Combination," when used in reference to the Company and any
Interested Stockholder of the Company, means:
(i) any merger or consolidation of the Company or any direct or
indirect majority-owned subsidiary of the Company with (A) the Interested
Stockholder, or (B) with any other corporation if the merger or
consolidation is caused by the Interested Stockholder;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions), except
proportionately as a stockholder of the Company, to or with the Interested
Stockholder, whether as part of a dissolution or otherwise, of assets of
the Company, or of any direct or indirect majority-owned subsidiary of the
Company, which assets have an aggregate market value equal to 10% or more
of either the aggregate market value of all of the assets of the Company
determined on a consolidated basis or the aggregate market value of all the
outstanding stock of the Company;
(iii) any transaction that results in the issuance or transfer by the
Company or by any direct or indirect majority-owned subsidiary of the
Company of any stock of the Company or of such subsidiary to the Interested
Stockholder, except (A) pursuant to the exercise, exchange or conversion of
securities exercisable for, exchangeable for or convertible into stock of
the Company or any such subsidiary which securities were outstanding prior
to the time that the Interested Stockholder became such, (B) pursuant to a
dividend or distribution paid or made or the exercise, exchange or
conversion of securities exercisable for, exchangeable for or convertible
into stock of the Company or any such subsidiary which security is
distributed, pro rata to all holders of a class or series of stock of the
Company subsequent to the time the Interested Stockholder became such, (C)
pursuant to an exchange offer by the Company to purchase stock made on the
same terms to all holders of said stock, or (D) any issuance or transfer of
stock by the Company; provided, however, that in no case under clauses (B)
through (D) above shall there be an increase in the Interested
Stockholder's proportionate share of the stock of any class or series of
the Company or of the voting stock of the Company;
(iv) any transaction involving the Company or any direct or indirect
majority-owed subsidiary of the Company that has the effect, directly or
indirectly, of increasing the proportionate share of the stock of any class
or series, or securities convertible into the stock of any class or series,
of the Company or of any such subsidiary that is owned by the Interested
Stockholder, except as a result of immaterial changes due
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to fractional share adjustments or as a result of any purchase or
redemption of any shares of stock not caused, directly or indirectly, by
the Interested Stockholder; or
(v) any receipt by the Interested Stockholder of the benefit, directly
or indirectly (except proportionately as a stockholder of the Company), of
any loans, advances, guarantees, pledges or other financial benefits (other
than those expressly permitted in subparagraphs (i)-(iv) above) provided by
or through the Company or any direct or indirect majority-owned subsidiary.
"Interested Stockholder" means any Person (other than the Company and any
direct or indirect majority-owned subsidiary of the Company) that (1)
Beneficially Owns 5% or more of the outstanding Voting Stock, (2) is an
Affiliate or Associate of the Company and Beneficially Owned 5% or more of the
outstanding Voting Stock at any time within the three-year period immediately
prior to the date on which it is sought to be determined whether such Person is
an Interested Stockholder, or (3) is an Affiliate or Associate of a Person
described in (1) or (2) preceding; provided, however, that the term "Interested
Stockholder" shall not include (i) any Person who (a) Beneficially Owned shares
in excess of the 5% limitation set forth herein as of the first date upon which
shares of Voting Stock of the Company are held of record or beneficially by more
than one hundred (100) stockholders and continued to Beneficially Own shares in
excess of such 5% limitation or would have Beneficially Owned such shares but
for action by the Company or (b) acquired such shares from a Person described in
(a) above by gift, inheritance or in a transaction in which no consideration was
exchanged; or (ii) any person whose ownership of shares in excess of the 5%
limitation set forth herein is the result of action taken solely by the Company;
provided, however, that such person shall be an Interested Stockholder if
thereafter such person acquires additional shares of Voting Stock except as a
result of further corporation action not caused, directly or indirectly, by such
Person. For the purpose of determining whether a person is an Interested
Stockholder, (1) the Voting stock deemed to be outstanding shall include stock
deemed to be owned by the person through application of Section 2.03(c)(8) of
the Delaware General Corporation Law, except that the Voting Stock deemed to be
outstanding shall not include any other unissued stock of the Company that may
be issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise, and (2) a
person engaged in business as an underwriter of securities shall not be deemed
to own any Voting Stock acquired through such person's participation in good
faith in a firm commitment underwriting until the expiration of 40 days after
the date of such acquisition.
"Person" or "person" means any individual, corporation, partnership,
unincorporated association or other entity.
"Voting Stock" means stock of the Company of any class or series entitled
to vote generally in the election of directors of the Company.
SIGNIFICANT DIFFERENCES BETWEEN THE ARTICLES OF INCORPORATION OF
ENTERPRISES AND THE CERTIFICATE OF INCORPORATION OF THE COMPANY
The Certificate of Incorporation of the Company will differ from the
Articles of Incorporation of Enterprises in the principal respects described
below.
CLASSIFIED BOARD OF DIRECTORS, REMOVAL OF DIRECTORS AND RELATED MATTERS
At present, all directors of Enterprises are elected annually to one-year
terms. Upon the effectiveness of the Merger, the directors of Enterprises will
be the directors of the Company to serve as such until their terms have expired
and successors have been elected. Article X of the Certificate of Incorporation
of the Company provides that the Board of Directors will be divided into three
classes, each class to consist as nearly as possible of one-third of the
directors. The term of office of the Class I directors will expire at the 1995
annual meeting of stockholders, the term of the Class II directors will expire
at the 1996 annual meeting, and the term of the Class III directors will expire
at the 1997 annual meeting. At each annual meeting beginning with the 1995
annual meeting, only one class of directors will be elected, and they will serve
for a three-year term and until their successors are elected. Thus, the regular
term of only one class of directors will expire each year and each director will
stand for election only once in each three-year period. If the Reincorporation
Proposal is
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approved, the nominees for election as directors of the Company at the Annual
Meeting of Stockholders of the Company to be held in 1994 will be assigned to
one of the three classes of directors of the Company.
Article X of the Certificate of Incorporation also provides that directors
of the Company may be removed only for cause and only by the affirmative vote of
holders of a majority of the Company's Voting Stock. Thus, a third party seeking
to gain control of the Board of Directors may be forced to await the expiration
of the respective terms of incumbent directors, unless there were cause and
sufficient voting strength to remove a particular director or directors. The
Board of Directors believes that once a person is elected to the Board of
Directors for a specific, fixed term, that director should not be subject to
arbitrary or capricious removal, especially at the whim of an outsider who
acquires shares for the purpose and with the intent of ousting incumbent
directors who oppose the outsider's policies and practices with respect to the
Company. It must be noted, of course, that this provision would also prevent the
removal of a director in mid-term by other stockholders unless cause exists and
the removal is approved by the holders of a majority of the Voting Stock of the
Company. This provision is expected to enable and encourage qualified persons to
serve as directors without concern for possible arbitrary removal without cause.
Directors of Enterprises can be removed without cause by a shareholder vote, but
only if the number of shares voted against removal or not voted would be
insufficient to elect the director with cumulative voting. Directors of
Enterprises may be removed for cause only (i) by order of a court sought by
shareholders holding at least 10% of the outstanding shares of any class, if the
court finds that the director engaged in fraudulent or dishonest acts or gross
abuse of authority or discretion or (ii) by the Board, upon declaration of the
vacancy of the office of a director declared of unsound mind by an order of
court or convicted of a felony. "Cause" is not defined in the Delaware statute.
Article X gives the Company's Board of Directors a greater likelihood of
continuity and experience, since, except in the case of vacancies filled by the
Board of Directors, at any one time approximately one-third of the directors
will have served for at least two years, approximately one-third will have
served for at least one year and removal of a director will be more difficult.
Although the Board of Directors is not aware of any problems experienced by
Enterprises in the past with respect to continuity and stability, the Board
believes that a classified Board of Directors will decrease the likelihood that
problems of continuity and stability might arise in the future. The Board of
Directors is aware that in recent years there have been a number of disruptive
attempts to obtain control of corporations through the acquisition of a
significant minority position and the election of a new slate of directors. A
classified Board will serve as an obstacle to any such attempts, and, at a
minimum, two successive annual meetings of stockholders will normally be
required in order to elect a majority of the Board.
Instituting a classified Board of Directors may, however, deter certain
mergers, tender offers, proxy contests or other future attempts to acquire
control of the Company that some or a majority of stockholders may deem to be in
their best interests. In addition, stockholders who do not approve of the
policies of the Board of Directors will be unable to elect a majority of the
members of the Board for a minimum period encompassing two annual meetings of
stockholders, unless such stockholders are able to obtain the removal of
incumbent directors for cause. The three-year term for incumbent directors may
also make directors less responsive to desires of individual stockholders.
Enterprises' Articles of Incorporation provide that the number of directors
will be not less than six nor more than nine, with the exact number of
authorized directors to be fixed in the Bylaws of Enterprises within that range,
from time to time, by the shareholders or Board of Directors. Under California
law, the range of authorized directors of Enterprises can only be changed with
shareholder approval, while Article VIII of the Certificate of Incorporation of
the Company provides that the number of directors that shall constitute the
whole Board shall be as specified in the Bylaws of the Company. Article XIII of
the Certificate of Incorporation authorizes the Board of Directors to make,
alter, amend, repeal or rescind the Company's Bylaws. Consequently, the Board of
Directors, subject to limited exceptions and restrictions, has the power to
change the authorized number of directors of the Company. The Bylaws of the
Company provide that the number of directors of the Company shall be nine, the
same as the number currently fixed under Enterprises' Bylaws.
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Section 3.5 of the Bylaws of the Company provides that a vacancy on the
Board of Directors, whether such vacancy results from death, resignation,
disqualification, an increase in the number of directors or any other cause, may
be filled by vote of the majority of the remaining directors, even though less
than a quorum, or by a sole remaining director; provided, however, that whenever
the holders of any class or series of shares are entitled to elect one or more
directors, any vacancy or newly created directorship of such class or series may
be filled by a majority of the directors elected by such class or series then in
office, or by a sole remaining director so elected.
Under the provisions of California law applicable to Enterprises, vacancies
on the Board can be filled by a majority vote of directors present at a meeting,
provided that at least a majority of the authorized number of directors is
present or, if the number of directors then in office is less than a majority,
by a majority of the directors then in office. If, however, the vacancy is
created by removal of a director of Enterprises, the vacancy can only be filled
by the shareholders, unless the Articles of Incorporation or Bylaws of
Enterprises are amended to allow the directors to do so. Under both California
and Delaware law, vacancies may also be filled by the shareholders.
INCREASED SHAREHOLDER VOTE REQUIRED IN CERTAIN BUSINESS COMBINATIONS AND OTHER
TRANSACTIONS
Under California law mergers, certain reorganizations, sales of all or
substantially all of the assets of the Company, the adoption of a plan of
voluntary liquidation of the Company and recapitalizations of the Company
involving amendments to its Articles of Incorporation must all be approved by
the affirmative vote of the holders of a majority of Enterprises' outstanding
Voting Stock. Certain other transactions, including sales of less than
substantially all of the assets of Enterprises, do not require shareholder
approval under California law. Article XI of the Certificate of Incorporation of
the Company provides that, in addition to any affirmative vote required by
applicable law, the approval or authorization of any Business Combination that
has not been approved in advance by at least 66 2/3% of the directors shall
require the affirmative vote of the holders of not less than 66 2/3% of the
Voting Stock then outstanding (the "Supermajority Vote Requirement").
Although the purpose of the Supermajority Vote Requirement and the
exceptions described below is to protect the Company, its stockholders and
employees and others from unfavorable Business Combinations initiated by an
Interested Stockholder, to the extent that the Supermajority Vote Requirement
discourages attempts to acquire control of the Company, stockholders who might
wish to participate in a tender offer may not be afforded the opportunity to do
so. Similarly, the Supermajority Vote Requirement could, under certain
circumstances, permit the Board of Directors or minority stockholders to
frustrate consummation of a Business Combination that the holders of a majority
of the Voting Stock of the Company may believe to be in their best interests.
See "PRINCIPAL HOLDERS OF SECURITIES."
The Supermajority Vote Requirement will not apply to any proposed Business
Combination that has been approved by at least 66 2/3% of the directors of the
Company. This provision is designed to provide an incentive for an Interested
Stockholder to negotiate a proposed Business Combination with the Company's
Board of Directors instead of initiating such a transaction on a non-negotiated
or hostile basis. The Supermajority Vote Requirement is intended to discourage,
but would not prevent, the initiation of hostile tender offers for the capital
stock of the Company and the initiation of other forms of Business Combinations
without the prior approval of at least 66 2/3% of the directors.
To the extent that the Supermajority Vote Requirement (in the absence of
approval by 66 2/3% of the directors) would discourage corporate transactions
that would result in a change in the Company's management, such management
changes may be less likely to occur once the Delaware holding company structure
has been implemented. Since the Supermajority Vote Requirement effectively gives
management more bargaining power in negotiations with an Interested Stockholder
proposing a Business Combination, they could result in management using such
bargaining power not only to try to negotiate a favorable price for an
acquisition of the Company, but also to retain their positions and negotiate
more favorable terms for management.
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Article XIV of the Certificate of Incorporation of the Company provides
that the stockholders of the Company shall be entitled to the statutory
appraisal rights provided by Delaware law (See "SIGNIFICANT DIFFERENCES BETWEEN
THE CORPORATION LAWS OF CALIFORNIA AND DELAWARE -- Dissenter's Rights") with
respect to any Business Combination that requires the affirmative vote of the
holders of not less than 66 2/3% of the Voting Stock then outstanding. The
provisions of Article XIV are designed to encourage any Interested Stockholder
to provide fair value to the stockholders of the Company, by providing
stockholders of the Company with the opportunity to exercise dissenter's rights
in connection with any Business Combination that has not been approved in
advance by 66 2/3% of the directors.
ELIMINATION OF SHAREHOLDERS' POWER TO CALL SPECIAL SHAREHOLDERS MEETINGS AND
RIGHT TO ACT WITHOUT A MEETING
Under California law and the Bylaws of Enterprises, a special meeting of
shareholders may be called by the holders of 10% or more of the Voting Stock of
Enterprises and this right may not be removed by the Articles of Incorporation
or the Bylaws. Under Delaware law, a special meeting of stockholders may be
called only by the board of directors or by any other person authorized to do so
in the company's certificate of incorporation or bylaws. Article VII of the
Certificate of Incorporation of the Company provides that a special meeting of
stockholders may be called only by a majority of the members of the Board of
Directors or by a committee of the Board of Directors that has been duly
designated by the Board of Directors and whose power and authority, as provided
in a resolution adopted by the Board of Directors or in the Bylaws of the
Company, includes the power to call such meetings. The principal effect of
Article VII would be to prevent stockholders, including majority stockholders,
from forcing a special meeting to consider a proposal opposed by the Board of
Directors or a proposal by an Interested Stockholder opposed by the Independent
Directors.
Article IX of the Certificate of Incorporation of the Company provides that
any action taken by the stockholders of the Company must be effected at an
annual or special meeting of stockholders and may not be taken by written
consent.
Thus, by operation of Articles VII and IX of the Certificate of
Incorporation of the Company, proposals that currently could be brought before
Enterprises' shareholders at a special meeting called by the holders of 10% or
more of Enterprises Common Stock, or that currently could be acted upon by the
written consent of shareholders, could only be considered by the stockholders of
the Company at the next annual stockholders' meeting (or at a special meeting of
stockholders called by the Board of Directors) and then only if certain
procedural requirements mandated by law and by the Certificate of Incorporation
(as described below) are fulfilled.
It is possible that Articles VII and IX could delay stockholder action or
acquisition attempts favored by the holders of a majority of the outstanding
shares. The Board of Directors proposes the elimination of shareholder action by
written consent, however, because it believes that all shareholders of a
publicly-owned company should have an opportunity to participate in any action
requiring shareholder approval. The Board also believes that it is inappropriate
for a majority shareholder to take significant action affecting the Company
without giving advance notice of such action to the minority shareholders, even
where such a procedure is permissible under applicable law.
PROCEDURES FOR SHAREHOLDER NOMINATIONS AND PROPOSALS
Section 2.9 of the Bylaws of the Company sets forth the procedures that a
stockholder must follow in order to nominate any person for election to the
Board of Directors or to bring any business before an annual meeting of
stockholders. No such procedural requirements exist for shareholders of
Enterprises.
Section 2.9 of the Bylaws of the Company provides that, for business to be
properly brought before any meeting of the stockholders by a stockholder, the
stockholder must have given notice thereof in writing to the Secretary of the
Company not less than ninety (90) days in advance of such meeting or, if later,
the seventh day following the first public announcement of the date of such
meeting. Nominations for the election of directors may be made by the Board of
Directors or by any stockholder entitled to vote in the election of directors;
provided, however, that a stockholder may nominate a person for election as a
director at a meeting
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only if written notice of such stockholder's intent to make such nomination has
been given to the Secretary of the Company not less than ninety (90) days in
advance of such meeting or, if later, the seventh day following the first public
announcement of the date of such meeting. Section 2.9(B) of the Bylaws of the
Company provide that a stockholder's notice with respect to the nomination of
candidates for election to the Board of Directors must set forth (a) the name
and address of the stockholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that the stockholder is
a holder of record of stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting and nominate the person
or persons specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding such nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, by the Board of Directors of the Company; and (e) the consent
of each nominee to serve as a director of the Company if so elected. The
stockholder making such nomination would also be required to promptly provide
any other information reasonably requested by the Company.
The procedures set forth in Section 2.9 of the Bylaws prohibit last-minute
attempts by any stockholder to nominate a director or present a business
proposal at an annual stockholders' meeting, even if such a nomination or
proposal might be desired by a majority of the stockholders. These procedures
will enable the Board of Directors of the Company to be informed in advance of
nominations or proposals (including any that may be made by a person seeking to
acquire the Company) to be presented at meetings of stockholders in order to
prepare informed and reasoned positions with respect to such nominations and
proposals. These procedures would also eliminate the element of surprise that a
person seeking to acquire the Company might otherwise use to advantage in making
a stockholder proposal. Section 2.9 of the Bylaws does not require the inclusion
of any information about any such nominee or proposal in any proxy statement
distributed by, at the direction of, or on behalf of the Board of Directors,
except as required to be included pursuant to federal securities laws.
ELIMINATION OF CERTAIN DIRECTOR LIABILITY
Article XII of the Certificate of Incorporation of the Company provides
that, to the fullest extent permitted by Delaware law, a director of the Company
shall not be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. Article XII also provides that the
Company shall indemnify, in the manner and to the fullest extent permitted by
Delaware law, any person (or the estate of any person) who is or was a party to,
or is threatened to be made a party to, any threatened, pending or completed
action, suit or proceeding, whether or not by or in the right of the Company,
and whether civil, criminal, administrative, investigative or otherwise, by
reason of the fact that such person is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director or
officers of another corporation, partnership, joint venture, trust or other
enterprise. Article XII permits the Company to indemnify employees and agents in
a similar manner. Article XII also permits the Company, to the fullest extent
permitted by Delaware law, to purchase and maintain insurance on behalf of any
such director, officer, employee or agent against any liability that may be
asserted against such person.
Traditional directors' and officers' insurance policies, which have been
important protection for directors of corporations, have become increasingly
expensive, subject to additional exclusions, and in some cases unavailable.
Although Enterprises has to date been able to obtain directors' and officers'
insurance for directors and officers on a basis that it believes acceptable (and
currently has a policy in the amount of $20,000,000 for such purpose), it is
exposed to yearly changes in premiums and coverage, as well as cancellation. The
premium for fiscal year 1995 increased by $225,000. While this situation has not
yet had any material effect on Enterprises' ability to recruit and retain
qualified directors, the Board believes that the Company's Certificate of
Incorporation should take advantage of the provisions in Delaware law so that it
can continue to recruit and retain the best possible directors. Although
California law does permit a corporation to
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limit director liability in a manner similar to that accomplished by Article XII
of the Company's Certificate of Incorporation, the Articles of Incorporation of
Enterprises contain no similar provisions.
The effect of Article XII is to eliminate directors' personal liability to
the stockholders of the Company for monetary damages arising out of the
directors' breach of their fiduciary duty of care, but not the duty of loyalty.
The duty of care refers to the fiduciary duty of directors to be sufficiently
diligent and careful in considering a transaction or taking or refusing to take
some corporate action. The duty of loyalty refers to the duty that directors owe
the corporation and its stockholders, requiring that the directors act in good
faith and in the honest belief that a business decision under consideration is
in the best interest of the corporation and that the directors not engage in
self-dealing. In the absence of Article XII, a breach of the duty of care by a
director could give rise to liability for monetary damage caused to the Company
or the stockholders. Article XII does not eliminate the duty of care; it only
eliminates monetary damage awards occasioned by a breach of that duty. Thus, a
breach of the duty of care would remain a valid basis for a suit seeking to stop
a proposed transaction from occurring. After the transaction has occurred,
however, the stockholders would no longer have a claim for money damages based
on a breach of the duty of care even if that breach involved gross negligence on
the part of the directors in connection with, among other things, acquisition
proposals by or for the Company. However, the directors' duty of care itself
would remain unaffected, and stockholders of the Company would retain the right
to pursue equitable remedies, such as injunctions and rescission of contracts.
Article XII does not limit liability to persons other than the Company or its
stockholders.
Article XII does not limit or eliminate directors' liability for: (1)
breaches of their duty of loyalty to the Company, (2) acts and omissions not in
good faith, (3) intentional misconduct in office, (4) knowing violations of law,
(5) improper personal benefit, and (6) payment of dividends or stock redemptions
or repurchases, whether negligent or willful, in violation of the Delaware law.
In addition Article XII may not eliminate directors' liability for violation of
federal securities laws.
The limitation of liability provided in Article XII would only apply to
conduct occurring after the Effective Time of the Merger, except to the extent
that prior to that date the directors are acting in their capacity as directors
of the Company rather than Enterprises. In addition, Article XII will protect
directors to the extent provided in any future changes in Delaware law without
additional stockholder approval. It does not limit liability for conduct
predating the Merger to the extent the directors are acting in their capacity as
directors of Enterprises. The Company is not aware of any pending or threatened
claims that would be covered by Article XII's limitation of liability or of any
past successful claim that could not have been asserted had Article XII then
been in effect.
While it is acknowledged that the directors have a direct personal interest
in approval of this proposal, the Board firmly believes that Article XII is in
the best interests of the stockholders and the Company. Article XII will assist
the Company in attracting and retaining qualified individuals to serve as
directors by assuring directors (and potential directors) that their good faith
decisions will not be second-guessed by a court evaluating decisions with the
benefit of hindsight. However, it should be recognized that Article XII will
limit the remedies available to a stockholder dissatisfied with a board decision
that is protected by Article XII. A dissatisfied stockholder's only remedy in
such a circumstance would be to sue for equitable relief, such as stopping the
completion of the Board's action. In many situations this remedy may not be
effective. Stockholders, for example, may not be aware of a transaction or an
event until it is too late to prevent it. In these cases, the stockholders and
the Company could be injured by a board decision and yet have no effective
remedy.
The Board believes that the diligence exercised by directors stems
primarily from their desire to act in the best interests of the Company and not
from a fear of monetary damage awards. Consequently, the Board believes that the
level of scrutiny and care exercised by directors will not be lessened by the
provisions of Article XII limiting their liability.
AMENDMENT OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Articles of Incorporation of Enterprises may be amended with the
approval of a majority of the directors present at a meeting at which a quorum
is present and by the affirmative vote of the holders of a
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majority of Enterprises Common Stock. However, Article XIII of the Certificate
of Incorporation of the Company provides that any alteration, amendment, repeal
or rescission (any "Change") of any provision contained in the Certificate of
Incorporation must be approved by a majority of the directors of the Company
then in office and by the affirmative vote of the holders of a majority of the
outstanding Voting Stock then outstanding; provided, however, that if the
proposed Change: (a) relates to Article II (which sets forth definitions in the
Certificate of Incorporation), Article IV (which sets forth the purpose of the
Company), Article VII (which sets forth the procedural requirements for the
calling of special meetings of stockholders), Article IX (which eliminates
stockholder action by written consent), Article X (which sets forth the
classification of the Board of Directors and procedures for election or removal
of directors), Article XI (which sets forth the Supermajority Vote Requirement),
Article XIII itself, and Article XIV (which sets forth appraisal rights of
stockholders of the Company in connection with certain Business Combinations),
such Change must also be approved by the affirmative vote of the holders of not
less than 66 2/3% of the shares of Voting Stock then outstanding.
The Bylaws of Enterprises may be adopted, amended or repealed either by its
Board of Directors or the holders of a majority of the outstanding shares of
Enterprises Common Stock. Any Change of any provision of the Bylaws of the
Company must be approved by a majority of the authorized number of directors.
CUMULATIVE VOTING
Section 2 of Article VIII of the Certificate of Incorporation of the
Company mandates that cumulative voting be applied in connection with the
election of directors. Cumulative voting rights in the election of directors
entitle a stockholder to give one nominee as many votes as is equal to the
number of directors to be elected multiplied by the number of shares owned by
the stockholder, or to distribute such votes on the same principal among two or
more nominees, as the stockholder sees fit. California law requires cumulative
voting in the election of directors upon notice given by a shareholder at a
shareholders meeting. The Certificate of Incorporation of the Company expressly
mandates that cumulative voting apply in connection with the election of
directors. Cumulative voting for directors may enable the holders of a
significant number of the outstanding shares, but less than a majority, to elect
one or more directors at any election. Cumulative voting, when combined with the
Company's classified Board of Directors, may delay the attainment of control of
the Board of Directors of the Company in the event of a hostile takeover
attempt.
AUTHORIZED SHARES OF STOCK
Section 1 of Article V of the Certificate of Incorporation will authorize
the Company to issue 50,000,000 shares of Common Stock, $.01 par value, and
5,000,000 shares of Preferred Stock, $.01 par value. The Articles of
Incorporation of Enterprises authorize Enterprises to issue 22,500,000 shares of
Common Stock, no par value, and 2,000,000 shares of Preferred Stock, no par
value. The Board of Directors believes it is desirable to increase the
authorized shares for future acquisitions, financings, stock dividends and other
corporate purposes. The Board of Directors is not proposing the increased
capitalization as a means of discouraging tender offers or takeover attempts.
However, in the event of an unsolicited tender offer or takeover proposal, the
increased number of shares could be issued to persons who are friendly to
management. Said shares might also be available to make acquisitions or enter
into other transactions that might frustrate potential offerors.
The Articles of Incorporation of Enterprises authorize the issuance of
2,000,000 shares of Preferred Stock and the Certificate of Incorporation of the
Company authorizes the Board of Directors, from time to time, to issue 5,000,000
shares of Preferred Stock in one or more series and to determine the rights,
preferences and privileges of each series without stockholder approval. The
issuance and sale of such Preferred Stock could occur in connection with a
hostile attempt to acquire control of the Company and the issuance of such
Preferred Stock may have the effect of impeding the acquisition of control of
the Company.
EMPLOYEE BENEFIT PLANS
At the close of business on January 31, 1994, 18,676,587 shares of
Enterprises' Common Stock were outstanding. In addition, as of that date,
1,377,355 of Enterprises' Common Stock were reserved for issuance
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under Enterprises' stock option plans (the "Plans"). The Company intends to
adopt a new plan that will be similar to Enterprises' 1993 Employee Stock
Incentive Plan but expanded to include employees of Enterprises, Boston Pacific
and some or all of any other subsidiaries that may be formed by the Company. The
Company will submit this new plan for stockholder approval at its annual meeting
of stockholders to be held later this year.
As a result of the Merger, each option or other right to purchase or
otherwise acquire shares of Common Stock under each Plan or other employee
benefit plan of Enterprises, will be converted into an option or right to
purchase or acquire the same number of shares of the Company's Common Stock on
the same terms and conditions in effect immediately prior to the Merger. Each
share of Enterprises Common Stock currently held under any such plan, or
underlying such option or right, will be converted into one share of the
Company's Common Stock. The Company will deliver the same number of shares of
its Common Stock at the same price per share, and upon the terms and subject to
the same conditions, as set forth in each of the Plans and other employee
benefit plans in effect immediately prior to the Merger.
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF
CALIFORNIA AND DELAWARE
The corporation laws of California and Delaware differ in a number of
respects, some of which are discussed above. See "SIGNIFICANT DIFFERENCES
BETWEEN THE ARTICLES OF INCORPORATION OF ENTERPRISES AND THE CERTIFICATE OF
INCORPORATION OF THE COMPANY." It is impractical to summarize all of the
differences in this Proxy Statement, but significant differences, not elsewhere
discussed, between the corporation laws of California and Delaware that could
materially affect the rights of shareholders of Enterprises, as compared to such
persons as stockholders of the Company, are as follows:
1. Removal of Directors. Under California law, a director may be removed
without cause by shareholder vote, provided that the shares voted against such
removal would not be sufficient to elect the director under cumulative voting
rules. Under Delaware law, a director of a corporation that does not have a
classified board of directors may be removed with or without cause by
stockholder vote, provided that, in the case of a corporation having cumulative
voting, if less than the entire board is to be removed, the shares voted against
such removal would not be sufficient to elect the director under cumulative
voting rules at an election of the Board of Directors. Under California law, a
director may be removed for cause only (i) by order of a court, sought by
shareholders holding at least 10% of the outstanding shares of any class, if a
director commits fraudulent or dishonest acts or gross abuse of authority or
discretion or (ii) by the Board, if a director has been declared of unsound mind
by order of court or has been convicted of a felony. Under Delaware law, a
director of a corporation with a classified board of directors can be removed
only for cause unless the certificate of incorporation otherwise provides. Since
there is no controlling definition of "cause" under Delaware law, the resolution
of any dispute as to what constitutes "cause" may become a matter for
determination by the courts. Article VIII of the Certificate of Incorporation of
the Company provides that a director may be removed only for cause and only with
the affirmative vote of holders of a majority of the Voting Stock. See
"SIGNIFICANT DIFFERENCES BETWEEN THE ARTICLES OF INCORPORATION OF ENTERPRISES
AND THE CERTIFICATE OF INCORPORATION OF THE COMPANY -- Classified Board of
Directors, Removal of Directors and Related Matters."
2. Shareholder Voting in Certain Transactions. Both California and Delaware
law generally require that a majority of the shareholders of both acquiring and
target corporations approve statutory mergers. Delaware law does not require a
stockholder vote of the surviving corporation in a merger (unless the
corporation provides otherwise in its certificate of incorporation) if (a) the
merger agreement does not amend the existing certificate of incorporation, (b)
each share of the surviving corporation outstanding before the merger is an
identical outstanding or treasury share after the merger, and (c) the number of
shares to be issued by the surviving corporation in the merger does not exceed
20% of the shares outstanding immediately prior to the merger. California law
contains a similar exception to its voting requirements for reorganizations
where shareholders or the corporation itself, or both, immediately prior to the
reorganization will own
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immediately after the reorganization equity securities constituting more than
five-sixths of the voting power of the surviving or acquiring corporation or its
parent entity.
Both California and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the voting shares of the corporation transferring such assets unless such a sale
is in the ordinary course of business.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. In contrast, Delaware law
generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation that adversely
affects a specific class of shares. Should the Company authorize and issue
shares of a new class of capital stock, the holders thereof would vote with the
holders of Company Common Stock on proposals not adversely affecting Company
Common Stock. In such event the holders of Company Common Stock, if in the
minority, would be unable to control the outcome of a vote, and, if in the
majority, would be able to control the outcome of such a vote.
California law also requires that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than 50% but less than 90% of such common stock or its affiliate
unless all of the holders of such common stock consent to the transaction. This
provision of California law may have the effect of making a "cash-out" merger by
a majority shareholder more difficult to accomplish.
California law also provides that, except in certain circumstances, when a
tender offer or a proposal for a reorganization or for a sale of assets is made
by an interested party (generally a controlling or managing party of the target
corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation which does not
have shares held of record by at least 100 persons, or to a transaction which
has been qualified under California state securities laws. Furthermore, if a
tender of shares or vote is sought pursuant to an interested party's proposal
and a later proposal is made by another party at least ten days prior to the
date of acceptance of the interested party proposal, the shareholders must be
informed of the later offer and be afforded a reasonable opportunity to withdraw
any vote, consent or proxy, or to withdraw any tendered shares. Delaware law has
no comparable provision, and the stockholders of the Company might, therefore,
be deprived of an opportunity to consider such other proposal.
3. Dissenters' Rights. Under both California and Delaware law, a
shareholder of a corporation participating in certain major corporate
transactions may, under varying circumstances, be entitled to receive cash equal
to the fair market value of the shares held by such shareholder (as determined
by a court of competent jurisdiction or by agreement of the shareholder and the
corporation) in lieu of the consideration such shareholder would otherwise
receive in the transaction. The laws of California and Delaware differ with
respect to the circumstances under which dissenters' rights of appraisal are
available. Delaware law does not require dissenters' rights with respect to (a)
a sale-of-assets, (b) a merger by a corporation, if the shares of which are
either listed on a national securities exchange or widely-held (by more than
2,000 shareholders of record) or if stockholders receive shares of the surviving
corporation or of a listed or widely-held corporation, or (c) a merger in which
the corporation is the surviving corporation, provided that no vote of its
stockholders is required to approve the merger. (For a discussion of the
circumstances in which a vote of stockholders is not required, see "Shareholder
Vote for Mergers.") The Company's Certificate of Incorporation, as permitted by
Delaware law, expands the circumstances to which its stockholders will be
afforded dissenter's rights to any Business Combination that requires the
affirmative vote of the holders of not less than 66 2/3% of the Disinterested
Shares then outstanding. See "SIGNIFICANT DIFFERENCES BETWEEN THE ARTICLES OF
INCORPORATION OF ENTERPRISES AND THE CERTIFICATE OF INCORPORATION OF THE
COMPANY -- Increased Shareholder Vote Required in Certain Business Combinations
and Other Transactions."
California law does, in general, afford dissenters' rights in a
sale-of-assets reorganization, and the exclusions from dissenters' rights in
mergers are somewhat different from those in Delaware. For example, in the case
of a corporation whose shares are listed on a national securities exchange,
dissenters' rights would
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nevertheless be available in certain transactions for any shares with respect to
which there are certain restrictions on transfer and for any class with respect
to which 5% or more of such class claims dissenters' rights. Also, under
California law, shareholders of a corporation involved in a reorganization are
not entitled to dissenters' rights if the corporation, or its shareholders
immediately before the reorganization, or both, will own more than five-sixths
of the voting power of the surviving or acquiring corporation or its parent
entity. Shareholders of Enterprises will not be entitled to dissenters' rights
in connection with the Reincorporation Proposal.
4. Loans to Officers. Under Delaware law, a corporation may make loans to,
guarantee the obligations of, or otherwise assist, its officers or other
employees and those of its subsidiaries when such action, in the judgment of the
corporation's board of directors, may reasonably be expected to benefit the
corporation. Under California law, a corporation may only make such a loan to,
or guarantee for the benefit of, officers if such loan or guarantee is approved
by a majority of the corporation's shareholders or, for a corporation with 100
or more shareholders of record, by its board of directors pursuant to a
shareholder-approved bylaw. Enterprises currently does not have such a bylaw.
5. Indemnification of Officers and Directors. Both California and Delaware
law state expressly that the indemnification provided for therein shall not be
deemed exclusive of any other rights under any other bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise and provide that expenses
may be advanced to officers and directors in a specific case upon receipt of an
undertaking to repay such amount if it is ultimately determined that such
indemnified party is not entitled to be indemnified. In addition, California and
Delaware permit the determination as to whether an officer or director has met
the applicable standard of conduct to be made in certain circumstances by
independent legal counsel.
California law was recently amended to permit indemnification of officers
and directors to an extent which is generally coextensive with that permitted
under the Delaware law. Prior to the recent amendment, the California law did
not permit indemnification in any manner inconsistent with the statutory
indemnification provisions.
In the event the Reincorporation Proposal is approved, the Company will be
required to indemnify any director or officer to the full extent authorized or
permitted by the Delaware law (as now or hereafter in effect) and may indemnify
any employee or agent in a similar manner. Enterprises' Bylaws currently provide
that Enterprises may indemnify any person who is or was an agent of Enterprises
to the full extent permitted by law, although such indemnification is not
obligatory.
6. Personal Liability of Directors. Over the past few years, it has become
increasingly more costly and difficult for many corporations, including
Enterprises, to obtain meaningful liability insurance for directors and
officers. See "SIGNIFICANT DIFFERENCES BETWEEN THE ARTICLES OF INCORPORATION OF
ENTERPRISES AND THE CERTIFICATE OF INCORPORATION OF THE COMPANY -- Elimination
of Certain Director Liability."
The reduced availability of directors and officers liability insurance, as
well as the expansion of exclusions and increases in premiums where coverage is
available, have created what many believe is a crisis in the director and
officer liability insurance market. This crisis has been stimulated by an
increased frequency of litigation against directors and officers, and increases
in the cost of defending such litigation. The Board of Directors believes that
this situation has created an atmosphere of substantial uncertainty about the
level of protection that can be afforded to directors who seek to act in good
faith to carry out their duties to the Company. In turn, this situation impairs
the Company's ability to attract and retain qualified directors. The potential
exposure of these individuals to the costs and risks of claims of personal
liability may exceed any benefit to them from being a director of a public
company. This fact is especially a concern of individuals who are not employees
of the Company and whose objectivity is therefore of great value. In response to
this situation, many companies have adopted amendments to their charter and/or
bylaws to increase the level of protection for their directors.
In 1986, the Delaware legislature enacted amendments to the Delaware law to
permit Delaware corporations to provide directors additional protection from
personal liability. To implement such added
23
<PAGE> 26
protection, shareholders must approve the Reincorporation Proposal, which will
also constitute approval of the Company's Certificate of Incorporation.
Article XII of the Company's Certificate of Incorporation gives effect to
the amendments to Delaware law and is intended to give to the Company's
directors the full protection against personal liability that is permitted under
the amended law. See "SIGNIFICANT DIFFERENCES BETWEEN THE ARTICLES OF
INCORPORATION OF ENTERPRISES AND THE CERTIFICATE OF INCORPORATION OF THE
COMPANY -- Elimination of Certain Director Liability."
Delaware law provides that the Board of Directors has the ultimate
responsibility for managing the business and affairs of a corporation. In
discharging this function, the law holds directors to fiduciary duties of care
and loyalty to the corporation and its stockholders. The Delaware Supreme Court
has held that the duty of care requires the exercise of an informed business
judgment. An informed business judgment means that directors have informed
themselves of all material information reasonably available to them. Having
become so informed, they then must act with requisite care in the discharge of
their duties. Liability of directors of a Delaware corporation to the
corporation or its stockholders for breach of the duty of care in some
circumstances requires a finding by a court that the directors were grossly
negligent. Adoption of the Company's Certificate of Incorporation would not
change the standard of care required of directors. However, as authorized by
statute, the Company's Certificate of Incorporation would eliminate the monetary
liability of each director of the Company for breach of his or her fiduciary
duties, subject to the exceptions set forth in Delaware law. If the
Reincorporation Proposal is adopted, a stockholder will be able to prosecute an
action against a director for monetary damages only if he or she can show a
breach of the duty of loyalty, a failure to act in good faith, intentional
misconduct, a knowing violation of law, an improper personal benefit, or an
illegal dividend or stock repurchase. Stockholders will surrender any cause of
action for "negligence" or "gross negligence" in satisfying the duty of care,
including negligence or gross negligent conduct in the context of a takeover
proposal of the Company. However, because the Delaware statute regarding
directors' liability was only recently adopted by the State of Delaware, the
potential outcome of any litigation arising out of interpretations of the
statute cannot be ascertained at this time.
Directors also have a duty of loyalty to the corporation and its
stockholders. The duty of loyalty requires that, in making a business decision,
directors act in good faith and in the honest belief that the action taken was
in the best interests of the corporation. The Company's Certificate of
Incorporation would not insulate directors of the Company from liability for
breach of their duty of loyalty, nor would it limit the liability of directors
for claims arising under the federal securities laws. The Company's Certificate
of Incorporation would not limit or eliminate the right of the Company or any
stockholder to seek an injunction or other non-monetary relief in the event of a
breach of a director's duty of care, although, in certain situations equitable
remedies may not be as effective as monetary damages, and third parties, such as
creditors of the Company, will not be precluded by such provision from pursuing
any claims they might have. Furthermore, the Company's Certificate of
Incorporation would have no effect on currently pending or prior litigation
involving Enterprises and its directors or on any liability by virtue of any act
or omission by a director that occurred prior to the Effective Time of the
Merger. Enterprises is not aware of any prior or pending litigation that would
have been or would be impacted by Article XII of the Company's Certificate of
Incorporation.
Enterprises' Bylaws currently permit indemnification of agents of
Enterprises, including directors and officers, to the fullest extent permitted
by California law. Enterprises' Bylaws (which were adopted prior to the recently
enacted legislation) do not require indemnification for directors of amounts
paid in settling or otherwise disposing of threatened or pending actions by or
in the right of Enterprises (including shareholder derivative suits) or of
expenses incurred in defending threatened or pending actions that are settled or
otherwise disposed of, whether or not such indemnification is approved by a
court. If the Reincorporation Proposal is adopted, directors would in effect be
relieved of liability with respect to the foregoing actions to the extent such
actions were based on breach of their fiduciary duty of care. Consequently,
adoption of the Company's Certificate of Incorporation may reduce the likelihood
of derivative litigation against directors and may discourage or deter
stockholders or management from bringing a lawsuit against directors for
breaches of their fiduciary duties, even though such action, if successful,
might otherwise have benefited the Company and its stockholders.
24
<PAGE> 27
Enterprises' primary purpose for eliminating liability of directors for
certain breaches of fiduciary duty is to provide directors with the greatest
protection possible for personal liability while still insuring that directors'
actions are taken in the best interests of the Company and its stockholders. The
Board agrees with the Delaware legislature that a proper balance is achieved by
preserving only the bases for directors' liability discussed above, including
the directors' fiduciary duty of loyalty to the Company. This balance allows
directors to act in the best interests of the Company without undue fear of
financial penalties wholly disproportionate to their remuneration for services
as directors, while still preserving proper disincentives for actions not taken
in the best interests of the Company and its stockholders. In considering the
recommendation of the Board of Directors that Article XII be included in the
Company's Certificate of Incorporation as part of the Reincorporation Proposal,
it should be noted that because the directors of the Company have a personal
interest in seeing the adoption of Article XII at the potential expense of
stockholders, there may be an inherent conflict of interest in the Board's
recommendation in favor of the Reincorporation Proposal.
7. Inspection of Shareholders' List. California law provides for an
absolute right of inspection of a shareholders' list for persons holding 5% or
more of the corporation's voting shares or persons holding 1% or more of such
shares who have filed a Schedule 14B with the Securities and Exchange Commission
relating to the election of directors. (Generally, a Schedule 14B must be filed
by any shareholder engaged in the solicitation of proxies, as such terms are
defined in the federal securities laws, in connection with a contested election
of directors.) Delaware law gives any stockholder of record the right to inspect
the stockholders' list for a purpose reasonably related to such person's
interest as a stockholder and, during the ten days preceding a stockholders'
meeting, for any purpose germane to that meeting. Delaware law contains no
provision comparable to the absolute right of inspection provided by California
law to certain shareholders. Importantly, under California law, California rules
with respect to the inspection of shareholders' lists apply to any corporation
such as the Company that, although incorporated outside California, has its
principal executive offices in California or customarily holds meetings of its
Board of Directors in California.
8. Payment of Dividends. Delaware law permits the payment of dividends out
of surplus or, if there is no surplus, out of net profits for the current and
preceding fiscal years (provided that the amount of capital of the corporation
is not less than the aggregate amount of the capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets). In addition, Delaware law generally provides that a corporation may
redeem or repurchase its shares only if such redemption or repurchase would not
impair the capital of the corporation. The ability of a Delaware corporation to
pay dividends on, or to make repurchases or redemptions of, its shares is
dependent on the financial status of the corporation standing alone and not on a
consolidated basis. In determining the amount of surplus of a Delaware
corporation, the assets of the corporation, including stock of subsidiaries
owned by the corporation, must be valued at their fair market value as
determined by the board of directors, without regard to their historical book
value.
Under California law, any distributions (including dividends and
repurchases of shares) generally are limited either to retained earnings or to
an amount that would leave the corporation with tangible assets in an amount
equal to at least 125% of its tangible liabilities and with current assets in an
amount at least equal to its current liabilities (or 125% of its current
liabilities if the average pre-tax and pre-interest earnings for the preceding
two fiscal years were less than the average interest expenses for such years).
Such limitations are applied on a consolidated basis and are based upon the book
value of assets determined in accordance with generally accepted accounting
principles then applicable.
Enterprises has historically paid cash dividends aggregating $.08 per share
each year, and the Company intends to continue this practice for the foreseeable
future.
9. Interested Director Transactions. Under both California and Delaware
law, certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are similar under California and Delaware
law. Under California and Delaware law, (a) either the shareholders or the board
of directors must approve any such contract or transaction in good faith after
full disclosure of the material facts, and in the case of board approval the
contract or transaction must also be "just and reasonable"
25
<PAGE> 28
(in California) or "fair" (in Delaware) to the corporation, or (b) the contract
or transaction must have been just and reasonable or fair as to the corporation
at the time it was approved. In the latter case, California law explicitly
places the burden of proof on the interested director. Under California law, if
shareholder approval is sought, the interested director is not entitled to vote
his shares at a shareholder meeting with respect to any action regarding such
contract or transaction. If board approval is sought, the contract or
transaction must be approved by a majority vote of a quorum of the directors,
without counting the vote of any interested directors (except that interested
directors may be counted for purposes of establishing a quorum). Under Delaware
law, if board approval is sought, the contract or transaction must be approved
by a majority of the disinterested directors (even though less than a majority
of a quorum). Therefore, certain transactions that the Board of Directors of
Enterprises might not be able to approve because of the number of interested
directors, could be approved by a majority of the disinterested directors of the
Company, although less than a majority of a quorum. The Company is not aware of
any plans to propose any transaction involving directors of the Company that
could not be so approved under California law but could be so approved under
Delaware law.
10. Shareholder Derivative Suits. California law provides that a
shareholder bringing a derivative action on behalf of a corporation need not
have been a shareholder at the time of the transaction in question, provided
that certain tests are met. Under Delaware law, a stockholder may only bring a
derivative action on behalf of the corporation if the stockholder was a
stockholder of the corporation at the time of the transaction in question or his
or her stock thereafter devolved upon him or her by operation of law. California
law also provides that the corporation or the defendant in a derivative suit may
make a motion to the court for an order requiring the plaintiff shareholder to
furnish a security bond. Delaware does not have a similar bonding requirement.
11. Dissolution. Under California law, shareholders holding 50% or more of
the total voting power may authorize a corporation's dissolution, with or
without the approval of the corporation's board of directors, and this right may
not be modified by the articles of incorporation. Under Delaware law, unless the
board of directors approves the proposal to dissolve, the dissolution must be
approved by stockholders holding 100% of the total voting power of the
corporation. Only if the dissolution is initiated by the board of directors may
it be approved by a simple majority of the corporation's stockholders. In the
event of such a board-initiated dissolution, Delaware law allows a Delaware
corporation to include in its certificate of incorporation a supermajority
voting requirement in connection with dissolutions. The Company's Certificate of
Incorporation contains no such supermajority voting requirement, however, and a
majority of shares voting at a meeting at which a quorum is present would be
sufficient to approve a dissolution of the Company that had previously been
approved by its Board of Directors.
APPLICATION OF THE GENERAL CORPORATION LAW OF CALIFORNIA TO DELAWARE
CORPORATIONS
Under Section 2115 of the California General Corporation Law, certain
foreign corporations (i.e., corporations not organized under California law) are
placed in a special category if they have characteristics of ownership and
operation which indicate that they have significant contacts with California. So
long as a Delaware or other foreign corporation is in this special category, and
it does not qualify for one of the statutory exemptions, it is subject to a
number of key provisions of the California General Corporation Law applicable to
corporations incorporated in California. Among the more important provisions are
those relating to the election and removal of directors, cumulative voting,
classified boards of directors, standards of liability and indemnification of
directors, distributions, dividends and repurchases of shares, shareholder
meetings, approval of certain corporation transactions, dissenters and appraisal
rights and inspection of corporate records.
Exemptions from Section 2115 are provided for corporations whose shares are
qualified for trading as a national market security on the National Association
of Securities Dealer Automated Quotation System if such corporations have 800 or
more shareholders of record. The Company will be exempt from Section 2115
following the Merger because the Common Stock of the Company will be so traded
and will be owned by more than 800 holders.
26
<PAGE> 29
MANAGEMENT
The following sets forth certain information with respect to persons who
will be directors of the Company and executive officers of the Company,
Enterprises and Boston Pacific assuming the Reincorporation Proposal is adopted.
DIRECTORS
Directors. The members of the Company's Board of Directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------ ---- ---------------------------------------
<S> <C> <C>
William P. Foley II 48 Chairman of the Board
Donald E. Doyle 47 President, Chief Executive Officer and
Director
Carl N. Karcher 77 Director and Chairman of the Board
Emeritus
Peter Churm 68 Director
Daniel W. Holden 59 Director
Carl L. Karcher 45 Director
Daniel D. (Ron) Lane 59 Director
Kenneth O. Olsen 75 Director
Elizabeth A. Sanders 48 Director
</TABLE>
William P. Foley II has been a director of Enterprises since December 1993
and became Chairman of the Board of Enterprises on February 22, 1994. Mr. Foley
has been Chairman of the Board, President and Chief Executive Officer of
Fidelity National Financial, Inc. since 1981.
Donald E. Doyle became a director, President and Chief Executive Officer of
Enterprises in December 1992. Prior to that time, he served as President and
Chief Executive Officer of the Greater Louisville Economic Development
Partnership. Mr. Doyle was employed by Kentucky Fried Chicken Corporation from
1973 until 1988 in several capacities, including, between 1984 and 1988,
President of KFC-USA, the principal operating company for Kentucky Fried Chicken
company-owned and franchised restaurants.
Carl N. Karcher, the founder of Enterprises, purchased his first hot dog
stand on July 17, 1941 and has been developing Enterprises' concepts since that
time. He first became a director of Enterprises in 1966. He has served as
Chairman of the Board Emeritus since January 1, 1994. He was Chairman of the
Board of Enterprises until October 1, 1993. Until Mr. Doyle's appointment as
Chief Executive Officer in December 1992, Mr. Karcher served in such capacity.
Prior to 1980, he was President of Enterprises. In September 1989, Mr. Karcher
and the Securities and Exchange Commission entered into a settlement agreement
with respect to a previously filed action pursuant to which Mr. Karcher, without
admitting or denying any wrongdoing, consented to the entry of a permanent
injunction enjoining him from further violations of certain federal securities
laws. In addition, Mr. Karcher agreed to pay a penalty pursuant to the Insider
Trading Sanctions Act of 1984.
Peter Churm became a member of the Board of Directors of Enterprises in
1979. He was Chairman of the Board of Furon Company, a publicly-held company
headquartered in Laguna Niguel, California, from May 1980 through February 1992
and was President of that company for more than the 16 years prior to that time.
He remains a member of the Board of Directors of Furon Company.
Daniel W. Holden has served as a Director and Secretary of Enterprises
since 1966. He is currently an attorney with the law firm of Holden & Fergus.
Between 1990 and 1992 he served as Executive Vice President/General Counsel of
Monnig Development Inc., a real estate development firm. Prior to that time, he
was a Senior Partner with the law firm of Holden, Fergus & Celio.
Carl L. Karcher has been a franchisee of Enterprises since May 1985. For
more than 17 years prior to that time, Mr. Karcher was employed by Enterprises
in several capacities, including Vice President, Manufacturing and Distribution.
Mr. Karcher first became a Director in May 1992. In November 1988, the
27
<PAGE> 30
Securities and Exchange Commission obtained a summary judgment in a civil action
brought against Mr. Karcher under certain federal securities laws, which
required Mr. Karcher to pay disgorgement of $10,500 which represented losses Mr.
Karcher avoided in the sale of certain of Enterprises' 9 1/2% Convertible
Debentures. In addition, a permanent injunction was entered against Mr. Karcher
enjoining him from future violations under certain federal securities laws.
Daniel D. (Ron) Lane became a Director of Enterprises in December 1993. Mr.
Lane has been a Director of Fidelity National Financial, Inc. since September
1989. Since February 1983, he has been a principal, Chairman and Chief Executive
Officer of Lane/Kuhn Pacific, Inc. a corporation that consists of several
community development and home building partnerships, all of which are
headquartered in Newport Beach, California. Mr. Lane also serves as a director
of Hawaiian Airlines, Inc. and Resort Income Investors, Inc.
Kenneth O. Olsen became a Director of Enterprises in 1980. He was Vice
President of The Vons Companies, Inc., a retail grocery company headquartered in
Arcadia, California, from January 1984 through November 1991. For more than six
years prior to that time, Mr. Olsen was the President and Chief Executive
Officer of Vons Grocery Company. The bylaws of the Company provide for mandatory
retirement at age 70 for all directors other than the Chairman Emeritus and
therefore Mr. Olsen will not stand for relection at the Annual Meeting of the
Company to be held in 1994.
Elizabeth A. Sanders served as Chairman of the Board of Enterprises from
October 1, 1993 until February 22, 1994 and has been a director since 1983. She
was employed by Nordstrom, Inc., which owns a chain of department stores, in
several capacities between 1971 and 1990 (including Vice President-General
Manager between 1980 and 1990). She is currently employed by The Sanders
Partnership as a management consultant to various businesses. Mrs. Sanders is a
member of the Board of Directors of H.F. Ahmanson, The Vons Companies, Inc.,
Sport Chalet, Inc. and Wal-Mart Stores, Inc.
Carl L. Karcher is Carl N. Karcher's son.
The Executive Committee of the Board of Directors of Enterprises, comprised
of Ms. Sanders and Messrs. Doyle, Foley and Lane, is empowered by the Board of
Directors to take all actions that may otherwise be taken by the Board of
Directors, to the extent permitted by law. The Company's Board of Directors
intends to form an Executive Committee with the same authority and composed of
the same individuals following the Merger.
EXECUTIVE OFFICERS
The executive officers of the Company, Enterprises and Boston Pacific are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------ --- ------------------------------------------------
<S> <C> <C>
Donald E. Doyle 47 President and Chief Executive Officer of the
Company
Rory J. Murphy 46 Senior Vice President, Operations of Enterprises
Loren C. Pannier 52 Senior Vice President, Chief Financial Officer
of the Company
Kerry W. Coin 46 Senior Vice President and General Manager of
Boston Pacific
Laurie A. Ball 35 Vice President, Controller of the Company
Richard C. Celio 43 Vice President, General Counsel of the Company
Karen B. Eadon 40 Vice President, Marketing of Enterprises
Roger D. Shively 46 Vice President, Human Resources of the Company
</TABLE>
Rory J. Murphy has been the Senior Vice President, Operations, of the
Carl's Jr. operations for the past two years. He has been employed by
Enterprises in various positions for 15 years.
Loren C. Pannier has been the Senior Vice President and Chief Financial
Officer of Enterprises for the past 13 years and has been employed by
Enterprises for 22 years.
28
<PAGE> 31
Kerry W. Coin joined Enterprises as Vice President, Strategic Development
in February 1993 and became Senior Vice President and General Manager of Boston
Pacific in February 1994. Prior to joining Enterprises, he was a principal with
A. T. Kearney Inc., a nationally recognized business consulting firm, for five
years. While at A. T. Kearney, he was the project leader for two major
consulting assignments at Enterprises.
Laurie A. Ball has been employed by Enterprises for more than the past six
years and became Vice President, Controller in January 1993.
Richard C. Celio joined Enterprises as Vice President, General Counsel in
January 1989. Prior to joining Enterprises, he was an attorney at law and
partner of the law firm of Holden, Fergus & Celio for seven years, a firm which
provided various legal services, and acted as General Counsel for Enterprises.
Karen B. Eadon joined Enterprises as Vice President, Marketing in April
1993. Prior to joining Enterprises, she was employed at Taco Bell Corporation
for eight years, where she held various positions in advertising, product
development and most recently as Vice President of Operations Services.
Roger D. Shively joined Enterprises as Vice President, Human Resources in
August 1991. Prior to joining Enterprises, Mr. Shively was employed by Denny's,
Inc. for more than seven years in several capacities, including Vice President,
Human Resources.
LEGAL OPINION
The validity of the Company's Common Stock to be issued upon consummation
of the Reincorporation Proposal has been passed upon by Gibson, Dunn & Crutcher,
Los Angeles, California.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Gibson, Dunn & Crutcher, counsel to Enterprises, the
following discussion accurately summarizes the material United States federal
income tax consequences of the Merger to the holders of Enterprises Common
Stock, Enterprises, the Company and California Subsidiary. This opinion is based
on the current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable Treasury Regulations, judicial authority and administrative
rulings and practice. In addition, this opinion is based upon information
contained in this Proxy Statement -- Prospectus. No ruling from the IRS has been
or will be sought with respect to any aspect of the Merger. Therefore, there can
be no assurance that the IRS will not take a contrary view as to the tax
consequences described herein. Furthermore, legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conclusions set forth herein.
The following does not consider the tax consequences of the Merger under
state, local and foreign law. Moreover, special considerations not described
herein may apply to certain taxpayers, such as financial institutions,
broker-dealers, insurance companies, tax-exempt organizations, investment
companies and persons who are neither citizens nor residents of the United
States, or who are foreign corporations, foreign partnerships or foreign estates
or trusts as to the United States.
EACH HOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Subject to the qualifications set forth above, the Merger should qualify as
a tax-free reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the
Code, with the following results:
(i) No gain or loss will be recognized by the shareholders of
Enterprises upon the conversion of their shares of Enterprises Common Stock
into shares of Company Common Stock.
29
<PAGE> 32
(ii) The basis of the shares of Company Common Stock received by each
shareholder of Enterprises will be the same as the basis of the shares of
Enterprises Common Stock held by such shareholder immediately prior to the
Merger.
(iii) The holding period of the shares of Company Common Stock
received by each shareholder of Enterprises will include the holding period
of the shares of Enterprises' Common Stock held by such shareholder
immediately prior to the Merger, provided that such shareholder held such
shares of Enterprises' Common Stock as a capital asset on the date of the
Merger.
(iv) No gain or loss will be recognized by Enterprises, the Company or
California Subsidiary in connection with the Merger.
OTHER
Vote Required. The affirmative vote of a majority of the outstanding shares
of Enterprises Common Stock, with each share entitled to one vote, is required
for approval of the Reincorporation Proposal. A vote for the Reincorporation
Proposal will constitute specific approval of the principal terms of the Merger
Agreement and all other transactions and proceedings related to the
establishment of the holding company structure, including adoption of the
Charter Provisions, described in this Proxy Statement. See "RECORD DATE AND
VOTING." The Board of Directors recommends a vote FOR the Reincorporation
Proposal.
Other Business. Management does not know of any matter to be acted upon at
the Meeting other than the matter described above, but if any other matter
properly comes before the Meeting, the persons named on the enclosed proxy card
will vote thereon in accordance with their best judgment.
Shareholders are urged to sign and return their proxies without delay.
For the Board of Directors
WILLIAM P. FOLEY II, Chairman of the
Board
April 14, 1994
30
<PAGE> 33
CKE RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CARL KARCHER ENTERPRISES, INC.)
INDEX TO BALANCE SHEET
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report.......................................................... F-1
Balance Sheet at March 3, 1994........................................................ F-2
Note to Balance Sheet................................................................. F-3
</TABLE>
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CKE Restaurants, Inc.:
We have audited the accompanying balance sheet of CKE Restaurants, Inc. (a
wholly-owned subsidiary of Carl Karcher Enterprises, Inc.) as of March 3, 1994.
This balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of CKE Restaurants, Inc. at March 3,
1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK
Orange County, California
March 3, 1994
F-1
<PAGE> 35
CKE RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CARL KARCHER ENTERPRISES, INC.)
BALANCE SHEET
MARCH 3, 1994
ASSETS
<TABLE>
<S> <C>
Total assets...................................................................... $ --
--------
--------
LIABILITIES AND STOCKHOLDER'S EQUITY
Stockholder's Equity
Preferred Stock, $0.01 par value; authorized 5,000,000 shares; no shares issued
or outstanding............................................................... --
Common Stock, $0.01 par value; authorized 50,000,000 shares; no shares issued or
outstanding.................................................................. --
Additional paid-in capital...................................................... --
Common stock subscribed (one share)............................................. $ 25,000
Less: stock subscriptions receivable............................................ (25,000)
--------
Total liabilities and stockholder's equity........................................ $ --
--------
--------
</TABLE>
See accompanying note to Balance Sheet
F-2
<PAGE> 36
CKE RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CARL KARCHER ENTERPRISES, INC.)
NOTE TO BALANCE SHEET
MARCH 3, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
CKE Restaurants, Inc. (the "Company") was incorporated in the State of
Delaware on March 1, 1994 as a wholly-owned subsidiary of Carl Karcher
Enterprises, Inc. Ultimately, the shareholders of Carl Karcher Enterprises, Inc.
("Enterprises"), will vote upon approval of a merger whereby Enterprises will
become a wholly-owned subsidiary of the Company and the Company will become the
successor to Enterprises as a Delaware holding company (the "Merger").
Upon the completion of the Merger, the Company will develop, operate,
franchise and license a quick-service restaurant chain, under the "Carl's Jr."
name, with more than 640 restaurants in California, Nevada, Oregon, Arizona and
Mexico and have the exclusive rights from Boston Chicken Inc., to franchise
"Boston Chicken" stores in the areas of Los Angeles, Sacramento and San Diego,
California.
The Company is in the process of filing a registration statement with the
Securities and Exchange Commission to issue and sell up to $75 million of
unsecured debt securities and/or shares of its preferred stock.
Fiscal Year
The Company will utilize a 52 or 53 week accounting period which ends on
the last Monday of January each year.
Income Taxes
Income Taxes will be provided based on the liability method of accounting
in accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes". Under this method, income tax assets and
liabilities are recognized using enacted tax rates for the expected future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. A change in tax rates is recognized in income in the
period that includes the enactment date.
F-3
<PAGE> 37
APPENDIX A
PLAN OF REORGANIZATION AND AGREEMENT OF MERGER
This Plan of Reorganization and Agreement of Merger (the "Merger
Agreement") is made as of March , 1994, by and among Carl Karcher Enterprises,
Inc. a California corporation ("Surviving Company"), CKE Food Services, Inc. a
California corporation ("CKE Subsidiary"), and CKE Restaurants, Inc. a Delaware
corporation ("Holding Company"). Surviving Company and CKE Subsidiary together
are hereinafter sometimes referred to as "Constituent Corporations."
WHEREAS, Surviving Company has an authorized capital stock consisting of
22,500,000 shares of Common Stock, without par value, of which are
issued and outstanding;
WHEREAS, CKE Subsidiary has an authorized capital stock consisting of
10,000 shares of Common Stock, without par value, of which 1,000 shares are
issued and outstanding, all of which are owned by Holding Company;
WHEREAS, Holding Company has an authorized capital stock consisting of
55,000,000 shares, of which 50,000,000 shares consist of Common Stock, par value
$.01 per share, of which one share is issued and outstanding, all of which are
owned by Surviving Company, and 5,000,000 shares consist of Preferred Stock, par
value $.01 per share, none of which are issued and outstanding;
WHEREAS, the respective Boards of Directors of Surviving Company, CKE
Subsidiary and Holding Company deem it advisable that CKE Subsidiary merge into
Surviving Company upon terms and conditions herein provided (the "Merger") and
have each approved this Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereto agree that
in accordance with the California General Corporation Law, CKE Subsidiary shall
be merged with and into Surviving Company in accordance with the following terms
and conditions:
1. Merger. Effective upon the filing of this Merger Agreement under
the California General Corporation Law (the "Effective Date"), CKE
Subsidiary and Surviving Company shall be merged with and into a single
corporation, which shall be Surviving Company as the surviving corporation.
The separate corporate existence of CKE Subsidiary shall cease on the
Effective Date.
2. Articles of Incorporation and Bylaws. The Articles of Incorporation
of CKE Subsidiary, as amended and in effect on the Effective Date, shall be
the Articles of Incorporation of Surviving Company without change or
amendment until further amended in accordance with the provisions thereof
and applicable law. The Bylaws of CKE Subsidiary, as amended and in effect
on the Effective Date, shall be the Bylaws of Surviving Company, without
change or amendment until further amended in accordance with the provisions
thereof and applicable law.
3. Directors and Officers. The directors and officers of Surviving
Company immediately prior to the Merger shall continue as the directors and
officers, respectively, of the Surviving Company after the Effective Date
to hold office until the expiration of their current terms, or their prior
resignation, removal or death.
4. Succession. On the Effective Date, Surviving Company shall succeed
to CKE Subsidiary in the manner, of and as more fully set forth, in Section
1107 of the California General Corporation Law.
5. Further Assurances. From time to time, as and when required by
Surviving Company or by its successors and assigns, there shall be executed
and delivered on behalf of CKE Subsidiary such deeds and other instruments,
and there shall be taken or caused to be taken by it such further and other
action, as shall be appropriate or necessary in order to vest or perfect in
or to confirm of record or otherwise in Surviving Company the title to and
possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of CKE Subsidiary, and
otherwise to carry out the purposes of this Merger Agreement, and the
officers and directors of Surviving Company are fully authorized in
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the name and on behalf of CKE Subsidiary or otherwise to take any and all
such action and to execute and deliver any and all such deeds and other
instruments.
6. Capital Stock of Surviving Company. On the Effective Date, by
virtue of the Merger and without any action on the part of any holder
thereof, each share of the Common Stock, without par value, of Surviving
Company outstanding immediately prior thereto shall be changed and
converted into one fully paid and nonassessable share of the Common Stock,
par value $.01 per share, of Holding Company.
7. Common Stock of CKE Subsidiary. On the Effective Date, by virtue of
the Merger and without any action on the part of the holder thereof, each
share of the Common Stock, without par value, of CKE Subsidiary outstanding
immediately prior thereto shall be changed and converted into one fully
paid and nonassessable share of the Common Stock, without par value, of
Surviving Company.
8. Common Stock of Holding Company Owned by Surviving Company. On the
Effective Date, by virtue of the Merger and without any action on the part
of the holder thereof, each share of Common Stock of Holding Company
outstanding immediately prior thereto and owned by Surviving Company shall
remain issued and outstanding.
9. Stock Certificates. On and after the Effective Date, all of the
outstanding certificates that prior to that time represented shares of the
Common Stock of Surviving Company shall be deemed for all purposes to
evidence the same number of shares of Common Stock of Holding Company. The
registered owner on the books and records of Holding Company or its
transfer agents of any such stock certificate shall, until such certificate
shall have been surrendered for transfer or conversion or otherwise
accounted for to Holding Company or its transfer agents, have and be
entitled to exercise any voting and other rights with respect to, and to
receive any dividend and other distributions upon, the shares of Holding
Company to which such person is entitled.
10. Options. Upon the Effective Date, all outstanding and unexercised
portions of all options to buy Common Stock of Surviving Company under the
Carl Karcher Enterprises, Inc. Key Employee Incentive Stock Option Plan and
Carl Karcher Enterprises, Inc. 1993 Employee Stock Incentive Plan shall
become options for the same number of shares of Common Stock of Holding
Company and, effective upon the Effective Date, Holding Company hereby
expressly adopts and assumes all outstanding and unexercised portions of
such options and all obligations of CKE Subsidiary with respect thereto.
11. Abandonment. At any time before the Effective Date, this Merger
Agreement may be terminated and the Merger may be abandoned at the election
of the Board of Directors of Surviving Company, whether before or after
approval of this Merger Agreement by the shareholders of Surviving Company,
if the Board of Directors shall have determined that the Merger is not in
the best interest of Surviving Company or its shareholders.
12. Counterparts. This Merger Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by the Boards of Directors and shareholders of Surviving Company, CKE Subsidiary
and Holding Company, is hereby executed on behalf of each of said corporations
by their respective officers hereunto duly authorized.
CARL KARCHER ENTERPRISES, INC.,
a California corporation
By: ________________________________
President
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ATTEST:
- ------------------------------------
Secretary
CKE RESTAURANTS, INC.,
a Delaware corporation
By: _______________________________
President
ATTEST:
- ------------------------------------
Secretary
CKE FOOD SERVICES, INC.,
a California corporation
By: _______________________________
President
ATTEST:
- ------------------------------------
Secretary
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APPENDIX B
CERTIFICATE OF INCORPORATION
OF
CKE RESTAURANTS, INC.
ARTICLE I: NAME
The name of the Corporation is CKE Restaurants, Inc.
ARTICLE II: DEFINITIONS
For purposes of this Certificate of Incorporation, the following terms
shall have the meanings indicated, and all capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in Section
203(c) of the Delaware General Corporation Law, as in effect on the date hereof:
(A) "Beneficially Owns" has the meaning set forth in Rule 13d-3 under
the Securities Exchange Act of 1934 as in effect on January 1, 1994.
(B) "Board" means the Board of Directors of the Corporation.
(C) "Business Combination" shall have the meaning ascribed to it in
Section 203(c)(3) of the Delaware General Corporation Law; provided,
however, that for purposes hereof the term "interested stockholder"
appearing therein shall have the meaning ascribed to it in Article II(E)
hereof.
(D) "Interested Stockholder" means any Person (other than the
Corporation and any direct or indirect majority-owned subsidiary of the
Corporation) that (1) Beneficially Owns 5% or more of the outstanding
Voting Stock, or (2) is an Affiliate or Associate of the Corporation and
Beneficially Owned 5% or more of the outstanding Voting Stock at any time
within the three-year period immediately prior to the date on which it is
sought to be determined whether such Person is an Interested Stockholder,
or (3) is an Affiliate or Associate of a Person described in (1) or (2)
preceding; provided, however, that the term "interested Stockholder" shall
not include (i) any Person who (a) Beneficially Owned shares in excess of
the 5% limitation set forth herein as of the first date upon which shares
of Voting Stock of the Corporation are held of record or beneficially by
more than one hundred (100) stockholders and continued to Beneficially Own
shares in excess of such 5% limitation or would have Beneficially Owned
such shares but for action by the Corporation or (b) acquired such shares
from a Person described in (a) above by gift, inheritance or in a
transaction in which no consideration was exchanged; or (ii) any Person
whose ownership of shares in excess of the 5% limitation set forth herein
is the result of action taken solely by the Corporation, provided that such
Person shall be an Interested Stockholder if thereafter such Person
acquires additional shares of Voting Stock except as a result of further
corporate action not caused, directly or indirectly, by such Person. For
the purpose of determining whether a Person is an Interested Stockholder,
(1) the Voting Stock deemed to be outstanding shall include stock deemed to
be owned by the Person through application of Section 203(c)(8) of the
Delaware General Corporation Law, except that the Voting Stock deemed to be
outstanding shall not include any other unissued stock of the Corporation
that may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options,
or otherwise, and (2) a Person engaged in business as an underwriter of
securities shall not be deemed to own any Voting Stock acquired through
such Person's participation in good faith in a firm commitment underwriting
until the expiration of 40 days after the date of such acquisition.
(E) "Voting Stock" means stock of the Corporation of any class or
series entitled to vote generally in the election of directors of the
Corporation, and each reference herein to a percentage or portion of shares
of Voting Stock shall refer to such percentage or portion of the votes
entitled to be cast by the holders of such shares.
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ARTICLE III: REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is Corporation Service Company, 1013 Centre Road, City of Wilmington,
County of New Castle and the name of its registered agent at that address is
Corporation Service Company.
ARTICLE IV: PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE V: AUTHORIZED CAPITAL STOCK
SECTION 1. Number of Authorized Shares. The Corporation shall be authorized
to issue two classes of shares of stock to be designated, respectively, "Common
Stock" and "Preferred Stock"; the total number of shares of all classes of stock
that the Corporation shall have authority to issue is Fifty-Five Million
(55,000,000) shares, consisting of Fifty Million (50,000,000) shares of Common
Stock par value $.01 per share, and Five Million (5,000,000) shares of Preferred
Stock, par value $.01 per share.
SECTION 2. Preferred Stock. Shares of Preferred Stock may be issued from
time to time in one or more series. Shares of Preferred Stock that are redeemed,
purchased or otherwise acquired by the Corporation may be reissued except as
otherwise provided by law. The Board is hereby authorized to fix or alter the
designations, powers and preferences, and relative, participating, optional or
other rights, if any, and qualifications, limitations or restrictions thereof,
including, without limitation, dividend rights (and whether dividends are
cumulative), conversion rights, if any, voting rights (including the number of
votes, if any, per share, as well as the number of members, if any, of the Board
or the percentage of members, if any, of the Board each class or series of
Preferred Stock may be entitled to elect), rights and terms of redemption
(including sinking fund provisions, if any), redemption price and liquidation
preferences of any wholly unissued series of Preferred Stock, and the number of
shares constituting any such series and the designation thereof, and to increase
or decrease the number of shares of any such series subsequent to the issuance
of shares of such series, but not below the number of shares of such series then
outstanding. Notwithstanding the foregoing, the Board shall have no power to
alter the rights of any shares of Preferred Stock then outstanding.
SECTION 3. Distributions Upon Liquidation. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, whether voluntary
or involuntary, after payment of provision for payment of the debts and other
liabilities of the Corporation, the holders of each series of Preferred Stock
shall be entitled to receive, out of the net assets of the Corporation, an
amount for each share of such series of Preferred Stock equal to the amount
fixed and determined by the Board in the resolution or resolutions creating such
series and providing for the issuance of such shares, and no more, before any of
the assets of the Corporation shall be divided among and paid to the holders of
shares of Common Stock. If, upon such dissolution, liquidation or winding up,
the assets of the Corporation distributable as aforesaid among the holders of
Preferred Stock of all series shall be insufficient to permit full payment to
them of said preferential amounts, then such assets shall be distributed ratably
among such holders of Preferred Stock in proportion to the respective total
amounts which they shall be entitled to receive as provided in this Section 3.
ARTICLE VI: ANNUAL MEETINGS OF STOCKHOLDERS
The annual meeting of stockholders shall be held at such time, on such date
and at such place (within or without the State of Delaware) as provided in the
Bylaws of the Corporation. Subject to any requirement of applicable law, the
books of the Corporation may be kept outside the State of Delaware at such place
or places as may be designated from time to time by the Board or in the Bylaws
of the Corporation. Elections of directors need not be by written ballot unless
the Bylaws of the Corporation shall so provide.
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ARTICLE VII: CALL OF SPECIAL MEETINGS OF STOCKHOLDERS
Special meetings of stockholders of the Corporation for any purpose or
purposes may be called at any time by a majority of the members of the Board of
Directors or by a committee of the Board of Directors that has been duly
designated by the Board of Directors and whose power and authority, as provided
in a resolution adopted by the Board of Directors or in the Bylaws of the
Corporation, includes the power to call such meetings, but such special meetings
of stockholders of the Corporation may not be called by any other Person or
Persons or in any other manner; provided, however, that if and to the extent
that any special meeting of stockholders may be called by any other Person or
Persons specified in any certificate of designations filed under Section 151(g)
of the Delaware General Corporation Law (or its successor statute as in effect
from time to time), then such special meeting may also be called by the Person
or Persons, in the manner, at the times and for the purposes so specified.
ARTICLE VIII: NUMBER OF DIRECTORS
SECTION 1. Number of Directors. The number of directors that shall
constitute the whole Board shall be as specified in the Bylaws of the
Corporation, as the same may be amended from time to time. Notwithstanding the
foregoing, during any period in which the holders of any one or more series of
Preferred Stock, voting as a class, shall be entitled to elect a specific number
of directors by reason of dividend arrearages or other contingencies giving them
the right to do so, then and during such time as such right continues, (A) the
then otherwise authorized number of directors shall be increased by such
specified number of directors and the holders of shares of such series of
Preferred Stock, voting as a class, shall be entitled to elect such specified
number of directors in accordance with the procedure set forth in the resolution
or resolutions of the Board creating such series and providing for the issuance
of such shares and (B) each such additional director shall serve until his or
her successor shall be elected and shall qualify, or until his or her right to
hold such office terminates pursuant to the resolution or resolutions of the
Board creating such series of Preferred Stock and providing for the issuance of
shares of such series, whichever occurs earlier. Whenever the holders of shares
of such series of Preferred Stock are divested of such right to elect directors
pursuant to the resolution or resolutions of the Board creating such series and
providing for the issuance of such shares, the terms of office of all directors
elected by the holders of such series of Preferred Stock pursuant to such
rights, or elected to fill any vacancies resulting from the death, resignation
or removal of directors so elected by the holders of such series, shall
forthwith terminate and the authorized number of directors shall be reduced
accordingly.
SECTION 2. Cumulative Voting. Except as otherwise provided in this
Certificate of Incorporation, all rights to vote and all voting power shall be
exclusively vested in the Common Stock of the Corporation, and the holders
thereof shall be entitled at all elections of directors to as many votes as
shall equal the number of votes that (except for this provision as to cumulative
voting) he or she would be entitled to cast for the election of directors with
respect to his or her shares of stock multiplied by the number of directors to
be elected, and such holder may cast all of such votes for a single director or
may distribute them among the number to be voted for, or for any two or more of
them as he or she may see fit, and to one vote for each share upon all other
matters.
ARTICLE IX: STOCKHOLDER ACTION BY WRITTEN CONSENT
Any election of directors or other action by the stockholders of the
Corporation may be effected at an annual or special meeting of stockholders and
may not be effected by written consent without a meeting.
ARTICLE X: ELECTION OF DIRECTORS
SECTION 1. Classified Board. Except to the extent otherwise provided in any
certificate of designations filed under Section 151(g) of the Delaware General
Corporation Law (or its successor statute as in effect from time to time), the
Board of Directors shall be and is divided into three classes, Class I, Class II
and Class III. Such classes shall be as nearly equal in number of directors as
reasonably possible. Each director shall serve for a term ending on the third
annual meeting following the annual meeting at which such director was elected,
provided, however, that the directors first elected to Class I shall serve for a
term ending on the annual meeting date next following the end of calendar year
1994, the directors first elected to Class II shall
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serve for a term ending on the second annual meeting date next following the end
of calendar year 1994, and the directors first elected to Class III shall serve
for a term ending on the third annual meeting date next following the end of
calendar year 1994. The foregoing notwithstanding, each director shall serve
until his successor shall have been duly elected and qualified unless he shall
resign, become disqualified or shall otherwise be removed.
At each annual election, the directors chosen to succeed those terms then
expiring shall be of the same class of the directors they succeed unless, by
reason of any intervening changes in the authorized number of directors, the
designated board shall designate one or more directorships whose term then
expires as directorships of another class in order more nearly to achieve
equality of number of directors among the classes. If a director dies, resigns
or is removed, the director chosen to fill the vacant directorship shall be of
the same class as the director he succeeds, unless, by reason of any previous
changes in the authorized number of directors, the Board shall designate such
vacant directorship as a directorship of another class in order more nearly to
achieve equality in the number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly equal in
number of directors as reasonably possible, in the event of any change in the
authorized number of directors, each director then continuing to serve as such
shall nevertheless continue as a director of the class of which he is a member
until the expiration of his current term or his prior death, resignation or
removal. If any newly created directorship may, consistently with the rule that
the three classes shall be as nearly equal in number of directors as reasonably
possible, be allocated to one of two or more classes, the Board shall allocate
it to that of the available classes whose term of office is due to expire at the
earliest date following such allocation.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may, unless the Board of Directors determines
otherwise, only be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director; provided, however,
that if the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors, vacancies and newly created
directorships of such class or classes or series may only be filled by a
majority of the directors elected by such class or classes or series thereof
then in office, or by a sole remaining director so elected.
SECTION 2. Stockholder Nominees. Nominations by stockholders of persons for
election to the Board shall be made only in accordance with the procedures set
forth in the Bylaws of the Corporation.
SECTION 3. Removal. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any director, or the entire Board, may be
removed from office only for cause at any time, and only by the affirmative vote
of the holders of a majority of the shares of Voting Stock then outstanding.
ARTICLE XI: BUSINESS COMBINATIONS
SECTION 1. Vote Required for Certain Business Combinations. In addition to
any affirmative vote required by applicable law or any other provision of this
Certificate of Incorporation or specified in any agreement, and in addition to
any voting rights granted to or held by the holders of Common Stock or Preferred
Stock, the approval or authorization of any Business Combination that has not
been approved in advance by at least 66 2/3% of the Directors shall require the
affirmative vote of the holders of not less than 66 2/3% of the Voting Stock
then outstanding.
SECTION 2. Express Election Not to be Governed by Section 203. The
Corporation hereby expressly elects not to be governed by the provisions of
Section 203 of the Delaware General Corporation Law; provided, however, that
nothing set forth herein shall affect the application of the definitions in
clause (c) thereof, to the extent provided in Article II hereof.
ARTICLE XII: LIABILITY AND INDEMNIFICATION
To the fullest extent permitted by the Delaware General Corporation Law, as
the same exists or may hereafter be amended (the "Delaware Law"), a director of
the Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. The Corporation
shall indemnify, in the manner and to the fullest extent permitted by the
Delaware Law, any
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person (or the estate of any person) who is or was a party to, or is threatened
to be made a party to, any threatened, pending or completed action, suit or
proceeding, whether or not by or in the right of the Corporation, and whether
civil, criminal, administrative, investigative or otherwise, by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise. The
Corporation may indemnify, in the manner and to the fullest extent permitted by
the Delaware Law, any person (or the estate of any person) who is or was a party
to, or is threatened to be made a party to, any threatened, pending or completed
action, suit or proceeding, whether or not by or in the right of the
Corporation, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was an employee or agent
of the Corporation, or is or was serving at the request of the Corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The Corporation may, to the fullest extent permitted by the
Delaware Law, purchase and maintain insurance on behalf of any such director,
officer, employee or agent against any liability which may be asserted against
such person. To the fullest extent permitted by the Delaware Law, the
indemnification provided herein shall include expenses (including Attorneys'
fees), judgments, fines and amounts paid in settlement and, in the manner
provided by the Delaware Law, any such expenses may be paid by the Corporation
in advance of the final disposition of such action, suit or proceeding. The
indemnification provided herein shall not be deemed to limit the right of the
Corporation to indemnify any other person for any such expenses to the fullest
extent permitted by the Delaware Law, nor shall it be deemed exclusive of any
other rights to which any person seeking indemnification from the Corporation
may be entitled under any agreement, vote of stockholders or disinterested
directors, or otherwise, both as to action in such person's official capacity
and as to action in another capacity while holding such office.
No repeal or modification of the foregoing paragraph shall adversely affect
any right or protection of a director of the Corporation existing by virtue of
the foregoing paragraph at the time of such repeal or modification.
ARTICLE XIII: AMENDMENT OF CORPORATE DOCUMENTS
SECTION 1. Certificate of Incorporation. In addition to any affirmative
vote required by applicable law or any other provision of this Certificate of
Incorporation or specified in any agreement, and in addition to any voting
rights granted to or held by the holders of Common Stock or Preferred Stock, any
alteration, amendment, repeal or rescission (any "Change") of any provision of
this Certificate of Incorporation must be approved by a majority of the
directors of the Corporation then in office and by the affirmative vote of the
holders of a majority of the Voting Stock then outstanding; provided, however,
that if any such Change relates to Articles II, VII, IX, X, XI and XIV hereof or
this Article XIII, such Change must also be approved by the affirmative vote of
the holders of not less than 66 2/3% of the shares of Voting Stock then
outstanding. Subject to the foregoing, the Corporation reserves the right to
alter, amend, repeal or rescind any provision contained in this Certificate of
Incorporation in any manner now or hereafter prescribed by law.
SECTION 2. Bylaws. The Board shall have the power to make, alter, amend,
repeal or rescind the Bylaws of the Corporation.
ARTICLE XIV: APPRAISAL RIGHTS
To the maximum extent permissible under Section 262 of the Delaware General
Corporation Law, the stockholders of the Corporation shall be entitled to the
statutory appraisal rights provided therein, notwithstanding any exception
otherwise provided therein, with respect to any transaction described in Article
XI involving the Corporation that requires the affirmative vote of the holders
of not less than 66 2/3% of the Voting Stock then outstanding.
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ARTICLE XV: INCORPORATOR
The name and mailing address of the incorporator of the Corporation is:
Jacqueline N. Casper
c/o Corporation Service Company
1013 Center Road
Wilmington, Delaware 19805
The undersigned, being the incorporator hereinbefore named, for the purpose
of forming a corporation to do business both within and without the State of
Delaware, and in pursuance of the Delaware General Corporation Law, does make
the file this Certificate.
/s/ JACQUELINE N. CASPER
--------------------------------------
Jacqueline N. Casper
Incorporator
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APPENDIX C
CKE RESTAURANTS, INC.
A DELAWARE CORPORATION
BYLAWS
ARTICLE I: OFFICES
SECTION 1.1 Registered Office. The registered office of CKE Restaurants,
Inc. (the "Corporation") shall be at Corporation Service Company, 1013 Centre
Road, City of Wilmington, County of New Castle, State of Delaware, and the name
of the registered agent in charge thereof shall be Corporation Service Company.
SECTION 1.2 Principal Office. The principal office for the transaction of
the business of the Corporation shall be at 1200 North Harbor Boulevard,
Anaheim, California 92801. The Board of Directors of the Corporation (the
"Board") is hereby granted full power and authority to change said principal
office from one location to another.
SECTION 1.3 Other Offices. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II: MEETINGS OF STOCKHOLDERS
SECTION 2.1 Place of Meetings. All annual meetings of stockholders and all
other meetings of stockholders shall be held either at the principal office of
the Corporation or at any other place within or without the State of Delaware
that may be designated by the Board pursuant to authority hereinafter granted to
the Board.
SECTION 2.2 Annual Meetings. Annual meetings of stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time and place and on such date as the Board shall determine by resolution.
SECTION 2.3 Special Meetings. Special meetings of stockholders of the
Corporation for any purpose or purposes may only be called in accordance with
the provisions of the Certificate of Incorporation.
SECTION 2.4 Notice of Meetings. Except as otherwise required by law,
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 days nor more than 60 days before the date of the meeting
to each stockholder of record entitled to vote at such meeting by delivering a
typewritten or printed notice thereof to such stockholder personally, or by
depositing such notice in the United States mail, in a postage prepaid envelope,
directed to such stockholder at such stockholder's post office address furnished
by such stockholder to the Secretary of the Corporation for such purpose, or, if
such stockholder shall not have furnished an address to the Secretary for such
purpose, then at such stockholder's post office address last known to the
Secretary, or by transmitting a notice thereof to such stockholder at such
address by telegraph, cable, wireless or fax. Except as otherwise expressly
required by law, no publication of any notice of a meeting of stockholders shall
be required. Every notice of a meeting of stockholders shall state the place,
date and hour of the meeting and, in the case of a special meeting, shall also
state the purpose for which the meeting is called. Notice of any meeting of
stockholders shall not be required to be given to any stockholder to whom notice
may be omitted pursuant to applicable Delaware law or who shall have waived such
notice, and such notice shall be deemed waived by any stockholder who shall
attend such meeting in person or by proxy, except a stockholder who shall attend
such meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Except as otherwise expressly required by law, notice of any
adjourned meeting of stockholders need not be given if the time and place
thereof are announced at the meeting at which the adjournment is taken.
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SECTION 2.5 Quorum. Except as otherwise required by law, the holders of
record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of
stockholders of the Corporation or any adjournment thereof. Subject to the
requirement of a larger percentage vote contained in the Certificate of
Incorporation, these Bylaws or by statute, the stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding any withdrawal of stockholders that may leave
less than a quorum remaining, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
In the absence of a quorum at any meeting or any adjournment thereof, a majority
in voting interest of the stockholders present in person or by proxy and
entitled to vote thereat or, in the absence therefrom of all the stockholders,
any officer entitled to preside at, or to act as secretary of, such meeting may
adjourn such meeting from time to time. At any such adjourned meeting at which a
quorum is present, any business may be transacted that might have been
transacted at the meeting as originally called.
SECTION 2.6 Voting.
(A) Each stockholder shall, at each meeting of stockholders, be entitled to
vote in person or by proxy each share of the stock of the Corporation that has
voting rights on the matter in question and that shall have been held by such
stockholder and registered in such stockholder's name on the books of the
Corporation:
(i) on the date fixed pursuant to Section 6.5 of these Bylaws as the
record date for the determination of stockholders entitled to notice of and
to vote at such meeting; or
(ii) if no such record date shall have been so fixed, then (a) at the
close of business on the day next preceding the day upon which notice of
the meeting shall be given or (b) if notice of the meeting shall be waived,
at the close of business on the day next preceding the day upon which the
meeting shall be held.
(B) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the Corporation
the pledgor shall have expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or the pledgee's proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise, or with respect to
which two or more persons have the same fiduciary relationship, shall be voted
in accordance with the provisions of the Delaware General Corporation Law.
(C) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by such stockholder as proxy appointed by an instrument in
writing, subscribed by such stockholder or by such stockholder's attorney
thereunto authorized and delivered to the secretary of the meeting; provided,
however, that no proxy shall be voted or acted upon after three years from its
date unless said proxy shall provide for a longer period. The attendance at any
meeting of a stockholder who may theretofore have given a proxy shall not have
the effect of revoking the same unless such stockholder shall in writing so
notify the secretary of the meeting prior to the voting of the proxy. At any
meeting of stockholders, all matters, except as otherwise provided in the
Certificate of Incorporation, in these Bylaws or by law, shall be decided by the
vote of a majority in voting interest of the stockholders present in person or
by proxy and entitled to vote thereat and thereon, a quorum being present. The
vote at any meeting of stockholders on any question need not be by ballot,
unless so directed by the chairman of the meeting. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by such stockholder's
proxy, if there be such proxy, and it shall state the number of shares voted.
SECTION 2.7 List of Stockholders. The Secretary of the Corporation shall
prepare and make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of such stockholder. Such list shall be open to
the examination of any stockholder, for
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any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
SECTION 2.8 Judges. If at any meeting of stockholders a vote by written
ballot shall be taken on any question, the chairman of such meeting may appoint
a judge or judges to act with respect to such vote. Each judge so appointed
shall first subscribe an oath faithfully to execute the duties of a judge at
such meeting with strict impartiality and according to the best of such judge's
ability. Such judges shall decide upon the qualification of the voters and shall
report the number of shares represented at the meeting and entitled to vote on
such question, shall conduct and accept the votes, and, when the voting is
completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation. The judges
need not be stockholders of the Corporation, and any officer of the Corporation
may be a judge on any question other than a vote for or against a proposal in
which such officer shall have a material interest.
SECTION 2.9 Advance Notice of Stockholder Proposals and Stockholder
Nominations.
(A) At any meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board or (ii) by any stockholder of the Corporation who
complies with the notice procedures set forth in this Section 2.9(A). For
business to be properly brought before any meeting of the stockholders by a
stockholder, the stockholder must have given notice thereof in writing to the
Secretary of the Corporation not less than 90 days in advance of such meeting
or, if later, the seventh day following the first public announcement of the
date of such meeting. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the meeting (1) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (2) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business, (3) the class and number of shares of the Corporation that are
beneficially owned by the stockholder, and (4) any material interest of the
stockholder in such business. In addition, the stockholder making such proposal
shall promptly provide any other information reasonably requested by the
Corporation. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any meeting of the stockholders except in
accordance with the procedures set forth in this Section 2.9. The Chairman of
any such meeting shall direct that any business not properly brought before the
meeting shall not be considered.
(B) Nominations for the election of directors may be made by the Board or
by any stockholder entitled to vote in the election of directors; provided,
however, that a stockholder may nominate a person for election as a director at
a meeting only if written notice of such stockholder's intent to make such
nomination has been given to the Secretary of the Corporation not later than 90
days in advance of such meeting or, if later, the seventh day following the
first public announcement of the date of such meeting. Each such notice shall
set forth: (i) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (ii) a representation
that the stockholder is a holder of record of stock of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting and nominate the person or persons specified in the notice; (iii) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (iv) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the United States Securities and Exchange
Commission had the nominee been nominated, or intended to be nominated, by the
Board; and (v) the consent of each nominee to serve as a director of the
Corporation if so elected. In addition, the stockholder making such nomination
shall promptly provide any other information reasonably requested by the
Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 2.9(B). The Chairman of any meeting of stockholders shall direct that
any nomination not made in accordance with these procedures be disregarded.
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ARTICLE III: BOARD OF DIRECTORS
SECTION 3.1 General Powers. Subject to any requirements in the Certificate
of Incorporation, these Bylaws, and of the Delaware General Corporation Law as
to action which must be authorized or approved by the stockholders, any and all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation shall be under the direction of, the
Board to the fullest extent permitted by law. Without limiting the generality of
the foregoing, it is hereby expressly declared that the Board shall have the
following powers, to wit:
(A) to select and remove all the officers, agents and employees of the
Corporation, prescribe such powers and duties for them as may not be
inconsistent with law, the Certificate of Incorporation or these Bylaws,
fix their compensation, and require from them security for faithful
service;
(B) to conduct, manage and control the affairs and business of the
Corporation, and to make such rules and regulations therefor not
inconsistent with law, the Certificate of Incorporation or these Bylaws (as
the same may be amended from time to time), as it may deem best;
(C) to change the location of the registered office of the Corporation
in Section 1.1 hereof; to change the principal office and the principal
office for the transaction of the business of the Corporation from one
location to another as provided in Section 1.2 hereof; to fix and locate
from time to time one or more subsidiary offices of the Corporation within
or without the State of Delaware as provided in Section 1.3 hereof; to
designate any place within or without the State of Delaware for the holding
of any meeting or meetings of stockholders; and to adopt, make and use a
corporate seal, and to prescribe the forms of certificates of stock, and to
alter the form of such seal and of such certificates from time to time, and
in its judgment as it may deem best, provided such seal and such
certificate shall at all times comply with the provisions of law;
(D) to authorize the issue of shares of stock of the Corporation from
time to time, upon such terms and for such considerations as may be lawful;
(E) to borrow money and incur indebtedness for the purposes of the
Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust and
securities therefor; and
(F) by resolution adopted by a majority of the authorized number of
directors, to designate an executive and other committees of the Board,
each consisting of one or more directors, to serve at the pleasure of the
Board, and to prescribe the manner in which proceedings of such committee
or committees shall be conducted.
SECTION 3.2 Number and Term of Office. The authorized number of directors
of the Corporation shall be nine (9) until this Section 3.2 is amended by a
resolution duly adopted by the Board. Directors need not be stockholders. With
the exception of Carl N. Karcher, no person who has attained the age of 70 shall
be eligible for election to the Board. Each of the directors of the Corporation
shall hold office until such director's successor shall have been duly elected
and shall qualify or until such director shall resign or shall have been removed
in the manner provided in these Bylaws.
SECTION 3.3 Election of Directors. The directors shall be elected by the
stockholders of the Corporation, and at each election the persons receiving the
greater number of votes, up to the number of directors then to be elected, shall
be the persons then elected. The election of directors is subject to any
provisions contained in the Certificate of Incorporation relating thereto,
including any provisions for a classified Board.
SECTION 3.4 Resignations. Any director of the Corporation may resign at
any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
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SECTION 3.5 Vacancies. Except as otherwise provided in the Certificate of
Incorporation, any vacancy in the Board, whether because of death, resignation,
disqualification, an increase in the number of directors or any other cause, may
be filled by vote of the majority of the remaining directors, even though less
than a quorum, or by a sole remaining director; provided, however, that whenever
the holders of any class or series of shares are entitled to elect one or more
directors, any vacancy or newly created directorship of such class or series may
be filled by a majority of the directors elected by such class or series then in
office, or by a sole remaining director so elected. Each director so chosen to
fill a vacancy shall hold office until such director's successor shall have been
elected and shall qualify or until such director shall resign or shall have been
removed. No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
SECTION 3.6 Place of Meeting. The Board or any committee thereof may hold
any of its meetings at such place or places within or without the State of
Delaware as the Board or such committee may from time to time by resolution
designate or as shall be designated by the person or persons calling the meeting
or in the notice or a waiver of notice of any such meeting. Directors may
participate in any regular or special meeting of the Board or any committee
thereof by means of conference telephone or similar communications equipment
pursuant to which all persons participating in the meeting of the Board or such
committee can hear each other, and such participation shall constitute presence
in person at such meeting.
SECTION 3.7 Regular Meetings. Regular meetings of the Board may be held at
such times as the Board shall from time to time by resolution determine. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting shall be held at the same hour and place
on the next succeeding business day not a legal holiday. Except as provided by
law, notice of regular meetings need not be given.
SECTION 3.8 Special Meetings. Special meetings of the Board for any
purpose or purposes shall be called at any time by the Chairman of the Board or,
if the Chairman of the Board is absent or unable or refuses to act, by the Chief
Executive Officer or the President. Except as otherwise provided by law or by
these Bylaws, written notice of the time and place of special meetings shall be
delivered personally or by facsimile transmission to each director, or sent to
each director by mail or by other form of written communication, charges
prepaid, addressed to such director at such director's address, or in the case
of facsimile transmission at the facsimile number, as it is shown upon the
records of the Corporation, or, if it is not so shown on such records and is not
readily ascertainable, at the place in which the meetings of the directors are
regularly held. In case such notice is mailed or telegraphed, it shall be
deposited in the United States mail or delivered to the telegraph company in the
County in which the principal office for the transaction of the business of the
Corporation is located at least 48 hours prior to the time of the holding of the
meeting. In case such notice is delivered personally or by facsimile
transmission as above provided, it shall be delivered at least 24 hours prior to
the time of the holding of the meeting. Such mailing, telegraphing, delivery or
facsimile transmission as above provided shall be due, legal and personal notice
to such director. Except where otherwise required by law or by these Bylaws,
notice of the purpose of a special meeting need not be given. Notice of any
meeting of the Board shall not be required to be given to any director who is
present at such meeting, except a director who shall attend such meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 3.9 Quorum and Manner of Acting. Except as otherwise provided in
these Bylaws, the Certificate of Incorporation or by applicable law, the
presence of a majority of the authorized number of directors shall be required
to constitute a quorum for the transaction of business at any meeting of the
Board, and all matters shall be decided at any such meeting, a quorum being
present, by the affirmative vote of a majority of the directors present. A
meeting at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, provided any action taken is
approved by at least a majority of the required quorum for such meeting. In the
absence of a quorum, a majority of directors present at any meeting may adjourn
the same from time to time until a quorum shall be present. Notice of any
adjourned meeting need not be given. The directors shall act only as a Board,
and the individual directors shall have no power as such.
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SECTION 3.10 Action by Consent. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if consent in writing is given thereto by all members of the
Board or of such committee, as the case may be, and such consent is filed with
the minutes of proceedings of the Board or of such committee.
SECTION 3.11 Compensation. Directors who are not employees of the
Corporation or any of its subsidiaries may receive an annual fee for their
services as directors in an amount fixed by resolution of the Board, and, in
addition, a fixed fee, with or without expenses of attendance, may be allowed by
resolution of the Board for attendance at each meeting, including for attendance
at each meeting of a committee of the Board. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent, employee, or otherwise, and receiving
compensation therefor.
SECTION 3.12 Committees. By resolution adopted by a majority of the
authorized number of directors, the Board may designate an audit committee and a
compensation committee and such other committees as it shall determine. Each
committee shall consist of two or more of the members of the Board and shall
serve at the pleasure of the Board. Each such committee shall be governed by a
charter adopted by a majority of the authorized number of directors. To the
extent provided in any such charter and subject to any restrictions or
limitations on the delegation of power and authority imposed by applicable law,
any such committee shall have and may exercise all the powers and authority of
the Board in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it. Any such committee shall keep written minutes of its meetings and
report the same to the Board at the next regular meeting of the Board. Unless
the Board or these Bylaws shall otherwise prescribe the manner of proceedings of
any such committee, meetings of such committee may be regularly scheduled in
advance and may be called at any time by the chairman of the committee or by any
two members thereof; otherwise, the provisions of these Bylaws with respect to
notice and conduct of meetings of the Board shall govern committees of the Board
and actions by such committees.
ARTICLE IV: OFFICERS
SECTION 4.1 Officers. The officers of the Corporation shall be a Chief
Executive Officer, a President, one or more Vice Presidents (the number thereof
and their respective titles to be determined by the Board), a Secretary, and
such other officers as may be appointed at the discretion of the Board in
accordance with the provisions of Section 4.3 hereof. The Board may appoint a
Chairman of the Board and, if the Board so designates, the Chairman of the Board
may be an officer of the Corporation. Any number of offices may be held by the
same person.
SECTION 4.2 Election. The officers of the Corporation, except such
officers as may be appointed or elected in accordance with the provisions of
Sections 4.3 or 4.5 hereof, shall be chosen annually by the Board at the first
meeting thereof held after the annual meeting of stockholders, and each officer
shall hold office until such officer shall resign or shall be removed or
otherwise disqualified to serve, or until such officer's successor shall be
elected and qualified.
SECTION 4.3 Other Officers. In addition to the officers chosen annually by
the Board at its first meeting, the Board also may appoint or elect such other
officers as the business of the Corporation may require, each of whom shall have
such authority and perform such duties as are provided in these Bylaws or as the
Board may from time to time specify and each of whom shall hold office until
such officer shall resign or shall be removed or otherwise disqualified to
serve, or until such officer's successor shall be elected and qualified.
SECTION 4.4 Removal and Resignation. Any officer may be removed, either
with or without cause, by resolution of the Board passed by a majority of the
directors at the time in office, at any regular or special meeting of the Board,
or, except in case of an officer chosen by the Board, by any officer upon whom
such power of removal may be conferred by the Board.
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SECTION 4.5 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to such office.
ARTICLE V: CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.1 Execution of Contracts. The Board, except as in these Bylaws
otherwise provided, may authorize any officer or officers, or agent or agents,
to enter into any contract or execute any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances; and unless so authorized by the Board or by these Bylaws, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.
SECTION 5.2 Checks, Drafts, Etc. All checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness, issued in the name of
or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board. Each such officer, assistant, agent or attorney shall
give such bond, if any, as the Board may require.
SECTION 5.3 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board may select, or as may
be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the purpose
of collection for the account of the Corporation, the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President or the Treasurer (or
any other officer or officers, assistant or assistants, agent or agents, or
attorney or attorneys of the Corporation who shall from time to time be
determined by the Board) may endorse, assign and deliver checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation.
SECTION 5.4 General and Special Bank Accounts. The Board may from time to
time authorize the opening and keeping of general and special bank accounts with
such banks, trust companies or other depositories as the Board may select or as
may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE VI: SHARES AND THEIR TRANSFER
SECTION 6.1 Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class or
series of shares of the stock of the Corporation owned by such owner. The
certificates representing shares of such stock shall be numbered in the order in
which they shall be issued and shall be signed in the name of the Corporation by
the Chairman of the Board, the Chief Executive Officer, the President or any
Vice President, and by the Secretary or the Treasurer. Any or all of the
signatures on the certificates may be a facsimile. In case any officer, transfer
agent or registrar who has signed, or whose facsimile signature has been placed
upon, any such certificate, shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, such certificate may
nevertheless be issued by the Corporation with the same effect as though the
person who signed such certificate, or whose facsimile signature shall have been
placed thereupon, were such officer, transfer agent or registrar at the date of
issue. A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class or series of shares represented by such certificates, respectively, and
the respective dates thereof, and in case of cancellation, the respective dates
of cancellation. Every certificate surrendered to the Corporation for exchange
or transfer shall be canceled, and no new certificate or certificates shall be
issued in exchange for any
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existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in Section 6.4 hereof.
SECTION 6.2 Transfers of Stock. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by such holder's attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary, or with a transfer clerk or
a transfer agent appointed as provided in Section 6.3 hereof, and upon surrender
of the certificate or certificates for such shares properly endorsed and the
payment of all taxes thereon. The person in whose name shares of stock stand on
the books of the Corporation shall be deemed the owner thereof for all purposes
as regards the Corporation. Whenever any transfer of shares shall be made for
collateral security, and not absolutely, such fact shall be so expressed in the
entry of transfer if, when the certificate or certificates shall be presented to
the Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
SECTION 6.3 Regulations. The Board may make such rules and regulations as
it may deem expedient, not inconsistent with these Bylaws, concerning the issue,
transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
SECTION 6.4 Lost, Stolen, Destroyed, and Mutilated Certificates. In any
case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.
SECTION 6.5 Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any other
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action. If in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders the Board shall not fix such a record date, then the record date
for determining stockholders for such purpose shall be the close of business on
the day on which the Board shall adopt the resolution relating thereto. A
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of such meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
ARTICLE VII: INDEMNIFICATION
SECTION 7.1 Scope of Indemnification. The Corporation shall indemnify, in
the manner and to the fullest extent permitted by the Delaware General
Corporation Law, as the same exists or may hereinafter be amended (the "Delaware
Law"), and by the Certificate of Incorporation, any person (or the estate of any
person) who is or was a party, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether or not by
or in the right of the Corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise. The indemnification provided herein
shall not be deemed to limit the right of the Corporation to indemnify any other
person to the fullest extent permitted by the Delaware Law, nor shall it be
deemed exclusive of any other rights to which any person seeking indemnification
from the Corporation may be entitled under any agreement, vote of stockholders
or disinterested directors, or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office. The Corporation may enter into indemnification agreements with any one
or more of its directors, officers, employees and agents upon resolution duly
adopted by the Board of Directors. Such agreements may indemnify such persons to
the fullest extent permissible under law.
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ARTICLE VIII: MISCELLANEOUS
SECTION 8.1 Seal. The Board shall adopt a corporate seal, which shall be
in the form of a circle and shall bear the name of the Corporation and words
showing that the Corporation was incorporated in the State of Delaware.
SECTION 8.2 Waiver of Notices. Whenever notice is required to be given by
these Bylaws or the Certificate of Incorporation or by law, the person entitled
to said notice may waive such notice in writing, either before or after the time
stated therein, and such waiver shall be deemed equivalent to notice.
SECTION 8.3 Amendments. Except as otherwise provided herein or in the
Certificate of Incorporation, these Bylaws or any of them may be altered,
amended, repealed or rescinded and new Bylaws may be adopted by the Board, or by
the stockholders at any annual or special meeting of stockholders provided that
notice of such proposed alteration, amendment, repeal, rescission or adoption is
given in the notice of such meeting.
SECTION 8.4 Representation of Other Corporations. The Chairman of the
Board, the Chief Executive Officer, the President or the Secretary or any Vice
President of the Corporation is authorized to vote, represent and exercise on
behalf of the Corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of the Corporation. The
authority herein granted to said officers to vote or represent on behalf of the
Corporation any and all shares held by the Corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
person authorized so to do by proxy or power of attorney duly executed by such
officers.
SECTION 8.5 Jurisdiction for Stockholder Suits. Any action brought by any
stockholder against the Corporation or against any officer, director, employee,
agent or advisor of the Corporation, including without limitation any such
action brought on behalf of the Corporation, shall be brought solely in a court
of competent jurisdiction located in the State of Delaware.
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<PAGE> 55
APPENDIX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: JANUARY 25, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A TO N/A
Commission file number: 0-10316
CARL KARCHER ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-2415578
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 NORTH HARBOR BOULEVARD,
ANAHEIM, CALIFORNIA 92801
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (714) 774-5796
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 31, 1993 was $96,933,696.
The number of shares outstanding of each of the registrant's common stock,
as of March 31, 1993 was 18,090,742.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE> 56
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
PARTS IN
WHICH REFERENCED
----------------
<S> <C>
Portions of the Company's Annual Report to Shareholders for the year
ended January 25, 1993..................................................... II, IV
Portions of the Company's Proxy Statement to be filed with the Commission
within 120 days of January 25, 1993, prepared in connection with the Annual
Meeting of Shareholders to be held in 1993................................. III
</TABLE>
The Exhibit Index is located on Page 27.
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<PAGE> 57
FORM 10-K OF CARL KARCHER ENTERPRISES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
Item 1. Business.................................................................... 1
Item 2. Properties.................................................................. 4
Item 3. Legal Proceedings........................................................... 5
Item 4. Submission of Matters to a Vote of Security Holders......................... 5
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters....... 5
Item 6. Selected Financial Data..................................................... 5
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 5
Item 8. Financial Statements and Supplementary Data................................. 5
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................................... 6
PART III
Item 10. Directors and Executive Officers of the Registrant.......................... 6
Item 11. Executive Compensation...................................................... 7
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 7
Item 13. Certain Relationships and Related Transactions.............................. 7
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............ 7
</TABLE>
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<PAGE> 58
PART I
ITEM 1. BUSINESS
General
Carl Karcher Enterprises, Inc., (the "Company") was incorporated in the
State of California in February 1966 as the successor to a company founded in
1941 by the Company's Chairman of the Board, Carl N. Karcher. The Company
develops, operates, franchises and licenses a quick-service restaurant chain
under the name "Carl's Jr.". As of January 25, 1993, there were 642 Carl's Jr.
restaurants in operation in the Western United States and in five other
countries. Of these restaurants, 379 were operated by the Company, 244 were
operated by franchisees and 19 were operated by international licensees.
The Company's overall business strategy was redefined and its operations
streamlined during fiscal 1993. A restructuring program was implemented during
the year, largely due to the appointment of a new president and chief executive
officer in December 1992. This restructuring has refocused the Company's
resources on its primary business -- operating and franchising Carl's Jr.
restaurants. Departments or functions that did not directly support these
operations, such as the Company's manufacturing business and the management of
investment securities, were eliminated, while other areas, such as strategic
planning, information systems and marketing will be strengthened through
selective additions to staff. A total of 58 corporate positions were eliminated,
including 10 vice president and other middle management positions.
Company-operations
The Carl's Jr. menu is relatively uniform throughout the chain and features
several charbroiled hamburgers and chicken sandwiches, including Carl's Famous
Star(R) and the Western Bacon Cheeseburger(R). Other entrees include two roast
beef sandwiches, a fish sandwich, a turkey club sandwich, several baked potatoes
and prepackaged salads. Side orders, such as french fries, onion rings and fried
zucchini, and desserts are also offered. Most restaurants also have a breakfast
menu including eggs, bacon, sausage, pancakes, french toast dips, orange juice,
pastries, muffins, the Sunrise Sandwich(R) and the Breakfast Burrito. Except
during peak volume periods, food is prepared after the customer has placed an
order and is served immediately. Partial table service is offered at Carl's Jr.
and is utilized in most restaurants, except those with exceptionally high lunch
time traffic and certain locations with multi-level seating.
The Company strives to maintain high standards in quality, service and
cleanliness. Each Company-operated restaurant is operated by a manager who has
received 13 to 17 weeks of management training. This training program involves a
combination of classroom instruction and on-the-job training in specially
designated training restaurants. Other restaurant employees are trained by the
restaurant managers in accordance with Company guidelines. Restaurant managers
are supervised by a district manager, responsible for four to seven restaurants.
Approximately 50 district managers are under the supervision of seven regional
directors, all of whom regularly inspect the operations in their respective
regions and districts.
As part of its restructuring program, certain aspects of the Company's
restaurant operations have been targeted for cost reductions. Increasing labor
productivity, thereby reducing labor costs, is the Company's top corporate
priority. This goal will be accomplished with new scheduling guidelines and
enhanced restaurant-level technology. Safety programs and incentives aimed at
lowering workers' compensation costs and other procedural changes are also being
implemented. Product specifications are being reviewed with the intent of
broadening specifications to increase the number of suppliers competing for the
Company's business, which should reduce food costs. The Company will also seek
to reduce repair and maintenance costs without compromising proper maintenance
standards.
Franchise and Licensed Operations
During fiscal 1993, the conversion of the greater San Francisco Bay Area
from a Company-operated region to a franchised region was substantially
completed. This conversion was initiated during fiscal 1991 to stimulate
development in underpenetrated markets and increase the proportion of franchised
restaurants to
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<PAGE> 59
approximately 40% of system-wide restaurants. This strategy spreads the
challenge of developing properties and raising capital, and reduces the total
capital required for the development of new Company-operated restaurants. At the
same time, royalties earned from new franchised restaurants contribute to the
Company's operating earnings.
As of January 25, 1993, franchised restaurants operated in Arizona,
California, Nevada and Oregon and represented 38% of the Carl's Jr. chain. This
percentage is not expected to change materially in the near term as no
significant sales of Company-operated restaurants to franchisees are
contemplated and only modest expansion of Company-operated and franchised
restaurants is currently planned.
The Company's franchising philosophy is such that only full time,
experienced candidates are considered for the program. Specific net worth and
liquidity requirements must also be satisfied. Absentee ownership is not
permitted and franchise owners are encouraged to live within a one-hour drive of
their restaurants. Area development agreements are generally entered into which
require franchisees to open an additional agreed upon number of Carl's Jr.
restaurants in these areas.
The total estimated start-up costs for a franchised restaurant purchased
from the Company generally ranges from approximately $1.2 million to $1.8
million. This amount includes purchases of inventory and property and equipment,
initial franchise fees and training costs. A cash down payment of 15-25% is
typically required, and the balance is delivered in the form of an interest
bearing promissory note.
The Company has had no difficulty in identifying suitable franchise
operators. Numerous inquiries have been made by those interested in becoming
franchisees since the Company announced it would be expanding its franchise
program in November 1990. The Company has accepted certain former employees with
the proper qualifications into its franchise program as well.
Since 1988, the Company has entered into 10 exclusive licensing agreements,
which allow licensees the use of the Company's name and trademarks and provide
for initial fees and continuing royalties. The Company, in return, provides
operational support and training to these licensees, as necessary. The terms of
these agreements range from 20 to 25 years and should result in the development
of over 50 additional Carl's Jr. restaurants, primarily in Mexico.
As of January 25, 1993, there were five licensed restaurants in operation
in Mexico, six licensed restaurants in operation in Japan, six licensed
restaurants in operation in Malaysia, one licensed restaurant in operation in
China and one licensed restaurant in operation in the United Arab Emirates. Four
restaurants in Japan were closed in fiscal 1993, and subsequent to year end, the
licensee in Japan closed four more restaurants due to the recessionary
environment and high restaurant development costs in this country. This licensee
is considering developing new restaurants on more economically feasible sites in
the near term.
None of the Company's licensing agreements generated material royalties in
fiscal 1993. The Company is unable to predict when its licensing agreements will
generate significant revenues.
Distribution Centers
The Company operates a distribution center at its corporate headquarters in
Anaheim, California and a smaller distribution facility in Manteca, California.
Produce, frozen meat patties, dairy and other food and supply items, excluding
bakery products, are distributed to Company-operated restaurants generally twice
a week. Many of these products are sold to franchisees, and in some cases, to
certain licensees.
The manufacturing of certain food products was eliminated during fiscal
1993 as part of the Company's restructuring program when the Company determined
that food costs could be lowered, without sacrificing the Company's historically
high quality standards, by purchasing these products from third party suppliers.
Sales of these manufactured items to outside parties were also eliminated at
this time.
The distribution centers are subject to frequent inspection by
representatives of the United States Department of Agriculture.
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Sources of Raw Materials
The Company's ability to maintain consistent quality throughout the Carl's
Jr. chain depends in part upon its ability to acquire and distribute food
products, restaurant equipment, signs, fixtures and supplies from reliable
sources in accordance with Company specifications. The Company, its franchisees
and its licensees have not experienced any material shortages of these items as
they are purchased from numerous independent suppliers, and alternate sources of
these items are generally available.
Trademarks and Patents
The Company has registered trademarks and service marks which are of
material importance to the Company's business, including the "Carl's Jr." name,
the "Star" logo and proprietary names for a number of the Company's food
products.
Seasonality
The Company's business is moderately seasonal. Average restaurant sales are
normally higher in the summer months than during the winter months.
Working Capital Practices
Historically, current assets included marketable securities and restaurant
property costs to be sold and leased back, which the Company actively marketed
immediately upon completion of construction and recovered when the properties
were sold. Subsequent to January 25, 1993, as part of its restructuring program,
the Company began liquidating its investment portfolio and used the proceeds to
repay its borrowings under the Company's revolving credit line. The
sale/leaseback program will no longer be emphasized, and thus existing
inventories of restaurant property costs to be sold and leased back should be
significantly reduced.
The Company does not carry significant amounts of inventory, experience
material returns of merchandise, or generally provide extended payment terms to
its distribution customers. Cash from operations, along with cash and cash
equivalents on hand, should enable the Company to meet its financing
requirements. In addition, the Company had available an unused line of credit of
$11 million as of April 30, 1993.
Customers
No material part of the Company's business is dependent upon a single
customer or a few customers.
Backlog
Backlog orders are not material to the Company's business.
Government Contracts
The Company has no material contracts with the United States government or
any of its agencies.
Competition
The quick-service restaurant business is highly competitive and can be
affected by competition created by similar restaurants in a geographic area,
changes in the public's eating habits and preferences and local and national
economic conditions affecting consumer spending habits, population trends and
traffic patterns. Competition also exists in the search for suitable restaurant
locations, franchise operators, and management and other operating personnel.
Key competitive factors in the industry are the quality of the food products,
the price/value perception of the consumer, the quality and speed of service,
attractiveness and cleanliness of the facilities, the restaurant location, and
name identification, which is strengthened through frequent advertising.
The Company believes that its competitive position is enhanced by its
particular emphasis on healthful, premium foods which appeal to a broad consumer
base. This emphasis also improves the Company's ability to compete effectively
with significantly larger quick-service restaurant chains. Careful attention to
dining
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<PAGE> 61
accommodations, including constant upgrading of existing facilities, and partial
table service also play an important role.
Research and Development
The Company maintains a test kitchen at its headquarters in which new
products and production concepts are developed on an on-going basis. While these
efforts are critical to the Company, amounts expended for these activities are
not considered material. There are no customer sponsored research and
development activities.
Environmental Matters
Compliance with federal, state and local environmental provisions
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment did not have a material effect on capital
expenditures, earnings or the competitive position of the Company in fiscal
1993. The Company cannot predict the effect on its operations from possible
future legislation or regulation.
Number of Employees
The Company employs approximately 11,500 persons, of whom approximately
10,850 are hourly restaurant, distribution or clerical employees, and
approximately 650 are managerial, salaried employees engaged in administrative
and supervisory capacities. A majority of the hourly employees are employed on a
part-time basis to provide service necessary during peak periods of restaurant
operations.
None of the Company's employees are currently covered by a collective
bargaining agreement. The Company has never experienced a work stoppage
attributable to labor disputes and believes its employee relations to be good.
The Company is subject to the Fair Labor Standards Act, which governs such
matters as minimum wage requirements, overtime and other working conditions. A
large portion of the Company's food service personnel are paid at a minimum wage
level and, accordingly, increases in the federal or state minimum wage affect
the Company's labor costs. The California minimum wage is currently $4.25 and is
equal to the established federal minimum wage.
ITEM 2. PROPERTIES.
Most Carl's Jr. restaurants are freestanding, ranging in size from 2,500 to
4,000 square feet, with a seating capacity of 72 to 115 persons. Some
restaurants are located in shopping malls and other in-line facilities.
Currently, three different building plan types are being constructed
system-wide, depending upon operational needs. Most restaurants are constructed
with drive-thru facilities.
A majority of Company-operated restaurants are leased from others. The
following table sets forth the type of real estate interest that the Company had
in Carl's Jr. restaurants in operation at January 25, 1993:
<TABLE>
<CAPTION>
TYPE OF INTEREST
----------------------------------------------------------------------
<S> <C>
Lease land and building............................................... 347
Lease land only (building owned)...................................... 21
Own land and building................................................. 11
---
379
---
---
</TABLE>
The Company also owns an additional 31 restaurant properties which are
leased primarily to franchisees.
Once a potential restaurant site is identified, the Company's real estate
personnel either seek to negotiate with the owner to construct a restaurant to
the Company's specifications and enter into a long-term lease of the premises,
or the site is purchased. Spaces for restaurants in shopping malls and in-line
buildings are typically leased and developed to the Company's specifications
with the Company owning the leasehold
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improvements. The Company generally acts as its own general building contractor,
or the Company performs the construction management function while utilizing
outside general contractors to construct its buildings.
All Company-operated restaurants are located in California in the following
metropolitan areas:
<TABLE>
<S> <C>
Los Angeles and Orange County......................................... 264
Sacramento............................................................ 40
San Diego............................................................. 39
Fresno................................................................ 23
Bakersfield........................................................... 10
San Francisco......................................................... 3
---
379
---
---
</TABLE>
The Company's corporate headquarters and distribution center, located in
Anaheim, California, are leased and occupy approximately 78,000 and 102,000
square feet, respectively. The Manteca distribution facility has 42,000 square
feet and is owned by the Company.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various lawsuits incidental to its business.
Management does not believe that the outcome of such litigation will have a
material adverse effect upon the operations or financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The information under Stock Data and Selected Financial Data on pages 25
and 1, respectively, of the Company's 1993 Annual Report to Shareholders for
fiscal year ended January 25, 1993, a copy of which is attached hereto, is
hereby incorporated by reference. During fiscal 1993 and 1992, the Company paid
four consecutive quarterly dividends of $.02 per share of Common Stock, for a
total of $.08 per share per year.
ITEM 6. SELECTED FINANCIAL DATA.
The Selected Financial Data for the five years ended January 25, 1993 on
page 1 of the Company's 1993 Annual Report to Shareholders, a copy of which is
attached hereto, is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations for each of the years in the three year period ended January 25, 1993
contained on pages 6-10 of the Company's 1993 Annual Report to Shareholders, a
copy of which is attached hereto, is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The balance sheets of Carl Karcher Enterprises, Inc. as of January 25, 1993
and January 27, 1992 and the related statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period ended
January 25, 1993, together with the related notes and the report of KPMG Peat
Marwick, independent auditors, on pages 11-24 of the Company's 1993 Annual
Report to Shareholders, a copy of which is attached hereto, are incorporated
herein by reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing in the "Information Concerning Nominees" section
of the Company's proxy statement prepared in connection with the Annual Meeting
of Shareholders to be held in 1993, to be filed with the Commission within 120
days of January 25, 1993, is hereby incorporated by reference. The executive
officers and other significant employees of the Company (other than those
serving as directors of the Company who are described in the "Information
Concerning Nominees" section of the Company's proxy statement prepared in
connection with the Annual Meeting of Shareholders to be held in 1993) are
listed below. Except as noted below, each individual listed has been with the
Company for more than five years.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
YEARS YEARS IN
WITH PRESENT
NAME AGE COMPANY POSITION POSITION
- --------------------------------- --- --------- --------- -----------------------------------
<S> <C> <C> <C> <C>
Rory J. Murphy.............. 45... 14 1 Senior Vice President, Operations
Loren C. Pannier............ 51 21 9 Senior Vice President, Chief
Financial Officer
Laurie A. Ball.............. 34 5 * Vice President, Controller
(1) Richard C. Celio............. 42 4 4 Vice President, Corporate Counsel
(2) Kerry W. Coin................ 45 * * Vice President, Strategic
Development
(3) Karen B. Eadon............... 39 * * Vice President, Marketing
(4) Roger D. Shively............. 45 1 1 Vice President, Human Resources
(5) Gerard F. Pereira............ 31 * * Director, Strategic Planning
</TABLE>
- ---------------
* Less than one year.
(1) Mr. Celio joined the Company as Vice President, Corporate Counsel in January
1989. Prior to joining the Company, he was an attorney at law and partner in
the law firm of Holden, Fergus & Celio for seven years, a firm which
provided various legal services, and acted as General Counsel for the
Company.
(2) Mr. Coin joined the Company as Vice President, Strategic Development in
February 1993. Prior to joining the Company, he was a principal with A. T.
Kearney Inc., a nationally recognized business consulting firm, for five
years. While at A. T. Kearney, he was the project leader for two major
consulting assignments at the Company.
(3) Ms. Eadon joined the Company as Vice President, Marketing in April 1993.
Prior to joining the Company, she was employed at Taco Bell Corporation for
eight years, where she held various positions in advertising, product
development and most recently as Vice President of Operations Services.
(4) Mr. Shively joined the Company as Vice President, Human Resources in August
1991. Prior to joining the Company, Mr. Shively was employed by Denny's,
Inc. for more than seven years in several capacities, including Vice
President, Human Resources.
(5) Mr. Pereira joined the Company as Director, Strategic Planning in August
1992. Prior to joining the Company, he was a consultant for three years with
A. T. Kearney Inc., a nationally recognized business consulting firm. While
at A. T. Kearney, he participated in two major consulting assignments at the
Company. Previous to his employment at A. T. Kearney, he pursued graduate
studies at Stanford University, where he was awarded a Masters in Business
Administration in 1989.
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<PAGE> 64
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing in the "Executive Compensation", "Option Grants
in Last Fiscal Year", "Aggregate Option Exercises in Fiscal 1993 and Fiscal 1993
Year End Option Values", "Employment Agreements", "Incentive Compensation Plan",
"Transactions with Officers and Directors" and "Key Employee Stock Option Plan"
sections of the Company's proxy statement prepared in connection with the Annual
Meeting of Shareholders to be held in 1993, to be filed with the Commission
within 120 days of January 25, 1993, is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information appearing in the "Ownership of the Company's Securities"
section of the Company's proxy statement prepared in connection with the Annual
Meeting of Shareholders to be held in 1993, to be filed with the Commission
within 120 days of January 25, 1993, is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing in the "Transactions with Officers and Directors"
section of the Company's proxy statement prepared in connection with the Annual
Meeting of Shareholders to be held in 1993, to be filed with the Commission
within 120 days of January 25, 1993, is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The documents listed below under "(1) Financial Statements" are
included in the Annual Report of the registrant to its shareholders for the year
ended January 25, 1993 and are incorporated by reference:
(1) FINANCIAL STATEMENTS
Balance Sheets at January 25, 1993 and January 27, 1992
Statements of Operations for each of the years in the three-year period
ended January 25, 1993
Statements of Shareholders' Equity for each of the years in the
three-year period ended
January 25, 1993
Statements of Cash Flows for each of the years in the three-year period
ended January 25, 1993
Notes to Financial Statements
Report of Independent Auditors
(2) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Report of Independent Auditors
Schedule I. Marketable Securities
Schedule II. Amounts Receivable from Related Parties
Schedule V. Property and Equipment
Schedule VI. Accumulated Depreciation and Amortization of Property and Equipment
Schedule IX. Short-term Borrowings
Schedule X. Supplementary Income Statement Information
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
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(3) EXHIBITS
<TABLE>
<S> <C>
3-1 Articles of Incorporation of Carl Karcher Enterprises, Inc., and amendments
thereto. Exhibit 3-1 to Registration Statement on Form S-1, file No. 2-73695
is hereby incorporated by reference.
3-2 Bylaws of Carl Karcher Enterprises, Inc., as amended. Exhibit 3-2 to Amendment
No. 3 to Registration Statement on Form S-1, file No. 2-73695 is hereby
incorporated by reference.
4-1 Specimen certificate for 9 1/2% Convertible Subordinated Debentures due 2007
of Carl Karcher Enterprises, Inc. Exhibit 4-1 to Amendment No. 1 to
Registration Statement on Form S-1, file No. 2-80283 is hereby incorporated by
reference.
4-2 Indenture dated as of December 1, 1982 between Carl Karcher Enterprises, Inc.
and Manufacturers Hanover Trust Company, as Trustee. Exhibit 4-2 to Amendment
No. 1 to Registration Statement on Form S-1, file No. 2-80283 is hereby
incorporated by reference.
10-1 Real Property Lease. Exhibit 10-1 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-2 Real Property Lease. Exhibit 10-2 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-3 Real Property Lease. Exhibit 10-3 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-4 Real Property Lease. Exhibit 10-4 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-5 Real Property Lease. Exhibit 10-5 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-6 Real Property Lease. Exhibit 10-6 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-7 Real Property Lease. Exhibit 10-9 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-8 Real Property Lease. Exhibit 10-10 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-9 Real Property Lease. Exhibit 10-11 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-10 Real Property Lease. Exhibit 10-12 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-11 Real Property Lease. Exhibit 10-13 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-12 Real Property Lease. Exhibit 10-14 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-13 Real Property Lease. Exhibit 10-15 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-14 Real Property Lease. Exhibit 10-16 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-15 Real Property Lease. Exhibit 10-17 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
10-16 Real Property Lease. Exhibit 10-18 to Registration Statement on Form S-1, file
No. 2-73695 is hereby incorporated by reference.
</TABLE>
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<PAGE> 66
<TABLE>
<S> <C>
10-17 Promissory Note executed by Carl Karcher Enterprises, Inc. and Carl N.
Karcher, as Trustee, in favor of The Great-West Life Assurance Company.
Exhibit 10-19 to Registration Statement on Form S-1, file No. 2-73695 is
hereby incorporated by reference.
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS AND ARRANGEMENTS (EXHIBITS 10-18,
10-19, 10-24, 10-45 THROUGH 10-49 AND 10-116 THROUGH 10-124)
10-18 1981 Stock Option Plan of Carl Karcher Enterprises, Inc. Exhibit 10-20 to
Registration Statement on Form S-1, file No. 2-73695 is hereby incorporated by
reference.
10-19 Carl Karcher Enterprises, Inc. Profit Sharing Plan, as amended. Exhibit 10-21
to Registration Statement on Form S-1, file no. 2-73695 is hereby incorporated
by reference.
10-20 Agreement for Acquisition of Restaurants, dated December 4, 1981. Exhibit 20-1
to Form 10-K Annual Report for fiscal year ended January 29, 1982 is hereby
incorporated by reference.
10-21 Agreement of Sale, dated February 24, 1982. Exhibit 20-2 to Form 10-K Annual
Report for fiscal year ended January 29, 1982 is hereby incorporated by
reference.
10-22 Agreement of Sale, dated March 19, 1982. Exhibit 20-3 to Form 10-K Annual
Report for fiscal year ended January 29, 1982 is hereby incorporated by
reference.
10-23 Agreement of Sale, dated March 19, 1982. Exhibit 20-4 to Form 10-K Annual
Report for fiscal year ended January 29, 1982 is hereby incorporated by
reference.
10-24 Carl Karcher Enterprises, Inc. Key Employee Incentive Stock Option Plan.
Exhibit 10-24 to Registration Statement on Form S-1, file No. 2-80283 is
hereby incorporated by reference.
10-25 Agreement of Sale, dated May 17, 1984. Exhibit 10-25 to Form 10-K Annual
Report for fiscal year ended January 25, 1985 is hereby incorporated by
reference.
10-26 Agreement of Sale, dated May 17, 1984. Exhibit 10-26 to Form 10-K Annual
Report for fiscal year ended January 25, 1985 is hereby incorporated by
reference.
10-27 Note Purchase Agreement, dated April 2, 1984. Exhibit 10-27 to Form 10-K
Annual Report for fiscal year ended January 25, 1985 is hereby incorporated by
reference.
10-28 Note Purchase Agreement, dated April 2, 1984. Exhibit 10-28 to Form 10-K
Annual Report for fiscal year ended January 25, 1985 is hereby incorporated by
reference.
10-29 Note Purchase Agreement, dated January 3, 1985. Exhibit 10-29 to Form 10-K
Annual Report for fiscal year ended January 25, 1985 is hereby incorporated by
reference.
10-30 Loan Agreement, dated June 30, 1983. Exhibit 10-30 to Form 10-K Annual Report
for fiscal year ended January 25, 1985 is hereby incorporated by reference.
10-31 Loan Agreement, dated June 30, 1983, as amended by the First Amendment dated
April 27, 1984. Exhibit 10-31 to Form 10-K Annual Report for fiscal year ended
January 25, 1985 is hereby incorporated by reference.
10-32 Loan Agreement, dated June 30, 1983, as amended by the Second Amendment dated
December 27, 1984. Exhibit 10-32 to Form 10-K Annual Report for fiscal year
ended January 25, 1985 is hereby incorporated by reference.
10-33 Line of Credit Agreement, dated July 31, 1986. Exhibit 10-33 to Form 10-K
Annual Report for fiscal year ended January 26, 1987 is hereby incorporated by
reference.
10-34 Agreement to Purchase, dated May 16, 1985. Exhibit 10-34 to Form 10-K Annual
Report for fiscal year ended January 31, 1986 is hereby incorporated by
reference.
10-35 Franchise Agreement, dated May 16, 1985. Exhibit 10-35 to Form 10-K Annual
Report for fiscal year ended January 31, 1986 is hereby incorporated by
reference.
10-36 Business Facilities Lease Purchase Agreement, dated May 16, 1985 (Unit
246/726). Exhibit 10-36 to Form 10-K Annual Report for fiscal year ended
January 31, 1986 is hereby incorporated by reference.
</TABLE>
I-12
<PAGE> 67
<TABLE>
<S> <C>
10-37 Business Facilities Lease Purchase Agreement, dated May 16, 1985 (Unit
323/730). Exhibit 10-37 to Form 10-K Annual Report for fiscal year ended
January 31, 1986 is hereby incorporated by reference.
10-38 Business Facilities Lease Purchase Agreement, dated May 16, 1985 (Unit
342/770). Exhibit 10-38 to Form 10-K Annual Report for fiscal year ended
January 31, 1986 is hereby incorporated by reference.
10-39 Agreement to Purchase, dated January 24, 1986. Exhibit 10-39 to Form 10-K
Annual Report for fiscal year ended January 31, 1986 is hereby incorporated by
reference.
10-40 Business Facilities Lease Agreement and Franchise Option, dated January 24,
1986. Exhibit 10-40 to Form 10-K Annual Report for fiscal year ended January
31, 1986 is hereby incorporated by reference.
10-41 Agreement to Purchase, dated October 4, 1985. Exhibit 10-41 to Form 10-K
Annual Report for fiscal year ended January 31, 1986 is hereby incorporated by
reference.
10-42 Business Facilities Lease Purchase Agreement, dated October 4, 1985 (Unit
303/754). Exhibit 10-42 to Form 10-K Annual Report for fiscal year ended
January 31, 1986 is hereby incorporated by reference.
10-43 Business Facilities Lease Purchase Agreement, dated October 4, 1985 (Unit
330/756). Exhibit 10-43 to Form 10-K Annual Report for fiscal year ended
January 31, 1986 is hereby incorporated by reference.
10-44 Agreement of Partnership, dated June 20, 1985. Exhibit 10-44 to Form 10-K
Annual Report for fiscal year ended January 31, 1986 is hereby incorporated by
reference.
10-45 Change in Control Agreement by and between Carl Karcher Enterprises, Inc. and
Donald F. Karcher, dated June 8, 1988. Exhibit 10-45 to Form 10-K Annual
Report for fiscal year ended January 30, 1989 is hereby incorporated by
reference.
10-46 Change in Control Agreement by and between Carl Karcher Enterprises, Inc. and
John A. Kubas, dated June 8, 1988. Exhibit 10-46 to Form 10-K Annual Report
for fiscal year ended January 30, 1989 is hereby incorporated by reference.
10-47 Change in Control Agreement by and between Carl Karcher Enterprises, Inc. and
Raymond J. Perry, dated June 8, 1988. Exhibit 10-47 to Form 10-K Annual Report
for fiscal year ended January 30, 1989 is hereby incorporated by reference.
10-48 Change in Control Agreement by and between Carl Karcher Enterprises, Inc. and
Loren C. Pannier, dated June 8, 1988. Exhibit 10-48 to Form 10-K Annual Report
for fiscal year ended January 30, 1989 is hereby incorporated by reference.
10-49 Change in Control Agreement by and between Carl Karcher Enterprises, Inc. and
Robert W. Wisely, dated June 8, 1988. Exhibit 10-48 to Form 10-K Annual Report
for fiscal year ended January 30, 1989 is hereby incorporated by reference.
10-50 Agreement to Purchase dated May 16, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher is hereby incorporated by reference.
10-51 Management Agreement dated May 16, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher is hereby incorporated by reference.
10-52 Agreement dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher is hereby incorporated by reference.
10-53 Franchise Development Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher is hereby incorporated by reference.
10-54 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (13010 Palm Drive) is hereby
incorporated by reference.
10-55 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (57222 29 Palms Highway) is hereby
incorporated by reference.
</TABLE>
I-13
<PAGE> 68
<TABLE>
<S> <C>
10-56 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (73-125 Highway 111) is hereby
incorporated by reference.
10-57 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (68980 Highway 111) is hereby
incorporated by reference.
10-58 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (81-770 Highway 111) is hereby
incorporated by reference.
10-59 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (2520 Palm Canyon Drive) is hereby
incorporated by reference.
10-60 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (102 North Sunrise Way) is hereby
incorporated by reference.
10-61 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (72840 Highway 111) is hereby
incorporated by reference.
10-62 Sublease dated May 15, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher (Unit 323/730) is hereby incorporated by reference.
10-63 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher, as amended by Amendment to Sublease dated December 18, 1990
(Unit 447/731) is hereby incorporated by reference.
10-64 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher (Unit 300/729) is hereby incorporated by reference.
10-65 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher (Unit 300/729) is hereby incorporated by reference.
10-66 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher, as amended by the Amendment to Sublease dated December 18,
1990 (Unit 207/725) is hereby incorporated by reference.
10-67 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher, as amended (Unit 206/724) is hereby incorporated by
reference.
10-68 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher, as amended by the First Amendment to Sublease dated April
24, 1987 (Unit 289/728) is hereby incorporated by reference.
10-69 Franchise Agreement dated December 31, 1985 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 456/768) is hereby incorporated by reference.
10-70 Restaurant Equipment Purchase Agreement dated December 31, 1985 between Carl
Karcher Enterprises, Inc. and Carl Leo Karcher is hereby incorporated by
reference.
10-71 Land and Building Sublease Agreement dated December 31, 1985 by and between
Carl Karcher Enterprises, Inc. and Carl Leo Karcher is hereby incorporated by
reference.
10-72 Franchise Agreement dated January 25, 1986 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 188/769) is hereby incorporated by reference.
10-73 Franchise Agreement dated January 25, 1986 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 382/771) is hereby incorporated
by reference.
10-74 Franchise Agreement dated January 25, 1986 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 342/770) is hereby incorporated
by reference.
10-75 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc. dated March
3, 1987 (1489 Adams Avenue) is hereby incorporated by reference.
10-76 License Agreement dated January 27, 1987 by and between Carl Karcher
Enterprises, Inc. and CLK, Inc., as amended by the Amendment to License
Agreement dated October 10, 1990 is hereby incorporated by reference.
</TABLE>
I-14
<PAGE> 69
<TABLE>
<S> <C>
10-77 Continuing Guaranty dated January 27, 1987 executed by Carl Leo Karcher is
hereby incorporated by reference.
10-78 Franchise Agreement dated March 3, 1987 between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (1489 Adams Avenue) is hereby incorporated by reference.
10-79 Franchise Agreement dated July 6, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Varner Road) is hereby incorporated by
reference.
10-80 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General
Release and Continuing Guaranty each dated October 5, 1987 is hereby
incorporated by reference.
10-81 Lease Agreement dated September 25, 1987 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher, as amended by the Amendment to Lease dated October
19, 1990 (Brawley) is hereby incorporated by reference.
10-82 Sublease Agreement dated September 25, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Bullhead City) is hereby incorporated
by reference.
10-83 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 772) is hereby incorporated by
reference.
10-84 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 482/794) is hereby incorporated
by reference.
10-85 Franchise Agreement dated October 27, 1987 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 722) is hereby incorporated by reference.
10-86 Franchise Agreement dated October 27, 1987 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 794) is hereby incorporated by reference.
10-87 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General
Release and Continuing Guaranty each dated October 27, 1987 (Brawley) is
hereby incorporated by reference.
10-88 Franchise Agreement dated June 14, 1988 between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (Bermuda Dunes) is hereby incorporated by reference.
10-89 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General
Release and Continuing Guaranty each dated August 1, 1988 is hereby
incorporated by reference.
10-90 Memorandum of Purchase dated November 10, 1988 by and between CLK, Inc. and
Carl Karcher Enterprises, Inc. is hereby incorporated by reference.
10-91 Memorandum of Purchase dated May 16, 1989 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher is hereby incorporated by reference.
10-92 Franchise Agreement dated June 26, 1989 between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (I-8 Business Loop) is hereby incorporated by reference.
10-93 Assignment of Franchise Agreement and Sublease Agreement by Carl Leo Karcher
to CLK, Inc. and Continuing Guaranty each dated August 17, 1989 (Unit 730) is
hereby incorporated by reference.
10-94 Assignment of Franchise Agreement and Lease Agreement by Carl Leo Karcher to
CLK, Inc. dated August 17, 1989 (Unit 726) is hereby incorporated by
reference.
10-95 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc.
dated November 28, 1989 (Rivera, Arizona) is hereby incorporated by reference.
10-96 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc.
General Release and Continuing Guaranty each dated January 9, 1990 (I-8
Business Loop) is hereby incorporated by reference.
10-97 Conditional Assignment of Lease dated November 7, 1990 between CLK, Inc. and
Carl Karcher Enterprises, Inc. (Unit 770) is hereby incorporated by reference.
</TABLE>
I-15
<PAGE> 70
<TABLE>
<S> <C>
10-98 Conditional Assignment of Lease dated November 7, 1990 between CLK, Inc. and
Carl Karcher Enterprises, Inc. (Unit 771) is hereby incorporated by reference.
10-99 Franchise Agreement dated November 12, 1990 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 873) is hereby incorporated by reference.
10-100 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release
and Continuing Guaranty each dated November 13, 1990 (Unit 873) is hereby
incorporated by reference.
10-101 Conditional Assignment of Lease dated December 18, 1990 by and between CLK,
Inc. and Carl Karcher Enterprises, Inc. (Unit 726) is hereby incorporated by
reference.
10-102 Development Agreement dated March 22, 1991 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher is hereby incorporated by reference.
10-103 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc.
Release and Continuing Guaranty each dated April 5, 1991 is hereby
incorporated by reference.
10-104 Franchise Development Agreement dated December 15, 1991 by and between Carl
Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment to
Franchise Development Agreement dated December 17, 1991 is hereby incorporated
by reference.
10-105 Assignment of Franchise Development Agreement by Carl Leo Karcher to CLK,
Inc., Release and Continuing Guaranty each dated December 16, 1991 is hereby
incorporated by reference.
10-106 Restaurant Purchase Agreement dated December 16, 1991 by and between Carl
Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment to
Restaurant Purchase Agreement dated December 24, 1991 (Unit 7013/433) is
hereby incorporated by reference.
10-107 Franchise Agreement dated December 16, 1991 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 7013/433) is hereby incorporated by reference.
10-108 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc.
Release and Continuing Guaranty each dated December 16, 1991 is hereby
incorporated by reference.
10-109 Sublease Agreement dated December 16, 1991 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher, as amended by the First Amendment to Sublease dated
December 24, 1991 is hereby incorporated by reference.
10-110 Promissory Note executed by Carl Leo Karcher in favor of Carl Karcher
Enterprises, Inc. is hereby incorporated by reference.
10-111 Security Agreement dated December 16, 1991 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 7013/433) is hereby incorporated by reference.
10-112 Franchise Agreement dated January 10, 1992 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Havasu) is hereby incorporated by reference.
10-113 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release
and Continuing Guaranty each dated January 10, 1992 is hereby incorporated by
reference.
10-114 Franchise Agreement dated January 20, 1992 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 7038).
10-115 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release
and Continuing Guaranty each dated January 20, 1992.
10-116 Employment Agreement dated January 14, 1993 by and between Carl Karcher
Enterprises, Inc. and Donald E. Doyle.
</TABLE>
I-16
<PAGE> 71
<TABLE>
<S> <C>
10-117 Addendum to Employment Agreement dated January 14, 1993 by and between Carl
Karcher Enterprises, Inc. and Donald E. Doyle.
10-118 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Loren C. Pannier.
10-119 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Rory J. Murphy.
10-120 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Richard C. Celio.
10-121 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Roger D. Shively.
10-122 Employment Agreement dated February 1, 1993 by and between Carl Karcher
Enterprises, Inc. and Kerry W. Coin.
10-123 Carl Karcher Enterprises, Inc. 1993 Employee Stock Incentive Plan.
10-124 Amendment to Employment Agreement dated May 4, 1993 by and between Carl
Karcher Enterprises, Inc. and Donald E. Doyle.
11-1 Computation of Earnings Per Share.
13-1 Carl Karcher Enterprises, Inc. 1993 Annual Report to Shareholders for fiscal
year ended January 25, 1993. With the exception of the information
incorporated by reference in Items 5, 6, 7, 8 and 14 of this report, this
exhibit is not to be deemed filed as a part of this report.
24-1 Consent of Independent Auditors.
</TABLE>
(b) Current Reports on Form 8-K: None.
(c) The exhibits described above in Item 14(a)(3) are incorporated herein
by reference.
(d) The financial statement schedules described above in Item 14(a)(2) are
incorporated herein by reference.
I-17
<PAGE> 72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CARL KARCHER ENTERPRISES, INC.
By DONALD E. DOYLE
-------------------------------------
President and Chief Executive Officer
Date May 7, 1993
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------ ------------
<S> <C> <C>
CARL N. KARCHER Chairman of the Board May 7, 1993
- ------------------------------------------
DONALD E. DOYLE President and Chief Executive May 7, 1993
- ------------------------------------------ Officer, (Principal Executive
Officer)
Director
LOREN C. PANNIER Senior Vice President, May 7, 1993
- ------------------------------------------ Chief Financial Officer
(Principal Financial Officer)
LAURIE A. BALL Vice President, Controller May 7, 1993
- ------------------------------------------ (Principal Accounting Officer)
DANIEL W. HOLDEN Director May 7, 1993
- ------------------------------------------
CARL L. KARCHER Director May 7, 1993
- ------------------------------------------
PETER CHURM Director May 7, 1993
- ------------------------------------------
KENNETH OLSEN Director May 7, 1993
- ------------------------------------------
ELIZABETH A. SANDERS Director May 7, 1993
- ------------------------------------------
</TABLE>
I-18
<PAGE> 73
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Carl Karcher Enterprises, Inc.:
Under date of April 15, 1993, except for Note 2 to the financial
statements, which is as of May 3, 1993, we reported on the balance sheets of
Carl Karcher Enterprises, Inc. as of January 25, 1993 and January 27, 1992, and
the related statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended January 25, 1993, as contained
in the 1993 annual report to shareholders. These financial statements and our
report thereon are incorporated by reference in the annual report on Form 10-K
for the year 1993. In connection with our audits of the aforementioned related
financial statements, we also have audited the related financial statement
schedules as listed in Item 14(a)(2) of this Form 10-K. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
As discussed in Notes 1 and 15 to the financial statements, the Company
changed its method of accounting for income taxes in fiscal 1993.
KPMG PEAT MARWICK
Orange County, California
April 15, 1993
I-19
<PAGE> 74
SCHEDULE I
CARL KARCHER ENTERPRISES, INC.
MARKETABLE SECURITIES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER
OF SHARES COST OF MARKET VALUE CARRYING VALUE
OR UNITS EACH ISSUE OF EACH ISSUE OF EACH ISSUE
--------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
January 25, 1993:
Preferred stock:
Adjustable rate issues......... 99 $ 3,885 $ 4,755 $ 3,885
Fixed rate issues:
Convertible.................. 233 5,199 5,232 5,199
Exchangeable................. 54 2,176 2,222 2,176
Convertible exchangeable..... 34 840 921 840
Other........................ 185 4,836 5,036 4,836
---------- ------------- --------------
16,936 18,166 16,936
Debt securities................... 9,630 9,845 9,630
Common stock and other............ 6,364 6,353 6,364
---------- ------------- --------------
$ 32,930 $34,364 $ 32,930
---------- ------------- --------------
---------- ------------- --------------
</TABLE>
No individual issue exceeds 2% of assets.
I-20
<PAGE> 75
SCHEDULE II
CARL KARCHER ENTERPRISES, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS BALANCE AT END OF YEAR
BEGINNING --------------------- ------------------------------
OF YEAR ADDITIONS PAYMENTS WRITTEN OFF CURRENT(1)(2) LONG-TERM(2)
---------- --------- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
JANUARY 25, 1993:
Bernard W. Karcher...... $ 872 $ 3,220 $(3,244 ) -- $ 492 $ 357
Carl L. Karcher......... 911 7,831 (7,841 ) -- 494 408
Carl N. Karcher......... -- 126 (108 ) -- 19 --
Franklin J. Karcher..... 1,615 2,694 (2,726 ) -- 206 1,375
Joseph C. Karcher....... 361 1,199 (1,342 ) -- 218 --
John A. Kubas........... 490 687 (750 ) -- 51 374
Stephen A. Larson....... 508 4,403 (4,511 ) -- 273 127
Andrew S. Prokop........ 827 1,171 (1,248 ) -- 97 653
Doneta Thomason......... 95 1,671 (1,654 ) -- 113 --
Gary L. Wiles........... 622 2,367 (2,490 ) -- 126 374
Robert W. Wisely........ 1,249 1,643 (1,719 ) -- 190 982
---------- --------- -------- ----------- ------------- ------------
$7,550 $27,012 $(27,633) -- $ 2,279 $4,650
---------- --------- -------- ----------- ------------- ------------
---------- --------- -------- ----------- ------------- ------------
JANUARY 27, 1992:
Bernard W. Karcher...... $ 699 $ 3,123 $(2,950 ) -- $ 470 $ 402
Carl L. Karcher......... 2,835 8,952 (10,876 ) -- 476 435
Franklin J. Karcher..... 1,639 3,060 (3,084 ) -- 227 1,388
Joseph C. Karcher....... 195 870 (704 ) -- 361 --
John A. Kubas........... -- 787 (297 ) -- 85 405
Stephen A. Larson....... 734 5,070 (5,296 ) -- 342 166
Andrew S. Prokop........ -- 861 (34 ) -- 129 698
Doneta Thomason......... 113 1,469 (1,487 ) -- 95 --
Gary L. Wiles........... 654 2,825 (2,857 ) -- 194 428
Robert W. Wisely........ 1,313 1,789 (1,853 ) -- 183 1,066
---------- --------- -------- ----------- ------------- ------------
$8,182 $28,806 $(29,438) -- $ 2,562 $4,988
---------- --------- -------- ----------- ------------- ------------
---------- --------- -------- ----------- ------------- ------------
JANUARY 28, 1991:
Bernard W. Karcher...... $ 628 $ 3,597 $(3,526 ) -- $ 254 $ 445
Carl L. Karcher......... 3,171 7,693 (8,029 ) -- 601 2,234
Franklin J. Karcher..... -- 3,312 (1,673 ) -- 197 1,442
Joseph C. Karcher....... -- 969 (774 ) -- 195 --
Stephen A. Larson....... 982 5,168 (5,416 ) -- 533 201
Doneta Thomason......... -- 1,402 (1,289 ) -- 113 --
Gary L. Wiles........... 724 2,762 (2,832 ) -- 176 478
Robert W. Wisely........ -- 2,044 (731 ) -- 173 1,140
---------- --------- -------- ----------- ------------- ------------
$5,505 $26,947 $(24,270) -- $ 2,242 $5,940
---------- --------- -------- ----------- ------------- ------------
---------- --------- -------- ----------- ------------- ------------
</TABLE>
- ---------------
(1) Includes accounts receivable, which consist primarily of amounts due from
related party franchisees for sales of food and equipment.
(2) Related party notes receivable arise primarily from the sales of restaurants
to related party franchisees. The terms of these notes range from 60 to 180
months and are due on various dates through 2002. Interest on these notes
range from 12.0% to 12.5%. These notes are typically collateralized by the
property and equipment sold.
I-21
<PAGE> 76
SCHEDULE V
CARL KARCHER ENTERPRISES, INC.
PROPERTY AND EQUIPMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING ADDITIONS BALANCE AT
OF YEAR AT COST RETIREMENTS END OF YEAR
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Year Ended January 25, 1993:
Land................................... $ 14,193 $ 1,228 $ 850 $ 14,571
Leasehold improvements................. 84,943 1,444 7,121 79,266
Buildings and improvements............. 24,479 500 1,413 23,566
Equipment, furniture and fixtures...... 126,835 7,076 18,198 115,713
---------- --------- ----------- -----------
250,450 10,248 27,582 233,116
Property under capital leases.......... 65,695 2,653 2,012 66,336
---------- --------- ----------- -----------
---------- --------- ----------- -----------
$316,145 $12,901 $29,594 $ 299,452
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Year Ended January 27, 1992:
Land................................... $ 14,299 $ 1,559 $ 1,665 $ 14,193
Leasehold improvements................. 81,707 8,067 4,831 84,943
Buildings and improvements............. 19,386 6,197 1,104 24,479
Equipment, furniture and fixtures...... 120,728 14,660 8,553 126,835
---------- --------- ----------- -----------
236,120 30,483 16,153 250,450
Property under capital leases.......... 71,458 1,075 6,838 65,695
---------- --------- ----------- -----------
$307,578 $31,558 $22,991 $ 316,145
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Year Ended January 28, 1991:
Land................................... $ 15,368 -- $ 1,069 $ 14,299
Leasehold improvements................. 81,100 $10,432 9,825 81,707
Buildings and improvements............. 20,119 -- 733 19,386
Equipment, furniture and fixtures...... 117,829 19,521 16,622 120,728
---------- --------- ----------- -----------
234,416 29,953 28,249 236,120
Property under capital leases.......... 67,484 4,140 166 71,458
---------- --------- ----------- -----------
$301,900 $34,093 $28,415 $ 307,578
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
I-22
<PAGE> 77
SCHEDULE VI
CARL KARCHER ENTERPRISES, INC.
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS END OF
OF YEAR AT COST RETIREMENTS YEAR
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Year Ended January 25, 1993:
Leasehold improvements.................. $ 34,979 $ 6,889 $ 3,356 $ 38,512
Buildings and improvements.............. 5,784 1,310 85 7,009
Equipment, furniture and fixtures....... 71,349 13,860 12,678 72,531
---------- --------- ----------- ----------
112,112 22,059 16,119 118,052
Property under capital leases........... 29,017 3,102 1,341 30,778
---------- --------- ----------- ----------
$141,129 $25,161 $17,460 $148,830
---------- --------- ----------- ----------
---------- --------- ----------- ----------
Year Ended January 27, 1992:
Leasehold improvements.................. $ 28,209 $ 8,042 $ 1,272 $ 34,979
Buildings and improvements.............. 5,044 789 49 5,784
Equipment, furniture and fixtures....... 61,763 14,494 4,908 71,349
---------- --------- ----------- ----------
95,016 23,325 6,229 112,112
Property under capital leases........... 28,061 3,248 2,292 29,017
---------- --------- ----------- ----------
$123,077 $26,573 $ 8,521 $141,129
---------- --------- ----------- ----------
---------- --------- ----------- ----------
Year Ended January 28, 1991:
Leasehold improvements.................. $ 23,107 $ 7,778 $ 2,676 $ 28,209
Buildings and improvements.............. 4,362 713 31 5,044
Equipment, furniture and fixtures....... 58,621 13,458 10,316 61,763
---------- --------- ----------- ----------
86,090 21,949 13,023 95,016
Property under capital leases........... 24,966 3,323 228 28,061
---------- --------- ----------- ----------
$111,056 $25,272 $13,251 $123,077
---------- --------- ----------- ----------
---------- --------- ----------- ----------
</TABLE>
I-23
<PAGE> 78
SCHEDULE IX
CARL KARCHER ENTERPRISES, INC.
SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST
AT END INTEREST DURING THE DURING THE RATE DURING
OF PERIOD(1) RATE PERIOD PERIOD(2) THE PERIOD(3)
------------ -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended January 25, 1993..... $ 2,422 5.6% $19,146 $13,441 4.5%
------------ --- ----------- ----------- ---
------------ --- ----------- ----------- ---
Year Ended January 27, 1992..... $ 8,619 5.9% $18,717 $12,275 7.3%
------------ --- ----------- ----------- ---
------------ --- ----------- ----------- ---
Year Ended January 28, 1991..... $ 11,060 9.1% $18,849 $15,742 9.6%
------------ --- ----------- ----------- ---
------------ --- ----------- ----------- ---
</TABLE>
- ---------------
(1) Amount represents obligations secured by marketable securities and long-term
investments.
(2) The average amount outstanding during the period was computed by averaging
the month-end balances outstanding during the year.
(3) The weighted average interest rate during the period was computed by
averaging the month-end rates in effect during the period the debt was
outstanding.
I-24
<PAGE> 79
SCHEDULE X
CARL KARCHER ENTERPRISES, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
----------------------------------------------------------
FISCAL YEAR ENDED
----------------------------------------------------------
JANUARY 25, 1993 JANUARY 27, 1992 JANUARY 28, 1991
---------------- ---------------- ----------------
<S> <C> <C> <C>
Maintenance and repairs............... $7,242 $7,494 $7,009
</TABLE>
I-25
<PAGE> 80
EXHIBIT 11.1
CARL KARCHER ENTERPRISES, INC.
COMPUTATION OF PRIMARY EARNINGS PER SHARE*
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 1993 1992 1991 1990 1989
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income (loss)...................... $(5,507) $13,038 $13,036 $ 5,551 $20,767
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average shares outstanding:
Common stock outstanding from
beginning of year................. 17,918 18,017 17,917 17,754 23,390
Pro-rata shares:
Exercise of stock options......... 116 90 21 121 94
Debenture conversion.............. -- -- -- -- --
Repurchase and retirement of
shares.......................... -- (208) -- -- (2,626)
Dilutive effect of outstanding stock
options........................... 294(1) 293 229 906 646
------- ------- ------- ------- -------
18,328 18,192 18,167 18,781 21,504
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Primary earnings (loss) per share...... $ (.30)(1) $ .72 $ .72 $ .30 $ .97
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
- ---------------
* Per share data have been adjusted for a two-for-one stock split effective
July 14, 1989.
(1) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is contrary to paragraph 40 of Accounting Principles
Board Opinion No. 15 because it produces an antidilutive effect.
I-26
<PAGE> 81
EXHIBIT 11.1 (CONTINUED)
CARL KARCHER ENTERPRISES, INC.
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE*
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 1993 1992 1991 1990 1989
- --------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income (loss)...................... $(5,507) $13,038 $13,036 $ 5,551 $20,767
Interest expense on assumed debenture
conversion........................... -- -- -- -- --
------- ------- ------- ------- -------
Adjusted net income.................. $(5,507) $13,038 $13,036 $ 5,551 $20,767
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average shares outstanding:
Common stock outstanding from
beginning of year................. 17,918 18,017 17,917 17,754 23,390
Pro-rata shares:
Exercise of stock options......... 116 90 21 121 94
Debenture conversion.............. -- -- -- -- --
Repurchase and retirement of
shares.......................... -- (208) -- -- (2,626)
Dilutive effect of outstanding stock
options.............................. 334(1) 309 229 933 922
------- ------- ------- ------- -------
18,368 18,208 18,167 18,808 21,780
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Fully diluted earnings (loss) per
share................................ $ (.30)(1) $ .72 $ .72 $ .30 $ .95
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
- ---------------
* Per share data have been adjusted for a two-for-one stock split effective
July 14, 1989.
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of Accounting Principles
Board Opinion No. 15 because it produces an antidilutive effect.
I-27
<PAGE> 82
APPENDIX II
[LOGO] CARL KARCHER ENTERPRISES, INC.
1200 NORTH HARBOR BOULEVARD
ANAHEIM, CALIFORNIA 92801
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 16, 1993
To the Shareholders of Carl Karcher Enterprises, Inc.
The Annual Meeting of Shareholders of Carl Karcher Enterprises, Inc. will
be held at the Anaheim Marriott Hotel, Marriott Hall North, 700 West Convention
Way, Anaheim, California, on Wednesday, June 16, 1993 at 9:30 a.m. for the
following purposes:
1. To elect a Board of seven directors;
2. To consider and act upon a proposal to approve the Carl Karcher
Enterprises, Inc. 1993 Employee Stock Incentive Plan; and
3. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Shareholders of record at the close of business on April 30, 1993 will be
entitled to vote at the meeting. A list of the shareholders entitled to vote at
the meeting will be maintained at the corporate headquarters in the city of
Anaheim (at the address shown above) for at least twenty days prior to the
meeting.
By Order of the Board of Directors,
Daniel W. Holden
Secretary
Anaheim, California
May 19, 1993
To assure that your shares will be voted at the meeting, you are requested
to sign the attached proxy and return it promptly in the enclosed postage-paid,
addressed envelope. No additional postage is required if mailed in the United
States. If you attend the meeting, you may vote in person even though you have
sent in your proxy.
II-1
<PAGE> 83
CARL KARCHER ENTERPRISES, INC.
1200 NORTH HARBOR BOULEVARD
ANAHEIM, CALIFORNIA 92801
May 19, 1993
PROXY STATEMENT
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of the
Company for use at the Annual Meeting of Shareholders to be held on June 16,
1993 and at any postponements or adjournments thereof (the "Annual Meeting").
The shares represented by the proxy will be voted at the meeting if the proxy is
properly executed and returned. Any shareholder giving a proxy has the right to
revoke it by written notice at any time prior to the voting or by executing a
subsequent proxy and, if present at the meeting, may vote in person whether or
not he or she has previously given a proxy.
The cost of the solicitation will be paid by the Company. In addition to
solicitation of proxies by use of the mails, directors, officers or employees of
the Company may solicit proxies personally, or by other appropriate means. The
Company will request banks, brokerage houses and other custodians, nominees or
fiduciaries holding shares in their names for others to send proxy materials to,
and to obtain proxies from, their principals, and the Company will reimburse
them for their reasonable expenses in doing so. These proxy materials are first
being mailed to shareholders on or about May 19, 1993.
VOTING
The Board of Directors has fixed the close of business on April 30, 1993 as
the record date for the determination of shareholders entitled to receive notice
of and to vote at the Annual Meeting. As of the close of business on April 30,
1993, the Company had outstanding 18,090,742 shares of Common Stock. A majority
of the shares entitled to vote, present in person or represented by proxy, will
constitute a quorum at the meeting. Other than in the event of cumulative voting
for the election of directors (discussed below), each share of the Company's
Common Stock is entitled to one vote on any matter that may be presented for
consideration and action by the shareholders at the meeting. In all matters
other than the election of directors, the affirmative vote of the majority of
shares of the Company's Common Stock present in person or represented by proxy
at the meeting and entitled to vote on the subject matter will be the act of the
shareholders, assuming such majority also constitutes at least a majority of the
required quorum. Other than in the event of cumulative voting, directors will be
elected by a plurality of the votes of the shares of the Company's Common Stock
present in person or represented by proxy and entitled to vote on the election
of directors. Abstentions will be treated as the equivalent of a negative vote
for the purpose of determining whether a proposal has been adopted and will have
no effect for the purpose of determining whether a director has been elected. As
to the proposal to approve the Carl Karcher Enterprises, Inc. 1993 Employee
Stock Incentive Plan, the New York Stock Exchange and the American Stock
Exchange rules generally require when shares are registered in street or nominee
name that their member brokers receive specific instructions from the beneficial
owners in order to vote on such a proposal. If a member broker indicates on the
Proxy that such broker does not have discretionary authority as to certain
shares to vote on a particular matter, those shares will not be considered as
present and entitled to vote with respect to that matter.
If any shareholder gives notice at the meeting of his or her intention to
cumulate votes, each holder of Common Stock will be entitled to vote his or her
shares cumulatively in the election of directors. Cumulative voting means that
each share of Common Stock is entitled to a number of votes equal to the number
of directors to be elected, which votes may be cast for one nominee or
distributed among two or more nominees. If votes are cumulated at the Annual
Meeting, each share will be entitled to seven votes in connection with the
election of directors. Management does not presently intend to give notice to
cumulate votes, but they may elect to do so in the event of a contested election
or other, presently unexpected, circumstances. In the event of
II-2
<PAGE> 84
cumulative voting, the accompanying proxy authorizes the proxies, in their
discretion, to vote cumulatively and to distribute in any manner the votes to
which each share is entitled in the election of directors, among the nominees
for whom the authority to vote has not been withheld in the accompanying proxy.
At the Company's 1992 Annual Meeting, approximately 91% of the outstanding
voting power was represented and participated in the election of directors. In
the election, all directors received affirmative votes of approximately 90% of
the outstanding voting power.
On all other matters to come before the Annual Meeting, each holder of
Common Stock will be entitled to one vote for each share owned.
ELECTION OF DIRECTORS
Seven directors are to be elected at the Annual Meeting, each to serve for
a term of one year and until his or her successor is elected. The proxies
solicited hereby are intended to be voted for the nominees whose names are
listed below. All of the nominees are presently directors and all, except Donald
E. Doyle (who became a director in January 1993), were elected by the
shareholders at the 1992 Annual Meeting. The persons named in the proxy will
have discretionary authority to vote for others if any nominee becomes unable or
unwilling to serve prior to the meeting. To the Company's knowledge, all
nominees are and will be able to serve.
INFORMATION CONCERNING NOMINEES
<TABLE>
<CAPTION>
FIRST
YEAR
BECAME OTHER CORPORATE
NAME AGE PRINCIPAL OCCUPATION DIRECTOR DIRECTORSHIPS
- --------------------- --- ---------------------------- -------- --------------------------
<S> <C> <C> <C> <C>
Carl N. Karcher 76 Chairman of the Board 1966 --
Donald E. Doyle 46 President and Chief 1992 --
Executive Officer
Daniel W. Holden 58 Secretary; Attorney at Law, 1966 --
Holden & Fergus
Carl L. Karcher 44 President, CLK, Inc., a 1992 --
franchisee of the Company
Peter Churm 67 Chairman Emeritus, Furon 1979 Furon Company
Company, a diversified
manufacturing company
Kenneth Olsen 74 President, Retired, The Vons 1980 --
Companies, Inc., a retail
grocery company
Elizabeth A. Sanders 47 Management Consultant, 1983 H.F. Ahmanson,
The Sanders Partnership The Vons Companies, Inc.,
Sport Chalet, Inc.,
Wal-Mart Stores, Inc.
</TABLE>
Mr. Carl N. Karcher, the founder of the Company, purchased his first hot
dog stand on July 17, 1941 and has been developing the Company's concepts since
that time. He has served in his present capacity since 1980. Until Mr. Doyle's
appointment as Chief Executive Officer in December 1992, Mr. Karcher served in
such capacity. Prior to 1980, he was President of the Company. Mr. Karcher
received compensation aggregating $407,235 in fiscal 1993 for the various
services he performed on behalf of the Company. In September 1989, Mr. Karcher
and the Securities and Exchange Commission entered into a settlement agreement
with respect to a previously filed action pursuant to which Mr. Karcher, without
admitting or denying any wrongdoing, consented to the entry of a permanent
injunction enjoining him from future violations of certain federal securities
laws. In addition, Mr. Karcher agreed to pay a penalty pursuant to the Insider
Trading Sanctions Act of 1984.
II-3
<PAGE> 85
Mr. Donald E. Doyle became a director, President and Chief Executive
Officer in December 1992. Prior to that time, he served as President and Chief
Executive Officer of the Greater Louisville Economic Development Partnership.
Mr. Doyle was employed by Kentucky Fried Chicken Corporation from 1973 until
1988 in several capacities, including, between 1984 and 1988, President of
KFC-USA, the principal operating company for Kentucky Fried Chicken
company-owned and franchised restaurants.
Mr. Holden has served as a director and Secretary since 1966. He is
currently an attorney with the law firm of Holden & Fergus. Between 1990 and
1992 he served as Executive Vice President/General Counsel of Monnig Development
Inc., a real estate development firm. Prior to that time, he was a Senior
Partner with the law firm of Holden, Fergus & Celio.
Mr. Carl L. Karcher has been a franchisee of the Company since May 1985.
For more than 17 years prior to that time, Mr. Karcher was employed by the
Company in several capacities, including Vice President, Manufacturing and
Distribution. Mr. Karcher first became a director in May 1992. In November 1988,
the Securities and Exchange Commission obtained a summary judgment in a civil
action brought against Mr. Karcher under certain federal securities laws, which
required Mr. Karcher to pay disgorgement of $10,500 which represented losses Mr.
Karcher avoided in the sale of certain of the Company's 9 1/2% Convertible
Debentures. In addition, a permanent injunction was entered against Mr. Karcher
enjoining him from future violations under certain federal securities laws.
Mr. Churm was Chairman of the Board of Furon Company, a publicly-held
company headquartered in Laguna Niguel, California, from May 1980 through
February 1992 and was President of that company for more than the 16 years prior
to that time.
Mr. Olsen was Vice President of The Vons Companies, Inc., a retail grocery
company headquartered in Arcadia, California, from January 1984 through November
1991. For more than six years prior to that time, Mr. Olsen was the President
and Chief Executive Officer of Vons Grocery Company.
Mrs. Sanders was employed by Nordstrom, Inc., which owns a chain of
department stores, in several capacities between 1971 and 1990 (including Vice
President-General Manager between 1980 and 1990). She is currently employed by
The Sanders Partnership as a management consultant to various businesses.
Carl L. Karcher is Carl N. Karcher's son.
For additional information concerning Carl N. Karcher and Carl L. Karcher's
relationships to the Company, see "Security Ownership of Certain Beneficial
Owners and Management" and "Transactions with Officers and Directors."
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION
OF ALL OF THE ABOVE NOMINEES.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has two standing committees: the Audit Committee and
the Compensation and Stock Option Committee. The Board does not have a
nominating committee or other committee performing similar functions. The Audit
Committee, whose current members are Kenneth Olsen (Chairman), Peter Churm,
Daniel W. Holden and Elizabeth A. Sanders, monitors the Company's basic
accounting policies and their related system of internal control, reviews its
audit and management reports and makes recommendations regarding the appointment
of independent auditors. The Compensation and Stock Option Committee, whose
current members are Peter Churm (Chairman), Daniel W. Holden, Kenneth Olsen and
Elizabeth A. Sanders, considers the hiring and election of corporate officers,
salary and incentive compensation policies for officers and directors, and the
granting of stock options to employees.
During fiscal 1993, the Board of Directors held seven meetings, the Audit
Committee held one meeting, and the Compensation and Stock Option Committee held
no formal meetings. During fiscal 1993, no director attended fewer than 75% of
the aggregate meetings of the Board of Directors and the committee or committees
on which he or she served.
II-4
<PAGE> 86
COMPENSATION OF DIRECTORS
For their services as directors in fiscal 1993, Messrs. Churm, Holden and
Olsen and Mrs. Sanders received a fee of $18,000. For his serving as a director
in fiscal 1993, Carl L. Karcher received a fee of $9,000, since he commenced
serving in such capacity in May 1992. Each such director is expected to receive
a fee of $18,000 in fiscal 1994 for his or her services and $1,000 for each
Board meeting other than regular meetings attended by that director in fiscal
1994.
In connection with the offer by an entity organized by Freeman Spogli & Co.
and the Carl N. and Margaret M. Karcher Trust, the Board of Directors
established a special committee of non-management directors (the "Special
Committee"), comprised of Peter Churm (Chairman), Daniel W. Holden, Kenneth
Olsen and Elizabeth A. Sanders. Mr. Churm received a fee of $25,000 for serving
as Chairman of the Special Committee. Each of the other members received a fee
of $20,000 for serving on the Special Committee. In addition, each of the four
members of the Special Committee received a fee of $1,000 for each of the four
meetings of the Special Committee held in fiscal 1993, which were each attended
by all four members. Mr. Churm and Mrs. Sanders also received reimbursement of
expenses incurred attending such meetings that aggregated $172 and $2,504,
respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of the date of this Proxy Statement, the members of the Compensation and
Stock Option Committee of the Board of Directors were Peter Churm, Daniel W.
Holden, Kenneth Olsen and Elizabeth Sanders, none of whom was an officer or
employee of the Company during fiscal 1993 or is a former officer of the
Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1993, certain information
as to the number of shares of Common Stock beneficially owned by each person who
is known by the Company to own more than five percent of the outstanding Common
Stock of the Company, by each director, by each executive officer listed in the
Summary Compensation Table, and by all officers and directors as a group. Except
as otherwise indicated, beneficial ownership includes both voting and investment
power.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NAME AND ADDRESS NATURE OF BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
---------------------------------------------- -------------------- --------
<S> <C> <C>
Carl N. Karcher............................... 6,193,441(2) 34.24%(2)
1200 North Harbor Boulevard
Anaheim, California 92801
Donald E. Doyle............................... -- --
1200 North Harbor Boulevard
Anaheim, California 92801
Daniel W. Holden.............................. 21,966 *
Holden & Fergus
300 South Harbor Boulevard, Suite 802
Anaheim, California 92805
Carl L. Karcher............................... 65,546(3) *
73-101 Highway 111, Suite 1
Palm Desert, California 92260
Peter Churm................................... 11,824 *
Furon Company
29982 Ivy Glenn Drive
Laguna Niguel, California 92677
Kenneth Olsen................................. 16,750 *
324 Muirfield Road
Los Angeles, California 90020
</TABLE>
II-5
<PAGE> 87
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NAME AND ADDRESS NATURE OF BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
---------------------------------------------- -------------------- --------
<S> <C> <C>
Elizabeth A. Sanders.......................... 4,950 *
The Sanders Partnership
12835 Sutter Creek Road
Sutter Creek, California 95685
Loren C. Pannier.............................. 285,841(4) 1.56(4)
1200 North Harbor Boulevard
Anaheim, California 92801
Rory J. Murphy................................ 15,330(4) *
1200 North Harbor Boulevard
Anaheim, California 92801
Richard C. Celio.............................. 25,489(4) *
1200 North Harbor Boulevard
Anaheim, California 92801
Roger D. Shively.............................. 1,000(4) *
1200 North Harbor Boulevard
Anaheim, California 92801
All executive officers and directors
as a group (13 persons)..................... 6,616,692(5) 35.99(5)
Brinson Holdings, Inc. ....................... 1,382,200(6) 7.64
209 South LaSalle
Chicago, Illinois 60604
</TABLE>
- ------------
* Less than one percent.
(1) Based on 18,090,742 shares outstanding on March 31, 1993.
(2) Includes (a) 6,160,186 shares held by Carl N. Karcher, as trustee under a
trust dated August 17, 1970, for the benefit of Carl N. and Margaret M.
Karcher (the "Karcher Trust"), (b) 33,000 shares held by the Carl N. and
Margaret M. Karcher Foundation, of which Carl N. and Margaret M. Karcher are
directors and with respect to which Mr. and Mrs. Karcher disclaim beneficial
ownership, (c) 221 shares held in trust for the benefit of Carl N. Karcher
under the Carl Karcher Enterprises, Inc. Profit Sharing and Savings
Investment Plan (the "Investment Plan") and (d) 34 shares held in trust for
the benefit of Margaret M. Karcher under the Investment Plan.
(3) Includes (a) 180 shares held by Carl L. Karcher and (b) 65,366 shares held
by Carl L. Karcher and Peggy L. Karcher, as trustees under a trust dated
January 31, 1983 for the benefit of Carl L. and Peggy L. Karcher.
(4) Includes for Messrs. Pannier, Murphy, Celio and Shively: (a) 5,266, 1,194,
382 and zero shares held in trust for the benefit of such persons under the
Investment Plan and (b) 245,428, 14,136, 25,107 and 1,000 shares subject to
presently exercisable options or options that become exercisable on or prior
to May 30, 1993.
(5) Includes (a) 7,208 shares held in trust for the benefit of such persons
under the Investment Plan and (b) 292,115 shares subject to presently
exercisable options or options that become exercisable on or prior to May
30, 1993.
(6) Based on a Schedule 13G filed with the Securities and Exchange Commission, a
copy of which was provided to the Company by Brinson Holdings, Inc.
II-6
<PAGE> 88
EXECUTIVE COMPENSATION
The following table sets forth, for the years indicated, the compensation
awarded to, earned by or paid to each of the Company's Chief Executive Officer
and the four other most highly compensated executive officers of the Company who
were so employed by the Company as of January 25, 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION
----------------------------------- AWARDS
OTHER --------------------------
ANNUAL RESTRICTED OPTIONS/ ALL OTHER
FISCAL SALARY BONUS COMPENSATION STOCK AWARDS SARS COMPENSATION
NAME AND TITLE YEAR ($) ($) ($)(1)(2) ($) (#) ($)(1)(3)
- -------------------------------- ------- -------- ------- ------------ ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald E. Doyle 1993 $ 23,654 -- -- $ 100,000(4) (5) --
President and 1992 -- -- -- -- -- --
Chief Executive Officer(6) 1991 -- -- -- -- -- --
Loren C. Pannier 1993 180,461 -- $ 14,152 -- 13,560 $5,728
Senior Vice President, 1992 172,500 $25,968 -- -- -- --
Chief Financial Officer 1991 174,066 -- -- -- 36,300 --
Rory J. Murphy 1993 128,428 -- 4,215 -- 8,470 3,265
Senior Vice President, 1992 90,192 13,118 -- -- -- --
Operations 1991 79,442 1,750 -- -- 5,934 --
Richard C. Celio 1993 109,860 -- 12,664 -- 5,450 2,958
Vice President, 1992 101,923 13,172 -- -- -- --
General Counsel 1991 102,176 -- -- -- 11,138 --
Roger D. Shively 1993 109,461 -- 9,581 -- 6,720 --
Vice President, 1992 44,231 -- -- -- 4,000 --
Human Resources(7) 1991 -- -- -- -- -- --
</TABLE>
- ---------------
(1) In accordance with the transition provisions covering disclosure of
executive compensation adopted by the Securities and Exchange Commission,
amounts for "Other Annual Compensation" and "All Other Compensation" are
excluded for fiscal 1992 and fiscal 1991.
(2) "Other Annual Compensation" includes the following amounts for Messrs.
Pannier, Murphy, Celio and Shively: (a) auto allowance payments of $9,960,
$1,568, $9,960 and $8,300 and (b) reimbursements by the Company for medical
and dental costs of $4,192, $2,647, $2,704 and $1,281.
(3) "All Other Compensation" includes matching and voluntary contributions by
the Company to the Company's voluntary contributory profit sharing and
401(k) savings plan for Messrs. Pannier, Murphy and Celio in the amounts of
(i) $3,225, $1,521 and $1,945 for the profit sharing plan and (ii) $2,503,
$1,744 and $1,013 for the 401(k) savings plan.
(4) Mr. Doyle was awarded 12,121 shares of restricted stock pursuant to his
employment agreement. The award has been valued based on the market value of
the Company's Common Stock on the date of issuance, which was $8.25 a share.
See "Employment Agreements."
(5) As part of the Company's offer to Mr. Doyle in December 1992 to become the
Company's President and Chief Executive Officer, the Company agreed to grant
Mr. Doyle an option to purchase 100,000 shares of the Company's Common
Stock. This option was subsequently granted to Mr. Doyle in April 1993 upon
the adoption by the Company's Board of Directors of the 1993 Employee Stock
Incentive Plan.
(6) Mr. Doyle was appointed President and Chief Executive Officer in December
1992.
(7) Mr. Shively was appointed Vice President, Human Resources in August 1991.
II-7
<PAGE> 89
The following table sets forth certain information with respect to the
stock options granted during fiscal 1993 to the executive officers named in the
Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
-------------------------------------------------------------------------- ASSUMED ANNUAL
PERCENTAGE OF RATES OF STOCK
TOTAL OPTIONS PRICE APPRECIATION
GRANTED TO EXERCISE FOR OPTION TERM
EMPLOYEES IN PRICE -------------------
NAME OPTIONS GRANTED($) FISCAL 1993(1) ($/SHARE)(2) EXPIRATION DATE(3) 5%($) 10%($)
- -------------------- ------------------- --------------- ------------ ------------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Donald E. Doyle..... -- -- -- -- -- --
Loren C. Pannier.... 13,560 10.1% $ 7.75 June 9, 2002 $ 66,207 $ 167,093
Rory J. Murphy...... 8,470 6.3 7.75 June 9, 2002 41,355 104,372
Richard C. Celio.... 5,450 4.1 7.75 June 9, 2002 26,610 67,158
Roger D. Shively.... 6,720 5.0 7.75 June 9, 2002 32,810 82,807
</TABLE>
- ---------------
(1) Based on the number of shares being subject to options granted to all
employees aggregating 134,230 in fiscal 1993.
(2) The fair market value of the Company's Common Stock on the date of grant.
(3) All the options vest 25% on the first anniversary of the date of grant, 35%
on the second anniversary of the date of grant and 40% on the third
anniversary of the date of grant.
The following table sets forth certain information with respect to stock
options exercised during fiscal 1993 by the executive officers named in the
Summary Compensation Table and aggregate fiscal 1993 year end stock option
values.
AGGREGATE OPTION EXERCISES IN FISCAL 1993
AND FISCAL 1993 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL 1993 OPTIONS AT FISCAL 1993
YEAR END(#) YEAR END($)
SHARES ACQUIRED ------------------------- -------------------------
NAME ON EXERCISE (#) VALUE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------- --------------- ------------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Donald E. Doyle.... -- -- -- / -- -- / --
Loren C. Pannier... 17,250 $ 70,898 237,856/28,080 $420,184/$22,413
Rory J. Murphy..... -- -- 12,848/10,844 8,559/6,679
Richard C. Celio... -- -- 22,063/9,905 4,763/5,900
Roger D. Shively... -- -- 1,000/9,720 -- /3,360
</TABLE>
EMPLOYMENT AGREEMENTS
In January 1993, the Company entered into employment agreements with Donald
E. Doyle, the President and Chief Executive Officer, Loren C. Pannier, Senior
Vice President and Chief Financial Officer, Rory J. Murphy, Senior Vice
President, Operations, Richard C. Celio, Vice President, General Counsel, and
Roger D. Shively, Vice President, Human Resources. Each such employment
agreement expires in January 1996.
Base Salaries. The base salaries payable under these agreements are
subject to increase from time to time at the discretion of the Board of
Directors. The employment agreement with Mr. Doyle provides for an initial
annual base salary of $300,000. In addition, in March 1993, the Company and Mr.
Doyle executed an addendum to his employment agreement providing for a housing
cost differential payment of $4,375 per month to be paid to Mr. Doyle through
December 1997 in consideration of the markedly higher housing costs in Southern
California compared to those in Louisville, Kentucky, Mr. Doyle's former
residence.
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Bonuses. The employment agreements provide for a management incentive
compensation plan to be established by the Board of Directors for the payment of
cash bonuses to the executive officers and management of the Company. Such
bonuses will be paid if certain performance targets are met. The Board of
Directors has established the terms of such management incentive compensation
plan. See "Incentive Compensation Plan."
Stock Options and Grants. Each employment agreement entitles the executive
officer to participate in the Company's new stock option plan. See "1993
Employee Stock Incentive Plan." In addition, in April 1993, pursuant to his
employment agreement, Mr. Doyle received an option to purchase 100,000 shares of
the Company's Common Stock under the terms of the Company's 1993 Employee Stock
Incentive Plan, which is subject to shareholder approval. The option is
exercisable at a price of $8.00 per share, the market value of the Company's
Common Stock on the date of grant. Effective January 6, 1993, the Company
awarded to Mr. Doyle, as provided in his employment agreement, 12,121 shares of
Common Stock, which will vest at a rate of 33 1/3% per year on each of the first
three anniversaries of such grant.
Termination of Employment; Change of Control. Each employment agreement
provides that if the Company terminates an executive officer's employment for
good and valid cause (as defined therein), the Company will not be required to
pay any severance pay or pro-rata payment that may otherwise be due such
executive officer. However, if an executive officer is terminated by the Company
without cause, the Company will be obligated to pay a lump sum equal to the
greater of one year's compensation (two years' compensation in the case of Mr.
Doyle) or the balance of compensation due for the remainder of the employment
agreement, plus any accrued and unpaid compensation. In addition, in the event
the Company terminates Mr. Doyle's employment without cause, the addendum to Mr.
Doyle's employment agreement requires that the housing cost differential
payments thereunder be made to him for the longer of two years or the balance of
the agreement. In addition, the employment agreements provide for certain
payments in the event the Company is acquired by or merged with another entity,
or another entity acquires all or substantially all of the Company's assets,
resulting in such other entity gaining direction or control of the Company (a
"Change in Control") and thereafter either (i) an executive officer is
terminated or (ii) an executive officer exercises his right upon a Change in
Control to terminate his employment agreement. In either case, such executive
officer's employment agreement requires the Company to pay such executive
officer's base salary for the longer of one year (two years in the case of Mr.
Doyle) or the balance of such agreement's term.
INCENTIVE COMPENSATION PLAN
In 1993, the Company adopted the Carl Karcher Enterprises, Inc. Incentive
Compensation Plan (the "Incentive Plan") to help the Company attract and retain
qualified employees in managerial and other key positions and to provide
incentives to those individuals to contribute to the success of the Company. The
Incentive Plan is administered by the Compensation and Stock Option Committee of
the Board of Directors (the "Committee") and the Vice President of Human
Resources of the Company. The Incentive Plan provides for cash bonus awards, the
amounts of which are directly dependent upon increases in the Company's
operating income over the prior fiscal year.
Participants in the Incentive Plan must be employees of the Company
nominated by the President and Chief Executive Officer of the Company and
approved by the Committee. Each participant in the Incentive Plan is assigned a
level of participation based on such participant's responsibilities with the
Company. Participation levels are established and approved by the Committee
following recommendations by the President and Chief Executive Officer, and the
Vice President of Human Resources of the Company. Cash awards under the
Incentive Plan for each participant are determined by multiplying the
participant's base salary in effect on the last day of the applicable plan year
by the applicable assigned percentage, which will be increased or decreased
based on whether various levels of operating income are achieved.
Participants in the Incentive Plan who terminate employment with the
Company on or after the last day of the plan year vest with respect to any award
under the Incentive Plan for that plan year. Participants who terminate
employment with the Company prior to the end of a plan year will receive such
awards as the Committee shall determine as appropriate, if any. Employees hired
or promoted during a plan year will be
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eligible to receive pro rata awards for such plan year as the Committee shall
determine, provided that the minimum pro rata amount is one-fourth of a full
award.
If a participant in the Incentive Plan dies before the last day of the plan
year, the Company will pay a pro rata share of an award in an amount authorized
by the Committee. If a participant in the Incentive Plan dies on or after the
last day of a plan year, the Company will pay the full amount of any award under
the Incentive Plan for that plan year.
The Committee has the right to cancel, modify or amend the Incentive Plan
in its sole discretion, provided that no cancellation, modification or amendment
may occur retroactively for a plan year that has ended, and no amendment may
modify any award that has previously been paid.
CHANGE IN CONTROL ARRANGEMENT
In June 1988, the Company entered into a Change in Control Agreement with
Mr. Pannier. The Change in Control Agreement provides, among other things, that
in the event there is a "change in control of the Company" (as defined below)
which results in Mr. Pannier losing his position or a substantially equivalent
position with the Company within a period of two years following such change in
control, he will be paid an amount equal to the product of (i) the sum of his
annual base salary at the highest annual rate in effect at any time within the
prior two years plus the highest amount awarded to such executive under the
annual bonus plan or any successor bonus plan during the prior three years
multiplied by (ii) 2.99 (subject to adjustment, if Mr. Pannier retires within
three years from that date). In addition, all outstanding options held by Mr.
Pannier will become fully vested and exercisable, and employee benefit plans and
programs in which he participates at such time will continue in full force and
effect for a specified period. Notwithstanding the foregoing, however, the
Company will have the sole and absolute discretion and authority to reduce any
payments of cash or property to Mr. Pannier to the extent such payments
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code and its state counterparts. For purposes of this Change in
Control Agreement and subject to certain limitations, a "change in control of
the Company" shall be deemed to have occurred if, among other things, (a) any
person becomes the beneficial owner, directly or indirectly, of 20% or more of
the combined voting power of the Company's then outstanding securities (other
than persons who already have 20% or more of the combined voting power of the
Company's outstanding securities) and (b) the persons who were directors of the
Company immediately prior to any merger, consolidation, sale of assets or
contested election, or any combination of the foregoing, shall as a result
thereof cease to constitute a majority of the Board of Directors of the Company.
This agreement expires in June 1994.
TRANSACTIONS WITH OFFICERS AND DIRECTORS
The Company and Carl N. Karcher were jointly obligated to an insurance
company on a promissory note that was issued in connection with the financing of
the Company's headquarters and commissary and distribution center. The note was
secured by a deed of trust on the property, was payable in monthly installments
of $49,242, was repaid in full in March 1993 by Mr. Karcher, and bore interest
at the rate of 9 1/4% per annum. Mr. Karcher made all payments on the note. The
principal balance at the time of repayment was $3,904,523.
The Company leases the land and buildings, which include the Company's
headquarters and its commissary and distribution center, in Carl Karcher Plaza
located in 1200 North Harbor Boulevard, Anaheim, California from the Karcher
Trust. The original term of the lease expires in April 2003, and the Company has
the option to renew the lease for two additional five-year terms. The current
rent under the lease is $89,275 per month, subject to adjustment every five
years.
The Company also leases two adjacent parcels of land in Carl Karcher Plaza
from the Karcher Trust. One parcel is being utilized by the Company for its
training facilities and parking. The rent is $5,443 per month, subject to
adjustment every five years. The other parcel is being utilized, in part, for
the Company's distribution center parking and storage. The unused portion of
this parcel has been subleased to various small commercial tenants. The rent for
this second parcel is $6,250 per month, also subject to adjustment every five
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years. The lease term for both parcels expires in April 2003, and the Company
has the option to renew each of these leases for two additional five-year terms.
The Company also leases office facilities from the Karcher Trust in San
Diego, California. The term of the lease is for 39 months. The monthly rental is
currently $4,136 and will gradually increase to $4,500 by July 1, 1994.
The Company leases a number of restaurant properties from Carl N. Karcher
and other officers of the Company. Rentals are generally set at the greater of a
percentage of the annual gross sales of the restaurant or a minimum monthly
rental. The Company presently has five leases with the Karcher Trust with
respect to restaurant properties. The terms of these leases range from 15 to 30
years. In three of the leases, the minimum monthly rentals range from $5,735 to
$9,652 or 5 1/2% of annual gross sales. In one lease, the minimum monthly rental
for improvements is $3,612 or 4% of annual gross sales and the monthly minimum
rental for the land is $1,967 or 2% of annual gross sales. In another lease, the
minimum monthly rental for the improvements is $2,871 or 4% of annual gross
sales and a fixed monthly rental of $2,400 for the land. The aggregate rentals
paid under all five leases during fiscal 1993 was $432,800. In January 1993, the
Company's Board of Directors authorized the purchase of three of the five
properties, under which the Company is currently making lease payments, for an
aggregate purchase price of $1,908,543.
Subsequent to year end, the Chairman, Carl N. Karcher, requested that the
Board of Directors consider the purchase of certain shares of Common Stock owned
by him. After appropriate consideration and analysis, the Board of Directors
authorized the repurchase of up to $10 million of the Company's Common Stock
from the Carl N. and Margaret M. Karcher Trust, on terms and conditions to be
negotiated, including, per share price and transfer restrictions, rights of
first refusal and registration rights with respect to additional shares held by
the Trust. The transaction is viewed by the Company as a sound and attractive
investment opportunity at the prices the Company's securities have recently
traded. At the same time, completion of the transaction will permit the Chairman
to fulfill certain outstanding financial obligations without the potential of
disruption to the trading market for the Company's securities.
The Company has one lease with Loren C. Pannier and Suzanne Pannier. This
lease is for 25 years with a minimum monthly rental equal to the greater of
$4,910 or 5% of annual gross sales. The Company also has two leases in which
Loren C. Pannier has a 12% and a 33% undivided interest. These leases have an
initial term of 25 years and provide for a minimum monthly rental equal to (a)
the greater of $3,290 or 5 1/2% of annual gross sales and (b) the greater of
$3,440 or 6% of annual gross sales, respectively. The aggregate rentals paid
under all three leases during fiscal 1993 was $218,771.
The Company has one lease with Dorothy L. Karcher, the sister-in-law of
Carl N. Karcher. The lease is for 25 years and provides for a minimum monthly
rental equal to the greater of $3,328 or 5 1/2% of annual gross sales.
Restaurants leased from officers generally were constructed by the Company
on land acquired by the Company. The properties were then sold to the officers
and leased back by the Company. The Company believes that the sale and leaseback
arrangements with officers are at rental rates generally similar to those with
unaffiliated third parties. Except as noted above, the Company presently does
not intend to enter into leases for new restaurants with related parties.
In a series of transactions between May 1985 and December 1991, the Company
franchised and sold 15 restaurants to Carl L. Karcher for an aggregate purchase
price of $4,533,533 (which includes franchise fees of $447,482 and sales tax of
$60,163). Cash down payments aggregating $941,425 were made by Mr. Karcher with
the balance paid in the form of interest-bearing promissory notes. In January
1992, Mr. Karcher paid $2,234,798 of the remaining $2,691,642 owing as of that
time on those notes. During fiscal 1993, the largest aggregate amount
outstanding under the remaining note was $434,989. As of April 19, 1993,
$428,453 was still owed to the Company on this note. The note bears interest at
12 1/2% per annum and is due in January 2002.
Carl L. Karcher has also entered into franchise agreements for four
restaurants which he developed independently between August 1985 and November
1991. The Company acted as general contractor in the
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<PAGE> 93
development of all four restaurants developed independently by Mr. Karcher and
Mr. Karcher paid the costs of such construction to the Company.
In addition, pursuant to three Development Agreements dated May 17, 1985,
March 22, 1991 and December 16, 1991, between Mr. Karcher and the Company, Mr.
Karcher is obligated to develop an aggregate of nine additional restaurants and
become a franchisee of the Company with respect to those restaurants. Mr.
Karcher has developed three of these restaurants. In connection with the opening
of one of these restaurants, Mr. Karcher paid a franchise fee of $20,000 in
fiscal 1993. The Company acted as general contactor in the development of two of
the three restaurants developed by Mr. Karcher pursuant to the Development
Agreements and Mr. Karcher paid the costs of such construction to the Company.
Mr. Karcher is obligated to develop the remaining six restaurants at varying
times between 1994 and 2001. Mr. Karcher was obligated to pay an aggregate of
$90,000 to the Company under these Development Agreements, $30,000 of which was
paid in cash, $50,000 of which was paid by delivery of a promissory note that
did not bear interest and was paid in full in fiscal 1993 and the other $10,000
of which was waived by the Company.
In connection with Mr. Karcher's operation of the 22 franchised
restaurants, he regularly purchases food and other products from the Company on
the same terms and conditions as other franchisees. During fiscal 1993, these
purchases totalled approximately $7,831,000. Mr. Karcher is also obligated to
pay a percentage of such restaurants' annual gross sales ranging from zero to 4%
as royalty fees and an additional zero to 4% as advertising and promotional fees
to reimburse the Company for its regional and national advertising efforts on
behalf of all franchisees. During fiscal 1993, Mr. Karcher paid royalty fees of
$745,597 and advertising and promotional fees of $773,370 for all 22 restaurants
combined.
Mr. Karcher is a lessee or sublessee of the Company with respect to 15
restaurant locations. Rental payments equal the greater of a percentage of the
annual gross sales of the restaurant or a minimum monthly rental. The fifteen
leases expire between March 2000 and June 2011. The minimum monthly rentals
range from $4,157 to $10,830. The percentage of annual gross sales ranges from
5% to 8%. The aggregate rentals paid under these 15 leases during fiscal 1993
was $1,128,035.
In June 1990, the Company entered into a Business Facilities Lease Purchase
Agreement (the "Facilities Agreement") with Franklin J. and Lucille J. Karcher
pursuant to which Mr. and Mrs. Karcher agreed to purchase the leasehold
interests and related assets of up to six Carl's Jr. restaurants located in
Tucson, Arizona, two of which must be purchased by June 19, 1993, two of which
must be purchased by June 19, 1994 and one of which must be purchased by June
19, 1995. Mr. and Mrs. Karcher have the option to purchase the sixth restaurant
on or prior to June 19, 1995. The aggregate purchase price for all six
restaurants is $1,347,000, will be financed in full by the Company and will be
represented by a promissory note executed by Mr. and Mrs. Karcher in favor of
the Company which will be due and payable 10 years following the date of
execution and will bear interest at a rate of 12 1/2% per annum. As of April 19,
1993, no amounts were yet outstanding under this note because Mr. and Mrs.
Karcher's obligations to purchase the restaurants commence on June 19, 1993. Mr.
Karcher is the brother of Carl N. Karcher and was the Company's Vice
President -- Franchising until 1990.
Concurrently with the execution of the Facilities Agreement, the Company
and Mr. and Mrs. Karcher entered into a purchase agreement whereby Mr. and Mrs.
Karcher purchased six additional Carl's Jr. restaurants located in Tucson,
Arizona for a total purchase price of $1,591,781. Mr. and Mrs. Karcher financed
this purchase by paying the Company $25,000 in cash and executed promissory
notes in principal amounts of $125,000 and $1,441,781, which bear interest at an
annual rate of zero percent and 12 1/2%, respectively. The principal amount due
under the first note was due and paid in full on January 15, 1991. The principal
amount under the second note is due on June 19, 2000 and had $1,374,140
outstanding as of April 19, 1993. The maximum amount outstanding under such note
during fiscal 1993 was $1,421,907. In connection with the six Tucson, Arizona
restaurants, the Company advanced $89,169 for working capital purposes. Such
note bears interest at 12 1/2% per annum, is due on February 1, 1995 and had an
outstanding balance of $56,005 at April 19, 1993.
All of the franchise arrangements described above are on terms generally
similar to those with unaffiliated parties.
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In connection with the cessation of the employment of David J. Brickner
(until May 1992 the Company's Group Vice President -- Manufacturing &
Distribution) by the Company, the Company made severance and accrued vacation
payments to Mr. Brickner aggregating $69,527 in fiscal 1993.
RETIREMENT PLANS
The Company has a voluntary contributory profit sharing and savings
investment plan (the "Investment Plan") for all eligible employees, excluding
hourly operations employees. The annual contribution of the Company under the
profit sharing portion of the Investment Plan is determined at the discretion of
the Board of Directors. Every employee earns credit toward vesting from his or
her initial date of employment; amounts accrued for the account of an eligible
employee become vested in increasing percentages beginning during the employee's
third year of continuous service and become fully vested after the fifth year.
Benefits are realizable upon termination, retirement, total disability or death.
The Company made no contributions to the plan for fiscal 1993.
The savings investment portion of the Investment Plan is administered in
accordance with the provisions of Section 401(k) of the Internal Revenue Code.
Employees who are participants in the profit sharing plan may elect to reduce
their annual salary by up to 15% and have this amount contributed to the plan.
Up to 4% of the employees' contributions are matched by the Company and may be
used to purchase the Company's Common Stock. Total Company contributions to the
plan for all participants for fiscal 1993 were $429,000.
The Company has a defined benefit pension plan for all eligible hourly
operations employees. Each eligible employee earns credit toward vesting from
his or her initial date of employment. Employees are fully vested upon the
completion of five years of service. The plan provides a benefit of $10 per
month for each year of service since February 1, 1985, with a maximum benefit of
$200 per month. Benefits are realizable upon termination, retirement, total
disability or death. Total Company contributions to the plan for all
participants for fiscal 1993 were $348,000.
KEY EMPLOYEE STOCK OPTION PLAN
The Company's Key Employee Stock Option Plan (the "Plan") was adopted by
the Board of Directors of the Company on September 15, 1982, and was approved by
the shareholders of the Company on June 8, 1983. The Plan expired by its terms
in September 1992. The Plan provided for options that qualify as incentive stock
options under former Section 422A (now Section 422) of the Internal Revenue Code
(the "Code"), as well as options that do not so qualify. The Plan was designed
to enable the Company to attract, retain and motivate eligible employees,
consultants and directors by providing for or increasing their proprietary
interest in the Company. Persons employed on a salaried basis by the Company or
its parent or subsidiaries were eligible to receive incentive options. Such
persons, as well as consultants to and directors of the Company, were eligible
to receive nonqualified options. The Plan was administered by the Compensation
and Stock Option Committee of the Board of Directors.
Although the Company reserved 3,000,000 shares of its Common Stock for
issuance under the Plan, the Plan expired in September 1992. As of March 31,
1993, the Company had outstanding incentive options to purchase an aggregate of
164,176 shares of Common Stock pursuant to the Plan to 27 employees, with
exercise prices ranging from $5.21 to $10.58 with an average exercise price of
$6.60 per share. As of March 31, 1993, the Company had outstanding nonqualified
options to purchase an aggregate of 1,390,590 shares of Common Stock pursuant to
the Plan to 36 employees, with exercise prices ranging from $5.21 to $13.38 with
an average exercise price of $7.94 per share.
1993 EMPLOYEE STOCK INCENTIVE PLAN
The following description of the Company's 1993 Employee Stock Incentive
Plan (the "1993 Plan") is qualified in its entirety by reference to the full
text of such plan.
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GENERAL
The purpose of the 1993 Plan is to enable the Company and its subsidiaries
to attract, retain and motivate their employees by providing for or increasing
the proprietary interests of such employees in the Company. Every employee of
the Company or any of its subsidiaries is eligible to be considered for the
grant of awards under the 1993 Plan. The maximum number of shares of Common
Stock that may be issued pursuant to awards granted under the 1993 Plan is
1,750,000, subject to certain adjustments to prevent dilution. The closing sale
price of the Common Stock on the NASDAQ National Market System on April 30, 1993
was $8.125.
The 1993 Plan will be administered by a committee of directors appointed by
the Board of Directors (the "Committee"). Subject to the provisions of the 1993
Plan, the Committee will have full and final authority to select the
participants to whom awards will be granted thereunder, to grant such awards,
and to determine the terms and conditions of such awards and the number of
shares to be issued pursuant thereto.
AWARDS
The 1993 Plan authorizes the Committee to enter into any type of
arrangement with an eligible employee that, by its terms, involves or might
involve the issuance of (1) Common Stock, or (2) a Derivative Security (as such
term is defined in Rule 16a-1 promulgated under the Securities and Exchange Act
of 1934) with an exercise or conversion privilege at a price related to the
Common Stock or with a value derived from the value of the Common Stock.
Awards under the 1993 Plan are not restricted to any specified form or
structure and may include arrangements such as sales and bonuses of stock,
restricted stock, stock options, reload stock options, stock purchase warrants,
other rights to acquire stock, securities convertible into or redeemable for
stock, stock appreciation rights, limited stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares. An award
may consist of one such arrangement or two or more such arrangements in tandem
or in the alternative.
An award granted under the 1993 Plan to an employee may include a provision
conditioning or accelerating the receipt of benefits, either automatically or in
the discretion of the Committee, upon the occurrence of specified events, such
as a change of control of the Company, an acquisition of a specified percentage
of the voting power of the Company or a dissolution, liquidation, merger,
reclassification, sale of substantially all of the property and assets of the
Company or other significant corporate transaction. Any stock option granted to
an employee may be a tax-benefited incentive stock option or a non qualified
stock option that is not tax-benefited.
An award under the 1993 Plan may permit the recipient to pay all or part of
the purchase price of the shares or other property issuable pursuant thereto,
and/or to pay all or part of such recipients' tax withholding obligations with
respect to such issuance, by delivering cash, by delivering previously owned
shares of capital stock of the Company or other property deemed acceptable by
the Committee, by reducing the amount of shares or other property otherwise
issuable pursuant to the award, or by delivering a promissory note, the terms
and conditions of which shall be determined by the Committee. If an option
granted under the 1993 Plan permitted the recipient to pay for the shares
issuable pursuant thereto with previously owned shares, the recipient would be
able to exercise the option in successive transactions, starting with a
relatively small number of shares and, by a series of exercises using shares
acquired from each such transaction to pay the purchase price of the shares
acquired in the following transaction, to exercise an option for a larger number
of shares with no more investment than the original share or shares delivered.
NON-EMPLOYEE DIRECTOR OPTIONS
The 1993 Plan provides for the automatic grant of stock options to
non-employee directors, pursuant to which, each year, on the first business day
after the date of the annual meeting of shareholders of the Company, each
non-employee director will automatically be granted an option (a "Non-Employee
Director Option") to purchase the number of shares of Common Stock equal to the
lesser of (i) 2,000 shares or (ii)
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the number of such shares that have an aggregate Fair Market Value (as defined
in the 1993 Plan) of $18,000 on the date of grant. The aggregate exercise price
for any Non-Employee Director Option will be equal to the greater of (1) the
aggregate Fair Market Value of the shares on the date of grant, or (2) the
aggregate par value of such shares. In addition, each person who becomes a
non-employee director on any date other than the date of an annual meeting will,
on the date such person becomes a non-employee director, automatically be
granted a Non-Employee Director Option.
Each Non-Employee Director Option will become exercisable for the first
time to purchase 33 1/3% of Common Stock subject thereto on each of the first,
second and third anniversaries of the date of grant, provided, however, that a
Non-Employee Director Option shall become fully exercisable on the date upon
which the optionee shall cease to be a non-employee director as a result of
death or total disability. In addition, all outstanding Non-Employee Director
Options will become exercisable in full on the first to occur of the following:
(1) the date of dissemination to the Company's shareholders of a proxy
statement seeking approval of a reorganization, merger or consolidation of
the Company as a result of which the outstanding securities of the class
then subject to the 1993 Plan are exchanged for or converted into cash,
property and/or securities not issued by the Company, unless such
transaction has been recommended to the shareholders by the Board of
Directors;
(2) the first date upon which the directors of the Company who were
nominated by the Board of Directors for election cease to constitute a
majority of the authorized number of directors of the Company; or
(3) the date of dissemination to the shareholders of a proxy statement
disclosing a change in control of the Company.
Each Non-Employee Director Option granted under the 1993 Plan will expire
upon the first to occur of the following:
(1) the first anniversary of the date upon which the optionee ceases
to be a non-employee director as a result of death or total disability;
(2) the 90th day after the date upon which the optionee ceases to be a
non-employee director for any reason other than death or total disability;
or
(3) the fifth anniversary of the date of grant of such option.
All outstanding Non-Employee Director Options theretofore granted under the
1993 Plan will terminate upon the first to occur of:
(1) the dissolution or liquidation of the Company;
(2) a reorganization, merger or consolidation of the Company as a
result of which the outstanding securities of the class then subject to
such outstanding Non-Employee Director Options are exchanged for or
converted into cash, property and/or securities not issued by the Company,
which transaction shall have been affirmatively recommended to the
shareholders by the Board of Directors; or
(3) the sale of substantially all of the property and assets of the
Company.
PLAN DURATION
The 1993 Plan became effective upon its adoption by the Board of Directors
on April 20, 1993, but no shares of Common Stock may be issued or sold under the
1993 Plan until it has been approved by the Company's shareholders. Awards may
not be granted under the 1993 Plan after April 19, 1998. Although any award that
was duly granted on or prior to such date may thereafter be exercised or settled
in accordance with its terms, no shares of Common Stock may be issued pursuant
to any award after April 19, 2008.
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AMENDMENTS
The Board of Directors may amend or terminate the 1993 Plan at any time and
in any manner, subject to the following:
(1) the recipient of any award may not be deprived of such award or
any of his or her rights thereunder or with respect thereto without his or
her consent as a result of any such amendment or termination; and
(2) the terms and conditions relating to the Non-Employee Director
Options may not be amended more than every six months other than to comport
with changes in the Internal Revenue Code, the Employee Retirement Income
Security Act, or the rules and regulations thereunder.
SECTION 16(B) OF THE EXCHANGE ACT
The acquisition and disposition of shares of Common Stock by officers,
directors and more than 10% shareholders of the Company ("Insiders") pursuant to
awards granted to them under the 1993 Plan may be subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), under
which a purchase of shares of Common Stock within six months before or after a
sale of Common Stock could result in recovery by the Company of all or a portion
of any amount by which the sale proceeds exceed the purchase price. Insiders are
required to file reports of changes in beneficial ownership under Section 16(a)
of the Exchange Act upon acquisitions and dispositions of shares. Rule 16b-3
provides an exemption from Section 16(b) liability for certain transactions
pursuant to employee benefit plans.
FEDERAL INCOME TAX TREATMENT
The following is a brief description of the federal income tax treatment
which will generally apply to awards made under the 1993 Plan, based on federal
income tax laws in effect on the date hereof. The exact federal income tax
treatment of awards will depend on the specific nature of the award. Such an
award may, depending on the conditions applicable to the award, be taxable as an
option, as restricted or unrestricted stock, as a cash payment, or otherwise.
Incentive Options. Pursuant to the 1993 Plan, employees may be granted
options which are intended to qualify as incentive stock options ("Incentive
Options") under the provisions of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Non-Employee Director Options are not intended to
qualify as Incentive Options. Generally, the optionee is not taxed and the
Company is not entitled to a deduction on the grant or the exercise of an
Incentive Option. However, if the optionee sells the shares acquired upon the
exercise of an Incentive Option at any time within (a) one year after the date
of transfer of shares to the optionee pursuant to the exercise of such Incentive
Option or (b) two years after the date of grant of such Incentive Option, then
the optionee will recognize ordinary income in an amount equal to the excess, if
any, of the lesser of the sale price of the shares of Common Stock or the fair
market value of the shares of Common Stock on the date of exercise over the
exercise price of such Incentive Option. In such case, the Company will
generally be entitled to a tax deduction in an amount equal to the amount of
ordinary income recognized by such optionee.
The amount by which the fair market value of the shares of Common Stock
received upon exercise of an Incentive Option exceeds the exercise price will be
included as a positive adjustment in the calculation of an optionee's
"alternative minimum taxable income" ("AMTI") in the year of exercise. The
"alternative minimum tax" imposed on individual taxpayers is generally equal to
the amount by which 24% of the individual's AMTI (reduced by certain exemption
amounts) exceed his or her regular income tax liability for the year.
Nonqualified Options. The grant of an option or other similar right to
acquire stock which does not qualify for treatment as an Incentive Option (a
"Nonqualified Option"), is generally not a taxable event for the optionee. Upon
exercise of the option, the optionee will generally recognize ordinary income in
an amount equal to the excess of the fair market value of the stock acquired
upon exercise (determined as of the date of the exercise) over the exercise
price of such option, and the Company will be entitled to a tax deduction equal
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<PAGE> 98
to such amount. See "Special Rules for Awards Granted to Insiders including
Non-Employee Directors," below.
Special Rules for Awards Granted to Insiders including Non-Employee
Directors. If an optionee is a director, officer or shareholder subject to
Section 16 of the Exchange Act (an "Insider") and exercises an option within six
months of the date of grant, the timing of the recognition of any ordinary
income generally should be deferred until (and the amount of ordinary income
should be determined based on the fair market value (or sales price in the case
of a disposition) of the shares of Common Stock upon) the earlier of the
following two dates (the "16(b) Date"): (i) six months after the date of grant
or (ii) a disposition of the shares of Common Stock, unless the Insider makes an
election under Section 83(b) of the Code (an "83(b) Election") within 30 days
after exercise to recognize ordinary income based on the value of the Common
Stock on the date of exercise. In addition, special rules apply to an Insider
who exercises an option having an exercise price greater than the fair market
value of the underlying shares on the date of exercise.
Restricted Stock. Awards under the 1993 Plan may also include stock sales,
stock bonuses or other grants of stock. Unless the recipient makes an 83(b)
Election as discussed above within 30 days after the receipt of the restricted
shares, the recipient generally will not be taxed on the receipt of restricted
shares until the restrictions on such shares expire or are removed. When the
restrictions expire or are removed, the recipient will recognize ordinary income
(and the Company will be entitled to a deduction) in an amount equal to the
excess of the fair market value of the shares at that time over the purchase
price. However, if the recipient makes an 83(b) Election within 30 days of the
receipt of restricted shares, he or she will recognize ordinary income (and the
Company will be entitled to a deduction) equal to the excess of the fair market
value of the shares on the date of receipt over the purchase price. In the case
of an Insider (as defined above), the timing of income recognition (including
the date used to compute the fair market of shares) with respect to restricted
shares may be deferred until the 16(b) Date, as described above in "Special
Rules for Awards Granted to Insiders including Non-Employee Directors" above,
unless the Insider makes a valid 83(b) Election.
Miscellaneous Tax Issues. Awards may be granted under the 1993 Plan which
do not fall clearly into the categories described above. The federal income tax
treatment of these awards will depend upon the specific terms of such awards.
Generally, the Company will be required to make arrangements for withholding
applicable taxes with respect to any ordinary income recognized by a participant
in connection with awards made under the 1993 Plan.
With certain exceptions, an individual may not deduct investment-related
interest to the extent such interest exceeds the individual's net investment
income for the year. Investment interest generally includes interest paid on
indebtedness incurred to purchase shares of Common Stock. Interest disallowed
under this rule may be carried forward to and deducted in later years, subject
to the same limitations.
Special rules will apply in cases where a recipient of an award pays the
exercise or purchase price of the award or applicable withholding tax
obligations under the 1993 Plan by delivering previously owned shares of Common
Stock or by reducing the amount of shares otherwise issuable pursuant to the
award. The surrender or withholding of such shares will in certain circumstances
result in the recognition of income with respect to such shares.
The terms of the agreements pursuant to which specific awards are made to
employees under the 1993 Plan may provide for accelerated vesting or payment of
an award in connection with a change in ownership or control of the Company. In
that event and depending upon the individual circumstances of the recipient,
certain amounts with respect to such awards may constitute "excess parachute
payments" under the "golden parachute" provisions of the Code. Pursuant to these
provisions, a recipient will be subject to a 20% excise tax on any "excess
parachute payments" and the Company will be denied any deduction with respect to
such payment. Recipients of awards should consult their tax advisors as to
whether accelerated vesting of an award in connection with a change of ownership
or control of the Company would give rise to an excess parachute payment.
II-17
<PAGE> 99
BOARD RECOMMENDATION
The Board of Directors believes that it is in the best interests of the
Company and its shareholders to adopt the 1993 Plan in order to attract, retain
and motivate qualified employees. A majority of the votes cast at the Annual
Meeting is necessary for the approval of this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE APPROVAL OF THE 1993 EMPLOYEE STOCK INCENTIVE PLAN.
COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION FOR THE FISCAL YEAR ENDED JANUARY 25, 1993
The Compensation and Stock Option Committee of the Board of Directors (the
"Committee"), comprised of four non-employee directors, is responsible for
administering the Company's executive compensation policies, administering the
Company's various management incentive programs, and making recommendations to
the Board of Directors with respect to these policies and programs. In addition,
the Committee makes annual recommendations to the Board of Directors concerning
the compensation paid to the Chief Executive Officer and to each of the other
executive officers of the Company (each, an "Executive Officer"), including the
named Executive Officers in the Summary Compensation Table. Set forth below is a
report submitted by the Committee addressing the Company's compensation policies
for fiscal 1993 as they affected Donald E. Doyle, the President and Chief
Executive Officer of the Company at year end, and the other Executive Officers.
COMPENSATION POLICIES TOWARDS EXECUTIVE OFFICERS
The Committee believes that the most effective executive compensation
program is one that provides incentives to achieve both current and long-term
strategic management goals of the Company, with the ultimate objective of
enhancing shareholder value. In this regard, the Committee believes executive
compensation should be comprised of cash as well as equity-based programs. Base
salaries are generally set at market levels in order to attract and retain
qualified and experienced executives. With respect to equity-based compensation,
the Committee believes that an integral part of the Company's compensation
program is the ownership and retention of the Company's Common Stock by its
Executive Officers. By providing Executive Officers with a meaningful stake in
the Company, the value of which is dependent on the Company's long-term success,
a commonality of interests between the Company's Executive Officers and its
shareholders is fostered.
RELATIONSHIP OF PERFORMANCE TO COMPENSATION
Compensation that may be earned by the Executive Officers in any fiscal
year consists primarily of base salary, cash bonus and stock options.
Base Salaries. Base salaries are set forth in the Executive Officers'
employment agreements and are subject to increase annually at the discretion of
the Committee. After reviewing the major events and changes that occurred in
fiscal 1993, the Committee approved modest increases to base salaries to remain
competitive with market base salaries.
Annual Cash Bonuses. Cash bonuses were determined in fiscal 1993 based
upon the Company's 1993 incentive compensation plan, which provided for the
award of cash bonuses based upon the achievement of certain targeted levels of
pre-tax income. The amount of awards for individual Executive Officers under
this plan was based on the amount of pre-tax income and the level assigned to
that particular executive officer under the plan. Based upon the Company's
financial performance in fiscal 1993, no cash bonuses were awarded.
Stock Options. The Committee has established general guidelines in
determining whether to award grants of stock options to the Executive Officers.
These guidelines provide that each Executive Officer will generally receive on
an annual basis the grant of an option relating to the number of shares equal to
an
II-18
<PAGE> 100
assigned multiplier of that Executive Officer's base salary (determined based on
such Executive Officer's responsibilities with the Company), multiplied by the
midpoint of that Executive Officer's base salary and divided by the fair market
value of one share of the Company's Common Stock on the date of grant. In light
of the Company's financial performance in fiscal 1993, the amounts of the awards
of stock options that would normally be granted under these guidelines to
Messrs. Pannier, Murphy, Celio and Shively were reduced by approximately 50%. As
a result, the Committee only granted options to those four Executive Officers in
fiscal 1993 for an aggregate of 34,200 shares of the Company's Common Stock that
are exercisable at $7.75 per share, the fair market value of the Company's
Common Stock on the date of grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
Donald E. Doyle became the Company's Chief Executive Officer and President
on December 22, 1992. Mr. Doyle's base salary was set at $300,000, an amount the
Company believes to approximate market levels. As an incentive for Mr. Doyle to
accept the Company's employment offer, the Company also agreed to grant Mr.
Doyle an option to purchase 100,000 shares of the Company's Common Stock upon
the adoption of a new stock option plan. The new stock option plan was adopted
by the Board of Directors on April 20, 1993, and Mr. Doyle was granted the
option on that date. The option is exercisable at $8.00 per share. As a further
incentive to accept the Company's employment offer, Mr. Doyle was awarded
restricted stock with a market value on the date of award of $100,000. This
award vests in one-third installments annually commencing on the first
anniversary of the date of issuance.
Peter Churm (Chairman)
Daniel W. Holden
Kenneth Olsen
Elizabeth A. Sanders
The report of the Compensation and Stock Option Committee of the Board of
Directors shall not be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933 or under the Securities Exchange Act of 1934, except to
the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such acts.
II-19
<PAGE> 101
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
COMPARISON OF FIVE-YEAR TOTAL RETURN(1) FOR CARL KARCHER ENTERPRISES, INC.,
THE RESTAURANT INDEX(2) AND THE RUSSELL 2000 INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD RESTAURANT
(FISCAL YEAR COVERED) CARL KARCHER RUSSELL 2000 PEERS
<S> <C> <C> <C>
1988 100 100 100
1989 169 126.06 115.47
1990 139 130.10 121.53
1991 91 118.45 127.58
1992 117 179.23 207.39
1993 121.61 204.02 232.87
</TABLE>
(1) Assumes $100 invested on January 25, 1988 in Carl Karcher Enterprises, Inc.
Common Stock, the Restaurant Index and the Russell 2000 Index. Total return
assumes dividend reinvestment.
(2) The Restaurant Index has been computed by the Company and is comprised of
the following 12 companies: Bob Evans Farms, Inc.; Foodmaker, Inc.; Ground
Round Restaurants, Inc.; Horn & Hardt Co.; IHOP Corporation; Luby's
Cafeterias, Inc.; Morrison Inc.; Piccadilly Cafeterias, Inc.; Ryan's Family
Steak Houses, Inc.; Sizzler International, Inc.; Shoney's Inc.; and VICORP
Restaurants, Inc. This Index has been weighted by the market capitalization
of each component company. Component companies in the Restaurant Index are
publicly traded on either the New York Stock Exchange, the American Stock
Exchange or over the counter through the NASDAQ quotation system.
The foregoing stock performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts.
INDEPENDENT AUDITORS
Selection of the independent auditors for the Company is made by the Board
of Directors upon consultation with the Audit Committee. The Company's
independent auditors for the fiscal year ended January 25, 1993 were KPMG Peat
Marwick. The Board of Directors will vote upon the selection of auditors for the
current fiscal year at a future Board meeting.
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<PAGE> 102
Representatives of KPMG Peat Marwick are expected to attend the Annual
Meeting and be available to respond to appropriate questions. The
representatives of KPMG Peat Marwick also will have an opportunity to make a
formal statement, if they so desire.
FINANCIAL STATEMENTS
The Company's 1993 Annual Report, including financial statements for fiscal
1993, accompanies this proxy statement. SHAREHOLDERS MAY OBTAIN A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FREE OF CHARGE BY WRITING TO THE SENIOR VICE PRESIDENT, CHIEF
FINANCIAL OFFICER, P.O. BOX 4349, ANAHEIM, CALIFORNIA 92803.
SHAREHOLDERS' PROPOSALS FOR 1994 ANNUAL MEETING
Pursuant to the rules of the Securities and Exchange Commission, proposals
by eligible shareholders (as defined below) which are intended to be presented
at the Company's Annual Meeting of Shareholders in 1994 must be received by the
Company by January 16, 1994 in order to be considered for inclusion in the
Company's proxy materials. The Board of Directors of the Company will determine
whether any such proposal will be included in its 1994 proxy solicitation
materials. An eligible shareholder is one who is the record or beneficial owner
of at least 1% or $1,000 in market value of securities entitled to be voted at
the Annual Meeting and who shall continue to own such securities through the
date on which the meeting is held.
OTHER BUSINESS
The Company knows of no business that will be brought before the Annual
Meeting other than the election of directors and the proposal to approve the
Carl Karcher Enterprises, Inc. 1993 Employee Stock Incentive Plan. If other
matters should come before the meeting or any postponements or adjournments
thereof, it is the intention of each person named in the proxy to vote such
proxy in accordance with his judgment on such matters.
By Order of the Board of Directors,
Daniel W. Holden
Secretary
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<PAGE> 103
APPENDIX III
PORTIONS OF ENTERPRISES'
ANNUAL REPORT TO SHAREHOLDERS
INCORPORATED BY REFERENCE
INTO
ENTERPRISES'
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JANUARY 25, 1993
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<PAGE> 104
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY
----------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
System-wide sales:
Company-operated restaurants*............. $414,510 $466,198 $469,449 $468,329 $410,323
Franchised restaurants.................... 184,658 138,664 105,297 81,208 70,448
Internationally licensed restaurants...... 17,451 9,535 4,082 903 --
-------- -------- -------- -------- --------
Total system-wide sales........... $616,619 $614,397 $578,828 $550,440 $480,771
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Revenues*................................... $502,632 $540,370 $527,580 $515,239 $441,721
Income (loss) before cumulative effect of
change in accounting principle............ (3,057) 13,038 13,036 5,551 20,767
Net income (loss)........................... (5,507) 13,038 13,036 5,551 20,767
Income (loss) per share before cumulative
effect of change in accounting
principle................................. (.17) .72 .72 .30 .95
Net income (loss) per share................. (.31) .72 .72 .30 .95
Cash dividends paid per common share........ .08 .08 .08 .08 .06
Total assets*............................... 268,924 294,375 305,965 309,223 270,024
Long-term debt, including capital lease
obligations............................... 80,254 102,074 117,137 124,637 109,395
Shareholders' equity........................ $ 84,732 $ 89,679 $ 78,818 $ 66,632 $ 61,342
Number of restaurants at year-end:
Company-operated.......................... 379 414 424 454 406
Franchised................................ 244 196 149 86 76
Internationally licensed.................. 19 12 5 1 --
-------- -------- -------- -------- --------
Total system-wide restaurants..... 642 622 578 541 482
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
*Prior year amounts have been reclassified to conform with the fiscal 1993
presentation.
III-2
<PAGE> 105
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Several major events and changes occurred during the most recent fiscal
year which significantly affected the financial condition of the Company and its
fiscal 1993 results of operations. The year ended with virtually every aspect of
the Company's operations having been scrutinized. Management believes that the
actions described below are the first critical steps toward improving Company
performance.
Elimination of Sales to Outside Parties and Manufacturing Operations -- In
April 1992, the Company announced its intent to phase out all non-meat sales to
outside parties due to lower than desired gross margins. In July 1992, it was
determined that overall food costs could be lowered by purchasing food products
from third party suppliers without sacrificing the Company's historically high
quality standards. Therefore, the Company decided to cease its manufacturing
operations. Sales of all other products to outside parties were also eliminated
at this time. The Company plans to continue to distribute food, paper and other
supplies to its franchisees in the foreseeable future.
These decisions were implemented by the end of fiscal 1993, helping to
refocus resources on the Company's core restaurant business. A $2.1 million
pre-tax charge to operations was required, $120,000 of which occurred in the
fourth quarter, to provide for losses on the disposition of equipment and all
related severance costs.
Franchise Expansion Program -- During the first half of fiscal 1993, the
Company sold 33 of its greater San Francisco Bay Area restaurants to
franchisees, substantially completing the conversion of this region initiated
during fiscal 1991. This program was undertaken to stimulate development in
under-penetrated markets and increase the proportion of franchised restaurants
to approximately 40% of system-wide restaurants. It has resulted in a total of
68 such sales since its inception.
Proceeds from the sales of Company-operated restaurants generally include a
15% to 25% cash down payment and an interest-bearing promissory note secured by
the property and equipment sold.
Overall, the number of all Carl's Jr. restaurants in operation has grown
over the past three years as follows:
<TABLE>
<CAPTION>
COMPANY FRANCHISE INTERNATIONAL TOTAL
------- --------- ------------- -----
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 29, 1990......................... 454 86 1 541
New restaurant openings........................... 29 17 4 50
Restaurants sold to franchisees................... (46) 46 -- --
Closures.......................................... (13) -- -- (13)
--
------- --- -----
BALANCE AT JANUARY 28, 1991......................... 424 149 5 578
New restaurant openings........................... 19 18 7 44
Restaurants sold to franchisees................... (32) 32 -- --
Franchised restaurants returning to Company
ownership...................................... 3 (3) -- --
--
------- --- -----
BALANCE AT JANUARY 27, 1992......................... 414 196 12 622
New restaurant openings........................... 7 14 12 33
Restaurants sold to franchisees................... (34) 34 -- --
Closures.......................................... (8) -- (5) (13)
--
------- --- -----
BALANCE AT JANUARY 25, 1993......................... 379 244 19 642
--
--
------- --- -----
------- --- -----
</TABLE>
III-3
<PAGE> 106
As of January 25, 1993, franchised restaurants represented 38% of the
chain. This percentage is not expected to change materially in the near term as
no significant sales to franchisees are contemplated and only modest expansion
of Company-operated and franchised restaurants is planned.
Leveraged Buyout Attempt -- On November 17, 1992, the Company announced
that it had received an offer from an entity organized by Freeman Spogli & Co.
and the Carl N. and Margaret M. Karcher Trust to acquire by merger all of the
Company's outstanding common stock for $9.50 per share in cash. A special
committee of non-management directors of the Company reviewed the offer, and
rejected it on December 22, 1992.
New CEO and Corporate Focus -- A new president and chief executive officer
was appointed on December 22, 1992. Under his leadership, implementation of a
corporate restructuring and turnaround plan has begun. This restructuring is
intended to enhance organizational effectiveness and improve the Company's
financial performance. Components of this program include:
- Reorganization of the marketing function, including the research and
development group, with selective staff additions to improve marketing
effectiveness and the product development process;
- Creation of a new information and technology function aimed at improving
the productivity of restaurant managers, overall information system
capabilities and corporate strategic planning efforts;
- Development of a more decentralized field structure with an increase in
decision-making authority at the district manager level;
- Aggressive cost reduction and control in the restaurant repair and
maintenance area;
- Identification of certain underperforming franchised and Company-operated
restaurants in Arizona and California, respectively;
- Paring down of the existing real estate development function to more
closely match resources with expansion plans, with less emphasis on
sale/leaseback financing expected in the future;
- Liquidation of current and long-term investment portfolios to provide
more direct investments in restaurant operations; and
- Redirection of international efforts to more fully develop the Carl's Jr.
presence in Mexico.
Overall, these decisions required a $9.1 million pre-tax charge to fourth
quarter earnings. Components of this charge included $4.9 million in estimated
lease subsidies related to certain underperforming franchised restaurants in
Arizona, $2.3 million of estimated losses on future equipment disposals
attributable to several underperforming Company-operated restaurants which will
be closed and $1.9 million to cover outplacement and severance costs, including
severance costs arising from the extension and remeasurement of certain stock
options granted to former key management personnel, as a result of the reduction
in the corporate work force.
The estimate of lease subsidies in Arizona, which are contingent on
franchisee sales, increased due to the continued softness of the Arizona economy
and a reassessment by management of the future operating plans for this state.
Future collections of royalties, principal and interest payments and lease
payments on properties owned by the Company, none of which may be recognized
until earned, should more than offset these lease subsidies.
Workers' Compensation -- Workers' compensation costs have significantly
increased over the last several years, especially in California, where all
Company-operated restaurants are located. The Company commissioned an actuarial
study to estimate its exposure to the ultimate losses current claims might
produce. The results of this study were finalized during the fourth quarter of
fiscal 1993 and indicated that the Company's existing claims were likely to
develop above current reserve levels. Accordingly, the Company increased its
workers' compensation reserve by $5.1 million in the fourth quarter of fiscal
1993.
Change in Accounting Principle -- The Company elected to adopt Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes," effective as of the beginning of fiscal 1993. Under this method income
tax assets and liabilities are recognized using enacted tax rates for the
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<PAGE> 107
expected future tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. This change required a $2.4 million charge to
operations in fiscal 1993.
FINANCIAL CONDITION
The Company's current ratio was .99 and .91 as of January 25, 1993 and
January 27, 1992, respectively, reflecting the cash-intense nature of the
quick-service restaurant industry.
At January 25, 1993, total cash and cash invested in marketable securities
was $44.4 million. Net of obligations secured by investments, these assets
amounted to $42 million.
By the middle of April 1993, as part of its restructuring program, the
Company had reduced its investment portfolio balance to $12 million. Proceeds
from the sale of securities were largely used to reduce overall bank debt.
Because the Company no longer intends to hold securities on a long-term basis,
all investment securities were classified as a current asset at January 25,
1993.
Prior to this year-end decision to liquidate its investment portfolio, the
Company's long-term investments, comprised of preferred stocks, debt and other
securities, were valued individually at cost and written down when a decline in
market value was deemed other than temporary. Sales of long-term investments
occurred primarily in connection with redemptions and tender offers made by the
issuers of the securities or when the Company's long-term price objectives had
been achieved. Long-term investments were transferred to current marketable
securities when the Company received notice of a pending tender offer or
redemption.
The Company had an $11.7 million stand-by letter of credit related to its
self-insured workers' compensation program, which expired on May 1, 1993. The
State of California requires that the Company provide this letter of credit each
year based on its existing claims experience, or set aside a comparable amount
of cash or investment securities in a trust account. Due to an increase in the
Company's claims experience, the total amount of security required by the state
increased to $14.7 million for the coming year. Replacement letters of credit
totaling $8 million were obtained in April 1993. The Company was therefore
required to set aside $6.7 million of its investment securities to comply with
these regulations.
Notes receivable, due primarily from franchisees, increased $8 million in
fiscal 1993 as a result of the sales of Company-operated restaurants to
franchisees. This increase was offset by $3.6 million of note payments received
during the year. These notes are a continuing source of interest income.
Included in current liabilities at January 25, 1993 are borrowings totaling
$18.1 million drawn against the Company's revolving credit line. In November
1992, the maturity date of these borrowings was extended to June 1994.
Concurrent with the execution of this agreement, certain notes payable totaling
$8.6 million were paid in full during the fourth quarter.
Subsequent to year end, proceeds from the liquidation of investment
securities were used to pay down borrowings under this credit line completely.
On April 28, 1993, this credit line was renegotiated. A total of $15 million
will be available under this line through March 1994, $4 million of which will
be committed to a stand-by letter of credit to secure the Company's workers'
compensation claims.
Principal payments on long-term debt totaled $19.9 million in fiscal 1993,
and another $10.4 million is scheduled for payment in fiscal 1994.
Subsequent to year end, the Chairman, Carl N. Karcher, requested that the
Board of Directors consider the purchase of certain shares of common stock owned
by him. After appropriate consideration and analysis, the Board of Directors
authorized the repurchase of up to $10 million of the Company's common stock
from the Carl N. and Margaret M. Karcher Trust, on terms and conditions to be
negotiated, including, per share price and transfer restrictions, rights of
first refusal and registration rights with respect to additional shares held by
the Trust. The transaction is viewed by the Company as a sound and attractive
investment opportunity at the prices the Company's securities have recently
traded. At the same time, completion of the transaction
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<PAGE> 108
will permit the Chairman to fulfill certain outstanding financial obligations
without the potential of disruption to the trading market for the Company's
securities.
LIQUIDITY AND CAPITAL RESOURCES
The need for capital arises, principally, for the construction and
remodeling of restaurants, for the payment of lease obligations and the
repayment of debt. During fiscal 1993, the Company's working capital
requirements and other capital expenditures were financed through a combination
of internally generated funds and external borrowings.
Cash flow from operating activities consists mainly of net income (loss)
adjusted for certain noncash revenues and expenses, including primarily
depreciation, amortization, restructuring charges and deferred taxes, and
changes in certain current asset and liability accounts. Net cash provided by
operating activities decreased $9 million to $24.2 million in fiscal 1993 and
decreased $6.7 million to $33.2 million in fiscal 1992 primarily due to lower
operating earnings in both years.
Cash flow from investing activities is primarily provided by the Company's
sale/leaseback program, investments of idle cash in securities, sales of
property and equipment and collections of notes and leases receivable. Purchases
of property and equipment were much lower in fiscal 1993 as compared with fiscal
1992 because only seven new Company-operated restaurants opened in fiscal 1993,
compared with 19 such openings in the prior fiscal year. Fewer store openings
also resulted in a slowdown in the development of new sale/leaseback properties
in fiscal 1993 while existing inventories of these properties were largely sold
during the current year. Thus, as capital requirements lessened and the
sale/leaseback program generated net cash, total cash invested in marketable
securities in fiscal 1993 remained at a fairly consistent level compared with
the prior year. Together, all of these investing activities provided net cash of
$3.8 million in the current year.
In connection with the opening of new restaurants, the Company incurs an
insignificant amount of pre-opening costs, which are deferred and amortized over
the first year of operation.
During fiscal 1992, investments in sale/leaseback properties, which
exceeded the proceeds generated by this program, and purchases of property and
equipment in that year required a net reduction in total cash invested in
securities. Thus, investing activities used $6.7 million in fiscal 1992. This
amount was less than fiscal 1991 due to fewer store openings in fiscal 1992 as
compared with fiscal 1991.
Net cash used in financing activities amounted to $27.5 million and $18.6
million in fiscal 1993 and fiscal 1992, respectively, primarily due to the
repayment of long-term debt, particularly in the current year. Funds in both
years were also used for the payment of dividends, the repayment of obligations
due brokers and capital lease obligations.
Overall, the liquidity of the Company is primarily contingent on the
Company's future operating results. Fiscal 1993 produced some fundamental
changes in the Company's overall structure and in its ability to compete more
effectively in the quick-service restaurant industry in the future. New
restaurant openings in the near term have been slowed while the Company
concentrates on improving operations. However, increased profitability due to
the newly restructured organization and other efforts to reduce costs and
enhance productivity may not be realized in the short term. Additionally, the
recessionary business climate appears to be lingering, particularly in the
Company's core California market. The Company believes, nonetheless, that cash
generated from operations will continue to be the primary funding source for its
short-and long-term needs. External sources may also be used as appropriate.
IMPACT OF INFLATION
Management recognizes that inflation has an impact on food, construction,
labor and benefit costs, all of which can significantly affect Company
operations. High interest rates can negatively affect lease payments for new
restaurants as well. Historically, the Company has been able to offset the
effects of inflation through periodic price increases. However, given the
recessionary environment and the competitive pressures within the quick-service
restaurant industry, management has emphasized cost controls rather than price
increases during the most recent mildly inflationary fiscal year.
III-6
<PAGE> 109
RESULTS OF OPERATIONS
REVENUES
The mix of total revenues has steadily changed during the last three fiscal
years in connection with the Company's franchising program as shown below:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Sales by Company-operated restaurants............... 82.5% 86.3% 89.0%
Revenues from franchised and licensed restaurants... 15.0 11.1 8.9
Revenues from outside parties....................... 2.5 2.6 2.1
----- ----- -----
Total revenues............................ 100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
</TABLE>
Sales by Company-operated restaurants decreased approximately 11% in fiscal
1993. This decrease was due to an 8% decrease in the weighted average number of
restaurants operating during the year, as well as lower average sales per
restaurant due to California's continuing recessionary environment and price
reductions by the Company's principal competitors.
Fewer stores operated in fiscal 1992 as compared with fiscal 1991; however,
sales from new restaurants and price increases replaced sales lost due to
franchising or other dispositions and offset negative real growth in that year.
More than 75% of revenues from franchised and licensed restaurants are
generated from the sales of food and supplies to franchisees and licensees. The
Company also earns initial fees, royalties and, in many cases, collects rents
and other occupancy-related amounts from franchisees. These revenues increased
in both fiscal 1993 and fiscal 1992 largely due to increases in the number of
franchisees and licensees in both years.
Other revenues from outside parties decreased in fiscal 1993 as these types
of sales were phased-out during the year as discussed in the Overview section
above. No such revenues are expected in the future.
OPERATING COSTS AND EXPENSES
Company-operated restaurant costs decreased approximately 9% in fiscal
1993. Overall reductions in food and packaging costs were achieved as part of
the Company's outsourcing efforts in the final months of fiscal 1993. The direct
labor component of payroll and other employee benefits was reduced commensurate
with the decrease in the average number of restaurants operating in the current
year. Offsetting this were increases in workers' compensation costs,
particularly in the fourth quarter, as discussed in the Overview section above.
With fewer restaurants in operation, occupancy and other costs decreased, more
than offsetting selected rent and other increases. However, on a lower sales
base, these generally fixed costs increased as a percentage of sales. Margins
were also negatively impacted in the fourth quarter by heavy rains in January
1993.
Company-operated restaurant costs rose approximately 2% in fiscal 1992.
Food and packaging costs were slightly lower, the direct labor component of
payroll and other employee benefits was slightly higher, workers' compensation
costs were much higher and occupancy and other costs increased somewhat despite
essentially flat sales in fiscal 1992.
Franchised and licensed restaurant costs rose in both years primarily in
connection with the sales of food and other products. Prices charged to
franchisees were lowered in the current year, following a small reduction in
fiscal 1992 in order to remain competitive in this area of the Company's
operations. In addition, occupancy costs associated with the leasing or
subleasing of a number of restaurants to franchisees, particularly in the
current year, were higher.
Lower than desired margins associated with the sales of products to outside
parties will be eliminated in the future with the termination of such sales
during fiscal 1993.
Marketing and promotional activities are generally based on a fixed
percentage of sales. They have, however, become extremely important in the
current competitive environment. Therefore, while Company-
III-7
<PAGE> 110
operated restaurant sales decreased approximately 11%, the Company reduced its
advertising costs by only approximately 4% in fiscal 1993. Similarly,
advertising costs rose slightly in fiscal 1992 although restaurant sales were
slightly lower in that year.
Enhancing restaurant-level technology and supporting the Company's
franchising and international licensing programs resulted in increases to
general and administrative expenses in both years.
As discussed in the Overview section above, the Company eliminated its
manufacturing operations and implemented a corporate restructuring program
during fiscal 1993. Total restructuring charges of $11.1 million were recognized
in fiscal 1993. After taxes, these charges amounted to $6.7 million, or $.38 per
share for the year, and $5.5 million, or $.30 per share, for the fourth quarter.
Lower average debt levels throughout both years and declining interest
rates resulted in decreased interest expense in both fiscal 1993 and fiscal
1992.
Nonoperating income is comprised largely of gains on sales of restaurants,
investment income and interest on notes and leases receivable. Increased
franchising activities and a strong performance in the investment portfolio in
fiscal 1993 and fiscal 1992 resulted in increased interest on notes receivable
and higher investment income in both years. Fewer gains on sales of restaurants
in fiscal 1993 as compared with the prior year offset these increases in the
current year.
Overall, investment income increased $1.5 million and $4.3 million in
fiscal 1993 and fiscal 1992, respectively. The Company took advantage of a
robust stock market, particularly in the prior year, with emphasis on the fixed
income securities market. The Company also disposed of certain of its long-term
investments upon redemption or tender offer by the issuer or where the security
met the Company's long-term price objective during both years.
In fiscal 1993, a loss before income taxes, due primarily to the
restructuring charges and disappointing third and fourth quarter operating
results, and the cumulative effect of a change in accounting principle, produced
an income tax benefit, whereas earnings generated in the prior year resulted in
tax expense for that year. Income before income taxes for fiscal 1992 was
virtually unchanged from fiscal 1991, and thus income tax expense for those
years is comparable.
As previously discussed, the Company adopted SFAS 109 in fiscal 1993. The
cumulative effect of this change in accounting principle resulted in a $2.4
million charge to operations in the current year. The impact of this adoption is
described further in Note 15 to the financial statements.
III-8
<PAGE> 111
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1993 1992
----------- -----------
(DOLLARS IN THOUSANDS)
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 11,505 $ 10,924
Marketable securities............................................... 32,930 25,764
Accounts receivable................................................. 13,934 11,866
Current portion of related party notes receivable................... 476 392
Inventories......................................................... 6,383 7,241
Restaurant property costs to be reimbursed or sold and leased
back............................................................. 7,427 14,944
Other current assets................................................ 17,907 14,460
----------- -----------
Total current assets........................................ 90,562 85,591
Property and equipment, net........................................... 115,064 138,338
Property under capital leases, net.................................... 35,558 36,678
Long-term investments................................................. -- 10,503
Notes receivable...................................................... 18,407 13,930
Related party notes receivable........................................ 4,650 4,988
Other assets.......................................................... 4,683 4,347
----------- -----------
$ 268,924 $ 294,375
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................... $ 28,467 $ 29,759
Obligations secured by marketable securities and long-term
investments...................................................... 2,422 8,619
Current portion of capital lease obligations........................ 3,158 2,959
Accounts payable.................................................... 14,531 16,280
Other current liabilities........................................... 42,859 36,458
----------- -----------
Total current liabilities................................... 91,437 94,075
----------- -----------
Long-term debt........................................................ 31,742 50,485
Capital lease obligations............................................. 48,512 51,589
Other long-term liabilities........................................... 12,501 8,547
Shareholders' equity:
Preferred stock, no par value; authorized 2,000,000 shares; none
issued or outstanding............................................ -- --
Common stock, no par value; authorized 22,500,000 shares; issued and
outstanding 18,090,742 shares and 17,918,314 shares.............. 28,793 26,788
Retained earnings................................................... 55,939 62,891
----------- -----------
Total shareholders' equity.................................. 84,732 89,679
----------- -----------
$ 268,924 $ 294,375
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
III-9
<PAGE> 112
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY
----------------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
----------------------------------
<S> <C> <C> <C>
Revenues:
Sales by Company-operated restaurants.................... $414,510 $466,198 $469,449
Revenues from franchised and licensed restaurants........ 75,262 60,025 47,152
Revenues from other outside parties...................... 12,860 14,147 10,979
-------- -------- --------
Total revenues................................... 502,632 540,370 527,580
-------- -------- --------
Operating costs and expenses:
Company-operated restaurants:
Food and packaging.................................... 127,148 150,351 152,845
Payroll and other employee benefits................... 141,870 146,759 140,809
Occupancy and other operating expenses................ 93,651 100,949 96,400
-------- -------- --------
362,669 398,059 390,054
Franchised and licensed restaurants........................ 65,340 50,691 38,609
Other outside parties...................................... 12,690 13,669 10,621
Advertising expenses....................................... 19,200 19,963 19,633
General and administrative expenses........................ 38,875 37,975 36,640
Restructuring charges...................................... 11,124 -- --
-------- -------- --------
Total operating costs and expenses............... 509,898 520,357 495,557
-------- -------- --------
Operating income (loss).................................... (7,266) 20,013 32,023
Interest expense........................................... 13,630 16,703 18,525
Nonoperating income, net................................... (13,592) (15,541) (5,267)
-------- -------- --------
Income (loss) before income taxes and cumulative effect of
change in accounting principle........................... (7,304) 18,851 18,765
Income tax expense (benefit)............................... (4,247) 5,813 5,729
-------- -------- --------
Income (loss) before cumulative effect of change in
accounting principle..................................... (3,057) 13,038 13,036
Cumulative effect of change in accounting principle........ 2,450 -- --
-------- -------- --------
Net income (loss).......................................... $ (5,507) $ 13,038 $ 13,036
-------- -------- --------
-------- -------- --------
Net income (loss) per common share:
Income (loss) before cumulative effect of change in
accounting principle.................................. $ (.17) $ .72 $ .72
Cumulative effect of change in accounting principle...... (.14) -- --
-------- -------- --------
Net income (loss)................................ $ (.31) $ .72 $ .72
-------- -------- --------
-------- -------- --------
Weighted average shares outstanding........................ 18,034 18,208 18,167
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to financial statements.
III-10
<PAGE> 113
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- TOTAL
NUMBER OF RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------- ------- -------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 29, 1990..................... 17,917 $26,948 $ 39,684 $66,632
Cash dividends ($.08 per share)............... -- -- (1,434) (1,434)
Exercise of stock options..................... 100 563 -- 563
Tax benefit associated with exercise of stock
options.................................... -- 21 -- 21
Net income.................................... -- -- 13,036 13,036
--------- ------- -------- -------------
BALANCE AT JANUARY 28, 1991..................... 18,017 27,532 51,286 78,818
Cash dividends ($.08 per share)............... -- -- (1,433) (1,433)
Exercise of stock options..................... 171 1,104 -- 1,104
Tax benefit associated with exercise of
stock options.............................. -- 170 -- 170
Repurchase and retirement of shares........... (270) (2,018) -- (2,018)
Net income.................................... -- -- 13,038 13,038
--------- ------- -------- -------------
BALANCE AT JANUARY 27, 1992..................... 17,918 26,788 62,891 89,679
Cash dividends ($.08 per share)............... -- -- (1,445) (1,445)
Exercise of stock options..................... 173 1,008 -- 1,008
Tax benefit associated with exercise of stock
options.................................... -- 154 -- 154
Remeasurement of stock options................ -- 843 -- 843
Net income.................................... -- -- (5,507) (5,507)
--------- ------- -------- -------------
BALANCE AT JANUARY 25, 1993..................... 18,091 $28,793 $ 55,939 $84,732
--------- ------- -------- -------------
--------- ------- -------- -------------
</TABLE>
See accompanying notes to financial statements.
III-11
<PAGE> 114
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY
-------------------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash flow from operating activities:
Net income (loss)............................................... $ (5,507) $ 13,038 $ 13,036
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Noncash franchise revenues.................................... (488) (605) (510)
Depreciation and amortization................................. 25,161 26,573 25,272
Restructuring charges......................................... 11,124 -- --
(Gain) loss on sale of property and equipment and capital
leases...................................................... (451) (4,059) 786
Write-down of long-term investments........................... 452 681 668
Net noncash investment income................................. (328) (1,151) (807)
Deferred income taxes......................................... (8,226) (2,149) 188
Cumulative effect of change in accounting principle........... 2,450 -- --
Net change in marketable securities reserve................... 651 (31) (2,517)
Net change in receivables, inventories and other current
assets...................................................... 1,498 1,386 (23)
Net change in other assets.................................... 160 201 170
Net change in accounts payable and other current
liabilities................................................. (2,285) (716) 3,669
--------- --------- ---------
Net cash provided by operating activities................ 24,211 33,168 39,932
--------- --------- ---------
Cash flows from investing activities:
Construction of restaurant property to be reimbursed or sold and
leased back................................................... (9,422) (12,795) (23,155)
Sale of or reimbursement on restaurant property to be sold and
leased back................................................... 14,086 11,128 19,618
Purchases of:
Marketable securities......................................... (42,426) (36,772) (44,888)
Property and equipment........................................ (9,329) (24,287) (29,953)
Long-term investments......................................... (3,054) (4,441) (3,161)
Proceeds from sales of:
Marketable securities......................................... 46,831 44,023 49,416
Property and equipment........................................ 2,121 1,983 4,450
Long-term investments......................................... 1,352 8,863 5,445
Collections on leases receivable................................ 102 269 120
Increase in notes receivable and related party notes
receivable.................................................... -- -- (4,832)
Collections on notes receivable and related party notes
receivable.................................................... 3,562 5,377 4,013
--------- --------- ---------
Net cash provided by (used in) investing activities...... 3,823 (6,652) (22,927)
--------- --------- ---------
Cash flows from financing activities:
Net change in bank overdraft.................................... 2,109 (2,018) 1,005
Net change in obligations secured by marketable securities and
long-term investments......................................... (6,197) (1,305) (5,322)
Short-term borrowings........................................... 123,017 110,000 165,100
Repayments of short-term debt................................... (123,917) (109,200) (162,900)
Long-term borrowings............................................ 755 220 --
Repayments of long-term debt.................................... (19,890) (9,627) (8,893)
Repayments of capital lease obligations......................... (2,365) (2,212) (2,010)
Net change in other long-term liabilities....................... (682) (2,325) (3,951)
Repurchase and retirement of common stock....................... -- (2,018) --
Payment of dividends............................................ (1,445) (1,433) (1,434)
Exercise of stock options....................................... 1,008 1,104 563
Tax benefit associated with the exercise of stock options....... 154 170 21
--------- --------- ---------
Net cash used in financing activities.................... (27,453) (18,644) (17,821)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............ $ 581 $ 7,872 $ (816)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
III-12
<PAGE> 115
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
The Company operates Carl's Jr. restaurants, a quick-service chain known
for its charbroiled hamburgers and other healthful menu items. Founded in 1941,
the Company, its franchisees and licensees operate more than 640 restaurants in
California, Nevada, Oregon, Arizona, China, Japan, Malaysia and Mexico. A
summary of certain significant accounting policies not disclosed elsewhere in
the footnotes to the financial statements is set forth below.
FISCAL YEAR -- The Company utilizes a 52 or 53 week accounting period which
ends on the Monday closest to January 31 each year. Fiscal years 1993, 1992 and
1991 all included 52 weeks of operations.
INVENTORIES -- Inventories are stated at the lower of cost (first-in,
first-out) or market.
INCOME TAXES -- The Company elected to adopt Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes,"
effective as of the beginning of fiscal 1993. Under this method, income tax
assets and liabilities are recognized using enacted tax rates for the expected
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. A change in tax rates is recognized in income in the
period that includes the enactment date.
Prior to fiscal 1993, deferred income taxes were recognized for income and
expense items that were reported in different years for financial reporting
purposes and income tax purposes using the deferred method.
EARNINGS (LOSS) PER SHARE -- Earnings (loss) per share is computed based on
the weighted average number of common shares outstanding during the year, after
consideration of the dilutive effect of outstanding stock options. The
outstanding stock options were not included in the per share computations for
fiscal 1993 as the effects would have been antidilutive. For all years
presented, primary earnings per share approximate fully diluted earnings per
share.
CASH EQUIVALENTS -- The Company considers short-term investments which have
an original maturity of three months or less to be cash equivalents for purposes
of reporting cash flows. The carrying amounts reported in the balance sheets for
these investments approximated their fair value.
RECLASSIFICATIONS -- Certain prior year amounts in the accompanying
financial statements have been reclassified to conform to the fiscal 1993
presentation.
NOTE 2 SUBSEQUENT EVENTS
The Company had an $11,726,000 stand-by letter of credit related to its
self-insured workers' compensation program, which expired on May 1, 1993. The
State of California requires that the Company provide this letter of credit each
year based on its existing claims experience, or set aside a comparable amount
of cash or investment securities in a trust account. Due to an increase in the
Company's claims experience, the total amount of security required by the State
increased to $14,692,000 for the coming year. Replacement letters of credit
totaling $8,000,000 were obtained in April 1993. The Company was therefore
required to set aside $6,692,000 of its investment securities to comply with
these regulations.
On April 28, 1993, the Company renegotiated its revolving credit line. A
total of $15,000,000 will be available under this line through March 1994,
$4,000,000 of which will be committed to a stand-by letter of credit to secure
the Company's workers' compensation claims. Interest will be based on the bank's
prime rate, the certificate of deposit rate or the bank's Eurodollar offshore
rate, at the option of the Company. As of April 28, 1993, the Company was in
compliance, or had received waivers for the coming fiscal year from its banks,
with regard to all debt covenants as of January 25, 1993.
III-13
<PAGE> 116
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 SUBSEQUENT EVENTS -- (CONTINUED)
On April 20, 1993, the Board of Directors adopted a new stock option plan
under which stock options may be granted to key employees to purchase up to
1,750,000 shares of its common stock at a price generally equal to the fair
market value as of the date of grant. This plan will be submitted for
shareholder approval at the Company's upcoming annual meeting. Subject to such
shareholder approval, stock options to purchase 210,000 shares were granted on
April 20, 1993.
NOTE 3 MARKETABLE SECURITIES AND LONG-TERM INVESTMENTS
Subsequent to year end, as part of its restructuring program, the Company
began liquidating all of its marketable securities and long-term investments. As
such, as of January 25, 1993, all long-term investments were classified as
current marketable securities.
Marketable securities are stated at the lower of aggregate cost or market
value. Market values are based on quoted market prices where available. For
marketable securities not actively traded, market values are estimated using
values obtained from independent sources. At both January 25, 1993 and January
27, 1992, marketable securities were carried at aggregate cost. The aggregate
market values as of January 25, 1993 and January 27, 1992 were $34,364,000 and
$29,374,000, respectively. Gross unrealized gains and unrealized losses as of
January 25, 1993 were $2,065,000 and $715,000, respectively.
Long-term investments at January 27, 1992 consisted of the following:
<TABLE>
<CAPTION>
1992
--------------
(IN THOUSANDS)
<S> <C>
Preferred stock...................................................... $ 6,014
Debt securities...................................................... 4,489
--------------
Total...................................................... $ 10,503
--------------
--------------
</TABLE>
All of these investments contained mandatory redemption provisions, and
were carried at cost in the absence of any decline in market value deemed other
than temporary. The aggregate market value of long-term investments was
$11,315,000 at January 27, 1992.
Marketable securities consist of holdings in a wide variety of industries,
including the banking, hotel and gaming, aerospace and food industries. These
securities at January 25, 1993 and January 27, 1992 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Adjustable rate preferred stock.................................. $ 3,885 $ 4,819
Fixed rate preferred stock....................................... 13,051 12,444
Debt securities.................................................. 9,630 5,207
Common stock and other........................................... 6,364 3,294
------- -------
$32,930 $25,764
------- -------
------- -------
</TABLE>
In connection with the liquidation of its investment portfolio, the Company
had reduced its portfolio balance to $11,973,000 as of April 15, 1993 and had
recognized a net gain of $995,000 through this date. In the process, the Company
repaid substantially all of the obligations secured by these securities.
Dividend income is recorded on the ex-dividend date and interest income is
recorded as earned. Securities transactions are accounted for on the trade date,
or the date the order to buy or sell is executed. Realized gains and losses from
securities transactions are determined on a specific identification basis.
III-14
<PAGE> 117
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS
Details of accounts receivable, for which the fair value approximated the
carrying value, and other current assets were as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable:
Trade receivables.............................................. $9,059 $ 8,159
Income tax receivable.......................................... 3,231 1,824
Notes receivable, current...................................... 1,468 1,737
Other.......................................................... 176 146
-------- --------
$13,934 $ 11,866
-------- --------
-------- --------
Other current assets:
Deferred tax asset, net........................................ $13,690 $ 7,916
Prepaid expenses and other..................................... 4,217 6,544
-------- --------
$17,907 $ 14,460
-------- --------
-------- --------
</TABLE>
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization, and was comprised of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1993 1992
----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Land.............................................. $ 14,571 14,193
Leasehold improvements............................ 4-25 years 79,266 84,943
Buildings and improvements........................ 7-30 years 23,566 24,479
Equipment, furniture and fixtures................. 3-10 years 115,713 126,835
--------- ---------
233,116 250,450
Less: Accumulated depreciation and amortization... 118,052 112,112
--------- ---------
$ 115,064 $ 138,338
--------- ---------
--------- ---------
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
shorter of the useful life of the improvement or the term of the lease.
Buildings and improvements and equipment, furniture and fixtures are depreciated
on a straight-line basis over the estimated useful lives of these assets.
NOTE 6 LEASES
The Company occupies land and buildings under terms of numerous lease
agreements expiring on various dates through 2023. Many of these leases provide
for future rent escalations and renewal options. In addition, contingent rent,
determined as a percentage of sales in excess of specified levels, is often
stipulated. Most of these leases obligate the Company to pay costs of
maintenance, insurance and property taxes.
Property under capital leases was comprised of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Buildings........................................................ $ 66,336 $ 65,695
Less: Accumulated amortization................................... 30,778 29,017
-------- --------
$ 35,558 $ 36,678
-------- --------
-------- --------
</TABLE>
III-15
<PAGE> 118
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 LEASES -- (CONTINUED)
Amortization is calculated on the straight-line method over the shorter of
the lease term or estimated useful life of the asset.
Minimum lease payments for all leases and the present value of net minimum
lease payments for capital leases as of January 25, 1993 were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Fiscal Year:
1994......................................................... $ 8,779 $ 28,771
1995......................................................... 8,699 27,980
1996......................................................... 8,602 27,313
1997......................................................... 8,396 26,657
1998......................................................... 8,074 25,737
Thereafter................................................... 61,971 255,164
--------- ---------
Total minimum lease payments................................... 104,521 $ 391,622
---------
---------
Less: Amount representing interest............................. 52,851
---------
Present value of minimum lease payments........................ 51,670
Less: Current portion.......................................... 3,158
---------
Capital lease obligations, excluding current portion........... $ 48,512
---------
---------
</TABLE>
Total minimum lease payments have not been reduced by minimum sublease
rentals of $50,993,000 due in the future under certain operating subleases.
The Company has leased and subleased land and buildings to others,
primarily as a result of the franchising of certain restaurants. Many of these
leases provide for fixed payments with contingent rent when sales exceed certain
levels, while others provide for monthly rentals based on a percentage of sales.
The lessees bear the cost of maintenance, insurance and property taxes. At
January 25, 1993 and January 27, 1992, components of the net investment in
leases receivable, included in other assets, were as follows:
<TABLE>
<CAPTION>
1993 1992
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Net minimum lease payments receivable............................. $ 10,699 $ 9,802
Less: Unearned income............................................. 6,044 5,671
-------- -------
Net investment.................................................... $ 4,655 $ 4,131
-------- -------
-------- -------
</TABLE>
III-16
<PAGE> 119
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 LEASES -- (CONTINUED)
Minimum future rentals to be received as of January 25, 1993 were as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES OR LESSOR
SUBLEASES LEASES
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Fiscal Year:
1994.......................................................... $ 728 $ 205
1995.......................................................... 727 206
1996.......................................................... 724 207
1997.......................................................... 724 207
1998.......................................................... 725 207
Thereafter.................................................... 7,071 1,956
--------- ---------
Total minimum future rentals.................................... $10,699 $ 2,988
--------- ---------
--------- ---------
</TABLE>
Total minimum future rentals do not include contingent rentals which may be
received under certain leases.
The Company's investment in land under operating leases at January 25, 1993
and January 27, 1992 was $2,031,000 and $653,000, respectively.
Aggregate rents under noncancelable operating leases during fiscal 1993,
1992 and 1991 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals....................................... $ 28,139 $ 26,087 $ 25,230
Contingent rentals.................................... 2,323 2,675 1,874
Less: Sublease rentals................................ 4,688 4,770 3,237
-------- -------- --------
$ 25,774 $ 23,992 $ 23,867
-------- -------- --------
-------- -------- --------
</TABLE>
NOTE 7 OTHER CURRENT LIABILITIES
Other current liabilities were comprised of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Salaries and wages............................................... $ 6,845 $ 9,024
Self-insurance reserves, including workers' compensation......... 17,940 9,601
Sales tax payable................................................ 5,729 6,794
Restructuring charges............................................ 4,604 1,552
Other accrued liabilities........................................ 7,741 9,487
-------- --------
$ 42,859 $ 36,458
-------- --------
-------- --------
</TABLE>
During fiscal 1993, the Company commissioned an actuarial study to estimate
its exposure to the ultimate losses current workers' compensation claims might
produce. The results of this study were finalized during the fourth quarter of
fiscal 1993 and indicated that the Company's existing claims were likely to
develop above current reserve levels. Accordingly, the Company increased its
workers' compensation reserve by $5,114,000 in the fourth quarter of fiscal
1993.
The Company eliminated its manufacturing operations during fiscal 1993,
which required a $2,052,000 charge to operations, $120,000 of which was
recognized during the fourth quarter, to provide for severance and
III-17
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 OTHER CURRENT LIABILITIES -- (CONTINUED)
equipment losses related to this decision. Additionally, the Company implemented
a corporate restructuring program in late January 1993, which required a
$9,072,000 charge to fourth quarter earnings. Components of this program include
additional estimated lease subsidies related to certain underperforming
franchised restaurants in Arizona, estimated equipment losses attributable to
several underperforming Company-operated restaurants slated for closure and
severance and outplacement costs as a result of corporate staff reductions.
Stock options granted to former key management personnel were extended an
additional two years, hence these options were remeasured and this cost was
included in the restructuring charges, as well.
NOTE 8 LONG-TERM DEBT
Long-term debt was comprised of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit line with bank, unsecured....................... $ 18,100 $ 19,000
Notes payable:
Unsecured note payable to bank, principal payments in specified
amounts monthly through 1994, interest at 9.26%............. 13,417 20,417
Secured notes payable to bank, principal payments in specified
amounts annually through 1999, interest at 12.95%........... 7,597 8,774
Unsecured notes payable to bank, paid in full in 1992, interest
based on the prime rate plus .25%, not to exceed 11.75% nor
less than 7.25%............................................. -- 8,950
Secured note payable, principal payments in specified amounts
annually through 2000, interest at 13.5%.................... 6,812 7,439
Secured notes payable to bank, principal payments in specified
amounts monthly through 1994, interest based on the prime
rate plus .25%, not to exceed 14.75% nor less than 10.25%... 5,697 5,966
Industrial Revenue Bonds, payable in 1999, variable interest
rate averaging 2.66% in fiscal 1993 and 3.88% in fiscal
1992........................................................ 3,600 3,600
Other.......................................................... 4,986 6,098
-------- --------
60,209 80,244
Less: Current portion............................................ 28,467 29,759
-------- --------
$ 31,742 $ 50,485
-------- --------
-------- --------
</TABLE>
Notes payable mature in fiscal years ending after January 25, 1993 as
follows:
<TABLE>
<CAPTION>
Fiscal Year: (IN THOUSANDS)
- -------------- --------------
<S> <C> <C>
1994.................................................................... $ 10,367
1995.................................................................... 15,574
1996.................................................................... 2,747
1997.................................................................... 2,322
1998.................................................................... 2,039
Thereafter.............................................................. 9,060
--------------
$ 42,109
--------------
--------------
</TABLE>
III-18
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 LONG-TERM DEBT -- (CONTINUED)
Short-term borrowings approximated their fair value. The fair value of the
Company's fixed and variable rate debt was estimated using discounted cash flow
analysis based on current interest rates for similar borrowing arrangements. The
carrying amounts and estimated fair values of the Company's debt at January 25,
1993 were as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings............................................ $ 18,100 $ 18,100
Long-term borrowings, variable rate.............................. 9,297 8,055
Long-term borrowings, fixed rate................................. 32,812 32,965
-------- --------
$ 60,209 $ 59,120
-------- --------
-------- --------
</TABLE>
Included in current liabilities at January 25, 1993 were borrowings
totaling $18,100,000 drawn against the Company's revolving credit line. Interest
on these borrowings was based on the bank's prime rate, the certificate of
deposit rate or the bank's Eurodollar offshore rate, at the option of the
Company. In November 1992, the maturity date of these borrowings was extended to
June 1994, and certain notes payable totaling $8,600,000 were paid in full in
connection with this extension.
Subsequent to year end, proceeds from the liquidation of the investment
portfolio were used to pay down borrowings under this credit line completely.
The revolving line of credit was renegotiated in April 1993 and is discussed
further in Note 2 to the financial statements.
Secured notes payable are collateralized by certain restaurant property
deeds of trust, with a carrying value at January 25, 1993 of $20,364,000.
NOTE 9 OTHER LONG-TERM LIABILITIES
In prior years, the Company initiated restructuring programs to dispose of
or franchise its Arizona and Texas operations. As of January 25, 1993 and
January 27, 1992, $12,630,000 and $9,307,000 was accrued, respectively, which
included the current portion of these restructuring charges. These balances were
mainly comprised of estimated losses on property and equipment and the net
present value of estimated rent subsidies. The unamortized discount to present
value was $9,737,000 and will be amortized to operations over the remaining
sublease terms, which range up to 23 years.
NOTE 10 COMMON STOCK
In connection with his employment, the Company's new President and Chief
Executive Officer will be issued approximately 12,000 shares of the Company's
common stock valued at $100,000. These shares will vest at a rate of 33 1/3% per
year on each of the three anniversaries following the grant date.
Subsequent to year end, the Board of Directors authorized the repurchase of
up to $10 million of the Company's common stock from Chairman Carl N. Karcher
through the Carl N. and Margaret M. Karcher Trust, on terms and conditions to be
negotiated, including, per share price and transfer restrictions, rights of
first refusal and registration rights with respect to additional shares held by
the Trust.
In February 1991, the Board of Directors authorized the purchase of up to
$5,000,000 of the Company's common stock. A total of 270,000 shares were
repurchased during fiscal 1992, including 180,000 shares owned by the Company's
Chairman of the Board, at a price of $7.075 per share. The balance of these
shares were repurchased in open market transactions for an aggregate price of
$745,000. All shares repurchased were canceled and retired.
III-19
<PAGE> 122
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 RELATED PARTY TRANSACTIONS
Since 1985, a total of eight officers have resigned their positions to
become franchisees of the Company. A total of 50 restaurants have been sold to
these individuals, none of which occurred during fiscal 1993. As part of these
transactions, the Company received cash and accepted $11,521,000 of interest
bearing notes, of which the following amounts were outstanding at January 25,
1993 and January 27, 1992:
<TABLE>
<CAPTION>
1993 1992
------ ------
(IN THOUSANDS)
<S> <C> <C>
12.0% Secured notes.............................................. $ 789 $ 916
12.5% Secured notes.............................................. 4,337 4,464
------ ------
5,126 5,380
Less: Current portion............................................ 476 392
------ ------
$4,650 $4,988
------ ------
------ ------
</TABLE>
The estimated fair value of these notes as of January 25, 1993 was
$5,527,000. The fair value was estimated using discounted cash flow analysis,
based on current interest rates for similar loan arrangements.
In fiscal 1991, as part of its Arizona restructuring program, the Company
leased six of its Arizona restaurants to a former officer. The terms of the
lease include an option to buy one of these restaurants, and require the
purchase of the remaining five restaurants, by fiscal 1996, all at an agreed
upon price. Six additional Arizona restaurants were also sold to this officer
during fiscal 1991, resulting in a $775,000 charge to the restructuring reserve
for losses incurred as a result of this transaction. An additional $1,300,000
was included in other long-term liabilities as of January 25, 1993 in
anticipation of future losses to be charged as a result of both of these
transactions.
The Company leases various properties, including its corporate
headquarters, distribution facility and five of its restaurants, from the
Chairman of the Board. In January 1993, the Board of Directors authorized the
purchase of three of the five restaurant sites for an aggregate purchase price
of $1,908,000. Included in capital lease obligations was $5,904,000 and
$6,196,000, representing the present value of lease obligations related to these
various properties at January 25, 1993 and January 27, 1992, respectively. Lease
payments under these leases for fiscal 1993, 1992 and 1991 amounted to
$1,612,000, $1,548,000, and $1,641,000, respectively. This was net of sublease
rentals of $64,000, $63,000 and $63,000 in fiscal 1993, 1992 and 1991,
respectively.
As of January 25, 1993, the Company was a signatory with the Chairman of
the Board on a promissory note with an insurance company. The note was payable
monthly through March 1993, at an interest rate of 9.25% and was primarily
secured by leased property under capital leases with a net book value of
$2,295,000 at January 25, 1993. The agreement contained restrictions on working
capital, incurrence of additional debt and leases, and payment of dividends. The
Chairman of the Board paid the note on March 2, 1993, releasing the Company from
any future obligation or signatory responsibilities.
NOTE 12 FRANCHISE AND LICENSE OPERATIONS
Franchise arrangements, with franchisees who operate in Arizona,
California, Nevada and Oregon, generally provide for initial fees and continuing
royalty payments to the Company based upon a percent of sales. Additionally,
franchisees may purchase food, paper and other supplies from the Company.
Franchisees may be obligated to remit lease payments for the use of restaurant
facilities, generally for a period of 20 years. Under the terms of these leases
they are required to pay related occupancy costs which include maintenance,
insurance and property taxes.
The Company also receives notes from franchisees in connection with the
sales of Company-operated restaurants. Generally, these notes bear interest at
rates of 9.5% to 12.5%, mature in five to 15 years and are secured by an
interest in the restaurant equipment sold. The outstanding balance and estimated
fair value of
III-20
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 FRANCHISE AND LICENSE OPERATIONS -- (CONTINUED)
all non-related party notes receivable at January 25, 1993 was $19,875,000 and
$21,471,000 respectively. The fair value was estimated using discounted cash
flow analysis, based on current interest rates for similar loan arrangements.
Licensing agreements generally provide for initial fees and continuing
royalty payments to the Company based upon a percent of sales. The agreements,
which generally have a term of 20 years, allow licensees the use of the
Company's name and trademarks. The Company also provides operational support and
training as necessary.
All franchising and licensing fees are included in revenues as earned.
Revenues from franchised and licensed restaurants were comprised of the
following:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Food service.......................................... $57,503 $46,396 $35,735
Rental income......................................... 9,601 6,761 5,259
Royalties............................................. 5,517 4,680 3,682
Initial fees.......................................... 1,095 969 1,229
Other................................................. 1,546 1,219 1,247
------- ------- -------
$75,262 $60,025 $47,152
------- ------- -------
------- ------- -------
</TABLE>
Operating costs and expenses for franchised and licensed restaurants were
comprised of the following:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Food service.......................................... $54,947 $43,931 $33,519
Occupancy and other operating expenses................ 10,393 6,760 5,090
------- ------- -------
$65,340 $50,691 $38,609
------- ------- -------
------- ------- -------
</TABLE>
NOTE 13 INTEREST EXPENSE
Interest expense was comprised of the following:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and revolving credit lines.............. $ 5,941 $ 7,889 $ 9,156
Capital lease obligations............................. 6,809 7,458 7,800
Obligations secured by marketable securities and
long-term investments............................... 581 984 1,586
Capitalized interest.................................. (89) (234) (201)
Other................................................. 388 606 184
------- ------- -------
$13,630 $16,703 $18,525
------- ------- -------
------- ------- -------
</TABLE>
III-21
<PAGE> 124
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 NONOPERATING INCOME, NET
Nonoperating income, net was comprised of the following:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net (gains) losses on restaurant sales...... $ (867) $ (4,767) $ 51
Gains on sales of investments............... (8,839) (9,003) (4,271)
Losses on sales of investments.............. 3,422 5,548 6,212
Dividend income............................. (2,513) (3,388) (3,527)
Interest income............................. (5,714) (3,931) (3,732)
Other....................................... 919 -- --
-------- -------- -------
$(13,592) $(15,541) $(5,267)
-------- -------- -------
-------- -------- -------
</TABLE>
NOTE 15 INCOME TAXES
In the fourth quarter of fiscal 1993, the Company adopted SFAS 109. The
cumulative effect of this change in accounting principle of $2,450,000 included
a $500,000 valuation allowance and is reported separately in the statements of
operations for the year ended January 25, 1993. Had the Company implemented SFAS
109 in the first quarter of fiscal 1993, net income and earnings per share would
have been reduced by $2,450,000 and $.14, respectively. The pro forma effects on
net income (loss) by adopting SFAS 109, assuming the adoption was applied
retroactively to 1990, would have been to reduce the net loss in fiscal 1993 by
$2,450,000, or $.14 per share, and would have been immaterial in fiscal 1992 and
fiscal 1991.
Income tax expense (benefit) was comprised of the following:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................. $ 2,996 $ 5,944 $ 4,042
State.................................... 983 2,018 1,499
------- ------- -------
3,979 7,962 5,541
------- ------- -------
Deferred:
Federal.................................. (7,422) (2,149) 188
State.................................... (804) -- --
------- ------- -------
(8,226) (2,149) 188
------- ------- -------
$(4,247) $ 5,813 $ 5,729
------- ------- -------
------- ------- -------
</TABLE>
The significant components of deferred income tax benefit for the year
ended January 25, 1993 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred tax benefit (primarily related to restructuring
charges and the increase to the workers' compensation
reserve)..................................................... $ (8,181)
Increase in targeted jobs tax credit carryforward.............. (840)
Increase in the valuation allowance for the net deferred tax
asset........................................................ 795
--------------
$ (8,226)
--------------
--------------
</TABLE>
III-22
<PAGE> 125
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 INCOME TAXES -- (CONTINUED)
For the years ended January 27, 1992 and January 28, 1991, deferred income
taxes resulted from differences in the timing of recognition of revenue and
expenses for financial reporting and tax purposes. The sources and tax effects
of those timing differences are presented below:
<TABLE>
<CAPTION>
1992 1991
------- ------
(IN THOUSANDS)
<S> <C> <C>
Depreciation.............................................. $ (828) $ (573)
Safe harbor leases........................................ (268) (233)
Capital leases............................................ (411) (582)
State income taxes........................................ (134) 18
Capital losses............................................ 369 (319)
Restructuring accrual..................................... 267 3,379
General liability insurance accrual....................... (830) (570)
Deferred revenue.......................................... (20) (825)
Other, net................................................ (294) (107)
------- ------
$(2,149) $ 188
------- ------
------- ------
</TABLE>
A reconciliation of income tax expense (benefit) at the federal statutory
rate of 34% to the Company's provision for taxes on income is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes at statutory rate................ $(2,483) $ 6,409 $ 6,380
State income taxes, net of federal income tax
benefit..................................... (950) 1,332 1,208
Dividend exclusion............................ (475) (667) (735)
Targeted jobs tax credits..................... (1,033) (1,190) (1,159)
Remeasurement of stock options................ 287 -- --
Increase in the valuation allowance for the
net deferred tax asset...................... 795 -- --
Other, net.................................... (388) (71) 35
------- ------- -------
$(4,247) $ 5,813 $ 5,729
------- ------- -------
------- ------- -------
</TABLE>
III-23
<PAGE> 126
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 INCOME TAXES -- (CONTINUED)
Temporary differences and carryforwards gave rise to a significant portion
of deferred tax assets and liabilities at January 25, 1993 as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred tax asset:
Restructuring charges................................ $ 7,196
Capitalized leases................................... 8,223
Workers' compensation reserve........................ 6,544
Targeted jobs tax credit carryforward................ 1,112
Other................................................ 5,579
--------------
28,654
Less: Valuation allowance............................ 1,295
--------------
Total deferred tax asset............................... 27,359
--------------
Deferred tax liability:
Depreciation......................................... 10,676
Safe harbor leases................................... 1,815
Other................................................ 1,178
--------------
Total deferred tax liability........................... 13,669
--------------
Net deferred tax asset................................. $ 13,690
--------------
--------------
</TABLE>
Based on the Company's current and historical pre-tax earnings, management
believes it is more likely than not that the Company will realize the benefit of
the existing net deferred tax asset at January 25, 1993. Management believes the
majority of the existing net deductible temporary differences will reverse
during periods in which the Company generates net taxable income, however, there
can be no assurance that the Company will generate any specific level of
earnings in future years. Certain tax planning or other strategies could be
implemented, if necessary, to supplement income from operations to fully realize
recorded net tax benefits.
The Company had targeted jobs tax credit carryforwards of $1,112,000
available at January 25, 1993, which expire in 2007 and 2008.
NOTE 16 RETIREMENT PLANS
The Company has a defined benefit pension plan covering substantially all
operations employees qualified as to age and service. The annual employer
contribution is actuarily determined and amounted to $348,000, $228,000 and
$180,000 in fiscal 1993, 1992 and 1991, respectively. As of the start of fiscal
1993, the accumulated benefits related to this plan were $1,037,000.
The Company also has a voluntary contributory profit sharing and savings
plan for all eligible employees other than operations hourly employees. The
annual profit sharing contribution is determined at the discretion of the
Company's Board of Directors and up to 4% of employee savings are matched by the
Company. Total Company contributions to this plan for fiscal 1993, 1992 and 1991
were $429,000, $1,263,000 and $799,000, respectively.
NOTE 17 STOCK OPTION PLAN
The Company had an incentive stock option plan which expired in September
1992. Under this plan, stock options were granted to key employees to purchase
up to 3,000,000 shares of its common stock at a price generally equal to the
fair market value at the date of grant. The options generally had a term of 10
years from
III-24
<PAGE> 127
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 STOCK OPTION PLAN -- (CONTINUED)
the grant date and became exercisable at a rate of 25%, 35% and 40% per year
following the grant date. The exercise price of all outstanding options ranges
from $5.21 a share to $13.38 a share.
Transactions under this plan during fiscal 1993, 1992 and 1991 are
summarized below:
<TABLE>
<CAPTION>
NUMBER OF SHARES 1993 1992 1991
-------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Outstanding at beginning of year.................. 1,840,440 2,103,796 1,935,588
Granted........................................... 134,230 4,000 602,928
Canceled.......................................... (247,476) (96,454) (334,766)
Exercised......................................... (172,428) (170,902) (99,954)
--------- --------- ---------
Outstanding at end of year........................ 1,554,766 1,840,440 2,103,796
--------- --------- ---------
--------- --------- ---------
Exercisable at end of year........................ 1,332,136 1,376,685 1,215,066
--------- --------- ---------
--------- --------- ---------
</TABLE>
A new stock option plan was adopted by the Board of Directors in April
1993, and is discussed further in Note 2 to the financial statements.
NOTE 18 SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes for the three years ended January
25, 1993 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest (net of amount capitalized)...................... $13,860 $16,478 $18,518
Income taxes.............................................. 5,584 7,300 3,815
</TABLE>
III-25
<PAGE> 128
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 SUPPLEMENTAL CASH FLOW INFORMATION -- (CONTINUED)
Noncash investing and financing activities for the three years ended
January 25, 1993 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Noncash investing and financing activities:
Transfers of marketable securities to long-term investments..... -- $ 4,567 $ 7,602
Transfers of long-term investments to marketable securities..... $ 6,184 5,871 7,815
Other investing activities:
Net change in marketable securities from noncash
distributions................................................ (474) (3,181) 387
Net change in long-term investments from noncash
distributions................................................ 5 2,036 698
Net change in dividends receivable.............................. 141 1,130 --
Net change in obligations secured by marketable securities and
long-term investments........................................ -- (1,136) (2,597)
Leasing activities:
Capital lessee additions........................................ 1,048 1,075 4,140
Capital lessor additions........................................ 628 -- --
Other leasing activities:
Decrease in leases receivable................................ -- 1,819 --
Increase in property and equipment........................... -- (1,924) --
Decrease in property under capital leases.................... 671 4,512 --
Decrease in capital lease obligations........................ (1,561) (6,051) --
Franchising and other disposition activities:
Sale of property and equipment.................................. 7,304 6,893 9,990
Sale of inventory............................................... 139 183 380
Increase in sale/leaseback property............................. -- -- (1,115)
Increase in notes receivable.................................... (7,203) (8,501) (7,627)
Net change in restructuring reserve and other current
liabilities.................................................. 4,698 2,464 (2,138)
Increase in other long-term liabilities......................... 4,855 -- --
Remeasurement of stock options.................................. 843 -- --
Sale/leaseback activities:
Transfer of restaurant property costs to property and
equipment.................................................... 1,553 2,159 --
Sale/leaseback transaction resulting in an increase to notes
receivable................................................... 1,300 -- --
</TABLE>
III-26
<PAGE> 129
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly results.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1993
Total revenues.................................. $161,606 $119,931 $115,350 $105,745
Operating income (loss)......................... 4,220 3,141 1,950 (16,557)
Income (loss) before cumulative effect of change
in accounting principle....................... 3,226 3,228 1,253 (10,764)
Cumulative effect of change in accounting
principle..................................... (2,450) -- -- --
-------- -------- -------- --------
Net income (loss)............................... $ 776 $ 3,228 $ 1,253 $(10,764)
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per common share:
Income (loss) before cumulative effect of
change in accounting principle............. $ .18 $ .18 $ .07 $ (.60)
Cumulative effect of change in accounting
principle.................................. (.14) -- -- --
-------- -------- -------- --------
$ .04 $ .18 $ .07 $ (.60)
-------- -------- -------- --------
-------- -------- -------- --------
FISCAL 1992
Total revenues.................................. $166,982 $130,672 $125,414 $117,302
Operating income................................ 6,269 5,102 4,307 4,335
Net income...................................... 2,682 3,748 1,943 4,665
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per common share....................... $.15 $.20 $.11 $.26
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Quarterly operating results are not necessarily representative of
operations for a full year for various reasons, including the seasonal nature of
the quick-service restaurant industry (especially in Southern California),
unpredictable adverse weather conditions which may affect sales volume and food
costs, and the fact that all quarters have 12-week accounting periods, except
the first quarters of fiscal 1993 and fiscal 1992, which have 16-week accounting
periods.
The first quarter of fiscal 1993 has been restated to reflect the adoption
of SFAS 109. The impact of this adoption was not material in subsequent quarters
which have not been restated. See Note 15 to the financial statements.
Operating results for the fourth quarter of fiscal 1993 include a
$9,192,000 charge for the Company's restructuring program and a $5,114,000
charge related to the Company's self-insured workers' compensation reserve (or
$5,515,000 and $3,068,000, net of tax, respectively). See Note 7 to the
financial statements.
NOTE 20 CONTINGENT LIABILITIES
The Company presently self-insures for group insurance, workers'
compensation and fire and comprehensive protection on most equipment and certain
other assets. As of January 25, 1993, $15,114,000 was accrued for workers'
compensation benefits, which was net of a discount of $3,585,000 calculated
using a 9.5% discount rate. In the opinion of management, past experience plus
the wide dispersion of restaurants indicates that the Company is assuming a
minimal risk by self-insuring and, if any loss should occur, it would not have a
material effect on the Company's financial position or results of operations.
III-27
<PAGE> 130
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 CONTINGENT LIABILITIES -- (CONTINUED)
The Company had three standby letter of credit agreements with various
banks for $15,853,000, which expire as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
May 1993 (See Note 2 to the financial statements)...... $ 11,726
August 1994............................................ 3,852
April 2000............................................. 275
--------------
$ 15,853
--------------
--------------
</TABLE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Carl Karcher Enterprises, Inc.
We have audited the accompanying balance sheets of Carl Karcher
Enterprises, Inc. as of January 25, 1993 and January 27, 1992, and the related
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended January 25, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Carl Karcher Enterprises,
Inc. as of January 25, 1993 and January 27, 1992, and the results of its
operations and its cash flows for each of the years in the three-year period
ended January 25, 1993 in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 15 to the financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in fiscal 1993.
Orange County, California
April 15, 1993, except for Note 2
to the financial statements,
which is as of May 3, 1993
III-28
<PAGE> 131
CORPORATE INFORMATION
STOCK DATA
Shares of the Company's common stock are regularly quoted in the national
over-the-counter trading market and are listed on the NASDAQ quotation system
(CARL). At January 25, 1993, there were approximately 3,000 record holders of
the Company's common stock. The high and low closing prices, during each
quarter, for the last two fiscal years are as follows:
<TABLE>
<CAPTION>
QUARTER 1ST 2ND 3RD 4TH
--------------------------------------------------------- --- --- --- ---
<S> <C> <C> <C> <C>
FISCAL 1993
HIGH................................................... 10 1/4 8 3/8 10 7/8 11
LOW.................................................... 8 1/8 6 3/4 7 1/4 7 3/4
Fiscal 1992
High................................................... 9 1/2 9 5/8 8 7/8 9 1/4
Low.................................................... 6 1/4 7 7/8 7 1/2 6 7/8
</TABLE>
III-29
<PAGE> 132
APPENDIX IV
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended: MAY 17, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
for the transition period from to to
Commission file number: 0-10316
CARL KARCHER ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-2415578
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 NORTH HARBOR BOULEVARD, 92801
ANAHEIM, CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (714) 774-5796
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 18,156,837 AS OF JUNE 30, 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IV-1
<PAGE> 133
CARL KARCHER ENTERPRISES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Part I Financial Information
Item 1. Financial Statements:
Balance Sheets as of May 17, 1993 and January 25, 1993..................... 3
Statements of Income for the sixteen weeks ended May 17, 1993 and
May 18, 1992............................................................. 4
Statements of Cash Flows for the sixteen weeks ended May 17, 1993 and
May 18, 1992............................................................. 5-6
Notes to Financial Statements.............................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................. 8-10
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K....................................... 11-12
</TABLE>
IV-2
<PAGE> 134
CARL KARCHER ENTERPRISES, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MAY 17, JANUARY 25,
1993 1993
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 8,871 $ 11,505
Marketable securities......................................... 8,491 32,930
Accounts receivable........................................... 11,637 13,934
Current portion of related party notes receivable............. 403 476
Inventories................................................... 7,716 6,383
Restaurant property costs to be reimbursed or sold and leased
back....................................................... 2,838 7,427
Other current assets.......................................... 18,503 17,907
-------- -----------
Total current assets.................................. 58,459 90,562
Property and equipment, net..................................... 116,396 115,064
Property under capital leases, net.............................. 35,582 35,558
Notes receivable................................................ 17,622 18,407
Related party notes receivable.................................. 4,163 4,650
Other assets.................................................... 11,416 4,683
-------- -----------
$243,638 $ 268,924
-------- -----------
-------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................. $ 9,765 $ 28,467
Obligations secured by marketable securities.................. -- 2,422
Current portion of capital lease obligations.................. 3,211 3,158
Accounts payable.............................................. 11,474 14,531
Other current liabilities..................................... 46,627 42,859
-------- -----------
Total current liabilities............................. 71,077 91,437
-------- -----------
Long-term debt.................................................. 27,269 31,742
Capital lease obligations....................................... 47,821 48,512
Other long-term liabilities..................................... 11,671 12,501
Shareholders' equity:
Preferred stock, no par value; authorized 2,000,000 shares;
none issued
or outstanding
Common stock, no par value; authorized 22,500,000 shares;
issued and outstanding 18,156,837 and 18,090,742 shares.... 29,299 28,793
Retained earnings............................................. 56,501 55,939
-------- -----------
Total shareholders' equity............................ 85,800 84,732
-------- -----------
$243,638 $ 268,924
-------- -----------
-------- -----------
</TABLE>
IV-3
<PAGE> 135
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
---------------------
MAY 17, MAY 18,
1993 1992
-------- --------
<S> <C> <C>
Revenues:
Sales by Company-operated restaurants................................ $116,031 $135,043
Revenues from franchised and licensed restaurants.................... 23,884 21,573
Revenues from other outside parties.................................. -- 4,990
-------- --------
Total revenues............................................... 139,915 161,606
-------- --------
Operating costs and expenses:
Company-operated restaurants:
Food and packaging................................................ 35,551 41,612
Payroll and other employee benefits............................... 38,740 45,349
Occupancy and other operating expenses............................ 26,882 29,521
-------- --------
101,173 116,482
Franchised and licensed restaurants.................................. 21,759 19,177
Other outside parties................................................ -- 4,895
Advertising expenses................................................. 5,561 5,936
General and administrative expenses.................................. 10,010 10,896
-------- --------
Total operating costs and expenses........................... 138,503 157,386
-------- --------
Operating income....................................................... 1,412 4,220
Interest expense....................................................... (2,972) (4,563)
Other income, net...................................................... 2,993 5,123
-------- --------
Income before income taxes and cumulative effect of change in
accounting principle................................................. 1,433 4,780
Income tax expense..................................................... 507 1,554
-------- --------
Income before cumulative effect of change in accounting principle...... 926 3,226
Cumulative effect of change in accounting principle.................... -- 2,450
-------- --------
Net income............................................................. $ 926 $ 776
-------- --------
-------- --------
Net income per common share:
Income before cumulative effect of change in accounting principle.... $ .05 $ .18
Cumulative effect of change in accounting principle.................. $ .-- $ (.14)
-------- --------
Net income................................................... $ .05 $ .04
-------- --------
-------- --------
Weighted average shares outstanding:............................ 18,092 18,327
-------- --------
-------- --------
</TABLE>
IV-4
<PAGE> 136
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
---------------------
MAY 17, MAY 18,
1993 1992
-------- --------
<S> <C> <C>
Net cash flow from operating activities:
Net income........................................................... $ 926 $ 776
Adjustments to reconcile net income to net cash provided by
operating activities:
Noncash franchise revenues........................................ (5) (540)
Depreciation and amortization..................................... 6,935 8,020
(Gain) loss on sale of property and equipment..................... 96 (844)
Write-down of marketable securities............................... 116 118
Net noncash investment income..................................... (19) (4)
Cumulative effect of change in accounting principle............... -- 2,450
Net change in marketable securities reserve....................... (64) 80
Net change in receivables, inventories and other current assets... 277 (3,678)
Net change in other assets........................................ 9 54
Net change in accounts payable and other current liabilities...... 3,427 (1,274)
-------- --------
Net cash provided by operating activities.................... 11,698 5,158
-------- --------
Cash flow from investing activities:
Construction of restaurant property to be reimbursed or sold and
leased back....................................................... (1,088) (5,183)
Sale of or reimbursement on restaurant property to be sold and
leased back....................................................... 157 4,641
Purchases of:
Marketable securities............................................. (7,910) (13,132)
Property and equipment............................................ (3,355) (2,443)
Long-term investments............................................. -- (1,654)
Proceeds from sales of:
Marketable securities............................................. 25,576 10,877
Property and equipment............................................ 144 1,255
Long-term investments............................................. -- 1,366
Collections on leases receivable..................................... 31 92
Collections on notes receivable and related party notes receivable... 1,797 1,364
-------- --------
Net cash provided by (used in) investing activities.......... 15,352 (2,817)
-------- --------
Cash flow from financing activities:
Net change in bank overdraft......................................... (2,761) 810
Net change in obligations secured by marketable securities and
long-term investments............................................. (2,422) 770
Short-term borrowings................................................ 13,100 32,600
Repayments of short-term debt........................................ (31,200) (35,600)
Repayments of long-term debt......................................... (5,075) (3,739)
Repayments of capital lease obligations.............................. (638) (758)
Net change in other long-term liabilities............................ (830) (737)
Exercise of stock options............................................ 506 590
Payment of dividends................................................. (364) (360)
-------- --------
Net cash used in financing activities............................. (29,684) (6,424)
-------- --------
Net decrease in cash and cash equivalents.................... $ (2,634) $ (4,083)
-------- --------
-------- --------
</TABLE>
IV-5
<PAGE> 137
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
---------------------
MAY 17, MAY 18,
1993 1992
-------- --------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest (net of amount capitalized).............................. $ 3,047 $ 4,673
Income taxes...................................................... 368 1,657
Noncash investing and financing activities:
Investing activities:
Transfer of marketable securities to other assets................. 6,776 --
Transfers of long-term investments to marketable securities....... -- 22
Other investing activities:
Net change in marketable securities from noncash transactions... 55 (4,677)
Net change in long-term investments from noncash transactions... -- 5
Net change in dividends receivable.............................. 36 38
Net change in obligations secured by marketable securities
and long-term investments.................................... -- 4,630
Leasing activities:
Capital lease additions.............................................. -- 1,047
Other leasing activities:
Decrease in property under capital leases....................... -- 398
Decrease in capital lease obligations........................... -- (581)
Franchising activities:
Sale of property and equipment....................................... 344 3,970
Sale of inventory.................................................... 11 100
Assumption of various liabilities.................................... 45 702
Increase in notes receivable......................................... (405) (5,129)
Sale/leaseback activities:
Transfer of restaurant property costs to property and equipment...... 5,520 --
Sale and leaseback transactions resulting in an increase to notes
receivable........................................................ -- 1,300
</TABLE>
IV-6
<PAGE> 138
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 17, 1993 AND MAY 18, 1992
NOTE (A) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the requirements of Form 10-Q and, therefore, do not include all
information and footnotes which would be presented were such financial
statements prepared in accordance with generally accepted accounting principles.
These statements should be read in conjunction with the audited financial
statements presented in the Company's 1993 Annual Report to Shareholders. In the
opinion of management, all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of financial position and results of
operations for the interim periods presented have been reflected herein. The
results of operations for such interim periods are not necessarily indicative of
results to be expected for the full year.
NOTE (B) INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in fiscal 1993. The cumulative effect of this
change in accounting principle resulted in a $2.45 million charge to operations.
The first quarter of last year has been restated to reflect this adoption.
NOTE (C) RECLASSIFICATIONS
Certain prior year amounts in the accompanying financial statements have
been reclassified to conform to the fiscal 1994 presentation.
IV-7
<PAGE> 139
CARL KARCHER ENTERPRISES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
A major corporate restructuring, intended to refocus the Company's
resources on operating and franchising Carl's Jr. restaurants, was initiated
near the end of January 1993. A total of 58 corporate positions were eliminated,
including 10 vice president and other middle management positions. As part of
this restructuring, the Company began liquidating its investment portfolio in
February 1993 and pared down its real estate and international development
functions. Additionally, management decided to de-emphasize sale/leaseback
financing.
The marketing function was also reorganized and selective staff additions
are planned aimed at improving the effectiveness of the Company's marketing
programs and its product development process. In addition, a new information and
technology function was created to improve the productivity of restaurant
managers, the Company's overall information system capabilities and corporate
strategic planning efforts.
FINANCIAL CONDITION
During the sixteen weeks ended May 17, 1993, as part of its restructuring
program, the Company liquidated $24.4 million of its investment portfolio. The
proceeds were largely used to repay the Company's revolving credit line, to
repay obligations secured by marketable securities and to secure potential
workers' compensation claims. In addition, most of the properties previously
held for sale/leaseback were reclassified to property and equipment during the
quarter, reflecting management's change in philosophy. Total cash available to
the Company as of May 17, 1993 was $17.4 million, which includes $8.5 million of
cash invested in securities still to be liquidated.
The Company had an $11.7 million stand-by letter of credit related to its
self-insured workers' compensation program, which expired on May 1, 1993. The
State of California requires that the Company provide a letter of credit each
year based on its existing claims experience, or set aside the prescribed amount
in cash or investment securities in a trust account. Due to an increase in the
Company's claims experience, the total amount of security required by the State
for the period May 1, 1993 through April 30, 1994 increased to $14.7 million.
Replacement letters of credit totaling $8 million were obtained in April 1993.
The remaining $6.7 million was satisfied by depositing investment securities in
a trust account, which was classified as other assets in the accompanying
balance sheet.
The Company also renegotiated its revolving line of credit in April 1993,
following the repayment of all borrowings under the previous agreement. The new
facility provides for $15 million of available credit through March 1994, $4
million of which is committed to a stand-by letter of credit to secure the
Company's workers' compensation claims. No other borrowings are currently
outstanding under this agreement.
The previously announced authorization of a repurchase of up to $10 million
of the Company's common stock from the Carl N. and Margaret M. Karcher Trust has
not been completed. No assurance can be given when or if the transaction will be
completed.
On April 20, 1993, the Board of Directors adopted a new stock option plan
under which stock options may be granted to key employees to purchase up to
1,750,000 shares of its common stock, which was approved by the shareholders at
the Company's June 1993 annual meeting. A total of 210,000 stock options have
been granted under this new plan.
RESULTS OF OPERATIONS
For the sixteen weeks ended May 17, 1993, revenues from Company-operated
restaurants decreased 14% due to fewer stores in operation, lower per store
volumes and an increase in promotional discounts. The weighted average number of
Company restaurants operating in the current year decreased 8% primarily as a
IV-8
<PAGE> 140
CARL KARCHER ENTERPRISES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
result of converting the greater San Francisco Bay Area to a franchised market,
which was substantially completed in May of last year. Lower average sales per
restaurant were largely due to California's continuing recessionary environment.
Discounts were higher in the current year in response to price reductions by the
Company's principal competitors.
Nearly 75% of all revenues from franchised and licensed restaurants in both
years were generated in connection with the sales of food service products to
franchisees by the Company's distribution centers. During fiscal 1993, the
Company initiated a program to lower food costs through the termination of its
manufacturing operations and many of the savings realized were passed on to the
franchisees. Thus, although the weighted average number of franchised
restaurants operating in the current year rose 22% as a result of the conversion
of the greater San Francisco Bay Area and the development of new restaurants by
the franchisees in the prior year, food service sales to these operators
increased only 11%.
Other principal components of revenues from franchised and licensed
restaurants were also related to the Company's franchising operations and
included rental income, royalties and initial franchise fees. Rental income and
royalties increased due to the increase in the franchise base, but for the most
part were offset by a decrease in initial franchise fees. These initial fees
decreased because only four franchised restaurants opened during the first
quarter of this year, as compared with 31 such openings in the comparable prior
year period.
Revenues from other outside parties, along with the corresponding operating
costs associated with these revenues, decreased as these sales were eliminated
during the prior year in connection with the decision to shut down the Company's
manufacturing operations.
Company-operated restaurant costs decreased 13% in the first quarter of
this year. Food and packaging costs decreased 15% as compared with the prior
year as a result of the new third party purchasing program initiated near the
end of fiscal 1993. Payroll and other employee benefits also decreased 15%
mainly due to efforts to increase operating efficiency without compromising the
guest experience. Occupancy and other operating expenses decreased 9%, largely
due to reduced repair and maintenance costs. However, on a smaller sales base,
occupancy costs increased as a percentage of sales.
Nearly 80% of all operating costs associated with franchised and licensed
restaurants in both years were related to the sales of food service products to
franchisees. These margins declined by 2% in the current year as a result of the
decision to lower prices charged to franchisees in response to competitive
pressures. Real estate administration costs related to the leasing or subleasing
of a number of restaurants to franchisees rose $805,000 due to the franchise
expansion in the prior year.
Although sales by Company-operated restaurants decreased 14%, advertising
expenses decreased only 6% in fiscal 1994 as this area has become increasingly
important in the current intensely competitive environment.
General and administrative expenses were 8% lower this year as compared
with a year ago primarily due to the downsizing of regional support staffs
following the completion of the franchise conversion in the greater San
Francisco Bay Area and the implementation of a major corporate restructuring and
cost-reduction program in January 1993. Partially offsetting these savings were
additions in the areas of strategic planning and information systems.
During the first quarter of fiscal 1994, the Company's revolving credit
line and its obligations secured by marketable securities were paid in full by
liquidating certain investment securities. Thus, interest expense decreased
significantly as compared with the year ago quarter.
Other income, net, in both years was comprised of investment income, gains
on sales of restaurants, interest on notes and leases receivable and other
non-recurring interest income. The liquidation of the investment portfolio
caused investment income to decrease $594,000 in the current year. There was
also a $1.2 million decrease in gains on sales of restaurants because
considerably fewer sales have occurred this year as
IV-9
<PAGE> 141
CARL KARCHER ENTERPRISES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
compared with last year. However, the high volume of sales activity in the prior
year did result in a higher average notes receivable balance during fiscal 1994,
which yielded $143,000 more interest income in the current quarter. Finally, the
prior year included $380,000 of non-recurring interest income.
Higher income before income taxes in fiscal 1993 resulted in more income
tax expense in that year. The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," in fiscal 1993. The cumulative
effect of this change in accounting principle resulted in a $2.45 million charge
to operations in the first quarter of last year.
IV-10
<PAGE> 142
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 Calculation of Earnings per Share
(b) No reports on Form 8-K were filed during the sixteen weeks ended May
17, 1993.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARL KARCHER ENTERPRISES, INC.
(Registrant)
<TABLE>
<S> <C>
July 1, 1993 Loren C. Pannier
- --------------------- -----------------------------------------------
Date Senior Vice President,
Chief Financial Officer
</TABLE>
IV-11
<PAGE> 143
APPENDIX V
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended: AUGUST 9, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
for the transition period from to
Commission file number: 0-10316
CARL KARCHER ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-2415578
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 NORTH HARBOR BOULEVARD, 92801
ANAHEIM, CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (714) 774-5796
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 18,173,874 AS OF SEPTEMBER 22, 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
V-1
<PAGE> 144
CARL KARCHER ENTERPRISES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of August 9, 1993 and January 25, 1993........................ 3
Statements of Income for the twelve and twenty-eight weeks
ended August 9, 1993 and August 10, 1992...................................... 4
Statements of Cash Flows for the twenty-eight weeks ended
August 9, 1993 and August 10, 1992............................................ 5-6
Notes to Financial Statements................................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................... 8-11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................... 12-13
</TABLE>
V-2
<PAGE> 145
CARL KARCHER ENTERPRISES, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AUGUST 9, JANUARY 25,
1993 1993
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 10,599 $ 11,505
Marketable securities............................................... 8,519 32,930
Accounts receivable................................................. 10,864 13,934
Current portion of related party notes receivable................... 468 476
Inventories......................................................... 8,300 6,383
Restaurant property costs to be reimbursed or sold and leased
back............................................................. 1,965 7,427
Other current assets................................................ 18,032 17,907
--------- -----------
Total current assets........................................ 58,747 90,562
Property and equipment, net........................................... 115,091 115,064
Property under capital leases, net.................................... 34,795 35,558
Notes receivable...................................................... 16,627 18,407
Related party notes receivable........................................ 4,071 4,650
Other assets.......................................................... 12,172 4,683
--------- -----------
$ 241,503 $ 268,924
--------- -----------
--------- -----------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Current portion of long-term debt................................... $ 9,765 $ 28,467
Obligations secured by marketable securities........................ -- 2,422
Current portion of capital lease obligations........................ 3,267 3,158
Accounts payable.................................................... 13,709 14,531
Other current liabilities........................................... 44,879 42,859
--------- -----------
Total current liabilities................................... 71,620 91,437
--------- -----------
Long-term debt........................................................ 24,522 31,742
Capital lease obligations............................................. 47,117 48,512
Other long-term liabilities........................................... 11,074 12,501
Shareholders' equity:
Preferred stock, no par value; authorized 2,000,000 shares; none
issued or outstanding
Common stock, no par value; authorized 22,500,000 shares; issued and
outstanding 18,097,085 and 18,090,742 shares..................... 28,886 28,793
Retained earnings................................................... 58,284 55,939
--------- -----------
Total shareholders' equity.................................. 87,170 84,732
--------- -----------
$ 241,503 $ 268,924
--------- -----------
--------- -----------
</TABLE>
V-3
<PAGE> 146
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS
TWELVE WEEKS ENDED ENDED
--------------------- ---------------------
AUGUST AUGUST AUGUST AUGUST
9, 10, 9, 10,
1993 1992 1993 1992
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales by Company-operated restaurants......... $ 89,202 $ 97,474 $205,233 $232,517
Revenues from franchised and licensed
restaurants................................ 18,975 18,613 42,859 40,186
Revenues from other outside parties........... -- 3,844 -- 8,834
-------- -------- -------- --------
Total revenues........................ 108,177 119,931 248,092 281,537
-------- -------- -------- --------
Operating costs and expenses:
Company-operated restaurants:
Food and packaging......................... 27,798 29,443 63,349 71,055
Payroll and other employee benefits........ 26,888 31,272 65,628 76,621
Occupancy and other operating expenses..... 19,416 21,052 46,298 50,573
-------- -------- -------- --------
74,102 81,767 175,275 198,249
Franchised and licensed restaurants........... 16,927 16,844 38,686 36,021
Other outside parties......................... -- 3,700 -- 8,595
Advertising expenses.......................... 4,752 4,625 10,313 10,561
General and administrative expenses........... 7,837 8,454 17,847 19,350
Restructuring charges......................... 533 1,400 533 1,400
-------- -------- -------- --------
Total operating costs and expenses.... 104,151 116,790 242,654 274,176
-------- -------- -------- --------
Operating income................................ 4,026 3,141 5,438 7,361
Interest expense................................ (2,576) (3,294) (5,548) (7,857)
Other income, net............................... 966 4,365 3,959 9,488
-------- -------- -------- --------
Income before income taxes and cumulative effect
of change in accounting principle............. 2,416 4,212 3,849 8,992
Income tax expense.............................. 272 984 779 2,538
-------- -------- -------- --------
Income before cumulative effect of change in
accounting principle.......................... 2,144 3,228 3,070 6,454
Cumulative effect of change in accounting
principle..................................... -- -- -- 2,450
-------- -------- -------- --------
Net income...................................... $ 2,144 $ 3,228 $ 3,070 $ 4,004
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common share:
Income before cumulative effect of change in
accounting principle....................... $ .12 $ .18 $ .17 $ .36
Cumulative effect of change in accounting
principle.................................. $ -- $ -- $ -- $ (.14)
-------- -------- -------- --------
Net income............................ $ .12 $ .18 $ .17 $ .22
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding:....... 18,157 18,017 18,120 17,991
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
V-4
<PAGE> 147
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED
--------------------------
AUGUST 9, AUGUST 10,
1993 1992
--------- ----------
<S> <C> <C>
Net cash flow from operating activities:
Net income......................................................... $ 3,070 $ 4,004
Adjustments to reconcile net income to net cash provided by
operating activities:
Noncash franchise revenues...................................... (81) (715)
Depreciation and amortization................................... 12,306 13,866
Noncash restructuring charges................................... 533 1,400
(Gain) loss on sale of property and equipment................... 192 (707)
Write-off of accounts receivable................................ 267 --
Write-down of marketable securities............................. 213 177
Net noncash investment income................................... (19) (100)
Deferred income taxes........................................... (307) --
Cumulative effect of change in accounting principle............. -- 2,450
Net change in marketable securities reserve..................... (91) 40
Net change in receivables, inventories and other current
assets......................................................... 905 (2,743)
Net change in other assets...................................... (293) 301
Net change in accounts payable and other current liabilities.... 2,999 (6,419)
--------- ----------
Net cash provided by operating activities.................. 19,694 11,554
--------- ----------
Cash flow from investing activities:
Construction of restaurant property to be reimbursed or sold and
leased back..................................................... (770) (6,579)
Sale of or reimbursement on restaurant property to be sold and
leased back..................................................... 180 10,018
Purchases of:
Marketable securities........................................... (8,497) (28,030)
Property and equipment.......................................... (6,696) (4,397)
Long-term investments........................................... -- (2,249)
Proceeds from sales of:
Marketable securities........................................... 26,065 20,886
Property and equipment.......................................... 149 1,540
Long-term investments........................................... -- 1,723
Collections on leases receivable................................... 63 57
Collections on notes receivable and related party notes
receivable...................................................... 2,980 1,779
--------- ----------
Net cash provided by (used in) investing activities........ 13,474 (5,252)
--------- ----------
Cash flow from financing activities:
Net change in bank overdraft....................................... (2,370) 402
Net change in obligations secured by marketable securities and
long-term investments........................................... (2,422) 1,147
Short-term borrowings.............................................. 15,150 62,000
Repayments of short-term debt...................................... (33,250) (63,000)
Repayments of long-term debt....................................... (7,822) (7,144)
Repayments of capital lease obligations............................ (1,292) (1,346)
</TABLE>
V-5
<PAGE> 148
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED
--------------------------
AUGUST 9, AUGUST 10,
1993 1992
--------- ----------
<S> <C> <C>
Net change in other long-term liabilities.......................... $ (1,427) $ (232)
Repurchase and retirement of common stock.......................... (422) --
Exercise of stock options.......................................... 506 823
Payment of dividends............................................... (725) (721)
--------- ----------
Net cash used in financing activities...................... (34,074) (8,071)
--------- ----------
Net decrease in cash and cash equivalents................ $ (906) $ (1,769)
--------- ----------
--------- ----------
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest (net of amount capitalized)............................ $ 5,638 $ 8,067
Income taxes.................................................... 598 4,675
Noncash investing and financing activities:
Investing activities:
Transfer of marketable securities to other assets............. 6,776 226
Other investing activities:
Net change in marketable securities from noncash
transactions............................................. (55) (2,561)
Net change in long-term investments from noncash
transactions............................................. -- 5
Net change in dividends receivable......................... 36 81
Net change in obligations secured by marketable securities
and long-term investments................................ -- 2,375
Leasing activities:
Capital lessee additions........................................ -- 1,047
Capital lessor additions........................................ 499 --
Other leasing activities:
Decrease in property under capital leases..................... -- 398
Decrease in capital lease obligations......................... -- (581)
Franchising and reorganization activities:
Sale of property and equipment.................................. 344 4,915
Sale of inventory............................................... 11 139
Write-off of accounts receivable................................ 267 --
Assumption of various liabilities............................... 454 812
Increase in notes receivable.................................... (481) (6,398)
Sale/leaseback activities:
Transfer of restaurant property costs to property and
equipment...................................................... 6,110 --
Sale and leaseback transactions resulting in an increase to
notes receivable............................................... -- 1,300
</TABLE>
V-6
<PAGE> 149
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 9, 1993 AND AUGUST 10, 1992
NOTE (A) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the requirements of Form 10-Q and, therefore, do not include all
information and footnotes which would be presented were such financial
statements prepared in accordance with generally accepted accounting principles.
These statements should be read in conjunction with the audited financial
statements presented in the Company's 1993 Annual Report to Shareholders. In the
opinion of management, all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of financial position and results of
operations for the interim periods presented have been reflected herein. The
results of operations for such interim periods are not necessarily indicative of
results to be expected for the full year.
NOTE (B) INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in fiscal 1993. The cumulative effect of this
change in accounting principle resulted in a $2.45 million charge to operations.
The first quarter of last year has been restated to reflect this adoption.
NOTE (C) RECLASSIFICATIONS
Certain prior year amounts in the accompanying financial statements have
been reclassified to conform to the fiscal 1994 presentation.
V-7
<PAGE> 150
CARL KARCHER ENTERPRISES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
A major corporate restructuring and cost reduction program, intended to
refocus the Company's resources on operating and franchising Carl's Jr.
restaurants, was initiated near the end of January 1993. As a result of this
program, the Company redefined its cash management activities and liquidated
substantially all of its former investment portfolio during the first half of
this year. In addition, most of the properties previously held for
sale/leaseback were reclassified to property and equipment because management no
longer intends to actively pursue this means of financing.
At August 9, 1993, total cash available to the Company was $19.1 million,
which included $8.5 million of cash invested in marketable securities. The
securities consisted primarily of money market funds and direct obligations of
and funds related to the U.S. Government. The Company's new investment policy is
designed to maintain a diversified, highly liquid portfolio with minimal
interest rate risk. As management seeks to manage the cash in excess of its
operating requirements, this new program will generally not include margined
investments.
The Company's $11.7 million stand-by letter of credit related to its
self-insured workers' compensation program expired on May 1, 1993. The state of
California requires that the Company secure its potential workers' compensation
claims each year by providing a prescribed amount either through a letter of
credit or an equivalent amount of cash or investment securities. The total
amount of security required for the period May 1, 1993 through April 30, 1994
increased to $14.7 million, primarily due to an increase in the Company's claims
experience in fiscal 1993. Replacement letters of credit totaling $8 million
were obtained in April 1993. The balance of the requirement was satisfied with
$6.7 million of the proceeds from the liquidation of the former investment
portfolio. New qualifying securities were purchased with these proceeds and were
deposited with the State. These restricted securities were classified as other
assets in the accompanying balance sheet.
The remaining proceeds from the portfolio liquidation were largely used to
repay the Company's $18.1 million revolving credit line borrowings, $2.4 million
of obligations secured by marketable securities and $1.7 million of long-term
debt. Further prepayment of long-term debt is not anticipated as the remaining
debt agreements require the Company to pay significant prepayment penalties.
The Company renegotiated its revolving line of credit in April 1993,
following the repayment of all borrowings under the previous agreement. The new
facility provides for $15 million of available credit through March 1994, $4
million of which is committed to a letter of credit to secure workers'
compensation claims. No other borrowings are currently outstanding under this
agreement. The Company was not in compliance with certain of the covenants
governing both this revolving credit line and a separate term loan, under which
$9.9 million was outstanding as of August 9, 1993. In September 1993, the
Company received a waiver of the requirements of these covenants through August
9, 1993 and negotiated new, more favorable covenant terms that will apply to
measurement periods after that date.
On April 20, 1993 the Board of Directors adopted a new stock option plan
under which stock options may be granted to key employees to purchase up to
1,750,000 shares of its common stock. This plan was approved by the shareholders
at the Company's June 1993 annual meeting. A total of 579,812 stock options have
been granted under this new plan. During the quarter ended August 9, 1993, the
Company purchased from the Carl N. and Margaret M. Karcher Trust a total of
59,752 shares of stock for an aggregate purchase price of $422,000.
RESULTS OF OPERATIONS
For the 12 weeks ended August 9, 1993, revenues from Company-operated
restaurants decreased 8% as compared with the prior year primarily due to lower
per store volumes. For the 28-week period, these revenues declined 12% due to
lower per store volumes and because fewer stores were in operation, particularly
in the
V-8
<PAGE> 151
CARL KARCHER ENTERPRISES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
first quarter of this year. The lower average sales per restaurant throughout
fiscal 1994 was largely due to California's continuing recessionary environment.
In addition, discounts were higher throughout the current year in response to
price reductions by the Company's principal competitors. The weighted average
number of restaurants operating during this year decreased 5% as compared with
fiscal 1993 mainly as a result of the conversion of the greater San Francisco
Bay Area to a franchised market, which was substantially completed in May of
last year.
Over 70% of all revenues from franchised and licensed restaurants
throughout both fiscal 1994 and fiscal 1993 were generated in connection with
the sales of food service products to franchisees by the Company's distribution
centers. During fiscal 1993, the Company initiated a program to lower food costs
through the termination of its manufacturing operations and many of the savings
realized were passed on to the franchisees. Thus, although the weighted average
number of franchised restaurants operating in the current 28-week period rose
12% as a result of the conversion of the greater San Francisco Bay Area and the
development of new restaurants by the franchisees in the prior year, food
service sales to these operators increased only 8%. These revenues were 2%
higher in the 12-week quarter as compared with the year ago quarter, which is
consistent with the 2% increase in the weighted average number of franchised
restaurants operating in the current period.
Other principal components of revenues from franchised and licensed
restaurants were also related to the Company's franchising operations and
included rental income, royalties and initial franchise fees. Rental income and
royalties increased in both current year periods due to the increase in the
franchise base, but were largely offset by a decrease in initial franchise fees.
Initial fees were significantly higher in fiscal 1993, particularly in the first
quarter of that year, due to the unusually high level of franchising that
occurred in connection with the conversion of the greater San Francisco Bay Area
last spring.
Revenues from other outside parties, along with the corresponding operating
costs associated with these revenues, were eliminated during fiscal 1994 as a
result of the decision to close the Company's manufacturing operations in the
prior year.
Company-operated restaurant costs decreased 9% in the second quarter of
this year. Food and packaging costs decreased 6% as compared with the prior year
primarily as a result of the new third party purchasing program initiated near
the end of fiscal 1993. Payroll and other employee benefits also decreased 14%
mainly due to efforts to increase operating efficiency without compromising the
guest experience. Occupancy and other operating expenses decreased 8%, largely
due to reduced repair and maintenance costs. However, on a smaller sales base,
food and occupancy costs increased as a percentage of sales. Similarly, for the
first half of fiscal 1994, Company-operated restaurant costs decreased 12%,
which was comprised of an 11% decrease in food and packaging costs, a 14%
decrease in payroll and other employee benefits and an 8% decrease in occupancy
and other operating expenses.
Nearly 80% of all operating costs associated with franchised and licensed
restaurants during both years were related to the sales of food service products
to franchisees. These margins declined by .4% and 1.3% in the 12-and 28-week
periods, respectively, primarily as a result of the decision to lower prices to
franchisees in response to competitive pressures. Higher real estate
administration costs related to the leasing or subleasing of a number of
restaurants to franchisees and other support costs associated with the franchise
expansion in the prior year account for the balance of the increase in these
operating costs in both current year periods.
Advertising spending has become increasingly important in the current
intensely competitive environment. Thus, these costs increased 3% during the
fiscal 1994 12-week quarter despite an 8% decline in Company-operated restaurant
sales. For the 28-week period, advertising expenses decreased only 2% in the
current year, while Company-operated restaurant sales were 12% lower than a year
ago.
V-9
<PAGE> 152
CARL KARCHER ENTERPRISES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
General and administrative expenses were nearly 8% lower during both
current year periods primarily due to the downsizing of regional support staffs
following the completion of the franchise conversion in the greater San
Francisco Bay Area and the implementation of a major corporate restructuring and
cost-reduction program in January 1993. As part of this program, the marketing
function was reorganized and selective staff additions were made aimed at
improving the effectiveness of the Company's marketing programs and its product
development process. In addition, the information and technology function was
strengthened to improve the productivity of restaurant managers and the
Company's overall information systems. A new strategic development function was
also created to enhance the Company's strategic planning efforts. Thus,
partially offsetting the savings from downsizing the corporate staff were
additions in the areas of marketing, strategic planning and information systems.
During the second quarter of fiscal 1994, the Company increased the
span-of-control of its operations management group. Seven regions were condensed
into four, and a total of 16 positions were eliminated. The Company's in-house
repairs and maintenance staff was also pared down. A $533,000 pre-tax
restructuring charge was required, primarily to cover severance costs associated
with these decisions. The second quarter of fiscal 1993 included a $1.4 million
restructuring charge related to the elimination of the Company's manufacturing
operations in the prior year.
During the first quarter of fiscal 1994, the Company's revolving credit
line and its obligations secured by marketable securities were paid in full by
liquidating certain investment securities. Thus, interest expense decreased
significantly during fiscal 1994 as compared with both year ago periods.
Other income, net, during both years was comprised of investment income,
gains on sales of restaurants, interest on notes and leases receivable and other
non-recurring income. The liquidation of the former investment portfolio caused
investment income to decrease $3 million and $3.7 million in this year's 12-and
28-week periods, respectively. There was also a $1.5 million decrease in gains
on sales of restaurants during the 28-week period, most of which occurred during
the first quarter of this year, because considerably fewer sales have occurred
this year as compared with last year. Additionally, the prior year included
$380,000 of non-recurring income.
Higher income before income taxes in both fiscal 1993 periods resulted in
more income tax expense in those periods. In addition, benefits from the
remeasurement of the Company's deferred tax asset at the new Federal income tax
rate and the recognition of certain tax credits that were retroactively
reinstated resulted in a lower effective tax rate in fiscal 1994. The Company
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," in fiscal 1993. The cumulative effect of this change in
accounting principle resulted in a $2.45 million charge to operations in the
first quarter of last year.
V-10
<PAGE> 153
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS: None
ITEM 2. CHANGES IN SECURITIES: None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES: None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
The Annual Meeting of Shareholders of Carl Karcher Enterprises, Inc. was
held on June 16, 1993, for the purpose of electing a board of directors and to
consider and approve the Company's 1993 Employee Stock Incentive Plan.
All of management's nominees for directors were elected by the following
vote:
<TABLE>
<CAPTION>
SHARES VOTED AUTHORITY TO VOTE
"FOR" "WITHHELD"
------------ -----------------
<S> <C> <C>
Carl N. Karcher......................................... 14,735,218 187,994
Donald E. Doyle......................................... 14,766,186 157,026
Daniel W. Holden........................................ 14,668,312 254,900
Carl L. Karcher......................................... 14,739,642 183,570
Peter Churm............................................. 14,762,577 160,635
Kenneth Olsen........................................... 14,718,697 204,515
Elizabeth A. Sanders.................................... 14,746,643 176,569
</TABLE>
The proposal to approve the Company's 1993 Employee Stock Incentive Plan
was approved by the following vote:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED BROKER
"FOR" "AGAINST" "ABSTAINING" "NON-VOTES"
- ------------ ------------ -------------- -------------
<S> <C> <C> <C>
11,788,055 974,032 224,828 1,936,297
</TABLE>
ITEM 5. OTHER INFORMATION: None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibit 11 Calculation of Earnings per Share
(b) A report on Form 8-K was filed on September 7, 1993 describing the
possibility of Mr. Carl N. Karcher seeking solicitation of proxies or written
consents to obtain majority representation on the Company's Board of Directors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARL KARCHER ENTERPRISES, INC.
(Registrant)
<TABLE>
<S> <C>
September 27, 1993 Loren C. Pannier
- ----------------------- -----------------------------------------------
Date Senior Vice President,
Chief Financial Officer
</TABLE>
V-11
<PAGE> 154
APPENDIX VI
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended: NOVEMBER 1, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
for the transition period from to
Commission file number: 0-10316
CARL KARCHER ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-2415578
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 NORTH HARBOR BOULEVARD, 92801
ANAHEIM, CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (714) 774-5796
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 18,334,991 AS OF DECEMBER 10, 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VI-1
<PAGE> 155
CARL KARCHER ENTERPRISES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Part I Financial Information
Item 1. Financial Statements:
Balance Sheets as of November 1, 1993 and January 25, 1993...................... 3
Statements of Income for the twelve and forty weeks ended November 1, 1993 and
November 2, 1992............................................................... 4
Statements of Cash Flows for the forty weeks ended November 1, 1993 and November
2, 1992........................................................................ 5-6
Notes to Financial Statements................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 8-11
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.......................................... 12-13
</TABLE>
VI-2
<PAGE> 156
CARL KARCHER ENTERPRISES, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NOVEMBER 1, JANUARY 25,
1993 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 13,150 $ 11,505
Marketable securities.............................................. 8,955 32,930
Accounts receivable................................................ 9,646 13,934
Current portion of related party notes receivable.................. 457 476
Inventories........................................................ 8,687 6,383
Restaurant property costs to be reimbursed or sold and leased
back............................................................ 2,314 7,427
Other current assets............................................... 18,822 17,907
----------- -----------
Total current assets....................................... 62,031 90,562
Property and equipment, net.......................................... 112,659 115,064
Property under capital leases, net................................... 34,543 35,558
Notes receivable..................................................... 15,768 18,407
Related party notes receivable....................................... 4,004 4,650
Other assets.................................................... 12,210 4,683
----------- -----------
$ 241,215 $ 268,924
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................. $ 14,992 $ 28,467
Obligations secured by marketable securities....................... -- 2,422
Current portion of capital lease obligations....................... 3,335 3,158
Accounts payable................................................... 14,452 14,531
Other current liabilities.......................................... 37,224 36,419
----------- -----------
Total current liabilities.................................. 70,003 84,997
----------- -----------
Long-term debt 16,880 31,742
Capital lease obligations............................................ 46,884 48,512
Other long-term liabilities.......................................... 18,727 18,941
Shareholders' equity:
Preferred stock, no par value; authorized 2,000,000 shares; none
issued or outstanding...........................................
Common stock, no par value; authorized 22,500,000 shares; issued
and outstanding 18,173,874 and 18,090,742 shares................ 29,324 28,793
Retained earnings.................................................. 59,397 55,939
----------- -----------
Total shareholders' equity................................. 88,721 84,732
----------- -----------
$ 241,215 $ 268,924
----------- -----------
----------- -----------
</TABLE>
VI-3
<PAGE> 157
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED FORTY WEEKS ENDED
------------------------- -------------------------
NOVEMBER 1, NOVEMBER 2, NOVEMBER 1, NOVEMBER 2,
1993 1992 1993 1992
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Sales by Company-operated restaurants.......... $ 88,586 $ 94,387 $ 293,819 $ 326,904
Revenues from franchised and licensed
restaurants................................. 17,850 18,175 60,709 58,361
Revenues from other outside parties............ -- 2,788 -- 11,622
----------- ----------- ----------- -----------
Total revenues......................... 106,436 115,350 354,528 396,887
----------- ----------- ----------- -----------
Operating costs and expenses:
Company-operated restaurants:
Food and packaging.......................... 27,434 29,360 90,783 100,415
Payroll and other employee benefits......... 26,747 30,900 92,375 107,521
Occupancy and other operating expenses...... 17,912 21,427 64,210 72,000
----------- ----------- ----------- -----------
72,093 81,687 247,368 279,936
Franchised and licensed restaurants............ 16,148 16,632 54,834 52,653
Other outside parties.......................... -- 2,696 -- 11,291
Advertising expenses........................... 4,977 4,381 15,290 14,942
General and administrative expenses............ 8,282 8,004 26,662 28,754
Post-employment benefits....................... 1,668 -- 1,668 --
----------- ----------- ----------- -----------
Total operating costs and expenses..... 103,168 113,400 345,822 387,576
----------- ----------- ----------- -----------
Operating income................................. 3,268 1,950 8,706 9,311
Interest expense................................. (2,443) (3,368) (7,991) (11,225)
Other income, net................................ 1,029 2,762 4,988 12,250
----------- ----------- ----------- -----------
Income before income taxes and cumulative effect
of change in accounting principle.............. 1,854 1,344 5,703 10,336
Income tax expense............................... 377 91 1,156 2,629
----------- ----------- ----------- -----------
Income before cumulative effect of change in
accounting principle........................... 1,477 1,253 4,547 7,707
Cumulative effect of change in accounting
principle...................................... -- -- -- 2,450
----------- ----------- ----------- -----------
Net income....................................... $ 1,477 $ 1,253 $ 4,547 $ 5,257
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share:
Income before cumulative effect of change in
accounting principle........................ $ .08 $ .07 $ .25 $ .42
Cumulative effect of change in accounting
principle................................... $ .-- $ .-- $ .-- $ (.13)
----------- ----------- ----------- -----------
Net income............................. $ .08 $ .07 $ .25 $ .29
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares outstanding:........ 18,468 18,578 18,451 18,517
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
VI-4
<PAGE> 158
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
------------------------------
NOVEMBER 1, NOVEMBER 2,
1993 1992
------------ ------------
<S> <C> <C>
Net cash flow from operating activities:
Net income............................................................ $ 4,547 $ 5,257
Adjustments to reconcile net income to net cash provided by operating
activities:
Noncash franchise revenues.......................................... (151) (890)
Depreciation and amortization....................................... 17,510 19,662
(Gain) loss on sale of property and equipment....................... 339 (221)
Write-off of accounts receivable.................................... 267 --
Write-down of marketable securities................................. 213 177
Net noncash investment income....................................... (19) (239)
Deferred income taxes............................................... (807) --
Noncash post-employment benefit charges............................. 1,668 --
Cumulative effect of change in accounting principle................. -- 2,450
Net change in marketable securities reserve......................... (210) 206
Net change in receivables, inventories and other current assets..... 1,436 (1,504)
Net change in other assets.......................................... (331) 312
Net change in accounts payable and other current liabilities........ (2,239) (10,397)
------------ ------------
Net cash provided by operating activities...................... 22,223 14,813
------------ ------------
Cash flow from investing activities:
Construction of restaurant property to be reimbursed or sold and
leased back......................................................... (1,257) (7,154)
Sale of or reimbursement on restaurant property to be sold and leased
back................................................................ 333 13,951
Purchases of:
Marketable securities............................................... (11,725) (40,521)
Property and equipment.............................................. (9,366) (8,689)
Long-term investments............................................... -- (3,054)
Proceeds from sales of:
Marketable securities............................................... 28,976 33,498
Property and equipment.............................................. 251 1,557
Long-term investments............................................... -- 2,176
Collections on leases receivable...................................... 96 83
Collections on notes receivable and related party notes receivable.... 4,003 2,814
------------ ------------
Net cash provided by (used in) investing activities............ 11,311 (5,339)
------------ ------------
Cash flow from financing activities:
Net change in bank overdraft.......................................... 1,552 6,966
Net change in obligations secured by marketable securities and
long-term investments............................................... (2,422) (977)
Short-term borrowings................................................. 15,150 79,500
Repayments of short-term debt......................................... (33,250) (89,000)
Repayments of long-term debt.......................................... (10,237) (9,806)
Repayments of capital lease obligations............................... (1,962) (1,952)
Net change in other long-term liabilities............................. (162) 342
Repurchase and retirement of common stock............................. (422) --
Exercise of stock options............................................. 953 1,005
Payment of dividends.................................................. (1,089) (1,082)
------------ ------------
Net cash used in financing activities............................ (31,889) (15,004)
------------ ------------
Net increase (decrease) in cash and cash equivalents........... $ 1,645 $ (5,530)
------------ ------------
------------ ------------
</TABLE>
VI-5
<PAGE> 159
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
---------------------------
NOVEMBER 1, NOVEMBER 2,
1993 1992
----------- -----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest (net of amount capitalized)............................ $ 8,198 $11,485
Income taxes.................................................... 777 5,181
Noncash investing and financing activities:
Investing activities:
Transfer of marketable securities to other assets............. 6,776 226
Other investing activities:
Net change in marketable securities from noncash
transactions............................................. (55) (2,743)
Net change in long-term investments from noncash
transactions............................................. -- 5
Net change in dividends receivable......................... 36 124
Net change in obligations secured by marketable securities
and long-term investments................................ -- 2,375
Financing activities:
Capital lessee additions........................................ 505 1,047
Capital lessor additions........................................ 538 --
Other leasing activities:
Decrease in property under capital leases..................... -- 408
Decrease in capital lease obligations......................... -- (602)
Franchising and reorganization activities:
Sale of property and equipment.................................. 344 4,915
Sale of inventory............................................... 11 139
Write-off of accounts receivable................................ 267 --
Assumption of various liabilities............................... 55 812
Increase in notes receivable.................................... (551) (6,562)
Increase in other long-term liabilities......................... 7,521 --
Sale/leaseback activities:
Transfer of restaurant property costs to property and
equipment...................................................... 6,110 --
Sale and leaseback transactions resulting in an increase to
notes receivable.............................................. -- 1,300
</TABLE>
VI-6
<PAGE> 160
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 1, 1993 AND NOVEMBER 2, 1992
NOTE (A) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the requirements of Form 10-Q and, therefore, do not include all
information and footnotes which would be presented were such financial
statements prepared in accordance with generally accepted accounting principles.
These statements should be read in conjunction with the audited financial
statements presented in the Company's 1993 Annual Report to Shareholders. In the
opinion of management, all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of financial position and results of
operations for the interim periods presented have been reflected herein. The
results of operations for such interim periods are not necessarily indicative of
results to be expected for the full year.
NOTE (B) INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in fiscal 1993. The cumulative effect of this
change in accounting principle resulted in a $2.45 million charge to operations.
The first quarter of last year has been restated to reflect this adoption.
NOTE (C) RECLASSIFICATIONS
Certain prior year amounts in the accompanying financial statements have
been reclassified to conform to the fiscal 1994 presentation.
VI-7
<PAGE> 161
CARL KARCHER ENTERPRISES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
A major corporate restructuring and cost reduction program, intended to
refocus the Company's resources on operating and franchising Carl's Jr.
restaurants, was initiated near the end of January 1993. As a result of this
program, the Company redefined its cash management activities and liquidated
substantially all of its former investment portfolio. In addition, most of the
properties previously held for sale/leaseback were reclassified to property and
equipment because management no longer intends to actively pursue this means of
financing.
At November 1, 1993, total cash available to the Company was $22.1 million,
which included $9.0 million of idle cash invested in marketable securities.
These securities consisted primarily of money market funds and direct
obligations of and funds related to the U.S. Government and were invested in
accordance with the Company's new investment policy. The focus of this new
policy is to effectively manage cash in excess of the Company's operating
requirements. It is designed to maintain a diversified, highly liquid portfolio
with minimal interest rate risk. Margined investments will generally not be
considered for this new portfolio.
The Company's $11.7 million stand-by letter of credit related to its
self-insured workers' compensation program expired on May 1, 1993. The State of
California requires that the Company secure its potential workers' compensation
claims each year by providing a prescribed amount either through a letter of
credit or an equivalent amount of cash or investment securities. The total
amount of security required for the period May 1, 1993 through April 30, 1994
increased to $14.7 million, primarily due to an increase in the Company's claims
experience in the prior fiscal year. Replacement letters of credit totaling $8
million were obtained in April 1993. The balance of the requirement was
satisfied with $6.7 million of the proceeds from the liquidation of the former
investment portfolio. New qualifying securities were purchased with these
proceeds and were deposited with the State. These restricted securities were
classified as other assets in the accompanying balance sheet.
The remaining proceeds from the portfolio liquidation were largely used to
repay the Company's $18.1 million revolving credit line borrowings and $2.4
million of obligations secured by marketable securities. This reduction of
current liabilities was offset by a $5.2 million reclassification of bank debt
in recognition of certain upcoming 1994 maturity dates.
The Company renegotiated its revolving line of credit in April 1993,
following the repayment of all borrowings under the previous agreement. The new
facility provides for $15 million of available credit through March 1994, $4
million of which is committed to one of the letters of credit securing workers'
compensation claims. No other borrowings are currently outstanding under this
agreement.
On October 1, 1993, Elizabeth A. Sanders succeeded Carl N. Karcher as
Chairman of the Board of Directors. Mr. Karcher was granted future retirement
benefits, consisting principally of $200,000 per year for life and supplemental
health benefits, which had a net present value of $1.7 million as of this date.
Most of this amount remained accrued as of November 1, 1993 and was included in
other current liabilities in the accompanying balance sheet.
In addition to the $5.2 million reclassification of bank debt described
above, principal payments on long-term debt totaled $8.5 million during the
current year and an additional $1.7 million of long-term debt was repaid with
proceeds from the liquidation of the former investment portfolio. Further
prepayment of long-term debt is not anticipated as the remaining debt agreements
require the Company to pay sizable prepayment penalties.
As of November 1, 1993, the Company was not in compliance with one of the
covenants governing its revolving credit line, a term loan with a maturity date
of December 1994, under which $7.6 million was outstanding as of November 1,
1993, and the letters of credit related to the Company's workers' compensation
VI-8
<PAGE> 162
CARL KARCHER ENTERPRISES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
program. In December 1993, the Company received a waiver of the requirements of
this covenant and negotiated a more favorable covenant in its place that will
apply to measurement periods after that date.
On April 20, 1993, the Board of Directors adopted a new stock option plan
under which stock options may be granted to key employees to purchase up to
1,750,000 shares of its common stock. This plan was approved by the shareholders
at the Company's June 1993 annual meeting. A total of 579,812 stock options have
been granted under this new plan.
During the second quarter of this year, the Company purchased from the Carl
N. and Margaret M. Karcher Trust a total of 59,752 shares of stock for an
aggregate purchase price of $422,000.
RESULTS OF OPERATIONS
For the twelve and forty week periods ended November 1, 1993, revenues from
Company-operated restaurants decreased 6% and 10%, respectively, as compared
with the prior year primarily due to lower per store volumes. Same-store sales
have declined throughout fiscal 1994 largely due to California's continuing
recessionary environment. In addition, sales discounts were higher throughout
the current year in response to price reductions by the Company's principal
competitors. The weighted average number of restaurants operating during the
forty week period decreased 3% as compared with fiscal 1993, which also
contributed to the decline in restaurant sales. Fewer stores were in operation
mainly as a result of the conversion of the greater San Francisco Bay Area to a
franchised market, which was substantially completed in May of last year.
Nearly 75% of all revenues from franchised and licensed restaurants
throughout both fiscal 1994 and fiscal 1993 were generated in connection with
the sales of food service products to franchisees by the Company's distribution
centers. During fiscal 1993, the Company initiated a program to lower food costs
through the termination of its manufacturing operations, and many of the savings
realized were passed on the franchisees. Thus, although the weighted average
number of franchised restaurants operating in the current twelve week quarter
increased 3% as a result of the conversion of the greater San Francisco Bay Area
and the development of new restaurants by the franchisees in the prior year,
food service sales to these operators declined slightly. These revenues were 5%
lower in the forty week period as compared with a year ago, although the
weighted average number of franchised restaurants operating in the current
period rose 9%.
Other principal components of revenues from franchised and licensed
restaurants were also related to the Company's franchising operations and
included rental income, royalties and initial franchise fees. Rental income and
royalties increased in the third quarter of this year due to the increase in the
franchise base. This increase was more than offset by a decrease in other fees
related to the repairs and maintenance of certain franchise equipment. These
services were eliminated near the end of the second quarter of this year. For
the forty week period, rental income and royalties were higher, offset by lower
initial franchise fees and a decrease in the repairs and maintenance fees.
Initial fees were significantly higher in fiscal 1993, particularly in the first
quarter of that year, due to the unusually high level of franchising that
occurred in connection with the conversion of the greater San Francisco Bay Area
last spring.
Revenues from other outside parties, along with the corresponding operating
costs associated with these revenues, were eliminated during fiscal 1994 as a
result of the decision to close the Company's manufacturing operations in the
prior year.
Company-operated restaurant costs decreased 12% in the third quarter of
this year. Food and packaging costs decreased 7% as compared with the prior year
primarily as a result of the new third party purchasing program initiated near
the end of fiscal 1993. Payroll and other employee benefits decreased 13% mainly
due to efforts to increase operating efficiency without compromising the guest
experience. Occupancy and other operating expenses decreased 16%, largely due to
reduced repair and maintenance costs. Similarly, for the first
VI-9
<PAGE> 163
CARL KARCHER ENTERPRISES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
three quarters of fiscal 1994, Company-operated restaurant costs decreased 12%,
which was comprised of a 10% decrease in food and packaging costs, a 14%
decrease in payroll and other employee benefits and an 11% decrease in occupancy
and other operating expenses.
Nearly 80% of all operating costs associated with franchised and licensed
restaurants during both years were related to the sales of food service products
to franchisees. During both the twelve and forty week periods, these margins
were fairly comparable to the prior year. Real estate administration costs
related to the leasing or subleasing of a number of restaurants to franchisees
were higher throughout fiscal 1994 largely as a result of the increases to the
franchise base in the prior year. This increase was offset, particularly in the
most recent twelve week quarter, by the elimination of the franchise repairs and
maintenance program during the second quarter of this year and other staff
reductions related to the January 1993 corporate restructuring.
Advertising spending has become increasingly important in the current
intensely competitive environment. Thus, these costs increased 14% during the
fiscal 1994 twelve week quarter despite a 6% decline in Company-operated
restaurant sales. For the forty week period, advertising expenses increased 2%
in the current year, while Company-operated restaurant sales were 10% lower than
a year ago.
General and administrative expenses rose 3% during the current year twelve
week quarter. As part of the January 1993 restructuring program, the marketing
function was reorganized and selective staff additions were made aimed at
improving the effectiveness of the Company's marketing programs and its product
development process. In addition, the information and technology function was
strengthened to improve the productivity of restaurant managers and the
Company's overall information systems. A new strategic development function was
also created to enhance the Company's strategic planning efforts. Thus,
offsetting the savings from downsizing other corporate staff positions were
additions in the areas of marketing, strategic planning and information systems.
For the forty week period, the downsizing of the corporate staff more than
offset the increases in marketing, strategic planning and information systems.
As described in the Financial Condition section above, during the third
quarter of this year, the Company incurred a $1.7 million charge to earnings
resulting from the grant of future retirement benefits to Carl N. Karcher.
During the first quarter of fiscal 1994, the Company's revolving credit
line and its obligations secured by marketable securities were paid in full by
liquidating certain investment securities. Thus, interest expense decreased
significantly during fiscal 1994 as compared with both year ago periods.
Other income, net, during both years was comprised of investment income,
gains on sales of restaurants, interest on notes and leases receivable and other
non-recurring income. The liquidation of the former investment portfolio caused
investment income to decrease $1.6 million and $5.3 million in this year's
twelve and forty week periods, respectively. There was also a $1.6 million
decrease in gains on sales of restaurants during the forty week period because
considerably fewer sales have occurred this year as compared with last year,
most notably during the first quarter of this year. Additionally, the prior year
included $380,000 of non-recurring income.
Benefits from the remeasurement of the Company's deferred tax asset at the
new Federal income tax rate and the recognition of certain tax credits that were
retroactively reinstated resulted in a lower effective tax rate as of November
1, 1993 as compared with the rate calculated a year ago. The Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," in fiscal 1993. The cumulative effect of this change in accounting
principle resulted in a $2.45 million charge to operations in the first quarter
of last year.
VI-10
<PAGE> 164
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On December 10, 1993, the Company announced that William P. Foley II and
Ron Lane will join the Board as its two newest members, effective as of this
date. Both Foley and Lane are members of an investment partnership that joined
Carl N. Karcher, creating the largest ownership block of Carl Karcher
Enterprises stock. Reference is made to Form 13-D and amendments thereto filed
by said partnership for details concerning share ownership, voting rights, loans
and other matters. No implication should be drawn as to whether or not the
matter reported herein constitutes a change in control of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 Calculation of Earnings per Share
(b) A report on Form 8-K was filed on September 7, 1993 describing the
possibility of Mr. Carl N. Karcher seeking solicitation of proxies or written
consents to obtain majority representation on the Company's Board of Directors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARL KARCHER ENTERPRISES, INC.
(Registrant)
<TABLE>
<S> <C>
December 16, 1993 Loren C. Pannier
- --------------------- -----------------------------------------------
Date Senior Vice President,
Chief Financial Officer
</TABLE>
VI-11
<PAGE> 165
APPENDIX VII
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K
------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 7, 1993
CARL KARCHER ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
CALIFORNIA 0-10316 95-2415578
(STATE OF OTHER JURSIDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
1200 NORTH HARBOR BOULEVARD, ANAHEIM, CALIFORNIA 92801
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-5796
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VII-1
<PAGE> 166
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
NOT APPLICABLE.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
NOT APPLICABLE.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
NOT APPLICABLE.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
NOT APPLICABLE.
ITEM 5. OTHER EVENTS.
On September 1, 1993, the Carl N. and Margaret M. Karcher Trust issued a
press release announcing that Carl N. Karcher is actively seeking means of
ensuring that a majority of the Board of Directors of Carl Karcher Enterprises,
Inc. (the "Company") is fully committed to his business strategy for the
Company. The press release states that if this objective cannot be accomplished
quickly by means of negotiations with members of the Board of Directors, Mr.
Karcher will consider solicitation of proxies or written consents to obtain
majority representation on the Company's Board of Directors.
The Company's management believes that Mr. Karcher's desire to cause the
Company to adopt his business strategy is related to proposed arrangements
between Mr. Karcher and Mr. William N. Theisen, the principal shareholder of GB
Foods, Inc., which operates a chain of 65 Mexican fast food restaurants doing
business in Southern California under the name "Green Burrito." These
arrangements include transactions between the Company and GB Foods, Inc. as well
as transactions involving Mr. Karcher and Mr. Theisen personally, and are
described in a series of three letters received by the Company's Board, one from
Mr. Theisen to Mr. Karcher dated July 7, 1993 and two from Andrew F. Puzder, Mr.
Karcher's attorney, to Kenneth Olsen, a member of the Company's Board, dated
August 6, 1993 and August 11, 1993.
On September 3, 1993, Kenneth Olsen wrote to Mr. Karcher on behalf of the
Board asking for answers to specific questions about Mr. Karcher's intentions
and any personal financial benefits he may expect to receive.
Mr. Karcher and related parties own approximately 34% of the Company's
outstanding stock.
Copies of Mr. Olsen's letter to Mr. Karcher, Mr. Theisen's letter to Mr.
Karcher, and Mr. Puzder's letters to Mr. Olsen are attached as exhibits to this
report.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
NOT APPLICABLE
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
NOT APPLICABLE.
ITEM 8. CHANGE IN FISCAL YEAR.
NOT APPLICABLE.
VII-2
<PAGE> 167
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be filed on its behalf by the
undersigned hereunto duly authorized.
CARL KARCHER ENTERPRISES, INC.
(Registrant)
Date: September 7, 1993 By: /s/ LOREN C. PANNIER
(Signature)
Loren C. Pannier
Senior Vice President,
Chief Financial Officer
VII-3
<PAGE> 168
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ------------------------------------------------------------------- -------------
<C> <S> <C>
99.1 Letter from Kenneth Olsen to Carl N. Karcher dated September 3,
1993............................................................... 5
99.2 Letter from William M. Theisen to Carl N. Karcher dated July 7,
1993............................................................... 8
99.3 Letter from Andrew F. Puzder to Kenneth Olsen dated August 6,
1993............................................................... 11
99.4 Letter from Andrew F. Puzder to Kenneth Olsen dated August 11,
1993............................................................... 13
</TABLE>
VII-4
<PAGE> 169
EXHIBIT 99.1 TO FORM 8-K
Kenneth Olsen
324 Muirfield Road
Los Angeles, CA., 90020
September 3, 1993
Carl N. Karcher, Chairman
Carl Karcher Enterprises, Inc.
1200 North Harbor Boulevard
Anaheim, California 92801
Dear Carl:
The members of the Board of Directors have asked me to acknowledge receipt
of your letter to us dated September 1, 1993 and to respond to it. Your letter
refers to issues which we have been struggling with for many months. We are
mindful of our obligation to act in the best interests of all stockholders.
While we are aware of and sympathetic with your personal financial predicament,
we cannot take actions which are unjustified, solely because of your financial
situation.
In our conversations a number of very important questions have been raised
about your plans. Many of these questions have been asked previously. In all
candor, I must tell you that the directors do not feel that they have received
complete answers. To take responsible action, we all believe they must be
answered candidly and fully. If you would be so kind as to provide us with
written responses to the attached questions, we feel that we would then be in a
position to sit down with you to discuss in detail your proposals. Carl,
answering these questions could go a long way to help clear the air.
We look forward to your prompt response to the attached questions and
thereafter to a full and frank discussion of our mutual concerns regarding the
future direction of the Company.
Very truly yours,
Kenneth Olsen
VII-5
<PAGE> 170
Carl Karcher Enterprises
Questions To Be Answered
September 3, 1993
1. Who are the persons you are prepared to nominate to the board of
directors to replace the present outside directors? What is their background and
qualifications? Do any of them have any financial interest, understandings or
agreements with you, William Theisen or GB Foods? If so, will you please furnish
the specifics.
2. What, if any, management changes do you propose to make in the Company,
other than the changes in the board of directors? Are you planning to bring any
new officers? If so, please provide specific information regarding these people
and their positions. Furthermore, what assurances can you provide us that the
present management team will be permitted to function without interference?
3. What are the specifics of your business plan; and what are the changes
in business strategy that you propose to make? With respect to any revenue
enhancement or new marketing plans which you intend to pursue, please provide us
with any market research and financial analyses that substantiates their
validity.
4. Your letter of September 1, 1993 states that the Company's current
policy is unsuccessful. Please advise what elements of the Company's current
business plan and marketing strategy are viewed by you as unsuccessful. Which
such elements do you propose to change and what, specifically, are the nature of
the changes?
5. Is it intended that the proposal described in William Theisen's July 7,
1993 letter (or any similar proposal for joint marketing of the Green Burrito
menu) be implemented? What if any changes would be made in the proposal, from
that described in the July 7 letter? In connection with any proposal for joint
marketing or other arrangements that would involve the Company and GB Foods,
what if any understandings exist concerning loans, stock purchases or other
financial accommodations from William Theisen, GB Foods or any of their
affiliates for your benefit?
6. What is the financial restructuring that was referred to in your press
release dated September 1? Would such a restructuring affect or involve the
Company or its assets? If the Company or its assets would be involved, what
protections would there be to assure that the interests of the public
stockholders would not be harmed? Would such a restructuring involve a present
or potential change in control of the Company or of your stock in the Company?
Who would be the parties, if any, who would gain or increase their interest in
the Company?
7. In recent conversations with directors you have referred to three
persons who were prepared to resolve your personal financial problems if three
of the current outside directors resigned. There has also been reference by you
to a potential loan of more than $40 million if agreements were reached between
the Company and Green Burrito. Please furnish the details of the arrangements
referred to in order that the directors may consider their relevance and
potential effect on the interests of the Company's stockholders.
8. What changes are proposed to be made in the terms of your employment by
the Company? Are any changes proposed to be made in the leases or other
arrangements which presently exist between the Company and you?
9. You have advised the board in various communications that several
franchisees have expressed interest in and enthusiasm for the Green
Burrito/Carl's Jr. dual concept idea. Please provide the names of those
franchisees so that we may consider their interest in arranging a market test.
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EXHIBIT 99.2 TO FORM 8-K
July 7, 1993
MR. CARL N. KARCHER, CHAIRMAN
Carl Karcher Enterprises, Inc.
1200 North Harbor Boulevard
Anaheim, California 92801
Re: Letter of Intent
Dear Carl:
This letter outlines the general terms and conditions under which we would
proceed to strengthen and grow the businesses, sales and profits for Carl
Karcher Enterprises, Inc. (CKE) and GB Foods Corporation (GBFC). Because you and
I are also involving personal finances and taking personal financial risks with
respect to other matters described herein this letter also references each of us
individually by referencing you as "CNK" and me as "WT". Recognizing affiliated
entities may be involved as a matter of necessity or expediency, for purposes of
this letter, CNK includes by way of example, the Karcher Trust, or other related
Karcher entities where appropriate; and WT includes, by way of example, other
related Theisen entities, where appropriate.
The transactions and events we desire to effectuate are as follows:
1. CKE and GBFC shall enter into a mutually acceptable test store
development agreement for ten (10) GBFC test stores. The development
agreement will include the following terms:
A. Identity of 10 locations, which may later be modified by mutual
agreement.
B. Expansion of the GBFC dual concept throughout the CKE stores if
dual concept stores demonstrate annualized incremental sales increases
averaging $300,000 per store. Such expansion may be carried out under a
master franchise agreement for the CKE chain, or under a product
licensing arrangement, as the parties may mutually determine.
2. The Board of Directors will be elected to the Board of Directors
of CKE and serve on the Board as Vice-Chairman.
3. CKE will issue warrants to WT for 1,000,000 shares of CKE,
exercisable at $8 per share on or before July 31, 1998, under a mutually
acceptable warrant agreement.
4. GBFC will issue warrants for 1,000,000 shares of GBFC exercisable
at $12.00 per share, on or before July 31, 1998. The warrants will be
issued to CKE and CNK in such proportion as mutually determined between CNK
and CKE.
5. Within sixty (60) days of request, CKE shall cause a registration
statement which would permit secondary sales of all shares owned by CNK or
WT, such registration rights to be transferable.
6. WT understands the CKE Board may engage in a $10 million
repurchase of shares from CNK.
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<PAGE> 172
7. WT will loan CNK the sum of Six Million Dollars ($6,000,000.00)
secured with a pledge of 857,142 shares of CKE. The loan agreement will
provide for a maturity date of January 31, 1994, and, at the election of
WT, shall be dischargeable in cash or with unencumbered shares of CKE. In
the event WT elects repayment in the form of CKE shares, the shares shall
be valued at $8.50 per share regardless of actual trading price on the
repayment date. The loan agreement shall bear interest at the same rate
specified in the Union Bank Credit Agreement, dated as of August 14, 1991.
CNK shall provide consents from existing lenders as may be reasonably
requested or required by WT or the lenders to accomplish this transaction.
8. With the exception of the GBFC/Arby's test store in Los Angeles,
during the period from the date of this letter to December 31, 1993, GBFC
will not enter into discussions or negotiations with or enter into dual
concept marketing arrangements with any other person west of the
Continental Divide before 12/31/93. Likewise, CKE will not undertake or
negotiate any other similar dual food concepts for such territory during
the same period.
9. During the period from the date of this letter to December 31,
1993, neither CNK nor CKE shall enter into discussions or negotiations with
any other party regarding the sale or transfer of the stock of CKE or the
sale or transfer of the assets of CKE except as contemplated herein. CKE
will promptly communicate to WT the substance of any inquiry or proposal
concerning any such transaction which may be received.
10. WT will assist CNK in long-term capital and tax planning.
11. All public announcements will be made by mutual agreement, but
until the completion of mutually acceptable definitive agreements, no
public announcements shall be made except as may be required by applicable
law.
To effectuate the foregoing, the Boards of CKE and GBFC must approve this
Letter of Intent no later than July 10, 1993, and the definitive agreements must
be developed and mutually agreed to no later than July 17, 1993, and ratified by
the respective Boards no later than July 20, 1993. This letter constitutes a
non-binding letter of intent. No party hereto will have any obligations to
another party until definitive agreements have been negotiated, executed and
delivered.
If this letter accurately reflects your understanding, please sign the
enclosed copy and return it to me immediately. Separate copies are also being
provided for other appropriate signatories. If this letter is not signed by the
appropriate persons and returned to me by July 10, 1993, this letter will be of
no effect.
Yours very truly,
WILLIAM M. THEISEN
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<PAGE> 173
EXHIBIT 99.3 TO FORM 8-K
August 6, 1993
Kenneth Olsen
324 Muirfield Road
Los Angeles, CA 90020
Re: CKE/Green Burrito
Dear Ken:
As we discussed, Carl and I contacted William Theisen concerning Green
Burrito's willingness to cover the costs of converting ten Carl's Jr.
restaurants to accommodate the dual concept marketing approach which Carl
Karcher Enterprises, Inc.'s ("CKE") Board of Directors is considering. While our
firm does not represent CKE, the purpose of the call to Mr. Theisen was to
attempt to limit CKE's up-front costs for conducting a dual concept test and to
thereby limit CKE's risk if the dual concept is unsuccessful.
We informed Mr. Theisen that CKE believed the conversion costs could be as
high as $115,000 per unit and that converting ten units could require in excess
of $1 million. Mr. Theisen stated that he and Green Burrito are confident of the
success of the dual concept approach. As such, whatever the conversion costs
are, either he or Green Burrito would cover 100% of the conversion costs for ten
units on three conditions:
1. That CKE and Green Burrito mutually agree to the locations;
2. That Green Burrito receive a percentage of each unit's incremental
sales attributable to the addition of Green Burrito (including increased
soft drink sales) equal to the percentage Green Burrito is now receiving
from the Arby's/Green Burrito test store in Long Beach (but no more than
2 1/2%); and,
3. CKE agrees that, if the test is successful (based upon a mutually
agreed upon standard and by a mutually agreed upon date), CKE will repay
Mr. Theisen or Green Burrito the monies expended.
Mr. Theisen also agreed that the monies he or Green Burrito expend will not
bear interest. The only return will be the percentage Green Burrito earns on the
incremental sales attributable to the addition of Green Burrito.
Obviously, Mr. Theisen and Green Burrito are willing to take a substantial
portion of the financial risk of the dual concept test. Carl and I found this
very encouraging.
If you or any of the other directors or management personnel wish to
discuss the foregoing, please feel free to contact me or Mr. Theisen (who is
being copied on this letter).
Best regards.
Very truly yours,
LEWIS, D'AMATO, BRISBOIS & BISGAARD
ANDREW F. PUZDER
cc: Carl N. Karcher
William Theisen
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<PAGE> 174
EXHIBIT 99.4 TO FORM 8-K
August 11, 1993
Kenneth Olsen
324 Muirfield Road
Los Angeles, CA 90020
Dear Ken:
On August 6, 1993, we forwarded a letter to you concerning Green Burrito's
willingness to cover the costs of converting ten Carl's Jr. restaurants to a
dual concept format. That letter was written in the context of a proposal to the
Company as initially set forth in a letter from Mr. Theisen dated July 7, 1993.
As we understand it, Mr. Theisen is essentially proposing a dual concept test
marketing of the Carl's Jr./Green Burrito dual concept, that he become a member
of Carl Karcher Enterprises, Inc.'s ("CKE") Board of Directors and that CKE and
GB Foods Corporation exchange warrants.
Our letter was not intended to indicate that we had negotiated or attempted
to negotiate with Mr. Theisen concerning the principal terms of his proposal.
Carl and I simply called Mr. Theisen, after discussing this subject with you, to
confirm that as a part of his proposal Green Burrito would cover the costs of
converting ten Carl's Jr. restaurants to a dual concept format.
If there was any confusion, I apologize.
As we discussed, I am forwarding a copy of this letter and our August 6,
1993 letter to the other Board Members and Rick Celio. If anyone would like to
discuss this matter further, please feel free to call me.
Very truly yours,
LEWIS, D'AMATO, BRISBOIS & BISGAARD
ANDREW F. PUZDER
cc: Richard C. Celio, Esq.
Peter Churm
Donald E. Doyle
Daniel W. Holden, Esq.
Carl L. Karcher
Kenneth Olsen
Elizabeth Sanders
VII-10
<PAGE> 175
CARL KARCHER ENTERPRISES, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
APRIL 25, 1994
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders and Proxy Statement, each dated April 14, 1994, and hereby appoints
Donald E. Doyle and Loren C. Pannier as Proxies (each with full power to act in
the absence of the others, the act of a majority of those present to be
controlling, each with full power of substitution), to represent and to vote, as
designated below, all the shares of common stock of Carl Karcher Enterprises,
Inc. held of record by the undersigned on April 13, 1994, at the Special Meeting
of Shareholders to be held on April 25, 1994, or any adjournment or postponement
thereof.
1. REINCORPORATION PROPOSAL.
FOR / / AGAINST / / ABSTAIN / /
2. In their discretion, the Proxies are authorized to vote upon such other
business as may be properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE REINCORPORATION PROPOSAL.
Please sign exactly as the name appears below. When shares are held by joing
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. if a
partnership, please sign in partnership name by authorized person.
Dated: , 1994
--------------------------
Signature
--------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
