<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission Only
/ / Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
SUMMIT FAMILY RESTAURANTS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.10 per share
Series A Convertible Preferred Stock, par value $1.00 per share
("Preferred Stock")
(2) Aggregate number of securities to which transactions applies:
5,767,156 shares of Common Stock(a)
946,714 shares of Preferred Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$4.88 per share of Common Stock(b)
$0.00 per share of Preferred Stock(b)
(4) Proposed maximum aggregate value of transaction: $28,143,721
(5) Total fee paid: $5,628.74(c)
- ---------------
(a) Includes shares issuable upon exercise of outstanding options and
warrants to purchase Common Stock.
(b) For purposes of calculating the filing fee only. Upon
consummation of the Merger, each outstanding share of Common
Stock of the Registrant will be converted into the right to
receive $2.63 in cash and a number of shares of Common Stock of
CKE Restaurants, Inc. ("CKE") to be determined pursuant to a
formula set forth in the Merger Agreement. The Preferred Stock is
beneficially owned by CKE and will be cancelled as a result of
the Merger. The proposed maximum aggregate value of the
transaction described in the preliminary proxy materials is based
on the average of the high and low reported prices of
Registrant's Common Stock on the Nasdaq National Market on April
15, 1996 ($4.88).
(c) A fee of $6,810.92 was previously paid upon the filing of
preliminary materials on February 6, 1996.
/X/ Fee paid previously with preliminary materials
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
PRELIMINARY COPY
LOGO
June , 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Summit Family Restaurants Inc. ("Summit"), to be held on , July ,
1996, at 10:00 a.m., local time (the "Special Meeting"), at the Howard Johnson
Hotel, located at 122 West South Temple, Salt Lake City, Utah.
At the Special Meeting, you will be asked to approve the acquisition of
Summit by CKE Restaurants, Inc. ("CKE"), pursuant to an Agreement and Plan of
Merger and Reorganization, dated as of November 30, 1995 (as amended, the
"Merger Agreement"), between Summit and CKE. The Merger Agreement provides for
the merger of Summit Merger, Inc., a newly-formed, wholly-owned subsidiary of
CKE, with and into Summit (the "Merger"). As a result of the Merger, Summit will
become a wholly-owned subsidiary of CKE, and each outstanding share of Summit
Common Stock and Preferred Stock (other than dissenting shares, if any, and
shares owned by CKE or its subsidiaries, which will be cancelled) will be
converted into the right to receive $2.63 in cash and a number of shares of CKE
Common Stock equal to a fraction, the numerator of which is $2.64 and the
denominator will be an amount determined on the basis of an average of the
closing sales prices of CKE Common Stock on the New York Stock Exchange for the
20 consecutive trading days ending five days prior to the date of the Special
Meeting.
A detailed description of the Merger Agreement and the proposed Merger is
set forth in the accompanying Proxy Statement/Prospectus, which you should read
carefully. A copy of the Merger Agreement is attached as Appendix A to the
accompanying Proxy Statement/Prospectus.
After careful consideration, your Board of Directors has determined that
the transactions contemplated by the Merger Agreement are in the best interests
of Summit and its stockholders. Accordingly, the Board has unanimously approved
the Merger Agreement and unanimously recommends that all Summit stockholders
vote for its approval.
Piper Jaffray Inc. ("Piper Jaffray") was retained by Summit to act as its
independent financial advisor in connection with the Merger. As discussed in the
accompanying Proxy Statement/Prospectus, Piper Jaffray has delivered to the
Summit Board of Directors its written opinion, dated March 26, 1996, that, based
upon and subject to various considerations set forth in such opinion, the
consideration to be received by Summit stockholders in the Merger is fair from a
financial point of view. A copy of the opinion of Piper Jaffray is attached as
Appendix B to the accompanying Proxy Statement/Prospectus, and you are urged to
read it in its entirety.
Your vote is important. Failure to vote or to return your proxy card will
have the same effect as a vote against the Merger. Therefore, whether or not you
plan to attend the Special Meeting in person and regardless of the number of
shares you own, I urge you to complete, sign and date the enclosed proxy card
and return it in the enclosed prepaid envelope as soon as possible. This will
not prevent you from attending the Special Meeting and voting your shares in
person, even if you have previously returned your proxy card.
Sincerely,
Clark D. Jones,
Chairman of the Board
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD.
440 LAWNDALE DRIVE
SALT LAKE CITY, UTAH 84115-2917
<PAGE> 3
PRELIMINARY COPY
LOGO
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------
TO BE HELD JULY , 1996
A Special Meeting of Stockholders (the "Special Meeting") of Summit Family
Restaurants Inc., a Delaware corporation ("Summit"), will be held starting at
10:00 a.m., local time, on , July , 1996, at the Howard Johnson
Hotel, located at 122 West South Temple, Salt Lake City, Utah, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger and Reorganization, dated as of November 30, 1995 (as
amended, the "Merger Agreement"), by and between Summit and CKE Restaurants,
Inc., a Delaware corporation ("CKE"). The Merger Agreement provides for the
merger of Summit Merger, Inc., a newly-formed and wholly-owned subsidiary of
CKE, with and into Summit (the "Merger"). As a result of the Merger, Summit will
become a wholly-owned subsidiary of CKE, and each outstanding share of Summit
Common Stock, par value $0.10 per share ("Summit Common Stock"), and each
outstanding share of Summit Series A Convertible Preferred Stock, par value
$1.00 per share ("Summit Preferred Stock"), other than dissenting shares, if
any, and shares owned by CKE or its subsidiaries (which will be cancelled), will
be converted into the right to receive $2.63 in cash and a number of shares of
CKE Common Stock equal to a fraction, the numerator of which is $2.64 and the
denominator will be an amount determined on the basis of an average of the
closing sales prices of CKE Common Stock on the New York Stock Exchange for the
20 consecutive trading days ending five days prior to the date of the Special
Meeting.
2. To transact such other business as may properly come before the Special
Meeting or at any adjournments or postponements thereof.
Only stockholders of record of Summit Common Stock and Summit Preferred
Stock at the close of business on May 20, 1996, the record date for the Special
Meeting, are entitled to notice of, and will be entitled to vote at, the Special
Meeting or any adjournments or postponements thereof. In the event that there
are not sufficient votes to approve and adopt the Merger Agreement, it is
expected that the Special Meeting will be postponed or adjourned in order to
permit further solicitation of proxies by Summit. The affirmative vote of the
holders of a majority of the outstanding shares of Summit Common Stock and of
75% of the outstanding shares of Summit Preferred Stock, voting as separate
classes, is required to approve and adopt the Merger Agreement and the Merger.
CKE is the holder of all of the issued and outstanding shares of Summit
Preferred Stock, and has agreed to vote its shares in favor of the approval and
adoption of the Merger Agreement and the Merger. Under the General Corporation
Law of the State of Delaware, holders of Summit Common Stock are entitled to
appraisal rights with respect to the Merger.
By Order of the Board of Directors,
Clark D. Jones,
Chairman of the Board
Salt Lake City, Utah
June , 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE. A
RETURN ENVELOPE IS PROVIDED FOR YOUR CONVENIENCE. YOU MAY REVOKE YOUR PROXY AT
ANY TIME BEFORE IT IS VOTED BY DELIVERING A SIGNED NOTICE OF REVOCATION OR A
LATER SIGNED PROXY CARD, OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN
PERSON.
DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD
440 LAWNDALE DRIVE
SALT LAKE CITY, UTAH 84115-2917
<PAGE> 4
PRELIMINARY COPY
SUMMIT FAMILY RESTAURANTS INC.
PROXY STATEMENT
------------------------
CKE RESTAURANTS, INC.
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the stockholders of
Summit Family Restaurants Inc., a Delaware corporation ("Summit"), in connection
with the solicitation of proxies by the Board of Directors of Summit for use at
the special meeting of stockholders of Summit to be held on , July
, 1996, at 10:00 a.m., local time, or at any adjournments or postponements
thereof (the "Special Meeting").
The Special Meeting has been called to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger and Reorganization, dated as
of November 30, 1995, amended as of January 24, 1996 and further amended as of
April 2, 1996 and May , 1996 (as amended, the "Merger Agreement"), between
Summit and CKE Restaurants, Inc., a Delaware corporation ("CKE"), which provides
for the merger of Summit Merger, Inc., a newly-formed, wholly-owned subsidiary
of CKE ("Merger Sub"), with and into Summit (the "Merger"). See "The Special
Meeting." As a result of the Merger, Summit will become a wholly-owned
subsidiary of CKE and will no longer be obligated to file reports with the
Securities and Exchange Commission. See "Special Factors -- Certain Effects of
the Merger." The Merger Agreement is attached hereto as Appendix A and is
incorporated herein by reference.
This Proxy Statement/Prospectus also serves as a prospectus of CKE with
respect to up to 890,357 shares of CKE Common Stock, par value $0.01 per share
(the "CKE Common Stock"), that will be issued to holders of outstanding shares
of Summit Common Stock, par value $0.10 per share (the "Summit Common Stock")
upon consummation of the Merger. Upon consummation of the Merger, each
outstanding share of Summit Common Stock will be converted into the right to
receive $2.63 in cash and a number of shares of CKE Common Stock equal to a
fraction, the numerator of which is $2.64 and the denominator will be an amount
determined on the basis of an average of the closing sales prices of CKE Common
Stock on the New York Stock Exchange ("NYSE") for the 20 consecutive trading
days ending five days prior to the date of the Special Meeting (the "Average CKE
Price"). In no event will the number of shares of CKE Common Stock to be issued
in the Merger for one share of Summit Common Stock be less than 0.09103, even if
the Average CKE Price exceeds $30.00. All of the outstanding shares of Summit
Series A Convertible Preferred Stock are held by CKE and, accordingly, will be
cancelled upon consummation of the Merger. A range of the number of shares of
CKE Common Stock that would be issued in the Merger for each share of Summit
Common Stock is 0.09103 (if the Average CKE Price is equal to or more than
$30.00) to .18526 (if the Average CKE Price is $13.25). See "The
Merger -- Conversion of Shares." Within the foregoing range, the aggregate value
of the consideration to be issued in the Merger for each share of the Summit
Common Stock, based upon the Average CKE Price and including the $2.63 cash
portion of the merger consideration, will not be more than $5.44 or less than
$5.09. The Average CKE Price, if determined as of June , 1996, the latest
practicable date before the printing of this Proxy Statement/Prospectus, would
be [$21.74], representing the average of the closing sales prices of CKE Common
Stock on the NYSE for the 20 consecutive trading days ending on June , 1996.
If the Average CKE Price remains at $21.74 (as to which there can be no
assurance), the number of shares of CKE Common Stock which the holder of each
share of Summit Common Stock will be entitled to receive in the Merger would be
.12729. The number of shares of CKE Common Stock to be issued in the Merger will
decrease as the Average CKE Price increases up to $30.00 per share. See "Risk
Factors -- Exchange Ratio."
No fractional shares of CKE Common Stock will be issued pursuant to the
Merger. In lieu of the issuance of any such fractional shares, cash equal to the
product of such fractional share amount and the Average CKE Price will be paid
to holders in respect thereof.
The CKE Common Stock is traded on the NYSE under the symbol "CKR." On May
, 1996, the closing sales price of the CKE Common Stock, as reported on the
NYSE Composite Tape, was $ per share.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to the stockholders of Summit on or about June , 1996. A
stockholder who has given a proxy may revoke it at any time prior to its
exercise. See "The Special Meeting -- Proxies."
The Board of Directors of Summit has approved the Merger Agreement and
unanimously recommends that holders of Summit Common Stock and Summit Preferred
Stock vote FOR the approval and adoption of the Merger Agreement and the Merger.
See "Special Factors -- Recommendation of Summit's Board of Directors; Fairness
of the Merger" and "-- Interests of Certain Persons in the Merger."
For information concerning the Merger, the calculation of the Average CKE
Price or the number of shares of CKE Common Stock to be issued in the Merger, or
for assistance in returning proxies, Summit stockholders may call Summit's proxy
solicitation firm, Corporate Investor Communications, at 1-800- .
Banks and brokers should call ( ) .
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS
ARE STRONGLY URGED TO READ AND CAREFULLY CONSIDER THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO ON
PAGE 16 UNDER "RISK FACTORS."
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION. THE COMMISSION HAS NOT
PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Proxy Statement/Prospectus is June , 1996.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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PAGE
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AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 2
SUMMARY............................................................................... 3
The Companies.................................................................... 3
The Special Meeting.............................................................. 4
The Merger and the Merger Agreement.............................................. 5
Recommendation of Summit's Board of Directors.................................... 8
Opinion of Financial Advisor to Summit........................................... 9
Regulatory Approvals............................................................. 9
Accounting Treatment............................................................. 9
Rights of Dissenting Stockholders................................................ 9
Interests of Certain Persons in the Merger....................................... 9
Certain Federal Income Tax Consequences.......................................... 9
Proposed Dispositions of Certain Assets of Summit................................ 10
Comparative Market Prices and Dividends.......................................... 10
Comparison of Rights of Stockholders............................................. 10
Listing of CKE Common Stock...................................................... 11
Surrender of Certificates........................................................ 11
Risk Factors..................................................................... 11
Summary Historical and Unaudited Pro Forma Combined Condensed Financial
Information..................................................................... 12
Comparative Per Share Data....................................................... 15
RISK FACTORS.......................................................................... 16
SPECIAL FACTORS....................................................................... 21
Background....................................................................... 21
Purpose of the Transaction....................................................... 29
Reasons for the Merger........................................................... 29
Recommendation of Summit's Board of Directors; Fairness of the Merger............ 30
CKE Analysis of Fairness of the Merger........................................... 33
Opinion of Financial Advisor to Summit........................................... 33
Certain Projections of Summit.................................................... 37
Interests of Certain Persons in the Merger....................................... 42
Certain Transactions in the Summit Common Stock.................................. 44
Certain Effects of the Merger.................................................... 44
Certain Federal Income Tax Consequences.......................................... 45
Source and Amount of Funds....................................................... 46
THE SPECIAL MEETING................................................................... 47
THE MERGER............................................................................ 49
General.......................................................................... 49
Conversion of Shares............................................................. 49
Adjustment of Merger Consideration............................................... 50
Fractional Shares................................................................ 50
Proposed Dispositions of Certain Assets of Summit................................ 51
Treatment of Summit Stock Options................................................ 51
Outstanding Warrants............................................................. 52
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Accounting Treatment............................................................. 52
Stock Exchange Listing........................................................... 53
Rights of Dissenting Stockholders................................................ 53
Regulatory Approvals............................................................. 54
Affiliates' Restrictions on Sales of CKE Common Stock............................ 55
Procedures for Exchange of Certificates.......................................... 55
THE MERGER AGREEMENT.................................................................. 57
The Merger....................................................................... 57
Conversion of Securities......................................................... 57
Representations and Warranties................................................... 57
Conduct of Business Pending the Merger........................................... 58
Exclusivity...................................................................... 58
Covenants........................................................................ 58
Conditions to the Merger......................................................... 59
Termination...................................................................... 60
Fees and Expenses................................................................ 61
BUSINESS AND MANAGEMENT OF CKE........................................................ 62
BUSINESS OF SUMMIT.................................................................... 67
SECURITY OWNERSHIP OF SUMMIT.......................................................... 72
SUMMIT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 74
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION........................... 83
CAPITALIZATION........................................................................ 84
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........................... 85
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CKE AND SUMMIT................................ 90
STOCKHOLDER PROPOSALS................................................................. 95
LEGAL MATTERS......................................................................... 95
EXPERTS............................................................................... 95
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>
<TABLE>
<S> <C> <C> <C>
APPENDIX A -- Agreement and Plan of Merger and Reorganization, as amended.......... A-1
APPENDIX B -- Fairness Opinion of Piper Jaffray Inc................................ B-1
APPENDIX C -- Section 262 of the Delaware General Corporation Law.................. C-1
</TABLE>
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<PAGE> 7
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS AND, IF SO GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO PURCHASE ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CKE OR SUMMIT SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
CKE and Summit are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York,
New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates. Material filed by CKE can be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
Material filed by Summit can be inspected at the offices of The Nasdaq Stock
Market, 1735 K Street, N.W., Washington, D.C. 20006-1500. After consummation of
the Merger, Summit may no longer file reports, proxy statements or other
information with the Commission. Instead, such information would be provided, to
the extent required, in filings made by CKE.
Under the rules and regulations of the Commission, the solicitation of
proxies from stockholders of Summit to approve and adopt the Merger Agreement
constitutes an offering of the CKE Common Stock to be issued in connection with
the Merger. Accordingly, CKE has filed with the Commission a Registration
Statement on Form S-4 (together with any amendments or supplements thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to such offering. This Proxy
Statement/Prospectus constitutes the prospectus of CKE that is filed as part of
the Registration Statement. Pursuant to the requirements of Section 13(e) of the
Exchange Act and Rule 13e-3 promulgated thereunder, Summit, as issuer of the
class of equity securities that is the subject of the Merger, CKE and Merger Sub
have filed with the Commission a joint Transaction Statement on Schedule 13E-3
(the "Schedule 13E-3") relating to the transactions contemplated by the Merger
Agreement, on the assumption that Section 13(e) and Rule 13e-3 are applicable to
the solicitation of the approval and adoption of the Merger Agreement and the
Merger by the holders of Summit Common Stock. The filing of the Schedule 13E-3
shall not be construed as an admission by Summit or CKE that Summit is
"controlled by" CKE or that CKE is an "affiliate" of Summit within the meaning
of Rule 13e-3 under Section 13(e) of the Exchange Act. Other parts of the
Registration Statement and the Schedule 13E-3, including certain information,
exhibits and undertakings contained therein, are omitted from this Proxy
Statement/Prospectus as permitted by the rules and regulations of the
Commission. Such information may be inspected at and obtained from the
Commission in the manner described in the immediately preceding paragraph.
Statements contained in this Proxy Statement/Prospectus or in any document
incorporated by reference in this Proxy Statement relating to the contents of
any contract or other document referenced to herein or therein are not
necessarily complete, and in each instance reference is hereby made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or to the Schedule 13E-3 or such other document, each such statement
being qualified in all respects by such reference.
------------------------
Carl's Jr.(R), the Happy Star(R) logo and proprietary names for a number of
the Carl's Jr. menu items described herein are registered trademarks of CKE.
Boston Chicken(R) and the Boston Chicken logo are registered trademarks and
Boston Market is a trademark of Boston Chicken, Inc. The Green Burrito(R) is a
registered trademark of GB Foods Corporation. JB's(R), JB's Restaurants(R), JB's
Bakery(R), JB's is family(R) and Galaxy Diner(R) are registered trademarks of
Summit. HomeTown(R) Buffet is a registered trademark of HomeTown Buffet, Inc.
1
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by CKE with the Commission under
the Exchange Act are incorporated herein by CKE by reference:
(a) CKE's Annual Report on Form 10-K for the fiscal year ended January 29,
1996 (the "CKE Form 10-K");
(b) CKE's Current Report on Form 8-K dated April 3, 1996 (the "CKE Form
8-K"); and
(c) the description of the shares of CKE Common Stock set forth in CKE's
Registration Statement on Form 8-B dated June 22, 1994, and any
amendment or reports filed for the purpose of updating such description
(collectively with the CKE Form 10-K and the CKE Form 8-K, the "CKE
Reports").
The following documents previously filed by Summit with the Commission
under the Exchange Act are incorporated herein by Summit by reference:
(a) Summit's Annual Report on Form 10-K for the fiscal year ended September
25, 1995 (the "Summit Form 10-K");
(b) Summit's Quarterly Reports on Form 10-Q for the quarterly periods ended
December 18, 1995 and March 11, 1996 (the "Summit Forms 10-Q"); and
(c) Summit's Current Reports on Form 8-K dated December 4, 1995 and April
2, 1996 (the "Summit Forms 8-K" and, collectively with the Summit Form
10-K and the Summit Forms 10-Q, the "Summit Reports").
All reports and other documents filed by CKE and Summit pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such reports and documents. Any statement included or
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document that also is incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Proxy Statement/Prospectus except as so modified or superseded.
All information contained or incorporated by reference in this Proxy
Statement/Prospectus relating to CKE has been supplied by CKE and all such
information relating to Summit has been supplied by Summit.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST BY
ANY PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED. IN THE
CASE OF DOCUMENTS RELATING TO CKE, REQUESTS SHOULD BE DIRECTED TO CKE
RESTAURANTS, INC., OFFICE OF THE CHIEF FINANCIAL OFFICER, 1200 NORTH HARBOR
BOULEVARD, ANAHEIM, CALIFORNIA 92801 (TELEPHONE NUMBER (714) 774-5796). IN THE
CASE OF DOCUMENTS RELATING TO SUMMIT, REQUESTS SHOULD BE DIRECTED TO SUMMIT
FAMILY RESTAURANTS INC., OFFICE OF THE CHIEF FINANCIAL OFFICER, 440 LAWNDALE
DRIVE, SALT LAKE CITY, UTAH 84115-2917 (TELEPHONE NUMBER (801) 463-5500). IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE
MADE BY JUNE , 1996 [INSERT DATE FIVE BUSINESS DAYS PRIOR TO DATE OF SPECIAL
MEETING].
2
<PAGE> 9
SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Proxy Statement/Prospectus, including the Appendices
hereto. This summary is not intended to be complete and is qualified in its
entirety by the more detailed information contained elsewhere in this Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated by
reference herein. Stockholders of Summit are urged to carefully review this
Proxy Statement/Prospectus and the Appendices in their entirety, and in
particular the section entitled "Risk Factors."
This Proxy Statement/Prospectus contains forward looking statements within
the meaning of the Securities Act and the Exchange Act concerning, among other
things, Summit's prospects, CKE's intentions and strategies relating to its
proposed acquisition of Summit (including the proposed disposition of certain
assets of Summit and the integration into CKE and restructuring of Summit's
remaining restaurant operations), and CKE's development and business strategies
for its existing restaurant operations, all of which are subject to risks and
uncertainties. CKE's and Summit's actual results may differ significantly from
the results discussed in the forward looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors" and those described in CKE's and Summit's filings with the
Commission. See "Incorporation of Certain Documents by Reference."
THE COMPANIES
CKE. CKE Restaurants, Inc. ("CKE" and collectively with its subsidiaries,
the "Company"), is a Delaware corporation formed in 1994 that is engaged
primarily in the food service industry. The Company's restaurant operations are
conducted through its two wholly-owned subsidiaries, Carl Karcher Enterprises,
Inc. ("Enterprises") and Boston Pacific, Inc. ("Boston Pacific"). CKE is the
holder of 946,714 shares of Summit's Series A Convertible Preferred Stock, par
value $1.00 per share (the "Summit Preferred Stock"), representing all of the
issued and outstanding shares of Summit Preferred Stock. CKE acquired all of the
shares of Summit Preferred Stock on April 4, 1996 from a former stockholder of
Summit. See "Special Factors -- Background." The shares of Summit Preferred
Stock are convertible into shares of Summit Common Stock representing beneficial
ownership of 16.5% of the outstanding shares of Summit Common Stock.
Enterprises, the predecessor entity of CKE, was a publicly-held company
incorporated in California that commenced operations in the mid-1950s and
continues to operate, franchise and license the Carl's Jr.(R) quick-service
restaurant concept, primarily in the Western United States, Mexico and the
Pacific Rim. As of March 25, 1996, there were a total of 664 Carl's Jr.
restaurants in operation, of which 394 were operated by Enterprises, 236 were
operated by its franchisees and 34 were operated by its international licensees.
Boston Pacific holds a minority interest in Boston West, L.L.C. ("Boston
West"), which operates Boston Market franchises under an area development
agreement with Boston Chicken, Inc. ("BCI"). The area development agreement
allows Boston West the rights to develop, own and operate up to 300 Boston
Market stores, primarily in Southern California. A total of 61 Boston Market
stores have been opened under the area development agreement with BCI as of
April 8, 1996, the first of which commenced operations in July 1994.
CKE's principal executive offices are located at 1200 North Harbor
Boulevard, Anaheim, California 92801. Its telephone number is (714) 774-5796.
See "Business and Management of CKE."
Merger Sub. Summit Merger, Inc., a Delaware corporation ("Merger Sub"), is
a wholly-owned subsidiary of CKE incorporated in March 1996 solely for the
purposes of the Merger. Merger Sub's principal executive offices are located at
1200 North Harbor Boulevard, Anaheim, California 92801. Its telephone number is
(714) 774-5796.
Summit. Summit Family Restaurants Inc. (collectively with its
subsidiaries, "Summit") is a Delaware corporation organized in 1985 as the
successor to a California corporation which was organized in 1963. Effective
April 4, 1995, Summit changed its corporate name to Summit Family Restaurants
Inc. from JB's Restaurants, Inc.
3
<PAGE> 10
As of April 8, 1996, Summit operated 77 JB's Restaurants: 40 in Arizona,
seven in Idaho, four in Montana, eight in New Mexico, 15 in Utah and three in
Wyoming and franchised 24 JB's Restaurants: five in Arizona, three in Idaho, two
in Montana, one in New Mexico, two in South Dakota, five in Utah, two in
Washington and four in Wyoming. Summit also operated six Galaxy Diner
restaurants: four in Utah, one in Arizona and one in Idaho, and 16 franchised
HomeTown Buffet restaurants: eight in Arizona, two in Colorado, two in New
Mexico, three in Utah and one in Wyoming.
JB's Restaurants are family style restaurants offering a variety of
breakfast, lunch and dinner selections at moderate prices. The JB's soup and
salad bar features homestyle soups, salads, fresh fruits and vegetables. The
restaurants also feature the JB's Bakery with a full line of freshly baked
products.
In fiscal year 1994, Summit developed the Galaxy Diner concept, which was
intended to be used initially as a conversion vehicle for underperforming JB's
Restaurants. Summit converted its first underperforming JB's Restaurant to a
Galaxy Diner in June 1994 and five additional conversions were completed in
fiscal year 1995. The Galaxy Diner is designed as a 1950's theme restaurant with
a high energy environment, fun atmosphere and outstanding food.
Summit also has a franchise and exclusive area development agreement with
HomeTown Buffet, Inc. ("HomeTown"), under which, as amended, Summit has the
exclusive rights to develop and operate HomeTown Buffet restaurants, as a
franchisee, in Arizona, Colorado, Idaho, Nevada, New Mexico, Montana, Utah and
Wyoming. HomeTown Buffet restaurants feature a "scatter bar" buffet system with
eight separate food islands in an "all-you-can-eat" format, offering a wide
variety of fresh "made in the kitchen" menu items including soups, salads, hot
entrees, vegetables, non-alcoholic beverages and a dessert bar. It also features
a display bakery where customers can see the desserts and baked goods prepared
fresh throughout the day.
Summit's principal executive offices are located at 440 Lawndale Drive,
Salt Lake City, Utah 84115-2917. Its telephone number is (801) 463-5500. See
"Business of Summit."
THE SPECIAL MEETING
Date, Time and Place; Purpose. The Special Meeting will be held on
, July , 1996, starting at 10:00 a.m., local time, at the
Howard Johnson Hotel, located at 122 West South Temple, Salt Lake City, Utah. At
the Special Meeting, stockholders of Summit as of the close of business on the
Record Date (as defined below) will be asked to consider and vote upon a
proposal to approve and adopt the Merger Agreement and the Merger.
Record Date; Shares Outstanding and Entitled to Vote. Holders of record of
Summit Common Stock and Summit Preferred Stock at the close of business on May
20, 1996 (the "Record Date") are entitled to notice of and to vote at the
Special Meeting. At the close of business on the Record Date, there were
4,805,902 shares of Summit Common Stock and 946,714 shares of Summit Preferred
Stock outstanding and entitled to vote, each of which is entitled to one vote on
each matter that is properly submitted to a vote at the Special Meeting.
Quorum. The required quorum for the transaction of business at the Special
Meeting is a majority of the shares of Summit Common Stock and a majority of the
shares of Summit Preferred Stock which are issued and outstanding on the Record
Date. Abstentions and broker non-votes each will be included in determining the
number of shares presented for purposes of determining the presence of a quorum.
Votes Required. Approval and adoption of the Merger Agreement and the
Merger requires the affirmative vote of the holders of a majority of the
outstanding shares of Summit Common Stock entitled to vote and the affirmative
vote of the holder of 75% of the outstanding shares of Summit Preferred Stock
entitled to vote (voting as a separate class). CKE is the record and beneficial
owner of all of the issued and outstanding shares of Summit Preferred Stock, and
has agreed to vote all of its shares in favor of the approval and adoption of
the Merger Agreement and the Merger. Abstentions and broker non-votes will have
the same effect as votes against the Merger Agreement and the Merger. See "The
Special Meeting."
4
<PAGE> 11
As of May 24, 1996, the directors and executive officers of Summit and
their affiliates were entitled to vote an aggregate of 81,319 shares of Summit
Common Stock, representing approximately 1.7% of the outstanding shares of
Summit Common Stock as of such date. To the knowledge of Summit, all of its
directors and executive officers intend to vote their shares of Summit Common
Stock for the approval and adoption of the Merger Agreement and the Merger. See
"Special Factors -- Interests of Certain Persons in the Merger" and "Security
Ownership of Summit."
THE MERGER AND THE MERGER AGREEMENT
General. The Merger Agreement provides for the Merger of Merger Sub with
and into Summit. Summit will be the surviving corporation in the Merger and
become a wholly-owned subsidiary of CKE. The Merger will become effective upon
the filing of a Certificate of Merger with the Secretary of State of the State
of Delaware, or such later time as may be specified therein. The Certificate of
Merger is expected to be filed as soon as practicable after the satisfaction or
waiver of each of the conditions to consummation of the Merger, which is
expected to occur as soon as practicable following receipt of stockholder
approval at the Special Meeting.
Conversion of Summit Shares. On the effective date of the Merger, each
outstanding share of Summit Common Stock and each outstanding share of Summit
Preferred Stock (other than dissenting shares, if any, and shares owned by CKE
or its subsidiaries) will, subject to certain provisions with respect to
fractional shares described below, be converted into the right to receive $2.63
in cash and a number of shares of CKE Common Stock which shall be determined by
dividing $2.64 by the Adjusted CKE Price, as such term is defined below (the
"Merger Consideration").
The "Adjusted CKE Price" shall be determined as follows:
(a) if the Average CKE Price (as such term is defined below) is equal
to or greater than $17.00, the Adjusted CKE Price shall be $16.00 plus the
amount by which the Average CKE Price exceeds $17.00;
(b) if the Average CKE Price is less than $17.00 and equal to or
greater than $15.00, the Adjusted CKE Price shall be $16.00;
(c) if the Average CKE Price is less than $15.00 and equal to or
greater than $13.25, the Adjusted CKE Price shall be $16.00 less the amount
by which $15.00 exceeds the Average CKE Price;
(d) if the Average CKE Price is less than $13.25 and CKE does not
exercise the Fill-Up Election (as such term is defined below), but neither
Summit nor CKE elects to terminate the Merger Agreement, the Adjusted CKE
Price shall be $14.25; and
(e) if the Average CKE Price is less than $13.25 and CKE exercises the
Fill-Up Election, the Adjusted CKE Price shall be $16.00 less the amount by
which $15.00 exceeds the Average CKE Price.
Notwithstanding the foregoing, in no event will the Adjusted CKE Price
exceed $29.00, even if the Average CKE Price exceeds $30.00.
For purposes of the Merger Agreement, the "Average CKE Price" will be the
average of the per share closing sales prices of CKE Common Stock on the NYSE
for the 20 consecutive trading days ending five days prior to the date of the
Special Meeting. See "The Merger--Conversion of Shares."
5
<PAGE> 12
The following table sets forth the number of shares of CKE Common Stock
which would be issuable per share of Summit Common Stock based upon certain
assumed Average CKE Price determinations:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF AGGREGATE VALUE OF
AVERAGE CKE PRICE CKE COMMON STOCK MERGER CONSIDERATION(1)
- ----------------- ---------------- -----------------------
<S> <C> <C>
$ 30.00 .09103 $ 5.361
$ 28.00 .09778 $ 5.368
$ 26.00 .10560 $ 5.376
$ 24.00 .11478 $ 5.385
$ 22.00 .12571 $ 5.396
$ 20.00 .13895 $ 5.409
$ 18.00 .15529 $ 5.425
$ 16.00 .16500 $ 5.270
$ 14.00 .17600 $ 5.094
$ 13.25(2) .18526 $ 5.085
</TABLE>
- ---------------
(1) The Aggregate Value of Merger Consideration data presented above is based
upon the assumed Average CKE Price and includes the $2.63 cash portion of
the Merger Consideration.
(2) If CKE does not exercise the Fill-Up Election at any Average CKE Price less
than $13.25 per share, and neither Summit nor CKE elects to terminate the
Merger Agreement, the number of shares of CKE Common Stock issuable per
share of Summit Common Stock would be .18526.
The number of shares of CKE Common Stock to be issued in the Merger will
decrease as the Average CKE Price increases up to $30.00 per share. See "Risk
Factors -- Exchange Rate." If the Average CKE Price is less than $13.25, each of
Summit and CKE (as the holder of Summit Preferred Stock) will have the right to
terminate the Merger Agreement unless CKE exercises its right to elect to
proceed with the Merger by issuing to the holders of Summit Common Stock a
number of shares of CKE Common Stock (to be determined under paragraph (e) of
the above formula) which is intended to compensate Summit stockholders for the
reduction in the Average CKE Price below $13.25 (the "Fill-Up Election"). Summit
or CKE may decline to exercise their rights to terminate the Merger Agreement if
the Average CKE Price is determined to be less than $13.25 and CKE fails to
exercise the Fill-Up Election. If the Average CKE Price is less than $13.25,
Summit will give the holders of Summit Common Stock an opportunity to reconsider
their investment decision in connection with the Merger. See "The Merger
Agreement -- Termination." CKE does not presently intend to exercise its right
to terminate the Merger Agreement in the event that the Average CKE Price is
determined to be less than $13.25.
No fractional shares of CKE Common Stock will be issued in the Merger. In
lieu of the issuance of any fractional shares of CKE Common Stock, cash equal to
the product of such fractional share amount and the Average CKE Price will be
paid to holders in respect of such fractional share that would otherwise be
issuable.
CKE and Summit have agreed that the Merger Consideration shall be increased
by one-half of the amount, if any, by which the consideration to be received
from any purchasers of Summit assets exceeds, in an immediately quantifiable
dollar amount, $40,000,000 pursuant to fully executed definitive Asset Purchase
Agreements in effect, if any, as of the date of the Merger. The amount of the
increase, if any, shall be determined at the date of the Merger and shall not be
further affected by any other transactions involving Summit assets or properties
subsequent to the date of the Merger. The increase, if any, shall be allocated
one-half to the cash portion of the Merger Consideration and one-half to the CKE
Common Stock portion of the Merger Consideration. CKE has advised Summit of its
intention to immediately sell Summit's HomeTown Buffet restaurants, and that it
is negotiating the terms and conditions for the sale of such assets. CKE's
management is performing an ongoing evaluation regarding the nature and scope of
Summit's other restaurant operations and various short- and long-term strategic
considerations in the process of assessing whether, and to what extent,
integration, consolidation or other modification of such other restaurant
operations is appropriate following the Merger. Such evaluations include
strategic considerations concerning the sale or other disposition of additional
assets of Summit, including the JB's Restaurants and franchise
6
<PAGE> 13
system. However, CKE is not presently a party to any agreements or discussions
relating to any other dispositions of Summit's assets. Accordingly, it is not
expected that fully executed definitive Asset Purchase Agreements will be in
effect as of the date of the Merger for any dispositions of assets other than
the HomeTown Buffet restaurants. As a result, it is not expected that any
adjustments will be made to the Merger Consideration pursuant to the foregoing
adjustment provisions of the Merger Agreement. After the Merger, no additional
merger consideration will be paid to former Summit stockholders based upon any
further sales of assets acquired from Summit. See "The Merger -- Adjustment of
Merger Consideration" and "-- Proposed Disposition of Certain Assets of Summit"
and "The Merger Agreement."
The Average CKE Price, if determined as of the date of this Proxy
Statement/Prospectus, would have been approximately $[21.74], representing the
average of the per share closing sales prices of the CKE Common Stock on the
NYSE for the 20 consecutive trading days ended May [23], 1996. Accordingly, if
the Merger were consummated as of the date of this Proxy Statement/Prospectus,
and no increase to the Merger Consideration resulted from the proposed
disposition of assets described elsewhere in this Proxy Statement/Prospectus,
each outstanding share of Summit Common Stock would be converted into 0.12729
shares of CKE Common Stock and $2.63 in cash. Because the cash portion of the
Merger Consideration is fixed, the amount of cash to be received by stockholders
of Summit upon consummation of the Merger will remain the same, regardless of
whether the market price of the Summit Common Stock or the CKE Common Stock
increases or decreases at any time, including after the date of this Proxy
Statement/Prospectus and after the date of the Special Meeting. The stock
portion of the Merger Consideration will not be affected by any increases or
decreases in the market price of the Summit Common Stock. See "Risk
Factors -- Exchange Ratio."
Treatment of Outstanding Stock Options and Warrants. As of April 8, 1996,
options to purchase an aggregate of 742,000 shares of Summit Common Stock at
exercise prices ranging from $3.63 to $7.88 (each of which will become fully
exercisable in connection with the Merger) were outstanding under Summit's 1984
Incentive Stock Option Plan, 1987 Nonqualified Stock Option Plan, 1987 Employee
Incentive Stock Option Plan, and 1992 Stock Option Plan (collectively, the
"Summit Stock Option Plans"). Warrants to purchase 219,254 shares of Summit
Common Stock at an exercise price of $7.416 per share were also outstanding.
Under the Merger Agreement, holders of options may elect to receive cash from
Summit in an amount equal to the difference between the exercise price of the
options and the Merger Consideration, provided that the aggregate cash liability
thereby created does not exceed $375,000, adjusted for any per share increase in
the Merger Consideration. Otherwise, the options will be converted into options
to purchase shares of CKE Common Stock. See "Special Factors -- Interests of
Certain Persons in the Merger" and "The Merger -- Treatment of Summit Stock
Options." The warrants will be assumed by CKE and, from and after the Effective
Time of the Merger, will represent the right to purchase the number of shares of
CKE Common Stock which the holders thereof would have been entitled to receive
if such holders had exercised the warrants immediately prior to the Merger, with
a reduction in the aggregate exercise price thereof to reflect the cash portion
of the Merger Consideration. See "The Merger -- Outstanding Warrants."
Representations and Warranties. Under the Merger Agreement, CKE and Summit
made a number of representations concerning their respective capital structures,
operations, financial conditions, assets and properties, labor matters, ERISA
matters, environmental matters, compliance with laws, and other matters. See
"The Merger Agreement -- Representations and Warranties."
Covenants. Under the Merger Agreement, Summit has agreed to diligently
carry on its business in the ordinary course consistent with past practice, and
not to take certain actions (including incurring indebtedness, issuing
securities, paying dividends, amending its charter documents, selling or
disposing of certain assets, entering into material contracts and similar
actions) without CKE's prior written approval. CKE and Summit have each agreed
to take all action required to obtain all consents, approvals and agreements of,
and to give all notices to and make all filings with, any third parties,
including governmental authorities, which are required, and otherwise to use
their reasonable best efforts, to consummate the Merger. See "The Merger
Agreement -- Conduct of Business Pending the Merger" and "-- Covenants."
7
<PAGE> 14
Exclusivity. Summit has agreed that, until the termination of the Merger
Agreement in accordance with its terms, it will not, and will not permit its
officers, directors, affiliates, representatives or agents, directly or
indirectly to, do any of the following: (i) discuss, negotiate, undertake,
authorize, recommend, propose or enter into any transaction (other than the
Merger) involving any disposition or other change of ownership of Summit's stock
or assets, other than acquisitions and dispositions of assets in the ordinary
course of Summit's business (an "Acquisition Transaction"); (ii) facilitate,
encourage, solicit or initiate or in any way engage in any discussion,
negotiation or submission of a proposal or offer in respect of an Acquisition
Transaction; (iii) furnish or cause to be furnished to any person any
information concerning the business, properties or assets of Summit in
connection with an Acquisition Transaction; or (iv) otherwise cooperate in any
way with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do or seek any of the foregoing. Summit has also
agreed to inform CKE by telephone within 24 hours of its receipt of, and to
provide certain information concerning, any proposal or bid in respect of any
Acquisition Transaction.
Conditions to the Merger. The obligations of CKE and Summit to consummate
the Merger are subject to the satisfaction of various conditions which, if not
satisfied or waived, could cause the Merger not to be consummated and the Merger
Agreement to be terminated. Each party's obligation to consummate the Merger is
conditioned upon, among other things, the accuracy of the other party's
representations, obtaining the requisite approval of Summit's stockholders,
certain regulatory approvals and required third party consents, the absence of
any governmental proceedings or litigation which question the validity or
legality of the Merger, and the receipt of confirmation letters concerning
certain fairness opinions. See "The Merger Agreement -- Conditions to the
Merger."
Termination of the Merger Agreement; Breakup Fees. The Merger Agreement
may be terminated at any time prior to the Effective Time by: (i) mutual consent
of CKE and Summit; (ii) either CKE or Summit if the Merger shall not have been
consummated before July 15, 1996, unless the failure to so consummate the Merger
by such date shall be due to the action or failure to act of the party seeking
termination; (iii) CKE if there has been a material breach by Summit of its
covenants under the Merger Agreement, or any failure by Summit to comply with
its material obligations under the Merger Agreement, or any other events or
circumstances shall have occurred such that Summit could not satisfy on or prior
to July 15, 1996 any of the conditions to closing set forth in the Merger
Agreement, or Summit's stockholders do not approve the Merger at the Special
Meeting; (iv) Summit if there has been a material breach by CKE of its covenants
under the Merger Agreement, or any failure by CKE to comply with its material
obligations under the Merger Agreement, or any other events or circumstances
shall have occurred such that CKE could not satisfy on or prior to July 15, 1996
any of the conditions to closing set forth in the Merger Agreement, or Summit's
stockholders do not approve the Merger at the Special Meeting; (v) Summit if,
prior to the approval of the Merger by Summit's stockholders, Summit receives a
firm offer with respect to an Acquisition Transaction that is reasonably capable
of being financed and, in the good faith determination of its Board of Directors
after consultation with its financial advisors, is financially superior to the
Merger and the Board of Directors of Summit, after consulting with its outside
counsel, determines that to proceed with the Merger would violate its fiduciary
duties under applicable law (a "Superior Proposal Termination"); and (vi) Summit
or CKE if the Average CKE Price is less than $13.25, unless CKE makes the
Fill-Up Election. CKE does not presently intend to exercise its right to
terminate the Merger Agreement in the event that the Average CKE Price is
determined to be less than $13.25. See "The Merger Agreement -- Termination."
In the event of a Superior Proposal Termination, Summit has agreed to
promptly pay CKE a cash fee of $800,000. In the event that all conditions to
CKE's obligations under the Merger Agreement have been satisfied and CKE
nevertheless fails to proceed with the Merger, CKE has agreed to pay Summit a
fee of $800,000, in addition to other damages that Summit may suffer as a result
of such breach. See "The Merger Agreement -- Termination" and "-- Fees and
Expenses."
RECOMMENDATION OF SUMMIT'S BOARD OF DIRECTORS
The Board of Directors of Summit has unanimously approved the Merger
Agreement, as amended, and determined that the Merger Agreement and the Merger
are fair to and in the best interests of Summit and its stockholders, and
unanimously recommends that Summit stockholders vote in favor of the approval
and
8
<PAGE> 15
adoption of the Merger Agreement and the Merger. The primary factors considered
and relied upon by Summit's Board of Directors in reaching its recommendation
are referred to in "Special Factors -- Reasons for the Merger" and
"-- Recommendation of Summit's Board of Directors; Fairness of the Merger."
OPINION OF FINANCIAL ADVISOR TO SUMMIT
Piper Jaffray Inc. ("Piper Jaffray") has delivered its written opinion
dated March 26, 1996 to the Board of Directors of Summit, stating that the
consideration proposed to be received by the holders of Summit Common Stock in
the Merger is fair from a financial point of view. Piper Jaffray's opinion is
directed only to the consideration to be received and does not constitute a
recommendation to the holders of Summit Common Stock as to how they should vote
at the Special Meeting. The full text of the opinion of Piper Jaffray, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken by Piper Jaffray, is attached as Appendix B to this Proxy
Statement/Prospectus. The holders of Summit Common Stock are urged to read this
opinion in its entirety. See "Special Factors -- Opinion of Financial Advisor to
Summit."
REGULATORY APPROVALS
Certain aspects of the Merger will require notification to, and/or
approvals from, certain federal and state authorities, including notifications
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). Consummation of the Merger is subject to the expiration or
termination of the applicable waiting period (and any extension thereof) under
the HSR Act. CKE and Summit each filed a Notification and Report Form with the
Antitrust Division of the Department of Justice and the Federal Trade Commission
("FTC") for review under the HSR Act on February 1, 1996, and the applicable
waiting period under the HSR Act was terminated on February 12, 1996. See "The
Merger -- Regulatory Approvals."
ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of accounting,
in accordance with generally accepted accounting principles. See "The
Merger -- Accounting Treatment."
RIGHTS OF DISSENTING STOCKHOLDERS
Under the Delaware General Corporation Law (the "DGCL"), any stockholder of
Summit may dissent from the Merger and elect to have the fair value of his or
her shares judicially determined and paid to such stockholder, provided that he
or she complies with certain procedural requirements. The fair value of such
shares, if so judicially determined, may be more than, equal to or less than the
value of the Merger Consideration such stockholder would otherwise receive in
the Merger. To dissent from the Merger, the stockholder must (i) deliver to
Summit, before the taking of the stockholder vote with respect to the Merger, a
written demand for appraisal of his or her shares if the Merger is effectuated;
and (ii) not vote in favor of the Merger. If any stockholder fails to comply
with these procedures and the Merger become effective, such stockholder will
have no appraisal rights with respect to the Merger. See "The Merger -- Rights
of Dissenting Stockholders" and Appendix C, which sets forth the relevant
provisions of the DGCL. A condition to CKE's obligations under the Merger
Agreement is that the holders of not more than 10% of the shares of Summit
Common Stock or Summit Preferred Stock shall have asserted dissenters' rights
under Delaware law.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of management of Summit have certain interests in the
Merger that are different from, or in addition to, the interests of stockholders
of Summit generally. See "Special Factors -- Interests of Certain Persons in the
Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A holder of Summit stock will recognize gain or loss for federal income tax
purposes upon the exchange of such Summit stock for CKE Common Stock and cash
pursuant to the Merger equal to the difference
9
<PAGE> 16
between the holder's adjusted tax basis in the Summit stock and the sum of the
fair market value of the CKE Common Stock and the amount of cash received. See
"Special Factors -- Certain Federal Income Tax Consequences."
PROPOSED DISPOSITION OF CERTAIN ASSETS OF SUMMIT
CKE intends to sell all of Summit's HomeTown Buffet restaurants
concurrently with or promptly following the closing of the Merger. Any such sale
of assets would be conditioned upon the consummation of the Merger, among other
conditions. CKE is negotiating the terms and conditions of such disposition,
which contemplates an aggregate purchase price of approximately $17,250,000,
subject to certain adjustments, and the assumption of selected liabilities of
Summit by the purchaser. The purchase price of the assets to be sold is expected
to be subject to increase based on the value of certain assets to be sold,
including cash on hand in the restaurants, inventories, deposits and certain
receivables, and to decrease based on the amounts of certain liabilities to be
assumed. There can be no assurance that a definitive agreement will be signed or
that the related disposition will be completed. See "Risk Factors -- Proposed
Disposition of Certain Assets of Summit" and "The Merger -- Proposed Disposition
of Certain Assets of Summit."
COMPARATIVE MARKET PRICES AND DIVIDENDS
The CKE Common Stock is listed on the NYSE under the symbol "CKR." The
Summit Common Stock is traded on the Nasdaq National Market under the symbol
"SMFR." There is no trading market for the Summit Preferred Stock. The following
table sets forth the closing prices per share of the CKE Common Stock on the
NYSE and the Summit Common Stock on the Nasdaq National Market, certain assumed
Average CKE Prices and the equivalent per share prices of the Summit Common
Stock on November 30, 1995, the last trading day preceding the public
announcement of the proposed Merger, on January 24, 1996, the last trading day
preceding the public announcement of the first amendment to the Merger
Agreement, on April 2, 1996, the last trading day preceding the public
announcement of the second amendment to the Merger Agreement, and on June ,
1996, the latest practicable trading day before the printing of this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
CKE ASSUMED AVERAGE SUMMIT SUMMIT
COMMON STOCK CKE PRICE(1) COMMON STOCK EQUIVALENT(2)
------------ --------------- ------------ -------------
<S> <C> <C> <C> <C>
November 30, 1995.................. $17.38 $ 15.08 $ 5.00 $5.50
January 24, 1996................... $16.00 $ 15.70 $ 4.44 $5.27
April 2, 1996...................... $16.50 $ 16.82 $ 4.91 $5.35
[May 23], 1996..................... $25.00 $ 21.74 $ 5.06 $5.81
</TABLE>
- ---------------
(1) For purposes of this table, the assumed Average CKE Price represents the
average of the per share closing prices of the CKE Common Stock on the NYSE
for the 20 consecutive trading days ending on the relevant date.
(2) Represents the equivalent of one share of Summit Common Stock calculated by
multiplying the closing sales price per share of CKE Common Stock by the
exchange ratio represented by the stock component of the Merger
Consideration, and includes the $2.63 per share cash portion of the Merger
Consideration. For all relevant dates other than May [23], 1996, the
Adjusted CKE Price (if determined on the basis of the assumed Average CKE
Prices) would have been $16.00. At May [23], 1996, the Adjusted CKE Price
(if determined on the basis of the assumed Average CKE Price of $21.74)
would have been $[20.74].
Stockholders are advised to obtain current market quotations for the CKE
Common Stock and the Summit Common Stock prior to making any decision with
respect to the Merger. No assurance can be given as to the market price of the
CKE Common Stock or the Summit Common Stock at, or in the case of the CKE Common
Stock after, the Effective Time of the Merger.
10
<PAGE> 17
The payment of future dividends on CKE Common Stock will be a business
decision to be made by the Board of Directors of CKE from time to time based
upon the results of operations and financial condition of CKE and such other
factors as the CKE Board of Directors considers relevant. See "Comparative Per
Share Market Price and Dividend Information."
COMPARISON OF RIGHTS OF STOCKHOLDERS
Upon consummation of the Merger, holders of Summit Common Stock will become
holders of CKE Common Stock. As a result, their rights as stockholders, which
are now governed by Delaware corporate law and Summit's Certificate of
Incorporation and Bylaws, as amended, will be governed by Delaware corporate law
and CKE's Certificate of Incorporation and Bylaws. Because of certain
differences between provisions of Summit's Certificate of Incorporation and
Bylaws and those of CKE, the rights of Summit stockholders before the Merger
will be different than their rights as CKE stockholders after the Merger. For a
discussion of various differences between the rights of stockholders of Summit
and the rights of stockholders of CKE, see "Comparison of Rights of Stockholders
of CKE and Summit."
LISTING OF CKE COMMON STOCK
It is a condition to consummation of the Merger that the shares of CKE
Common Stock to be issued to Summit stockholders in connection with the Merger
shall have been approved for listing on the NYSE, subject to official notice of
issuance. See "The Merger -- Stock Exchange Listing."
SURRENDER OF CERTIFICATES
If the Merger is approved and becomes effective, First Interstate Bank, in
its capacity as exchange agent for the Merger (the "Exchange Agent"), will mail
a letter of transmittal with instructions to all holders of record of Summit
Common Stock and Summit Preferred Stock. The letter of transmittal will contain
instructions with respect to the surrender of certificates representing Summit
Common Stock and Summit Preferred Stock to be exchanged for the Merger
Consideration. See "The Merger -- Conversion of Shares" and "-- Procedures for
Exchange of Certificates."
SUMMIT STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED
PROXY. SUMMIT STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES FOR SUMMIT COMMON
STOCK TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED LETTERS OF TRANSMITTAL.
RISK FACTORS
In considering whether to vote for the approval and adoption of the Merger
Agreement and the Merger, stockholders of Summit should carefully consider all
of the information contained in this Proxy Statement/
Prospectus and, in particular, the information set forth in "Risk Factors."
11
<PAGE> 18
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
CKE Historical Consolidated Financial Information
The selected consolidated financial information of CKE presented below,
except restaurant data, has been derived from and should be read in conjunction
with CKE's audited consolidated financial statements, including the notes
thereto, which are incorporated by reference in this Proxy Statement/Prospectus.
See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OR AS OF JANUARY 31,(1)
--------------------------------------------------------
1992 1993 1994(2) 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND RESTAURANT DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
System-wide sales:
Company-operated(3).......................................... $469,736 $417,268 $384,859 $370,045 $393,486
Franchised................................................... 138,664 184,658 190,434 178,428 175,716
Licensed..................................................... 9,535 17,451 18,780 22,742 18,268
-------- -------- -------- -------- --------
Total system-wide sales.................................... $617,935 $619,377 $594,073 $571,215 $587,470
======== ======== ======== ======== ========
Revenues(3).................................................... $543,908 $505,390 $463,494 $443,747 $465,437
Income (loss) before cumulative effect of changes in accounting
principles................................................... 13,038 (3,057) 4,433 1,264 10,952
Net income (loss).............................................. 13,038 (5,507) 3,665 1,264 10,952
Income (loss) per share before cumulative effect of changes in
accounting principles........................................ .72 (.17) .24 .07 .59
Net income (loss) per share.................................... .72 (.31) .20 .07 .59
Cash dividends paid per common share(4)........................ .08 .08 .08 .08 .08
Weighted average number of shares
outstanding.................................................. 18,208 18,034 18,567 18,717 18,679
CONSOLIDATED BALANCE SHEET DATA:
Total assets(3)................................................ $294,375 $268,924 $242,135 $244,361 $246,759
Long-term debt, including capital lease obligations............ 102,074 80,254 63,300 69,869 70,554
Stockholders' equity........................................... $ 89,679 $ 84,732 $ 92,076 $ 88,474 $101,189
NUMBER OF RESTAURANTS AT YEAR END:
Company-operated(5).......................................... 414 379 376 383 394
Franchised................................................... 196 244 255 246 239
Licensed..................................................... 12 19 17 31 34
-------- -------- -------- -------- --------
Total system-wide restaurants.............................. 622 642 648 660 667
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) CKE's fiscal year is 52 or 53 weeks, ending the last Monday in January. For
clarity of presentation, all years are presented as if the fiscal year ended
January 31.
(2) Fiscal 1994 includes 53 weeks.
(3) Prior year amounts have been reclassified to conform with the fiscal 1996
presentation.
(4) Prior to fiscal 1995, CKE paid four consecutive quarterly dividends of $.02
per share of CKE Common Stock, for a total of $.08 per share per year.
During fiscal 1996 and 1995, CKE paid two consecutive semi-annual dividends
of $.04 per share, for a total of $.08 per share.
(5) The number of restaurants at year end for fiscal 1995 excludes 22 Boston
Market stores which were owned and operated by Boston Pacific under an area
development agreement with BCI. See Note 2 of Notes to Consolidated
Financial Statements.
12
<PAGE> 19
Summit Historical Consolidated Financial Information
The selected consolidated financial information of Summit presented below,
except store data, has been derived from and should be read in conjunction with
Summit's audited consolidated financial statements and unaudited interim
consolidated financial statements, including the notes thereto, and Summit's
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this Proxy Statement/Prospectus. In
the opinion of management, such unaudited interim consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements referred to above and include all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position of Summit and the results of operations for the indicated periods.
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS
ENDED OR AS OF
FISCAL YEAR ENDED OR AS OF SEPTEMBER 30,(1) ---------------------
-------------------------------------------------------------- MARCH 13, MARCH 11,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Revenues....................... $127,294 $124,045 $114,768 $115,367 $121,099 $54,324 $54,122
Income (loss) from
operations(2)................ (245) 911 (4,651) (5,641) (5,052) (2,177) (3,331)
Income (loss) before income
taxes, extraordinary item and
cumulative effect of change
in accounting principle(3)... (1,686) (1,307) (3,797) 6,826 (6,097) (2,607) 268
Income (loss) before
extraordinary item and
cumulative effect of change
in accounting principle...... (991) (557) (2,314) 4,106 (5,044) (1,554) (632)
Net income (loss)(4)........... (991) (771) (2,314) 3,756 (5,044) (1,554) (632)
-------- -------- -------- -------- -------- -------- --------
PER SHARE
Income (loss) before
extraordinary item........... (0.22) (0.12) (0.49) 0.72 (1.05) (0.32) (0.13)
Extraordinary item............. -- -- -- (0.06) -- -- --
Cumulative effect of change in
accounting principle......... -- (0.05) -- -- -- -- --
Net income (loss).............. $ (0.22) $ (0.17) $ (0.49) $ 0.66 $ (1.05) $ (.32) $ (0.13)
Weighted average shares
outstanding.................. 4,534 4,585 4,693 5,723(5) 4,794(6) 4,790(6) 4,802(6)
-------- -------- -------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital................ $ (8,439) $ (8,968) $ (5,938) $ (3,402) $(11,465) $(5,983) $(9,061)
Total assets................... 74,768 73,745 67,716 76,608 70,884 71,728 62,395
Tangible assets................ 72,150 71,780 66,276 75,209 69,735 70,471 61,343
Long-term debt................. 22,824 22,259 19,243 13,093 10,150 10,732 10,326
Stockholders' equity........... 34,830 34,156 32,598 44,336 40,127 42,683 36,672
-------- -------- -------- -------- -------- -------- --------
RATIO:
Ratio of earnings to fixed
charges...................... N/A N/A N/A 1.88 (0.01)(7) 0.07(8) 1.10
-------- -------- -------- -------- -------- -------- --------
OPERATING UNITS:
JB's
Restaurants -- Company..... 136 109 97 89 80 83 78
JB's
Restaurants -- franchised... 3 5 14 19 24 22 24
HomeTown Buffet
restaurants................ -- 4 6 14 16 14 16
Galaxy Diner restaurants..... -- -- -- 1 6 4 6
Sbarro restaurants........... 4 12 10 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total.................... 143 130 127 123 126 123 124
======== ======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Summit's fiscal year is 52 or 53 weeks, ending the last Monday in September.
For clarity of presentation, all periods are presented as if the fiscal year
ended September 30. Fiscal 1991 includes 53 weeks.
(2) Income (loss) from operations is net of charges for property dispositions of
$3.1 million in fiscal 1991, $3.2 million in fiscal 1992, $4.3 million in
fiscal 1993 and $2.0 million in fiscal 1994. The twenty-four week period
ended March 11, 1996 is net of a charge for change of control and other
severance costs of $1.6 million.
(3) Income (loss) before income taxes, extraordinary item and cumulative effect
of change in accounting principle is net of gains on sales of HomeTown
common stock of $1.7 million in fiscal 1993, $14.7 million in fiscal 1994
and $4.0 million for the twenty-four week period ended March 11, 1996.
Fiscal 1994 is also net of a $1.6 million loss on the disposition of a note
receivable.
(4) Net income (loss) is net of a cumulative effect of change in accounting
principle of $214,000 in fiscal 1992 and an extraordinary loss of $350,000
(net of tax benefit) resulting from extinguishment of debt in fiscal 1994.
(5) Includes 946,714 shares of Series A Convertible Preferred Stock.
(6) Excludes 946,714 shares of Series A Convertible Preferred Stock as they are
anti-dilutive.
(7) Earnings are inadequate to cover fixed charges. The coverage deficiency is
$6.1 million.
(8) Earnings are inadequate to cover fixed charges. The coverage deficiency is
$2.6 million.
13
<PAGE> 20
Unaudited Pro Forma Combined Condensed Financial Information
The following summary unaudited pro forma combined financial information of
CKE has been derived from, and should be read in conjunction with, the Unaudited
Pro Forma Combined Condensed Financial Statements included elsewhere in this
Proxy Statement/Prospectus. This pro forma financial information is presented
for illustrative purposes only and should not be regarded as indicative of the
combined results of operations or financial position that would have occurred if
the Merger and the proposed dispositions of certain Summit assets described
elsewhere herein had occurred at the beginning of the period presented or on the
date indicated, nor is it necessarily indicative of the future operating results
or financial position of CKE.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 29, 1996
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
System-wide sales:
Company-operated...................................................... $ 513,459
Franchised............................................................ 196,962
Licensed.............................................................. 18,268
--------
Total system-wide sales............................................. $ 728,689
========
Revenues................................................................. $ 548,256
Net income............................................................... 7,173
Net income per share..................................................... 0.37
Cash dividends paid per common share..................................... 0.08
CONSOLIDATED BALANCE SHEET DATA:
Total assets............................................................. $ 282,767
Long-term debt, including capital lease obligations...................... 78,632
Stockholders' equity..................................................... 114,488
</TABLE>
14
<PAGE> 21
COMPARATIVE PER SHARE DATA
The following table sets forth for the CKE Common Stock certain historical
and pro forma combined per share financial information for the fiscal year ended
January 29, 1996, and for the Summit Common Stock certain historical and pro
forma equivalent per share financial information for the 52-week period ended
March 11, 1996. The following information should be read in conjunction with and
is qualified in its entirety by the consolidated financial statements and
accompanying notes of CKE included in the CKE Reports described under
"Incorporation of Certain Documents by Reference," the consolidated financial
statements and accompanying notes of Summit included elsewhere in this Proxy
Statement/Prospectus and the Unaudited Pro Forma Combined Condensed Financial
Statements and accompanying discussion and notes set forth under "Unaudited Pro
Forma Combined Condensed Financial Statements."
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
JANUARY 29, 1996
----------------
<S> <C>
CKE COMMON STOCK
Income per common share:
Historical.................................................. $ 0.59
Pro forma combined.......................................... $ 0.37
Dividends per common share:
Historical.................................................. $ 0.08
Pro forma combined(1)....................................... $ 0.08
Book value per common share at end of period:
Historical.................................................. $ 5.46
Pro forma combined.......................................... $ 5.98
</TABLE>
<TABLE>
<CAPTION>
52 WEEKS ENDED
MARCH 11, 1996
--------------
<S> <C>
SUMMIT COMMON STOCK
Income (loss) per common share:
Historical(2)................................................ $(0.86)
Pro forma equivalent(3)...................................... $ 0.05
Dividends per common share:
Historical................................................... $ 0.00
Pro forma equivalent(3)...................................... $ 0.01
Book value per share at end of period:
Historical(2)................................................ $ 6.37
Pro forma equivalent(3)...................................... $ 0.76
</TABLE>
- ---------------
(1) Amounts represent historical dividends per common share.
(2) The historical income (loss) per common share amount for Summit
excludes 946,714 shares of Summit Preferred Stock, and the
historical book value per share amount for Summit includes 946,714
shares of Summit Preferred Stock.
(3) Pro forma equivalent amounts are calculated by multiplying the CKE
pro forma combined amounts by the exchange ratio represented by the
stock portion of the Merger Consideration (based upon an assumed
Adjusted CKE Price of $20.74), and are not adjusted to reflect the
cash portion of the Merger Consideration.
15
<PAGE> 22
RISK FACTORS
Summit stockholders should carefully consider the following risk factors in
determining whether to vote for the approval and adoption of the Merger
Agreement.
RECENT OPERATING RESULTS OF SUMMIT
For the fiscal year ended September 25, 1995 and the twenty-four week
period ended March 11, 1996, Summit has continued to incur operating losses.
These losses are primarily the result of continued declining sales in the JB's
Restaurants, despite the implementation of numerous programs intended to reverse
this trend. For fiscal year 1995, same store sales (sales from stores open in
both the current and previous periods) were down 3.6% versus fiscal year 1994.
During the first half of fiscal year 1996, same store sales were down 5.6%
versus the comparable period of the previous year. There can be no assurance
that the programs implemented by Summit will ultimately result in a reversal of
the declining JB's Restaurants sales trends. The timing of any such reversal
cannot be accurately determined and is dependent on certain factors outside of
management's control, including the overall economic and competitive
environment. Without a reversal of the JB's Restaurants sales trend, Summit is
likely to continue to incur operating losses, limiting Summit's access to the
capital necessary to continue the programs management believes are necessary to
reverse the operating losses. These continued operating losses could result in a
further deterioration of the financial condition and results of operations of
Summit, and affect the market value of the shares of Summit Common Stock. See
"Summit Management's Discussion and Analysis of Financial Condition and Results
of Operations."
UNCERTAINTIES RELATING TO INTEGRATION OF OPERATIONS
CKE and Summit entered into the Merger Agreement with the expectation that
CKE would arrange for the possible disposition of Summit's JB's Restaurants and
the immediate disposition of Summit's HomeTown Buffet restaurant operations, and
that CKE would use the net proceeds of such dispositions to further develop,
support and expand the Galaxy Diner concept. Following the execution of the
Merger Agreement on November 30, 1995, CKE engaged in preliminary negotiations
with a national restaurant company with respect to a purchase and sale of the
JB's Restaurant assets and franchise system, subject to the proposed purchaser's
and CKE's due diligence investigations relating to those assets. The purchaser
expressed its willingness to purchase the Summit-owned JB's Restaurant units,
but was not willing to assume responsibility for the related franchise system.
This proposal was not acceptable to CKE and, as a result, negotiations were
terminated in late January 1996. Neither such negotiations nor the termination
thereof had any effect upon the negotiations of CKE and Summit with respect to
the Merger Agreement or the amendments thereto, upon Piper Jaffray's fairness
opinion or upon the terms of the Merger. At the present time, CKE intends to
continue operating the JB's Restaurants and franchise system. However, CKE is
performing an ongoing evaluation regarding the nature and scope of the JB's
Restaurant operations of Summit and various short- and long-term strategic
considerations in the process of assessing whether, and to what extent,
integration, consolidation or other modification of Summit's restaurant
operations is appropriate following the Merger. These strategic considerations
include, among other things, the possibilities that CKE may cause Summit after
the Merger to sell or otherwise dispose of some or all of the JB's Restaurants
owned and operated by Summit, to convert individual restaurants or groups of
restaurants into other or new restaurant concepts, and to close other
restaurants. Many operational and strategic decisions with respect to the
combined companies have not been made. As a result, significant uncertainties
and issues relating to the integration of Summit's business with CKE's
operations, and the timing, manner and results of the implementation of
decisions to be made with respect to Summit's ongoing operations following the
Merger may adversely affect the results of operations of CKE.
Given the range of potential outcomes arising from such decisions and the
interrelationships among decisions to be made, it is difficult to quantify with
precision the impact of such decisions on the results of operations and
financial condition of the combined companies. In addition, restructuring and
integrating the restaurant operations of Summit will require the dedication of
significant management resources and could distract attention from the
day-to-day operations of the existing businesses of CKE and Summit. This
restructuring and integration process may cause an interruption of, or a loss of
momentum in, the activities of
16
<PAGE> 23
either or both of the restaurant operations of CKE and Summit, which could have
a material adverse effect on operating results, particularly in the short term.
See "Special Factors -- Background."
PROPOSED DISPOSITION OF CERTAIN ASSETS OF SUMMIT
CKE intends to sell Summit's franchised HomeTown Buffet restaurant
operations and related area development rights concurrently with or shortly
after the Effective Time of the Merger. Included among the assets to be disposed
of are various agreements to which Summit is a party which relate to the
operations of the restaurants, including real and personal property leases and
franchise agreements. Although it is expected that the purchaser will assume
Summit's obligations under these agreements and agree to indemnify Summit and
CKE against any claims which may arise out of a failure by the purchaser to
perform such obligations, there can be no assurances that the purchaser will be
able to perform such assumed obligations or satisfy its related indemnification
duties to Summit and CKE. To the extent Summit is not released from its
obligations under such agreements, Summit could be subject to third party claims
arising out of the purchaser's defaults, which claims could have an adverse
affect on CKE's financial condition and results of operations. Consummation of
the proposed disposition of assets will be subject to the condition that the
Merger become effective on or prior to [May 30, 1996] and to various other
conditions, including the receipt of consents from third parties (such as those
required, if any, under the real and personal property leases to be assigned to
the purchaser). There can be no assurance that the proposed sale of the HomeTown
Buffet restaurants will be completed at all or on terms and conditions
acceptable to CKE and Summit. Furthermore, there can be no assurances that the
proceeds to be received by CKE from such sale will not be offset by operating
losses, other charges to earnings or losses of revenue, including losses of
revenue of Summit which may result from problems and uncertainties of
integrating the two companies. See "The Merger -- Proposed Disposition of
Certain Assets of Summit" and "Unaudited Pro Forma Combined Condensed Financial
Statements."
EXPANSION RISKS; CAPITAL REQUIREMENTS
As of March 25, 1996, there were 664 Carl's Jr. restaurants open
system-wide. CKE opened seven restaurants in its fiscal year ended January 29,
1996, and CKE's current plans call for the opening of 15 additional restaurants
in fiscal 1997. In addition, CKE intends to continue its image enhancement
program, which was commenced in fiscal 1996 and is aimed at revitalizing its
Carl's Jr. restaurants by remodeling them with a fresher, more contemporary
look. CKE intends to remodel as many as 160 restaurants under this image
enhancement program in fiscal 1997. CKE's ability to achieve its expansion plans
will depend on a variety of factors, many of which may be beyond CKE's control,
including its ability to locate suitable restaurant sites, negotiate acceptable
lease or purchase terms, obtain required governmental approvals and construct
new restaurants in a timely manner, attract, train and retain qualified and
experienced personnel and management, and operate its restaurants profitably, as
well as general economic conditions and the degree of competition in the
particular region of expansion. CKE also uses franchisees to develop selected
market areas, and the failure of franchisees to open restaurants as anticipated
could adversely affect CKE's earnings and hinder its ability to penetrate
geographic areas. CKE incurs substantial costs in opening a new restaurant and,
in its experience, new restaurants experience fluctuating operational levels for
some time after opening. CKE also incurs substantial costs (expected to range
from $100,000 to $130,000 for each location) in remodeling existing restaurants.
Should CKE's results of operations or its rate of growth fail to be adequate to
finance its expansion, image enhancement and dual-brand conversion strategies,
or should costs or capital expenditures rise, CKE may not have the ability to
open new restaurants or remodel existing restaurants at its desired pace and
could be required to seek additional financing in the future. There can be no
assurance that CKE will be able to raise such capital when needed on
satisfactory terms or at all. In addition, there can be no assurance that CKE
will successfully expand or that its existing or new restaurants will be
profitable.
FEE TO SCOBRETT ASSOCIATES, INC.
For its assistance in analysis, structuring and negotiating the various
transactions considered by Summit, including the structuring and negotiation of
the Merger, Piper Jaffray has agreed to pay to Scobrett Associates, Inc.
("Scobrett"), which is wholly-owned by Norman N. Habermann, Chairman of the
Special
17
<PAGE> 24
Committee of the Summit Board of Directors, 15% of any fee to which Piper
Jaffray becomes entitled upon completion of the Merger or any other transaction
pursuant to Summit's engagement of Piper Jaffray. See "Special
Factors -- Interests of Certain Persons in the Merger." Mr. Habermann's
financial interest in consummation of the Merger or any other transaction may be
deemed a conflict of interest which should be taken into account by stockholders
in considering the recommendation of the Special Committee to the Summit Board
of Directors that the Merger be approved.
COMPETITION
The food service industry is intensely competitive with respect to the
quality and value of food products offered, concept, quality of service, price,
dining experience and location. CKE primarily competes with major restaurant
chains which dominates the quick-service restaurant industry, and also competes
with a variety of other take-out food service companies and fast-food
restaurants. CKE's competitors also include a variety of mid-price, full-service
casual dining restaurants, traditional self-service buffet and other soup and
salad restaurants, healthful and nutrition-oriented restaurants, delicatessens,
and prepared food stores, as well as supermarkets and convenience stores. Many
of CKE's competitors have a more established market presence and have
substantially greater financial, marketing and other resources than CKE, which
may give them certain competitive advantages. Certain of the major quick-service
restaurant chains have increasingly offered selected food items and combination
meals, temporarily or permanently at discounted prices. Changes in the pricing
or other marketing strategies of one or more of CKE's competitors could have an
adverse impact on CKE's sales and earnings in affected markets. As CKE's
competitors expand operations in various geographic areas, competition can be
expected to intensify. Such increased competition could increase CKE's operating
costs or adversely affect its revenues.
FOOD SERVICE INDUSTRY
Food service businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions and demographic trends. The
performance of individual restaurants may be affected by factors such as traffic
patterns, demographic considerations and the type, number and location of
competing restaurants. Multi-unit food service chains such as CKE can also be
substantially adversely affected by publicity resulting from food quality,
illness, injury, or other health concerns or operating issues stemming from one
store or a limited number of stores. Dependence on frequent deliveries of fresh
produce and groceries subjects food service businesses such as CKE to the risk
that shortages or interruptions in supply caused by adverse weather or other
conditions could adversely affect the availability, quality and cost of
ingredients. In addition, unfavorable trends or developments concerning factors
such as inflation, increased food, labor and employee benefit costs (including
increases in hourly wage and minimum unemployment tax rates), and the
availability of experienced management and hourly employees may also adversely
affect the food service industry in general and CKE's results of operations and
financial condition in particular. Changes in economic conditions affecting
CKE's guests could reduce traffic in some or all of the Company's restaurants or
impose practical limits on pricing, either of which could have a material
adverse effect on the results of operations of CKE.
GOVERNMENT REGULATION
The restaurant industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and those relating to building and zoning requirements. CKE and its
franchisees are also subject to laws governing their relationship with
employees, including minimum wage requirements, overtime, working and safety
conditions and citizenship requirements. CKE is also subject to regulation by
the FTC and certain state laws which govern the offer and sale of franchises.
Many state franchise laws impose substantive requirements on the franchise
agreement, including limitations on noncompetition provisions and on provisions
concerning the termination or nonrenewal of a franchise. Some states require
that certain materials be registered before franchises can be offered or sold in
that state. The failure to obtain or retain food licenses or approvals to sell
franchises, or an increase in the minimum wage
18
<PAGE> 25
rate, employee benefit costs (including costs associated with mandated health
insurance coverage) or other costs associated with employees could adversely
affect CKE and its franchisees.
GEOGRAPHIC CONCENTRATION
Most of CKE's existing restaurants are located in California, primarily in
the Southern California areas of Los Angeles and Orange Counties. Accordingly,
CKE is susceptible to local and regional risks, such as economic conditions,
weather conditions, natural disasters and regulations, any of which could have a
material adverse effect on CKE's business. A continuation or worsening of
current economic conditions in California, or the occurrence of other adverse
regional or local events, could have a material adverse effect on CKE's business
and its ability to implement its acquisition strategies relating to Summit or
its existing marketing and expansion program at the planned rate. There can be
no assurance that continued expansion within existing or future geographic
markets will not adversely affect the individual financial performance of CKE's
restaurants in such markets or CKE's overall results of operations. In addition,
given CKE's present geographic concentration in Southern California, adverse
publicity relating to an individual restaurant in the region could have a more
pronounced adverse effect on net sales than if CKE's restaurants were more
broadly dispersed.
LITIGATION
CKE is from time to time the subject of complaints, threat letters or
litigation from guests alleging illness, injury or other food quality, health or
operational concerns. CKE also is the subject of complaints or allegations from
former or prospective employees from time to time. CKE believes that the
lawsuits, claims and other legal matters to which it has become subject in the
course of its business are not material to CKE's financial position or results
of operations, but an existing or future lawsuit or claim could result in an
adverse decision against CKE that could materially and adversely affect CKE or
its business.
On December 19, 1995, Giant Group, Ltd ("Giant"), filed an action in the
U.S. District Court for the Central District of California against CKE, Fidelity
National Financial, Inc., William P. Foley II, and certain other individuals.
Mr. Foley is CKE's Chairman of the Board and Chief Executive Officer and is also
the Chairman of the Board and Chief Executive Officer of Fidelity National
Financial, Inc. In its complaint, Giant alleged violations of Section 13(d) of
the Exchange Act, fraud, breach of fiduciary duty, conspiracy and breach of
contract in connection with purchases of securities of Giant by Fidelity
National Financial, Inc. and Mr. Foley. On January 16, 1996, Mr. Foley and
Fidelity National Financial, Inc. denied Giant's material allegations and
asserted counterclaims against Giant, its directors and certain other
individuals for defamation and breaches of fiduciary duty with respect to
certain actions taken by Giant, including Giant's adoption of a shareholder
rights plan and certain other transactions taken or proposed by Giant. On April
26, 1996, the parties entered into a Settlement Agreement and Release, in which
they agreed to settle this litigation and to irrevocably release their
respective claims.
EXCHANGE RATIO
The cash portion of the Merger Consideration is fixed and will not be
adjusted based on changes in the relative stock prices of the CKE Common Stock
or the Summit Common Stock. The number of shares of CKE Common Stock which will
be issued as the stock portion of the Merger Consideration will be based upon
the Adjusted CKE Price, which will not be determined until five days before the
date of the Special Meeting. See "The Merger -- Conversion of Shares." The
relative stock prices of the CKE Common Stock and the Summit Common Stock at the
Effective Time of the Merger may vary significantly from the prices as of the
date of the Merger Agreement, the date of this Proxy Statement/Prospectus or the
date on which the Special Meeting is held. These variances may be due to changes
in the business, operations and prospects of CKE or Summit, general market and
economic conditions, and other factors. Accordingly, the actual dollar value of
the shares of CKE Common Stock to be received by the stockholders of Summit in
the Merger will not be determined until the Effective Time of the Merger, and
may be significantly more or less than the value of the shares of CKE Common
Stock as of the date of the Merger Agreement, the date of this Proxy
Statement/Prospectus, or the date on which the Special Meeting is held. In
addition, the number of shares of CKE Common Stock to be issued in the Merger
will decrease as the Average CKE Price increases up to $30.00 per share.
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ANTI-TAKEOVER MEASURES
Certain provisions of CKE's Certificate of Incorporation and Bylaws could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of CKE. Such
provisions could limit the price that investors might be willing to pay in the
future for shares of CKE's Common Stock. See "Comparison of Rights of
Stockholders of CKE and Summit."
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SPECIAL FACTORS
BACKGROUND
In January 1994, after three successive years of losses and three
successive years of declining same store sales in Summit's core JB's
Restaurants, Summit embarked on a strategic plan designed to return Summit to
profitability. The turnaround plan focused on the following strategies: (a)
turning around the JB's Restaurant sales through improved management quality and
operational execution, higher quality food offerings and new distinctive menu
design and the remodeling of selected JB's restaurants, all in conjunction with
marketing programs primarily focused on price/value; (b) expansion of the JB's
Restaurants concept via franchising primarily in current or contiguous markets;
(c) the opening of additional HomeTown Buffet restaurants; and (d) conversion of
certain under-performing JB's Restaurants to an alternative concept, primarily
the Galaxy Diner.
Summit's investment in these programs during fiscal year 1994 did not
result in the expected improvement in the JB's Restaurant same store sales and
profits and, with the JB's Restaurant sales continuing to decline, Summit
reported its fourth consecutive annual loss excluding a gain on the sale of
shares of HomeTown common stock. Cash flow from operations was inadequate to
continue funding these programs and Summit raised the needed cash from the sale
of assets, principally a portion of its investment in HomeTown common stock.
During the first half of fiscal 1995, the JB's Restaurants same store sales
continued to decline and Summit's losses continued. With the increasing losses
Summit exhausted the cash it had raised through the sale of assets, and again
sold assets to fund the cash shortfall. These assets were pledged against
outstanding bank loans and in exchange for the release of certain liens Summit
agreed to terminate its line of credit. In addition, Summit's internal
projections indicated it would not be in compliance with certain covenants
within its bank lending agreement at the end of the third quarter.
At a meeting on April 6, 1995 the Board of Directors reviewed and discussed
the continuing disappointing results and determined that: (a) Summit had
insufficient access to liquid capital to open additional Galaxy Diner
restaurants or HomeTown Buffet restaurants; (b) the JB's concept continued to
deteriorate and the long term viability of the JB's concept was uncertain given
the performance trends; and (c) Summit's situation had resulted in a continued
decline of stockholders value. The Board of Directors formed a committee of
Board members and management to select and retain an outside consultant and to
work with the consultant in reviewing and analyzing strategies for Summit. After
interviewing several firms, Summit engaged Piper Jaffray, a national investment
banking firm, on May 4, 1995. Piper Jaffray was selected by Summit on the basis
of its expertise in the restaurant industry. Piper Jaffray's initial assignment
was to review and analyze a broad range of financial alternatives available to
Summit including, but not limited to, such options as private equity or debt
placements, public equity or debt offerings, a merger or sale of all or part of
Summit, a corporate restructuring including a conversion from a primarily
operating company to a franchise company, a share repurchase, going private
options and other financial alternatives. For approximately one month, Piper
Jaffray met with management and Board members, reviewed financial and historical
data of Summit and performed the analysis requested by Summit, including a
combined valuation of Summit's JB's Restaurants and Galaxy Diner restaurants and
a separate valuation of Summit's HomeTown Buffet restaurants.
On June 21, 1995, Piper Jaffray presented its conclusions and
recommendations to the Board of Directors. Piper Jaffray concluded that its
review of multiple alternative strategies suggested that Summit could not
continue as an attractive independent public company and recommended that the
Board of Directors resolve to sell the business of Summit and to appoint a
special committee of disinterested outside directors to manage the sale process.
On June 21, 1995, the Board of Directors of Summit appointed a special
committee (the "Special Committee") of disinterested members of the Board to
evaluate proposals to enhance stockholder value, including proposals for
business combinations involving the transfer of all or substantially all of the
assets of Summit. Norman N. Habermann was appointed Chairman of the Special
Committee and Frederick L. Bryant and Ronald N. Paul were appointed members of
the Special Committee. The Board determined that none of the members of the
Special Committee had an interest in participating in any purchase of Summit,
including a management-led purchase.
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The Board determined to pay the Special Committee members a monthly fee for
their services on the Special Committee, which fee is $250 per month for each
member and $1,000 per month for the chairman of the Special Committee, plus an
additional fee of $1,000 per day for in-person meetings on days separate from
Summit Board meetings; however, the Special Committee has never met in-person on
a day other than a Board meeting, so this fee has not been applicable. As of the
date of the appointment of the Special Committee, none of the members of the
Special Committee had any affiliation or relationship with Summit other than as
outside directors and holders of either Summit Common Stock or Summit Preferred
Stock.
Upon the recommendation of the Special Committee, Summit engaged Piper
Jaffray on July 21, 1995 to serve as financial advisor to the Special Committee.
The Special Committee also engaged Latham & Watkins to serve as its legal
advisor. On July 24, 1995, Summit issued a press release indicating that the
Special Committee had been appointed and that Piper Jaffray was engaged as the
Special Committee's financial advisor.
On July 21, 1995, the Special Committee met telephonically with Piper
Jaffray to discuss alternatives available to Summit. Among other things, the
Special Committee discussed companies that may have had an interest in pursuing
a business combination with Summit. The Special Committee requested that Piper
Jaffray work with management to prepare confidential memoranda containing
information about Summit's business and distribute the memoranda to such parties
and to other parties in the restaurant industry willing to sign a
confidentiality agreement. From August through September 1995, Piper Jaffray
contacted approximately 70 potential acquirors of Summit or certain assets of
Summit. The potential acquirors contacted included companies which Piper Jaffray
believed might have had a strategic interest in pursuing a business combination
with Summit as well as to others that might have had financial or real estate
interests or interests in Summit's different restaurant concepts. Of the 70
contacted, approximately 25 requested confidential memoranda. Summit believes
that those who did not respond lacked interest in pursuing a transaction with
Summit for a variety of reasons, including but not limited to geographic scope,
timing, ability to finance, size of Summit, Summit's restaurant economics or
lack of interest in the JB's Restaurant, HomeTown Buffet or Galaxy Diner
restaurant concepts.
On August 10, 1995, the Special Committee received a letter from Don M.
McComas, President and Chief Executive Officer of Summit, proposing a
management-led buyout of either the non-HomeTown Buffet restaurants (if the
HomeTown Buffet restaurants had been sold to another party) or all of the stock
of Summit. The letter proposed a cash purchase price of either $15 million for
the non-HomeTown Buffet restaurants or $6.00 per share for all of the Summit
common and preferred stock. The letter stated that the proposals were subject,
among other things, to financing commitments.
On August 17, 1995, the Board of Directors of Summit and representatives of
Piper Jaffray met in Chicago. Among other things, Mr. Habermann discussed the
actions taken by the Special Committee and Piper Jaffray to identify the best
strategic alternatives for Summit. The Board of Directors (outside the presence
of Mr. McComas and Clark D. Jones, Chairman of the Board of Summit) discussed
the management buyout proposal. The Board of Directors indicated that its
proposal would be considered and requested that management apprise the Special
Committee of management's success in its efforts to obtain financing for the
buyout.
In July, August and September 1995, Piper Jaffray had a number of
discussions with Montgomery Securities, the financial advisor to HomeTown, about
different possible business combinations with HomeTown, including an acquisition
by HomeTown of Summit's HomeTown Buffet restaurants. On September 12, 1995, Mr.
Habermann, Mr. McComas, and David E. Pertl, Senior Vice President and Chief
Financial Officer of Summit, met with C. Dennis Scott, President of HomeTown,
and HomeTown's financial and legal advisors, regarding a possible acquisition by
HomeTown of the HomeTown Buffet assets of Summit. Following the meeting, Mr.
Scott and HomeTown's legal advisor prepared a term sheet setting forth the terms
of a possible transaction involving Summit's HomeTown Buffet restaurants and
sent the term sheet to Mr. Habermann.
The Special Committee met telephonically on September 14, 1995 to review
the proposal from HomeTown. At such meeting, the Special Committee discussed a
number of tax and other issues presented by
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the HomeTown proposal and prepared a counter-proposal to be sent to HomeTown.
Among other things, the counter-proposal provided for the concurrent sale or
transfer of Summit's non-HomeTown restaurants to HomeTown in order to provide
certain tax benefits to Summit's stockholders. On September 15, 1995, Mr.
Habermann sent the Special Committee's counter-proposal to Mr. Scott at
HomeTown. Following the delivery of the counter-proposal to HomeTown, Mr.
Habermann, Mr. Scott and the financial and legal advisors to the Special
Committee and HomeTown had a number of discussions addressing certain structural
and tax issues presented by HomeTown's proposal and the counter-proposal by the
Special Committee. Mr. Habermann and Mr. Scott were unable to reach an agreement
regarding the terms of a transaction between Summit and HomeTown. On October 2,
1995, Mr. Habermann sent a letter to Mr. Scott informing Mr. Scott that as a
result of being unable to reach an agreement, the Special Committee was
discontinuing consideration of HomeTown's proposal.
On August 13, 1995, Messrs. Habermann and McComas met with William P.
Foley, II, Chairman of the Board and Chief Executive Officer of CKE, and
pursuant to a confidentiality agreement discussed, in general terms, a number of
possible business combinations between CKE and Summit. The CKE representatives
and members of Summit management continued these discussions during meetings
held on September 6 and 7, 1995. Thereafter, Mr. McComas received a letter dated
September 21, 1995 from Mr. Foley, proposing a business combination between CKE
and Summit. Mr. McComas turned the proposal over to the Special Committee for
its consideration.
On September 26, 1995, the Special Committee met to review the CKE
proposal. On September 26, 1995, the Special Committee and Piper Jaffray also
telephonically reviewed the CKE proposals and all other proposals received by
Piper Jaffray to acquire Summit or certain of Summit's assets. Piper Jaffray
advised the Special Committee that it had contacted 70 potential acquirors of
Summit or of assets of Summit and that such contacts had resulted in one offer
from CKE to acquire all of Summit, one proposal from HomeTown to acquire
Summit's HomeTown Buffet restaurant assets, and one proposal from Flagstar
Companies Inc. to acquire all of Summit's JB's Restaurants and Galaxy Diner
assets. In addition, Piper Jaffray advised the Special Committee that it had
received responses from six potential acquirors expressing general interest in
acquiring Summit or certain of its assets; however, all of such expressions of
interest either failed to state a proposed price or provided that any such
acquisition would be contingent on financing. The potential acquirors expressing
general interest included Buffets, Inc., Perkins Family Restaurants, Saunders
Karp and Den America (each of whom was solicited by Piper), Concept Restaurant
Ventures (who was not originally solicited by Piper Jaffray) and the Summit
management group. The CKE proposal was the only proposal received to acquire all
of Summit which included a purchase price and available financing. The Special
Committee and Piper Jaffray discussed the various alternatives and discussed an
estimate of net proceeds (i.e., aggregate consideration net of liabilities
assumed) to Summit stockholders under the CKE proposal compared to the net
proceeds Summit stockholders may have received under a combination of other
alternatives, including the offers for the JB's Restaurants and Galaxy
restaurants and the HomeTown Buffet restaurants which generally did not include
assumption of liabilities. The Special Committee concluded that the CKE proposal
was superior relative to the other alternatives because of greater net value to
Summit's stockholders, simplicity, greater certainty and the likelihood of more
rapid consummation. Following the discussion, the Special Committee authorized
Mr. Habermann to commence discussions with Mr. Foley regarding the CKE proposal.
Based on such discussions, Mr. Habermann directed counsel to the Special
Committee to begin preparations of a merger agreement to reflect a proposed
transaction with CKE. In addition, representatives from CKE were invited to
begin their investigation of Summit's business. On September 28, 1995, the Board
of Directors of Summit met and received reports from the Special Committee and
Piper Jaffray and discussed the proposal from CKE and the status of other
potential alternatives. On October 6, 1995, counsel to the Special Committee
delivered a draft of a merger agreement to representatives for CKE and such
representatives began their due diligence regarding Summit's business.
During CKE's due diligence review of Summit, Piper Jaffray continued to
provide information to, and have discussions with, other groups that had
expressed an interest in acquiring certain assets of Summit or in pursuing a
business combination with Summit. On October 10, 1995, Piper Jaffray received a
call from Steven Zubkis, a financial advisor to Stella Bella Corporation, USA,
making an offer to purchase the stock of Summit
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for $7.00 per share. The offer was confirmed in a letter dated October 10, 1995.
On October 11, 1995, Piper Jaffray provided Stella Bella with a confidentiality
agreement, which Stella Bella signed, and on October 13, 1995, Piper Jaffray
provided Stella Bella with confidential memoranda describing Summit's business.
In addition, Piper Jaffray outlined for Stella Bella the requirements for making
a proposal, including a satisfactory demonstration of its ability to finance and
complete a transaction. In letters to Piper Jaffray dated October 17, 23, 24 and
27 and November 2, 1995, Stella Bella reiterated its interest in acquiring
Summit, provided evidence of transactions in certain bank accounts, delivered a
letter from a Russian bank purporting to provide a commitment to provide credit
to Stella Bella and stated that Stella Bella would retain a major brokerage firm
to represent it in the transaction. However, in the view of the Special
Committee and Piper Jaffray, these letters, as well as the numerous discussions
with representatives from Stella Bella, failed to provide satisfactory evidence
of Stella Bella's ability to finance or complete a transaction with Summit.
Piper Jaffray informed Stella Bella of the Special Committee's conclusions in
letters dated October 25 and November 1, 1995, but reiterated the Special
Committee's interest in pursuing discussions with Stella Bella if and when
Stella Bella could demonstrate its ability to finance and complete a
transaction.
Following completion of CKE's initial due diligence meetings, counsel to
CKE provided comments on the draft merger agreement. Among other things, the
comments indicated that CKE and the Special Committee had not reached agreement
on the formula for determining the exchange ratio for CKE stock. On October 30,
1995, the Special Committee met telephonically with Piper Jaffray to discuss the
issues separating CKE and the Special Committee from reaching an agreement, as
well as the status of other proposals. Following this meeting, Mr. Habermann and
Mr. Foley had several telephone calls in which they discussed ways to formulate
an exchange ratio acceptable to both sides, as well as discussions regarding
other unresolved business issues. On November 6, 1995, Mr. Habermann sent a
letter to Mr. Foley in which Mr. Habermann outlined a proposal for determining
the exchange ratio.
On October 23 through October 26, 1995, another national restaurant
company, which had previously presented Summit an offer to purchase the JB's
Restaurant and Galaxy Diner assets of Summit, performed due diligence at
Summit's home office. Such company never provided a final written proposal for
the purchase of Summit; rather, such company's interest remained only in the
JB's Restaurants and Galaxy Diner assets of Summit, net of certain liabilities.
On November 10, 1995, Stella Bella issued a press release stating that it
was taking its offer of $7.25 per share for all of Summit's shares of stock to
Summit's stockholders. On November 12, 1995, Mr. Habermann had a lengthy
conversation with Mr. Zubkis of Stella Bella regarding the offer. On November
13, 1995, Summit issued a press release acknowledging Stella Bella's offer and
stating that the Special Committee had not yet received satisfactory evidence of
Stella Bella's ability to finance the transaction. Summit filed the press
release with the Commission under Schedule 14D-9. At the request of Mr. Zubkis
of Stella Bella, on November 15, 1995, Mr. Habermann and the Special Committee's
counsel called a lawyer that Mr. Zubkis said was representing Stella Bella in
the transaction. The lawyer informed Mr. Habermann that his firm did not yet
represent Stella Bella. On November 15, 1995, Stella Bella issued a press
release withdrawing its November 10, 1995 offer. Following the withdrawal of
Stella Bella's offer, Mr. Habermann and Mr. Zubkis continued to have discussions
regarding Stella Bella's proposal to Summit. On November 27, 1995, Mr. Habermann
and Mr. Zubkis met in person to discuss the proposal. Following that meeting,
the Special Committee continued to believe that Stella Bella had not
demonstrated its ability to finance and complete a transaction.
On November 14, 1995, Mr. Habermann and Mr. Foley of CKE reached a
preliminary agreement in principle regarding the formula for determining the
exchange ratio. Mr. Habermann confirmed such agreement in principle in a letter
to Mr. Foley dated November 14, 1995, and counsel to the Special Committee
distributed a revised draft of the merger agreement reflecting this formula.
Between November 14 and November 30, 1995, representatives from CKE and Summit
negotiated the terms of the merger agreement and prepared disclosure schedules.
As a result of these negotiations, it was agreed that the merger consideration
payable by CKE for each share of Summit Common Stock would be $6.00, of which
$3.00 would be paid in cash and the balance would be paid in shares of CKE
Common Stock valued at $3.00 per Summit share (based upon an assumed Average CKE
Price of $14.625 per share). In addition, Piper Jaffray
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prepared its opinion regarding the fairness, from a financial point of view, of
the consideration proposed to be received by Summit stockholders pursuant to the
proposed merger agreement with CKE.
On November 30, 1995, the Board of Directors of Summit met to hear the
recommendation of the Special Committee and to discuss approval of the proposed
agreement with CKE. At this meeting, Mr. Habermann described for the Board of
Directors the process that the Special Committee followed in reaching an
agreement with CKE and recommended that the Board of Directors approve the
proposed agreement with CKE. Mr. Habermann discussed the offer from Stella Bella
and the reasons why the Special Committee concluded that Stella Bella had not
demonstrated its ability to finance or complete the proposed transaction.
Following the Special Committee's recommendations, Piper Jaffray delivered
its oral opinion, and confirmed in writing on November 30, 1995, that the
consideration proposed to be received by Summit stockholders was fair to them
from a financial point of view. Following the presentation by the Special
Committee and Piper Jaffray, the members of the Summit Board of Directors voted
unanimously to approve the Merger Agreement with CKE and to recommend that
Summit's stockholders vote in favor of the transaction.
At the November 30, 1995 meeting of the Summit Board of Directors, counsel
for the Special Committee described, and the Summit Board approved, an agreement
between Piper Jaffray and Scobrett Associates, Inc., of which Mr. Habermann is
the President and sole owner ("Scobrett), pursuant to which a portion of the fee
payable to Piper Jaffray would be paid to Scobrett. See "Interests of Certain
Persons in the Merger -- Fee to Scobrett Associates, Inc." Piper Jaffray agreed
to pay the fee because of Mr. Habermann's extensive involvement in analysis and
negotiation related to the sale of Summit.
Mr. Habermann's participation as chair of the Special Committee included
all of the oral and written communication with CKE to negotiate the transaction
prior to execution of the Merger Agreement on November 30, 1995, including
developing the formula for the Merger Consideration and negotiating with CKE
regarding the formula. Mr. Habermann performed this role as a result of CKE
expressing a preference not to negotiate directly with investment bankers. Mr.
Habermann also spent significant time evaluating the information received from
Stella Bella Corporation, meeting with a representative of Stella Bella
Corporation, and negotiating with representatives of HomeTown. Piper Jaffray and
Mr. Habermann agreed that Mr. Habermann's role with regard to the search for a
purchaser and development of an acceptable transaction extended substantially
beyond the amount of time and work originally envisioned by Piper Jaffray when
it recommended the formation of the Special Committee. As a result, on November
30, 1995, the date on which the original Merger Agreement was signed, Piper
Jaffray agreed to pay Scobrett 15% of the total fee that Piper Jaffray will
receive from Summit pursuant to the Engagement Letter between Summit and Piper
Jaffray, which is approximately $115,950. The fee to Scobrett is contingent upon
the completion of a transaction. Summit has paid Piper Jaffray $125,000 in fees,
and the remainder of the fee payable to Piper Jaffray is contingent upon the
completion of a transaction between Summit and a purchaser. The amount of the
fee payable to Piper Jaffray upon the completion of the Merger is approximately
$773,000 less the $125,000 previously paid.
In appointing the Special Committee on June 21, 1995, the Board confirmed
that none of its members had an interest in participating in a management-led
buyout; therefore, the Board determined that Mr. Habermann and the other members
of the Special Committee were disinterested members of the Board at the time of
their appointment. After CKE agreed to execute the Merger Agreement, Piper
Jaffray agreed to pay part of its fee to Scobrett. Mr. Habermann continued to
have no interest in a management-led buyout and therefore, in the Board's view,
remained a disinterested member of the Board. On the basis of the foregoing, the
Summit Board believes that the financial interest of Mr. Habermann in completing
a transaction to sell Summit is consistent with the Board's previous decision to
sell Summit and with the interests of Summit's Board and stockholders to obtain
the highest possible consideration for Summit and, as a result, did not affect
the manner or the procedural fairness with which the Merger was considered by
Summit.
The Merger Agreement, as originally executed by CKE and Summit, provided
that CKE's obligations to consummate the Merger were subject to the condition,
among others, that CKE shall have obtained a fairness
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opinion from NatWest Markets, CKE's financial advisor, with respect to the
Merger within ten days of the date of the original Merger Agreement.
On December 11, 1995, following the expiration of such ten-day period,
Summit received from CKE a letter indicating that CKE had not received a
fairness opinion from NatWest Markets, as required by the provisions of the
original Merger Agreement, and that CKE had not yet fully assessed the
ramifications of that situation. On December 13, 1995, CKE provided to Summit
certain information summarizing the concerns of NatWest Markets regarding the
proposed merger. On December 15, 1995, representatives of Summit and CKE met to
discuss the issues raised by the concerns of NatWest Markets. At that meeting,
the CKE representatives advised Summit that CKE would not go forward with the
merger under the terms set forth in the original Merger Agreement, due to the
fact that CKE had not received the fairness opinion as required by the original
Merger Agreement.
Although NatWest Markets was retained by CKE to act as CKE's financial
advisor in connection with the Merger Agreement and provide CKE with its general
assessments concerning the effects of the proposed merger on CKE, NatWest
Markets has not delivered a fairness opinion to CKE.
On December 17, 1995, in a telephone conference Mr. Habermann and Mr. Foley
discussed the terms of the Merger Agreement, and the continued review by CKE of
Summit's financial condition and operating results. Mr. Habermann and Mr. Foley
continued to discuss the transaction and potential revisions to the transaction
in various telephone conversations. The Special Committee met via telephone
conference on December 18, 1995 to discuss the status of the transaction. On
December 27, 1995 Mr. Foley and Mr. Habermann met and discussed the financial
analysis and review that CKE had performed regarding Summit's financial
condition. Mr. Foley indicated that CKE would want to sell the JB's Restaurants
and the HomeTown Buffet restaurants, and retain only an interest in the Galaxy
Diner restaurants. Mr. Foley indicated that CKE would require a reduction in the
Merger Consideration and that Summit and CKE's financial advisors should discuss
the particular areas of concern to CKE.
On December 28, 1995, the Special Committee, Piper Jaffray and Mr. Edwards
met telephonically to discuss the renegotiation of the Merger Consideration.
Also on December 28, 1995, the Board of Directors of Summit held a meeting via
telephone in which the Special Committee recommended and the Board approved
authorizing the Special Committee to renegotiate the Merger Consideration. Piper
Jaffray discussed with the Board prior offers received to purchase certain
assets of Summit separately, and indicated orally that an adjustment reducing
the Merger Consideration could still be fair to stockholders of Summit from a
financial point of view, subject to Piper Jaffray's review of the final
negotiated terms.
On December 29, 1995, Mr. Foley and Mr. Habermann met and discussed CKE's
assessments of and proposed adjustments to Summit's asset values. Issues of
concern to CKE included the operating losses of Summit, CKE's estimate of the
potential sales prices of certain Summit assets to be sold after the Merger and
of the fair value of other assets and liabilities of Summit to be retained by
CKE, and the possibility that certain tax benefits would not be available to CKE
following the Merger. Representatives of CKE and Summit continued to review and
discuss these issues. Mr. Habermann, on behalf of the Special Committee,
discussed the renegotiated consideration with counsel to Mr. Foley and they
agreed in concept, subject to approval by Summit's Board, to amend the Merger
Agreement.
On January 4, 1996, the Board of Directors of Summit met telephonically and
discussed the issues raised by CKE, and authorized the Special Committee to
continue renegotiating the Merger Consideration.
From January 2 to January 24, 1996 representatives of CKE and Summit
negotiated the terms of the amendment. During this time period, Summit
representatives reviewed drafts of proposed asset purchase agreements relating
to CKE's proposed sales of Summit's JB's Restaurants and franchise system and
HomeTown Buffet restaurants.
On January 24, 1996, the Special Committee met telephonically and reviewed
the final terms of the proposed amendment, and on January 24, 1996 the Special
Committee, based on its review and evaluation of the alternatives available to
Summit and after consultation with Piper Jaffray, reported and recommended to
the Board of Summit that it approve the proposed amendment. In determining the
best course of action, the
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Special Committee discussed Summit's position, future prospects, and absence of
other alternatives. The Special Committee discussed the continuing decline in
cash flow from Summit's core restaurant operations and the resulting continuing
decline in the value of the JB's Restaurants assets and that several restaurant
chains were for sale. The Special Committee reviewed the possibility of selling
the Summit assets separately, but determined that based upon Piper Jaffray's
earlier survey of potential buyers for all or part of the business or assets of
Summit, and CKE's preliminary discussions with potential purchasers, that such
separate asset sales would not result in greater value to Summit's stockholders
and would be accompanied by greater risk of realization. Piper Jaffray delivered
its oral opinion, and confirmed in writing, that the consideration proposed to
be received by Summit stockholders under the Merger Agreement and Amendment was
fair to them from a financial point of view. Following the presentation by the
Special Committee and Piper Jaffray, the members of the Summit Board of
Directors voted unanimously to approve the Merger Agreement and proposed
amendment with CKE and to recommend that Summit's stockholders vote in favor of
the transaction.
On January 24, 1996, CKE and Summit finalized and entered into a First
Amendment to Agreement and Plan of Merger and Reorganization (the "First
Amendment"). Pursuant to the First Amendment, CKE and Summit agreed that the
Merger Consideration would be reduced to $2.77 in cash and 0.17375 shares of CKE
Common Stock (valued at $2.78 per share at an assumed Average CKE Price of
$16.00) per share of Summit Common Stock and Summit Preferred Stock, or a total
of $5.55 per share, from a combination of cash and shares of CKE Common Stock
having an aggregate value of $6.00 per Summit share as provided in the original
Merger Agreement. The First Amendment also modified the formula used to
determine the Adjusted CKE Price, provided an adjustment provision relating to
the proposed dispositions of certain Summit assets concurrently with the Merger
and increased to $13.25 from $12.25 the Average CKE Price below which Summit and
the holder of the Summit Preferred Stock would have the right to terminate the
Merger Agreement. It is not expected that any adjustment to the Merger
Consideration will be made pursuant to the adjustment provisions adopted in
connection with the First Amendment. See "The Merger -- Adjustment of Merger
Consideration." The First Amendment also reflected the parties understanding
that the transactions contemplated by the Merger Agreement, as amended, would
not constitute a "reorganization" for federal income tax purposes and, as a
result, would be a taxable transaction to Summit's stockholders. The First
Amendment also deleted the condition in the original Merger Agreement which
required the delivery of a fairness opinion by CKE's financial advisor, and
modified certain provisions relating to the cancellation of outstanding Summit
stock options. Finally, the First Amendment provides that Summit will be the
surviving corporation in the Merger. The original Merger Agreement provided that
Merger Sub would be the surviving corporation.
The Board of Directors of Summit also authorized the officers of Summit to
negotiate and execute consents to letters of intent and definitive agreements
between CKE and third parties for the sale of certain of Summit's assets
following or simultaneous with the closing of the Merger.
The mix of the merger consideration was originally determined by the
parties as a result of CKE's preference to balance its use of cash with the
issuance of stock in acquisition transactions, as well as a desire, expressed at
the time of execution of the original Merger Agreement, to structure a
"tax-free" reorganization with respect to the stock portion of the merger
consideration. In addition, Summit believed that the mix of the merger
consideration would be appealing to its stockholders in that the Merger would
provide both immediate liquidity to Summit stockholders, to the extent of the
cash portion, and the flexibility of determining whether to hold the CKE Common
Stock portion (and thereby maintain an equity interest in the combined
companies) or to sell all or any part of those shares in the open market (and to
that extent liquidate their ownership interest in the combined companies).
Thereafter, as CKE developed its strategic evaluations concerning the
integration of Summit's restaurant operations, the parties determined that the
Merger would not qualify for "tax-free" treatment, but did not consider changing
the mix of the merger consideration.
In meetings, correspondence and telephone conversations during March 11
through March 28, 1996, CKE raised concerns regarding certain potential
financial liabilities of Summit relating to the financial difficulties of
certain of Summit's JB's Restaurant franchisees, and CKE asserted that it was
not obligated to consummate the Merger. Subsequent to the date of the First
Amendment, two franchisees of Summit's JB's Restaurants, operating two
franchised JB's Restaurants, filed for bankruptcy. A third franchisee, operating
two
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<PAGE> 34
franchised JB's Restaurants, failed to meet payments as required under a
previously entered into payment plan for past due receivables. The two
franchisees filing bankruptcy were in addition to a franchisee, operating two
franchised JB's Restaurants, that filed for bankruptcy just prior to the signing
of the First Amendment. The six franchised JB's Restaurants represent 25% of the
JB's Restaurant franchise system. These franchisees had outstanding notes and
accounts payable to Summit of approximately $770,000 against which Summit had a
reserve of approximately $270,000. The potential financial liability to Summit,
asserted by CKE, consisted of the unreserved portion of notes and accounts
receivable owed by these franchisees of approximately $500,000, the potential
lost revenue from rent and royalties of approximately $290,000 per year if these
franchised JB's Restaurants closed, and the potential lease liability on the
four franchised JB's Restaurants that Summit subleased to these franchisees of
approximately $3.2 million. Previous analysis by CKE had not considered these
potential liabilities related to Summit's JB's Restaurant franchise system.
Summit's management and Special Committee reviewed the concerns expressed by
CKE. On March 20, 1996 the Special Committee, along with management of Summit
and representatives of Piper Jaffray, and counsel for Summit and the Special
Committee met and discussed the concerns raised by CKE and Summit's responses to
CKE, and the options available to Summit. On March 25, 1996 the Board of
Directors of Summit met and reviewed the issues raised by CKE. The Summit Board
discussed with the financial and legal consultants the options available to
Summit, including negotiating further with CKE, and resuming the search for a
prospective purchaser of all or part of Summit's assets. The Board discussed the
need to provide for Summit's liabilities in the event of separate asset sales,
the cost and time involved in searching for a new purchaser, and the potential
cost, uncertainty and delay which would be associated with seeking to compel CKE
to perform its obligations under the Merger Agreement rather than negotiating an
amendment with CKE. The Board approved the Special Committee's proposal to
authorize the Special Committee to address with CKE its financial concerns
related to the financial difficulties of certain Summit franchisees. The Summit
Board authorized the Special Committee to negotiate with CKE to require that CKE
go forward to close the Merger and to reduce the Merger Consideration by not
more than $0.29 per share. During the Board meeting Piper Jaffray indicated
verbally that such a proposal could be supported by a fairness opinion from
Piper Jaffray, subject to review of the final agreement between CKE and Summit.
On April 2, 1996, CKE, Summit and Merger Sub entered into a Second
Amendment to Agreement and Plan of Merger and Reorganization (the "Second
Amendment"). Pursuant to the Second Amendment, CKE and Summit agreed that the
Merger Consideration would be reduced to $2.63 in cash and 0.165 shares of CKE
Common Stock (valued at $2.64 per share at an assumed Average CKE Price of
$16.00) per share of Summit Common Stock, or a total of $5.27 per share, from a
combination of cash and shares of CKE Common Stock having an aggregate value of
$5.55 per Summit share as provided in the First Amendment.
The Second Amendment also provided for the immediate purchase by CKE of all
of the 946,714 outstanding shares of Summit Preferred Stock from ABS MB(JB)
Limited Partnership ("ABS") for a cash purchase price of $5.27 per share. ABS
had previously indicated to Summit that it was willing to vote the Summit
Preferred Stock in favor of the Merger Agreement and the Merger so long as ABS
received cash and shares of CKE Common Stock having an aggregate value of $5.50
per share of Summit Preferred Stock (which represents the per share liquidation
preference of such shares). In order to avoid the risk that ABS, as the holder
of the Summit Preferred Stock, may withhold its approval of the Merger, CKE
agreed to purchase the Summit Preferred Stock from ABS. ABS, in turn, was
willing to accept the $5.27 purchase price for the Summit Preferred Stock from
CKE, in cash, provided that CKE completed the purchase of the Summit Preferred
Stock on or prior to April 4, 1996. CKE and ABS completed the purchase and sale
of the Summit Preferred Stock on April 4, 1996, following which William L.
Paternotte and Frederick L. Bryant, affiliates of ABS, resigned from the Summit
Board of Directors. Summit had a right of first refusal with respect to any
transfer of the Summit Preferred Stock by ABS, and agreed to waive the right of
first refusal in order to complete the negotiations leading up to the Second
Amendment.
On April 9, 1996, the Board of Directors of Summit determined to terminate,
effective April 12, 1996, the employment relationships of Messrs. McComas,
Gehling, Bales and Yanez and made payments in the aggregate amount of $1,071,776
under the Employment Agreement with Mr. McComas and the Change of Control
Agreements with Messrs. Gehling, Bales and Yanez. The employment of Mr. Sacks
terminated on April 15, 1996 as part of a reduction in force that was
implemented by Summit in February 1996. Mr. Sacks
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received a payment of $177,777 under his Change of Control Agreement. See
"-- Interests of Certain Persons in the Merger -- Change of Control Agreements."
The terminations of employment were a continuation of reductions in force
initiated by Summit in September 1995 in response to Summit's deteriorating
financial condition and were effected for a variety of reasons, including
performance, job responsibilities, assessments of Summit's future needs,
strategic direction and financial considerations. Also on April 9, 1996, CKE and
Summit entered into an agreement whereby CKE agreed that if the Merger is not
completed on or before August 1, 1996, CKE shall immediately reimburse Summit
for one-half of all amounts paid to those individuals terminated effective April
15, 1996 (not to exceed $300,000), provided that the failure to complete the
Merger is not a direct result of any action or failure to take any action within
the control of Summit.
On April 12 and April 26, 1996, Summit received copies of news releases
from First Global Securities, Inc. ("First Global") in which First Global stated
concerns regarding the proposed Merger. On April 23, 1996 First Global sent a
letter to Summit requesting certain information related to the proposed Merger
which was not then publicly available and Summit responded by indicating that
the information would be provided when available to all stockholders, including
First Global. On April 29, 1996 Summit received a copy of a Schedule 13D filed
with the Commission by First Global in which First Global and other stockholders
purporting to hold 11.5% of Summit's Common Stock (First Global holding a total
of five shares) set forth a plan to sell all of Summit's assets and use the net
proceeds to pay a dividend of $2.00 per share to the holders of Summit Common
Stock and to invest the remainder in an "eatertainment" restaurant concept. On
May 1, 1996 Summit Board members and the chief executive officer of CKE received
from First Global a letter requesting that First Global be allowed to take
control of Summit so its plan could be implemented. First Global has not made
any offer to purchase Summit or any of Summit's assets nor has it indicated any
consideration it is willing to pay for control of Summit. In August 1995, First
Global had requested information from Summit management concerning a proposed
management-led buyout which was furnished under a confidentiality agreement but
returned with a letter from First Global that the information had not been read.
The Summit Board met on May 2, 1996 and discussed with Piper Jaffray and its
legal advisors the communications from First Global and its proposals. On May 7,
1996 the Board responded to First Global and advised First Global that it was
incorrect in its assumption that the assets of Summit were saleable at a price,
net of Summit's liabilities, that would allow for payment of any dividend to
holders of Summit Common Stock and that, in Summit's view, First Global's
proposal to fund a new restaurant concept appeared to be an unproven idea more
suitable for consideration by venture capitalists. Summit also advised First
Global that, in the Summit Board's opinion, First Global's proposal presented an
unacceptable risk for Summit stockholders, even if funds were available for such
a purpose.
Because of the appointment of a Special Committee and the engagement by the
Special Committee of Piper Jaffray and counsel, neither the Special Committee
nor the Board considered it necessary to retain an unaffiliated representative
to negotiate the terms of the Merger Agreement on behalf of the stockholders of
Summit.
PURPOSE OF THE TRANSACTION
The purpose of the Merger is to effect the acquisition by CKE of all the
outstanding shares of capital stock of Summit not currently owned by CKE. At the
present time, CKE owns all of the issued and outstanding shares of Summit
Preferred Stock and none of the issued and outstanding shares of Summit Common
Stock. The shares of Summit Preferred Stock are convertible, at CKE's option,
into 946,714 shares of Summit Common Stock (representing approximately 16.5% of
the outstanding shares of Summit Common Stock on an as-converted basis). CKE and
Summit did not consider any alternative means to accomplish this purpose because
the Merger is the most direct means for effecting the acquisition of the shares
of capital stock of Summit held by stockholders other than CKE.
REASONS FOR THE MERGER
Summit. Among the several reasons considered by the Summit Board of
Directors in determining to recommend the Merger to the stockholders of Summit
were (i) the continued deterioration in the financial performance of Summit and
constraints on its future growth, (ii) the conclusion of Piper Jaffray, Summit's
financial advisor, that Summit could not continue as an attractive independent
public company, (iii) the absence of other alternatives deemed as favorable as
the CKE proposal following solicitation of offers for
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Summit by Piper Jaffray, and (iv) the opportunity for stockholders of Summit to
receive a portion of the Merger Consideration in shares of CKE Common Stock and
to participate in potential future appreciation in the value of CKE Common
Stock. See "-- Background" and "-- Recommendation of Summit's Board of
Directors; Fairness of the Merger."
CKE. In its evaluation of the Merger, CKE's Board of Directors considered
both the advantages and disadvantages of acquiring Summit prior to approving the
Merger, including the following:
Advantages
- The Merger will create an opportunity to acquire and expand the Galaxy
Diner concept. The Board of CKE feels that this concept, although not in
existence long enough to have a proven track record, has the potential to
be an alternative growth vehicle to CKE's core Carl's Jr. restaurant
business, especially in selected rural areas where a 50's diner concept
would stand out from the competitive quick-service restaurant
environment.
- In order to support the expansion of the Galaxy Diner concept, CKE would
look for the timely disposition of the HomeTown Buffet restaurants. The
benefit of this disposition would be twofold: It would generate cash that
would reduce total cash outlays related to the Merger and it would result
in one less concept for CKE to manage, which would allow for increased
focus on the Galaxy Diner operations.
- The Merger would allow CKE to reduce the continuing operating losses of
the JB's Restaurants by the strategic downsizing of the concept. CKE
plans to sell certain company-owned JB's Restaurants to new or existing
franchisees and to close significantly underperforming locations. CKE
then can focus on improving the operating margins in the remaining core
group of JB's Restaurants.
- The combined company will have the potential to realize significant cost
savings in corporate administration, compared to the two companies
continuing to operate separately.
Management of CKE believes that the strategy outlined above balances the
cash requirements of CKE with the desire to increase the profitability of CKE,
and that CKE has the expertise and manpower to complete the acquisition plan
described above.
Disadvantages
- The sale of HomeTown Buffet is contingent on signing a definitive
agreement with a potential buyer. If negotiations are not successfully
concluded, CKE may have to manage this additional concept in addition to
the JB's Restaurant and Galaxy Diner concepts.
- The acquisition of Summit and related concepts could divert CKE's
managements' attention away from the core business of operating Carl's
Jr. restaurants, which could ultimately lead to reduced margins and
profitability.
- The strategy of selling certain JB's Restaurant locations and closing
other locations carries an inherent risk in that these actions can be
completed in a timely manner and the closed locations can be successfully
subleased.
- The ultimate effects of selling certain restaurants and closing other
units could create reserves and write-downs of assets could create
goodwill that may not be supportable in the future. This, in turn, could
create a future impairment issue and subsequent profit and loss impact.
- The short-term negative effects of employee severance costs to be
incurred as a result of the anticipated termination of employment of a
significant portion of Summit's administrative and executive personnel
following the Merger.
RECOMMENDATION OF SUMMIT'S BOARD OF DIRECTORS; FAIRNESS OF THE MERGER
At a meeting of the Special Committee held on March 26, 1996, the Special
Committee unanimously determined (i) that the Merger Agreement, as amended, was
fair to and in the best interests of Summit and the holders of Summit Common
Stock, and (ii) to recommend that the Board of Directors approve the Merger
Agreement, as amended, and the transactions contemplated thereby. At a
subsequent meeting of the Board of Directors, the Board, after receiving the
recommendation of the Special Committee, determined that the Merger was fair to
and in the best interests of Summit and the holders of the Summit Common Stock
and
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resolved to recommend to such holders that they approve and adopt the Merger
Agreement and the transactions contemplated thereby. The votes of the Special
Committee and of the Board of Directors to approve the Merger was unanimous in
each instance, except that Messrs. Paternotte and Bryant abstained from voting
on the Second Amendment to the Merger Agreement, which contemplated the purchase
by CKE of all of the Summit Preferred Stock from an entity with which Messrs.
Paternotte and Bryant were affiliated at a cash price equal to the then
anticipated Merger Consideration.
In its consideration of the Merger, the Special Committee met in person or
via telephone conference on at least ten occasions and the Board met in person
or via telephone conference on eight separate occasions. At each meeting, one or
more of the factors were discussed among the Special Committee, the Board
members and Summit's financial advisor, when present. The Special Committee's
and the Board's respective recommendations are the product of the business
judgment of the respective members thereof, exercised in light of their
fiduciary duties to Summit's stockholders. The Special Committee, in determining
to recommend approval of the Merger Agreement to the full Board, and the Board
in recommending approval to the holders of the Summit Common Stock and Summit
Preferred Stock, considered a number of factors, including those listed below:
- The Special Committee and the Board considered that the aggregate Merger
Consideration offered by CKE for the shares of Summit Common Stock
represented a premium over the market price of the Summit Common Stock
at the time of the formation of the Special Committee and at the time of
execution of the Merger Agreement and at the time of each amendment to
the Merger Agreement, as follows:
<TABLE>
<CAPTION>
MARKET PRICE OF AGGREGATE VALUE OF
DATE OR EVENT SUMMIT COMMON STOCK MERGER CONSIDERATION
--------------------------------------------- ------------------- --------------------
<S> <C> <C>
Formation of Special Committee............... $4.00 N/A
Execution of Merger Agreement................ $5.00 $ 6.00
Execution of First Amendment................. $4.44 $ 5.55
Execution of Second Amendment................ $4.91 $ 5.27
</TABLE>
The Special Committee and the Board also considered the fact that
Summit's book value per share at September 25, 1995 was higher than the
Merger Consideration but determined, based in part on consultations with
Piper Jaffray, that the book values of CKE and Summit were not relevant
to the value which Summit's stockholders might expect to receive because
book value is highly dependent on a company's accounting policies and is
not necessarily reflective of a company's fair market value or earnings
potential. In its consideration of book values, the Board was advised
that implementation of Statement of Financial Accounting Standards No.
121, which Summit is required to adopt in 1997, would likely result in a
reduction in book value of approximately $7.0 million or approximately
$1.22 per share. See "Summit Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Accounting Standards
Issued But Not Yet Adopted."
- The Special Committee and the Board considered the oral and written
presentations of Piper Jaffray described under "Opinion of Financial
Advisor to Summit" which involved the discussion of various valuation
analyses regarding Summit and the oral and written opinions of Piper
Jaffray that the consideration to be received in the Merger is fair to
holders of Summit Common Stock (other than to CKE and its affiliates). A
copy of such opinion setting forth the assumptions made, matters
considered and procedures followed by Piper Jaffray is attached hereto
as Appendix B and should be read in its entirety. With respect to the
matters contained in the Piper Jaffray fairness opinion, the Special
Committee and the Board adopted the analysis contained therein and
considered the other factors set forth therein in determining that the
Merger is fair to unaffiliated holders of Summit Common Stock. Although
Piper Jaffray's analysis of the Merger was done using an assumed Average
CKE Price of $16.00, the Board also considered the fact that Piper
Jaffray's opinion and analysis were based on the formula for determining
both the number of shares of CKE Common Stock to be issued in the Merger
and, applying such formula, the anticipated value of the Merger
Consideration. As a
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result, the Board does not intend to obtain an updated fairness opinion if the
Average CKE Price is different than $16.00.
- The Special Committee and the Board reviewed possible alternatives to
the Merger, including the interest expressed by certain third parties
with respect to the acquisition of separate assets of Summit by such
parties. From July 1995 to October 2, 1995, the Special Committee and
Piper Jaffray held discussions with HomeTown and its financial advisor
regarding a possible acquisition by HomeTown of the HomeTown Buffet
assets of Summit. The Special Committee discontinued consideration of
the HomeTown proposal due to the price offered, HomeTown's refusal to
structure the transaction to provide for the sale of Summit's
non-HomeTown restaurants and to avoid two levels of taxation to the
Summit stockholders. From October 10, 1995 to November 2, 1995, the
Special Committee had discussions with representatives of Stella Bella,
which were terminated because Stella Bella continually failed to provide
satisfactory evidence of its ability to finance or complete a
transaction with Summit. From October 23, 1995 to October 26, 1995, the
Special Committee considered an offer from a national restaurant company
to purchase the JB's Restaurant and Galaxy Diner assets of Summit, net
of certain liabilities. The Special Committee and the national
restaurant company were unable to agree on the price for the JB's
Restaurant and Galaxy Diner assets and the potential purchaser's
requirement that any acquisition be structured as an asset sale. In
addition, the Special Committee considered that CKE's proposal offered a
higher likelihood of completion and superior valuation. In the view of
the Special Committee and the Board, after consultation with Piper
Jaffray, transactions involving separate sales of assets pursuant to
which Summit would be required to retain and pay significant liabilities
would likely have reduced proceeds available for distribution to Summit
stockholders to an amount less than the value which could be realized
from the sale of Summit to CKE in a single transaction where such
liabilities were assumed by CKE. Although the potential sale of separate
assets was considered, neither the Special Committee nor the Board
considered the liquidation value of Summit in their assessments of the
fairness of the Merger Consideration. The Board of Directors has no
plans to liquidate Summit and does not believe that doing so would be in
the best interests of Summit or its stockholders. The costs associated
with a liquidation, including discounts, contract terminations,
severance pay, commissions and other expenses make it highly unlikely
that liquidation of Summit would generate a value equal to the Merger
Consideration. No appraisals of assets have been obtained by the Special
Committee or the Board. In the event that CKE enters into definitive
asset purchase agreements for the sale of Summit assets prior to the
date of the Merger in certain circumstances, the Merger Consideration
will be increased. However, it is not expected that fully executed
definitive Asset Purchase Agreements will be in effect as of the date of
the Merger for any dispositions other than the HomeTown Buffet
restaurants or, as a result, that any adjustments will be made to the
Merger Consideration. See "Background" and "The Merger -- Adjustment of
Merger Consideration."
- The Special Committee and the Board of Directors also evaluated CKE's
proposal in light of price, ability to finance and consummate the
proposed transaction, CKE's experience and background in the restaurant
business, the opportunity of Summit stockholders to participate in
future appreciation in the value of CKE's Common Stock, the limited
number and nature of other proposals received and the fiduciary
obligations of the Special Committee and the Board to Summit and its
stockholders. The Board also considered that the Merger Agreement
permitted Summit to terminate the Merger Agreement and accept a higher
unsolicited offer in certain circumstances by paying CKE a breakup fee
of $800,000, which the Board of Directors considered to be reasonable in
the circumstances.
- The Special Committee and the Board considered information with respect
to Summit's financial condition, including the substantial constraints
imposed on Summit's ability to remodel existing restaurants or develop
alternative restaurant concepts resulting from net operating losses
incurred over four successive fiscal years. The Board of Directors also
considered the recommendation of Piper Jaffray after review and analysis
of the range of financial alternatives available to Summit resulting in
the conclusion that Summit could not continue as an attractive
independent public company. See "Background."
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- The Special Committee and the Board considered the fact that the terms
of the Merger Agreement and the Merger Consideration were determined
through negotiations with the Special Committee, which was comprised
entirely of non-management directors of Summit and which was assisted by
an unaffiliated investment banking advisor and legal advisor and the
Board considered the fact that the Special Committee determined that the
Merger and the Merger Consideration is fair to and in the best interests
of Summit and the holders of Summit Common Stock and Summit Preferred
Stock. See "Background."
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Special Committee and the Board did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the individual factors considered in reaching its determinations. Of primary
importance, however, was CKE's willingness to acquire Summit, as an entity, in a
single transaction, its ability to finance and consummate the transaction and
the absence of any other proposal having similar characteristics. Also of
significance to the Special Committee and the Board was the opinion of Piper
Jaffray that the transaction is fair to the holders of Summit Common Stock.
Finally, the willingness of the prior holder of the outstanding Summit Preferred
Stock to sell the Summit Preferred Stock to CKE at a cash price equivalent to
the Merger Consideration was deemed important to the Special Committee and the
Board in making their recommendations to the holders of Summit Common Stock.
THE BOARD OF DIRECTORS OF SUMMIT HAS DETERMINED THAT THE MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF SUMMIT AND ITS STOCKHOLDERS AND HAS RECOMMENDED A
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
CKE ANALYSIS OF FAIRNESS OF THE MERGER
CKE believes, based primarily on the factors listed in "Reasons for the
Merger -- CKE" and on the factors considered by Summit's Board of Directors and
the Special Committee listed in "Recommendation of Summit's Board of Directors;
Fairness of the Merger," that the consideration to be paid to Summit's
stockholders in the Merger is fair to such stockholders and, accordingly, adopts
the Summit Board's and the Special Committee's analysis as its own. CKE also
considered, among other factors, the historic and continuing losses experienced
by Summit and the belief of CKE that Summit has generated a significant amount
of its cash flow in recent periods from sales of assets other than in the
ordinary course of business and that, unless additional dispositions of
significant assets could be made in the short-term, Summit's cash flows from
operations may not be sufficient to satisfy its short-term or long-term working
capital requirements. In view of the variety of factors considered in connection
with its evaluation of the Merger, CKE did not quantify or attempt to assign
relative weights to the specific factors considered in reaching its conclusion
as to fairness and to proceed with the Merger.
In light of the appointment of the Special Committee, the retention by the
Special Committee of separate counsel and Piper Jaffray and the fact that the
terms of the Merger Agreement were the result of negotiations with the Special
Committee and its advisors which were conducted prior to CKE's acquisition of
the Summit Preferred Stock, CKE believes that the manner in which the Merger was
considered by Summit was procedurally fair to unaffiliated stockholders.
NatWest Markets was retained by CKE to act as CKE's financial advisor in
connection with the Merger Agreement and to provide CKE with its general
assessments concerning the Merger and its anticipated effects on CKE; however,
CKE did not obtain its own fairness opinion in connection with its review of the
Merger.
OPINION OF FINANCIAL ADVISOR TO SUMMIT
Piper Jaffray was retained by Summit on July 21, 1995 to serve as financial
advisor to the Special Committee in connection with a potential sale of, or
other disposition with respect to, Summit. Among other things, the engagement
permitted the Special Committee to request an opinion from Piper Jaffray
regarding the fairness of a sale or other transaction to Summit's stockholders
from a financial point of view. At the March 26, 1996 meeting of Summit's Board
of Directors, Piper Jaffray rendered its oral opinion to the effect
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that the consideration proposed to be paid to the holders of the Summit Common
Stock in the Merger is fair, from a financial point of view, to Summit's
stockholders. Piper Jaffray's oral opinion was confirmed in a written opinion,
dated March 26, 1996, to the effect that, as of the date thereof and based on
and subject to the assumptions, factors and limitations set forth in such
opinion and described below, the consideration proposed to be paid to the
holders of Summit Common Stock in the Merger is fair, from a financial point of
view, to holders of Summit Common Stock.
The full text of the opinion of Piper Jaffray dated March 26, 1996 (the
"Piper Jaffray Opinion") is attached as Appendix B to this Prospectus and Proxy
Statement/Prospectus. The following summary of the Piper Jaffray Opinion is
qualified in its entirety by reference to the full text of the Piper Jaffray
Opinion. Summit stockholders are urged to read the opinion in its entirety for a
complete description of the assumptions made, matters considered and limits of
the review undertaken.
In arriving at its opinion, Piper Jaffray reviewed, analyzed and relied
upon material bearing upon the financing and operating condition and prospects
of Summit and material prepared in connection with the Merger, and considered
such financial and other factors as it deemed appropriate under the
circumstances, including, among other things, the following: (i) the Merger
Agreement, as amended; (ii) annual reports on Form 10-K and audited financial
statements for Summit for the four fiscal years ended September 25, 1992,
September 27, 1993, September 26, 1994 and September 25, 1995; (iii) the
quarterly report on Form 10-Q of Summit for the quarter ended December 18, 1995
and a discussion draft of the quarterly report on Form 10-Q of Summit for the
quarter ended March 11, 1996; (iv) the five-year financial forecasts for Summit
furnished by Summit management; (v) the annual reports on Form 10-K for CKE for
the three fiscal years ended January 31, 1995; (vi) the quarterly reports on
Form 10-Q for CKE for the quarters ended May 22, 1995, August 14, 1995 and
November 6, 1995; and (vii) the historical prices and trading activity for CKE
Common Stock and Summit's Common Stock. Piper Jaffray conducted oral discussions
with senior management of Summit and had additional discussions with members of
Summit's Board of Directors and with members of the Special Committee. Topics
discussed included, but were not limited to, the background and rationale of the
proposed Merger, the alternatives to the proposed Merger, including the
potential sale of Summit assets described elsewhere in this Proxy
Statement/Prospectus, and the financial condition, operating performance and
balance sheet characteristics of Summit. In addition, Piper Jaffray conducted
oral discussions with senior management of CKE about the background and
rationale for the proposed Merger, the financial condition, operating
performance, balance sheet characteristics and prospects for CKE's business
independently and the financial and operating prospects for the combined company
after consummation of the proposed Merger.
The Piper Jaffray Opinion, which was delivered for use and considered by
the Summit Board, is directed only to the fairness, from a financial point of
view, of the Merger Consideration, does not address the value of a share of
Summit Common Stock, does not address Summit's underlying business decision to
participate in the Merger and does not constitute a recommendation to any Summit
stockholder as to how such stockholder should vote with respect to the Merger.
Piper Jaffray does not admit that it is an expert within the meaning of the term
"expert" as used in the Securities Act and the rules and regulations promulgated
thereunder, or that its opinions constitute a report or valuation within the
meaning of Section 11 of the Securities Act and the rules and regulations
promulgated thereunder. Piper Jaffray also considered the following qualitative
factors relating to the Merger based upon information provided by the management
and Board of Summit: (i) As of June 30, 1996, Summit will lose exclusivity in
its franchise territory, thereby limiting growth opportunities with the HomeTown
Buffet restaurants concept and putting Summit in direct competition with
HomeTown; (ii) Summit's deteriorating financial condition and inability to raise
additional capital to finance either future growth or remodeling of existing
locations; and (iii) following a process in which approximately 70 potential
acquirors were contacted, the lack of any other competitive offers which met the
timing and financial criteria of Summit for either all of the assets of Summit
or selective assets of Summit which would provide net proceeds to holders of
Summit Common Stock greater than that offered by CKE.
Based on this information, Piper Jaffray performed a variety of financial
and comparative analyses, including those summarized below, which it discussed
with the Summit Board on November 30, 1995 and confirmed on January 24, 1996 and
March 26, 1996.
34
<PAGE> 41
Discounted Cash Flow Analysis. Piper Jaffray performed a discounted cash
flow analysis to calculate a range of theoretical values per share of Summit
Common Stock and Summit Preferred Stock based upon: (i) the net present value of
the implied future cash flows of Summit; and (ii) a terminal value assuming
Summit is sold in the year 2000 at a multiple of operating income before
depreciation and amortization (EBITDA). Assuming an EBITDA multiple of 3-5x, a
discount rate average of 13-17% and a tax rate of 40.0%, Piper Jaffray concluded
that the net present value of each share of Summit Common Stock and Summit
Preferred Stock would be $1.00 to $2.53. This range of values was then compared
to the Merger Consideration of $5.27 to be received in the Merger (assuming an
Average CKE Price of $16.00 per share). Since the Merger Agreement was signed,
the closing prices of the CKE Common Stock on the NYSE have risen from $17.38 on
November 30, 1995 to $25.00 on May 23, 1996. For purposes of disclosure in this
Proxy Statement/Prospectus, an Average CKE Price of [$21.74] is used, based on
the average of the closing prices of the CKE Common Stock on the NYSE for the 20
consecutive trading days ended on May 23, 1996, as opposed to the Average CKE
Price of $16.00 which was used by Piper Jaffray in performing its analyses. At
an Average CKE Price of $21.74, the aggregate value of the Merger Consideration
would be $5.40 per share (including $2.63 in cash). Summit is not required to
obtain an updated fairness opinion if the Adjusted CKE Price is determined to be
less than $16.00 per share.
Premium Analysis. Piper Jaffray performed a comparable acquisition premium
analysis through a review of transactions involving the acquisition of stock of
public companies. The analysis was based upon information obtained from SEC
filings, public company disclosures, press releases, industry and popular press
reports, databases and other sources. Piper Jaffray identified 103 acquisitions
of public companies (other than banks, REITS and insurance companies) that were
completed from January 1, 1994 through March 25, 1996 with an acquisition price
between $20 million and $100 million. Piper Jaffray determined that the price to
be paid for Summit Common Stock and Summit Preferred Stock in the Merger would
constitute a 17.0% premium over the average of the closing price of Summit
Common Stock for the four weeks immediately preceding July 24, 1995 (the date of
the announcement of the retention of Piper Jaffray), November 10, 1995 (the date
of the press release announcing the offer by Stella Bella) and November 28, 1995
(two days prior to the date of the original Merger Agreement). In addition, such
price would constitute a 9.5% premium over the closing price of the Summit
Common Stock on March 25, 1996 (the day before the date of the Second
Amendment). In comparison, Piper Jaffray determined that the mean premium paid
in the acquisitions identified above was 41.3% and that the median premium paid
in such acquisitions was 34.6% for the four weeks prior to the announcement.
Comparable Acquisition Analysis. Piper Jaffray conducted a comparable
acquisition analysis through a review of selected restaurant industry
transactions deemed comparable to the Merger. The analysis is based upon
information obtained from SEC filings, public company disclosures, press
releases, industry and popular press reports, databases and other sources. Piper
Jaffray identified all acquisitions of companies operating eating places and
drinking places that were pending or completed from January 1, 1992 through
March 25, 1996. This search yielded 18 transactions listed below in
acquired/acquiror format: Brueggers/Quality Dining (pending); Noah's
Bagels/Boston Chicken; Quality Dining/Brinker International (Grady's Grill);
DAKA International/Champps Entertainment; Lone Star Steakhouse/Del Frisco's;
Apple South/DF&R Restaurants; Wendys/Tim Hortons; Brinker
International/Maggianos and Corner Bakery; AppleBees International/Rio Bravo;
Morrison Restaurants/Tias's; Billy Blues Food Corp/Marco's Mexican Restaurants;
Sixx Holdings/Patrizio Restaurants; Brinker International/On The Border Cafes;
Au Bon Pain Co/St. Louis Bread Co; Taco Bell (PepsiCo)/Chevys Mexican
Restaurant; National Pizza/NRH Corp; PepsiCo/California's Pizza Kitchen; and
Magic Restaurants/Carmella's Cafe.
Piper Jaffray then determined certain mean and median operating ratios
based upon information for the comparable acquisitions. Among other things,
Piper Jaffray determined that for the comparable acquisitions the mean company
value to LTM (latest 12 months) revenues ratio was 1.8x, the median such ratio
was 1.4x and the Summit ratio was .4x. A comparison of other operating ratios
was not meaningful because Summit did not have operating income for the latest
12 months.
Comparable Company Analysis. Piper Jaffray conducted a comparable company
analysis by comparing certain financial and stock market information relating to
Summit to corresponding data and rates for a group
35
<PAGE> 42
of eleven comparable publicly traded companies that operate family style, casual
dining restaurants. The group of comparable companies consisted of: Bob Evans
Farms, Buffets, Inc., Cracker Barrel, Flagstar, Ground Round Restaurant,
HomeTown Buffet, IHOP, Luby's Cafeterias, Perkins Family Restaurants, Piccadilly
Cafeterias and Ryan's Family Steak Houses. Among other things, Piper Jaffray
determined that for the comparable companies the mean stock price to LTM
revenues ratio was 1.1x, the median such ratio was .9x and the Summit ratio was
.4x. A comparison of other financial ratios was not meaningful because Summit
did not have net income or operating income for the latest 12 months and it does
not have estimated earnings for fiscal year 1996.
No company or transaction used in any comparable analysis as a comparison
is identical to Summit or to the Merger. Accordingly, an analysis of the results
is not mathematical and involves complex considerations and judgments concerning
differences in financial and operating characteristics of the comparable
companies and comparable transactions. The Premium Analysis, Comparable
Acquisition Analysis and Comparable Company Analysis performed by Piper Jaffray
resulted in ratios or premiums higher than the proposed Merger Consideration;
however, in rendering its opinion, Piper Jaffray considered that the Discounted
Cash Flow Analysis, based on Summit's best available estimates of Summit's
future financial performance, and certain long-term competitive factors, such as
Summit's impending loss of exclusivity for its HomeTown Buffet franchise
territory, competitive pressures in the family dining and casual dining segments
of the restaurant industry, and Summit's inability to raise additional capital
to finance future growth or remodel existing locations, was particularly helpful
in determining its opinion. Notwithstanding the foregoing considerations, in
reaching its conclusion as to the fairness of the consideration proposed to be
paid in the Merger and in its presentation to the Summit Board of Directors,
Piper Jaffray did not rely on any single analysis or factor described above,
assign relative weights to the analyses or factors considered by it, or make any
conclusions as to how the results of any given analysis, taken alone, supported
its fairness opinion. The preparation of a fairness opinion is a complex process
and not necessarily susceptible to partial analyses or summary description.
Piper Jaffray believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all factors and analyses, would create a misleading view of the
processes underlying its opinion. These analyses of Piper Jaffray are not
necessarily indicative of actual values, which may be significantly more or less
favorable than the values used herein. Analyses relating to the value of
companies do not purport to be appraisals or valuations or necessarily reflect
the price at which companies may actually be purchased or sold.
For purposes of its opinion, Piper Jaffray relied upon and assumed the
accuracy, completeness and fairness of the financial and other information made
available to it and did not attempt independently to verify such information.
Piper Jaffray relied upon the assurances of Summit's management that the
information provided by Summit had a reasonable basis and, with respect to
financial planning data and other business outlook information, reflected the
best available estimates, and that they were not aware of any information or
fact that would make the information provided to Piper Jaffray incomplete or
misleading. In arriving at its opinion, Piper Jaffray did not perform any
appraisals or valuation of specific assets of Summit and expressed no opinion
regarding the liquidation value of any entity. The fairness opinion relates only
to the proposed transaction with CKE and is not an assessment of the fairness of
the CKE transaction relative to other potential transactions. No limitations
were imposed by Summit on the scope of Piper Jaffray's investigation or the
procedures to be followed in rendering its opinion. Piper Jaffray expressed no
opinion at the price at which shares of Summit Common Stock or CKE Common Stock
may trade at any future time. The opinion is based upon the information
available to Piper Jaffray and the facts and circumstances as they existed and
were subject to evaluation on the date of this opinion. Events occurring after
such date could materially affect the assumptions used in preparing the opinion.
Piper Jaffray, as a customary part of its investment banking business, is
engaged in the evaluation of businesses and their securities in connection with
mergers and acquisitions, underwriting and secondary distributions of
securities, private placements and evaluations for estate, corporate and other
purposes. The Special Committee selected Piper Jaffray because of its expertise,
reputation and familiarity with Summit and the restaurant industry in general.
36
<PAGE> 43
Summit has paid Piper Jaffray $125,000 in fees in connection with its
engagement and for rendering its fairness opinion. The remainder of the fee
payable to Piper Jaffray is contingent upon the completion of a transaction
between Summit and a purchaser. The amount of the fee payable to Piper Jaffray
upon the completion of the Merger is approximately $773,000, less the $125,000
previously paid to Piper Jaffray. Summit has agreed to indemnify Piper Jaffray
against certain liabilities incurred (including liabilities under the federal
securities laws) and reimburse reasonable out-of-pocket expenses, including the
fees and disbursements of its counsel, in connection with the engagement of
Piper Jaffray by the Special Committee and Summit. Piper Jaffray agreed to pay
Scobrett 15% of the total fee that Piper Jaffray will receive from Summit. Mr.
Habermann, Chairman of the Special Committee, is the President and sole owner of
Scobrett. See "Interests of Certain Persons in the Merger." The approximate
total fee from Summit to Piper Jaffray is $773,000, and the approximate fee from
Piper Jaffray to Scobrett is $115,950. The fee to Scobrett is contingent upon
the completion of a transaction in which Piper Jaffray receives a fee from
Summit. It is the Board's opinion that the financial interest of Mr. Habermann
in completing a transaction to sell Summit is consistent with the Board's
previous decision in June 1995 to sell Summit and with the interests of Summit's
Board and stockholders to obtain the highest possible consideration upon the
sale of Summit.
CERTAIN PROJECTIONS OF SUMMIT
Summit does not as a matter of course make projections or forecasts as to
future revenues or operations. However, in connection with Summit's discussions
with Piper Jaffray, Summit prepared and furnished certain projections as to
revenues and operations for the five fiscal years ending in September 2000. A
summary of the projections and material assumptions (the "Projections") are set
forth below. The Projections do not reflect the consummation of the Merger or
the proposed sale of assets outside the ordinary course of business. The
Projections were not prepared with a view to public disclosure or compliance
with published guidelines of the Securities Exchange Commission or the American
Institute of Certified Public Accountants and are included in this Proxy
Statement/Prospectus only because such Projections were supplied to Piper
Jaffray, who does not assume any responsibility for the accuracy or completeness
of the Projections. The Projections were not compiled or reviewed by KPMG Peat
Marwick LLP, Summit's independent accountants, and they are not covered by such
firm's report appearing in this Proxy Statement/Prospectus. KPMG Peat Marwick
LLP does not express conclusions or any other form of assurance on the
accompanying Projections or the underlying assumptions.
In addition, the Projections set forth below are based on assumptions and
estimates that are inherently subject to significant economic and competitive
uncertainties, all of which are difficult to predict and many of which are
beyond Summit's control. Because Summit has no history of preparing projections,
Summit has no experience in comparing such projections against historical
performance. Accordingly, there is no assurance that the projected results will
or can be realized or that actual results will not be materially higher or lower
than those projected. See the historical financial information and the more
detailed consolidated financial statements included herein for actual results of
operations.
37
<PAGE> 44
SUMMIT FAMILY RESTAURANTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FIVE YEAR FORECAST
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FORECAST
--------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues......................... $120,311 $120,350 $122,816 $125,334 $127,904
Costs and expenses:
Food costs........................... 39,053 39,147 39,953 40,775 41,614
Labor costs.......................... 41,604 41,501 42,361 43,240 44,136
Occupancy and other expenses......... 26,881 26,909 27,256 27,392 27,221
General and administrative
expenses.......................... 8,079 8,230 8,487 8,751 9,024
Depreciation and amortization........ 6,926 6,356 6,572 6,669 6,766
-------- -------- -------- --------
Total costs and expenses............. 122,543 122,143 124,629 126,827 128,761
-------- -------- -------- --------
Loss from operations................... (2,232) (1,793) (1,813) (1,493) (857)
-------- -------- -------- --------
Interest and other income (expense)
Interest expense..................... (1,054) (1,002) (929) (856) (783)
Interest income...................... 411 516 646 805 1,007
Gains on sale of restaurants to
franchisees and other............. (260) 50 50 50 50
Gain on sale of Hometown stock....... 3,959 -- -- -- --
-------- -------- -------- --------
Total interest and other income
(expense)......................... 3,056 (436) (233) (1) 274
-------- -------- -------- --------
Income (loss) before income taxes...... 824 (2,229) (2,046) (1,494) (583)
-------- -------- -------- --------
Income taxes........................... 724 -- -- -- --
-------- -------- -------- --------
Net income (loss)...................... $ 100 $ (2,229) $ (2,046) $ (1,494) $ (583)
======== ======== ======== ========
Net income (loss) per share............ $ 0.02 $ (0.38) $ (0.34) $ (0.24) $ (0.09)
======== ======== ======== ========
Weighted average shares outstanding.... 5,818 5,921 6,087 6,273 6,345
======== ======== ======== ========
</TABLE>
38
<PAGE> 45
SUMMIT FAMILY RESTAURANTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIVE YEAR FORECAST
(IN THOUSANDS)
<TABLE>
<CAPTION>
FORECAST
-------------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Pre-tax income..................................... $ 824 $(2,229) $(2,046) $(1,494) $ (583)
Add:
Depreciation and amortization...................... 6,926 6,356 6,572 6,669 6,766
Change in operating assets......................... (2,602) 735 736 735 735
Other.............................................. (365) 100 100 100 100
Notes receivable payments.......................... 131 128 128 128 128
Proceeds from issuance of Common Stock............. 12 -- -- -- --
Proceeds from sale of Hometown Stock............... 4,755 -- -- -- --
Deduct:
Tax payments....................................... (740) -- -- -- --
Hometown Buffet stock gain......................... 3,959 -- -- -- --
------- ------- ------- ------- -------
Cash flow before debt repayment and capital
expenditures..................................... 6,462 5,090 5,490 6,138 7,146
Deduct: Debt repayment............................. 2,938 756 756 756 756
------- ------- ------- ------- -------
Cash available for capital expenditures............ 3,524 4,334 4,734 5,382 6,390
Deduct: capital expenditures....................... 1,473 2,084 2,084 2,084 2,084
------- ------- ------- ------- -------
Cash flow.......................................... $ 2,051 $ 2,250 $ 2,650 $ 3,298 $ 4,306
======= ======= ======= ======= =======
Change in cash
Beginning balance.................................. $ 2,091 $ 4,142 $ 6,392 $ 9,042 $12,340
Cash flow.......................................... 2,051 2,250 2,650 3,298 4,306
------- ------- ------- ------- -------
Ending balance..................................... $ 4,142 $ 6,392 $ 9,042 $12,340 $16,646
======= ======= ======= ======= =======
</TABLE>
39
<PAGE> 46
SUMMIT FAMILY RESTAURANTS INC.
CONSOLIDATED BALANCE SHEETS
FIVE YEAR FORECAST
(IN THOUSANDS)
<TABLE>
<CAPTION>
FORECAST
---------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash......................................... $ 4,142 $ 6,392 $ 9,042 $12,340 $16,646
Receivables.................................. 669 669 669 669 669
Inventories.................................. 1,532 1,614 1,534 1,556 1,577
Other........................................ 189 189 189 189 189
------- ------- ------- ------- -------
Total current assets.................... 6,532 8,864 11,434 14,754 19,081
Property, buildings and equipment............ 48,888 44,617 40,129 35,544 30,862
Investments.................................. 1,430 1,430 1,430 1,430 1,430
Other assets................................. 4,054 3,926 3,798 3,670 3,542
------- ------- ------- ------- -------
Total assets............................ $60,904 $58,837 $56,791 $55,398 $54,915
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable -- trade.................... $ 4,985 $ 5,802 $ 6,457 $ 7,212 $ 7,968
Accrued liabilities.......................... 6,069 6,070 6,070 6,070 6,070
Current maturities of long-term debt......... 871 871 871 871 871
------- ------- ------- ------- -------
Total current liabilities............... 11,925 12,743 13,398 14,153 14,909
Long-term debt
Capitalized real property leases........... 9,610 8,920 8,230 7,540 6,850
Notes payable.............................. 310 245 180 115 50
------- ------- ------- ------- -------
Total long-term debt.................... 9,920 9,165 8,410 7,655 6,900
------- ------- ------- ------- -------
Deferred income taxes........................ 297 297 297 297 297
------- ------- ------- ------- -------
Deferred compensation........................ 1,564 1,564 1,564 1,564 1,564
------- ------- ------- ------- -------
Stockholders' equity......................... 37,198 35,068 33,122 31,729 31,245
------- ------- ------- ------- -------
Total liabilities and stockholders' equity... $60,904 $58,837 $56,791 $55,398 $54,915
======= ======= ======= ======= =======
</TABLE>
40
<PAGE> 47
SUMMIT FAMILY RESTAURANTS INC.
MAJOR ASSUMPTIONS
FIVE YEAR FORECAST
FISCAL 1996 FORECAST
- Sales and Costs
Continuation of business trends experienced through the first half of
the fiscal year
- Number of Restaurants
The number of restaurants remains as follows:
<TABLE>
<CAPTION>
COMPANY FRANCHISED TOTAL
------- ---------- -----
<S> <C> <C> <C>
JB's Restaurant............................... 78 24 102
HomeTown Buffet............................... 16 -- 16
Galaxy Diner.................................. 6 -- 6
--
--- ---
Total......................................... 100 24 124
=== == ===
</TABLE>
- No new restaurants
- General and Administrative
Does not include change of control and other severance costs
FISCAL 1997-2000 FORECAST
- Number of Restaurants
The number of restaurants remains as follows:
<TABLE>
<CAPTION>
COMPANY FRANCHISED TOTAL
------- ---------- -----
<S> <C> <C> <C>
JB's Restaurant............................... 78 24 102
HomeTown Buffet............................... 16 -- 16
Galaxy Diner.................................. 6 -- 6
--
--- ---
Total......................................... 100 24 124
=== == ===
</TABLE>
- Sales
JB's Restaurant sales increase 2% per year
HomeTown Buffet sales increase 2% per year
Galaxy Diner sales increase 3% per year
- Store Level Cost Structure
Remains essentially the same as Fiscal Year 1996
- General and Administrative
Overhead structure remains in place with no significant changes in
personnel, with inflationary
increases each year.
- Capital Spending
Maintenance level spending only.
- Debt
Repayment of existing debt.
No new debt.
- Income Taxes
No recognition of income tax benefits.
41
<PAGE> 48
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Summit Board of Directors with
respect to the Merger, holders of Summit Common Stock should be aware that
certain members of Summit's management (some of whom are members of Summit's
Board of Directors) and the members of the Summit Board of Directors and Special
Committee have certain interests in the Merger, in addition to those of the
stockholders generally. Summit's Board of Directors was aware of these interests
when it considered and approved the Merger and the Merger Agreement.
Fee to Scobrett Associates, Inc. During November 27 through November 30,
1995, Norman N. Habermann discussed with Piper Jaffray the possibility of
payment by Piper Jaffray to Scobrett Associates, Inc. ("Scobrett"), of which Mr.
Habermann is the President and the sole owner, of a portion of the fee that
Piper Jaffray will receive from Summit upon completion of the Merger or other
transaction pursuant to the Engagement Letter between Summit and Piper Jaffray
dated July 21, 1995 (the "Engagement Letter"). Mr. Habermann is a member of the
Board of Directors of Summit and is Chairman of the Special Committee of the
Summit Board of Directors. Piper Jaffray and Mr. Habermann agreed that it would
be appropriate for Piper Jaffray to pay a portion of its fee to Scobrett as a
result of the extent of the involvement by Mr. Habermann in reviewing
information from potential purchasers of Summit, including CKE, and in
negotiating the transaction between CKE and Summit, based upon their agreement
that Mr. Habermann's role extended substantially beyond the amount of time and
work originally envisioned by Piper Jaffray when it recommended the formation of
the Special Committee and that Mr. Habermann's role was key to completing the
negotiation of the Merger Agreement. On the morning of November 30, 1995, Piper
Jaffray and Mr. Habermann agreed that the amount to be paid to Scobrett would be
15% of the total fee that Piper Jaffray will receive from Summit pursuant to the
Engagement Letter. During the Summit Board Meeting on November 30, 1995, Mr.
Bryant B. Edwards of Latham & Watkins, counsel to the Special Committee, advised
the Summit Board of the agreement between Piper Jaffray and Scobrett. On
December 11, 1995, Piper Jaffray and Scobrett entered into a letter agreement
setting forth the terms of the payment. The payment is not limited to the
Merger, but applies to the fee that Piper Jaffray will receive under the
Engagement Letter, regardless of the applicable transaction. Summit estimates
the payment from Piper Jaffray to Scobrett will be approximately $115,950. See
"Background."
Stockholders and Optionees. Certain executives of Summit are stockholders
of Summit or are optionees who have vested and unvested options to purchase
Summit Common Stock. Executives who hold Summit Common Stock will receive Merger
Consideration in the same manner as other holders of Summit Common Stock at the
Effective Time of the Merger. Executives who are optionees will receive
consideration as other optionees as described in "The Merger -- Treatment of
Summit Stock Options." The following table sets forth, as of March 14, 1996,
certain information concerning the options to purchase shares of Summit Common
Stock held by each officer and director of Summit:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
NAME STOCK OPTIONS EXERCISE PRICE
----------------------------------------------- ------------- ----------------
<S> <C> <C>
Norman N. Habermann............................ 5,000 $ 4.38
Carl R. Hays................................... 11,500 5.64
Joseph J. Hollencamp........................... 35,000 5.13
Clark D. Jones................................. 43,000 4.00
Charlotte L. Miller............................ 35,000 5.88
Norton Parker.................................. 11,500 5.72
Ronald N. Paul................................. 11,500 6.32
David E. Pertl................................. 35,500 5.17
Thomas J. Russo................................ 11,500 5.99
------- -----
Totals............................... 199,500 $ 5.19
======= =====
</TABLE>
Change of Control Agreements. The seven senior vice presidents of Summit
(Gary A. Bales, George H. Gehling, Joseph J. Hollencamp, Charlotte L. Miller,
David E. Pertl, Ronald L. Sacks, and Daniel Yanez) have each entered into letter
agreements dated August 17, 1995 with Summit providing for certain termination
benefits in the event of a change of control of Summit (the "Change of Control
Agreements").
42
<PAGE> 49
The Change of Control Agreements provide that each of the seven senior vice
presidents will be entitled to receive a payment of 1.5 times his or her annual
salary upon the occurrence of certain events. Those events include involuntary
termination of the senior vice president during the period after the
announcement of a change of control and before the consummation of a change of
control or during the 12 months following consummation of the change of control
and a voluntary termination during the 90-day period following the consummation
of the change of control. Consummation of the Merger is an event that
constitutes a change of control pursuant to the letter agreements. The following
table sets forth the amounts to which the seven senior vice presidents would be
entitled under the Change of Control Agreements as a result of the Merger:
<TABLE>
<CAPTION>
EMPLOYEE BENEFIT
-------------------------------------------------------- ----------
<S> <C>
Dave Pertl.............................................. $ 187,512
Charlotte Miller........................................ 132,008
George Gehling.......................................... 143,271
Gary Bales.............................................. 156,000
Ron Sacks............................................... 177,777
Dan Yanez............................................... 172,505
Joe Hollencamp.......................................... 127,515
----------
Total......................................... $1,096,588
==========
</TABLE>
Additionally, in the event a senior vice president becomes entitled to
receive benefits under the Change of Control Agreement, Summit shall pay the
portion of the premiums applicable to his or her health insurance benefits that
Summit paid prior to termination pursuant to certain requirements for up to an
18-month period following the termination of employment. The Change of Control
Agreements expire on September 23, 1996.
Under the Change of Control Agreements, a material change in employment may
also result in the senior vice president receiving benefits if the senior vice
president terminates employment within 60 days after the material change in
employment. Under the Change of Control Agreements, a material change in
employment is (i) a ten percent or greater decrease in annual salary, (ii) a
diminution in title, (iii) a decrease in duties and responsibilities that
results in the senior vice president no longer having the duties and
responsibilities associated with the senior vice president's title, or (iv) a
requirement that the senior vice president relocate more than fifty miles from
the current offices of Summit.
Pursuant to the Merger Agreement, the Change of Control Agreements have
been amended to provide that the senior vice president will forfeit his or her
benefits if he or she voluntarily terminates employment within the 90 days
immediately following consummation of the Merger; and that the time period
during which a senior vice president may receive benefits upon voluntary
termination shall begin immediately following the first 90 days after
consummation of the Merger Transaction and end 90 days thereafter. The purpose
of such amendment is to provide CKE with adequate support in making a
transition.
The Merger constitutes a change of control under the Change of Control
Agreements and amendments. Therefore under the Merger, a senior vice president
will be entitled to receive benefits under the Change of Control Agreement if
(i) he or she is involuntarily terminated prior to the consummation of the
Merger or within 12 months following the Merger (ii) he or she does not
voluntarily terminate employment within the first 90 days following the
consummation of the Merger and voluntarily terminates employment within the
second 90-day period immediately following the 90 days immediately after the
consummation of the Merger.
Joseph J. Hollencamp, Senior Vice President, HomeTown Operations, has (in
addition to the above described Change of Control Agreement) a letter agreement
dated January 4, 1995 (the "Hollencamp Agreement") which requires Summit, or its
successor, to pay him a certain amount upon sale of Summit's HomeTown Buffet
assets. Under the Hollencamp Agreement, Mr. Hollencamp is eligible for one
percent of the final sales price received for the HomeTown Buffet restaurants or
assets, but in no event more than $400,000. The Hollencamp Agreement terminates
on September 30, 1996. Mr. Hollencamp is not entitled to receive payment under
both the Change of Control Agreement and the Hollencamp Agreement.
Mr. McComas has an Employment Agreement with Summit dated November 24, 1993
(the "Employment Agreement"). The Employment Agreement, which contains a change
of control provision similar to the Change of Control Agreements with the senior
vice presidents, provides that Mr. McComas is entitled to
43
<PAGE> 50
receive one dollar less than three times his annual salary in the event (i) he
is involuntarily terminated after the announcement of the planned change of
control and before the consummation of the change of control (ii) his employment
is voluntarily or involuntarily terminated within twelve months following the
change of control. The total amount of payment for which Mr. McComas would be
eligible under the change of control provisions of the Employment Agreement is
$600,000. Additionally, for a 24-month period following receipt of benefits
under the change of control provision of the Employment Agreements, Summit must
arrange to provide Mr. McComas with life, disability, accident and health
insurance benefits substantially similar to those which Mr. McComas was
receiving prior to the termination of his employment.
Mr. McComas has entered into an amendment to the change of control
provision of the Employment Agreement as requested by CKE similar to that
described for the senior vice presidents which requires Mr. McComas to continue
his employment for the first 90 days following the Merger in order to be
eligible to receive his benefits pursuant to the change of control provision of
the Employment Agreement.
Effective April 12, 1996, the Board of Directors terminated the employment
relationships of Messrs. McComas, Gehling, Bales and Yanez and made payments in
the aggregate amount of $1,071,776 under the Employment Agreement with Mr.
McComas and the Change of Control Agreements with Messrs. Gehling, Bales and
Yanez. The employment of Mr. Sacks was also terminated effective April 15, 1996
and a payment of $177,777 was made to Mr. Sacks under his Change of Control
Agreement. These terminations of employment were a continuation of reductions in
force initiated by Summit in September 1995 in response to Summit's
deteriorating financial condition and were effected for a variety of reasons,
including performance, job responsibilities, assessments of Summit's future
needs, strategic direction and financial considerations. On April 9, 1996, CKE
and Summit agreed that, if the Merger is not completed on or before August 1,
1996, CKE shall immediately reimburse Summit for one-half of all amounts paid to
those individuals terminated effective April 15, 1996 (not to exceed $300,000),
provided that the failure to complete the Merger is not a direct result of any
action or failure to take any action within the control of Summit. CKE currently
expects that Summit will involuntarily terminate the employment of each of the
three remaining senior vice presidents within the 12 month period following the
Merger and, accordingly, that such persons will become entitled to receive
benefits totalling approximately $447,035 under their respective Change of
Control Agreements. See "Summit Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Directors and Officers Insurance. CKE has agreed in the Merger Agreement
to provide the directors and officers of Summit with directors' and officers'
and fiduciary liability insurance having substantially similar terms and
conditions and coverage as that maintained by Summit for one year following the
consummation of the Merger or to purchase extensions for a 12-month period
following the consummation of the Merger provided the cost of such extension
does not exceed $40,000.
Indemnification Agreements. Summit has provided the officers and directors
of Summit with an indemnification agreement which provides for indemnification
and payment of expenses on behalf of the officer in actions or threatened
actions against the officer in his or her capacity as an officer of Summit. CKE
has agreed to assume these indemnification agreements.
CERTAIN TRANSACTIONS IN THE SUMMIT COMMON STOCK
On April 4, 1996, CKE purchased 946,714 shares of Summit Preferred Stock
from ABS, for a cash purchase price of $5.27 per share, in a private
transaction. The shares of Summit Preferred Stock are convertible into shares of
Summit Common Stock representing 16.5% of the outstanding shares. Other than
CKE's purchase of the Summit Preferred Stock, there have been no transactions in
the Summit Common Stock during the past 60 days by Summit, CKE or, to the
knowledge of Summit and CKE, any of their respective executive officers or
directors.
CERTAIN EFFECTS OF THE MERGER
If the proposed Merger is consummated, the stockholders of Summit, other
than CKE, will no longer have an equity interest in Summit and, therefore, will
not directly share in any future earnings or growth of Summit. Instead, each
stockholder of Summit other than CKE will have the right to receive the Merger
Consideration.
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As a result of the Merger, Summit will become a wholly-owned subsidiary of
CKE. The Summit Common Stock will cease to be quoted on the Nasdaq National
Market, the registration of the Summit Common Stock under the Exchange Act will
terminate and Summit will be relieved of the obligation to comply with the proxy
rules of Regulation 14A under Section 14 of the Exchange Act and its officers,
directors and beneficial owners of more than 10% of the Summit Common Stock will
be relieved of the reporting requirements and restrictions on insider trading
under Section 16 of the Exchange Act. Accordingly, less information concerning
Summit will be required to be made publicly available than presently is the
case. Certain information about Summit will continue to be available through the
public reports of CKE.
As a result of the Merger, CKE's indirect interest in the assets and
liabilities of Summit, including the net book value and net earnings of Summit,
will increase, upon effectiveness of the Merger, from 16.5% to 100%. The
directors of Merger Sub immediately prior to the Effective Time (who will be
designees of CKE) will be the directors of Summit from and after the Effective
Time (until their successors are duly elected or appointed and qualified).
Except as otherwise described in this Proxy Statement/Prospectus, CKE
expects that Summit will be operated after the Merger in a manner substantially
the same as its current operations. See "Risk Factors -- Proposed Disposition of
Certain Assets of Summit" and "-- Uncertainties Relating to Integration of
Operations."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Latham & Watkins, counsel to Summit, has advised Summit that the following
discussion expresses their opinion as to the material federal income tax
consequences of the Merger to holders of Summit stock who are citizens or
residents of the United States and who hold their shares of Summit stock as
capital assets (within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code")) at the Effective Time. This discussion is
based on current law. The discussion set forth below is for general information
only and may not apply to particular categories of Summit stockholders subject
to special treatment under the Code (including insurance companies, dealers in
securities, tax exempt organizations or foreign persons) or to Summit
stockholders who acquired their shares of Summit stock pursuant to the exercise
of employee stock options or otherwise as compensation. In addition, there may
be relevant state, local or other tax consequences of the Merger, none of which
are described below.
Neither CKE nor Summit has requested a ruling from the Internal Revenue
Service (the "IRS") with regard to any of the federal income tax consequences of
the Merger and this discussion regarding the federal income tax consequences of
the Merger set forth below will not be binding on the IRS.
A holder of Summit stock will recognize gain or loss for federal income tax
purposes upon the exchange of such Summit stock for CKE Common Stock and cash
equal to the difference between (i) the holder's adjusted tax basis in the
Summit stock and (ii) the sum of (A) the fair market value of the CKE stock (at
the Effective Time) and (B) the amount of cash received. Such gain or loss
should be capital gain or loss provided the holder held the Summit stock as a
capital asset, and should be long-term capital gain or loss if the holder held
the Summit stock for more than one year.
A holder of Summit stock may be subject to backup withholding at the rate
of 31% with respect to the CKE Common Stock and cash received pursuant to the
Merger unless (i) such holder is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A holder of Summit stock who does not provide
either Summit or CKE with his or her correct taxpayer identification number may
be subject to penalties imposed by the IRS.
SUMMIT STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE RECEIPT OF SHARES OF CKE COMMON
STOCK AND CASH PURSUANT TO THE MERGER.
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SOURCE AND AMOUNT OF FUNDS
The total amount of funds and other consideration to be used in the Merger
and the fees and expenses of CKE relating to the Merger (including fees and
costs of CKE's legal counsel, auditors and financial advisor and other
miscellaneous expenses, which are the only expenses related to the Merger that
are expected to be paid by CKE) is approximately $18.2 million, of which $4.9
million was paid on April 4, 1996 for the purchase of the Summit Preferred
Stock. CKE anticipates paying the remaining amount from cash on hand (including
short-term investments) and, if necessary, amounts available under CKE's
revolving credit facilities.
The Merger Agreement provides that all costs and expenses incurred in
connection with the Merger Agreement and the Merger will be paid by the party
incurring the expense. Estimated costs and expenses to be incurred by Summit in
connection with the Merger, assuming completion of the Merger, are as follows:
<TABLE>
<S> <C>
Investment Banking Fees.......................................... $ 773,000
Cancellation of Stock Options.................................... 233,000
Legal Fees....................................................... 135,000
Accounting Fees.................................................. 15,000
Miscellaneous Expenses........................................... 30,000
----------
Total.................................................. $1,186,000
=========
</TABLE>
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THE SPECIAL MEETING
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies from stockholders of Summit by the Summit Board of
Directors for use at the Special Meeting. At the Special Meeting, the
stockholders of Summit will be asked to consider and vote upon a proposal to
approve and adopt the Merger Agreement and the Merger, and such other matters as
may properly come before the Special Meeting.
DATE, PLACE AND TIME OF MEETING
The Special Meeting will be held on , July , 1996, at 10:00
a.m. local time, at the Howard Johnson Hotel, located at 122 West South Temple,
Salt Lake City, Utah.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Summit Common Stock and Summit Preferred Stock at
the close of business on May 20, 1996 (the "Record Date") are entitled to notice
of and to vote at the Special Meeting. As of the close of business on the Record
Date, there were 4,805,902 shares of Summit Common Stock outstanding and
entitled to vote, held of record by approximately 499 stockholders (although
Summit has been informed that there are approximately 4,500 beneficial owners of
Summit Common Stock) and 946,714 shares of Summit Preferred Stock outstanding
and entitled to vote, all of which are held of record by CKE. Each Summit
stockholder is entitled to one vote for each share of Summit Common Stock or
Summit Preferred Stock held as of the Record Date. Each holder of record of
shares of Summit Common Stock or Summit Preferred Stock on the Record Date is
entitled to cast one vote per share, in person or by proxy.
PROXIES
The proxy accompanying this Proxy Statement/Prospectus is solicited on
behalf of the Board of Directors of Summit for use at the Special Meeting.
Stockholders are requested to complete, date and sign the accompanying proxy and
promptly return it in the accompanying envelope. All shares of Summit Common
Stock and Summit Preferred Stock represented by proxies that are properly
executed and returned, and that are not revoked, will be voted at the Special
Meeting in accordance with the instructions indicated on the proxies. If no
instructions are indicated on a properly executed and returned proxy, such proxy
will be voted FOR the approval and adoption of the Merger Agreement and the
Merger.
Summit's Board of Directors does not presently intend to bring any other
business before the Special Meeting and, so far as is known to Summit's Board of
Directors, no other matters are expected to be brought before the Special
Meeting. As to any business that may properly come before the Special Meeting,
however, it is intended that proxies, in the form enclosed, will be voted in
respect thereof in accordance with the judgment of the persons voting such
proxies. However, shares represented by proxies that have been voted "AGAINST"
the proposal to approve and adopt the Merger Agreement and the Merger will not
be used to vote "FOR" postponement or adjournment of the Special Meeting for the
purpose of allowing additional time for soliciting additional votes "FOR" the
Merger. The grant of a proxy will also confer discretionary authority on the
persons named in the proxy as proxy appointees to vote in accordance with their
best judgment on matters incident to the conduct of the Special Meeting,
including (except as stated in the preceding sentence) adjournment for the
purpose of soliciting additional votes.
A stockholder of Summit may revoke his or her proxy at any time before it
is exercised at the Special Meeting, by (i) delivering to the Secretary of
Summit (by any means, including facsimile) a written notice, bearing a date
later than the proxy, stating that the proxy is revoked, (ii) signing and so
delivering a proxy relating to the same shares and bearing a later date prior to
the vote at the Special Meeting, or (iii) attending the Special Meeting and
voting in person (although attendance at the Special Meeting will not, by
itself, revoke a proxy).
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VOTE REQUIRED
Pursuant to the DGCL and Summit's Certificate of Incorporation, the
affirmative vote of the holders of a majority of the outstanding shares of
Summit Common Stock and the affirmative vote of the holder of 75% of the
outstanding shares of Summit Preferred Stock are required to approve and adopt
the Merger Agreement and the Merger. As a result of the fact that CKE holds only
Summit Preferred Stock, the approval of unaffiliated holders of at least a
majority of the shares of Summit Common Stock is required to complete the
Merger. CKE, the holder of all of the outstanding shares of Summit Preferred
Stock, has agreed to vote for the approval and adoption of the Merger Agreement
and the Merger.
If fewer shares of Summit Common Stock are voted in favor of the Merger
than the number required for approval, it is expected that the Special Meeting
will be postponed or adjourned for the purpose of allowing additional time for
soliciting and obtaining additional proxies or votes, and, at any subsequent
reconvening of the Special Meeting, all proxies will be voted in the same manner
as such proxies would have been voted at the original convening of the Special
Meeting, except for any such proxies that have theretofore effectively been
revoked or withdrawn.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
The presence, in person or by properly executed proxy, of the holders of
shares entitled to vote at the Special Meeting representing a majority of the
outstanding shares of Summit Common Stock and a majority of the outstanding
shares of Summit Preferred Stock is necessary to constitute a quorum at the
Special Meeting. Abstentions and broker non-votes are each included in the
determination of the number of shares present and voting for the purpose of
determining whether a quorum is present, and each is tabulated separately. In
determining whether the proposal relating to the approval and adoption of the
Merger Agreement and the Merger has been approved, abstentions and broker
non-votes will have the same effect as votes against the Merger Agreement and
the Merger.
PROXY SOLICITATION EXPENSES
All expenses of this solicitation, including the cost of mailing this Proxy
Statement/Prospectus, will be borne by Summit. In addition to solicitation by
mail, proxies may be solicited by directors, officers and employees of Summit in
person or by telephone, telegram, facsimile transmission or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Arrangements will also be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and Summit will reimburse such custodians, nominees
and fiduciaries, upon request, for reasonable expenses incurred in connection
therewith.
Summit has retained Corporate Investor Communications, Inc. ("CIC") to
provide proxy solicitation services. The expense of proxy solicitation, which is
estimated to be approximately $6,000, will be borne by Summit.
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THE MERGER
The following is a summary of the material features of the proposed Merger.
To the extent that it relates to the Merger Agreement, the following description
is subject to and qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached to this Proxy Statement/Prospectus as
Appendix A and incorporated herein by reference. All stockholders are urged to
read the Merger Agreement in its entirety.
GENERAL
The Merger Agreement provides that the Merger will be consummated if the
approval of Summit's stockholders required therefor is obtained and all other
conditions to the Merger are satisfied or waived. Upon consummation of the
Merger, Merger Sub will be merged with and into Summit, and Summit will be the
surviving corporation and remain a wholly-owned subsidiary of CKE. If the
requisite approval of the stockholders of Summit is obtained, the Merger is
expected to be consummated as soon as practicable after the satisfaction or
waiver of each of the conditions to the Merger, which is expected to occur as
soon as practicable following receipt of stockholder approval at the Special
Meeting.
The Merger will occur upon the filing of a Certificate of Merger with the
Secretary of State of the State of Delaware (the "Certificate of Merger") or at
such later time as is specified on such certificate (the "Effective Time"). The
Effective Time of the Merger is currently expected to be on or about July ,
1996. The filing of the Certificate of Merger will occur as soon as practicable
after the satisfaction of the conditions set forth in the Merger Agreement. The
Merger Agreement may be terminated by CKE or Summit if the Merger has not been
consummated on or before July 15, 1996, and may also be terminated by either
party under certain other conditions. See "The Merger Agreement -- Conditions to
the Merger", "-- Termination" and "-- Fees and Expenses."
CONVERSION OF SHARES
At the Effective Time of the Merger, each then outstanding share of Summit
Common Stock and Summit Preferred Stock (other than shares with respect to which
the holders exercise appraisal rights and shares owned by CKE or its
subsidiaries), will be converted into and represent the right to receive $2.63
per share in cash and a number of shares of CKE Common Stock to be determined by
dividing $2.64 by the Adjusted CKE Price. The Merger Consideration is subject to
adjustment as described below.
The Adjusted CKE Price shall be determined as follows:
(a) if the Average CKE Price is equal to or greater than $17.00, the
Adjusted CKE Price shall be $16.00 plus the amount by which the Average CKE
Price exceeds $17.00;
(b) if the Average CKE Price is less than $17.00 and equal to or
greater than $15.00, the Adjusted CKE Price shall be $16.00;
(c) if the Average CKE Price is less than $15.00 and equal to or
greater than $13.25, the Adjusted CKE Price shall be $16.00 less the amount
by which $15.00 exceeds the Average CKE Price;
(d) if the Average CKE Price is less than $13.25 and CKE does not
exercise the Fill-Up Election, but neither Summit nor CKE elects to
terminate the Merger Agreement, the Adjusted CKE Price shall be $14.25; and
(e) if the Average CKE Price is less than $13.25 and CKE exercises the
Fill-Up Election, the Adjusted CKE Price shall be $16.00 less the amount by
which $15.00 exceeds the Average CKE Price.
Notwithstanding the foregoing, in no event will the Adjusted CKE Price
exceed $29.00, even if the Average CKE Price exceeds $30.00.
For purposes of the Merger Agreement, the Average CKE Price will be the
average of the per share closing sales prices of CKE Common Stock on the NYSE
for the 20 consecutive trading days ending five days prior to the date of the
Special Meeting. The number of shares of CKE Common Stock to be issued in the
Merger will decrease as the Average CKE Price increases up to $30.00 per share.
See "Risk Factors --
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<PAGE> 56
Exchange Ratio." If the Average CKE Price is less than $13.25, each of Summit
and CKE will have the right to terminate the Merger Agreement unless CKE
exercises the Fill-Up Election. Summit or CKE may decline to exercise their
rights to terminate the Merger Agreement if the Average CKE Price is determined
to be less than $13.25 and CKE fails to exercise the Fill-Up Election. See "The
Merger Agreement -- Termination."
Based upon the capitalization of CKE and Summit as of May 6, 1996, and
assuming an Average CKE Price of $21.74, the holders of Summit Common Stock
immediately prior to consummation of the Merger will own approximately 3.2% of
the outstanding shares of CKE Common Stock upon consummation of the Merger. Such
percentage could change depending on the numbers of shares of Summit Common
Stock or the number of shares of CKE Common Stock that are outstanding at the
Effective Time of the Merger, or in the event that the Average CKE Price is
determined to be different than $21.74.
ADJUSTMENT OF MERGER CONSIDERATION
CKE and Summit have agreed that the Merger Consideration shall be increased
by one-half of the amount, if any, by which the consideration to be received
from any purchasers of Summit assets exceeds, in an immediately quantifiable
dollar amount, $40,000,000 pursuant to fully executed definitive Asset Purchase
Agreements in effect as of the date of the Merger. The amount of the increase,
if any, shall be determined at the date of the Merger and shall not be further
affected by any other transactions involving Summit assets or properties
subsequent to the date of the Merger. The increase, if any, shall be allocated
one-half to the cash portion of the Merger Consideration and one-half to the CKE
Common Stock portion of the Merger Consideration.
CKE has advised Summit of its intention to immediately dispose of Summit's
HomeTown Buffet restaurants, and that it is participating in preliminary
discussions with a potential purchaser resulting in a draft agreement for the
sale of such assets. See "Proposed Disposition of Certain Assets of Summit."
However, CKE is not presently a party to any agreements or discussions relating
to any other dispositions of Summit's assets. Accordingly, it is not expected
that fully executed definitive Asset Purchase Agreements will be in effect as of
the date of the Merger for any dispositions of assets other than the HomeTown
Buffet restaurants. As a result, it is not expected that any adjustments will be
made to the Merger Consideration pursuant to the foregoing adjustment provisions
of the Merger Agreement. After the Merger, no additional merger consideration
will be paid to former Summit stockholders based upon any further sales of
Summit's assets.
The adjustment provisions relating to potential dispositions of Summit
assets were added to the Merger Agreement by the First Amendment thereto. The
intention of the parties was to provide a measure of potential additional merger
consideration to Summit stockholders in recognition of the belief that, if the
value of Summit's assets exceeds the aggregate value of the Merger
Consideration, Summit stockholders should be entitled to greater value in
connection with the Merger. However, the parties also recognized (a) that Summit
had not generated significant interest in its separate businesses from parties
other than CKE and had not been able to reach agreement with any potential third
party purchasers of those businesses, notwithstanding its efforts and those of
its financial advisors to do so, (b) the probability that Summit would remain
responsible, after the Merger and such asset sales, if any, for significant
liabilities of Summit which purchasers of such assets would not be willing to
assume, (c) the risk that CKE would not ultimately be able to consummate those
asset sales, and (d) that CKE should be provided an incentive to actively
solicit proposals to purchase those assets and complete such transactions
contemporaneously with the Merger. Summit and CKE believed that the 50%
limitation on the adjustment provision was designed to appropriately balance the
foregoing objectives. See "Special Factors -- Background."
FRACTIONAL SHARES
No fractional shares of CKE Common Stock will be issued pursuant to the
Merger. In lieu of any fractional shares of CKE Common Stock that a stockholder
of Summit would otherwise be entitled to receive as a result of the Merger, such
holder shall be entitled to receive cash in an amount to be determined by
multiplying the Adjusted CKE Price by such fraction of a share.
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PROPOSED DISPOSITION OF CERTAIN ASSETS OF SUMMIT
CKE intends to cause Summit, concurrently with or promptly following the
Effective Time of the Merger, to dispose of all 16 of Summit's HomeTown Buffet
restaurants, and has entered into negotiations with a potential purchaser which
may lead to the completion of such disposition.
CKE and [ ] have agreed in principle that, if CKE
completes the Merger and acquires Summit on or before [May 30, 1996], upon
consummation of the Merger [ ] CKE and Summit will enter into a
definitive agreement with respect to the sale by Summit of all 16 of Summit's
HomeTown Buffet restaurants to [ ]. The proposed purchase price
of the HomeTown Buffet restaurants is $17,250,000, which would be adjusted by
adding to such amount the value of all cash in stores, restaurant receivables,
lease deposits and inventory (subject to reasonable reserves for such
receivables and inventory) to be acquired by [ ] and by
subtracting the amount of all accounts payable and payroll obligations of Summit
to be assumed by [ ]. The assets to be sold would include all
of Summit's assets used in the operation of its HomeTown Buffet restaurants.
It is currently anticipated that the above-described disposition of assets
will be consummated concurrently with or promptly following the closing of the
Merger. Consummation of such disposition will be subject to the condition that
the Merger shall have become effective on or prior to [May 30, 1996], and to
certain other conditions, including compliance with the HSR Act and the receipt
of consents required from third parties under various real and personal property
leases and other agreements. CKE is negotiating the terms and conditions of the
foregoing transaction, but there can be no assurance that definitive agreements
will be entered into or that the proposed disposition of assets will be
completed on the above-described terms or at all. None of the proceeds of such
dispositions will be distributed to holders of Summit Common Stock or Summit
Preferred Stock. See "Risk Factors -- Uncertainties Relating to Integration of
Operations" and "-- Proposed Disposition of Certain Assets of Summit."
The Special Committee and the Board of Summit have concluded, after
consultation with Piper Jaffray, not to pursue separate sales of assets pursuant
to which Summit would be required to retain and pay significant liabilities,
thereby reducing the proceeds available for distribution to the Summit
stockholders. These liabilities included trade accounts payable, accrued
liabilities, long term debt, deferred compensation and change of control and
other severance costs estimated to total approximately $17.5 million at March
11, 1996. In addition, the proceeds available for distribution in asset sales by
Summit would be reduced by any taxes payable by Summit at the corporate level on
any gains from these sales. Gains on any asset sales could be offset by losses
on other asset sales depending upon the timing and amount of such gains and
losses. In addition at March 11, 1996 Summit had state net operating loss
carryforwards available to offset approximately $120,000 in state taxes in
various states. In addition Summit had $1,634,000 in general business credits
and $928,000 in alternative minimum tax credits available to reduce future
regular federal income taxes. The ability of Summit to utilize these available
tax credits to offset any potential gains on the sale of assets is subject to
alternative minimum tax limitations as provided in the Code. Separate sales of
assets would also subject the Summit stockholders to the uncertainties of
closing transactions with several purchasers. The Special Committee and the
Board also considered selling only certain portions of Summit's operations, but
concluded not to pursue this alternative because the issues of liability
retention and taxation on asset sales remained, as well as concerns that the
loss of territory exclusivity of the HomeTown franchise and Summit's
deteriorating financial condition would make this alternative unattractive with
respect to the retained assets.
TREATMENT OF SUMMIT STOCK OPTIONS
As of April 8, 1996, options to purchase 742,000 shares of Summit Common
Stock (the "Summit Stock Options") were outstanding under the Summit Stock
Option Plans, with a range of exercise prices per share of $3.63 to $7.88. On or
prior to the Effective Time, Summit and its Board of Directors (or a committee
thereof) have agreed to take all action necessary to implement the following
provisions concerning outstanding options to purchase Summit Common Stock;
provided, that such provisions do not create an aggregate cash liability at the
Effective Time in excess of $375,000 (which amount will be adjusted for the per
share increase, if any, in the Merger Consideration pursuant to the adjustment
provisions of the Merger Agreement). At the Effective Time, all Summit Stock
Options shall become fully exercisable in accordance with the terms of the
Summit Stock Option Plan. Each holder of a Summit Stock Option may elect to have
such Summit Stock Option
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cancelled in consideration of the payment of an amount equal to the product of
(x) the excess, if any, of the aggregate dollar amount of the Merger
Consideration over the respective exercise price thereof and (y) the number of
shares of Summit Common Stock subject thereto, respectively (such payment to be
net of any required withholding taxes). From and after the Effective Time, each
outstanding Summit Stock Option that is not so cancelled shall constitute an
option to acquire, on the same terms and conditions as were applicable under
such Summit Stock Option, a number of shares of CKE Common Stock equal to (w)
the product of the aggregate dollar amount of the Merger Consideration and the
number of shares of Summit Common Stock purchasable upon exercise of the Summit
Stock Option prior to the Effective Time divided by (x) the Average CKE Price,
at an exercise price per share equal to (y) the aggregate exercise price for the
shares of Summit Common Stock purchasable upon exercise of the Summit Stock
Option prior to the Effective Date divided by (z) the aggregate number of shares
of CKE Common Stock purchasable upon exercise of such Summit Stock Option
following the Effective Time. See "Special Factors -- Interests of Certain
Persons in the Merger -- Stockholders and Optionees."
OUTSTANDING WARRANTS
On September 1, 1987, Summit issued warrants (the "Warrants") to purchase
200,000 shares of Summit Common Stock to Crown Life Insurance Company, Ince &
Co., and Security Mutual Group, which Warrants are scheduled to expire on July
30, 1996. The original exercise price of the Warrants was $8.13 per share. As a
result of certain anti-dilution provisions in the Warrants, the number of shares
of Summit Common Stock issuable upon exercise of the Warrants has been adjusted
to 219,254 shares of Summit Common Stock and the exercise price of the Warrants
has been adjusted to $7.416 per share (which exceeds the anticipated value of
the Merger Consideration).
Pursuant to the terms of the Warrants, following the consummation of the
Merger a holder of a Warrant shall be entitled to receive upon the exercise of
the Warrant (in lieu of the number of shares of Summit Common Stock which would
have been issuable upon the exercise of the Warrant and at an aggregate purchase
price equal to that which would have been payable if such number of shares of
Summit Common Stock had been purchased upon exercise of the Warrant, subject to
adjustment as described below) the number of shares of CKE Common Stock which
the holder of the Warrant would have been entitled to receive if such holder had
exercised the Warrant immediately prior to the Merger. In addition, there shall
be a reduction in the aggregate exercise price equal to the amount of cash that
would have been distributed to the holder of the Warrant with respect to the
number of shares of Summit Common Stock then issuable upon exercise of such
Warrant if such holder had exercised the Warrant immediately prior to the
Merger. Following the Merger, the provisions of the Warrants shall, as nearly as
practicable, be applicable to the CKE Common Stock deliverable upon exercise of
the Warrant, including the registration rights set forth in the Warrants. In
addition, prior to or simultaneously with the Merger, CKE must assume in writing
Summit's obligations under the Warrants and the obligation to deliver the
securities issuable upon exercise of the Warrants as described above, and
deliver such written assumption to each of the holders of the Warrants.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting,
with CKE as the acquiring party, in accordance with generally accepted
accounting principles. Under the purchase method of accounting, the purchase
price of Summit, including direct costs of the Merger, will be allocated to the
assets acquired and liabilities assumed based upon their estimated relative fair
values, with the excess of fair value of net assets received over the purchase
consideration allocated as a reduction to the value of the related long-lived
assets. The results of CKE's operations will include the results of operations
of Summit commencing at the Effective Time.
The Unaudited Pro Forma Combined Condensed Financial Statements appearing
elsewhere in this Proxy Statement/Prospectus are based upon certain assumptions
and allocate the purchase price to assets and liabilities based upon preliminary
estimates of their respective fair values. The unaudited pro forma adjustments
and combined amounts are included for informational purposes only. If the Merger
is consummated, then CKE's financial statements will reflect effects of
acquisition adjustments only from the Effective Time. The actual allocation of
the purchase price may differ significantly from the allocation reflected in the
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Unaudited Pro Forma Combined Condensed Financial Statements. See "Unaudited Pro
Forma Combined Condensed Financial Statements."
STOCK EXCHANGE LISTING
Pursuant to the Merger Agreement, CKE has agreed to use its best efforts to
cause the shares of CKE Common Stock to be issued in the Merger to be listed,
upon official notice of issuance, on the New York Stock Exchange.
RIGHTS OF DISSENTING STOCKHOLDERS
If the Merger is consummated, dissenting holders of Summit Common Stock may
be entitled to have the "fair value" (exclusive of any elements of value arising
from the accomplishment or expectation of the Merger) of their shares (the
"Dissenting Shares") at the Effective Time judicially determined and paid to
them by complying with the provisions of Section 262 of the DGCL ("Section
262"). The obligations of CKE to effect the Merger are subject to the condition
that the holders of not more than 10% of the shares of Summit Common Stock will
have asserted dissenters' rights in accordance with the DGCL.
The following is a brief summary of Section 262, which sets forth the
procedures for dissenting from the Merger and demanding statutory appraisal
rights. This summary does not purport to be a complete statement of provisions
of the Delaware Law relating to the rights of stockholders of Summit to an
appraisal of the value of their shares and is qualified in its entirety by
reference to Section 262, the full text of which is attached as Appendix C. This
Proxy Statement/Prospectus constitutes notice to the holders of Summit Common
Stock and Summit Preferred Stock concerning the availability of appraisal rights
under Section 262.
Each stockholder electing to demand the appraisal of his or her shares must
deliver to Summit, before the taking of the vote on the Merger, a written demand
for appraisal of his or her shares. A proxy or vote against the Merger shall not
constitute such a demand, and stockholders electing to take such action must do
so by a separate written demand as provided in Section 262. Voting against,
abstaining from voting or failing to vote on the Merger will not, by itself,
constitute a demand for appraisal within the meaning of Section 262.
A Summit stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to Office of the Chief Financial Officer,
Summit Family Restaurants Inc., 440 Lawndale Drive, Salt Lake City, Utah
84115-2917. The written demand for appraisal should specify the stockholder's
name and mailing address, and that the stockholder intends thereby to demand
appraisal of his or her shares. Within ten days after the Effective Time of the
Merger, Summit must provide notice of the date that the Merger has become
effective to all of Summit's stockholders who have complied with Section 262 and
have not voted for approval of the Merger.
Within 120 days after the Effective Time of the Merger, any stockholder of
Summit who has satisfied the requirements of Section 262 shall be entitled to
receive from Summit, upon written request, a statement setting forth the
aggregate number of shares not voted in favor of the Merger and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such statement shall be mailed to the stockholder within
10 days after his or her written request is received by Summit or within 10 days
after expiration of the period for delivery of demands for appraisal, whichever
is later.
Within 120 days after the Effective Time of the Merger, either Summit or
any stockholder who has complied with Section 262 and who is otherwise entitled
to appraisal rights may file a petition in the Delaware Court of Chancery (the
"Court") demanding a determination of the fair value of the Dissenting Shares.
Summit has no present intention to file such a petition if a demand for
appraisal is made. If no petition for appraisal is timely filed, then the rights
of Summit stockholders to an appraisal shall cease.
Upon the filing of any petition by a stockholder, service of a copy of such
petition will be made upon Summit, which shall within 20 days after service file
in the office of the Register in Chancery in which the petition was filed a duly
verified list containing the names and addresses of all stockholders who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by Summit. If such petition is filed by
Summit, the petition shall be accompanied by such a duly verified list. The
Register in Chancery, if so ordered by the Court, shall give notice of the time
and place fixed for the hearing of such petition by registered or certified mail
to Summit and to the stockholders shown upon the list at the addresses therein
stated, and such notice will also be given by one or more publications at least
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one week before the day of the hearing in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by publication must be
approved by the Court, and the costs thereof will be borne by Summit.
At the hearing on the petition, the Court will determine the stockholders
who have complied with Section 262 and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
stock certificates to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings. If any stockholder fails to comply with
such direction, the Court may dismiss the appraisal proceedings as to such
stockholder.
After determining the stockholders entitled to an appraisal, the court
shall appraise the shares, determining their fair value, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. In determining such fair value, the Court shall
take into account all relevant factors involving Summit, which may include
market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which could be ascertained as of the date of the
Merger which throw any light on future prospects of Summit. The Court shall
direct the payment of the fair value of the Dissenting Shares, together with
interest, if any, by Summit to the stockholders entitled thereto. Payment shall
be so made to each such stockholder upon the surrender to Summit of the
certificates representing such shares.
The costs of the appraisal proceedings may be determined by the Court and
taxed against the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including reasonable attorneys' fees and the fees and expenses of
experts, to be charged pro rata against the value of all shares entitled to
appraisal. In the absence of a determination or assessment, each party bears his
or her own expenses.
From and after the Effective Time, no stockholder who has duly demanded an
appraisal in compliance with Section 262 will be entitled to vote for any
purpose the shares subject to demand or to receive payment of dividends or other
distributions on such shares, except for dividends or distributions payable to
stockholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw his or her demand for appraisal and to accept the
terms offered in the Merger Agreement. After this period, the stockholder may
withdraw his or her demand for appraisal and receive payment for his or her
shares as provided in the Merger Agreement only with the written approval of
Summit. No appraisal proceeding in the Court may be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditional upon such terms as the Court deems just.
Summit stockholders considering seeking appraisal of their shares of Common
Stock or Preferred Stock should note that the fair value of their shares
determined under Section 262 could be more, the same or less than the Merger
Consideration they would receive pursuant to the Merger Agreement if they did
not seek appraisal of their shares.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN VIEW OF THE
COMPLEXITY OF THE PROVISIONS OF SECTION 262, SUMMIT STOCKHOLDERS WHO ARE
CONSIDERING DISSENTING FROM THE PROPOSED MERGER SHOULD CONSULT THEIR LEGAL
ADVISORS.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the Antitrust Division of the United States
Department of Justice and the FTC and specified waiting period requirements have
been satisfied. CKE and Summit each filed with the Antitrust Division and the
FTC a Notification and Report Form with respect to the Merger on February 1,
1996. The waiting period for each of these filings was terminated on February
12, 1996.
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The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the Special Meeting, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the Merger or seeking the divestiture of
substantial assets of CKE or its subsidiaries or Summit or its subsidiaries. In
addition, state antitrust authorities may also bring legal action under the
antitrust laws. Such action could include seeking to enjoin the consummation of
the Merger or seeking divestiture of certain assets of CKE or Summit. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances. There can be no assurance that a challenge to the Merger
on antitrust grounds will not be made or, if such a challenge is made, of the
result thereof.
AFFILIATES' RESTRICTIONS ON SALES OF CKE COMMON STOCK
All shares of CKE Common Stock received by Summit stockholders in the
Merger will have been registered under the Securities Act by a Registration
Statement on Form S-4, thereby allowing those shares to be traded without
restriction by all former holders of Summit Common Stock and Summit Preferred
Stock who (i) are not deemed to be "affiliates" (as that term is defined in Rule
145 under the Securities Act) of Summit at the time of the Special Meeting and
(ii) do not become affiliates of CKE after the Merger. Summit stockholders who
are identified by Summit as its affiliates will be so advised prior to the
Merger.
Summit has agreed to use its best efforts to cause each person who may be
deemed to be an affiliate to agree not to make any public sale of any CKE Common
Stock received upon consummation of the Merger in violation of the Securities
Act or the rules and regulations promulgated thereunder. Generally, this will
require that sales be made in accordance with Rule 145(d) under the Securities
Act, which in turn requires that for specified periods such sales be made in
compliance with volume limitations, manner of sale provisions and current
information requirements of Rule 144 under the Securities Act. The volume
limitations should not impose any material limitation on any Summit stockholder
who owns less than one percent of CKE's outstanding Common Stock after the
Merger unless, pursuant to Rule 144, such stockholder's shares are required to
be aggregated with those of other stockholders.
PROCEDURES FOR EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time, CKE will cause the
Exchange Agent to mail to each stockholder of record of Summit a letter of
transmittal with instructions to be used by such stockholder in surrendering
certificates which, prior to the Merger, represented shares of Summit Common
Stock in exchange for the Merger Consideration. Letters of transmittal will also
be available as soon as practicable after the Effective Time of the Merger at
the offices of the Exchange Agent. After the Effective Time, there will be no
further registration of transfers on the stock transfer books of Summit of
shares of Summit Common Stock or Summit Preferred Stock which were outstanding
immediately prior to the Effective Time. SHARE CERTIFICATES SHOULD NOT BE
SURRENDERED FOR EXCHANGE PRIOR TO APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE MERGER BY SUMMIT'S STOCKHOLDERS.
Upon the surrender of the Summit stock certificate to the Exchange Agent or
to such other agent as may be appointed by CKE together with a duly executed
letter of transmittal, the holder of such certificate will be entitled to
receive in exchange therefor the cash component of the Merger Consideration, a
certificate representing the number of whole shares of CKE Common Stock to which
such holder is entitled to receive as the stock component of the Merger
Consideration and cash in lieu of fractional shares pursuant to the provisions
of the Merger Agreement. In the event of a transfer of ownership of Summit
Common Stock or Summit Preferred Stock which is not registered in the transfer
records of CKE, the Merger Consideration may be delivered to a transferee if the
certificate representing such Summit Common Stock or Preferred Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid, along with a duly executed letter of transmittal.
Until a certificate representing Summit Common Stock has been surrendered
to the Exchange Agent, each such certificate will be deemed at any time after
the Effective Time to represent the right to receive upon surrender the Merger
Consideration which such Summit stockholder is entitled under the Merger
Agreement.
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Upon consummation of the Merger, shares of Summit Common Stock will cease to be
traded on the Nasdaq National Market, and there will be no further trading
market for the shares of Summit Common Stock.
After the Effective Time, holders of certificates of Summit Common Stock or
who have not perfected appraisal rights pursuant to DGCL will not be entitled to
the rights and privileges of holders of Summit Common Stock other than the right
to exchange such certificates for the Merger Consideration. No dividends or
other distributions, if any, payable to holders of CKE Common Stock will be paid
to holders of any certificates for shares of Summit Common Stock until such
certificates are surrendered.
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THE MERGER AGREEMENT
The following description of the Merger Agreement is subject to and
qualified in its entirety by reference to the Merger Agreement, a copy of which
is attached to this Proxy Statement/Prospectus as Appendix A and incorporated
herein by reference. Stockholders of Summit are urged to read the Merger
Agreement in its entirety.
THE MERGER
The Merger Agreement provides that, subject to the approval and adoption of
the Merger Agreement by the stockholders of Summit and the satisfaction or
waiver of the other conditions to the Merger, Merger Sub will be merged with and
into Summit in accordance with Delaware law, whereupon the separate corporate
existence of Merger Sub will cease and Summit will be the surviving corporation
of the Merger (the "Surviving Corporation"). As a result of the Merger, Summit
will become a wholly-owned subsidiary of CKE. At the Effective Time, the
conversion of Summit Common Stock into cash and shares of CKE Common Stock will
be effected as described below. The officers and directors of Merger Sub
immediately prior to the Effective Time will be the officers and directors of
the Surviving Corporation, in each case until their respective successors are
duly elected and qualified.
CONVERSION OF SECURITIES
At the Effective Time, each outstanding share of Summit Common Stock (other
than dissenting shares, if any, and shares held by CKE as its subsidiaries) will
be converted into the right to receive the Merger Consideration. See "The
Merger -- Conversion of Shares." As of the Effective Time, the holders of such
shares of Summit Common Stock will cease to have any rights as holders of such
shares, except for the right to receive the Merger Consideration upon surrender
of the certificates representing such shares. After the Effective Time, the
stock transfer books of Summit will be closed and there will be no further
transfers of Summit Common Stock or Summit Preferred Stock. See "The
Merger -- Procedures for Exchange of Certificates."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
both Summit and CKE relating to the following matters: (i) the due organization,
good standing and corporate power of each of Summit and CKE and their respective
subsidiaries; (ii) the authorization, execution, delivery, performance and
enforceability of the Merger Agreement by each party thereto; (iii) the
authorized capitalization of each such party; (iv) the name, jurisdiction of
incorporation, capitalization, ownership, and the names of the officers and
directors of each subsidiary of each party; (v) the absence of any conflict with
each party's charter documents or any Applicable Agreement; (vi) the accuracy of
reports and financial statements filed with the Commission; (vii) the accuracy
of information supplied of both parties for inclusion in the Registration
Statement and this Proxy Statement/Prospectus; (viii) the absence of any
authorization, consent, approval or permit of, or filing with or notification
to, any governmental or regulatory authority required to consummate the Merger,
except as to filings under the HSR Act, the Exchange Act and the Securities Act
and filings with the NYSE and Nasdaq; (ix) the absence of any undisclosed
brokerage commission, finder's fee or similar payment in connection with the
Merger; (x) the absence of litigation that could have a material adverse effect
on either of CKE or Summit; (xi) the compliance with laws, regulations and
zoning ordinances by each of CKE and Summit such that any failure to comply with
such laws would not singly or in the aggregate have a material adverse effect on
either party; and (xii) the absence of certain adverse developments.
Summit has also made certain additional representations and warranties to
CKE in the Merger Agreement relating to the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions and limitations): (i) the maintenance of certain insurance; (ii) the
absence of labor matters; (iii) ERISA compliance; (iv) taxes and audits; (v) the
legality and validity of title to real property and other assets; (vi) the
absence of certain environmental matters; and (vii) certain contracts and
commitments. To Summit's knowledge, there are no material pending matters in the
foregoing additional categories of representations and warranties.
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The representations and warranties of Summit and CKE in the Merger
Agreement will not survive the Merger. The parties to the Merger Agreement
agreed to give prompt notice to the other, prior to the Effective Time, of any
event that would likely cause any representation or warranty contained in the
Merger Agreement to be untrue or inaccurate.
CONDUCT OF BUSINESS PENDING THE MERGER
Prior to the Effective Time, unless CKE shall otherwise agree in writing,
Summit will conduct its business and will cause the business of its subsidiaries
to be conducted only in the ordinary course of business and in the manner
consistent with past practice, meeting its obligations as they become due,
fulfilling its commitments to suppliers and maintaining in effect its existing
insurance policies through the Effective Time. Without the written approval of
CKE, Summit shall not prior to the Effective Time, nor shall it permit its
subsidiaries to: (i) incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise become responsible for obligations of any other
individual, partnership, firm or corporation, or make any loans or advances to
any individual, partnership, firm or corporation, except in the ordinary course
of business and consistent with past practice and, with respect to indebtedness,
pursuant to existing agreements; (ii) issue any shares of its capital stock or
any other securities or any securities convertible into shares of its capital
stock or any other securities, other than shares issuable upon exercise of
issued and outstanding options, warrants and other rights to purchase capital
stock of Summit; (iii) pay or incur any obligation to pay any dividend on its
capital stock or make or incur any obligation to make any distribution or
redemption with respect to capital stock; (iv) make any change to its
Certificate of Incorporation or Bylaws other than the filing of the Certificate
of Merger; (v) mortgage, pledge or otherwise encumber any of its properties or
assets or sell, transfer or otherwise dispose of any of its properties or assets
(other than (a) shares of HomeTown common stock held by Summit and (b)
restaurants in the process of being disposed of or transferred as disclosed in
the Merger Agreement) or cancel, release, compromise or assign any indebtedness
owed to it or any claims held by it, except in the ordinary course of business
and consistent with past practice; (vi) make any investment of a capital nature
either by purchase of stock or securities, contributions to capital, property
transfer or otherwise, or by the purchase of any property or assets of any other
individual, partnership, firm or corporation, except in the ordinary course of
business and consistent with past practice; (vii) make any material tax election
or make any material change in Summit's accounting principles or practices;
(viii) enter into any material contracts that would involve the payment or
accrual of payments of more than $100,000 in any fiscal year or enter into any
additional franchise agreements; or (ix) do any other act which would cause any
representation or warranty of Summit made in the Merger Agreement to be or
become untrue.
EXCLUSIVITY
Summit has agreed that, until consummation of the Merger or the termination
of the Merger Agreement, Summit will not, nor will it permit its officers,
directors, affiliates, representatives or agents, directly or indirectly, to:
(i) discuss, negotiate, undertake, authorize, recommend, propose or enter into,
either as the proposed surviving, merged, acquiring or acquired corporation, any
Acquisition Transaction (other than the Merger); (ii) facilitate, encourage,
solicit or initiate or in any way engage in any discussion, negotiation or
submission of a proposal or offer in respect of any Acquisition Transaction;
(iii) furnish or cause to be furnished to any person or entity any information
concerning the business, operations, properties or assets of Summit in
connection with an Acquisition Transaction; or (iv) otherwise cooperate in any
way with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person or entity to do or seek any of the foregoing. Summit
has also agreed to inform CKE by telephone within 24 hours of its receipt of any
proposal or bid (including the terms thereof and the person or entity making
such proposal or bid) in respect of any Acquisition Transaction.
COVENANTS
Directors' and Officers' Insurance. CKE has agreed to either: (i) cause
Summit to provide directors' and officers' and fiduciary liability insurance
having substantially similar terms and conditions and providing substantially
similar coverage as the directors' and officers' and fiduciary liability
insurance maintained by Summit at the Effective Time for a period of one year
following the Effective Time for all present directors and officers of Summit
and its subsidiaries, provided that CKE may substitute therefor policies of at
least the
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same coverage and amounts containing terms and conditions which are no less
advantageous, or (ii) cause Summit to purchase runoff extensions under its
existing directors' and officers' and fiduciary liability insurance policies,
extending the period for making claims under such policies for at least one year
following the Effective Time; provided, however, that the total expense for such
extensions shall not exceed $40,000.
Change of Control Agreements and Other Severance Arrangements. Summit has
caused certain employees of Summit who, pursuant to the Change of Control
Agreements or Employment Agreements, may resign and obtain severance benefits
set forth therein upon a change of control, such as the Merger, to extend the
time at which such employees may resign and collect severance benefits to 90
days following the Effective Time. CKE has agreed to honor and to cause Summit
to honor, without modification, all employee severance plans or policies and
employment and severance agreements of Summit or any of its subsidiaries that
were in effect as of November 30, 1995.
Indemnification Agreements. Summit has provided the officers and directors
of Summit with an indemnification agreement which provides for indemnification
and payment of expenses on behalf of the officer in actions or threatened
actions against the officer in his or her capacity as an officer of Summit. CKE
has agreed to assume these indemnification agreements. See "Special
Factors -- Interests of Certain Persons in the Merger."
Access to Summit Information. Summit has agreed, subject to restrictions
contained in a confidentiality agreement to which CKE and Summit are subject and
the restrictions on disclosure of confidential information contained in the
Merger Agreement, to afford to the officers, employees, accountants, counsel and
other representatives of CKE, reasonable access, during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and
records. During such period, Summit has agreed to promptly furnish to CKE all
information concerning its business, properties and personnel during regular
business hours, and shall make available to CKE the appropriate individuals
(including attorneys, accountants and other professionals) for discussion of
Summit's business, properties and personnel. In particular, Summit has agreed to
cooperate with CKE to allow CKE to, among other things, conduct full
environmental reviews or studies of Summit's properties and facilities and to
arrange for meetings between CKE and franchisees of Summit and its subsidiaries.
Both Summit and CKE have agreed to maintain the secrecy of information
exchanged during the course of negotiations and preparation of consummation of
the Merger that is of a confidential nature and to not disclose such information
except to consultants, lenders, advisors and affiliates in connection with the
Merger or as required by law. In the event of termination of the Merger
Agreement, each party has agreed to return such confidential documents and
working papers obtained from the other and use all reasonable efforts to
maintain its confidentiality.
CONDITIONS TO THE MERGER
The obligation of CKE to cause Merger Sub to consummate the Merger and the
obligation of Summit to consummate the Merger are subject to satisfaction in all
material respects of the following conditions: (i) the Registration Statement
will have become effective under the Securities Act and no stop orders shall
have been issued; (ii) the CKE Common Stock to be issued in the Merger will have
been approved for listing on the NYSE, subject to official notice of issuance;
(iii) no government proceeding or litigation will have been instituted or
threatened which questions the validity or legality of the Merger and which
could reasonably be expected to have a Material Adverse Effect on Summit or its
subsidiaries; (iv) the waiting period, including any extension thereof, under
the HSR Act will have expired; and (v) all consents, approvals and waivers from
governmental authorities and other parties necessary to permit Summit or CKE to
consummate the Merger will have been obtained.
The obligations of Summit to effect the Merger are subject to the
fulfillment, at or prior to the Effective Time, of the following additional
conditions: (i) the representations, warranties of CKE contained in the Merger
Agreement will be true and correct at and as of the Effective Time as though
such representations and warranties had been made on and as of such date; and
CKE and its subsidiaries will have performed in all material respects all
agreements and covenants required to be performed, with a certificate delivered
to
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Summit to the foregoing effect; (ii) CKE will have furnished Summit with
certificates of its officers, directors and others to evidence compliance with
the conditions set forth in the Merger Agreement and Summit will have received
an opinion of counsel to CKE reasonably acceptable to Summit; (iii) Summit will
have received from CKE resolutions adopted by the board of directors of CKE and
certified by CKE's corporate secretary approving the Merger Agreement and the
transactions contemplated therein; and (iv) Summit will have received a letter
from Piper Jaffray confirming the opinions rendered to Summit's Board of
Directors to the effect that the terms of the Merger are fair to the holders of
Summit Common Stock from a financial point of view.
The obligations of CKE to effect the Merger are subject to the fulfillment,
at or prior to the Effective Time, of the following additional conditions: (i)
the representations, warranties of Summit contained in the Merger Agreement will
be true and correct at and as of the Effective Time as though such
representations and warranties had been made on and as of such date, and Summit
and its subsidiaries will have performed in all material respects all agreements
and covenants required to be performed, with a certificate delivered to CKE to
the foregoing effect; (ii) Summit will have furnished CKE with certificates of
its officers, directors and others to evidence compliance with the conditions
set forth in the Merger Agreement and CKE will have received an opinion of
counsel to Summit reasonably acceptable to CKE; (iii) CKE will have received
from Summit resolutions adopted by the board of directors of Summit and
certified by Summit's corporate secretary approving the Merger Agreement and the
transactions contemplated therein; and (iv) to the extent that holders of Summit
Common Stock and Summit Preferred Stock are entitled to dissent from the Merger,
the holders of not more than 10% of the shares of Summit Common Stock or Summit
Preferred Stock will have asserted dissenters' rights in accordance with the
DGCL.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, before or after stockholder approval, by: (i) mutual consent of CKE and
Summit; (ii) either CKE or Summit if the Merger shall not have been consummated
before July 15, 1996, unless the failure to so consummate the Merger by such
date shall be due to the action or failure to act of the party seeking
termination; (iii) CKE if there has been a material breach by Summit of its
covenants under the Merger Agreement, or any failure by Summit to comply with
its material obligations under the Merger Agreement, or any other events or
circumstances shall have occurred such that Summit could not satisfy on or prior
to July 15, 1996 any of the conditions to closing set forth in the Merger
Agreement, or Summit's stockholders do not approve the Merger at the Special
Meeting; (iv) Summit if there has been a material breach by CKE of its covenants
under the Merger Agreement, or any failure by CKE to comply with its material
obligations under the Merger Agreement, or any other events or circumstances
shall have occurred such that CKE could not satisfy on or prior to July 15, 1996
any of the conditions to closing set forth in the Merger Agreement, or Summit's
stockholders do not approve the Merger at the Special Meeting; and (v) Summit
if, prior to the approval of the Merger by Summit's stockholders, Summit
receives a firm offer with respect to an Acquisition Transaction that is
reasonably capable of being financed and, in the good faith determination of its
Board of Directors after consultation with its financial advisors, is
financially superior to the Merger and the Board of Directors of Summit, after
consulting with its outside counsel, determines that to proceed with the Merger
would violate its fiduciary duties under applicable law (a "Superior Proposal
Termination"). Summit has not been presented with, and is not currently
entertaining, any financially superior merger transaction.
Summit or CKE also have the right to terminate the Merger Agreement if the
Average CKE Price is determined to be less than $13.25, unless CKE makes the
Fill-Up Election. At the present time, CKE does not intend to exercise its right
to terminate the Merger Agreement if the Average CKE Price is determined to be
less than $13.25. Summit may elect not to terminate the Merger Agreement even if
the Average CKE Price falls below $13.25. In determining whether to elect to
terminate the Merger Agreement in these circumstances, the Summit Board of
Directors will take into account, consistent with its fiduciary duties, all
relevant facts and circumstances existing at the time, including, without
limitation, whether CKE is prepared to make the Fill-Up Election, the market for
restaurant industry stocks in general, the relative value of the CKE Common
Stock in the market, and the advice of its financial advisors and legal counsel.
If the Average CKE Price is determined to be less than $13.25, Summit
stockholders, by approving and adopting the Merger
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<PAGE> 67
Agreement and the Merger at the Special Meeting, would be permitting the Summit
Board of Directors to determine, in the exercise of its fiduciary duties, to
proceed with the Merger even though the per share Merger Consideration was less
than $5.08 ($2.63 in cash plus shares of CKE Common Stock with a value, based on
an Average CKE Price of $13.25 or less, of $2.45 or less). In such event, Summit
will give the holders of Summit Common Stock an opportunity to reconsider their
investment decision and the number of shares of CKE Common Stock to be issued in
the Merger for each share of Summit Common Stock.
FEES AND EXPENSES
In the event of a Superior Proposal Termination, Summit has agreed to
promptly pay CKE a cash fee of $800,000. It is expected by Summit that the
source of funds for any such payment, if required, would be cash on hand or the
proceeds of the Acquisition Transaction resulting in the Superior Proposal
Termination, or a combination thereof. In the event that all conditions to CKE's
obligations under the Merger Agreement have been satisfied and CKE nevertheless
fails to proceed with the Merger, CKE has agreed to pay Summit a fee of
$800,000, in addition to other damages that Summit may suffer as a result of
such breach. CKE and Summit will each be liable for its own costs and expenses
incurred in connection with the negotiation, preparation, execution or
performance of the Merger Agreement.
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BUSINESS AND MANAGEMENT OF CKE
CKE is engaged primarily in the food service industry, and its restaurant
operations are conducted primarily through its two wholly-owned subsidiaries,
Enterprises and Boston Pacific. Enterprises operates, franchises and licenses
the Carl's Jr. quick-service restaurant concept, primarily in the Western United
States, Mexico and the Pacific Rim. As of March 25, 1996, there were a total of
664 Carl's Jr. restaurants in operation, of which 394 were operated by
Enterprises, 236 were operated by its franchisees and 34 were operated by its
international licensees. Boston Pacific holds a minority interest in Boston
West, which owns and operates Boston Market stores primarily in Southern
California.
CARL'S JR. RESTAURANTS
Company Operations
CKE believes that it is one of the innovators in the quick-service
restaurant industry. A variety of products that have a strong reputation for
quality and taste are offered in its Carl's Jr. restaurants, along with
comfortable dining rooms and partial table service. CKE was among the first to
offer self-service salad bars, all-you-can-drink beverage bars and the
convenience of an automated debit card for payment of a meal. 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), Super Star(R), Charbroiler Chicken Sandwiches(R) and the new
Crispy Chicken Sandwiches, which were introduced in the current fiscal year.
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(R), the Sunrise Sandwich(R) and a breakfast burrito.
In addition, the restaurants sell a variety of promotional products on a limited
basis.
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.
In May 1995, the Company entered into a five-year agreement with GB Foods
Corporation, operator of The Green Burrito quick-service restaurants. The
agreement calls for a minimum of 40 Carl's Jr./Green Burrito dual-brand
conversions in fiscal 1997, with up to 200 dual-brand restaurants over the next
five years. The Company is required to pay a $7,500 initial franchise fee for
each store opened and remit royalties on Green Burrito food sales to GB Foods
Corporation pursuant to this agreement. This strategic opportunity allows the
Company to offer to its customers more choices under one roof. In addition,
Green Burrito's Mexican menu matches the Carl's Jr. menu in terms of superior
quality and general portions.
At year end, the Company elected to sub-franchise the Carl's Jr./Green
Burrito dual-brand to its franchise community. The Company anticipates 10
franchise dual-brand conversions in fiscal 1997. As of January 29, 1996, the
Company has converted 22 Carl's Jr. restaurants to the Green Burrito
dual-concept. Sales in these dual-brand restaurants are averaging approximately
25% over same-store sales prior to the conversions.
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
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terms of these leases, they are generally required to pay related occupancy
costs, which include maintenance, insurance and property taxes.
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 with a specified time period.
In an effort to expand the Carl's Jr. presence internationally, Enterprises
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. In May 1995, the Company
entered into a joint venture agreement with its Malaysia-based licensee, MBf
Holdings Berhad, under the terms of which a minimum of 130 Carl's Jr.
restaurants will be developed in 16 Asian countries over the next five years.
The Company will hold a 30% equity interest in this venture with no capital
outlay. As of March 25, 1996, there were 16 licensed restaurants in operation in
Mexico, one licensed restaurant in operation in Japan, four licensed restaurants
in operation in Malaysia, 10 sub-licensed restaurants in operation in the
Philippines, two sub-licensed restaurants in operation in Indonesia and one
sub-licensed restaurant in operation in Thailand. None of the Company's
licensing agreements generated material royalties in the fiscal year ended
January 29, 1996.
INVESTMENT IN BOSTON MARKET FRANCHISE OPERATIONS
Boston Pacific holds a minority interest in Boston West, which operates
Boston Market franchise operations under the terms of an area development
agreement with BCI. BCI operates and franchises food service stores in the
fast-growing home meal replacement category of the food service industry, a
category that combines appealing meals associated with traditional home cooking
with the convenience and value associated with quick service restaurants. The
area development agreement with BCI allows Boston West the rights to develop,
own and operate up to 300 Boston Market stores primarily in Southern California.
Boston Markets feature rotisserie-roasted chicken, breast of turkey,
double-glazed baked ham and double-sauced meat loaf, 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. All of these stores offer meals in a bright,
inviting retail setting and are staffed by friendly and knowledgeable
salespeople.
CKE believes that the Boston Market concept, which provides the freshness
and flavor of home-style meals with a high level of convenience and value,
combined with the resurgence of the traditional family meal and the need for
convenience, has become very popular in many areas of the United States.
A total of 61 Boston Market stores have been opened under the area
development agreement with BCI as of April 8, 1996, the first of which commenced
operations in July 1994.
Additional information concerning CKE is included in the CKE Reports
incorporated by reference in this Proxy Statement/Prospectus. See "Available
Information" and "Incorporation of Certain Documents by Reference."
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DIRECTORS
The following table sets forth certain information with respect to the
persons who are expected to serve as directors of CKE following the Effective
Time of the Merger:
<TABLE>
<CAPTION>
NAME AND YEAR FIRST BUSINESS EXPERIENCE
BECAME DIRECTOR AGE AND OTHER INFORMATION
- ------------------------------------- ---- ------------------------------------------------
<S> <C> <C>
William P. Foley II (1993)........... 51 Mr. Foley became Chief Executive Officer of CKE
in October 1994, has been a director of CKE
since December 1993 and became Chairman of the
Board in March 1994. Since 1981, Mr. Foley has
been Chairman of the Board, President (until
January 1995) and Chief Executive Officer of
Fidelity National Financial, Inc., a company
engaged in title insurance and related services.
Mr. Foley is also a member of the Board of
Directors of Micro General Corporation and
Rally's Hamburgers Inc.
Daniel D. (Ron) Lane (1993).......... 61 Mr. Lane became the Vice Chairman of the Board
of CKE in October 1994 and has been a director
of CKE since December 1993. Since February 1983,
he has been a principal, Chairman and Chief
Executive Officer of Lane/Kuhn Pacific, Inc., a
real estate development company. Mr. Lane also
serves as a director of Fidelity National
Financial, Inc. and Resort Income Investors,
Inc. Mr. Lane's business address is 14 Corporate
Plaza, Newport Beach, CA 92660.
Peter Churm (1979)................... 70 Mr. Churm is the Chairman Emeritus of Furon
Company, a publicly held diversified
manufacturing company headquartered in Laguna
Niguel, California. He previously served as
Chairman of the Board of Furon Company from May
1980 through February 1992 and President of
Furon Company for more than 16 years prior to
that time. He remains a member of the Board of
Directors of Furon Company. Mr. Churm's business
address is 29982 Ivy Glenn Drive, Laguna Niguel,
CA 92677.
Carl L. Karcher (1992)............... 47 Mr. Karcher is the President of CLK, Inc., a
franchisee of CKE. Mr. Karcher has been a
franchisee of CKE since May 1985. For more than
17 years prior to that time, Mr. Karcher was
employed by CKE in several capacities, including
Vice President, Manufacturing and Distribution.
Carl L. Karcher is Carl N. Karcher's son. Mr.
Karcher's business address is 72-875 Fred Waring
Drive, Suite C, Palm Desert, CA 92260.
Carl N. Karcher (1966)............... 79 Mr. Karcher, the founder of CKE, purchased his
first hot dog stand on July 17, 1941 and has
been developing CKE's concepts since that time.
He first became a director of CKE in 1966. He
has served as Chairman of the Board Emeritus
since January 1994. He was Chairman of the Board
of CKE until October 1993, and served as Chief
Executive Officer until December 1992. Prior to
1980, he was President of CKE. Carl N. Karcher
is Carl L. Karcher's father.
</TABLE>
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<TABLE>
<CAPTION>
NAME AND YEAR FIRST BUSINESS EXPERIENCE
BECAME DIRECTOR AGE AND OTHER INFORMATION
- ------------------------------------- ---- ------------------------------------------------
<S> <C> <C>
Frank P. Willey (1994)............... 42 Mr. Willey became President of Fidelity National
Financial, Inc. in January 1995 and has been a
director and Executive Vice President of
Fidelity National Financial, Inc. since February
1984. Mr. Willey was General Counsel of Fidelity
National Financial, Inc. from 1984 to January
1995, and also serves on the Board of Directors
of Southern Pacific Funding Corporation. Mr.
Willey's business address is 17911 Von Karman
Avenue, Irvine, CA 92714.
W. Howard Lester (1996).............. 60 Mr. Lester became Chief Executive Officer of
Williams-Sonoma, Inc., a retailer of kitchen and
cooking supplies and equipment, in 1978 and
Chairman of its Board in 1986. Mr. Lester also
serves as a director of The Good Guys, Inc. and
Harold's Stores, Inc. Mr. Lester's business
address is 3250 Van Ness, San Francisco, CA
94109.
</TABLE>
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
persons who are expected to serve as executive officers of CKE following the
Effective Time of the Merger:
<TABLE>
<CAPTION>
OFFICE, BUSINESS EXPERIENCE
NAME AGE AND OTHER INFORMATION
- ------------------------------------- ---- ------------------------------------------------
<S> <C> <C>
William P. Foley II.................. 51 Mr. Foley became Chief Executive Officer in
October 1994, Chairman of the Board of Directors
in March 1994, and has served as a director of
CKE since December 1993. Since 1981, Mr. Foley
has been Chairman of the Board and Chief
Executive Officer of Fidelity National
Financial, Inc.
C. Thomas Thompson................... 46 Mr. Thompson was appointed President and Chief
Operating Officer in October 1994. Mr. Thompson
has been a franchisee of Enterprises since 1984.
Robert E. Wheaton.................... 43 Mr. Wheaton became Executive Vice President in
January 1996. Mr. Wheaton served as Vice
President and Chief Financial Officer of
Denny's, Inc., a subsidiary of Flagstar
Corporation, which operates and franchises
family style restaurants, from April 1995 to
January 1996. From 1991 to 1995, Mr. Wheaton
served as President and Chief Executive Officer,
and from 1989 to 1991 as Vice President and
Chief Financial Officer, of The Bekins Company.
Richard C. Celio..................... 45 Mr. Celio was appointed Senior Vice President,
Development in February 1996. Mr. Celio joined
CKE as Vice President, General Counsel in
January 1989 and was promoted to Senior Vice
President in July 1995. Prior to joining CKE, 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 to,
and acted as General Counsel for, CKE.
Rory J. Murphy....................... 48 Mr. Murphy has been Senior Vice President,
Restaurant Operations for the past three years.
He has been employed by CKE in various positions
for 17 years.
</TABLE>
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<PAGE> 72
<TABLE>
<CAPTION>
OFFICE, BUSINESS EXPERIENCE
NAME AGE AND OTHER INFORMATION
- ------------------------------------- ---- ------------------------------------------------
<S> <C> <C>
Loren C. Pannier..................... 54 Mr. Pannier was appointed to his current
position as Senior Vice President,
Purchasing/Distribution in January 1996. Prior
to January 1996, Mr. Pannier served as Treasurer
since May 1995 and as Chief Financial Officer
from 1980 to May 1995. Mr. Pannier has been a
Senior Vice President of CKE since 1980 and has
been employed by CKE for 24 years.
Joseph N. Stein...................... 35 Mr. Stein was appointed as Chief Financial
Officer in May 1995. Mr. Stein served as Senior
Vice President and Director of National Agency
Operations of Fidelity National Title Insurance
Company from April 1990 to May 1995 and as a
Certified Public Accountant with KPMG Peat
Marwick LLP from July 1985 to April 1990.
Robert W. Wisely..................... 50 Mr. Wisely has been Senior Vice President,
Marketing since January 1995. Mr. Wisely has
been a franchisee since 1990. Prior to 1990, Mr.
Wisely served as Senior Vice President,
Marketing from 1985 to 1990 and as Group Vice
President, Marketing from 1974 to 1979.
Carl A. Arena........................ 42 Mr. Arena was promoted to the position of Vice
President, Real Estate in July 1995 and had been
CKE's Director of Real Estate since 1987. Prior
to joining CKE in 1987, Mr. Arena was a real
estate acquisition officer with Security Pacific
National Bank in Los Angeles, California.
Robert A. Wilson..................... 36 Mr. Wilson became Vice President, General
Counsel and Secretary in February 1996. Mr.
Wilson served as Senior Litigation Counsel of
Fidelity National Title Insurance Company from
August 1995 to February 1996 and as an attorney
at law with Stradling, Yocca, Carlson & Rauth
from October 1987 to March 1994 and from January
1995 to August 1995. From March 1994 to January
1995, Mr. Wilson served as General Counsel for
Orchids Paper Products Company.
</TABLE>
Each of the persons who is expected to be a director or executive officer
of CKE following the Merger is a citizen of the United States of America. For
each such person whose principal employment is with CKE, the business address of
such person is 1200 North Harbor Boulevard, Anaheim, California 92801. Except as
set forth in "Security Ownership of Summit", neither CKE nor, to CKE's
knowledge, any of such persons is the beneficial owner of any Summit Common
Stock.
For information concerning (i) the compensation paid to the Chief Executive
Officer and the other four most highly compensated executive officers of CKE for
the fiscal year ended January 29, 1996, (ii) the beneficial ownership of CKE
Common Stock as of May 6, 1996 by certain stockholders, including directors and
certain executive officers of CKE, and (iii) certain transactions between CKE
and certain of its executive officers and directors and their affiliates and
related persons, see the 1996 Proxy Statement of CKE for its Annual Meeting of
Stockholders to be held on June 19, 1996, the relevant portions of which are
incorporated by reference into the CKE Form 10-K. See "Available Information"
and "Incorporation of Certain Documents by Reference."
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BUSINESS OF SUMMIT
DESCRIPTION AND GENERAL DEVELOPMENT
Summit was organized in 1985 as the successor to a California corporation
which was organized in 1963. Effective April 4, 1995, Summit changed its
corporate name to Summit Family Restaurants Inc. from JB's Restaurants, Inc.
As of April 8, 1996, Summit operated 77 JB's Restaurants: 40 in Arizona,
seven in Idaho, four in Montana, eight in New Mexico, 15 in Utah, and three in
Wyoming and franchised 24 JB's Restaurants: five in Arizona, three in Idaho, two
in Montana, one in New Mexico, two in South Dakota, five in Utah, two in
Washington and four in Wyoming. Summit also operated six Galaxy Diner
restaurants: four in Utah, one in Arizona and one in Idaho, and 16 franchised
HomeTown Buffet restaurants: eight in Arizona, two in Colorado, two in New
Mexico, three in Utah and one in Wyoming. A summary of the number of Summit-
operated restaurants in operation in each of the last three fiscal years
follows:
<TABLE>
<CAPTION>
NUMBER NUMBER OF NUMBER OF
NUMBER OF RESTAURANTS OF JB'S NET JB'S COMPANY
OPENED OR ACQUIRED NUMBER OF RESTAURANTS RESTAURANTS OPERATED
--------------------------------- RESTAURANTS CONVERTED TRANSFERRED RESTAURANTS
FISCAL GALAXY SOLD TO GALAXY TO AT END OF
YEAR JB'S DINER HOMETOWN SBARRO OR CLOSED DINERS FRANCHISEES FISCAL YEAR
------ ---- ------ -------- ------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993................... -- -- 2 1 8(1) -- 7 113
1994................... -- 1 8 -- 14(2) 1 3 104
1995................... -- 5 2 -- 1 5 3 102
</TABLE>
- ---------------
(1) Included 3 Sbarro restaurants and 5 JB's Restaurants
(2) Included 10 Sbarro restaurants and 4 JB's Restaurants
JB'S RESTAURANTS
Menu and Format. JB's Restaurants are family style restaurants offering a
variety of breakfast, lunch and dinner selections at moderate prices. The JB's
soup and salad bar features homestyle soups, salads, fresh fruits and
vegetables. The restaurants also feature the JB's Bakery with a full line of
freshly baked products.
Summit's JB's Restaurants range in size from 3,600 square feet to 7,600
square feet with an average of 4,875 square feet. Seating capacity for Summit's
JB's Restaurants ranges from approximately 95 to 240. The JB's Restaurant decor
is designed to provide an appealing and relaxed atmosphere.
Summit's JB's Restaurants are typically open 18 hours a day, seven days a
week. With the exception of the breakfast buffet and the soup and salad bar, all
entrees are cooked to order and served by waiters and waitresses with an average
check of approximately $5.00.
Summit seeks to locate its JB's Restaurants in commercial districts
adjacent to middle and upper income residential areas. The restaurant buildings
are typically free standing and located on the corner of main arteries.
Remodeling Program. Summit's JB's Restaurants typically have been
remodeled every five to seven years with 16 of the current 101 restaurants
having been remodeled to the current remodeling scheme. Summit's present
remodeling program was designed to improve the image of Summit's existing JB's
Restaurants to a warmer and more charming look featuring new custom designed
carpets and specialty fabrics for the upholstery, both with a variety of
pleasing patterns and colors, and extensive decorative artifacts and wall
hangings.
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<PAGE> 74
Operations. Summit's JB's Restaurant concept is organized into two
divisions. Within each division are five or six District Managers who are each
responsible for the operations of approximately six to nine restaurants.
Each JB's Restaurant has a general manager who directs the restaurant's
daily operations and two assistant managers. To become a general manager, an
employee generally must complete Summit's management training program and,
unless previously experienced as a full service restaurant general manager,
serve as an assistant manager for approximately one year. General managers are
responsible for hiring, providing ongoing staff training, and for the overall
operation of the restaurant. General and assistant managers participate in a
performance based incentive program in addition to a competitive base salary.
Advertising and Promotions. As part of Summit's strategy to focus on
improving its core markets and increasing revenues from existing stores, Summit
executes a marketing program focusing on television and newspaper advertising.
Advertising spending was approximately 4.0% of JB's Restaurants revenues in
fiscal 1995.
Franchising. Summit has concentrated on franchise development of new JB's
Restaurants in small towns in states where JB's Restaurants already operate and
in states contiguous to current markets. In addition, Summit has franchised JB's
Restaurants which were previously operated by Summit in small isolated cities
and other strategically advantageous situations.
Summit's franchise agreement presently requires the payment of an initial
franchise fee of $35,000 per restaurant and requires the payment of continuing
royalty fees of 4% of gross revenues. Under Summit's "Employee Ownership
Program", which is designed to offer management employees the opportunity to
become franchisees, individuals receive a credit against the initial franchise
fee for one franchised restaurant based on the number of years of service with
Summit. A credit of $12,500 is given for 10-14 years of service, $18,750 for
15-19 years of service and $25,000 for over 20 years of service.
Summit has the right to audit and receive annual financial statements from
franchisees. Franchise agreements generally have an initial term of 20 years
with no renewal options. Summit also retains the right to terminate a franchise
agreement for a variety of reasons, including insolvency or bankruptcy, failure
to operate the restaurant according to standards or failure to pay fees.
During the six fiscal years ended September 25, 1995, Summit transferred a
total of fifteen operating JB's Restaurants to franchisees. At the end of fiscal
1995, Summit had 24 franchised restaurants: five in Arizona, three in Idaho, two
in Montana, one in New Mexico, two in South Dakota, five in Utah, two in
Washington and four in Wyoming. Since September 25, 1995, Summit has transferred
one additional operating JB's Restaurant located in Wyoming to a franchisee, and
has terminated one franchise located in Wyoming.
GALAXY DINER
In fiscal year 1994, Summit developed the Galaxy Diner concept intended to
be used initially as a conversion vehicle for underperforming JB's Restaurants.
Longer-term, subject to available financing, Summit planned to open new
company-operated Galaxy Diner restaurants as well as potentially franchise the
concept. Summit converted its first underperforming JB's Restaurant to a Galaxy
Diner in June 1994 and five additional conversions were completed in fiscal year
1995.
Menu and Format. Galaxy Diner is a 1950's theme restaurant with 1950's
decor, menu and music. The award winning menu covers all dayparts -- breakfast,
lunch and dinner, plus special menus have been devised for the soda fountain and
a full kids menu on a separate activity sheet. Included in the eight page main
menu are entrees such as "Monster Mash" Hash, "Blueberry Hill" Flapjacks, the
"best burgers in the Galaxy", "Ty Cobb" Salad, "Route 66" Pileup appetizer,
"Bring My Baby Back" Ribs, and selections from the "Mama's and the Pastas". The
soda fountain brings back many of the traditional favorites, including flavored
cokes, malts and shakes, and ice cream sodas. One of the house fountain
specialties is the Hollywood Boulevard Brownie Sundae built with fudge brownies
cut in the shape of stars. The Galaxy Diner restaurants have an average check of
approximately $6.00.
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<PAGE> 75
Operations. The Galaxy Diner restaurants are supervised by a District
Manager, who reports to Summit's President. Each Galaxy Diner has a general
manager who directs the restaurant's daily operations and three managers or
assistant managers. Managers are required to attend formal training sessions in
management and operations of the restaurant. In addition, each restaurant
manager is required to comply with an extensive operations manual to assure
uniformity of operations and consistent high quality products. Summit has a
performance based incentive program covering all its restaurant managers in
addition to a competitive base salary.
HOMETOWN BUFFET RESTAURANTS
Summit has a franchise and exclusive area development agreement with
HomeTown, under which Summit has the exclusive rights to develop and operate
HomeTown Buffet restaurants, as a franchisee, in Arizona, Colorado, Idaho,
Nevada, New Mexico, Montana, Utah and Wyoming. Under the terms of the agreement,
Summit is required to open a minimum of 17 HomeTown Buffet restaurants in these
states prior to June 30, 1996. As of April 8, 1996, Summit operated 16 HomeTown
Buffet restaurants. Should Summit not open the required number of HomeTown
Buffet restaurants, Summit would lose its exclusive area rights.
Under the terms of the development agreement, Summit pays an initial fee of
$25,000 for each location. After the third location opened, Summit paid
development fees in the aggregate amount of $150,000, which has been applied
against the $25,000 initial fee in increments of $10,000 per location. In
addition, Summit had two one-year options to extend the exclusive area
development agreement which requires Summit to open five additional locations in
each option period. Summit has exercised the first option. A $50,000 fee is due
upon the execution of the franchise agreement for the 18th location, which will
be applied against the $25,000 initial fee in increments of $10,000 per location
for each of the next five locations. The source of payment of the development
fees paid by Summit to HomeTown has been cash flow generated from operations of
Summit. The second option expires on December 31, 1997.
For each location, Summit enters into a franchise agreement which requires,
among other items, the payment of a continuing royalty fee to HomeTown. The
royalty fee is based on the aggregate gross sales of all Summit's HomeTown
Buffet restaurants at the following rates:
<TABLE>
<CAPTION>
ANNUAL GROSS SALES RATE
------------------------------------------------------------- ----
<S> <C>
$0 to $1,000,000............................................. 4%
$1,000,001 to $2,000,000..................................... 3%
$2,000,001 and over.......................................... 2%
</TABLE>
Concept and Menu. HomeTown Buffet restaurants are located both in shopping
"strip centers" and as free standing restaurants. Each of the restaurants
occupies between 8,000 -- 13,000 square feet, seats 265 -- 460 people and
employs 75 -- 100 people. HomeTown Buffet restaurants are generally open seven
days per week, 12 hours per day serving lunch, dinner and dessert items with a
special brunch offering on Sundays.
HomeTown Buffet restaurants feature a "scatter bar" buffet system with
eight separate food islands in an "all-you-can-eat" format, offering a wide
variety of fresh "made in the kitchen" menu items including soups, salads, hot
entrees, vegetables, non-alcoholic beverages, and a dessert bar. It also
features a display bakery where customers can see the desserts and baked goods
prepared fresh throughout the day. Customers pay upon entry to the restaurant
and select the items and portions of their choice. This system allows customers
to serve themselves from the food island of their choice without standing in
long lines. The concept has an average check of approximately $5.50.
Operations. The franchised HomeTown Buffet restaurants are operated
through a 100% wholly-owned subsidiary of Summit, HTB Restaurants, Inc., and are
operated and supervised separately from the JB's Restaurant and Galaxy Diner
operations. The HomeTown Buffet restaurants are supervised directly by two
district managers who report to the Senior Vice President, HomeTown Buffet
Operations who reports to Summit's President.
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<PAGE> 76
Each HomeTown Buffet restaurant has a general manager and at least three
co-managers or assistant managers. Managers are required to attend formal
training sessions in management and operations of the restaurant. In addition,
each restaurant manager is required to comply with an extensive operations
manual to assure uniformity of operations and consistent high quality of
products. Summit has a performance based incentive program covering its general
and assistant managers in addition to a competitive base salary.
PURCHASING
Purchasing for all of Summit's restaurants is supervised by the Senior Vice
President, Food Services. Two national food service distributors distribute
substantially all non-perishable items to Summit's restaurants twice per week.
Perishable items are generally purchased locally. Summit believes that there are
other distributors who are able to service Summit's needs and that alternative
sources of supply are generally available for all items regularly used in the
restaurants.
INFORMATION AND REPORTING SYSTEMS
Through the use of management information systems including a computerized
point of sale system in each unit, Summit maintains centralized financial and
accounting controls for all of its restaurants. Weekly reports of individual
restaurant sales, labor costs, food costs and other expenses, together with
comparisons to preceding weeks, give management current indications of its
operations on a per-unit basis as well as on a company-wide basis.
LICENSES, TRADEMARKS AND SERVICE MARKS
Under franchise agreements with HomeTown, Summit has exclusive rights to
operate and develop HomeTown Buffet restaurants and use the trademarks and
service marks of HomeTown in Arizona, Colorado, Idaho, Montana, Nevada, New
Mexico, Utah and Wyoming. The term of the franchise rights, including the use of
trademarks and service marks, for each restaurant is the shorter of 20 years or
the lease term with a right to renew for additional 10-year periods. Summit's
franchise rights are subject to termination if Summit fails to comply with the
provisions of the franchise agreements, including the payment of franchise fees.
Summit believes that its rights in its trademarks and service marks are
important to its marketing efforts and a valuable part of its business. Summit
owns a number of trademarks and service marks that have been registered, or for
which applications are pending, with the United States Patent and Trademark
Office including, but not limited to, JB's, JB's Restaurants, JB's Bakery, JB's
is family, fast break breakfast, fast break, and Galaxy Diner. It is Summit's
policy to pursue registration of its marks whenever possible and to vigorously
oppose any infringement of its marks.
SEASONALITY
Summit's business is seasonal in nature with the spring and summer quarters
being the highest volume periods. Summit's lowest volume periods typically occur
during the fall and winter quarters.
COMPETITION
The restaurant business is highly competitive with respect to price,
service, restaurant location and food quality and is often affected by changes
in consumer tastes, economic conditions, population and traffic patterns. Summit
competes within each market with locally-owned restaurants as well as with
national and regional restaurant chains, many of which operate more restaurants
and have greater financial resources and longer operating histories than Summit.
There is also active competition for management and hourly personnel, as well as
for attractive commercial real estate sites suitable for restaurants.
GOVERNMENTAL REGULATION
Summit's business is subject to and affected by various federal, state and
local laws. Each restaurant must comply with state, county and municipal
licensing and regulation requirements relating to health, safety,
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<PAGE> 77
sanitation, building construction and fire prevention. Difficulties in obtaining
or failure to obtain required licenses or approvals could delay or prevent the
development of additional restaurants.
Summit is subject to FTC regulation and various state laws that regulate
the offer and sale of franchises. The FTC requires Summit to provide prospective
franchisees with a franchise offering circular containing prescribed information
about Summit and its franchise operations. Some states in which Summit has
existing franchisees and a number of states in which Summit might consider
franchising regulate the sale of franchises; several states require the
registration of franchise offering circulars. Beyond state registration
requirements, several states regulate the substance of the franchisor-franchisee
relationship and, from time to time, bills are introduced in Congress aimed at
imposing federal registration on franchisors. Many of the state franchise laws
limit, among other things, the duration and scope of noncompetition and
termination provisions of franchise agreements.
Summit's restaurants are subject to federal and state laws governing wages,
working conditions, citizenship requirements and overtime. Federal agencies
having jurisdiction over Summit's operations include the Department of Labor,
the Equal Employment Opportunity Commission, the Internal Revenue Service, the
Social Security Administration and the Occupational Safety and Health
Administration. From time to time legislative proposals are considered by
governmental authorities that could, if enacted, materially increase Summit's
operating costs and have a material effect on Summit's business. To Summit's
knowledge, no such legislative proposals are currently pending or have been
enacted since September 1993 which have had a material effect on Summit's
business. There is no assurance that Summit would be able to pass such increased
costs on to its guests or that, if it were able to do so, it could do so in a
short period of time.
EMPLOYEES
As of April 12, 1996 Summit employed approximately 4,500 persons, of whom
approximately 30 were corporate personnel. All other employees are involved
directly in the operation of Summit's restaurants. Summit considers its employee
relations to be good and believes that its employee turnover rate is consistent
with the industry average. Most employees, other than restaurant management and
corporate personnel, are paid on an hourly basis. Summit believes that it
provides working conditions and wages that are comparable with those of its
competition. Summit's employees are not covered by a collective bargaining
agreement.
Additional information concerning Summit is included in the Summit Reports
incorporated by reference in this Proxy Statement/Prospectus. See "Available
Information" and "Incorporation of Certain Documents by Reference."
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<PAGE> 78
SECURITY OWNERSHIP OF SUMMIT
The following table sets forth certain information as of May 14, 1996,
except as noted, with respect to the voting securities of Summit held by (i)
each person who owns of record, or is known by Summit to own beneficially, more
than five percent of any class of voting securities; (ii) each director of
Summit; (iii) the Chief Executive Officer of Summit and each of the four most
highly compensated executive officers of Summit other than its Chief Executive
Officer (calculated based upon compensation of executive officers of Summit for
its fiscal year 1995); and (iv) all directors and executive officers of Summit
as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
TITLE NAME AND ADDRESS BENEFICIAL PERCENT
OF CLASS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ------------ --------------------------------- ------------ ---------
<S> <C> <C> <C>
Series A CKE Restaurants, Inc. 946,714(2) 100%
Convertible 1200 North Harbor Boulevard
Preferred Anaheim, CA 92803
Common Kennedy Capital Management, Inc. 654,255(3) 13.61%
425 North New Ballas Road
St. Louis, MO 63141
Common Heartland Advisors, Inc. 512,500(4) 10.66%
790 North Milwaukee Street
Milwaukee, WI 53202
Common David L. Babson & Company, Inc. 422,500 8.79%
One Memorial Drive
Cambridge, MA 02142
Common Dimensional Fund Advisors Inc. 315,150(5) 6.56%
1299 Ocean Avenue, Suite 1100
Santa Monica, CA 90401
Common Clark D. Jones 101,065(6) 2.10%
Common Don M. McComas 115,000(7) 2.39%
Common David E. Pertl 42,687(8) *
Common Gary A. Bales 33,486(9) *
Common Daniel Yanez 38,038(10) *
Common Ronald L. Sacks 36,729(11) *
Common Norman N. Habermann 15,000(12) *
Common Thomas J. Russo 12,500(13) *
Common Carl R. Hays 11,500(13) *
Common Norton Parker 11,500(13) *
Common Ronald N. Paul 11,500(13) *
Common Directors and Executive Officers 305,608(14) 6.36%
as a Group (9 persons)
</TABLE>
- ---------------
* Less than one percent
(1) Except as indicated all shares are beneficially owned and sole voting and
investment power is held by the persons named. Does not include options to
purchase shares unless they are exercisable within 60 days.
(2) Holdings as of April 4, 1996. The shares of Summit Common Stock into which
such shares are convertible represents beneficial ownership of 16.5% of the
Summit Common Stock.
(3) According a to Schedule 13D dated April 24, 1996 filed by a group of
persons consisting of Kennedy Capital Management, Inc. (563,000 shares),
Michael Portnoy (42,250 shares), Howard Foster
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<PAGE> 79
(26,000 shares), Joe Campa & Associates (14,000 shares), Mark R. Tonucci
(5,000 shares), William H. Burgess (4,000 shares) and First Global
Securities, Inc. (5 shares).
(4) As disclosed by the stockholder by telephone on April 4, 1996, as of April
3, 1996, Heartland Advisors, Inc. held sole dispositive power over all of
the shares listed. Heartland Advisors, Inc. has sole voting power over
430,000 of the shares listed.
(5) As disclosed by the stockholder on April 8, 1996, as of December 31, 1995,
Dimensional Fund Advisors Inc. held sole voting power over 211,750 shares;
however, persons who are officers of Dimensional Fund Advisors Inc. also
serve as officers of DFA Investment Dimensions Group Inc. (the "Fund"), and
The DFA Investment Trust Company (the "DFA Trust"), each an open-end
management investment company registered under the Investment Company Act
of 1940. In their capacity as officers of the Fund and the DFA Trust, these
persons vote 22,100 shares which are owned by the Fund and 81,300 shares
which are owned by the DFA Trust. Dimensional Fund Advisors Inc. holds sole
dispositive power over 315,150 shares.
(6) Includes 43,000 shares subject to options and 206 shares held in Mr. Jones'
IRA.
(7) Includes 110,000 shares subject to options.
(8) Includes 35,500 shares subject to options, 292 shares in the Employee Stock
Ownership Plan and 232 shares in Summit's 401(k) Plan.
(9) Includes 27,000 shares subject to options, 623 shares in the Employee Stock
Ownership Plan and 200 shares in Summit's 401(k) Plan.
(10) Includes 35,000 shares subject to options and 38 shares in Summit's 401(k)
Plan.
(11) Includes 33,000 shares subject to options, 265 shares in the Employee Stock
Ownership Plan and 219 shares in Summit's 401(k) Plan.
(12) Includes 5,000 shares subject to options.
(13) Includes 11,500 shares subject to options.
(14) Includes 226,500 shares subject to options, 772 shares in the Employee
Stock Ownership Plan and 686 shares in the Summit's 401(k) Plan.
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<PAGE> 80
SUMMIT MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, Notes to Consolidated Financial
Statements and Summary Historical Consolidated Financial Information of Summit
appearing elsewhere in this Proxy Statement/Prospectus.
OVERVIEW
Excluding gains on the sale of HomeTown common stock, Summit has reported
losses for five consecutive years with losses continuing through the first
twenty-four weeks of fiscal 1996. These losses were primarily the result of
declining same store sales in Summit's core JB's Restaurants during the periods.
Cash flow from operations during these periods was inadequate to fund programs
designed to return Summit to profitability and Summit's principal source of cash
was the sale of its investment in HomeTown common stock. In April 1995, the
Board of Directors reviewed and discussed the continuing disappointing results
and determined that (a) Summit had insufficient access to liquid capital; (b)
the JB's Restaurant concept continued to deteriorate and the long term viability
of the JB's Restaurant concept was uncertain given the performance trends; and
(c) Summit's situation had resulted in a decline in stockholders' value. In May
1995 the Board of Directors engaged Piper Jaffray to review and analyze
potential financial strategies for Summit. After reviewing various alternatives,
in June 1995 Piper Jaffray concluded that Summit was not an attractive
independent public company and recommended that the Board of Directors consider
the sale of the business of Summit. On November 30, 1995, after an exhaustive
and deliberate process to locate a purchaser for all or part of the assets of
Summit, the Board approved and Summit entered into the Merger Agreement with
CKE. The Merger Agreement was amended on January 24, 1996 and April 2, 1996. See
"Special Factors -- Background," "-- Reasons for the Merger," and
"-- Recommendation of Summit's Board of Directors; Fairness of the Merger."
In connection with the proposed Merger CKE is performing an ongoing
evaluation regarding the nature and scope of the JB's Restaurant operations of
Summit and various short- and long-term strategic considerations in the process
of assessing whether, and to what extent, integration, consolidation or other
modification of Summit's restaurant operations is appropriate following the
Merger. Many operational and strategic decisions with respect to the combined
companies have not been made. As a result, significant uncertainties and issues
relating to the integration of Summit's business with CKE's operations, and the
timing, manner and results of the implementation of decisions to be made with
respect to Summit's ongoing operations following the Merger may adversely affect
the results of operations of CKE. See "Risk Factors -- Recent Operating Results
of Summit" and "-- Uncertainties Relating to Integration of Operations."
As a result of the Merger, CKE's indirect interest in the assets and
liabilities of Summit, including the net book value and net earnings of Summit,
will increase, upon effectiveness of the Merger, from 16.5% to 100%. The
directors of Merger Sub immediately prior to the Effective Time (who will be
designees of CKE) will be the directors of Summit from and after the Effective
Time (until their successors are duly elected or appointed and qualified).
RESULTS OF OPERATIONS
Revenues and Selected Operating Data. The following table sets forth for
the periods indicated certain information regarding Summit's revenues and
selected operating data (in thousands, except store data).
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<PAGE> 81
<TABLE>
<CAPTION>
TWENTY FOUR
WEEKS ENDED
FISCAL YEAR ---------------------
------------------------------ MARCH 13, MARCH 11,
1993 1994 1995 1995 1996
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues............................... $114,768 $115,367 $121,099 $54,324 $54,122
Percentage change from prior period.......... (7.5) 0.5 5.0 8.8 (0.4)
-------- -------- -------- --------- ---------
JB'S RESTAURANTS
Company owned units at end of period......... 97 89 80 83 78
Franchised units at end of period............ 14 19 24 22 24
Company Restaurants transferred to
franchisees, net........................... 7 3 3 4 1
Company Restaurants converted to Galaxy
Diner...................................... -- 1 5 3 --
Company Restaurants closed................... 5 4 1 -- 1
Company average sales per unit............... $ 938 $ 953 $ 940 $ 427 $ 412
Percentage change from prior period.......... 3.0 1.5 (1.4) 0.3 (3.6)
Same store sales percentage change from prior
period..................................... (1.3) (3.2) (3.6) (2.8) (5.6)
-------- -------- -------- --------- ---------
GALAXY DINERS
Company owned units at end of period......... -- 1 6 4 6
-------- -------- -------- --------- ---------
HOMETOWN BUFFETS
Units operated as a franchisee at end of
period..................................... 6 14 16 14 16
Average sales per unit....................... (1) $ 2,674 $ 2,503 $ 1,145 $ 1,123
Percentage change from prior period.......... (1) (1) (6.4) (5.4) (1.9)
-------- -------- -------- --------- ---------
SBARRO
Units operated as a franchisee at end of
period..................................... 10 -- -- -- --
</TABLE>
- ---------------
(1) Average annual sales per unit, percentage change from prior year and same
store sales percentage change from prior year data is either not available
or is not presented due to the relatively small number of units open for a
full year.
FISCAL YEARS ENDED SEPTEMBER 27, 1993, SEPTEMBER 26, 1994 AND SEPTEMBER 25, 1995
In fiscal 1995, as compared with fiscal 1994, total revenues increased by
$5.7 million, or 5.0%, primarily due to an increase in the number of HomeTown
Buffet restaurants and Galaxy Diner restaurants in operation ($9.5 million and
$6.3 million, respectively) which more than offset the decline in revenues
resulting from the decrease in the number of JB's Restaurants in operation ($7.0
million) and the 3.6%, or $2.7 million, decline in JB's Restaurants same store
sales. The average annual sales decrease per JB's Restaurant of 1.4% reflected a
decrease in average guest counts of 1.7% partially offset by a 0.3% increase in
the average guest purchase.
In fiscal 1994, as compared with fiscal 1993, total revenues increased by
$0.6 million, or 0.5%, primarily due to the opening of eight new HomeTown Buffet
restaurants in 1994 ($15.0 million) partially offset by the closure and
franchising of a total of seven JB's Restaurants ($7.1 million), the disposition
of all Sbarro restaurants ($3.8 million) and a 3.2%, or $3.0 million, decline in
JB's Restaurants same store sales. The average annual sales increase per JB's
Restaurant of 1.5% reflected an increase in the average guest purchase of 3.7%
partially offset by a decrease in average guest counts of 2.2%.
TWENTY FOUR WEEKS ENDED MARCH 13, 1995 AND MARCH 11, 1996
The 0.4% or $202,000 decrease in revenues for the twenty-four week period
ended March 11, 1996, as compared with the comparable period of the prior fiscal
year, is primarily the result of the 5.6% ($1,975,000) decline in JB's
Restaurants same store sales and the decrease in the number of JB's Restaurants
in operation ($1,421,000) partially offset by the opening of two new HomeTown
Buffet restaurants ($2,028,000) and two
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<PAGE> 82
Galaxy Diner conversions ($1,166,000). The 5.6% decline in JB's same store sales
reflects a decrease of 10.2% in customer counts while the average customer
purchase increased 4.6%.
Costs and Expenses; Statement of Operations Data. The following table sets
forth selected statements of operations data as a percentage of revenues for the
periods indicated:
<TABLE>
<CAPTION>
TWENTY FOUR
WEEKS ENDED
FISCAL YEAR -----------------------
------------------------- MARCH 13, MARCH 11
1993 1994 1995 1995 1996
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Costs and expenses
Food costs.................................. 31.9 32.6 33.0 33.0 32.3
Labor costs................................. 33.3 34.9 35.0 35.2 34.7
Occupancy and other expenses................ 22.8 23.3 23.8 23.8 24.1
General and administrative expenses......... 6.5 7.1 6.9 6.8 9.2
Depreciation and amortization............... 5.8 5.3 5.5 5.2 5.9
Charge for property dispositions............ 3.7 1.7 -- -- --
----- ----- ----- ----- -----
Total costs and expenses...................... 104.0 104.9 104.2 104.0 106.2
----- ----- ----- ----- -----
Loss from operations.......................... (4.0) (4.9) (4.2) (4.0) (6.2)
Interest expense.............................. (2.2) (1.7) (1.3) (1.3) (1.0)
Interest income............................... 0.4 0.6 0.4 0.5 0.3
Gain on sale of HomeTown Buffet, Inc. stock... 1.5 12.7 -- -- 7.3
Gains on sales of restaurants to franchisees
and other................................... 1.0 0.6 0.1 -- 0.1
Loss on disposition of note receivable........ -- (1.4) -- -- --
----- ----- ----- ----- -----
Total interest and other income (expense)..... 0.7 10.8 (0.8) (0.8) 6.7
----- ----- ----- ----- -----
Income (loss) before income taxes and
extraordinary item.......................... (3.3) 5.9 (5.0) (4.8) 0.5
Income taxes (benefit)........................ (1.3) 2.3 (0.8) (1.9) 1.7
----- ----- ----- ----- -----
Income (loss) before extraordinary item....... (2.0) 3.6 (4.2) (2.9) (1.2)
Extraordinary loss resulting from
extinguishment of debt-net of tax........... -- 0.3 -- -- --
----- ----- ----- ----- -----
Net income (loss)............................. (2.0)% 3.3% (4.2)% (2.9)% (1.2)%
----- ----- ----- ----- -----
</TABLE>
FISCAL YEARS ENDED SEPTEMBER 27, 1993, SEPTEMBER 26, 1994 AND SEPTEMBER 25, 1995
Food Costs. The increases in food costs as a percentage of total revenues
in fiscal 1995, as compared with fiscal 1994, and in fiscal 1994, as compared
with fiscal 1993, were primarily the result of an increase in the number of
HomeTown Buffet restaurants, which operate at a higher food cost percentage than
Summit's JB's Restaurants and Galaxy Diner restaurants.
Labor Costs. The increase in labor costs as a percentage of total revenues
in fiscal 1995, as compared to fiscal 1994, was primarily due to the 3.6%
decline in same store sales in the JB's Restaurants along with an increase in
manager salaries (0.5 percentage points) offset by lower workers compensation
costs (-0.4 percentage points). The increase in labor costs as a percentage of
total revenues in fiscal 1994, as compared to fiscal 1993, was primarily due to
costs incurred in training and increased scheduling designed to improve customer
service in the JB's Restaurants along with a 3.2% decrease in same store sales.
Occupancy and Other Expenses. The increase in occupancy and other expenses
as a percentage of total revenues in fiscal 1995, as compared to fiscal 1994,
primarily reflected higher pre-opening costs (0.3 percentage points) resulting
from the increased number of Galaxy Diner conversions along with the 3.6%
decline in JB's Restaurants same store sales. The increase in occupancy and
other expenses as a percentage of
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<PAGE> 83
total revenues in fiscal 1994, as compared to fiscal 1993, primarily reflects
higher equipment rent as Summit leased most equipment in its new HomeTown Buffet
restaurants (0.5 percentage points), higher smallware and supply costs (0.4
percentage points), higher pre-opening costs resulting from the increased number
of HomeTown Buffet restaurant openings (0.2 percentage points) along with the
3.2% decline in JB's Restaurants same store sales partially offset by a decrease
in marketing expenditures (-0.6 percentage points).
General and Administrative Expenses. The decrease in general and
administrative expenses as a percentage of total revenues in fiscal 1995, as
compared to fiscal 1994, was primarily due to reduced employee relocation costs
(-0.1 percentage points) along with the 5.0% increase in total revenues. The
increase in general and administrative expenses as a percentage of total
revenues in fiscal 1994, as compared with fiscal 1993, was primarily the result
of an increase in salaries (0.6 percentage points) and relocation costs (0.2
percentage points) resulting from upgrading Summit's administrative staff
support and an increase in legal expenses (0.2 percentage points). Additionally,
in fiscal 1993 Summit incurred one-time executive search costs and wrote-off
financing costs that were not incurred in fiscal 1994 (-0.4 percentage points).
Depreciation and Amortization. The increase in depreciation and
amortization as a percentage of total revenues in fiscal 1995, as compared with
fiscal 1994, primarily reflected depreciation associated with remodeled JB's
Restaurants and Galaxy Diner conversions (0.1 percentage points) and the 3.6%
decrease in same store JB's Restaurants sales (0.2 percentage points) partially
offset by the increase in the number of HomeTown Buffet restaurants (-0.1
percentage points) which operate with lower depreciation and amortization as a
percent of revenues. The decrease in depreciation and amortization as a
percentage of total revenues in fiscal 1994, as compared with fiscal 1993,
primarily reflects higher per store revenue resulting from the disposition of
underperforming restaurants and the increase in the number of HomeTown Buffet
restaurants which operate with lower depreciation and amortization as a percent
of revenues.
Charge for Property Dispositions. The charge of $1,982,000 for fiscal 1994
was primarily related to the disposition of JB's Restaurants. The charge of
$4,264,000 for fiscal 1993 was primarily related to the disposition of certain
JB's Restaurants, Sbarro restaurants, non-operating properties and the
termination of exclusive area development rights with Sbarro, Inc.
Interest Expense. The decrease in interest expense as a percentage of
total revenues in fiscal 1995, as compared with fiscal 1994, reflected lower
outstanding debt balances (-0.3 percentage points) along with the 5.0% increase
in total revenues. The decrease in interest expense as a percentage of total
revenues in fiscal 1994, as compared to fiscal 1993, reflected lower outstanding
debt partially resulting from the prepayment, in April 1994, of $4.6 million of
outstanding 11.1% interest bearing debt payable to financial institutions.
Interest Income. The decrease in interest income as a percentage of total
revenues in fiscal 1995, as compared with fiscal 1994, was primarily a result of
lower cash and short term investment balances. The increase in interest income
as a percentage of total revenues in fiscal 1994, as compared to fiscal 1993,
primarily resulted from an increase in invested cash balances (0.1 percentage
points) and an increase in notes receivable (0.1 percentage points) resulting
from the sale of restaurants to franchisees.
Gain on Sale of HomeTown Stock. The $14.7 million gain in fiscal 1994
reflected the sale of 1,056,780 shares of HomeTown common stock. The $1.7
million gain in fiscal 1993 reflected the sale of 250,000 shares of HomeTown
preferred stock.
Loss on Disposition of Note Receivable. The charge of $1.6 million in
fiscal 1994 reflected Summit's acceptance of $2.5 million as full repayment of a
note receivable related to the sale of a combined restaurant and motel.
Income Taxes. Summit's effective income tax rate was 17.3%, 39.8% and
39.1% in fiscal 1995, fiscal 1994 and fiscal 1993, respectively. The effective
tax rate in all three years reflected federal and state income tax rates offset
(benefited) by targeted jobs tax credits. However, the fiscal 1995 tax rate is
further impacted by a $1.5 million reserve against net deferred tax assets that
may not be realized in the future.
Extraordinary Loss Resulting from Extinguishment of Debt. The charge of
$350,000 (net of tax) in fiscal 1994 reflected the prepayment premium and the
write-off of unamortized loan acquisition costs
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<PAGE> 84
associated with Summit's prepayment in April 1994 of $4.6 million of outstanding
11.1% interest bearing debt payable to financial institutions.
TWENTY-FOUR WEEKS ENDED MARCH 13, 1995 AND MARCH 11, 1996
Food Costs. The decrease in food costs as a percentage of total revenues
for the twenty-four week period ended March 11, 1996, as compared with the
comparable period of the prior fiscal year, was primarily the result of menu and
operational improvements in all of Summit's restaurant concepts.
Labor Costs. The decrease in labor costs as a percentage of total revenues
in the twenty-four week period ended March 11, 1996, as compared with the
comparable period of the prior fiscal year, was primarily due to reduced
worker's compensation costs ($269,000) and lower labor costs in the HomeTown
Buffet restaurants resulting from improved employee scheduling in the current
year.
Occupancy and Other Expenses. The increase in occupancy and other expenses
as a percentage of total revenues for the twenty-four week period ended March
11, 1996, as compared with the comparable period of the prior fiscal year, was
primarily due to lower average restaurant sales and a $458,000 increase in the
reserve for potentially uncollectable franchisee receivables partially offset by
lower real estate taxes ($343,000) and lower preopening costs ($171,000).
General and Administrative Expenses. The increase in general and
administrative expenses as a percentage of total revenues for the twenty-four
week period ended March 11, 1996, as compared with the comparable period of the
prior fiscal year, was primarily due to a $1.6 million charge in the second
quarter for change of control and other severance costs, partially offset by
reduced salaries expense ($260,000) and reduced travel and related expenses
($162,000).
Depreciation and Amortization. The increase in depreciation and
amortization as a percentage of total revenues in the twenty-four week period
ended March 11, 1996, as compared with the comparable period of the prior fiscal
year, primarily reflects depreciation associated with remodeled JB's restaurants
and Galaxy Diner conversions (0.2% points) and lower average restaurant sales.
Interest Expense. The decrease in interest expense as a percentage of
total revenues for the twenty-four week period ended March 11, 1996, as compared
with the comparable period of the prior fiscal year, was due primarily to lower
outstanding debt.
Interest Income. The decrease in interest income as a percentage of total
revenues for the twenty-four week period ended March 11, 1996, as compared with
the comparable period of the prior fiscal year, was primarily a result of lower
cash and short term investment balances.
Gain on Sale of HomeTown Stock. To improve liquidity and to fund repayment
of bank loans, Summit sold 398,220 shares of HomeTown stock during the first
quarter of fiscal 1996 in open market sales transactions at prevailing market
prices. The average selling price was $11.94 per share. Such sales resulted in a
pre-tax gain of $3,959,000.
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<PAGE> 85
Income Taxes. The effective income tax rate of 335.8% of pre-tax income
for the twenty-four week period ended March 11, 1996, was higher than the 40.4%
rate for the comparable period of the prior fiscal year primarily due to a
$721,000 adjustment to fully reserve deferred tax assets that may not be
realized in the future.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following summarizes financial information by quarter for the years
ended September 26, 1994 and September 26, 1995 and the 24-week period ended
March 11, 1996 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
NET INCOME
GROSS NET INCOME (LOSS)
REVENUES PROFIT (LOSS) PER SHARE
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Fiscal 1994
1st quarter...................... $24,228 $16,520 $ (537) $ (.11)
2nd quarter...................... 25,681 17,321 (290) (.06)
3rd quarter...................... 36,948 24,932 5,765(1) .99
4th quarter...................... 28,510 18,916 (1,182) (.25)
-------- ------- ------- ------
$115,367... $77,689 $ 3,756 $ .66
======== ======= ======= ======
Fiscal 1995
1st quarter...................... $27,263 $18,296 $ (876) $ (.18)
2nd quarter...................... 27,061 18,104 (678) (.14)
3rd quarter...................... 38,095 25,413 (1,309) (.27)
4th quarter...................... 28,680 19,268 (2,181) (.45)
-------- ------- ------- ------
$121,099... $81,081 $ (5,044) $(1.05)
======== ======= ======= ======
Fiscal 1996
1st quarter...................... $26,725 $18,038 $ 1,226(2) $ .21
2nd quarter...................... 27,397 18,615 (1,858)(3) (.39)
</TABLE>
- ---------------
(1) Includes a charge for property dispositions of $1,982,000, a loss on the
disposition of a note receivable of $1,564,000, an extraordinary loss of
$350,000 (net of tax benefit) resulting from the extinguishment of debt, and
a gain on the sale of HomeTown common stock of $14,700,000. See Notes 4, 5,
6 and 7 of Notes to Summit's Consolidated Financial Statements appearing
elsewhere herein.
(2) Includes a gain on the sale of HomeTown common stock of $4,000,000.
(3) Includes a charge for change of control and other severance costs of
$1,600,000.
Each quarter of the 52 week fiscal years 1994 and 1995 contains 12 weeks
except for the third quarter, which contains 16 weeks.
LIQUIDITY AND CAPITAL RESOURCES
Summit's primary sources of working capital have been cash flow from
operations, borrowings and sales of assets. Summit requires capital principally
for the acquisition and construction of new restaurants, remodeling and
conversion of existing restaurants, and renewals of equipment leases and
leasehold improvements. During 1996, Summit anticipates its capital requirements
will be primarily for renewals of equipment and leasehold improvements and
expects to fund these capital requirements through cash on hand at the end of
the year, cash flow from operations and the sale of all, or a portion of,
Summit's investment in HomeTown common stock.
79
<PAGE> 86
During the fiscal year ended September 25, 1995 and the 24-week period
ended March 11, 1996, cash and cash equivalents were provided by the following
sources (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR TWENTY FOUR WEEKS
ENDED ENDED
SEPTEMBER 25, 1995 MARCH 11, 1996
------------------ -----------------
<S> <C> <C>
Net cash provided (used) by operations.............. $3,950 $(1,745)
Proceeds from the sale of assets.................... 3,028 4,756
Proceeds from the sale of short term investments.... 1,980 --
Payments received on notes receivable and other..... 135 98
------ -------
Total provided............................ $9,093 $ 3,109
====== =======
</TABLE>
During the same periods, cash and cash equivalents were applied for the
following uses (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR TWENTY FOUR WEEKS
ENDED ENDED
SEPTEMBER 25, 1995 MARCH 11, 1996
------------------ -----------------
<S> <C> <C>
Other capital expenditures.......................... $ 6,920 $ 587
Capital expenditures for new stores................. 3,700 --
Principal payments on long-term debt and capital
leases............................................ 1,820 2,558
Other............................................... 45 --
------- ------
Total used................................ $ 12,485 $ 3,145
======= ======
</TABLE>
During the first 24 weeks of fiscal 1996, cash used was approximately equal
to cash provided. During fiscal 1995, cash used exceeded cash provided by $3.4
million due primarily to capital expenditures associated with the conversion of
five underperforming JB's Restaurants to Galaxy Diner restaurants, the
remodeling of four JB's Restaurants and the construction of two HomeTown Buffet
restaurants.
The current ratio at March 11, 1996 and at the end of fiscal 1995 was
0.3:1.0 compared to 0.8:1.0 at the end of fiscal 1994. Management does not
consider the fact that the current ratio is less than one to be, itself, an
indication of a liquidity problem as the restaurant business has practically no
receivables and minimum inventories that typically turn faster than accounts
payable to suppliers.
At the end of fiscal 1995, Summit had $2.0 million in letters of credit and
$2.2 million in bank loans which were secured by Summit's 528,220 shares of
HomeTown common stock and by real properties owned by Summit. The real
properties include 17 JB's Restaurant properties which are owned and operated by
Summit or leased to and operated by franchisees. During the third quarter of
fiscal 1995, Summit terminated its $3.0 million line of credit in exchange for
the release of the lien on an office/warehouse property which Summit sold
generating net proceeds of approximately $1.5 million. Summit was not in
compliance with certain covenants in its lending agreements at the end of the
year. Summit obtained a waiver from the bank with respect to these covenants.
During the first quarter of fiscal 1996, Summit sold 398,220 shares of HomeTown
common stock, generating net proceeds of $4.8 million. $2.1 million of these
proceeds were used to repay Summit's bank loans in full, $700,000 remains in
escrow as partial security against the $2.0 million in letters of credit with
the remaining $2.0 million retained by Summit. The letters of credit remain
secured by the above described real properties of Summit, by the remaining
130,000 shares of HomeTown common stock and the escrow account noted above. In
addition, Summit has a $180,000 certificate of deposit securing $180,000 in
letters of credit.
In August 1994, Summit entered into a master lease agreement to finance
equipment for new HomeTown Buffet restaurants. The master lease agreement, among
other things, required Summit to maintain minimum tangible net worth of at least
$40 million. Operating results during fiscal 1995 reduced Summit's net worth to
less than $40 million as of September 25, 1995. On December 7, 1995, the lessor
notified Summit it was in default under the terms of the master lease agreement
and demanded a default payment in the amount of $1,493,938, which represents all
remaining rent and other payments due to the lessor. Upon receipt of the default
payment, the lessor is obligated to transfer to Summit all rights of
80
<PAGE> 87
ownership to the leased assets. On January 5, 1996, the master lease agreement
was amended to require a minimum tangible net worth of $33 million. In exchange
for this reduced covenant, Summit has deposited $365,000 with the leasing
company. This deposit is to be applied against payments due for the final year
of the lease subject to earlier release if certain financial performance
objectives are achieved.
Summit opened two new HomeTown Buffet restaurants during fiscal 1995,
bringing the total number of HomeTown Buffet restaurants in operation to 16.
Summit's exclusive area development agreement with HomeTown was amended during
the third quarter of fiscal 1995 to extend Summit's requirement to open a
minimum of 17 HomeTown Buffet restaurants to June 30, 1996 from December 31,
1995. In addition, in order to maintain its exclusive area development agreement
with HomeTown, Summit is required to open an additional 5 HomeTown Buffet
restaurants by December 31, 1996. Summit does not anticipate opening another
HomeTown Buffet restaurant prior to June 30, 1996 and, as a result, it is
expected that Summit will forfeit its exclusive area rights.
During fiscal 1995, Summit remodeled four of its higher performing JB's
Restaurants bringing to 11 the total number of company-operated JB's Restaurants
remodeled to the latest remodeling scheme. Summit currently has no plans to
remodel any further JB's Restaurants in fiscal 1996. Summit continues to
routinely repair and maintain Summit's restaurants. In addition, Summit, in
fiscal 1995, converted an additional five of its lower performing JB's
Restaurants to Galaxy Diner restaurants bringing the number of Galaxy Diner
restaurants to six at the end of 1995. If the Merger is not consummated, future
Galaxy Diner conversions, JB's Restaurant remodels and new HomeTown Buffet
restaurants will be dependent upon Summit improving internal cash flow and/or
finding additional sources of capital including the potential sale of assets. If
Summit's earnings do not improve or other sources of financing are not obtained,
Summit would not have the available financing for capital spending beyond
maintenance level capital additions. See "Risk Factors -- Recent Operating
Results of Summit."
Pursuant to Summit's Employment Agreement with Mr. McComas and the Change
of Control Agreements, Summit paid $1,236,000 to Mr. McComas and four Senior
Vice Presidents upon termination of their employment during the third quarter of
fiscal 1996. Summit is obligated, under the terms of Change of Control
Agreements with three remaining Senior Vice Presidents, to deposit approximately
$450,000 in escrow, which amounts have not been funded by Summit as of the date
of this Proxy Statement/Prospectus. See "Special Factors -- Interests of Certain
Persons in the Merger."
SEASONALITY
Summit's business is seasonal in nature with the spring and summer quarters
being the highest volume periods. Summit's lowest volume periods typically occur
during the fall and winter quarters.
IMPACT OF INFLATION
The cost of food commodities utilized by Summit are subject to market
supply and demand pressures as is evidenced by the recent increase in produce
prices (lettuce in particular) resulting from the unusual weather conditions in
the western U.S. growing regions. Shifts in these costs may have a significant
impact on Summit's food costs. In addition, many of Summit's employees are paid
hourly rates related to the federal and state minimum wage laws. Accordingly,
increases in the minimum wage result in higher labor costs to Summit. Currently,
there are several proposals in Congress to increase the federal minimum wage,
although no such increase is currently scheduled. Summit anticipates that any
increases in the minimum wage can be offset through pricing and other cost
control efforts; however, there is no assurance that Summit would be able to
pass such costs on to its guests or if it were able to do so, it could do so in
a short period of time.
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
In December 1991, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 107 "Disclosures about
Fair Value of Financial Instruments." SFAS No. 107 extends existing fair value
disclosure practices by requiring all entities to disclose, where practicable,
the fair value of financial instruments, both assets and liabilities, recognized
and not recognized, in
81
<PAGE> 88
the statement of financial position. SFAS No. 107 is effective for Summit's
fiscal year end 1996. Management has not yet determined for which of its
financial instruments it is practicable to determine fair value. It is
management's intent to implement SFAS No. 107 at fiscal year end 1996.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires the assessment of certain long-lived assets, including many intangible
assets, for possible impairment when events or circumstances indicate the
carrying amounts of these assets may not be recoverable. SFAS No. 121 is
effective for Summit's fiscal year 1997 and, upon adoption, any impairment
losses recognized for assets to be held and used must be recorded in continuing
operations while such losses attributable to assets to be disposed of must be
reported as a cumulative effect of a change in accounting principle. Summit
estimates that the implementation of SFAS No. 121 will result in a charge of
approximately $7.0 million, or $1.22 per share. It is management's intent to
implement SFAS No. 121 in fiscal year 1997.
82
<PAGE> 89
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
CKE's Common Stock has been listed on the NYSE under the symbol "CKR" since
April 25, 1994. Prior to that date, CKE's Common Stock was regularly quoted on
the Nasdaq National Market System under the symbol "CARL." The Summit Common
Stock is traded on the Nasdaq National Market under the symbol "SMFR." The
following table sets forth, for the periods indicated, the high and low closing
sales prices of CKE's Common Stock, as reported on the NYSE Composite Tape and
by the Nasdaq National Market, and the quarterly cash dividend per share paid on
the shares of CKE Common Stock, and the high and low closing sales prices of the
Summit Common Stock, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
SUMMIT COMMON
CKE COMMON STOCK STOCK
----------------------------- --------------
HIGH LOW DIVIDENDS HIGH LOW
------ ------ --------- ----- -----
<S> <C> <C> <C> <C> <C>
Fiscal 1994
First Quarter................................... $7.75 $5.63
Second Quarter.................................. 8.25 5.88
Third Quarter................................... 8.25 4.50
Fourth Quarter.................................. 6.13 3.88
Fiscal 1995
First Quarter................................... $14.00 $10.13 $0.04 $6.00 $3.63
Second Quarter.................................. 10.50 7.63 -- 5.63 4.00
Third Quarter................................... 9.13 7.75 0.04 5.75 3.63
Fourth Quarter.................................. 8.38 6.63 -- 5.50 3.63
Fiscal 1996
First Quarter................................... $ 8.13 $ 6.38 $0.04 $5.75 $4.38
Second Quarter.................................. 11.25 7.38 -- 5.69 4.44
Third Quarter................................... 15.88 11.75 0.04 5.25* 4.63*
Fourth Quarter.................................. 17.88 14.38 --
Fiscal 1997
First Quarter................................... $24.13 $14.88 0.04
Second Quarter.................................. $25.13* $24.50* --
</TABLE>
- ---------------
* Through May 23, 1996.
As of May 20, 1996, there were 499 holders of record of Summit Common
Stock. As of May 6, 1996, there were 1,862 holders of record of CKE Common
Stock.
Stockholders are advised to obtain current market quotations for the CKE
Common Stock and the Summit Common Stock prior to making any decision with
respect to the Merger. No assurance can be given as to the market price of the
CKE Common Stock or the Summit Common Stock at, or in the case of the CKE Common
Stock after, the Effective Time of the Merger.
Summit has not declared any cash dividends on the shares of Summit Common
Stock since fiscal 1986. On March 12, 1996, CKE declared a cash dividend of
$0.04 per share, which was paid on April 26, 1996 to holders of record of the
CKE Common Stock as of April 5, 1996. The payment of future dividends on CKE
Common Stock will be a business decision to be made by the Board of Directors of
CKE from time to time based upon the results of operations and financial
condition of CKE and such other factors as the CKE Board of Directors considers
relevant.
83
<PAGE> 90
CAPITALIZATION
The following table sets forth the consolidated capitalization of CKE at
January 29, 1996 and the adjusted consolidated capitalization of CKE after
giving effect to the Merger and the proposed disposition by CKE of certain
assets and liabilities of Summit. This table should be read in conjunction with
the Unaudited Pro Forma Combined Condensed Financial Statements included
elsewhere in this Proxy Statement/
Prospectus, which describe certain adjustments made to CKE's historical
consolidated capitalization to arrive at the adjusted consolidated
capitalization, and the historical consolidated financial statements of CKE,
including the notes thereto, which are incorporated by reference in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED(1)(2)
-------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Borrowings:
Long-term debt(3)...................................... $ 38,896 $ 39,264
Capitalized lease obligations(3)....................... 43,978 52,381
------- -------
Total............................................... 82,874 91,645
------- -------
Total Stockholders' Equity............................... 101,189 114,488
------- -------
Total Capitalization..................................... $184,063 $ 206,133
======= =======
</TABLE>
- ---------------
(1) Upon consummation of the Merger, each outstanding share of Summit Common
Stock will be converted into the right to receive a combination of $2.63 in
cash and a number of shares of CKE Common Stock to be determined by dividing
$2.64 by the Adjusted CKE Price. The Average CKE Price, if determined for
the 20 consecutive trading days ending on May 23, 1996, would have been
$21.74. Accordingly, for purposes of this table, the Adjusted CKE Price is
assumed to be $20.74, which would result in the issuance of 0.12729 shares
of CKE Common Stock for each Summit share. See "The Merger -- Conversion of
Shares."
(2) Pro Forma debt and equity capitalization reflect the issuance of 611,744
shares of CKE Common Stock in the Merger (based upon an assumed Adjusted CKE
Price of $20.74).
(3) Includes related current portions.
84
<PAGE> 91
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Condensed Financial Statements
are based upon the consolidated financial statements of CKE and Summit combined
and adjusted to give effect to the Merger and to the proposed disposition by CKE
of certain assets and liabilities of Summit (the "Disposition"). Upon
consummation of the Merger, each outstanding share of Summit Common Stock will
be converted into the right to receive the Merger Consideration, which will
consist of a combination of cash and shares of CKE Common Stock.
The following Unaudited Pro Forma Combined Condensed Balance Sheet at
January 29, 1996 gives effect to the Merger and the Disposition as if they had
occurred on such date and was prepared based upon the consolidated balance
sheets of CKE as of January 29, 1996 and of Summit as of March 11, 1996.
The following Unaudited Pro Forma Combined Condensed Statements of
Operations for the fiscal year ended January 29, 1996 give effect to the Merger
and the Disposition as if they had occurred at the beginning of such fiscal
year. The Unaudited Pro Forma Combined Condensed Statement of Operations for the
fiscal year ended January 29, 1996 was prepared based upon the consolidated
statements of operations of CKE for the fiscal year ended January 29, 1996 and
of Summit for the 24 weeks ended March 11, 1996 and the 28 weeks ended September
25, 1995.
These Unaudited Pro Forma Combined Condensed Financial Statements should be
read in conjunction with the CKE and Summit audited consolidated financial
statements and unaudited interim consolidated financial statements, including
the notes thereto, which are incorporated by reference or which appear elsewhere
in this Proxy Statement/Prospectus.
The Unaudited Pro Forma Combined Condensed Financial Statements are
provided for comparative purposes only, and are not necessarily indicative of
the results of operations or financial position of the combined company that
would have occurred had the Merger and the Disposition occurred at the beginning
of the period presented or on the date indicated, nor are they necessarily
indicative of future operating results or financial position. The unaudited pro
forma adjustments are based upon information set forth in this Proxy
Statement/Prospectus, and certain assumptions included in the notes to the
Unaudited Pro Forma Combined Condensed Financial Statements. Given the range of
potential outcomes arising with respect to the ongoing business of Summit, and
the decisions and the interrelationships among decisions to be made with respect
to the restructuring and integration of Summit's business with CKE, it is
difficult to ascertain the impact of such decisions on the financial condition
and results of operations of the combined companies. For example, CKE is
planning on selling or otherwise disposing of certain assets of Summit after the
Effective Time of the Merger. These assets include Summit's franchised HomeTown
Buffet restaurant operations, and related area development rights. CKE is also
performing an ongoing evaluation regarding the nature and scope of the JB's
Restaurant operations of Summit and various short- and long-term strategic
considerations in the process of assessing whether, and to what extent,
integration, consolidation or other modification of Summit's restaurant
operations is appropriate following the Merger. These strategic considerations
include, among other things, the possibilities that CKE may cause Summit after
the Merger to sell or otherwise dispose of some or all of the JB's Restaurants
owned and operated by Summit, to convert individual restaurants or groups of
restaurants into other or new restaurant concepts, and to close other
restaurants. Many operational and strategic decisions with respect to the
combined companies have not been made. As a result, significant uncertainties
and issues relating to the integration of Summit's business with CKE's
operations, and the timing, manner and results of the implementation of
decisions to be made with respect to Summit's ongoing operations following the
Merger may adversely affect the results of operations of CKE. There can be no
assurance that any such transactions will be effected at a favorable price to
CKE. Furthermore, there can be no assurances that the proceeds of any
dispositions of Summit assets will not be offset by operating losses, other
charges to earnings or losses of revenue, including losses of revenue of Summit
which may result from problems and uncertainties of integrating the two
companies and of any potential dispositions of Summit assets. CKE and Summit
believe the pro forma assumptions are reasonable under the circumstances.
85
<PAGE> 92
The Merger will be accounted for by the purchase method of accounting.
Accordingly, CKE's cost to acquire Summit (the "Purchase Consideration"),
calculated to be $30,927,000 assuming an Adjusted CKE Price of $20.74, will be
allocated to the assets acquired and liabilities assumed according to their
respective fair values. The total cost to acquire Summit is subject to change,
to the extent that fluctuations in the market value of CKE Common Stock cause
the Adjusted CKE Price to change. A change in the Adjusted CKE Price will result
in a corresponding change in net asset valuations. The final allocation of the
Purchase Consideration is dependent upon certain valuations and other studies
that have not progressed to a stage where there is sufficient information to
make such an allocation in the accompanying Unaudited Pro Forma Combined
Condensed Financial Statements. Accordingly, the purchase allocation adjustments
made in connection with the development of the Unaudited Pro Forma Combined
Condensed Financial Statements are preliminary and have been made solely for the
purpose of developing such Unaudited Pro Forma Combined Condensed Financial
Statements.
Acquisition costs, including fees payable to Summit's financial advisor,
have been included in the Unaudited Pro Forma Combined Condensed Financial
Statements.
The Merger Agreement provides that the number of shares of CKE Common Stock
to be issued in the Merger will be equal to $2.64 divided by the Adjusted CKE
Price, which is to be determined pursuant to a formula set forth in the Merger
Agreement on the basis of the Average CKE Price. In addition, the number of
shares of CKE Common Stock to be issued in the Merger is subject to adjustment
in accordance with the provisions of the Merger Agreement. The Pro Forma
Combined Condensed Financial Statements have been prepared on the assumptions
that (a) the Average CKE Price will be $21.74 and the Adjusted CKE Price will be
$20.74, (b) the exchange ratio representing the stock portion of the Merger
Consideration will be 0.12729 ($2.64 divided by the assumed Adjusted CKE Price),
and (c) the fair value of the 611,744 shares of CKE Common Stock to be issued in
the Merger will be $21.74 per share at the Effective Time of the Merger. See
"The Merger -- Conversion of Shares." The estimated fair value of the stock
portion of the Merger Consideration will be determined at closing, and may be
more or less than the Adjusted CKE Price used in determining the exchange ratio,
and any such variation may affect the actual total acquisition cost upon
consummation of the Merger.
The following table indicates the amounts of possible adjustments to the
total acquisition cost (excluding direct costs) based upon a range of per share
closing date values of the CKE Common Stock.
<TABLE>
<CAPTION>
RANGE OF ACTUAL CKE CLOSING PRICES
------------------------------------------------------------------------------------
$16.00 $18.00 $20.00 $22.00 $24.00 $26.00 $28.00 $30.00
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash to be paid............ $17,628 $17,628 $17,628 $17,628 $17,628 $17,628 $17,628 $17,628
Value of CKE Common Stock
to be issued............. 9,788 11,011 12,235 13,458 14,682 15,905 17,129 18,352
------- ------- ------- ------- ------- ------- ------- -------
Total Acquisition Cost..... $27,416 $28,639 $29,863 $31,086 $32,310 $33,533 $34,757 $35,980
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The Unaudited Pro Forma Combined Financial Statements do not reflect
certain cost savings that CKE expects to be realized primarily through
elimination of certain duplicative administrative costs. No assurances can be
made as to the amount of cost savings, if any, that actually will be realized.
There can be no assurance that the Merger or the Disposition will be
consummated.
86
<PAGE> 93
CKE RESTAURANTS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JANUARY 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------- PRO FORMA PRO FORMA
CKE AT SUMMIT AT ACQUISITION DISPOSITION PRO FORMA
1/29/96 3/11/96 COMBINED ADJUSTMENTS SUBTOTAL ADJUSTMENTS(H) COMBINED
-------- --------- -------- ----------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents.............. $ 25,939 $ 1,875 $27,814 $ (18,634)(a)(f)(g) $ 9,180 $ 15,452 $ 24,632
Notes receivable........... 594 190 784 784 784
Other receivables.......... 8,392 584 8,976 8,976 (37) 8,939
Inventories................ 6,132 1,466 7,598 7,598 (230) 7,368
Current deferred taxes,
net...................... 10,056 -- 10,056 10,056 10,056
Prepaid expenses and
other.................... 5,656 189 5,845 5,845 5,845
-------- ------- -------- -------- -------- -------- --------
Total current assets... 56,769 4,304 61,073 (18,634) 42,439 15,185 57,624
Property, building and
equipment, net........... 127,346 44,636 171,982 (2,852)(d) 169,130 (17,444) 151,686
Real property and equipment
under capitalized
leases................... 28,399 7,091 35,490 35,490 (2,267) 33,223
Notes receivable........... 7,236 2,241 9,477 9,477 9,477
Related party note
receivable............... 969 969 969 969
Long-term investments...... 19,814 1,430 21,244 21,244 21,244
Other assets............... 6,226 2,693 8,919 8,919 (375) 8,544
-------- ------- -------- -------- -------- -------- --------
Total assets........... $246,759 $62,395 $309,154 $ (21,486) $287,668 $ (4,901) $282,767
======== ======= ======== ======== ======== ======== ========
LIABILITIES
Current maturities of
long-term debt........... $ 12,320 $ 871 $13,191 $ $ 13,191 $ (178) $ 13,013
Accounts payable........... 15,824 5,358 21,182 21,182 (1,826) 19,356
Accrued liabilities........ 33,173 7,136 40,309 1,887(c)(e)(f) 42,196 (649) 41,547
-------- ------- -------- -------- -------- -------- --------
Total current
liabilities.......... 61,317 13,365 74,682 1,887 76,569 (2,653) 73,916
Obligations under
capitalized leases....... 40,233 9,981 50,214 50,214 (2,248) 47,966
Long-term debt............. 30,321 345 30,666 30,666 30,666
Other liabilities.......... 13,699 13,699 13,699 13,699
Deferred taxes, net........ -- 468 468 468 468
Deferred compensation...... -- 1,564 1,564 1,564 1,564
-------- ------- -------- -------- -------- -------- --------
Total liabilities...... 145,570 25,723 171,293 1,887 173,180 (4,901) 168,279
STOCKHOLDERS' EQUITY....... 101,189 36,672 137,861 (23,373)(a)(b) 114,488 114,488
-------- ------- -------- -------- -------- -------- --------
Total stockholders'
liabilities and
equity............... $246,759 $62,395 $309,154 $ (21,486) $287,668 $ (4,901) $282,767
======== ======= ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
87
<PAGE> 94
CKE RESTAURANTS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JANUARY 29, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
CKE SUMMIT
FISCAL YEAR 52 WEEKS PRO FORMA PRO FORMA
ENDED ENDED ACQUISITION DISPOSITION PRO FORMA
1/29/96 3/11/96 COMBINED ADJUSTMENTS SUBTOTAL ADJUSTMENTS(H) COMBINED
----------- -------- -------- ----------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
RESTAURANTS:
Total revenues.............. $ 465,437 $120,897 $586,334 $586,334 $(38,078) $548,256
COSTS AND EXPENSES:
Food and packaging.......... 121,029 39,563 160,592 160,592 (14,199) 146,393
Payroll and other employee
benefits.................. 109,942 41,977 151,919 $(1,600)(j) 150,319 (11,246) 139,073
Occupancy and other
expenses.................. 82,095 32,208 114,303 114,303 (9,876) 104,427
Franchised and licensed
restaurants............... 68,839 194 69,033 69,033 -- 69,033
Advertising................. 19,940 3,316 23,256 23,256 (140) 23,116
General and
administrative............ 37,857 9,845 47,702 (570)(d) 47,132 (810) 46,322
-------- -------- -------- ----- -------- -------- --------
439,702 127,103 566,805 (2,170) 564,635 (36,271) 528,364
-------- -------- -------- ----- -------- -------- --------
Operating income (loss)....... 25,735 (6,206 ) 19,529 2,170 21,699 (1,807) 19,892
Interest expense.............. (10,004) (1,375 ) (11,379 ) (11,379) 208 (11,171 )
Gain on sale of long-term
investments................. 3,959 3,959 3,959 3,959
Gain on sale of restaurants... 50 50 50 50
Other income, net............. 2,222 350 2,572 2,572 2,572
-------- -------- -------- ----- -------- -------- --------
Income (loss) before income
taxes....................... 17,953 (3,222 ) 14,731 2,170 16,901 (1,599) 15,302
Income tax expense
(benefit)................... 7,001 900 7,901 868(i) 8,769 (640)(i) 8,129
-------- -------- -------- ----- -------- -------- --------
Net income (loss)............. $ 10,952 $(4,122 ) $ 6,830 $ 1,302 $ 8,132 $ (959) $ 7,173
======== ======== ======== ===== ======== ======== ========
Net income per share.......... $ 0.59 $ 0.42 $ 0.37
======== ======== ========
Weighted average shares
outstanding................. 18,679 19,427 19,427
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
88
<PAGE> 95
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(a) The pro forma combined condensed balance sheet and statements of
operations have been prepared to reflect the acquisition of Summit by CKE for an
aggregate estimated purchase price comprised of the following:
<TABLE>
<S> <C>
Cash........................................... $ 17,628,000
Common Stock................................... $ 13,299,000
------
$ 30,927,000
======
</TABLE>
The cash portion of the purchase price includes cash in the amount of
$4,989,183 paid by CKE for the purchase of the Summit Preferred Stock on April
4, 1996. The estimated tangible net assets, as adjusted, of Summit are assumed
to be equal to the consideration given.
(b) The pro forma combined condensed balance sheet has been adjusted to
eliminate the equity of Summit.
(c) To record anticipated additional change of control and severance costs
of $1,337,000 for employees of Summit expected to be terminated after
consummation of the Merger. See note (j) below.
(d) To write down $1,150,000 of certain leasehold improvements, property
and equipment which will not be used by CKE after the Merger, to allocate
$1,702,000, the remaining excess of fair value of net assets acquired over
consideration paid, in accordance with APB No. 16 and to record the related
$570,000 impact on depreciation and amortization expense calculated over five
years.
(e) To record reserves for the excess of master lease payments over
anticipated sublease rents of $300,000 for Summit's corporate office lease,
$200,000 for computer and equipment lease commitments and $175,000 for other
integration costs.
(f) To record the use of cash of $773,000 for investment banker fees to be
paid upon the closing of the Merger and to reduce liabilities by $125,000,
representing investment bankers fees previously accrued by Summit.
(g) To record the use of $233,000 in cash for the assumed exercise of
Summit options whose exercise price is below the market value of the Summit
Common Stock.
(h) To give pro forma effect to the assumed Disposition, which would
include the sale of certain assets and assumption of certain liabilities of
Summit, for $15,452,000 in cash; the resulting gain of $5,090,000 has been
treated as an adjustment of the original purchase price and considered in the
allocation of the remaining excess of fair value of net assets acquired over
consideration paid.
(i) To record the income tax effects of the pro forma adjustments at an
assumed rate of 40%.
(j) To exclude $1,600,000 of change of control and severance costs, for
employees of Summit who have already been terminated and which are included in
Summit's results of operations for the 52 week period ended March 11, 1996, as a
non-recurring charge.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
OF CKE AND SUMMIT
The rights of CKE's stockholders are governed by its Certificate of
Incorporation (the "CKE Certificate"), its Bylaws (the "CKE Bylaws") and the
laws of the State of Delaware. The rights of Summit's stockholders are governed
by its Certificate of Incorporation, as amended by the Certificate of
Designations establishing the Summit Preferred Stock (the "Summit Certificate"),
its Bylaws, as amended (the "Summit Bylaws") and the laws of the State of
Delaware. Upon consummation of the Merger, holders of Summit Common Stock and
Summit Preferred Stock will become holders of CKE Common Stock. As a result, the
rights of Summit stockholders will be governed by the DGCL and the CKE
Certificate and CKE Bylaws. The following is a summary of the material
differences between the rights of CKE stockholders and the rights of Summit
stockholders under their respective Certificates of Incorporation and Bylaws.
The summary does not purport to be complete and is subject to and qualified in
its entirety by reference to the CKE Certificate, the CKE Bylaws, the Summit
Certificate, the Summit Bylaws and the DGCL.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Article XIII of the CKE Certificate provides that any alteration,
amendment, repeal or rescission (any "Change") of any provision contained in the
CKE Certificate must be approved by a majority of the directors of CKE then in
office and by the affirmative vote of the holders of a majority of the
outstanding shares of stock of CKE of any class or series entitled to vote
generally in the election of directors of CKE ("Voting Stock") then outstanding;
provided, however, that, if the proposed Change relates to Article II (which
sets forth definitions of certain terms used in the CKE Certificate, including
the term "Interested Stockholder"), Article VII (which identifies the persons
who are entitled to call special meetings of stockholders of CKE and sets forth
the procedural requirements for the calling of such meetings), Article IX (which
eliminates stockholder action by written consent), Article X (which provides for
classification of the CKE Board of Directors and sets forth the procedures for
elections of directors, including election to fill vacancies and newly created
directorships, and for the removal of directors), Article XI (which sets forth a
supermajority vote requirement for certain business combinations), or Article
XIV (which sets forth appraisal rights of stockholders of CKE in connection with
certain business combinations described in Article XI), such Change must also be
approved by the affirmative vote of the holders of not less than 66 2/3% of the
shares of Voting Stock then outstanding. In addition, any Change which relates
to the provisions of Article XIII of the CKE Certificate must also be approved
by the same percentage vote.
Article Thirteenth of the Summit Certificate provides that the provisions
of Article Sixth (which provides a supermajority vote requirement for amendments
to the Summit Bylaws by stockholders of Summit), Article Seventh (which provides
for the classification of the Summit Board of Directors), Article Eighth (which
provides a supermajority vote requirement for certain business combinations),
Article Ninth (which eliminates stockholder action by written consent), Article
Tenth (which identifies the persons who may call special meetings of
stockholders), Article Eleventh (which includes certain "fair price"
provisions), and Article Twelfth (relating to the removal of directors without
cause) may not be repealed or amended unless such repeal or amendment is
approved by the affirmative vote of the holders of not less than 80% of the
total voting power of all outstanding shares of voting stock of Summit. In
addition, any change which relates to the provisions of Article Thirteenth of
the Summit Certificate must also be approved by the same percentage vote, and
any alteration, amendment or repeal of any provision of the Summit Certificate
or the Summit Bylaws which would alter or change the rights of the Summit
Preferred Stock so as to affect them adversely requires the vote of the holders
of 75% of the Summit Preferred Stock.
AMENDMENT OF BYLAWS
The CKE Bylaws provide that the CKE Bylaws may be adopted, amended or
repealed by the Board of Directors or by the stockholders of CKE. The Summit
Bylaws may be adopted, amended or repealed by a vote of 80% of the outstanding
stock of Summit entitled to vote thereon. Summit Bylaws may also be adopted,
amended or repealed by the Summit Board of Directors as permitted by law,
however, any Summit Bylaw
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amendment increasing or reducing the authorized number of directors shall
require a resolution adopted by the affirmative vote of not less than 80% of the
directors.
AUTHORIZED CAPITAL
The CKE Certificate authorizes 5,000,000 shares of preferred stock, the
rights, preferences, powers and restrictions of which may be determined by the
Board of Directors without stockholder approval. Accordingly, the CKE Board of
Directors has the ability to designate a series of preferred stock with rights,
preferences, powers and restrictions which would make a change of control of CKE
not approved by the CKE Board of Directors more difficult and, therefore, less
likely. No shares of CKE preferred stock are issued or outstanding, and CKE has
no current plans or proposals for the issuance of any shares of preferred stock.
The CKE Certificate also authorizes 50,000,000 shares of CKE Common Stock, of
which 18,619,565 shares were issued and outstanding as of May 6, 1996. Shares of
authorized and unissued CKE Common Stock could be issued in one or more
transactions, which also could make a change in control of CKE more difficult
and, therefore, less likely. Any such issuance of additional stock could have
the effect of diluting the earnings per share and the book value per share of
outstanding shares of CKE Common Stock, and such additional shares could be used
to dilute the stock ownership or voting rights of persons seeking to obtain
control of CKE.
The Summit Certificate authorizes 1,000,000 shares of preferred stock, all
of which have been designated as Series A Convertible Preferred Stock and of
which 946,714 shares are currently issued and outstanding and are owned by CKE.
The Summit Certificate also authorizes 10,000,000 shares of Summit Common Stock,
of which 4,805,902 shares were issued and outstanding on May 20, 1996.
DIVIDENDS AND DISTRIBUTIONS
The CKE Certificate provides that (i) the Board of Directors is authorized
to fix any dividend rights of CKE preferred stock, including whether dividends
are cumulative, and (ii) in the event of voluntary or involuntary dissolution,
liquidation, or winding up of the affairs of CKE, and subject to the rights of
the holders of outstanding shares of preferred stock, if any, the holders of
shares of CKE Common Stock shall be entitled to receive pro rata all of the
remaining assets of CKE available for distribution to its stockholders after
payment or provisions for payment of the debts and other liabilities of CKE.
The Summit Certificate provides to the holders of Summit Preferred Stock
certain dividend and liquidation preferences, to which any shares of Summit
Common Stock outstanding upon any distribution, liquidation or dissolution are
subject.
FAIR PRICE PROVISIONS
The Summit Certificate also includes a provision (the "Fair Price
Provision") which imposes significant limitations on the voting rights of any
shares of capital stock of Summit entitled to vote generally in the election of
directors which are beneficially owned by any person who becomes a "Substantial
Shareholder" (generally, any person who is or becomes the beneficial owner of
more than 10% of the outstanding Summit voting shares, with certain exceptions).
Such limitations on voting rights are designed to remain effective until such
person ceases to be a Substantial Shareholder or consummates a tender offer (i)
the terms of which are approved as in the best interests of Summit and its
stockholders by a majority of the Board, or (ii) which meets certain minimum
price and procedural requirements. The CKE Certificate includes no provisions
similar to the Summit Fair Price Provision.
SPECIAL MEETINGS; PROHIBITIONS OF ACTIONS BY WRITTEN CONSENT
Pursuant to the DGCL, a special meeting of stockholders may be called by
the board of directors or by any other person authorized to do so in the
certificate of incorporation or bylaws. The CKE Certificate and the Summit
Certificate each provides that special meetings of their respective stockholders
may be called only by a majority of the Board of Directors or by a committee of
the Board of Directors which has been duly empowered by the Board of Directors
to call such special meetings.
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<PAGE> 98
The CKE Certificate and the Summit Certificate each prohibits the taking of
stockholder action without a meeting.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
The CKE Bylaws provide that a vacancy on the Board of Directors, whether
such vacancy results from death, resignation, disqualification, an increase in
the number of directors or any other cause, may be filled by the vote of a
majority of the remaining directors, even though less than a quorum, or by a
sole remaining director; provided, however, that whenever the holders of any
class or series of shares are entitled to elect one or more directors, any
vacancy or newly created directorship of such class or series may be filled by a
majority of the directors elected by such class or series then in office, or by
a sole remaining director so elected. The Summit Bylaws provide that any vacancy
occurring in the Board of Directors may be filled, for the unexpired term of
office, by the affirmative vote of a majority of the remaining directors, even
though less than a quorum. The holders of Summit Preferred Stock are entitled,
voting as a separate class, to elect two directors to Summit's Board, and would
be entitled to elect two additional directors upon the occurrence and during the
continuation of certain circumstances described in the Certificate of
Designations establishing the Summit Preferred Stock. In case of any vacancy
occurring among the directors so elected by the holders of Summit Preferred
Stock, the remaining director who shall have been so elected may appoint a
successor to hold office for the unexpired term of the director whose place is
vacant. If both directors so elected by the holders of Summit Preferred Stock
shall cease to serve as directors before their terms expire, the holders of
Summit Preferred Stock then outstanding may elect their respective successors.
REMOVAL OF DIRECTORS
Under the CKE Certificate and the DGCL, subject to the rights of the
holders of any shares of preferred stock then outstanding, any or all directors
of CKE may be removed only for cause at any time, and only by the affirmative
vote of holders of a majority of the shares of Voting Stock of CKE then
outstanding. Thus, a third party seeking to gain control of CKE's Board of
Directors may be forced to await the expiration of the respective terms of
incumbent directors, unless there were cause for removal and sufficient voting
strength to remove a particular director or directors.
Under the Summit Certificate, a director, or the entire board of directors,
may be removed by the stockholders without cause only upon the affirmative vote
of the holders of not less than 80% of the stock entitled to vote upon the
election of directors. A director may be removed for cause only by the
affirmative vote of the holders of a majority of the stock entitled to vote upon
the director's election.
CLASSIFIED BOARD OF DIRECTORS
The CKE Bylaws and the Summit Bylaws each currently provide for a nine
member Board of Directors. The CKE Certificate and the Summit Certificate each
provide that their respective Boards of Directors shall be divided into three
classes, and, after an initial term, each director will be elected for a
three-year term. The CKE Certificate of Incorporation also provides that, with
the exception of Carl N. Karcher, no person who has attained the age of 75 shall
be eligible for election to CKE's Board.
PROCEDURES FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The CKE Bylaws provide that at any meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting by or
at the direction of the Board or by any stockholder of CKE who complies with the
advance notice procedures set forth therein. Nominations for the election of
directors of CKE may be made by the Board of Directors or by any stockholder
entitled to vote in the election of directors; provided, however, that a
stockholder may nominate a person for election as a director at a meeting only
if such stockholder complies with the advance notice procedures set forth
therein. Such provisions are designed to prohibit last-minute attempts by any
stockholder to nominate a director or present a business proposal at an annual
stockholders' meeting, and to enable CKE's Board to be informed in advance of
nominations or proposals (including any that may be made by a person seeking to
acquire CKE) to be
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<PAGE> 99
presented at stockholders' meetings in order to prepare informed and reasoned
positions with respect to any such nominations or proposals. These procedures
would also eliminate the element of surprise that a person seeking to acquire
CKE might otherwise use to advantage in making a stockholder proposal.
The Summit Certificate and the Summit Bylaws do not impose comparable
conditions on the submission of stockholder proposals or director nominations.
CUMULATIVE VOTING
Under the DGCL, the certificate of incorporation of any corporation may
provide for cumulative voting in the election of directors. Cumulative voting
rights entitle a stockholder to give one nominee as many votes as is equal to
the number of directors to be elected multiplied by the number of shares owned
by the stockholder, or to distribute such votes on the same principal among two
or more nominees, as the stockholder sees fit. The CKE Certificate provides for
cumulative voting in the election of directors. The Summit Certificate does not
provide for cumulative voting in the election of directors.
BUSINESS COMBINATIONS AND SUPERMAJORITY PROVISIONS
Section 203 of the DGCL restricts a wide range of transactions ("business
combinations") between a corporation and an interested stockholder. An
"interested stockholder" is, generally, any person who beneficially owns,
directly or indirectly, 15% or more of the corporation's outstanding voting
stock. Business combinations are broadly defined to include (i) mergers or
consolidations with, (ii) sales or other dispositions of more than 10% of the
corporation's assets to, (iii) certain transactions resulting in the issuance or
transfer of any stock of the corporation or any subsidiary to, (iv) certain
transactions which would result in increasing the proportionate share of stock
of the corporation or any subsidiary owned by, or (v) receipt of the benefit
(other than proportionately as a stockholder) of any loans, advances or other
financial benefits by, an interest stockholder. Section 203 provides that an
interested stockholder may not engage in a business combination with the
corporation for a period of three years from the time of becoming an interested
stockholder unless (i) the board of directors approved either the business
combination or the transaction which resulted in the person becoming an
interested stockholder prior to the time such person became an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
person becoming an interested stockholder, that person owned at least 85% of the
corporation's voting stock (excluding shares owned by persons who are officers
and also directors and shares owned by certain employee stock plans); or (iii)
the business combination is approved by the board of directors and authorized by
the affirmative vote of at least 66 2/3 of the outstanding voting stock not
owned by the interested stockholder. The restrictions on business combinations
with interested stockholders contained in Section 203 do not apply to a
corporation whose certificate of incorporation contains a provision expressly
electing not to be governed by the statute.
The CKE Certificate contains an express election not to be governed by
Section 203. The Summit Certificate does not contain any such "opt-out"
provision.
The CKE Certificate provides that, in addition to any affirmative vote
required by any applicable law or any other provision of such Certificate of
Incorporation or specified in any agreement, and in addition to any voting
rights granted to or held by the holders of CKE Common Stock or preferred stock,
the approval or authorization of any Business Combination (as such term is
defined in Section 203 of the DGCL and disregarding the definition of the term
"interested stockholder" appearing therein) involving an "Interested
Stockholder" that has not been approved in advance by at least 66 2/3% of the
directors shall require the affirmative vote of the holders of not less than
66 2/3% of the Voting Stock then outstanding (the "CKE Supermajority Vote
Requirement"). As used in the CKE Supermajority Vote Requirement, an "Interested
Stockholder" is any person, firm or corporation which beneficially owns five
percent (5%) or more of the outstanding Voting Stock of CKE. The CKE Certificate
also provides that, to the fullest extent permissible under Section 262 of the
DGCL, the stockholders of CKE shall be entitled to statutory appraisal rights
provided therein, notwithstanding any exception otherwise provided in Section
262, with respect to any Business Combination involving CKE to which the CKE
Supermajority Vote Requirement applies.
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In addition to the requirements of Section 203 of the DGCL, the Summit
Certificate requires the affirmative vote of the holders of not less than 80% of
the outstanding stock of Summit entitled to vote for approval if: (i) Summit
merges or consolidated with any other corporation if such corporation and its
affiliates are directly or indirectly the beneficial owners of more than 10% of
the total voting power of all outstanding shares of the voting stock of Summit
(a "Related Corporation"); (ii) Summit sells to or exchanges with a Related
Corporation all or a substantial part of its assets (comprising more than 10% of
the book value or fair market value of the total assets of Summit and its
subsidiaries taken as a whole); or (iii) Summit issues or delivers any stock or
other securities of its issue in exchange or payment for any properties or
assets of a Related Corporation or securities issued by a Related Corporation,
or in a merger of any affiliate of Summit with or into a Related Corporation or
any of its affiliates; provided, however, that the foregoing shall not apply to
any such transaction which was approved by resolution of the board of directors
adopted by the affirmative vote of not less than a majority of the directors who
were directors prior to the acquisition of beneficial ownership of more than 10%
of all outstanding shares of the voting stock of Summit by the Related
Corporation and its affiliates, or to any such transaction solely between Summit
and another corporation 50% or more of the voting stock of which is owned by
Summit.
INDEMNIFICATION
Section 145 of the DGCL provides that a corporation may indemnify any
person who was or is threatened to be made a party to an action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
or she is or was a director, officer, employee or agent of the corporation or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Determination of indemnification shall be made (i) by members of the
corporation's board of directors who were not parties to such action, even if
less than a quorum, or (ii) if there are no such directors or if the directors
so direct, by independent legal counsel in a written opinion, or (iii) by the
corporation's stockholders.
The DGCL also provides that a corporation may indemnify any person who was
or is a party or is threatened to made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a director,
officer, employee or agent of the corporation, or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of such action or suit if he or
she acted in good faith and in a manner he or she reasonably believed to be in,
or not opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect of any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery, or the court in which such action was
brought, shall determine that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
The CKE Certificate and the Summit Certificate include provisions requiring
that directors, officers and certain other persons be indemnified in the manner
and to the fullest extent permitted by Delaware law.
LIMITATION OF LIABILITY
The DGCL provides that the certificate of incorporation of a corporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. Such provision shall not, however, eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders,
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(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
(which provides for liability of directors for unlawful payments of dividends or
unlawful stock purchase or redemptions), or (iv) for any transaction from which
the director derived an improper personal benefit.
CKE and Summit have each adopted provisions in their respective
Certificates of Incorporation eliminating the liability of a director to the
corporation or its stockholders for monetary damages for breach of the
director's fiduciary duty.
CERTAIN ANTITAKEOVER EFFECTS
Certain of the above-described provisions of the CKE Certificate, the CKE
Bylaws and the DGCL may have the effect of impeding the acquisition of control
of CKE by means of a tender offer, a proxy fight, open market purchases or
otherwise in a transaction not approved by the CKE Board of Directors. Such
provisions are designed to reduce, or have the effect of reducing, the
vulnerability of CKE to an unsolicited proposal for the restructuring or sale of
all or substantially all of the assets of CKE or an unsolicited takeover attempt
which is unfair to CKE stockholders.
STOCKHOLDER PROPOSALS
Proposals of stockholders of Summit which are intended to be presented by
such stockholders at Summit's 1996 Annual Meeting of Stockholders (if the Merger
is not consummated) must have been received by Summit on or before August 1,
1995 in order to be considered for inclusion in Summit's proxy materials. CKE's
next Annual Meeting of Stockholders is scheduled to be held on June 19, 1996.
Proposals by eligible stockholders of CKE which are intended to be presented at
CKE's 1997 Annual Meeting of Stockholders must be received by CKE on or before
January 21, 1997 in order to be considered for inclusion in CKE's proxy
materials.
LEGAL MATTERS
The validity of the shares of CKE Common Stock to be issued in connection
with the Merger will be passed upon for CKE by Stradling, Yocca, Carlson &
Rauth, a Professional Corporation, Newport Beach, California. The federal income
tax consequences in connection with the Merger will be passed upon by Latham &
Watkins, Los Angeles, California.
EXPERTS
The consolidated financial statements and schedules of CKE Restaurants,
Inc. and subsidiaries as of January 31, 1996 and 1995, and for each of the years
in the three-year period ended January 31, 1996, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements and schedules of Summit Family
Restaurants Inc. and subsidiaries as of September 25, 1995 and September 26,
1994, and for each of the years in the three-year period ended September 25,
1995, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
It is expected that representatives of KPMG Peat Marwick LLP, Summit's
independent certified public accountants, will be present at the Special
Meeting, where they will have an opportunity to respond to appropriate questions
of stockholders and to make a statement if they so desire.
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INDEX TO FINANCIAL STATEMENTS
SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets as of September 26, 1994, September 25, 1995 and March 11,
1996 (unaudited).................................................................... F-3
Consolidated Statements of Operations for the fiscal years ended September 27, 1993,
September 26, 1994 and September 25, 1995 and for the twenty four weeks ended March
13, 1995 and March 11, 1996 (unaudited)............................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended
September 27, 1993, September 26, 1994 and September 25, 1995 and for the twenty
four weeks ended March 11, 1996 (unaudited)......................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended September 27, 1993,
September 26, 1994 and September 25, 1995 and for the twenty four weeks ended March
13, 1995 and March 11, 1996 (unaudited)............................................. F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 103
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors of
Summit Family Restaurants Inc., Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets of Summit
Family Restaurants Inc. and subsidiaries as of September 26, 1994 and September
25, 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
September 25, 1995. These consolidated financial statements are the
responsibility of Summit's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Summit
Family Restaurants Inc. and subsidiaries as of September 26, 1994 and September
25, 1995, and the results of their operations and their cash flows for each of
the years in the three-year period ended September 25, 1995, in conformity with
generally accepted accounting principles.
As discussed in notes 1 and 6 to the consolidated financial statements,
Summit changed its method of accounting for investments to adopt the provisions
of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" during the first quarter of fiscal 1994.
/s/ KPMG PEAT MARWICK LLP
- ---------------------------------------------------------
KPMG Peat Marwick LLP
Salt Lake City, Utah
November 3, 1995
except as to Note 15 which
is as of May 16, 1996
F-2
<PAGE> 104
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 11,
1996
SEPTEMBER 26, SEPTEMBER 25, ---------
1994 1995
------------- ------------- (UNAUDITED)
---------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................ $ 5,303 $ 1,911 $ 1,875
Short-term investments................................... 2,160 -- --
Receivables
Short-term portion of notes receivable -- Note 4....... 173 190 190
Other receivables...................................... 3,404 1,898 584
Inventories.............................................. 1,386 1,411 1,466
Deferred Taxes, net -- Note 9............................ 78 76 --
Prepaid expenses......................................... 309 199 189
------- ------- -------
Total current assets................................. 12,813 5,685 4,304
------- ------- -------
Property, buildings and equipment, at cost, less
accumulated depreciation and amortization -- Notes 2 &
7........................................................ 45,672 46,797 44,636
------- ------- -------
Real property and equipment under capitalized leases at
cost, less accumulated amortization -- Notes 2, 7 & 8.... 7,480 6,731 7,091
------- ------- -------
Other assets
Notes receivable, net of current portion -- Note 4....... 2,580 2,696 2,241
Investment in HomeTown Buffet, Inc. -- Note 6............ 5,678 6,999 1,430
Deposits and other....................................... 986 827 1,641
------- ------- -------
Total other assets................................... 9,244 10,522 5,312
------- ------- -------
Intangible assets, at cost, less accumulated amortization
Lease acquisition costs.................................. 569 414 369
Other intangible assets.................................. 830 735 683
------- ------- -------
Total intangible assets.............................. 1,399 1,149 1,052
------- ------- -------
Total assets......................................... $76,608 $70,884 $62,395
======= ======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable -- trade................................ $ 6,874 $ 6,772 $ 5,358
Accrued liabilities
Payroll and related taxes.............................. 2,764 3,334 2,627
Sales and property taxes............................... 1,855 2,071 1,673
Rent and other......................................... 2,762 2,045 2,836
Current maturities of long-term debt -- Note 7........... 1,960 2,928 871
------- ------- -------
Total current liabilities............................ 16,215 17,150 13,365
------- ------- -------
Long-term debt, net of current maturities -- Notes 6, 7 & 8
Capitalized real property & equipment leases............. 10,609 9,795 9,981
Notes payable............................................ 2,484 355 345
------- ------- -------
Total long-term debt................................. 13,093 10,150 10,326
------- ------- -------
Deferred taxes, net -- Note 9.............................. 1,376 1,877 468
------- ------- -------
Deferred compensation -- Note 11........................... 1,588 1,580 1,564
------- ------- -------
Commitments and contingencies -- Notes 8, 14 & 15
Stockholders equity -- Notes 6, 7, 10, 11 & 12
Preferred stock, $1 par value; 1,000,000 shares
authorized;
946,714 issued and outstanding....................... 947 947 947
Junior common stock; $.01 par value; 500,000 shares
authorized;
none outstanding..................................... -- -- --
Common stock, $.10 par value; 10,000,000 shared
authorized;
5,288,759, 4,798,102 and 4,805,902 shared issued..... 529 480 481
Additional paid-in capital............................. 29,581 26,389 26,428
Unrealized gain on investment in HomeTown Buffet,
Inc., net of tax..................................... 2,773 3,565 702
Retained earnings...................................... 13,790 8,746 8,114
------- ------- -------
47,620 40,127 36,672
Less: 500,000 common stock treasury shares in 1994 at
cost..................................................... 3,284 -- --
------- ------- -------
Total stockholders equity............................ 44,336 40,127 36,672
------- ------- -------
Total liabilities and stockholders equity.................. $76,608 $70,884 $62,395
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 105
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS
YEARS ENDED ENDED
----------------------------------------- -------------------
SEPTEMBER SEPTEMBER SEPTEMBER MARCH MARCH
27, 26, 25, 13, 11,
1993 1994 1995 1995 1996
------------ ------------ ----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total Revenues........................... $114,768 $115,367 $ 121,099 $54,324 $54,122
-------- -------- -------- ------- -------
Costs and expenses:
Food costs............................. 36,610 37,678 40,018 17,924 17,469
Labor costs............................ 38,233 40,280 42,376 19,157 18,758
Occupancy and other expenses........... 26,168 26,846 28,809 12,902 13,051
General and administrative expenses.... 7,486 8,157 8,363 3,688 4,974
Depreciation and amortization.......... 6,658 6,065 6,585 2,830 3,201
Charge for property
dispositions -- Note 5.............. 4,264 1,982 -- -- --
-------- -------- -------- ------- -------
Total costs and expenses....... 119,419 121,008 126,151 56,501 57,453
-------- -------- -------- ------- -------
Loss from operations..................... (4,651) (5,641) (5,052) (2,177 ) (3,331 )
-------- -------- -------- ------- -------
Interest and other income (expense):
Interest expense....................... (2,486) (1,967) (1,535) (723 ) (563 )
Interest income........................ 487 668 452 282 180
Gain on sale of HomeTown Buffet, Inc.
stock -- Note 6..................... 1,727 14,700 -- -- 3,959
Gains on sales of restaurants to
franchisees and other............... 1,126 630 38 11 23
Loss on disposition of note
receivable -- Note 4................ -- (1,564) -- -- --
-------- -------- -------- ------- -------
Total interest and other income
(expense).................... 854 12,467 (1,045) (430 ) 3,599
-------- -------- -------- ------- -------
Income (loss) before income taxes and
extraordinary item..................... (3,797) 6,826 (6,097) (2,607 ) 268
-------- -------- -------- ------- -------
Income taxes (benefit) -- Note 9
Current................................ (369) 2,413 (1,028) (1,028 ) 324
Deferred............................... (1,114) 307 (25) (25 ) 576
-------- -------- -------- ------- -------
Total income taxes (benefit)............. (1,483) 2,720 (1,053) (1,053 ) 900
-------- -------- -------- ------- -------
Income (loss) before extraordinary
item................................... (2,314) 4,106 (5,044) (1,554 ) (632 )
-------- -------- -------- ------- -------
Extraordinary loss resulting from
extinguishment of debt (less tax
benefit of $233) -- Note 7............. -- 350 -- -- --
-------- -------- -------- ------- -------
Net income (loss)........................ $ (2,314) $ 3,756 $ (5,044) $(1,554 ) $ (632 )
======== ======== ======== ======= =======
Net income (loss) per common share before
extraordinary loss..................... $ (0.49) $ 0.72 $ (1.05) $ (0.32 ) $ (0.13 )
Extraordinary loss from early
extinguishment of debt, net of tax
benefit................................ -- (0.06) -- -- --
-------- -------- -------- ------- -------
Net income (loss) per common share....... $ (0.49) $ 0.66 $ (1.05) $ (0.32 ) $ (0.13 )
======== ======== ======== ======= =======
Weighted average shares outstanding...... 4,693 5,723 4,794 4,790 4,802
======== ======== ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 106
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON STOCK
--------------- ----------------- ADDITIONAL
PAR PAR PAID-IN UNREALIZED RETAINED TREASURY
SHARES VALUE SHARES VALUE CAPITAL GAIN EARNINGS STOCK TOTAL
------- ----- --------- ----- ---------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 28, 1992....... -- $ -- 5,097,388 $510 $ 24,582 $ -- $12,348 $(3,284) $34,156
Common stock issued Under
options......................... -- -- 164,730 17 772 -- -- -- 789
Common stock redeemed and
retired......................... -- -- (6,359) (1) (32) -- -- (33)
Net loss.......................... -- -- -- -- (2,314) -- (2,314)
------- --- --------- --- ------ ------ ------ ------ ------
BALANCE, SEPTEMBER 27, 1993....... -- -- 5,255,759 526 25,322 -- 10,034 (3,284) 32,598
Common stock issued Under
options......................... -- -- 33,000 3 162 -- -- -- 165
Preferred stock issued............ 946,714 947 -- -- 4,097 -- -- -- 5,044
Unrealized gain on investment in
HomeTown Buffet, Inc., net of
tax............................. -- -- -- -- -- 2,773 -- -- 2,773
Net income........................ -- -- -- -- -- -- 3,756 -- 3,756
------- --- --------- --- ------ ------ ------ ------ ------
BALANCE, SEPTEMBER 26, 1994....... 946,714 947 5,288,759 529 29,581 2,773 13,790 (3,284) 44,336
Common stock contributed to
employee
benefit plan.................... -- -- 4,801 -- 13 -- -- 30 43
Treasury stock retired............ -- -- (495,458) (49) (3,205) -- -- 3,254 --
Unrealized gain on investment in
HomeTown Buffet, Inc., net of
tax............................. -- -- -- -- -- 792 -- -- 792
Net income........................ -- -- -- -- -- -- (5,044) -- (5,044)
------- --- --------- --- ------ ------ ------ ------ ------
BALANCE, SEPTEMBER 25, 1995....... 946,714 947 4,798,102 480 26,389 3,565 8,746 -- 40,127
Common stock issued under options
(unaudited)..................... -- -- 7,800 1 39 -- -- -- 40
Unrealized gain on investment in
HomeTown Buffet, Inc., net of
tax (unaudited)................. -- -- -- -- -- (2,863) -- -- (2,863)
Net income (unaudited)............ -- -- -- -- -- -- (632) -- (632)
------- --- --------- --- ------ ------ ------ ------ ------
BALANCE, MARCH 11, 1996
(UNAUDITED)..................... 946,714 $947 4,805,902 $481 $ 26,428 $ 702 $ 8,114 $ -- $36,672
======= === ========= === ====== ====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 107
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS
YEARS ENDED ENDED
--------------------------------------------- ---------------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 25, MARCH 13, MARCH 11,
1993 1994 1995 1995 1996
------------- ------------- ------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................ $ (2,314) $ 3,756 $ (5,044) $(1,554) $ (632)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization.......... 6,658 6,065 6,585 2,830 3,201
Charge for property dispositions....... 4,264 1,982 -- -- --
Provision for losses................... 108 1,697 -- -- 17
Loss on extinguishment of debt......... -- 583 -- -- --
(Gain) loss on disposal of assets...... (346) (592) 209 129 --
Gain on sale of HomeTown Buffet, Inc.
stock................................ (1,727) (14,700) -- -- (3,959)
Change in operating assets and
liabilities
Decrease (increase) in receivables... (1,230) 399 1,561 870 1,307
Decrease (increase) in inventories... 70 (72) (25) (321) (55)
Decrease (increase) in other
assets............................ 296 (338) 449 51 (394)
Increase (decrease) in accounts
payable........................... 292 1,910 (102) (2,554) (1,414)
Increase (decrease) in accrued
liabilities....................... (731) 475 319 531 (393)
Increase (decrease) in net deferred
taxes............................. (1,114) 308 (2) 265 577
-------- -------- -------- ------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... 4,226 1,473 3,950 247 (1,745)
-------- -------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of HomeTown Buffet,
Inc. stock............................. 2,500 16,814 -- -- 4,756
Payments received on notes receivables... 297 2,580 135 61 59
Proceeds from sale of assets............. 2,762 1,865 3,028 630 --
Proceeds from sale of short-term
investments............................ -- -- 1,980 1,960 --
Purchase of short-term investments....... -- (2,160) -- -- --
Exercise of options in HomeTown Buffet,
Inc. stock............................. -- (120) -- -- --
Acquisition of intangible assets......... (222) (362) (45) -- --
Acquisition of property, buildings and
equipment.............................. (4,798) (13,935) (10,620) (4,566) (587)
-------- -------- -------- ------- -------
Net cash provided (used) by investing
activities............................... 539 4,682 (5,522) (1,915) 4,228
-------- -------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line-of-credit
agreement.............................. 28,325 -- 815 -- --
Payments under line-of-credit
agreement.............................. (29,650) (762) (815) -- --
-------- -------- -------- ------- -------
Net payments on revolving
line-of-credit....................... (1,325) (762) -- -- --
Proceeds from issuance of preferred
stock.................................. -- 5,044 -- -- --
Proceeds from issuance of common stock,
net of redemptions..................... 756 165 -- -- 39
Principal payments on long-term debt and
capital leases......................... (5,354) (6,965) (1,820) (909) (2,558)
-------- -------- -------- ------- -------
NET CASH USED BY FINANCING ACTIVITIES.... (5,923) (2,518) (1,820) (909) (2,519)
-------- -------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents.............................. (1,158) 3,637 (3,392) (2,577) (36)
Cash and cash equivalents at beginning of
period................................. 2,824 1,666 5,303 5,303 1,911
-------- -------- -------- ------- -------
Cash and cash equivalents at end of
period................................. $ 1,666 $ 5,303 $ 1,911 $ 2,726 $ 1,875
======== ======== ======== ======= =======
</TABLE>
F-6
<PAGE> 108
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS
YEARS ENDED ENDED
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 25, MARCH 13, MARCH 11,
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash flow
information
Cash paid for interest..................... $ 2,552 $ 2,055 $ 1,535 $ 516 $ 283
Cash paid for income taxes................. 106 3,839 1 -- 268
-------- -------- -------- ------- -------
$ 2,658 $ 5,894 $ 1,536 $ 516 $ 551
======== ======== ======== ======= =======
Supplemental schedule of noncash investing
and financing activities
Debt incurred for acquisition of property,
buildings and equipment.................. $ 1,439 $ -- $ -- $ -- $ 677
Notes and other receivables from sale of
inventory, property and equipment........ 2,242 830 -- -- --
-------- -------- -------- ------- -------
$ 3,681 $ 830 $ -- $ -- $ 677
======== ======== ======== ======= =======
During each of the fiscal years, stores
were sold to franchisees and notes
receivable were recorded in exchange for
equipment as follows -- Note 4:
Notes receivable........................... $ 1,226 $ 647 $ 377 $ 377 $ --
Gain recognized............................ (1,073) (630) (38) 11 --
Gain deferred.............................. -- -- (207) (234) --
Cash received.............................. 312 157 98 98 --
-------- -------- -------- ------- -------
Net book value of equipment sold........... $ 465 $ 174 $ 230 $ 230 $ --
======== ======== ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 109
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Summit Family
Restaurants Inc. and its wholly owned subsidiaries (the "Company"). All
intercompany accounts and transactions have been eliminated in consolidation.
FISCAL YEAR
Summit utilizes a 52/53 week fiscal year which ends on the last Monday in
September. Fiscal years 1995, 1994 and 1993 contain 52 weeks.
INVENTORIES
Inventories consist of food, beverages and restaurant supplies and are
valued at the lower of cost, determined by the first-in first-out method, or
market.
INVESTMENT SECURITIES
Summit adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" during the first quarter of fiscal 1994. As discussed in Note
6, Summit's investment in HomeTown Buffet, Inc. common stock is treated as an
available-for-sale security and is reported at fair market value in the
accompanying consolidated balance sheets. Unrealized holding gains are shown as
a separate component of stockholders equity, net of tax.
Short term investments in the accompanying consolidated balance sheets
(consisting primarily of certificates of deposits, with original maturities of
greater than three months) represent held-to-maturity securities, and
accordingly, have been stated at their cost.
PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment and real property under capitalized
leases are carried at cost, less accumulated depreciation and amortization.
Depreciation and amortization are provided using the straight-line method over
the following useful lives: buildings and leaseholds -- lesser of lease life or
20 years; equipment -- 5 to 8 years; capitalized leases -- lesser of lease life
or 20 years.
INTANGIBLE ASSETS
Lease acquisition costs are amortized using the straight-line method over
the remaining terms of the leases, which range from 3 1/2 to 25 years. Other
intangible assets are amortized using the straight-line method over the
estimated period of value, which ranges from 1 to 40 years.
At September 25, 1995 and September 26, 1994, accumulated amortization
totaled $1,913,000 and $1,901,000, respectively. At March 11, 1996 and March 13,
1995, accumulated amortization totaled $2,010,000 and $1,807,000, respectively.
PRE-OPENING COSTS
Pre-opening costs, which represent expenses incurred for hiring and
training personnel relating to new restaurants and expenses for promotion of new
store openings, are capitalized and amortized over the restaurant's first year
of operation.
F-8
<PAGE> 110
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
FRANCHISING REVENUES AND EXPENSES
Summit is a franchisor of JB's Restaurants and a franchisee of HomeTown
Buffet restaurants. Gains or losses on Company operated JB's Restaurants sold to
franchisees are recognized as a gain or loss in the period the transaction is
completed provided the down payment received from the franchisee represents 20%
or more of the total purchase price. Otherwise, the gain or loss is deferred and
recognized over the period of the franchise agreement. Initial franchise fees
received are recognized as revenue in the period the franchised restaurant
opens. Franchise royalty revenues and all franchising costs are recognized on
the accrual basis.
Initial franchise fee payments related to HomeTown Buffet restaurants are
amortized using the straight-line method over the life of the franchise
agreement. Royalty costs and all other franchise costs are recognized as expense
on the accrual basis.
PROPERTY DISPOSITIONS
Assets which have been identified for closure and held for sale are written
down to management's best estimate of realizable value, including related costs
of disposition.
CASH EQUIVALENTS
Cash equivalents consist of short-term liquid assets with original
maturities of 3 months or less.
INCOME TAXES
Income taxes are recorded using the asset and liability method under which
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as income or
expense in the period that includes the enactment date. A reserve is recorded
for net deferred tax assets that may not be realized in the future.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed using the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding during each period.
PRESENTATION
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform with the current year presentation.
F-9
<PAGE> 111
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
2. PROPERTY, BUILDINGS AND EQUIPMENT AND REAL PROPERTY UNDER CAPITALIZED LEASES
The components of property, buildings and equipment and real property under
capitalized leases are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 11, 1996
--------------
SEPTEMBER 26, 1994 SEPTEMBER 25, 1995
------------------ ------------------ (UNAUDITED)
--------------
<S> <C> <C> <C>
Property, buildings and equipment
Land.................................. $ 5,705 $ 5,263 $ 5,263
Buildings and leasehold
improvements....................... 42,653 44,023 44,254
Equipment............................. 34,734 34,017 34,182
------- ------- -------
83,092 83,303 83,699
Less accumulated depreciation and
amortization....................... 37,420 36,506 39,063
------- ------- -------
$ 45,672 $ 46,797 $ 44,636
======= ======= =======
Real property under capitalized leases,
net................................... $ 16,055 $ 15,872 $ 16,578
Less accumulated amortization......... 8,575 9,141 9,487
------- ------- -------
$ 7,480 $ 6,731 $ 7,091
======= ======= =======
</TABLE>
3. OTHER RECEIVABLES
The components of other receivables are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 11, 1996
--------------
SEPTEMBER 26, 1994 SEPTEMBER 25, 1995
------------------ ------------------ (UNAUDITED)
--------------
<S> <C> <C> <C>
Income taxes............................ $2,045 $1,189 $ 37
Landlord receivables.................... 830 -- --
Franchise royalties and rents........... 142 326 334
Other................................... 387 383 213
------ ------ ------
$3,404 $1,898 $ 584
====== ====== ======
</TABLE>
4. NOTES RECEIVABLE
Notes receivable consist of amounts due from corporations and individuals
resulting primarily from the sale of property, buildings and equipment. The
components of notes receivable are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 11, 1996
--------------
SEPTEMBER 26, 1994 SEPTEMBER 25, 1995
------------------ ------------------ (UNAUDITED)
--------------
<S> <C> <C> <C>
Sales of restaurants to franchisees..... $2,254 $2,399 $1,945
Net investment in direct financing
lease................................. 499 487 486
------ ------ ------
2,753 2,886 2,431
Less short-term portion................. 173 190 190
------ ------ ------
$2,580 $2,696 $2,241
====== ====== ======
</TABLE>
F-10
<PAGE> 112
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
In August 1994, Summit accepted $2.5 million as full repayment of the note
receivable related to the sale of a combined restaurant and motel, resulting in
a loss of $1,564,000. The note had a principal and accrued interest balance of
$4.1 million and was due in October 1994. Summit had received no payments on the
note since January 1994 and elected to accept the lesser payment to eliminate
the risks of collection of the full amount and to generate cash for use in
restaurant operations.
Summit has 14 notes relating to the sales of restaurants to franchisees
which are unsecured or secured by receivables, inventory and equipment. Eleven
of the notes bear interest at 10.0%. Two notes bear interest at prime plus 3.0%
and another bears interest at prime plus 0.5%. Payments are made using a 15-year
amortization with 13 of the notes having a 5-year balloon payment and the other
note having a 10-year balloon payment.
During 1991, Summit entered into a lease with a franchisee on the land and
building for a new JB's Restaurant. Summit's net investment in the direct
financing lease is as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 11, 1996
--------------
SEPTEMBER 26, 1994 SEPTEMBER 25, 1995
------------------ ------------------ (UNAUDITED)
--------------
<S> <C> <C> <C>
Future minimum lease payments
receivable............................ $975 $913 $909
Less unearned income.................... 476 426 423
---- ---- ----
Investment in direct financing lease,
net................................... 499 487 486
Less current portion.................. 12 12 12
---- ---- ----
$487 $475 $474
==== ==== ====
</TABLE>
At September 25, 1995, future minimum lease payments are as follows:
$61,000 in 1996, $61,000 in 1997, $61,000 in 1998, $61,000 in 1999, $61,000 in
2000 and $608,000 thereafter.
5. CHARGE FOR PROPERTY DISPOSITIONS
In 1994, the charge for property dispositions of $1,982,000 is primarily
related to the disposition of certain JB's Restaurants. The charge of $4,264,000
for 1993 is primarily related to the disposition of certain JB's Restaurants,
Sbarro restaurants, and the termination of its exclusive area development rights
with Sbarro, Inc.
6. INVESTMENT IN HOMETOWN BUFFET, INC.
In November 1991, Summit invested $3.8 million with Americana Entertainment
Group, Inc., the predecessor of HomeTown Buffet, Inc. ("HTBB"), in exchange for
1,266,667 shares of convertible preferred stock. In July 1993, Summit sold
250,000 shares of its preferred stock investment in HTBB for $2.5 million,
resulting in a pre-tax gain of $1.7 million. In the fourth quarter of fiscal
1993, HTBB concluded an initial public offering ("IPO") of its common stock and
commenced trading on NASDAQ under the symbol HTBB. At the completion of the IPO
the outstanding preferred stock automatically was converted to common stock.
During the second quarter of fiscal 1994, Summit exercised its option to
purchase 60,000 shares of HTBB common stock and HTBB announced a three for two
stock split increasing Summit's ownership of HTBB common stock to 1,585,000
shares. In the third quarter of fiscal 1994, Summit sold 1,056,780 shares of
HTBB common stock as a selling shareholder in HTBB's secondary public offering
for $16.8 million resulting in a pre-tax gain of $14.7 million. Summit's
remaining 528,220 shares of HTBB common stock at September 25, 1995, is pledged
as security on certain notes payable (see Notes 7 and 15).
F-11
<PAGE> 113
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
On September 27, 1993, Summit reported its investment in HTBB at cost.
During the first quarter of fiscal 1994, Summit elected early adoption of
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". In accordance with SFAS No.
115, Summit's investment in the common stock of HTBB meets the definition of
available-for-sale securities and, as such, is reported at fair value. On
September 25, 1995 and November 3, 1995, the estimated fair value of Summit's
528,220 shares of HTBB common stock was $13.25 and $12.88 per share or $7.0
million and $6.8 million respectively. The unrealized gain of $3.6 million (net
of tax) at the fiscal 1995 year-end is recorded as a separate component of
stockholders' equity.
In addition, Summit has a franchise and exclusive area development
agreement with HomeTown Buffet, Inc., under which, as amended, Summit has the
exclusive rights to develop and operate HomeTown Buffet restaurants, as a
franchisee, in eight western states. Under the terms of the agreement, Summit is
required to open a minimum of 17 HomeTown Buffet restaurants in these states
prior to June 30, 1996, and open an additional 5 HomeTown Buffet restaurants
prior to December 31, 1996.
7. LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
MARCH 11, 1996
SEPTEMBER 26, 1994 SEPTEMBER 25, 1995 --------------
------------------ ------------------ (UNAUDITED)
<S> <C> <C> <C>
Debt secured by land, buildings,
equipment and investment in HomeTown
Buffet, Inc.:
Note payable to a bank in monthly
installments through June 1997,
interest at 9.13% per annum........... $ 2,612 $ 1,742 $ --
Note payable to a bank in monthly
nstallments through January 1997,
interest at 8.5% per annum............ 747 453 --
Capitalized real property and equipment
lease obligations payable in monthly
installments through 2013, interest at
8.9% to 13.9%......................... 11,249 10,485 10,808
Other notes payable to individuals,
financial institutions and other
companies in monthly, quarterly, and
annual installments through 2004,
interest at 8.25% to 13.5%; unsecured
or secured by land, buildings, and
equipment............................. 445 398 389
------- ------- -------
15,053 13,078 11,197
Less current maturities................. 1,960 2,928 871
------- ------- -------
$ 13,093 $ 10,150 $ 10,326
======= ======= =======
</TABLE>
Annual aggregate maturities as of September 25, 1995 of long-term debt,
including obligations under capitalized leases, are as follows: $2,928,000 in
1996; $799,000 in 1997; $848,000 in 1998; $863,000 in 1999; $918,000 in 2000;
and $6,722,000 thereafter.
On April 1, 1994, Summit used $5.1 million of the proceeds from the sale of
HomeTown Buffet, Inc. common stock to prepay outstanding 11.1% interest bearing
debt payable to financial institutions. The $5.1 million payment included a
prepayment premium of $442,000 and $85,000 of accrued interest. The $442,000
prepayment premium combined with the writeoff of unamortized loan acquisition
costs of $141,000
F-12
<PAGE> 114
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
are recorded as an extraordinary loss on extinguishment of debt of $350,000, net
of tax, in the accompanying 1994 consolidated statements of operations.
In connection with the issuance of certain secured notes payable to
financial institutions, Summit issued 8,000 nondetachable warrants, with each
warrant consisting of an option to purchase, as adjusted, 27.4 shares of
Summit's common stock. The warrants are exercisable until July 30, 1996 at
$203.25 per warrant ($7.42 per share of common stock). As of September 25, 1995,
no warrants had been exercised.
8. LONG-TERM LEASES
Summit occupies certain of its restaurants under long-term leases expiring
at various dates through 2035. Most restaurant leases have renewal options for
terms of five to twenty years, and substantially all require the payment of real
estate taxes and insurance. Certain of the leases provide for rent to be the
greater of a stipulated minimum rent or a specified percentage of sales.
Rent expense for fiscal years 1995, 1994 and 1993 was $6,942,000,
$5,938,000, and $5,696,000, respectively. Rent expense for the twenty-four weeks
ended March 11, 1996 and March 13, 1995 was $3,393,000 and $3,223,000,
respectively. Contingent rentals, measured as a percentage of sales, included in
rent expense for fiscal years 1995, 1994 and 1993 were $292,000, $615,000, and
$706,000, respectively. Contingent rentals included in rent expense for the
twenty-four weeks ended March 11, 1996 and March 13, 1995 were $192,000 and
$296,000, respectively.
Future aggregate minimum rental payments on noncancellable leases as of
September 25, 1995, exclusive of taxes, insurance and percentage rentals based
on sales are as follows (in thousands):
<TABLE>
<CAPTION>
FURNITURE FIXTURES
REAL PROPERTY AND EQUIPMENT
--------------------- ------------------
YEAR ENDED CAPITAL OPERATING OPERATING
------------------------------------------------ ------- --------- ------------------
<S> <C> <C> <C>
1996............................................ $ 1,837 $ 5,342 $1,556
1997............................................ 1,817 5,291 1,187
1998............................................ 1,776 5,115 1,050
1999............................................ 1,731 4,915 654
2000............................................ 1,728 4,783 74
Aggregate thereafter............................ 9,863 37,853 --
------ ------ -----
Total minimum lease payments.................... 18,752 $63,299 $4,521
======= ======
Less amount representing interest............... (8,267)
------
Present value of minimum lease payments......... $10,485
=======
</TABLE>
Gains related to sale and leaseback transactions have been deferred for
financial reporting purposes and are being amortized over the term of the
leases. Deferred gains of $560,000 at September 25, 1995, $620,000 at September
26, 1994, $531,000 at March 11, 1996 and $592,000 at March 13, 1995 are
reflected as a reduction of real property under capitalized leases in the
accompanying consolidated financial statements.
F-13
<PAGE> 115
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
9. INCOME TAXES
The income tax expense (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
Year ended September 27, 1993
U.S. federal.......................................... $ (310) $ (935) $(1,245)
State and local....................................... (59) (179) (238)
------- ------- -------
$ (369) $ (1,114) $(1,483)
======= ======= =======
Year ended September 26, 1994
U.S. federal.......................................... $ 2,026 $ 258 $ 2,284
State and local....................................... 387 49 436
------- ------- -------
$ 2,413 $ 307 $ 2,720
======= ======= =======
Year ended September 25, 1995
U.S. federal.......................................... $ (950) $ (22) $ (972)
State and local....................................... (78) (3) (81)
------- ------- -------
$(1,028) $ (25) $(1,053)
======= ======= =======
Twenty-four weeks ended March 11, 1996 (unaudited)
U.S. federal.......................................... $ 316 $ 416 $ 732
State and local....................................... 8 160 168
------- ------- -------
$ 324 $ 576 $ 900
======= ======= =======
</TABLE>
The income tax expense (benefit) attributable to income (loss) before
income taxes and extraordinary item differs from the amounts computed by
applying the U.S. federal statutory tax rate as follows (in thousands):
<TABLE>
<CAPTION>
MARCH MARCH
13, 11,
SEPTEMBER SEPTEMBER SEPTEMBER 1995 1996
27, 26, 25, -------- --------
1993 1994 1995
------------ ------------ ------------ (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed "expected" income tax
expense (benefit)................. $ (1,291) $2,321 $ (2,073) $ (886 ) $ 91
State Income Taxes.................. (238) 436 (81) (81 ) 168
General Business Credits............ (90) (230) (231) (115 ) (119)
Change in the valuation allowance
for deferred tax assets........... -- -- 1,356 -- 636
Other, net.......................... 136 193 (24) 29 124
------- ------ ------- ----- ------
$ (1,483) $2,720 $ (1,053) $(1,053 ) $ 900
======= ====== ======= ===== ======
</TABLE>
F-14
<PAGE> 116
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are summarized below (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 26, 1994 SEPTEMBER 25, 1995 MARCH 11, 1996
------------------------ ------------------------ ------------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT CURRENT NON-CURRENT
DEFERRED DEFERRED DEFERRED DEFERRED DEFERRED DEFERRED
-------- ----------- -------- ----------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Deferred compensation.... $ -- $ 520 $ -- $ 491 $ -- $ 488
Deferred gain............ -- 251 -- 216 -- 205
Compensated absences,
principally due to
accrual for financial
reporting purposes..... 63 -- 134 -- 126 --
Provision for store
dispositions........... -- 1,078 -- 605 -- 585
State net operating loss
carryforward........... -- -- -- 225 -- 120
General business
credits................ -- 739 -- 2,214 -- 1,634
Alternative minimum tax
credits................ -- 537 -- 508 -- 928
Other.................... 26 117 84 70 65 67
--- ------- ---- ------- ---- -------
Total gross deferred
tax assets........ 89 3,242 218 4,329 191 4,027
Less valuation
allowance........... (11) (379) (142) (1,783) (191) (2,456)
--- ------- ---- ------- ---- -------
Net deferred tax
assets................. 78 2,863 76 2,546 -- 1,571
Deferred tax liabilities
Plant and equipment,
principally due to
differences in
depreciation and
capitalized interest... -- (1,435) -- (1,478) -- (1,296)
Market valuation of
investment in HomeTown
Buffet, Inc............ -- (1,848) -- (2,377) -- (468)
Other.................... -- (956) -- (568) -- (275)
--- ------- ---- ------- ---- -------
Total gross deferred
tax liabilities... -- (4,239) -- (4,423) -- (2,039)
--- ------- ---- ------- ---- -------
Net deferred tax asset
(liability)............ $ 78 $(1,376) $ 76 $(1,877) $ -- $ (468)
=== ======= ==== ======= ==== =======
</TABLE>
The valuation allowance for deferred tax assets as of September 25, 1995,
September 26, 1994 and March 11, 1996 was $1,925,000, $390,000 and $2,647,000,
respectively.
F-15
<PAGE> 117
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
At September 25, 1995, Summit has general business credit carryforwards for
federal income tax purposes of approximately $2,214,000 which are available to
reduce future federal income taxes, if any, through 2006. In addition, Summit
has alternative minimum tax credit carryforwards of approximately $508,000 which
are available to reduce future federal regular income taxes, if any, over an
indefinite period.
10. PREFERRED STOCK
In October 1993, Summit issued 946,714 shares of Series A Convertible
Preferred Stock to ABS MB (JB) Limited Partnership ("ABS"), the general partner
of which is ABS MB Ltd., a merchant banking affiliate of Alex. Brown & Sons
Incorporated for approximately $5.0 million. The preferred stock has a par value
of $1.00, is nondividend bearing and is convertible to common stock on a
one-for-one basis at the option of ABS subject to certain conditions. The
946,714 preferred shares represent an approximate 17% ownership position in
Summit. As holder of the preferred stock, ABS is entitled to liquidation
preferences, rights to approve certain significant corporate transactions and
certain registration rights. Also, as holder of the preferred stock ABS has the
right to elect two of Summit's nine Board members.
11. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN
Summit has an employee stock ownership plan to which Summit contributes
funds as authorized by the Board of Directors. The plan has the authority to
purchase shares of Summit's common stock. All employees of Summit who have one
year of service and are over age 21 participate in the plan. Participant vesting
begins with the third year of participation in the plan at the rate of 20
percent per year. Funds contributed to the plan are used to retire debt
previously incurred, to pay participants who are entitled to benefits under the
plan and to purchase shares of Summit's common stock. Allocated shares within
the plan were 92,737 and 114,857 at September 25, 1995, and September 26, 1994,
respectively. Contributions to the employee stock ownership plan totaled $0,
$85,000 and $90,000 in fiscal years 1995, 1994, and 1993, respectively, and $0
in the twenty-four week periods ended March 11, 1996 and March 13, 1995.
401(K) PLAN
Summit has a 401(k) plan covering all employees who have attained age 21
and completed one year of service. The plan allows participants to allocate up
to 10% of their annual compensation before taxes for investment in several
investment alternatives. From January 1, 1995, until September 25, 1995, and in
calendar 1994 and 1993, Summit made annual matching contributions of Summit's
stock to the employees' investment portfolio of up to 25% of the first 3% of
annual compensation contributed by the employee. An employee must be employed on
December 31 to receive a matching contribution. Summit provided contributions of
$26,000 and $27,000 in fiscal years 1995 and 1994, respectively, and Summit made
no contribution in fiscal 1993. On September 26, 1995, Summit suspended annual
matching contributions.
DEFERRED COMPENSATION PLAN
Summit has a deferred compensation plan covering the Chairman and certain
former executives, which requires payment upon retirement or disability. Under
the plan, participants receive benefits based upon a multiple of compensation
prior to retirement and years of service (not to exceed 50 percent of average
annual compensation for the highest five-year period) reduced for benefits
payable from Summit's profit sharing and employee stock ownership plans. Summit
expects that participation in the plan will be limited to those individuals with
previously approved deferred compensation agreements. Accruals for this plan
were $133,000,
F-16
<PAGE> 118
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
$158,000 and $153,000 for fiscal years 1995, 1994, and 1993, respectively and
$78,000 and $73,000 in the twenty-four week periods ended March 11, 1996 and
March 13, 1995, respectively.
12. STOCK OPTION AND AWARD PLANS
STOCK OPTION PLANS
Summit has stock option plans under which options to purchase Summit's
common stock may be granted to employees and directors at the fair market value
of the stock at the date of grant. Under the plans, options may be granted for a
term of not more than ten years. Incentive stock options granted to employees
through April 7, 1994, become exercisable over a four-year period. Incentive
stock options granted after April 7, 1994 become exercisable over a five-year
period. Nonqualified stock options issued to directors are not subject to
vesting. As of September 25, 1995, shares under option total 782,400 shares of
which 395,900 shares were exercisable at prices ranging from $4.00 to $7.88 per
share. As of March 11, 1996, shares under option total 744,000 shares of which
432,200 shares were exercisable at prices ranging from $3.63 to $7.88 per share.
The following table presents, for the periods indicated, activity with respect
to Summit's stock option plans:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 25, MARCH 11,
1993 1994 1995 1996
------------- ------------- ------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Shares under option, beginning of
period................................. 574,430 527,600 679,700 782,400
Options granted (March 11, 1996 at prices
from $4.50 to $5.50 (unaudited); 1995
at prices from $3.63 to $6.00 per
share; 1994 at prices from $4.00 to
$7.75 per share; 1993 at prices from
$5.00 to $7.88 per share).............. 207,000 237,000 261,000 11,500
Options expired due to terminations
(March 11, 1996 at prices from $3.88 to
$7.75 (unaudited); 1995 at prices from
$4.50 to $7.75 per share; 1994 at
prices from $4.88 to $7.75 per share;
1993 at prices from $4.63 to $7.25 per
share)................................. 89,100 51,900 158,300 42,100
Options exercised (March 11, 1996 at
prices from $4.00 to $5.13 (unaudited);
1995, none; 1994 at prices from $4.13
to $6.88 per share; 1993 at prices from
$4.13 to $6.87 per share).............. 164,730 33,000 -- 7,800
------- ------- ------- -------
Shares under option, end of period....... 527,600 679,700 782,400 744,000
======= ======= ======= =======
</TABLE>
EXECUTIVE LONG-TERM STOCK AWARD PLAN
Summit has an Executive Stock Award Plan (the "Plan") adopted in September
1992 by the Board of Directors and approved in February 1993 by Summit's
shareholders. There are 100,000 shares authorized under the Plan to be awarded
to key employees based on the achievement of certain performance objectives
established by the Compensation Committee of the Board of Directors. There were
no shares awarded in the twenty-four weeks ended March 11, 1996 and for fiscal
years 1995, 1994 and 1993 under this Plan.
F-17
<PAGE> 119
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
13. QUARTERLY FINANCIAL INFORMATION ( UNAUDITED)
The following summarizes financial information by quarter for the
twenty-four weeks ended March 11, 1996 and the two years ended September 25,
1995 and September 26, 1994 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
NET INCOME
GROSS NET INCOME (LOSS)
REVENUES PROFIT (LOSS) PER SHARE
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
1994
1st quarter............................. $ 24,228 $16,520 $ (537) $ (.11)
2nd quarter............................. 25,681 17,321 (290) (.06)
3rd quarter............................. 36,948 24,932 5,765(1) .99
4th quarter............................. 28,510 18,916 (1,182) (.25)
-------- ------- ------- ------
$115,367 $77,689 $ 3,756 $ .66
======== ======= ======= ======
1995
1st quarter............................. $ 27,263 $18,296 $ (876) $ (.18)
2nd quarter............................. 27,061 18,104 (678) (.14)
3rd quarter............................. 38,095 25,413 (1,309) (.27)
4th quarter............................. 28,680 19,268 (2,181) (.45)
-------- ------- ------- ------
$121,099 $81,081 $ (5,044) $(1.05)
======== ======= ======= ======
1996
1st quarter............................. $ 26,725 $18,038 $ 1,226(2) $ 0.21
2nd quarter............................. 27,397 18,615 (1,858)(3) (0.39)
</TABLE>
- ---------------
(1) Includes a charge for property dispositions of $1,982,000, a loss on the
disposition of a note receivable of $1,564,000, an extraordinary loss of
$350,000 (net of tax benefit) resulting from the extinguishment of debt and
a gain on the sale of HomeTown Buffet, Inc., common stock of $14,700,000.
See Notes 4, 5, 6 and 7.
(2) Includes a gain on the sale of HomeTown Buffet, Inc. common stock of
$3,959,000.
(3) Includes a charge for change of control and other severance costs of
$1,600,000.
Each quarter of the 52 week fiscal years 1995 and 1994 contain 12 weeks,
except for the third quarter, which contains 16 weeks.
14. COMMITMENTS AND CONTINGENCIES
In connection with the sale of restaurants, Summit has assigned its rights
and obligations under real property leases to the buyer. As such, Summit remains
contingently liable for these obligations. Future minimum payments under these
leases as of September 25, 1995 amount to $1,294,000 in 1996; $1,245,000 in
1997; $1,202,000 in 1998; $1,164,000 in 1999; $1,069,000 in 2000; and $3,287,000
thereafter.
In addition, Summit is engaged in ordinary and routine litigation
incidental to its business. Management does not anticipate that any amounts
which it may be required to pay by reason thereof will have a material effect on
Summit's consolidated statements of operations or financial position.
F-18
<PAGE> 120
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
15. SUBSEQUENT EVENTS
PLAN OF MERGER AND REORGANIZATION
On April 2, 1996, a Second Amendment to the Agreement and Plan of Merger
and Reorganization (the "Merger Agreement") was executed between the Company and
CKE Restaurants, Inc., a Delaware corporation ("CKE"), pursuant to which the
Company will merge with a wholly-owned subsidiary of CKE with the Company being
the surviving entity. Consideration for the merger to be paid to the Company's
shareholders for each share of common stock will consist of $2.63 in cash and
.165 shares of CKE common stock, provided that the average CKE common stock
price is between $15.00 per share and $17.00 per share at the closing. If the
average CKE common stock price is higher than $17.00 or lower than $15.00 at the
closing, the exchange ratio will be adjusted accordingly. If the average CKE
common stock price is below $13.25, the exchange ratio may be adjusted at the
option of CKE. If CKE elects to not adjust the exchange ratio, Summit has the
right to terminate the agreement. In addition, the consideration may be
increased if CKE enters into agreements to sell certain assets and the total
consideration to be received by CKE exceeds a specified level. Any such increase
would be allocated one-half to the cash portion of the consideration and
one-half to the common stock portion of the consideration. The transaction is
conditioned upon the Company's shareholders approving the transaction and the
usual and customary conditions to closing, including, without limitation,
accuracy of the parties' representations and warranties, performance of the
parties' covenants and obligations under the Merger Agreement and obtaining
proper consents of third parties as necessary.
CHANGE OF CONTROL AGREEMENTS
The Company has change of control agreements with the President and seven
Senior Vice Presidents under which the Company may be obligated to pay benefits
in the event of a significant change in ownership of the Company.
Pursuant to these change of control agreements, the Company paid $1,236,000
to the President and four senior vice presidents upon their termination in April
1996. The Merger Agreement described above triggered a provision in the change
of control agreements that requires the Company to place in escrow accounts an
additional $450,000 for three additional senior vice presidents. Payment of
benefits is made upon involuntary termination of any or all of the three senior
vice presidents between the signing of the Merger Agreement and one year after
consummation of the merger or upon the voluntary termination of employment
during the second 90 days following consummation of the merger. The Company has
not yet funded these escrow accounts.
PREFERRED STOCK
On April 4, 1996, CKE purchased 946,714 shares of the Series A Convertible
Preferred Stock (the "Preferred Stock") of the Company from ABS MB (JB) Limited
Partnership ("ABS") for $5.27 per share. The shares purchased by CKE represent
100% of the Company's issued and outstanding Preferred Stock, and approximately
16.5% of the Company's total issued and outstanding voting securities. On April
2, 1996 the Company's Board of Directors specifically approved the acquisition
of the Preferred Stock by CKE as part of the Second Amendment and also approved
a waiver of the Company's right of first refusal to purchase the Preferred
Stock. CKE also acquired ABS' rights under the Registration Rights Agreement
dated October 27, 1993 between the Company and ABS.
The holder of the Preferred Stock has the right to appoint two members to
the Company's Board of Directors. The two directors appointed by ABS, William L.
Paternotte and Frederick L. Bryant, have resigned
F-19
<PAGE> 121
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE TWENTY-FOUR WEEKS ENDED
MARCH 11, 1996 AND MARCH 13, 1995 IS UNAUDITED)
from the Company's Board effective April 4, 1996. The Company understands that
it is CKE's intention to fill the two vacancies on the Company's Board upon
consummation of the Merger Agreement, as amended.
LEASE COMMITMENT
In August 1994, the Company entered into a master lease agreement (the
"Agreement") to finance equipment for new HomeTown Buffet restaurants. The
agreement, among other things, required the Company to maintain minimum tangible
net worth of at least $40 million. On January 5, 1996, the master lease
agreement was amended to require a minimum tangible net worth of $33 million. In
exchange for this reduced covenant, the Company has deposited $365,000 with the
leasing company. This deposit is to be applied against payments due for the
final year of the lease subject to earlier release if certain financial
performance objectives are achieved.
INVESTMENT IN HOMETOWN BUFFET, INC. COMMON STOCK
As of September 25, 1995, the Company held 528,220 shares of HTBB common
stock. Between September 25, 1995, and December 11, 1995, the Company sold
398,220 shares of HTBB common stock generating net proceeds of $4.8 million
resulting in a pre-tax gain of $4.0 million. $2.1 million of these proceeds were
used to repay the Company's bank loans in full, $700,000 remains in escrow as
partial security against $2.0 million in letters of credit with the remaining
$2.0 million retained by the Company. The letters of credit are secured by
certain properties owned by the Company, by the remaining 130,000 shares of HTBB
common stock and by the escrow account noted above.
F-20
<PAGE> 122
APPENDIX A
AMENDMENTS TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.
CKE RESTAURANTS, INC.
AND
SUMMIT MERGER, INC.
--------------
FOLLOWED BY
--------------
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.
AND
CKE RESTAURANTS, INC.
DATED: NOVEMBER 30, 1995
A-1
<PAGE> 123
FORM OF
THIRD AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.,
CKE RESTAURANTS, INC.
AND
SUMMIT MERGER, INC.
DATED: MAY , 1996
A-2
<PAGE> 124
THIRD AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
This Third Amendment, dated as of May , 1996 (this "Third Amendment"), to
the Agreement and Plan of Merger and Reorganization, dated as of November 30,
1995 (the "Original Agreement"), as amended by that certain First Amendment to
Agreement and Plan of Reorganization, dated as of January 24, 1996 (the "First
Amendment") and as further amended by that certain Second Amendment to Agreement
and Plan of Reorganization, dated as of April 2, 1996 (the "Second Amendment"),
is entered into by and among Summit Family Restaurants Inc., a Delaware
corporation ("Summit"), CKE Restaurants, Inc., a Delaware corporation ("CKE"),
and Summit Merger, Inc., a Delaware corporation and wholly-owned subsidiary of
CKE ("Merger Sub"). Capitalized terms not defined herein have the meanings set
forth in the Original Agreement, as amended by the First Amendment and the
Second Amendment (as so amended, the "Agreement"). Except as specifically
amended below, all provisions of the Agreement remain in full force and effect.
RECITAL
Summit and CKE have determined to further amend the Agreement as set forth
in this Third Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and promises contained herein and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. MERGER CONSIDERATION. The definitions of "Adjusted CKE Price" and
"Average CKE Price" in Section 2.1 of the Agreement are hereby amended to read
in full as follows:
"Adjusted CKE Price" means (a) if the Average CKE Price is equal to or
greater than $17.00, $16.00 plus the amount by which the Average CKE Price
exceeds $17.00, (b) if the Average CKE Price is less than $17.00 and equal
to or greater than $15.00, $16.00, (c) if the Average CKE Price is less
than $15.00 and equal to or greater than $13.25, $16.00 less the amount by
which $15.00 exceeds the Average CKE Price, (d) if the Average CKE Price is
less than $13.25 and CKE has not exercised the Fill-Up Election, $14.25 and
(e) if the Average CKE Price is less than $13.25 and CKE has exercised the
Fill-Up Election, $16.00 less the amount by which $15.00 exceeds the
Average CKE Price. Notwithstanding the foregoing, in no event shall the
Adjusted CKE Price exceed Twenty Nine Dollars ($29.00).
"Average CKE Price" means the average of the per share closing sales
prices of CKE Common Stock on the New York Stock Exchange for the 20
consecutive trading days ending [five] days prior to the date of the
special meeting of stockholders of Summit to be held to consider the
approval and adoption of this Agreement.
2. TERMINATION (SECTION 9.1). The date June 30, 1996 in every instance it
appears in Section 9.1 in the Agreement is hereby changed to July 15, 1996.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
have caused this Amendment to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
SUMMIT FAMILY RESTAURANTS INC.
By:
--------------------------------------------------------
Clark D. Jones
Chairman of the Board
By:
--------------------------------------------------------
Charlotte L. Miller
Senior Vice President &
General Counsel
CKE RESTAURANTS, INC.
By:
--------------------------------------------------------
Joseph N. Stein
Chief Financial Officer
By:
--------------------------------------------------------
Robert A. Wilson
Vice President, General Counsel
SUMMIT MERGER, INC.
By:
--------------------------------------------------------
Joseph N. Stein
Chief Financial Officer
By:
--------------------------------------------------------
Robert A. Wilson
Vice President, General Counsel
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SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.
AND
CKE RESTAURANTS, INC.
DATED: APRIL 2, 1996
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[CONFORMED COPY]
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
This Second Amendment, dated as of April 2, 1996 (this "Second Amendment"),
to the Agreement and Plan of Merger and Reorganization, dated as of November 30,
1995 (the "Original Agreement"), as amended pursuant to the First Amendment to
Agreement and Plan of Reorganization, dated as of January 24, 1996 (the "First
Amendment") is by and among Summit Family Restaurants Inc., a Delaware
corporation ("Summit"), and CKE Restaurants, Inc., a Delaware corporation
("CKE"). Capitalized terms not defined herein have the meanings set forth in the
Original Agreement and the First Amendment. Except as specifically amended
below, all provisions of the Original Agreement and First Amendment remain in
full force and effect.
RECITAL
The respective Boards of Directors of Summit and CKE have determined to
amend the Original Agreement and the First Amendment as set forth in this Second
Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and promises contained herein and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. PURCHASE OF SUMMIT PREFERRED STOCK. On or prior to April 4, 1996, CKE
shall purchase all of the shares of Summit Preferred Stock from the holder
thereof at a purchase price of $5.27 per share in cash. CKE hereby agrees to
vote all of such shares of Summit Preferred Stock in favor of the transactions
set forth in the Original Agreement, as amended by the First Amendment and the
Second Amendment.
2. CONVERSION OF SECURITIES (SECTION 2.1). The first paragraph of Section
2.1 of the Original Agreement and the first paragraph of the definition of
"Merger Consideration" in Section 2.1 of the Original Agreement, as amended by
the First Amendment, are amended to read in full as follows:
At the Effective Time, by virtue of the Merger and without any action on
the part of the parties hereto each share of Summit Common Stock and Summit
Preferred Stock issued and outstanding immediately prior to the Effective
Time, other than shares of Summit Common Stock for which appraisal rights
have been exercised pursuant to Section 262 of the DGCL, and other than
shares owned by CKE or its subsidiaries (which will be cancelled), will be
converted into the right to receive the Merger Consideration.
"Merger Consideration" means, for each share of Summit Common Stock
and Summit Preferred Stock (other than shares owned by CKE or its
subsidiaries, which will be cancelled): (a) $2.63 in cash (without
interest) and (b) a number of shares of CKE Common Stock equal to $2.64
divided by the Adjusted CKE Price.
3. FAIRNESS OPINION (SECTION 6.9): Section 6.9 of the Original Agreement,
as amended by the First Amendment, is hereby modified to read in full as
follows:
Summit shall have received letters from Piper Jaffray Inc. confirming the
opinions rendered to Summit's Board of Directors on or prior to the date of
the Original Agreement, on or prior to the date of the First Amendment and
on or prior to the date of the Second Amendment to the effect that the
terms of the Merger are fair to the holders of Summit Common Stock from a
financial point of view, copies of which will be delivered to CKE at the
Closing.
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<PAGE> 128
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. Sections 3.19(i) and 4.12(i)
of the Original Agreement are hereby deleted in their entirety. CKE acknowledges
receipt of the information provided to it regarding the separation compensation
plan and procedures and other matters pursuant to the letter, dated February 29,
1996, from Summit. CKE and Summit agree that such information does not
constitute a violation of the Original Agreement, as amended, including Sections
(3.19(vii) and 5.2(a) thereof.
5. TERMINATION (SECTION 9.1). Section 9.1(c)(i)(A) and 9.1(d)(i)(A) are
hereby deleted in their entirety. The date May 30, 1996 in every instance it
appears in Section 9.1 in the Original Agreement, as amended by the First
Amendment, is hereby changed to June 30, 1996.
6. ADOPTION OF ORIGINAL AGREEMENT BY MERGER SUB. Summit Merger, Inc., a
Delaware corporation ("Summit Merger"), was recently organized by CKE for
purposes of completing the Merger. Summit Merger, by its execution and delivery
hereof, agrees to be bound by the terms and provisions of the Original
Agreement, as amended, and is hereby made a party to the Original Agreement. For
all purposes of the Original Agreement, all references to "Merger Sub" shall be
deemed to refer to Summit Merger.
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<PAGE> 129
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
have caused this Amendment to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
SUMMIT FAMILY RESTAURANTS INC.
By: /s/ DON M. MCCOMAS
--------------------------------------------------------
Don M. McComas
President and Chief Executive Officer
By: /s/ CHARLOTTE L. MILLER
--------------------------------------------------------
Charlotte L. Miller
Senior Vice President &
General Counsel
CKE RESTAURANTS, INC.
By: /s/ ROBERT E. WHEATON
--------------------------------------------------------
Robert E. Wheaton
Executive Vice President
By: /s/ ROBERT A. WILSON
--------------------------------------------------------
Robert A. Wilson
Vice President, General Counsel
SUMMIT MERGER, INC.
By: /s/ ROBERT E. WHEATON
--------------------------------------------------------
Robert E. Wheaton
Executive Vice President
By: /s/ ROBERT A. WILSON
--------------------------------------------------------
Robert A. Wilson
Vice President, General Counsel
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<PAGE> 130
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.
AND
CKE RESTAURANTS, INC.
DATED: JANUARY 24, 1996
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[CONFORMED COPY]
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
This First Amendment, dated as of January 24, 1996 (this "Amendment"), to
the Agreement and Plan of Merger and Reorganization, dated as of November 30,
1995 (the "Original Agreement"), is by and among Summit Family Restaurants Inc.,
a Delaware corporation ("Summit"), and CKE Restaurants, Inc., a Delaware
corporation ("CKE"). Capitalized terms not defined herein have the meanings set
forth in the Original Agreement. Except as specifically amended below, all
provisions of the Original Agreement remain in full force and effect.
RECITAL
The respective Boards of Directors of Summit and CKE have determined to
amend the Original Agreement in as set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and promises contained herein and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. MERGER AND CLOSING. Recital A is hereby amended to provide that Summit
will survive the Merger. Recital B is hereby deleted in its entirety. In
addition, Sections 1.2, 1.4 and 1.5 are hereby amended to read in full as
follows:
1.2 The Merger. At the Effective Time, in accordance with this
Agreement and the applicable provisions of the Delaware General Corporation
Law ("DGCL"), the Merger Sub shall in the Merger merge with and into
Summit, with Summit surviving the Merger, the separate existence of Merger
Sub shall cease, and Summit shall continue as the surviving corporation as
set forth in the Certificate of Merger. Summit is sometimes referred to
herein as the "Surviving Corporation."
1.4 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, the separate corporate existence of
Merger Sub shall cease and Summit shall be the Surviving Corporation and
shall have all of the rights, privileges, immunities and powers and shall
be subject to all duties and liabilities of a corporation organized under
the DGCL.
1.5 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of Summit shall be amended and restated to conform to the
Certificate of Incorporation of Merger Sub in effect at the Effective Time.
The Bylaws of Summit shall be amended and restated to conform to the Bylaws
of Merger Sub in effect at the Effective Time until amended in accordance
with applicable law.
2. MERGER CONSIDERATION (SECTION 2.1). The definitions of "Merger
Consideration" and "Adjusted CKE Price" in Section 2.1 of the Original Agreement
are hereby amended to read in full as follows:
"Merger Consideration" means, for each share of Summit Common Stock
and each share of Summit Preferred Stock: (a) $2.77 in cash (without
interest) and (b) a number of shares of CKE Common Stock equal to $2.78
divided by the Adjusted CKE Price.
The Merger Consideration shall be increased by one-half of the amount,
if any, by which the consideration to be received from the purchasers under
the draft Asset Purchase Agreements with and dated
January 24, 1996 (which CKE has provided to Summit) increases in an
immediately quantifiable dollar amount from the amounts currently provided
for in such drafts (either through an increase in the consideration paid or
an increase in the liabilities the proposed buyer assumes) pursuant to
fully executed definitive Asset Purchase Agreements in effect as of the
Closing. The amount of any increase shall be determined at Closing and
shall not be further affected by any other transactions involving Summit
assets or properties subsequent to Closing. The increase, if any, shall be
allocated one-
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half to the cash portion of the Merger Consideration and one-half to the
CKE Common Stock portion of the Merger Consideration.
"Adjusted CKE Price" means (a) if the Average CKE Price is equal to or
greater than $17.00, $16.00 plus the amount by which the Average CKE Price
exceeds $17.00, (b) if the Average CKE Price is less than $17.00 and equal
to or greater than $15.00, $16.00, (c) if the Average CKE Price is less
than $15.00 and equal to or greater than $13.25, $16.00 less the amount by
which $15.00 exceeds the Average CKE Price, (d) if the Average CKE Price is
less than $13.25 and CKE has not exercised the Fill-Up Election, $14.25 and
(e) if the Average CKE Price is less than $13.25 and CKE has exercised the
Fill-Up Election, $16.00 less the amount by which $15.00 exceeds the
Average CKE Price.
3. FRACTIONAL SHARES (SECTION 2.3). Section 2.3 of the Original Agreement
is hereby amended to read as follows:
No fractional shares of CKE Common Stock shall be issued in the
Merger. In lieu thereof, cash shall be paid for any fractional shares
calculated by multiplying the Adjusted CKE Price by the fraction of a share
of CKE Common Stock to which the holder would otherwise have been entitled.
4. FAIRNESS OPINION (SECTION 6.9). Section 6.9 of the Original Agreement
is hereby modified to read in full as follows:
Summit shall have received a letter from Piper Jaffray Inc. on or
prior to the date of the Amendment to the effect that the terms of the
Merger are fair to the holders of Summit Common Stock from a financial
point of view, a copy of which will be delivered to CKE prior to the
Closing.
5. FAIRNESS OPINION (SECTION 7.10). Section 7.10 of the Original
Agreement, providing for a fairness opinion from NatWest Markets, is hereby
deleted in its entirety.
6. TAX OPINIONS (SECTION 6.6 AND 7.6). Sections 6.6 and 7.6 of the
Original Agreement, providing for legal opinions regarding certain tax matters,
are hereby deleted in their entirety.
7. TREATMENT OF STOCK OPTIONS (SECTIONS 5.14(A) AND 5.14(B)). Sections
5.14(a) and 5.14(b) of the Original Agreement are hereby amended to read in full
as follows:
(a) On or prior to the Effective Time, Summit and its Board of
Directors (or a committee thereof) shall take all action necessary to
implement the provisions contained herein; provided, that such provisions
do not create an aggregate cash liability at the Effective Time in excess
of $375,000, adjusted for any per share increase in the Merger
Consideration as provided in paragraph 2 of this Amendment.
(b) At the Effective Time, all options to purchase shares of Summit
Common Stock (a "Summit Stock Option") under a Summit Stock Option Plan
shall become fully exercisable in accordance with the terms of the Stock
Option Plan. Each holder of Summit Stock Options may elect to have such
Summit Stock Options cancelled in consideration of the payment of an amount
equal to the product of (x) the excess, if any, of the aggregate dollar
amount of the Merger Consideration over the exercise price thereof and (y)
the number of shares of Summit Common Stock subject thereto, respectively
(such payment to be net of any required withholding taxes). From and after
the Effective Time, each outstanding Summit Stock Option that is not so
cancelled shall constitute an option to acquire, on the same terms and
conditions as were applicable under such Summit Stock Option, a number of
shares of CKE Common Stock equal to (w) the product of the aggregate dollar
amount of the Merger Consideration and the number of shares of Summit
Common Stock purchasable upon exercise of the Summit Stock Option prior to
the Effective Time divided by (x) the Average CKE Price, at an exercise
price per share equal to (y) the aggregate exercise price for the shares of
Summit Common Stock purchasable upon exercise of the Summit Stock Option
prior to the Effective Date divided by (z) the aggregate number of shares
of CKE Common Stock purchasable upon exercise of such Summit Stock Option
following the Effective Date.
8. TERMINATION (SECTION 9.1). The date April 15, 1996 in every instance it
appears in Section 9.1 in the Original Agreement is hereby changed to May 30,
1996. The reference to $12.25 in Section 9.1(d) and Section 9.1(e) is hereby
changed to $13.25.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
have caused this Amendment to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the date and year
first above written.
SUMMIT FAMILY RESTAURANTS INC.
By: /s/ DON M. MCCOMAS
--------------------------------------------------------
Don M. McComas
President and Chief Executive Officer
By: /s/ CHARLOTTE L. MILLER
--------------------------------------------------------
Charlotte L. Miller
Senior Vice President &
General Counsel
CKE RESTAURANTS, INC.
By: /s/ JOSEPH N. STEIN
--------------------------------------------------------
Joseph N. Stein
Senior Vice President,
Chief Financial Officer
By: /s/ RICHARD C. CELIO
--------------------------------------------------------
Richard C. Celio
Senior Vice President,
General Counsel
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<PAGE> 134
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.
AND
CKE RESTAURANTS, INC.
DATED: NOVEMBER 30, 1995
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<PAGE> 135
[CONFORMED COPY]
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization, dated as of November
30, 1995 (this "Agreement"), is by and among Summit Family Restaurants Inc., a
Delaware corporation ("Summit"), and CKE Restaurants, Inc., a Delaware
corporation ("CKE"). Capitalized terms not otherwise defined have the meanings
set forth in Article 10.
RECITALS
A. The respective Boards of Directors of Summit and CKE have determined
that the merger (the "Merger") of Summit with and into a newly-formed
wholly-owned subsidiary ("Merger Sub") of CKE, with Merger Sub surviving the
Merger, would be advantageous and beneficial to their respective corporations
and stockholders.
B. For United States federal income tax purposes, the parties intend that
the Merger qualify as a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and promises contained herein and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
MERGER AND CLOSING
1.1 FORMATION OF MERGER SUB. Prior to the Effective Time, CKE shall
organize Merger Sub as a wholly-owned subsidiary of CKE incorporated under the
laws of the State of Delaware.
1.2 THE MERGER. At the Effective Time, in accordance with this Agreement
and the applicable provisions of the Delaware General Corporation Law ("DGCL"),
Summit shall in the Merger merge with and into Merger Sub, with Merger Sub
surviving the Merger, the separate existence of Summit shall cease, and Merger
Sub shall continue as the surviving corporation as set forth in the Certificate
of Merger. Merger Sub is sometimes referred to herein as the "Surviving
Corporation."
1.3 CLOSING. The closing of the Merger and the other transactions
contemplated herein (the "Closing") shall be held at 10:00 a.m., Utah time on
February 28, 1996 or such later date to which Summit and CKE shall agree (the
"Closing Date") at the offices of Summit, unless the parties hereto otherwise
agree. After satisfaction or waiver of all conditions to the Closing, the
parties hereto will cause the Merger to be consummated on the Closing Date by
filing with the Secretary of State of the State of Delaware a certificate of
merger as is required by, and executed in accordance with, the relevant
provisions of DGCL (the time of such filing being the "Effective Time").
1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
the DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, the separate corporate existence of Summit shall cease
and Merger Sub shall be the Surviving Corporation and shall have all of the
rights, privileges, immunities and power and shall be subject to all duties and
liabilities of a corporation organized under the DGCL.
1.5 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Merger Sub in effect at the Effective Time shall be the
Certificate of the Surviving Corporation. The Bylaws of Merger Sub in effect at
the Effective Time shall be the Bylaws of the Surviving Corporation until
amended in accordance with applicable law.
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<PAGE> 136
ARTICLE 2
CONVERSION OF SECURITIES; DISSENTING SHARES
2.1 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any action on the part of the parties hereto each share of
Summit Common Stock and Summit Preferred Stock issued and outstanding
immediately prior to the Effective Time, other than shares of Summit Common
Stock and Summit Preferred Stock for which appraisal rights have been exercised
pursuant to Section 262 of the DGCL, will be converted into the right to receive
the Merger Consideration.
"Merger Consideration" means, for each share of Summit Common Stock and
each share of Summit Preferred Stock: (a) $3.00 in cash (without interest) and
(b) a number of shares of CKE Common Stock equal to $3.00 divided by the
Adjusted CKE Price.
"Adjusted CKE Price" means (a) if the Average CKE Price is equal to or
greater than $17.00, $14.625 plus the amount by which the Average CKE Price
exceeds $17.00, (b) if the Average CKE Price is less than $17.00 and equal to or
greater than $12.25, $14.625, (c) if the Average CKE Price is less than $12.25
and CKE has not exercised the Fill-Up Election, $14.625 and (d) if the Average
CKE Price is less than $12.25 and CKE has exercised the Fill-Up Election,
$14.625 less the amount by which $12.25 exceeds the Average CKE Price.
"Average CKE Price" means the average of the per share closing sales prices
of CKE Common Stock on the New York Stock Exchange for the 20 consecutive
trading days ending two days prior to the Closing Date.
2.2 DISSENTING SHARES. Notwithstanding Section 2.1, shares of Summit
Common Stock and Summit Preferred Stock outstanding immediately prior to the
Effective Time and held by holders who have not voted in favor of the Merger or
consented thereto in writing and who have demanded appraisal for such shares in
accordance with Section 262 of the DGCL shall not be converted into rights to
receive the Merger Consideration, and holders of such shares of Summit Common
Stock and Summit Preferred Stock shall be entitled to receive payment from
Summit of the appraised value of such shares of Summit Common Stock and Summit
Preferred Stock in accordance with the provisions of such Section 262 unless and
until such holders fail to perfect or shall have effectively withdrawn or lost
their rights to appraisal and payment under the DGCL. If after the Effective
Time any such holder fails to perfect or withdraws or otherwise loses his right
to appraisal or payment, such shares shall be treated as if they had been
converted as of the Effective Time into a right to receive the Merger
Consideration.
2.3 FRACTIONAL SHARES. No fractional shares of CKE Common Stock shall be
issued in the Merger. All fractional shares of CKE Common Stock that a holder of
CKE Common Stock would otherwise be entitled to receive as a result of the
Merger shall be aggregated, and if a fractional share results from such
aggregation, such holder shall be entitled to receive from Summit, in lieu
thereof, an amount in cash (without interest) derived through the aggregation by
Summit of all such fractional shares otherwise issuable, the sale of such shares
of CKE Common Stock in the market and the distribution of the proceeds thereof
calculated by multiplying the average per share sales price by the fraction of a
share of CKE Common Stock to which such holder would otherwise have been
entitled. Under no circumstances will the aggregate cash consideration paid by
CKE in the Merger constitute more than 50% of the total aggregate consideration
paid by CKE in the Merger, with the CKE Common Stock issued in the Merger being
valued at the Adjusted CKE Price.
2.4 EXCHANGE OF CERTIFICATES. From and after the Effective Time, each
holder of an outstanding certificate which immediately prior to the Effective
Time represented outstanding shares of Summit Common Stock and Summit Preferred
Stock shall be entitled to receive in exchange therefor, upon surrender thereof
to an exchange agent to be selected by CKE, a certificate or certificates
representing the number of whole shares of CKE Common Stock into which such
holder's shares were converted and a check representing (i) any cash payable in
lieu of any fractional share of CKE Common Stock computed set forth above and
(ii) the cash portion of the Merger Consideration into which such holder's
shares were converted. No holder of a certificate or certificates which
immediately prior to the Effective Time represented shares of Summit Common
Stock or Summit Preferred Stock shall be entitled to receive any dividend or
other distribution from CKE until surrender of such holder's certificate for a
certificate or certificates representing shares of Summit Common
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<PAGE> 137
Stock or Summit Preferred Stock. Upon such surrender, there shall be paid to the
holder the amount of any dividends or other distributions (without interest)
which became payable on or after the Effective Time, but which were not paid by
reason of the foregoing, with respect to the number of whole shares of CKE
Common Stock represented by the certificates issued upon such surrender. After
the Effective Time, there shall be no further registration of transfers of
Summit Common Stock and Summit Preferred Stock and holders of certificates
representing Summit Common Stock or Summit Preferred Stock shall not enjoy the
rights and privileges of holders of such stock or CKE Common Stock other than to
exchange the certificates for the Merger Consideration. If, after the Effective
Time, certificates representing Summit Common Stock or Summit Preferred Stock
are presented to the Surviving Corporation, they shall be cancelled and
exchanged for the Merger Consideration. From and after the Effective Time, CKE
shall, however, be entitled to treat certificates for shares of Summit Common
Stock and Summit Preferred Stock which have not yet been surrendered for
exchange and for which appraisal rights have not been perfected pursuant to the
DGCL as evidencing solely the right to receive the Merger Consideration
represented by such certificates, notwithstanding any failure to surrender such
certificates in exchange therefor. If any certificate for shares of CKE Common
Stock is to be issued in a name other than that in which the certificate for
shares of Summit Common Stock or Summit Preferred Stock surrendered in exchange
therefor is registered, it shall be a condition of such issuance that the person
requesting such issuance shall pay any transfer or other tax required by reason
of the issuance of certificates for such shares of CKE Common Stock in a name
other than that of the registered holder of the certificate surrendered, or
shall establish to the satisfaction of CKE or its agent that such tax has been
paid or is not applicable. Notwithstanding the foregoing, CKE shall not be
liable to any holder of shares of Summit Common Stock or Summit Preferred Stock
for any shares of CKE Common Stock (or dividends or distributions with respect
thereto) or cash in lieu of fractional shares delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SUMMIT
Except as otherwise set forth in the Summit Disclosure Schedule, Summit
hereby represents and warrants to CKE as follows:
3.1 ORGANIZATION, GOOD STANDING AND AUTHORITY. Each of Summit and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation. Each of Summit and
its Subsidiaries has full corporate power to carry on its business, as it is now
being conducted, and to own, lease or operate the properties and assets it now
owns, leases or operates. Each of Summit and its Subsidiaries is qualified to do
business, is in good standing and has all required business licenses in each
jurisdiction in which its failure to obtain or maintain such qualification, good
standing or license could have a Material Adverse Effect on Summit.
3.2 BINDING AGREEMENT. Summit has all requisite corporate power and
corporate authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all requisite corporate action, subject to approval of Summit's
stockholders. This Agreement is a legal, valid and binding obligation of Summit,
enforceable against it in accordance with its terms, except as enforcement
thereof may be limited by general principles of equity (regardless of whether
such enforceability is considered in a proceeding at law or in equity) and the
effect of applicable bankruptcy, insolvency, moratorium and other similar laws
of general application relating to or affecting creditors' rights generally,
including, without limitation, the effect of statutory or other law regarding
fraudulent conveyances and preferential transfers.
3.3 CAPITALIZATION. The authorized capitalization of Summit consists
solely of (a) 10,000,000 shares of Summit Common Stock, of which 4,798,811
shares were issued and outstanding as of November 30, 1995; (b) 500,000 shares
of $.01 par value junior common stock, none of which are outstanding on the date
hereof; and (c) 1,000,000 shares of Summit Preferred Stock, of which 946,714
shares were issued and outstanding as of the date hereof. On the Closing Date
there will not be outstanding: (i) any options, warrants or other rights to
purchase from Summit any capital stock of Summit, except for (x) the options,
warrants and other rights to
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<PAGE> 138
purchase capital stock of Summit outstanding as of the date of this Agreement as
set forth on the Summit Disclosure Schedule, (y) options, warrants or other
rights to purchase capital stock of Summit granted to employees and officers of
Summit as set forth on the Summit Disclosure Schedule and (z) options, warrants
and other rights to purchase in the aggregate not more than 50,000 shares of
Summit Common Stock granted to new or newly promoted employees in the ordinary
course of business; (ii) any securities convertible into or exchangeable for
shares of such stock; or (iii) any other commitments of any kind for the
issuance of additional shares of capital stock or options, warrants or other
securities of Summit.
3.4 SUBSIDIARIES. There is set forth in the Summit Disclosure Schedule (i)
the name and percentage ownership by Summit of each of its Subsidiaries; (ii)
the jurisdiction of incorporation, capitalization and ownership of each
Subsidiary; and (iii) the names of the officers and directors of each
Subsidiary.
3.5 NO VIOLATION.
(a) Except as set forth in the Summit Disclosure Schedule, none of Summit
or any of its Subsidiaries is (i) in violation of its respective Charter
Documents, or (ii) to Summit's best knowledge, in default in the performance of
any obligation, agreement or condition contained in any Applicable Agreement,
which violation or default could, singly or in the aggregate, have a Material
Adverse Effect on Summit.
(b) Except as set forth in the Summit Disclosure Schedule, neither the
execution or delivery by Summit of this Agreement or the performance by Summit
of its obligations under this Agreement will (i) constitute a breach or
violation under the Charter Documents of Summit or any of its Subsidiaries; or
(ii) conflict with, violate, constitute a material breach or material violation
of or a material default (with the passage of time or otherwise) under, require
the consent of any Person under, give to others any rights of termination,
amendment, acceleration or cancellation of or result in the imposition of a
material Lien on any of the properties or assets of Summit or any of its
Subsidiaries or an acceleration of material indebtedness pursuant to, any
Applicable Agreement.
3.6 EXCHANGE ACT REPORTS AND FINANCIAL STATEMENTS. Summit has furnished or
will upon request furnish CKE with copies of its Annual Report on Form 10-K for
the fiscal years ended September 28, 1992, September 27, 1993, September 26,
1994 and September 25, 1995 (when available), in each case with exhibits, and
all other reports filed or required to be filed with the Securities and Exchange
Commission (the "SEC") under applicable laws, rules and regulations since
September 26, 1994 (all such reports being herein collectively called the
"Summit SEC Reports"), each as filed with the SEC. Each such Summit SEC Report
when it became effective or was filed with the SEC, or as amended, as the case
may be, complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable,
and the rules and regulations of the SEC thereunder, and did not on the date of
filing or amendment, if any, contain any untrue statement of material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. The financial
statements contained in said Summit SEC Reports: (i) were prepared in accordance
with the books and records of Summit and its Subsidiaries; (ii) were prepared in
accordance with GAAP and with Regulation S-X promulgated under the Exchange Act;
(iii) fairly present Summit's consolidated financial condition and the
consolidated results of its operations, cash flows and shareholders equity as at
the relevant dates thereof and for the periods covered thereby; (iv) contain and
reflect all necessary adjustments and accruals for a fair presentation of its
consolidated financial condition and the consolidated results of its operations,
cash flows and shareholders equity for the periods covered by said financial
statements; (v) contain and reflect adequate provisions for all reasonably
anticipated liabilities for all taxes, federal, state, local or foreign, with
respect to the periods then ended and all prior periods; and (vi) with respect
to contracts and commitments for the sale of goods or the provision of services
by Summit or any Subsidiary, contain and reflect adequate reserves for all
reasonably anticipated material losses, costs and expenses in excess of expected
receipts.
3.7 INFORMATION IN REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by Summit for inclusion or incorporation
by reference in (i) the registration statement on Form S-4 to be filed with the
SEC by CKE in connection with the issuance of shares of CKE Common Stock in the
Merger (the "Registration Statement"), will, at the time it becomes effective
under the Securities Act and at
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the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (ii) the proxy statement relating to the meeting of Summit's
stockholders to be held in connection with the Merger (the "Proxy Statement")
will, at the date mailed to Summit's stockholders, at the time of the meeting of
stockholders to be held in connection with the Merger and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will, when filed with the SEC by Summit, comply
as to form in all material respects with the provisions of the Exchange Act and
the rules and regulations thereunder, except that no representation is made by
Summit with respect to statements made therein about CKE and based on
information supplied by CKE in writing specifically for inclusion in the Proxy
Statement.
3.8 CONSENTS AND APPROVALS. No consent, approval or authorization of, or
declaration, filing or registration with, any United States federal or state
governmental or regulatory authority is required to be made or obtained by
Summit in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby, other
than any filings required under the HSR Act, the Exchange Act and the Securities
Act and filings with NASDAQ.
3.9 NO BROKERS. Except as set forth in the Summit Disclosure Schedule,
neither Summit nor any affiliate thereof has entered into or will enter into any
agreement, arrangement or understanding with any person or firm which will
result in any obligation of Summit to pay any finder's fee, brokerage commission
or similar payment in connection with the transactions contemplated hereby.
3.10 INSURANCE. Summit and its Subsidiaries maintain, with reputable
insurers, insurance in such amounts, including deductible arrangements, and of
such a character as is usually maintained by reasonably prudent managers of
companies engaged in the same or similar business.
3.11 LABOR MATTERS. Except as set forth in the Summit Disclosure Schedule,
(i) there is no labor strike, dispute, slowdown, work stoppage or lockout
pending or, to the best knowledge of Summit, threatened against or affecting
Summit or any Subsidiary and, during the past five years, there has not been any
such action; (ii) there are no union claims to represent the employees of Summit
or any Subsidiary; (iii) neither Summit nor any Subsidiary is a party to or
bound by any collective bargaining or similar agreement with any labor
organization, or work rules or practices agreed to with any labor organization
or employee association applicable to employees of Summit or any Subsidiary;
(iv) none of the employees of Summit or any Subsidiary are represented by any
labor organization and none of Summit or any Subsidiary have any knowledge of
any current union organizing activities among the employees of Summit or any
Subsidiary, nor to their best knowledge does any question concerning
representation exist concerning such employees; (v) Summit and its Subsidiaries
are, and have at all times been, in material compliance with all Applicable
Employment Laws and are not engaged in any ULP; (vi) there is no ULP charge or
complaint against Summit or any Subsidiary pending or, to the best knowledge of
Summit, threatened before the NLRB; and (vi) there is no grievance or
arbitration proceeding arising out of any collective bargaining agreement or
other grievance procedure relating to Summit or any Subsidiary.
3.12 ERISA.
(a) Summit and its Subsidiaries are in compliance with the provisions of
ERISA and the Code, and (ii) have not incurred any material liability with
respect to any Benefit Plan or Multiemployer Plan to the Pension Benefit
Guaranty Corporation (the "PBGC"), the Internal Revenue Service (the "IRS"), any
Benefit Plan or Multiemployer Plan or any other party (other than to make
premium payments to the PBGC or benefit payments to participants in the ordinary
course of business). Each of the Benefit Plans of Summit is in material
compliance with all Applicable Laws. The IRS has determined that each such
Benefit Plan that is intended to be a qualified plan under section 401(a) of the
Code is so qualified and Summit is aware of no event or circumstance that would
adversely affect such determination. The liabilities incurred under each such
Benefit Plan are accurately reflected on the financial statement included in the
Summit SEC Reports. No condition exists or event or transaction has occurred
that could result in Summit or any Subsidiary incurring
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any liability, fine or penalty with respect to any Benefit Plan or Multiemployer
Plan that could, singly or in the aggregate, have a Material Adverse Effect on
Summit.
(b) Summit has previously furnished the Buyer with (i) a true and complete
copy of each Benefit Plan, (ii) a copy of each trust or other funding
arrangement applicable to each Benefit Plan, (iii) the most recent summary plan
description and any applicable summary of material modifications of each Benefit
Plan, and (iv) the most recently prepared actuarial report and financial
statement, if applicable. Except as contemplated herein, Summit and its
Subsidiaries have no commitment or obligation to (x) create or incur any
material liability with respect to, or cause to exist any other, employee
benefit plan, program or arrangement, (y) enter into any material contract or
agreement to provide compensation or benefits to any individual or (z) modify or
terminate any Benefit Plan, other than with respect to a modification or
termination required by ERISA or the Code.
3.13 TAXES. Except as set forth on the Summit Disclosure Schedule, all Tax
Returns and reports required to be filed by Summit or any of its Subsidiaries
have been filed or will be timely filed (taking into account extensions), all
such Tax Returns are true, correct and complete in all material respects, and
all Taxes, due or claimed to be due from Summit or any of its Subsidiaries have
been paid, other than those currently payable without penalty or interest and
for which an adequate reserve or accrual has been established. There are no: (a)
tax audits pending with respect Tax Returns filed by Summit or of any of its
Subsidiaries, (b) no waivers of the statute of limitations with respect to any
Tax Return filed by Summit of any of the Subsidiaries or (c) to Summit's best
knowledge, no actual or proposed additional Tax assessments for any fiscal
period ending on or prior to the Closing Date against Summit or any of its
Subsidiaries for which an adequate reserve or accrual has not been established.
3.14 TITLE TO PROPERTIES. Each of Summit and each Subsidiary (a) has legal
and valid title to all the real properties and other assets (tangible,
intangible or mixed) it reflects in the financial statements included in the
Summit SEC Reports as owned, free and clear of all Liens (other than Permitted
Liens) and free and clear of restrictions on the manner in which such property
is presently being used, and (b) enjoys peaceful and undisturbed possession
under all leases to which it is a party as lessee. All of the leases to which
Summit or any Subsidiary is a party are legal, valid and binding and in full
force and effect, and no payment default by Summit, any Subsidiary or, to the
best knowledge of Summit, any other party thereto has occurred or is continuing
thereunder. Except as set forth in the financial statements included in the
Summit SEC Reports or on the Summit Disclosure Schedule, no property or asset,
the value of which is reflected in the balance sheets included in the financial
statements included in the Summit SEC Reports, is held under any lease or under
any conditional sale or other title retention agreement. Except for such assets
and facilities as are immaterial in the aggregate to the business of Summit and
its Subsidiaries taken as a whole, all tangible assets and facilities of each of
Summit and its Subsidiaries are in good condition and repair and are adequate
for the uses to which they are being put.
3.15 ENVIRONMENTAL MATTERS.
(a) Each of Summit and its Subsidiaries is in compliance with the
provisions of all Environmental Laws, which compliance includes, but is not
limited to, the possession by Summit or its Subsidiaries, as appropriate, of all
licenses, permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof where the failure to comply could, singly or in the aggregate, have a
Material Adverse Effect on Summit. None of Summit or any of its Subsidiaries has
received any communication (written or oral), whether from a Governmental
Authority, employee or otherwise, that alleges that Summit or any of its
Subsidiaries is not in such compliance where the failure to comply could, singly
or in the aggregate, have a Material Adverse Effect on Summit, and there are no
currently existing circumstances known to Summit that, if not corrected, could
prevent such compliance in the future.
(b) There is no Environmental Claim pending or, to the best knowledge of
Summit, threatened against Summit or any of its Subsidiaries or against any
Person whose liability for any Environmental Claim Summit or any of its
Subsidiaries has retained or assumed either contractually or by operation of
law. To the best knowledge of Summit, there is no basis for any such claim.
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3.16 LITIGATION. All Proceedings against Summit or any of its Subsidiaries
or any of their properties or assets, and a brief description thereof are listed
in the Summit Disclosure Schedule. There is no Proceeding or series of related
Proceedings against or affecting Summit or any of its Subsidiaries or any of
their properties or assets, that could, singly or in the aggregate, have a
Material Adverse Effect on Summit. Neither Summit nor any of its Subsidiaries is
subject to any judgment, injunction, decree, writ, interpretation or order of
any Governmental Authority that could, singly or in the aggregate, have a
Material Adverse Effect on Summit.
3.17 CONTRACTS AND COMMITMENTS.
(a) Except as set forth in the Summit Disclosure Schedule, neither Summit
nor any of its Subsidiaries will have any (i) agreement for the employment of
any individual or agreements that contain any severance pay liabilities or
obligations; or (ii) contract or commitment not terminable without penalty or
cost on notice of thirty (30) days or less and which contains an obligation to
pay and/or accrue more than $100,000 per year, other than real estate and
equipment leases and franchise agreements.
(b) Except as set forth in the Summit Disclosure Schedule: (i) to the best
knowledge of Summit, neither Summit nor any of its Subsidiaries has breached,
nor has received notice in writing or otherwise of any claim that it has
breached, any of the terms of conditions of any agreement, contract or
commitment set forth or required to be set forth in the Summit Disclosure
Schedule, any agreement with HomeTown Buffet, Inc. or any franchise agreement
with respect to a JB's restaurant, which breach or breaches singly or in the
aggregate are reasonably likely to have a Material Adverse Effect on Summit, and
(ii) to the best knowledge of Summit, there are no facts or conditions which
have occurred or are anticipated to occur which, through the passage of time or
the giving of notice, or both, would constitute a breach under any such contract
which breach is reasonably likely to have a Material Adverse Effect on Summit.
3.18 COMPLIANCE WITH LAWS. Except as set forth on the Summit Disclosure
Schedule, to the best knowledge of Summit, Summit and its Subsidiaries have
complied with all applicable laws, regulations (including, without limitation,
applicable occupational health and safety laws and regulations, applicable
immigration laws and regulations and applicable laws governing the sale of
franchises) and zoning ordinances of foreign, federal, state and local
governments and all agencies thereof which affect the business, business
practices or any owned or leased properties of Summit and its Subsidiaries and
to which Summit and its Subsidiaries may be subject, except where such failure
to comply would not singly or in the aggregate have a Material Adverse Effect on
Summit.
3.19 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on the Summit
Disclosure Schedule and except as expressly contemplated by this Agreement,
since September 25, 1995, neither Summit nor any of its Subsidiaries has:
(i) suffered a Material Adverse Effect in its business, financial
condition, operating results, earnings, assets, customer, supplier,
employee and sales representative relations, business prospects, business
condition or financing arrangements or material casualty loss or damage to
its assets (whether or not covered by insurance);
(ii) issued, sold or transferred any notes, bonds or other debt
securities or any equity securities, securities convertible, exchangeable
or exercisable into equity securities, or warrants, options or other rights
to acquire equity securities, in each case of Summit or any Subsidiary
thereof;
(iii) redeemed or repurchased, directly or indirectly, any shares of
capital stock or declared, set aside or paid any dividends or made any
other distributions with respect to any shares of its capital stock;
(iv) borrowed any amount or incurred or become subject to any
liabilities, except liabilities incurred in the ordinary course of
business;
(v) entered into, amended or terminated any lease, contract, agreement
or commitment, or taken any other action or entered into any other
transaction other than in the ordinary course of business and in accordance
with past custom and practice or as contemplated by this Agreement, or
entered into any transaction with any insider except as contemplated by
this Agreement;
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(vi) entered into any other material transaction, whether or not in
the ordinary course of business, or materially changed any business
practice;
(vii) made or granted any bonus or any wage, salary or compensation
increase in excess of $50,000 per year to any director, officer, employee
or sales representative, group of employees or consultant or made or
granted any increase in any employee benefit plan or arrangement, or
amended or terminated any existing employee benefit plan or arrangement or
adopted any new employee benefit plan or arrangement;
(viii) conducted its cash management customs and practices (including
the collection of receivables, inventory control and payment of payables)
other than in the usual and ordinary course of business in accordance with
past custom and practice;
(ix) changed or authorized any change in its Charter Documents; or
(x) committed to any of the foregoing.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CKE
Except as otherwise set forth in the CKE Disclosure Schedule, CKE hereby
represents and warrants to Summit as follows:
4.1 ORGANIZATION, GOOD STANDING AND AUTHORITY. Each of CKE and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation. Each of CKE and its
Subsidiaries has full corporate power to carry on its business, as it is now
being conducted, and to own, lease or operate the properties and assets it now
owns, leases or operates. Each of CKE and its Subsidiaries is qualified to do
business, is in good standing and has all required business licenses in each
jurisdiction in which its failure to obtain or maintain such qualification, good
standing or license could have a Material Adverse Effect on CKE.
4.2 BINDING AGREEMENT. CKE has all requisite corporate power and corporate
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite corporate action. This Agreement is a legal, valid and binding
obligation of CKE, enforceable against it in accordance with its terms, except
as enforcement thereof may be limited by general principles of equity
(regardless of whether such enforceability is considered in a proceeding at law
or in equity) and the effect of applicable bankruptcy, insolvency, moratorium
and other similar laws of general application relating to or affecting
creditors' rights generally, including, without limitation, the effect of
statutory or other law regarding fraudulent conveyances and preferential
transfers.
4.3 CAPITALIZATION. The authorized capitalization of CKE consists solely
of (a) 50,000,000 shares of CKE Common Stock, of which 18,676,587 shares were
issued and outstanding as of October 31, 1995; and (b) 5,000,000 shares of
Preferred Stock, $.01 per share, of which no shares were issued or outstanding
as of the date hereof. On the Closing Date there will not be outstanding: (i)
any options, warrants or other rights to purchase from CKE any capital stock of
CKE, except for (x) the options, warrants and other rights to purchase capital
stock of CKE outstanding as of the date of this Agreement as set forth on the
CKE Disclosure Schedule, or (y) options, warrants or other rights to purchase
capital stock of CKE granted to employees and officers of CKE as set forth on
the CKE Disclosure Schedule; (ii) any securities convertible into or
exchangeable for shares of such stock; or (iii) any other commitments of any
kind for the issuance of additional shares of capital stock or options, warrants
or other securities of CKE other than rights to purchase not more than 400,000
shares of CKE Common Stock granted to existing officers, directors and employees
and to new or newly promoted employees in the ordinary course of business.
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4.4 SUBSIDIARIES. There is set forth in the CKE Disclosure Schedule (i)
the name and percentage ownership by CKE of each of its Subsidiaries; (ii) the
jurisdiction of incorporation, capitalization and ownership of each Subsidiary;
and (iii) the names of the officers and directors of each Subsidiary.
4.5 NO VIOLATION.
(a) Except as set forth in the CKE Disclosure Schedule, none of CKE or any
of its Subsidiaries is (i) in violation of its respective Charter Documents, or
(ii) to CKE's best knowledge, in default in the performance of any obligation,
agreement or condition contained in any Applicable Agreement, which violation or
default could, singly or in the aggregate, have a Material Adverse Effect on
CKE.
(b) Except a set for in the CKE Disclosure Schedule, neither the execution
or delivery by CKE of this Agreement or the performance by CKE of its
obligations under this Agreement will (i) constitute a material breach or
material violation under the Charter Documents of CKE or any of its
Subsidiaries; or (ii) conflict with, violate, constitute a material breach or
material violation of or a material default (with the passage of time or
otherwise) under, require the consent of any Person under, give to others any
rights of termination, amendment, acceleration or cancellation of or result in
the imposition of a material Lien on any of the properties or assets of CKE or
any of its Subsidiaries or an acceleration of material indebtedness pursuant to,
any Applicable Agreement.
4.6 EXCHANGE ACT REPORTS AND FINANCIAL STATEMENTS. CKE has furnished or
will upon request furnish CKE with copies of its Annual Report on Form 10-K for
the fiscal years ended January 31, 1993, 1994 and 1995 and its Quarterly Reports
on Form 10-Q for the quarters ended May 22, 1995 and August 14, 1995, in each
case with exhibits, and all other reports filed or required to be filed with the
Securities and Exchange Commission (the "SEC") under applicable laws, rules and
regulations since January 31, 1995 (all such reports being herein collectively
called the "CKE SEC Reports"), each as filed with the SEC. Each such CKE SEC
Report when it became effective or was filed with the SEC, or as amended, as the
case may be, complied in all material respects with the requirements of the
Exchange Act, as applicable, and the rules and regulations of the SEC thereunder
and did not on the date of filing or amendment, if any, contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements contained in said CKE SEC
Reports: (i) were prepared in accordance with the books and records of CKE and
its Subsidiaries; (ii) were prepared in accordance with GAAP and with Regulation
S-X promulgated under the Exchange Act; (iii) fairly present CKE's consolidated
financial condition and the consolidated results of its operations, cash flows
and shareholders equity as at the relevant dates thereof and for the periods
covered thereby; (iv) contain and reflect all necessary adjustments and accruals
for a fair presentation of its consolidated financial condition and the
consolidated results of its operations, cash flows and shareholders equity for
the periods covered by said financial statements; (v) contain and reflect
adequate provisions for all reasonably anticipated liabilities for all taxes,
federal, state, local or foreign, with respect to the periods then ended and all
prior periods; and (vi) with respect to contracts and commitments for the sale
of goods or the provision of services by CKE or any Subsidiary, contain and
reflect adequate reserves for all reasonably anticipated material losses, costs
and expenses in excess of expected receipts.
4.7 INFORMATION IN REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by CKE for inclusion or incorporation by
reference in (i) the Registration Statement will, at the time it becomes
effective under the Securities Act and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and (ii) the Proxy
Statement will, at the date mailed to Summit's stockholders, at the time of the
meeting of stockholders to be held in connection with the Merger and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Registration Statement will, when filed with the SEC by CKE,
comply as to form in all material respects with the provisions of the Securities
Act and the rules and regulations thereunder, except that no representation is
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made by CKE with respect to statements made therein based on information
supplied by Summit for inclusion in the Registration Statement.
4.8 CONSENTS AND APPROVALS. No consent, approval or authorization of, or
declaration, filing or registration with, any United States federal or state
governmental or regulatory authority is required to be made or obtained by CKE
in connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby, other than any filings
required under the HSR Act, the Exchange Act, the Securities Act and filings
with the New York Stock Exchange.
4.9 NO BROKERS. Except as set forth in the CKE Disclosure Schedule,
neither CKE nor any affiliate thereof has entered into or will enter into any
agreement, arrangement or understanding with any person or firm which will
result in any obligation of CKE to pay any finder's fee, brokerage commission or
similar payment in connection with the transactions contemplated hereby.
4.10 LITIGATION. All material proceedings against CKE or any of its
Subsidiaries or any of their properties or assets, and a brief description
thereof are listed in the Disclosure Schedule. There is no Proceeding or series
of related Proceedings against or affecting CKE or any of the Subsidiaries or
any of their properties or assets, that could, singly or in the aggregate, have
a Material Adverse Effect on CKE. Neither CKE nor any of its Subsidiaries is
subject to any judgment, injunction, decree, writ, interpretation or order of
any Governmental Authority that could, singly or in the aggregate, have a
Material Adverse Effect on CKE.
4.11 COMPLIANCE WITH LAWS. Except as set forth on the CKE Disclosure
Schedule, to the best knowledge of CKE, CKE and its Subsidiaries have complied
with all applicable laws, regulations (including, without limitation, applicable
occupational health and safety laws and regulations and applicable immigration
laws and regulations) and zoning ordinances of foreign, federal, state and local
governments and all agencies thereof which affect the business, business
practices or any owned or leased properties of CKE and its Subsidiaries and to
which CKE and its Subsidiaries may be subject, except where such failure to
comply would not singly or in the aggregate have a Material Adverse Effect on
CKE.
4.12 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on the CKE
Disclosure Schedule and except as expressly contemplated by this Agreement,
since August 14, 1995, neither CKE nor any of its Subsidiaries has:
(i) suffered a Material Adverse Effect in its business, financial
condition, operating results, earnings, assets, customer, supplier,
employee and sales representative relations, business prospects, business
condition or financing arrangements or material casualty loss or damage to
its assets (whether or not covered by insurance);
(ii) issued, sold or transferred any notes, bonds or other debt
securities or any equity securities, securities convertible, exchangeable
or exercisable into equity securities, or warrants, options or other rights
to acquire equity securities, in each case of CKE or any Subsidiary
thereof;
(iii) redeemed or repurchased, directly or indirectly, any shares of
capital stock or declared, set aside or paid any dividends or made any
other distributions with respect to any shares of its capital stock;
(iv) borrowed any amount or incurred or become subject to any
liabilities, except liabilities incurred in the ordinary course of
business;
(v) entered into, amended or terminated any lease, contract, agreement
or commitment, or taken any other action or entered into any other
transaction other than in the ordinary course of business and in accordance
with past custom and practice or as contemplated by this Agreement, or
entered into any transaction with any insider except as contemplated by
this Agreement;
(vi) entered into any other material transaction, whether or not in
the ordinary course of business, or materially changed any business
practice;
(vii) made or granted any bonus or any wage, salary or compensation
increase in excess of $50,000 per year to any director, officer, employee
or sales representative, group of employees or consultant or made or
granted any increase in any employee benefit plan or arrangement, or
amended or terminated
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any existing employee benefit plan or arrangement or adopted any new
employee benefit plan or arrangement;
(viii) conducted its cash management customs and practices (including
the collection of receivables, inventory control and payment of payables)
other than in the usual and ordinary course of business in accordance with
past custom and practice;
(ix) changed or authorized any change in its Charter Documents; or
(x) committed to any of the foregoing.
ARTICLE 5
ACTIONS BY SUMMIT AND
CKE PENDING THE MERGER
Summit and CKE covenant as follows for the period from the date hereof
through the Closing Date:
5.1 MAINTENANCE OF BUSINESS. Summit shall, and shall cause each Subsidiary
to, diligently carry on its business in the ordinary course consistent with past
practice, including, without limitation, meeting its obligations as they become
due and fulfilling its commitments to suppliers. Summit shall cause its existing
insurance policies to be maintained in effect through the Closing Date.
5.2 CERTAIN PROHIBITED TRANSACTIONS. Without the prior written approval of
CKE or except as otherwise contemplated under this Agreement, prior to the
Effective Time Summit shall not, and shall cause each of its Subsidiaries not
to:
(a) incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise become responsible for obligations of any other
individual, partnership, firm or corporation, or make any loans or advances
to any individual, partnership, firm or corporation, except in the ordinary
course of business and consistent with past practice and, with respect to
indebtedness, pursuant to existing agreements;
(b) issue any shares of its capital stock or any other securities or
any securities convertible into shares of its capital stock or any other
securities, other than shares issued upon exercise of issued and
outstanding options, warrants and other rights to purchase capital stock of
Summit, which rights are outstanding as of the date hereof and are
reflected in Schedule 3.3 of the Summit Disclosure Schedule;
(c) pay or incur any obligation to pay any dividend on its capital
stock or make or incur any obligation to make any distribution or
redemption with respect to capital stock;
(d) make any change to its Certificate of Incorporation or bylaws
other than the filing of the Certificate of Merger;
(e) mortgage, pledge or otherwise encumber any of its properties or
assets or sell, transfer or otherwise dispose of any of its properties or
assets (other than (i) shares of HomeTown Buffet, Inc. common stock held by
Summit and (ii) restaurants in the process of being disposed of or
transferred as set forth in the Summit Disclosure Schedule) or cancel,
release, compromise or assign any indebtedness owed to it or any claims
held by it, except in the ordinary course of business and consistent with
past practice;
(f) make any investment of a capital nature either by purchase of
stock or securities, contributions to capital, property transfer or
otherwise, or by the purchase of any property or assets of any other
individual, partnership, firm or corporation, except in the ordinary course
of business and consistent with past practice;
(g) make any material tax election or make any material change in
Summit's accounting principles or practices;
(h) enter into any material contracts that would involve the payment
or accrual of payments of more than $100,000 in any fiscal year or enter
into any additional franchise agreements; or
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(i) do any other act which would cause any representation or warranty
of Summit in this Agreement to be or become untrue.
5.3 REGISTRATION STATEMENT/PROXY STATEMENT. Subject to the terms and
conditions of this Agreement, Summit and CKE each agree to use their respective
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable by such party
with respect to (i) the prompt preparation and filing of the Registration
Statement by CKE with the SEC under the Securities Act relating to the offer and
sale of the CKE Common Stock in the Merger and (ii) the prompt preparation and
filing by Summit of the Proxy Statement pertaining to solicitation of approval
of Summit's stockholders, the form of which shall be included as part of the
Registration Statement, (iii) such actions as may be required to have the
Registration Statement declared effective under the Securities Act and to have
the Proxy Statement cleared by the SEC, in each case as promptly as practicable,
including by consulting with the other parties hereto as to, and responding
promptly to, any SEC comments with respect thereto, and (iv) such actions as may
be required to be taken under applicable state securities or blue sky laws in
connection with the issuance of the CKE Common Stock contemplated hereby. Each
party hereto shall promptly consult with the other party with respect to,
provide any necessary information with respect to and provide the other party
(and its counsel) copies of, all filings made with respect to the Registration
Statement and the Proxy Statement. The information supplied by each party for
inclusion in the Registration Statement and the Proxy Statement shall not, at
(i) the time the Registration Statement (or any amendment or supplement thereto)
is declared effective, (ii) the time the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to the stockholders of Summit and
(iii) the time of the Summit stockholders' meeting, respectively, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading and shall comply as to form in all material respects with the
requirements of the Securities Act. In addition, if at any time prior to the
Effective Time any event or circumstance relating to either Summit or CKE or any
of their respective subsidiaries, or any of their respective officers or
directors, should be discovered by Summit or CKE, as the case may be, and which
are required to be set forth in an amendment or supplement to the Registration
Statement or the Proxy Statement, the discovering party shall promptly inform
the other party of such event or circumstance.
5.4 INVESTIGATION BY CKE. Summit shall, and shall cause the Subsidiaries
to, allow CKE during regular business hours through their employees, agents,
advisors and representatives, to make such investigation of the business,
properties, books and records of Summit and its Subsidiaries, and to conduct
such examination of the condition of Summit and its Subsidiaries, as CKE deems
necessary or advisable to familiarize itself and its lenders with such business,
properties, books, records, condition and other matters, and to investigate the
accuracy and completeness of the representations and warranties of Summit
hereunder; provided however, that any information so obtained is subject to the
confidentiality agreement previously entered into. Such access shall include
authorizing Summit's legal, accounting, tax, insurance and environmental
consultants and advisors to cooperate with CKE, its lenders and their advisors.
In particular, Summit and its consultants and advisors shall cooperate with CKE
to allow CKE (a) to conduct full environmental reviews or studies of Summit's
properties and facilities and (b) to arrange for meetings between CKE and the
franchisees under the Summit's franchise agreements; provided, that
representatives from Summit may attend all such meetings.
5.5 TITLE REPORTS. As promptly as possible after the date hereof, Summit
shall order preliminary title reports from a title insurance company or
companies reasonably satisfactory to CKE for all real properties that are owned
by Summit. Summit shall use its best efforts to cause such reports to be
delivered to CKE on or prior to [30] days following the date hereof.
5.6 CONSENTS AND BEST EFFORTS. As promptly as possible after the date
hereof, CKE and Summit shall make all filings required under the HSR Act. Summit
and CKE will, as soon as possible, commence to take all action required to
obtain all consents, approvals and agreements of, and to give all notices and
make all other filings with, any third parties, including governmental
authorities, necessary to authorize, approve or permit the Merger and the other
transactions contemplated by this Agreement. In addition, subject to the terms
and conditions herein provided, each of the parties hereto covenants and agrees
to use its reasonable
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best efforts to take, or cause to be taken, all action or do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby and to cause the fulfillment of the parties' obligations hereunder.
5.7 NOTIFICATION OF CERTAIN MATTERS. Summit shall give prompt notice to
CKE, and CKE shall give prompt notice to Summit, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate any time from the date hereof to the Closing Date and (ii) any
material failure of Summit or CKE, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder, and each party shall use all reasonable efforts to remedy same.
Summit and the CKE acknowledge that they are presently unaware of any facts that
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate.
5.8 REASONABLE BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
Each party shall promptly consult with the other with respect to, provide any
necessary information with respect to and provide the other (or its counsel)
copies of, all filings made by such party with any Governmental Entity in
connection with this Agreement and the transactions contemplated hereby. In
addition, if at any time prior to the Effective Time any event or circumstance
relating to either Summit or CKE or any of their respective Subsidiaries, or any
of their respective officers or directors, should be discovered by Summit or
CKE, as the case may be, and which should be set forth in an amendment or
supplement to the Registration Statement or the Proxy Statement, the discovering
party shall promptly inform the other party of such event or circumstance.
5.9 LETTER OF SUMMIT'S ACCOUNTANTS. Following receipt by KMPG Peat Marwick
LLP, Summit's independent auditors, of an appropriate request from CKE pursuant
to Statement on Auditing Standards ("SAS") No. 72, Summit shall use its
reasonable best efforts to cause to be delivered to CKE a letter of KMPG Peat
Marwick LLP, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to CKE, in form and
substance reasonably satisfactory to CKE and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement, which letter
shall be brought down to the Effective Time.
5.10 LETTER OF CKE'S ACCOUNTANTS. Following receipt by KMPG Peat Marwick
LLP, CKE's independent auditors, of an appropriate request from CKE pursuant to
SAS No. 72, CKE shall use its reasonable best efforts to cause to be delivered a
letter of KMPG Peat Marwick LLP, dated a date within two business days before
the date on which the Registration Statement shall become effective and
addressed to CKE, in form and substance reasonably satisfactory to CKE and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement, which letter shall be brought down to the Effective
Time.
5.11 STOCKHOLDERS MEETING. Summit shall call a meeting of its stockholders
for the purpose of voting upon this Agreement, the Merger and related matters.
Summit will, through its Board of Directors, recommend to its stockholders
approval of such matters and will coordinate and cooperate with respect to the
timing of this meetings and shall use its reasonable best efforts to hold such
meeting as soon as practicable after the date hereof.
5.12 NEW YORK STOCK EXCHANGE LISTING. CKE shall use its reasonable best
efforts to cause the CKE Common Stock to be issued in the Merger to be approved
for listing on the New York Stock Exchange, subject to official notice of
issuance, prior to the Closing Date.
5.13 BENEFIT PLANS.
(a) It is CKE's present intent to provide continuing employees of Summit
and its Subsidiaries with employee benefits comparable to those provided to CKE
employees.
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(b) CKE will, and will cause the Surviving Corporation to, honor without
modification all employee severance plans (or policies) and employment and
severance agreements of Summit or any of its Subsidiaries hereto identified in
the Summit Disclosure Schedule as such agreements (or policies) are in effect on
the date of this Agreement.
5.14 STOCK OPTION PLANS.
(a) On or prior to the Effective Time, Summit and its Board of Directors
(or a committee thereof) shall take all action necessary to implement the
provisions contained herein; provided, that such provisions do not create an
aggregate cash liability at the Effective Time in excess of $606,000.
(b) At the election of each holder of an option to purchase shares of
Summit Common Stock (a "Summit Stock Option") which is currently vested under a
Summit Stock Option Plan, at the Effective Time, (i) all Summit Stock Options
held by such holder shall become fully exercisable, (ii) such Summit Stock
Options shall be cancelled and (iii) in consideration of such cancellation,
Summit shall pay to such holders of such Summit Stock Options an amount in
respect thereof equal to the product of (x) the excess, if any, of $6.00 over
the respective exercise price thereof and (y) the number of shares of Summit
Common Stock subject thereto, respectively (such payment to be net of any
required withholding taxes). From and after the Effective Time, each outstanding
Summit Stock Option, whether vested or unvested, that is not so cancelled shall
constitute an option to acquire, on the same terms and conditions as were
applicable under such Summit Stock Option, a number of shares of CKE Common
Stock equal to (w) the product of $6.00 and the number of shares of Summit
Common Stock purchasable upon exercise of the Summit Stock Option prior to the
Effective Time divided by (x) the Average CKE Price, at an exercise price per
share equal to (y) the aggregate exercise price for the shares of Summit Common
Stock purchasable upon exercise of the Summit Stock Option prior to the
Effective Date divided by (z) the aggregate number of shares of CKE Common Stock
purchasable upon exercise of such Summit Stock Option following the Effective
Date.
(c) Except as provided herein or as otherwise agreed to by the parties, and
to the extent permitted by the Summit Stock Option Plan, the Summit Stock Option
Plan shall terminate as of the Effective Time and the provisions in any other
plan, program or arrangement, providing for the issuance or grant of any other
interest in respect of the capital stock of Summit or any of its Subsidiaries
shall be deleted as of the Effective Time.
5.15 CHANGE OF CONTROL LETTERS. Summit shall cause the seven employees who
have signed the Change of Control letters dated August 17, 1995 identified in
Schedule 3.17(a)(i)(c) and Mr. McComas under the employment agreement dated
November 24, 1993 to sign modifications extending to 90 days following the
Closing the date after which such employees may voluntarily resign and obtain
the severance benefits set forth therein.
5.16 EXCLUSIVITY.
(a) Until the termination of this Agreement pursuant to Section 9.1, Summit
will not, nor will it permit its officers, directors, affiliates,
representatives or agents, directly or indirectly, to do any of the following:
(i) discuss, negotiate, undertake, authorize, recommend, propose or
enter into, either as the proposed surviving, merged, acquiring or acquired
corporation, any transaction (other than the Merger) involving any
disposition or other change of ownership of Summit's stock or assets, other
than acquisitions and dispositions of equipment and other property in the
ordinary course of Summit's business and dispositions of HomeTown Buffet,
Inc. common stock owned by Summit (an "Acquisition Transaction");
(ii) facilitate, encourage, solicit or initiate or in any way engage
in any discussion, negotiation or submission of a proposal or offer in
respect of an Acquisition Transaction;
(iii) furnish or cause to be furnished to any Person any information
concerning the business, operations, properties or assets of Summit in
connection with an Acquisition Transaction; or
(iv) otherwise cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any other Person to
do or seek any of the foregoing.
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Summit will inform CKE by telephone within 24 hours of its receipt of any
proposal or bid (including the terms thereof and the Person making such proposal
or bid) in respect of any Acquisition Transaction.
ARTICLE 6
CONDITIONS TO SUMMIT'S OBLIGATIONS
The obligations of Summit under this Agreement are subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions:
6.1 COMPLETION OF OTHER TRANSACTIONS. Simultaneously with Summit's
effectuation of the transactions to be effected by it at the Closing:
(a) The Registration Statement shall have become effective under the
Securities Act, the Proxy Statement shall have been cleared by the staff of
the SEC and no stop order or proceeding seeking stop orders shall have been
issued with respect to the Registration Statement or the Proxy Statement.
(b) The Merger shall have been completed and the Certificate of Merger
shall have been filed with the Secretary of State of the State of Delaware.
(c) This Agreement and the Merger shall have been approved and adopted
by the holders of the Summit Common Stock and the Summit Preferred Stock
pursuant to and in accordance with the Charter Documents of Summit.
(d) The CKE Common Stock shall have been approved for listing on the
New York Stock Exchange, subject to official notice of issuance.
6.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties of CKE contained in this Agreement shall be true and correct at and
as of the Closing Date as if such representations and warranties were made at
and as of the Closing Date, and CKE shall have performed in all material
respects all agreements and covenants required hereby to be performed by it
prior to or at the Closing Date. There shall be delivered to Summit a
certificate (signed by the President or a Vice President of CKE on behalf of the
CKE) to the foregoing effect.
6.3 CONSENTS. All consents, approvals and waivers from governmental
authorities, and other parties necessary to permit Summit to consummate the
transactions as contemplated hereby, shall have been obtained, unless the
failure to obtain any such consent, approval or waiver would not have a Material
Adverse Effect upon Summit.
6.4 NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action,
investigation, inquiry or other Proceeding by any Governmental Authority shall
have been instituted or threatened which questions the validity or legality of
the transactions contemplated hereby. No suit, action, investigation, inquiry or
other Proceeding by any Governmental Authority or other Person shall have been
instituted or threatened which questions the validity or legality of the
transactions contemplated hereby and which could reasonably be expected to have
a Material Adverse Effect on Summit or its Subsidiaries.
6.5 CERTIFICATES. CKE will furnish Summit with such certificates of its
officers, directors and others to evidence compliance with the conditions set
forth in this Article 6 as may be reasonably requested by Summit and Summit
shall have received an opinion of counsel to CKE reasonably acceptable to
Summit.
6.6 TAX OPINION. Summit shall have received an opinion of counsel (a copy
of which will be delivered to CKE) to the effect that the Merger shall
constitute a tax-free reorganization within the meaning of Section 368(a) of the
Code.
6.7 CORPORATE DOCUMENTS. Summit shall have received from CKE resolutions
adopted by the board of directors of CKE approving this Agreement and the
transactions contemplated hereby, certified by CKE's corporate secretary.
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6.8 HSR ACT. The applicable waiting period, including any extension
thereof, under the HSR Act shall have expired.
6.9 FAIRNESS OPINION. Summit shall have received a letter from Piper
Jaffray Inc. confirming the opinion rendered to Summit's Board of Directors on
or prior to the date hereof to the effect that the terms of the Merger are fair
to the holders of Summit Common Stock from a financial point of view, a copy of
which will be delivered to CKE at the Closing.
ARTICLE 7
CONDITIONS TO CKE'S OBLIGATIONS
The obligations of CKE under this Agreement, including the obligation to
pay the Merger Consideration as provided hereby, are subject, in the discretion
of CKE, to the satisfaction, on or prior to the Closing Date, of each of the
following conditions:
7.1 COMPLETION OF OTHER TRANSACTIONS. Simultaneously with or prior to
CKE's effectuation of the transactions to be effected by it at the Closing:
(a) The Registration Statement shall have become effective under the
Securities Act, the Proxy Statement shall have been cleared by the staff of
the SEC and no stop order or proceeding seeking stop orders shall have been
issued with respect to the Registration Statement or the Proxy Statement.
(b) The Merger shall have been completed and the Certificate of Merger
shall have been filed with the Secretary of State of the State of Delaware.
(c) This Agreement and the Merger shall have been approved and adopted
by the holders of the Summit Common Stock and the Summit Preferred Stock
pursuant in accordance with the Charter Documents of Summit.
(d) The CKE Common Stock shall have been approved for listing on the
New York Stock Exchange, subject to official notice of issuance.
7.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties of Summit contained in this Agreement shall be true and correct at
and as of the Closing Date as if such representations and warranties were made
at and as of the Closing Date, and Summit and each Subsidiary shall have
performed in all material respects all agreements and covenants required hereby
to be performed by any of them prior to or at the Closing Date. There shall be
delivered to CKE a certificate (signed by the President or a Vice President of
Summit on behalf of Summit) to the foregoing effect.
7.3 CONSENTS. All consents, approvals and waivers from governmental
authorities, and other parties necessary to permit Summit or CKE to consummate
the transactions as contemplated hereby, shall have been obtained, unless the
failure to obtain any such consent, approval or waiver would not have a Material
Adverse Effect upon Summit.
7.4 NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action,
investigation, inquiry or other Proceeding by any Governmental Authority shall
have been instituted or threatened which questions the validity or legality of
the transactions contemplated hereby. No suit, action, investigation, inquiry or
other Proceeding by any Governmental Authority or other Person shall have been
instituted or threatened which questions the validity or legality of the
transactions contemplated hereby and which could reasonably be expected to have
a Material Adverse Effect on Summit or its Subsidiaries.
7.5 CERTIFICATES AND OPINIONS. Summit shall furnish CKE with such
certificates of the respective officers of Summit and others to evidence
compliance with the conditions set forth in this Article 7 as may be reasonably
requested by CKE and CKE shall have received an opinion of counsel to Summit
reasonably acceptable to CKE.
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7.6 TAX OPINION. CKE shall have received an opinion of counsel to CKE (a
copy of which will be delivered to Summit) to the effect that the Merger shall
constitute a tax-free reorganization within the meaning of Section 368(a) of the
Code.
7.7 CORPORATE DOCUMENTS. CKE shall have received from Summit resolutions
adopted by the respective boards of directors of Summit approving this Agreement
and the transactions contemplated hereby, certified by the corporate secretary
of Summit. CKE shall have also received the corporate minute books, Certificates
of Incorporation, bylaws and stock transfer books of Summit and each of the
Subsidiaries.
7.8 HSR ACT. The applicable waiting period, including any extension
thereof, under the HSR Act shall have expired.
7.9 DISSENTING SHARES. To the extent that holders of Summit Common Stock
and Summit Preferred Stock are entitled to dissent from the Merger, the holders
of not more than 10% of the shares of Summit Common Stock or Summit Preferred
Stock shall have asserted dissenters' rights in accordance with the DGCL.
7.10 FAIRNESS OPINION. CKE shall have received a letter from NatWest
Markets confirming the opinion rendered to CKE's Board of Directors on or prior
to the date 10 days following to the date hereof to the effect that the terms of
the Merger are fair to the holders of CKE Common Stock from a financial point of
view, a copy of which will be delivered to Summit at the Closing.
ARTICLE 8
ACTIONS BY SUMMIT AND CKE AFTER THE CLOSING
8.1 FURTHER ASSURANCES. On and after the Closing Date, Summit and CKE will
take all appropriate action and execute all documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the provisions hereof, including without limitation, putting CKE in
possession and operating control of the business of Summit.
8.2 DIRECTORS' AND OFFICERS' INSURANCE. CKE shall either: (i) cause Summit
to provide directors' and officers' and fiduciary liability insurance having
substantially similar terms and conditions and providing substantially similar
coverage as the directors' and officers' and fiduciary liability insurance
maintained by Summit at the Effective Time for a period of one year following
the Effective Time for all present directors and officers of Summit and its
Subsidiaries, provided that CKE may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions which are no less
advantageous, or (ii) cause Summit to purchase runoff extensions under its
existing directors' and officers' and fiduciary liability insurance policies,
extending the period for making claims under such policies for at least one year
following the Effective Time; provided, however, that the total expense for such
extensions shall not exceed $40,000.
ARTICLE 9
TERMINATION AND AMENDMENT
9.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time:
(a) by mutual consent of CKE and Summit;
(b) by either CKE or Summit if the Merger shall not have been
consummated before April 15, 1996 despite the good faith effort of such
party to effect such consummation (unless the failure to so consummate the
Merger by such date shall be due to the action or failure to act of the
party seeking to terminate this Agreement, which action or failure to act
constitutes a breach of this Agreement);
(c) by CKE if (i) (A) there are inaccuracies in the representations
and warranties of Summit that would have a Material Adverse Effect on
Summit, or (B) there has been a material breach on the part of Summit in
the covenants of Summit set forth herein, or any failure on the part of
Summit to comply with its material obligations hereunder, or any other
events or circumstances shall have occurred, such that, in
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any such case, Summit could not satisfy on or prior to April 15, 1996, any
of the conditions to the Closing set forth herein, or (ii) Summit's
stockholders do not approve the Merger at the Summit stockholders' meeting;
(d) by Summit if (i) (A) there are inaccuracies in the representations
and warranties of CKE having a Material Adverse Effect on CKE or (B) there
has been a material breach on the part of CKE in the covenants of CKE set
forth herein, or any failure on the part of CKE to comply with its material
obligations hereunder, or any other events or circumstances shall have
occurred, such that, in any such case, CKE could not satisfy on or prior to
April 15, 1996, any of the conditions to the Closing set forth in this
Agreement, (ii) Summit's stockholders do not approve the Merger at the
Summit stockholders' meeting, (iii) prior to the approval of the Merger by
Summit's stockholders, Summit receives a firm offer with respect to an
Acquisition Transaction that is reasonably capable of being financed and,
in the good faith determination of its Board of Directors after
consultation with its financial advisors, is financially superior to the
Merger and the Board of Directors of Summit, after consulting with its
outside counsel, determines that to proceed with the Merger would violate
its fiduciary duties under applicable law, or (iv) if the Average CKE Price
is less than $12.25, unless CKE notifies Summit in writing that it elects
to proceed with the Closing by issuing additional shares of CKE Common
Stock to compensate for the reduction in the Average CKE Price below $12.25
(the "Fill-Up Election"); or
(e) by holders of the Summit Preferred Stock through written notice to
Summit and CKE if the Average CKE Price is less than $12.25, unless CKE
makes the Fill-Up Election.
9.2 EFFECT OF TERMINATION. In the event of a termination of this Agreement
by either Summit or CKE as provided in Section 9.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of CKE or Summit or their respective officers or directors (other than as
provided in Section 9.3 below for termination by Summit pursuant to Section
9.1(d)(iii)) except for breach of the confidentiality provisions of Section
11.13, and except to the extent that such termination results from the willful
breach by a party hereto of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
9.3 CERTAIN FEES. In the event that Summit terminates the Agreement
pursuant to Section 9.1(d)(iii), Summit shall promptly pay CKE a cash fee of
$800,000. In the event that all conditions to CKE's obligations as set forth in
Article 7 are satisfied and CKE nevertheless fails to proceed with the Merger,
CKE shall forthwith pay Summit a fee of $800,000, in addition to all other
damages that Summit may suffer as a result of such breach.
ARTICLE 10
DEFINITIONS
10.1 DEFINED TERMS. As used herein, the terms below shall have the
following meanings:
"Adjusted CKE Price" has the meaning set forth in Section 2.1.
"Average CKE Price" has the meaning set forth in Section 2.1.
"Acquisition Transaction" has the meaning set forth in Section 5.14.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" has the meaning set forth in the Preamble hereof.
"Applicable Agreement" means, with respect to any Person, any bond,
debenture, note or any other evidence of indebtedness, indenture, mortgage, deed
of trust, lease, contract, agreement, license or instrument
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to which such Person or any of the Subsidiaries is a party or by which any of
their respective properties or assets is bound.
"Applicable Employment Law" means any Applicable Law governing or
respecting employment or the termination thereof, employment practices, terms
and conditions of employment, wages, hours of work, occupational safety and
health, or discriminatory, wrongful or tortious conduct in connection with the
employment relationship.
"Applicable Law" means any law, statute, ordinance, judgment, injunction,
decree, writ, regulation, interpretation, rule or order of any court or
Governmental Authority, and any other governmental restrictions or requirements,
including (without limitation) pursuant to any permit or license in effect on or
prior to the Closing Date.
"Benefit Plan" means, with respect to any Person, an employee benefit plan
(as defined in Section 3(3) of ERISA) whether or not covered by ERISA, bonus or
other incentive plan, deferred compensation, severance arrangement, executive
compensation or any material fringe benefit plan or program maintained or
contributed to by such Person or any of its Subsidiaries or with respect to
which such Person or any of its Subsidiaries has an obligation, actual or
potential.
"Charter Documents" means, with respect to any Person, the articles or
certificate of incorporation and by-laws, partnership agreement or other
organizational documents of such Person.
"CKE" has the meaning set forth in the Preamble.
"CKE Common Stock" means the Common Stock, par value $.01 per share, of
CKE.
"CKE Disclosure Schedule" means a schedule delivered by CKE to Summit as of
the date hereof (and which may be amended or modified on or prior to the Closing
Date) which sets forth exceptions to the representations and warranties
contained in Article 4 hereof and certain other information called for by
Article 4 hereof and other provisions of this Agreement.
"Closing" has the meaning set forth in Section 1.2.
"Closing Date" has the meaning set forth in Section 1.2.
"Code" has the meaning set forth in Recital B.
"DGCL" has the meaning set forth in Section 1.1.
"Effective Time" has the meaning set forth in Section 1.2.
"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any Person alleging potential
liability (including, without limitation, potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of or resulting
from (a) the presence, or release into the environment, of any Materials of
Environmental Concern at any location, whether or not owned or operated by
Summit or any of the Subsidiaries, or (b) any noncompliance with any
Environmental Law.
"Environmental Law" means any and all Applicable Laws relating to pollution
or the protection of human health or the environment or to emissions,
discharges, releases or threatened releases of any Materials of Environmental
Concern into the environment (including without limitation ambient air, surface
water, ground water, or land), or otherwise relating to the manufacture,
processing, distribution, generation, treatment, storage, disposal, transport or
handling of any Materials of Environmental Concern.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" has the meaning set forth in Section 3.6.
"Fill-Up Election" has the meaning set forth in Section 9.1(d)(iv).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements
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and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of this Agreement.
"Governmental Authority" means any Federal, state, local or foreign court
or governmental, administrative or regulatory authority or agency.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"IRS" has the meaning set forth in Section 3.12.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim, or a security interest of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof and any option or other agreement to sell).
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on (i) the condition (financial or otherwise), results of
operations, assets, liabilities, business or business prospects of such Person,
(ii) the ability of such Person or any of its Affiliates to perform its
obligations hereunder or (iii) the validity or enforceability of this Agreement.
"Merger" shall have the meaning set forth in Recital A.
"Merger Consideration" has the meaning set forth in Section 2.1.
"Materials of Environmental Concern" means pesticides, chemicals,
pollutants, contaminants, wastes, toxic substances and hazardous substances.
"Multiemployer Plan" means, with respect to any Person, on any date, a
multiemployer plan defined as such in Section 3(37) of ERISA to which
contributions have been made at any time during the six-year period ending on or
prior to such date, by such Person and that is covered by Title IV of ERISA.
"NLRB" means the National Labor Relations Board.
"PBGC" has the meaning set forth in Section 3.12.
"Permitted Liens" means (i) Liens securing indebtedness under the Summit's
credit facility with Zions National Bank; (ii) Liens in favor of Summit or any
Subsidiary; (iii) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (iv) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (v)
carriers', warehousemen's, mechanics', materialmen's, repairmen's, or other
similar Liens arising in the ordinary course of business which are not overdue
for a period of more than 60 days or which are being contested in good faith by
appropriate proceedings diligently conducted, (vi) Liens of landlords or of
mortgagees of landlords arising by operation of law, provided that the rental
payments secured thereby are not yet due and payable, (vii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (viii)
easements, rights-of-way, restrictions, minor defects or irregularities in title
and other similar charges or encumbrances not interfering in any material
respect with the business of Summit or any of its Subsidiaries, (ix) Purchase
Money Liens (including extensions and renewals thereof); (x) any interest or
title of a lessor in property subject to any capital lease obligation or
operating lease; and (xi) Liens arising from filing Uniform Commercial Code
financing statements regarding leases.
"Person" means any individual, partnership, corporation, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or agency or political subdivision thereof, or other entity.
"Proceeding" means an action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
"Proxy Statement" has the meaning set forth in Section 3.7.
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"Purchase Money Lien" means a Lien granted on an asset or property to
secure incurred incurred solely to finance the purchase, or the cost of
construction or improvement, of such asset or property.
"Registration Statement" has the meaning set forth in Section 3.7.
"SAS" has the meaning set forth in Section 5.8.
"SEC" has the meaning set forth in Section 3.6.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of directors.
"Summit" has the meaning set forth in the Preamble.
"Summit Common Stock" means the Common Stock, par value $.10 per share, of
Summit.
"Summit Disclosure Schedule" means a schedule delivered by Summit to CKE as
of the date hereof (and which may be amended or modified on or prior to the
Closing Date) which sets forth exceptions to the representations and warranties
contained in Article 3 hereof and certain other information called for by
Article 3 hereof and other provisions of this Agreement.
"Summit Preferred Stock" means the Series A Convertible Preferred Stock,
par value $1.00 per share, of Summit.
"Summit Stock Option" has the meaning set forth in Section 5.13.
"Summit Stock Option Plans" means the 1987 Nonqualified Stock Option Plan,
the 1987 Incentive Stock Option Plan, the 1984 Incentive Stock Option Plan, as
amended on February 13, 1987, and the 1992 Stock Option Plan, as amended on
April 8, 1994 and November 18, 1994, in each case of Summit.
"Tax or Taxes" means any federal, state, local, foreign or other income,
gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, transfer, stamp, occupation, alternative
or add-on minimum, estimated or other taxes of any kind whatsoever (including,
without limitation, deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Returns" means any United States Federal, state, local and foreign
returns, declarations, elections, statements, reports, schedules and information
returns pertaining to any Tax or the refiling or amendment of any such Tax
Returns previously filed.
"ULP" means an unfair labor practice as defined in the National Labor
Relations Act.
ARTICLE 11
MISCELLANEOUS
11.1 SURVIVAL OF REPRESENTATIONS, ETC. All statements contained in the
Disclosure Schedule or in any certificate or instrument of conveyance delivered
by or on behalf of the parties pursuant to this Agreement or in connection with
the transactions contemplated hereby shall be deemed to be representations and
warranties by the parties hereunder. The representations and warranties of
Summit and CKE contained herein shall not survive the Closing Date.
11.2 ASSIGNMENT. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by Summit without the prior written
consent of CKE, or by CKE without the prior written consent of Summit. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, and no other person shall have any
right, benefit or obligation hereunder.
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11.3 NOTICES. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the others
shall be in writing and delivered in person or by courier, telegraphed, telexed
or by facsimile transmission (with confirmation given) or mailed by certified
mail, postage prepaid, return receipt requested (such mailed notice to be
effective on the date of such receipt is acknowledged), as follows:
If to Summit: Charlotte L. Miller
Senior Vice President &
General Counsel
Summit Family Restaurants Inc.
440 Lawndale Drive
Salt Lake City, Utah 84115-2917
(801) 463-5500 Phone
(801) 463-5585 Facsimile
If to CKE: Richard C. Celio
Senior Vice President &
General Counsel
CKE Restaurants, Inc.
1200 North Harbor Boulevard
Anaheim, California 92801
(714) 774-5796 Phone
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
11.4 CHOICE OF LAW. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
Delaware except with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject of this
Agreement, and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern.
11.5 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, together
with all exhibits and schedules hereto, constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
11.6 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 one and the same instrument.
11.7 INVALIDITY. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
11.8 HEADINGS. The headings of the Articles and Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
11.9 EXPENSES. Summit and CKE will each be liable for its own, costs and
expenses incurred in connection with the negotiation, preparation, execution or
performance of this Agreement.
11.10 SPECIFIC PERFORMANCE. The parties hereto agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist, and that the parties shall be entitled to
specific performance of the terms hereof, in addition to actions for damages and
any other remedy at law or equity.
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11.11 ATTORNEYS FEES. The parties hereby agree that if any party hereto
pursues a Proceeding to enforce the terms of this Agreement, the prevailing
party in any such Proceeding shall be entitled to recover its attorneys fees and
other costs and expenses incurred in such Proceeding from the other party.
11.12 PUBLICITY. Neither party shall issue or make or permit any Affiliate
or advisor to issue or make any press release or other public statement
regarding the transactions contemplated hereby, without the prior approval of
the other party, except as required by law in the opinion of counsel to each
party. The parties shall issue a mutually acceptable press release as soon as
possible after execution of this Agreement and as soon as practicable after the
Closing Date.
11.13 CONFIDENTIAL INFORMATION. The parties acknowledge that the
transaction described herein is of a confidential nature and shall not be
disclosed except to consultants, lenders, advisors and affiliates, or as
required by law, until such time as the parties make a public announcement
regarding the transaction. Neither Summit nor CKE shall make any public
disclosure of the specific terms of this Agreement, except as required by law.
In connection with the negotiation of this Agreement and the preparation for the
consummation of the transactions contemplated hereby, each party acknowledges
that it will have access to confidential information relating to the other
party. Each party shall treat such information as confidential, preserve the
confidentiality thereof and not duplicate or use such information, except to
advisors, consultants, lenders and affiliates in connection with the
transactions contemplated hereby. Summit, at a time and in a manner which it
reasonably determines and after prior notice to and consultation with CKE, may
notify employees, unions and bargaining agents of the fact of the subject
transaction. In the event of the termination of this Agreement for any reason
whatsoever, each party shall return to the other all documents, work papers and
other material (including all copies thereof) obtained in connection with the
transactions contemplated hereby and will use all reasonable efforts, including
instructing its employees and others who have had access to such information, to
keep confidential and not to use any such information, unless such information
is now, or is hereafter disclosed, through no act or omission of such party, in
any manner making it available to the general public.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
SUMMIT FAMILY RESTAURANTS INC.
By: /s/ DON M. MCCOMAS
--------------------------------------------------------
Don M. McComas
President and Chief Executive Officer
By: /s/ CHARLOTTE L. MILLER
--------------------------------------------------------
Charlotte L. Miller
Senior Vice President &
General Counsel
CKE RESTAURANTS, INC.
By: /s/ JOSEPH N. STEIN
--------------------------------------------------------
Name: Joseph N. Stein
Title: Senior Vice President,
Chief Financial Officer
By: /s/ RICHARD C. CELIO
--------------------------------------------------------
Name: Richard C. Celio
Title: Senior Vice President,
General Counsel
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APPENDIX B
[LETTERHEAD]
March 26, 1996
The Board of Directors
Summit Family Restaurants Inc.
440 Lawndale Drive
Salt Lake City, UT 84115
Members of the Board:
In connection with the proposed merger transaction ("Merger") whereby a
subsidiary of CKE Restaurants, Inc. ("CKE") will be merged with and into Summit
Family Restaurants Inc. ("Summit") pursuant to an Agreement and Plan of Merger
and Reorganization, as amended ("the Agreement") by and among Summit and CKE,
you have requested our opinion as to the fairness, from a financial point of
view, to the holders of shares of common stock, par value $.10 per share, of
Summit ("Summit Stockholders") of the consideration to be received by the Summit
Stockholders in the Merger. Pursuant to the Agreement, the aggregate
consideration to be received by the Summit Stockholders will consist of $2.63
per share in cash and shares of common stock, par value $.01 per share, of CKE
("CKE Common Stock"). The number of shares of CKE Common Stock to be received by
Summit Stockholders shall be determined by dividing $2.64 by $16.00 if the
Average CKE Price (as defined) is equal to or greater than $15.00 and less than
$17.00 per share. The number of shares of CKE Common Stock will be adjusted if
the Average CKE Price is greater than $17.00 per share and may be adjusted if
the Average CKE Price is less than $15.00 per share as described in the
Agreement. As used herein, "Average CKE Price" means the average of the per
share closing sales price of CKE Common Stock on the New York Stock Exchange for
the 20 consecutive trading days ending two days prior to the closing date.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, underwriting and secondary
distributions of securities, private placements, and valuations for estate,
corporate and other purposes. We have acted as a financial advisor to the
Special Committee of the Summit Board of Directors ("Special Committee") in
connection with the Merger. On behalf of the Special Committee, we contacted
potential purchasers of Summit and assisted in the solicitation of proposals
from and negotiations with interested prospective purchasers. For our services
in connection with the Merger, including rendering this opinion, Summit will pay
us a fee and indemnify us against certain liabilities. Our fee is contingent
upon the consummation of the Merger. We have, in the past, provided financial
advisory services to Summit, including advising Summit as to alternative means
to enhance shareholder value, and have received fees for rendering these
services.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
1. Reviewed the Agreement and Plan of Merger and Reorganization,
dated as of November 30, 1995, and amended as of January 24, 1996 and April
2, 1996 between Summit and CKE.
2. Reviewed the annual reports, Form 10-K's and audited financial
statements for Summit for the four years ended September 28, 1992,
September 27, 1993, September 26, 1994 and September 25, 1995.
3. Reviewed the Form 10-Q for Summit for the quarter ended December
18, 1995 and a discussion draft of Form 10-Q for Summit for the quarter
ended March 11, 1996.
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4. Reviewed five-year financial forecasts for Summit furnished by
Summit management.
5. Reviewed the annual report, Form 10-K's and audited financial
statements for CKE for the three years ended January 31, 1995.
6. Reviewed the Form 10-Q's for CKE for the quarters ended May 22,
1995 and August 14, 1995 and November 6, 1995.
7. Conducted discussions with members of senior management of Summit,
including the President, the Chief Financial Officer, the Controller and
the General Counsel. In addition, we held discussions with the Board of
Directors and discussions with members of the Special Committee. Topics
discussed included, but were not limited to, the background and rationale
of the proposed Merger and the financial condition, operating performance,
and the balance sheet characteristics of Summit.
8. Conducted discussions with the Executive Vice President and Chief
Financial Officer of CKE. Topics discussed included, but were not limited
to, the background and rationale for the proposed Merger, the financial
condition, operating performance, balance sheet characteristics and
prospects of CKE's business independently and the financial and operating
prospects for the combined company after consummation of the proposed
Merger.
9. Reviewed the historical prices and trading activity for CKE's
common stock and Summit's common stock.
10. Performed discounted cash flow analysis on five-year financial
forecasts for Summit furnished by Summit's management.
11. Analyzed the premiums paid in recent acquisitions of public
company stock.
12. Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions which we deemed
relevant.
13. Compared certain financial and securities data of Summit with
certain financial and securities data of companies deemed similar to Summit
or representative of the business sector in which the company operates.
14. Reviewed such other financial data, performed such other analyses
and considered such other information as we deemed necessary and
appropriate under the circumstances.
We have relied upon and assumed the accuracy, completeness and fairness of
the financial statements and other information provided to us by Summit or
otherwise made available to us and have not attempted independently to verify
such information. We have further relied upon the assurances of Summit
management that the information provided has been prepared on a reasonable basis
and, with respect to projections, reflects the best currently available
estimates, and that they are not aware of any information or facts that would
make the information provided to us incomplete or misleading. In arriving at our
opinion, we have not conducted any physical inspections of the properties and
facilities of Summit and have not performed any appraisals or valuations of
specific assets of Summit or CKE and express no opinion regarding the
liquidation value of Summit. Our opinion is based upon conditions as they exist
and are subject to evaluation on the date hereof. We are not expressing any
opinion herein as to the prices at which shares of Summit Common Stock or CKE
Common Stock have traded or at which such shares may trade at any future time.
This opinion is for the benefit of the Board of Directors of Summit and
shall not be published or otherwise used, nor shall any public references to us
be made without our written consent. However, notwithstanding the foregoing, we
consent to inclusion of the opinion in the proxy statement/prospectus to be
issued in connection with the Special Meeting of Summit Stockholders. This
opinion is not intended to be and does not constitute a recommendation to any
Stockholder as to how such Stockholder should vote with respect to the Merger.
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Based upon and subject to the foregoing and based upon such other factors
as we consider relevant, it is our opinion that the consideration proposed to be
received by the Summit Stockholders pursuant to the Agreement is fair, from a
financial point of view, to such Summit Stockholders as of the date hereof.
Sincerely,
/s/ PIPER JAFFRAY INC.
Piper Jaffray Inc.
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APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251, sec. 252, sec. 254, sec. 257, sec. 258, sec. 263
or sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsections (f) or (g) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a
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provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least
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1 week before the day of the hearing, in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by publication shall be
approved by the Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-3
<PAGE> 165
PROXY CARD
SUMMIT FAMILY RESTAURANTS INC.
Special Meeting of Stockholders -- To Be Held June , 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (a) acknowledges receipt of the Notice of Special
Meeting of Stockholders (the "Special Meeting") of Summit Family Restaurants
Inc., a Delaware corporation ("Summit"), and the Proxy Statement/Prospectus
delivered to the undersigned in connection therewith, and (b) appoints Clark D.
Jones, David E. Pertl and Charlotte L. Miller, and each of them, individually,
as the attorney, agent and proxy of the undersigned, with full power of
substitution, for and in the name, place and stead of the undersigned to vote,
as designated below, upon and act with respect to all of the shares of Common
Stock, par value $0.10 per share ("Common Stock"), of Summit standing in the
name of the undersigned, or with respect to which the undersigned is entitled to
vote and act, at the Special Meeting and at any adjournment or postponement
thereof.
1. TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION,
DATED AS OF NOVEMBER 30, 1995, AND AMENDED AS OF JANUARY 24, 1996 AND APRIL
2, 1996, BY AND BETWEEN SUMMIT AND CKE RESTAURANTS, INC. AND THE MERGER
CONTEMPLATED THEREIN, AS DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS.
/ / FOR / / AGAINST / / ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE MERGER
2. IN THEIR DISCRETION, UPON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE
SPECIAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
IMPORTANT -- PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY
<PAGE> 166
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER ON THE REVERSE SIDE OF THIS PROXY. WHERE NO DIRECTION IS GIVEN, SUCH
SHARES WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE MERGER.
Date , 1996
----------------------
--------------------------------
(Signature of stockholder)
Please sign your name exactly as
it appears hereon and mail this
proxy in the enclosed envelope.
Where there is more than one
owner, each should sign. When
signing as an executor,
administrator, guardian or
trustee, please add your title
as such. If executed by a
corporation, the proxy should be
signed by a duly authorized
officer.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED
TO SIGN AND RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE
<PAGE> 167
PROXY CARD ATTENTION ESOP TRUSTEE(S)
SUMMIT FAMILY RESTAURANTS INC.
Special Meeting of Stockholders -- To Be Held June , 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (a) acknowledges receipt of the Notice of Special
Meeting of Stockholders (the "Special Meeting") of Summit Family Restaurants
Inc., a Delaware corporation ("Summit"), and the Proxy Statement/Prospectus
delivered to the undersigned in connection therewith, and (b) appoints Clark D.
Jones, David E. Pertl and Charlotte L. Miller, and each of them, individually,
as the attorney, agent and proxy of the undersigned, with full power of
substitution, for and in the name, place and stead of the undersigned to vote,
as designated below, upon and act with respect to all of the shares of Common
Stock, par value $0.10 per share ("Common Stock"), of Summit standing in the
name of the undersigned, or with respect to which the undersigned is entitled to
vote and act, at the Special Meeting and at any adjournment or postponement
thereof.
1. TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION,
DATED AS OF NOVEMBER 30, 1995, AND AMENDED AS OF JANUARY 24, 1996 AND APRIL
2, 1996, BY AND BETWEEN SUMMIT AND CKE RESTAURANTS, INC. AND THE MERGER
CONTEMPLATED THEREIN, AS DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS.
/ / FOR / / AGAINST / / ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE MERGER
2. IN THEIR DISCRETION, UPON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE
SPECIAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
IMPORTANT -- PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY
<PAGE> 168
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER ON THE REVERSE SIDE OF THIS PROXY. WHERE NO DIRECTION IS GIVEN, SUCH
SHARES WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE MERGER.
Date , 1996
--------------------------------
(Signature of stockholder)
Please sign your name exactly as
it appears hereon and mail this
proxy in the enclosed envelope.
Where there is more than one
owner, each should sign. When
signing as an executor,
administrator, guardian or
trustee, please add your title
as such. If executed by a
corporation, the proxy should be
signed by a duly authorized
officer.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED
TO SIGN AND RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE
