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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: JANUARY 31, 1994
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)
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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)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-5796
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF CLASS
COMMON STOCK, NO PAR VALUE
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, 1994 was $154,587,772.
The number of shares outstanding of each of the registrant's common stock,
as of March 31, 1994 was 18,757,246.
DOCUMENTS INCORPORATED BY REFERENCE
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PARTS IN WHICH
REFERENCED
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Portions of the Company's Proxy Statement to be filed with the Commission III
within 120 days of January 31, 1994, prepared in connection with the Annual
Meeting of Shareholders to be held in 1994
The Exhibit Index is located on Page E-1.
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CARL KARCHER ENTERPRISES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 1994
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PART I
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PAGE
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Item 1. Business...................................................................... 1
Item 2. Properties.................................................................... 7
Item 3. Legal Proceedings............................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders........................... 8
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters......... 8
Item 6. Selected Financial Data....................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 9
Item 8. Financial Statements and Supplementary Data................................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................... 17
PART III
Item 10. Directors and Executive Officers of the Registrant............................ 18
Item 11. Executive Compensation........................................................ 19
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 19
Item 13. Certain Relationships and Related Transactions................................ 19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 20
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PART I
ITEM 1. BUSINESS
Carl Karcher Enterprises, Inc. ("Enterprises" or the "Company"), is a
California business begun in the mid-1950's that operates, franchises and
licenses a quick-service restaurant chain under the name "Carl's Jr." Located
primarily in the Western United States, the Carl's Jr. chain consisted of 648
restaurants as of January 31, 1994, of which 376 were operated by Enterprises,
255 were operated by its franchisees and 17 were operated by its international
licensees.
In January 1994, Enterprises acquired from Boston Chicken, Inc. ("BCI"),
franchisors and operators of a fast-growing rotisserie-roasted chicken concept,
the rights to develop, own and operate up to 300 Boston Chicken stores in
Southern California and metropolitan Sacramento, the first of which is scheduled
to open in the summer of 1994. In February 1994, Boston Pacific, Inc. ("Boston
Pacific"), a California corporation, was formed by the Company to conduct these
Boston Chicken operations. At the upcoming Annual Meeting, the shareholders of
Enterprises will vote upon a proposed reincorporation transaction whereby
Enterprises and Boston Pacific will become wholly-owned subsidiaries of CKE
Restaurants, Inc. ("CKE Restaurants"), a Delaware holding company formed to
provide overall strategic direction to both Enterprises and Boston Pacific.
Since neither Boston Pacific nor CKE Restaurants were operating prior to January
31, 1994, the financial information in this report and the discussion and
analysis herein relates solely to Enterprises, unless otherwise indicated.
RECENT DEVELOPMENTS
The Company believes that it has two significant opportunities for growth.
First, the Company has implemented an aggressive strategic program designed to
increase restaurant sales and improve the cost structure of its Carl's Jr.
restaurant operations. This program includes marketing and pricing strategies
designed to improve consumer perceptions of value while at the same time
maintaining the Carl's Jr. reputation for superior food, service and
cleanliness. Second, the Company, through Boston Pacific, anticipates an
accelerated development of its Boston Chicken stores by initially converting a
number of selected Carl's Jr. restaurants.
STRATEGIC PROGRAM
The Company recruited a new president and chief executive officer in
December 1992. Recessionary economic conditions and a changing competitive
environment had resulted in a decline in the frequency of visits by fast-food
users at Carl's Jr. restaurants. With a team comprised of existing senior
management and several new executives, the Company implemented a strategic
program, which was based upon extensive analyses of Company operations and
consumer research. The strategic program's three main elements are to increase
restaurant sales by developing and implementing consumer-driven and
research-based marketing programs, to aggressively improve the restaurant-level
cost structure and to realign and invest in the organization and efficiency of
its human resources.
The program has yielded significant results to date. As part of its new
marketing and advertising strategy, the Company has hired a new advertising
agency to improve its advertising effectiveness and increased its spending on
radio and television media. In addition, the Company has strengthened its
consumer research and has recently introduced a simplified menu and a new
pricing structure designed to promote consumer perceptions of quality and value.
Through new labor-scheduling guidelines and enhanced technology, increased
outsourcing and downsizing, and improved safety programs and incentives, the
Company has also significantly reduced operating costs. As part of its
organizational realignment, the management structure from the restaurant level
through the regional vice president level has been streamlined, the headquarters
organization has been restructured, and key personnel have been added to
marketing and product development.
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BOSTON CHICKEN AGREEMENT
The Company's agreement with BCI is the largest area development agreement
to date between BCI and a franchisee. Boston Pacific plans to open 60 Boston
Chicken stores by the end of fiscal 1996 and at least 200 by January 1999.
Boston Chicken stores specialize in complete meals featuring rotisserie-roasted
chicken, fresh vegetables and other side dishes. Boston Chicken stores offer the
convenience and value associated with fast food, and the quality and freshness
associated with traditional home cooking. Management believes that the Boston
Chicken store concept is well-suited to California consumer tastes. The
agreement with BCI provides the Company with the opportunity to participate in
one of the fastest-growing segments in the restaurant industry and to attract a
consumer market segment that is distinct from Carl's Jr. restaurant customers.
CARL'S JR.
COMPANY OPERATIONS
OVERVIEW
The Company believes that it is one of the leaders in offering a wide
variety of food in a quick-service restaurant with comfortable dining rooms and
partial table service. The Company was among the first to offer self-service
salad bars and all-you-can-drink beverage bars. The Carl's Jr. menu is
relatively uniform throughout the chain and features several charbroiled
hamburgers and chicken sandwiches, including the Famous Big Star, Western Bacon
Cheeseburger(R) and Charbroiler Chicken Sandwiches(R). Other entrees include a
fish sandwich, several baked potatoes and prepackaged salads. Side orders, such
as french fries, onion rings and fried zucchini, are also offered. Most
restaurants also have a breakfast menu including eggs, bacon, sausage, french
toast dips, orange juice, the Sunrise Sandwich(R) and the Breakfast Burrito.
The Company strives to maintain high standards in all materials used by its
restaurants as well as the operations related to food preparation, service and
cleanliness. Hamburgers and chicken sandwiches at Carl's Jr. restaurants are
generally prepared or assembled after the customer has placed an order and
served promptly. Hamburger patties and chicken breasts are charbroiled in a
gas-fired double broiler that sears the meat on both sides. The meat is conveyed
through the broiler automatically to maintain uniform heating and cooking time.
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 eleven to fourteen
restaurants. Approximately 30 district managers are under the supervision of
four regional vice presidents, all of whom regularly inspect the operations in
their respective districts and regions.
COST-REDUCTION PROGRAM; ELIMINATION OF NON-ESSENTIAL OPERATIONS
The Company's strategic program has focused on improving the
restaurant-level cost structure in order to enhance margins and fund
consumer-related investments, such as value pricing. Historically, the Company
manufactured many of its food products as a means of insuring high quality
standards. During fiscal year 1993, however, it was determined that overall food
costs could be lowered by purchasing food products from third party suppliers
without sacrificing these quality standards. Therefore, the Company initiated a
program to lower food costs through the termination of its manufacturing
operations. Sales of products to outside parties were also eliminated at this
time.
Through the elimination of non-essential operations and increased
outsourcing to selected third parties, the Company reduced the cost of providing
maintenance and repair services to its restaurants. In addition, the Company
redefined its cash management activities and liquidated a substantial portion of
its former investment portfolio, utilizing the proceeds to reduce overall bank
debt.
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MARKETING
Advertising has become increasingly important to the Company. Management
believes that in order to successfully compete in today's quick-service
environment, the Company must complement its strong reputation for product
quality with a consumer perception of price value. In an effort to promote the
quality and value concept, the Company will allocate more of its advertising
budget to media spending. In April 1994, the Company initiated a broad-based
marketing campaign to promote the Carl's Jr. concept as the same great food at
lower everyday prices. The Company completed a review of its advertising efforts
in fiscal 1994 and retained a new advertising agency, whose compensation is a
combination of base remuneration plus incentives based on increases in Carl's
Jr. restaurant sales. The initial savings in advertising agency fees that will
result from this new arrangement will be reallocated to its budget for media
advertisements, such as radio and television commercials. Several steps have
also been taken to improve the Company's media advertising effectiveness. For
instance, recent Carl's Jr. television commercials feature more contemporary
castings and settings designed to appeal more to younger audiences. It is the
Company's intention to continue to target these customers because they are the
highest frequency fast-food users.
FRANCHISED AND LICENSED OPERATIONS
The Company's franchise strategy is designed to further the development of
the Carl's Jr. chain and reduce the total capital required of the Company for
development of new restaurants. Franchise arrangements with franchisees, who
operate in Arizona, California, Nevada, Oregon and Utah, generally provide for
initial fees and continuing royalty payments to the Company based upon a
percentage of sales. Additionally, franchisees may purchase food, paper and
other supplies from the Company. Franchisees may also be obligated to remit
lease payments for the use of Company-owned or leased restaurant facilities.
Under the terms of these leases, they are required to pay related occupancy
costs, which include maintenance, insurance and property taxes.
The Company receives notes from franchisees in connection with the sales of
Company-operated restaurants. Generally, these notes bear interest at 12.5%,
mature in five to 15 years and are secured by an interest in the restaurant
equipment sold.
The Company's franchising philosophy is such that only candidates with
appropriate experience 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 generally require franchisees to
open a specified number of Carl's Jr. restaurants in a designated geographic
area.
In order to stimulate development of restaurants in underpenetrated
markets, the Company initiated a conversion program during fiscal 1991 under
which Company-operated restaurants were sold to franchisees. During fiscal 1993,
the Company sold 33 of its greater San Francisco Bay Area restaurants to
franchisees, substantially completing the conversion of this region. Two
additional such sales occurred during fiscal 1994. In total, since program
inception the Company has completed 70 such sales.
In an effort to expand the Carl's Jr. presence internationally, the Company
has entered into nine exclusive licensing agreements that allow licensees the
use of the Carl's Jr. name and trademarks and provide for initial fees and
continuing royalties based upon a percent of sales. As of January 31, 1994,
there were 11 licensed restaurants in operation in Mexico, 2 licensed
restaurants in operation in Japan and 4 licensed restaurants in operation in
Malaysia. None of the Company's licensing agreements generated material
royalties in the year ended January 31, 1994.
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 Carl's Jr. restaurants
generally twice a week. Many of these products are sold to franchisees, and in
some cases, to certain licensees. These
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distribution centers are subject to frequent inspection by representatives of
the United States Department of Agriculture.
BOSTON CHICKEN
In January 1994, the Company entered into a Development Agreement with BCI
granting rights to the Company, as a franchisee of BCI, to develop and operate
200 Boston Chicken stores (with an option, at the Company's election, to develop
100 more stores, as discussed below) 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 Los
Angeles area (including the counties of Los Angeles, Orange, Riverside, Santa
Barbara and San Bernardino). Boston Pacific 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 its first 50 Boston Chicken stores, Boston Pacific
anticipates that between 10 and 15 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 and to 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 10 to 15 conversions are
completed.
The Boston Chicken menu features rotisserie-roasted chicken, fresh-baked
chicken pot pies, a variety of chicken sandwiches, chicken soup and fresh
vegetables, salads and other side dishes, including mashed potatoes made from
scratch, corn, stuffing and creamed spinach, as well as beverages and desserts.
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 formula has proven to be successful to date in other areas
of the United States.
The first Boston Chicken store was opened in Newton, Massachusetts in 1985.
As of March 21, 1994, there were 257 Boston Chicken stores system-wide. By the
end of 1994, BCI expects to have approximately 450 restaurants in operation
system-wide. There can be no assurance that BCI or its area developers will be
able to achieve this goal.
The Company estimates that the initial investment for a Boston Chicken
store currently is approximately $800,000. This estimate includes development
and franchise fees, professional fees, deposits, leasehold improvements,
furniture, fixtures, equipment, opening inventory and supplies, architectural
and engineering fees, pre-opening costs, permit and impact fees, grand opening
expenses, computer and software expenses, and initial working capital. This
estimate does not include any land or additional costs which will depend on the
location and the nature of the site. The actual cost depends on, among other
factors, the size and location of the store, the type and quantity of equipment
installed, the level of pre-opening expenditures, and the amount of
improvements, less any applicable construction allowance. Costs of converting
existing Carl's Jr. restaurants to Boston Chicken stores are estimated to be
approximately $600,000 per restaurant.
AREA DEVELOPMENT AGREEMENT
Pursuant to the Development Agreement, Boston Pacific is obligated and
intends to develop and operate 200 Boston Chicken stores by January 15, 1999.
The Development Agreement requires Boston Pacific to open a number of Boston
Chicken stores in each Designated Market according to a specified schedule as of
January 15 and July 15 of each year, commencing on January 15, 1995 and ending
on January 15, 1999. Boston Pacific is obligated to open an aggregate of 20
Boston Chicken stores in the three Designated Markets by January 15, 1995, 60 by
January 15, 1996, 110 by January 15, 1997, 160 by January 15, 1998 and 200 by
January 15, 1999. The Company anticipates that its first Boston Chicken store
will open in the summer of 1994.
In consideration of the rights granted to the Company by BCI under the
Development Agreement, the Company paid Boston Chicken an initial fee of
$1,000,000 ($5,000 per planned Boston Chicken store). The Company also paid to
BCI a non-refundable deposit of $1,000,000, which will be applied as a credit of
$5,000 towards the Company's obligation to pay $35,000 to BCI as an initial
franchise fee upon the opening of each Boston Chicken store by the Company. Upon
opening a Boston Chicken store, the Company is obligated to
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enter into a franchise agreement with BCI and pay BCI an annual royalty fee of
5% of the gross sales of that store.
The Development Agreement generally prohibits the Company, or any
affiliate, from engaging or having any interest in any business that competes
with Boston Chicken stores. The operation of Carl's Jr. restaurants is expressly
deemed not to be a business that competes with Boston Chicken stores so long as
such restaurants do not offer rotisserie chicken or other products prepared in
accordance with BCI's recipes or specifications.
The Development Agreement can be terminated by BCI upon the occurrence of
certain events that include, among others: (1) Boston Pacific's failure to
comply with its scheduled development of Boston Chicken stores in the Designated
Markets; (2) the Company's engaging in misconduct that adversely affects the
reputation of Boston Chicken stores or the goodwill associated with the BCI
trademarks; (3) the Company's violation of the prohibition on engaging in
competitive businesses, described above; (4) the failure by the Company to
comply with other provisions of the Development Agreement; and (5) the
insolvency of the Company.
The Company has an option, exercisable at least 12 months prior to the
expiration of the initial development term on January 15, 1999 (or, if earlier,
the date by which Boston Pacific has opened the required number of Boston
Chicken stores in each Designated Market), to develop an additional 100 Boston
Chicken stores in the Designated Markets. If the Company exercises this option,
the Company and BCI will, at that time, determine the appropriate allocation of
the additional 100 Boston Chicken stores among the Designated Markets and the
appropriate time schedule for developing those restaurants. After the expiration
of the term of the Development Agreement, BCI, or any third party to whom it
grants development rights, will be entitled to develop Boston Chicken stores in
the Designated Markets, subject to certain negotiation rights the Company has
during the first 12 months after the expiration of such term.
FRANCHISE AGREEMENT
The form of franchise agreement to be entered into between the Company and
BCI upon the opening of each Boston Chicken store provides for a term of 15
years and also provides for payment of a $35,000 per store franchise fee (less
the $5,000 deposit), a 5% royalty on gross sales (minus sales/service taxes,
customer refunds and coupons, and the portion of employee meals not charged to
the employee), a 2% national advertising fund contribution, 3.5% local
advertising fund contribution, and a $10,000 grand opening expenditure. The
agreement also permits, upon notice from BCI, an annual 0.25% increase in the
local advertising fund requirement so long as the local advertising fund
contribution does not exceed 5% of sales.
The franchise agreement provides for an area of limited exclusivity
surrounding each Boston Chicken store in which BCI may neither develop nor grant
to others the right to develop additional Boston Chicken stores, except that BCI
reserves the right to engage in special distribution arrangements and, in the
event that the Company does not choose to develop them, to develop regional
shopping mall sites and sites acquired by BCI from others and held for two years
which meet the standards for a Boston Chicken store within the Company's
designated territory. Specified territories in suburban locations are generally
a one-mile radius surrounding the Boston Chicken store, while urban locations
generally have a smaller (e.g., one-half mile) radius or a trade-area-specific
designated territory.
The franchise agreement requires that the stores be operated in accordance
with the operating procedures and menu established by BCI. BCI will conduct
regular inspections of the Company's Boston Chicken stores to determine whether
the stores meet applicable quality, service and cleanliness standards, will work
with Boston Pacific to improve substandard performance or any items of
non-compliance revealed in the course of its inspection, and may terminate the
franchise agreement if the Company does not comply with such standards.
The Company has prepared the information herein concerning BCI from its own
analyses and publicly available historical information regarding BCI. BCI has no
responsibility for the Company's statements, estimates, projections, or
disclosures concerning the Company's proposed Boston Chicken operations or the
results or timing thereof.
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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
which the Company purchases from numerous independent suppliers. 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 Carl's Jr. menu items.
"Boston Chicken" and the Boston Chicken logo are registered trademarks of BCI
which may be utilized by the Company in accordance with applicable provisions of
the Development Agreement and franchise agreements thereunder.
SEASONALITY
The Company's Carl's Jr. 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. Subsequent to January 25, 1993, as
part of its strategic initiatives, the Company began liquidating a significant
portion of its former investment portfolio, using the proceeds to repay its
borrowings under the Company's revolving credit line. The sale/leaseback program
is no longer emphasized, and thus existing inventories of restaurant property
costs to be sold and leased back have been significantly reduced.
The Company does not carry significant amounts of inventory, experience
material returns of merchandise, or generally provide extended payment terms to
its franchisees or licensees. Cash from operations, along with cash, cash
equivalents and marketable securities on hand, should enable the Company to meet
its financing requirements.
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
Major chains, which have substantially greater financial resources than the
Company, dominate the quick-service restaurant industry. Certain of these major
chains have increasingly offered selected food items and combination meals,
temporarily or permanently at discounted prices. A change in the pricing or
other marketing strategies of one or more of these competitors could have an
adverse impact on the Company's Carl's Jr. sales and earnings in affected
markets.
The Company believes that its particular emphasis on higher quality foods
that appeal to a broad consumer base, allows the Company to compete effectively
with significantly larger quick-service restaurant chains. Careful attention to
dining accommodations, including periodic upgrading of existing facilities, also
plays an important role.
RESEARCH AND DEVELOPMENT
The Company maintains a test kitchen for its Carl's Jr. operations at its
headquarters in which new products and production concepts are developed on an
ongoing 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.
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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
1994. The Company cannot predict the effect on its operations from possible
future legislation or regulation.
NUMBER OF EMPLOYEES
The Company employs approximately 10,400 persons in its Carl's Jr.
operations, of whom approximately 9,800 are hourly restaurant, distribution or
clerical employees, and approximately 600 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 65 to 115 persons. Some
restaurants are located in shopping malls and other in-line facilities.
Currently, several building plan types are in use 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 its Carl's Jr. restaurants in operation at January 31, 1994:
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TYPE OF INTEREST
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Lease land and building................................ 338
Lease land only (building owned)....................... 23
Own land and building.................................. 15
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376
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The Company subleases certain sites to its franchisees and owns an
additional 33 restaurant properties which are leased primarily to franchisees.
The terms of the Company's leases or subleases generally range between
three and 35 years and primarily expire through fiscal 2026. The expiration of
these leases is not expected to have a material impact on the Company's
operations in any particular year as the expiration dates are staggered over a
number of years and many of the leases contain renewal options.
Once a potential Carl's Jr. 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 improvements. The Company
generally performs the construction management function while utilizing outside
general contractors to construct its buildings.
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The following table summarizes the California regions in which the
Company's Carl's Jr. restaurants are located:
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Los Angeles and Orange County.......................... 264
Sacramento............................................. 40
San Diego.............................................. 39
Fresno................................................. 23
Bakersfield............................................ 9
San Francisco.......................................... 1
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376
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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, California 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.
As of April 25, 1994, shares of the Company's Common Stock were traded on
the New York Stock Exchange under the symbol "CKR." Prior to that date, the
Company's Common Stock was regularly quoted on the NASDAQ National Market System
under the symbol "CARL." At January 31, 1994, there were approximately 2,600
record holders of the Company's Common Stock. The high and low closing prices,
during each quarter, for the last two fiscal years were as follows:
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QUARTER 1ST 2ND 3RD 4TH
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Fiscal 1994
High............................................... $8 7/8 $8 5/8 $9 5/8 $14 1/4
Low................................................ 7 3/4 6 3/4 7 3/8 8 7/8
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
</TABLE>
During fiscal 1994 and 1993, the Company paid four consecutive quarterly
dividends of $.02 per share of Common Stock, for a total of $.08 per share per
year. The Company recently changed its dividend policy to provide for
semi-annual payments of dividends.
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ITEM 6. SELECTED FINANCIAL DATA.
The information set forth below should be read in conjunction with the
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Form 10-K.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
System-wide sales:
Company-operated restaurants...... $381,733 $414,510 $466,198 $469,449 $468,329
Franchised restaurants............ 190,434 184,658 138,664 105,297 81,208
Internationally licensed
restaurants.................... 18,780 17,451 9,535 4,082 903
-------- -------- -------- -------- --------
Total system-wide sales........ $590,947 $616,619 $614,397 $578,828 $550,440
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Revenues(1)......................... $460,368 $502,632 $540,370 $527,580 $515,809
Income (loss) before cumulative
effect of changes in accounting
principles........................ 4,433 (3,057) 13,038 13,036 5,551
Net income (loss)................... 3,665 (5,507) 13,038 13,036 5,551
Income (loss) per share before
cumulative effect of changes in
accounting principles............. .24 (.17) .72 .72 .30
Net income (loss) per share......... .20 (.31) .72 .72 .30
Cash dividends paid per common
share............................. .08 .08 .08 .08 .08
Total assets(1)..................... 242,135 268,924 294,375 305,965 309,223
Long-term debt, including capital
lease obligations................. 63,300 80,254 102,074 117,137 124,637
Shareholders' equity................ $ 92,076 $ 84,732 $ 89,679 $ 78,818 $ 66,632
Ratio of debt to equity(2).......... 0.9x 1.3x 1.5x 1.9x 2.3x
Number of restaurants at year end:
Company-operated.................. 376 379 414 424 454
Franchised........................ 255 244 196 149 86
Internationally licensed.......... 17 19 12 5 1
-------- -------- -------- -------- --------
Total system-wide
restaurants.................. 648 642 622 578 541
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- - ---------------
(1) Prior year amounts have been reclassified to conform with the fiscal 1994
presentation.
(2) Debt, as defined in this computation, includes long-term debt, capital lease
obligations and their related current portions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the financial
statements and related notes and "Selected Financial Data" included elsewhere in
this Form 10-K.
OVERVIEW
Net income for fiscal 1994, a 53-week reporting period, was $3.7 million,
or $.20 per share, compared with a net loss in fiscal 1993, a 52-week reporting
period, of $5.5 million, or ($.31) per share. Fiscal 1994 included a
nonrecurring, pre-tax charge of $3.0 million related to an arbitration
settlement for an alleged breach of contract involving an investor group which
had been negotiating for the purchase of several existing Carl's Jr.
restaurants. Fiscal 1993 included an $11.1 million pre-tax, nonrecurring charge
related to the
9
<PAGE> 12
Company's strategic initiatives, workforce reductions and certain lease
subsidies (see Results of Operations -- General and Administrative Expenses) as
well as a $5.1 million pre-tax charge resulting from a Company-commissioned
independent actuarial valuation of the Company's self-insured workers'
compensation reserve during that year. Excluding the effects of all of these
charges, operating income increased $4.5 million, or 50.5%, to $13.5 million in
fiscal 1994 from fiscal 1993.
The key components of the Company's strategic program, which was largely
initiated in January 1993 and aggressively pursued throughout fiscal 1994, were
as follows:
- To develop and implement new marketing programs that rely upon
extensive consumer research and are designed to improve consumers'
price/value perceptions and, in turn, improve restaurant sales trends. This
effort included better coordination of consumer research with the product
development and pricing process and a more contemporary, compelling
advertising approach;
- To improve the Company's restaurant-level margin and cost structure
by, among other things, increasing restaurant labor productivity and
decreasing repair and maintenance and other costs; and
- To streamline and consolidate the Company's workforce, eliminate
non-essential business activities and increase the organizational
effectiveness of the Company.
The aim of two of the components of this strategic program, improving the
restaurant-level cost structure and streamlining the Company's workforce and
eliminating non-essential business activities, was to reduce operating costs,
primarily salaries and wages, by approximately $10 million during fiscal 1994.
Although the full benefits of the strategic program have yet to be
realized, implementation of this program allowed the Company to achieve the $10
million cost reduction goal, returning it to profitability and significantly
increasing its operating earnings in fiscal 1994. In addition, ongoing
test-marketing activities and consumer research have led to the development of a
new value-pricing program and simplified menu that is currently being introduced
throughout the Carl's Jr. system. A new advertising agency selected in December
1993 has been assisting the Company in its repositioning of the Carl's Jr.
chain.
The most significant evidence of the Company's progress in fiscal 1994 was
the substantial reduction in the costs associated with operating its Carl's Jr.
restaurants. Although the Company operated 11 fewer restaurants on a
weighted-average basis in fiscal 1994 and same-store sales fell 6.5% from fiscal
1993, restaurant operating profits increased 25.8% to $65.2 million in fiscal
1994. The Company-restaurant operating profit margin increased in fiscal 1994 to
17.1% from 12.5% in fiscal 1993.
The following table summarizes the improvement in Company-restaurant
operating profits for fiscal years 1994, 1993 and 1992:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------------------------------
1994 1993 1992
----------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales by Company-operated
restaurants........................ $381,733 100.0% $414,510 100.0% $466,198 100.0%
-------- ----- -------- ----- -------- -----
Operating costs and expenses:
Food and packaging................. 115,444 30.2 127,148 30.7 150,351 32.2
Payroll and other employee
benefits........................ 118,774 31.1 141,870 34.2 146,759 31.5
Occupancy and other operating
expenses........................ 82,321 21.6 93,651 22.6 100,949 21.7
-------- ----- -------- ----- -------- -----
Total operating costs and
expenses...................... 316,539 82.9 362,669 87.5 398,059 85.4
-------- ----- -------- ----- -------- -----
Company-restaurant operating profit
margin............................. $ 65,194 17.1% $ 51,841 12.5% $ 68,139 14.6%
-------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- -----
</TABLE>
Major cost savings were achieved during fiscal 1994 in several areas. The
Company reduced its direct labor costs in part through new labor-scheduling
guidelines and enhanced restaurant-level technology, which were implemented
during the second quarter of fiscal 1994. As a percentage of restaurant sales,
these costs
10
<PAGE> 13
decreased to 19.9% in the fourth quarter of fiscal 1994 from 22.4% in the same
prior year period. In addition, workers' compensation costs (exclusive of the
$5.1 million charge related to the independent actuarial valuation commissioned
in fiscal 1993) were reduced an additional $2.8 million largely through new
safety programs and other awareness and incentive programs. Total repair and
maintenance costs were reduced by $5.2 million, or 27.6%, through outsourcing
and down-sizing. Further cost savings were achieved through the elimination of
the Company's manufacturing operations and the outsourcing of products to third
party suppliers.
The total system-wide number of Carl's Jr. restaurants in operation during
each of the years in the three-year period ended January 31, 1994 were as
follows:
<TABLE>
<CAPTION>
COMPANY FRANCHISED LICENSED TOTAL
------- ---------- -------- -----
<S> <C> <C> <C> <C>
Balance at January 31, 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 31, 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 31, 1993................... 379 244 19 642
New restaurant openings..................... 3 12 7 22
Restaurants sold to franchisees............. (2) 2 -- --
Closures.................................... (4) (3) (9) (16)
--
------- --- -----
Balance at January 31, 1994................... 376 255 17 648
--
--
------- --- -----
------- --- -----
</TABLE>
In January 1994, the Company acquired the rights to develop and operate up
to 300 Boston Chicken stores in Southern California and metropolitan Sacramento.
Boston Pacific, Inc. ("Boston Pacific") was formed in February 1994 to develop,
own and operate these Boston Chicken stores. A reincorporation transaction in
which the Company and Boston Pacific will become wholly-owned subsidiaries of a
new holding company, CKE Restaurants, Inc. ("CKE Restaurants"), and the
shareholders of the Company will become stockholders of CKE Restaurants, will be
submitted for approval at the Company's upcoming Annual Meeting of shareholders.
CKE Restaurants, as a successor to the Company, will provide overall strategic
direction to Enterprises, which will continue to operate and franchise Carl's
Jr. restaurants, and Boston Pacific, which will operate Boston Chicken stores.
The Company's first Boston Chicken store is scheduled to open in the summer of
1994.
RESULTS OF OPERATIONS
REVENUES
The following table presents information regarding the components of the
Company's revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
----------------------------------------------------------
1994 1993 1992
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales by Company-operated
restaurants........................ $381,733 82.9% $414,510 82.5% $466,198 86.3%
Revenues from franchised and licensed
restaurants........................ 78,635 17.1 75,262 15.0 60,025 11.1
Revenue from other outside parties.... -- -- 12,860 2.5 14,147 2.6
-------- ----- -------- ----- -------- -----
$460,368 100.0% $502,632 100.0% $540,370 100.0%
-------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- -----
</TABLE>
11
<PAGE> 14
COMPANY-OPERATED RESTAURANTS
Sales by Company-operated restaurants fell 7.9% in fiscal 1994 to $381.7
million and 11.1% in fiscal 1993 to $414.5 million due to lower average sales
per restaurant and fewer restaurants in operation in both fiscal 1994 and 1993.
On a same-store basis, these sales, which are calculated using only restaurants
open for the full two years being compared, declined 6.5% in fiscal 1994 to
$366.2 million, following a 5.6% decrease during fiscal 1993 to $376.0 million
from $398.1 million in fiscal 1992. The Company's restaurant sales were
adversely affected in both fiscal 1994 and fiscal 1993 by aggressive promotions
and price reductions by the Company's principal competitors, and the continued
weakness in the California economy. During 1993, the major quick-service
restaurant chains intensified their promotions of value-priced meals and
continued to discount prices of selected menu items.
FRANCHISED AND LICENSED RESTAURANTS
Revenues from franchised and licensed restaurants in both fiscal 1994 and
fiscal 1993 were mainly comprised of sales of food and supplies to franchisees,
initial franchise fees, annual franchise royalties and rents and other
occupancy-related amounts collected from many of the Company's franchisees.
Overall, these revenues increased 4.5% to $78.6 million in fiscal 1994,
following a 25.4% increase to $75.3 million in fiscal 1993. These changes were
largely due to 21 and 63 more franchised restaurants in operation on a weighted-
average basis in fiscal 1994 and fiscal 1993, respectively.
OTHER OUTSIDE PARTIES
Revenues from other outside parties were eliminated in fiscal 1993 in
connection with the Company's strategy to focus on its core business of
operating and franchising Carl's Jr. restaurants, and to eliminate non-essential
lines of business such as its manufacturing and outside sales operations.
OPERATING COSTS AND EXPENSES
COMPANY-OPERATED RESTAURANTS
Company-operated restaurant costs decreased 12.7% to $316.5 million in
fiscal 1994 due to several factors. First, the Company operated, on a
weighted-average basis, 2.8% fewer restaurants in fiscal 1994. Second, Company
initiatives led to a 3.1% reduction in payroll and other employee benefit
expenses as a percentage of Company-operated restaurant sales and a 1.0%
reduction in occupancy expenses as a percentage of these sales. These labor and
payroll expense decreases were due in part to improved labor productivity
related to the Company's strategic program. Also contributing to the improvement
in Company-operated restaurant costs were decreases in food and packaging
expenses of 9.2% and 15.4% in fiscal 1994 and fiscal 1993, respectively.
Food and packaging costs as a percentage of Company-operated restaurant
sales were 30.2%, 30.7% and 32.2% in fiscal years 1994, 1993 and 1992,
respectively. The reductions in these costs from 1992 to 1993 were a result of
the Company's outsourcing program initiated in fiscal 1993. The Company's
decision to exit the manufacturing business was an initiative of the strategic
program begun in fiscal 1993 and continued in fiscal 1994.
As a percentage of sales by Company-operated restaurants, payroll and other
employee benefits were 31.1%, 34.2% and 31.5% in fiscal years 1994, 1993 and
1992, respectively. Reductions in the direct labor component of payroll and
other employee benefits over the past three years have been due to cost and
productivity efficiencies, offset by an increase in workers' compensation costs
in fiscal 1993. As a result of a study of claims and reserve levels by an
independent actuary during fiscal 1993, the Company increased its workers'
compensation reserve by $5.1 million in the fourth quarter of fiscal 1993.
Management is encouraged by a drop in the incident rate of 41.2% in its workers'
compensation claims during fiscal 1994.
Occupancy and other operating expenses as a percentage of sales were 21.6%,
22.6% and 21.7% in fiscal years 1994, 1993 and 1992, respectively. With fewer
restaurants in operation and reductions in repair and
12
<PAGE> 15
maintenance costs, occupancy and other costs have decreased, more than
offsetting selected rent and other increases. In fiscal year 1993, however,
these generally fixed costs increased as a percentage of sales due to the drop
in Company-operated restaurant sales.
FRANCHISED AND LICENSED RESTAURANTS
Franchised and licensed restaurant costs are closely tied to franchise
revenues. These costs increased 8.8% in fiscal 1994 to $73.6 million, following
a 28.9% increase in fiscal 1993 to $67.6 million due primarily to the increase
in the number of franchised restaurants. The margins on sales of food and
supplies to franchisees declined over the past three years, particularly in
fiscal 1994, as a result of the lowering of prices of food and other products
supplied to franchisees. These prices were significantly reduced in fiscal 1993
following the outsourcing of the Company's manufacturing business in late fiscal
1993. Also contributing to the increases in these costs in both fiscal 1993 and
fiscal 1994 were increases in occupancy costs associated with the leasing or
subleasing of restaurants to franchisees.
OTHER OUTSIDE PARTIES
Costs associated with the revenues from other outside parties were
eliminated in fiscal 1993 with the termination of this line of business in that
year.
ADVERTISING EXPENSES
As a percentage of Company-operated restaurant sales, advertising expenses
were 5.0%, 4.6% and 4.3%, in fiscal years 1994, 1993 and 1992, respectively.
Advertising expenditures have become increasingly important in the current
competitive environment and have therefore grown as a percentage of Company-
operated restaurant sales over the past three years. As discussed in the
Overview section above, a key component of the Company's strategic program is
the enhancement of consumer research activities and a revamping of the Company's
overall marketing strategy, aimed at more effectively promoting its high-quality
menu items at competitive prices.
GENERAL AND ADMINISTRATIVE EXPENSES
Fiscal 1994 general and administrative expenses included a $1.7 million
charge representing the net present value of future retirement benefits granted
to Carl N. Karcher in October 1993. Fiscal 1993 general and administrative
expenses included an $11.1 million restructuring charge related primarily to the
Company's strategic initiatives described in the Overview section above.
Excluding the effects of these nonrecurring charges, general and
administrative expenses amounted to $36.0 million, $36.6 million and $36.2
million in fiscal years 1994, 1993 and 1992, respectively, which represented
7.8%, 7.3% and 6.7% of total revenues in those years. These costs are not solely
related to fluctuations in sales volumes as a substantial portion of these
expenses are compensation and benefits for management and administrative
personnel.
The Company's strategic program generated a net savings in general and
administrative expenses of approximately $2.4 million in fiscal 1994. These
savings were largely offset by selected additions to management in the areas of
strategic planning, information systems and marketing.
There have been no material changes to the strategic measures and other
restructuring activities contemplated by the fiscal 1993 restructuring charge or
the costs associated with these measures. The components of this $11.1 million
charge were as follows:
Corporate Severance and Outplacement Costs -- Severance and outplacement
costs related to the termination of 53 corporate employees in January 1993
amounted to $1.9 million, including an $843,000 noncash charge arising from the
extension and remeasurement of stock options granted to former key management
personnel. These terminated employees were identified and the termination plan
was approved by the Company's Board of Directors on January 20, 1993.
Substantially all of these required severance and outplacement payments were
made in fiscal 1994.
13
<PAGE> 16
Lease Subsidies -- In prior years, the Company initiated restructuring
programs to dispose of or franchise its Arizona and Texas operations. As of
January 31, 1994 and 1993, $11.5 million and $12.6 million was accrued for these
reserves, respectively. These balances were mainly comprised of estimated losses
on equipment and estimated lease subsidies. The lease subsidy component of the
restructuring charges represents the net present value of the excess of future
lease payments over estimated sublease income. The remaining unamortized
discount to present value of these lease subsidies at January 31, 1994 was $9.5
million and will be amortized to operations over the remaining sublease terms,
which range up to 22 years. The carrying value of the related equipment
represents the net realizable value of these assets as of January 31, 1994 and
1993. The estimate of certain Arizona lease subsidies (to be paid over the
remaining lease terms ranging from one to 17 years) was increased $4.9 million
as part of the fiscal 1993 restructuring charge because the Company reduced its
sublease rental income projections associated with these restaurants. These
projections are based entirely upon the restaurant sales of the franchisees,
which have been declining as a result of the continued softness in the Arizona
economy.
Store Closures -- A total of $2.3 million of estimated equipment losses and
appropriate lease subsidies was recognized related to the closure of certain
underperforming restaurants, which should be completed in fiscal 1995. The
equipment cannot be used in the Company's operations any longer and provides no
future utility to the Company.
Elimination of Manufacturing Operations -- The elimination of the Company's
manufacturing operations, which was largely completed during fiscal 1993,
included losses on the disposition of the equipment previously used in that
operation and severance costs related to the termination of 232 manufacturing
employees, and required a $2.0 million charge in fiscal 1993.
ARBITRATION SETTLEMENT
As discussed in the Overview section above, in fiscal 1994 the Company
incurred a $3.0 million charge in connection with the settlement of an
arbitration proceeding.
INTEREST EXPENSE
Lower average debt levels throughout fiscal 1994 and fiscal 1993 resulted
in a $3.2 million, or 23.8%, decrease in interest expense in fiscal 1994 and a
$3.1 million, or 18.4% decrease in fiscal 1993. Declining interest rates in
fiscal 1993 also contributed to the decrease in that year.
OTHER INCOME, NET
Other income, net, decreased 54.8% in fiscal 1994 to $6.1 million and 12.5%
in fiscal 1993 to $13.6 million. The fiscal 1994 decrease was due largely to a
decrease in investment income resulting from the redefining of the Company's
cash management activities in connection with its strategic program (see
Financial Condition -- Overview). The fiscal 1993 decrease was mainly due to
fewer gains on sales of restaurants as compared with fiscal 1992.
CHANGES IN ACCOUNTING PRINCIPLES
Effective as of the beginning of fiscal 1994, the Company recognized a
$768,000 cumulative effect charge, net of a $512,000 tax benefit, related to a
change in the method used to discount the Company's estimated workers'
compensation liability (see Note 9). Effective as of the beginning of fiscal
1993, the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." The cumulative effect of this change in
accounting principle resulted in a $2.4 million charge to operations and is
described further in Note 16.
14
<PAGE> 17
FINANCIAL CONDITION
OVERVIEW
The Company's current ratio was 1.0 and 1.1 as of January 31, 1994 and
1993, respectively, reflecting the cash-intensive nature of the quick-service
restaurant industry.
As of January 31, 1994, total cash available to the Company was $26.1
million, which included $13.6 million of idle cash invested in money market
funds (a cash equivalent) and short-term marketable securities. As part of its
strategic program, the Company redefined its cash management function and
liquidated a substantial portion of its former investment portfolio during
fiscal 1994. The securities on hand as of January 31, 1994 consisted primarily
of holdings in investment-grade money market funds, government debt, preferred
stock and mutual funds and were invested in accordance with the Company's new
investment policy. This new policy is designed to maintain a diversified, highly
liquid portfolio with minimal interest rate risk which will generally not
include margined securities.
Restaurant property costs to be sold and leased back were largely
reclassified to property and equipment in fiscal 1994 as management no longer
intends to actively pursue this means of financing new Company-operated
restaurants.
Prior to the refocusing of the Company's investing activities, the Company
maintained a long-term investment portfolio, which was comprised of preferred
stocks, debt and other securities valued individually at cost and written down
when a decline in market value was deemed other than temporary. Long-term
investments were reclassified to current marketable securities prior to the sale
of such a security, which 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.
As of January 31, 1994, the other current assets caption in the
accompanying balance sheets included $6.8 million of additional investment
securities which were held in trust by the State of California as of that date
in connection with the Company's self-insured workers' compensation program.
Proceeds from the liquidation of the former investment portfolio were used to
purchase these securities. The State requires the Company to secure its
potential workers' compensation claims each year by providing a prescribed
amount either through one or more standby letters of credit or an equivalent
amount of cash or investment securities. The requirement for the upcoming period
beginning May 1, 1994 was decreased to $12.1 million from $14.7 million and the
Company recently obtained from its bank a standby letter of credit for this
entire amount. Accordingly, the $6.8 million of investment securities on deposit
with the State as of January 31, 1994 was returned to the Company in April 1994.
The remaining proceeds from the liquidation of the former investment
portfolio 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 during fiscal 1994. This reduction of current liabilities was
partially offset by a $3.9 million reclassification of bank debt in recognition
of certain upcoming fiscal 1995 maturity dates.
As of January 31, 1994, the Company was not in compliance with certain of
the covenants governing its revolving credit line, the $6.4 million term loan
maturing in December 1994, and both of the standby letters of credit expiring in
April 1994 related to the Company's workers' compensation program. In March
1994, the Company negotiated with its bank to provide a $15.0 million credit
line through June 1995 under which $12.1 million will be committed to a single
standby letter of credit to satisfy the State's current requirement related to
the Company's workers' compensation program. This renegotiation resulted in the
elimination of one of the previously issued standby letters of credit, thereby
curing any of its related covenant violations. In addition, a waiver of the
requirements of the remaining covenant violations was received and more
favorable covenants were negotiated in their place that will apply to future
measurement periods.
Long-term debt decreased $14.3 million in fiscal 1994 largely as a result
of $11.5 million of principal payments ($1.7 million of which was from the
proceeds from the liquidation of the former investment portfolio) and the $3.9
million reclassification of bank debt to current portion of long-term debt.
Further prepayment of long-term debt is not anticipated as the Company's
remaining debt agreements require sizable prepayment penalties.
15
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
The need for capital arises, principally, for the construction and
remodeling of Carl's Jr. restaurants, the payment of lease obligations, the
repayment of debt and, beginning in fiscal 1995, the development of Boston
Chicken stores. During fiscal 1994, the Company's working capital needs and
other capital requirements were financed primarily through internally generated
funds.
Cash flows from operating activities have generally consisted of net income
or loss, adjusted for certain noncash revenues and expenses, including
depreciation, amortization, restructuring charges, other nonrecurring charges
and deferred taxes, as well as changes in certain current asset and liability
accounts. Net cash provided by operating activities increased $3.5 million to
$27.7 million in fiscal 1994, largely as a result of improved operating results
for the year. Lower operating earnings in fiscal 1993 as compared with fiscal
1992 led to a $9.0 million decrease in net cash provided by operating earnings
in that year.
During fiscal 1994, $9.5 million of net cash was provided by investing
activities, which consisted primarily of $30.2 million of proceeds from the
liquidation of the Company's former investment portfolio and $4.8 million of
notes receivable collections, offset by $13.9 million of purchases of property
and equipment and the reinvestment of $12.7 million of idle cash in accordance
with the Company's new investment policy. During fiscal 1993, $3.8 million of
net cash was provided by investing activities, which was due to the Company's
sale/leaseback program, which generated $4.7 million of net cash, collections of
notes receivable totaling $3.6 million, the Company's former investment
portfolio yielding $2.7 million of net cash and the sales of certain
Company-operated restaurants, which generated $2.1 million of cash. Purchases of
property and equipment totaling $9.3 million in fiscal 1993 partially offset
these inflows.
Net cash used in financing activities amounted to $31.7 million and $27.5
million in fiscal 1994 and fiscal 1993, respectively. The Company's net $18.1
million revolving credit line borrowings were repaid in fiscal 1994, and the
repayment of long-term debt totaled $11.5 million in that year. Fiscal 1993
included $19.9 million of long-term debt repayments. Cash was also paid in both
fiscal 1994 and fiscal 1993 principally for the repayment of obligations due
brokers, which were paid in full in fiscal 1994, the repayment of capital lease
obligations and dividends.
New Carl's Jr. restaurant openings have been slowed while management
focuses on improving the sales and operating profits of its existing
restaurants. A total of six new Carl's Jr. restaurants are planned for the
coming fiscal year.
Under the terms of its development agreement with Boston Chicken, Inc., the
Company is obligated to open an aggregate of 200 Boston Chicken Stores in
designated markets by January 15, 1999. In order to comply with this development
agreement, the Company will be required to develop 40 to 50 Boston Chicken
stores per year over the next five years. The Company also has the option to
develop 100 additional Boston Chicken stores in the markets designated in the
development agreement, the appropriate time schedule for which will be
determined upon exercise of this option.
Of the first 50 Boston Chicken stores, the Company anticipates that it will
convert approximately 10 to 15 Carl's Jr. restaurants to Boston Chicken stores.
By converting these selected Carl's Jr. restaurants, management's strategy is
designed to accelerate the development of Boston Chicken stores and 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 10 to 15 conversions are completed.
The Company estimates that the initial costs associated with the opening of
each new Boston Chicken store will be approximately $800,000. This estimate
includes, among other things, leasehold improvements, equipment, opening
inventory and supplies, and initial working capital. This estimate does not
include any land or additional costs which may be necessary, depending on the
location and the nature of each individual site. The costs of converting
existing Carl's Jr. restaurants to Boston Chicken stores are estimated to be
approximately $600,000 per conversion.
16
<PAGE> 19
A shelf registration statement has been filed by CKE Restaurants (which
assumes the reincorporation proposal described in the Overview section is
completed) covering up to $75 million of debt, convertible debt or preferred
stock. The Company is also currently negotiating with its bank to increase the
amount available under its credit facility.
The Company believes that the cash generated from its operations, along
with the $26.1 million of cash, cash equivalents and short-term marketable
securities on hand as of January 31, 1994, the $6.8 million of investment
securities recently returned to the Company from the State, and a combination of
proceeds from possible offerings under the shelf registration statement and
additional borrowings from banks or other financial institutions will provide
the Company the funds necessary to meet all of its obligations, including the
payment of maturing indebtedness and the development of Carl's Jr. restaurants
and Boston Chicken stores.
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
competitive pressures within the quick-service restaurant industry and the
recessionary environment, management has emphasized cost controls rather than
price increases during fiscal 1994.
NEW ACCOUNTING PRONOUNCEMENTS
The adoption of Statements of Financial Accounting Standards Nos. 112 and
114, "Employers' Accounting for Postemployment Benefits" and "Accounting by
Creditors for Impairment of a Loan," respectively, are not expected to have a
material effect on the results of operations or financial condition of the
Company.
The Company is required to adopt Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities," as of February 1, 1994. SFAS 115 requires the inclusion in
income or shareholders' equity of unrealized gains and losses resulting from the
fair value accounting of investments in debt and equity securities except for
debt securities intended to be held to maturity. The adoption of SFAS 115 is not
expected to have a material effect on the Company's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index included at "Item 14. Exhibits, Financial Statement
Schedules, and Reports of Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
17
<PAGE> 20
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 1994, to be filed with the Commission within 120
days of January 31, 1994, is hereby incorporated by reference. The executive
officers of the Company and Boston Pacific are listed below.
<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 the Company
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 the Company
James D. Mizes 38 Vice President, Operations of Boston Pacific
Roger D. Shively 46 Vice President, Human Resources of the Company
</TABLE>
Donald E. Doyle became a Director, President and Chief Executive Officer of
the Company 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.
Rory J. Murphy has been the Senior Vice President, Operations, of the
Company for the past two years. He has been employed by the Company in various
positions for 15 years.
Loren C. Pannier has been the Senior Vice President and Chief Financial
Officer of the Company for the past 13 years and has been employed by the
Company for 22 years.
Kerry W. Coin became Senior Vice President and General Manager of Boston
Pacific in February 1994. 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.
Laurie A. Ball became Vice President, Controller in January 1993, and has
been employed by the Company in various positions for more than the past six
years.
Richard C. Celio joined the Company as Vice President, General Counsel in
January 1989. Prior to joining the Company, 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 the Company.
Karen B. 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.
James D. Mizes joined Boston Pacific as Vice President, Operations in March
1994. Prior to joining Boston Pacific, he was employed at Taco Bell Corporation
for six years, where he held various positions in operations, and most recently
was Vice President of Operations Services.
Roger D. 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.
18
<PAGE> 21
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing in the "Executive Compensation," "Summary
Compensation Table," "Option Grants in Last Fiscal Year," "Aggregate Option
Exercises in Fiscal 1994 and Fiscal 1994 Year-End Option Values," "Employment
Agreements," "Incentive Compensation Plan," "Transactions with Officers and
Directors," "Key Employee Stock Option Plan" and "1993 Employee Stock Incentive
Plan" sections of the Company's Proxy Statement prepared in connection with the
Annual Meeting of Shareholders to be held in 1994, to be filed with the
Commission within 120 days of January 31, 1994, 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 1994, to be filed with the Commission
within 120 days of January 31, 1994, 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 1994, to be filed with the Commission
within 120 days of January 31, 1994, is hereby incorporated by reference.
19
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
PAGE
(A)(1) INDEX TO FINANCIAL STATEMENTS: NUMBER
------
<S> <C> <C>
Independent Auditors' Report............................................ F-1
Balance Sheets -- as of January 31, 1994 and 1993....................... F-2
Statements of Operations -- for the years ended January 31, 1994, 1993
and 1992................................................................ F-3
Statements of Shareholders' Equity -- for the years ended January 31,
1994, 1993
and 1992................................................................ F-4
Statements of Cash Flows -- for the years ended January 31, 1994, 1993
and 1992................................................................ F-5
Notes to Financial Statements........................................... F-6
(A)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
Schedule I -- Marketable Securities..................................... S-1
Schedule II -- Amounts Receivable from Related Parties.................. S-2
Schedule V -- Property and Equipment.................................... S-3
Schedule VI -- Accumulated Depreciation and Amortization of Property
and Equipment........................................................... S-4
Schedule IX -- Short-term Borrowings.................................... S-5
Schedule X -- Supplementary Income Statement Information................ S-6
All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements
and notes hereto.
(A)(3) EXHIBITS:
An "Exhibit Index" has been filed as a part of this Form 10-K beginning
on
page E-1 hereof and is incorporated herein by reference.
(B) CURRENT REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended January 31,
1994.
</TABLE>
20
<PAGE> 23
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 /s/ DONALD E. DOYLE
Donald E. Doyle
President and Chief Executive
Officer
Date April 29, 1994
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>
/s/ WILLIAM P. FOLEY II Chairman of the Board April 29, 1994
- - ---------------------------------------------
William P. Foley II
/s/ DONALD E. DOYLE President and Chief Executive April 29, 1994
- - --------------------------------------------- Officer and Director (Principal
Donald E. Doyle Executive Officer)
/s/ LOREN C. PANNIER Senior Vice President, April 29, 1994
- - --------------------------------------------- Chief Financial Officer
Loren C. Pannier (Principal Financial Officer)
/s/ LAURIE A. BALL Vice President, Controller April 29, 1994
- - --------------------------------------------- (Principal Accounting Officer)
Laurie A. Ball
/s/ PETER CHURM Director April 29, 1994
- - ---------------------------------------------
Peter Churm
/s/ DANIEL W. HOLDEN Director April 29, 1994
- - ---------------------------------------------
Daniel W. Holden
/s/ CARL L. KARCHER Director April 29, 1994
- - ---------------------------------------------
Carl L. Karcher
/s/ CARL N. KARCHER Director April 29, 1994
- - ---------------------------------------------
Carl N. Karcher
/s/ DANIEL D. (Ron) LANE Director April 29, 1994
- - ---------------------------------------------
Daniel D. (Ron) Lane
/s/ KENNETH O. OLSEN Director April 29, 1994
- - ---------------------------------------------
Kenneth O. Olsen
/s/ ELIZABETH A. SANDERS Director April 29, 1994
- - ---------------------------------------------
Elizabeth A. Sanders
</TABLE>
21
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Carl Karcher Enterprises, Inc.
We have audited the accompanying financial statements of Carl Karcher
Enterprises, Inc. as listed in the accompanying index. In connection with our
audits of the financial statements, we also have audited the financial statement
schedules as listed in the accompanying index. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules 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 31, 1994 and 1993, and the results of its operations and its
cash flows for each of the years in the three-year period ended January 31, 1994
in conformity with generally accepted accounting principles. Also in our
opinion, the related 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 Note 9 to the financial statements, the Company changed the
method used to discount its workers' compensation reserve in fiscal 1994.
As discussed in Notes 1 and 16 to the financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in fiscal 1993.
KPMG Peat Marwick
Orange County, California
March 21, 1994
F-1
<PAGE> 25
CARL KARCHER ENTERPRISES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1994 1993
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 17,075 $ 11,505
Marketable securities................................................ 9,064 32,930
Accounts receivable.................................................. 8,956 12,855
Related party receivables............................................ 1,175 1,555
Inventories.......................................................... 7,485 6,383
Restaurant property costs to be reimbursed or sold and leased back... 262 7,427
Deferred tax asset, net.............................................. 15,310 13,690
Other current assets................................................. 10,077 4,217
-------- --------
Total current assets......................................... 69,404 90,562
Property and equipment, net............................................ 113,212 115,064
Property under capital leases, net..................................... 33,608 35,558
Notes receivable....................................................... 16,171 20,543
Related party notes receivable......................................... 1,976 2,514
Other assets........................................................... 7,764 4,683
-------- --------
$242,135 $268,924
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................... $ 13,207 $ 28,467
Obligations secured by marketable securities......................... -- 2,422
Current portion of capital lease obligations......................... 3,354 3,158
Accounts payable..................................................... 13,161 14,531
Other current liabilities............................................ 36,831 36,419
-------- --------
Total current liabilities.................................... 66,553 84,997
-------- --------
Long-term debt......................................................... 17,414 31,742
Capital lease obligations.............................................. 45,886 48,512
Other long-term liabilities............................................ 20,206 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 18,676,587 shares and 18,090,742 shares............... 33,928 28,793
Retained earnings.................................................... 58,148 55,939
-------- --------
Total shareholders' equity................................... 92,076 84,732
-------- --------
$242,135 $268,924
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 26
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenues:
Sales by Company-operated restaurants.................... $381,733 $414,510 $466,198
Revenues from franchised and licensed restaurants........ 78,635 75,262 60,025
Revenues from other outside parties...................... -- 12,860 14,147
-------- -------- --------
Total revenues...................................... 460,368 502,632 540,370
-------- -------- --------
Operating costs and expenses:
Company-operated restaurants:
Food and packaging.................................... 115,444 127,148 150,351
Payroll and other employee benefits................... 118,774 141,870 146,759
Occupancy and other operating expenses................ 82,321 93,651 100,949
-------- -------- --------
316,539 362,669 398,059
Franchised and licensed restaurants...................... 73,551 67,590 52,448
Other outside parties.................................... -- 12,690 13,669
Advertising expenses..................................... 19,104 19,200 19,963
General and administrative expenses...................... 37,666 47,749 36,218
Arbitration settlement................................... 3,000 -- --
-------- -------- --------
Total operating costs and expenses.................. 449,860 509,898 520,357
-------- -------- --------
Operating income (loss).................................... 10,508 (7,266) 20,013
Interest expense........................................... (10,387) (13,630) (16,703)
Other income, net.......................................... 6,148 13,592 15,541
-------- -------- --------
Income (loss) before income taxes and cumulative effect of
changes in accounting principles......................... 6,269 (7,304) 18,851
Income tax expense (benefit)............................... 1,836 (4,247) 5,813
-------- -------- --------
Income (loss) before cumulative effect of changes in
accounting principles.................................... 4,433 (3,057) 13,038
Cumulative effect of changes in accounting principles (net
of income tax benefit of $512 in 1994)................... (768) (2,450) --
-------- -------- --------
Net income (loss).......................................... $ 3,665 $ (5,507) $ 13,038
-------- -------- --------
-------- -------- --------
Net income (loss) per common share:
Income (loss) before cumulative effect of changes in
accounting principles................................. $ .24 $(.17) $.72
Cumulative effect of changes in accounting principles.... (.04) (.14) --
-------- -------- --------
Net income (loss)................................... $ .20 $(.31) $.72
-------- -------- --------
-------- -------- --------
Weighted average shares outstanding........................ 18,567 18,034 18,208
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 27
CARL KARCHER ENTERPRISES, INC.
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 31, 1991........................... 18,017 $27,532 $ 51,286 $ 78,818
Cash dividends ($.08 per share)..................... -- -- (1,433) (1,433)
Exercise of stock options........................... 171 1,104 -- 1,104
Tax benefit associated with exercise of stock
options.......................................... -- 170 -- 170
Repurchase and retirement of shares................. (270) (2,018) -- (2,018)
Net income.......................................... -- -- 13,038 13,038
------ ------- -------- --------
Balance at January 31, 1992........................... 17,918 26,788 62,891 89,679
Cash dividends ($.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 31, 1993........................... 18,091 28,793 55,939 84,732
Cash dividends ($.08 per share)..................... -- -- (1,456) (1,456)
Exercise of stock options........................... 646 4,366 -- 4,366
Tax benefit associated with exercise of stock
options.......................................... -- 1,191 -- 1,191
Repurchase and retirement of shares................. (60) (422) -- (422)
Net income.......................................... -- -- 3,665 3,665
------ ------- -------- --------
Balance at January 31, 1994........................... 18,677 $33,928 $ 58,148 $ 92,076
------ ------- -------- --------
------ ------- -------- --------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 28
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------
1994 1993 1992
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income (loss)................................................ $ 3,665 $ (5,507) $ 13,038
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Noncash franchise revenue..................................... (151) (488) (605)
Depreciation and amortization................................. 22,842 25,161 26,573
Restructuring charge.......................................... -- 11,124 --
Arbitration settlement........................................ 3,000 -- --
(Gain) loss on sale of property and equipment and capital
leases....................................................... 613 (451) (4,059)
Write-off of accounts and notes receivable.................... 406 -- --
Write-down of marketable securities........................... 213 452 681
Net noncash investment income................................. (63) (328) (1,151)
Deferred income taxes......................................... (1,675) (8,226) (2,149)
Post-employment benefits...................................... 1,668 -- --
Cumulative effect of changes in accounting principles......... 768 2,450 --
Net change in marketable securities reserve................... (479) 651 (31)
Net change in receivables, inventories and other current
assets....................................................... 4,257 1,498 1,386
Net change in other assets.................................... (2,699) 160 201
Net change in accounts payable and other current
liabilities.................................................. (4,617) (2,285) (716)
-------- --------- ---------
Net cash provided by operating activities..................... 27,748 24,211 33,168
-------- --------- ---------
Cash flows from investing activities:
Construction of restaurant property to be reimbursed or sold
and leased back............................................... -- (9,422) (12,795)
Sale of or reimbursement on restaurant property to be sold
and leased back............................................... 487 14,086 11,128
Purchases of:
Marketable securities......................................... (12,722) (42,426) (36,772)
Property and equipment........................................ (13,865) (9,329) (24,287)
Long-term investments......................................... -- (3,054) (4,441)
Proceeds from sale of:
Marketable securities......................................... 30,177 46,831 44,023
Property and equipment........................................ 490 2,121 1,983
Long-term investments......................................... -- 1,352 8,863
Collections on leases receivable................................. 129 102 269
Collections on notes receivable and related party notes
receivable.................................................... 4,824 3,562 5,377
-------- --------- ---------
Net cash provided by (used in) investing activities........... 9,520 3,823 (6,652)
-------- --------- ---------
Cash flows from financing activities:
Net change in bank overdraft..................................... 170 2,109 (2,018)
Net change in obligations secured by marketable securities
and long-term investments..................................... (2,422) (6,197) (1,305)
Short-term borrowings............................................ 15,150 123,017 110,000
Repayments of short-term debt.................................... (33,250) (123,917) (109,200)
Long-term borrowings............................................. -- 755 220
Repayments of long-term debt..................................... (11,488) (19,890) (9,627)
Repayments of capital lease obligations.......................... (2,650) (2,365) (2,212)
Net change in other long-term liabilities........................ (887) (682) (2,325)
Repurchase and retirement of common stock........................ (422) -- (2,018)
Payment of dividends............................................. (1,456) (1,445) (1,433)
Exercise of stock options........................................ 4,366 1,008 1,104
Tax benefit associated with the exercise of stock options........ 1,191 154 170
-------- --------- ---------
Net cash used in financing activities......................... (31,698) (27,453) (18,644)
-------- --------- ---------
Net increase in cash and cash equivalents........................ $ 5,570 $ 581 $ 7,872
-------- --------- ---------
-------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 29
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
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 last Monday in January each year. The year ended January 31, 1994
was a 53-week year. The years ended January 25, 1993 and January 27, 1992 were
52-week years. For clarity of presentation, the Company has described all
periods presented as if the fiscal year ended January 31.
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.
Inventories -- Inventories are stated at the lower of cost (first-in,
first-out) or market.
Deferred Pre-opening Costs -- Deferred pre-opening costs consist of the
direct and incremental costs associated with the opening of restaurants and are
deferred and amortized over the first year a given restaurant is in operation.
Such costs include uniforms and promotional costs related to the grand opening
of a restaurant. Additionally, these costs include initial food, beverage,
supply and direct labor costs associated with the testing of all equipment and
recipes, and the simulation of other operational procedures shortly before a
restaurant opens.
Deferred pre-opening costs also include, if significant, the cost of
required training classes for new managers, assistant managers and regional
managers; airfare and lodging related to this training; and the salaries of
these individuals during their training classes and prior to the opening of
their respective Carl's Jr. restaurants or Boston Chicken stores. Such costs,
including training, were not significant in the years presented. Since there is
not an existing employee base from which to hire Boston Pacific store management
and the training related to the opening of Boston Pacific stores is conducted
outside of California, these costs are expected to be significant in future
years.
Investment in Joint Venture -- In fiscal 1994, the Company entered into a
joint venture agreement with a Mexican company to operate a Carl's Jr.
restaurant in Baja California. The Company owns a 50% interest in this joint
venture, which is accounted for by the equity method and is not considered
material to the Company's financial statements.
Income Taxes -- The Company adopted 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 deferral 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 effect would have been antidilutive. For all years presented,
primary earnings per share approximate fully diluted earnings per share.
Reclassifications -- Certain prior year amounts in the accompanying
financial statements have been reclassified to conform to the fiscal 1994
presentation.
F-6
<PAGE> 30
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- BOSTON PACIFIC, INC.
In January 1994, the Company acquired rights to develop, own and operate up
to 300 Boston Chicken stores from Boston Chicken, Inc. In consideration for
these rights, the Company paid an initial development fee of $1,000,000 and also
paid a non-refundable deposit of $1,000,000, which will be applied as a credit
($5,000 per store) towards the Company's obligation to pay $35,000 as an initial
franchise fee upon the opening of each Boston Chicken store by the Company. The
development fee will be amortized over the five-year life of the development
agreement and the franchise fees will be amortized over each individual 15-year
franchise agreement. Both amounts were included in other assets as of January
31, 1994.
Under the development agreement, the Company is obligated to open a number
of Boston Chicken stores according to a specific schedule, commencing on January
15, 1995 and ending on January 15, 1999. The stores will be located in
metropolitan Sacramento, the County of San Diego, and nine counties in the
greater Los Angeles area.
NOTE 3 -- MARKETABLE SECURITIES
During fiscal 1994, as part of its strategic program, the Company began
liquidating a significant portion of its marketable securities. As such, as of
January 31, 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 31, 1994 and 1993,
marketable securities were carried at aggregate cost. The aggregate market
values as of January 31, 1994 and 1993 were $9,483,000 and $34,364,000,
respectively. Gross unrealized gains and unrealized (losses) as of January 31,
1994 were $480,000 and $(61,000), respectively.
Marketable securities consist primarily of holdings in investment-grade
government debt securities, preferred stock and mutual funds which largely
invest in securities issued or guaranteed by the U. S. government. These
securities consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------ -------
(IN THOUSANDS)
<S> <C> <C>
Adjustable rate preferred stock........................... $ 583 $ 3,885
Fixed rate preferred stock................................ 2,937 13,051
Debt securities........................................... 2,635 9,630
Mutual funds and common stock............................. 2,909 6,364
------ -------
$9,064 $32,930
------ -------
------ -------
</TABLE>
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.
The Company is required to adopt Statement of Financial Accounting
Standards No. 115, ("SFAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities," as of February 1, 1994. SFAS 115 requires the inclusion in
income or shareholders' equity of unrealized gains and losses resulting from the
fair value accounting of investments in debt and equity securities except for
debt securities intended to be held to maturity. The adoption of SFAS 115 is not
expected to have a material effect on the Company's financial statements.
F-7
<PAGE> 31
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS
Details of accounts receivable and other current assets were as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable:
Trade receivables...................................... $ 4,885 $ 7,783
Income tax receivable.................................. 2,261 3,231
Notes receivable, current.............................. 1,607 1,665
Other.................................................. 203 176
------- -------
$ 8,956 $12,855
------- -------
------- -------
Other current assets:
Cash held in trust..................................... $ 6,776 --
Prepaid expenses and other............................. 3,301 $ 4,217
------- -------
$10,077 $ 4,217
------- -------
------- -------
</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 1994 1993
----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land............................................. $ 19,804 $ 14,571
Leasehold improvements........................... 4-25 years 81,875 79,266
Buildings and improvements....................... 7-30 years 27,082 23,566
Equipment, furniture and fixtures................ 3-10 years 116,299 115,713
-------- --------
245,060 233,116
Less: Accumulated depreciation and
amortization................................... 131,848 118,052
-------- --------
$113,212 $115,064
-------- --------
-------- --------
</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 primarily through 2026. Many of these
leases provide for future rent escalations and renewal options. In addition,
contingent rentals, determined as a percentage of sales in excess of specified
levels, is often stipulated. Most of these leases obligate the Company to pay
the costs of maintenance, insurance and property taxes.
Property under capital leases was comprised of the following:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Buildings................................................ $66,587 $66,336
Less: Accumulated amortization........................... 32,979 30,778
------- -------
$33,608 $35,558
------- -------
------- -------
</TABLE>
F-8
<PAGE> 32
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (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 31, 1994 were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
----------- -------- ---------
(IN THOUSANDS)
<S> <C> <C>
1995................................................ $ 8,704 $ 28,489
1996................................................ 8,616 27,744
1997................................................ 8,419 26,951
1998................................................ 8,096 26,023
1999................................................ 7,805 25,195
Thereafter............................................ 54,818 232,447
-------- ---------
Total minimum lease payments..................... 96,458 $366,849
---------
---------
Less: Amount representing interest.................... 47,218
--------
Present value of minimum lease payments............... 49,240
Less: Current portion................................. 3,354
--------
Capital lease obligations, excluding current
portion........................................ $ 45,886
--------
--------
</TABLE>
Total minimum lease payments have not been reduced by minimum sublease
rentals of $46,370,000 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.
Lessees generally bear the cost of maintenance, insurance and property taxes.
Components of the net investment in leases receivable, included in other assets,
were as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net minimum lease payments receivable.................... $11,497 $10,699
Less: Unearned income.................................... 6,433 6,044
------- -------
Net investment................................. $ 5,064 $ 4,655
------- -------
------- -------
</TABLE>
Minimum future rentals to be received as of January 31, 1994 were as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES OR LESSOR
FISCAL YEAR SUBLEASES LEASES
----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C>
1995............................................... $ 807 $ 235
1996............................................... 803 237
1997............................................... 803 237
1998............................................... 804 237
1999............................................... 809 238
Thereafter........................................... 7,471 2,171
--------- ---------
Total minimum future rentals............... $11,497 $ 3,355
--------- ---------
--------- ---------
</TABLE>
Total minimum future rentals do not include contingent rentals which may be
received under certain leases.
F-9
<PAGE> 33
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company's investment in land under operating leases at January 31, 1994
and 1993 was $1,804,000 and $2,031,000, respectively.
Aggregate rents under noncancelable operating leases were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals............................... $28,989 $28,139 $26,087
Contingent rentals............................ 1,583 2,323 2,675
Less: Sublease rentals........................ 4,812 4,688 4,770
------- ------- -------
$25,760 $25,774 $23,992
------- ------- -------
------- ------- -------
</TABLE>
NOTE 7 -- OTHER CURRENT LIABILITIES
Other current liabilities were comprised of the following:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Salaries, wages and other benefits....................... $ 7,754 $ 7,151
Self-insured workers' compensation reserve (see Note
9)..................................................... 7,650 8,673
Other self-insurance reserves............................ 2,638 2,827
Sales tax payable........................................ 2,770 5,729
Restructuring charges (see Note 9)....................... 2,119 4,604
Arbitration settlement and other litigation.............. 3,554 --
Other accrued liabilities................................ 10,346 7,435
------- -------
$36,831 $36,419
------- -------
------- -------
</TABLE>
In March 1994, the Company was found liable in a $3,000,000 binding
arbitration judgment for alleged breach of contract involving an investor group
which had been negotiating for the purchase of several existing Carl's Jr.
restaurants. The settlement, payable during fiscal 1995, was accrued in other
current liabilities as of January 31, 1994.
F-10
<PAGE> 34
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- LONG-TERM DEBT
Long-term debt was comprised of the following:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit line with bank, unsecured............................... -- $18,100
Notes payable:
Unsecured note payable to bank, principal payments in specified amounts
monthly through 1994, interest at 9.26%............................. $ 6,417 13,417
Secured notes payable to bank, principal payments in specified amounts
annually through 1999, interest at 12.95%........................... 6,099 7,597
Secured note payable, principal payments in specified amounts annually
through 2000, interest at 13.5%..................................... 6,108 6,812
Secured notes payable to bank, principal payments in specified amounts
monthly through 1995, interest based on the prime rate plus .25%
beginning in fiscal 1995; interest based on the prime rate plus
.25%, not to exceed 14.75% nor less than 10.25% for prior years..... 5,428 5,697
Industrial Revenue Bonds, payable in 1999, variable interest rate
averaging 2.37% in fiscal 1994 and 2.66% in fiscal 1993............. 3,600 3,600
Other.................................................................. 2,969 4,986
------- -------
30,621 60,209
Less: Current portion.................................................. 13,207 28,467
------- -------
$17,414 $31,742
------- -------
------- -------
</TABLE>
Notes payable mature in fiscal years ending after January 31, 1994 as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Fiscal Year:
1995..................... $ 13,207
1996..................... 3,997
1997..................... 2,322
1998..................... 2,039
1999..................... 1,445
Thereafter................. 7,611
--------------
$ 30,621
--------------
--------------
</TABLE>
As of January 31, 1994, the Company was not in compliance with certain of
the covenants governing its revolving credit line, the $6,417,000 term loan
maturing in December 1994, and both of the standby letters of credit expiring in
April 1994 related to the Company's workers' compensation program. In March
1994, the Company negotiated with its bank to provide a $15,000,000 credit line
through June 1995 under which $12,148,000 will be committed to a single standby
letter of credit to satisfy the State's current requirement related to the
Company's workers' compensation program. This renegotiation resulted in the
elimination of one of the previously issued standby letters of credit, thereby
curing any of its related covenant violations. In addition, a waiver of the
requirements of the remaining covenant violations was received and more
favorable covenants were negotiated in their place that will apply to future
measurement periods. Interest on the revolving line will be calculated at the
bank's prime rate, which was 6% as of January 31, 1994, or based on the bank's
offshore rate, at the option of the Company.
Secured notes payable are collateralized by certain restaurant property
deeds of trust, with a carrying value at January 31, 1994 of $19,834,000.
F-11
<PAGE> 35
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- OTHER LONG-TERM LIABILITIES
Other long-term liabilities were as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Self-insured workers' compensation reserve............. $ 8,460 $ 6,441
Restructuring charges.................................. 10,105 10,859
Other.................................................. 1,641 1,641
-------- --------
$ 20,206 $ 18,941
-------- --------
-------- --------
</TABLE>
A total of $16,110,000 and $15,114,000 was accrued as of January 31, 1994
and 1993, respectively, representing the current and long-term portion of the
net present value of an independent actuarial valuation of the Company's
workers' compensation claims in both years. These amounts are net of a discount
of $1,771,000 and $3,585,000 in fiscal years 1994 and 1993, respectively. The
independent actuarial valuation in the fourth quarter of fiscal 1993 resulted in
a $5,114,000 increase to the workers' compensation reserve in that year.
In the fourth quarter of fiscal 1994, the method used by the Company to
discount the actuarial projection of losses to be paid in connection with its
existing workers' compensation claims was changed from its incremental borrowing
rate to the Company's risk-free interest rate of 5%. The Company accounted for
this change as a change in accounting principle, effective as of the beginning
of fiscal 1994. The first quarter of fiscal 1994 has been restated, to reflect
the cumulative effect of this adoption, which resulted in a decrease in net
income of $786,000, which was net of an income tax benefit of $512,000.
In prior years, the Company initiated restructuring programs to dispose of
or franchise its Arizona and Texas operations. As of January 31, 1994 and 1993,
$11,542,000 and $12,630,000, respectively, was accrued for these reserves,
including the current portion. These balances were mainly comprised of estimated
losses on equipment and estimated lease subsidies. The lease subsidy component
of the restructuring charges represents the net present value of the excess of
future lease payments over estimated sublease income. The remaining unamortized
discount to present value of these lease subsidies at January 31, 1994 was
$9,537,000 and will be amortized to operations over the remaining sublease
terms, which range up to 22 years. The carrying value of the related equipment
represents the net realizable value of these assets at January 31, 1994 and
1993.
In fiscal 1993, the Company recognized an $11,124,000 charge related to its
strategic initiatives, workforce reductions and certain lease subsidies.
Components of this charge were as follows:
- Severance and outplacement costs related to the termination of 53
corporate employees in January 1993 amounted to $1,918,000, including an
$843,000 noncash charge arising from the extension and remeasurement of
stock options to former key management personnel. These terminated
employees were identified and the termination plan was approved by the
Company's Board of Directors on January 20, 1993. Substantially all of
these required severance and outplacements payments were made in fiscal
1994;
- The estimate of certain Arizona lease subsidies (part of the
restructuring program described above and paid over the remaining lease
terms ranging from one to 17 years) was increased $4,855,000 because the
Company reduced its sublease rental income projections associated with
these restaurants. These projections are based entirely upon the
restaurant sales of the franchisees, which have been declining as a
result of the continued softness in the Arizona economy;
- A total of $2,299,000 of estimated equipment losses and appropriate lease
subsidies was recognized related to the closure of certain
underperforming restaurants, which should be completed in fiscal 1995.
F-12
<PAGE> 36
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The equipment cannot be used in the Company's operations any longer and
provides no future utility to the Company. A total of $967,000 remained accrued
as of January 31, 1994 related to these losses; and
- The elimination of the Company's manufacturing operations, which was
largely completed during fiscal 1993, included losses on the disposition
of equipment previously used in that operation and severance costs
related to the termination of 232 manufacturing employees, and required a
$2,052,000 charge in that year.
NOTE 10 -- COMMON STOCK
In connection with his employment, the Company's President and Chief
Executive Officer was awarded 12,121 shares of the Company's common stock valued
at $100,000, at a market price of $8.25 per share, on January 6, 1993. These
shares vest at a rate of 33 1/3% per year on each of the three anniversaries
following the grant date, therefore $33,000 was included in compensation expense
during the fiscal year ended January 31, 1994.
During the second quarter of fiscal 1994, the Company purchased a total of
59,750 shares from the Carl N. and Margaret M. Karcher Trust for an aggregate
purchase price of $422,000. All shares purchased were canceled and retired.
NOTE 11 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments have been
determined by the Company using appropriate market information and valuation
methodologies. Considerable judgment is required to develop the estimates of
fair value, thus, the estimates provided herein are not necessarily indicative
of the amounts that could be realized in a current market exchange.
The carrying values of cash, cash equivalents and financial instruments
included in other current assets and other current liabilities approximated
their fair values due to the short-term maturities of these instruments. The
carrying amounts and fair values of the Company's other financial instruments
were as follows:
<TABLE>
<CAPTION>
1994 1993
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Marketable securities......................... $ 9,064 $ 9,483 $32,930 $34,364
Notes receivable.............................. 20,000 21,029 25,001 26,998
Financial liabilities:
Long-term debt................................ 28,084 27,487 57,646 56,557
</TABLE>
The valuation methods and assumptions are summarized as follows:
Marketable securities: The fair values of marketable securities were
estimated using quoted market prices.
Notes receivable: The fair values of notes receivable were estimated by
discounting future cash flows using current rates at which similar loans would
be made to borrowers with similar credit ratings.
Long-term debt: The fair value of long-term debt was estimated using rates
currently available to the Company for debt with similar terms and remaining
maturities.
F-13
<PAGE> 37
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- RELATED PARTY TRANSACTIONS
Certain members of the Karcher family are franchisees of the Company. A
total of 26 restaurants have been sold to these individuals, none of which
occurred during fiscal 1994 or fiscal 1993. As part of these transactions, the
Company received cash and accepted $6,480,000 of interest-bearing notes.
Additionally, these franchisees regularly purchase food and other products from
the Company on the same terms and conditions as other franchisees. Details of
amounts outstanding were as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
12.0% Secured notes........................................ $ 341 $ 387
12.5% Secured notes........................................ 1,881 2,406
------ ------
2,222 2,793
Less: Long-term portion.................................... 1,976 2,514
------ ------
246 279
Trade receivables.......................................... 929 1,276
------ ------
$1,175 $1,555
------ ------
------ ------
</TABLE>
In fiscal 1991, as part of its Arizona restructuring program, the Company
leased six of its Arizona restaurants to a Karcher family member and 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, and are
subject to ongoing negotiations. A total of $1,143,000 was included in the
Arizona restructuring reserve (see Note 9) and remained accrued as of January
31, 1994 in anticipation of future losses to be realized as a result of this
transaction.
The Company leases various properties, including its corporate
headquarters, distribution facility and three of its restaurants, from Carl N.
Karcher. Included in capital lease obligations was $5,286,000 and $5,904,000,
representing the present value of lease obligations related to these various
properties at January 31, 1994 and 1993, respectively. Lease payments under
these leases for fiscal 1994, 1993 and 1992 amounted to $1,515,000, $1,612,000,
and $1,548,000, respectively. This was net of sublease rentals of $171,000,
$64,000 and $63,000 in fiscal 1994, 1993 and 1992, respectively. In November
1993, the Company purchased two restaurants from Carl N. Karcher for an
aggregate purchase price of $848,000. A third restaurant site is in escrow, for
which the Company has paid a $250,000 deposit.
In October 1993, Carl N. Karcher was granted future retirement benefits for
past services consisting principally of payments of $200,000 per year for life
and supplemental health benefits, which had a net present value of $1,668,000 as
of that date. This amount was computed using certain actuarial assumptions,
including a discount rate of 7%. A total of $1,652,000 remained accrued in other
current liabilities at January 31, 1994. The Company anticipates funding these
obligations as they become due.
As of January 31, 1993, the Company was a signatory with Carl N. Karcher on
a promissory note agreement 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 31, 1993. The agreement contained restrictions on working
capital, incurrence of additional debt and leases, and payment of dividends.
Carl N. Karcher paid the note on March 2, 1993, releasing the Company from any
future obligation or signatory responsibilities.
NOTE 13 -- FRANCHISED AND LICENSED OPERATIONS
Franchise arrangements, with franchisees who operate in Arizona,
California, Nevada, Oregon and Utah, generally provide for initial fees and
continuing royalty payments to the Company based upon a percent of
F-14
<PAGE> 38
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
sales. The Company generally charges an initial franchisee fee for each new
franchised restaurant that is added to its system, and in some cases, an area
development fee, which grants exclusive rights to develop a specified number of
Carl's Jr. restaurants in a designated geographic area. Similar fees are charged
in connection with the Company's international licensing operations. These fees
are recognized ratably when substantially all the services required of the
Company are complete and the restaurants covered by these agreements commence
operations.
Franchisees may also purchase food, paper and other supplies from the
Company. Additionally, franchisees may be obligated to remit lease payments for
the use of restaurant facilities owned or leased by the Company, 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 receives notes from franchisees in connection with the sales of
Company-operated restaurants. Generally, these notes bear interest at 12.5%,
mature in five to 15 years and are secured by an interest in the restaurant
equipment sold.
Revenues from franchised and licensed restaurants were comprised of the
following:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Food service.......................................... $60,979 $57,503 $46,396
Rental income......................................... 10,575 9,601 6,761
Royalties............................................. 6,253 5,517 4,680
Initial fees.......................................... 297 1,095 969
Other................................................. 531 1,546 1,219
------- ------- -------
$78,635 $75,262 $60,025
------- ------- -------
------- ------- -------
</TABLE>
Operating costs and expenses for franchised and licensed restaurants were
comprised of the following:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Food service.......................................... $60,827 $54,947 $43,931
Occupancy and other operating expenses................ 12,724 12,643 8,517
------- ------- -------
$73,551 $67,590 $52,448
------- ------- -------
------- ------- -------
</TABLE>
NOTE 14 -- INTEREST EXPENSE
Interest expense was comprised of the following:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and revolving credit lines........... $ (3,472) $ (5,941) $ (7,889)
Capital lease obligations.......................... (6,454) (6,809) (7,458)
Obligations secured by marketable securities....... (60) (581) (984)
Capitalized interest............................... 19 89 234
Other.............................................. (420) (388) (606)
-------- -------- --------
$(10,387) $(13,630) $(16,703)
-------- -------- --------
-------- -------- --------
</TABLE>
F-15
<PAGE> 39
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- OTHER INCOME, NET
Other income, net was comprised of the following:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net gains (losses) on sales of restaurants............ $ (162) $ 867 $ 4,767
Gains on sales of investments......................... 2,675 8,839 9,003
Losses on sales of investments........................ (1,325) (3,422) (5,548)
Dividend income....................................... 559 2,513 3,388
Interest income....................................... 4,401 5,714 3,931
Other................................................. -- (919) --
------- ------- -------
$ 6,148 $13,592 $15,541
------- ------- -------
------- ------- -------
</TABLE>
NOTE 16 -- 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. 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>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $ 2,327 $ 2,996 $ 5,944
State............................................... 672 983 2,018
------- ------- -------
2,999 3,979 7,962
------- ------- -------
Deferred:
Federal............................................. (1,471) (7,422) (2,149)
State............................................... (204) (804) --
------- ------- -------
(1,675) (8,226) (2,149)
------- ------- -------
1,324 (4,247) 5,813
Tax effect of cumulative effect of change in
accounting principle................................ 512 -- --
------- ------- -------
$ 1,836 $(4,247) $ 5,813
------- ------- -------
------- ------- -------
</TABLE>
Significant components of the deferred income tax benefit were as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax benefit (primarily related to the arbitration
settlement in 1994 and restructuring charges and increases to
the workers' compensation reserve in 1993)..................... $ (850) $(8,181)
Increase in targeted jobs tax credit carryforward................ (1,025) (840)
Increase in the valuation allowance for the net deferred tax
asset.......................................................... 200 795
------- -------
$(1,675) $(8,226)
------- -------
------- -------
</TABLE>
F-16
<PAGE> 40
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the year ended January 31, 1992, 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>
(IN THOUSANDS)
<S> <C>
Depreciation........................................................... $ (828)
Safe harbor leases..................................................... (268)
Capital leases......................................................... (411)
State income taxes..................................................... (134)
Capital losses......................................................... 369
Restructuring accrual.................................................. 267
General liability insurance accrual.................................... (830)
Other, net............................................................. (314)
-------
$(2,149)
-------
-------
</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>
1994 1993 1992
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes at statutory rate.......................... $2,131 $(2,483) $6,409
State income taxes, net of federal income tax benefit... 306 (950) 1,332
Dividend exclusion...................................... (161) (475) (667)
Targeted jobs tax credits............................... (774) (1,033) (1,190)
Remeasurement of stock options.......................... -- 287 --
Increase in the valuation allowance for the net deferred
tax asset............................................. 200 795 --
Other, net.............................................. 134 (388) (71)
------ ------- ------
$1,836 $(4,247) $5,813
------ ------- ------
------ ------- ------
</TABLE>
Temporary differences and carryforwards gave rise to a significant amount
of deferred tax assets and liabilities as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Restructuring charges.......................................... $ 4,997 $ 7,196
Capitalized leases............................................. 8,449 8,223
Workers' compensation reserve.................................. 6,976 6,544
Targeted jobs tax credit carryforward.......................... 2,137 1,112
Arbitration settlement and other litigation.................... 1,539 --
Other.......................................................... 5,612 5,579
------- -------
29,710 28,654
Less: Valuation allowance...................................... 1,495 1,295
------- -------
Total deferred tax asset............................... 28,215 27,359
------- -------
Deferred tax liability:
Depreciation................................................... 10,210 10,676
Safe harbor leases............................................. 1,461 1,815
Other.......................................................... 1,234 1,178
------- -------
Total deferred tax liability........................... 12,905 13,669
------- -------
Net deferred tax asset........................................... $15,310 $13,690
------- -------
------- -------
</TABLE>
F-17
<PAGE> 41
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 majority
of the benefit of the existing net deferred tax asset as of January 31, 1994.
Taxable income generated in prior years is available to offset a portion of the
net deferred asset. Recognition of the remaining balance will require generation
of future taxable income over the next several years, none of which is
concentrated in any given year. There can be no assurance that the Company will
generate any earnings or 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 $2,137,000
available at January 31, 1994 which expire in 2007, 2008 and 2009.
NOTE 17 -- RETIREMENT PLANS
The Company maintains a voluntary contributory profit sharing plan and a
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 1994, 1993 and 1992
were $813,000, $429,000 and $1,263,000, respectively.
The Company also maintains a defined benefit pension plan covering
substantially all operations employees qualified as to age and service. For
fiscal years 1994, 1993 and 1992, pension contributions were $442,000, $348,000
and $228,000, respectively. Under the terms of the defined benefit plan, pension
expense is computed based upon an independent actuarial valuation study. Company
contributions under this plan are funded quarterly. As of the start of fiscal
1994, the accumulated benefit obligation related to the plan was $1,323,000.
NOTE 18 -- STOCK OPTION PLANS
The Company's 1993 stock incentive plan was approved by the shareholders in
June 1993. Awards granted to employees under this plan are not restricted as to
any specified form or structure, with such form, vesting and pricing provisions
determined by the Compensation and Stock Option Committee of the Board of
Directors. The 1993 plan also provides for the automatic award of stock options
to non-employee Directors annually. These options generally have a term of five
years, become exercisable at a rate of 33 1/3% per year following the grant date
and are priced at an amount equal to or greater than the fair market value at
the date of grant. A total of 1,750,000 shares are available for grants of
options or other awards under this plan, of which 575,751 stock options were
outstanding as of January 31, 1994. The exercise price of options outstanding
under this plan ranges from $7.13 per share to $8.13 per share.
The Company's 1982 stock option plan 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 equal to or greater than the fair market
value at the date of grant. The options generally had a term of 10 years from
the grant date and become exercisable at a rate of 25%, 35% and 40% per year
following the grant date. The exercise price of the 796,883 options outstanding
as of January 31, 1994 under this plan ranges from $5.21 per share to $13.38 per
share.
F-18
<PAGE> 42
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Transactions under both plans were as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES 1994 1993 1992
-------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Outstanding at beginning of year.................. 1,554,766 1,840,440 2,103,796
Granted........................................... 579,812 134,230 4,000
Canceled.......................................... (116,349) (247,476) (96,454)
Exercised......................................... (645,595) (172,428) (170,902)
--------- --------- ---------
Outstanding at end of year........................ 1,372,634 1,554,766 1,840,440
--------- --------- ---------
--------- --------- ---------
Exercisable at end of year........................ 745,310 1,332,136 1,376,685
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 19 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest (net of amount capitalized).................. $10,558 $13,860 $16,478
Income taxes.......................................... 1,675 5,584 7,300
</TABLE>
Noncash investing and financing activities for each of the years in the
three-year period ended January 31, 1994 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Noncash investing and financing activities:
Transfers of marketable securities to long-term
investments....................................... -- -- $ 4,567
Transfers of marketable securities to other current
assets............................................ $6,776 -- --
Transfers of long-term investments to marketable
securities........................................ -- $ 6,184 5,871
Other investing activities:
Net change in marketable securities from noncash
transactions.................................... (99) (474) (3,181)
Net change in long-term investments from noncash
transactions.................................... -- 5 2,036
Net change in dividends receivable................ 36 141 1,130
Net change in obligations secured by marketable
securities and long-term investments............ -- -- (1,136)
Leasing activities:
Capital lessee additions............................. 505 1,048 1,075
Capital lessor activities............................ 538 628 --
Other leasing activities:
Decrease in leases receivable..................... -- -- 1,819
Increase in property and equipment................ -- -- (1,924)
Decrease in property under capital leases......... 169 671 4,512
Decrease in capital lease obligations............. (285) (1,561) (6,051)
Franchising and other disposition activities:
Sale of property and equipment....................... 344 7,304 6,893
Sale of inventory.................................... 11 139 183
Increase in notes receivable......................... (551) (7,203) (8,501)
Net change in restructuring reserve and other current
liabilities....................................... 45 4,698 2,464
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......................................... 6,750 1,553 2,159
Sale/leaseback transaction resulting in an increase
to notes receivable............................... -- 1,300 --
</TABLE>
F-19
<PAGE> 43
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly results.
<TABLE>
<CAPTION>
QUARTER 1ST 2ND 3RD 4TH
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1994
Total revenues........................................ $139,915 $108,177 $106,436 $105,840
Operating income...................................... 1,412 4,449 3,519 1,128
Income (loss) before cumulative effect of change in
accounting principle................................ 926 2,359 1,606 (458)
Cumulative effect of change in accounting principle
(net of income tax benefit of $512)................. (768) -- -- --
-------- -------- -------- --------
Net income (loss)........................... $ 158 $ 2,359 $ 1,606 $ (458)
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per common share:
Income (loss) before cumulative effect of change in
accounting principle............................. $ .05 $.13 $.09 $(.02)
Cumulative effect of change in accounting
principle........................................ (.04) -- -- --
----- ---- ---- -----
Net income (loss)........................... $ .01 $.13 $.09 $(.02)
----- ---- ---- -----
----- ---- ---- -----
FISCAL 1993
Total revenues........................................ $161,606 $119,931 $115,350 $105,745
Operating income (loss)............................... 4,220 3,141 1,950 (16,577)
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) -- -- --
----- ---- ---- -----
Net income (loss)........................... $.04 $.18 $.07 $(.60)
----- ---- ---- -----
----- ---- ---- -----
</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, 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 years 1994
and 1993, which had 16-week accounting periods, and the fourth quarter of fiscal
1994 which had 13 weeks.
The first quarter of fiscal 1994 has been restated to reflect the
cumulative effect of a change in accounting principle, related to a change in
the method used to discount the workers' compensation reserve. The second and
third quarters have been restated to reflect the impact of this adoption. See
Note 9.
Operating results for the fourth quarter of fiscal 1994 included a
$3,000,000 charge in connection with the settlement of an arbitration proceeding
(or $1,800,000 net of tax). See Note 7.
The first quarter of fiscal 1993 was restated to reflect the adoption of
SFAS 109. The impact of the adoption was not material in subsequent quarters.
See Note 16.
F-20
<PAGE> 44
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Operating results for the fourth quarter of fiscal 1993 included 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 9.
NOTE 21 -- CONTINGENT LIABILITIES
The Company presently self-insures for group insurance, workers'
compensation and fire and comprehensive protection on most equipment and certain
other assets. 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.
Subsequent to January 31, 1994, the Company obtained a $12,148,000 standby
letter of credit related to its self-insured workers' compensation program,
which will expire on June 30, 1995 (see Note 8). 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.
The Company's standby letter of credit agreements with various banks expire
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
August 1994............................ $ 3,852
June 1995.............................. 12,148
April 2000............................. 275
--------
$ 16,275
--------
--------
</TABLE>
F-21
<PAGE> 45
CARL KARCHER ENTERPRISES, INC.
SCHEDULE I -- MARKETABLE SECURITIES
<TABLE>
<CAPTION>
NUMBER
OF SHARES COST OF MARKET VALUE CARRYING VALUE
OR UNITS EACH ISSUE OF EACH ISSUE OF EACH ISSUE
--------- ---------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
January 31, 1994:
Preferred stock............................ 174 $3,520 $3,813 $3,520
Debt securities............................ 14 610 836 610
Government debt securities................. 20 2,025 2,019 2,025
Mutual funds and common stock.............. 274 2,909 2,815 2,909
---------- ------- -------
$9,064 $9,483 $9,064
---------- ------- -------
---------- ------- -------
</TABLE>
- - ------------------
No individual issue exceeds 2% of assets.
S-1
<PAGE> 46
CARL KARCHER ENTERPRISES, INC.
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS BALANCE AT END OF YEAR
BEGINNING ------------------------ -----------------------------
OF YEAR ADDITIONS PAYMENTS WRITTEN OFF CURRENT(1)(2) LONG-TERM(2)
---------- --------- -------- ----------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
January 31, 1994:
Bernard W. Karcher...... $ 849 $ 3,562 $ (4,199) -- $ 212 $ --
Carl L. Karcher......... 902 6,753 (6,874) -- 404 377
Carl N. Karcher......... 19 115 (134) -- -- --
Franklin J. Karcher..... 1,581 2,581 (2,596) -- 273 1,293
Joseph C. Karcher....... 218 1,324 (1,358) -- 184 --
Gary L. Wiles........... 500 2,305 (2,397) -- 102 306
------ ------- -------- -------- ------ ------
$4,069 $16,640 $(17,558) -- $1,175 $1,976
------ ------- -------- -------- ------ ------
------ ------- -------- -------- ------ ------
January 31, 1993:
Bernard W. Karcher...... $ 872 $ 3,221 $ (3,244) -- $ 492 $ 357
Carl L. Karcher......... 911 7,832 (7,841) -- 494 408
Carl N. Karcher......... -- 127 (108) -- 19 --
Franklin J. Karcher..... 1,615 2,692 (2,726) -- 206 1,375
Joseph C. Karcher....... 361 1,199 (1,342) -- 218 --
Gary L. Wiles........... 622 2,368 (2,490) -- 126 374
------ ------- -------- -------- ------ ------
$4,381 $17,439 $(17,751) -- $1,555 $2,514
------ ------- -------- -------- ------ ------
------ ------- -------- -------- ------ ------
January 31, 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 --
Gary L. Wiles........... 654 2,825 (2,857) -- 194 428
------ ------- -------- -------- ------ ------
$6,022 $18,830 $(20,471) -- $1,728 $2,653
------ ------- -------- -------- ------ ------
------ ------- -------- -------- ------ ------
</TABLE>
- - ------------------
(1) Includes accounts receivable, which consists 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.
S-2
<PAGE> 47
CARL KARCHER ENTERPRISES, INC.
SCHEDULE V -- PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
BALANCE
AT
BEGINNING ADDITIONS BALANCE AT
OF YEAR AT COST RETIREMENTS END OF YEAR
--------- --------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Year Ended January 31, 1994:
Land....................................... $ 14,571 $ 6,376 $ 1,143 $ 19,804
Leasehold improvements..................... 79,266 4,765 2,156 81,875
Buildings and improvements................. 23,566 3,567 51 27,082
Equipment, furniture and fixtures.......... 115,713 6,014 5,428 116,299
-------- ------- -------- --------
233,116 20,722 8,778 245,060
Property under capital leases.............. 66,336 1,296 1,045 66,587
-------- ------- -------- --------
$299,452 $22,018 $ 9,823 $311,647
-------- ------- -------- --------
-------- ------- -------- --------
Year Ended January 31, 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 31, 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
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
S-3
<PAGE> 48
CARL KARCHER ENTERPRISES, INC.
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
BALANCE
AT
BEGINNING ADDITIONS BALANCE AT
OF YEAR AT COST RETIREMENTS END OF YEAR
-------- ------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Year Ended January 31, 1994:
Leasehold improvements...................... $ 38,512 $ 6,936 $ 1,469 $ 43,979
Buildings and improvements.................. 7,009 844 51 7,802
Equipment, furniture and fixtures........... 72,531 12,057 4,521 80,067
-------- ------- ----------- -----------
118,052 19,837 6,041 131,848
Property under capital leases............... 30,778 3,005 804 32,979
-------- ------- ----------- -----------
$148,830 $22,842 $ 6,845 $ 164,827
-------- ------- ----------- -----------
-------- ------- ----------- -----------
Year Ended January 31, 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 31, 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
-------- ------- ----------- -----------
-------- ------- ----------- -----------
</TABLE>
S-4
<PAGE> 49
CARL KARCHER ENTERPRISES, INC.
SCHEDULE IX -- SHORT-TERM BORROWINGS
<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)
------------ -------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year Ended January 31, 1994.............. $ -- --% $ 2,422 $ 296 5.3%
------ --- ------- ------- ---
------ --- ------- ------- ---
Year Ended January 31, 1993.............. $2,422 5.6% $19,146 $13,441 4.5%
------ --- ------- ------- ---
------ --- ------- ------- ---
Year Ended January 31, 1992.............. $8,619 5.9% $18,717 $12,275 7.3%
------ --- ------- ------- ---
------ --- ------- ------- ---
</TABLE>
- - ---------------
(1) Amount represents obligations secured by marketable securities and, prior to
fiscal 1993, 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.
S-5
<PAGE> 50
CARL KARCHER ENTERPRISES, INC.
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
----------------------------------------------------------
FISCAL YEAR ENDED
----------------------------------------------------------
JANUARY 31, 1994 JANUARY 31, 1993 JANUARY 31, 1992
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Maintenance and repairs........................ $13,628 $18,816 $19,749
</TABLE>
S-6
<PAGE> 51
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
CARL KARCHER ENTERPRISES, INC.
EXHIBIT INDEX
FOR THE YEAR ENDED JANUARY 31, 1994
FORM 10-K
EXHIBITS
3-2, 10-77 THROUGH 10-89, 10-91, 10-92, 11-1, 12-1, 23-1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 52
EXHIBITS
<TABLE>
<S> <C>
3-1 Articles of Incorporation of Carl Karcher Enterprises, Inc., and amendments
thereto, filed as exhibit 3-1 to the Company's Registration Statement on
Form S-1, file No. 2-73695, and is hereby incorporated by reference.
3-2 Bylaws of Carl Karcher Enterprises, Inc. as amended, and amendments
thereto, filed as exhibit 3-2 to Amendment No. 3 to the Company's
Registration Statement on Form S-1, file No. 2-73695.(1)
10-1 Carl Karcher Enterprises, Inc. Profit Sharing Plan, as amended, filed as
exhibit 10-21 to the Company's Registration Statement on Form S-1, file No.
2-73695, and is hereby incorporated by reference.(2)
10-2 Carl Karcher Enterprises, Inc. Key Employee Stock Option Plan, filed as
exhibit 10-24 to the Company's Registration Statement on Form S-1, file No.
2-80283, and is hereby incorporated by reference.(2)
10-3 Agreement of Sale, dated May 17, 1984, filed as exhibit 10-25 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1985,
and is hereby incorporated by reference.
10-4 Agreement of Sale, dated May 17, 1984, filed as exhibit 10-26 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1985,
and is hereby incorporated by reference.
10-5 Note Purchase Agreement, dated April 2, 1984, filed as exhibit 10-27 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1985,
and is hereby incorporated by reference.
10-6 Note Purchase Agreement, dated April 2, 1984, filed as exhibit 10-28 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1985,
and is hereby incorporated by reference.
10-7 Note Purchase Agreement, dated January 3, 1985, filed as exhibit 10-29 to
the Company's Form 10-K Annual Report for fiscal year ended January 25,
1985, and is hereby incorporated by reference.
10-8 Change in Control Agreement by and between Carl Karcher Enterprises, Inc.
and Loren C. Pannier, dated June 8, 1988, filed as exhibit 10-48 to the
Company's Form 10-K Annual Report for fiscal year ended January 30, 1989,
and is hereby incorporated by reference.(2)
10-9 Franchise Development Agreement dated May 17, 1985 by and between Carl
Karcher Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-53 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-10 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (13010 Palm Drive), filed as exhibit
10-54 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-11 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (57222 29 Palms Highway), filed as
exhibit 10-55 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-12 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (73-125 Highway 111), filed as
exhibit 10-56 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
</TABLE>
E-1
<PAGE> 53
<TABLE>
<S> <C>
10-13 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (68980 Highway 111), filed as
exhibit 10-57 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-14 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (81-770 Highway 111), filed as
exhibit 10-58 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-15 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (2520 Palm Canyon Drive), filed as
exhibit 10-59 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-16 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
enterprises, Inc. and Carl Leo Karcher (102 North Sunrise Way), filed as
exhibit 10-60 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-17 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (72840 Highway 111), filed as
exhibit 10-61 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-18 Sublease dated May 15, 1985 by and between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (Unit 323/730), filed as exhibit 10-62 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-19 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), filed as exhibit 10-63 to the Company's Form 10-K
Annual Report as amended for fiscal year ended January 27, 1992, and is
hereby incorporated by reference.
10-20 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (Unit 300/729), filed as exhibit 10-64 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-21 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (Unit 300/729), filed as exhibit 10-65 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-22 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), filed as exhibit 10-66 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992,
and is hereby incorporated by reference.
10-23 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher, as amended (Unit 206/724), filed as exhibit 10-67 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-24 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), filed as exhibit 10-68 to the Company's Form
10-K Annual Report as amended for fiscal year ended January 27, 1992, and
is hereby incorporated by reference.
</TABLE>
E-2
<PAGE> 54
<TABLE>
<S> <C>
10-25 Franchise Agreement dated December 31, 1985 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 456/768), filed as exhibit
10-69 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-26 Land and Building Sublease Agreement dated December 31, 1985 by and between
Carl Karcher Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-71
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-27 Franchise Agreement dated January 25, 1986 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 188/769), filed as exhibit
10-72 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-28 Franchise Agreement dated January 25, 1986 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 382/771), filed as exhibit
10-73 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-29 Franchise Agreement dated January 25, 1986 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 342/770), filed as exhibit
10-74 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-30 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc. dated
March 3, 1987 (1489 Adams Avenue), filed as exhibit 10-75 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992,
and is hereby incorporated by reference.
10-31 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, filed as exhibit 10-76 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992,
and is hereby incorporated by reference.
10-32 Continuing Guaranty dated January 27, 1987 executed by Carl Leo Karcher,
filed as exhibit 10-77 to, the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-33 Franchise Agreement dated March 3, 1987 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (1489 Adams Avenue), filed as exhibit 10-78 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-34 Franchise Agreement dated July 6, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Varner Road), filed as exhibit
10-79 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-35 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General
Release and Continuing Guaranty each dated October 5, 1987, filed as
exhibit 10-80 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-36 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), filed as exhibit 10-81 to the Company's Form
10-K Annual Report as amended for fiscal year ended January 27, 1992, and
is hereby incorporated by reference.
</TABLE>
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10-37 Sublease Agreement dated September 25, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Bullhead City), filed as exhibit
10-82 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-38 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 772), filed as exhibit 10-83
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-39 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 482/794), filed as exhibit
10-84 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-40 Franchise Agreement dated October 27, 1987 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 722), filed as exhibit 10-85
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-41 Franchise Agreement dated October 27, 1987 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 794), filed as exhibit 10-86
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-42 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General
Release and Continuing Guaranty each dated October 27, 1987 (Brawley),
filed as exhibit 10-87 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-43 Franchise Agreement dated June 14, 1988 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Bermuda Dunes), filed as exhibit 10-88 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-44 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General
Release and Continuing Guaranty each dated August 1, 1988, filed as exhibit
10-89 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-45 Franchise Agreement dated June 26, 1989 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (I-8 Business Loop), filed as exhibit 10-92 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-46 Assignment of Franchise Agreement and Sublease Agreement by Carl Leo
Karcher to CLK, Inc. to CLK, Inc. and Continuing Guaranty each dated August
17, 1989 (Unit 730), filed as exhibit 10-93 to the Company's Form 10-K
Annual Report as amended for fiscal year ended January 27, 1992, and is
hereby incorporated by reference.
10-47 Assignment of Franchise Agreement and Lease Agreement by Carl Leo Karcher
to CLK, Inc. dated August 17, 1989 (Unit 726), filed as exhibit 10-94 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-48 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK,
Inc. dated November 28, 1989 (Rivera, Arizona), filed as exhibit 10-95 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
</TABLE>
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10-49 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), filed as exhibit 10-96 to the Company's Form 10-K
Annual Report as amended for fiscal year ended January 27, 1992, and is
hereby incorporated by reference.
10-50 Conditional Assignment of Lease dated November 7, 1990 between CLK, Inc.
and Carl Karcher Enterprises, Inc. (Unit 770), filed as exhibit 10-97 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-51 Conditional Assignment of Lease dated November 7, 1990 between CLK, Inc.
and Carl Karcher Enterprises, Inc. (Unit 771), filed as exhibit 10-98 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-52 Franchise Agreement dated November 12, 1990 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 873), filed as exhibit 10-99
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-53 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release
and Continuing Guaranty each dated November 13, 1990 (Unit 873), filed as
exhibit 10-100 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-54 Conditional Assignment of Lease dated December 18, 1990 by and between CLK,
Inc. and Carl Karcher Enterprises, Inc. (Unit 726), filed as exhibit 10-101
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-55 Development Agreement dated March 22, 1991 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-102 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-56 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK,
Inc. Release and Continuing Guaranty each dated April 5, 1991, filed as
exhibit 10-103 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-57 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, filed as
exhibit 10-104 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-58 Assignment of Franchise Development Agreement by Carl Leo Karcher to CLK,
Inc., Release and Continuing Guaranty each dated December 16, 1991, filed
as exhibit 10-105 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-59 Franchise Agreement dated December 16, 1991 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 7013/433), filed as exhibit
10-107 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-60 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK,
Inc. Release and Continuing Guaranty each dated December 16, 1991, filed as
exhibit 10-108 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
</TABLE>
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10-61 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, filed as exhibit 10-109 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-62 Promissory Note executed by Carl Leo Karcher in favor of Carl Karcher
Enterprises, Inc, filed as exhibit 10-110 to the Company's Form 10-K Annual
Report as amended for fiscal year ended January 27, 1992, and is hereby
incorporated by reference.
10-63 Security Agreement dated December 16, 1991 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 7013/433), filed as exhibit
10-111 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-64 Franchise Agreement dated January 10, 1992 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Havasu), filed as exhibit 10-112 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-65 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release
and Continuing Guaranty each dated January 10, 1992, filed as exhibit
10-113 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-66 Franchise Agreement dated January 20, 1992 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 7038), filed as exhibit 10-114
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-67 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release
and Continuing Guaranty each dated January 20, 1992, filed as exhibit
10-115 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-68 Employment Agreement dated January 14, 1993 by and between Carl Karcher
Enterprises, Inc. and Donald E. Doyle, filed as exhibit 10-116 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)
10-69 Addendum to Employment Agreement dated January 14, 1993 by and between Carl
Karcher Enterprises, Inc. and Donald E. Doyle, filed as exhibit 10-117 to
the Company's Form 10-K Annual Report for fiscal year ended January 25,
1993, and is hereby incorporated by reference.(2)
10-70 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Loren C. Pannier, filed as exhibit 10-118 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)
10-71 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Rory J. Murphy, filed as exhibit 10-119 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)
10-72 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Richard C. Celio, filed as exhibit 10-120 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)
</TABLE>
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10-73 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Roger D. Shively, filed as exhibit 10-121 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)
10-74 Employment Agreement dated February 1, 1993 by and between Carl Karcher
Enterprises, Inc. and Kerry W. Coin, filed as exhibit 10-122 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)
10-75 Carl Karcher Enterprises, Inc. 1993 Employee Stock Incentive Plan, filed as
exhibit 10-123 to the Company's Form 10-K Annual Report for fiscal year
ended January 25, 1993, and is hereby incorporated by reference.(2)
10-76 Amendment to Employment Agreement dated May 4, 1993 by and between Carl
Karcher Enterprises, Inc. and Donald E. Doyle, filed as exhibit 10-124 to
the Company's Form 10-K Annual Report for fiscal year ended January 25,
1993, and is hereby incorporated by reference.(2)
10-77 Amended and Restated Credit Agreement dated November 20, 1992, by and
between Carl Karcher Enterprises, Inc. and Bank of America National Trust
and Savings Association.(1)
10-78 Amendment No. 1 to Amended and Restated Credit Agreement dated April 28,
1993, by and between Carl Karcher Enterprises, Inc. and Bank of America
National Trust and Savings Association.(1)
10-79 Amendment No. 2 to Amended and Restated Credit Agreement dated September
27, 1993, by and between Carl Karcher Enterprises, Inc. and Bank of America
National Trust and Savings Association.(1)
10-80 Amendment No. 3 to Amended and Restated Credit Agreement dated December 15,
1993, by and between Carl Karcher Enterprises, Inc. and Bank of America
National Trust and Savings Association.(1)
10-81 Amendment No. 4 to Amended and Restated Credit Agreement dated January 19,
1994, by and between Carl Karcher Enterprises, Inc. and Bank of America
National Trust and Savings Association.(1)
10-82 Amendment No. 5 to Amended and Restated Credit Agreement dated March 15,
1994, by and between Carl Karcher Enterprises, Inc. and Bank of America
National Trust and Savings Association.(1)
10-83 Purchase Agreement and Escrow Instructions dated February 8, 1993, by and
between Carl Karcher Enterprises, Inc. and the Carl N. and Margaret M.
Karcher Trust.(1)
10-84 First Amendment to Purchase Agreement dated November 1, 1993, by and
between Carl Karcher Enterprises, Inc. and the Carl N. and Margaret M.
Karcher Trust.(1)
10-85 Franchise Agreement dated April 7, 1993, between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 7085).(1)
10-86 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release
and Continuing Guaranty, each dated April 7, 1993.(1)
10-87 Restricted Stock Agreement dated January 6, 1993, by and between Carl
Karcher Enterprises, Inc. and Donald E. Doyle.(1)(2)
10-88 Employment Agreement dated April 27, 1993, by and between Carl Karcher
Enterprises, Inc. and Karen B. Eadon.(1)(2)
10-89 Employment Agreement dated January 1, 1994, by and between Carl Karcher
Enterprises, Inc. and Carl N. Karcher.(1)(2)
</TABLE>
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10-90 Form of Development and Franchise Agreement dated January 14, 1994, by and
between Carl Karcher Enterprises, Inc. and Boston Chicken, Inc.(3)
10-91 Addendum No. 1 to Boston Chicken, Inc. Franchise Agreement, by and between
Carl Karcher Enterprises, Inc. and Boston Chicken, Inc.(1)
10-92 Addendum No. 1 to Boston Chicken, Inc. Area Development Agreement dated
January 14, 1994, by and between Carl Karcher Enterprises, Inc. and Boston
Chicken, Inc.(1)
11-1 Computation of Earnings Per Share.(1)
12-1 Computation of Ratios.(1)
23-1 Consent of KPMG Peat Marwick.(1)
</TABLE>
- - ---------------
(1) Filed herewith.
(2) A management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.
(3) Incorporated by reference to Exhibit 99 to Boston Chicken, Inc.'s
Registration Statement on Form S-1, file No. 33-69256, filed by Boston
Chicken, Inc. on September 22, 1993.
E-8
<PAGE> 1
EXHIBIT 3-2
<PAGE> 2
BYLAWS
OF
CARL KARCHER ENTERPRISES, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The board of directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office
is located outside the State of California, and the corporation has one or more
business offices in the State of California, the board of directors shall
likewise fix and designate a principal business office in the State of
California.
Section 2. OTHER OFFICES. The corporation may also establish offices
at such other places, both within and outside the State of California, as the
board of directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held
at any place within or outside the State of California designated by the board
of directors. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETINGS. The annual meeting of shareholders shall
be held on the 9th day of June in each year at ten o'clock a.m., or such other
date or time as may be fixed by the board of directors; provided, however, that
should said day fall upon a legal holiday, such annual meeting of shareholders
shall be held at the same time on the next succeeding day which is a full
business day. At such meeting, directors shall be elected and any other proper
business may be transacted.
Section 3. SPECIAL MEETINGS. A special meeting of the shareholders
may be called at any time by the board of directors, the chairman of the board,
the president, or one or more shareholders holding in the aggregate shares
entitled to cast not less than 10% of the votes at any such meeting.
If a special meeting is called by anyone other than the board of
directors, the request shall be in writing, specifying the time of the meeting
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president or the secretary of the corporation. The officer receiving such
request forthwith shall cause notice to be given to the shareholders entitled
to vote, in accordance with the provisions of Sections 4 and 5 of this Article
II, that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within
twenty (20) days after receipt of the request, the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
1
<PAGE> 3
Section 4. NOTICE OF MEETINGS. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting being noticed. The notice shall specify the place, date
and hour of the meeting and (i) in the case of a special meeting, the general
nature of the business to be transacted, or (ii) in the case of the annual
meeting, those matters which the board of directors, at the time of giving the
notice, intends to present for action by the shareholders. The notice of any
meeting at which directors are to be elected shall include the name of any
nominee or nominees whom, at the time of the notice, management intends to
present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to
Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to
Section 1201 of the Code, (iv) a voluntary dissolution of the corporation,
pursuant to Section 1900 of the Code, or (v) a distribution in dissolution
other than in accordance with the rights of outstanding preferred shares,
pursuant to Section 2007 of the Code, the notice shall also state the general
nature of such proposal.
Section 5. MANNER OF GIVING NOTICE. Notice of any meeting of
shareholders shall be given personally or by first-class mail or telegraphic or
other written communication, charges prepaid, addressed to the shareholder at
the shareholder's address appearing on the books of the corporation or given by
the shareholder to the corporation for the purpose of notice. If no such
address appears on the corp[oration's books or is given, notice shall be deemed
to have been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the country in which the principal executive office is located.
Notice shall be deemed to have been given when delivered personally or
deposited in the mail or sent by telegram or other means of written
communication.
If any notice addressed to a shareholder at the address of such
shareholder appearing on the books of the corporation is returned to the
corporation by the Untied States Postal Service marked to indicate that the
Service is unable to deliver the notice to the shareholder at such address, all
future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder upon written
demand at the principal executive office of the corporation for a period of one
year from the date of the giving of such notice or report to all other
shareholders.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary
or any transfer agent of the corporation, and shall be filed and maintained in
the minute book of the corporation.
Section 6. QUORUM. Unless otherwise provided in the articles of
incorporation, the presence in person or by proxy of the holders of a majority
of the shares entitled to vote at any meeting of shareholders shall constitute
a quorum for the transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2
<PAGE> 4
Section 7. ADJOURNMENT. Any shareholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of a majority of the shares represented at such meeting, either in
person or by proxy, but in the absence of a quorum, no other business may be
transacted at such meeting, except as provided in Section 6 of this Article II.
When any meeting of shareholders, annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at a meeting at which the adjournment is
taken, unless a new record date for the adjourned meeting is fixed, or unless
the adjournment is for more than forty-five (45) days from the date set for the
original meeting, in which case the board of directors shall set a new record
date. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 4 and 5 of this Article II. At any adjourned meeting,
the corporation may transact any business which might have been transacted at
the original meeting.
Section 8. VOTING. The shareholders entitled to vote at any meeting
of shareholders shall be determined in accordance with the provisions of
Section II of this Article II, subject to the provisions of Sections 702 to
704, inclusive, of the Code (relating to voting shares held by a fiduciary, in
the name of a corporation or in the names of two or more persons). The vote
may be by voice vote or by ballot; provided, however, that any election for
directors must be by ballot if demanded by a shareholder at the meeting and
before the voting begins. Any shareholder entitled to vote on any matter
(other than elections of directors) may vote part of the shares in favor of the
proposal and refrain from voting the remaining shares or vote them against the
proposal, but, if the shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares such shareholder is
entitled to vote. If a quorum is present, the affirmative vote of the majority
of the shares represented at the meeting and entitled to vote on any matter
(other than the election of directors) shall be the act of the shareholders,
unless the vote of a greater number of voting by classes is required by the
Code or the articles of incorporation.
At a shareholders' meeting involving the election of directors, no
shareholder shall be entitled to cumulate votes on behalf of any candidate for
director (i.e., each shareholder shall be entitled to cast for any one or more
candidates no greater number of votes than the number of shares held by such
shareholder) unless such candidate or candidates' names have been placed in
nomination prior to the voting and the shareholder has given notice prior to
the voting of the shareholder's intention to cumulate votes. If any
shareholder has given such notice, every shareholder entitled to vote may
cumulate votes for candidates in nomination and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the number
of votes to which such shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among as many candidates as the
shareholder thinks fit. The candidates receiving the highest number of votes,
up to the number of directors to be elected, shall be elected.
Section 9. WAIVER OF NOTICE: CONSENT. The transactions of any
meeting of shareholders, annual or special, however called and noticed, and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum is present either in person or by proxy,
and if, either before or after the meeting, each person entitled to vote, who
was not present in person or by proxy, signs a written waiver of notice, or a
consent to a holding of the meeting, or an approval of the minutes thereof.
The waiver of notice or consent need not specify either the business to be
transacted for the purpose of any
3
<PAGE> 5
annual or special meeting of shareholders, except that if action is taken or
proposed to be taken for approval of any matters specified in the second
paragraph of Section 4 of this Article II, the waiver of notice or consent
shall state the general nature of the proposal. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meetings is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of such meeting if such objection is expressly made at the meeting.
Section 10. ACTION WITHOUT MEETING. Unless otherwise provided in the
articles of incorporation, any action which may be taken at any annual or
special meeting of shareholders may be taken without a meeting and without
prior notice, if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
In the case of election of directors, such consent shall be effective only if
signed by the holders of all outstanding shares entitled to vote for the
election of directors; provided, however, that a director may be elected at any
time to fill a vacancy on the board of directors not filled by the directors,
by the written consent of the holders of a majority of the outstanding shares
entitled to vote for the election of directors. All such consents shall be
filed with the secretary of the corporation and shall be maintained in the
corporate records. Any shareholder giving a written consent, or the
shareholder's proxy holder, or a transferee of the shares or a personal
representative of the shareholder or their respective proxy holders, may revoke
the consent by a writing received by the secretary of the corporation prior to
the time that written consents of the number of shares required to authorize
the proposed action have been filed with the secretary.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, the secretary shall give prompt notice of any corporate
action approved by the shareholders without a meeting by less than unanimous
written consent to those shareholders entitled to vote who have not consented
in writing. Such notice shall be given in the manner specified in Section 5 of
this Article II. In the case of approval of (i) contracts or transactions in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of agents of the corporation,
pursuant to Section 317 of the Code, (iii) a reorganization of the corporation,
pursuant to Section 1201 of the Code, or (iv) a distribution in dissolution
other than in accordance with the rights of outstanding preferred shares,
pursuant to Section 2007 of the Code, such notice shall be given at least ten
(10) days before the consummation of the action authorized by any such
approval.
Section 11. RECORD DATE. For purposes of determining the
shareholders entitled to notice of any meeting or to vote or entitled to give
consent to corporate action without a meeting, the board of directors may fix,
in advance, a record date, which shall not be more than sixty (60) days nor
less than ten (10) days prior to the date of the meeting nor more than sixty
(60) days prior to the action without a meeting, and in such case only
shareholders of record on the date so fixed are entitled to notice and to vote
or to give consents, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in the California General Corporation Law.
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If the board of directors does not so fix a record date:
(a) The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on
the business day next preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, (i)
when no prior action by the board has been taken, shall be the day on
which the first written consent is given, or (ii) when prior action of
the board has been taken, shall be at the close of business on the day
on which the board adopts the resolution relating thereto, or the
sixtieth (60th) day prior to the date of such other action, whichever
is later.
Section 12. PROXIES. Every person entitled to vote for directors or
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, prior to the vote pursuant thereto, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of the proxy is received by the corporation before the
vote pursuant thereto is counted; provided, however, that no such proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy. The revocability of a proxy that
states on its face that it is irrevocable shall be governed by the provision of
Section 705(e) and (f) of the Code.
Section 13. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the board of directors may appoint any persons (other than
nominees for office) to act as inspectors of election at the meeting or any
adjournments thereof. If inspectors of election are not so appointed, the
chairman of the meeting may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders or proxies,
the majority of shares represented in person or by proxy shall determine
whether one (1) or three (3) inspectors are to be appointed. If any person
appointed as inspector fails to appear or refuses to act, the chairman of the
meeting may, and upon the request of any shareholder or a shareholder's proxy
shall, appoint a person to replace the one who so failed or refused. If there
are three (3) inspectors of election, the decision, act or certificate of a
majority of them is effective in all respects as the decision, act or
certificate of all. Any report or certificate made by the inspectors of
election is prima facie evidence of the facts stated therein.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California
General Corporation Law and any limitations in the articles of incorporation
and these bylaws relating to action required to be approved by the shareholders
or by the outstanding shares, the business and
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affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the board of directors.
Section 2. The authorized number of directors shall be seven (7)
until changed by an amendment to the Articles of Incorporation or, if permitted
by applicable law and the Articles of Incorporation, upon amendment to this
ByLaw, duly adopted by the vote or written consent of a majority of directors
of the corporation or by majority of the outstanding shares entitled to vote.
Section 3. ELECTION AND TERM OF OFFICE. Directors shall be elected
at each annual meeting of the shareholders to hold office until the next annual
meeting. Each director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Section 4. REMOVAL. Any or all of the directors may be removed by
order of court pursuant to Section 304 of the Code, or by the shareholders
pursuant to the provisions of Section 303 of the Code.
Section 5. VACANCIES. Vacancies in the board of directors may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director, except that a vacancy created by the removal of a
director may be filled only by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is present, or by the
written consent of holders of a majority of the outstanding shares entitled to
vote. Each director so elected shall hold office until the next annual meeting
of the shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist in the case of the death, resignation or removal of any director, or if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or who has been
convicted of a felony, or if the authorized number of directors is increased,
or if the shareholders fail, at any meeting of shareholders at which any
director or directors are elected, to elect the number of directors to be voted
for at that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective upon giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation of a director is effective at a future time,
the board of directors may elect a successor to take office when the
resignation becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his or her term of
office.
Section 6. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular
meetings of the board of directors may be held at any place within or outside
the State of California that has been designated from time to time by
resolution of the board. In the absence of such designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board shall be held at any place within or outside the
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State of California that has been designated in the notice of the meeting or,
if not stated in the notice or there is no notice, at the principal executive
office of the corporation. Any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating can hear one another, and all such directors shall be
deemed to be present in person at such meeting.
Section 7. REGULAR MEETINGS. Immediately following each annual
meeting of shareholders, the board of directors shall hold a regular meeting
for the purpose of organization, any desired election of officers and the
transaction of other business. Other regular meetings of the board of
directors shall be held without call at such time as shall from time to time be
fixed by the board of directors. Notice of regular meetings shall not be
required.
Section 8. SPECIAL MEETINGS. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the chairman
of the board or the president or any vice president or the secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered to
each director personally or by telephone or sent by first-class mail or
telegram, charges prepaid, addressed to each director at his or her address as
it is shown on the records of the corporation. In case the notice is mailed,
it shall be deposited in the Untied States mail at least four (4) days prior to
the time of the holding of the meeting. In case such notice is delivered
personally or by telephone or telegraph, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours prior to
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation.
Section 9. QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (appointment of committees), and Section 317(e) of the code
(indemnification of directors). A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
require quorum for such meeting.
Section 10. WAIVER OF NOTICE: CONSENT. The transactions of any
meeting of the board of directors, however called and noticed or wherever held,
shall be as valid as though had at a meeting duly held after regular call and
notice if a quorum is present and if, either before or after the meeting, each
of the directors not present signs a written waiver of notice, a consent to
holding the meeting or an approval of the minutes thereof. The waiver of
notice or consent need not specify the purpose of the meeting. All such
waivers, consents and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting. Notice of a meeting shall also be
deemed given to any director who attends the meeting without protesting, prior
thereto or at its commencement, the lack of notice to that director.
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Section 11. ADJOURNMENT. A majority of the directors present, whether
or not constituting a quorum, may adjourn any meeting to another time and
place. Notice of the time and place of holding an adjourned meeting need not
be given, unless the meeting is adjourned for more than twenty-four (24) hours,
in which case notice of such time and place shall be given prior to the time of
the adjourned meeting, in the manner specified in Section 8 of this Article
III, to the directors who were not present at the time of the adjournment.
Section 12. ACTION WITHOUT MEETING. Any action required or permitted
to be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
such action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. The written consent or
consents shall be filed with the minutes of the proceedings of the board.
Section 13. FEES AND COMPENSATION. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. Nothing contained herein 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 for such service.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The board of directors may,
by resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the board, may have all the authority of the
board, except with respect to:
(a) the approval of any action which, under the
California General Corporation Law, also requires shareholders'
approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or
in any committee;
(c) the fixing of compensation of the directors for
serving on the board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of
new bylaws;
(e) the amendment or repeal of any resolution of the
board of directors which by its express terms is not so amendable or
repealable;
(f) a distribution to the shareholders of the
corporation, except at a rate or in a periodic amount or within a
price range determined by the board of directors; or
(g) the appointment of any other committees of the board
of directors or the members thereof.
Section 2. MEETINGS AND ACTION. Meetings and action of committees
shall be governed by, and held and taken in accordance with, the provisions of
Article III of these
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bylaws, Sections 6 (place of meetings and meetings by telephone), 7 (regular
meetings), 8 (special meetings), 9 (quorum), 10 (waiver of notice), 11
(adjournment) and 12 (action without meeting), with such changes in the context
of those bylaws as are necessary to constitute the committee and its members
for the board of directors and its members, except that the time of regular
meetings of committees may be determined by resolution of the board of
directors as well as the committee; special meetings of committees may also be
called by resolution of the board of directors; and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may
adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
president, a secretary and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article V. Any number of offices may
be held by the same person.
Section 2. ELECTION. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the board of directors, and
each shall serve at the pleasure of the board, subject to the rights, if any,
of an officer under any contract of employment.
Section 3. OTHER OFFICERS. The board of directors may appoint, and
may empower the president to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the bylaws or as
the board of directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION. Subject to the rights, if any,
of any officer under any contract of employment, any officer may be removed,
either with or without cause, by the board of directors or, except in case of
an officer chosen by the board of directors, by any officer upon whom such
power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any such resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer is a party.
Section 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.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such
an officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him or her by the board of directors or prescribed by
the bylaws. If there is no president, the chairman of the board shall in
addition be the chief executive officer of the corporation and shall have the
powers and duties prescribed in Section 7 of this Article V.
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Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the board of directors to the chairman of the board, if there
be such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and the officers of
the corporation. He or she shall preside at all meetings of the shareholders
and, in the absence of the chairman of the board, or if there be none, at all
meetings of the board of directors. He or she shall have the general powers
and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed by
the board of directors or the bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors, or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by
the board of directors or the bylaws and the president or the chairman of the
board.
Section 9. SECRETARY. The secretary shall keep, or cause to be kept,
at the principal executive office or such other place as the board of directors
may direct, a book of minutes of all meetings and actions of directors,
committees of directors and shareholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' and committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, a share register, or a duplicate share register, showing the names
of all shareholders and their addresses, the number and classes of shares held
by each, the number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholder and of the board of directors required by the bylaws or by
law to be given, and he or she shall keep the seal of the corporation, if one
be adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by the bylaws.
Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer
shall keep and maintain, or cause to be kept and maintained, adequate and
correct books and records of accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained earnings and shares.
The books of account shall at all reasonable times be open to inspection by any
director.
The chief financial officer shall deposit, or cause to be deposited,
all moneys and other valuables in the name and to the credit of the corporation
with such depositaries as may be designated by the board of directors. He or
she shall disburse, or cause to be disbursed, the funds of the corporation as
may be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all financial transactions
and of the financial condition of the corporation, and shall have such other
powers and perform such other duties as may be prescribed by the board of
directors or the bylaws.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
Section 1. INDEMNIFICATION. The corporation may, to the maximum
extent permitted by the California General Corporation Law, indemnify each of
its agents against expenses, judgements, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that any such person is or was an agent of the corporation.
For purposes of this Article VI, an "agent" of the corporation includes any
person who is or was a director, officer, employee or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or was a director, officer, employee or
agent of a corporation which was a predecessor corporation of the corporation
or of another enterprise at the request of such predecessor corporation.
Section 2. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this corporation prior to the final disposition
of such proceeding upon receipt of an undertaking by or on behalf of the agent
to repay such amount unless it shall be determined ultimately that the agent is
entitled to be indemnified as authorized in this Article.
Section 3. OTHER CONTRACTUAL RIGHTS. Nothing contained in this
Article shall affect any right to indemnification to which persons other than
directors and officers of this corporation or any subsidiary hereof may be
entitled by contract or otherwise.
Section 4. INSURANCE. Upon and in the event of a determination
by the board of directors of this corporation to purchase such insurance, this
corporation shall purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether or not this
corporation would have the power to indemnify the agent against such liability.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed, a record of its
shareholders, giving the names and addresses of all shareholders and the number
and class of shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours upon five (5) days'
prior written demand upon the corporation, or (ii) obtain from the transfer
agent of the corporation, upon written demand and upon the tender of the
transfer agent's usual charges for such list, a list of the shareholders' names
and addresses, who are entitled to vote for the election of directors, and
their shareholdings, as of the most recent record date for which such list has
been compiled or as of a date specified by the shareholder subsequent to the
date of demand. The list shall be made available to that shareholder on or
before the later of five (5) days after the demand is received or the date
specified therein as the date as of which the list is to be compiled. The
record of shareholders shall also be open to inspection upon the written demand
of any shareholder or holder of a voting trust certificate, at any time
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during usual business hours, for a purpose reasonably related to such holder's
interests as a shareholder or as the holder of a voting trust certificate. Any
inspection and copying under this Section may be made in person or as an agent
or attorney of the shareholder or holder of a voting trust certificate making
such demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation
shall keep at its principal executive office, or if its principal executive
office is not in the State of California,at its principal business office in
that State, the original or a copy of the bylaws as amended to date, which
shall be open to inspection by the shareholders at all reasonable times during
office hours. If the principal executive office of the corporation is outside
the State of California and the corporation has no principal business office in
that State, the secretary shall, upon the written request of any shareholder,
furnish to such shareholder a copy of the bylaws as amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The Accounting books and records and minutes of proceedings of the shareholders
and the board of directors and any committee or committees of the board of
directors shall be kept at such place or places designated by the board of
directors, or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. Such minutes and
accounting books and records shall be open to inspection upon the written
demand of any shareholder or holder of a voting trust certificate, at any
reasonable time during usual business hours, for a purpose reasonably related
to the holder's interests as a shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney,
and shall include the right to copy and make extracts. The foregoing rights of
inspection shall extend to the records of each subsidiary of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of every kind and the physical properties of the corporation and each
subsidiary corporation. Such inspection by a director may be made in person or
by agent or attorney and the right of inspection includes the right to copy and
make extracts.
Section 5. ANNUAL REPORTS. The Board of Directors of the corporation
shall cause an annual report to be sent to the shareholders not later than one
hundred twenty (120) days after the close of the fiscal year, provided that
such report shall in any event be sent to shareholders at least fifteen (15)
(or, if sent by third-class mail, thirty-five (35) days prior to the annual
meeting of shareholders to be held during the next fiscal year. Such report
shall contain a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year
and shall be accompanied by any report thereon of independent accountants.
Such report shall also contain any additional matters required by Section
1501(b) of the General Corporation Law, the Securities Exchange Act of 1934 and
other applicable laws.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as
of the end of each such period, that has been prepared by the corporation shall
be kept on file in the principal executive office of the corporation for twelve
(12) months and each such statement shall be exhibited at all reasonable times
to any shareholder demanding examination of any such statement or a copy shall
be mailed to any such shareholder.
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If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days prior to the date of the request, and a
balance sheet of the corporation as of the end of such period, the chief
financial officer shall cause such statement or statements to be prepared, if
not already prepared, and shall deliver personally or mail such statement or
statements to the person making the request within thirty (30) days after the
receipt of such request. If the corporation has not sent to the shareholders
its annual report for the last fiscal year, this report shall likewise be
delivered or mailed to such shareholder or shareholders within thirty (30) days
after such request.
The corporation also shall, upon the written request of any
shareholder, mail to the shareholder a copy of the last annual, semi-annual or
quarterly income statement which it has prepared and a balance sheet as of the
end of such period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report thereon, if any, of any independent
accounts engaged by the corporation or the certificate of an authorized officer
of the corporation that such financial statements were prepared without audit
from the books and records of the corporation.
ARTICLE VIII
GENERAL MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders 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 lawful action (other than action by
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
prior to any such action, and in such case only shareholders of record on the
date so fixed are entitled to receive the dividend, distribution or allotment
of rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date for
determining shareholders for any such propose shall be at the close of business
on the date on which the board adopts the resolution relating thereto, or the
sixtieth (60th) day prior to the date of such action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts or other orders for payment of money, notes or other evidences 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 of directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
board of directors, except as otherwise provided in these bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of an on behalf of the corporation, and such
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors or within the agency power of
an officer, 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
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any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates
for shares of the capital stock of the corporation shall be issued to each
shareholder when any such shares are fully paid and the board of directors may
authorize the issuance of certificates or shares as partly paid provided that
such certificates shall state the amount of the consideration to be paid
therefor and the amount paid thereon. All certificates shall be signed in the
name of the corporation by the chairman of the board or vice chairman of the
board or the president or vice president and by the chief financial officer or
an assistant treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by the
shareholder. Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
Section 5. LOST CERTIFICATES. Except as hereinafter in this Section
provided, no new certificates for shares shall be issued in lieu of an old
certificate unless the latter is surrendered to the corporation and cancelled.
The board of directors may, in case any share certificate or certificate for
any other security is lost, stolen or destroyed, authorize the issuance of a
new certificate in lieu thereof, upon such terms and conditions as the board
may require, including provision for indemnification of the corporation secured
by a bond or other adequate security sufficient to protect the corporation
against any claim that may be made against it, including any expense or
lability, on account of the alleged loss, theft or destruction of such
certificate or the issuance of replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
chairman of the board, the president, or any vice president, or any other
person authorized by resolution of the board of directors or by any of the
foregoing designated officers, is authorized to vote on behalf of the
corporation any and all shares of any other corporation or corporations,
foreign or domestic, standing in the name of the corporation. The authority
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 by any such officer in person or by any person authorized to
do so by proxy duly executed by said officer.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in
the California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of the foregoing, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person. All references in
these bylaws to the California General Corporation Law or to sections of the
Code shall be deemed to be such Law or sections as they may be amended and in
effect and, if renumbered, to such renumbered provisions at the time of any
action taken under the bylaws.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or
these bylaws may be amended or repealed by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that if the articles of incorporation of the corporation set forth the
number of authorized directors of the
14
<PAGE> 16
corporation, the authorized number of directors may be changed only by an
amendment of the articles of incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders to adopt, amend or repeal bylaws as provided in Section 1 of this
Article IX, bylaws may be adopted, amended or repealed by the board of
directors.
15
<PAGE> 17
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
CARL KARCHER ENTERPRISES, INC.
a California corporation
The undersigned, Daniel W. Holden, certifies as follows:
1. He is the duly elected and acting Secretary of Carl Karcher
Enterprises, Inc., a California corporation (Corporation).
2. Article V, Section 1. of the ByLaws of the Corporation is
hereby amended to read as follows:
"Section 1. The officers of the Corporation shall be a
Chairman of the Board, President, Chief Financial Officer,
Executive Vice President, Group Vice President(s), Treasurer,
Corporate Counsel and Secretary. Notwithstanding the above,
any Vice-President who held a vice-presidential position
existing prior to June 30, 1988, shall be an officer of the
corporation until such Vice President vacates said
vice-presidential position.
3. The foregoing amendment of the ByLaws has been duly approved
by the Board of Directors of the Corporation.
I declare under penalty of perjury under the laws of the State of California
that the matters set forth in this Certificate are true and correct of my own
knowledge.
Dated: September 28, 1990. /s/ DANIEL W. HOLDEN
___________________________
Daniel W. Holden, Secretary
<PAGE> 18
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
CARL KARCHER ENTERPRISES, INC.
a California corporation
The undersigned, Daniel W. Holden, certifies as follows:
1. He is the duly elected and acting Secretary of Carl Karcher
Enterprises, Inc., a California corporation (Corporation).
2. Article V, Section 1. of the ByLaws of the Corporation is
hereby amended to read as follows:
"Section 1. The officers of the Corporation shall be the
President and Chief Executive Officer, Chief Financial
Officer, Senior Vice Presidents, General Counsel, Controller,
Vice President Strategic Development, Vice President Human
Resources, Vice President Marketing, and Secretary."
3. The foregoing amendment of the ByLaws has been duly approved
by the Board of Directors of the Corporation.
I declare under penalty of perjury under the laws of the State of California
that the matters set forth in this Certificate are true and correct of my own
knowledge.
Dated: April 7, 1993 /s/ DANIEL W. HOLDEN
___________________________
Daniel W. Holden, Secretary
<PAGE> 19
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
CARL KARCHER ENTERPRISES, INC.
a California corporation
The undersigned, Daniel W. Holden, certifies as follows:
1. He is the duly elected and acting Secretary of Carl Karcher
Enterprises, Inc., a California corporation (Corporation).
2. Article V, Section 1. of the ByLaws of the Corporation is
hereby amended to read as follows:
"Section 1. The officers of the Corporation shall be the
Chairman of the Board, President and Chief Executive Officer,
Chief Financial Officer, Senior Vice Presidents, Vice
President/General Counsel, Vice President/Controller, Vice
President Systems & Technology, Vice President Human
Resources, Vice President Marketing, and Secretary."
3. The foregoing amendment of the ByLaws has been duly approved
by the Board of Directors of the Corporation.
I declare under penalty of perjury under the laws of the State of California
that the matters set forth in this Certificate are true and correct of my own
knowledge.
Dated: May 7, 1993 /s/ DANIEL W. HOLDEN
___________________________
Daniel W. Holden, Secretary
<PAGE> 20
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
CARL KARCHER ENTERPRISES, INC.
a California corporation
The undersigned, Daniel W. Holden, certifies as follows:
1. He is the duly elected and acting Secretary of Carl Karcher
Enterprises, Inc., a California corporation (Corporation).
2. Article V, Section 1. of the ByLaws of the Corporation is
hereby amended to read as follows:
"Section 1. The officers of the Corporation shall be the
Chairman of the board, President and Chief Executive Officer,
Chief Financial Officer, Senior Vice Presidents, General
Counsel, Controller, Vice President Strategic Development,
Vice President Human Resources, Vice President Marketing, and
Secretary."
3. The foregoing amendment of the ByLaws has been duly approved
by the Board of Directors of the Corporation.
I declare under penalty of perjury under the laws of the State of California
that the matters set forth in this Certificate are true and correct of my own
knowledge.
Dated: July 28, 1993 /s/ DANIEL W. HOLDEN
___________________________
Daniel W. Holden, Secretary
<PAGE> 1
Exhibit 10-77
<PAGE> 2
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement dated as of 11/20, 1992, is
between Bank of America National Trust and Savings Association (the "Bank") and
Carl Karcher Enterprises, Inc. (the "Borrower").
Recitals
Whereas, Bank and Borrower have entered into that certain Credit Agreement
dated as of December 15, 1989, as amended (collectively, the Agreement"); and
Whereas, Bank and Borrower desire to amend and restate in its entirety the
terms and provisions of the Agreement as herein provided.
Agreed
Now, Therefore, in consideration of the foregoing recitals, Borrower and Bank
mutually agree to amend and restate in its entirety the Agreement as follows:
1. LINE OF CREDIT AMOUNT
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will provide
a line of credit to the Borrower. The initial amount of the line of credit
(the "Commitment") is Thirty Million Dollars ($30,000,000); provided however,
that on the first day of each calendar month following each fiscal quarter
("Commitment Reduction Date") set forth below the Commitment shall be reduced
to the amount shown opposite such date.
<TABLE>
<CAPTION>
Commitment Commitment
Reduction Date Reduced to:
-------------- -----------
<S> <C>
February 1, 1993 $29,000,000
June 1, 1993 $28,000,000
September 1, 1993 $27,000,000
December 1, 1993 $26,000,000
February 1, 1994 $25,000,000
June 1, 1994 $24,000,000
</TABLE>
(b) This is a revolving line of credit with a within line facility for
letters of credit. During the availability period, the Borrower may repay
principal amounts and reborrow them.
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<PAGE> 3
(c) Each advance must be for at least One Hundred Thousand Dollars
($100,000), or for the amount of the remaining available line of credit, if
less.
(d) The Borrower agrees not to permit at any time the outstanding
principal balance of the line of credit plus the outstanding amounts of any
letters of credit, including amounts drawn on letters of credit and not yet
reimbursed to exceed the Commitment. If such outstandings exceed the
Commitment, the Borrower will immediately pay the excess to the Bank upon the
Bank's demand.
1.2 Availability Period. The line of credit is available between the date
of this Agreement and June 30, 1994 (the "Expiration Date") unless the
Borrower is in default.
1.3 Interest Rate
(a) Unless the Borrower elects an optional interest rate as described
below, the interest rate is the Bank's Reference Rate plus .25 percentage
points.
(b) The Reference Rate is the rate of interest publicly announced from
time to time by the Bank in San Francisco, California, as its Reference Rate.
The Reference Rate is set by the Bank based on various factors, including the
Bank's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans. The Bank
man price loans to its customers at, above, or below the Reference Rate. Any
change in the Reference Rate shall take effect at the opening of business on
the day specified in the public announcement of a change in the Bank's
Reference Rate.
1.4 Repayment Terms
(a) The Borrower will pay interest on January 1, 1993, and then monthly
thereafter until payment in full of any principal outstanding under this line
of credit.
(b) The Borrow will repay in full all principal and any unpaid interest
or other charges outstanding under this line of credit no later than the
Expiration Date. Any amount bearing interest at an optional interest (as
described below) may be repaid at the end of the applicable interest period,
which shall be no later than the Expiration Date.
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<PAGE> 4
1.5 Optional Interest Rates. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower may elect to have all or portions of the
line of credit (during the availability period) bear interest at the rate
described below during an interest period agreed to by the Bank and the
Borrower. Each interest rate is a rate per year. Interest will be paid on
the first day of every month and on the last day of each interest period. At
the end of any interest period, the interest rate will revert to the rate
based on the Reference Rate, unless the Borrower has designated another
optional interest rate for the portion.
1.6 Offshore Rate. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the greater of (i)
Offshore Rate plus 1.50 percentage points and (ii) the sum of the Reference
Rate plus .25 percentage points, minus .75 percentage points.
Designation of an Offshore Rate portion is subject to the following
requirements:
(a) The interest period during which the Offshore Rate will be in effect
will be no shorter than 30 days and no longer than six months. The last day
of the interest period will be determined by the Bank using the practices of
the offshore dollar inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000).
(c) The "Offshore Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the first day
of the interest period.)
Offshore Rate = Grand Cayman Rate
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which the Bank's Grand Cayman Branch,
Grand Cayman, British West Indies, would offer U.S. dollar deposits for the
applicable interest period to other major banks in the offshore dollar
inter-bank market.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member banks
of the Federal Reserve System for Eurocurrency Liabilities, as defined
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<PAGE> 5
in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100
of one percent. The percentage will be expressed as a decimal, and will
include, but not be limited to, marginal, emergency, supplemental, special,
and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to any
portion of the principal balance of the line of credit which is scheduled to
be repaid before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already
bearing interest at the Offshore Rate will not be converted to a different
rate during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid, and a prepayment fee equal to the
amount (if any) by which
(i) the additional interest which would have been payable on the amount
prepaid had it not been paid until the last day of the interest period,
exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the offshore dollar market for a
period starting on the date on which it was prepaid and ending on the last
day of the interest period for such portion.
(g) The Bank will have no obligation to accept an election for an
Offshore Rate portion if any of the following described events has occurred
and is continuing
(i) Dollar deposits in the principal amount, and for periods equal to
the interest period, of an Offshore Rate portion are not available in the
offshore Dollar inter-bank market; or
(ii) the Offshore Rate does not accurately reflect the cost of an
Offshore Rate portion.
1.7 Letters of Credit. This line of credit may be used for financing
standby letters of credit with a maximum maturity of 365 days but not to
extend more than 180 days beyond the Expiration Date. The amount of letters
of credit outstanding at any one time (including amounts drawn on letters of
credit and not yet reimbursed) may not exceed Five Hundred Thousand Dollars
($500,000).
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<PAGE> 6
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option of the
Bank, be added to the principal amount outstanding under this Agreement. The
amount will bear interest and be due as described elsewhere in this
Agreement.
(b) if there is a default under this Agreement, to immediately prepay and
make the Bank whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form and
content satisfactory to the Bank and in favor of a beneficiary acceptable to
the Bank.
(d) to sign the Bank's form Application and Agreement for Standby Letter
of Credit.
(e) to pay any issuance and/or other fees that the Bank notifies the
Borrower will be charged for issuing and processing letters of credit for the
Borrower.
(f) to allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.
(g) if the line of credit is terminated for any reason, Borrower will
immediately deliver to the Bank as collateral, cash or cash equivalents
acceptable to the Bank, in the amount of all outstanding letters of credit
(including amounts drawn on letters of credit and not yet reimbursed),
together with such security agreements as Bank may require.
2. FEES AND EXPENSES
2.1 Waiver Fee. If the Bank, at its discretion, agrees to waive or amend
any terms of this Agreement, then the Borrower will pay the Bank a fee for
each waiver or amendment. Nothing in this paragraph shall imply that the
Bank is obligated to agree to any waiver or amendment requested by the
Borrower. The Bank may impose additional requirements as a condition to any
waiver or amendment.
2.2 Expenses.
(a) The Borrower agrees to reimburse the Bank for any expenses it incurs
in the preparation of this Agreement and any agreement or instrument required
by this Agreement.
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<PAGE> 7
Expenses include, but are not limited to, reasonable attorneys' fees,
including any allocated costs of the Bank's in-house counsel.
3. DISBURSEMENTS, PAYMENTS AND COSTS
3.1 Requests for Credit. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
3.2 Disbursements and Payments. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank
from time to time;
(b) made for the account of the Bank's branch selected by the Bank from
time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at
its discretion, require the Borrower to sign one or more promissory notes.
3.3 Telephone Authorization
(a) The Bank may honor telephone instructions for advances or repayments
or for the designation of optional interest rates given by any one of the
individual signer(s) of this Agreement or a person or persons authorized by
any one of the signer(s) of this Agreement.
(b) Advances will be deposited in and repayments will be withdrawn from
the Borrower's account number 14585-20411, or such other accounts with the
Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its
officers, employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone instructions it reasonably
believes are made by a signer of this Agreement or a person authorized by a
signer. This indemnity and excuse will survive this Agreement's termination.
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<PAGE> 8
3.4 Direct Debit (Pre-Billing).
(a) The Borrower agrees that the Bank will debit the Borrower's
deposit account number 14585-20411 (the "Designated Account") on the date
each payment of principal and interest from the Borrower becomes due
(the "Due Date"). If the Due Date is not a banking day, the Designated
Account will be debited on the next banking day.
(b) Approximately 5 days prior to each Due Date, the Bank will mail
to the Borrower a statement of the amounts of principal and interest
that will be due on that Due Date (the "Billed Amount"). The calculation
will be made on the assumption that no new extensions of credit or
payments will be made between the date of the billing statement and the
Due Date, and that there will be no changes in the applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount of principal due and interest accrued
(collectively, the "Accrued Amount"). If the Billed Amount debited to the
Designated Account differs from the Accrued Amount, the discrepancy will be
treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the
Billed Amount for the following Due Date will be increased by the
amount of the discrepancy. The Borrower will not be in default by
reason of any such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the
Billed Amount for the following Due Date will be decreased by the
amount of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue based
on the actual amount of principal outstanding without compounding. The Bank
will not pay the Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the Designated
Account to cover each debit. If there are insufficient funds in the
Designate Account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
3.5 Banking Days. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday or a Sunday on which the Bank is open for
business in California. For amounts bearing interest at an offshore rate (if
any), a banking day is a day other than a Saturday or a Sunday on which the
Bank is open for
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<PAGE> 9
business in California and dealing in offshore dollars. All payments and
disbursements which would be due on a day which is not a banking day will be
due on the next banking day. All payments received on a day which is not a
banking day will be applied to the credit on the next banking day.
3.6 Additional Costs. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request
or requirement of a regulatory agency which is applicable to all national
banks or a class of all national banks. The costs and losses will be
allocated to the loan in a manner determined by the Bank, using any
reasonable method. The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
3.7 Interest Calculation. Except as otherwise stated in this Agreement,
all interest and fees, if any, will be computed on the basis of a 360-day
year and the actual number of days elapsed. This results in more interest or
a higher fee than if a 365-day year is used.
3.8 Interest on Late Payments. At the Bank's sole option in each
instance, any amount not paid when due under this Agreement (including
interest) shall bear interest from the due date at the Bank's Reference Rate
plus 2 percentage points. This may result in compounding of interest.
3.9 Default Rate. Upon the occurrence and during the continuation of
any default under this Agreement, advances under this Agreement will at the
option of the Bank bear interest at a rate per annum which is 2 percentage
points higher than the rate of interest otherwise provided under this
Agreement. This will not constitute a waiver of any default.
4. CONDITIONS
The Bank must receive the following items, in form and content acceptable to
the Bank, before it is required to extend any credit to the Borrower under
this Agreement:
4.1 Authorizations. Evidence that the execution, delivery and performance
by the Borrower of this Agreement and any instrument or agreement required
under this Agreement have been duly authorized.
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<PAGE> 10
4.2 Other Items. Any other items that the Bank reasonably requires.
5. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in
full, the Borrower makes the following representations and warranties. Each
request for an extension of credit constitutes a renewed representation:
5.1 Organization of Borrower. The Borrower is a corporation duly formed
and existing under the laws of the state where organized.
5.2 Authorization. This Agreement, and any instrument or agreement
required hereunder, are within the Borrower's powers, have been duly
authorized, and do not conflict with any of its organizational papers.
5.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance
with its terms, and any instrument or agreement required hereunder, when
executed and delivered, will be similarly legal, valid, binding and
enforceable.
5.4 Good Standing. In each state in which the borrower does business, it
is properly licensed, in good standing, and, where required, in compliance
with fictitious name statutes.
5.5 No Conflicts. This Agreement does not conflict with any law,
agreement, or obligation by which the Borrower is bound.
5.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank, is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
5.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been
disclosed in writing to the Bank.
5.8 Permits, Franchises. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required
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<PAGE> 11
and all trademark rights, trade name rights, patent rights and fictitious
name rights necessary to enable it to conduct the business in which it is now
engaged.
5.9 Other Obligations. The Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material
lease, commitment, contract, instrument or obligation, except as have been
disclosed in writing to the Bank.
5.10 Income Tax Returns. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year, except as have
been disclosed in writing to the Bank.
5.11 No Event of Default. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
5.12 ERISA Plans.
(a) The Borrower has fulfilled its obligations, if any, under the
minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance in all material respects with the presently
applicable provisions of ERISA and the Code, and has not incurred any
liability with respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA
for which the PBGC requires 30 day notice.
(c) No action by the Borrower to terminate or withdraw from any Plan
has been taken and no notice of intent to terminate a Plan has been filed
under Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under
Section 4042 of ERISA, and no event has occurred or condition exists which
might constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of
this Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(ii) "ERISA" means the Employee Retirement Income Act of 1974, as
amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
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<PAGE> 12
(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by the Borrower and insured by the Pension Benefit Guaranty
Corporation under Title IV of ERISA.
6. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
6.1 Use of Proceeds. To use the proceeds of the initial advance only for
the repayment of term note #00-00-0035-6 and term note #00-00- 0036-4 in
favor of Bank, and use all other proceeds of the credit for working capital,
restaurant development costs and for other general corporate purposes.
6.2 Financial Information. To provide the following financial information
and statements and such additional information as requested by the Bank from
time to time:
(a) Within 100 days of the Borrower's fiscal year end, the Borrower's
annual financial statements. These financial statements must be audited
(with an unqualified opinion) by a Certified Public Accountant ("CPA")
acceptable to the Bank.
(b) Within 50 days of each fiscal quarter end, the Borrower's
quarterly financial statements. These financial statements may be
Borrower prepared.
(c) Within 30 days after the end of each four (4) week operating
period, a copy of Borrower's prepared summary operating statement describing
variances from the business plan required under Paragraph 6.2(f) the causes
of such variances, and their projected impact on Borrower's operations.
(d) Copies of the Borrower's Form 10-K Annual Report within 100 days
of Borrower's fiscal year end, Form 10-Q Quarterly Report within 50 days of
the end of each fiscal quarter, and Form 8-K Current Report within 15 days
after the date of filing with the Securities and Exchange Commission.
(e) Within 30 days of each period's end, the Borrower's property
and/or building for sale or leaseback report in form acceptable to Bank.
(f) Within 10 days of each fiscal year end, Borrower's financial
forecast by fiscal quarter for the next fiscal year, and on a fiscal year
end basis for the following
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<PAGE> 13
four fiscal years. Financial forecast to include balance sheet, operating
statement (including components of other income), operating cash flow
statement, and a schedule showing compliance with all financial covenants;
and for the immediately succeeding fiscal year, a detailed capital budget
report.
(g) Within 50 days of the end of each fiscal quarter, a report listing
all of Borrower's marketable securities and other investments, such
report to be in form acceptable to Bank.
(h) Within 50 days of the end of each fiscal quarter, a report listing
all of the Borrower's notes receivable including debtor's name, terms, due
date, balance owing, such report to be in form acceptable to Bank.
6.3 Current Ratio. To maintain a ratio of current assets to current
liabilities of at least .80:1.0.
6.4 Tangible Net Worth. As of each date indicated below, achieve and
maintain a Tangible Net Worth that is greater than the Tangible Net Worth as
of the last day of the immediately prior fiscal year as indicated below, by
at least the amount set opposite such date:
<TABLE>
<CAPTION>
Minimum Semi-Annual increase
in Tangible Net Worth over
Date Prior Fiscal Year End
--------------- ----------------------------
<S> <C>
August 09, 1993 $6,500,000
August 15, 1994 $6,500,000
</TABLE>
<TABLE>
<CAPTION>
Minimum Annual increase
in Tangible Net Worth Over
Date Prior Fiscal Year End
---------------- --------------------------
<S> <C>
January 25, 1993 $ 9,000,000
January 31, 1994 $11,000,000
</TABLE>
For the purposes of this Agreement, "Tangible Net Worth" means the gross book
value of the Borrower's assets (excluding goodwill, patents, trademarks,
trade names, organization expense, treasury stock, unamortized debt discount
and expense, deferred research and development costs, deferred marketing
expenses, and other like intangibles, and monies due from affiliates,
officers, directors or shareholders of the Borrower) less total liabilities,
including but not limited to accrued and deferred income taxes, and any
reserves against assets.
(17110.02)wsd/10/29/92
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<PAGE> 14
6.5 Debt to Tangible Net Worth. To maintain a ratio of total liabilities
to Tangible Net Worth not exceeding the amounts indicated for each period
specified below:
Period Ratio
------ -----
August 10, 1992 2.25:1.0
through January 24, 1993
January 25, 1993 2.00:1.0
through January 30, 1994
January 31, 1994 and 1.75:1.0
thereafter
"Total liabilities" means the sum of current liabilities plus long term
liabilities.
6.6 Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio
at least equal to 1.00 to 1.00. For purposes of this Agreement, 'Fixed
Charge Coverage Ratio' means the following calculation, expressed as a ratio
for any fiscal period: (a) the difference between EBITDA and the net gain
realized on sales of fixed assets (or the sum of EBITDA and the net loss
incurred on sales of fixed assets) divided by (b) the sum of (i) interest and
tax expense, (ii) dividends paid, (iii) current portion of long-germ debt,
(iv) current portion of capital leases, and (v) the difference between (A)
the total price of fixed assets purchased and (B) the total principal amount
of loans incurred to finance such purchases and the total amount of cash
proceeds realized from any sales of fixed assets; 'EBITDA' means earnings
before interest and tax expense, depreciation, amortization, and other
non-cash charges. This ratio shall be calculated quarterly using the results
of the fiscal quarter then most recently ended and the immediately preceding
three (3) quarters together with the full current portion of long-term debt
and current portion of capital leases.
6.7 Liquidity. Maintain marketable securities and other long term
investments, valued at the lower of cost or market value, that are
unencumbered except for security interests in favor of brokers security
margin loans, that have a total market value, net of such brokers' loans, at
least equal to 70% of the sum of the outstanding principal balance of all
term debt owing by Borrower to Bank and the amount of the Commitment
hereunder through fiscal year end 1993, and, at least equal to 75% of the sum
of the outstanding principal balance of all term debt owing by Borrower to
Bank and the amount of the Commitment hereunder at all times thereafter.
6.8 Notes Receivable. Not permit the aggregate amount of all notes
receivable (including notes receivable from
(17110.02)wsd/10/29/92
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<PAGE> 15
affiliates, officers, directors and shareholders of Borrower) to exceed
Thirty Million Dollars ($30,000,000).
6.9 Restaurant Property Costs. Not permit the aggregate amount of
Restaurant Property costs to exceed Fifteen Million Dollars ($15,000,000) in
any fiscal period. For the purposes of this Agreement, "Restaurant Property
Costs" means the current asset item shown as "Restaurant Property Costs to be
Reimbursed or Sold and Leased Back" on Borrower's financial statements.
6.10 Other Debts. Not to have outstanding or incur any direct or
contingent debts (other than those to the Bank), or become liable for the
debts of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debt and lines of credit having a maturity of one year or less
which do not exceed a total amount of Five Hundred Thousand Dollars
($500,000) outstanding at any one time.
(e) Additional debts for the acquisition or refinancing of real
property and/or equipment securing such indebtedness.
(f) Debts and contingent liabilities and leases in existence on the
date of this Agreement and disclosed in writing to the Bank.
(g) Borrower's obligations owing to the CIT Group/Equipment
Financing, Inc. under that certain Program Agreement dated as of March 9,
1992 as such agreement is in effect on the date hereof; provided, however:
(i) the total amount of all such obligations incurred in any
fiscal year of Borrower may not exceed Five Million Dollars
($5,000,000); and
(ii) the total amount of all such obligations may not exceed
Ten Million Dollars ($10,000,000).
(17110.02)wsd/10/29/92
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<PAGE> 16
(h) Contingent debts not to exceed $16,000,000 in the aggregate,
including obligations under Paragraphs 6.10(f) and 6.10(g).
6.11 Other Liens. Not to create, assume, or allow any security interest or
lien (including judicial liens) on any property relating to Restaurant
Property Costs and on any other property the Borrower now or later owns,
except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in
writing to the Bank.
(d) Additional purchase money security interests in personal or real
property acquired after the date of this Agreement.
(e) Lines relating to the refinancing of real property or equipment
held as long term assets.
(f) Liens on marketable securities or long term investments securing
brokers margin loans.
6.12 Capital Leases. Not to permit the aggregate payments due in any
fiscal year under all capital leases incurred as a result of sale/leaseback
transactions to exceed Two Million Dollars ($2,000,000).
6.12 Stock Redemption. Nor to expend funds for the redemption of capital
stock of the Borrow in excess of Two Million Dollars ($2,000,000) in any
fiscal year, provided, however, that Borrower shall not redeem any of such
stock unless (a) after giving effect to any such redemption Borrower will be
in compliance with all financial covenants under this Agreement; (b) in any
fiscal quarter in which Borrower redeems its stock, Borrower agrees to sell
so many of its marketable securities such that the total sales price thereof
equals or exceeds the price of the stock redeemed; and (c) in the fiscal
quarter immediately preceding any such redemption Borrower's net after-tax
income less any gains resulting from the sale of assets is not less than the
following amounts for the periods indicated:
(17110.02)wsd/10/29/92
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<PAGE> 17
<TABLE>
<S> <C>
Fiscal Quarter Ending Amount
--------------------- ------
</TABLE>
<TABLE>
<S> <C>
August 10, 1992 $4,500,000
November 2, 1992 2,000,000
January 25, 1993 2,000,000
May 17, 1993 3,500,000
August 9, 1993 2,000,000
November 1, 1993 3,500,000
January 31, 1994 2,000,000
</TABLE>
6.14 Operating Profit. Maintain an Operating Profit for each fiscal
quarter. For the purposes of this Agreement "Operating Profit" means, income
before interest expense and taxes, restructuring reserves, other income, and
gains on sales of assets.
6.15 Change of Ownership. Not to cause, permit, or suffer any change,
direct or indirect, in the Borrower's capital ownership in excess of 50%.
6.16 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit over Five Hundred Thousand Dollars ($500,000)
against the Borrower.
(b) any substantial dispute between the Borrower and any governmental
authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's financial
condition or operations.
(e) any change in the Borrower's name, legal structure, place of
business, or chief executive office.
6.17 Books and Records. To maintain adequate books and records.
6.18 Audits. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are
in the possession of a third party, the Borrower authorizes that third party
to permit the Bank or its agents to have access to perform inspections or
audits and to respond to the Bank's requests for information concerning such
properties, books and records.
(17110.02)wsd/10/29/92
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<PAGE> 18
6.19 Compliance with Laws. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body with
authority over the Borrower's business.
6.20 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.
6.21 Maintenance of Properties. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
6.22 Cooperation. To take any action requested by the Bank to carry out
the intent of this Agreement.
6.23 Insurance. To maintain insurance as is usual for the business it is
in.
6.24 Additional Negative Covenants. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from
the Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture,
syndicate, or other combination.
(d) lease, or dispose of all or a substantial part of the Borrower's
business or the Borrower's assets except in the ordinary course of the
Borrower's business.
(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of any assets for less than fair market
value or enter into any sale and leaseback agreement covering any of its
fixed or capital assets other than property relating to Restaurant
Property Costs.
6.25 Owned Restaurants. Maintain at least 365 company owned restaurants
and a ratio of total company owned restaurants of not less than 45% of total
restaurants on a system wide basis.
6.26 ERISA Plans. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of
ERISA for which the PBGC requires 30 day notice.
(17110.02)wsd/10/29/92
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<PAGE> 19
(b) Any action by the Borrower to terminate or withdraw from a
Plan or the filing of any notice of intent to terminate under
Section 4041 of ERISA.
(c) any notice of noncompliance made with respect to a Plan under
Section 4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan
under Section 4042 of ERISA.
7. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply
whether the hazardous substance is on, under or about the Borrower's property
or operations or property leased to the Borrower. The indemnity includes but
is not limited to attorneys' fees (including the reasonable estimate of the
allocated cost of in-house counsel and staff). The indemnity extends to the
Bank, its parent, subsidiaries and all of their directors, officers,
employees, agents, successors, attorneys and assigns. For these purposes,
the term "hazardous substances" means any substance which is or becomes
designated as "hazardous" or "toxic" under any federal, state or local law.
This indemnity will survive repayment of the Borrower's obligations to the
Bank.
8. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If a bankruptcy petition is filed with
respect to the Borrower, the entire debt outstanding under this Agreement
will automatically be due immediately.
8.1 Failure to Pay. The Borrower fails to make a payment under this
Agreement within 5 days after the date when due.
8.2 False Information. The Borrower has given the Bank false or
misleading information or representations.
8.3 Bankruptcy. The Borrower files a bankruptcy petition, a bankruptcy
petition is filed against the Borrower or the Borrower makes a general
assignment for the benefit of creditors. The default will be deemed cured if
any bankruptcy
(17110.02)wsd/10/29/92
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<PAGE> 20
petition filed against the Borrower is dismissed within a period of 45 days
after the filing; provided, however, that the Bank will not be obligated to
extend any additional credit to the Borrower during that period.
8.4 Receivers. A receiver or similar official is appointed for the
Borrower's business, or the business is terminated.
8.5. Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or more
trade creditors against the Borrower in an aggregate amount of One Million
Dollars ($1,000,000) or more in excess of any insurance coverage.
8.6 Judgments. Any judgments or arbitration awards are entered against
the Borrower, or the Borrower enters into any settlement agreements with
respect to any litigation or arbitration, in an aggregate amount of Three
Million dollars ($3,000,000) or more in excess of any insurance coverage.
8.7 Government Action. Any government authority takes action that the
Bank believes materially adversely affects the Borrower's financial condition
or ability to repay.
8.8 Material Adverse Change. A material adverse change occurs in the
Borrower's financial condition, properties or prospects, or ability to repay
the loan.
8.9 Cross-default. Any default occurs under any agreement in connection
with any credit the Borrower has obtained from anyone else or which the
Borrower has guaranteed.
8.10 Other Bank Agreements. The Borrower fails to meet the conditions of,
or fails to perform any obligation under any other agreement the Borrower has
with the Bank or any affiliate of the Bank.
8.11 ERISA Plans. The occurrence of any one or more of the following
events with respect to the Borrower, provided such event or events could
reasonably be expected, in the judgment of the Bank, to subject the Borrower
to any tax, penalty or liability (or any combination of the foregoing) which,
in the aggregate, could have a material adverse effect on the financial
condition of the Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan which is,
in the reasonable judgment of the Bank likely to result in the
termination of such Plan for purposes of Title IV of ERISA.
(17110.02)wsd/10/29/92
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<PAGE> 21
(b) Any Plan termination (or commencement of proceedings to
terminate a Plan) or the Borrower's full or partial withdrawal from a
Plan.
8.12 Other Breach Under Agreement. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article. If, in the Bank's
opinion, the breach is capable of being remedied, the breach will not be
considered an event of default under this Agreement for a period of fifteen
(15) days after the date on which the Bank gives written notice of the breach
to the Borrower; provided, however, that the Bank will not be obligated to
extend any additional credit to the Borrower during that period.
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS
9.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made
under generally accepted accounting principles, consistently applied.
9.2 California Law. This Agreement is governed by California law.
9.3 Successors and Assigns. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Bank's prior consent. The Bank may sell
parcitipations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the
right of set-off against the Borrower.
9.4 Arbitration.
(a) This paragraph concerns the resolution of any controversies or
claims between the Borrower and the Bank, including but not limited to
those that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or
delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
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<PAGE> 22
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury to
persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such
controversies or claims will be settled by arbitration in accordance with
the United States Arbitration Act. The United States Arbitration Act
will apply even though this Agreement provides that it is governed by
California law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of
the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations
and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or
claim, at the time of the proposed submission to arbitration, arises from
or relates to an obligation to the Bank secured by real property located in
California. In this case, both the Borrower and the Bank must consent to
submission of the claim or controversy to arbitration. If both parties do
not consent to arbitration, the controversy or claim will be settled as
follows:
(i) The Borrower and the Bank will designate a referee (or a
panel of referees) selected under the auspices of the American
Arbitration Association in the same manner as arbitrators are selected
in Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be
appointed by a court as provided in
(17110.02)wsd/10/29/92
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<PAGE> 23
California Code of Civil Procedure Section 638 and the following related
sections:
(iii) The referee (or the presiding referee of the panel) will be an
active attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or the
panel) will be entered as a judgment in the court that appointed the
referee, in accordance with the provisions of California Code of Civil
Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the Bank
to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not constitute
a waiver of the right of the Borrower or the Bank, including the suing party,
to submit the controversy or claim to arbitration if the other party contests
the lawsuit. However, if the controversy or claim arises from or relates to
an obligation to the Bank which is secured by real property located in
California at the time of the proposed submission to arbitration, this right
is limited according to the provision above requiring the consent of both the
Borrower and the Bank to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under the
deed of trust or mortgage, or to proceed by judicial foreclosure.
9.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If
(17110.02)wsd/10/29/92
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<PAGE> 24
the Bank waives a default, it may enforce a later default. Any consent or
waiver under this Agreement must be in writing.
9.6 Costs. If the Bank incurs any expenses in connection with
administering or enforcing this Agreement, or if the Bank takes collection
action under this Agreement, it is entitled to costs and reasonable
attorneys' fees, including any allocated costs of in-house counsel.
9.7 Attorneys' Fees. In the event of a lawsuit or arbitration proceeding,
the prevailing party is entitled to recover costs and reasonable attorneys'
fees (including any allocated costs of in-house counsel) incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator.
9.8 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the
Bank and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between the Bank and
the Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete
and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
9.9 Notices. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses
as the Bank and the Borrower may specify from time to time in writing.
9.10 Headings. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
9.11 Counterparts. This Agreement may be executed in as many counterparts
as necessary or convenient, and by the different parties on separate
counterparts each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
9.12 Amendment to Note. The Borrower hereby amends that certain Note:
Principal in Installments with Interest Added
(17110.02)wsd/10/29/92
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<PAGE> 25
executed by Borrower in favor of Bank on November 14, 1989, as amended, in
the original principal sum of $35,000,000 ("Fixed Rate Note"), to read as
follows:
"The Fixed Rate Note is subject to the terms and conditions of the Amended
and Restated Credit Agreement dated as of 11/20, 1992, as it may be amended
from to time; provided, further that if said Amended and Restated Credit
Agreement is terminated prior to the maturity of this Fixed Rate Note, this
Fixed Rate Note shall be subject to the terms and conditions of the Amended
and Restated Credit Agreement in effect on the date of its termination."
This Agreement is executed as of the date stated at the top of the first page.
Bank of America National Carl Karcher Enterprises,
Trust and Savings Association Inc.
By /s/ Deborah Miller By /s/ Loren Pannier
Title Vice President Title Group VP-Finance Admin.
By _______________________ By /s/ Elaine Falbe
Title ____________________ Title VP-Treasurer
Address where notices to Address where notices to
the Bank are to be sent: the Borrower are to be sent:
3233 Park Center Dr., 5th Fl. 1200 North Harbor Blvd.
Costa Mesa, California 92626 Anaheim, California 92803
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<PAGE> 1
Exhibit 10-78
<PAGE> 2
AMENDMENT NO. ONE AND WAIVER TO
AMENDED AND RESTATED CREDIT AGREEMENT
this Amendment No. One and Waiver to Amended and Restated Credit Agreement
(the "Agreement") dated as of April 28, 1993, is between Bank of America
National Trust and Savings Association (the "Bank") and Carl Karcher
Enterprises, Inc. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Amended and Restated
Credit Agreement dated as of November 20, 1992 (the "Agreement").
B. The Borrower is in default of certain terms and conditions of the
Agreement and has requested the Bank to waive such defaults.
C. The Borrower has requested the Bank to amend the Agreement to allow the
Borrower to purchase shares of the common stock of the Borrower from the Carl
N. and Margaret M. Karcher Trust for an amount not to exceed $10,000,000 and to
amend the Agreement in other respects.
D. The Bank has agreed to waive the defaults and to amend the Agreement but
on the terms and conditions herein contained.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 Paragraph 1.1(a) of the Agreement is of the Agreement is hereby
amended in full to read as follows:
"(a) During the availability period described below, the Bank will
provide a line of credit to the Borrower. The amount of the line of
credit (the "Commitment") is Fifteen Million Dollars ($15,000,000)."
2.2 Paragraph 1.2 of the Agreement is amended by substituting the
date March 31, 1994" for the date "June 30, 1994" appearing therein.
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<PAGE> 3
2.3 The lead in to Paragraph 1.7 is hereby amended in full to read as
follows:
"1.7 Letters of Credit. This line of credit may be used for financing
standby letters of credit with a maximum maturity of 365 days but not to extend
beyond the Expiration Date. The amount of letters of credit outstanding at any
one time (including amounts drawn on letters of credit and not yet reimbursed)
may not exceed Four Million Dollars ($4,000,000)."
2.4 Paragraph 6.2 (e) of the Agreement is amended by substituting
the phrase "50 days of each of Borrower's fiscal quarter's end" for the phrase
"30 days of each period's end" appearing therein.
2.5 Paragraph 6.2 (f) of the Agreement is hereby amended in full
to read as follows:
"(f) Within 100 days of each fiscal year end, Borrower's financial
forecast by fiscal quarter for the next fiscal year. Financial forecast to
include balance sheet, operating statement (including components of other
income), operating cash flow statement, and a schedule showing compliance
with all financial covenants; and for the immediately succeeding fiscal
year, a detailed capital budget report."
2.6 Paragraph 6.2 (g) of the Agreement is hereby amended in full
to read as follows:
"(g) Intentionally Left Blank".
2.7 The following Paragraph 6.2(i) is hereby added to the Agreement:
"(i) With the financial statements required in Paragraph 6.2(a) and
6.2(b) herein a compliance certificate in form and substance satisfactory to
Bank executed by the Borrower's chief financial officer."
2.8 Paragraph 6.4 of the Agreement is hereby amended in full
to read as follows:
"6.4 Retained Earnings. As of each date indicated below, increase
Retained Earnings by an amount that is greater than the Retained Earnings as
of the last day of the immediately prior fiscal year as indicated below, by
at least the amount set opposite such date (such calculation of Retained
Earnings not to take into account the effect of the consummation of the
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<PAGE> 4
transaction contemplated by the Stock Purchase Agreement
to in Section 6.13)."
Minimum Semi-Annual increase
in Retained Earnings over
Prior Fiscal Year End Retained
Date Earnings
---- --------
August 09, 1993 $2,500,000
August 15, 1994 $5,000,000
Minimum Annual increase in
Retained Earnings Over Prior
Fiscal Year End Retained
Date Earnings
---- --------
January 31, 1994 $7,600,000
For the purposes of this Agreement, "Retained Earnings" means cumulative
earnings shown on the Borrower's balance sheet and in accordance with generally
accepted accounting principles consistently applied.
2.9 Paragraph 6.5 is hereby amended in full to read as follows:
"6.5 Debt to Tangible Net Worth. To maintain a ratio of Total
Liabilities to Tangible Net Worth not exceeding the ratio indicated at the
end of each fiscal quarter as specified below:
<TABLE>
<CAPTION>
Period End Ratio
---------- ----
<S> <C>
May 17, 1993 2.50:1.0
August 9, 1993 2.25:1.00
November 1, 1993 2.25:1.0
January 31, 1994 2.00:1.00
May 23, 1994 and 1.75:1.0
thereafter
</TABLE>
For purposes of this Agreement, 'Total liabilities' means the sum of current
liabilities plus long term liabilities, and 'Tangible Net Worth' means the
gross book value of the Borrower's assets (excluding goodwill, patents,
trademarks, trade names, organization expense, treasury stock, unamortized debt
discount and expense, deferred research and development costs, deferred
marketing expenses, and other like intangibles, and monies due from affiliates,
officers, directors or shareholders of the Borrower) less total liabilities,
including but not limited to accrued and deferred income taxes, and any
reserves against assets."
(25072)dwq4/27/93
1670.FIN - 3 -
<PAGE> 5
2.10 Paragraph 6.6 of the Agreement is hereby amended in full to read as
follows:
"6.6 Fixed Charge Coverage Ratio. To maintain a Fixed Charge
Coverage Ratio not less than the ratio indicated at the end of each
fiscal period as specified below:
<TABLE>
<CAPTION>
Period End Ratio
---------- -----
<S> <C>
For quarter ending
May 17, 1993 only 1.00:1.0
Year to date for quarter
ending August 9, 1993 1.00:1.00
Year to date for quarter
ending November 1, 1993 1.00:1.00
At the end of each fiscal
quarter thereafter,
calculated on a Four
Quarter Rolling Basis 1.00:1.00
</TABLE>
For purposes of this Agreement, 'Fixed Charge Coverage Ratio' means the
following calculation, expressed as a ratio for any fiscal period: (a) EBITDA
less the net loss incurred on sales of fixed assets (or the EBITDA less the net
loss incurred on sales of fixed assets) divided by (b) the sum of (i) interest
and tax expense, (ii) dividends paid, (iii) current portion of long-term debt,
(iv) current portion of capital leases, and (v) the difference between (A) the
total price of fixed assets purchased and (B) the total principal amount of
loans and capital leases incurred to finance such purchases and the total
amount of cash proceeds realized from any sales of fixed assets; 'EBITDA' means
earnings before interest and tax expense, depreciation, amortization, and other
non-cash charges. This ratio shall be calculated quarterly using a year to
date cumulative basis until fiscal year end 1994, and as of fiscal year end
1994 and thereafter using a Four Quarter Rolling Basis. 'Four Quarter Rolling
Basis' shall mean the four quarters calculated using the results of the fiscal
quarter then most recently ended and the immediately preceding three (3)
quarters."
2.11 Paragraph 6.7 is hereby amended in full to read as follows;
"6.7 Intentionally Left Blank".
2.12 Paragraph 6.8 is hereby amended by substituting the figure
"28,000,000" for the figure "30,000,000" appearing therein.
(25072)dwq4/27/93
1670.FIN - 4 -
<PAGE> 6
2.13 Paragraph 6.9 is hereby amended by substituting the phrase
"$10,000,000 as at the end of any fiscal quarter" for the phrase "$15,000,000
in any fiscal period" appearing therein.
2.14 Paragraph 6.13 is hereby amended to read in full as follows:
"6.13 Stock Redemption. Nor to expend funds for the redemption of
capital stock of the Borrower other than an aggregate amount not to exceed
Ten Million Dollars ($10,000,000) for the purchase of shares of the common
stock, without par value, of the Borrower from the Carl N. and Margaret M.
Karcher Trust U/D/T dated August 17, 1970 as amended (the "Trust") pursuant
to a stock purchase agreement by and among the Borrower, the Trust and Carl
and Margaret M. Karcher, provided that such redemption can only take place
if all the following occur: (i) the Bank receives an opinion of counsel
satisfactory to Bank that the stock repurchase complies with all federal
and state securities laws and regulations and any other related laws or
regulations, (ii) the Bank has received and approved an executed copy of
the stock purchase agreement referred to above, (iii) such repurchase
does not, and will not cause the Borrower to be in default of any of the
terms and conditions of this Agreement, and (iv) such repurchase must be
completed by August 9, 1993. The Borrower agrees, in furtherance and not
in limitation of the indemnities set forth in any other provision of this
Agreement, to indemnify and hold the Bank harmless from any and all
claims, damages, losses, liabilities, costs or expenses resulting from or
in any way connected with the stock purchase agreement referred to
above, or any similar agreement. Such indemnity shall survive repayment
of the Borrower's obligations to the Bank.
2.15 The following Paragraph is hereby added to paragraph 6.11 of the
Agreement at the end of that paragraph:
"Notwithstanding the exceptions contained in this Section 6.11 the
Borrower may only create security interests in real property."
2.16 Paragraph 6.14 is hereby amended to read in full as follows:
"6.14 Operating Profit. Maintain an Operating Profit for each
fiscal quarter. For the
(25072)dwq4/27/93
1670.FIN - 5 -
<PAGE> 7
purposes of this Agreement "Operating Profit" means, income before
interest expense and taxers, other income, and gains on sales of
assets."
2.17 The Following Paragraph 6.27 is hereby added to the Agreement:
"6.27 Minimum Net Income. Earn net income before taxes of at
least the amounts indicated at the end of each fiscal period as
specified below:
<TABLE>
<CAPTION>
Period End Amount
---------- ------
<S> <C>
For the first fiscal quarter
of 1994 only $1,417,000
Year to date at the end of
the second fiscal quarter
of 1994 $4,850,000
Year to date at the end of
the third fiscal quarter
of 1994 $8,500,000
Year to date at the end of
fiscal year 1994. $13,278,000"
</TABLE>
2.18 The Following Paragraph 6.28 is hereby added to the Agreement:
"6.28 Out-Of-Debt-Requirement. To repay all advances outstanding
under the Commitment and not draw any new advances for a period of at
least thirty (30) consecutive calendar days during the first two and
last two fiscal semi- annual periods."
2.19 The Following Paragraph 6.29 is hereby added to the Agreement:
"6.29 Not to enter into any agreement for funded or contingent
debt which contains any covenants which in the opinion of the Bank,
are more restrictive than the covenants contained this Agreement, or
amend any covenants in any such agreement so they are more
restrictive than the covenants contained in this Agreement."
3. Defaults. The Borrower hereby acknowledges it breached the following
terms and conditions of the Agreement for the 1993 year end period:
(25072)dwq4/27/93
1670.FIN - 6 -
<PAGE> 8
3.1 Paragraph 6.4 in that the Tangible Net Worth decreased by the
amount of $4,947,000 rather than an increase of $9,000,000 as required.
3.2 Paragraph 6.5 in that the Total Liabilities to Tangible Net Worth
ratio was 2.15:1.00 rather than 2.00:1.00 as required.
3.3 Paragraph 6.6 in that the Fixed Charge Coverage Ratio was .98:1.00
rather than 1.00:1.00 as required.
3.4 Paragraph 6.14 in that the Borrower did not maintain an operating
profit for the fiscal quarter ending January 25, 1993.
4. Waiver. The Bank hereby waives compliance with the above covenants for
the 1993 fiscal year end only.
5. Representations and Warranties. When the Borrower signs this Amendment,
the Borrower represents and warrants to the Bank that: (a) other than the
defaults listed above there is no event which is, or with notice of, or lapse
of time, or both would be, a default under the Agreement and (b) the
representations and warranties in the Agreement are true as of the date of the
Amendment as if made on the date of this Amendment, (c) this Amendment is
within the Borrower's powers, has been duly authorized, and does not conflict
with any of the Borrower's organizational papers, and (d) this Amendment does
not conflict with any law, agreement, or obligations by which the Borrower is
bound.
6. Conditions. This Amendment will be effective when the Bank receives the
following items, in form and content acceptable to the Bank:
6.1 This Amendment executed by the Borrower.
6.2 A fee of $25,000.
7. Effect of Amendment and Waivers. The above waivers shall be limited
precisely as written and relate solely to the sections of the Agreement and for
the time referred to above. Nothing in the above consents shall be deemed to
(a) constitute a waiver of compliance by the Borrower with respect to any other
term, provision or condition of the Agreement or any other instrument or
agreement referred to therein or (b) prejudice any right or remedy that the
Bank may now have or may have in the future under applicable law or instrument
or agreement referred to therein. Except as expressly set forth herein, the
terms, provisions, and conditions of the Agreement and the other documents
issued pursuant thereto shall remain in full force and effect and in all other
respects are hereby ratified and confirmed.
(25072)dwq4/27/93
1670.FIN - 7 -
<PAGE> 9
This Amendment is executed as of the date stated at the top of the
first page.
BANK OF AMERICA NATIONAL TRUST CARL KARCHER ENTERPRISES
AND SAVINGS ASSOCIATION INC.
By /s/ Deborah Miller By /s/ Donald E. Doyle
Title Vice President Title President and C.E.O.
By ______________________ By ________________________
Title ___________________ Title _____________________
(25072)dwq4/27/93
1670.FIN - 8 -
<PAGE> 1
Exhibit 10-79
<PAGE> 2
AMENDMENT NO. TWO AND WAIVER TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment No. Two and Waiver to Amended and Restated Credit Agreement
(the "Amendment") dated as of 9/27, 1993, is between Bank of America National
Trust and Savings Association (the "Bank") and Carl Karcher Enterprises, Inc.
(the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Amended and Restated
Credit Agreement dated as of November 20, 1992, as amended by Amendment No. One
dated as of April 28, 1993 (the "Agreement").
B. The Borrower is in default of certain terms and conditions of the
Agreement and has requested the Bank to waive such defaults.
C. The Borrow has requested the Bank to amend the Agreement in certain
respects.
D. The Bank has agreed to waive the defaults and to amend the Agreement but
on the terms and conditions herein contained.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 Paragraph 6.4 of the Agreement is hereby amended in full to read as
follows:
"6.4 Retained Earnings. As of each date indicated below, increase
Retained Earnings by an amount that is greater than the Retained Earnings as
of the last day of the immediately prior fiscal year as indicated below, by
at least the amount set opposite such date.
Minimum Semi-Annual increase
in Retained Earnings over
Prior Fiscal Year End Retained
Date Earnings
August 15, 1994 $5,000,000
(4018262)dc9/24/93
1671.FIN - 1 -
<PAGE> 3
Minimum Annual increase in
Retained Earnings Over Prior
Fiscal Year End Retained
Date Earnings
January 31, 1994 $5,000,000
For the purposes of this Agreement, "Retained Earnings" means cumulative
earnings shown on the Borrower's balance sheet and in accordance with
generally accepted accounting principles consistently applied."
2.2 Paragraph 6.13 is hereby amended to read in full as follows:
"6.13 Stock Redemption. Not to expend funds for the redemption of
capitalstock of the Borrower."
2.3 Paragraph 6.27 is hereby amended to read in full as follows:
"6.27 Minimum Net Income. Earn net income before taxes of at least
the amounts indicated at the end of each fiscal period as specified below:
Period End Amount
Year to date at the end of
the third fiscal quarter
of 1994 $5,400,000
Year to date at the end of
fiscal year 1994. $8,700,000"
2.4 The following Paragraph 8.13 is hereby added to the Agreement:
"8.13 Board of Directors. Two (2) or more members of the
Borrower's Board of Directors, as currently composed, change for
any reason.
3. Defaults. The Borrower hereby acknowledges that it breached the
following terms and conditions of the Agreement for the fiscal period
ending August 9, 1993:
3.1 Paragraph 6.4 in that Retained Earnings were $2,345,000 and not
$2,500,000 as required.
3.2 Paragraph 6.13 in that the Borrower redeemed 59,752 shares of its
capital stock in violation of the conditions set forth in said paragraph.
3.3 Paragraph 6.27 in that net income before taxes was $3,849,000 and
not $4,850,000 as required.
(4018262)dc9/24/93
1671.FIN - 2 -
<PAGE> 4
4. Waiver. The Bank hereby waives compliance with the above covenants
for the fiscal period ending August 9, 1993.
5. Representations and Warranties. When the Borrower signs this Amendment,
the Borrower represents and warrants to the Bank that: (a) other than the
defaults listed above there is no event which is, or with notice of, or lapse
of time, or both would be, a default under the Agreement and (b) the
representations and warranties in the Agreement are true as of the date of the
Amendment as if made on the date of this Amendment, (c) this Amendment is
within the Borrower's powers, has been duly authorized, and does not conflict
with any of the Borrower's organizational papers, and (d) this Amendment does
not conflict with any law, agreement, or obligations by which the Borrower is
bound.
6. Conditions. This Amendment will be effective when the Bank receives the
following items, in form and content acceptable to the Bank:
6.1 This Amendment executed by the Borrower.
6.2 A fee of $15,000.
7. Effect of Amendment and Waivers. The above waivers shall be limited
precisely as written and relate solely to the sections of the Agreement and for
the time referred to above. Nothing in the above consents shall be deemed to
(a) constitute a waiver of compliance by the Borrower with respect to any other
term, provision or condition os the Agreement or any other instrument or
agreement referred to therein or (b) prejudice any right or remedy that the
Bank may now have or may have in the future under applicable law or instrument
or agreement referred to therein. Except as expressly set forth herein, the
terms, provisions, and conditions of the Agreement and the other documents
issued pursuant thereto shall remain in full force and effect and in all other
respects are hereby ratified and confirmed.
This Amendment is executed as of the date stated at the top of the
first page.
BANK OF AMERICA NATIONAL TRUST CARL KARCHER ENTERPRISES INC.
AND SAVINGS ASSOCIATION.
By /s/ Deborah Miller By /s/ Donald E.Doyle
Title Vice President Title President, CEO
By __________________________ By /s/ Loren C. Pannier
Title _______________________ Title Sr. Vice President, CFO
(4018262)dc9/24/93
1671.FIN - 3 -
<PAGE> 1
Exhibit 10-80
<PAGE> 2
AMENDMENT NO. THREE AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment No. Three and Waiver to Amended and Restated Credit
Agreement (the "Amendment") dated as of DECEMBER 15, 1993, is between Bank of
America National Trust and Savings Association (the "Bank") and Carl Karcher
Enterprises, Inc. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain amended and Restated
Credit Agreement dated as of November 20, 1992, as amended by Amendment No. One
dated as of April 28, 1993, and by Amendment No. Two and Waiver dated as of
September 27, 1993 (the "Agreement").
B. The Borrower is in default of a certain covenant of the Agreement and
has requested the Bank to waive such default.
C. The Borrower has requested the Bank to amend the Agreement in certain
respects.
D. The Bank has agreed to waive the default and to amend the Agreement
but on the terms and conditions herein contained.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 Paragraph 6.6 of the Agreement is hereby amended in full to read
as follows:
"6.6 Fixed Charge Coverage Ration. To maintain a Fixed Charge
Coverage Ratio not less than the ratio indicated at the end of each
fiscal period as specified below:
<TABLE>
<CAPTION>
Period End Ratio
<S> <C>
For quarter ending
January 31, 1994,
calculated on a Four
Quarter Rolling Basis .94:1.00
</TABLE>
(4018262.02)sg12/10/93
1675.FIN - 1 -
<PAGE> 3
<TABLE>
<S> <C>
At the end of each fiscal
quarter thereafter,
calculated on a Four
Quarter Rolling Basis 1.00:1.00
</TABLE>
For purposes of this Agreement, 'Fixed Charge Coverage Ratio' means
the following calculation, expressed as a ratio for any fiscal period:
(a) EBITDA less the net gain realized on sales of fixed assets (or the
EBITDA less the net loss incurred on sales of fixed assets) divided by
(b) the sum of (i) interest and tax expense, (ii) dividends paid,
(iii) current portion of long-term debt, (iv) current portion of
capital leases, and (v) the difference between (A) the total price of
fixed assets purchased and (B) the total principal amount of loans and
capital leases incurred to finance such purchases and the total amount
of cash proceeds realized from any sales of fixed assets; 'EBITDA'
means earnings before interest and tax expense, depreciation,
amortization, and other non-cash charges. This ratio shall be
calculated quarterly using a Four Quarter Rolling Basis. 'Four
Quarter Rolling Basis' shall mean the four quarters calculated using
the results of the fiscal quarter then most recently ended and the
immediately preceding three (3) quarters."
3. Defaults. The Borrower hereby acknowledges that it breached the
following covenant of the Agreement for the fiscal period ending November 1,
1993:
3.1 Paragraph 6.6 in that the Fixed Charge Coverage Ratio was .94:1.00
and not 1.00:1.00 as required.
4. Waiver. The Bank hereby waives compliance with the above covenant
for the fiscal period ending November 1, 1993.
5. Representations and Warranties. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that: (a) other
than the defaults listed above there is no event which is, or with notice of, or
lapse of time, or both would be, a default under the Agreement and (b) the
representations and warranties in the Agreement are true as of the date of the
Amendment as if made on the date of this Amendment, (c) this Amendment is within
the Borrower's powers, has been duly authorized, and does not conflict with any
of the Borrower's organizational papers, and (d) this Amendment does not
conflict with any law, agreement, or obligations by which the Borrower is bound.
6. Conditions. This Amendment will be effective when the Bank receives
the following items, in form and content acceptable to the Bank:
6.1 This amendment executed by the Borrower.
(4018262.02)sg12/10/93
1675.FIN - 2 -
<PAGE> 4
7. Effect of Amendment and Waivers. The above waivers shall be limited
precisely as written and relate solely to the sections of the Agreement and for
the time referred to above. Nothing in the above consents shall be deemed to
(a) constitute a waiver of compliance by the Borrower with respect to any other
term, provision or condition of the Agreement or any other instrument or
agreement referred to therein or (b) prejudice any right or remedy that the
Bank may now have or may have in the future under applicable law or instrument
or agreement referred to therein. Except as expressly set forth herein, the
terms, provisions, and conditions of the Agreement and the other documents
issued pursuant thereto shall remain in full force and effect and in all other
respects are hereby ratified and confirmed.
This Amendment is executed as of the date stated at the top of the
first page.
BANK OF AMERICA NATIONAL TRUST CARL KARCHER ENTERPRISES,
AND SAVINGS ASSOCIATION INC.
By /s/ Deborah Miller By /s/ Richard C. Celio
Title Vice President Title Vice President,
General Counsel
By _______________________ By /s/ Loren Pannier
Title ____________________ Title Sr. Vice President
Chief Financial Officer
(4018262.02)sg12/10/93
1675.FIN - 3 -
<PAGE> 1
Exhibit 10-81
<PAGE> 2
AMENDMENT NO. FOUR TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment No. Four to Amended and Restated Credit Agreement (the
"Amendment") dated as of January 19, 1994, is between Bank of America National
Trust and Savings Association (the "Bank") and Carl Karcher Enterprises, Inc.
(the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Amended and Restated
Credit Agreement dated as of November 20, 1992, as amended by Amendment No. One
dated as of April 28, 1993, by Amendment No. Two and Waiver dated as of
September 27, 1993, and by Amendment No. Three and Waiver dated as of December
15, 1993 (the "Agreement").
B. The Borrower has requested the Bank to amend the Agreement in certain
respects.
C. The Bank has agreed to amend the Agreement on the terms and conditions
herein contained.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 Paragraph 1.2 of the Agreement is amended by substituting the
date "June 30, 1994" for the date "March 31, 1994" appearing therein.
3. Representations and Warranties. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that: (a) other
than the defaults listed above there is no event which is, or with notice of,
or lapse of time, or both would be, a default under the Agreement and (b) the
representations and warranties in the Agreement are true as of the date of the
Amendment as if made on the date of this Amendment, (c) this Amendment is
within the Borrower's powers, has been duly authorized, and does not conflict
with any of the Borrower's organizational papers, and (d) this Amendment does
not conflict with any law, agreement, or obligations by which the Borrower is
bound.
4. Conditions. This Amendment will be affective when the Bank receives
the following items, in form and content acceptable to the Bank:
4.1 This Amendment executed by the Borrower.
1665.FIN - 1 -
<PAGE> 3
5. Effect of Amendment. Except as expressly set forth herein, the terms,
provisions, and conditions of the Agreement and the other documents issued
pursuant thereto shall remain in full force and effect and in all other
respects are hereby ratified and confirmed.
This Amendment is executed as of the date stated at the top of the first
page.
BANK OF AMERICA NATIONAL TRUST CARL KARCHER ENTERPRISES,
AND SAVINGS ASSOCIATION INC.
By /s/ DEBORAH MILLER By /s/ LOREN C. PANNIER
________________________ _________________________
Deborah Miller Loren C. Pannier
Title Vice President Title Senior Vice President, CFO
By ________________________ By /s/ RICHARD C. CELIO
_________________________
Richaed C. Celio
Title _____________________ Title Vice President/Generl
- 2 -
<PAGE> 1
Exhibit 10-82
<PAGE> 2
AMENDMENT NO. FIVE, WAIVER AND CONSENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment No. Five, Waiver and Consent to Amended and Restated Credit
Agreement (the "Amendment") dated as of March 15, 1994, is between Bank of
America National Trust and Savings Association (the "Bank") and Carl Karcher
Enterprises, Inc. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Amended and Restated
Credit Agreement dated as of November 20, 1992, as amended by Amendment No. One
dated as of April 28, 1993, by Amendment No. Two and Waiver dated as of
September 27, 1993, by Amendment No. Three and Waiver dated as of December 15,
1993, and by Amendment No. Four dated as of January 19, 1994.
B. The Borrower is in default of certain covenants of the Agreement and has
requested that Bank to waive such defaults.
C. Borrower has submitted to Bank a copy of the Form S-4 Registration
Statement of CKE Restaurants, Inc., a Delaware corporation ("Holding Company")
filed with the Securities and Exchange Commission on March 7, 1994
("Registration Statement").
D. Attached as Appendix A to the Registration Agreement is a proposed Plan
of Reorganization and Agreement of Merger ("Merger Agreement"), between
Borrower, Holding Company and CKE Food Services, Inc. a wholly-owned subsidiary
of Holding Company ("CKE Subsidiary"), pursuant to which Borrower will merge
with CKE Subsidiary and, as a result thereof, Borrower will become the
surviving company and a subsidiary of Holding Company (the "Merger").
E. Borrower has requested that the Bank consent to the Merger and waive
compliance by Borrower with certain covenants in the Agreement that would
otherwise prohibit the Merger.
F. The Borrower has requested the Bank to amend the Agreement in certain
respects.
G. The Bank has agreed to waive the defaults, consent to the Merger, waive
certain covenants and amend the Agreement but on the terms and conditions
herein contained.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
-1-
<PAGE> 3
2.1 Paragraph 1.2 of the Agreement is amended by substituting the date
"June 30, 1995" for the date "June 30, 1994" appearing therein.
2.2 Subparagraph (a) of Paragraph 1.3 of the Agreement is amended in full
to read:
"(a) Unless the Borrower elects an optional interest rate as described
below, the interest rate is the Bank's Reference Rate."
2.3 The first sentence of Paragraph 1.6 is amended in full to read:
"The Borrower may elect to have all or portions of the principal
balance of the line of credit bear interest at the Offshore Rate plus 1.50
percentage points."
2.4 The lead in to Paragraph 1.7 of the Agreement is hereby amended in
full to read:
"1.7 Letters of Credit. This line of credit may be used for financing
standby letters of credit with a maximum maturity not to extend beyond the
Expiration Date. The amount of letters of credit outstanding at any one
time (including amounts drawn on letters of credit and not yet reimbursed)
may not exceed Thirteen Million Dollars ($13,000,000)."
2.5 Upon the Effective Date (as defined in the Merger Agreement) of the
Merger, Paragraph 6.2(a) of the Agreement is amended in full to read:
"(a) Within one hundred (100) days of Holding Company's fiscal year
end, Holding Company's annual consolidated financial statements. These
financial statements must be audited (with an unqualified opinion) by a
Certified Public Accountant ("CPA") acceptable to the Bank. These
statements shall be prepared on a consolidating and consolidated basis for
Holding Company and its subsidiaries, and also on an unconsolidated basis
for the Borrower. Holding Company's consolidating statement and the
unconsolidated statement of the Borrower may be company prepared."
2.6 Upon the Effective Date (as defined in the Merger Agreement) of the
Merger, Paragraph 6.2(b) of the Agreement is amended in full to read:
"(b) Within fifty (50) days of each fiscal quarter end, quarterly
financial statements of Holding Company prepared on a consolidating and
-2-
<PAGE> 4
consolidated basis, These financial statements may be prepared by
Holding Company."
2.7 Upon the Effective Date (as defined in the Merger Agreement) of the
Merger, Paragraph 6.2(d) of the Agreement is amended by substituting
"Holding Company's" for "Borrower's" in each place it appears therein.
2.8 Paragraph 6.3 of the Agreement is amended in full to read:
"6.3 Current Ratio. To maintain a ratio of current assets to current
liabilities of at least .90:1.0 from the date hereof through January 29,
1995, and .95:1.0 from January 30, 1995, and thereafter."
2.9 The table shown at the bottom of Paragraph 6.4 of the Agreement is
amended to read:
<TABLE>
<CAPTION>
Minimum Annual Increase
in Retained Earnings Over
Prior Fiscal Year End
Date Retained Earnings
---- ------------------------
<S> <C>
January 30, 1995 $4,500,000
</TABLE>
2.10 The table shown in Paragraph 6.5 of the Agreement is amended to read:
<TABLE>
<CAPTION>
Period End Ratio
---------- -----
<S> <C>
May 23, 1994 1.75:1.0
August 15, 1994 1.75:1.0
November 7, 1994 1.75:1.0
January 30, 1995
and thereafter 1.50:1.0
</TABLE>
2.11 The table shown in Paragraph 6.6 of the Agreement is amended to read:
<TABLE>
<CAPTION>
Period End Ratio
---------- -----
<S> <C>
For the quarter
ending May 23, 1994 .60:1.0
For the quarter
ending August 15, 1994 .80:1.0
For the quarter ending
November 17, 1994 1.00:1.0
At the end of each
fiscal quarter
thereafter, calculated
on a Four Quarter
Rolling Basis 1.00:1.0
</TABLE>
- 3 -
<PAGE> 5
2.2 Subparagraph (h) of Paragraph 6.10 of the Agreement is deleted in its
entirety.
2.13 Paragraph 6.12 of the Agreement is deleted in its entirety.
2.14 Paragraph 6.25 of the Agreement is amended in full to read:
"6.25 Owned Restaurants. Maintain a ratio of total company owned
restaurants of not less than forty-five percent (45%) of total restaurants
on a system wide basis."
2.15 Paragraph 6.27 of the Agreement is amended in its entirety to read as
follows:
"6.27 Tangible Net Worth. Maintain tangible net worth equal to at
least the sum of:
(a) Eighty Four Million Four Hundred Thousand Dollars ($84,000,000);
plus
(b) the sum of fifty percent (50%) of net income after income taxes
(without subtracting losses) earned in each quarterly accounting
period commencing with the first quarter of fiscal year 1995."
"Tangible Net Worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization
expense, treasury stock, unamortized debt discount and expense, deferred
research and development costs, deferred marketing expenses, and other
like intangibles and monies due from affiliates, officers, directors or
shareholders of Borrower plus any investments in affiliates less total
liabilities, including but not limited to accrued and deferred income
taxes, and any results against assets."
2.16 The Agreement is hereby amended to add a new Paragraph 6.30 to read
as follows:
"6.30 Loans. Not to make any loans, advances or other extensions of
credit to any of Borrower's executives, officers, directors, shareholders
or affiliates (or any relatives of the foregoing) in excess of Five
Million Dollars ($5,000,000) outstanding at any time, excluding affiliates
notes receivable shown in the balance sheet at fiscal year end 1994."
- 4 -
<PAGE> 6
2.17 Paragraph 8.3 of the Agreement is amended in full to read:
"8.3 Bankruptcy. The Borrower or any grantor files a bankruptcy
petition, a bankruptcy petition is filed against the Borrower or any
guarantor or the Borrower or any guarantor makes a general assignment for
the benefit of creditors. The default will be deemed cured if any
bankruptcy petition filed against the Borrower or any guarantor is dismissed
within a period of forty-five (45) days after the filing; provided, however,
that the Bank will not be obligated to extend any additional credit to the
Borrower during that period."
2.18 Paragraph 8.4 of the Agreement is amended by adding the words "or any
guarantor's" immediately following the work "Borrower's".
2.19 Paragraph 8.6 of the Agreement is amended by adding the words "or any
guarantor" immediately following the word "Borrower" in each place where
such word appears.
2.20 Paragraph 8.7 of the Agreement is amended by adding the words "or any
guarantor's" immediately following the word "Borrower's".
2.21 Paragraph 8.8 of the Agreement is amended by adding the words "or any
guarantor's" immediately following the word "Borrower's".
2.22 paragraph 8.9 of the Agreement is amended by adding the words "or any
guarantor" immediately following the word "Borrower" in each place where
such word appears.
2.23 Paragraph 8.10 of the Agreement is amended by adding the words "or
any guarantor" immediately following the word "Borrower" in each place where
such word appears.
2.24 Paragraph 8.13 of the Agreement is deleted in its entirety and
replaced by a new Paragraph 8.13 to read as follows:
"8.13 Default Under Related Document. Any guaranty, subordination
agreement, security agreement or other document required by this Agreement
is violated or no longer in effect."
3. Defaults. The borrower hereby acknowledges that it breached the
following covenants of the Agreement for the fiscal period ending January 31,
1994:
- 5 -
<PAGE> 7
3.1 Paragraph 6.4 in that Retained Earnings were Two Million Two Hundred
Nine Dollars ($2,209,000) and not Five Million Dollars ($5,000,000) as
required.
3.2 Paragraph 6.6 in that the Fixed Charge Coverage Ratio was .86:1.0 and
not .94:1.0 as required.
3.3 Paragraph 6.27 in that net income was Five Million Five Hundred
Thousand One Dollars ($5,501,000) and not at least Eight Million Seven
Hundred Thousand Dollars ($8,700,00) as required.
4. Waiver. The Bank hereby waives compliance with the above covenants for
the fiscal period ending January 31, 1994.
5. Consent and Waiver. The Bank hereby consents to the Merger described in
Recital C above, and waives any violation of Paragraphs 6.15 and 6.24(c) that
would otherwise result after giving effect to the Merger.
6. Representations and Warranties. When the Borrower signs this Amendment,
the Borrower represents and warrants to the Bank that: (a) other than the
defaults listed above there is no event which is, or with notice of, or lapse
of time, or both would be, a default under the Agreement and (b) the
representations and warranties in the Agreement are true as of the date of the
Amendment as if made on the date of this Amendment, (c) this Amendment is
within the Borrower's powers, has been duly authorized, and does not conflict
with any of the Borrower's organizational papers, and (d) this Amendment does
not conflict with any law, agreement, or obligations by which the Borrower is
bound.
7. Conditions Precedent. This Amendment will be effective when the Bank
receives the following items, in form and content acceptable to the Bank:
7.1 This Amendment executed by the Borrower.
7.2 Evidence that the execution, delivery and performance by the Borrower
of this Amendment and any instrument or agreement required under this
Amendment have been duly authorized.
8. Conditions Subsequent. Within thirty (30) days of the Effective Date
(as defined in the Merger Agreement) of the Merger, Borrower shall cause to be
delivered to the Bank the following items in form and substance acceptable to
Bank.
8.1 A guaranty duly executed by Holding Company in the amount of Twenty
Million Dollars ($20,000,000).
8.2 Evidence that the execution, delivery and performance by Holding
Company of the guaranty has been
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<PAGE> 8
duly authorized.
9. Effect of Amendment and Waivers. The above waivers shall be limited
precisely as written and relate solely to the sections of the Agreement and for
the time referred to above. Nothing in the above consents shall be deemed to
(a) constitute a waiver of compliance by the Borrower with respect to any other
term, provision or condition of the Agreement or any other instrument or
agreement referred to therein or (b) prejudice any right or remedy that the
Bank may now have or may have in the future under applicable law or instrument
or agreement referred to therein. Except as expressly set forth herein, the
terms, provisions, and conditions of the Agreement and the other documents
issued pursuant thereto shall remain in full force and effect and in all other
respects are hereby ratified and confirmed.
This Amendment is executed as of the date stated at the top of the first
page.
<TABLE>
<CAPTION>
BANK OF AMERICA NATIONAL TRUST CARL KARCHER ENTERPRISES,
AND SAVINGS ASSOCIATION INC.
<S> <C>
By /s/ Deborah L. Miller By /s/ Loren C. Pannier
---------------------------- -------------------------
Title Vice President Title Sr.Vice President, CFO
------------------------- ----------------------
By ___________________________ By /s/ Richard C. Celio
-------------------------
Title ________________________ Title Vice President,
----------------------
Corporate Counsel
----------------------
</TABLE>
- 7 -
<PAGE> 1
Exhibit 10-83
<PAGE> 2
PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
(All Cash Purchase)
THIS AGREEMENT ("Agreement") is entered as of February 8, 1993, by and between
CARL N. KARCHER AND MARGARET M. KARCHER TRUST, under a Declaration of Trust
dated August 17, 1970, as amended ("Seller"), and CARL KARCHER ENTERPRISES,
INC., a California corporation ("Buyer").
RECITALS
A. Seller is the fee owner of that certain parcel of land situated in the
County of Orange, State of California, as more particularly described on
EXHIBIT A as Parcel 1 ("Parcel 1"), which Exhibit is attached hereto and by
this reference incorporated herein. Seller is the Lessee under those certain
Ground Leases for parcels of land situated in the County of Orange, State of
California, as more particularly described on EXHIBIT A as Parcels 2 and 3
(respectively "Parcel 2" and "Parcel 3") (Parcels 1, 2 and 3, as more
particularly described, and collectively referred to as "Land").
B. The Land is currently subject to those certain Land and Building
Leases as described on EXHIBIT B attached hereto and by this reference
incorporated herein, as amended from time to time prior to the date hereof (the
"Land and Building Leases"), between Seller, as Lessor, and Buyer as Lessee.
C. Buyer desires to purchase Seller's fee interest in the Land, building
and improvements with regard to Parcel 1, and Seller's leasehold interest in
the Land and such building and improvements constructed thereon, with regard to
Parcels 2 and 3, and Seller has agreed to sell and convey Seller's respective
interests in the Land, building and improvements to Buyer, on the terms and
conditions set forth below.
NOW, THEREFORE, the parties hereby agree as follows:
1. PURCHASE AND SALE. Upon all of the terms and conditions contained
herein, Buyer hereby agrees to purchase Seller's respective fee and leasehold
interests in the Land from Seller and Seller agrees to sell the Seller's said
interests in the Land to Buyer.
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<PAGE> 3
2. ESCROW. Promptly after this Agreement has been signed and delivered
by and between the parties hereto, Seller shall open an escrow ("Escrow") with
Fidelity National Title Insurance Company, 2100 Southeast Main Street, Suite
400, Irvine, California ("Escrow Holder"), by delivering a fully executed copy
of this Agreement to Escrow Holder. The parties agree to be bound by the
standard escrow General Provisions attached hereto as EXHIBIT C, and shall
execute and deliver to Escrow Holder such other reasonable supplemental escrow
instructions or other instruments as may be required by Escrow Holder or the
parties hereto in order to consummate the sale described herein. The attached
EXHIBIT C and/or the printed portions of any such instructions shall not amend
or supersede any provision of this Agreement.
3. CLOSING OF ESCROW. Subject to the satisfaction of all conditions
precedent set forth herein, the closing ("Closing") of the purchase and sale of
the interests in the Land shall take place through Escrow on or before March
15, 1993, or such other date as the parties may mutually agree in writing (the
"Closing Date"). The sale of the interest in each Parcel shall close as an
individual transaction and is not dependent on closing of the other sites.
4. PURCHASE PRICE. The purchase price for the Land (the "Purchase
Price") shall be set out as follows:
Parcel 1: One Million Sixty Three Thousand Four Hundred Thirty Four Dollars
($1,063,434.00).
Parcel 2: Three Hundred Forty Six Thousand Seven Hundred Sixty Eight Dollars
($346,768.00).
Parcel 3: Four Hundred Ninety Eight Thousand Three Hundred Forty One Dollars
($498,341.00).
The Purchase Price shall be payable through Escrow as follows:
(a) DEPOSIT. Concurrently with Buyer's execution and delivery of
this Agreement, Buyer shall deliver to Escrow Holder, for immediate release to
Seller, the sum of SEVEN HUNDRED THOUSAND AND 00/100 Dollars ($700,000.00), TWO
HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) shall be applicable to Parcel 1,
ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000.00) shall be applicable to Parcel
2, and THREE HUNDRED THOUSAND DOLLARS ($300,000.00) shall be applicable to
Parcel 3, which sum shall be held by Seller and applied towards the Purchase
Price upon Closing, subject, however, to being disbursed to Seller as
liquidated damages as provided in Section 9(b) below or returned to Buyer as
provided in Section 9(a) or 17 below. No interest shall accrue or be paid to
Buyer with
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<PAGE> 4
respect to said deposit.
(b) CASH AT CLOSING. The balance of the Purchase Price, together
with any additional amounts and costs chargeable to Buyer as provided below,
shall be deposited by Buyer into Escrow not less than twenty-four (24) hours
prior to the Closing Date of each escrow, and shall be disbursed by Escrow
Holder to Seller upon the Closing, less the costs and prorations chargeable to
Seller under Section 5 below.
5. COSTS AND PRORATIONS.
(a) CLOSING COSTS. Buyer and Seller shall each pay one-half (1/2) of
the fees and charges of Escrow Holder. Seller shall bear the cost of all
documentary transfer taxes, and the premium for the title Policies. Buyer
shall pay the entire cost of, and shall be responsible for obtaining, any
extended coverage, ALTA owner's or Lender's or other title policy or
endorsements in excess of the standard coverage owner's title policy to be
provided by Seller, together with any land surveys required in connection
therewith. Buyer and Seller shall each bear their own respective legal,
accounting and other consultant fees, charges and costs, if any, incurred in
connection with this transaction. All recording costs or fees and all other
costs or expenses not otherwise provided for in this Agreement shall be
apportioned or allocated by Escrow Holder between Buyer and Seller in the
manner customary in Orange County.
(b) TAXES AND ASSESSMENTS. Escrow Holder shall calculate the
proration of all current real property taxes and all general and special bonds
and assessments on the Land between Buyer and Seller as of the Closing Date.
Except for such taxes, bonds and assessments for that portion of Parcel 1 not
under a Land and Building Lease to Buyer, Escrow Holder shall not be concerned
with charging the parties for such prorations of any such taxes and assessments
through Escrow since the Lessee under the Land and Building Lease, who is the
same as, or is affiliated or under common control with Buyer, is required to
pay all such taxes under the terms of the Ground Lease. Any real property
taxes levied under the Supplemental Tax Roll as a result of this sale, whether
prior to the normal assessment date or otherwise, shall be paid solely by
Buyer. Escrow Holder shall prorate and charge Buyer for all rental, common
area maintenance charges, if any, and other sums due and unpaid to Seller under
the Land and Building Leases of Buyer as of the Closing Date, and Seller shall
provide such information as Escrow Holder may request to enable Escrow Holder
to calculate such proration. Escrow Holder shall additionally prorate and
charge Seller for all rental, common area maintenance charges,
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<PAGE> 5
if any, and other sums paid to Seller in advance under that certain Land and
Building Lease for that portion of Parcel 1 not occupied by Buyer. The parties
agree that if any rental sum under the Land and Building Lease is calculated
based on a percentage of sales, revenue or income from the leased premises and
if such rental sum cannot readily be determined for the then - current
reporting period as of the Closing Date, then such sum shall be deemed
unchanged from the last prior reporting period under the Land and Building
Lease and Seller shall instruct Escrow Holder as to the amount thereof.
6. CONDITIONS TO CLOSING. The respective obligations of Buyer and Seller
to complete the purchase and sale of the Land are subject to satisfaction of
the conditions precedent set forth below for their respective benefit at or
prior to Closing.
(a) TRANSFER AND POSSESSION. Seller shall deliver through Escrow
an executed and recordable Grant Deed in the form attached hereto as EXHIBIT D
(the "Grant Deed"), an executed and recordable Termination of Land and Building
Lease in the form attached hereto as EXHIBIT E (the "Termination") for such
Lease as may exist between Buyer and Seller herein, and an executed and
recordable Assignment of Land and Building Lease in the form attached hereto as
EXHIBIT F (the "Assignment") for such additional lease as may exist, sufficient
to convey insurable title to Buyer for Parcel 1 subject only to the matters
described in Section 6(c).
Seller shall deliver through Escrow executed and recordable
Terminations of Land and Building Lease in the form attached hereto as EXHIBIT
E (the "Termination") for the Land and Building Leases currently existing
between Buyer as Lessee and Seller as Lessor,executed and recordable
Assignments of Ground Lease in the form attached hereto as EXHIBIT F (the
"Assignment"), and consent from the Ground Lessor to any such Assignment as may
be required under the Ground Leases, which shall be sufficient to convey
insurable title to Buyer for parcels 2 and 3 subject only to the matters
described in Section 6(c).
(b) TITLE APPROVAL. Buyer shall obtain from Escrow Holder
preliminary title reports covering the respective interest in the Land (the
"Title Reports"). Buyer shall take title to the Land pursuant to this
Agreement subject to matters described in Section 6(c), and to all other
matters of record shown on said Title Report or listed as exceptions to
coverage therein except such matters as Buyer shall expressly disapprove by
giving written notice to Seller on or before ten business (10) days following
Buyer's receipt of the respective Title Report and underlying documents, (the
"Approval Date"), which notice shall specify reasonable grounds for each such
matter so disapproved. Seller shall have ten business
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<PAGE> 6
(10) days from its receipt of such notice of disapproval within which to notify
Buyer in writing as to whether it shall cause the removal of such disapproved
exception to coverage under the respective Title Policy on or before the
Closing Date. Seller shall have no obligation to remove any such exception
except, if applicable, the lien of the Existing Deed of Trust (as defined in
Section 6(e) below) which shall be removed by Seller concurrently with the
Closing. The failure by Seller to give Buyer written notice of its intention
to remove any exception to coverage under the respective Title Policy
disapproved by Buyer in the manner herein provided shall be deemed an election
by Seller not to remove such exception. In the event that Seller does not so
notify Buyer of its election to cause the removal of such disapproved
exception. In the event that Seller does not so notify Buyer of its election
to cause the removal of such disapproved exception, Buyer may terminate this
Agreement, pursuant to Section 9(a) below, by written notice to Seller and
Escrow Holder within ten (10) days after the end of the period for Seller to
respond; otherwise, Buyer shall be deemed to have waived its disapproval of
such exception to coverage under the respective Title Policy and approved same.
Should Buyer fail to disapprove any matter affecting the condition of title or
constituting an exception to coverage under the respective Title Policy by the
Approval Date as set forth above, such matter and/or exception shall be deemed
approved by Buyer.
(c) TITLE CONDITION AT CLOSING. Seller shall cause Escrow Holder
to deliver or commit to deliver to Buyer a standard coverage CLTA Owner's
Policy of Title Insurance for each Parcel (the "Title Policy") dated as of the
Closing, insuring Buyer in an amount equal to the portion of the Purchase Price
allocated in Section 4 to such Parcel, and showing title to the Land vested in
Buyer subject only to:
(i) Real Property taxes and all unpaid general and
special bonds or assessments;
(ii) As to Parcel 1, all matters set forth in the Grant
Deed;
(iii) As to Parcels 2 and 3, the respective master leases;
(iv) The printed exceptions contained in the Title Policy;
(v) All recorded covenants, conditions and restrictions
and other matters shown on the Title Report that are
set forth above or that have been
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<PAGE> 7
approved or deemed approved by Buyer;
(vi) All other matters affecting title to the Land
approved in writing or deemed approved by Buyer,
which approval shall not unreasonably be withheld,
delayed or conditioned.
(d) ESTOPPEL CERTIFICATE. Seller shall, without charge or expense
to Buyer, execute, acknowledge, and deliver a statement in writing (i)
certifying that the respective Ground Leases, as amended, are unmodified and in
full force and effect (or, if modified, stating the nature of such modification
and certifying that the Lease, as so modified, is in full force and effect) and
the date to which the Rental and other charges are paid in advance, if any, and
(ii) acknowledging that there are not any uncured defaults of which the
acknowledging party has knowledge, or specifying such defaults if any are
claimed. Any such statement may be conclusively relied upon by Buyer and any
prospective assignee, sublessee or encumbrancer of the Premises.
(e) EXISTING DEEDS OF TRUST.
As to Parcel 1:
The Land described as Parcel 1 may currently be encumbered by a deed of trust
to Commonwealth Land Title Company, as Trustee, for the benefit of The
Mitsubishi Bank of California, a California corporation, which deed of trust
was recorded December 30, 1986, as Instrument No. 86-651152 in the Official
Records of Orange County, California (the "Existing Deed of Trust"). If so,
Escrow Holder is hereby instructed to cause the Existing Deed of Trust to be
reconveyed as to the Land at the expense of Seller and concurrently with the
Closing.
As to Parcel 2:
That Land described as Parcel 2 may currently be encumbered by a Deed of Trust
to United California Bank, a California corporation, which Deed of Trust was
recorded August 21, 1980 as Instrument No. 25490 in the official records of
Orange County, California (the "Existing Deed fo Trust"). Escrow Holder is
hereby instructed to cause the Existing Deed of Trust to be reconveyed as to
the Seller's respective interest in the Land at the expense of Seller and
concurrently with the Closing.
As to Parcel 3:
That Land described as Parcel 3 may currently be encumbered by a Deed of Trust
to Heritage Bank, a California corporation as
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<PAGE> 8
Trustee, for the benefit of Heritage Bank, a California corporation, which Deed
of Trust was recorded April 30, 1976 as Instrument No. 34379 in the official
records of Orange County, California (the "Existing Deed of Trust"). Escrow
Holder is hereby instructed to cause the Existing Deed of Trust to be
reconveyed as to the Seller's respective interest in the Land at the expense of
Seller and concurrently with the Closing.
7. NO ASSIGNMENT BY BUYER PERMITTED. Buyer may not assign its interest
under this Agreement without the express prior written consent of Seller, which
consent may be given or withheld by Seller in its sole discretion, and any such
attempted assignment made in violation of this provision shall be null and
void. Notwithstanding the foregoing, Seller agrees not to unreasonably
withhold its consent to an assignment by Buyer of its rights hereunder to an
entity owned or controlled by or under common control with Buyer. Promptly
after any such assignment, Seller shall be furnished with copies of the final
executed assignment documents.
8. TIME OF THE ESSENCE AND ESCROW CANCELLATION. Time is of the essence
of every provision of this Agreement in which time is an element. Failure by
any party to perform any obligation within the time and on the terms and
conditions required hereunder shall discharge the other party's duties and
obligations to perform hereunder upon written notice or demand from the other
party. However, if Escrow is not in condition to close by the agreed Closing
Date, Escrow Holder shall continue to comply with the instructions contained
herein until a written demand has been made by a party entitled to do so for
the cancellation of Escrow. Escrow Holder shall notify all other parties to
this Agreement of any such demand, and shall immediately cancel Escrow without
any further instructions from any party.
9. TERMINATION RIGHTS. The parties shall have the right to terminate
this Agreement as follows:
(a) BUYER'S RIGHT. If Seller fails to perform any covenant when
due hereunder, or if Seller is not in a position by the Closing Date to convey
title to the respective fee and leasehold interest in the Land subject only to
the matters described in Section 6(c) above, and Buyer is unwilling to accept
such title to the respective interest in the Land as Seller may be able to
convey, then Buyer may terminate this Agreement and the Escrow by giving
written notice thereof to Seller and Escrow Holder, or Buyer may waive
disapproval and acquire respective interest in the Land in accordance with the
terms hereof. In the event of any such termination, or if Buyer duly
terminates this Agreement pursuant to
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<PAGE> 9
Section 6(b) above, Seller and/or Escrow Holder shall promptly return to Buyer
all sums theretofore delivered by Buyer pursuant to Section 4 above and held by
either of them. Additionally, Escrow Holder shall return all instruments to
the parties who deposited same, and all title and escrow cancellation charges
shall be divided equally between the parties (except that Seller, or Buyer, as
the case may be, shall pay all of such cancellation charges if the termination
is due to said party's default).
(b) SELLER'S RIGHT/LIQUIDATED DAMAGES. If Buyer fails to deposit
any required sums by the prescribed time or in the prescribed manner, or to
perform any other covenant when due hereunder, or if Buyer commits any other
breach of this Agreement, the Seller, at its option, may terminate this
Agreement and Escrow by giving written demand to Buyer and Escrow Holder.
Thereupon Escrow shall be cancelled, all instruments shall be returned to the
respective parties who deposited same, and Buyer shall pay all title and escrow
cancellation charges and fees.
IN ADDITION, THE PARTIES AGREE THAT SELLER SHALL HAVE SUSTAINED DAMAGES
RESULTING FROM BUYER'S FAILURE TO PERFORM WHICH DAMAGES ARE DIFFICULT AND
IMPRACTICABLE TO ASCERTAIN. ACCORDINGLY, SELLER SHALL BE ENTITLED TO RETAIN A
PORTION OF THE DEPOSIT SPECIFIED IN SECTION 4(A) ABOVE, AS SUCH PORTION OF SUCH
DEPOSIT IS ALLOCATED FOR EACH SUCH PARCEL HEREIN, AS A LIQUIDATED AND
REASONABLE ESTIMATE OF SUCH DAMAGES FOR BUYER'S BREACH OR FAILURE TO COMPLETE
THE PURCHASE OF THE LAND AS PROVIDED HEREINABOVE, PURSUANT TO CALIFORNIA CIVIL
CODE SECTIONS 1671 AND 1677; PARCEL 1, $2,000; PARCEL 2, $2,000; PARCEL 3,
$2000.
________________________ ______________________
Buyers Initials Seller's Initials
10. FURTHER DOCUMENTS AND ACTS. Each of the parties hereto agrees to
cooperate in good faith with each other, and to execute and deliver such
further documents and perform such other acts as may be reasonably necessary or
appropriate to consummate and carry into effect the transactions contemplated
under this Agreement.
11. BUYER'S ACKNOWLEDGMENTS. Buyer hereby acknowledges and agrees to each
of the following provisions:
(a) RECEIPT OF DOCUMENTS. Buyer has received and read,
understands and agrees to be bound by the terms and conditions of the Ground
Leases as they apply to Parcels 2 and 3, and the Land and Building Lease as it
applies to a portion of parcel 1.
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<PAGE> 10
(b) PRIOR INVESTIGATIONS. Buyer agrees that it has fully
inspected the Land and the improvements constructed thereon, is familiar with
the terms and conditions of the Ground Leases as they apply to Parcels 2 and 3
and the Land and Building Lease as it applies to a portion of Parcel 1, and the
condition of the improvements, and that it is purchasing the Land on an "as is"
basis. Notwithstanding the foregoing, Buyer, its authorized agents and
representatives shall have the right to enter onto Parcel 1 and make any and
such inspections, appraisals and studies, at Seller's sole cost and expense, to
determine the existence of contaminants in the soils or structures as follows:
(i) A soils investigation performed by a licensed soil engineer, including
but not limited to Phase I testing, and Phase II testing if required,
certifying that the Premises are not in violation of EPA standards or
regulations or such standards or regulations promulgated by any other
governmental entity having authority therefor, and that the Parcel is
otherwise free from subsurface soils contamination, including
hydrocarbon contaminants, hazardous waste and/or toxic pollutants.
(ii) Buyer shall, within fifteen (15) days from the execution date hereof,
cause to have such testing of the existing office structure on Parcel
1 completed to determine the extent, if any, of contamination present
in the structure.
Should any contamination be present, Seller, at Seller's sole cost and expense,
shall remove said contaminated materials as soon as reasonably possible, prior
to the close of escrow on Parcel 1. If Seller should determine, in Seller's
reasonable judgment, that the cost of removal of such contamination in cost
prohibitive to Seller, Seller shall have the option of terminating this
Agreement as it applies to Parcel 1, and refunding to Buyer the deposit
allocated to such Parcel.
12. NON-FOREIGN STATUS OF SELLER. In accordance with Section 1445 of the
Internal Revenue Code, Seller hereby represents, warrants and certifies to
Buyer, under penalty of perjury, that Seller is not now, and at the Closing
will not be, a "foreign person) (that is, a foreign corporation, foreign
partnership, foreign trust or foreign estate, as those terms are defined in the
Internal Revenue Code and regulations promulgated thereunder); that Seller's
tax identification number is 13-3177751; and that Buyer need not withhold tax
at the Closing as a result of this transfer.
13. FIRST RIGHT OF REFUSAL. It is expressly agreed that Buyer shall have
the right to sell each of the Parcels herein, or any
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<PAGE> 11
portion thereof; however, Seller shall have the right of first refusal to
purchase each of the Parcels, or any portion thereof, on the same terms and
conditions as that established as a bona fide selling price between Buyer and a
third party. Before Buyer sells the Parcel or any portion thereof to a third
party, Buyer shall first give a written fifteen (15) day notice to Seller of
Buyer's intention to do so. Said notice shall specify the terms and conditions
upon which it is intended to make such sale and shall contain an offer to sell
to Seller upon said terms. Seller shall have fifteen (15) days after receipt
of said notice in which to accept or reject said offer. Buyer shall not sell
the Parcel to a third party at a lower price or on terms more favorable than
those specified to Seller. Any sale not in conformity with this paragraph
shall be null and void. If Seller shall not give Buyer written notice of
acceptance of the offer within said fifteen (15) days, Buyer shall have the
right to sell to a third party at the price and on the terms and conditions of
said offer.
14. SURVIVABILITY OF COVENANTS. All covenants of Buyer or Seller which
are expressly intended hereunder to be performed in whole or in part after the
Closing, and all representations, warranties and indemnities by either party to
the other, shall survive the Closing and be binding upon and inure to the
benefit of the respective parties hereto and their respective heirs, successors
and permitted assignees. Any agreements, understandings, warranties or
representations not expressly contained herein shall in no way bind either
Seller or Buyer. Seller and Buyer each expressly waives any right of
rescission and all claims for damages by reason of any statement,
representation, warranty, promise and/or agreement, if any, not contained in or
attached to this Agreement.
15. BROKERS' COMMISSIONS. Each of the parties represents to the other
that no brokerage commission, finder's fee or other similar compensation of any
kind is due or owing to any person or entity in connection with the
transactions covered by this Agreement. Each party agrees to and does hereby
indemnify and hold the other harmless from and against any and all costs,
liabilities, losses, damages, claims, causes of action or proceedings which may
result from any broker, agent, finder, or similar person, licensed or
otherwise, claiming through, under or by reason of the conduct of the
indemnifying party in connection with the transactions covered by this
Agreement.
16. WAIVER, CONSENT AN REMEDIES. Each provision of this Agreement to be
performed by Buyer and/or Seller shall be deemed both a covenant and a
condition and shall be a material consideration for the other party's
performance hereunder, and any breach thereof by
Page 10
<PAGE> 12
either party shall be deemed a material default hereunder by such patty.
Either party may specifically and expressly waive in writing any portion of
this Agreement or any breach thereof, but no such waiver shall constitute a
further or continuing waiver of any preceding or succeeding breach of the same
or any other provision. A waiving party may at any time thereafter require
further compliance by the other party with any breach or provision so wived.
The consent by one party to any act by the other for which such consent was
required shall not be deemed to imply consent or waiver of the necessity of
obtaining such consent for the same or any similar acts in the future. No
waiver or consent shall be implied from silence or any failure of a party to
act, except as otherwise specified in this Agreement. All rights, remedies,
undertakings, obligations, options, covenants, conditions and agreements
contained in this Agreement shall be cumulative and no one of them shall be
exclusive of any other. Except as otherwise specified herein, either party may
pursue any one or more of its rights, options or remedies hereunder or may seek
damages or specific performance in the event of the other party's breach
hereunder, or may pursue any other remedy at law or equity, whether or not
stated in this Agreement.
17. ATTORNEYS' FEES. In the event of any declaratory or other legal or
equitable action instituted between Seller, Buyer and/or Escrow Holder in
connection with this Agreement, then as between Buyer and Seller the prevailing
party shall be entitled to recover from the losing party all of its costs and
expenses, including court costs and reasonable attorneys' fees.
18. CONDEMNATION. If at any time prior to the Closing, legal proceedings
are commenced under the power of eminent domain with respect to allow any
Parcel or portion thereof, either Seller or Buyer may terminate this Agreement
and cancel Escrow as to such Parcel by giving written notice to Escrow Holder
and the other party. Thereupon, all conveyance instruments relating to such
Parcel shall be returned to the respective parties who deposited same, Buyer
and Seller shall each pay one-half (1/2) of all title and Escrow cancellation
charges, all other funds then deposited by Buyer in Escrow and any funds paid
outside of Escrow by Buyer shall be returned to Buyer, and each party shall be
excused from any further obligations hereunder or liability to the other party.
In the event of such termination, Buyer shall have no right to participate in
the receipt of any condemnation proceeds from the taking; provided, however,
that the rights of Seller and the Lessee under the Lease applicable to the
affected Parcel in the event of condemnation shall continue in full force and
effect. Should neither party elect to terminate this Agreement as aforesaid,
there shall be no price adjustment as a result of the taking, and Seller
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<PAGE> 13
shall not be entitled to any condemnation award as may be attributable to such
Parcel.
19. DAMAGE OR DESTRUCTION. In the event any of the improvements on any
Parcel are damaged or destroyed prior to the Closing, Buyer agrees that it
shall bear the risk of such loss and shall have no right to terminate this
transaction; provided, however, that as of the Closing Date, Buyer shall be
entitled to all sums, if any, payable to the Lessor under the respective Lease
as the result of such damage.
20. AUTHORITY TO BIND. Each of the individuals signing this Agreement on
behalf of any entity thereby specifically represents and warrants that such
signatories, either collectively or individually, have the authority to bind
that entity to all provisions of this Agreement.
21. NOTICES. Any notice, request, demand, consent, approval or other
communication required or permitted hereunder or by law shall be validly given
or made only if in writing and delivered in person or by independent courier
service to the other party at the address(es) below, or deposited in the United
States mail, duly certified or registered (return receipt requested), postage
prepaid, and addressed to the party for whom intended, as follows:
If to Seller: CARL N. KARCHER and
MARGARET M. KARCHER TRUST
P. O. Box 61021
Anaheim, CA 92803
copy to: LEWIS, D'AMATO, BRISBOIS & BISGAARD
650 Town Center Drive, Suite 1400
Costa Mesa, CA 92626
Attn: Bruce M. Boyd, Esq.
If to Buyer: Carl Karcher Enterprises, Inc.
P. O. Box 4349
Anaheim, CA 92803
Attn: Leasing/Escrow Department
Any party may from time to time, by written notice to the other, designate a
different address which shall be substituted for that specified above. If any
notice or other document is sent by mail as aforesaid, the same shall be deemed
fully delivered and received forty-eight (48) hours after mailing as provided
above.
Page 12
<PAGE> 14
22. GENDER AND NUMBER. In this Agreement (unless the context requires
otherwise), the masculine, feminine and neuter genders and the singular and the
plural shall be deemed to include one another, as appropriate.
23. ENTIRE AGREEMENT. This Agreement and its exhibits constitute the
entire agreement between the parties hereto pertaining to the subject matter
hereof, and the final, complete and exclusive expression of the terms and
conditions thereof. Prior agreements, representations, negotiations and
understandings of the parties hereto, oral or written, express or implied, are
hereby superseded and merged herein.
24. CAPTIONS. The captions used herein are for convenience only and are
not a part of this Agreement and do not in any way limit or amplify the terms
and provisions hereof.
25. GOVERNING LAW. This Agreement and the exhibits attached hereto have
been negotiated and executed in the State of California and shall be governed
by and construed under the laws of the State of California.
26. INVALIDITY OF PROVISIONS. If any provision of this Agreement as
applied to either party or to any circumstance shall be adjudged by a court of
competent jurisdiction to be void or unenforceable for any reason, the same
shall in no way affect (to the maximum extent permissible by law) any other
provision of this Agreement, the application of any such provision under
circumstances different from those adjudicated by the court, or the validity or
enforceability of the Agreement as a whole.
27. AMENDMENTS. No addition to or modification of any provision contained
in this Agreement shall be effective unless fully set forth in writing and
signed by both Buyer and Seller.
28. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
29. NO RECORDATION. Neither Buyer nor Seller shall, without the consent
of the other, record this Agreement, or a short form or memorandum thereof, or
take any other action which would materially
Page 13
<PAGE> 15
and adversely affect the marketability of Seller's title to the Land.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
<TABLE>
<S> <C>
SELLER: BUYER:
- - ------- ------
CARL AND MARGARET M KARCHER CARL KARCHER ENTERPRISES, INC.
TRUST, under a Declaration of a California corporation
Trust dated August 17, 1970,
as amended
/s/ CARL N. KARCHER /s/ RICHARD C. CELIO
BY: _______________________ BY: _______________________
Richard C. Celio
Vice President/
Corporate Counsel
/s/ LOREN PANNIER
BY: _______________________ BY: _______________________
Loren Pannier
Group Vice President
Finance/Administration
</TABLE>
Page 14
<PAGE> 16
EXHIBIT "A"
Legal Description
Parcel 1:
Lots 1, 2, 3, 4, 5, and 6 in Block 1 of Tract No. 856, in the City of
Garden Grove, as shown on a map thereof recorded in book 26, page 8,
Miscellaneous Maps, records of said Orange County.
Parcel 2:
The South 100.00 feet of the North 335.00 feet of the West 150.00 feet
of the East 200.00 feet of the Northeast Quarter of the Northeast
Quarter of Section 29, Township 4 South, Range 10 West, partly in the
Rancho Los Coyotes and partly in the Rancho Las Bolsas, in the City of
Garden Grove, County of Orange, State of California, as per map
recorded in Book 51, Page 10 of Miscellaneous Maps, in the Office of
the County Recorder of said County.
Parcel 3:
All that certain land situated in the State of California, County of
Orange, described as follows:
That portion of allotments in decree of partition of the
Rancho Canon de Santa Ana in the County of Orange, State of
California, recorded in Case No. 1978 of the 17th Judicial District
Court of California, a certified copy of which was recorded February
8, 1974 in book 28, page 158 of Deed in the office of the County
Recorder of Los Angeles County, California described as follows:
Parcel No. 3, as shown on a Map filed in book 56, page 2 of
Parcel Maps in the office of the County Recorder of Orange County,
California.
Page 1
<PAGE> 17
EXHIBIT "B"
A. Parcel 1:
That certain fee property identified as Parcel 1 on Exhibit
"A" herein, and a portion of which may also be referred to as CKE Unit
#5, which parcel 1 is subject to:
(i) a Land and Building Lease dated December 1, 1978 by and between
Carl N. Karcher, Trustee, "Lessor", and Carl Karcher Enterprises,
Inc., "Lessee" ("Land and Building Lease") as such Land and Building
Lease was amended by that certain First Amendment to Lease dated June
12, 1979, and that Second Amendment to Lease dated March 26, 1990;
(ii) a Land and Building Lease dated June 1, 1986, by and between Carl
N. Karcher and Margaret M. Karcher Trust, "Lessor", and Dental Finance
Company, "Lessee" (Land and Building Lease").
B. Parcel 2:
That certain leasehold property identified as Parcel 2 on
Exhibit "A" herein, and which may also be referred to as CKE Unit #6,
which Parcel 2 is subject to:
(i) that certain Ground Lease dated August 10, 1979, by and between
John C. Quantannens, Trustee, "Lessor", and Carl N. Karcher, Trustee
under trust dated August 17, 1970, "Lessee", ("Ground Lease") as such
Ground Lease was amended by that certain First Amendment to Ground
Lease dated August 12, 1970;
(ii) that certain Land and Building Lease dated February 15, 1980, by
and between Carl N. Karcher, Trustee, under the Trust dated August 17,
1970, "Lessor", and Carl Karcher Enterprises, Inc., a California
corporation, "Lessee", ("Land and Building Lease") as such Land and
Building Lease was amended by that certain Rental Commencement
Memorandum executed September 4, 1980, that certain First Amendment to
Lease dated March 2, 1981 and that certain Second Amendment to Lease
executed March 26, 1990.
C. Parcel 3:
That certain leasehold property identified as Parcel 3 on
Exhibit "A" herein, and which may also be referred to as CKE Unit
#140, which Parcel 3 is subject to:
(i) that certain Ground Lease dated September 3, 1974, by and between
Raymond G. Spehar and Estelle K. Spehar and Marcia Ann Halligan,
"Lessor", and Carl Karcher Enterprises, Inc., a California
corporation, "Lessee" ("Ground Lease") as such Ground Lease was
amended by that certain First Amendment to Lease dated August 5, 1975,
and that certain Assignment of Lease dated April 20, 1976 wherein the
Ground Lease was assigned by Carl Karcher Enterprises, Inc. to Carl N.
Karcher, Trustee under a trust dated August 17, 1970 and as such Lease
was further amended by that certain Amended and Restated Ground Lease
dated November 3, 1980, and that certain Second Amendment of Ground
Lease executed November 6, 1986;
Page 2
<PAGE> 18
EXHIBIT "B" (page 2)
(ii) that certain Land and Building Lease dated April 21, 1976 by and
between Carl N. Karcher, Trustee under the Trust dated August 17,
1970, "Lessor", and Carl Karcher Enterprises, Inc., a California
corporation, "Lessee", ("Land and Building Lease") as such Land and
Building Lease was amended by that certain Amendment to Lease dated
January 28, 1983, that certain Second Amendment of Land and Building
Lease dated November 6, 1986, and that Third Amendment to Land and
Building Lease executed on March 26, 1990.
Page 3
<PAGE> 19
EXHIBIT "C"
FIDELITY NATIONAL TITLE
Escrow Instructions
(continued)
GENERAL PROVISIONS
1. DEPOSIT OF FUNDS
Section 12413.1, California Insurance Code, commonly known as Assembly
Bill 512, became effective January 1, 1990. This legislation deals with the
disbursement of funds deposited with any title entity acting in an escrow or
sub escrow capacity. The law requires that all funds be deposited and collected
by the title entity's escrow and/or sub escrow account prior to disbursement of
any funds. Some methods of funding may subject funds to a holding period which
must expire before any funds may be disbursed. In order to avoid any such
delays, all funding should be done through wire transfer, certified check,
cashier's check or teller's check.
All funds received in this escrow shall be deposited with other escrow
funds in a general escrow account or accounts of FIDELITY NATIONAL TITLE, with
any state or national bank, and may be transferred to any other such general
escrow account or accounts. Said funds will not earn interest unless otherwise
specifically stated herein. All disbursements shall be made by check of
FIDELITY NATIONAL TITLE.
If for any reason funds are retained or remain in escrow, you are to
deduct therefrom a reasonable monthly charge as custodian thereof of not less
than $10.00 per month.
2. PRORATIONS AND ADJUSTMENTS
All prorations and/or adjustments called for in this escrow are to be
made on the basis of a thirty (30) day month unless otherwise instructed in
writing. Re-prorations, if necessitated by subsequent changes, will be made
direct and outside escrow. The phrase "close of escrow" (COE or CE) as used in
this escrow means the date on which documents are recorded and relates only in
proration and/or adjustments unless otherwise specified. You are to use
information contained on last available tax statement, rental statement as
provided by the Seller, beneficiary's statement and fire insurance policies
delivered into escrow for the prorates provided for herein. Tax bills issued
after close of escrow shall be handled directly between buyer and seller.
3. SUPPLEMENTAL TAXES
The within described property will be subject to supplemental real
property taxes due to the change of ownership taking place through this escrow.
Any supplemental real property taxes arising as a result of the transfer of the
property to Buyer shall be the sole responsibility of Buyer and any
supplemental real property taxes arising prior to the closing date shall be the
sole responsibility of the Seller. TAX BILLS ISSUED AFTER CLOSE OF ESCROW SHALL
BE HANDLED DIRECTLY BETWEEN BUYER AND SELLER.
4. UTILITIES/POSSESSION
Transfer of utilities and possession of the premises are to be settled
by the parties direct and outside of escrow.
5. RECORDATION OF INSTRUMENTS
Recordation of any instruments delivered through this escrow, if
necessary or proper for the issuance of the policy of title insurance called
for, is authorized.
6. AUTHORIZATION TO FURNISH COPIES
You are authorized to furnish copies of these instructions,
supplements, amendments, or notices of cancellation and closing statements in
this escrow, to the Real Estate Broker(s) and Lender(s) named in this escrow.
7. AUTHORIZATION TO EXECUTE ASSIGNMENT OF HAZARD INSURANCE POLICIES
Either Buyer, Seller and/or Lender will hand you the insurance agent's
name and insurance policy information, and you are to execute, on behalf of the
principals hereto, form assignments of interest in any insurance policy (other
than title insurance) called for in this escrow, forward assignment and policy
to the insurance agent, requesting that insurer consent to such transfer and/or
attach a loss payable clause and/or such other endorsements as may be required,
and forward such policy(s) to the principals entitled thereto. It is not your
responsibility to verify the information handed you or the assignability of
said insurance. Your sole duty is to forward said request to insurance agent as
close of escrow.
Further, there shall be no responsibility upon the part of the escrow
company to renew hazard insurance upon expiration or otherwise keep it in force
either during the interim and/or subsequent to the close of escrow.
Cancellation of any existing hazard insurance policies are to be handled direct
and outside of escrow.
8. PERSONAL PROPERTY
No examination or insurance as to the amount or payment of personal
property taxes is required unless specifically requested.
By the signing below, the parties to the above referenced escrow
hereby acknowledge that they are indemnifying the Escrow Agent of any and all
matters regarding any "Bulk Sales" requirements, if applicable, and instruct
Escrow Agent to proceed with the closing of escrow without any matter of any
nature whatsoever regarding "Bulk Sales" being handled through escrow.
9. RIGHT OF RESIGNATION
Escrow Agent has the right to resign upon written ten (10) day notice.
If such right is exercised, all funds and documents shall be returned to the
party who deposited them and Escrow Agent shall have no liability hereunder.
10. RIGHT OF CANCELLATION
Any principal instructing you to cancel this escrow shall file notice
of cancellation in your office in writing. You shall, within two (2) working
days thereafter, mail, by certified mail, one copy of such notice to each of
the other principals at the addresses stated in this escrow. UNLESS WRITTEN
OBJECTION TO CANCELLATION IS FILED IN YOUR OFFICE BY A PRINCIPAL WITHIN TEN
(10) DAYS AFTER DATE OF SUCH MAILING, YOU ARE AUTHORIZED TO COMPLY WITH SUCH
NOTICE AND DEMAND PAYMENT OF YOUR CANCELLATION CHARGES. If written objection is
filed, you are authorized to hold all money and instruments in this escrow and
take no further action until otherwise directed, either by the principals'
mutual written instructions, or final order of a court of competent
jurisdiction.
11. ACTION IN INTERPLEADER
The principals hereto expressly agree that you, as escrow holder, have
the absolute right at your election to file an action in interpleader requiring
the principals to answer and litigate their several claims and rights among
themselves and you are authorized to deposit with the clerk of the court all
documents and funds held in this escrow. In the event such action is filed, the
principals jointly and severally agree to pay your cancellation charges and
costs, expenses and reasonable attorney's fees which you are required to expend
or incur in such interpleader action, the amount thereof to be fixed and
judgment therefor to be rendered by the court. Upon the filing of such action,
you shall thereupon be fully released and discharged from all obligations to
further perform any duties or obligations otherwise imposed by the terms of
this escrow.
______________________________________________________________________
Signature
______________________________________________________________________
12. TERMINATION OF AGENCY OBLIGATION
If there is no action taken on this escrow within six (6) months after
the "time limit date" as set forth in the escrow instructions or written
extension thereof, your agency obligation shall terminate at your option and
all documents, monies or other items held by you shall be returned to the
parties depositing same. In the event of cancellation of this escrow, whether
it be at the request of any of the principals or otherwise, the fees and
charges due FIDELITY NATIONAL TITLE, including expenditures incurred and/or
authorized shall be borne equally by the parties hereto (unless otherwise
agreed to specifically).
13. CONFLICTING INSTRUCTIONS
Upon receipt of any conflicting instructions, you are no longer
obligated to take any further action in connection with this escrow until
further consistent instructions are received from the principals to this
escrow.
14. REIMBURSEMENT ATTORNEY FEES/ESCROW HOLDER
In the event that a suit is brought by any party or parties to these
escrow instructions to which the escrow holder is named as a party which
results in a judgment in favor of the escrow holder and against a principal or
principals herein, the principal or principals' agent agree to pay said escrow
holder all costs, expenses and reasonable attorney's fees which it may expend
or incur in said suit, the amount thereof to be fixed and judgment therefore to
be rendered by the court in said suit.
15. DELIVERY/RECEIPT
Delivery to Buyer and/or Seller as used in these instructions is to be
by regular mail, and receipt is determined to be 72 hours after such mailing
unless otherwise stated herein. All documents, balances and statements due to
the undersigned are to be mailed to the address shown herein.
16. STATE/FEDERAL CODE NOTIFICATIONS
According to Section 1521 of The Tax Reform Act of 1986, the Seller,
when applicable, will be required to complete a sales activity report that will
be utilized to generate a 1099 to the Internal Revenue Service.
Pursuant to Section 480.3 of Revenue and Taxation Code of the State of
California prior to the close of escrow, Buyer will provide Escrow Holder with
a Preliminary Change of Ownership Report. In the event said report is not
handed to Escrow Holder for submission to the County in which subject property
is located, upon recording of the Grant Deed, Buyers acknowledge that the
applicable fee will be assessed by said County and Escrow Holder shall debit
the account of Buyer for same at close of escrow. Further, Buyers acknowledge
that this lack of submission may impact certain provisions under the Owners
Policy of Title Insurance issued at close of this escrow.
Pursuant to Foreign Investors in Real Property Tax Act, the Internal
Revenue Code, Sections 1445 and 6039 C, and any applicable state codes
affecting the same, Buyer and Seller herein represent and warrant that they
will seek and obtain independent legal advice and counsel relative to their
obligations and will take all steps in order to comply with such requirements
<PAGE> 20
and agree to hold you harmless relative to their compliance therewith. (SALE
ONLY)
17. ENCUMBRANCES
Escrow agent is to act upon any statements furnished by a lienholder
or his agent without liability or responsibility for the accuracy of such
statements. Any adjustment necessary because of a discrepancy between the
information furnished Escrow Agent and an amount later determined to be correct
shall be settled between the parties direct and outside of escrow.
You are authorized to pay all encumbrances necessary to place title in
condition called for herein, including but not limited to prepayment penalties,
without further approval of the undersigned.
18. ENVIRONMENTAL ISSUES
FIDELITY NATIONAL TITLE has made no investigation concerning said
property as to environmental/toxic waste issues. Any due diligence required or
needed to determine environmental impact as to forms of toxification, if
applicable, will be done direct and outside of escrow. FIDELITY NATIONAL TITLE
is released of any responsibility and/or liability in connection therewith.
19. USURY
You are not to be concerned with any questions of usury in any loan or
encumbrance involved in the processing of this escrow, and you are hereby
released of any responsibility or liability therefore.
20. DISCLOSURE
Your knowledge of matters affecting the property, provided such facts
do not prevent your compliance with these instructions, does not create any
liability or duty in addition to your responsibility under these instructions.
21. CLARIFICATION OF DUTIES
FIDELITY NATIONAL TITLE serves as an Escrow Agent ONLY in connection
with these instructions and cannot give legal advice to any party hereto.
THIS AGREEMENT IN ALL PARTS APPLIES TO, INSURES TO THE BENEFIT OF, AND BINDS
ALL PARTIES HERETO, THEIR HEIRS, LEGATEES, DEVISEES, ADMINISTRATORS, EXECUTORS,
SUCCESSORS AND ASSIGNS, AND WHENEVER THE CONTEXT SO REQUIRES THE MASCULINE
GENDER INCLUDES THE FEMININE AND NEUTER, AND THE SINGULAR NUMBER INCLUDES THE
PLURAL. THESE INSTRUCTIONS AND ANY OTHER AMENDMENTS MAY BE EXECUTED IN ANY
NUMBER OF COUNTERPARTS, EACH OF WHICH SHALL BE CONSIDERED AS AN ORIGINAL AND BE
EFFECTIVE AS SUCH.
MY SIGNATURE HERETO CONSTITUTES INSTRUCTION TO ESCROW HOLDER OF ALL TERMS AND
CONDITIONS CONTAINED IN THIS AND ALL PRECEDING PAGES AND FURTHER SIGNIFIES THAT
I HAVE READ AND UNDERSTAND THESE GENERAL PROVISIONS.
_______________________________________________________________________________
Signature
_______________________________________________________________________________
<PAGE> 21
EXHIBIT "D"
RECORDING REQUESTED BY
MAIL TAX STATEMENT TO
Carl Karcher Enterprises
1200 N. Harbor Blvd.
Anaheim, CA 92803
WHEN RECORDED MAIL TO
Carl Karcher Enterprises, Inc.
1200 N. Harbor Blvd.
Anaheim, CA 92803
Attn: Leasing/Escrow Dept.
________________________________ SPACE ABOVE RECORDER'S USE ONLY________________
ORDER NO.
ESCROW NO. GRANT DEED (INDIVIDUAL)
________________________________________________________________________________
The undersigned grantor(s) declare(s):
Documentary transfer tax is $____________________.
( ) Computed on full value of property conveyed, or
( ) Computed on full value less value of liens and encumbrances remaining
at time of sale.
( ) Unincorporated area ( ) City of ____________________________________
Tax Parcel No. ____________________________
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
CARL N. KARCHER, Trustee of CARL N. KARCHER AND MARGARET M. KARCHER TRUST,
hereby GRANT(S) to
CARL KARCHER ENTERPRISES, INC., a California corporation,
the following described real property in the
County of Orange, State of California:
Lots, 4, 5 and 6 in Block 1 in Tract No. 856, as per map thereof recorded in
Book 16, Page 8 of Miscellaneous Maps, Records of Orange County, California.
SUBJECT TO: Covenants, conditions, rights, easements and encumbrances of
record.
_____________________________________
Dated______________________________ _____________________________________
_____________________________________
_____________________________________
STATE OF CALIFORNIA S.S.
County of _________________________
On ___________________________________ before me,
___________________________________________, Notary Public,
personally appeared _______________________________________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the
instrument.
WITNESS my hand and official seal,
Signature ______________________________________________________ (Seal)
<PAGE> 1
Exhibit 10-84
<PAGE> 2
FIRST AMENDMENT TO PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AGREEMENT (this "Amendment") is made
as of this 1st day of November, 1993, by and between CARL N. KARCHER IN HIS
RESPECTIVE CAPACITY AS TRUSTEE OF THE CARL N. KARCHER AND MARGARET M. KARCHER
TRUST, under a Declaration of Trust dated August 17, 1970 (collectively,
"Seller"), and CARL KARCHER ENTERPRISES, INC., a California corporation
("Buyer").
RECITALS
A. Seller and Buyer have entered into a written Purchase Agreement dated
February 8, 1993 (the "Agreement") whereby Seller agreed to sell to Buyer the
"Land." (Capitalized terms not otherwise defined herein shall have the meanings
given them in the Agreement.)
B. The testing of Parcel 1 performed by Buyer as provided in Section
11(b) of the Agreement has not produced results satisfactory to Buyer.
C. The time provided for Closing in the Agreement has not been met and
Buyer has heretofore terminated the Agreement.
D. Seller and Buyer now desire to revive the Agreement so that it will be
in full force and effect and to amend the Agreement in the following
particulars.
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Agreement, as amended hereby, shall be revived and shall be deemed
to be, and is, in full force and effect, as amended hereby, as of the date
hereof.
2. Section 3 of the Agreement is hereby deleted in its entirety and the
following is substituted in lieu therefor as if set forth in full in the
Agreement:
Subject to the satisfaction or waiver by Buyer of all conditions
precedent set forth herein, the closing ("Closing") of the purchase
and sale of the interests in portions of the Land shall take place
through Escrow as follows:
(a) For Parcel 1, within 30 days of the date of Buyer's
acceptance or waiver of each and all the conditions precedent set
forth herein with respect to Parcel 1, including but not limited to
approval by Buyer of the condition of the soils on Parcel 1 as
provided in Section 11(b), but in no event later than November 1,
1994.
(b) For Parcels 2 and 3, on or before November 15, 1993,
or such other date as the parties may mutually agree on in writing
(the "Closing Date").
The Closing of the sale of Parcel 1 shall not be dependent upon, or
affected by, nor shall the parties' obligations with respect thereto
be affected by, the Closing of the sale of Parcel 2 or Parcel 3. The
Closing of the sale of Parcel 2 shall occur simultaneously with the
Closing of the sale of Parcel 3. The Closing of the sale of Parcel 2
and Parcel 3 shall not be dependent upon, or affected by, the Closing
of the sale of Parcel 1.
3. Section 4(b) of the Agreement is hereby deleted in its entirety and
replaced with the following:
<PAGE> 3
(b) CASH AT CLOSING. The balance of the Purchase Price with
respect to any Parcel, together with any additional amounts and costs
chargeable to Buyer as provided below with respect to such Parcel,
shall be deposited by Buyer into Escrow not less than twenty-four (24)
hours prior to the Closing Date of the escrow with respect to such
parcel, and, except as provided in Section 4(a) above, shall be
disbursed by Escrow Holder to Seller upon the Closing with respect to
such Parcel, less the costs and prorations chargeable to Seller under
Section 5 below with respect to such Parcel.
4. Section 5(b) is hereby modified by adding thereto at the end thereof
the following:
Buyer and Seller hereby agree that all accrued and unpaid rents under
the leases between Buyer and Seller with respect to parcel 2 and
Parcel 3 shall be due and payable upon the earlier to occur of the
Close of Escrow with respect to Parcel 2 and Parcel 3 or the
termination of this Agreement with respect to Parcel 2 and Parcel 3
(with the exception that the aggregate sum of $30,460.64 previously
unpaid by Buyer with respect to the months of July and August, 1993
shall be due and payable upon the execution of this Agreement, along
with any quarterly dividend payments which have been offset against
the $700,000 deposit, provided, however, nothing contained herein
shall constitute a consent or an acknowledgement by Seller as to the
legality or permissibility of any such dividend offset or a waiver of
any rights Seller may have against Buyer with respect to the legality
of such offset); provided, however, that in the event that the Close
of Escrow with respect to Parcel 2 and Parcel 3 does not occur on the
Closing Date other than due to a default hereunder by Seller, rents
accruing under the leases between Buyer and Seller with respect to
Parcel 2 and Parcel 3 from and after such Closing Date shall be due
and payable pursuant to the terms of the leases. Notwithstanding the
foregoing, all percentage rents shall be determined as and when
required by the leases and Buyer shall promptly thereafter pay such
rents to Seller. Buyer's obligations under this Section 5(b) shall
survive the Closing without limitation.
5. Section 11(b) of the Agreement is hereby modified by deleting of the
last paragraph thereof and substituting the following in lieu therefor as if
set forth in full therein:
Buyer has found and given notice to Seller that contamination
(including without limitation asbestos) is present on Parcel 1 and the
improvements thereon, and that Parcel 1 and the improvements thereon
are unacceptable to Buyer in their present condition. Buyer and
Seller agree that Buyer and Seller shall promptly make good faith
efforts to cause the third party or third parties responsible for such
contamination to remediate such contamination on Parcel 1 and the
improvements thereon to an extent acceptable to the Responsible Lead
Agency having jurisdiction over such remedial efforts (the "RLA"). On
November 1, 1994 (or such later date to which Buyer and Seller may
agree in writing), if Buyer and Seller have not received "Acceptable
Plans and Indemnities," then if Buyer so elects in writing, this
Agreement shall thereupon terminate, and the deposit allocated to
Parcel 1 shall be returned to Buyer. "Acceptable Plans and
Indemnities" shall mean written remediation plans for Parcel 1 and the
improvements thereon acceptable to the RLA, and with regard to the
asbestos, a written remediation plan acceptable to Buyer, and written
agreements acceptable to Buyer in its reasonable judgment, to be
executed prior to close of escrow with respect to Parcel 1 by the
third party or third parties responsible for such contamination,
indemnifying the present and future owners and occupants of the
property against any and all costs or causes of action resulting from
the contamination. Should the Buyer determine in Buyer's reasonable
judgment that the "Acceptable Plans and Indemnities" will result in
interference with the conduct of the businesses
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on Parcel 1 (including, without limitation, customer parking and
access), or that there is significant uncertainty based on available
data that the proposed remediation will succeed in meeting clean-up
standards acceptable to the RLA without resulting in such
interference, Buyer may terminate the Agreement as it applies to
Parcel 1, and the deposit allocated to Parcel 1 shall be returned to
Buyer, but in no event shall any such termination occur prior to
November 1, 1994. The provisions of this paragraph shall survive the
closing of the sale of Parcel 2 and Parcel 3 without limitation.
Nothing in this paragraph shall be deemed an admission of any party
with respect to responsibility for the contamination of Parcel 1 or a
waiver of any rights, if any exist, any party may claim against the
other party hereto with respect to such contamination.
6. Buyer and Seller have previously established escrows (collectively,
the "Escrows") at Fidelity National Title Company to consummate the purchase
and sale of each of the Parcels. Prior to the date of this Amendment, the
Escrows were terminated. Buyer and Seller hereby agree promptly to take all
actions as may be reasonably necessary or desirable to revive or re-establish
the Escrows, and to deliver to the Escrows such documents or instruments as may
be necessary to consummate the transactions contemplated hereby.
7. This Amendment and the Agreement constitute the entire agreement, and
supersede all prior and contemporaneous agreements and understandings, of
Seller and Buyer with respect to the purchase and the sale of the Land.
8. Seller and Buyer each agree to execute and deliver such documents and
to perform such other acts, promptly upon request, as are necessary or
appropriate to effectuate the purposes of this Amendment and the Agreement.
9. This Amendment shall be governed by and interpreted in accordance with
the laws of the State of California applicable to contracts executed and to be
performed in that state.
10. This Amendment shall be binding upon and shall inure to the benefit of
the parties hereto and their respective legal representatives, successors and
assigns.
11. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original as against the party whose signature appears
thereon and all of which together shall constitute but one and the same
document.
12. This Amendment may be amended only by a writing executed by Seller and
Buyer which expressly refers to this Amendment and the Agreement and the intent
of the parties to amend its provisions.
13. If any action or proceeding is brought to enforce this Amendment,
declare the meaning of its terms, or as a result of any breach or default
hereunder, the prevailing party in such action or proceeding
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shall be entitled to recover from the non-prevailing party, and the
non-prevailing party shall pay to the prevailing party, its attorneys' fees and
costs of suit.
IN WITNESS WHEREOF, the parties have set their hands as of the day and date
first written above.
SELLER: BUYER:
/s/ CARL N. KARCHER
- - ------------------------------- CARL KARCHER ENTERPRISES, INC.,
Carl N. Karcher, as trustee of a California corporation
the Carl N. Karcher and Margaret
M. Karcher Trust, under a By: /s/ RICHARD C. CELIO
Declaration of Trust dated ------------------------------
August 17, 1970 Richard C. Celio
Vice President/General Counsel
DATE: November 2, 1993
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Exhibit 10-85
<PAGE> 2
CARL'S JR. RESTAURANT
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT ("Agreement") is made and entered into April
7, 1993, between CARL KARCHER ENTERPRISES, INC., a California corporation
("CKE"), and CARL LEO KARCHER ("Franchisee").
WHEREAS, CKE, as the result of the expenditure of time, skill, effort,
and money, has developed and owns a unique and distinctive system ("System")
relating to the establishment and operation of fast service restaurants;
WHEREAS, the distinguishing characteristics of the System include,
without limitation, distinctive exterior and interior design and layout,
including specially designed decor and furnishings; a highly refined and
efficient kitchen layout featuring an automatic charbroiling cooking process;
special recipes and menu items; procedures and techniques for food and beverage
preparation and service; automated management information and control systems
for inventory controls, cash controls, and sales analysis; technical assistance
and training through course instruction and manuals; and advertising and
promotional programs; all of which may be changed, improved, and further
developed by CKE from time to time;
WHEREAS, CKE identifies the System by means of certain trade names,
service marks, trademarks, logos, emblems, and indicia of origin, including but
not limited to the mark "CARL'S JR.", and such other trade names, service
marks, and trademarks as are now designated, and may hereafter be designated by
CKE in writing, for use in connection with the System ("Proprietary Marks");
WHEREAS, CKE continues to develop, use, and control the use of such
Proprietary Marks in order to identify for the public the source of services
and products marketed thereunder and under the System, and to represent the
System's high standards of quality, appearance, and service;
WHEREAS, Franchisee desires to enter into the business of operating a
Carl's Jr. restaurant under CKE's System and wishes to obtain a franchise from
CKE for that purpose, as well as to receive the training and other assistance
provided by CKE in connection therewith;
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WHEREAS, Franchisee understands and acknowledges the importance of
CKE's high standards of quality, cleanliness, appearance, and service and the
necessity of operating the business franchised hereunder in conformity with
CKE's standards and specifications;
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other party set forth herein, hereby agree as
follows:
I. GRANT
A. CKE hereby grants to Franchisee, upon the terms and conditions
herein contained, the right and franchise, and Franchisee undertakes the
obligation, to operate a Carl's Jr. restaurant ("Restaurant" or "franchised
business") and to use solely in connection therewith the Proprietary Marks and
the System, as it may be changed, improved, and further developed from time to
time, only at the approved location described in Section I.B.
B. The street address of the location approved hereunder shall be
set forth in Attachment A hereto. Franchisee shall not relocate the franchised
business without the express prior written consent of CKE.
C. Franchisee expressly acknowledges that the rights conferred do
not include any marketing exclusivity therein. Franchisee expressly
acknowledges and understands that all Carl's Jr. Restaurants (whether
Company-owned, Franchised or otherwise) may solicit and service customers
regardless of the customer's geographic location.
D. Franchisee acknowledges that this franchise is non-exclusive
and is granted subject to the terms of Section VI.C. 6 hereof.
II. TERM AND RENEWAL
A. Except as otherwise provided herein, the term of this
Agreement shall commence upon its execution by the parties and shall expire
twenty (20) years from the date on which the Restaurant is opened for business;
provided, however, that if Franchisee's approved location is leased, this
Agreement shall expire at the earlier of twenty (20) years from the date of
opening for business or upon expiration or termination of the initial term of
the lease.
B. Franchisee may, at its option, renew this Agreement for one
(1) additional consecutive term of ten (10) years, provided that prior to the
end of the initial term:
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1. Franchisee has given CKE written notice of its
election to renew not less than twenty-four (24) months nor more than
thirty-six (36) months prior to the end of the initial term;
2. Franchisee has made or has provided for, in a manner
satisfactory to CKE, renovation and modernization of the Restaurant premises as
CKE may reasonably require, including, without limitation, renovation of signs,
furnishings, fixtures, and decor, to reflect the then-current standards and
image of the System as designated in the Confidential Operating Manual ("OPM");
3. Franchisee is not in default of any provision of this
Agreement, any amendment hereof or successor hereto, or any other agreement
between Franchisee and CKE or its subsidiaries and affiliates, and has complied
with all the terms and conditions of such agreements during the terms thereof;
4. Franchisee has satisfied all monetary obligations
owed by Franchisee to CKE and its subsidiaries and affiliates and has timely
met those obligations throughout the term of this Agreement;
5. Franchisee shall present satisfactory evidence that
Franchisee has the right to remain in possession of the approved location for
the renewal term;
6. Franchisee shall have executed CKE's then-current
form of renewal franchise agreement, which agreement shall supersede this
Agreement in all respects, and the terms of which may differ from the terms of
this Agreement, including, without limitation, a higher percentage royalty fee
and advertising contribution; provided, however, that Franchisee shall pay, in
lieu of an initial franchise fee, a renewal fee not to exceed seventy-five
percent (75%) of the then-current initial franchise fee;
7. Franchisee shall execute a full and general release,
in a form prescribed by CKE, of any and all claims against CKE and its
subsidiaries and affiliates, and their respective officers, directors, agents,
and employees; and
8. Franchisee shall comply with CKE's then-current
qualification and training requirements.
III. DUTIES OF CKE
A. CKE shall provide an initial training program for Franchisee,
Franchisee's Restaurant Manager and any other employees of Franchisee who are
to be trained in
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accordance with Section V.C. hereof and shall make available such other
training programs as it deems appropriate. All training provided by CKE shall
be subject to the terms set forth in Section V.D. of this Agreement.
B. CKE may provide Franchisee, in its OPM, Franchise Development
Guide ("Guide") or otherwise, with standard plans and specifications for the
construction of the Restaurant and for the exterior and interior design,
layout, fixtures, furnishings and signs. Franchisee shall, at his sole
expense, employ architects, designers, engineers or others as may be necessary
to complete, adapt, modify or substitute the sample plans and specifications
for the Restaurant. Franchisee shall submit to CKE a complete set of final
plans and specifications prior to commencing construction of the Restaurant.
CKE shall review such plans and specifications promptly and approve or provide
comments on the plans and specification to Franchisee. Franchisee shall not
commence construction of the Restaurant until CKE has approved in writing the
final plans and specifications to be used in constructing the Restaurant.
CKE shall consult with Franchisee, to the extent CKE deems necessary,
on the construction and equipping of the Restaurant, but it is, shall be and
shall remain the sole responsibility of Franchisee to diligently design,
construct, equip and otherwise ready and open the Restaurant.
C. Upon Franchisee's request or in CKE's discretion, CKE shall
provide such on-site opening assistance as CKE deems advisable, subject (as to
timing) to the availability of personnel. CKE shall provide such continuing
advisory assistance to Franchisee in the operation of the franchised business
as CKE deems advisable.
D. CKE shall make available, from time to time, advice and
assistance in local advertising and, at Franchisee's expense, promotional
materials for local advertising by Franchisee. CKE shall have the right to
review and approve or disapprove all advertising and promotional materials
which Franchisee proposes to use, pursuant to Section X.D. hereof.
E. CKE shall provide Franchisee, on loan, one or more copies of
the OPM, as more fully described in Section VII. hereof. CKE shall also
provide to Franchisee, from time to time as CKE deems appropriate, advice and
written materials concerning techniques of managing the franchised business.
F. CKE shall seek to maintain the high standards of quality,
appearance, and service of the System, and to that end shall conduct, as it
deems advisable, inspections of the
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Restaurant franchised hereunder, and evaluations of the products sold and
services rendered therein.
IV. FEES
A. Franchisee shall pay to CKE an initial franchise fee of
Twenty-Five Thousand Dollars ($25,000), payable as follows:
(1) Ten Thousand Dollars ($10,000) within twenty (20)
days of notification of CKE's approval of the Franchisee's proposed site and
(2) Fifteen Thousand Dollars ($15,000) within ten (10)
days of commencement of construction of the Restaurant.
Upon payment of each portion of the initial franchise fee,
that portion shall be deemed fully earned and nonrefundable in consideration
for administrative and other expenses incurred by CKE in granting this
franchise and for CKE's lost or deferred opportunity to franchise others.
B. During the term of this Agreement, Franchisee shall pay to CKE
a continuing weekly royalty fee in an amount not to exceed four percent (4%) of
the gross sales of the Restaurant, as defined in Section IV.E. hereof, as set
forth in Exhibit 2.
C. Franchisee shall also expend and/or contribute, on a weekly
basis, a percentage of the gross sales of the Restaurant, said percentage to be
at least four percent (4%) but no greater than six percent (6%) of the gross
sales of the Restaurant, allocated as provided in Section X. hereof, for
advertising and promotion.
D. All weekly payments required by this Section IV. shall be paid
to CKE by the fifth (5th) business day immediately following the fiscal week,
as designated by CKE, during which the sales were made and shall be submitted
to CKE together with any reports or statements required under Section IX.B.
hereof. Any payment or report not actually received by CKE on or before such
date shall be deemed overdue. If any payment is overdue, Franchisee shall pay
CKE, in addition to the overdue amount, interest on such amount from the date
it was due until paid at the equivalent of eighteen percent (18%) per annum
calculated on a daily basis, or the maximum rate permitted by law, whichever is
less. Entitlement to such interest shall be in addition to any other remedies
CKE may have.
E. As used in this Agreement, "gross sales" shall include all
revenue from the sale of all services and products and all other income of
every kind and nature related to the
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franchised business, whether for cash or credit and regardless of collection in
the case of credit; provided, however, that "gross sales" shall not include any
sales taxes or other taxes collected from customers by Franchisee for
transmittal to the appropriate taxing authority.
F. On execution of this Agreement, Franchisee shall deposit with
CKE N/A Dollars ($N/A) as a security deposit for the performance by Franchisee
of the provisions of this Agreement, any lease or sublease between Franchisee
and CKE, any promissory note in favor of CKE or any other obligation to CKE
such as but not limited to payment for food, goods and products sold by CKE, or
any of its affiliates. If Franchisee is in default of any such payment of
obligation, CKE can use the security deposit, or any portion of it, to cure the
default or to compensate CKE for all damage sustained by CKE resulting from
Franchisee's default. Franchisee shall immediately on demand pay to CKE a sum
equal to the portion of the security deposit expended or applied by CKE as
provided in this Section so as to maintain the security in the sum initially
deposited with CKE. If Franchisee is not in default at the expiration or
termination of this Agreement, CKE shall return the security deposit to
Franchisee. CKE's obligations with respect to the security deposit are those
of a debtor and not a trustee. CKE shall not be required to segregate the
security deposit from other funds or to pay Franchisee interest on the security
deposit.
V. DUTIES OF FRANCHISEE
A. Franchisee understands and acknowledges that every detail of
the franchised business is important to Franchisee, CKE, and other franchisees
in order to develop and maintain high operating standards, to increase the
demand for the services and products sold by all franchisees, and to protect
CKE's reputation and goodwill.
B. Promptly following CKE's written approval of the proposed
site, for the Restaurant, Franchisee shall proceed to complete the acquisition
of the site. Unless Franchisee is leasing or subleasing the premises from CKE,
Franchisee shall lease directly or purchase, as the case may be, the Restaurant
site. CKE shall have no liability under any such direct lease. Such direct
lease shall be subject to CKE's written approval. Franchisee shall include in
any such direct lease the following terms and conditions prior to the execution
of such direct Lease:
1. As long as the lessee, or lessee's successor or
assign, is a Carl's Jr. franchisee, the premises must
be used only for the operation of a CARL'S JR.
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Restaurant, or a restaurant under another trade name
adopted by CKE and permitted by this Franchise
Agreement.
2. The lessor consents to the Franchisee's use of such
Proprietary Marks and signage as CKE may prescribe
for the franchised business.
3. The Lessor agrees to furnish to CKE, copies of any
and all letters and notices sent to the Franchisee
pertaining to the lease and the premises, at the same
time that such letters and notices are sent to the
Franchisee.
4. The Franchisee may not sublease or assign all or any
part of its occupancy rights or extend the term of or
renew the lease without CKE's prior written consent.
5. Lessor agrees that CKE has the right to enter the
Premises to make any modification necessary to
protect CKE's Proprietary Marks or to cure any
default under the lease or under this Franchise
Agreement.
6. Lessor agrees that CKE has the right to cure any
monetary default under the lease.
7. Lessor agrees that CKE has the option to assume the
Franchisee's occupancy rights, and the right to
sublease, for all or any part of its terms, upon the
Franchisee's default or termination under such lease
or this Franchise Agreement.
8. The lease is conditioned upon the prior approval of
CKE, to insure inclusion of the above described terms
and compliance with this Franchise Agreement.
The Franchisee shall furnish CKE with a copy of the executed lease
with all exhibits attached thereto within ten (10) days after execution of such
lease.
In the event Franchisee acquires the Restaurant Premises by purchase,
Franchisee hereby agrees that concurrently with recordation of the deed
conveying the Premises, or, if Franchisee already owns the Premises within ten
(10) days after execution hereof, Franchisee shall record a written agreement
between CKE and Franchisee, providing CKE the option to purchase the Premises,
at its market value at time of exercise, upon termination hereof on account of
expiration of the term or Franchisee's breach hereof. Such agreement shall be
acceptable to CKE in form and substance.
C. Franchisee shall use a licensed general contractor reasonably
satisfactory to CKE to perform construction work at the Restaurant. If CKE
shall request, Franchisee shall
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immediately furnish to CKE prior to the commencement of construction and/or
remodeling and/or refurnishing of Restaurant, and from time to time thereafter
upon request, the names and addresses of any sub-contractor and/or vendor to be
involved in such construction, furnishing or design activity; copies of all
permits, licenses, contractors' liability insurance certificates or other items
required for the lawful construction, equipping and operation of the
Restaurant; and, copies of all construction contracts, and documents, and
construction time-line for construction of the Restaurant and originals of all
lien waivers as CKE may require.
CKE shall not be responsible for delays in the construction, equipping
or decoration of the Restaurant, or for any loss resulting from the Restaurant
design or construction. CKE must approve in writing any and all changes to the
Restaurant plans furnished by Franchisee prior to construction of the
Restaurant or the implementation of such changes. CKE shall have access to the
Restaurant while work is in progress and may require such reasonable
alterations or modifications of the construction of the Restaurant as it deems
necessary. Franchisee's failure to promptly commence the design, construction,
equipping and opening of the Restaurant with due diligence shall be grounds for
the termination of this Agreement.
CKE shall be permitted, at its option, to conduct a final inspection
of the completed Restaurant and may require such corrections and modifications
as it deems necessary to bring the Restaurant into compliance with approved
plans and specifications. The Restaurant will not be allowed to open if it
does not conform to the plans and specifications approved by CKE, including
changes thereof approved by CKE. Failure to promptly correct any unauthorized
variance from the approved plans and specifications may result in the
termination of the Agreement.
D. The typical fixtures, furniture and equipment specifications
which may be furnished to Franchisee by CKE do not limit the obligation of
Franchisee to provide all required fixtures, furniture and equipment for the
Restaurant at Franchisee's sole expense. If CKE suggests certain manufacturers
or suppliers, it does so only as an accommodation to Franchisee. Franchisee
shall have the right to substitute manufacturers and suppliers and shall have
the right to purchase the required fixtures, furniture and equipment from any
source, provided that the items to be purchased are in strict accordance with
the specifications of CKE. The prior written consent of CKE must be obtained
before making any
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such substitutions. Any changes in the design, construction, utilities, or
installations necessitated by such substitutions shall be made at the sole
expense of Franchisee.
1. Franchisee is strictly responsible for the acts or
omissions of his contractors regarding compliance with Item V of this Agreement
and CKE shall have no responsibility for such acts or omissions. CKE shall not
be liable for any loss or damage arising from the design or plan of the
Restaurant by reason of its approval of plans and specifications, or otherwise.
Franchisee shall indemnify CKE for any loss, cost or expense, including
attorneys' and experts' fees, that may be sustained by CKE because of the acts
or omissions of Franchisee's contractors arising out of or related to the
design or construction of the Restaurant.
2. All signs to be used in connection with the
Restaurant, both exterior and interior, must conform to CKE sign criteria as to
type, logo usage, format, color, size, design and location. All signs must be
approved in writing by CKE prior to installation and display.
3. Prior to the commencement of operation of the
Restaurant, Franchisee agrees to procure and install such data processing
equipment computer hardware, required dedicated telephone and power lines,
modem(s), printer(s), and other computer-related accessory or peripheral
equipment as CKE specifies in its OPM (as same may be amended from time to
time) or otherwise. Franchisee is further required to provide any assistance
required by CKE to bring such computer system "on-line" with CKE's computers at
CKE headquarters at the earliest possible time and Franchisee expressly affirms
and agrees that CKE shall thereafter have the free and unfettered right to
retrieve such data and information from Franchisee's computer(s) as CKE, in its
sole and exclusive discretion, deems necessary, desirable and appropriate, with
the telephonic cost of such retrieval to be borne by CKE including
electronically polling the daily sales, menu mix and other data of the
Restaurant. All of the foregoing items specified to be installed or purchased,
or activities specified to be accomplished by Franchisee, and the delivery
costs of all hardware and software, shall be accomplished/borne at Franchisee's
sole expense.
Further, Franchisee shall utilize CKE's proprietary Carl's Jr.
software program, system documentation manuals and other proprietary materials
heretofore and hereafter developed by CKE in connection with the operation of
the Restaurant; shall, upon request by CKE execute CKE's standard form Software
License Agreement and shall input and maintain in Franchisee's computer(s) such
data and information as CKE prescribes, in its OPM (as same
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may be amended from time to time) its software programs and otherwise. CKE
shall initially furnish to Franchisee such programs, manuals and materials at
CKE's expense. Franchisee shall purchase from CKE such new or upgraded
proprietary software programs, manuals, and/or computer-related materials
whenever CKE determines to adopt such new or upgraded programs, manuals and/or
materials systemwide, at such prices and on such terms as CKE in its sole and
exclusive discretion, shall establish.
Franchisee understands that computer systems are designed to
accommodate a certain maximum amount of data and terminals, and that, as such
limits are achieved, and/or as technology and/or software is developed in the
future, CKE at it sole discretion may mandate that Franchisee add memory, ports
and other accessories and/or peripheral equipment and/or additional, new or
substitute software to the original computer system purchased by Franchisee.
Franchisee further understands that at a certain point in time it may become
necessary for Franchisee to replace or upgrade the entire computer system with
a larger system capable of assuming and discharging all of those
computer-related tasks and functions as are specified by CKE. Franchisee
further understands and agrees that computer designs and functions change
periodically and that CKE may be required to make substantial modifications to
its computer specifications, or to require installation of entirely different
systems, during the term of this Agreement, or upon renewal thereof. To ensure
full operational efficiency and communication capability between CKE's
computers and those of all franchised Restaurants, Franchisee agrees, at his
expense, to keep his computer system in good maintenance and repair, and, at
his expense, and following CKE's testing and determination that same will prove
economically or systemically beneficial to Franchisee and CKE, to install such
additions, changes, modifications, substitutions and/or replacements to his
computer hardware, software, telephone and power lines and other
computer-related facilities as CKE directs, and on those dates and within those
times specified by CKE in its sole and exclusive discretion, in its OPM (same
may be amended from time to time) or otherwise. Upon termination or expiration
of this Agreement, all computer software, disks, tapes and other magnetic
storage media shall be returned to CKE in good condition (allowing for normal
wear and tear).
E. Franchisee agrees that it is important to the operation of the
System and the Restaurant franchised hereunder that a competent management team
be in place to supervise and conduct the franchised business and to that end
agrees as follows:
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There shall be at all times a minimum of two individuals, of
whom Franchisee may be one, who have completed CKE's initial training program
and who are fully qualified to operate the Restaurant.
1. Franchisee shall designate an individual to serve as
the "Restaurant Manager" of the franchised business. The Restaurant Manager
shall meet the following qualifications:
a. The Restaurant Manager shall be a full-time
employee of Franchisee, shall work in the Restaurant and shall devote full time
and best efforts to the supervision and conduct of the business franchised
hereunder.
b. The Restaurant Manager shall be a person
acceptable to both Franchisee and CKE and shall have successfully completed to
CKE's satisfaction, CKE's initial training program.
2. Franchisee, or, if more than one individual has
executed this Agreement, one of the signed franchisees, shall be designated to
serve as the "Owner/Operator" of the franchised business. The Owner/Operator
shall meet the following qualifications:
a. The Owner/Operator shall devote full time and
best efforts to the supervision and conduct of the business franchised
hereunder and any other businesses that Franchisee may franchise from CKE.
b. The Owner/Operator shall have successfully
completed to CKE's satisfaction CKE's initial training program or an
abbreviated training program as set forth in Section V.D.3.
3. In the event that the Owner/Operator should elect not
to attend CKE's initial training program, the Owner/Operator shall attend an
abbreviated training program and Franchisee shall designate an individual to
serve as "Operations Supervisor" of the franchised business. The Operations
Supervisor shall meet the following qualifications:
a. The Operations Supervisor shall be a
full-time employee of the Franchisee and shall devote full time and best
efforts to the supervision and conduct of the business franchised hereunder and
any other businesses that Franchisee may franchise from CKE.
b. The Operations Supervisor shall be a person
acceptable to both Franchisee and CKE and shall have successfully completed to
CKE's satisfaction CKE's initial training program.
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4. If, at any time or for any reason, the designated
Restaurant Manager or supervisory individual no longer qualifies to act as
such, Franchisee shall promptly designate another individual subject to the
applicable qualifications listed above.
E. Franchisee agrees that it is important to the operation of the
System and the Restaurant franchised hereunder that Franchisee and Franchisee's
employees receive such training as CKE may require, and to that end agrees as
follows:
1. Prior to the opening of the Restaurant, the
Owner/Operator or the Operations Supervisor, if one has been designated, and
the Restaurant Manager shall attend and complete, to CKE's satisfaction, the
initial training program offered by CKE. Provided however, should an
Operations Supervisor be designated, the Owner/Operator can elect to attend and
complete, to CKE's satisfaction, an abbreviated initial training program. At
Franchisee's expense, the Owner/Operator, the Operations Supervisor and
Franchisee's employees shall also attend such courses, seminars, and other
training programs as CKE may require from time to time. CKE shall provide
instructors and training materials for all required training programs; and
Franchisee or its employees shall be responsible for any and all other expenses
incurred by them in connection with any training programs, including, without
limitation, the cost of transportation, lodging, meals, and wages. Any person
subsequently employed by Franchisee in the position of Restaurant Manager and
each subsequent Owner/Operator and Operations Supervisor, if any, shall attend
and complete, to CKE's satisfaction, such initial training program as CKE may
require prior to managing or supervising the franchised business. Franchisee
shall pay to CKE a training fee at the then-current rate being charged by CKE
to franchisees for such training. The training fee shall be in addition to any
other training costs and expenses to be borne by Franchisee as provided herein.
2. The Owner/Operator and Franchisee's employees may
also attend such optional training programs and seminars as CKE may offer from
time to time. Franchisee shall pay to CKE, for each person attending such
programs, the training fee, if any, then charged by CKE. If any such training
fee is imposed by CKE, the training fee shall be in addition to any other
expenses incurred by the persons attending training as provided in Section
V.E.1 hereof.
F. Franchisee shall use the Restaurant premises solely for the
operation of the business franchised hereunder; shall keep the business open
and in normal operation for such
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hours and days as CKE may from time to time specify in the OPM or as CKE may
otherwise approve in writing; and shall refrain from using or permitting the
use of the premises for any other purpose or activity at any time without first
obtaining the written consent of CKE.
G. Franchisee agrees to maintain a competent, conscientious,
trained staff and to take such steps as are necessary to ensure that its
employees preserve good customer relations and comply with such dress code as
CKE may prescribe.
H. Franchisee shall meet and maintain the highest health
standards and ratings applicable to the operation of the Restaurant.
I. To insure that the highest degree of quality and service is
maintained, Franchisee shall operate the Restaurant in strict conformity with
such methods, standards, and specifications as CKE may from time to time
prescribe in the OPM or otherwise in writing. Franchisee agrees:
1. To maintain in sufficient supply, and to use and/or
sell at all times, only such menu items, ingredients, products, materials,
supplies, and paper goods as conform with CKE's standards and specifications,
and to refrain from deviating therefrom by the use or offer of non-conforming
items, without CKE's prior written consent.
2. To sell or offer for sale only such menu items,
products, and services as have been expressly approved for sale in writing by
CKE; to sell or offer for sale all types of menu items, products, and services
specified by CKE; to refrain from any deviation from CKE's standards and
specifications without CKE's prior written consent; and to discontinue selling
and offering for sale any menu items, products, or services which CKE may, in
its discretion, disapprove in writing at any time. With respect to the offer
and sale of all menu items, products, and services, Franchisee shall have sole
discretion as to the prices to be charged to customers.
3. To permit CKE or its agents, at any reasonable time,
to remove samples of food or non-food items from Franchisee's inventory, or
from the Restaurant, without payment therefor, in amounts reasonably necessary
for testing by CKE or an independent laboratory to determine whether said
samples meet CKE's then-current standards and specifications. In addition to
any other remedies it may have under this Agreement, CKE may require Franchisee
to bear the cost of such testing if the supplier of the item has not previously
been approved by CKE or if the sample fails to conform with CKE's
specifications.
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4. To purchase and install, at Franchisee's expense, all
fixtures, furnishings, equipment, playground equipment, decor, and signs
meeting the standards and specifications of CKE, as CKE may direct from time to
time in the OPM or otherwise in writing; and to refrain from installing or
permitting to be installed on or about the Restaurant premises, without CKE's
prior written consent, any fixtures, furnishings, equipment, playground, decor,
signs, games, vending machines, or other items not previously approved as
meeting CKE's standards and specifications.
J. Franchisee shall purchase all food items, ingredients,
supplies, materials, and other products used or offered for sale at the
Restaurant solely from suppliers (including manufacturers, distributors and
other sources) who demonstrate, to the continuing reasonable satisfaction of
CKE, the ability to meet CKE's then-current standards and specifications for
such items; who possess adequate quality controls and capacity to supply
Franchisee's needs promptly and reliably; and who have been approved in writing
by CKE and not thereafter disapproved. If Franchisee desires to purchase any
products from an unapproved supplier, Franchisee shall submit to CKE a written
request for such approval, or shall request the supplier itself to do so. CKE
shall have the right to require that its representatives be permitted to
inspect the supplier's facilities, and that samples from the supplier be
delivered, either to CKE or to an independent laboratory designated by CKE for
testing. A charge not to exceed the reasonable cost of the inspection and the
actual cost of the test shall be paid by Franchisee or the supplier. CKE
reserves the right, at its option, to re-inspect the facilities and products of
any such approved supplier and to revoke its approval upon the supplier's
failure to continue to meet any of CKE's then-current criteria. Nothing in the
foregoing shall require CKE to approve any supplier.
K. Franchisee acknowledges and agrees that certain products of
CKE, among which is the product known as "special sauce", are highly
confidential secret recipes and are trade secrets of CKE. Because of the
importance of quality and uniformity of production and the significance of such
products in the System it is to the mutual benefit of the parties that CKE
closely control the production and distribution of such products. Similar
considerations may also apply to other trade secret items which CKE may develop
in the future. Accordingly, Franchisee agrees to use only CKE's secret recipe
products and to purchase from CKE or from a source designated by CKE all of
Franchisee's requirements of CKE's current and future secret recipe products.
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L. Franchisee shall require all advertising and promotional
materials, signs, decorations, paper goods (including disposable food
containers, napkins, menus, and all forms and stationery used in the franchised
business), and other items which may be designated by CKE to bear the
Proprietary Marks in the form, color, location, and manner prescribed by CKE.
M. Franchisee shall maintain the Restaurant in a high degree of
sanitation, repair, and condition, and in connection therewith shall make such
additions, alterations, repairs, and replacements thereto (but no others
without CKE's prior written consent) as may be required for that purpose,
including, without limitation, such periodic repainting or replacement of
obsolete signs, furnishings, equipment, and decor as CKE may direct and
installation of charbroiler emission regulators as may be required by federal,
state, or local agencies.
N. At CKE's request, but not more often than twice during the
initial term of this Agreement, and in any case not before at least twenty-five
percent (25%) of System restaurants owned by CKE have made such improvements,
Franchisee shall make all improvements and alterations as may be determined by
CKE to be necessary to have the Restaurant conform with the System image as it
may be prescribed by CKE at that time. Franchisee shall undertake and complete
such improvements and alterations within reasonable times specified by CKE.
O. Franchisee shall grant CKE and its agents the right to enter
upon the Restaurant premises at any time for the purpose of conducting
inspections; shall cooperate with CKE's representatives in such inspections by
rendering such assistance as they may reasonably request; and, upon notice from
CKE or its agents and without limiting CKE's other rights under this Agreement,
shall take such steps as may be necessary to correct immediately any
deficiencies detected during any such inspection. Should Franchisee, for any
reason, fail to correct such deficiencies within a reasonable time as
determined by CKE, CKE shall have the right and authority (without, however,
any obligation to do so), to correct such deficiencies and to charge Franchisee
a reasonable fee for CKE's expenses in so acting, payable by Franchisee
immediately upon demand.
P. Franchisee shall comply with all other requirements set forth
in this Agreement.
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VI. PROPRIETARY MARKS
A. CKE represents with respect to the Proprietary Marks that:
1. CKE is the owner of all right, title, and interest in
and to the Proprietary Marks.
2. CKE has taken and will take all steps reasonably
necessary to preserve and protect the ownership and validity in and of the
Proprietary Marks.
3. CKE will permit Franchisee and other franchisees to
use the Proprietary Marks only in accordance with the System and the standards
and specifications attendant thereto which underlie the goodwill associated
with and symbolized by the Proprietary Marks.
B. With respect to Franchisee's licensed use of the Proprietary
Marks pursuant to this Agreement, Franchisee agrees that:
1. Franchisee shall use only the Proprietary Marks
designated by CKE, and shall use them only in the manner authorized and
permitted by CKE.
2. Franchisee shall use the Proprietary Marks only for
the operation of the business franchised hereunder and only at the location
authorized hereunder, or in advertising for the business conducted at or from
that location.
3. Unless otherwise authorized or required by CKE,
Franchisee shall operate and advertise the franchised business only under the
name "Carl's Jr. Restaurant" without prefix or suffix.
4. During the term of this Agreement and any renewal
hereof, Franchisee shall identify itself as a Franchisee of CKE and operator of
the franchised business in conjunction with any use of the Proprietary Marks,
including, but not limited to, uses on stationery, business cards, invoices,
order forms, receipts, and contracts, as well as the display of a notice in
such content and form and at such conspicuous locations on the premises of the
franchised business as CKE may designate in writing.
5. Franchisee's right to use the Proprietary Marks is
limited to such uses as are authorized under this Agreement, and any
unauthorized use thereof shall constitute an infringement of CKE's rights.
6. Franchisee shall not use the Proprietary Marks to
incur any obligation or indebtedness on behalf of CKE.
7. Franchisee shall not use the Proprietary Marks as
part of its corporate or other legal name.
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8. Franchisee shall comply with CKE's instructions in
filing and maintaining the requisite trade name or fictitious name
registrations, and shall execute any documents deemed necessary by CKE or its
counsel to obtain protection for the Proprietary Marks or to maintain their
continued validity and enforceability.
9. In the event that litigation involving the
Proprietary Marks is instituted or threatened against Franchisee, Franchisee
shall promptly notify CKE and shall cooperate fully in defending or settling
such litigation.
C. Franchisee expressly understands and acknowledges that:
1. CKE is the owner of all right, title and interest in
and to the Proprietary Marks and the goodwill associated with and symbolized by
them.
2. The Proprietary Marks are valid and serve to
identify the System and those who are authorized to operate under the System.
3. Franchisee shall not directly or indirectly contest
the validity or CKE's ownership of the Proprietary Marks.
4. Franchisee's use of the Proprietary Marks pursuant to
this Agreement does not give Franchisee any ownership interest or other
interest in or to the Proprietary Marks, except the license granted by this
Agreement.
5. Any and all goodwill arising from Franchisee's use of
the Proprietary Marks in its franchised operation under the System shall inure
solely and exclusively to CKE's benefit, and upon expiration or termination of
this Agreement and the license herein granted, no monetary amount shall be
assigned as attributable to any goodwill associated with Franchisee's use of
the System or the Proprietary Marks.
6. The right and license of the Proprietary Marks
granted hereunder to Franchisee is non-exclusive, and CKE thus has and retains
the rights, among others:
a. To use the Proprietary Marks itself in
connection with selling products and services;
b. To grant other licenses for the Proprietary
Marks, in addition to those licenses already granted to existing franchisees;
c. To develop and establish other systems using
the same or similar Proprietary Marks, or any other proprietary marks, and to
grant licenses or franchises thereto without providing any rights therein to
Franchisee.
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7. CKE reserves the right to substitute different
Proprietary Marks for use in identifying the System and the businesses
operating thereunder if CKE's currently owned Proprietary Marks no longer can
be used.
VII. CONFIDENTIAL OPERATIONS PROCEDURES MANUAL ("OPM")
A. In order to protect the reputation and goodwill of CKE and to
maintain high standards of operation under CKE's Proprietary Marks, Franchisee
shall conduct its business in accordance with CKE's OPM. CKE shall loan to
Franchisee and certain employees of Franchisee as many copies of the OPM as CKE
deems necessary for Franchisee to conduct the business franchised hereunder.
B. Franchisee shall at all times treat the OPM, any other manuals
created for or approved for use in the operation of the franchised business,
and the information contained therein, as confidential, and shall use all
reasonable efforts to maintain such information as secret and confidential.
Franchisee shall not at any time copy, duplicate, record, or otherwise
reproduce the foregoing materials, in whole or in part, nor otherwise make the
same available to any unauthorized person.
C. The OPM shall at all times remain the sole property of CKE.
D. CKE may from time to time revise the contents of the OPM, and
Franchisee expressly agrees to comply with each new or changed standard.
E. Franchisee shall at all times maintain the OPM at the
Restaurant in a secure place and shall insure that the OPM is kept current and
up to date; and, in the event of any dispute as to the contents of the OPM, the
terms of the master copy of the OPM maintained by CKE at CKE's home office
shall be controlling.
VIII. CONFIDENTIAL INFORMATION
A. Franchisee shall not, during the term of this Agreement or
thereafter, communicate, divulge, or use for the benefit of any other person,
persons, partnership, association, or corporation any confidential information,
knowledge, or know-how concerning the methods of operation of the business
franchised hereunder which may be communicated to Franchisee or of which
Franchisee may be apprised by virtue of Franchisee's operation under the terms
of this Agreement. Franchisee shall divulge such confidential information only
to such of its employees as must have access to it in order to operate the
franchised business.
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Any and all information, knowledge, know-how, and techniques which CKE
designates as confidential shall be deemed confidential for purposes of this
Agreement, except information which Franchisee can demonstrate came to its
attention prior to disclosure thereof by CKE; or which, at the time of
disclosure by CKE to Franchisee, had become a part of the public domain,
through publication or communication by others; or which, after disclosure to
Franchisee by CKE, becomes a part of the public domain, through publication or
communication by others.
B. Franchisee acknowledges that any failure to comply with the
requirements of this Section VIII. will cause CKE irreparable injury, and
Franchisee agrees to pay all court costs and reasonable attorney's fees
incurred by CKE in obtaining specific performance of, or an injunction against
violation of, the requirements of this Section VIII.
IX. ACCOUNTING AND RECORDS
A. Franchisee shall maintain during the term of this Agreement,
and shall preserve for at least five years from the dates of their preparation,
full, complete, and accurate books, records, and accounts in accordance with
generally accepted accounting principles and in the form and manner prescribed
by CKE from time to time in the OPM or otherwise in writing.
B. Franchisee shall submit to CKE, no later than the fifth (5th)
business day immediately following the fiscal week, as designated by CKE,
during which the sales were made, a remittance report, in the form prescribed
by CKE, accurately reflecting all gross sales made during the preceding fiscal
week and such other data or information as CKE may require.
C. Franchisee shall, at Franchisee's expense, submit to CKE, in
the form prescribed by CKE, a periodic profit and loss statement (which may be
unaudited) within twenty (20) days after the end of each period for the first
twelve periods of each fiscal year of the franchised business during the term
hereof. A period shall be defined as every four-week interval, beginning on
the day immediately following the end of CKE's fiscal year. Franchisee shall,
at Franchisee's expense, also submit to CKE, in the form prescribed by CKE, a
quarterly balance sheet (which may be unaudited) within thirty (30) days after
the end of each of the first three quarters of each fiscal year of the
franchised business during the term
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hereof. Each such statement shall be signed by Franchisee or by Franchisee's
treasurer or chief financial officer attesting that it is true and correct.
D. Franchisee shall, at its expense, provide to CKE an unaudited
compilation of profit and loss statement and balance sheet within sixty (60)
days after the end of each fiscal year of the franchised business during the
term hereof, with reports from said year's operations audited by an independent
certified public accountant in respect to gross sales and amounts spent on
royalty and advertising fees, all to be signed by Franchisee or by Franchisee's
treasurer or chief financial officer attesting that the financial statements
present fairly the financial position of Franchisee and the results of
operations of the franchised business during the period covered. CKE shall
have the right, in its reasonable discretion, to require that Franchisee submit
audited statements for any fiscal year or any period or periods of a fiscal
year of Franchisee during the term of this Agreement.
E. Franchisee shall also submit to CKE, for review or auditing,
such other forms, reports, records, information, and data as CKE may reasonably
designate, in the form and at the times and places reasonably required by CKE,
upon request and as specified from time to time in the OPM or otherwise in
writing.
F. CKE or its designated agents shall have the right at all
reasonable times to examine and copy, at CKE's expense, the books, records, and
tax returns of Franchisee. CKE shall also have the right, at any time, to have
an independent audit made of the books of Franchisee. If an inspection should
reveal that any payments have been understated in any report to CKE, then
Franchisee shall immediately pay to CKE the amount understated upon demand, in
addition to interest from the date such amount was due until paid, at eighteen
percent (18%) per annum calculated on a daily basis, or the maximum rate
permitted by law, whichever is less. If an inspection discloses an
understatement in any report of two percent (2%) or more, Franchisee shall, in
addition, reimburse CKE for any and all costs and expenses connected with the
inspection, including, without limitation, reasonable accounting and attorneys'
fees. The foregoing remedies shall be in addition to any other remedies CKE
may have.
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X. ADVERTISING
Recognizing the value of advertising and the importance of the
standardization of advertising programs to the furtherance of the goodwill and
public image of the System, the parties agree as follows:
A. During the term of this Agreement, Franchisee shall have a
weekly advertising and promotion obligation ("APO") in an amount to be
determined by CKE, said amount to be at least four percent (4%) but not to
exceed six percent (6%) of the Restaurant's gross sales and Franchisee shall
satisfy that obligation as prescribed in this Section X. The amount of the APO
and its allocation among the various advertising activities described in this
Section X may be modified by CKE from time to time, subject to the limitations
set forth below; until so modified, the APO shall be met as stated in Exhibit
1, attached hereto and incorporated herein by reference.
1. If CKE elects to require Franchisee to engage in
local store marketing ("LSM"), Franchisee shall allocate and spend such portion
of the APO as CKE may direct for such LSM, as more fully described in Section
X.B.
2. Franchisee shall pay weekly such portion of the APO
as CKE may direct, but not more than one percent (1%) of gross sales, to the
advertising fund described in Section X.C. ("Fund"), for general administrative
advertising expenditures.
3. The remainder of the APO, if any, shall be paid by
Franchisee weekly as follows:
a. The remainder shall be paid to the Fund and
spent by the Fund for advertising in Franchisee's region.
b. If a cooperative, approved by CKE, for
Franchisee's region is in existence or is established at any later time during
the term of this Agreement pursuant to Section X.D., then the remainder shall
be paid to the Cooperative rather than to the Fund.
4. The APO shall at no time exceed six percent (6%) of
gross sales, and CKE may not increase the APO by more than one-half percent
(1/2%) of gross sales in a particular fiscal year (as defined by CKE).
5. Throughout the term of this Agreement, Franchisee is
encouraged and will be permitted to conduct additional local advertising, at
Franchisee's expense, subject to the terms and conditions contained in Section
X.E. hereof.
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6. Franchisee understands that some franchisees of
Carl's Jr. Restaurants operate under different forms of franchise agreements
and that the APO amounts paid by franchisees may vary.
B. If so directed by CKE Franchisee shall spend the portion of
the APO designated as the LSM allocation, for local store marketing and
advertising programs as approved from time to time by CKE in the local trade
area of the Restaurant.
1. Franchisee shall spend the LSM allocation pursuant to
a schedule determined by Franchisee with CKE's assistance and subject to CKE's
approval.
2. Within thirty (30) days of the end of each fiscal
quarter in which the requirement for LSM is in effect, Franchisee shall provide
to CKE evidence of LSM expenditure by submitting tear sheets of the advertising
and marketing accompanied by invoices as requested by CKE.
3. Should Franchisee fail to timely submit proof of
expenditure for LSM, CKE, at its option, may require the LSM allocation to be
paid to the advertising Fund as described in Section X.C. below.
4. CKE reserves the right, subject to the provisions of
this Section X, to change or eliminate the LSM allocation.
C. The remainder of Franchisee's APO not otherwise allocated
shall be allocated to the Fund and shall be used for both general
administration and regional advertising expenditures as described below.
1. Unless and until modified by CKE, Franchisee's
required contribution for the general administrative advertising expenses of
the Fund described in Section X.C.3b hereof is as set forth in Exhibit 1. CKE
undertakes no obligation in administering these general monies to make
expenditures for Franchisee which are equivalent or proportionate to
Franchisee's contribution, or to ensure that any particular franchisee benefits
directly or pro rata from the advertising or promotion conducted under these
monies.
2. Unless and until modified by CKE, Franchisee's
required contribution for regional advertising expenditures of the Fund is as
set forth in Exhibit 1. CKE agrees to cause the Fund to make these regional
expenditures for advertising within the Area of Dominant Influence in which the
Restaurant is located as set forth on Exhibit 1 ("ADI") as established
periodically by Arbitron, Inc., or any other similar type of designation used
to
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identify regional advertising market areas. CKE reserves the right to change
the ADI designation for the Restaurant.
3. Franchisee agrees to make contributions to the Fund
as required under Section X.A. hereof, and further agrees that the Fund shall
be maintained and administered by CKE or its designee, as follows:
a. CKE shall oversee all advertising and
promotional programs with sole discretion to approve or disapprove the creative
concepts, materials and media used in such programs, and the placement and
allocation thereof.
b. The Fund, all contributions thereto, and any
earnings thereon, shall be used exclusively to meet any and all costs of
maintaining, administering, directing, and preparing advertising and/or
promotional activities (including, without limitation, the cost of preparing
and conducting television, radio, magazine, and newspaper advertising
campaigns; marketing surveys and other public relations activities; employing
advertising agencies to assist therein; and providing promotional brochures and
other marketing materials to the restaurants operated under the System). All
sums paid by Franchisee to the Fund shall be maintained in an account separate
from the other monies of CKE and shall not be used to defray any of CKE's
expenses, except for such reasonable administrative costs and overhead, if any,
as CKE may incur in activities reasonably related to the administration or
direction of the Fund and advertising programs for franchisees and the System.
The Fund and its earnings shall not otherwise inure to the benefit of CKE. CKE
or its designee shall maintain separate bookkeeping accounts for the Fund.
c. Franchisee shall contribute to the Fund by
separate check made payable to the Fund.
d. CKE will contribute to the Fund a percentage
of the annual gross sales of the Carl's Jr. restaurants operated by CKE in the
continental United States. Said percentage shall be equivalent to the average
percentage contributed to the Fund for regional expenditures by all franchise
restaurants in the System.
e. It is anticipated that all contributions to
and earnings of the Fund shall be expended for advertising and/or promotional
purposes during the taxable year within which the contributions and earnings
are received. If, however, excess amounts remain in the Fund at the end of
such taxable year, all expenditures in the following taxable year(s) shall be
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made first out of accumulated earnings from previous years, next out of
earnings in the current year, and finally from contributions.
f. The Fund shall not be an asset of CKE or its
designee. A statement of the operations of the Fund as shown on the books of
CKE or its designee shall be prepared annually by an independent certified
public accountant selected by CKE at CKE's cost and shall be made available to
Franchisee.
g. Although the Fund is intended to be of
perpetual duration, CKE maintains the right to terminate the Fund. The Fund
shall not be terminated, however, until all monies in the Fund have been
expended for advertising and/or promotional purposes.
D. Franchisee agrees that CKE shall have the right, in its
discretion, to designate any geographical area as a region for purposes of
establishing an advertising cooperative ("Cooperative"). If a Cooperative has
been established for Franchisee's region at the time Franchisee commences
business hereunder, Franchisee shall immediately become a member of such
Cooperative. If a Cooperative for Franchisee's region is established at any
later time during the term of this Agreement, Franchisee shall become a member
of such Cooperative no later than thirty (30) days after the date on which the
Cooperative commences operation as provided below:
1. Each Cooperative shall be organized and governed in a
form and manner, and shall commence operation on a date approved in advance by
CKE in writing.
a. Each Cooperative shall be organized for the
exclusive purposes of administering regional advertising programs and
developing, subject to CKE's approval, standardized promotional materials for
use by the members in local advertising.
b. Each Cooperative shall be CKE's designee for
maintaining and administering advertising and promotional programs in each
region, and all contributions to and expenditures of each Cooperative shall be
subject to provisions applicable to the Fund set forth herein in Section X.C.3.
c. No advertising or promotional plans or
materials may be used by a Cooperative or furnished to its members without the
prior approval of CKE. All such plans and materials shall be submitted to CKE
in accordance with the procedure set forth in Section X.E. hereof.
d. Each member franchisee shall submit to the
Cooperative, no later than the fifth (5th) business day immediately following
the fiscal week (as designated by CKE) during
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which the sales were made, its contribution for the preceding fiscal week as
provided in Section X.A. hereof, together with such other statements or reports
as may be required by CKE or by the Cooperative with CKE's prior written
approval.
2. CKE, in its sole discretion, may grant to any
franchisee an exemption for any length of time from the requirement of
membership in a Cooperative, upon written request of such franchisee stating
reasons supporting such exemption. CKE may require as a condition of granting
such exemption that the franchisee expend on local advertising, in a manner
approved in advance by CKE, and supported by such proof of expenditures as CKE
may require, at least the amount that the franchisee would have contributed to
a Cooperative. CKE's decision concerning such request for exemption shall be
final.
E. All local advertising and promotion by Franchisee in any
medium shall conform to the standards and requirements of CKE as set forth in
the OPM or otherwise. Franchisee shall obtain CKE's prior approval of all
advertising and promotional plans and materials that Franchisee desires to use
and that have not been prepared or previously approved by CKE within one (1)
year. Franchisee shall submit such unapproved plans and materials to CKE, by
personal delivery or through the mail, return receipt requested, and CKE shall
approve or disapprove such plans and materials within thirty (30) days from the
date of receipt thereof by CKE. Franchisee shall use no such plans or
materials until they have been approved by CKE and shall promptly discontinue
use of any advertising or promotional plans or materials upon notice from CKE.
F. Franchisee shall have the right to advertise and sell its
products and offer its services at any prices Franchisee may determine, and
shall in no way be bound by any price which may be recommended or suggested by
CKE.
XI. INSURANCE
A. Franchisee shall procure, prior to the commencement of any
operations under this Agreement, and shall maintain in full force and effect at
all times during the term of this Agreement at Franchisee's expense, an
insurance policy or policies protecting Franchisee and CKE, and their officers,
directors, partners, agents, and employees, as well as CKE's subsidiaries,
affiliates, and applicable landlords and mortgagees against any loss,
liability, personal injury, death, property damage, or expense whatsoever
arising or occurring upon or in connection with the franchised business.
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B. Such insurance required must be written through companies
holding a general policy holder's rating of at least A+ as set forth in the
most current issue of "Best Insurance Guide". During the term of each policy,
should an insurance carrier providing required insurance coverage change or
decrease its financial rating, CKE can require the Franchisee to change
insurance carriers to meet the necessary A+ rating. Any requests to correct
inadequacies in the required insurance program will be completed at the sole
cost of Franchisee. The minimum coverage and policy limits (except for
additional coverages and higher policy limits that may reasonably be specified
by the CKE from time to time) are as follows:
1. Comprehensive General Liability Insurance, including
bodily injury, personal injury, products liability, blanket contractual
liability, broad form property damage, non-owned auto, completed operations,
and property damage coverage in the greater amount of One Million Dollars
($1,000,000.00) per occurrence or that required by CKE's or Franchisee's lease
for the Restaurant premises.
2. Property Insurance written on an "All Risks" policy
for fire and related peril (including Earthquake and Flood where applicable),
for the full replacement cost of the Restaurant premises, equipment, stock,
leasehold improvements and all other property in which the CKE may have
interests.
3. Business Interruption and Extra Expense coverage to
include rental payment continuation for a minimum of twelve (12) months, loss
of profits and other extra expenses experienced during the recovery from
property loss.
4. Plate Glass coverage for replacement of glass from
breakage.
5. Employer's Liability coverage in the amount of Five
Hundred Thousand Dollars ($500,000).
6. Workers' Compensation and such other insurance as may
be required by statute or rule of the state or locality in which the franchised
business is located and operated.
The Franchisee may, with the prior written consent of
CKE, elect to have reasonable deductibles in connection with the coverage
described in Sections XI B.1 and 2, above, provided, however, in no event shall
such insurance have a deductible or self-insured retention in excess of Five
Thousand Dollars ($5,000.00).
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C. In connection with any construction, renovation,
refurbishment, or remodeling of the Restaurant, Franchisee shall maintain
Builder's All Risks insurance and performance and completion bonds in forms and
amounts, and written by a carrier or carriers, reasonably satisfactory to CKE.
D. Franchisee's obligation to obtain and maintain the foregoing
policy or policies in the amounts specified shall not be limited in any way by
reason of any insurance which may be maintained by CKE, nor shall Franchisee's
performance of that obligation relieve it of liability under the indemnity
provisions set forth in Section XVIII of this Agreement.
E. All policies required to be maintained by Franchisee hereunder
shall be written as primary policies and not contributing with or in excess of
any coverage which CKE may carry, and shall cover and insure CKE and other
Indemnities identified in Section XVIII as an additional insured. All public
liability and property damage policies shall contain a provision that CKE,
although named as an insured, shall nevertheless be entitled to recover under
said policies on any loss occasioned to it, its servants, agents and employees
by reason of the negligence of Franchisee, its servants, agents and employees.
F. Franchisee shall deliver to CKE at least thirty (30) days
prior to the time any insurance is first required to be carried by Franchisee,
and thereafter at least thirty (30) days prior to the expiration of any such
policy, Certificates of Insurance evidencing the proper coverage with limits
not less than those specified herein. Such Certificates, with the exception of
Workers' Compensation, shall name CKE, and each of its partners, subsidiaries,
affiliates, directors, agents and employees as additional insureds, and shall
expressly provide that any interest of same therein shall not be affected by
any breach by Franchisee of any policy provisions for which such Certificates
evidence coverage. Further, all Certificates shall expressly provide that no
less than thirty (30) days' prior written notice shall be given CKE in the
event of material alteration to or cancellation of the coverages evidenced by
such Certificates.
G. Should Franchisee, for any reason, fail to procure or maintain
the insurance required by this Agreement, as such requirements may be revised
from time to time by CKE in the OPM or otherwise in writing, CKE shall have the
right and authority, but not obligation, immediately to procure such insurance
and to charge same to Franchisee, which charges, together with a reasonable fee
for CKE's expenses in so acting, shall be payable by
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Franchisee immediately upon notice. The foregoing remedies shall be in
addition to any other remedies CKE may have.
H. The minimum limits of insurance coverage required to be
procured by Franchisee may be modified from time to time by CKE in its sole and
exclusive discretion, by written notice transmitted by CKE to Franchisee. Upon
delivery (or attempted delivery) of such written notice, Franchisee shall be
obligated to immediately purchase insurance conforming to the newly-established
standards and limits prescribed by CKE.
Franchisor suggests, but does not require, that Franchisee
purchase and maintain the following categories of insurance coverage for
Franchisee, the franchised Business and his staff of employees:
1. All Risk Office Contents Insurance other than the
coverages required above;
2. Major Medical Insurance for Franchisee's staff
employees;
3. Valuable Papers and Records Insurance; and,
4. Plate Glass Insurance (if applicable).
I. Franchisee shall notify CKE of any and all claims or demands
against Franchisee, the business franchised Restaurant and/or CKE within three
(3) days of Franchisee receiving actual notice of any such claim or demand.
Franchisee agrees to respond to all claims within the time required by law,
rule or regulation. Franchisee shall cooperate with CKE (or its designee) in
every fashion possible to defend CKE and Franchisee against any and all claims
made by employees, customers or third parties. Franchisee shall, when
necessary, make appearance at administrative or other hearings to present or
reinforce such defenses.
Failure by Franchisee to purchase or maintain any insurance
required by this Agreement, or failure to reimburse Franchisor for its purchase
of such insurance on behalf of Franchisee, shall constitute a material and
incurable breach of this Agreement which, unless waived by Franchisor, shall
entitle Franchisor to terminate this Agreement unilaterally and immediately
upon notice to Franchisee, and this Agreement shall thereafter be null, void
and of no effect (except for those post-termination and post-expiration
provisions which by their nature shall survive).
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XII. TRANSFER OF INTEREST
A. Transfer by CKE
CKE shall have the right to transfer or assign all or any part of its
rights or obligations herein to any person or legal entity.
B. Transfer by Franchisee
1. Franchisee understands and acknowledges that the
rights and duties set forth in this Agreement are personal to Franchisee, and
that CKE has granted this franchise in reliance on Franchisee's business skill,
financial capacity, and personal character. Accordingly, neither Franchisee
nor any immediate or remote successor to any part of Franchisee's interest in
this franchise, nor any individual, partnership, corporation, or other legal
entity which directly or indirectly owns any interest in this franchise or in
Franchisee shall sell, assign, transfer, convey, give away, pledge, mortgage,
or otherwise encumber any direct or indirect interest in this franchise or in
any legal entity which owns this franchise without the prior written consent of
CKE; provided, however, that CKE's prior written consent shall not be required
for a transfer of less than a two percent (2%) interest in a publicly-held
corporation. A publicly-held corporation is a corporation registered under the
Securities Exchange Act of 1934. Any purported assignment or transfer, by
operation of law or otherwise, not having the written consent of CKE required
by this Section XII.B.1 shall be null and void and shall constitute a material
breach of this Agreement, for which CKE may then terminate without opportunity
to cure pursuant to Section XIII.B. of this Agreement.
2. CKE shall not unreasonably withhold its consent to a
transfer of any interest in Franchisee or in this franchise; provided, however,
that if a transfer, alone or together with other previous, simultaneous, or
proposed transfers, would have the effect of transferring a controlling
interest in the franchised business, CKE may, in its sole discretion, require
any or all of the following as conditions of its approval:
a. All of Franchisee's accrued monetary
obligations and all other outstanding obligations to CKE shall have been
satisfied;
b. Franchisee is not in default of any provision
of this Agreement, any amendment hereof or successor hereto, or any other
agreement between Franchisee and CKE, or its subsidiaries and affiliates;
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c. The transferor shall have executed a full and
general release, in a form satisfactory to CKE, of any and all claims against
CKE and its officers, directors, shareholders, and employees, in their
corporate and individual capacities, including, without limitation, claims
arising under federal, state, and local laws, rules, and ordinances;
d. The transferee shall enter into a written
assignment, in a form satisfactory to CKE, assuming and agreeing to discharge
all of Franchisee's obligations under this Agreement; and, if the obligations
of Franchisee were guaranteed by the transferor, the transferee shall guarantee
the performance of all such obligations in writing in a form satisfactory to
CKE;
e. The transferee shall demonstrate to CKE's
satisfaction that it meets CKE's educational, managerial, and business
standards; possesses a good business reputation, and credit rating; has the
aptitude and ability to conduct the business franchised herein (as may be
evidenced by prior related business experience or otherwise); and has adequate
financial resources and capital to operate the business;
f. At CKE's option, the transferee shall
execute, and/or, upon CKE's request, shall cause all interested parties to
execute, for a term ending on the expiration date of this Agreement and with
such renewal term as may be provided by this Agreement, the standard form
franchise agreement then being offered to new System franchisees and other
ancillary agreements as CKE may require for the franchised business, which
agreements shall supersede this Agreement in all respects and the terms of
which agreements may differ from the terms of this Agreement, including,
without limitation, a higher percentage royalty rate and advertising
contribution; provided, however, that the transferee shall not be required to
pay any initial franchise fee;
g. The transferee, at its expense, shall upgrade
the Restaurant to conform to the then-current standards and specifications of
System restaurants, and shall complete the upgrading and other requirements
within the time specified by CKE;
h. Franchisee shall remain liable for all of the
obligations to CKE in connection with the franchised business prior to the
effective date of the transfer and shall execute any and all instruments
reasonably requested by CKE to evidence such liability;
i. At the transferee's expense, the transferee,
the transferee's manager and the transferee's Owner/Operator shall complete any
training programs then in effect for franchisees upon such terms and conditions
as CKE may reasonably require;
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j. Except in the case of a transfer to a
corporation formed for the convenience of ownership, Franchisee shall pay a
transfer fee not to exceed CKE's reasonable costs and expenses, including legal
and accounting expenses, in connection with CKE's review of the application to
transfer.
3. Franchisee shall grant no security interest in the
franchised business or in any of its assets unless the secured party agrees
that in the event of any default by Franchisee under any documents related to
the security interest, CKE shall have the right and option to purchase the
rights of the secured party upon payment of all sums then due to such secured
party.
4. Franchisee acknowledges and agrees that each
condition which must be met by the transferee is necessary to assure such
transferee's full performance of the obligations hereunder.
C. Partnership and Corporate Franchisees
In the event Franchisee is a partnership the following
requirements shall also apply to Franchisee:
1. Franchisee shall be newly organized and its Agreement
of Partnership shall at all times provide that its activities are confined
exclusively to operating the business franchised herein.
2. Copies of Franchisee's Agreement of Partnership and
other governing documents, and any amendments thereto shall be promptly
furnished to CKE.
3. The Agreement of Partnership shall provide that
assignment or transfer of any partnership interest is subject to, all
restrictions imposed upon assignments by this Agreement.
4. Franchisee shall maintain a current list of all
limited partners and shall furnish the list to CKE upon request.
5. All general partners of Franchisee shall jointly and
severally guarantee Franchisee's performance hereunder and shall bind
themselves to the terms of this Agreement.
6. In the event that a general partner of Franchisee is
a corporation, all shareholders of the corporation shall jointly and severally
guarantee Franchisee's performance hereunder and shall bind themselves to the
terms of this Agreement.
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In the event Franchisee is a corporation, the following requirements
shall also apply to Franchisee:
1. Franchisee shall be newly organized and its articles
of incorporation or charter shall at all times provide that its activities are
confined exclusively to operating the business franchised herein.
2. Copies of Franchisee's Articles of Incorporation or
Charter, Bylaws, and other governing documents, and any amendments thereto,
including the resolution of the Board of Directors authorizing entry into this
Agreement shall be promptly furnished to CKE.
3. Franchisee shall maintain stop-transfer instructions
against the transfer on its records of any equity securities; and each stock
certificate of Franchisee shall have conspicuously endorsed upon its face a
statement in a form satisfactory to CKE that it is held subject to, and that
further assignment or transfer thereof is subject to, all restrictions imposed
upon assignments by this Agreement; provided, however, that the requirements of
this Section XII.C.3 shall not apply to a publicly-held corporation.
4. Franchisee shall maintain a current list of all
owners of record and all beneficial owners of any class of voting stock of
Franchisee and shall furnish the list to CKE upon request.
5. All shareholders of Franchisee shall jointly and
severally guarantee Franchisee's performance hereunder and shall bind
themselves to the terms of this Agreement; provided, however, that the
requirements of this Section XII.C.5 shall not apply to a publicly-held
corporation.
D. Right of First Refusal
1. Any party holding any direct or indirect interest in
Franchisee or in this franchise and who desires to accept any bona fide offer
from a third party to purchase such interest shall notify CKE in writing of
each such offer, and CKE shall have the right and option, exercisable within
forty five (45) days after receipt of such written notification, to send
written notice to the seller that CKE intends to purchase the Seller's
interest, on the same terms and conditions offered by the third party. In the
event that CKE elects to purchase the Seller's interest, closing on such
purchase must occur within ninety (90) days from the date of notice to the
seller of the election to purchase by CKE. Any material change in the terms of
any offer prior to closing shall constitute a new offer subject to the same
rights of first refusal by CKE as in the case of an initial offer. Failure of
CKE to
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exercise the option afforded by this Section XII.D. shall not constitute a
waiver of any other provision of this Agreement, including all of the
requirements of this Section XII., with respect to a proposed transfer.
2. In the event the consideration, terms, and/or
conditions offered by a third party are such that CKE may not reasonably be
required to furnish the same consideration, terms, and/or conditions, then CKE
may purchase the interest in the franchised business proposed to be sold for
the reasonable equivalent in cash. If the parties cannot agree within a
reasonable time on the reasonable equivalent in cash of the consideration,
terms, and/or conditions offered by the third party, an independent appraiser
shall be designated by CKE, and his determination shall be binding.
E. Transfer Upon Death or Mental Incapacity
Upon the death or mental incapacity of any person with a direct or
indirect interest in the franchise or in Franchisee, the executor,
administrator, conservator or personal representative of such person shall
transfer his interest to a third party approved by CKE within six (6) months
after such death or mental incapacity. Mental incapacity shall be evidenced by
court order appointing a conservator on such grounds or signed certificates
describing such incapacity from two licensed physicians. Such transfers,
including, without limitation, transfers by devise or inheritance, shall be
subject to the same conditions as any inter vivos transfer. However, in the
case of transfer by devise or inheritance, if the heirs or beneficiaries of any
such person are unable to meet the conditions in this Section XII., the
personal representative of the deceased Franchisee shall have a reasonable time
to dispose of the deceased's interest in the franchise, which disposition shall
be subject to all the terms and conditions for transfers contained in this
Agreement. If the interest is not disposed of within a reasonable time, CKE
may terminate this Agreement.
F. Non-Waiver of Claims
CKE's consent to a transfer of any interest in the franchise granted
herein shall not constitute a waiver of any claims it may have against the
transferring party, nor shall it be deemed a waiver of CKE's right to demand
exact compliance with any of the terms of this Agreement by the transferee.
G. Offerings by Franchisee
Securities or partnership interests in Franchisee may be offered to
the public, by private offering or otherwise, only with the prior written
consent of CKE, whether or not
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CKE's consent is required under Section XII.B. hereof, which consent shall not
be unreasonably withheld. All materials required for such offering by federal
or state law shall be submitted to CKE for review prior to their use or filing
with any government agency; and any materials to be used in any offering exempt
from federal or state securities laws shall be submitted to CKE for review
prior to their use. No offering by Franchisee shall imply (by use of the
Proprietary Marks or otherwise) that CKE is participating in underwriting,
issuing, or offering securities of Franchisee or CKE; and CKE's review of any
offering shall be limited solely to the subject of the relationship between
Franchisee and CKE. Franchisee and the other participants in the offering must
fully indemnify CKE in connection with the offering. For each proposed
offering, Franchisee shall pay to CKE a non-refundable fee not to exceed CKE's
reasonable costs and expenses associated with reviewing the proposed offering,
including, without limitation, legal and accounting fees. Franchisee shall
give CKE written notice at least thirty (30) days prior to the date of
commencement of any offering or other transaction covered by this Section
XII.G.
XIII. DEFAULT AND TERMINATION
A. Franchisee shall be deemed to be in default under this
Agreement, and all rights granted herein shall automatically terminate without
notice to Franchisee, if Franchisee shall become insolvent or makes a general
assignment for the benefit of creditors; or if a petition in bankruptcy is
filed by Franchisee or such a petition is filed against and not opposed by
Franchisee; or if Franchisee is adjudicated a bankrupt or insolvent; or if a
bill in equity or other proceeding for the appointment of a receiver of
Franchisee or other custodian for Franchisee's business or assets is filed and
consented to by Franchisee; or if a receiver or other custodian (permanent or
temporary) of Franchisee's assets or property, or any part thereof, is
appointed by any court of competent jurisdiction; or if proceedings for a
composition with creditors under any state or federal law should be instituted
by or against Franchisee; or if a final judgment in a total amount of at least
$25,000 remains unsatisfied or of record for thirty (30) days or longer (unless
supersedeas bond is filed); or if Franchisee is dissolved; or if execution is
levied against Franchisee's business or property; or if suit to foreclose any
lien or mortgage against the premises or equipment is instituted against
Franchisee and not dismissed within thirty (30) days; or if the real or
personal property of
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Franchisee's Restaurant shall be sold after levy thereupon by any sheriff,
marshal, or constable.
B. Franchisee shall be deemed to be in default and CKE may, at
its option, terminate this Agreement and all rights granted hereunder, without
affording Franchisee any opportunity to cure the default, effective immediately
upon receipt of notice by Franchisee, upon the occurrence of any of the
following events:
1. If Franchisee fails to construct and open the
franchised business within the time limits as provided in Section V.B.;
2. If Franchisee at any time ceases to operate or
otherwise abandons the franchised business, or loses the right to possession of
the premises, or otherwise forfeits the right to do or transact business in the
jurisdiction where the Restaurant is located; provided, however, that if,
through no fault of Franchisee, the premises are damaged or destroyed by an
event such that they cannot, in CKE's judgment, be repaired or restored within
a reasonable time, then Franchisee shall have thirty (30) days after such event
in which to apply for CKE's approval to relocate and/or reconstruct the
premises, which approval shall not be unreasonably withheld, but which may be
conditioned upon the payment of an agreed minimum royalty to CKE during the
period in which the Restaurant is not in operation;
3. If Franchisee is convicted of a felony, a crime
involving moral turpitude, or any other crime or offense that is reasonably
likely, in the sole opinion of CKE, to adversely affect the System, the
Proprietary Marks, the goodwill associated therewith, or CKE's interest
therein;
4. If Franchisee fails to designate a qualified
Owner/Operator within a reasonable time, as required under Section V.C.
hereof;
5. If Franchisee or any partner or shareholder in
Franchisee purports to transfer any rights or obligations under this Agreement
or any interest in Franchisee to any third party without CKE's prior written
consent, contrary to the terms of Section XII. of this Agreement;
6. If Franchisee fails to comply with the in-term
covenants in Section XV.B. hereof or fails to obtain execution of the covenants
required under in Section XV.I. hereof;
7. If, contrary to the terms of Sections VII. or VIII.
hereof, Franchisee discloses or divulges the contents of the OPM or other
confidential information provided to Franchisee by CKE;
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8. If an approved transfer is not effected within a
reasonable time, as required by Section XII.E. hereof, following Franchisee's
death or mental incapacity;
9. If Franchisee knowingly maintains false books or
records, or submits any false reports to CKE;
10. If Franchisee, after curing a default pursuant to
Section XIII.C. hereof, commits the same default again, whether or not cured
after notice; or
11. If Franchisee repeatedly is in default under Section
XIII.C. hereof, for failure substantially to comply with any of the
requirements imposed by this Agreement, whether or not cured after notice.
C. Except as provided in Sections XIII.A. and XIII.B. of this
Agreement, Franchisee shall have thirty (30) days after its receipt from CKE of
a written Notice of Termination within which to remedy any default hereunder
and provide evidence thereof to CKE. If any such default is not cured within
that time, or such longer period as applicable law may require, the Agreement
shall terminate without further notice to Franchisee effective immediately upon
the expiration of the thirty (30) day period or such longer period as
applicable law may require. Franchisee shall be in default hereunder for any
failure to comply with any of the requirements imposed by this Agreement, as it
may from time to time reasonably be supplemented by the OPM, or to carry out
the terms of this Agreement in good faith. Such defaults shall include, for
example, without limitation, the occurrence of any of the following events:
1. If Franchisee fails, refuses, or neglects promptly to
pay any monies owing to CKE or its subsidiaries or affiliates when due, or to
submit the financial or other information required by CKE under this Agreement
or is in default of any promissory note, security agreement, lease or sublease
with CKE.
2. If Franchisee fails to maintain or observe any of the
standards or procedures prescribed by CKE in this Agreement, the OPM, or
otherwise in writing.
3. Except as provided in Section XIII.B.5 hereof, if
Franchisee fails, refuses, or neglects to obtain CKE's prior written approval
or consent as required by this Agreement.
4. If Franchisee misuses or makes any unauthorized use
of the Proprietary Marks or otherwise materially impairs the goodwill
associated therewith or CKE's rights therein.
5. If Franchisee engages in any business or markets any
service or product under a name or mark which, in CKE's opinion, is confusingly
similar to the Proprietary Marks.
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Franchisee shall be in default hereunder for any defaults in monetary
obligations owed by Franchisee to CKE, including but not limited to,
distribution or commissary purchases or amounts due under any promissory note
to CKE.
XIV. OBLIGATIONS UPON TERMINATION OR EXPIRATION
Upon termination or expiration of this Agreement, all rights granted
hereunder to Franchisee shall forthwith terminate, and:
A. Franchisee shall immediately cease to operate the business
franchised under this Agreement, and shall not thereafter, directly or
indirectly, represent to the public or hold itself out as a present or former
franchisee of CKE.
B. Franchisee shall immediately and permanently cease to use, in
any manner whatsoever, any confidential methods, procedures and techniques
associated with the System; the Proprietary Mark "CARL'S JR."; and all other
Proprietary Marks and distinctive forms, slogans, signs, symbols, and devices
associated with the System. In particular, Franchisee shall cease to use,
without limitation, all signs, advertising materials, displays, stationery,
forms, and any other articles which display the Proprietary Marks.
C. Franchisee shall take such action as may be necessary to
cancel any assumed name or equivalent registration which contains the mark
"CARL'S JR." or any other service mark or trademark of CKE, and Franchisee
shall furnish CKE with evidence satisfactory to CKE of compliance with this
obligation within thirty (30) days after termination or expiration of this
Agreement.
D. Franchisee shall, at CKE's option, assign to CKE any interest
which Franchisee has in any lease or sublease for the Restaurant premises. In
the event CKE does not elect to exercise its option to acquire the lease or
sublease for the Restaurant premises, Franchisee shall make such modifications
or alterations to such premises (including, without limitation, the changing of
the telephone number) immediately upon termination or expiration of this
Agreement as may be necessary to distinguish the appearance of such premises
from that of other restaurants under the System, and shall make such specified
additional changes thereto as CKE may reasonably request for that purpose. In
the event Franchisee fails or refuses to comply with the requirements of this
Section XIV., CKE shall have the right to enter upon the Restaurant premises
without being guilty of trespass or any other tort, for the
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purpose of making or causing to be made such changes as may be required at the
expense of Franchisee, which expense Franchisee agrees to pay upon demand.
E. Franchisee agrees, in the event it continues to operate or
subsequently begins to operate any other business, not to use any reproduction,
copy, or colorable imitation of the Proprietary Marks, either in connection
with such other business or the promotion thereof, which is likely to cause
confusion, mistake, or deception, or which is likely to dilute CKE's rights in
and to the Proprietary Marks, and further agrees not to utilize any designation
of origin or description or representation which falsely suggests or represents
an association or connection with CKE constituting unfair competition.
F. Franchisee shall promptly pay all sums owing to CKE and its
subsidiaries and affiliates. In the event of termination for any default of
Franchisee, such sums shall include all damages, costs, and expenses, including
reasonable attorneys' fees, incurred by CKE as a result of the default, which
obligation shall give rise to and remain, until paid in full, a lien in favor
of CKE against any and all of the personal property, furnishings, equipment,
signs, fixtures, and inventory owned by Franchisee and on the premises operated
hereunder at the time of default.
G. Franchisee shall pay to CKE all damages, costs, and expenses,
including reasonable attorneys' fees, incurred by CKE subsequent to the
termination or expiration of this Agreement in obtaining injunctive or other
relief for the enforcement of any provisions of this Section XIV.
H. Franchisee shall immediately deliver to CKE all manuals,
including the OPM, records, files, instructions, correspondence, all materials
related to operating the franchised business, including, without limitation,
brochures, agreements, invoices, and any and all other materials relating to
the operation of the franchised business in Franchisee's possession, and all
copies thereof (all of which are acknowledged to be CKE's property), and shall
retain no copy or record of any of the foregoing, except Franchisee's copy of
this Agreement and of any correspondence between the parties and any other
documents which Franchisee reasonably needs for compliance with any provision
of law.
I. Within ten (10) days after the date of termination or
expiration, Franchisee and CKE shall arrange for an inventory to be made, at
CKE's expense, of all the furnishings, equipment, signs, fixtures, and
inventory of Franchisee related to the operation of the franchised business
except for personalized items of no value to CKE. CKE shall then
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purchase from Franchisee any or all of those items at Franchisee's fair market
value. If the parties cannot agree on a fair market value within a reasonable
time, an independent appraiser shall be designated by CKE, and his
determination shall be binding. CKE shall have the right to set off all
amounts due from Franchisee, and the cost of the appraisal, if any, against any
payment therefor.
J. Franchisee shall comply with the covenants contained in
Section XV.C. of this Agreement.
XV. COVENANTS
A. Franchisee covenants that during the term of this Agreement except
as otherwise approved in writing by CKE, the Owner/Operator or the Operations
Supervisor, as the case may be, shall devote full time, energy, and best
efforts to the management and operation of the business franchised hereunder.
B. Franchisee specifically acknowledges that, pursuant to this
Agreement, Franchisee will receive valuable specialized training and
confidential information, including, without limitation, information regarding
the operational, sales, promotional and marketing methods and techniques of CKE
and the System. Franchisee covenants that during the term of this Agreement,
except as otherwise approved in writing by CKE, Franchisee shall not, either
directly or indirectly, for itself, or through, on behalf of, or in conjunction
with any person, persons, partnership, or corporation:
1. Divert or attempt to divert any business or customer
of the business franchised hereunder to any competitor, by direct or indirect
inducement or otherwise, or do or perform, directly or indirectly, any other
act injurious or prejudicial to the goodwill associated with CKE's Proprietary
Marks and the System.
2. Employ or seek to employ any person who is at that
time employed by CKE or by any other franchisee or developer of CKE, or
otherwise directly or indirectly induce such person to leave his or her
employment.
3. Own, maintain, engage in, or have any interest in:
a. Any restaurant business, selling (i)
hamburgers or (ii) any other product which constitutes ten percent (10%) of
CKE's average System-wide entree sales, which is located in any of the counties
of California or elsewhere; or
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b. Any fast service restaurant business which is
substantially similar to the franchised business and which is located at or
within a radius of fifteen (15) miles of the location approved hereunder or the
location of any other restaurant under the System which is in existence at any
time during the term of this Agreement.
C. Franchisee covenants that, except as otherwise approved in
writing by CKE, Franchisee shall not, for a continuous uninterrupted period
commencing upon the expiration or termination of this Agreement, regardless of
the cause for termination, and continuing for two (2) years thereafter, either
directly or indirectly, for itself, or through, on behalf of, or in conjunction
with any person, persons, partnership, or corporation, own, maintain, engage
in, or have any interest in any restaurant business, selling (i) hamburgers or
(ii) any other products which constitute ten percent (10%) of CKE's average
System-wide entree sales, and which is located within a radius of fifteen (15)
miles of the location approved hereunder or the location of any restaurant
under the System which is in existence on the date of expiration or termination
of this Agreement.
D. Sections XV.B.3 and XV.C. shall not apply to ownership by
Franchisee of less than two percent (2%) beneficial interest in the outstanding
equity securities of any publicly-held corporation.
E. The parties agree that each of the foregoing covenants shall
be construed as independent of any other covenant or provision of this
Agreement. If all or any portion of a covenant in this Section XV. is held
unreasonable or unenforceable by a court or agency having valid jurisdiction in
an unappealed final decision to which CKE is a party, Franchisee expressly
agrees to be bound by any lesser covenant subsumed within the terms of such
covenant that imposes the maximum duty permitted by law, as if the resulting
covenant were separately stated in and made a part of this Section XV.
F. Franchisee understands and acknowledges that CKE shall have
the right, in its sole discretion, to reduce the scope of any covenant set
forth in Sections XV.B and XV.C. in this Agreement, or any portion thereof,
without Franchisee's consent, effective immediately upon receipt by Franchisee
of written notice thereof; and Franchisee agrees that it shall comply forthwith
with any covenant as so modified, which shall be fully enforceable
notwithstanding the provisions of Section XX. hereof.
G. Franchisee expressly agrees that the existence of any claims
it may have against CKE, whether or not arising from this Agreement, shall not
constitute a defense to the
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enforcement by CKE of the covenants in this Section XV. Franchisee agrees to
pay all costs and expenses, including reasonable attorneys' fees, incurred by
CKE in connection with the enforcement of this Section XV.
H. Franchisee acknowledges that Franchisee's violation of the
terms of this Section XV. would result in irreparable injury to CKE for which
no adequate remedy at law may be available, and Franchisee accordingly consents
to the issuance of an injunction prohibiting any conduct by Franchisee in
violation of the terms of this Section XV. Franchisee expressly agrees that it
may be conclusively presumed that any violation of the terms of said covenants
not to compete was accomplished by and through Franchisee's utilization of
CKE's confidential information, know-how, methods and procedures.
I. At CKE's request, Franchisee shall require and obtain
execution of covenants similar to those set forth in this Section XV.
(including covenants applicable upon the termination of a person's relationship
with Franchisee) from any or all of the following persons:
1. All managers of Franchisee and any other personnel
employed by Franchisee who have received training from CKE;
2. All officers, directors, and holders of a beneficial
interest of two percent (2%) or more of the securities of Franchisee, and of
any corporation directly or indirectly controlling Franchisee, if Franchisee is
a corporation; and
3. The general partners and any limited partners
(including any corporation, and the officers, directors, and holders of a
beneficial interest of two percent (2%) or more of the securities of any
corporation which controls, directly or indirectly any general or limited
partner), if Franchisee is a partnership. Every covenant required by this
Section XV.I. shall be in a form satisfactory to CKE, including, without
limitation, specific identification of CKE as a third party beneficiary of such
covenants with the independent right to enforce them. Failure by Franchisee to
obtain execution of a covenant required by this Section XV.I. shall constitute
a default under Section XIII.B.6 hereof.
XVI. TAXES, PERMITS, AND INDEBTEDNESS
A. Franchisee shall promptly pay when due all taxes levied or
assessed, including, without limitation, unemployment and sales taxes, and all
accounts and other indebtedness of every kind incurred by Franchisee in the
conduct of the business franchised under this
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<PAGE> 43
Agreement. Franchisee shall pay to CKE an amount equal to any sales tax, or
similar tax imposed on CKE with respect to any payments to CKE required under
this Agreement, unless the tax is credited against income tax otherwise payable
by CKE.
B. In the event of any bona fide dispute as to Franchisee's
liability for taxes assessed or other indebtedness, Franchisee may contest the
validity or the amount of the tax or indebtedness in accordance with procedures
of the taxing authority or applicable law; however, in no event shall
Franchisee permit a tax sale or seizure by levy of execution or similar writ or
warrant, or attachment by a creditor, to occur against the premises of the
franchised business, or any improvements thereon.
C. Franchisee shall comply with all federal, state, and local
laws, rules, and regulations, and shall timely obtain any and all permits,
certificates, or licenses necessary for the full and proper conduct of the
business franchised under this Agreement, including, without limitation,
licenses to do business, fictitious name registrations, sales tax permits, and
fire clearances.
D. Franchisee shall notify CKE in writing within ten (10) days of
the commencement of any action, suit, or proceeding, and of the issuance of any
order, writ, injunction, award, or decree of any court, agency, or other
governmental instrumentality, which may adversely affect the operation or
financial condition of the franchised business.
XVII. INDEPENDENT CONTRACTOR
A. It is understood and agreed by the parties hereto that this
Agreement does not create a fiduciary relationship between them, that
Franchisee shall be an independent contractor, and that nothing in this
Agreement is intended to constitute either party an agent, legal
representative, subsidiary, joint venturer, partner, employee, or servant of
the other for any purpose whatsoever.
B. Franchisee shall conspicuously identify himself and his
Restaurant and in all dealings with his clients, contractors, suppliers, public
officials and others, as an independent Franchisee of CKE, and shall place such
notice of independent ownership on all forms, business cards, stationery,
advertising, signs and other materials and in such fashion as CKE may, in its
sole and exclusive discretion, specify and require from time to time, in its
OPM (as same may be amended from time to time) or otherwise.
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Except as otherwise expressly authorized by this Agreement, neither
party hereto will make any express or implied agreements, warranties,
guarantees or representations or incur any debt in the name of or on behalf of
the other party, or represent that the relationship between CKE and Franchisee
is other than that of Franchisor and Franchisee. CKE does not assume any
liability, and will not be deemed liable, for any agreements, representations,
or warranties made by Franchisee which are not expressly authorized under this
Agreement, nor will Franchisor be obligated for any damages to any person or
property which directly or indirectly arise from or relate to the operation of
the Restaurant.
C. It is understood and agreed that nothing in this Agreement
authorizes Franchisee to make any contract, agreement, warranty, or
representation on CKE's behalf, or to incur any debt or other obligation in
CKE's name, and that CKE shall in no event assume liability for, or be deemed
liable hereunder as a result of, any such action, or by reason of any act or
omission of Franchisee in its conduct of the franchised business or any claim
or judgment arising therefrom against CKE. Franchisee shall indemnify and hold
CKE, and CKE's officers, directors, and employees harmless against any and all
claims arising directly or indirectly from, as a result of, or in connection
with Franchisee's operation of the franchised business, as well as the costs,
including attorneys' fees, of defending against them.
XVIII. INDEMNIFICATION
Franchisee agrees at all times to defend at his own cost, and to
indemnify and hold harmless to the fullest extent permitted by law, CKE, its
corporate parent, the corporate subsidiaries, affiliates, successors, assigns
and designees of either entity, and the respective directors, officers,
employees, agents, shareholders, designees, and representatives of each (CKE
and all other hereinafter referred to collectively as "Indemnitees") from all
losses and expenses (as hereinafter defined) incurred in connection with any
action, suit, proceeding, claim, demand, investigation, or formal or informal
inquiry (regardless of whether same is reduced to judgment) or any settlement
thereof which arises out of or is based upon any of the following Franchisee's
alleged infringement or any other violation or any other alleged violation of
any patent, mark or copyright or other proprietary right owned or controlled by
third parties; Franchisee's alleged violation or breach of any contract,
federal, state or local law, regulation, ruling, standard or directive or of
any industry standard; libel, slander or any other form of defamation by
Franchisee; Franchisee's alleged violation or breach of any
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<PAGE> 45
warranty, representation, agreement or obligation in this Agreement; any acts,
errors or omissions of Franchisee or any of its agents, servants, employees,
contractors, partners, proprietors, affiliates or representatives; latent or
other defects in the Restaurant whether or not discoverable by CKE or
Franchisee; the inaccuracy, lack of authenticity or Restaurant; any service
provided by Franchisee at, from or related to the operation at the franchised
business or the action by any customer of the franchised business or visitor to
the Restaurant; and, any damage to the property of Franchise or CKE, their
agents or employees, or any third person, firm or corporation, whether or not
such losses, claims, costs, expenses, damages or liabilities were actually or
allegedly caused in part through the active or passive negligence of CKE or any
of its agents or employees, or resulted from any strict liability imposed on
CKE or any of its agents or employees.
For the purpose of this Section XVIII, the term "losses and expenses"
shall be deemed to include all losses, compensatory, exemplary or punitive
damages, fines, charges, costs, expenses, lost profits, attorneys' fees,
experts' fees, court costs, settlement amounts, judgments, compensation for
damages to CKE's reputation and goodwill, costs of or resulting from delays,
financing, costs of advertising material and media time/space, and costs of
changing, substituting or replacing same, and any and all expenses of recall,
refunds, compensation, public notices and other such amounts incurred in
connection with the matters described.
Franchisee agrees to give CKE notice of any such action, suit,
proceeding, claim, demand, inquiry or investigation. At the expense and risk
of Franchisee, CKE may elect to assume (but under no circumstance is obligated
to undertake) the defense and/or settlement of any such action, suit,
proceeding, claim, demand, inquiry or investigation, provided that CKE will
seek the advice and counsel of Franchisee, and shall keep Franchisee informed,
with regard to any such proposed or contemplated settlement(s). Such an
undertaking by CKE shall in no manner or form diminish Franchisee's obligation
to indemnify CKE and to hold it harmless.
In order to protect persons or property, or its reputation or
goodwill, or the reputation or goodwill of others, CKE may, at any time and
without notice as it in its judgment deems appropriate, offer, order, consent
or agree to settlements or take such other remedial or corrective actions as it
deems expedient with respect to the action, suit, proceeding, claim,
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<PAGE> 46
demand, inquiry or investigation if, in CKE's sole judgment, there are
reasonable grounds to believe that:
1. any of the acts or circumstances enumerated in this
Section XVIII have occurred, or
2. any act, error, or omission of Franchisee may result
directly or indirectly in damage, injury or harm to any person or any property.
All losses and expenses incurred under this Section XVIII shall be
chargeable to and paid by Franchisee pursuant to his obligations of indemnity
under this Section, regardless of any actions, activity or defense undertaken
by CKE or the subsequent success or failure of such actions, activity or
defense.
Indemnitees do not assume any liability whatsoever for acts, errors,
or omission of those with whom Franchisee may contract, regardless of the
purpose. Franchisee shall hold harmless and indemnify Indemnitees for all
losses and expenses which may arise out of any acts, errors or omissions of
these third parties.
Under no circumstances shall Indemnitees be required or obligated to
seek recovery from third parties or otherwise mitigate their losses in order to
maintain a claim against Franchisee. Franchisee agrees that the failure to
pursue such recovery or mitigate loss will in no way reduce the amounts
recoverable by Indemnitees from Franchisee.
XIX. APPROVALS AND WAIVERS
A. Whenever this Agreement requires the prior approval or consent
of CKE, Franchisee shall make a timely written request to CKE therefore, and
such approval or consent shall be obtained in writing.
B. In no event shall Franchisee be entitled to make, nor shall
Franchisee make, any claim, and Franchisee hereby waives any claim for money
damages, nor shall Franchisee claim any money damages by way of set-off,
counterclaim or defense, based upon any claim or assertion by Franchisee that
CKE has unreasonably withheld or unreasonably delayed any consent or approval
to a proposed act by Franchisee under any of the terms of this Franchise
Agreement. Franchisee's sole remedy for any such claim shall be an action or
proceeding to enforce any such provisions, or for specific performance, or
declaratory judgment.
C. No delay, waiver, omission, or forbearance on the part of CKE
to exercise any right, option, duty, or power arising out of any breach or
default by Franchisee under any
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<PAGE> 47
of the terms, provisions, covenants, or conditions hereof, shall constitute a
waiver by CKE to enforce any such right, option, duty, or power as against
Franchisee, or as to subsequent breach or default by Franchisee. Subsequent
acceptance by CKE of any payments due to it hereunder shall not be deemed to be
a waiver by CKE of any preceding breach by Franchisee of any terms, provisions,
covenants, or conditions of this Agreement.
XX. NOTICES
Any and all notices required or permitted under this Agreement shall
be in writing and shall be personally delivered or mailed by certified or
registered mail, return receipt requested, to the respective parties at the
following addresses unless and until a different address has been designated by
written notice to the other party:
Notices to CKE: Carl Karcher Enterprises, Inc.
Attn: Franchise Department
P. O. Box 4349
Anaheim, California 92803
Notices to Franchisee: Carl Leo Karcher
CLK, Inc.
73-101 Highway 111, Suite #1
Palm Desert, CA 92260-3956
Any notice by certified or registered mail shall be deemed to have been given
at the date and time of receipt.
XXI. ENTIRE AGREEMENT
This Agreement, the documents referred to herein, and the
Attachment(s) hereto constitute the entire, full, and complete Agreement
between CKE and Franchisee concerning the subject matter hereof, and supersede
all prior agreements, no other representations having induced Franchisee to
execute this Agreement. No amendment, change, or variance from this Agreement
shall be binding on the parties unless mutually agreed to by the parties and
executed by their authorized officers or agents in writing.
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XXII. SEVERABILITY AND CONSTRUCTION
A. Except as expressly provided to the contrary herein, each
portion, section, part, term, and/or provision of this Agreement shall be
considered severable; and if, for any reason, any section, part, term, and/or
provision herein is determined to be invalid and contrary to, or in conflict
with, any existing or future law or regulation by a court or agency having
valid jurisdiction, such shall not impair the operation of, or have any other
effect upon, such other portions, sections, parts, terms, and/or provisions of
this Agreement as may remain otherwise intelligible; and the latter shall
continue to be given full force and effect and bind the parties hereto; and
said invalid portions, sections, parts, terms and/or provisions shall be deemed
not to be a part of this Agreement.
B. Except as expressly provided to the contrary herein, nothing
in this Agreement is intended, nor shall be deemed, to confer upon any person
or legal entity other than Franchisee, CKE, CKE's officers, directors, and
employees, and such of Franchisee's and CKE's respective successors and assigns
as may be contemplated by Section XII. hereof, any rights or remedies under or
by reason of this Agreement.
C. Franchisee expressly agrees to be bound by any promise or
covenant imposing the maximum duty permitted by law which is subsumed within
the terms of any provision hereof, as though it were separately articulated in
and made a part of this Agreement, that may result from striking from any of
the provisions hereof any portion or portions which a court may hold to be
unreasonable and unenforceable in a final decision to which CKE is a party, or
from reducing the scope of any promise or covenant to the extent required to
comply with such a court order.
D. All captions in this Agreement are intended solely for the
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof.
E. All references herein to the masculine, neuter, or singular
shall be construed to include the masculine, feminine, neuter, or plural, where
applicable, and all acknowledgments, promises, covenants, agreements, and
obligations herein made or undertaken by Franchisee shall be deemed jointly and
severally undertaken by all those executing this Agreement on behalf of
Franchisee.
F. This Agreement may be executed in triplicate, and each copy so
executed shall be deemed an original.
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XXIII. APPLICABLE LAW
A. This Agreement takes effect upon its acceptance and execution
by CKE in California, and shall be interpreted and construed under the laws
thereof, which laws shall prevail in the event of any conflict of law;
provided, however, that the provisions of Section XV. Covenants, shall be
interpreted and construed under the laws of the jurisdiction within which the
franchised business is located.
B. The parties agree that any action brought by either party
against the other in any court, whether federal or state, shall be brought
within the State of California in the judicial district in which CKE has its
principal place of business and do hereby waive all questions of personal
jurisdiction or venue for the purpose of carrying out this provision.
C. No right or remedy conferred upon or reserved to CKE or
Franchisee by this Agreement is intended to be, nor shall be deemed, exclusive
of any other right or remedy herein or by law or equity provided or permitted,
but each shall be cumulative of every other right or remedy.
D. Nothing herein contained shall bar CKE's right to obtain
injunctive relief against threatened conduct that will cause it loss or
damages, under the usual equity rules, including the applicable rules for
obtaining restraining orders and preliminary injunctions.
XXIV. DEFINITION OF FRANCHISEE
The term "Franchisee" as used in this Agreement shall refer to each person
executing this Agreement as Franchisee whether such person is one of the
spouses, partners, proprietors, shareholders, trustees, trustors or
beneficiaries or persons named as included in Franchisee, and shall apply to
each such persons as if he/she were the only named Franchisee in this
Agreement. If Franchisee is a married couple, both husband and wife executing
this Agreement shall be liable for all obligations and duties of Franchisee
hereunder as if such spouse were the sole Franchisee hereunder. If Franchisee
is a partnership or proprietorship, or if more than one person executes this
Agreement as Franchisee, each partner, proprietor or person executing this
Agreement shall be liable for all obligations and duties of Franchisee
hereunder. If Franchisee is a trust, each trustee, grantor and beneficiary
signing this Agreement shall be liable for all of the obligations and duties of
Franchisee hereunder. If Franchisee is a corporation, all shareholders
executing this Agreement shall be liable for all obligations and duties of
Franchisee hereunder as if each such shareholder were the sole
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Franchisee hereunder. If Franchisee is an entity, each of his principals
and/or owners shall, concurrently with the execution of this Agreement execute
Franchisor's Standard Form Guarantee (annexed hereto as Exhibit "3"), pursuant
to which all obligations and duties of Franchisee are guaranteed by such
individuals. Should Franchisee be in breach or default under this Agreement,
CKE may proceed directly against each such spouse, partner, proprietor,
signatory to this Agreement, shareholder, trustee, trustor, owner, principal or
beneficiary without first proceeding against Franchisee and without proceeding
against or naming in such suit any other Franchisee, partner, proprietor,
signatory to this Agreement, shareholder, trustee, trustor or beneficiary. The
obligations of Franchisee and each such spouse, partner, proprietor, person
executing this Agreement, shareholder, trustee, trustor and beneficiary shall
be joint and several. Notice to or demand upon one spouse, partner,
proprietor, person signing this Agreement, shareholder, trustee, trustor,
owner, principal or beneficiary shall be deemed notice to or demand upon
Franchisee and all such spouses, partners, proprietors, persons signing this
Agreement, shareholders, trustees, trustors, owners, principal and
beneficiaries, and no notice or demand need be made to or upon all such
Franchisees, spouses, partners, proprietors, persons executing this Agreement,
shareholders, trustees, trustors, owners, principals or beneficiaries. The
cessation of or release from liability of Franchisee or any such spouse,
partner, proprietor, person executing this Agreement, shareholder, trustee,
trustor, owners, principals or beneficiary shall not relieve any other
Franchisee, spouse, partner, proprietor, person executing this Agreement,
shareholder, trustee, trustor, owner, principal or beneficiary from liability
hereunder, except to the extent that the breach or default has been remedied or
monies owed have been paid.
XXV. ACKNOWLEDGEMENTS
A. Franchisee acknowledges that it has conducted an independent
investigation of the business franchised hereunder, and recognizes that the
business venture contemplated by this Agreement involves business risks and
that its success will be largely dependent upon the ability of Franchisee as an
independent businessman. CKE expressly disclaims the making of, and Franchisee
acknowledges that it has not received, any warranty or guarantee, express or
implied, as to the potential volume, profits, or success of the business
venture contemplated by this Agreement.
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B. Franchisee acknowledges that it received a copy of the
complete Carl's Jr. Restaurant Franchise Agreement, the Attachments thereto,
and agreements relating thereto, if any, at least five (5) business days prior
to the date on which this Agreement was executed. Franchisee further
acknowledges that it received the disclosure document required by the Trade
Regulation Rule of the Federal Trade Commission entitled "Franchise Offering
Circular of Carl Karcher Enterprises, Inc. for Prospective Franchisees" at
least ten (10) business days prior to the date on which this Agreement was
executed.
C. Franchisee acknowledges that it has read and understood this
Agreement, the Attachments hereto, and agreements relating thereto, if any, and
that CKE has afforded Franchisee ample time and opportunity and has encouraged
Franchisee to consult with advisors of Franchisee's own choosing about the
potential benefits and risks of entering into this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed,
sealed, and delivered this Agreement in triplicate on the day and year first
above written.
CKE
FRANCHISEE CARL KARCHER ENTERPRISES, INC.
a California corporation
/s/ Carl L. Karcher By: /s/ Richard C. Celio
- - --------------------------------------- -------------------------------------
Carl Leo Karcher Richard C. Celio
Title: Vice President/General Counsel
OWNER/OPERATOR
/s/ Carl L. Karcher
- - ---------------------------------------
Carl Leo Karcher By: /s/ Rory J. Murphy
----------------------------------
Rory J. Murphy
Title: Senior Vice President
Operations
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ATTACHMENT A
APPROVED LOCATION
UNDER
CARL'S JR. RESTAURANT
FRANCHISE AGREEMENT
The location approved by CKE for the Restaurant franchised under the attached
Franchise Agreement shall be:
#7085
Highway 111 and Washington
La Quinta, CA
(Refer to Section I.B. of Franchise Agreement)
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EXHIBIT 1
FRANCHISEE'S ADVERTISING
AND
PROMOTION OBLIGATION
Franchisee's weekly advertising and promotion obligation (hereinafter
"APO") under Section X of the Franchise Agreement shall be as set forth below
unless and until modified by CKE as provided in Section X:
<TABLE>
<S> <C> <C>
1. LSM allocation: .5% of gross sales
(Section X.B.)
2. Fund allocation, for .5% of gross sales
general administrative (not more than 1%)
advertising expenditures:
(Section X.C.1)
3. Fund allocation, for 3.0% of gross sales
regional advertising
expenditures:*
(Section X.C.2)
4. Cooperative allocation: N/A% of gross sales
(Section X.D)
TOTAL APO: 4.0% of gross sales
(not more than 6%)
</TABLE>
* The ADI in which the Restaurant is located:
Palm Springs, CA
Note: a) CKE has the right to eliminate the LSM allocation
b) At no time will a percentage appear in both Number 3 and Number 4
simultaneously.
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EXHIBIT 2
WEEKLY ROYALTY FEE
The weekly royalty fee as provided for in Section IV of the Franchise
Agreement is as follows:
<TABLE>
<CAPTION>
Year of Operation of the Restaurant Percentage of Gross Sales
----------------------------------- -------------------------
<S> <C>
One through initial term 4%
</TABLE>
Should Franchisee open the Restaurant pursuant to the terms of a Carl's Jr.
Restaurant Development Agreement and the Restaurant opens ahead of the required
Development Schedule, the following reductions shall apply:
<TABLE>
<CAPTION>
Royalty
Number of Full Months Ahead of Schedule Fee Reduction
--------------------------------------- -------------
<S> <C>
13+ 2%
1 - 12 1%
</TABLE>
CKE also allows a temporary reduction in royalty fees for Restaurants which are
developed by a Franchisee with a valid Development Agreement, in the Assigned
Area, in excess of the number required by the development schedule and which
are opened prior to the last scheduled opening date. The reduction schedule is
as follows:
<TABLE>
<CAPTION>
Year of Operation Fee Reduction
----------------- -------------
<S> <C>
First 2%
Second 1%
Third and following None
</TABLE>
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EXHIBIT 3
PERSONAL GUARANTY
The undersigned ****, jointly and severally ("Guarantors") each hereby
unconditionally guarantee the full performance of each and all of the terms,
covenants, and conditions of those certain Carl's Jr. Restaurant Agreement
dated ____________________________, 1993, between CARL KARCHER ENTERPRISES,
INC. ("CKE") and **, (a California Limited Partnership) (a ___________________
corporation), as franchisee ("Franchisee"), for restaurants #__________ Located
at ___________________________________________. The undersigned further agree
as follows:
1. Guarantors also, jointly and severally, unconditionally
guarantee the performance of all agreements, leases, subleases and promissory
notes between Franchisee and CKE.
2. This Guaranty will continue unchanged by any bankruptcy,
reorganization or insolvency of Franchisee or by and disaffirmance or
abandonment by a trustee of Franchisee.
3. The agreements and obligations herein of Guarantors shall
continue in favor of CKE notwithstanding any extension, modification, or
alteration of such Franchise Agreement entered into by and between the parties
thereto, or their successors or assigns, and no extension, modification,
alteration or assignment of such agreement shall in any manner release or
discharge the undersigned and it does hereby consent thereto.
4. The obligations hereunder are joint and several, and
independent of the obligations of Franchisee and a separate action or actions
may be brought and prosecuted against Guarantors whether action is brought
against Franchisee or whether Franchisee be joined in any such action or
actions. Guarantors waive the benefit or any statute of limitation affecting
their liability hereunder or the enforcement thereof.
5. Guarantors shall pay CKE's reasonable attorneys' fees and all
costs and other expenses incurred in any collection or attempted collection or
in any negotiations relative to the obligations hereby guaranteed or enforcing
this Guaranty against the undersigned, individually and jointly.
6. Guarantors waive any right to require CKE to:
a. proceed against Franchisee;
b. proceed against or exhaust any security held by
Franchisee; or
c. pursue any other remedy in CKE's power whatsoever.
Guarantors waive any defense arising by reason of any disability or other
defense of Franchisee or by reason of the cessation from any cause whatsoever
of the liability of Franchisee. Guarantors waive all presentments, demands for
performance, notices of nonperformance, protests, notices of protests, notices
of dishonor, and notices of acceptance of this Guaranty.
54
<PAGE> 56
The use of the singular herein shall include the plural. The
obligation of two or more parties shall be joint and several. The terms and
provisions of this Guaranty shall be binding upon and inure to the benefit of
the respective successors and assigns of the parties herein named.
IN WITNESS WHEREOF, the undersigned executed this Guaranty on
_________________________, 1993.
GUARANTORS:
_____________________________________
_____________________________________
55
<PAGE> 57
CARL'S JR. RESTAURANT
FRANCHISE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
I. GRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
II. TERM AND RENEWAL . . . . . . . . . . . . . . . . . . . . . . . 2
III. DUTIES OF CKE . . . . . . . . . . . . . . . . . . . . . . . . . 3
IV. FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
V. DUTIES OF FRANCHISEE . . . . . . . . . . . . . . . . . . . . . 6
VI. PROPRIETARY MARKS . . . . . . . . . . . . . . . . . . . . . . . 16
VII. CONFIDENTIAL OPERATIONS PROCEDURES MANUAL ("OPM") . . . . . . . 18
VIII. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . 18
IX. ACCOUNTING AND RECORDS . . . . . . . . . . . . . . . . . . . . 19
X. ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . . . 21
XI. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
XII. TRANSFER OF INTEREST . . . . . . . . . . . . . . . . . . . . . 29
XIII. DEFAULT AND TERMINATION . . . . . . . . . . . . . . . . . . . . 34
XIV. OBLIGATIONS UPON TERMINATION OR EXPIRATION . . . . . . . . . . 37
XV. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
XVI. TAXES, PERMITS, AND INDEBTEDNESS . . . . . . . . . . . . . . . 41
XVII. INDEPENDENT CONTRACTOR . . . . . . . . . . . . . . . . . . . . 42
XVIII. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 43
XIX. APPROVALS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . 45
XX. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
56
<PAGE> 58
<TABLE>
<S> <C> <C>
XXI. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 46
XXII. SEVERABILITY AND CONSTRUCTION . . . . . . . . . . . . . . . . . 47
XXIII. APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . 48
XXIV. DEFINITION OF FRANCHISEE . . . . . . . . . . . . . . . . . . . 48
XXV. ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . 49
ATTACHMENT A APPROVED LOCATION
EXHIBIT 1 FRANCHISEE'S ADVERTISING AND PROMOTION OBLIGATION
EXHIBIT 2 WEEKLY ROYALTY FEE
EXHIBIT 3 FRANCHISOR'S STANDARD FORM GUARANTEE
</TABLE>
57
<PAGE> 1
Exhibit 10-86
<PAGE> 2
ASSIGNMENT OF CARL'S JR.
RESTAURANT FRANCHISE AGREEMENT
ASSIGNMENT
For value received, Carl Leo Karcher ("Franchisee"), hereby assigns
all right, title and interest under the certain CARL'S JR. RESTAURANT
FRANCHISE AGREEMENT (Agreement) for restaurant located at Hwy. 111 and
Washington, La Quinta, California, between Franchisee and CARL KARCHER
ENTERPRISES, INC. (CKE), to CLK, Inc. (Assignee).
Dated: April 7 , 1993
-------------
/s/ Carl L. Karcher
- - ------------------------
Carl Leo Karcher
ACCEPTANCE
CLK, Inc., Assignee under the foregoing assignment of Franchisee's
interest hereby accepts the foregoing assignment of Franchisee's interest and
hereby assumes all obligations and liabilities of Franchisee and agrees to
perform under the terms and conditions of said Agreement.
Dated: April 7 , 1993
-------------
CLK, Inc.
/s/ Carl L. Karcher
- - ------------------------
By Carl Leo Karcher President
CONSENT TO ASSIGNMENT
CKE, as Franchisor in the foregoing Agreement, without releasing
Franchisee named in said Agreement, hereby consents to such assignment,
without, however, waiving the restrictions, if any, contained in said Agreement
with respect to future assignments thereunder.
Dated: April 27 , 1993
--------------
CARL KARCHER ENTERPRISES, INC.
a California corporation
/s/ Rory J. Murphy /s/ Richard C. Celio
- - ------------------------ -------------------------
By Rory J. Murphy, By Richard C. Celio, Vice President
Senior Vice President Operations General Counsel
<PAGE> 3
RELEASE
In consideration of the Franchisor's approval of the assignment of the
CARL'S JR. RESTAURANT FRANCHISE AGREEMENT dated April 7 , 1993, (Agreement)
for Carl's Jr. Restaurant #7085 located at Hwy. 111 and Washington, La Quinta,
CA, between CARL KARCHER ENTERPRISES, (CKE) and Carl Leo Karcher (Franchisee),
to CLK, Inc., undersigned for himself, his heirs, executors, administrators and
assigns does hereby fully release CKE and its subsidiaries and affiliates, and
their respective officers, directors, agents, shareholders and employees in
their individual and corporate capacities, of any and all claims arising under
federal, state and local laws, rules and ordinances, excluding only such claims
as Franchisee may have that have arisen under the California Franchise
Investment Law or the California Franchise Relations Act.
Each of the undersigned represents, warrants and certifies that, in
signing this Release, each does so with full knowledge of any and all rights
which each may have, and does not rely and has not relied upon any
representations or statements of CKE or anyone else, except his own attorney,
and each hereby assumes the risk of any mistake of fact in connection with the
true facts which may be unknown. Each of the undersigned further represents,
warrants and certifies that each has consulted with and secured independent
legal advice and consultation in connection with this Release and any rights
which each may be relinquishing.
It is expressly agreed that any and all rights granted under Section
1542 of the California Civil Code area hereby expressly waived. Such statute
reads as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
Each of the undersigned has read and understands the foregoing.
Executed on April 7 , 1993, at Palm Desert .
------------ -----------------
/s/ Carl L. Karcher
- - ------------------------
Carl Leo Karcher
<PAGE> 4
CONTINUING GUARANTY
That Carl Leo Karcher, (Franchisee) entered into a CARL'S JR.
RESTAURANT FRANCHISE AGREEMENT (Agreement) for a restaurant located at Hwy. 111
and Washington, La Quinta, California with CARL KARCHER ENTERPRISES, INC.
(CKE).
RECITALS
A. Each of the undersigned Franchisees has executed an Agreement
under which the Franchisees have acquired the right to operate one restaurant
as a Carl's Jr. Restaurant.
B. Each of the Franchisees has requested written consent from CKE
to assign its right under the Agreement to CLK, Inc. (Assignee).
THEREFORE, for valuable consideration, the receipt of which is hereby
acknowledged, the undersigned (Guarantors) agree as follows:
1. Guarantors, jointly and severally, unconditionally guarantee
the performance by Assignee of all obligations, including any payments of fees
as required pursuant to the terms of the Agreement. Guarantors also, jointly
and severally, unconditionally guarantee the performance of all related
agreements and leases assigned or subleased by CKE to Assignee.
2. Guarantors shall pay any costs and expenses incurred,
including reasonable attorneys fees, incurred by CKE in the enforcement of this
Guaranty.
3. The obligations hereunder are joint and several, and
independent of the obligations of Assignee, and a separate action or actions
may be brought and prosecuted against Guarantors whether action is brought
against Assignee or whether Assignee be joined in any such action or actions;
and Guarantors waive the benefit of any Statute of Limitation affecting their
liability hereunder or the enforcement thereof.
4. Guarantors waive any right to require CKE to: (a) proceed
against Assignee; (b) proceed against or exhaust any security held by Assignee;
or (c) pursue any other remedy in CKE's power whatsoever. Guarantors waive any
defense arising by reason of any disability or other defense of Assignee or by
reason of the cessation from any cause whatsoever of the liability of Assignee.
Guarantors waive all presentments, demands for performance, notices of
nonperformance, protests, notices of protests, notices of dishonor, and notices
of acceptance of this Guaranty.
<PAGE> 5
5. This shall be a continuing guaranty, and shall by subject to
all the terms and conditions of the Agreement executed by Guarantors and CKE.
IN WITNESS WHEREOF, the undersigned Guarantors have executed this
Guaranty on April 7 , 1993.
-------------
/s/ Carl L. Karcher
- - -----------------------
Carl Leo Karcher
<PAGE> 1
Exhibit 10-87
<PAGE> 2
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement ("Agreement") is made and entered into
as of the Date of Award indicated below by and between Carl Karcher
Enterprises, Inc., a California corporation (the "Company"), and Donald E.
Doyle ("Executive").
WHEREAS, Executive is the President and Chief Executive Officer of the
Company; and
WHEREAS, in connection with the retention of Executive in such
capacities, the Board of Directors of the Company has approved the award to
Executive of the right to receive shares of the common stock of the Company
(the "Common Stock"), on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. Award; Certain Terms and Conditions. The Company hereby awards to
Executive, and Executive hereby accepts, as of the Date of Award, the right to
receive the number of shares of Common Stock indicated below (the "Restricted
Shares"). The Restricted Shares shall be subject to all of the terms and
conditions set forth in this Agreement, including the restrictions imposed
pursuant to Section 3 hereof; provided, however, that on each anniversary of
the Date of Award, such restrictions shall terminate with respect to that
number of Restricted Shares (rounded to the nearest whole share) equal to the
total number of Restricted Shares multiplied by the Annual Vesting Rate
indicated below (the termination of such restrictions with respect to any
Restricted Share, for any reason, shall be referred to herein as the "vesting"
of such share).
Date of Award: January 6, 1993
Number of shares purchasable: 12,121
Annual Vesting Rate: 33-1/3%
Vesting Dates: January 6, 1994
January 6, 1995
January 6, 1996
2. Consideration for Shares. The consideration for the issuance
and sale of Restricted Shares contemplated hereby consists of past services to
the Company and/or one or more of its subsidiaries.
3. Restrictions. Until a Restricted Share vests, it may not be
sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise
transferred in any manner.
1
<PAGE> 3
4. Acceleration of Vesting.
(a) Notwithstanding anything to the contrary in this
Agreement, in the event that Executive shall cease to be an employee of the
Company or any of its subsidiaries for any reason, or for no reason, within one
year after a Change of Control (as hereinafter defined), all then unvested
Restricted Shares shall vest upon the date of such event.
(b) "Change of Control" shall mean the first to occur of
the following events:
(i) any date upon which the directors of the
Company who were nominated by the Board of Directors (the
"Board") for election as directors cease to constitute a
majority of the directors of the Company;
(ii) the date of the first public announcement
that any person or entity, together with all Affiliates and
Associates (as such capitalized terms are defined in Rule
12b-2 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) of such person or entity,
shall have become the Beneficial Owner (as defined in Rule
13d-3 promulgated under the Exchange Act) of voting securities
of the Company representing 50% or more of the voting power of
the Company (a "50% Stockholder"); provided, however, that the
terms "person" and "entity," as used in this clause (ii),
shall not include (A) the Company or any of its subsidiaries,
(B) any employee benefit plan of the Company or any of its
subsidiaries, (C) any entity holding voting securities of the
Company for or pursuant to the terms of any such plan or (D)
any person or entity if the transaction that resulted in such
person or entity becoming a 50% Stockholder was approved in
advance by the Board; or
(iii) a reorganization, merger or consolidation of
the Company (other than a reorganization, merger or
consolidation the sole purpose of which is to change the
Company's domicile solely within the United States) the
consummation of which results in the outstanding securities of
any class then comprising the Restricted Shares being
exchanged for or converted into cash, property and/or a
different kind of securities.
(c) In addition, the Board of Directors, in its sole
discretion, may accelerate the vesting of any or all of the Restricted Shares
at any time.
5. Termination of Award. Notwithstanding anything to the
contrary in this Agreement, if Executive shall cease to be an employee of the
Company or any of its subsidiaries for any reason, or for no reason, then,
unless the Board of
2
<PAGE> 4
Directors shall determine otherwise, the then unvested portion of award of
Restricted Shares shall terminate and be of no further force and affect.
6. Payment of Withholding Taxes. If the Company becomes
obligated to withhold an amount on account of any federal, state or local tax
imposed as a result of the sale of the Restricted Shares to Executive pursuant
to this Agreement or the termination of the restrictions imposed upon the
Restricted Shares hereunder, including, without limitation, any federal, state
or other income tax, or any F.I.C.A., state disability insurance tax or other
employment tax (the date upon which the Company becomes so obligated shall be
referred to herein as the "Withholding Date"), then Executive shall pay such
amount (the "Withholding Liability") to the Company on the Withholding Date in
cash or by check payable to the Company.
7. Escrow.
(a) Until a Restricted Share vests, (i) the record address
of the holder of record of such Restricted Share shall be c/o the Secretary of
the Company at the address of the Company's principal executive office, (ii)
the stock certificate representing such Restricted Share (together with any
dividends, cash, property and/or securities comprising all or any part of such
Restricted Share as provided in Section 9 hereof) shall be held in escrow in
the custody of the Secretary of the Company, duly endorsed in blank or
accompanied by a duly executed stock powers, and (iii) such stock certificate
shall contain the following legend:
"The transfer and registration of transfer of the securities
represented by this certificate are subject to certain
restrictions as provided in a Restricted Stock Agreement dated
as of January 6, 1993 by and between the Corporation and
Donald E. Doyle."
(b) From and after the date upon which a Restricted Share
vests, the holder of record of such Restricted Share shall be entitled
(provided that Executive shall have paid the Withholding Liability to the
Company pursuant to Section 6 hereof) to receive the stock certificate
representing such Restricted Share (together with any cash, property and/or
securities comprising all or any part of such Restricted Share as provided in
Section 8 hereof), which stock certificate shall not contain the legend set
forth in subsection (a)(iii) above.
9. Voting; Dividends; Certain Corporate Transactions.
Except upon the vesting of each installment of Restricted Shares, Executive
shall not be entitled to exercise any voting rights with respect to such
Restricted Shares or to receive any cash dividends paid with respect thereto.
In the event that the outstanding securities of any class then comprising the
Restricted Shares (whether vested or unvested) are increased, decreased or
exchanged for or converted into cash, property and/or a different number or
kind of securities, or cash, property and/or securities are distributed in
respect of such outstanding securities, in either case as a result of a
3
<PAGE> 5
reorganization, merger, consolidation, recapitalization, reclassification,
dividend (other than a regular, quarterly cash dividend) or other distribution,
stock split, reverse stock split or the like, then, unless the Board of
Directors shall determine otherwise, the term "Restricted Shares" shall, from
and after the date of such event, include such cash, property and/or securities
so distributed in respect of the Restricted Shares, or into or for which the
Restricted Shares are so increased, decreased, exchanged or converted.
10. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of
California without reference to choice or conflict of law principles.
IN WITNESS WHEREOF, the Company and Executive have duly
executed this Agreement as of the Date of Award.
CARL KARCHER ENTERPRISES, INC.
By: /s/ PETER CHURM
---------------------------------------
Title: Peter Churm
Board of Directors
Executive
/s/ DONALD E. DOYLE
---------------------------------------
Signature
_________________________________
Street Address
_________________________________
City, State and Zip Code
_________________________________
Social Security Number
4
<PAGE> 1
Exhibit 10-88
<PAGE> 2
EMPLOYMENT AGREEMENT
CARL KARCHER ENTERPRISES, INC.
AGREEMENT, dated as of April 27, 1993 by and between CARL KARCHER
ENTERPRISES, INC. (the "Company") Karen B. Eadon (the "Executive") presently
residing at 28311 Gitano, Mission Viejo, CA 92692.
WITNESSETH;
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed to provide his services to the Company, all on the terms
and subject to the conditions, as hereinafter set forth:
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the parties agree as follows:
1. Employment. The Company agrees to employ the Executive during the
Employment Term (as defined in Section 3) and the Executive hereby accepts such
employment and agrees to serve the Company subject to the general supervision,
advice and direction of the President and CEO and upon the terms and conditions
set forth in this Agreement.
2. Duties. During the Employment Term, the Executive shall perform
such services and duties as the President and CEO may from time to time
designate.
The Executive shall devote the Executive's full time and best efforts to the
business affairs of the Company; however, with the approval of the Board of
Directors, the Executive may devote reasonable time and attention to:
(i) serving as a director or member of a committee of any
non-for-profit organization or engaging in other charitable or
community activities;
(ii) Upon approval of the Board of Directors, serving as a director
of a corporation or as a member of a committee of an
organization;
(iii) managing her personal investments;
Provided, that the Executive agrees to be bound by the conflict of interests
policy of the Company and may not accept employment or any engagement with any
other individual or other entity, or engage in any other venture which is in
conflict with the business of the Company.
1
<PAGE> 3
3. Employment Term. The Executive shall be employed under this Agreement
for a term of three (3) years from date of execution of this Agreement, (the
"Executive Term") commencing on the date hereof and terminating on the close of
business on January 15, 1996, unless sooner terminated as provided in Sections
6, 7, 8, 9, 10 or 11 or unless extended as provided in Section 20.
4. Compensation.
4.a. Base Compensation. During the Employment Term, the Company will pay
the Executive an annual base salary as compensation for his services hereunder
of (the "Base Salary"), payable in equal installments not less often than once
in each calendar month. The Base Salary shall be reviewed from time to time
and may be increased in the Company's discretion.
4.b. Bonus. The Board of Directors of the Company shall develop an
incentive compensation plan that will provide for the establishment of a cash
bonus pool from which cash bonuses shall be paid to the Executive and other
executes and management of the Company provided certain performance targets are
met. The Executive shall be entitled to participate in the management
incentive compensation plan and, assuming the prescribed performance targets
are achieved, to receive an annual cash bonus from the bonus pool in an amount
as determined under the terms of the bonus plan.
4.c. Stock Option. The Board of Directors of the Company shall develop a
stock option plan that will provide for the establishment of a pool of the
Company's stock from which stock option awards may from time to time be
awarded. The Executive shall be entitled to participate in the stock option
plan and receive awards as determined under the terms of the plan.
4.d. Vacation. During each calendar year of the Employment Term, the
Executive shall be entitled to take paid vacation time for such length of time
as determined by the Board of Directors.
4.e. Benefits. During the Employment Term, the Executive shall be entitled
to participate in all pension, profit sharing and other retirement plans, all
incentive compensation plans and all group health, hospitalization and
disability insurance plans and other employee welfare benefits plans in which
other executives of the Company participate.
4.f. Medical Examination. Executive agrees to submit, at any time
requested by the Company, to a medical physical examination by a physician
selected by the Company. The cost of said examination shall be borne by the
Company.
2
<PAGE> 4
5. Reimbursement of Expenses Incurred in Performance of Employment. In
addition to the compensation provided for under Section 4 hereof, upon
submission of proper vouchers, the Company shall pay or reimburse the Executive
for all normal and reasonable expenses, including travel expenses, incurred by
the Executive prior to the termination of the Employment Term in connection
with the Executive's responsibilities to the Company.
6. Termination for Cause. The Company may dismiss Executive for good and
valid cause and shall then and thereafter be relieved of its obligations
hereunder. In such event, Executive shall not receive any Severance Pay or
pro-rata portion of any bonus compensation otherwise payable pursuant to
paragraph 3 hereof. As used herein, "good and valid cause" shall mean a
willful breach of duty by Executive in the course of his employment, the
habitual neglect of his duties, or the commission by Executive of any act of a
fraudulent or criminal nature in connection with his duties pursuant to this
Agreement.
7. Termination Without Cause by the Company. If Executive is terminated
for reasons other than cause as defined in Section 6 hereof, the Company will
pay Executive, not later than 30 days after such termination, in a lump sum,
the balance due under this Agreement or for one (1) year, whichever is longer,
together with all accrued but unpaid compensation pursuant to Section 4 hereof,
through the date of the Executive's termination.
Executive shall receive outplacement assistance as arranged by the Company
through an outplacement firm at the choice and expense of the Company.
The date of termination of employment by the Company under paragraphs 6 and
7 shall be the date specified in a written notice of termination by the Board
of Directors to Executive. If no date is specified, termination date will be
the date Executive is given notice by the Board.
8. Resignation. In the event, at anytime during the term of this
agreement, Executive resigns for reasons other than those specified in section
9 and 10 herein, Company shall then and thereafter be relieved from its
obligations hereunder.
9. In the event, at any time during the term of this Agreement, the Company
is acquired by or merged with another corporation or entity (or subsidiary
thereof), such that the direction or control of the Company is acquired, or all
or substantially all of the assets of the Company are acquired in a transaction
or series of transactions, by an individual or entity that had no such
direction or control prior to such acquisition or merger, then Executive shall
have the election, but not the obligation, to terminate this Agreement by
giving to Employer sixty (60) days written notice; provided, however, such
notice must be
3
<PAGE> 5
given by Executive to Employer, if at all, within six (6) months of the
occurrence of such an event. If the Executive elects to terminate this
Agreement pursuant to the provisions of this paragraph 9, Executive shall be
entitled to receive all amounts provided for by paragraph 4.a., above, for a
period of one (1) year from the date of termination; or, for the balance of
term of this Agreement, whichever is longer.
10. In the event, at any time during the term of this Agreement, the
Company is acquired by or merged with another corporation or entity (or a
subsidiary thereof) such that the direction or control of the Company is
acquired, or all or substantially all of the assets of the Company are acquired
in a transaction or series of transactions, by an individual or entity that had
no such direction or control prior to such acquisition or merger and thereafter
the Executive is terminated for other than cause, then the Executive shall be
entitled to receive all amounts provided for by paragraph 4.a., above, for a
period of one (1) year from the date of termination; or, for the balance of the
term of this Agreement, whichever is longer.
11.a. Disability of the Executive. If Executive for any reason whatsoever
becomes permanently disabled so that the Executive is unable to perform the
duties described in paragraph 2 herein, the Company agrees to pay Executive
fifty percent (50%) of executive's annual salary payable in the same manner as
provided for the payment of salary herein for the remainder of the Employment
Term provided for herein or for two (2) years whichever is longer.
"Permanent disability" shall mean the Executive is unable to perform the
duties contemplated by this agreement by reason of a physical or mental
disability or infirmity which has continued for more than 90 consecutive
calendar days. Executive agrees to submit such medical evidence regarding such
disability or infirmity as may be requested by the Company.
11.b. Death of Executive. Upon the death of the executive for any reason
whatsoever, the Company shall then and thereafter be released from its
obligations hereunder.
12. Protected Information/ Prohibited Solicitation.
12.a. The Executive hereby recognizes and acknowledges that during the
course of this employment by the Company, the Company has disclosed and will
furnish, disclose or make available to the Executive confidential or
proprietary information related to the Company's business, including, without
limitation, customer lists, ideas, processes, inventions and devices, that such
confidential or proprietary information has been developed and will be
developed through the expenditure by the company of substantial time and money
and that all such confidential information
4
<PAGE> 6
shall constitute trade secrets, and further agrees to use such confidential
proprietary information only for the purpose of carrying out his duties with
the Company and not otherwise to disclose such information. No information
otherwise in the public domain shall be considered confidential.
12.b. The Executive hereby agrees, in consideration of his employment
hereunder and in view of the confidential position to be held by the Executive
hereunder, that during the Employment Term and for the period ending on the
date which is one (1) year after the later of (A) the termination of the
Employment Term and (B) the date on which the Company is no longer required to
provide the payments and benefits described in Section 4, the Executive shall
not, without the written consent of the Company, knowingly solicit, entice or
persuade any other employees of the Company or any affiliate of the Company to
leave the services of the Company or such affiliate for any reason.
12.c. So long as the Executive is employed by the Company and so long as
the restrictions of this Section 9 apply, prior to accepting any engagement to
act as an employee, officer, director, trustee, principal, agent or
representative of any type of business or service (other than as an employee of
the Company), the Executive shall (A) disclose such engagement in writing to
the Company, and (B) disclose to the other entity to which he has agreed to act
as an employee, officer director, trustee, agent or representative, or to other
principals together with whom he proposed to act as a principal in such
business or service, the existence of the covenants set forth in this Section 8
and the provisions of Section 9 hereof.
12.d. The restrictions of this Section 9 shall survive the termination of
this Agreement and shall be in addition to any restrictions imposed upon the
Executive by statute or at common law.
13. Injunctive Relief. The Executive hereby expressly acknowledges that
any breach or threatened breach by the Executive of any of the terms set forth
in Section 8 and 9 of this Agreement may result in significant and continuing
injury to the Company, the monetary value of which would be impossible to
establish. Therefore, the Executive agrees that the Company shall be entitled
to apply for injunctive relief in a court of appropriate jurisdiction. The
provisions of this Section 9 shall survive the Employment Term.
14. Parties Benefitted; Assignments. This Agreement shall be binding upon
the Executive, the heirs and personal representative or representatives of the
Executive and upon the Company and its successors and assigns. Neither this
Agreement nor any rights or obligations hereunder may be assigned by the
Executive.
5
<PAGE> 7
The Company will not consolidate with, merge into, or sell all or
substantially all of its assets to another corporation, partnership, or other
entity unless such corporation, partnership, or entity shall assume this
agreement, and upon such assumption Executive and remaining corporation,
partnership or other entity, shall become obligated to perform all of the terms
and conditions set forth herein.
15. Notices. Any notice required or permitted by this Agreement shall be
in writing, sent by personal delivery or by registered or certified mail,
return receipt requested, addressed to the CEO and the Company at its then
principal office, or to the Executive at the address set forth in the preamble,
as the case may be, or to such other address or addresses as any party hereto
may from time to time specify in writing for the purpose of a notice given to
the other parties in compliance with this Section 12. Notice shall be deemed
given received.
16. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California without regard
to conflict of law principles.
17. Indemnification and Insurance; Legal Expenses. The Company will
indemnify the Executive to the fullest extent permitted by the laws of the
State of California, as in effect at the time of the subject act or omission,
and the Executive shall be entitled to the protection of any insurance policies
the Company may elect to maintain generally for the benefit of its directors
and officers insuring against all costs, charges and expenses whatsoever
incurred or sustained by the Executive in connection with any action, suit or
proceedings to which the Executive may be made a part by reason of being or
having been an officer or employee of the Company or any of its subsidiaries or
serving or having served any other enterprises at the request of the Company
(other than any dispute, claim or controversy described in Section 9 of this
Agreement except, that the Executive shall be entitled to reimbursement of
reasonable attorneys' fees and expenses if the Executive is the prevailing
party).
18. Arbitration. The parties agree that any controversy or claim arising
out of, or in any way related to, this Agreement or to a breach or alleged
breach of this Agreement shall be settled by arbitration in accordance with the
Rules of the American Arbitration Association (the "Association"). The parties
further agree that judgment upon any award rendered by the arbitrator may be
entered in any court of competent jurisdiction.
Should either party hereto institute any action or proceeding to enforce any
provision hereof, or for damages by reason of any alleged breach of any
provision of this Agreement, or for a declaration of such party's rights or
obligations hereunder, or for any other judicial remedy, the prevailing party
shall be
6
<PAGE> 8
incurred thereby, including, without limitation, reasonable attorneys' fees and
expenses, pre-arbitration, arbitration and appellate costs, incurred in
ascertaining or enforcing such party's rights under this Agreement, and any
additional relief to which such party may be entitled.
The decision of the arbitrator within the scope of the submission shall be
final and binding on all parties, and, accordingly, the parties agree that any
right to judicial action on any matter subject to arbitration hereunder is
hereby waived (unless otherwise provided by applicable law), except the right
to judicial action to compel arbitration or to enforce the arbitration award,
or except in the event arbitration is unavailable to the parties for any
reason.
19. The terms of this contract shall renew annually on the anniversary
date hereof unless notice otherwise is provided prior to the anniversary date
of this agreement. It is the intent of this agreement that it will always be
in effect for three (3) years.
20. Source of Payments. All payments provided under this agreement, shall
be paid in cash from the general funds of the Company and no special or
separate fund shall be established and not other segregation of assets made to
assure payment. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right shall be no greater than the
right of an unsecured creditor of the Company.
21. Miscellaneous. This Agreement contains the entire agreement of the
parties relating to the subject matter hereof. This Agreement supersedes any
prior written or oral agreements or understandings between the parties relating
to the subject matter hereto. No modification or amendment of this Agreement
shall be valid unless in writing and signed by or on behalf of the parties
hereto. A waiver of the breach of any term or condition of this Agreement
shall not be deemed to constitute a waiver of any subsequent breach of the same
or any other term or condition. This Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any provision of this Agreement, or the
application thereof to any person or circumstance, shall for any reason and to
any extent, be held invalid or unenforceable, such invalidity and
unenforcibility shall not affect the remaining provisions hereof and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The compensation
provided to the Executive pursuant to this Agreement shall be subject to any
withholdings and deductions required by any applicable tax laws. Any amounts
payable to the Executive hereunder after the death of the Executive shall be
paid to the Executive's estate or legal representative.
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<PAGE> 9
The headings in this Agreement are inserted for convenience of reference
only and shall not be part of or control or affect the meaning of any provision
hereof.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the day and year first above written.
CARL KARCHER ENTERPRISES, INC.
By: /s/ DONALD E. DOYLE
----------------------------------------
President and CEO
/s/ KAREN B. EADON
----------------------------------------
Employee
8
<PAGE> 1
Exhibit 10-89
<PAGE> 2
EMPLOYMENT AGREEMENT
CARL KARCHER ENTERPRISES, INC.
AGREEMENT, dated as of January 1, 1994, by and between CARL KARCHER
ENTERPRISES, INC. (the "Company") and Carl N. Karcher (the "Founder").
WITNESSETH:
WHEREAS, Founder founded the Company and has served as Chairman of the Board
for 52 years;
WHEREAS, the Company desires to employ the Founder and the Founder desires to
be employed to provide services to the Company, all on the terms and subject to
the conditions, as hereinafter set forth:
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
obligations hereinafter set forth, the parties agree as follows:
1. EMPLOYMENT. The Company agrees to employ the Founder during the
Employment Term (as defined in Section 3) and the Founder hereby accepts such
employment, and agrees to serve the Company subject to the supervision, advice
and direction of the Board of Directors of the Company (the "Board"), and upon
the terms and conditions set forth in this Agreement.
2. DUTIES. The Company and Founder acknowledge that Founder is the
founder of the Company and agree that Founder will be employed as the Chairman
Emeritus of the Board. The Chairman Emeritus of the Board shall be a
non-executive officer of the Company reporting to the President and Chief
Executive Officer. In such capacity, Founder shall perform such services and
acts as may be assigned to him from time to time by the Board, the Chairman
thereof, or the Executive Committee thereof and the President and CEO, subject
always to the policies set by the Board. These services and acts include, but
shall not be limited to, visits to stores, attending Company sponsored events
and other public appearances as the Company's Founder and promoter of its
products, corporate culture and strategic direction and
<PAGE> 3
attending mutually acceptable charitable events and social gatherings. At such
events, Founder shall positively and enthusiastically promote the Company and
its products. The parties understand that Founder is a member of the Company's
Board of Directors and will be an emeritus member of the Board's Executive
Committee, and as such the Company recognizes that in Board Meetings and
private conversations with other Board members, Founder, in the exercise of his
responsibilities as a director will, and will be encouraged to, speak frankly
and honestly concerning the affairs of the Company, its strategic direction and
performance and will, and will be encouraged to, vote as his conscience tells
him. As part of his duties as Chairman Emeritus, however, Founder shall not
publicly criticize (i) decisions made by the Board, (ii) the Company's
strategic direction, or (iii) management, all except as required by applicable
law or the Company's Bylaws. For purposes of the preceding sentence, (i)
"publicly" shall mean persons other than (a) the Company's Directors, (b) the
Company's President and CEO, (c) Founder's immediate family and (d) Founder's
professional advisors, and (ii) "criticize" shall mean to make a comment (in
writing, verbally or by any other means) other than a comment indicating no
comment or approval. This limitation shall not apply to any comments made or
action taken prior to the execution date of this Agreement. In no event shall
the Board, the Chairman thereof, the Executive Committee nor management (i)
publicly criticize Founder, except as required by applicable law or the
Company's Bylaws, or (ii) absent Founder's consent, assign to Founder any duty,
not specifically enumerated herein, which is not a type customarily performed
by the Chairman Emeritus of a comparable company.
The Founder shall devote such time as may be necessary to fulfill his
duties hereunder (which the parties contemplate shall be his full time or
substantially his full time) and devote his best efforts to the business
affairs of the Company; however, the Founder may devote reasonable time and
attention to:
(i) serving as a director or member of a committee of any
not-for-profit charitable or community activities:
(ii) managing personal investments; and
(iii) with the prior written approval of the Board of Directors,
serving as a director of a corporation or as a member of a committee of an
organization.
2
<PAGE> 4
The Founder agrees that he will not, either directly or indirectly,
render any personal service as a director, employee, independent contractor,
consultant, or otherwise to any retail quick service restaurant business or
venture which is in conflict with the business of the Company during the term
of this Agreement. Founder also agrees not to have any ownership direct or
otherwise in any such private or publicly traded restaurant company or venture
which is in conflict with the business of the Company. However, this shall not
be construed to prevent Founder from owning, as an investment, up to 5% of a
class of publicly traded equity securities issued by any such organization or
retaining any equity security of an entity resulting from a recapitalization,
reorganization, reclassification or spinoff involving the Company.
3. EMPLOYMENT TERM. The Founder shall be employed under this
Agreement for a term of five (5) years from the date of execution of this
Agreement (the "Employment Term"), commencing on the date hereof and
terminating on the close of business on December 31, 1998, unless sooner
terminated as provided in this Section 7.
4. COMPENSATION.
4.a. Base Compensation. During the employment Term, the Company
will pay the founder an annual base salary (the "Base Salary") of $400,000 as
compensation for his services hereunder, payable in accordance with the
Company's standard payroll practices.
4.b. Bonus. The Founder will be paid a special one time bonus
not to exceed $50,000 payable on May 15, 1994, the payment and amount of such
bonus to be based upon the recommendation of the President and CEO of the
Company, and upon approval by the Compensation Committee of the Board based
upon the performance of his duties hereunder. An annual bonus thereafter shall
be paid only in the sole and absolute discretion of the Chairman of the Board
and the Compensation Committee of the Board as to whether there is any bonus at
all and, if so, the amount thereof.
4.c. Stock Options. The Founder shall be entitled to participate
in the stock option plan of the Company and receive awards under the terms of
the plan as determined appropriate by the Board of Directors with an initial
grant of options for 100,000 shares with a per share option exercise
3
<PAGE> 5
price equal to the fair market value of the Company's common stock at the time
of the grant.
4.d. Vacation. During each calendar year of the Employment Term,
the founder shall be entitled to take paid vacation time for such length of
time as determined by the Board of Directors but not less than 45 days per
year.
4.e. Benefits. During the Employment Term, the Founder will be
entitled to participate in all Company sponsored retirement, health and welfare
benefits provided to other executives or employees of the Company provided that
such participation is in conformance with the provisions and applicable
regulations governing such plans with the exception of the Company's Long Term
Disability program.
4.f. Car Allowance. During the employment Term, the Company will
pay the Founder a car allowance. During the first year of the Employment Term,
the car allowance will be 830.00 per month. The car allowance may be reviewed
from time to time and reset according to competitive practices.
5. Reimbursement of Expenses Incurred in Performance of
Employment. the Company shall pay or reimburse the Founder for all normal and
reasonable expenses, including travel expenses, incurred by the Founder prior
to the termination of the Employment Term in connection with the Founder's
duties as described in Section 2. Such amounts will be based on proper
submission of receipts in conformance with the Company's standard business
expense reimbursement policy. Any questions concerning eligibility of an
expense shall be resolved by the Chairman of the Board.
6. Additional Benefits.
6.a. Budget. In the performance of his duties as specified in
Section 2, Founder shall have an annual discretionary budget for charitable
contributions and other public appearance fees approved by the Company of
$30,000.
6.b. Driver and Assistant. To assist Founder in the performance
of his duties hereunder, the Company shall provide a Driver and Scheduling
Assistant for Founder whose status as an employee of the Company or an
independent contractor and his professional qualifications shall be within the
sole
4
<PAGE> 6
discretion of the Company. The number of hours per week and the times at which
said Driver shall be employed shall be determined by the Company based upon the
duties from time to time being performed by Founder as set forth in Section 2
above. The continuing need for said Driver and his hours and times of
employment shall be reevaluated by the Company on an ongoing basis and be
subject to adjustment based upon the nature and scope of the duties then being
performed by Founder hereunder.
6.c. Office Space. During the employment Term, Founder shall
receive office and administrative support (including an assistant) in his
current office space at the Company headquarters and continued office space and
administrative support for one employee of the Carl N. and Margaret M. karcher
Trust.
7. Termination.
7.a. Termination for Cause. The Company may terminate the
Founder's employment for "cause" at any time, which shall include:
(I) termination because of breach of fiduciary duty
involving personal profit,
(ii) violation of Section 8 of this Agreement,
(iii) willful and continued failure to perform
stated duties or abide by the Company's
policies,
(iv) conviction of felony,
(v) commitment of an act that would disqualify
the Company or any subsidiary of the Company
from maintaining or obtaining a license,
permit or other governmental approval
material to the operations of the Company or
any subsidiary, or,
(vi) material breach of any provision of this
Agreement following notice and a ten (10) day
opportunity to cure said breach.
5
<PAGE> 7
On termination for cause all of the Founder's rights to compensation
as spelled out in Section 4 will terminate immediately on the date of
termination to the extent provided for by the individual plans and as provided
for by applicable law.
Any compensation, reimbursement or other amount due the Founder for
services rendered prior to the date of termination for cause will be paid to
the Founder concurrent with the date of termination. Effective upon the date
of termination, Founder shall become the retired Chairman Emeritus, and shall
be entitled to the lifetime retirement benefits as set forth on the Retirement
Benefits Schedule attached hereto and hereinafter referred to as the
"Retirement Benefits."
7.b. Termination Without Cause by the Company. If the Founder is
terminated for reasons other than specified in Section 7a, c, d, e, and Section
8, the Company shall pay the Founder all compensation and benefits pursuant to
Sections 4, and 6(c) when and as they become due for the balance of the
Employment Term, and thereafter, Founder shall receive the Retirement Benefits.
Termination without cause by the Company under this Section 7.b will
include termination for "Good Reason" following a change in control of the
Company. For purposes of this Agreement, a "change in control of the Company"
shall mean a change in control of a nature that would be required to be
reported in response to item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange act of 1934, as amended ("Exchange act"),
provided that, without limitation, such a change in control shall be deemed to
have occurred if (a) any "person" (as such term is used in Sections 13(D) and
f14(d)(2) of the Exchange Act) becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities (apart from
rights accruing under special circumstances) having the right to vote at
elections of directors (excluding "persons" who have 20% or more of the
combined voting power on the date this Agreement is originally executed) or (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.
For purposes of this Agreement, termination for "Good Reason" shall
mean the occurrence of any one or more of the
6
<PAGE> 8
following: (a) without Founder's express written consent, the assignment to
Founder of duties inconsistent with Founder's position, duties,
responsibilities and status with the Company immediately prior to the change in
control or a change in Founder's duties, reporting level, titles, offices or
business location as in effect immediately prior to the change in control, or
any removal of Founder from or any failure to reelect Founder to any of such
positions, except in connection with the termination of Founder's employment by
the Company for Cause, Disability, Death, Retirement, or by Founder other than
for cause or Good Reason (b) reduction by the Company in Founder's Base Salary
as in effect on the date of change in control (c) the taking of any action by
the Company (including the elimination of benefits plans without providing
substitutes thereof or the reduction of Founder's benefits thereunder) that
would substantially diminish the aggregate value of Founder's incentive awards
and other fringe benefits from the levels in effect prior to a change in
control, unless such actions are taken generally as to all employees (d) a
failure of the Company to obtain from any successor, before the succession
takes place, an agreement to assume and perform this Agreement as provided for
herein.
7.c. Resignation. In the event, at any time during the term of
this Agreement, Founder resigns, all of the Founder's rights to compensation as
spelled out in Sections 4.a, 4.b, 4.f and 6 will terminate immediately on the
date of resignation. Founder's rights to all other benefits after resignation
will be governed by the individual plans and as provided for by applicable law.
Any compensation due the Founder for services rendered prior to the
date of resignation will be paid to the Founder within 10 days of resignation,
and commencing on the date of resignation, Founder shall commence receiving the
Retirement Benefits.
7.d. Disability of the Founder. If the Founder for any reason
whatsoever becomes permanently disabled so that the Founder is unable to
perform the duties described in Section 2 for a period of 180 days, the Company
agrees to pay the Founder, the Retirement Benefits.
"Permanent disability" shall mean the Founder is unable to perform the
duties contemplated by this Agreement by reason of a physical or mental
disability or infirmity which has continued for more than 180 consecutive days.
Founder agrees
7
<PAGE> 9
to submit such medical evidence regarding such disability or infirmity as may
be reasonably requested by the Company.
7.e. Death. Upon the death of the Founder, any compensation due
the Founder for services rendered prior to the date of termination for death
will be paid to the Founder's estate within ten (10) days of termination, and
thereafter, Margaret Karcher shall receive the Retirement Benefits for the
balance of her life, plus an additional $100,000 per year for the balance of
the Employment Term.
8. Protected Information; Prohibited Solicitation.
8.a. Protected Information. The Founder hereby recognizes and
acknowledges that during the course of this Agreement, the Company may disclose
and Founder may become privy to confidential and proprietary information
related to the Company's business, including, without limitation supplier
lists, ideas, processes, inventions and devices, that such confidential and
proprietary information has been developed and will be developed through the
expenditure by the Company of substantial time and money, and that all such
confidential proprietary information shall be used only for the purpose of
carrying out his duties with the Company and shall not otherwise be disclosed
to anyone (except as required by applicable law) other than to Founder's wife,
attorney, accountant or other appropriate advisors who may assist him in
understanding or acting upon such information (each an "appropriate party"), it
being understood that such appropriate parties will be informed by Founder of
the confidential nature of such information and will be directed by Founder to
treat such information confidentially, and will be advised by Founder that by
receiving such information they are agreeing to be bound by the terms of this
Section. No information otherwise in the public domain shall be considered
confidential.
8.b. Prohibited Solicitation. The Founder hereby agrees, in
consideration of his employment hereunder and in view of the confidential
position to be held by the Founder hereunder, that during the Employment Term
and for the period ending on the date which is one (1) year after the later of
(a) the termination of the employment Term and (b) the date on which the
Company is no longer required to provide the payments and benefits described in
Section 4, the Founder shall not, without the written consent of the Company,
knowingly solicit, entice or persuade any other employee of
8
<PAGE> 10
the Company or any affiliate of the Company to leave the services of the
Company or such affiliate for any reason.
8.c. Other. So long as the Founder is employed by the Company,
and so long as the restrictions of this Section apply, prior to accepting any
engagement to act as an employee, officer, director, trustee, principal, agent,
or representative of any type of business or service the Founder shall (a)
disclose such engagement in writing to the Company, and (b) disclose to the
other entity to which he has agreed to act as an employee, officer, director,
trustee, agent or representative, or to other principals together with whom he
proposes to act as a principal in such business or service, the existence of
the covenants set forth in this Section and the provision thereof.
The restrictions of this Section shall survive the termination of this
Agreement and shall be in addition to any restrictions imposed upon the Founder
by statute or at common law.
9. Injunctive Relief. The Founder hereby expressly
acknowledges that any breach or threatened breach by the Founder of any of the
terms set forth in Section 8 of this Agreement may result in significant and
continuing injury to the Company, the monetary value of which would be
impossible to establish. Therefore, the Founder agrees that the Company shall
be entitled to apply for injunctive relief in a court of appropriate
jurisdiction. The provisions of this Section shall survive the Employment
Term.
10. Parties Benefited; Assignments. This Agreement shall be
binding upon the Founder, the heirs and personal representative or
representatives of the Founder, and upon the Company and its successors and
assigns. Neither this Agreement nor any rights or obligations hereunder may be
assigned by the Founder.
11. Notices. Any notice required or permitted by this Agreement
shall be in writing, sent by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Chairman of The Board for the
Company at its then principal office, or to the Founder at the address
maintained in the Company records, as the case may be, or to such other address
or addresses as any party hereto may from time to time specify in writing for
the purpose of a notice
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<PAGE> 11
given to the other parties in compliance with Section 11. Notice shall be
deemed given when received.
12. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California
without regard to conflict of law principles.
13. Indemnification and Insurance; Legal Expenses. The Company
will indemnify the Founder to the fullest extent permitted by the laws of the
State of California, as in effect at the time of the subject act or omission,
and the Founder shall be entitled to the protection of any insurance policies
the Company may elect to maintain generally for the benefit of its directors
and officers insuring against all costs, charges and expenses whatsoever
incurred or sustained by the Founder in connection with any action, suit or
proceedings to which the Founder may be made a party by reason of being or
having been an officer or employee of the Company or any of its subsidiaries or
serving or having served any other enterprises at the request of the Company
(other than any dispute, claim or controversy described in Section 7.a. of this
Agreement, except that the Founder shall be entitled to reimbursement of
reasonable attorneys' fees and expenses if the Founder is the prevailing
party).
14. Arbitration. The parties agree that any controversy or
claim arising out of, or in any way related to, this Agreement or to a breach
or alleged breach of this Agreement shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association (the
"Association"). The parties further agree that judgment upon any award
rendered by the arbitrator may be entered in any court of competent
jurisdiction.
Should either party hereto institute any action or proceeding to
enforce any provision hereof, or for damages by reason of any alleged breach of
any provision of this Agreement, or for a declaration of such party's rights or
obligations hereunder, or for any other judicial remedy, the prevailing party
shall be entitled to reimbursement of all fees and costs incurred thereby,
including, without limitation, reasonable attorneys' fees and expenses,
pre-arbitration, arbitration and appellate costs, incurred in ascertaining or
enforcing such party's rights under this Agreement, and any additional relief
to which such party may be entitled.
10
<PAGE> 12
The decision of the arbitrator within the scope of the submission
shall be final and binding on all parties, and, accordingly, the parties agree
that any right to judicial action on any matter subject to arbitration
hereunder is hereby waived (unless otherwise provided by applicable law),
except the right to judicial action to compel arbitration or to enforce the
arbitration award, or except in the event arbitration is unavailable to the
parties for any reason.
15. Source of Payments. Except as may be provided in a separate
benefit plan, all payments provided under this Agreement shall be paid in cash
from the general funds of the Company and no special or separate fund shall be
established, and no other segregation of assets made to assure payment. Other
than Founder and except for Margaret M. Karcher, to the extent that any person
acquires a right to receive payments from the Company hereunder, such right
shall be no greater than the right of an unsecured creditor to the Company.
16. Miscellaneous. This Agreement contains the entire agreement
of the parties relating to the subject matter hereof. This Agreement
supersedes any prior written or oral agreements or understandings between the
parties relating to the subject matter hereof. No modification or amendment of
this Agreement shall be valid unless in writing and signed by or on behalf of
the parties hereto. A waiver of the breach of any term or condition of this
Agreement shall not be deemed to constitute a waiver of any subsequent breach
of the same or any other term or condition. This Agreement is intended to be
performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If any provision of this
Agreement, or the application thereof to any person or circumstances, shall for
any reason and to any extent, be held invalid or unenforceable, such invalidity
and unenforceability shall not affect the remaining provisions hereof, and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The compensation
provided to the Founder pursuant to the Agreement shall be subject to any
withholdings and deductions required by any applicable tax laws. Any amounts
payable to the Founder hereunder after the death of the Founder shall be paid
to the Founder's estate or legal representative.
The headings in this Agreement are inserted for convenience of
reference only and shall not be part of or control or affect the meaning of any
provisions hereof.
11
<PAGE> 13
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the day and year first above written.
CARL KARCHER ENTERPRISES, INC.
BY: /s/ CARL N. KARCHER
-------------------------------------
FOUNDER
/s/ WILLIAM P. FOLEY
-------------------------------------
William P. Foley
Chairman
/s/ DONALD E. DOYLE
-------------------------------------
Donald E. Doyle
President and Chief Executive Officer
12
<PAGE> 14
RETIREMENT BENEFIT SCHEDULE
1. Base Benefit
The base retirement benefit shall be $210,000 per year for
life. The amount consists of $200,000 retirement benefit and a $1,000 car
allowance. The amount will be paid according to the normal payroll procedures
of the Company. Should Carl N. Karcher predecease Margaret Karcher, the base
retirement benefit will be reduced to $100,000, which amount would then be paid
to Margaret Karcher for the rest of her life. Should Carl N. Karcher survive
Margaret Karcher, the base amount would cease in total upon the death of Carl
N. Karcher.
2. Medical
Carl N. Karcher and Margaret Karcher will be eligible to
enroll in a Medicare supplemental program through Health Net, presently called
Flex Net Plan 98. Should they decide to enroll in that plan, the Company will
pay the premium. The premiums must be shown as income to Carl and Margaret for
reporting purposes. The executive medical benefit program of $5,000 will
remain and may be used for reimbursement of any out-of-pocket expenses up to a
$5,000 per year limit.
3. Dental/Vision
Carl and Margaret will remain eligible to participate in the
Company's self-funded dental and vision care plans. The calculated premium for
the coverage will be reported as income for reporting purposes.
4. Life Insurance
None.
5. Long-Term Disability Coverage
None.
6. Automobile Insurance
None.
<PAGE> 1
EXHIBIT 10-91
<PAGE> 2
ADDENDUM NO. 1 TO
BOSTON CHICKEN, INC.
FRANCHISE AGREEMENT
THIS ADDENDUM No. 1 is to the Boston Chicken, Inc. Franchise
Agreement (the "Agreement"), dated _____________, 1994 by and between Boston
Chicken, Inc. ("Company"), which has its principal office at 1804 Centre Point
Drive, Naperville, IL 60563, and Carl Karcher Enterprises, Inc., which has its
principal office at 1200 North Harbor Boulevard, P.O. Box 4349, Anaheim,
California 92803-4349 (hereinafter referred to as ("FRANCHISE OWNER").
The following shall amend and be incorporated into the
Agreement. In the event of any conflict between the terms of the Agreement and
the terms of this Addendum, then the terms of this addendum shall control. All
capitalized terms not defined in this Addendum shall have the respective
meanings set forth in the Agreement.
1. Section 1.B is hereby amended by deleting the
definition of Catering Area in its entirety and restating it to read as
follows:
"CATERING AREA" - The geographic area in which COMPANY, in its
sole discretion, authorizes FRANCHISE OWNER to provide Catering
Service pursuant to a Catering Rider, which area may be the same as,
smaller than, larger than or different from the Territory (defined
below) of a BOSTON CHICKEN Unit. COMPANY may, at any time and in its
sole discretion, with or without cause and regardless of the
investment made by FRANCHISE OWNER in establishing or conducting
Catering Service: (1) reduce, modify or expand the Catering Area from
time to time (provided, that any reduction or modification which
amounts to a termination or substantially all of FRANCHISE OWNER's
rights to provide such services shall be governed by clause (2),
below) or (2) upon written notice to FRANCHISE OWNER in accordance
with Section 3.D suspend or terminate FRANCHISE OWNER's right to offer
Catering Service.
2. Section 1.B is hereby further amended by inserting at
the end of the definition of "Competitive Business" the following:
COMPANY acknowledges Carl's Jr. restaurants constitute a
Permitted Competitive Business within the meaning of this Agreement
and Exhibit C hereto, provided that such Carl's Jr. restaurants do not
offer
CKEADD.FIN
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(1) rotisserie chicken, or (2) any other products prepared in
accordance with COMPANY's recipes or specifications unless such
products are developed by FRANCHISE OWNER and sold in Carl's Jr.
restaurants prior to the development of such products by COMPANY,
provided, further, that no Confidential Information is used in
connection with Carl's Jr. restaurants providing any services or
products.
3. Section 1.B is hereby further amended by deleting the
definition of "Computer System" in its entirety and relating it to read as
follows:
"COMPUTER SYSTEM" - Those brands, types, makes and/or models
of communications and computer systems or hardware specified or
required by COMPANY for use by, between, or among BOSTON CHICKEN Units
and COMPANY, including, but not limited to back office and point of
sale systems, data, audio, video and voice storage, retrieval, and
transmission systems for use at the UNIT, between or among BOSTON
CHICKEN Units, and between UNIT and/or FRANCHISE OWNER and COMPANY,
security systems, printers, and archival and back-up systems.
4. Section 1.B is hereby further amended by deleting the
definition of "Delivery Area" in its entirety and restating it to read as
follows:
"DELIVERY AREA" - The geographic area in which COMPANY, in its
sole discretion, authorizes FRANCHISE OWNER to provide Delivery
Service pursuant to a Delivery Rider, which area may be the same as,
smaller than, larger than or different from the Territory (defined
below) of a BOSTON CHICKEN Unit. COMPANY may at any time and in its
sole discretion with or without cause and regardless of the investment
made by FRANCHISE OWNER in establishing and conducting Delivery
Service or the length of time FRANCHISE OWNER has offered Delivery
Service: (1) reduce, modify or expand the Delivery Area from time to
time (provided, that any reduction or modification which amounts to a
termination of substantially all of FRANCHISE OWNER's rights to
provide such services shall be governed by clause (2), below) or (2)
upon written notice to FRANCHISE OWNER in accordance with Section 3.C,
suspend or terminate FRANCHISE OWNER's (or Authorized Entity's) right
to offer Delivery Service.
CKEADD.FIN 2
<PAGE> 4
5. Section 1.B is hereby further amended by deleting the
definition of "Licensed Program" in its entirety and restating it to read as
follows:
"LICENSED PROGRAM" - The computer software programs developed
by or for COMPANY and designated by COMPANY from time to time as
specified or required in connection with utilization of the Computer
Systems, which may include, without limitation, COMPANY's required
point-of-sale, bookkeeping, inventory, training, marketing, employee
selection, operations and financial information, collection and
retrieval systems (including COMPANY's required general ledger system
utilizing the standard chart of accounts prescribed by COMPANY from
time to time) for use in connection with the operation of BOSTON
CHICKEN Units or franchise owners' and developers' business, including
any updates, supplements, modifications or enhancements thereto made
from time to time, all related documentation, the tangible media upon
which such program is recorded, and database file structure thereof,
but excluding any data or databases owned or compiled by COMPANY or
its Affiliates for use with the Licensed Program or otherwise or any
data generated by the use of the Licensed program.
6. Section 1.B is hereby further amended by deleting the
definition of "Market Area" in its entirety and restating it to read as
follows:
"MARKET AREA" - The Sub-Area (as defined in the Development
Agreement) in which the UNIT is located.
7. Section 1.B is hereby further amended by adding the
following immediately before the definition of "Territory":
"SPECIFIED SOFTWARE" - Such software, programming, and
services other than the Licensed Program, which COMPANY from time to
time specifies or requires in connection with utilization of the
Computer System
CKEADD.FIN 3
<PAGE> 5
8. Section 2.A is hereby further amended by adding the
following at the end thereof:
Notwithstanding the foregoing, FRANCHISE OWNER shall not be
required to cause the execution and delivery of the Guaranties
referred to in this Section 2.A, unless FRANCHISE OWNER is an
"Authorized Entity" as defined in the Development Agreement.
9. Section 2.E is hereby amended by deleting the phrase
"one (1) year" in the last paragraph and replacing it with the phrase "two (2)
years."
10. Section 3.A is deleted in its entirety and restated
to read as follows:
FRANCHISE OWNER acknowledges and agrees that: (1)
FRANCHISE OWNER is not granted any rights within or outside
the Territory to offer, perform, or participate in the
development or operation of Special Distribution Arrangements
("SDA"), other than as expressly provided in this Paragraph A,
and (2) COMPANY reserves all such rights to offer, perform, or
participate in the development or operation of SDA, within the
Territory. Notwithstanding anything to the contrary contained
in this Paragraph A, if COMPANY, during the Agreement Term,
determines to itself develop and operate, or grant to others
the right to develop and operate an SDA in the Territory, then
COMPANY shall notify FRANCHISE OWNER of such intention by
providing to FRANCHISE OWNER COMPANY's proposed plan for such
SDA and the form of an initial Special Distribution Agreement
which COMPANY proposes to FRANCHISE OWNER to execute and
deliver with regard to such SDA ("COMPANY's SDA Plan Notice").
Company shall notify FRANCHISE OWNER in writing as to
whether COMPANY, in its sole discretion, elects to have
FRANCHISE OWNER (i) perform the development or operation of
the SDA, or (ii) participate in the COMPANY cash flow, if any,
solely from the development and performance of such SDA ("Net
Cash Flow") in the event a Cannibalization Impact is
established, as defined below. Notwithstanding anything to
the contrary, including any such election by COMPANY,
FRANCHISE OWNER
CKEADD.FIN 4
<PAGE> 6
acknowledges that COMPANY need not permit FRANCHISE OWNER to
perform the development or operation of such SDA and COMPANY
shall have no obligation to enter into any Special
Distribution Agreement with FRANCHISE OWNER with respect to
such SDA unless FRANCHISE OWNER demonstrates, to COMPANY's
reasonable satisfaction, that it has or will acquire the
appropriate resources (financial and otherwise) to take full
advantage of the SDA and to discharge all of its obligations
under the Special Distribution Agreement. If COMPANY elects
for FRANCHISE OWNER to develop and operate such SDA pursuant
to (i), above, then, COMPANY and FRANCHISE OWNER will promptly
commence negotiations in good faith toward the execution of a
revised Special Distribution Agreement in accordance with
COMPANY's SDA Plan Notice. If COMPANY and FRANCHISE OWNER are
unable to agree, in good faith, on the terms of and execute
the revised Special Distribution Agreement within sixty (60)
days after COMPANY's delivery to the FRANCHISE OWNER of the
COMPANY's SDA Plan notice and FRANCHISE OWNER does not execute
and deliver the initial Special Distribution Agreement, or in
the event COMPANY determines FRANCHISE OWNER does not have and
cannot acquire appropriate resources to take full advantage of
the SDA and to discharge all of its obligations under the
Special Distribution Agreement, then COMPANY will have no
further obligation to negotiate with the FRANCHISE OWNER
pursuant hereto for such SDA other than to permit FRANCHISE
OWNER to participate in Net Cash Flow, if any, pursuant to
(ii), above, and COMPANY may develop or operate, or pursue
negotiations with and offer to third parties the right to
develop and operate, such SDA.
If COMPANY elects (ii), above, the COMPANY shall have
the right to develop and operate or grant the right to others
to develop and operate such SDA within the Territory and, if
such SDA is so developed or operated within the Territory
during the Agreement Term, FRANCHISE OWNER may, by written
notice to COMPANY at any time within one year after
commencement of such SDA, require COMPANY to engage a
reputable, unaffiliated third-party market survey company at
COMPANY's expense which shall, within sixty (60) days of
engagement render a report to the
CKEADD.FIN 5
<PAGE> 7
COMPANY as to whether such SDA has caused more than a 5%
permanent cannibalization ("Cannibalization Impact") of the
gross sales of the UNIT. If such Cannibalization Impact is so
reported, then the market survey company shall determine if
the projected annualized after tax cash flow of such UNIT for
the next four (4) years will yield to FRANCHISE OWNER an
annualized average cash return on the book value of such UNIT
(which book value shall never be deemed to exceed invested
capital to date in such UNIT) equal to or exceeding 25%. If
such return equals or exceeds 25%, then no portion of the Net
Cash Flow shall be paid to FRANCHISE OWNER. If such return is
less than 25%, then, COMPANY shall pay to FRANCHISE OWNER a
reasonable portion of the Net Cash Flow, if any, as earned
from time to time (less any net cash losses for prior periods)
as determined by the COMPANY from time to time in good faith,
taking into account all relevant factors, including, but not
limited to, the scope of DEVELOPER's activities, the amount of
the reported Cannibalization Impact of the SDA on DEVELOPER,
whether such impact is mitigated by positive factors.
If FRANCHISE OWNER fails to comply with any of its
material obligations under this Agreement, COMPANY shall have
no obligation to negotiate with FRANCHISE OWNER pursuant
hereto for such SDA rights pursuant to (i), above and COMPANY
may develop and operate or pursue negotiations with and offer
to third parties the right to develop and operate such SDA
within such Sub-Area without any obligation of payment which
would have otherwise been owed to FRANCHISE OWNER in the event
of a proper election pursuant to (ii), above. Notwithstanding
anything else to the contrary herein, FRANCHISE OWNER's rights
to enter into a Special Distribution Agreement pursuant to (i)
or receive payments pursuant to (ii) for the Territory shall
terminate without further action or notice by COMPANY if:
(a) FRANCHISE OWNER fails to meet its development
obligations hereunder with regard to the UNIT Sub-Area,
including without limitation, the timely opening of any UNIT
pursuant to Schedule C attached to the Development Agreement;
or
CKEADD.FIN 6
<PAGE> 8
(b) This Agreement is terminated prior to its
applicable expiration date.
If FRANCHISE OWNER has executed a Special
Distribution Agreement, COMPANY reserves the right, at any
time and in its sole discretion with or without cause and
regardless of the investment made by FRANCHISE OWNER in
establishing or operating the Special Distribution Arrangement
or the length of time the Special Distribution Arrangement has
been in effect, to suspend or terminate FRANCHISE OWNER's
right to operate the Special Distribution Arrangement upon one
hundred eighty (180) days prior written notice to FRANCHISE
OWNER; provided, however, that notwithstanding such
termination, FRANCHISE OWNER shall be entitled during such one
hundred eighty (180) day period to fulfill any contractual
obligations it had incurred prior to receipt of such notice,
but may not incur or undertake any new obligations or
commitments.
Provided, however, such one hundred eighty (180) day
period may be extended by an additional period not to exceed
the lesser of (a) the period required to amortize (in
accordance with generally accepted accounting principles) the
balance of FRANCHISE OWNER's investment in the SDA or (b)
eighteen months. Notwithstanding the foregoing one hundred
eighty (180) day notice period, COMPANY may terminate
FRANCHISE OWNER's right to operate the SDA upon such shorter
notice (pursuant to procedures promulgated by COMPANY and
applied to a majority of the BOSTON CHICKEN Units then in
operation) as COMPANY determines in its sole discretion if the
reasonfor such termination is FRANCHISE OWNER's failure to
meet COMPANY's operational standards with respect to such
special Distribution Arrangement.
Notwithstanding any other provision of this Section
4.A, COMPANY shall not have the right to propose a Special
Distribution Arrangement to FRANCHISE OWNER pursuant hereto
during the first three years of the Agreement Term of the
Development Agreement, unless such Special Distribution
Arrangement is being conducted, or COMPANY has committed to
conduct it, in Areas of Dominant Influence whose population is
equal to 25% or more of the
CKEADD.FIN 7
<PAGE> 9
aggregate population of all the Areas of Dominant Influence in
which Boston Chicken Units are open or under development.
Further, during the term of the Agreement, COMPANY shall
consult with FRANCHISE OWNER prior to finalizing any material
(with regard to any particular Unit) SDA within the Territory.
Such consultation shall be for advice only and COMPANY shall
not be bound by any advice or recommendations of FRANCHISE
OWNER.
11. Section 3.B is hereby deleted.
12. Section 3.C is hereby amended by deleting the phrase
"; or (ii)" from the end of the last sentence thereof and inserting the phrase
"(provided, that any reduction or modification which amounts to a termination
of substantially all of FRANCHISE OWNER's rights to provide such services shall
be governed by clause (2), below); or (2) upon one hundred eighty (180) days
prior written notice from COMPANY to FRANCHISE OWNER," and by inserting the
following at the end thereof:
Provided, however, such one hundred eighty (180) day period
may be extended by an additional period not to exceed the lesser of
(a) the period required to amortize (in accordance with generally
accepted accounting principles) the balance of DEVELOPER's investment
in delivery vehicles and facilities or (b) eighteen (18) months.
Notwithstanding the foregoing one hundred eighty (180) day notice
period, COMPANY may terminate or suspend FRANCHISE OWNER's right to
operate the Delivery Service upon such shorter notice (pursuant to
procedures promulgated by COMPANY and applied to a majority of the
BOSTON CHICKEN Units then in operation) as COMPANY determines in its
sole discretion if the reason for such termination or suspension is
FRANCHISE OWNER's failure to meet COMPANY's operational standards with
respect to such Delivery Service.
13. Section 3.D is hereby amended by deleting the phrase
"; or (ii)" from the end of the last sentence thereof and inserting the phrase
"(provided, that any reduction or modification which amounts to a termination
of substantially all of FRANCHISE OWNER's rights to provide such services shall
be governed by clause (2), below); or (2) upon one hundred eight (180) days
prior written notice from COMPANY to FRANCHISE OWNER," and by inserting the
following at the end thereof:
CKEADD.FIN 8
<PAGE> 10
Provided, however, such one hundred eighty (180) day period
may be extended by an additional period not to exceed the lesser of
(a) the period required to amortize (in accordance with generally
accepted accounting principles) the balance of FRANCHISE OWNER's
investment in its catering facilities or (b) eighteen (18) months.
After receipt of notice terminating FRANCHISE OWNER's Catering Service
or reducing FRANCHISE OWNER's Catering Area. FRANCHISE OWNER will not
accept any new orders for catering or, as applicable, will not accept
any new orders for catering from the portion of the Catering Area
which has been terminated; provided, however, FRANCHISE OWNER shall
have the right to compete any catering orders during such one hundred
eighty (180) day period, but which were received prior to receipt of
such notice of termination of Catering Service or reduction of
Catering Area.
Notwithstanding the foregoing one hundred eighty (180) day
notice period, COMPANY may terminate or suspend FRANCHISE OWNER right
to operate the Catering Service upon such shorter notice (pursuant to
procedures promulgated by COMPANY and applied to a majority of the
BOSTON CHICKEN Units then in operation) as COMPANY determines in its
sole discretion if the reason for such termination or suspension is
FRANCHISE OWNER's failure to meet COMPANY's operational standards with
respect to such Catering Service.
14. Section 4.A is hereby amended to delete the
requirement that FRANCHISE OWNER use its best efforts to use the Form Unit
Lease. The parties acknowledge that FRANCHISE OWNER may use DEVELOPER's
standard form lease, provided that FRANCHISE OWNER shall incorporate the
Standard Required Site Agreement Terms for CKE units (including collateral
assignment of site agreement to Company or its designee) in the lease for the
UNIT. Provided, however, FRANCHISE OWNER shall only be obligated to use its
best efforts to have the Standard Required Site Agreement Terms included in a
Site Agreement for Approved Sites that are operating as a Carl's Jr. and which
are leased from independent third party landlords.
15. Section 4.C is hereby amended by: (a) deleting the
phrase "one hundred eighty (180) days" in the first sentence and replacing it
with the phrase "one (1) year" and (b) deleting the phrase "one hundred twenty
(120) days" in the last sentence.
CKEADD.FIN 9
<PAGE> 11
16. Section 4.E is hereby amended by adding the following
at the end thereof:
FRANCHISE OWNER shall pay to COMPANY a one-time
License Fee for the Licensed Program when it becomes available
for use by FRANCHISE OWNER. The License Fee shall be the
lesser of (a) $15,000, or (b) the amount charged as a License
Fee to other franchise owners that are similarly situated to
DEVELOPER. FRANCHISE OWNER shall pay a Subscription Fee to
COMPANY (payable with the Royalty Fee) for support and
maintenance of the Licensed Program. The Subscription Fee
shall be $400 per four week period. Notwithstanding the
foregoing, COMPANY may increase the Subscription Fee from time
to time, provided that it may not be increased by more than
ten percent (10%) (or such lesser percentage as may be applied
to FRANCHISE OWNERS similarly situated to DEVELOPER) in any
calendar year.
17. Section 4.E is hereby amended by deleting the first
paragraph thereof in its entirety and restating it to read as follows:
4.E COMMUNICATION AND INFORMATION SYSTEMS.
FRANCHISE OWNER agrees to use in the development and
operation of the UNIT only those brands, types, makes, and/or
models of communications and computer systems or hardware
which COMPANY has from time to time specified or required for
the Computer System. FRANCHISE OWNER also agrees to use in
the development and operation of the UNIT only the Specified
Software and the Licensed Program, as comprised from time to
time in accordance with the specifications and requirements of
COMPANY. FRANCHISE OWNER acknowledges that COMPANY and its
Affiliates and designees are in the process of completing the
development of the Licensed Program and COMPANY is in the
process of completing the development of specifications for
certain components of the Licensed Program and Computer System
and may modify such specifications and the components of the
Licensed Program and the Computer System from time to time.
During the term hereof, COMPANY may require FRANCHISE OWNER to
obtain specified computer hardware and/or software, including,
without limitation, the Computer System, the
CKEADD.FIN 10
<PAGE> 12
Specified Software, and a license to use the Licensed Program
from COMPANY or its designee under a separate agreement after
COMPANY notifies FRANCHISE OWNER to commence use thereof.
COMPANY's development and/or modification of such
specifications for the components of the Computer System, the
Specified Software, and the Licensed Program may require
FRANCHISE OWNER to incur costs to purchase, lease and/or
license new or modified computer hardware and/or software and
to obtain service and support for the Computer System, the
Specified Software, and the Licensed Program during the term
of this Agreement. FRANCHISE OWNER acknowledges that COMPANY
cannot estimate the costs of future additions, enhancements
and modifications to the Computer System, the Specified
Software, and the Licensed Program and that the cost to
FRANCHISE OWNER of obtaining the additions, enhancements and
modifications to the Computer System (the Specified Software,
and the Licensed Program) may not be fully amortizable over
the remaining term of this Agreement. Nonetheless, FRANCHISE
OWNER agrees to incur such costs in connection with obtaining
the Computer System, the Specified Software, and the Licensed
Program and any additions, enhancements or modifications
thereto, provided that the Computer System, the Specified
Software, and the Licensed Program that COMPANY specifies for
same Computer system, the Specified Software, and the Licensed
Program that COMPANY specifies for use by FRANCHISE OWNER is
substantially the same computer system, the specified
software, and the license program which COMPANY is then
currently specifying for use in COMPANY-owned BOSTON CHICKEN
Units. Within one hundred twenty (120) days after FRANCHISE
OWNER receives notice from COMPANY, FRANCHISE OWNER shall
obtain the components of the Computer System, the Specified
Software, and the Licensed Program which COMPANY designates
and requires. Such portion of the Computer System Specified
Software, and Licensed Program as is purchased from COMPANY or
its agents or affiliate may involve one-time and periodic fees
or payments to COMPANY. FRANCHISE OWNER further acknowledges
and agrees that COMPANY has the right to require FRANCHISE
OWNER to pay to COMPANY or its designee a reasonable periodic
systems fee for modifications and enhancements made to the
Licensed Program and reasonable periodic fees for other
maintenance
CKEADD.FIN 11
<PAGE> 13
and support services provided to FRANCHISE OWNER related to
the Specified Software and the Computer System.
18. Section 4.F is hereby amended by deleting the phrase
"one hundred and eighty (180)" and replacing it with the phrase "one (1) year."
19. Section 4.G is amended hereby by deleting the second
and third sentences thereof.
20. Section 4.H is amended as follows:
The words "Company and" are deleted in the fourth
line and the following is added after the end of the first
sentence:
Notwithstanding the foregoing, FRANCHISE OWNER may
not relocate the UNIT for a reason other than damage,
condemnation or other event rendering it unusable unless (a)
FRANCHISE OWNER is then in full compliance with this Agreement
and (b) the proposed new site for the UNIT has been approved
by the COMPANY pursuant to COMPANY's standard site criteria
and site approval procedures.
21. Section 4.H is further amended to provide that, in
the event that the UNIT is relocated pursuant to Section 4.H as amended hereby
because the UNIT has been rendered unusable due to damage, condemnation or
other cause, FRANCHISE OWNER shall have up to two hundred and seventy (270)
days to re-open the UNIT at the new location.
22. Section 4.I is hereby amended by deleting it in its
entirety.
23. Section 5.A is hereby amended by deleting the term
"three (3)" wherever it appears and replacing it with the term "ten (10)."
24. Clauses (5) and (6) of Section 5.B are hereby amended
by adding the following before the semicolon at the end of each of them:
if the UNIT is one of the first three (3) BOSTON
CHICKEN Units developed under the Development Agreement; and
24A. Notwithstanding the first line of Section 5.B,
COMPANY shall be obligated to provide the guidance referred to
CKEADD.FIN 12
<PAGE> 14
in clauses (5) and (6) of Section 5.B., as those clauses are amended hereby.
25. The first sentence of Section 5.C is hereby amended
by inserting the following immediately before the parenthetical definition of
the "Manuals":
, whether by way of supplements, replacement pages, Franchise
Bulletin or Partner Bulletin disclosures, or other officials
pronouncements or means.
26. Notwithstanding Section 9.A hereof: (a) FRANCHISE
OWNER shall not be required to obtain COMPANY's prior written consent with
respect to information described in clauses (i) and (ii) thereof; and (b) the
restrictions on FRANCHISE OWNER's disclosure and use of the Confidential
Information shall not apply to knowledge of the food service business which
FRANCHISE OWNER already possesses and which has not been obtained in
contravention of any obligation of confidentiality owed to COMPANY.
27. The first paragraph of Section 9.B is hereby amended
by inserting the following immediately before the "." at the end of subclause
(2) thereof:
; or (3) divert or attempt to divert any business or any
customers of any BOSTON CHICKEN Unit to any other food service
business.
28. Notwithstanding Section 11.A (5) (a), FRANCHISE OWNER
shall not be required to make the changes referred to therein unless COMPANY
has required such changes with respect to at least 25% of all BOSTON CHICKEN
Units then open and in operation and provided further that FRANCHISE OWNER
shall be required to make such changes on the same timetable that COMPANY has
established for effecting such changes at BOSTON CHICKEN Units owned by
COMPANY.
29. Section 11.B is hereby amended to provide that,
notwithsatnding the first sentence of the second paragraph thereof, DEVELOPER
may designate the evaluation service to conduct the "mystery shopper" program.
30. Section 11.C is amended by adding the following after
the end thereof:
The parties acknowledge that Carl Karcher Enterprises, Inc.
operates a food distribution division ("CKE Distribution") and
that FRANCHISE OWNER may from time to time seek COMPANY's
approval of CKE Distribution as an
CKEADD.FIN 13
<PAGE> 15
approved supplier pursuant hereto. In the event that
FRANCHISE OWNER applies for such approval, COMPANY shall
diligently pursue the supplier approval procedures of this
Section 11.C.
31. Section 11.C is further amended to change the term
"one hundred and twenty (120) days" wherever it appears to "ninety (90) days."
32. Section 11.F is hereby amended to delete the last
sentence of the first paragraph thereof and to replace it with the following:
FRANCHISE OWNER shall provide the Unit Manager with a
compensation program reasonably acceptable to COMPANY designed
to provide an incentive to the Unit Manager to use diligent
efforts to cause the UNIT to be operated profitably.
33. FRANCHISE OWNER acknowledges that there are two
hundred (200) BOSTON CHICKEN Units open and operating and, therefore, FRANCHISE
OWNER's required contribution to the Marketing Fund is two percent (2%) of the
UNIT's Royalty Base revenue.
34. Notwithstanding anything in Section 12.B hereof, the
Local Ad Fund may propose to COMPANY annual advertising and marketing plans for
this Sub-Area in which the UNIT is located ("Advertising Plans"). If the Local
Advertising Fund proposes and Advertising Plan for such Sub-Area, it shall be
submitted to COMPANY for its approval, which shall not be unreasonably
withheld; provided that an Advertising Plan shall not be used without COMPANY's
approval and provided that the Local Ad Fund will support at the local level
substantially all of COMPANY's national marketing campaigns. The foregoing
provisions concerning Advertising Plans shall not apply if the UNIT is located
in the Sub-Area (as defined in the Development Agreement) which includes the
City of Sacramento, California. Further, so long as DEVELOPER owns and
operates all Boston Chicken UNITS contributing to the Local Ad Fund, the
contributions to such Local Ad Fund shall be made to and held in a segregated
account established and maintained by DEVELOPER and all expenditures pursuant
to this Section 12.B shall be made from such account. An accounting with
regard to such Local Ad Fund shall be rendered by DEVELOPER to COMPANY from
time to time at COMPANY's request.
35. The second paragraph of Section 12.B is hereby
amended by adding the following after the end of the first sentence thereof:
CKEADD.FIN 14
<PAGE> 16
Notwithstanding the foregoing, FRANCHISE OWNER acknowledges
and agrees that it may be required from time to time to
contribute to the Local Ad Fund an amount greater than that
provided for herein to enable FRANCHISE OWNER to commence and
continue Required Television Advertising (as defined in the
Development Agreement) as required pursuant to the Development
Agreement.
36. Section 12.C is hereby amended by deleting the term
"Accounting Period" whenever it appears in the first sentence thereof and
replacing it with the term "quarter."
37. Notwithstanding the first sentence of the second
paragraph of Section 13 hereof, FRANCHISE OWNER shall not be required to adopt
a fiscal year which coincides with COMPANY's fiscal year. FRANCHISE OWNER
shall not be required to submit the reports contemplated by clause (1) of
Section 13 for periods for which COMPANY collects from the UNIT via the
Computer System the date which would otherwise be included in such reports.
38. Notwithstanding the last paragraph of Section 13,
FRANCHISE OWNER needs only furnish tax returns to COMPANY that relate solely to
FRANCHISE OWNER's Boston Chicken business.
38A. Section 15.A is amended by adding the following at
the end thereof:
; provided that COMPANY shall remain liable for its
obligations hereunder for the balance of the term of this
Agreement after the date of any transfer or assignment of this
Agreement.
39. Section 15.B is amended by adding the following after
the end thereof:
Notwithstanding the foregoing, the restrictions in
this Section 15.B shall not apply to transfers of ownership
interests in Carl Karcher Enterprises, Inc. or to changes in
the members of its Board of Directors.
40. Section 15.C is hereby amended by inserting the
following after "(c)" in subparagraph (13) thereof:
divert or attempt to divert any business or any customers of
any BOSTON CHICKEN Unit to any other food service business;
or (d)
CKEADD.FIN 15
<PAGE> 17
41. Section 15.F is hereby amended by deleting in its
entirety and replacing it with the following:
FRANCHISE OWNER may make public or private offerings
of securities, provided that FRANCHISE OWNER shall not, unless
otherwise required by law and any relevant governmental
agency, include in any published financial statements, in any
prospectus or other offering document, or in any publicly
filed or disseminated report (including any Form 10-K, 10-Q,
or 8-K or any Proxy Statement or Annual Report to
Stockholders) or in any Management Discussion Analysis or in
any footnotes accompanying any of the foregoing, any category,
line-item, breakdown, or type of information concerning its
operation of Boston Chicken Units that COMPANY does not
utilize in its published financial statements, prospectuses or
offering documents, or publicly filed or disseminated reports.
Additionally, DEVELOPER and CKE shall not disclose information
regarding its Boston Chicken business during 1994 by segment
although, DEVELOPER and CKE shall have the right, during
1994, to discuss, using general statements in the Management
Discussion and Analysis section of any of the documents
referred to in this paragraph, its Boston Chicken business,
provided, however neither DEVELOPER nor CKE shall make a
disclosure of same store sales comparisons or average store
revenue for its Boston Chicken Units unless otherwise required
by applicable law and any relevant governmental agency.
42. Section 16.A. is amended hereby to provide that: (a)
FRANCHISE OWNER shall have the right, on the conditions set forth in Section
16.A. to obtain a second Successor Franchise, and (b) that the fee for each
Successor Franchise shall be one-third of the initial franchise fee set forth
in the Franchise Agreement.
43. Section 18.F is hereby amended by deleting the last
sentence of the first paragraph thereof.
44. Clause 19.A. is amended by deleting the first
paragraph thereof in its entirety and by deleting the word "other" from the
first sentence of the second paragraph.
CKEADD.FIN 16
<PAGE> 18
45. Section 19.B. is hereby amended by deleting the
phrase "of ten (10) days' prior written notice" at the end of the second
paragraph and by replacing it with the following:
of forty-five (45) days' prior written notice, unless COMPANY
determines, in its reasonable discretion, that a shorter
notice period is necessary.
46. Section 19.E is hereby amended by deleting it in its
entirety.
47. Section 19.H is amended by deleting it in its
entirety.
In witness whereof, the parties hereto, intending to be
legally bound hereby, have duly executed this Addendum in duplicate as of the
date written below.
DATE:__________________, 1994 DATE:__________________, 1994
COMPANY: FRANCHISE OWNER:
BOSTON CHICKEN, INC. CARL KARCHER ENTERPRISES, INC.
By:___________________________ By:__________________________
Its: Vice President Its:______________________
CKEADD.FIN 17
<PAGE> 1
EXHIBIT 10-92
<PAGE> 2
ADDENDUM NO. 1 TO
BOSTON CHICKEN, INC.
AREA DEVELOPMENT AGREEMENT
THIS ADDENDUM No. 1 is to the BOSTON CHICKEN, Inc. Area
Development Agreement (the "Agreement"), dated as of January __, 1994 by and
between BOSTON CHICKEN, Inc., ("COMPANY"), which has its principal office at
1804 Centre Point Drive, Naperville, IL 60563, and Carl Karcher Enterprises,
Inc., which has its principal office at 1200 North Harbor Boulevard, P.O. Box
4349, Anaheim, California 92803-4349 (hereinafter referred to as "DEVELOPER").
The following shall amend and be incorporated into the
Agreement. In the event of any conflict between the terms of the Agreement and
the terms of this Addendum, then the terms of this addendum shall control. All
capitalized terms not defined in this Addendum shall have the respective
meanings set forth in the Agreement.
1. Section 2 is hereby amended by deleting the
definition of "Catering Area" in its entirety and restating it to read as
follows:
"CATERING AREA" - The geographic area in which COMPANY in its
sole discretion, authorizes the owner of a Franchise to provide
Catering Service pursuant to a Catering Rider, which area may be the
same as, smaller than, larger than or different from the Territory
(defined in the Franchise Agreement) of a BOSTON CHICKEN Unit.
COMPANY may, at any time in its sole discretion, with or without cause
and regardless of the investment made by DEVELOPER in establishing or
conducting Catering Service: (1) reduce, modify, or expand the
Catering Area from time to time (provided, that any reduction or
modification which amounts to a termination of substantially all of
DEVELOPER's rights to provide such services shall be governed by
clause (2), below) or (2) upon written notice to DEVELOPER in
accordance with Section 4.D, suspend or terminate DEVELOPER's right to
offer Catering Services.
2. Section 2 is hereby further amended by inserting at
the end of the definition of "Competitive Business" the following:
COMPANY acknowledges Carl's Jr. restaurants constitute
Permitted Competitive Business within the meaning of this Agreement
and Exhibit E hereto, provided that such Carl's Jr. restaurants do not
offer (1) rotisserie chicken, or (2) any other products prepared in
accordance with COMPANY's recipes or specifications unless such
products are developed by DEVELOPER and sold in Carl's Jr. restaurants
prior to the
CKEADD.FIN
<PAGE> 3
development of such products by COMPANY, provided, further, that no
Confidential Information is used in connection with Carl's Jr.
restaurants providing any services or products.
3. Section 2 is hereby further amended by deleting the
definition of "Computer System" in its entirety and restating it to read as
follows:
"COMPUTER SYSTEM" - Those brands, types, makes, and/or models
of communications and computer systems or hardware specified or
required by COMPANY for use by, between, or among UNITS and/or
DEVELOPER, including, but not limited to, back office and point of
sale systems, data, audio, video and voice storage, retrieval, and
transmission systems for use at UNITs and/or DEVELOPER between or
among UNITs and/or DEVELOPER, and between UNITs and/or DEVELOPER and
COMPANY, security systems, printers, and archival and back-up systems.
4. Section 2 is hereby further amended by deleting the
definition of "Delivery Area" in its entirety and restating it to read as
follows:
"DELIVERY AREA" - The geographic area in which COMPANY, in its
sole discretion, authorizes a franchise owner to provide Delivery
Service pursuant to a Delivery Rider, which area may be the same as,
smaller than, larger than or different from the Territory (defined in
the Franchise Agreement) of a BOSTON CHICKEN Unit. COMPANY may, at
any time and its sole discretion, with or without cause and regardless
of the investment made by DEVELOPER in establishing and conducting
Delivery Service or the length of time DEVELOPER has offered Delivery
Service: (1) reduce, modify, or expand the Delivery Area from time to
time (provided, that any reduction or modification which amounts to a
termination of substantially all of DEVELOPER's rights to provide such
services shall be governed by clause (2), below) or (2) upon written
notice to DEVELOPER in accordance with Section 4.C suspend or
terminate DEVELOPER's (or Authorized Entity's) right to offer Delivery
Service.
5. Section 2 is hereby further amended by adding the
following immediately before the definition of Rotisserie Unit":
"REQUIRED TELEVISION ADVERTISING" - Television advertising in
the Area of Dominant Influence (as determined by the Arbitron Ratings
Company or suitable replacement therefor if Arbitron Ratings are not
available from time to time) in which the Development Area is located
at a minimum level of 200 gross ratings points, at least forty percent
(40%) of which gross ratings points must be in prime television
viewing time.
CKEADD.FIN 2
<PAGE> 4
6. Section 2 is hereby further amended by adding the
following immediately before the definition of "Sub-Areas":
"SPECIFIED SOFTWARE" - Such software, programming, and
services other than the Licensed Program, which COMPANY from time to
time specifies or requires in connection with utilization of the
Computer System.
7. Section 3.A is hereby amended by adding the following
at the end of the second paragraph thereof:
Notwithstanding the foregoing, DEVELOPER shall not be required
to cause the execution and delivery of the Guaranties referred
to in this paragraph.
8. Section 3.B is hereby amended by adding the following
between the second and third paragraphs thereof:
Notwithstanding any other provisions of this Agreement,
DEVELOPER shall have the option, exercisable in DEVELOPER's sole
option by written notice to COMPANY at least 12 months prior to the
expiration of the Development Term, to develop up to one hundred (100)
additional UNITs in the Development Area. In the event that DEVELOPER
exercises this option, the additional UNITs shall be subject to all
the terms and provisions of this agreement. DEVELOPER and COMPANY
agree to negotiate in good faith as to how many of such UNITs shall be
developed in each Sub-Area and an appropriate development schedule for
each Sub-Area. The Development Term and other appropriate provisions
of this Agreement shall be modified to reflect the addition of such
additional UNITs and the development schedule for such additional
UNITs.
9. Right of First Negotiation for Additional UNITs.
Section 3.B is further amended by adding the following at the end thereof:
(1) Notwithstanding anything to the contrary contained in
this section 3.B, for a period of twelve (12) months after the
expiration of the Sub-Area Term for any Sub-Area (the "Post
Development Period"), COMPANY or its Affiliates determines to itself
develop and operate, or grant to others the right to develop and
operate (whether such rights are granted pursuant to area development
agreements or individual franchise agreements), additional BOSTON
CHICKEN Units in such Sub-Area (such BOSTON CHICKEN Units are
hereafter collectively referred to as "Post-Development UNITs"), then
COMPANY shall notify DEVELOPER of such intention during the Post
Development Period or at any time within the twelve (12) month period
preceding the anticipated end of such Sub-Area Term by providing to
DEVELOPER COMPANY's proposed development plan and
CKEADD.FIN 3
<PAGE> 5
schedule for such Post-Development UNITs ("COMPANY's Development Plan
Notice"). Notwithstanding anything to the contrary, in the event the
proposed development plan is for more than 100 additional
Post-Development UNITs, any excess over 100 shall be proposed in the
form of an option exercisable by DEVELOPER in its sole discretion once
the first 100 Post-Development UNITs are developed in accordance with
the development schedule.
(2) If, during the Post Development Period or at any time
within the twelve (12) month period preceding the anticipated end of
such Sub-Area Term, DEVELOPER desires that COMPANY grant to DEVELOPER
rights to develop and operate additional BOSTON CHICKEN Units after
the expiration of such Sub-Area Term and COMPANY has not previously
delivered COMPANY's Development Plan Notice to DEVELOPER, then
DEVELOPER shall notify COMPANY of such desire during the Post
Development Period or at any tie within the twelve (12) month period
preceding the anticipated end of such Sub-Area Term by providing to
Company DEVELOPER's proposed development plan and schedule for such
Post-Development Units ("DEVELOPER's Development Plan Notice").
Within thirty (30) days after COMPANY's receipt of DEVELOPER's
Development Plan Notice, COMPANY shall review, consider, and respond
to DEVELOPER's Development Plan Notice by providing to DEVELOPER
COMPANY's Development Plan Notice which may modify DEVELOPER's
Development Plan Notice in some or all respects (subject to the last
sentence of sub-paragraph (1) above). Notwithstanding the above,
DEVELOPER's rights pursuant to this Subparagraph (2) shall terminate
without further action or notice by COMPANY if COMPANY delivers
COMPANY's Development Plan Notice to DEVELOPER pursuant to
Subparagraph (1) above and DEVELOPER fails to timely deliver its
Negotiation Notice (defined below) pursuant hereto and thereafter
COMPANY will have no further obligation to negotiate with DEVELOPER
and its Affiliates pursuant hereto for such development right and
COMPANY may develop or operate, or pursue negotiations with and offer
to third parties the right to develop and operate, BOSTON CHICKEN
Units and/or Rotisserie Units in the particular Sub-Area.
(3) If, within thirty (30) days after DEVELOPER's receipt
of COMPANY's Development Plan Notice, DEVELOPER notifies COMPANY, in
writing that DEVELOPER desires to negotiate with COMPANY for the right
to develop and operate such Post-Development UNITs (the "Negotiation
Notice"), then COMPANY and DEVELOPER will promptly commence
negotiations in good faith toward the execution of a new Development
Agreement (the "Post-Development Agreement") in accordance with
COMPANY's
CKEADD.FIN 4
<PAGE> 6
Development Plan Notice and the terms of COMPANY's then current
Development Agreement for BOSTON CHICKEN Units (which may contain
different terms and provide for new and/or higher fees from this
Agreement and which will require the execution of COMPANY's then
current form of franchise agreement which similarly may contain
different terms and provide for new and/or higher fees than the
Franchise Agreement used hereunder) for the right to develop and
operate the Post-Development UNITs in accordance with COMPANY's
Development Plan Notice. If DEVELOPER fails to timely deliver the
Negotiation Notice, COMPANY shall have no obligation to negotiate with
DEVELOPER pursuant hereto for such development rights and COMPANY and
its Affiliates may develop and operate, or pursue negotiations with
and offer to third parties the right to develop and operate, BOSTON
CHICKEN Units in the Sub-Area. If COMPANY and DEVELOPER are unable to
agree on the terms of and execute the Post-Development Agreement
within ninety (90) days after COMPANY's receipt of the Negotiation
Notice, then COMPANY will have no further obligation to negotiate with
DEVELOPER pursuant hereto for such development rights and COMPANY may
develop or operate, or pursue negotiations with and offer to third
parties the right to develop and operate, BOSTON CHICKEN Units in such
Sub-Area.
(4) If COMPANY and DEVELOPER timely agree on the terms of
and execute the Post-Development Agreement within the period specified
in Subparagraph (3), then DEVELOPER shall be required to pay all fees
due thereunder concurrently with the execution of the Post-Development
Agreement. If DEVELOPER fails to timely execute the Post-Development
Agreement and pay all fees due under the Post-Development Agreement,
DEVELOPER's rights to develop Post-Development UNITs will terminate
without further action or notice by COMPANY and thereafter COMPANY
will have no further obligation to negotiate with DEVELOPER pursuant
hereto for such development rights and COMPANY may develop or operate,
or pursue negotiations with and offer to third parties the right to
develop and operate, BOSTON CHICKEN Units in such Sub-Area.
(5) Notwithstanding the above, DEVELOPER's rights to
develop Post-Development Units shall terminate without further action
or notice by COMPANY if:
(a) DEVELOPER fails to meet its development
obligations with regard to such Sub-Area hereunder (in which event
DEVELOPER's rights to develop Post-Development UNITs in such Sub-Area
only shall terminate), including without limitation, the timely
opening of any UNIT pursuant to Schedule C attached
CKEADD.FIN 5
<PAGE> 7
hereto (taking into account Section 3.C of the Agreement as amended by
paragraph 10 hereof) or;
(b) This Agreement is terminated prior to its
applicable expiration date.
10. The second sentence of 3.C is hereby amended by
adding the following provision at the end thereof:
In the event that DEVELOPER has, to COMPANY's reasonable
belief, made good faith and diligent efforts to comply with the
applicable required opening date for any BOSTON CHICKEN Unit, but
fails to open such BOSTON CHICKEN Unit by the required opening date
specified in Exhibit C hereto because of fire, flood, earthquake, war,
insurrection, water or sewer moratoriums or other similar force
majeure (which shall not include general or local business or economic
conditions) not within control of DEVELOPER, then such BOSTON CHICKEN
Unit shall be deemed opened on a timely basis under this Agreement if
it actually opens for regular and continueous business within six
months of the required opening date set forth on Exhibit C hereto,
provided further, however, that the foregoing proviso shall not apply
unless at least 75% (which number shall be rounded up to the next
whole number) of the BOSTON CHICKEN Units required to be open from
time to time by DEVELOPER or its Authorized Entities as specified on
Exhibit C hereto have been opened by the dates actually specified on
Exhibit C hereto. Additionally, in the event that DEVELOPER fails to
open a BOSTON CHICKEN Unit within a Sub-Area by the required opening
date (without extension pursuant to the immediately preceding sentence
in this paragraph) specified in Exhibit C hereto, then such BOSTON
CHICKEN Unit shall be deemed opened on a timely basis under this
Agreement if it actually opens for regular and continuous business
within six months of the required opening date specified in Exhibit C
hereto, provided, however, the foregoing proviso shall not apply
unless the number of BOSTON CHICKEN Units that are open and
continuously operating at such required opening date in the aggregate
in all Sub-Areas is equal to or greater than 100% of the BOSTON
CHICKEN Units required to be open, in the aggregate, for all Sub-Areas
as of such required opening date.
10A. The third sentence of Section 3.C is hereby amended
by deleting the reference to "five (5) days" and substituting therefor
"one-hundred eighty (180) days."
11. Section 3.E is amended by adding the following at the
end thereof:
CKEADD.FIN 6
<PAGE> 8
If, during the applicable Sub-Area Term for a particular
Sub-Area, COMPANY notifies DEVELOPER of a Target Site in a Sub-Area pursuant to
this Section 3.E, and DEVELOPER gives written notice to COMPANY during the ten
(10) business day period referred to in the first paragraph of this Section 3.E
that it declines to lease or purchase (as applicable) one or more of such
Target Sites, DEVELOPER shall have the option, exercisable by written notice to
COMPANY within such ten (10) business day period, to count each such Target
Site toward the Sub-Area Quota for such Sub-Area. Notwithstanding any other
provision of this Section 3.E, COMPANY shall have the right to designate Target
Sites for a particular Sub-Area hereunder only to the extent that the number of
Target Sites designated by COMPANY in any Sub-Area does not exceed 25% of the
total number of BOSTON CHICKEN Units that DEVELOPER is required to develop in
such Sub-Area.
12. Section 3.F is hereby amended by deleting the word
"DEVELOPER's" in the second paragraph thereof and replacing it with the word
"COMPANY's", and by deleting the word "Target" in the last line of the third
paragraph thereof and replacing it with the word "Conversion."
12A. Section 3.f. is further amended by adding the
following at the end thereof:
If during the applicable Sub-Area Term for a particular
Sub-Area, COMPANY offers one or more Conversion Sites to DEVELOPER in a
Sub-Area pursuant to this Section 3.F and DEVELOPER gives written notice to
COMPANY during the thirty (30) day period referred to in the first paragraph of
this Section 3.E that it declines to purchase one or more of such Conversion
Sites, DEVELOPER shall have the option, exercisable by written notice to
COMPANY within such thirty (30) day period, to written notice to COMPANY within
such thirty (30) day period, to count each such Conversion Site that is
actually converted to a BOSTON CHICKEN Unit toward the Sub-Area Quota for such
Sub-Area.
13. Section 4.A is hereby deleted in its entirety and
restated to read as follows:
DEVELOPER acknowledges and agrees that: (1) DEVELOPER is not
granted any rights within or outside the Development Area to offer,
perform, or participate in the development or operation of Special
Distribution Arrangements ("SDA"), other than as expressly provided in
this Paragraph A, and (2) COMPANY reserves all such rights to offer,
perform, or participate in the development or operation of SDA, within
any Sub-Area within the Development Area in which DEVELOPER (or any
Authorized Entity) operates a BOSTON CHICKEN Unit or has unexpired and
unterminated rights to develop one or more BOSTON CHICKEN Units.
Notwithstanding anything to the contrary contained in this Paragraph
A, if COMPANY, during the Agreement Term, determines to itself develop
CKEADD.FIN 7
<PAGE> 9
and operate, or grant to others the right to develop and operate, SDA,
then COMPANY shall notify DEVELOPER of such intention by providing to
DEVELOPER COMPANY's proposed plan for such SDA and the form of an
initial Special Distribution Agreement which COMPANY proposes to
DEVELOPER to execute and deliver with regard to such SDA ("COMPANY's
SDA Plan Notice").
Company shall notify DEVELOPER in writing as to whether
COMPANY, in its sole discretion, elects to have DEVELOPER (i) perform
the development or operation of the SDA, or (ii) participate in the
net cash flow, if any, derived by COMPANY solely from the development
and performance of such SDA ("Net Cash Flow") in the event a
Cannibalization Impact is established, as defined below.
Notwithstanding anything to the contrary, including any such election
by COMPANY, DEVELOPER acknowledges that COMPANY need not permit
DEVELOPER to perform the development or operation of such SDA and
COMPANY shall have no obligation to enter into any Special
Distribution Agreement with DEVELOPER with respect to such SDA unless
DEVELOPER demonstrates, to COMPANY's reasonable satisfaction, that it
has or will acquire the appropriate resources (financial and
otherwise) to take full advantage of the SDA and to discharge all of
its obligations under the Special Distribution Agreement. If COMPANY
elects for DEVELOPER to develop and operate such SDA pursuant to (i),
above, then, COMPANY and DEVELOPER will promptly commence negotiations
in good faith toward the execution of a revised Special Distribution
Agreement in accordance with COMPANY's SDA Plan Notice. If COMPANY
and DEVELOPER are unable to agree, in good faith, on the terms of and
execute the revised Special Distribution Agreement within sixty (60)
days after COMPANY's delivery to the DEVELOPER of the COMPANY's SDA
Plan Notice and DEVELOPER does not execute and deliver the initial
Special Distribution Agreement, or in the event COMPANY determines
DEVELOPER does not have and cannot acquire appropriate resources to
take full advantage of the SDA and to discharge all of its obligations
under the Special Distribution Agreement, then COMPANY will have no
further obligation to negotiate with the DEVELOPER pursuant hereto for
such SDA other than to permit DEVELOPER to participate in Net Cash
Flow, if any, pursuant to (ii), above, and COMPANY may develop or
operate, or pursue negotiations with and offer to third parties the
right to develop and operate, such SDA.
If COMPANY elects (ii), above, the COMPANY shall have the
right to develop and operate or grant the right to others to develop
and operate such SDA within such Sub-Area and, if such SDA is so
developed or operated within such Sub-Area during the Agreement Term,
DEVELOPER may, by written notice to COMPANY at any time within one
CKEADD.FIN 8
<PAGE> 10
year after commencement of such SDA, require COMPANY to engage a
reputable unaffiliated third-party market survey company, at COMPANY's
expense, which shall, within sixty (60) days or engagement render a
report to the COMPANY as to whether such SDA has caused more than a 5%
permanent cannibalization ("Cannibalization Impact") of the gross
sales of the BOSTON CHICKEN Unit within whose Territory (as defined in
the Franchise Agreement for such Unit) the SDA is located or, if not
within the Designated Territory of any UNIT or DEVELOPER, of the
BOSTON CHICKEN Unit of such DEVELOPER closest to the location where
such SDA is operated. If such Cannibalization Impact is so reported,
then the market survey company shall determine if the projected
annualized cash flow of such UNIT for the next four (4) years will
yield to DEVELOPER an annualized after-tax average cash return on the
book value of such UNIT (which book value shall never be deemed to
exceed invested capital to date in such UNIT) equal to or exceeding
25%. If such return equals or exceeds 25%, then no portion of the Net
Cash Flow shall be paid to DEVELOPER. If such return is less than
25%, then, COMPANY shall pay to DEVELOPER a reasonable portion of the
Net Cash Flow, if any, as it is earned from time to time (less any net
cash losses for prior periods), as determined by the COMPANY from time
to time in good faith, taking into account all relevant factors,
including but not limited to, the scope of DEVELOPER's activities, the
amount of the reported Cannibalization Impact of the SDA on DEVELOPER,
whether such impact is mitigated by positive factors.
If DEVELOPER fails to comply with any of its material
obligations under this Agreement, COMPANY shall have no obligation to
negotiate with DEVELOPER pursuant hereto for such SDA rights pursuant
to (i), above and COMPANY may develop and operate or pursue
negotiations with and offer to third parties the right to develop and
operate such SDA within such Sub-Area without any obligation of
payment which would have otherwise been owed to DEVELOPER in the event
of a proper election pursuant to (ii), above. Notwithstanding
anything else to the contrary herein, DEVELOPER'S rights to enter into
a Special Distribution Agreement pursuant to (i) or receive payments
pursuant to (ii) for such Sub-Area shall terminate without further
action or notice by COMPANY if:
(a) DEVELOPER fails to meet its development
obligations hereunder with regard to such Sub-Area, including
without limitation, the timely opening of any UNIT pursuant to
Schedule C (taking into account Section 3C of the Agreement as
amended by paragraph 10 hereof) attached hereto; or
CKEADD.FIN 9
<PAGE> 11
(b) This Agreement is terminated prior to its
applicable expiration date; or
If DEVELOPER (or such Authorized Entity) has executed a
Special Distribution Agreement, COMPANY reserves the right, at any
time and in its sole discretion with or without cause and regardless
of the investment made by DEVELOPER (or such Authorized Entity) in
establishing or operating the Special Distribution Arrangement or the
length of time the Special Distribution Arrangement has been in
effect, to suspend or terminate DEVELOPER's (or such Authorized
Entity's) right to operate the Special Distribution Arrangement upon
one hundred eighty (180) days prior written notice to DEVELOPER;
provided, however, that notwithstanding such termination, DEVELOPER
shall be entitled during such one hundred eighty (180) day period to
fulfill any contractual obligations it had incurred prior to receipt
of such notice, but may not incur or undertake any new obligations or
commitments.
Provided, however, such one hundred eighty (180) day period
may be extended by an additional period not to exceed the lesser of
(a) the period required to amortize (in accordance with generally
accepted accounting principles) the balance of DEVELOPER's investment
in the SDA, or (b) eighteen months. Notwithstanding the foregoing one
hundred eighty (180) day notice period, COMPANY may terminate
DEVELOPER's right to operate the SDA upon such shorter notice
(pursuant to procedures promulgated by COMPANY and applied to a
majority of the BOSTON CHICKEN Units in the system) as COMPANY
determines in its sole discretion if the reason for such termination
is DEVELOPER's failure to meet COMPANY's operational standards with
respect to such special Distribution Arrangement.
Notwithstanding any other provision of this Section 4.A.,
COMPANY shall not have the right to propose a Special Distribution
Arrangement to DEVELOPER pursuant hereto during the first three years
of the Agreement Term, unless such Special Distribution Arrangement is
being conducted, or COMPANY has committed to conduct it, in Areas of
Dominant Influence whose population is equal to 25% or more of the
aggregate population of all the Areas of Dominant Influence in which
BOSTON CHICKEN Units are open or under development. Further, during
the Agreement Term, COMPANY shall consult with DEVELOPER prior to
finalizing any material (with regard to any particular Unit) SDA
within the Development Area. Such consultation shall be for advice
only and COMPANY shall not be bound by any advice or recommendation of
DEVELOPER.
CKEADD.FIN 10
<PAGE> 12
14. Section 4.B is hereby deleted.
15. Section 4.C is hereby amended by inserting the
parenthetical "(provided, that any reduction or modification which amounts to a
termination of substantially all of DEVELOPER's rights to provide such services
shall be governed by clause (2), below)" immediately before the phrase, or (2)"
in the last sentence thereof, by inserting the phrase "upon one hundred eighty
(180) days prior written notice from COMPANY to DEVELOPER," after the phrase,
", or (2)" located in the last sentence thereof, and by inserting the following
at the end thereof:
Provided, however, such one hundred eighty (180) day period
may be extended by an additional period not to exceed the
lesser of (a) the period required to amortize (in accordance
with generally accepted accounting principles) the balance of
DEVELOPER's investment in delivery vehicles and facilities or
(b) eighteen months. Notwithstanding the foregoing one
hundred eighty (180) day notice period, COMPANY may terminate
DEVELOPER's right to operate the Delivery Service upon such
shorter notice (pursuant to procedures promulgated by COMPANY
and applied to a majority of the BOSTON CHICKEN Units in the
system) as COMPANY determines in its sole discretion if the
reason for such termination is DEVELOPER's failure to meet
COMPANY's operational standards with respect to such Delivery
Service.
15A. Section 4.C is further amended by adding the
following at the end thereof:
COMPANY and DEVELOPER agree that DEVELOPER may undertake a
test of Delivery Service in the Development Area for a period to be agreed upon
by COMPANY and DEVELOPER and in a manner consistent with COMPANY's standards
and procedures for such tests. Upon completion of the test, COMPANY and
DEVELOPER will review and evaluate together the results of such test and, after
good faith consultation with each other, determine whether DEVELOPER will have
the right to offer Delivery Service in some or all of the Sub-Areas.
16. Section 4.D is hereby amended by deleting the second
sentence thereof and inserting the following in lieu thereof:
Notwithstanding the foregoing, if COMPANY, at any time and in
its sole discretion, determines to offer Catering Service in
the designated Catering Area, COMPANY will offer DEVELOPER (or
the appropriate Authorized Entity) the right to offer
CKEADD.FIN 11
<PAGE> 13
Catering Service by delivering the DEVELOPER (or such
Authorized Entity) a Catering Rider to the appropriate
Franchise Agreement(s) authorizing DEVELOPER (or such
Authorized Entity) to offer Catering Service from a Catering
Facility within the designated Catering Area.
16A. Section 4.D is hereby further amended by inserting
the parenthetical "(provided that any reduction or modification which amounts
to a termination of substantially all of DEVELOPER's rights to provide such
services shall be governed by clause (2), below)" immediately before the phrase
"; or (2)" in the last sentence thereof, by inserting the phrase "upon one
hundred eighty (180) days prior written notice from COMPANY to DEVELOPER,"
after the phrase "; or (2)" in the last sentence thereof, and by inserting the
following at the end of Section 4.D;
Provided, however, such one hundred eighty (180) day period
may be extended by an additional period not to exceed the
lesser of (a) the period required to amortize (in accordance
with generally accepted accounting principles) the balance of
DEVELOPER's investment in its catering facilities or (b)
eighteen (18) months. After receipt of notice terminating
DEVELOPER's Catering Service or reducing DEVELOPER's Catering
Area, DEVELOPER will not accept any new orders for catering
or, as applicable, will not accept any new orders for catering
from the portion of the Catering Area which has been
terminated which orders are to be delivered or provided after
the effective date of termination; provided, however,
DEVELOPER shall have the right to complete any catering orders
during such one hundred eighty (180) day period, but which
were received prior to receipt of such notice of termination
of Catering Service or reduction of Catering Area.
Notwithstanding the foregoing one hundred eighty (180) day
notice period, COMPANY may terminate DEVELOPER's right to
operate the Catering Service upon such shorter notice
(pursuant to procedures promulgated by COMPANY and applied to
a majority of the BOSTON CHICKEN Units in the system) as
COMPANY determines in its sole discretion if the reason for
such termination is DEVELOPER's failure to meet COMPANY's
operational standards with respect to such Catering Service.
CKEADD.FIN 12
<PAGE> 14
17. Section 5.A is hereby amended by adding the following
paragraph after the second paragraph:
Notwithstanding anything to the contrary, DEVELOPER shall not
be obligated to purchase the Demographic Detail Report, maps
or any other demographic services from COMPANY so long as it
provides such reports, maps or other necessary demographic
information through its own in-house services or other third
party service providers.
18. Section 5.B is hereby amended by deleting the first
paragraph thereof and substituting the following instead:
DEVELOPER shall cause the lessor of each Approved Site to
include in the lease, sublease or assignment of lease
(referred to herein as the "Site Agreement"), as applicable,
for such Approved Site, the standard terms which COMPANY
requires from time to time in its sole discretion, and such
other terms as COMPANY may specifically approve in writing. A
copy of COMPANY's current Standards Required Site Agreement
Terms, which COMPANY requires be inserted in Site Agreements,
is attached hereto as Exhibit G. Among other provisions
contained in the Standards Required Site Agreement Terms is a
requirement that DEVELOPER collateral assign such Site
Agreement to COMPANY or its designee. Provided, however,
DEVELOPER shall only be obligated to use its best efforts to
have the Standard Required Site Agreement for Approved sites
that are operating as a Carl's Jr. and which are leased from
independent third party landlords.
19. Section 5.C is hereby amended by adding the following
after the end of the first sentence:
DEVELOPER and its Authorized Entities shall be deemed
to be in full compliance with this Agreement and their
Franchise Agreements so long as there are no defaults under
this Agreement or any of the Franchise Agreements with respect
to which COMPANY has delivered written notice and which are
uncured (taking into account all applicable cure periods).
20. Section 5.C is further hereby amended deleting the
third sentence thereof, in its entirety and inserting in lieu thereof the
following:
CKEADD.FIN 13
<PAGE> 15
In addition, DEVELOPER must guaranty all obligations of an
Authorized Entity under any Franchise Agreement issued to such
an Authorized Entity.
21. Section 5.D is amended to add the following at the
end thereof:
; and (3) the required advertising and marketing expenditures
shall not exceed those required pursuant to Section 12 of the
form of Franchise Agreement attached hereto as Exhibit I as of
the date of execution hereof; and (4) the form of franchise
agreement used for the grant of each Franchise will contain a
"reasonableness" provision substantially similar to Section
16.M hereof; and (5) the fees and charges set forth or
required by Section 4.E of the Franchise Agreement shall not
exceed those set forth or required by Section 4.E (as amended)
of the form of Franchise Agreement attached hereto as
Exhibit I.
22. Section 5 is hereby further amended by adding the new
subsection 5.E at the end thereof to read as follows:
5.E ADVERTISING EXPENDITURES
DEVELOPER shall cause each UNIT it owns, and shall
cause each Authorized Entity which owns one or more UNITs to
cause each UNIT it owns, to contribute to the Local Ad Fund
(as defined in the Franchise Agreement) for such UNIT an
amount equal to the greater of:
(1) the standard Local Ad Fund contribution
required pursuant to the applicable Franchise Agreement; or
(2) an amount which, when aggregated with the
Local Ad Fund contributions of the other UNITs, will be
sufficient to enable DEVELOPER, through the Local Ad Fund, to
commence Required Televisions Advertising commencing with the
second anniversary (the third anniversary in the case of the
Los Angeles Area of Dominant Influence) of the execution of
this Agreement and to continue Required Television Advertising
thereafter for 12 out of 16 weeks during 4 consecutive Retail
periods for either the San Diego or the Los Angeles Area of
Dominant Influence.
CKEADD.FIN 14
<PAGE> 16
23. Section 9.E is amended by adding the following after
the end thereof:
COMPANY represents and warrants that, to the actual knowledge
of its current officers, COMPANY's use of the market "BOSTON
CHICKEN" or its use of its current logo with the words "BOSTON
CHICKEN ROTISSERIE" on such logo do not infringe on the rights
of any party in the Development Area.
24. Section 11.A is amended by adding the following at
the end thereof:
The parties intend that the titles used in Sections 11.B.,
11.C., 11.D., and 11.E. be only descriptive of functions and
DEVELOPER may use different titles for the persons who perform
those functions.
25. Section 11.B is amended by deleting the third
sentence thereof and replacing it with the following:
The Chief Operating Officer shall have appropriate multi-unit
food service experience and be an Owner holding a significant
(as to such officer), direct equity interest, or the right to
obtain a significant (as to such officer) equity interest, in
Carl Karcher Enterprises, Inc. or Developer, at all times
during the Agreement Term.
26. Sections 11.D and 11.E are hereby amended to delete
the words "acceptable to COMPANY" in the first sentence of each of those
sections.
27. Section 11.I is hereby amended by deleting the first
sentence thereof in its entirety and restating it to read as follows:
DEVELOPER shall install, use and transmit information
to, or allow the electronic collection of information by,
COMPANY through the Computer System, in such form as is
specified by COMPANY from time to time. Such portion of the
Computer System Specified Software, and Licensed Program as is
purchased may involve one-time and periodic fees or payments
to COMPANY.
CKEADD.FIN 15
<PAGE> 17
28. The first sentence of Section 11.J is hereby amended
by adding the following immediately before the parenthetical definition of
"Development Manual":
whether by way of supplements, replacements pages, Franchise
Bulletin or Partner Bulletin disclosure, or other official
pronouncements or means.
29. Section 11 is further amended by adding the following
at the end thereof:
11.L COMMUNICATION AND INFORMATION SYSTEMS
DEVELOPER agrees to install at its head office and
use in performing its obligations under this Agreement those
brands, types, makes, and/or models of communications and
computer systems or hardware which COMPANY has from time to
time specified or required for the Computer System and the
Specified Software and the Licensed Program, as comprised from
time to time in accordance with the specifications and
requirements of COMPANY. DEVELOPER acknowledges that COMPANY
and its Affiliates and designees are in the process of
completing the development of the Licensed Program and COMPANY
is in the process of completing the development of
specifications for certain components of the Computer System
and may modify such specifications and the components of the
Licensed Program and the Computer System from time to time.
During the term hereof, COMPANY may require DEVELOPER to
obtain specified computer hardware and/or software, including,
without limitation, the Computer System, the Specified
Software, and a license to use the Licensed Program from
COMPANY or its designee under a separate agreement after
COMPANY notifies DEVELOPER to commence use thereof. COMPANY's
development and/or modification of such specifications for the
components of the Computer System, the Specified Software, and
the Licensed Program may require DEVELOPER to incur costs to
purchase, lease and/or licensee new or modified computer
hardware and/or software and to obtain service and support for
the Computer System, the Specified Software, and the Licensed
Program during the term of this Agreement. DEVELOPER
acknowledges that COMPANY cannot estimate the cost of future
additions, enhancements and modifications of the Computer
System, the Specified Software, and the Licensed Program and
that the cost to DEVELOPER of obtaining the additions,
enhancements and modifications thereto may not fully
amortizable over the remaining
CKEADD.FIN 16
<PAGE> 18
term of this Agreement. Nevertheless, DEVELOPER agrees to
incur such costs provided that the Computer System, the
Specified Software, and the Licensed Program that COMPANY
specifies for use by DEVELOPER is substantially the same
Computer System, Specified Software and Licensed Program which
COMPANY is then currently specifying for use in COMPANY-owned
BOSTON CHICKEN Units. Within one hundred twenty (120) days
after DEVELOPER receives notice from COMPANY, DEVELOPER shall
obtain the components of the Computer System, the Specified
Software, and the Licensed Program which COMPANY designates
and requires. DEVELOPER further acknowledges and agrees that
COMPANY has the right to require DEVELOPER to pay to COMPANY
or its designee a reasonable periodic systems fee for
modifications and enhancements made to the Licensed Program
and a reasonable periodic fee for other maintenance and
support services provided to DEVELOPER related to the Licensed
Program, Specified Software, and the Computer System.
Notwithstanding anything to the contrary contained in
this Agreement, COMPANY hereby acknowledges and agrees that
(i) the aggregate software license fees to be paid by
DEVELOPER or FRANCHISE OWNER directly to COMPANY (unless
COMPANY is simply acting as a collection agent for third party
developed software) with regard to each BOSTON CHICKEN Unit in
connection with the use of the Licensed Program at such UNIT
shall not exceed the lesser of (a) $15,000.00 or (b) amounts
charged to other Boston Chicken area developers of similar
size, and (ii) the periodic systems fee for each BOSTON
CHICKEN Unit (the "Subscription Fee") for any software
subscription service for the Licensed Program which COMPANY
provides directly to such BOSTON CHICKEN Unit (which service
shall consist of software error corrections, remote diagnostic
support services which COMPANY determines in its sole
discretion are advisable to cause the Licensed Program to
perform in accordance with the standards for the Licensed
Program as specified by the COMPANY, and the provision of
upgrades, modifications, improvements, enhancements,
extensions and other changes to the Licensed Program developed
or adopted by COMPANY for the Licensed Program which are
usable in connection with the Computer System and which are
made available generally to all franchisees) shall not exceed
the sum of Four Hundred Dollars ($400.00) per four (4) week
period, provided that such maximum may be increased by COMPANY
from time to time, at its
CKEADD.FIN 17
<PAGE> 19
sole option, upon written notice to DEVELOPER, provided that
the increase in any one calendar year shall not exceed 10% (or
such lesser percentage that may be applied on a permanent
basis to other Boston Chicken area developers of similar size)
of the last effective maximum in the immediately preceding
calendar year. It is understood and agreed by COMPANY and
DEVELOPER that nothing in this paragraph shall limit any
amounts payable by DEVELOPER to COMPANY or any third party in
connection with the procurement of computer hardware by
DEVELOPER from COMPANY or any third party and the use and
maintenance of such hardware, whether or not part of the
Computer System, or any amounts payable in connection with
maintenance, support, procurement, enhancement, or upgrade of
any Specified Software.
30. Section 12.A is amended by adding the following at
the end thereof:
; provided that COMPANY shall remain liable for its
obligations hereunder for the balance of the term of this
Agreement after the date of any transfer or assignment of this
Agreement.
31. Section 12.B is amended by adding the following after
the end thereof:
Notwithstanding the foregoing, the restrictions in this
Section 12.B shall not apply to transfers of ownership
interests in Carl Karcher Enterprises, Inc. or to changes in
the members of its Board of Directors.
32. Section 12.E is hereby amended by deleting in its
entirety and replacing it with the following:
DEVELOPER and Carl Karcher Enterprises, Inc. ("CKE")
may make public or private offerings of securities, provided
that DEVELOPER shall not, unless otherwise required by law and
any relevant governmental agency, include in any published
financial statements, in any prospectus or other offering
document, or in any publicly filed or disseminated report
(including any Form 10-K, 10-Q, or 8-K or any Proxy Statement
or Annual Report to Stockholders) or in any Management
Discussion and Analysis or in any footnotes accompanying any
of the foregoing any category, line-item, breakdown, or type
of information concerning its operation of BOSTON CHICKEN
Units that COMPANY does not utilize in its published financial
CKEADD.FIN 18
<PAGE> 20
statements, prospectuses or offering documents, or publicly
filed or disseminated reports. Additionally, DEVELOPER and
CKE shall not disclose information regarding its Boston
Chicken business during 1994 by segment although, DEVELOPER
and CKE shall have the right, during 1994, to discuss, using
general statements in the Management Discussion and Analysis
section of any of the documents referred to in this paragraph,
its Boston Chicken business. Provided, however, neither
DEVELOPER nor CKE shall make a disclosure of same store sales
comparisons or average store revenue for its Boston Chicken
Units unless otherwise required by applicable law and any
relevant governmental agency.
33. Section 13.B is hereby amended as follows:
(a) Clause (3) is hereby amended by deleting it
in its entirety and replacing it with the following:
DEVELOPER is convicted by a trial court of or pleads
guilty or no contest to a felony, or to any other crime or
offense that may adversely affect the reputation of BOSTON
CHICKEN Units or the goodwill associated with the Marks, or
engages in any misconduct which may adversely affect the
reputation of BOSTON CHICKEN Units or the goodwill associated
with the Marks, or has made any material misrepresentation or
omission in its application for this Agreement or in
connection with any transfer hereunder.
(b) Clause (4) of Section 13.B is hereby amended
by adding the following after the phrase "Development Manual"
or the "Copyrighted Works" in the first sentence thereof:
(unless the foregoing prohibited act is inadvertent and does
not have, or threaten to have, an adverse effect upon COMPANY,
its business concept, its business operations, the business of
any UNIT, any Mark, the Confidential Information, the
Development Manual, or the Copyrighted Works, and DEVELOPER
ceases and desists any such prohibited act promptly upon
notice and reimburses COMPANY for all damages, losses, costs,
and expenses incurred by COMPANY in connection with such
prohibited acts).
(c) Clause (5) is hereby amended by adding the
following after the parenthetical clause:
CKEADD.FIN 19
<PAGE> 21
; provided, that a violation of a confidentiality covenant
under a Confidentiality and Non-Competition Agreement shall
not be grounds for termination if such violation is
inadvertent and does not have, or threaten to have, an
adverse effect upon COMPANY, its business concept, its
business operations, the business of any UNIT, any Mark, the
Confidential Information, the Development Manual or the
Copyrighted Works, and DEVELOPER ceases and desists any such
violation promptly upon notice and reimburses COMPANY for all
damages, losses, costs and expenses incurred by COMPANY in
connection with such violation.
(d) Clause (6) is deleted.
(e) Clause (7) is amended by deleting the text
which follows clause (d) and by replacing it with the
following:
in accordance with COMPANY's standards, specifications and
procedures therefor, and (a) does not correct such failure
within thirty (30) days after DEVELOPER's receipt of COMPANY's
written notice of such failure; or (b) if such failure cannot
reasonably be corrected within the aforesaid thirty (30) day
period, but can be corrected within a reasonably short time
(note to exceed an additional thirty (30) days), undertake
within ten (10) days after DEVELOPER's receipt of COMPANY's
written notice, and continue until completion, best efforts to
correct such failure within such reasonably short time (not to
exceed an additional thirty (30) days) and furnish proof
acceptable to COMPANY, upon its request, of such efforts and
the date full compliance will be achieved.
(f) Clause (9) is hereby amended by deleting the
term "twenty-four (24)" and replacing it with the term
"eighteen (18)."
(g) Clause (10) is deleted and replaced with the
following:
COMPANY has delivered a notice of termination of five (5) or
more Franchise Agreements executed pursuant to this Agreement
in accordance with its terms and conditions or DEVELOPER (or
any Authorized Entity) has terminated a Franchise Agreement
with COMPANY without cause.
34. Section 13.C is hereby amended by adding the
following provision at the end of clause (2) thereof:
CKEADD.FIN 20
<PAGE> 22
provided, however, COMPANY shall not have the right to
terminate the territorial rights granted pursuant to Paragraph
3.A for a Sub-Area based solely on the fact that DEVELOPER has
failed to open a UNIT in another Sub-Area on its required
opening date as set forth on Exhibit C.
35. Clause 16.A is amended by deleting the first
paragraph thereof in its entirety and by deleting the word "other" from the
first sentence of the second paragraph.
36. Section 16.B is hereby amended by deleting the phrase
"of ten (10) days' prior written notice" at the end of the second paragraph and
by replacing it with the following:
of forty-five (45) days' prior written notice, unless COMPANY
determines, in its reasonable discretion, that a shorter
notice period is necessary.
37. Sections 16.E and 16.H are hereby deleted.
38. Notwithstanding Section 7 of the Agreement:
(a) DEVELOPER shall not be required to obtain
written consent with respect to information described in clauses (i)
and (ii) thereof; and
(b) The restrictions on DEVELOPER's disclosure
and use of the Confidential Information shall not apply to knowledge
of the food service business which DEVELOPER already possesses and
which has not been obtained in contravention of any obligation of
confidentiality owed to COMPANY.
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have duly executed this Addendum in duplicate as of the
date written below:
DATE: January 14, 1994 DATE: January 14, 1994
COMPANY: DEVELOPER:
BOSTON CHICKEN, INC. CARL KARCHER ENTERPRISES, INC.
/s/ SAAD J. NADHIR /s/ DONALD E. DOYLE
By: _______________________________ By:________________________________
Its: Vice Chairman Its: President
21
<PAGE> 1
EXHIBIT 11-1
<PAGE> 2
EXHIBIT 11-1
CARL KARCHER ENTERPRISES, INC.
COMPUTATION OF EARNINGS PER SHARE*
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net income (loss)............................ $ 3,665 $(5,507) $13,038 $13,036 $ 5,551
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average shares outstanding:
Common stock outstanding from
beginning of year....................... 18,091 17,918 18,017 17,917 17,754
Pro-rata shares:
Exercise of stock options............... 124 116 90 21 121
Repurchase and retirement of shares..... (28) -- (208) -- --
Dilutive effect of outstanding stock
options................................. 66 294(1) 293 229 906
------- ------- ------- ------- -------
18,253 18,328 18,192 18,167 18,781
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Primary earnings (loss) per share............ $.20 $(.30)(1) $.72 $.72 $.30
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE:
Net income (loss)......................... $ 3,665 $(5,507) $13,038 $13,036 $ 5,551
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average shares outstanding:
Common stock outstanding from beginning
of year.............................. 18,091 17,918 18,017 17,917 17,754
Pro-rata shares:
Exercise of stock options............ 124 116 90 21 121
Repurchase and retirement of
shares............................. (28) -- (208) -- --
Dilutive effect of outstanding stock
options.............................. 380 334(1) 309 229 933
------- ------- ------- ------- -------
18,567 18,368 18,208 18,167 18,808
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Fully diluted earnings (loss) per
share................................ $.20 $(.30)(1) $.72 $.72 $.30
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</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.
<PAGE> 1
EXHBIT 12-1
<PAGE> 2
EXHIBIT 12-1
CARL KARCHER ENTERPRISES, INC.
COMPUTATION OF RATIO OF DEBT TO EQUITY
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Debt:
Current portion of long-term
debt.......................... $ 13,207 $ 28,467 $ 29,759 $ 30,554 $ 27,892
Current portion of capital lease
obligations................... 3,354 3,158 2,959 2,251 1,914
-------- --------- --------- --------- ---------
16,561 31,625 32,718 32,805 29,806
-------- --------- --------- --------- ---------
Long-term debt................... 17,414 31,742 50,485 58,297 67,652
Capital lease obligations........ 45,886 48,512 51,589 58,840 56,985
-------- --------- --------- --------- ---------
63,300 80,254 102,074 117,137 124,637
-------- --------- --------- --------- ---------
$ 79,861 $ 111,879 $ 134,782 $ 149,942 $ 154,443
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------
Shareholders' equity:
Common stock..................... $ 33,928 $ 28,793 $ 26,788 $ 27,532 $ 26,948
Retained earnings................ 58,148 55,939 62,891 51,286 39,684
-------- --------- --------- --------- ---------
$ 92,076 $ 84,732 $ 89,679 $ 78,818 $ 66,632
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------
Ratio of debt to equity............ 0.9x 1.3x 1.5x 1.9x 2.3x
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------
</TABLE>
<PAGE> 1
EXHIBIT 23-1
<PAGE> 2
EXHIBIT 23-1
CARL KARCHER ENTERPRISES, INC.
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Carl Karcher Enterprises, Inc.
We consent to incorporation by reference in the Registration Statement (No.
2-86142) on Form S-8 of Carl Karcher Enterprises, Inc. of our reports dated
March 21, 1994, relating to the balance sheets of Carl Karcher Enterprises, Inc.
as of January 31, 1994 and 1993 and the related statements of operations,
shareholders' equity and cash flows and related financial statement schedules
for each of the years in the three-year period ended January 31, 1994, which
reports appear in the January 31, 1994 Annual Report on Form 10-K of Carl
Karcher Enterprises, Inc. Our reports on the financial statements refer to a
change in the method used to discount the workers' compensation reserve in
fiscal 1994 and the adoption of a new method of accounting for income taxes in
fiscal 1993.
KPMG Peat Marwick
Orange County, California
April 29, 1994
