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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: JANUARY 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM N/A TO N/A
COMMISSION FILE NUMBER: 1-13192
CKE RESTAURANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 33-0602639
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 NORTH HARBOR BOULEVARD
ANAHEIM, CALIFORNIA 92801
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-5796
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
(TITLE OF CLASS)
COMMON STOCK $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 31, 1995 was $84,965,205.
The number of shares outstanding of the registrant's common stock, as of
March 31, 1995 was 18,174,838.
DOCUMENTS INCORPORATED BY REFERENCE
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PARTS IN WHICH
REFERENCED
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Portions of the Company's Proxy Statement to be filed with the Commission III
within 120 days of January 30, 1995, prepared in connection with the
Annual Meeting of Shareholders to be held in 1995
The Exhibit Index is located on Page E-1.
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CKE RESTAURANTS, INC. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 30, 1995
PART I
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PAGE
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Item 1. Business..................................................................... 1
Item 2. Properties................................................................... 7
Item 3. Legal Proceedings............................................................ 7
Item 4. Submission of Matters to a Vote of Security Holders.......................... 8
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters........ 8
Item 6. Selected Financial Data...................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................ 9
Item 8. Financial Statements and Supplementary Data.................................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................................... 16
PART III
Item 10. Directors and Executive Officers of the Registrant........................... 16
Item 11. Executive Compensation....................................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 16
Item 13. Certain Relationships and Related Transactions............................... 16
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............. 17
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
DESCRIPTION OF THE COMPANY
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").
Enterprises, the predecessor entity of CKE, was a publicly held company
incorporated in California that began conducting its operations in the
mid-1950's. It became a wholly owned subsidiary of CKE as a result of a
reorganization and merger transaction (the "Merger") in June 1994. Enterprises
continues to operate, franchise and license the Carl's Jr.(R) quick-service
restaurant concept, principally in the Western United States and Mexico. As of
January 30, 1995, there were a total of 660 Carl's Jr. restaurants in operation,
of which 383 were operated by Enterprises, 246 were operated by its franchisees
and 31 were operated by its international licensees.
Boston Pacific is a California business that was incorporated in February
1994. It, too, became a wholly owned subsidiary of CKE as a result of the Merger
in June 1994. Boston Pacific was formed to conduct the Company's Boston
Chicken(R) franchise operations under the terms of an area development agreement
with Boston Chicken, Inc. ("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, such as rotisserie-roasted chicken with fresh vegetables, with the
convenience and value associated with quick-service restaurants. The area
development agreement with BCI granted the Company the rights to develop, own
and operate up to 300 such stores in Southern California and metropolitan
Sacramento. A total of 22 Boston Chicken stores were opened by Boston Pacific as
of January 30, 1995, the first of which commenced operations in July 1994.
RECENT DEVELOPMENTS
In February 1995, BCI announced plans to add rotisserie-roasted breast of
turkey, baked ham and meat loaf to its menu and change the name of its stores to
Boston Market(TM) to reflect better the variety of complete meals being offered
by this new menu. Boston Pacific began opening only Boston Market stores in
April 1995 and plans are underway to convert all of Boston Pacific's other
stores to this new format in the coming months.
In April 1995, the Company completed a transaction with BCI that resulted
in the formation of a new privately owned company, Boston West, L.L.C. ("Boston
West"), that assumed the operations of Boston Pacific and agreed to fulfill the
Company's obligation under its area development agreement with BCI. This
transaction will enable the Company's management to refocus its resources on the
Carl's Jr. concept in the coming fiscal year. Expansion of the Carl's Jr.
concept had been slowed in recent years while the Company sought to improve the
restaurant-level cost structure of its restaurants. With the improvements in
operating costs achieved during fiscal 1995 and 1994, management is ready to
renew its expansion plans and begin remodeling its existing Carl's Jr.
restaurants. These efforts require significant capital resources as does the
development schedule contained in the Company's area development agreement with
BCI.
Boston Pacific contributed a majority of its existing Boston Chicken
restaurant assets valued at approximately $22 million to Boston West and BCI
agreed to lend this new entity, over time, up to $63.8 million. This loan is
convertible to equity in Boston West, at BCI's option, at 115% of the original
equity price. In addition, this transaction provides for the leasing of
approximately $12 million of equipment and real property retained by Boston
Pacific to Boston West at current market rates. These terms are subject to final
adjustment within the next 60 days. An affiliate of BCI has an option to
purchase all the equipment and real property leased to Boston West by Boston
Pacific.
In exchange for its assets, Boston Pacific received preferred and all of
the common equity units in Boston West. During the first half of fiscal 1996,
additional equity units in Boston West will be sold such that the
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Company will own less than 20% of the common equity units of Boston West. Until
the sale of these interests is complete, the Company will continue to include
the results of Boston West's operations in the Company's consolidated financial
statements.
After the sale of its common equity units, the Company's ownership may be
increased to up to 35% by an option to co-fund the capital requirements of
Boston West up to a maximum of $15 million. This $15 million may be funded, in
part, by proceeds of the purchase option in the equipment and real property
leases when and if they are exercised. Total capitalization of Boston West is
expected to reach more than $100 million. As a result of this Boston West
transaction, the Company anticipates not only increased availability of capital
resources required to improve and expand the Carl's Jr. concept, but the
retention of the benefits of participating in a growing national concept, side
by side with its originators, as well.
CARL'S JR. RESTAURANTS
COMPANY OPERATIONS
The Company continues to refine the strategic measures it initiated in
January 1993, the three main elements of which are to improve aggressively the
cost structure of its Carl's Jr. restaurants, to increase Carl's Jr. retail
sales by developing and implementing consumer-driven and research-based
marketing programs and to realign and invest in the organization and efficiency
of its human resources.
These measures have yielded significant results to date. Gross margins, as
a percentage of retail sales, improved slightly during fiscal 1995, following a
sizable improvement in fiscal 1994, despite a small decline in sales and the
start-up nature of the Company's Boston Chicken franchise operations in fiscal
1995. These measures allowed the Company to lower its prices, in an effort to
achieve parity with the pricing of its competitors, while maintaining the Carl's
Jr. reputation for superior food, service and cleanliness. The Carl's Jr. menu
was also simplified, as part of this repositioning program, and new menu boards
were installed that prominently display photographs of a variety of products,
making the menu easier to read, and allowing for more effective promotion of
combination meals.
In the coming fiscal year, the Company will continue to focus on operating
efficiencies. A new incentive program for Carl's Jr. restaurant managers was
recently implemented that is designed to motivate and reward managers for their
contributions to cost savings, particularly in the areas of food, labor and
other controllable expenses. The Company's marketing programs have been
strengthened by the addition of a new marketing executive and a new advertising
agency. In its ongoing efforts to improve consumers' perceptions of value, the
Company's advertising will be focused on the exceptional quality of Carl's Jr.
food. In addition, the Company will begin an image enhancement program that will
bring a fresh, contemporary look to its Carl's Jr. restaurants to complement
these marketing efforts.
The Company 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. The Company 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) and Charbroiler Chicken Sandwiches(R). Other entrees include a
fish sandwich, several baked potatoes and prepackaged salads. Side orders, such
as french fries, onion rings and fried zucchini, are also offered. Most
restaurants also have a breakfast menu including eggs, bacon, sausage, french
toast dips, orange juice, the Sunrise Sandwich(R) and 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
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meat on both sides. The meat is conveyed through the broiler automatically to
maintain uniform heating and cooking time.
Each Company-operated restaurant is operated by a manager who has received
13 to 17 weeks of management training. This training program involves a
combination of classroom instruction and on-the-job training in specially
designated training restaurants. Other restaurant employees are trained by the
restaurant manager in accordance with Company guidelines. Restaurant managers
are supervised by district managers, each of whom are responsible for 11 to 14
restaurants. Approximately 35 district managers are under the supervision of
four regional vice presidents, all of whom regularly inspect the operations in
their respective districts and regions.
FRANCHISED AND LICENSED OPERATIONS
The Company's franchise strategy is designed to further the development of
the Carl's Jr. chain and reduce the total capital required of the Company for
development of new restaurants. Franchise arrangements with franchisees, who
operate in Arizona, California, Nevada, Oregon and Utah, generally provide for
initial fees and continuing royalty payments to the Company based upon a
percentage of sales. Additionally, franchisees may purchase food, paper and
other supplies from the Company. Franchisees may also be obligated to remit
lease payments for the use of Company-owned or leased restaurant facilities.
Under the terms of these leases, they are generally required to pay related
occupancy costs, which include maintenance, insurance and property taxes.
The Company also receives notes from franchisees in connection with the
sales of Company-operated restaurants. Generally, these notes bear interest at
12.5%, mature in five to 15 years and are secured by an interest in the
restaurant equipment sold.
The Company's franchising philosophy is such that only candidates with
appropriate experience are considered for the program. Specific net worth and
liquidity requirements must also be satisfied. Absentee ownership is not
permitted and franchise owners are encouraged to live within a one-hour drive of
their restaurants. Area development agreements generally require franchisees to
open a specified number of Carl's Jr. restaurants in a designated geographic
area.
In 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. As of January 30, 1995,
there were 14 licensed restaurants in operation in Mexico, one licensed
restaurant in operation in Japan, seven licensed restaurants in operation in
Malaysia and nine sub-licensed restaurants in operation in the Philippines. None
of the Company's licensing agreements generated material royalties in the year
ended January 30, 1995.
DISTRIBUTION CENTERS
The Company operates a distribution center at its corporate headquarters in
Anaheim, California and a smaller distribution facility in Manteca, California.
Produce, frozen meat patties, dairy and other food and supply items, excluding
bakery products, are distributed to Company-operated Carl's Jr. restaurants,
generally twice a week. Many of these products are sold to franchisees, and in
some cases, to certain licensees. These distribution centers are subject to
periodic inspection by representatives of the United States Department of
Agriculture.
BOSTON CHICKEN FRANCHISE OPERATIONS
The menu in all of the Company's Boston Chicken or Boston Market stores
features rotisserie-roasted chicken, fresh-baked chicken pot pies, a variety of
chicken sandwiches, chicken soup and fresh vegetables, salads and other side
dishes, including mashed potatoes made from scratch, corn, stuffing and creamed
spinach, as well as beverages and desserts. The signature menu item is chicken
that is marinated and then slow-roasted in rotisserie ovens in full view of the
customer. As noted above, plans are underway to add rotisserie-roasted breast of
turkey, double-glazed baked ham and double-sauced meat loaf to all of Boston
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West's remaining Boston Chicken stores and change the name of these stores to
Boston Market. All of these stores offer meals in a bright, inviting retail
setting and are staffed by friendly and knowledgeable salespeople.
The Company believes that the Boston Chicken 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.
The first Boston Chicken store was opened in Newton, Massachusetts in 1985.
As of March 1, 1995, there were 570 Boston Chicken or Boston Market stores
system-wide. By the end of 1995, BCI expects to have approximately 850
restaurants in operation system-wide. There can be no assurance that BCI or its
area developers will be able to achieve this goal.
SOURCES OF RAW MATERIALS
The Company's ability to maintain consistent quality depends in part upon
its ability to acquire and distribute food products, restaurant equipment,
signs, fixtures and supplies from reliable sources in accordance with Company
specifications. The Company, its franchisees and its licensees have not
experienced any material shortages of these items which the Company purchases
from numerous independent suppliers. Alternate sources of these items are
generally available.
TRADEMARKS AND PATENTS
The Company has registered trademarks and service marks which are of
material importance to the Company's business, including Carl's Jr.(R), the
Star(R) logo and proprietary names for a number of the Carl's Jr. menu items.
Boston Chicken(R) and the Boston Chicken logo are registered trademarks of BCI
and BCI has a trademark application pending for Boston Market(TM). These
trademarks may be utilized by the Company in accordance with applicable
provisions of the area development agreement with BCI.
SEASONALITY
The Company's business is moderately seasonal. Average restaurant sales are
normally higher in the summer months than during the winter months.
WORKING CAPITAL PRACTICES
Historically, current assets included marketable securities and restaurant
property costs to be sold and leased back. Subsequent to January 25, 1993, as
part of its strategic initiatives, the Company began liquidating a significant
portion of its investment portfolio, using the proceeds to repay its borrowings
under the Company's revolving credit line. The sale/leaseback program has not
been emphasized during fiscal 1995 and 1994, and thus existing inventories of
restaurant property costs to be sold and leased back were significantly reduced
in fiscal 1994.
The Company does not carry significant amounts of inventory, experience
material returns of merchandise, or generally provide extended payment terms to
its franchisees or licensees. Cash from operations, along with cash, cash
equivalents and marketable securities on hand, should enable the Company to meet
its financing requirements.
CUSTOMERS
No material part of the Company's business is dependent upon a single
customer or a few customers.
BACKLOG
Backlog orders are not material to the Company's business.
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GOVERNMENT CONTRACTS
The Company has no material contracts with the United States government or
any of its agencies.
COMPETITION
Major chains, which have substantially greater financial resources than the
Company, dominate the quick-service restaurant industry. Certain of these major
chains have increasingly offered selected food items and combination meals,
temporarily or permanently at discounted prices. A change in the pricing or
other marketing strategies of one or more of these competitors could have an
adverse impact on the Company's Carl's Jr. sales and earnings in affected
markets.
The Company believes that its particular emphasis on higher quality foods
that appeal to a broad consumer base, allows the Company to compete effectively
with significantly larger quick-service restaurant chains. Careful attention to
dining accommodations, including periodic upgrading of existing facilities, also
plays an important role.
RESEARCH AND DEVELOPMENT
The Company maintains a test kitchen for its Carl's Jr. operations at its
headquarters in which new products and production concepts are developed on an
ongoing basis. In addition, the Company is currently testing a number of
dual-concepts which include the sale of other branded products from within
Carl's Jr. restaurants. While these efforts are critical to the Company, amounts
expended for these activities are not considered material. There are no customer
sponsored research and development activities.
ENVIRONMENTAL MATTERS
Compliance with federal, state and local environmental provisions
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment did not have a material effect on capital
expenditures, earnings or the competitive position of the Company in fiscal
1995. The Company cannot predict the effect on its operations from possible
future legislation or regulation.
NUMBER OF EMPLOYEES
The Company employs approximately 12,000 persons, of whom approximately
11,000 are hourly restaurant, distribution or clerical employees, and
approximately 1,000 are managerial, salaried employees engaged in administrative
and supervisory capacities. A majority of the hourly employees are employed on a
part-time basis to provide service necessary during peak periods of restaurant
operations.
None of the Company's employees are currently covered by a collective
bargaining agreement. The Company has never experienced a work stoppage
attributable to labor disputes and believes its employee relations to be good.
The Company is subject to the Fair Labor Standards Act, which governs such
matters as minimum wage requirements, overtime and other working conditions. A
large portion of the Company's food service personnel are paid at a minimum wage
level and, accordingly, increases in the federal or state minimum wage affect
the Company's labor costs. The California minimum wage is currently $4.25 and is
equal to the established federal minimum wage.
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EXECUTIVE OFFICERS
The executive officers of the Company as of January 30, 1995 are listed
below.
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NAME AGE POSITION(S)
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William P. Foley II 49 Chief Executive Officer of the Company
Kerry W. Coin 47 President and Chief Operating Officer of Boston Pacific
C. Thomas Thompson 45 President and Chief Operating Officer of Enterprises
Rory J. Murphy 47 Senior Vice President, Restaurant Operations of Enterprises
Loren C. Pannier 53 Senior Vice President, Chief Financial Officer of the Company
Robert W. Wisely 49 Senior Vice President, Marketing of Enterprises
Laurie A. Ball 36 Vice President, Controller of the Company
Richard C. Celio 44 Vice President, General Counsel of the Company
William R. Espinosa 47 Vice President, Strategic Planning of the Company
</TABLE>
William P. Foley II became Chief Executive Officer of the Company in
October 1994, Chairman of the Board of Directors in March 1994, and has served
as a director of the Company since December 1993. Since 1981, Mr. Foley has been
Chairman of the Board and Chief Executive Officer of Fidelity National
Financial, Inc., a holding company engaged in title insurance and related
services.
Kerry W. Coin became President and Chief Operating Officer of Boston
Pacific in October 1994. Mr. Coin joined the Company as Vice President,
Strategic Development in February 1993. Prior to joining the Company, he was a
principal with A. T. Kearney Inc., a nationally recognized business consulting
firm, for five years. While at A. T. Kearney, he was the project leader for two
major consulting assignments at the Company. In connection with the formation of
Boston West in April 1995, Mr. Coin is in the process of resigning as an officer
of the Company in order to accept a position with Boston West.
C. Thomas Thompson was appointed President and Chief Operating Officer of
Enterprises in October 1994. Mr. Thompson has been a franchisee of Enterprises
since 1984.
Rory J. Murphy has been the Senior Vice President, Restaurant Operations of
Enterprises for the past two years. He has been employed by Enterprises in
various positions for 16 years.
Loren C. Pannier has been the Senior Vice President and Chief Financial
Officer of the Company for the past 13 years and has been employed by the
Company for 23 years.
Robert W. Wisely became Senior Vice President, Marketing of Enterprises in
January 1995. Mr. Wisely has been a franchisee of Enterprises since 1990.
Laurie A. Ball became Vice President, Controller in January 1993, and has
been employed by the Company in various positions for more than the seven years.
Richard C. Celio joined the Company as Vice President, General Counsel in
January 1989. Prior to joining the Company, he was an attorney at law and
partner of the law firm of Holden, Fergus & Celio for seven years, a firm which
provided various legal services, and acted as General Counsel for the Company.
William R. Espinosa became Vice President, Strategic Planning of the
Company in June 1994. Prior to joining the Company, for more than three years,
he was Vice President and General Manager of Commonwealth Life Insurance
Company, headquartered in Louisville, Kentucky, which is a wholly owned
subsidiary of Providian Corporation, a publicly traded financial services
corporation. For two years prior, he was controller of Signetics Company,
headquartered in Sunnyvale, California, which is a wholly owned subsidiary of
Phillips Electronics, a consumer electronics company. For one year prior, he was
President and Chief Executive Officer of Triangle Kentucky Fried Chicken, a
39-store quick-service restaurant franchisee, with restaurants located in Ohio
and New York state.
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ITEM 2. PROPERTIES.
Most restaurants are freestanding, ranging in size from 2,500 to 4,000
square feet, with a seating capacity of 65 to 115 persons. Some restaurants are
located in shopping malls and other in-line facilities. Currently, several
building plan types are in use system-wide, depending upon operational needs.
Most Carl's Jr. restaurants are constructed with drive-thru facilities.
A majority of Company-operated sites are leased from others. The following
table sets forth the type of real estate interest that the Company had in its
sites in operation at January 30, 1995:
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TYPE OF INTEREST
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Lease land and building................................................ 357
Lease land only (building owned)....................................... 3
Lease building only (land owned)....................................... 20
Own land and building.................................................. 25
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405
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The Company subleases certain sites to its franchisees and owns an
additional 33 restaurant properties which are leased primarily to franchisees.
The terms of the Company's leases or subleases generally range between
three and 35 years and expire at various dates through fiscal 2026. The
expiration of these leases is not expected to have a material impact on the
Company's operations in any particular year as the expiration dates are
staggered over a number of years and many of the leases contain renewal options.
Once a potential restaurant site is identified, the Company's real estate
personnel either seek to negotiate with the owner to construct a restaurant to
the Company's specifications and enter into a long-term lease of the premises,
or the site is purchased. Spaces for restaurants in shopping malls and in-line
buildings are typically leased and developed to the Company's specifications
with the Company owning the leasehold improvements. The Company generally
performs the construction management function while utilizing outside general
contractors to construct its buildings.
The following table summarizes the California and Arizona regions in which
the Company's Carl's Jr. restaurants and Boston Chicken stores are located:
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Los Angeles and Orange County......................................... 271
Sacramento............................................................ 43
San Diego............................................................. 43
Fresno................................................................ 25
Bakersfield........................................................... 10
San Francisco......................................................... 1
Tucson, Arizona....................................................... 12
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405
===
</TABLE>
The Company's corporate headquarters and distribution center, located in
Anaheim, California, are leased and occupy approximately 78,000 and 102,000
square feet, respectively. The Manteca, California distribution facility has
42,000 square feet and is owned by the Company.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various lawsuits incidental to its business.
Management does not believe that the outcome of such litigation will have a
material adverse effect upon the consolidated operations or financial condition
of the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
As of April 25, 1994, shares of the Company's Common Stock were traded on
the New York Stock Exchange under the symbol "CKR." Prior to that date, the
Company's Common Stock was regularly quoted on the NASDAQ National Market System
under the symbol "CARL." At January 30, 1995, there were approximately 2,100
record holders of the Company's Common Stock. The high and low closing prices,
during each quarter, for the last two fiscal years were as follows:
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QUARTER 1ST 2ND 3RD 4TH
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<S> <C> <C> <C> <C>
Fiscal 1995
High..................................................... $ 14 $10 1/2 $9 1/8 $ 8 3/8
Low...................................................... 10 1/8 7 5/8 7 3/4 6 5/8
Fiscal 1994
High..................................................... $ 8 7/8 $ 8 5/8 $9 5/8 $14 1/4
Low...................................................... 7 3/4 6 3/4 7 3/8 8 7/8
</TABLE>
During fiscal 1994, the Company paid four consecutive quarterly dividends
of $.02 per share of Common Stock, for a total of $.08 per share per year.
During fiscal 1995 the Company changed its dividend policy to provide for
semi-annual payments of dividends, and paid two consecutive dividends of $.04
per share of Common Stock, for a total of $.08 per share.
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ITEM 6. SELECTED FINANCIAL DATA.
The information set forth below should be read in conjunction with the
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Form 10-K.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------------------------------
1995 1994(1) 1993 1992 1991
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System-wide sales:
Company-operated(2)............... $370,045 $384,859 $417,268 $469,736 $473,379
Franchised........................ 178,428 190,434 184,658 138,664 105,297
Licensed.......................... 22,742 18,780 17,451 9,535 4,082
-------- -------- -------- -------- --------
Total system-wide sales........ $571,215 $594,073 $619,377 $617,935 $582,758
======== ======== ======== ======== ========
Revenues(2)......................... $443,747 $463,494 $505,390 $543,908 $531,510
Income (loss) before cumulative
effect of changes in accounting
principles........................ 1,264 4,433 (3,057) 13,038 13,036
Net income (loss)................... 1,264 3,665 (5,507) 13,038 13,036
Income (loss) per share before
cumulative effect of changes in
accounting principles............. .07 .24 (.17) .72 .72
Net income (loss) per share......... .07 .20 (.31) .72 .72
Cash dividends paid per common
share(3).......................... .08 .08 .08 .08 .08
Total assets........................ 244,343 242,135 268,924 294,375 305,965
Long-term debt, including capital
lease obligations................. 69,869 63,300 80,254 102,074 117,137
Stockholders' equity................ $ 88,474 $ 92,076 $ 84,732 $ 89,679 $ 78,818
Ratio of debt to equity(4).......... 0.9x 0.9x 1.3x 1.5x 1.9x
Number of restaurants and stores at
year end:
Company-operated.................. 405 376 379 414 424
Franchised........................ 246 255 244 196 149
Licensed.......................... 31 17 19 12 5
-------- -------- -------- -------- --------
Total system-wide restaurants and
stores............................ 682 648 642 622 578
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Fiscal 1994 includes 53 weeks.
(2) Prior year amounts have been reclassified to conform with the fiscal 1995
presentation.
(3) Prior to fiscal 1995, the Company paid four consecutive quarterly dividends
of $.02 per share of Common Stock, for a total of $.08 per share per year.
During fiscal 1995, the Company paid two consecutive semi-annual dividends
of $.04 per share, for a total of $.08 per share per year.
(4) Debt, as defined in this computation, includes long-term debt, capital lease
obligations and their related current portions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
consolidated financial statements and related notes and "Selected Financial
Data" included elsewhere in this Form 10-K.
9
<PAGE> 12
OVERVIEW
Fiscal 1995 marks the first year of operations for CKE, a Delaware
corporation formed to provide overall
strategic direction and administrative support to its two wholly owned
subsidiaries, Enterprises and Boston Pacific. Enterprises, the predecessor
entity of the Company that was a publicly held corporation, is the operator and
franchisor of approximately 660 Carl's Jr. restaurants which began conducting
its operations in the mid-1950's. Boston Pacific was formed during fiscal 1995
to develop, own and operate up to 300 Boston Chicken stores in designated
markets in California under an area development agreement with BCI.
Consolidated net income for the year, a 52-week reporting period, was $1.3
million, or $.07 per share. Consolidated net income for fiscal 1994, a 53-week
reporting period comprised solely of the operations of Enterprises, was $3.7
million, or $.20 per share. Fiscal 1995 operating income on a comparable basis
(exclusive of the Boston Pacific operations), amounted to $11.7 million, an
increase of $1.2 million, or 11.3%, over fiscal 1994.
Enterprises' results reflect the Company's current efforts to improve its
Carl's Jr. restaurant-level cost structure while developing and implementing new
marketing programs, a longer-term objective. Based upon its initial market
research, the Company implemented new pricing strategies during fiscal 1995
which offered lower-priced menu items and several combination meals. New menu
boards that prominently display a variety of products were also installed,
allowing for more effective promotion of these combination meals. In order to
increase retail sales, the Company believes these strategies should be
supplemented with new marketing programs that rely heavily on in-depth consumer
research and are designed to improve consumers' value perceptions by increasing
their awareness of the Company's superior quality products. In addition, several
new products are planned for fiscal 1996 and a new advertising agency was
recently appointed to help execute this new program. Furthermore, an image
enhancement program aimed at revitalizing the Company's Carl's Jr. restaurants
will be among management's top priorities in the coming year. All of these
actions are intended to improve not only the Company's sales and profits but
also the sales and profits of the Company's franchisees as well.
Of the 660 Carl's Jr. restaurants in operation as of January 31, 1995, 383
were Company-operated, 246 were franchised and 31 were licensed, representing a
system-wide net increase of 12 restaurants as compared with fiscal 1994. Within
the United States, four new Company-operated and four new franchised restaurants
opened during fiscal 1995 and a total of eight Company-operated restaurants
(seven of which were converted to Boston Chicken stores) and two franchised
restaurants were closed. Additionally, 12 franchised restaurants returned to
Company ownership and one Company-operated restaurant was franchised.
Internationally, there was a net increase of 14 restaurants, which were opened
primarily in the Philippines.
The Company's obligation under the terms of its area development agreement
with BCI included opening 20 Boston Chicken stores during fiscal 1995, followed
by an additional 40 to 50 stores per year during the next four years, for an
aggregate of 200 stores by January 15, 1999. This agreement also contained an
option to develop an additional 100 stores under certain conditions. A total of
22 stores were opened by Boston Pacific during fiscal 1995, seven of which were
converted Carl's Jr. restaurants. In addition, another five stores were under
construction as of January 31, 1995. The first Boston Pacific store commenced
operations in July 1994.
Management will refocus its resources on the Carl's Jr. concept in the
coming fiscal year. With the improvements in operating costs achieved during
fiscal 1995 and 1994, management is ready to renew its expansion of this concept
which had been slowed in recent years while these cost issues were addressed.
Plans to remodel existing Company-operated Carl's Jr. restaurants are also
underway. This refocus requires significant capital resources and competes with
such resources which are required to comply with the development schedule
contained in the Company's agreement with BCI. Accordingly, in April 1995, the
Company completed a transaction with BCI that resulted in the formation of a new
privately owned company, Boston West, that assumed the operations of Boston
Pacific and agreed to fulfill the Company's obligation under its area
development agreement with BCI. Boston Pacific contributed a majority of its
existing Boston Chicken restaurant assets valued at approximately $22 million to
this new entity and BCI agreed to lend Boston West, over time, up to $63.8
million. This loan is convertible to equity in Boston West, at BCI's option,
10
<PAGE> 13
at 115% of the original equity price. In addition, this transaction provides for
the leasing of approximately $12 million of equipment and real property retained
by Boston Pacific to Boston West at current market rates. These terms are
subject to final adjustment within the next 60 days. An affiliate of BCI has an
option to purchase all the equipment and real property leased to Boston West by
Boston Pacific.
In exchange for its assets, Boston Pacific received preferred and all of
the common equity units in Boston West. During the first half of fiscal 1996,
additional equity units in Boston West will be sold such that the Company will
own less than 20% of the common equity units of Boston West. Until the sale of
these interests is complete, the Company will continue to include the results of
Boston West's operations in the Company's consolidated financial statements.
After the sale of its common equity units, the Company's ownership may be
increased to up to 35% by an option to co-fund the capital requirements of
Boston West up to a maximum of $15 million. This $15 million may be funded, in
part, by proceeds of the purchase option in the equipment and real property
leases when and if they are exercised. Total capitalization of Boston West is
expected to reach more than $100 million. As a result of this Boston West
transaction, the Company anticipates availability of the capital resources
required to improve and expand the Carl's Jr. concept, while retaining the
benefits of participating in a growing national concept, side by side with its
originators.
RESULTS OF OPERATIONS
REVENUES
Retail sales, composed primarily of Carl's Jr. sales, fell 3.9% in fiscal
1995 to $370.0 million and 7.8% in fiscal 1994 to $384.9 million due to lower
average sales per restaurant and fewer restaurants in operation in both fiscal
1995 and 1994. On a same-store basis, the Company's Carl's Jr. sales, which are
calculated using only restaurants open for the full two years being compared,
declined 3.8% in fiscal 1995 to $356.0 million, following a 6.5% decrease during
fiscal 1994 to $366.2 million from $391.5 million in fiscal 1993. Carl's Jr.
restaurant sales were adversely affected in both fiscal 1995 and 1994 by
aggressive promotions and price reductions by the Company's principal
competitors. Total retail sales for fiscal 1995 also reflect one week's fewer
sales than for fiscal 1995 because fiscal 1994 was a 53-week reporting period.
Revenues from franchised and licensed restaurants in both fiscal 1995 and
fiscal 1994 were mainly comprised of sales of food and supplies to franchisees,
initial franchise fees, annual franchise royalties and rents and other
occupancy-related amounts collected from many of the Company's franchisees.
Overall, these revenues decreased 6.3% to $73.7 million in fiscal 1995,
following a 4.5% increase to $78.6 million in fiscal 1994. The fiscal 1995
decrease was largely due to declining franchisee sales and lower commodities
costs, such as beef, chicken and tomatoes, which costs were passed along to
franchisees. The fiscal 1994 increase was due primarily to 21 more franchised
restaurants in operation on a weighted-average basis in fiscal 1994 versus
fiscal 1993.
Revenues from other outside parties were eliminated in fiscal 1993 in
connection with the Company's strategy to focus on the operating and franchising
of Carl's Jr. restaurants, and the resulting elimination of non-essential lines
of business such as its manufacturing and outside sales operations.
OPERATING COSTS AND EXPENSES
Food and packaging costs as a percentage of the Company's retail sales were
30.3%, 30.0% and 30.5% in fiscal years 1995, 1994 and 1993, respectively. The
Company's exit from the manufacturing business, which was begun in fiscal 1993
and completed in fiscal 1994, resulted in the lowering of overall food costs.
As a percentage of the Company's retail sales, payroll and other employee
benefits were 30.3%, 30.9% and 34.0% in fiscal years 1995, 1994 and 1993,
respectively. Reductions in the direct labor component of payroll and other
employee benefits were achieved during the past three years due to cost and
productivity efficiencies. These savings were offset in fiscal 1993 by an
increase in workers' compensation costs resulting from a study of claims and
reserve levels by an independent actuary which led to the Company increasing its
workers' compensation reserve by $5.1 million in the fourth quarter of fiscal
1993. In fiscal 1994, the Company initiated
11
<PAGE> 14
safety and other programs, which, coupled with changes in state regulations,
have resulted in a drop in the incident rate of 23.7% and 41.2% in its workers'
compensation claims during fiscal 1995 and 1994, respectively.
Occupancy and other operating expenses as a percentage of retail sales were
22.2%, 22.0% and 23.1% in fiscal years 1995, 1994 and 1993, respectively. With
fewer restaurants in operation and reductions in repair and maintenance costs,
occupancy and other costs have decreased in fiscal 1995 and 1994, more than
offsetting selected rent and other increases.
Overall, the Company's efforts to reduce the restaurant-level cost
structure of its Carl's Jr. restaurants, which began in fiscal 1994, have
resulted in significant improvements in the gross margins of its retail
operations. These margins, as a percentage of retail sales, were 17.2%, 17.1%
and 12.5% in fiscal years 1995, 1994 and 1993, respectively. The improvement in
fiscal 1995 is particularly noteworthy considering Boston Pacific's start-up
nature during its first year of operations and that Carl's Jr. retail sales
declined during fiscal 1995.
Franchised and licensed restaurant costs are closely tied to franchise
revenues. These costs decreased 5.0% in fiscal 1995 to $69.9 million, following
an 8.8% increase in fiscal 1994 to $73.6 million. The fiscal 1995 decrease was
largely due to lower costs which were passed along to franchisees, with little
change in the number of franchised restaurants. The fiscal 1994 increase was due
primarily to the increase in the number of franchised restaurants. Also
contributing to increased costs in both fiscal 1994 and 1993 were increases in
occupancy costs associated with the leasing or subleasing of restaurants to
franchisees. The margins on sales of food and supplies to franchisees declined
over the past three years, particularly in fiscal 1994, as a result of the
lowering of prices of food and other products supplied to franchisees. These
prices were significantly reduced in fiscal 1993 following the elimination of
the Company's manufacturing operations.
Costs associated with the revenues from other outside parties were
eliminated in fiscal 1993 with the termination of this line of business in that
year.
As a percentage of the Company's retail sales, advertising expenses were
5.4%, 5.0% and 4.6% in fiscal 1995, 1994 and 1993, respectively. Advertising
expenditures have become increasingly important in the current competitive
environment and have therefore grown as a percentage of the Company's retail
sales over the past three years.
Fiscal 1995 general and administrative expenses were reduced by $2.7
million as a result of the reversal of certain previously established lease
subsidy reserves in connection with the reacquisition of 12 Carl's Jr.
franchised restaurants. Fiscal 1994 general and administrative expenses included
a $3.0 million charge related to a binding arbitration judgment and a $1.7
million charge representing the net present value of future retirement benefits
granted to the Chairman Emeritus in October 1993. Fiscal 1993 general and
administrative expenses included $11.1 million of exit costs due primarily to
the Company's strategic initiatives commenced near the end of that year.
The fiscal 1993 exit costs included $1.9 million of corporate severance and
outplacement costs related to the termination of 53 corporate employees (whose
termination was approved by the Company's Board of Directors just prior to the
end of fiscal 1993); a $2.0 million charge related to the elimination of the
Company's manufacturing operations (which included the losses on the disposition
of equipment previously used in such operations and severance costs related to
the termination of 232 manufacturing employees); $2.3 million of estimated
equipment losses and lease subsidies related to the closure of certain
underperforming Carl's Jr. restaurants (of which $315,000 remained accrued as of
January 31, 1995); and a $4.9 million increase of certain lease subsidies
related to the Company's franchised operations in Arizona (the result of the
Company reducing its sublease rental income projections associated with these
particular restaurants, which are based largely upon the restaurant sales of
Enterprises' Arizona franchisees). There have been no material changes to the
strategic measures and other exit costs contemplated by this fiscal 1993 charge
or the costs associated with these measures.
Excluding the effects of these nonrecurring charges, general and
administrative expenses amounted to $41.5 million, $36.5 million and $36.6
million in fiscal years 1995, 1994 and 1993, respectively, which represented
9.4%, 7.9% and 7.2% of total consolidated revenues in those years. The fiscal
1995 increase was
12
<PAGE> 15
due primarily to start-up costs associated with the Company's Boston Pacific
operations (including the costs to convert seven Carl's Jr. restaurants to
Boston Chicken stores), the write-off of the former Carl's Jr. menu boards and
expenses related to the plan of reorganization and merger completed during
fiscal 1995.
INTEREST EXPENSE
Lower average notes payable balances throughout fiscal 1995 and 1994
resulted in a $1.2 million, or 11.4%, decrease in interest expense in fiscal
1995, following a $3.2 million, or 23.8%, decrease in fiscal 1994. This decrease
was offset by increased borrowings under the Company's former revolving line of
credit to fund the Boston Pacific expansion.
OTHER INCOME, NET
Other income, net, decreased 51.2% in fiscal 1995 to $3.0 million and 54.8%
in fiscal 1994 to $6.1 million. The fiscal 1995 and 1994 decreases were due
largely to decreases in investment income resulting from the redefining of the
Company's cash management activities in fiscal 1994.
Effective as of the beginning of fiscal 1995, the Company adopted Statement
of Financial Accounting Standards No. 115, "Accounting for Investments in
Certain Debt and Equity Securities." As a result of adopting this new standard,
net unrealized gains (losses) on the Company's marketable securities portfolio,
which is comprised of securities that are considered available-for-sale, are
included in stockholders' equity while such unrealized gains (losses) a year ago
were included in other income, net. The adoption of this new standard was not
material to the Company's consolidated financial statements.
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
Effective as of the beginning of fiscal 1994, the Company recognized a
$768,000 cumulative effect charge, net of a $512,000 tax benefit, related to a
change in the method used to discount the Company's estimated workers'
compensation liability, which is described further in Note 9. Effective as of
the beginning of fiscal 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The cumulative
effect of this change in accounting principle resulted in a $2.4 million charge
to operations, which is described further in Note 16.
FINANCIAL CONDITION
OVERVIEW
The Company's current ratio was .8 and 1.0 as of January 31, 1995 and 1994,
respectively. The fiscal 1995 current ratio was materially impacted by the
Company's Boston Pacific operations, which resulted in decreased cash and
increased borrowings under the Company's former revolving line of credit to
develop this new concept.
As of January 31, 1995, total cash available to the Company was $18.2
million, which included $3.1 million of idle cash invested in marketable
securities. These securities consisted primarily of holdings in investment-grade
preferred stock and debt securities in accordance with the Company's investment
policy which is designed to maintain a diversified, highly liquid portfolio with
minimal interest-rate risk.
The State of California requires the Company to secure its potential
self-insured workers' compensation claims each year by providing a prescribed
amount, either through one or more standby letters of credit or an equivalent
amount of cash or investment securities. As of January 31, 1994, other current
assets included $6.8 million of investment securities which were held in trust
by the State as of that date to secure a like amount of such claims for which
the Company had not provided security in the form of cash or a standby letter of
credit. In March 1994, the Company negotiated with its bank to increase its
existing standby letter of credit to cover the entire $12.1 million State
security requirement for that year. In turn, the State returned the $6.8 million
of securities to the Company, which added to the Company's liquid assets during
fiscal 1995. The upcoming annual security requirement, which begins May 1, 1995,
was lowered to $8.5 million due to an improvement in the Company's claims
experience.
13
<PAGE> 16
As of January 31, 1995, advances totaling $18.8 million were drawn against
the Company's former revolving line of credit, primarily to fund the Company's
Boston Chicken franchise operations. Following the formation of Boston West in
April 1995, the Company's loan agreement with its bank was amended such that
these borrowings were converted to a term loan, payable in quarterly
installments through September 1998. A new $15 million unsecured revolving
credit line that expires in June 1996 was also established for use in the
Company's ongoing Carl's Jr. operations, as was a $12.4 million letter of credit
facility. Two letters of credit are outstanding under this facility, one for
$8.5 million issued in April 1995 and a second for $3.9 million issued in
September 1994. The $8.5 million letter of credit secures the Company's
potential workers' compensation claims discussed above and expires in June 1996.
The $3.9 million letter of credit secures the Industrial Revenue Bonds issued in
connection with the construction of the Company's Northern California
distribution facility and expires in 1997. As of January 31, 1995, the Company
was not in compliance with certain of the covenants governing its previous loan
agreement, largely due to the operating losses sustained by Boston Pacific. A
waiver of the requirements of these covenants was received and more favorable
covenants were negotiated in their place that will apply to future measurement
periods.
Repayment of all other long-term debt totaled $14.8 million in fiscal 1995,
which resulted in the payment in full of three separate notes payable and
brought the balance of long-term debt to $35.3 million as of January 31, 1995,
of which $8.2 million is scheduled to be repaid in fiscal 1996.
The Company filed a shelf registration statement covering up to $75 million
of debt, convertible debt or preferred stock with the Securities and Exchange
Commission in March 1994. Because pricing levels and terms of these types of
investments were below Company expectations following the filing of this
statement, management decided not to proceed with any such offerings in fiscal
1995.
In June 1994, a plan of reorganization and merger was approved by the
shareholders of Enterprises whereby Enterprises and Boston Pacific became wholly
owned subsidiaries of the Company and the shareholders of Enterprises became
stockholders of the Company. The Company's securities also began trading on the
New York Stock Exchange during fiscal 1995.
In July 1994, the Board of Directors authorized the repurchase of up to two
million shares of the Company's common stock. A total of 590,000 shares of stock
were repurchased during fiscal 1995, which included the purchase of 62,500
shares from the Chairman Emeritus at the then market price of $9.13 per share.
The balance of these shares were purchased in a series of open market
transactions, at an average price of approximately $8 a share, for an aggregate
purchase price of $4.0 million. All of the shares purchased are being held as
treasury stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity during fiscal 1995 were its
liquid assets, cash flows from operations and borrowings drawn against its
former revolving line of credit. With the formation of the new Boston West
entity, the requirement that the Company be the exclusive source of capital for
Boston West will be eliminated and future capital needs will arise, principally,
for the construction of new Carl's Jr. restaurants, the remodeling of its
existing restaurants, the payment of lease obligations, the repayment of debt
and the possible exercise of the option to increase its existing equity interest
in Boston West by $15 million.
Cash and cash equivalents decreased $1.9 million to $15.2 million in fiscal
1995. Total cash provided by the Company's consolidated operations decreased
$6.3 million in fiscal 1995 to $21.4 million largely due to the development of,
and other start-up costs associated with, the Company's Boston Pacific
operations. Total cash provided by the Company's Carl's Jr. operating activities
during fiscal 1995, exclusive of these amounts, was comparable to the amount
provided by its fiscal 1994 operating activities. Consolidated investing
activities required the use of a net $27.0 million in fiscal 1995, largely due
to purchases of property and equipment totaling $40.0 million. These purchases
were offset by the liquidation of $16.0 million of the Company's marketable
securities portfolio. Consolidated financing activities provided the Company
with $3.6 million in fiscal 1995, the result of a $10.2 million increase in the
bank overdraft and $18.8 million of net advances under the Company's former
revolving credit line, offset by payments of long-term debt and capital leases
totaling
14
<PAGE> 17
$17.6 million, $4.6 million of treasury stock purchases and a $3.1 million
decrease in other long-term liabilities.
Cash provided by operating activities in fiscal 1994 increased $3.5 million
largely attributable to better operating results in that year. Cash provided by
investing activities increased $5.7 million due mainly to the liquidation of a
net $14.8 million more marketable securities than fiscal 1993, offset by $4.5
million in higher purchases of property and equipment and a $4.2 million
reduction in sale/leaseback proceeds due to the de-emphasis of this means of
financing during fiscal 1994. Cash used in financing activities increased $4.2
million due primarily to the repayment of the Company's $18.1 million revolving
credit line in that year, offset by an $11.9 million decrease in other debt
payments, including obligations secured by marketable securities and long-term
investments, long-term debt and capital lease obligations. In addition, stock
option exercises yielded an additional $3.4 million of proceeds in fiscal 1994
as compared with fiscal 1993.
New Carl's Jr. restaurant openings were slowed in fiscal 1995 and fiscal
1994 while management focused on improving the operating profits of its existing
restaurants and, during fiscal 1995, developing Boston Chicken stores. Major
remodeling activities were similarly deferred. With the cost reductions achieved
for the Company's Carl's Jr. restaurants, and elimination of the future capital
requirements associated with the Boston Pacific operations, the Company intends
to increase these remodeling activities in the coming fiscal year. A total of 14
new restaurants are scheduled to open in fiscal 1996 and as many as 60 existing
restaurants will be remodeled under the Company's image enhancement program.
The Company believes that cash generated from its operations, along with
the cash and marketable securities on hand as of January 31, 1995, and a
combination of proceeds from its new revolving credit line and borrowings from
other banks or financial institutions will provide the Company the funds
necessary to meet all of its obligations, including the payment of maturing
indebtedness and the further development of its Carl's Jr. operations.
IMPACT OF INFLATION
Management recognizes that inflation has an impact on food, construction,
labor and benefit costs, all of which can significantly affect the Company's
operations. High interest rates can negatively affect lease payments for new
restaurants, as well. Historically, the Company has been able to pass any
associated higher costs due to these inflationary factors along to its customers
because those factors have impacted nearly all restaurant companies. During
fiscal 1995, however, management emphasized cost controls rather than price
increases, given the competitive pressures within the quick-service industry and
the recessionary environment in the Company's core markets.
NEW ACCOUNTING PRONOUNCEMENTS
During the coming fiscal year, the Company is required to adopt two new
accounting standards, Statement of Financial Accounting Standards No.114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), and Statement
of Financial Accounting Standards No.118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures" ("SFAS 118"). SFAS
114 requires that certain impaired loans be valued at the present value of
expected future cash flows and SFAS 118, which amends SFAS 114 and is to be
reflected prospectively, addresses loans that are restructured in a troubled
debt restructuring. Adoption of both of these pronouncements is not expected to
have a material effect on the consolidated results of operations or financial
condition of the Company.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement
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. The Company must adopt
this new pronouncement by fiscal 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
15
<PAGE> 18
accounting principle. The Company has not yet completed all of the analysis
required to estimate the impact of this new Statement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index included at "Item 14. Exhibits, Financial Statement
Schedules, and Reports of Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing in the "Information Concerning Nominees" section
of the Company's Proxy Statement prepared in connection with the Annual Meeting
of Shareholders to be held in 1995, to be filed with the Commission within 120
days of January 30, 1995, is hereby incorporated by reference. Information
concerning the current executive officers of the Company is contained in Item 1
of Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing in the "Executive Compensation," "Summary
Compensation Table," "Option Grants in Last Fiscal Year," "Aggregate Option
Exercises in Fiscal 1995 and Fiscal 1995 Year-End Option Values," "Employment
Agreements," "Incentive Compensation Plan," "Transactions with Officers and
Directors," "Key Employee Stock Option Plan," "1993 Employee Stock Incentive
Plan," "1994 Stock Incentive Plan" and "1994 Employee Stock Purchase Plan"
sections of the Company's Proxy Statement prepared in connection with the Annual
Meeting of Shareholders to be held in 1995, to be filed with the Commission
within 120 days of January 30, 1995, is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information appearing in the "Ownership of the Company's Securities"
section of the Company's Proxy Statement prepared in connection with the Annual
Meeting of Shareholders to be held in 1995, to be filed with the Commission
within 120 days of January 30, 1995, is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing in the "Transactions with Officers and Directors"
section of the Company's Proxy Statement prepared in connection with the Annual
Meeting of Shareholders to be held in 1995, to be filed with the Commission
within 120 days of January 30, 1995, is hereby incorporated by reference.
16
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Report............................................. F-1
Consolidated Balance Sheets -- as of January 31, 1995 and 1994........... F-2
Consolidated Statements of Operations -- for the years ended January 31,
1995, 1994 and 1993.................................................... F-3
Consolidated Statements of Stockholders' Equity -- for the years ended
January 31, 1995, 1994 and 1993........................................ F-4
Consolidated Statements of Cash Flows -- for the years ended January 31,
1995, 1994 and 1993.................................................... F-5
Notes to Consolidated Financial Statements............................... F-6
</TABLE>
(A)(2) INDEX TO FINANCIAL STATEMENTS SCHEDULES:
All schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule,
or because the information required is included in the consolidated
financial statements and notes hereto.
(A)(3) EXHIBITS:
An "Exhibit Index" has been filed as a part of this Form 10-K
beginning on page E-1 hereof and is incorporated herein by reference.
(B) CURRENT REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended January 30,
1995.
17
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CKE RESTAURANTS, INC.
By: /s/ WILLIAM P. FOLEY II
-------------------------
William P. Foley II
Chairman of the Board and
Chief Executive Officer
Date: April 28, 1995
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------------ ---------------
<S> <C> <C>
/s/ WILLIAM P. FOLEY II Chairman of the Board and April 28, 1995
------------------- Chief Executive Officer
William P. Foley II (Principal Executive Officer)
/s/ LOREN C. PANNIER Senior Vice President, April 28, 1995
------------------- Chief Financial Officer
Loren C. Pannier (Principal Financial Officer)
/s/ LAURIE A. BALL Vice President, Controller April 28, 1995
------------------- (Principal Accounting Officer)
/s/ PETER CHURM Director April 28, 1995
-------------------
Peter Churm
/s/ CARL L. KARCHER Director April 28, 1995
-------------------
Carl L. Karcher
/s/ CARL N. KARCHER Director April 28, 1995
-------------------
Carl N. Karcher
/s/ DANIEL D. (RON) LANE Vice Chairman of the Board April 28, 1995
--------------------
Daniel D. (Ron) Lane
/s/ ELIZABETH A. SANDERS Director April 28, 1995
--------------------
Elizabeth A. Sanders
/s/ FRANK P. WILLEY Director April 28, 1995
--------------------
Frank P. Willey
</TABLE>
18
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CKE Restaurants, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of CKE
Restaurants, Inc. and its subsidiaries as listed in the accompanying index.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CKE
Restaurants, Inc. and its subsidiaries as of January 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 9 to the consolidated financial statements, the
Company changed the method used to discount its workers' compensation reserve in
fiscal 1994.
As discussed in Notes 1 and 16 to the consolidated financial statements,
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," in fiscal 1993.
KPMG Peat Marwick LLP
Orange County, California
April 18, 1995, except as to the first and second
paragraphs of Note 8, which are as of April 28, 1995.
F-1
<PAGE> 22
CKE RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31
---------------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 15,156 $ 17,075
Marketable securities................................................ 3,088 9,064
Accounts receivable.................................................. 12,411 8,521
Related party receivables............................................ 1,509 1,610
Inventories.......................................................... 5,950 7,485
Deferred income taxes, net........................................... 12,254 15,310
Other current assets................................................. 6,438 10,339
-------- --------
Total current assets......................................... 56,806 69,404
Property and equipment, net............................................ 133,248 113,212
Property under capital leases, net..................................... 30,515 33,608
Notes receivable....................................................... 13,139 15,284
Related party notes receivable......................................... 2,109 2,863
Other assets........................................................... 8,526 7,764
-------- --------
$244,343 $242,135
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................... $ 8,168 $ 13,207
Current portion of capital lease obligations......................... 3,581 3,354
Accounts payable..................................................... 29,736 13,161
Other current liabilities............................................ 30,065 36,831
-------- --------
Total current liabilities.................................... 71,550 66,553
-------- --------
Long-term debt......................................................... 27,178 17,414
Capital lease obligations.............................................. 42,691 45,886
Other long-term liabilities............................................ 14,450 20,206
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares; none
issued or outstanding............................................. -- --
Common stock, $.01 par value; authorized 50,000,000 shares; issued
and outstanding 18,845,138 shares and 18,676,587 shares........... 188 186
Additional paid-in capital........................................... 35,119 33,742
Retained earnings.................................................... 57,725 58,148
Treasury stock, at cost; 590,000 shares.............................. (4,558) --
-------- --------
Total stockholders' equity................................... 88,474 92,076
-------- --------
$244,343 $242,135
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 23
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
----------------------------------
1995 1994 1993
-------- -------- --------
IN THOUSANDS EXCEPT PER SHARE DATA
<S> <C> <C> <C>
Revenues:
Retail sales............................................. $370,045 $384,859 $417,268
Franchised and licensed restaurants...................... 73,702 78,635 75,262
Other outside parties.................................... -- -- 12,860
-------- -------- --------
Total revenues................................... 443,747 463,494 505,390
-------- -------- --------
Operating costs and expenses:
Retail operations:
Food and packaging.................................... 111,985 115,444 127,148
Payroll and other employee benefits................... 112,177 118,774 141,870
Occupancy and other operating expenses................ 82,172 84,890 96,409
-------- -------- --------
306,334 319,108 365,427
Franchised and licensed restaurants...................... 69,871 73,552 67,590
Other outside parties.................................... -- -- 12,690
Advertising expenses..................................... 20,148 19,104 19,200
General and administrative expenses...................... 38,792 41,222 47,749
-------- -------- --------
Total operating costs and expenses............... 435,145 452,986 512,656
-------- -------- --------
Operating income (loss).................................... 8,602 10,508 (7,266)
Interest expense........................................... (9,202) (10,387) (13,630)
Other income, net.......................................... 2,998 6,148 13,592
-------- -------- --------
Income (loss) before income taxes and cumulative effect of
changes in accounting principles......................... 2,398 6,269 (7,304)
Income tax expense (benefit)............................... 1,134 1,836 (4,247)
-------- -------- --------
Income (loss) before cumulative effect of changes in
accounting principles.................................... 1,264 4,433 (3,057)
Cumulative effect of changes in accounting principles (net
of income tax benefit of $512 in 1994)................... -- (768) (2,450)
-------- -------- --------
Net income (loss).......................................... $ 1,264 $ 3,665 $ (5,507)
======== ======== ========
Net income (loss) per common share:
Income (loss) before cumulative effect of changes in
accounting principles................................. $ .07 $ .24 $ (.17)
Cumulative effect of changes in accounting principles.... -- (.04) (.14)
-------- -------- --------
Net income (loss)................................ $ .07 $ .20 $ (.31)
======== ======== ========
Weighted average shares outstanding........................ 18,717 18,567 18,034
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 24
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
--------- ------ ---------- -------- -------- -------------
IN THOUSANDS EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1992.......... 17,918 $179 $ 26,609 $ 62,891 -- $89,679
Cash dividends ($.08 per share).... -- -- -- (1,445) -- (1,445)
Exercise of stock options.......... 173 2 1,006 -- -- 1,008
Tax benefit associated with
exercise of stock options....... -- -- 154 -- -- 154
Remeasurement of stock options..... -- -- 843 -- -- 843
Net income......................... -- -- -- (5,507) -- (5,507)
--------- ------ ---------- -------- -------- -------------
BALANCE AT JANUARY 31, 1993.......... 18,091 181 28,612 55,939 -- 84,732
Cash dividends ($.08 per share).... -- -- -- (1,456) -- (1,456)
Exercise of stock options.......... 646 6 4,351 -- -- 4,357
Tax benefit associated with
exercise of stock options....... -- -- 1,191 -- -- 1,191
Remeasurement of stock options..... -- -- 9 -- -- 9
Repurchase and retirement of
shares.......................... (60) (1) (421) -- -- (422)
Net income......................... -- -- -- 3,665 -- 3,665
--------- ------ ---------- -------- -------- -------------
BALANCE AT JANUARY 31, 1994.......... 18,677 186 33,742 58,148 -- 92,076
Cash dividends ($.08 per share).... -- -- -- (1,499) -- (1,499)
Exercise of stock options.......... 168 2 1,097 -- -- 1,099
Tax benefit associated with
exercise of stock options....... -- -- 280 -- -- 280
Purchase of treasury shares........ -- -- -- -- $ (4,558) (4,558)
Net unrealized loss on investment
securities...................... -- -- -- (188) -- (188)
Net income......................... -- -- -- 1,264 -- 1,264
--------- ------ ---------- -------- -------- -------------
BALANCE AT JANUARY 31, 1995.......... 18,845 $188 $ 35,119 $ 57,725 $ (4,558) $88,474
======== ====== ======= ======= ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 25
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
----------------------------------
1995 1994 1993
-------- -------- --------
IN THOUSANDS
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income (loss)............................................................. $ 1,264 $ 3,665 $ (5,507)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Noncash franchise (revenue) expense......................................... 170 (151) (488)
Depreciation and amortization............................................... 22,755 22,842 25,161
Exit costs.................................................................. -- -- 11,124
Arbitration judgment........................................................ -- 3,000 --
(Gain) loss on sale of property and equipment and capital leases............ 2,118 613 (451)
Reversal of certain lease subsidy reserves.................................. (2,680) -- --
Write-off of accounts and notes receivable.................................. -- 406 --
Write-down of marketable securities......................................... -- 213 452
Net noncash investment income............................................... (25) (63) (328)
Deferred income taxes....................................................... 3,434 (1,675) (8,226)
Post-employment benefits.................................................... -- 1,668 --
Cumulative effect of changes in accounting principles....................... -- 768 2,450
Net change in marketable securities reserve................................. -- (479) 651
Net change in receivables, inventories and other current assets............. (4,329) 4,257 1,498
Net change in other assets.................................................. (1,119) (2,699) 160
Net change in accounts payable and other current liabilities................ (133) (4,617) (2,285)
-------- -------- --------
Net cash provided by operating activities.............................. 21,455 27,748 24,211
-------- -------- --------
Cash flows from investing activities:
Construction of restaurant property to be reimbursed or sold and leased
back........................................................................ -- -- (9,422)
Sale of or reimbursement on restaurant property to be sold and leased back.... -- 487 14,086
Purchases of:
Marketable securities....................................................... (3,549) (12,722) (42,426)
Property and equipment...................................................... (40,010) (13,865) (9,329)
Long-term investments....................................................... -- -- (3,054)
Proceeds from sale of:
Marketable securities....................................................... 15,994 30,177 46,831
Property and equipment...................................................... 110 490 2,121
Long-term investments....................................................... -- -- 1,352
Collections on leases receivable.............................................. 148 129 102
Increases in notes receivable and related party notes receivable.............. (1,985) -- --
Collections on notes receivable and related party notes receivable............ 2,293 4,824 3,562
-------- -------- --------
Net cash provided by (used in) investing activities.................... (26,999) 9,520 3,823
-------- -------- --------
Cash flows from financing activities:
Net change in bank overdraft.................................................. 10,203 170 2,109
Net change in obligations secured by marketable securities and long-term
investments................................................................. -- (2,422) (6,197)
Short-term borrowings......................................................... 32,806 15,150 123,017
Repayments of short-term debt................................................. (13,981) (33,250) (123,917)
Long-term borrowings.......................................................... -- -- 755
Repayments of long-term debt.................................................. (14,771) (11,488) (19,890)
Repayments of capital lease obligations....................................... (2,878) (2,650) (2,365)
Net change in other long-term liabilities..................................... (3,076) (887) (682)
Repurchase and retirement of common stock..................................... -- (422) --
Purchase of treasury stock.................................................... (4,558) -- --
Payment of dividends.......................................................... (1,499) (1,456) (1,445)
Exercise of stock options..................................................... 1,099 4,366 1,008
Tax benefit associated with the exercise of stock options..................... 280 1,191 154
-------- -------- --------
Net cash provided by (used in) financing activities.................... 3,625 (31,698) (27,453)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents............... $ (1,919) $ 5,570 $ 581
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 26
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
A summary of certain significant accounting policies not disclosed
elsewhere in the footnotes to the consolidated financial statements is set forth
below.
Basis of Presentation and Fiscal Year
In June 1994, a plan of reorganization and merger (the "Merger") was
approved by the shareholders of Carl Karcher Enterprises, Inc. ("Enterprises"),
whereby Enterprises, the predecessor entity of the Company that was a publicly
held corporation, and Boston Pacific, Inc. ("Boston Pacific") became wholly
owned subsidiaries of CKE Restaurants, Inc. ("CKE" and collectively with its
subsidiaries, the "Company"), a Delaware corporation organized during fiscal
1995. Since Boston Pacific began its start-up operations in February 1994 and
the Company did not commence its operations until June 1994, the accompanying
consolidated financial statements for fiscal 1994 and earlier were comprised
solely of the results of operations and financial condition of Enterprises.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions are
eliminated. The Company's fiscal year is 52 or 53 weeks, ending the last Monday
in January each year. Fiscal years 1995 and 1993 each included 52 weeks of
operations and fiscal year 1994 included 53 weeks of operations. For clarity of
presentation, the Company has described all periods presented as if the fiscal
year ended January 31.
Cash Equivalents
The Company considers short-term investments which have an original
maturity of three months or less to be cash equivalents for purposes of
reporting cash flows.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Deferred Pre-opening Costs
Deferred pre-opening costs consist of the direct and incremental costs
associated with the opening of restaurants or stores and are deferred and
amortized over the first year they are in operation. Such costs include uniforms
and promotional costs related to the grand opening of each new location.
Additionally, these costs include initial food, beverage, supply and direct
labor costs associated with the testing of all equipment and recipes, and the
simulation of other operational procedures shortly before a restaurant or store
opens.
Deferred pre-opening costs also include, if significant, the cost of
required training classes for new managers, assistant managers and regional
managers; airfare and lodging related to this training; and the salaries of
these individuals during their training classes. Such costs, including training,
were not significant prior to fiscal 1995. Since there is not an existing
employee base from which to hire Boston Pacific store management and the
training related to the opening of Boston Pacific stores is conducted outside of
California, these costs were more significant in fiscal 1995.
Investment in Joint Venture
In fiscal 1994, the Company entered into a joint venture agreement with a
Mexican company to operate a Carl's Jr. restaurant in Baja California. The
Company owns a 50% interest in this joint venture, which is accounted for by the
equity method and is not considered material to the Company's consolidated
financial statements.
F-6
<PAGE> 27
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Advertising
Production costs of commercials and programming are charged to operations
in the fiscal year first aired. The costs of other advertising, promotion and
marketing programs are charged to operations in the fiscal year incurred.
Income Taxes
The Company adopted Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes," effective as of the beginning of
fiscal 1993. Under this method, income tax assets and liabilities are recognized
using enacted tax rates for the expected future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. A change in tax
rates is recognized in income in the period that includes the enactment date.
Earnings (Loss) per Share
Earnings (loss) per share is computed based on the weighted average number
of common shares outstanding during the year, after consideration of the
dilutive effect of outstanding stock options. The outstanding stock options were
not included in the per share computations for fiscal 1993 as the effect would
have been antidilutive. For all years presented, primary earnings per share
approximate fully diluted earnings per share.
Reclassifications
Certain prior year amounts in the accompanying consolidated financial
statements have been reclassified to conform to the fiscal 1995 presentation.
NOTE 2 -- BOSTON CHICKEN FRANCHISE OPERATIONS
In January 1994, the Company acquired the rights to develop, own and
operate up to 300 Boston Chicken stores throughout designated markets in
California from Boston Chicken, Inc. ("BCI"). In consideration for these rights,
the Company paid a total of $2,000,000, which consisted of a $1,000,000 initial
development fee and a $1,000,000 deposit towards the future franchise fees due
BCI ($35,000 per store payable upon the opening of each new Boston Chicken
store) over the five-year term of this agreement. The unamortized balances of
both of these amounts were included in other assets in the accompanying
consolidated balance sheets.
The Company's obligation under the terms of this agreement included opening
20 Boston Chicken stores during fiscal 1995, followed by an additional 40 to 50
stores per year during the next four years, for an aggregate of 200 stores by
January 15, 1999. This agreement also contained an option to develop an
additional 100 stores under certain conditions. Boston Pacific was formed during
fiscal 1995 to conduct the Company's Boston Chicken franchise operations and the
results of these operations were included in the accompanying consolidated
financial statements. A total of 22 stores were opened by Boston Pacific during
fiscal 1995, seven of which were converted Carl's Jr. restaurants. In addition,
another five stores were under construction as of January 31, 1995. The
Company's first Boston Chicken store commenced operations in July 1994.
In April 1995, the Company completed a transaction with BCI that resulted
in the formation of a new privately owned company, Boston West, L.L.C. ("Boston
West"), that assumed the operations of Boston Pacific and agreed to fulfill the
Company's obligation under its area development agreement with BCI. Boston
Pacific contributed a majority of its existing Boston Chicken restaurant assets
valued at approximately $22 million to this new entity and BCI agreed to lend
Boston West, over time, up to $63.8 million. This loan is
F-7
<PAGE> 28
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
convertible to equity in Boston West, at BCI's option, at 115% of the original
equity price. In addition, this transaction provides for the leasing of
approximately $12 million of equipment and real property retained by Boston
Pacific to Boston West at current market rates. These terms are subject to final
adjustment within the next 60 days. An affiliate of BCI has an option to
purchase all the equipment and real property leased to Boston West by Boston
Pacific.
In exchange for its assets, Boston Pacific received preferred and all of
the common equity units in Boston West. During the first half of fiscal 1996,
additional equity units in Boston West will be sold such that the Company will
own less than 20% of the common equity units of Boston West. Until the sale of
these interests is complete, the Company will continue to include the results of
Boston West's operations in the Company's consolidated financial statements.
After the sale of its common equity units, the Company's ownership may be
increased to up to 35% by an option to co-fund the capital requirements of
Boston West up to a maximum of $15 million. This $15 million may be funded, in
part, by proceeds of the purchase option in the equipment and real property
leases when and if they are exercised. Total capitalization of Boston West is
expected to reach more than $100 million.
NOTE 3 -- MARKETABLE SECURITIES
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," as of
February 1, 1994, which did not have a material effect on the Company's
consolidated financial statements. The consolidated balance sheet at January 31,
1994 was not restated to give effect to the adoption of this statement.
At January 31, 1995, marketable securities are categorized as
available-for-sale, and as a result, are stated at fair value. Unrealized
holding gains and losses are included as a component of stockholders' equity
until realized. At January 31, 1994, marketable securities were stated at the
lower of aggregate cost or fair value. Fair values are based on quoted market
prices where available. For marketable securities not actively traded, fair
values are estimated using values obtained from independent sources.
Marketable securities consist primarily of holdings in investment-grade
preferred stock and debt securities in a variety of industries. During fiscal
1994, as part of its strategic program, the Company began liquidating a
significant portion of its marketable securities. The fair value and cost of
marketable securities, classified as current assets, were as follows:
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
FAIR FAIR
DOLLARS IN THOUSANDS VALUE COST VALUE COST
------ ------ ------ ------
<S> <C> <C> <C> <C>
Adjustable rate preferred stock................. $ 503 $ 536 $ 720 $ 583
Fixed rate preferred stock...................... 1,510 1,921 3,093 2,937
Debt securities................................. 763 763 2,855 2,635
Mutual funds and common stock................... 312 372 2,815 2,909
------ ------ ------ ------
$3,088 $3,592 $9,483 $9,064
====== ====== ====== ======
</TABLE>
Gross unrealized holding gains and unrealized holding losses as of January
31, 1995 were $41,000 and $(545,000), respectively, and, as of January 31, 1994,
were $480,000 and $(61,000), respectively.
Dividend income is recorded on the ex-dividend date and interest income is
recorded as earned. Securities transactions are accounted for on the trade date,
or the date the order to buy or sell is executed. Realized gains and losses from
securities transactions are determined on a specific identification basis.
F-8
<PAGE> 29
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS
Details of accounts receivable and other current assets were as follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994
------- -------
<S> <C> <C>
Accounts receivable:
Trade receivables...................................... $ 3,961 $ 4,545
Income tax receivable.................................. 5,171 2,261
Notes receivable, current.............................. 3,062 1,512
Other.................................................. 217 203
------- -------
$12,411 $ 8,521
======= =======
Other current assets:
Cash held in trust..................................... -- $ 6,776
Prepaid expenses and other............................. $ 6,438 3,563
------- -------
$ 6,438 $10,339
======= =======
</TABLE>
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization, and was comprised of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
DOLLARS IN THOUSANDS LIFE 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Land...................................... $ 25,621 $ 19,804
Leasehold improvements.................... 4-25 years 92,421 81,875
Buildings and improvements................ 7-35 years 35,064 27,082
Equipment, furniture and fixtures......... 3-10 years 124,735 116,299
-------- --------
277,841 245,060
Less: Accumulated depreciation and
amortization............................ 144,593 131,848
-------- --------
$133,248 $113,212
======== ========
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
shorter of the useful life of the improvement or the term of the lease.
Buildings and improvements and equipment, furniture and fixtures are depreciated
on a straight-line basis over the estimated useful lives of these assets.
Provision is made for an impairment loss if the Company determines that the
carrying amount of a particular real estate asset may not be recoverable.
Management evaluates current and anticipated market conditions of the respective
properties to determine if an impairment loss has occurred. Such losses are
recognized to the extent the carrying value of these assets exceeds the total
estimated undiscounted cash flows expected to be generated over the assets'
estimated life.
NOTE 6 -- LEASES
The Company occupies land and buildings under terms of numerous lease
agreements expiring on various dates through 2026. Many of these leases provide
for future rent escalations and renewal options. In addition, contingent
rentals, determined as a percentage of sales in excess of specified levels, are
often stipulated. Most of these leases obligate the Company to pay costs of
maintenance, insurance and property taxes.
F-9
<PAGE> 30
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property under capital leases was comprised of the following:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994
------- -------
<S> <C> <C>
Buildings................................................ $65,017 $66,587
Less: Accumulated amortization........................... 34,502 32,979
------- -------
$30,515 $33,608
======= =======
</TABLE>
Amortization is calculated on the straight-line method over the shorter of
the lease term or estimated useful life of the asset.
Minimum lease payments for all leases and the present value of net minimum
lease payments for capital leases as of January 31, 1995 were as follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS CAPITAL OPERATING
------- ---------
<S> <C> <C>
Fiscal Year
1996.................................................... $ 8,615 $ 30,072
1997.................................................... 8,419 29,226
1998.................................................... 8,096 28,272
1999.................................................... 7,805 27,442
2000.................................................... 7,325 25,930
Thereafter.............................................. 47,493 220,753
------- ---------
Total minimum lease payments............................ 87,753 $ 361,695
========
Less: Amount representing interest...................... 41,481
-------
Present value of minimum lease payments................. 46,272
Less: Current portion................................... 3,581
-------
Capital lease obligations, excluding current portion.... $42,691
=======
</TABLE>
Total minimum lease payments have not been reduced by minimum sublease
rentals of $44,658,000 due in the future under certain operating subleases.
The Company has leased and subleased land and buildings to others,
primarily as a result of the franchising of certain restaurants. Many of these
leases provide for fixed payments with contingent rent when sales exceed certain
levels, while others provide for monthly rentals based on a percentage of sales.
Lessees generally bear the cost of maintenance, insurance and property taxes.
Components of the net investment in leases receivable, included in other assets,
were as follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994
------- -------
<S> <C> <C>
Net minimum lease payments receivable...................... $10,690 $11,497
Less: Unearned income...................................... 5,774 6,433
------- -------
Net investment............................................. $ 4,916 $ 5,064
======= =======
</TABLE>
F-10
<PAGE> 31
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum future rentals to be received as of January 31, 1995 were as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES OR LESSOR
DOLLARS IN THOUSANDS SUBLEASES LEASES
--------- ---------
<S> <C> <C>
Fiscal Year:
1996.................................................. $ 803 $ 244
1997.................................................. 803 244
1998.................................................. 804 244
1999.................................................. 809 246
2000.................................................. 808 246
Thereafter............................................ 6,663 1,975
--------- ---------
Total minimum future rentals.......................... $10,690 $ 3,199
======= =======
</TABLE>
Total minimum future rentals do not include contingent rentals which may be
received under certain leases.
The Company's investment in land under operating leases at January 31, 1995
and 1994 was $1,804,000.
Aggregate rents under noncancelable operating leases during fiscal 1995,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Minimum rentals............................... $29,173 $28,989 $28,139
Contingent rentals............................ 1,459 1,583 2,323
Less: Sublease rentals........................ 5,029 4,812 4,688
------- ------- -------
$25,603 $25,760 $25,774
======= ======= =======
</TABLE>
NOTE 7 -- OTHER CURRENT LIABILITIES
Other current liabilities were comprised of the following:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994
------- -------
<S> <C> <C>
Salaries, wages and other benefits....................... $ 7,732 $ 7,754
Self-insured workers' compensation reserve (see Note
9)..................................................... 7,650 7,650
Other self-insurance reserves............................ 1,323 2,638
Arbitration judgment and other litigation................ -- 3,554
Other accrued liabilities................................ 13,360 15,235
------- -------
$30,065 $36,831
======= =======
</TABLE>
In March 1994, the Company was found liable for breach of contract
involving an investor group which had been negotiating for the purchase of
several existing Carl's Jr. restaurants. The $3,000,000 binding arbitration
judgment was accrued in other current liabilities as of January 31, 1994, and
was paid during fiscal 1995.
NOTE 8 -- CREDIT FACILITIES AND LONG-TERM DEBT
As of January 31, 1995, advances totaling $18.8 million were drawn against
the Company's former revolving credit line, primarily to fund the Company's
Boston Chicken franchise operations. Interest on this revolving line was
calculated at the bank's prime rate, which was 8.5% as of January 31, 1995.
Following the formation of Boston West in April 1995, the Company's loan
agreement with its bank was amended such that these borrowings were converted to
a term loan, payable in quarterly installments through September 1998. A
F-11
<PAGE> 32
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
new $15 million unsecured revolving credit line that expires in June 1996 was
also established for use in the Company's ongoing Carl's Jr. operations, as was
a $12.4 million letter of credit facility. Two letters of credit are outstanding
under this facility, one for $8.5 million issued in April 1995 and a second for
$3.9 million issued in September 1994. The $8.5 million letter of credit secures
the Company's potential workers' compensation claims and expires in June 1996.
The $3.9 million letter of credit secures the Industrial Revenue Bonds issued in
connection with the construction of the Company's Northern California
distribution facility and expires in 1997.
As of January 31, 1995, the Company was not in compliance with certain of
the covenants governing its previous loan agreement, largely due to operating
losses sustained by Boston Pacific. A waiver of the requirements of these
covenants was received and more favorable covenants were negotiated in their
place that will apply to future measurement periods.
Long-term debt was comprised of the following:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1994 1995
------- -------
<S> <C> <C>
Unsecured note payable to bank, principal payments in specified amounts
monthly through 1994, interest at 9.26%................................ -- $ 6,417
Unsecured note payable to bank, principal payments in specified amounts
quarterly through 1998, interest based on the prime rate plus .25%..... $18,825 --
Secured notes payable to bank, principal payments in specified amounts
annually through 1999, interest at 12.95%.............................. 4,494 6,099
Secured note payable, principal payments in specified amounts annually
through 2000, interest at 13.5%........................................ 5,168 6,108
Secured notes payable to bank, principal payments in specified amounts
monthly through 1995, interest based on the prime rate plus .25%
beginning in fiscal 1995, interest based on the prime rate plus .25%,
not to exceed 14.75% nor less than 10.25% for prior years.............. -- 5,428
Industrial Revenue Bonds, payable in 1999, variable interest rate
averaging 3.02% in fiscal 1995 and 2.37% in fiscal 1994................ 3,600 3,600
Other.................................................................... 3,259 2,969
------- -------
35,346 30,621
Less: Current portion.................................................... 8,168 13,207
------- -------
$27,178 $17,414
======= =======
</TABLE>
Notes payable mature in fiscal years ending after January 31, 1995 as
follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS
<S> <C>
Fiscal Year:
1996............................................................. $ 8,168
1997............................................................. 9,353
1998............................................................. 8,634
1999............................................................. 1,467
2000............................................................. 4,789
Thereafter......................................................... 2,935
-------
$35,346
=======
</TABLE>
Secured notes payable are collateralized by certain restaurant property
deeds of trust, with a carrying value at January 31, 1995 of $16,346,000.
F-12
<PAGE> 33
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- OTHER LONG-TERM LIABILITIES
Other long-term liabilities were as follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994
------- -------
<S> <C> <C>
Self-insured workers' compensation reserve............... $ 7,160 $ 8,460
Exit costs............................................... 5,649 10,105
Other.................................................... 1,641 1,641
------- -------
$14,450 $20,206
======= =======
</TABLE>
A total of $14,810,000 and $16,110,000 was accrued as of January 31, 1995
and 1994, respectively, representing the current and long-term portions of the
net present value of an independent actuarial valuation of the Company's
workers' compensation claims in both years. These amounts are net of a discount
of $1,680,000 and $1,771,000 in fiscal years 1995 and 1994, respectively.
In the fourth quarter of fiscal 1994, the method used by the Company to
discount the actuarial projection of losses to be paid in connection with its
existing workers' compensation claims was changed from its incremental borrowing
rate to the Company's risk-free interest rate of 5%. The Company accounted for
this change as a change in accounting principle, effective as of the beginning
of fiscal 1994. The first quarter of fiscal 1994 was restated to reflect the
cumulative effect of this adoption, which resulted in a decrease in net income
of $768,000, net of an income tax benefit of $512,000.
In prior years, the Company initiated programs to dispose of or franchise
its Arizona and Texas operations. As of January 31, 1995 and 1994, $7,086,000
and $11,542,000, respectively, was accrued for these reserves, including the
current portion. These balances were mainly comprised of estimated lease
subsidies, $2,680,000 of which were reduced in connection with the reacquisition
of several Carl's Jr. franchised restaurants from a related party during fiscal
1995 (see Note 12). These lease subsidies represent the net present value of the
excess of future lease payments over estimated sublease income. The remaining
unamortized discount to present value of these lease subsidies at January 31,
1995 was $4,671,000 and will be amortized to operations over the remaining
sublease terms, which range up to 21 years.
In fiscal 1993, the Company recognized $11,124,000 of exit costs related to
its strategic initiatives, workforce reductions and certain lease subsidies.
Components of this charge included $1,918,000 of corporate severance and
outplacement costs related to the termination of 53 corporate employees (whose
termination was approved by the Company's Board of Directors just prior to the
end of fiscal 1993); a $2,052,000 charge related to the elimination of the
Company's manufacturing operations (which included the losses on the disposition
of equipment previously used in that operation and severance costs related to
the termination of 232 manufacturing employees); $2,299,000 of estimated
equipment losses and lease subsidies related to the closure of certain
underperforming Carl's Jr. restaurants (of which $315,000 remained accrued as of
January 31, 1995); and a $4,855,000 increase of certain lease subsidies related
to the Company's franchised operations in Arizona (the result of the Company
reducing its sublease rental income projections associated with these particular
restaurants, which are based largely upon the restaurant sales of the Arizona
franchisees).
NOTE 10 -- STOCKHOLDERS' EQUITY
Upon consummation of the Merger, shareholders of Enterprises received one
share of the Company's common stock for each share of Enterprises' common stock
owned by them just prior to the Merger. In connection with this transaction, the
Certificate of Incorporation was adopted for CKE which authorizes 50,000,000
shares of common stock and 5,000,000 shares of preferred stock, both of which
have a par value of $.01 per share.
F-13
<PAGE> 34
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In July 1994, the Board of Directors authorized the repurchase of up to two
million shares of the Company's common stock. A total of 590,000 shares were
repurchased, which included the purchase of 62,500 shares from the Chairman
Emeritus at the then market price of $9.13 per share. The balance of these
shares were purchased in a series of open market transactions, at an average
price of approximately $8 per share, for an aggregate purchase price of $4.0
million. All shares purchased are being held as treasury stock.
During the second quarter of fiscal 1994, the Company purchased a total of
59,750 shares from the Carl N. and Margaret M. Karcher Trust for an aggregate
purchase price of $422,000. All shares purchased were canceled and retired.
NOTE 11 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents information on the Company's financial
instruments:
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
DOLLARS IN THOUSANDS AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.......... $ 15,156 $15,156 $ 17,075 $17,075
Marketable securities.............. 3,088 3,088 9,064 9,483
Notes receivable................... 18,112 17,976 20,000 21,029
Financial liabilities:
Long-term debt..................... 32,832 31,953 28,084 27,487
</TABLE>
The estimated fair values of marketable securities were based on quoted
market prices. The estimated fair values of notes receivable were determined by
discounting future cash flows using current rates at which similar loans would
be made to borrowers with similar credit ratings. The estimated fair value of
long-term debt was based upon rates currently available to the Company for debt
with similar terms and remaining maturities.
NOTE 12 -- RELATED PARTY TRANSACTIONS
Certain members of management and the Karcher family are franchisees of the
Company. A total of 37 restaurants have been sold to these individuals, two of
which occurred during fiscal 1995. As part of these transactions, the Company
received cash and accepted $10,358,000 of interest-bearing notes. Additionally,
these franchisees regularly purchase food and other products from the Company on
the same terms and conditions as other franchisees. During fiscal 1995, the
Company made a salary advance to the Chairman Emeritus totaling $715,000, a
majority of which is non-interest bearing and is to be repaid through payroll
deductions. The entire amount will be repaid by December 1998.
F-14
<PAGE> 35
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Details of amounts outstanding were as follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994
------ ------
<S> <C> <C>
Advance to Chairman Emeritus............................... $ 667 --
7.0% Unsecured notes...................................... 296 --
12.0% Secured notes........................................ 297 $ 341
12.5% Secured notes........................................ 1,318 2,863
------ ------
2,578 3,204
Less: Long-term portion.................................... 2,109 2,863
------ ------
469 341
Trade receivables.......................................... 1,040 1,269
------ ------
$1,509 $1,610
====== ======
</TABLE>
In June 1994, the Company reacquired 12 Arizona restaurants from a Karcher
family member who was formerly an officer of the Company. As part of this
transaction, the Company took possession of certain restaurant assets in
exchange for the forgiveness of two notes receivable totaling $1,360,000, and a
cash payment of $650,000. In addition, as described in Note 9, certain
previously established lease subsidy reserves totaling $2,680,000 were reversed
in fiscal 1995 as a result of this transaction.
The Company leases various properties, including its corporate
headquarters, one of its distribution facilities and three of its restaurants,
from the Chairman Emeritus. Included in capital lease obligations was $4,939,000
and $5,286,000, representing the present value of lease obligations related to
these various properties at January 31, 1995 and 1994, respectively. Lease
payments under these leases for fiscal 1995, 1994 and 1993 amounted to
$1,362,000, $1,515,000, and $1,612,000, respectively. This was net of sublease
rentals of $154,000, $171,000 and $64,000 in fiscal 1995, 1994 and 1993,
respectively. In November 1993, the Company purchased two restaurants from the
Chairman Emeritus for an aggregate purchase price of $848,000.
In fiscal 1994, the Chairman Emeritus was granted future retirement
benefits for past services consisting principally of payments of $200,000 per
year for life and supplemental health benefits, which had a net present value of
$1,668,000 as of that date. This amount was computed using certain actuarial
assumptions, including a discount rate of 7%. A total of $1,526,000 remained
accrued as of January 31, 1995. The Company anticipates funding these
obligations as they become due.
NOTE 13 -- CARL'S JR. FRANCHISE AND LICENSE OPERATIONS
Franchise arrangements, with franchisees who operate in Arizona,
California, Nevada, Oregon and Utah, generally provide for initial fees and
continuing royalty payments to the Company based upon a percent of sales. The
Company generally charges an initial franchise fee for each new franchised
restaurant that is added to its system, and in some cases, an area development
fee, which grants exclusive rights to develop a specified number of Carl's Jr.
restaurants in a designated geographic area. Similar fees are charged in
connection with the Company's international licensing operations. These fees are
recognized ratably when substantially all the services required of the Company
are complete and the restaurants covered by these agreements commence
operations.
Franchisees may also purchase food, paper and other supplies from the
Company. Additionally, franchisees may be obligated to remit lease payments for
the use of restaurant facilities owned or leased by the Company, generally for a
period of 20 years. Under the terms of these leases they are required to pay
related occupancy costs which include maintenance, insurance and property taxes.
F-15
<PAGE> 36
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company receives notes from franchisees in connection with the sales of
Company-operated restaurants. Generally, these notes bear interest at 12.5%,
mature in five to 15 years and are secured by an interest in the restaurant
equipment sold.
Revenues from franchised and licensed restaurants were comprised of the
following:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Food service.................................. $57,058 $60,979 $57,503
Rental income................................. 10,257 10,575 9,601
Royalties..................................... 6,284 6,253 5,517
Initial fees.................................. 91 297 1,095
Other......................................... 12 531 1,546
------- ------- -------
$73,702 $78,635 $75,262
======= ======= =======
</TABLE>
Operating costs and expenses for franchised and licensed restaurants were
comprised of the following:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Food service.................................. $57,334 $60,827 $54,947
Occupancy and other operating expenses........ 12,537 12,725 12,643
------- ------- -------
$69,871 $73,552 $67,590
======= ======= =======
</TABLE>
NOTE 14 -- INTEREST EXPENSE
Interest expense was comprised of the following:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Notes payable and revolving credit lines.... $(2,484) $ (3,472) $ (5,941)
Capital lease obligations................... (6,194) (6,454) (6,809)
Obligations secured by marketable
securities................................ (4) (60) (581)
Capitalized interest........................ -- 19 89
Other....................................... (520) (420) (388)
------- -------- --------
$(9,202) $(10,387) $(13,630)
======= ======== ========
</TABLE>
NOTE 15 -- OTHER INCOME, NET
Other income, net was comprised of the following:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Net gains (losses) on sales of restaurants...... $ (463) $ (162) $ 867
Gains on sales of investments................... 564 2,675 8,839
Losses on sales of investments.................. (721) (1,325) (3,422)
Dividend income................................. 357 559 2,513
Interest income................................. 3,261 4,401 5,714
Other........................................... -- -- (919)
------ ------ -------
$2,998 $6,148 $13,592
====== ====== =======
</TABLE>
F-16
<PAGE> 37
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 -- INCOME TAXES
In the fourth quarter of fiscal 1993, the Company adopted SFAS 109. The
cumulative effect of this change in accounting principle of $2,450,000 included
a $500,000 valuation allowance. Had the Company implemented SFAS 109 in the
first quarter of fiscal 1993, net income and earnings per share would have been
reduced by $2,450,000 and $.14, respectively. The pro forma effects on net
income (loss) by adopting SFAS 109, assuming the adoption was applied
retroactively to 1990, would have been to reduce the net loss in fiscal 1993 by
$2,450,000, or $.14 per share, and would have been immaterial in fiscal 1992 and
fiscal 1991.
Income tax expense (benefit) was comprised of the following:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Current:
Federal....................................... $(1,996) $ 2,327 $ 2,996
State......................................... (304) 672 983
------- ------- -------
(2,300) 2,999 3,979
------- ------- -------
Deferred:
Federal....................................... 2,517 (1,471) (7,422)
State......................................... 917 (204) (804)
------- ------- -------
3,434 (1,675) (8,226)
------- ------- -------
1,134 1,324 (4,247)
Tax effect of cumulative effect of change in
accounting principle........................ -- 512 --
------- ------- -------
$ 1,134 $ 1,836 $(4,247)
======= ======= =======
</TABLE>
A reconciliation of income tax expense (benefit) at the federal statutory
rate of 34% to the Company's provision for taxes on income is as follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Income taxes (benefit) at statutory rate........ $ 815 $2,131 $(2,483)
State income taxes, net of federal income tax
benefit....................................... 800 306 (950)
Dividend exclusion.............................. (86) (161) (475)
Targeted jobs tax credits....................... (338) (774) (1,033)
Alternative minimum tax credit.................. (551) -- --
Adjustment of prior years' estimated
liabilities................................... 157 -- --
Increase in valuation allowance................. 298 200 795
Remeasurement of stock options.................. -- -- 287
Other, net...................................... 39 134 (388)
------ ------ -------
$1,134 $1,836 $(4,247)
====== ====== =======
</TABLE>
F-17
<PAGE> 38
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Temporary differences and carryforwards gave rise to a significant amount
of deferred tax assets and liabilities as follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Deferred tax asset:
Capitalized leases.......................... $ 8,589 $ 8,449 $ 8,223
Workers' compensation reserve............... 6,413 6,976 6,544
Exit costs.................................. 3,068 4,997 7,196
Targeted jobs tax credit carryforward....... 2,695 2,137 1,112
Arbitration judgment and other litigation... -- 1,539 --
Other....................................... 5,208 5,612 5,579
------- ------- -------
25,973 29,710 28,654
Less: Valuation allowance................... 1,793 1,495 1,295
------- ------- -------
Total deferred tax asset...................... 24,180 28,215 27,359
------- ------- -------
Deferred tax liability:
Depreciation................................ 9,537 10,210 10,676
Safe harbor leases.......................... 1,054 1,461 1,815
Other....................................... 1,335 1,234 1,178
------- ------- -------
Total deferred tax liability.................. 11,926 12,905 13,669
------- ------- -------
Net deferred tax asset........................ $12,254 $15,310 $13,690
======= ======= =======
</TABLE>
While there can be no assurance that the Company will generate any earnings
or any specific level of earnings in future years, management believes it is
more likely than not that the Company will realize the majority of the benefit
of the existing net deferred tax asset at January 31, 1995, based on the
Company's current, historical and future pre-tax earnings.
The Company had targeted jobs tax credit carryforwards of $2,695,000, which
expire in the years 2007 through 2011, and net operating loss carryforwards of
$2,300,000, which expire in 2011, available at January 31, 1995. The Company
also had an alternative minimum tax credit carryforward of $551,000 with no
expiration date.
NOTE 17 -- EMPLOYEE BENEFIT AND RETIREMENT PLANS
Profit Sharing and Savings Plan
The Company maintains a voluntary contributory profit sharing and savings
investment plan for all eligible employees other than operations hourly
employees. Annual contributions under the profit sharing portion of the plan are
determined at the discretion of the Company's Board of Directors. Under the
savings investment portion of the plan, participants may elect to reduce their
annual salary by up to 15% and have this amount contributed to the plan. Through
December 31, 1994, up to 4% of employee contributions were matched by the
Company. Total Company contributions to this plan for fiscal 1995, 1994 and 1993
were $344,000, $813,000 and $429,000, respectively.
Pension Plan
The Company also maintains a defined benefit pension plan covering
substantially all operations employees qualified as to age and service. For
fiscal 1995, 1994 and 1993, pension contributions were $438,000, $442,000 and
$348,000, respectively. Under the terms of the defined benefit plan, pension
expense is computed based upon an independent actuarial valuation study. Company
contributions under this plan are
F-18
<PAGE> 39
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
funded quarterly. As of February 1, 1994 and 1993, the accumulated benefit
obligation related to the plan was $1,819,000 and $1,323,000, respectively.
Stock Purchase Plan
In September 1994, the Board of Directors adopted a new employee stock
purchase plan under which eligible employees may voluntarily purchase up to
500,000 shares of the Company's common stock through payroll deductions. The
plan provides that participants may authorize the Company to withhold up to 10%
of earnings to purchase such stock at prevailing market prices. The Company will
then match up to 50% of the participant's contributions. Purchases of shares
under this plan are scheduled to begin during the coming fiscal year.
Stock Incentive Plans
The Company's 1994 stock incentive plan was approved by stockholders in
June 1994. The 1994 plan is substantially similar to the 1993 plan under which,
as a result of the Merger, no further options may be granted. Awards granted to
eligible employees under the 1994 plan are not restricted as to any specified
form or structure, with such form, vesting and pricing provisions determined by
the Compensation and Stock Option Committee of the Board of Directors. The 1994
plan also provides for the automatic award of stock options to nonemployee
directors, nonemployee director members of the Executive Committee and the
Chairman of the Board annually. These options generally have a term of five
years, become exercisable at a rate of 33 1/3% per year following the grant date
and are priced at the fair market value of the shares on the date of grant. A
total of 1,750,000 shares are available for grants of options or other awards
under this plan, from which 50,000 stock options were outstanding as of January
31, 1995. The grant price of options outstanding under this plan was $9.00 per
share.
The Company's 1993 stock incentive plan was superseded by the 1994 plan, as
discussed above. As of January 31, 1995, 641,983 stock options, with grant
prices ranging from $7.13 per share to $13.38 per share, were outstanding under
the plan.
The Company's 1982 stock option plan expired in September 1992. Under this
plan, stock options were granted to key employees to purchase up to 3,000,000
shares of its common stock at a price equal to or greater than the fair market
value at the date of grant. The options generally had a term of 10 years from
the grant date and become exercisable at a rate of 25%, 35% and 40% per year
following the grant date. The grant price of the 496,050 options outstanding as
of January 31, 1995 under this plan ranges from $5.21 per share to $13.38 per
share.
Transactions under all plans were as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding at beginning of year....... 1,372,634 1,554,766 1,840,440
Granted................................ 437,206 579,812 134,230
Canceled............................... (454,296) (116,349) (247,476)
Exercised.............................. (167,511) (645,595) (172,428)
---------- ---------- ----------
Outstanding at end of year............. 1,188,033 1,372,634 1,554,766
========= ========= =========
Exercisable at end of year............. 648,324 745,310 1,332,136
========= ========= =========
</TABLE>
F-19
<PAGE> 40
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes were as follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Interest (net of amount capitalized).......... $ 9,208 $10,558 $13,860
Income taxes.................................. 645 1,675 5,584
</TABLE>
Noncash investing and financing activities were as follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Noncash investing and financing activities:
Transfers of marketable securities to (from)
other current assets..................... $(6,776) $ 6,776 --
Transfers of long-term investments to
marketable securities.................... -- -- $ 6,184
Other investing activities:
Net change in marketable securities from
noncash transactions................... (25) (99) (474)
Net change in long-term investments from
noncash transactions................... -- -- 5
Net change in dividends receivable....... -- 36 141
Leasing activities:
Capital lessee additions.................... -- 505 1,048
Capital lessor additions.................... -- 538 628
Other leasing activities:
Increase in property and equipment....... (1,356) -- --
Decrease in property under capital
leases................................. 91 169 671
Decrease in capital lease obligations.... (90) (285) (1,561)
Reverse certain lease subsidy reserves... 2,680 -- --
Franchising and other disposition activities:
Sales of property and equipment............. -- 344 7,304
Sales of inventory.......................... -- 11 139
(Increase) decrease in notes receivable..... 1,356 (551) (7,203)
Net change in restructuring reserve and
other current liabilities................ -- 45 4,698
Increase in other long-term liabilities..... -- -- 4,855
Remeasurement of stock options.............. -- -- 843
Sale/leaseback activities:
Transfer of restaurant property costs to
property and equipment................... -- 6,750 1,553
Sale/leaseback transaction resulting in an
increase to notes receivable............. -- -- 1,300
</TABLE>
F-20
<PAGE> 41
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly results:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA
QUARTER 1ST 2ND 3RD 4TH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FISCAL 1995
Total revenues.......................... $135,006 $105,308 $103,791 $ 99,642
Operating income........................ 2,904 2,392 1,581 1,725
Net income (loss)....................... 656 864 286 (542)
Income (loss) per common share.......... $ .04 $ .05 $ .02 $ (.03)
FISCAL 1994
Total revenues.......................... $140,858 $108,912 $107,141 $106,583
Operating income........................ 1,412 4,449 3,519 1,128
Income (loss) before cumulative effect
of change in accounting principle..... 926 2,359 1,606 (458)
Cumulative effect of change in
accounting principle (net of income
tax benefit of $512).................. (768) -- -- --
-------- -------- -------- --------
Net income (loss)....................... $ 158 $ 2,359 $ 1,606 $ (458)
======== ======== ======== ========
Income (loss) per common share:
Income (loss) before cumulative effect
of change in accounting
principle.......................... $ .05 $ .13 $ .09 $ (.02)
Cumulative effect of change in
accounting principle............... (.04) -- -- --
-------- -------- -------- --------
Net income (loss)............. $ .01 $ .13 $ .09 $ (.02)
======== ======== ======== ========
</TABLE>
Quarterly operating results are not necessarily representative of
operations for a full year for various reasons, including the seasonal nature of
the quick-service restaurant industry, unpredictable adverse weather conditions
which may affect sales volume and food costs, and the fact that all quarters
have 12-week accounting periods, except the first quarters of 1995 and 1994,
which had 16-week accounting periods, and the fourth quarter of 1994 which had
13 weeks.
The first quarter of 1994 has been restated to reflect the cumulative
effect of a change in accounting principle, related to a change in the method
used to discount the workers' compensation reserve. The second and third
quarters have been restated to reflect the impact of this adoption. See Note 9.
Operating results for the fourth quarter of fiscal 1994 included a
$3,000,000 charge in connection an arbitration judgment (or $1,800,000 net of
tax). See Note 7.
NOTE 20 -- COMMITMENTS AND CONTINGENT LIABILITIES
The Company presently self-insures for group insurance, workers'
compensation and fire and comprehensive protection on most equipment and certain
other assets. In the opinion of management, past experience plus the wide
dispersion of restaurants indicates that the Company is assuming a minimal risk
by self-insuring and, if any loss should occur, it would not have a material
effect on the Company's consolidated financial position or results of
operations.
During fiscal 1995, the Company obtained a $12,146,000 standby letter of
credit related to its self-insured workers' compensation program, which will
expire on June 30, 1995 (see Note 8). The State of California requires that the
Company provide this letter of credit each year based on its existing claims
experience, or set
F-21
<PAGE> 42
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
aside a comparable amount of cash or investment securities in a trust account.
The upcoming annual security requirement, which begins May 1, 1995, was lowered
to $8.5 million due to an improvement in the Company's claims experience. A new
letter of credit was issued for this amount in April 1995.
The Company's standby letter of credit agreements with various banks expire
as follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS
<S> <C>
June 1995.......................... $12,146
January 1997....................... 3,852
April 2000......................... 275
-------
$16,273
=======
</TABLE>
The Company may be required to purchase up to ten restaurant properties
during fiscal year 1996, at the option of the current owners, for an aggregate
purchase price of $7,990,000. The Company presently leases these facilities and
subleases them to others. The Company is currently in negotiations with these
owners to determine if the Company will be required to purchase these
properties. The ultimate impact of this obligation to the Company is not known;
however, if any loss should occur, management believes that it would not have a
material effect on the Company's consolidated financial position or results of
operations.
F-22
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<S> <C>
3-1 Certificate of Incorporation of the Registrant, incorporated herein by reference
to exhibit 3-1 to the Registrant's Form S-4 Registration Statement Number
33-52523.
3-2 Bylaws of Registrant, incorporated herein by reference to exhibit 3-2 to the
Registrant's Form S-4 Registration Statement Number 33-52523.
10-1 Carl Karcher Enterprises, Inc. Profit Sharing Plan, as amended, filed as exhibit
10-21 to the Company's Registration Statement on Form S-1, file no. 2-73695, and
is hereby incorporated by reference.(2)
10-2 Carl Karcher Enterprises, Inc. Key Employee Stock Option Plan, filed as exhibit
10-24 to the Company's Registration Statement on Form S-1, file No. 2-80283, and
is hereby incorporated by reference.(2)
10-3 Agreement of Sale, dated May 17, 1984, filed as exhibit 10-25 to the Company's
Form 10-K Annual Report for fiscal year ended January 25, 1985, and is hereby
incorporated by reference.
10-4 Note Purchase Agreement, dated April 2, 1984, filed as exhibit 10-27 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1985, and is
hereby incorporated by reference.
10-5 Note Purchase Agreement, dated April 2, 1984, filed as exhibit 10-28 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1985, and is
hereby incorporated by reference.
10-6 Note Purchase Agreement, dated January 3, 1985, filed as exhibit 10-29 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1985, and is
hereby incorporated by reference.
10-7 Franchise Development Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-53 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and
is hereby incorporated by reference.
10-8 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (13010 Palm Drive), filed as exhibit 10-54 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-9 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (57222 29 Palms Highway), filed as exhibit 10-55 to
the Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-10 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (73-125 Highway 111), filed as exhibit 10-56 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-11 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (68980 Highway 111), filed as exhibit 10-57 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-12 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (81-770 Highway 111), filed as exhibit 10-58 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
</TABLE>
E-1
<PAGE> 44
<TABLE>
<S> <C>
10-13 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (2520 Palm Canyon Drive), filed as exhibit 10-59 to
the Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-14 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (102 North Sunrise Way), filed as exhibit 10-60 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-15 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (72840 Highway 111), filed as exhibit 10-61 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-16 Sublease dated May 15, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher (Unit 323/730), filed as exhibit 10-62 to the Company's Form
10-K Annual Report as amended for fiscal year ended January 27, 1992, and is
hereby incorporated by reference.
10-17 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher, as amended by Amendment to Sublease dated December 18, 1990
(Unit 447/731), filed as exhibit 10-63 to the Company's Form 10-K Annual Report
as amended for fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-18 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher (Unit 300/729), filed as exhibit 10-64 to the Company's Form
10-K Annual Report as amended for fiscal year ended January 27, 1992, and is
hereby incorporated by reference.
10-19 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher (Unit 300/729), filed as exhibit 10-65 to the Company's Form
10-K Annual Report as amended for fiscal year ended January 27, 1992, and is
hereby incorporated by reference.
10-20 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher, as amended by the Amendment to Sublease dated December 18,
1990 (Unit 207/725), filed as exhibit 10-66 to the Company's Form 10-K Annual
Report as amended for fiscal year ended January 27, 1992, and is hereby
incorporated by reference.
10-21 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher, as amended (Unit 206/724), filed as exhibit 10-67 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-22 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and
Carl Leo Karcher, as amended by the First Amendment to Sublease dated April 24,
1987 (Unit 289/728), filed as exhibit 10-68 to the Company's Form 10-K Annual
Report as amended for fiscal year ended January 27, 1992, and is hereby
incorporated by reference.
10-23 Franchise Agreement dated December 31, 1985 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 456/768), filed as exhibit 10-69 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-24 Land and Building Sublease Agreement dated December 31, 1985 by and between Carl
Karcher Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-71 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-25 Franchise Agreement dated January 25, 1986 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 188/769), filed as exhibit 10-72 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
</TABLE>
E-2
<PAGE> 45
<TABLE>
<S> <C>
10-26 Franchise Agreement dated January 25, 1986 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 382/771), filed as exhibit 10-73 to
the Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-27 Franchise Agreement dated January 25, 1986 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 342/770), filed as exhibit 10-74 to
the Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-28 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc. dated March
3, 1987 (1489 Adams Avenue), filed as exhibit 10-75 to the Company's Form 10-K
Annual Report as amended for fiscal year ended January 27, 1992, and is hereby
incorporated by reference.
10-29 License Agreement dated January 27, 1987 by and between Carl Karcher
Enterprises, Inc. and CLK, Inc., as amended by the Amendment to License
Agreement dated October 10, 1990, filed as exhibit 10-76 to the Company's Form
10-K Annual Report as amended for fiscal year ended January 27, 1992, and is
hereby incorporated by reference.
10-30 Continuing Guaranty dated January 27, 1987 executed by Carl Leo Karcher, filed
as exhibit 10-77 to the Company's Form 10-K Annual Report as amended for fiscal
year ended January 27, 1992, and is hereby incorporated by reference.
10-31 Franchise Agreement dated March 3, 1987 between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (1489 Adams Avenue), filed as exhibit 10-78 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-32 Franchise Agreement dated July 6, 1987 by and between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Varner Road), filed as exhibit 10-79 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and
is hereby incorporated by reference.
10-33 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General
Release and Continuing Guaranty each dated October 5, 1987, filed as exhibit
10-80 to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-34 Lease Agreement dated September 25, 1987 between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher, as amended by the Amendment to Lease dated October 19,
1990 (Brawley), filed as exhibit 10-81 to the Company's Form 10-K Annual Report
as amended for fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-35 Sublease Agreement dated September 25, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Bullhead City), filed as exhibit 10-82
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-36 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 772), filed as exhibit 10-83 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-37 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 482/794), filed as exhibit 10-84 to
the Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-38 Franchise Agreement dated October 27, 1987 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 722), filed as exhibit 10-85 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and
is hereby incorporated by reference.
</TABLE>
E-3
<PAGE> 46
<TABLE>
<S> <C>
10-39 Franchise Agreement dated October 27, 1987 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 794), filed as exhibit 10-86 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and
is hereby incorporated by reference.
10-40 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General
Release and Continuing Guaranty each dated October 27, 1987 (Brawley), filed as
exhibit 10-87 to the Company's Form 10-K Annual Report as amended for fiscal
year ended January 27, 1992, and is hereby incorporated by reference.
10-41 Franchise Agreement dated June 14, 1988 between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (Bermuda Dunes), filed as exhibit 10-88 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and
is hereby incorporated by reference.
10-42 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General
Release and Continuing Guaranty each dated August 1, 1988, filed as exhibit
10-89 to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-43 Franchise Agreement dated June 26, 1989 between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (I-8 Business Loop), filed as exhibit 10-92 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-44 Assignment of Franchise Agreement and Sublease Agreement by Carl Leo Karcher to
CLK, Inc. and Continuing Guaranty each dated August 17, 1989 (Unit 730), filed
as exhibit 10-93 to the Company's Form 10-K Annual Report as amended for fiscal
year ended January 27, 1992, and is hereby incorporated by reference.
10-45 Assignment of Franchise Agreement and Lease Agreement by Carl Leo Karcher to
CLK, Inc. dated August 17, 1989 (Unit 726), filed as exhibit 10-94 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-46 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc.
dated November 28, 1989 (Rivera, Arizona), filed as exhibit 10-95 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-47 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc.
General Release and Continuing Guaranty each dated January 9, 1990 (I-8 Business
Loop), filed as exhibit 10-96 to the Company's Form 10-K Annual Report as
amended for fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-48 Conditional Assignment of Lease dated November 7, 1990 between CLK, Inc. and
Carl Karcher Enterprises, Inc. (Unit 770), filed as exhibit 10-97 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-49 Conditional Assignment of Lease dated November 7, 1990 between CLK, Inc. and
Carl Karcher Enterprises, Inc. (Unit 771), filed as exhibit 10-98 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-50 Franchise Agreement dated November 12, 1990 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 873), filed as exhibit 10-99 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and
is hereby incorporated by reference.
</TABLE>
E-4
<PAGE> 47
<TABLE>
<S> <C>
10-51 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release and
Continuing Guaranty each dated November 13, 1990 (Unit 873), filed as exhibit
10-100 to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-52 Conditional Assignment of Lease dated December 18, 1990 by and between CLK, Inc.
and Carl Karcher Enterprises, Inc. (Unit 726), filed as exhibit 10-101 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-53 Development Agreement dated March 22, 1991 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher, filed as exhibit 10-102 to the Company's Form 10-K
Annual Report as amended for fiscal year ended January 27, 1992, and is hereby
incorporated by reference.
10-54 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc.
Release and Continuing Guaranty each dated April 5, 1991, filed as exhibit
10-103 to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-55 Franchise Development Agreement dated December 15, 1991 by and between Carl
Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment to
Franchise Development Agreement dated December 17, 1991, filed as exhibit 10-104
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-56 Assignment of Franchise Development Agreement by Carl Leo Karcher to CLK, Inc.,
Release and Continuing Guaranty each dated December 16, 1991, filed as exhibit
10-105 to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-57 Franchise Agreement dated December 16, 1991 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 7013/433), filed as exhibit 10-107 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-58 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc.
Release and Continuing Guaranty each dated December 16, 1991, filed as exhibit
10-108 to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-59 Sublease Agreement dated December 16, 1991 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher, as amended by the First Amendment to Sublease dated
December 24, 1991, filed as exhibit 10-109 to the Company's Form 10-K Annual
Report as amended for fiscal year ended January 27, 1992, and is hereby
incorporated by reference.
10-60 Promissory Note executed by Carl Leo Karcher in favor of Carl Karcher
Enterprises, Inc, filed as exhibit 10- 110 to the Company's Form 10-K Annual
Report as amended for fiscal year ended January 27, 1992, and is hereby
incorporated by reference.
10-61 Security Agreement dated December 16, 1991 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 7013/433), filed as exhibit 10-111 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-62 Franchise Agreement dated January 10, 1992 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Havasu), filed as exhibit 10-112 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and
is hereby incorporated by reference.
10-63 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release and
Continuing Guaranty each dated January 10, 1992, filed as exhibit 10-113 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
</TABLE>
E-5
<PAGE> 48
<TABLE>
<S> <C>
10-64 Franchise Agreement dated January 20, 1992 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 7038), filed as exhibit 10-114 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and
is hereby incorporated by reference.
10-65 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release and
Continuing Guaranty each dated January 20, 1992, filed as exhibit 10-115 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-66 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Loren C. Pannier, filed as exhibit 10-118 to the Company's
Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby
incorporated by reference.(2)
10-67 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Rory J. Murphy, filed as exhibit 10-119 to the Company's
Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby
incorporated by reference.(2)
10-68 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Richard C. Celio, filed as exhibit 10-120 to the Company's
Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby
incorporated by reference.(2)
10-69 Employment Agreement dated February 1, 1993 by and between Carl Karcher
Enterprises, Inc. and Kerry W. Coin, filed as exhibit 10-122 to the Company's
Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby
incorporated by reference.(2)
10-70 Carl Karcher Enterprises, Inc. 1993 Employee Stock Incentive Plan, filed as
exhibit 10-123 to the Company's Form 10-K Annual Report for fiscal year ended
January 25, 1993, and is hereby incorporated by reference.(2)
10-71 Franchise Agreement dated April 7, 1993, between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (Unit 7085), filed as exhibit 10-85 to the Company's Form
10-K Annual Report for fiscal year ended January 31, 1994, and is hereby
incorporated by reference.
10-72 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release and
continuing Guaranty, each dated April 7, 1993, filed as exhibit 10-86 to the
Company's Form 10-K Annual Report for fiscal year ended January 31, 1994, and is
hereby incorporated by reference.
10-73 Employment Agreement dated January 1, 1994, by and between Carl Karcher
Enterprises, Inc. and Carl N. Karcher, filed as exhibit 10-89 to the Company's
Form 10-K Annual Report for fiscal year ended January 31, 1994, and is hereby
incorporated by reference.
10-74 Form of Development and Franchise Agreement dated January 14, 1994, by and
between Carl Karcher Enterprises, Inc. and Boston Chicken, Inc.(3)
10-75 Addendum No. 1 to Boston Chicken, Inc. Franchise Agreement, by and between Carl
Karcher Enterprises, Inc. and Boston Chicken, Inc, filed as exhibit 10-91 to the
Company's Form 10-K Annual Report for fiscal year ended January 31, 1994, and is
hereby incorporated by reference.
10-76 Addendum No. 1 to Boston Chicken, Inc. Area Development Agreement dated January
14, 1994, by and between Carl Karcher Enterprises, Inc. and Boston Chicken,
Inc., filed as exhibit 10-92 to the Company's Form 10-K Annual Report for fiscal
year ended January 31, 1994, and is hereby incorporated by reference.
10-77 CKE Restaurants, Inc. 1994 Stock Incentive Plan, incorporated herein by
reference to exhibit 99 to the Registrant's Form S-8 Registration Statement
Number 33-55337.(2)
10-78 CKE Restaurants, Inc. 1994 Employee Stock Purchase Plan, incorporated herein by
reference to exhibit 99 to the Registrant's Form S-8 Registration Statement
Number 33-56313.(2)
10-79 Business Loan Agreement dated October 31, 1994, by and between CKE Restaurants,
Inc., Carl Karcher Enterprises, Inc., Boston Pacific, Inc. and Bank of America
National Trust and Savings Association.(1)
</TABLE>
E-6
<PAGE> 49
<TABLE>
<S> <C>
10-80 Continuing Guaranty dated October 31, 1994, by and between CKE Restaurants, Inc.
and Bank of America National Trust and Savings Association.(1)
10-81 Amendment No. One to Loan Agreement dated April 5, 1995, by and between CKE
Restaurants, Inc., Carl Karcher Enterprises, Inc., Boston Pacific, Inc. and Bank
of America National Trust and Savings Association.(1)
10-82 Amendment No. Two and Waiver to Business Loan Agreement dated April 28, 1995, by
and between CKE Restaurants, Inc., Carl Karcher Enterprises, Inc. and Bank of
America National Trust and Savings Association.(1)
10-83 Employment Agreement dated November 8, 1994, by and between Carl Karcher
Enterprises, Inc. and Thomas Thompson.(1)(2)
10-84 Agreement to Contribute Assets dated April 17, 1995 by and between Boston West,
L.L.C. and Boston Pacific, Inc.(1)
10-85 Amended and Restated Limited Liability Company Agreement of Boston West, L.L.C.
(a Delaware Limited Liability Company) dated April 16, 1995.(1)
11-1 Computation of Earnings Per Share.(1)
12-1 Computation of Ratios.(1)
21-1 Subsidiaries of Registrant.(1)
23-1 Consent of KPMG Peat Marwick LLP.(1)
27-1 Financial Data Schedule (included only with electronic filing).
</TABLE>
- ---------------
(1) Filed herewith.
(2) A management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.
(3) Incorporated by reference to Exhibit 99 to Boston Chicken, Inc.'s
Registration Statement on Form S-1, file No. 33-69256, filed by Boston
Chicken, Inc. on September 22, 1993.
E-7
<PAGE> 1
EXHIBIT 10-79
BUSINESS LOAN AGREEMENT
This Agreement dated as of October 31, 1994, is among Bank of
America National Trust and Savings Association (the "Bank"), CKE Restaurants,
Inc. ("CKR"), Carl Karcher Enterprises, Inc. ("CKE") and Boston Pacific, Inc.
("BPI"). CKR, CKE and BPI are sometimes referred to collectively as the
"Borrowers" and individually as the "Borrower").
1. LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount
(a) During the availability period described
below, the Bank will provide a line of credit to the
Borrowers. The amount of the line of credit (the
"Commitment") is Sixty Five Million Dollars ($65,000,000).
(b) This is a revolving line of credit with a
within line facility for letters of credit. During the
availability period, the borrowers may repay principal amounts
and reborrow them; provided, however, that direct advances
outstanding under this line of credit may not exceed Fifty
Million Dollars ($50,000,000) at any time.
(c) Each advance must be for at least One Hundred
Thousand Dollars ($100,000), or for the amount of the
remaining available line of credit, if less.
(d) The Borrowers agree not to permit the
outstanding principal balance of the line of credit plus the
outstanding amounts of any letters of credit, including
amounts drawn on letters of credit and not yet reimbursed, to
exceed the Commitment.
1.2 Availability Period. The line of credit is available
between the date of this Agreement and January 27, 1997 (the "Expiration
Date"), unless any Borrower is in default.
1.3 Interest Rate
(a) Unless the Borrowers elect an optional
interest rate as described below, the interest rate is the
Bank's Reference Rate.
(b) The Reference Rate is the rate of interest
publicly announced from time to time by the Bank in San
Francisco, California, as its Reference Rate. The Reference
Rate is set by the Bank based on various factors, including
the Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point
for pricing some loans. The Bank may price loans to its
customers at, above, or below the Reference Rate. Any change
in the Reference Rate shall take effect at the opening of
business on the day specified in the public announcement of a
change in the Bank's Reference Rate.
- 1 -
<PAGE> 2
1.4 Repayment Terms
(a) The Borrowers will pay interest on any
principal outstanding on November 1, 1994, and then monthly
thereafter until payment in full of any principal outstanding
under this line of credit.
(b) The Borrowers will repay in full all
principal and any unpaid interest or other charges outstanding
under this line of credit no later than the Expiration Date.
Any amount bearing interest at an optional interest rate (as
described below) may be repaid at the end of the applicable
interest period, which shall be no later than the Expiration
Date.
1.5 Optional Interest Rates. Instead of the interest
rate based on the Bank's Reference Rate, the Borrowers may elect to have all or
portions of the line of credit (during the availability period bear interest at
the rate described below during an interest period agreed to by the Bank and
the Borrowers. Each interest rate is a rate per year. Interest will be paid
on the first day of each month and on the last day of each interest period. At
the end of any interest period, the interest rate will revert to the rate based
on the Reference Rate, unless the Borrowers have designated another optional
interest rate for the portion. Upon the occurrence of an event of default
under this Agreement and expiration of any applicable cure period, the Bank may
terminate the availability of optional interest rates for interest periods
commencing after the default occurs.
1.6 Offshore Rate. The Borrowers may elect to have all
or portions of the principal balance of the line of credit bear interest at the
Offshore Rate plus 1.50 percentage points.
(a) The interest period during which the Offshore
Rate will be in effect will be no shorter than 30 days and no
longer than 180 days. The last day of the interest period
will be determined by the Bank using the practices of the
offshore dollar inter-bank market.
(b) Each Offshore Rate portion will be for an
amount not less than Five Hundred Thousand Dollars ($500,000).
(c) The "Offshore Rate" means the interest rate
determined by the following formula, rounded upward to the
nearest 1/100 of one percent. (All amounts in the calculation
will be determined by the Bank as of the first day of the
interest period.)
Offshore Rate = Grand Cayman Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the
interest rate (rounded upward to the nearest 1/16th
of one percent) at which the Bank's Grand Cayman
Branch, Grand Cayman, British West Indies, would
offer U.S.
- 2 -
<PAGE> 3
dollar deposits for the applicable interest period to
other major banks in the offshore dollar inter-bank
market.
(ii) "Reserve Percentage" means the total
of the maximum reserve percentages for determining
the reserves to be maintained by member banks of the
Federal Reserve System for Eurocurrency Liabilities,
as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent.
The percentage will be expressed as a decimal, and
will include, but not be limited to, marginal,
emergency, supplemental, special, and other reserve
percentages.
(d) The Borrowers may not elect an Offshore Rate
with respect to any portion of the principal balance of the
line of credit which is scheduled to be repaid before the last
day of the applicable interest period.
(e) Any portion of the principal balance of the
line of credit already bearing interest at the Offshore Rate
will not be converted to a different rate during its interest
period.
(f) Each prepayment of an Offshore Rate portion,
whether voluntary, by reason of acceleration or otherwise,
will be accompanied by the amount of accrued interest on the
amount prepaid, and a prepayment fee equal to the amount (if
any) by which
(i) the additional interest which would
have been payable on the amount prepaid had it not
been paid until the last day of the interest period,
exceeds
(ii) the interest which would have been
recoverable by the Bank by placing the amount prepaid
on deposit in the offshore dollar market for a period
starting on the date on which it was prepaid and
ending on the last day of the interest period for
such portion.
(g) The Bank will have no obligation to accept an
election for an Offshore Rate portion if any of the following
described events has occurred and is continuing:
(i) Dollar deposits in the principal
amount, and for periods equal to the interest period,
of an Offshore Rate portion are not available in the
offshore Dollar inter-bank market; or
(ii) the Offshore Rate does not
accurately reflect the cost of an Offshore
Rate portion.
1.7 Letters of Credit. This line of credit may be used
for financing:
- 3 -
<PAGE> 4
(i) commercial letters of credit with a
maximum maturity not to extend beyond the Expiration
Date. Each commercial letter of credit will require
drafts payable at sight.
(ii) standby letters of credit with a
maximum maturity not to extend beyond the Expiration
Date.
(iii) the amount of the letters of credit
outstanding at any one time (including amounts drawn
on letters of credit and not yet reimbursed) may not
exceed Seventeen Million Dollars ($17,000,000).
Each Borrower agrees:
(a) any sum drawn under a letter of credit may,
at the option of the Bank, be added to the principal amount
outstanding under this Agreement. The amount will bear
interest and be due as described elsewhere in this Agreement.
(b) if there is a default under this Agreement
including the expiration of any applicable cure period, to
immediately prepay and make the Bank whole for any outstanding
letters of credit.
(c) the issuance of any letter of credit and any
amendment to a letter of credit is subject to the Bank's
written approval and must be in form and content satisfactory
to the Bank and in favor of a beneficiary acceptable to the
Bank.
(d) to sign the Bank's form Application and
Agreement for Commercial Letter of Credit or Application and
Agreement for Standby Letter of Credit.
(e) to pay any issuance and/or other fees that
the Bank notifies the Borrowers will be charged for issuing
and processing letters of credit for the Borrowers.
(f) to allow the Bank to automatically charge its
checking account for applicable fees, discounts, and other
charges.
(g) if the line of credit is terminated for any
reason, Borrowers will immediately deliver to the Bank as
collateral, cash or cash equivalents acceptable to the Bank,
in the amount of all outstanding letters of credit (including
amounts drawn on letters of credit and not yet reimbursed),
together with such security agreements as Bank may require.
- 4 -
<PAGE> 5
2. FEES AND EXPENSES
2.1 Fees
(a) Loan fee. The Borrowers agree to pay a One
Hundred Twenty-Five Thousand Dollar ($125,000) fee due on the
date of execution of this Agreement.
(b) Unused Commitment Fee. The Borrowers agree
to pay a fee on any difference between the Commitment and the
amount of credit the Borrowers actually use (including all
outstanding letter of credit), determined by the weighted
average loan balance maintained during the specified period.
The fee will be calculated at 1/8% per year.
This fee is payable quarterly in arrears, commencing with the
quarter ending November 7, 1994, until the expiration of the
availability period.
(d) Waiver Fee. If the Bank, at its discretion,
agrees to waive or amend any terms of this Agreement, then the
Borrowers will pay the Bank a fee for each waiver or
amendment. Nothing in this paragraph shall imply that the
Bank is obligated to agree to any waiver or amendment
requested by the Borrowers. The Bank may impose additional
requirements as a condition to any waiver or amendment.
2.2 Expenses. The Borrowers agree to reimburse the Bank
for any expenses it incurs in the preparation of this Agreement and any
agreement or instrument required by this Agreement. Expenses include, but are
not limited to, reasonable attorneys' fees, including any allocated costs of
the Bank's in-house counsel.
3. DISBURSEMENTS, PAYMENTS AND COSTS
3.1 Requests for Credit. Each request for an extension
of credit will be made in writing in a manner acceptable to the Bank, or by
another means acceptable to the Bank.
3.2 Disbursements and Payments. Each disbursement by the
Bank and each payment by the Borrowers will be:
(a) made at the Bank's branch (or other location)
selected by the Bank from time to time;
(b) made for the account of the Bank's branch
selected by the Bank from time to time;
(c) made in immediately available funds, or such
other type of funds selected by the Bank;
- 5 -
<PAGE> 6
(d) evidenced by records kept by the Bank. In
addition, the Bank may, at its discretion, require the
Borrowers to sign one or more promissory notes.
3.3 Telephone and Telefax Authorization
(a) The Bank may honor telephone or telefax
instructions for advances or repayments or for the designation
of optional interest rates or the issuance of letters of
credit given by any one of the individual signer(s) of this
Agreement or a person or persons authorized by any one of the
signer(s) of this Agreement.
(b) Advances will be deposited in and repayments
will be withdrawn from CKE's account number 14585-20411, or
such other accounts with the Bank as designated in writing by
the Borrowers.
(c) The Borrowers indemnify and excuse the Bank
(including its officers, employees, and agents) from all
liability, loss, and costs in connection with any act
resulting from telephone or telefax instructions it reasonably
believes are made by any individual authorized by the
Borrowers to give such instructions. This indemnity and
excuse will survive this Agreement's termination.
3.4 Direct Debit (Pre-Billing)
(a) The Borrowers agree that the Bank will debit
the CKE's account number 14585-20411, or such other of the
Borrowers' accounts with the Bank as designated in writing by
the Borrowers (the "Designated Account") on the date each
payment of principal and interest and any fees from the
Borrowers becomes due (the "Due Date"). If the Due Date is
not a banking day, the Designated Account will be debited on
the next banking day.
(b) Approximately 5 days prior to each Due Date,
the Bank will mail to the Borrowers a statement of the amounts
that will be due on that Due Date (the "Billed Amount"). The
calculation will be made on the assumption that no new
extensions of credit or payments will be made between the date
of the billing statement and the Due Date, and that there will
be no changes in the applicable interest rate.
(c) The Bank will debit the Designated Account
for the Billed Amount, regardless of the actual amount due on
that date (the "Accrued Amount"). If the Billed Amount
debited to the Designated Account differs from the Accrued
Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than
the Accrued Amount, the Billed Amount for the
following Due Date will be increased by the amount of
the discrepancy. The Borrowers will not be in
default by reason of any such discrepancy.
- 6 -
<PAGE> 7
(ii) If the Billed Amount is more than
the Accrued Amount, the Billed Amount for the
following Due Date will be decreased by the amount
of the discrepancy.
Regardless of any such discrepancy, interest will continue to
accrue based on the actual amount of principal outstanding
without compounding. The Bank will not pay the Borrowers
interest on any overpayment.
(d) The Borrowers will maintain sufficient funds
in the Designated Account to cover each debit. If there are
insufficient funds in the Designated Account on the date the
Bank enters any debit authorized by this Agreement, the debit
will be reversed.
3.5 Banking Days. Unless otherwise provided in this
Agreement, a banking day is a day other than a Saturday or a Sunday on which
the Bank is open for business in California. For amounts bearing interest at
an offshore rate (if any), a banking day is a day other than a Saturday or a
Sunday on which the Bank is open for business in California and dealing in
offshore dollars. All payments and disbursements which would be due on a day
which is not a banking day will be due on the next banking day. All payments
received on a day which is not a banking day will be applied to the credit on
the next banking day.
3.6 Additional Costs. The Borrowers will pay the Bank,
on demand, for the Bank's costs or losses arising from any statute or
regulation, or any request or requirement of a regulatory agency which is
applicable to all national banks or a class of all national banks. The costs
and losses will be allocated to the loan in a manner determined by the Bank,
using any reasonable method. The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the
Bank's assets and commitments for credit.
3.7 Interest Calculation. Except as otherwise stated in
this Agreement, all interest and fees, if any, will be computed on the basis of
a 360-day year and the actual number of days elapsed. This results in more
interest or a higher fee than if a 365-day year is used.
3.8 Interest on Late Payments. At the Bank's sole option
in each instance, any amount not paid when due under this Agreement (including
interest) shall bear interest from the due date at the Bank's Reference Rate
plus two (2) percentage points. This may result in compounding of interest.
3.9 Default Rate. Upon the occurrence and during the
continuation of any default under this Agreement, advances under this Agreement
will at the option of the Bank bear interest at a rate which is two (2)
percentage points higher than the rate of interest otherwise provided under
this Agreement. This will not constitute a waiver of any default.
- 7 -
<PAGE> 8
4. CONDITIONS
The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any credit to the
Borrowers under this Agreement:
4.1 Authorizations. Evidence that the execution,
delivery and performance by each Borrower (and each guarantor) of this
Agreement and any instrument or agreement required under this Agreement have
been duly authorized.
4.2 Governing Documents. A copy of each Borrower's
articles of incorporation.
4.3 Guaranties. Guaranty signed by CKE, in the amount of
Three Million Eight Hundred Fifty-Two Thousand Dollars ($3,852,000),
guarantying the obligations of CKE under that certain Reimbursement Agreement
dated as of September 23, 1994, between the Bank and CKE ("Reimbursement
Agreement").
4.4 Good Standing. Certificates of good standing for
each Borrower from its state of incorporation and from any other state in which
such Borrower is required to qualify to conduct its business.
4.5 Payment of Fees. Payment of all accrued and unpaid
expenses incurred by the Bank as required by the paragraph 2.1.
4.6 Other Items. Any other items that the Bank
reasonably requires.
5. REPRESENTATIONS AND WARRANTIES
When the Borrowers sign this Agreement, and until the Bank is
repaid in full, each Borrower makes the following representations and
warranties. Each request for an extension of credit constitutes a renewed
representation:
5.1 Organization of Borrowers. Each Borrower is a
corporation duly formed and existing under the laws of the state where
organized.
5.2 Authorization. This Agreement, and any instrument or
agreement required hereunder, are within each Borrower's powers, have been duly
authorized, and do not conflict with any of its organizational papers.
5.3 Enforceable Agreement. This Agreement is a legal,
valid and binding agreement of each Borrower, enforceable against each Borrower
in accordance with its terms, and any instrument or agreement required
hereunder, when executed and delivered, will be similarly legal, valid, binding
and enforceable, except as may be limited by laws of equity or insolvency.
5.4 Good Standing. In each state in which each Borrower
does business, it is properly licensed, in good standing, and, where required,
in compliance with fictitious name statutes.
- 8 -
<PAGE> 9
5.5 No Conflicts. This Agreement does not, in any
material respect, conflict with any law, agreement, or obligation by which any
Borrower is bound.
5.6 Financial Information. All financial and other
information that has been or will be supplied to the Bank, is:
(a) sufficiently complete to give the Bank
accurate knowledge of the Borrowers' (and any guarantor's)
financial condition.
(b) in form and content reasonably required by
the Bank.
(c) in compliance with all material government
regulations that apply.
5.7 Lawsuits. There is no lawsuit, tax claim or other
dispute pending or to its knowledge threatened against any Borrower which, if
lost, would impair the borrowers' or any Borrower's financial condition or
ability to repay the loan, except as have been disclosed in writing to the
Bank.
5.8 Permits, Franchises. Each Borrower possesses all
material permits, memberships, franchises, contracts and licenses required and
all trademark rights, trade name rights, patent rights and fictitious name
rights necessary to enable it to conduct the business in which it is now
engaged.
5.9 Other Obligations. No Borrower is in default, in any
material respect, on any obligation for borrowed money, any purchase money
obligation or any other material lease, commitment, contract, instrument or
obligation, except as have been disclosed in writing to the Bank.
5.10 Income Tax Returns. No Borrower has any knowledge of
any pending assessments or adjustments of its income tax for any year, except
as have been disclosed in writing to the Bank.
5.11 No Event of Default. There is no event which is, or
with notice or lapse of time or both would be, a default under this Agreement.
5.12 ERISA Plans.
(a) Each Borrower has fulfilled its obligations,
if any, under the minimum funding standards of ERISA and the
Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions
of ERISA and the Code, and has not incurred any liability
with respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under
Section 4043(b) of ERISA for which the PBGC requires 30 day
notice.
- 9 -
<PAGE> 10
(c) No action by any Borrower to terminate or
withdraw from any Plan has been taken and no notice of intent
to terminate a Plan has been filed under Section 4041 of
ERISA.
(d) No proceeding has been commenced with respect
to a Plan under Section 4042 of ERISA, and no event has
occurred or condition exists which might constitute grounds
for the commencement of such a proceeding.
(e) The following terms have the meanings
indicated for purposes of this Agreement:
(i) "Code" means the Internal Revenue Code
of 1986, as amended from time to time.
(ii) "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended
from time to time.
6. COVENANTS
The Borrowers agree, so long as credit is available under this
Agreement and until the Bank is repaid in full:
6.1 Use of Proceeds. To use the proceeds of the credit
only for working capital, restaurant development costs and for other general
corporate purposes.
6.2 Use of Proceeds - Ineligible Securities. Not to use,
directly or indirectly, any portion of the proceeds of the credit (including
any letters of credit) for any of the following purposes:
(a) knowingly to purchase Ineligible Securities
from BA Securities, Inc. (the "Arranger") during any period in
which the Arranger makes a market in such Ineligible
Securities; or
(b) knowingly to purchase during the underwriting
or placement period Ineligible Securities being underwritten
or privately placed by the Arranger; or
(c) to make payments of principal, interest or
dividends on Ineligible Securities underwritten or privately
placed by the Arranger and issued by or for the benefit of any
Borrower or any affiliate of any Borrower. The occasional use
of the proceeds of this credit for seasonal needs or cash
management would not ordinarily constitute the use of the
proceeds for the making of payments within the meaning of this
subparagraph.
"Ineligible Securities" means securities which may not be
underwritten or dealt in by member banks of the Federal
Reserve System under Section 16 of the Banking Act of 1933 (12
U.S.C. Section 24, Seventh), as amended. The Arranger is a
wholly- owned subsidiary of BankAmerica Corporation, and is a
registered
- 10 -
<PAGE> 11
broker-dealer which is permitted to underwrite and deal in certain
Ineligible Securities.
6.3 Financial Information. To provide the following
financial information and statements and such additional information as
requested by the Bank from time to time:
(a) Within 100 days of CKR's fiscal year end,
CKR's annual consolidated and consolidating financial
statements. The consolidated annual financial statements must
be audited (with an unqualified opinion) by a Certified Public
Accountant ("CPA") acceptable to the Bank. The statements
shall be prepared on a consolidated and consolidating basis
for the CKR and its subsidiaries. CKR's consolidating
statement may be Borrower prepared.
(b) Within 50 days of the period's end, CKR's
quarterly financial statements. These financial statements
may be Borrower prepared. The statements shall be prepared on
a consolidated and consolidating basis.
(c) Within 30 days after the end of each four (4)
week operating period, a copy of CKE's and BPI's prepared
summary operating statement describing variances from the
business plan required under Paragraph 6.2(e).
(d) Copies of the CKR's Form 10-K Annual Report
within 100 days of CKR's fiscal year end, Form 10-Q Quarterly
Report within 50 days of the end of each fiscal quarter, and
Form 8-K Current Report within 15 days after the date of
filing with Securities and Exchange Commission.
(e) Within 100 days of each fiscal year end,
CKR's consolidated and consolidating financial forecast by
fiscal quarter for the next fiscal year, and on a fiscal year
end basis for the following four fiscal years. Financial
forecast to include balance sheet, operating statement
(including components of other income), operating cash flow
statement, and a schedule showing compliance with all
financial covenants; and for the immediately succeeding fiscal
year, and detailed capital budget report.
(f) Within the period(s) provided in (a) and (b)
above, a compliance certificate signed by an authorized
financial officer of the borrowers setting forth (i) the
information and computations (in sufficient detail) to
establish that the Borrowers are in compliance with all
financial covenants at the end of the period covered by the
financial statements then being furnished and (ii) whether
there existed as of the date of such financial statements and
whether there exists as of the date of the certificate, any
default under this Agreement and, if any such default exists,
specifying the nature thereof and the action the Borrowers are
taking and propose to take with respect thereto.
(g) Such other information as Bank may reasonably
request.
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<PAGE> 12
6.4 Fixed Charge Coverage Ratio. To maintain a Fixed
Charge Coverage Ratio, determined on a consolidated basis, of not less than the
ratio indicated at the end of each fiscal period as specified below:
<TABLE>
<CAPTION>
Fiscal Period Ending Ratio
-------------------- -----
<S> <C>
at third quarter 1995,
calculated on a year to date
basis .60:1.00
at fiscal year end 1995, and
at first quarter 1996, calculated
on a Four Quarter Rolling Basis .85:1.00
at second quarter 1996, and
at third quarter 1996, calculated
on a Four Quarter Rolling Basis 1.00:1.00
at fiscal year end 1996, and
at first quarter 1997, calculated
on a Four Quarter Rolling Basis 1.15:1.00
at second quarter 1997, and
thereafter, calculated on a
Four Quarter Rolling Basis 1.25:1.00
</TABLE>
For purposes of this Agreement, 'Fixed Charge Coverage Ratio'
means the following calculation, expressed as a ratio for any
fiscal period: (a) EBITDA less the net gain realized on sales
of fixed assets (or the EBITDA less the net loss incurred on
sales of fixed assets), less unfinanced capital expenditures
of CKE, less taxes and less dividends divided by (b) the sum
of (i) interest expense, (ii) current portion of long-term
debt and (iii) current portion of capital leases. The current
portion of long term debt and the current portion of capital
leases will be the amount shown on the balance sheet as of the
end of each quarter, except that for the third quarter of
fiscal year 1995, the amount used in this ratio will be 75% of
the amount shown on the balance sheet for such period.
'EBITDA' means earnings before interest and tax expense,
depreciation amortization, and other non-cash charges. This
ratio shall be calculated quarterly using a Four Quarter
Rolling Basis, except for the third quarter of fiscal year
1995, which will be calculated on a year-to-date basis. 'Four
Quarter Rolling Basis' shall mean the four quarters calculated
using the results of the fiscal quarter then most recently
ended and the immediately preceding three (3) quarters."
6.5 Net Worth. To maintain, on a consolidated basis
determined at the end of each quarter, Net Worth equal to at least the amounts
indicated for each period specified below:
- 12 -
<PAGE> 13
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
at end of second quarter 1995 $92,000,000
at end of third quarter 1995 $93,000,000
at fiscal year end 1995 $94,000,000
at end of second quarter 1996 $96,000,000
at fiscal year end 1996 $101,000,000
</TABLE>
For the purpose of this Agreement, "Net Worth" for CKR and its
subsidiaries, on a consolidated basis, shall mean the total
amount of shareholders' equity shown on the balance sheet at
the end of each fiscal quarter or fiscal year end, as the case
may be, plus the aggregate amount of stock repurchases
permitted under this Agreement.
6.6 Minimum Operating Income. With respect to BPI, to
earn on an unconsolidated basis, operating income of at least the amount shown
(or not to exceed an operating loss shown) for each period specified below:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Fiscal year end 1995 ($2,500,000)
Thereafter through second
quarter 1996 $1,400,000
Thereafter through
fiscal year end 1996 $3,532,000
Thereafter through
second quarter 1997 $4,384,000
</TABLE>
For purposes of this Agreement, with respect to BPI,
"Operating Income" means income before tax expense, interest
expense, CKR overhead allocation expense, non-operating income
or expense and taxes.
6.7 Capital Expenditures. With respect to BPI, not to
spend more than the amount indicated for each period specified below to acquire
fixed or capital assets:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Through fiscal year end 1995 $22,000,000
Thereafter through the end
of second quarter 1996 $20,000,000
</TABLE>
- 13 -
<PAGE> 14
<TABLE>
<S> <C>
Thereafter through fiscal
year end 1996 $42,000,000
</TABLE>
6.8 Other Debts. Not to have outstanding or incur any
direct or contingent debts (other than those to the Bank), or become liable for
the debts of others without the Bank's written consent. This does not
prohibit:
(a) Acquiring goods, supplies, or merchandise
on normal trade credit.
(b) Endorsing negotiable instruments received in
the usual course of business.
(c) Obtaining surety bonds in the usual course of
business.
(d) Debt and lines of credit having a maturity of
one year or less which do not exceed a total amount of Five
Hundred Thousand Dollars ($500,000) outstanding at any one
time.
(e) Additional debts (including capital lease
obligations) for the acquisition of real property or the
refinancing thereof so long as the net proceeds of any
refinancing are applied to reduce any amounts outstanding
under this line of credit.
(f) Addition debts for the acquisition of
personal property not to exceed Eighteen Million Dollars
($18,000,000) or the refinancing thereof so long as the net
proceeds of any refinancing are applied to reduce any amounts
outstanding under this line of credit.
(g) Debts and contingent liabilities and leases
in existence on the date of this Agreement and disclosed in
writing to the Bank.
(h) CKE's obligations owing to the CIT
Group/Equipment Financing, Inc. under that certain Program
agreement dated as of March 9, 1992, as such agreement is in
effect on the date hereof; provided, however:
(i) the total amount of all such
obligations incurred in any fiscal year of CKE may
not exceed Five Million Dollars ($5,000,000); and
(ii) the total amount of all such
obligations may not exceed Ten Million Dollars
($10,000,000).
(i) Contingent debts not to exceed $17,000,000 in
the aggregate, including obligations under Paragraphs 6.8(g)
and 6.8(h).
6.9 Other Liens. Not to create, assume, or allow any
security interest or lien (including judicial liens) on any property any
Borrower now or later owns, except:
- 14 -
<PAGE> 15
(a) Deeds of trust and security agreements in
favor of the Bank.
(b) Liens of taxes not yet due.
(c) Liens outstanding on the date of this
Agreement disclosed in writing to the Bank.
(d) Additional purchase money security interests
in personal or real property acquired after the date of this
Agreement.
(e) Liens relating to the refinancing of real
property or equipment held as long term assets.
6.10 Stock Redemption. Nor to expend funds for the
redemption of capital stock of CKR in excess of Five Million Dollars
($5,000,000).
6.11 Profitability. To maintain on a consolidated basis a
positive net income before taxes and extraordinary items for each quarterly
accounting period, except that for the first fiscal quarter of fiscal year
1996, Borrower shall not suffer a net loss before taxes and extraordinary items
in excess of Seven Hundred Fifty Thousand Dollars ($750,000).
6.12 Change of Ownership. Not to cause, permit, or suffer
any change, direct or indirect, in CKR's ownership in excess of 50%.
6.13 Notices to Bank. To promptly notify the Bank in
writing of:
(a) any lawsuit over One Million Thousand
Dollars ($1,000,000) against any Borrower.
(b) any substantial dispute between any Borrower
and any governmental authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrowers'
or in any Borrower's financial condition or operations.
(e) any change in any Borrower's name, legal
structure, place of business, or chief executive office.
6.14 Books and Records. To maintain adequate books and
records.
6.15 Audits. To allow the Bank and its agents to inspect
the Borrowers' properties and examine, audit and make copies of books and
records at any reasonable time. If any of the Borrowers' properties, books or
records are in the possession of a third party, the Borrowers authorize that
third party to permit the Bank or its agents to have access to perform
inspections or audits and to respond to the Bank's requests for information
concerning such properties, books and records.
- 15 -
<PAGE> 16
6.16 Compliance with Laws. To comply in all material
respects with the laws (including any fictitious name statute), regulations,
and orders of any government body with authority over each Borrower's business.
6.17 Preservation of Rights. To maintain and preserve all
rights, privileges, and franchises each Borrower now has.
6.18 Maintenance of Properties. To make any repairs,
renewals, or replacements to keep each Borrower's properties in good working
condition.
6.19 Cooperation. To take any action reasonably requested
by the Bank to carry out the intent of this Agreement.
6.20 Insurance. To maintain insurance as is usual for the
business it is in.
6.21 Additional Negative Covenants. Not to, without the
Bank's written consent:
(a) engage in any business activities
substantially different from the Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool,
joint venture, syndicate, or other combination.
(d) lease, or dispose of all or a substantial
part of the Borrower's business or the Borrower's assets
except in the ordinary course of the Borrower's business.
(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of any assets for
less than fair market value or enter into any sale and
leaseback agreement covering any of its existing real or
personal property unless the net proceeds of such transaction
are applied to reduce outstandings under this line of credit.
6.22 ERISA Plans. To give prompt written notice to the
Bank of:
(a) The occurrence of any reportable event under
Section 4043(b) of ERISA for which the PBGC requires 30 day
notice.
(b) Any action by the Borrower to terminate or
withdraw from a Plan or the filing of any notice of intent to
terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect
to Plan under Section 4041(b) of ERISA.
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<PAGE> 17
(d) The commencement of any proceeding with
respect to Plan under Section 4042 of ERISA.
6.23 Loans. Not to make any loans, advances or other
extensions of credit to any of Borrowers' executives, officers, directors,
shareholders of CKR or affiliates (other than to any Borrower) (or any
relatives of the foregoing) in excess of an aggregate amount of $100,000,
excluding affiliates notes receivable shown on the balance sheet at fiscal year
end 1994.
7. HAZARDOUS WASTE INDEMNIFICATION
The Borrowers will indemnify and hold harmless the Bank from
any loss or liability directly or indirectly arising out of the use,
generation, manufacture, production, storage, release, threatened release,
discharge, disposal or presence of a hazardous substance. This indemnity will
apply whether the hazardous substance is on, under or about the Borrowers'
property or operations or property leased to the Borrowers. The indemnity
includes but is not limited to attorneys' fees (including the reasonable
estimate of the allocated cost of in-house counsel and staff). The indemnity
extends to the Bank, its parent, subsidiaries and all of their directors,
officers, employees, agents, successors, attorneys and assigns. For these
purposes, the term "hazardous substances" means any substance which is or
becomes designated as "hazardous" or "toxic" under any federal, state or local
law. This indemnity will survive repayment of the Borrowers' obligations to
the Bank.
8. DEFAULT
If any of the following events occur, the Bank may do one or
more of the following: declare the Borrowers in default, stop making any
additional credit available to the Borrowers, and require the Borrowers to
repay its entire debt immediately and without prior notice. If a bankruptcy
petition is filed with respect to any Borrower, the entire debt outstanding
under this Agreement will automatically be due immediately.
8.1 Failure to Pay. Any Borrower fails to make a payment
under this Agreement within 5 days after the date when due.
8.2 False Information. Any Borrower has given the Bank
false or misleading information or representations, except for immaterial
clerical errors.
8.3 Bankruptcy. Any Borrower files a bankruptcy
petition, a bankruptcy petition is filed against any Borrower or any Borrower
makes a general assignment for the benefit of creditors. The default will be
deemed cured if any bankruptcy petition filed against any Borrower is dismissed
within a period of 60 days after the filing; provided, however, that the Bank
will not be obligated to extend any additional credit to the Borrowers during
that period.
8.4 Receivers. A receiver or similar official is
appointed for any Borrower's business, or the business is terminated.
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<PAGE> 18
8.5 Lawsuits. Any lawsuit or lawsuits are filed on
behalf of one or more trade creditors against any Borrower in an aggregate
amount of One Million Dollars ($1,000,000) or more in excess of any insurance
coverage.
8.6 Judgments. Any judgments or arbitration awards are
entered against any Borrower, or any Borrower enters into any settlement
agreements with respect to any litigation or arbitration, in an aggregate
amount of Three Million Dollars ($3,000,000) or more in excess of any insurance
coverage.
8.7 Government Action. Any government authority takes
action that the Bank believes materially adversely affects any Borrower's
financial condition or ability to repay.
8.8 Material Adverse Change. A material adverse change
occurs in any Borrower's financial condition, properties or prospects, or
ability to repay the loan.
8.9 Cross-default. Any default occurs under any
agreement in connection with any credit in excess of Five Hundred Thousand
Dollars ($500,000) any Borrower has obtained from anyone else or which any
Borrower has guaranteed.
8.10 Other Bank Agreements. Any Borrower fails to meet
the conditions of, or fails to perform any obligation under any other agreement
(including the Reimbursement Agreement) any Borrower has with the Bank or any
affiliate of the Bank.
8.11 ERISA Plans. The occurrence of any one or more of
the following events with respect to any Borrower, provided such event or
events could reasonably be expected, in the judgment of the Bank, to subject
any Borrower to any tax, penalty or liability (or any combination of the
foregoing) which, in the aggregate, could have a material adverse effect on the
financial condition of any Borrower with respect to a Plan:
(a) A reportable event shall occur with respect
to a Plan which is, in the reasonable judgment of the Bank
likely to result in the termination of such Plan for purposes
of Title IV of ERISA.
(b) Any Plan termination (or commencement of
proceedings to terminate a Plan) or any Borrower's full or
partial withdrawal from a Plan.
8.12 Other Breach Under Agreement. Any Borrowers fail to
meet the conditions of, or fails to perform any obligation under, any term of
this Agreement not specifically referred to in this Article. If, in the Bank's
opinion, the breach is capable of being remedied, the breach will not be
considered an event of default under this Agreement for a period of fifteen
(15) days after the date on which the Bank gives written notice of the breach
to the Borrowers; provided, however, that the Bank will not be obligated to
extend any additional credit to the Borrowers during that period.
8.13 Boston Chicken Franchise. Any violation of the
franchise development agreement with Boston Chicken Inc. which results in the
loss of the franchise and/or right to area exclusivity.
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<PAGE> 19
9. ENFORCING THIS AGREEMENT: MISCELLANEOUS
9.1 GAAP. Except as otherwise stated in this Agreement,
all financial information provided to the Bank and all financial covenants will
be made under generally accepted accounting principles, consistently applied.
9.2 California Law. This Agreement is governed by
California law.
9.3 Successors and Assigns. This Agreement is binding on
the Borrowers' and the Bank's successors and assignees. The Borrowers agree
that they may not assign this Agreement without the Bank's prior consent. The
Bank may sell participations in or assign this loan, and may exchange financial
information about the Borrowers with actual or potential participants or
assignees; provided that such actual or potential participants or assignees
shall agree to treat all financial information exchanged as confidential. If a
participation is sold or the loan is assigned, the purchaser will have the
right of set-off against the Borrowers.
9.4 Arbitration.
(a) This paragraph concerns the resolution of any
controversies or claims between any one or more of Borrowers
and the Bank, including but not limited to those that arise
from:
(i) This Agreement (including any
renewals, extensions or modifications of this
Agreement);
(ii) Any document, agreement or procedure
related to or delivered in connection with this
Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting
from any business conducted between any one or more
of Borrowers and the Bank, including claims for
injury to persons, property or business interests
(torts).
(b) At the request of any Borrower or the Bank,
any such controversies or claims will be settled by
arbitration in accordance with the United States Arbitration
Act. The United States Arbitration Act will apply even though
this Agreement provides that it is governed by California law.
(c) Arbitration proceedings will be administered
by the American Arbitration Association and will be subject to
its commercial rules of arbitration.
(d) For purposes of the application of the
statute of limitations, the filing of an arbitration pursuant
to this paragraph is the equivalent of the filing of a
lawsuit, and any claim or controversy which may be arbitrated
under this
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<PAGE> 20
paragraph is subject to any applicable statute of limitations.
The arbitrators will have the authority to decide whether any
such claim or controversy is barred by the statute of
limitations and, if so, to dismiss the arbitration on that
basis.
(e) If there is a dispute as to whether an issue
is arbitrable, the arbitrators will have the authority to
resolve any such dispute.
(f) The decision that results from an arbitration
proceeding may be submitted to any authorized court of law to
be confirmed and enforced.
(g) The procedure described above will not apply
if the controversy or claim, at the time of the proposed
submission to arbitration, arises from or relates to an
obligation to the Bank secured by real property located in
California. In this case, both the Borrowers and the Bank
must consent to submission of the claim or controversy to
arbitration. If all parties do not consent to arbitration,
the controversy or claim will be settled as follows:
(i) The Borrowers and the Bank will
designate a referee (or a panel of referees) selected
under the auspices of the American Arbitration
Association in the same manner as arbitrators are
selected in Association- sponsored proceedings;
(ii) The designated referee (or the panel
of referees) will be appointed by a court as provided
in California Code of Civil Procedure Section 638 and
the following related sections;
(iii) The referee (or the presiding
referee of the panel) will be an active attorney or a
retired judge; and
(iv) The award that results from the
decision of the referee (or the panel) will be
entered as a judgment in the court that appointed the
referee, in accordance with the provisions of
California Code of Civil Procedure Sections 644 and
645.
(h) This provision does not limit the right of
the Borrowers or the Bank to:
(i) exercise self-help remedies such as
setoff;
(ii) foreclose against or sell any real
or personal property collateral; or
(iii) act in a court of law, before,
during or after the arbitration proceeding to obtain:
(A) an interim remedy; and/or
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<PAGE> 21
(B) additional or supplementary
remedies.
(i) The pursuit of or a successful action for
interim, additional or supplementary remedies, or the filing
of a court action, does not constitute a waiver of the right
of the Borrowers or the Bank, including the suing party, to
submit the controversy or claim to arbitration if the other
party contests the lawsuit. However, if the controversy or
claim arises from or relates to an obligation to the Bank
which is secured by real property located in California at the
time of the proposed submission to arbitration, this right is
limited according to the provision above requiring the consent
of both the Borrowers and the Bank to seek resolution through
arbitration.
(j) If the Bank forecloses against any real
property securing this Agreement, the Bank has the option to
exercise the power of sale under the deed of trust or
mortgage, or to proceed by judicial foreclosure.
9.5 Severability; Waivers. If any part of this Agreement
is not enforceable, the rest of the Agreement may be enforced. The Bank
retains all rights, even if it makes a loan after default. If the Bank waives
a default, it may enforce a later default. Any consent or waiver under this
Agreement must be in writing.
9.6 Administration Costs. The Borrowers shall pay the
Bank for all reasonable costs incurred by the Bank in connection with
administering this Agreement.
9.7 Attorneys' Fees. The Borrowers shall reimburse the
Bank for any reasonable costs and attorneys' fees incurred by the Bank in
connection with the enforcement or preservation of any rights or remedies under
this Agreement and any other documents executed in connection with this
Agreement, and including any amendment, waiver, "workout" or restructuring
under this Agreement. In the event of a lawsuit or arbitration proceeding, the
prevailing party is entitled to recover costs and reasonable attorneys' fees
incurred in connection with the lawsuit or arbitration proceeding, as
determined by the court or arbitrator. As used in this paragraph, "attorneys'
fees" includes the allocated costs of the Bank's in-house counsel.
9.8 Joint and Several Liability.
(a) Each Borrower agrees that it is jointly and
severally liable to the Bank for the payment of all
obligations arising under this Agreement, and that such
liability is independent of the obligations of the other
Borrower(s). The Bank may bring an action against any
Borrower, whether an action is brought against the other
Borrower(s).
(b) Each Borrower agrees that any release which
may be given by the Bank to the other Borrower(s) or any
guarantor will not release such Borrower from its obligations
under this Agreement.
(c) Each Borrower waives any right to assert
against the Bank any defense, setoff, counterclaim, or claims
which such Borrower may have
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<PAGE> 22
against the other Borrower(s) or any other party liable to the
Bank for the obligations of the Borrowers under this Agreement.
(d) Each Borrower agrees that it is solely
responsible for keeping itself informed as to the financial
condition of the other Borrower(s) and of all circumstances
which bear upon the risk of nonpayment. Each Borrower waives
any right it may have to require the Bank to disclose to such
Borrower any information which the Bank may now or hereafter
acquire concerning the financial condition of the other
Borrower(s).
(e) Each Borrower waives all rights to notices of
default or nonperformance by any other Borrower under this
Agreement. Each Borrower further waives all rights to notices
of the existence or the creation of new indebtedness by any
other Borrower.
(f) The Borrowers represent and warrant to the
Bank that each will derive benefit, directly and indirectly,
from the collective administration and availability of credit
under this Agreement. The Borrowers agree that the Bank will
not be required to inquire as to the disposition by any
Borrower of funds disbursed in accordance with the terms of
this Agreement.
(g) Each Borrower waives any right of
subrogation, reimbursement, indemnification and contribution
(contractual, statutory or otherwise), including without
limitation, any claim or right of subrogation under the
Bankruptcy Code (Title 11 of the U.S. Code) or any successor
statute, which such Borrower may now or hereafter have against
any other Borrower with respect to the indebtedness incurred
under this Agreement. Each Borrower waives any right to
enforce any remedy which the Bank now has or may hereafter
have against any other Borrower, and waives any benefit of,
and any right to participate in, any security now or hereafter
held by the Bank.
9.9 One Agreement. This Agreement and any related
security or other agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and
agreements between the Bank and the Borrowers concerning this
credit;
(b) replace any prior oral or written agreements
between the Bank and the Borrowers concerning this credit; and
(c) are intended by the Bank and the Borrowers as
the final, complete and exclusive statement of the terms
agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
9.10 Notices. All notices required under this Agreement
shall be personally delivered or sent by first class mail, postage prepaid, to
the addresses on the signature page
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<PAGE> 23
of this Agreement, or to such other addresses as the Bank and the Borrowers may
specify from time to time in writing.
9.11 Headings. Article and paragraph headings are for
reference only and shall not affect the interpretation or meaning of any
provisions of this Agreement.
9.12 Counterparts. This Agreement may be executed in as
many counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
9.13 Prior Agreement Superseded. This Agreement
supersedes the Amended and Restated Credit Agreement entered into as of
November 20, 1992, as amended between the Bank and CKE, and any credit
outstanding thereunder shall be deemed to be outstanding under this Agreement.
9.14 Amendment to Note. CKE hereby amends that certain
Note: Principal in Installments with Interest Added executed by CKE in favor of
Bank on November 14, 1989, as amended, in the original principal sum of Thirty
Five Million Dollars ($35,000,000) ("Fixed Rate Note"), to read as follows:
"The Fixed Rate Note is subject to the terms and conditions of
the Business Loan Agreement dated as of October 31, 1994, as
it may be amended from to time; provided, further that if said
Business Loan Agreement is terminated prior to the maturity of
this Fixed Rate Note, this Fixed Rate Note shall be subject to
the terms and conditions of the Business Loan Agreement in
effect on the date of its termination."
This Agreement is executed as of the date stated at the top of
the first page.
BANK OF AMERICA NATIONAL CKE RESTAURANTS, INC.
TRUST AND SAVINGS ASSOCIATION
By: /s/ Deborah Miller By: /s/ Loren C. Pannier
-------------------------- ---------------------------------
Deborah Miller Loren C. Pannier
Title: Vice President Title: Sr. Vice President and CFO
------------------- --------------------------
By: By: /s/ Richard C. Celio
------------------------- ---------------------------------
Richard C. Celio
Title: Title: Vice President, General Counsel
----------------------- -------------------------------
Address where notices to the Bank are
to be sent:
3233 Park Center Dr., 5th Fl.
Costa Mesa, California 92626 (Signatures continue)
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<PAGE> 24
CARL KARCHER ENTERPRISES, INC.
By: /s/ C. T. Thompson
------------------------------------
C. T. Thompson
Title: President and COO
---------------------------------
By: /s/ Richard C. Celio
------------------------------------
Richard C. Celio
Title: Vice President, Corporate Counsel
---------------------------------
BOSTON PACIFIC, INC.
By: /s/ Kerry Coin
------------------------------------
Kerry Coin
Title: President and COO
---------------------------------
By: /s/ Richard C. Celio
------------------------------------
Richard C. Celio
Title: Vice President, General Counsel
---------------------------------
Address where notices to the Borrowers
are to be sent:
1200 North Harbor Blvd.
Anaheim, California 92803
- 24 -
<PAGE> 1
EXHIBIT 10-80
BORROWER: Carl Karcher Enterprises, Inc.
GUARANTOR: CKE Restaurants, Inc.
CONTINUING GUARANTY
To: Bank of America
National Trust and Savings Association
(1) For valuable consideration, the undersigned
("Guarantor") unconditionally guarantees and promises to pay to Bank of America
National Trust and Savings Association ("Bank"), or order, on demand, in lawful
money of the United States, any and all indebtedness of Carl Karcher
Enterprises. Inc. ("Borrower") to Bank. The word "indebtedness" as used herein
means any and all obligations and liabilities of Borrower to Bank arising under
that certain Reimbursement Agreement dated as of September 23, 1994, as amended
from time to time.
(2) The liability of Guarantor under this Guaranty
(exclusive of liability under any other guaranties executed by Guarantor) shall
not exceed at any one time the total of (a) Three Million Eight Hundred Fifty
Two Thousand Dollars ($3,852,000), for the principal amount of the indebtedness
and (b) all interest, fees, and other costs and expenses relating to or arising
out of the indebtedness or such part of the indebtedness as shall not exceed
the foregoing limitation. Bank may permit the indebtedness to exceed
Guarantor's liability, and may apply any amounts received from any source,
other than from Guarantor, to the unguaranteed portion of the indebtedness.
This is a continuing guaranty relating to any indebtedness, including that
arising under successive transactions which shall either continue the
indebtedness or from time to time renew it after it has been satisfied. Any
payment by Guarantor shall not reduce guarantor's maximum obligation hereunder,
unless written notice to that effect be actually received by Bank at or prior
to the time of such payment.
(3) The obligations hereunder are independent of the
obligations of Borrower, and a separate action or actions may be brought and
prosecuted against Guarantor whether action is brought against Borrower or
whether Borrower be joined in any such action or actions; and Guarantor waives
the benefit of any statute of limitations affecting Guarantor's liability
hereunder.
(4) Guarantor authorizes Bank, without notice or demand
and without affecting Guarantor's liability hereunder, from time to time,
either before or after revocation hereof, to (a) renew, compromise, extend,
accelerate, or otherwise change the time for payment of, or otherwise change
the terms of the indebtedness or any part thereof, including increase or
decrease of the rate of interest thereon; (b) receive and hold security for the
payment of this Guaranty or any of the indebtedness, and exchange, enforce,
waive, release, fail to perfect, sell, or otherwise dispose of any such
security; (c) apply such security and direct the order or manner of sale
thereof as Bank in its discretion may determine; and (d) release or substitute
any one or more of the endorsers or guarantors.
- 1 -
<PAGE> 2
(5) Guarantor waives any right to require Bank to (a)
proceed against Borrower; (b) proceed against or exhaust any security held from
Borrower; or (c) pursue any other remedy in Bank's power whatsoever. Guarantor
waives any defense arising by reason of any disability or other defense of
Borrower, or the cessation from any cause whatsoever of the liability of
Borrower, or any claim that Guarantor's obligations exceed or are more
burdensome than those of Borrower. Guarantor waives any right of subrogation,
reimbursement, indemnification, and contribution (contractual, statutory, or
otherwise), including without limitation, any claim or right of subrogation
under the Bankruptcy code (Title 11 of the U.S. Code) or any successor statute,
arising from the existence or performance of this Guaranty, and Guarantor
waives any right to enforce any remedy which Bank now has or may hereafter have
against Borrower and waives any benefit of and any right to participate in any
security now or hereafter held by Bank. Guarantor waives all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance of this Guaranty and of
the existence, creation, or incurring of new or additional indebtedness.
(6) Guarantor understands and acknowledges that if Bank
forecloses, either by judicial foreclosure or by exercise of power of sale, any
deed of trust securing the indebtedness, that foreclosure could impair or
destroy any ability that Guarantor may have to seek reimbursement,
contribution, or indemnification from Borrower or others based on any right
Guarantor may have of subrogation, reimbursement, contribution, or
indemnification for any amounts paid by Guarantor under this Guaranty.
Guarantor further understands and acknowledges that in the absence of this
paragraph, such potential impairment or destruction of Guarantor's rights, if
any, may entitle Guarantor to assert a defense to this Guaranty based on
Section 580d of the California Code of Civil Procedure as interpreted in Union
Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968). By executing this Guaranty,
Guarantor freely, irrevocably, and unconditionally: (i) waives and
relinquishes that defense and agrees that Guarantor will be fully liable under
this Guaranty even though Bank may foreclose, either by judicial foreclosure or
by exercise of power of sale, any deed of trust securing the indebtedness;
(ii) agrees that Guarantor will not assert that defense in any action or
proceeding which Bank may commence to enforce this Guaranty; (iii)
acknowledges and agrees that the rights and defenses waived by Guarantor in
this Guaranty include any right or defense that Guarantor may have or be
entitled to assert based upon or arising out of any one or more of Sections
580a, 580b, 580d, or 726 of the California Code of Civil Procedure or Section
2848 of the California Civil Code; and (iv) acknowledges and agrees that Bank
is relying on this waiver in creating the indebtedness, and that this waiver is
a material part of the consideration which Bank is receiving for creating the
indebtedness.
(7) Guarantor acknowledges and agrees that Guarantor
shall have the sole responsibility for obtaining from Borrower such information
concerning Borrower's financial conditions or business operations as Guarantor
may require, and that Bank has no duty at any time to disclose to Guarantor any
information relating to the business operations of financial conditions of
Borrower.
(8) To secure all of Guarantors obligations hereunder,
Guarantor assigns and grants to Bank a security interest in all moneys,
securities, and other property of Guarantor now or hereafter in the possession
of Bank, all deposit accounts of Guarantor maintained with Bank, and all
proceeds thereof. Upon default or breach of any of Guarantor's
- 2 -
<PAGE> 3
obligations to Bank, Bank may apply any deposit account to reduce the
indebtedness, and may foreclose any collateral as provided in the Uniform
Commercial Code and in any security agreements between Bank and Guarantor.
(9) Any obligations of Borrower to Guarantor, now or
hereafter existing, including but not limited to any obligations to Guarantor
as subrogees of Bank or resulting from Guarantor's performance under this
Guaranty, are hereby subordinated to the indebtedness. Such obligations of
Borrower to Guarantor if Bank so requests shall be enforced and performance
received by Guarantor as trustees for Bank, and the proceeds thereof shall be
paid over to Bank on account of the indebtedness, but without reducing or
affecting in any manner the liability of Guarantor under the other provisions
of this Guaranty.
(10) This Guaranty may be revoked at any time by Guarantor
in respect to future transactions, unless there is a continuing consideration
as to such transactions which Guarantor does not renounce. Such revocation
shall be effective upon actual receipt by Bank at the address shown below of
written notice of revocation. Revocation shall not affect any of Guarantor's
obligations or Bank's rights with respect to transactions which precede Bank's
receipt of such notice, regardless of whether or not the indebtedness related
to such transactions, before or after revocation, has been renewed,
compromised, extended, accelerated, or otherwise changed as to any of its
terms, including time for payment or increase or decrease of the rate of
interest thereon, and regardless of any other act or omission of Bank
authorized hereunder. Revocation by any other guarantor of the indebtedness
shall not affect any obligations of Guarantor. If this Guaranty is revoked,
returned, or canceled, and subsequently any payment or transfer of any interest
in property by Borrower to Bank is rescinded or must be returned by Bank to
Borrower, this Guaranty shall be reinstated with respect to any such payment or
transfer, regardless of any such prior revocation, return, or cancellation.
(11) Where Borrower is a corporation or partnership, it is
not necessary for Bank to inquire into the powers of Borrower or of the
officers, directors, partners, or agents acting or purporting to act on
Borrower's behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.
(12) Bank may, without notice to Guarantor and without
affecting Guarantor's obligations hereunder, assign the indebtedness and this
Guaranty, in whole or in part. Guarantor agrees that Bank may disclose to any
assignee or purchaser, or any prospective assignee or purchaser, of all or part
of the indebtedness any and all information in Bank's possession concerning
Guarantor, this Guaranty, and any security for this Guaranty.
(13) Guarantor agrees to pay all reasonable attorney's
fees, including allocated costs of Bank's in-house counsel, and all other costs
and expenses which may be incurred by Bank in the enforcement of this Guaranty.
(14) (a) Any controversy or claim between or among the
parties, including but not limited to those arising out of relating to this
Agreement or any agreements or instruments relating hereto or delivered in
connection herewith any claim based on or arising from an alleged tort, shall
at the request of any party be determined by arbitration.
- 3 -
<PAGE> 4
The arbitration shall be conducted in accordance with the United States
Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The arbitrators shall give effect to statutes
of limitation in determining any claim. Any controversy concerning whether an
issue is arbitrable shall be determined by the arbitrators. Judgment upon the
arbitration award may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
(b) Notwithstanding the provisions of
subparagraph (a), no controversy or claim shall be submitted to arbitration
without the consent of all parties if, at the time of the proposed submission,
such controversy or claim arises from or relates to an obligation to Bank which
is secured by real property collateral located in California. If all parties
do not consent to submission of such a controversy or claim to arbitration, the
controversy or claim shall be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted
to arbitration as provided and limited in subparagraphs (a) and (b) shall, at
the request of any party, be determined by a reference in accordance with
California Code of Civil Procedure Sections 638 et seq. If such an election is
made, the parties shall designate to the court a referee or referees selected
under the auspices of the AAA in the same manner as arbitrators are selected in
AAA-sponsored proceedings. The presiding referee of the panel, or the referee
if there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be entered
in the court in which such proceeding was commenced in accordance with
California Code of Civil Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit
the right of any party to this Agreement to exercise self-help remedies such as
setoff, to foreclose against or sell any real or personal property collateral
or security or to obtain provisional or ancillary remedies from a court of
competent jurisdiction before, after, or during the pendency of any arbitration
or other proceeding. The exercise of a remedy does not waive the right of
either party to resort to arbitration or reference. At Bank's option,
foreclosure under a deed of trust or mortgage may be accomplished either by
exercise of power of sale under the deed of trust or mortgage or by judicial
foreclosure.
- 4 -
<PAGE> 5
(15) This Guaranty shall be governed by and construed
according to the laws of the State of California, to the jurisdiction of which
the parties hereto submit.
Executed this 31st day of October, 1994.
--------
CKE Restaurants, Inc.
By: /s/ Loren C. Pannier
------------------------------------
Loren C. Pannier
Title: Sr. Vice President & C.F.O.
---------------------------------
By: /s/ Richard C. Celio
------------------------------------
Richard C. Celio
Title: Vice President, General Counsel
---------------------------------
Address for notices to Bank Addresses where notices to Guarantor:
3233 Park Center Drive, 5th Floor 1200 North Harbor Blvd.
Costa Mesa, California 92626 Anaheim, California 92803
- 5 -
<PAGE> 1
Exhibit 10.81
AMENDMENT NO. ONE TO LOAN AGREEMENT
This Amendment No. One (the "Amendment") dated as of April 5,
1995, is between Bank of America National Trust and Savings Association (the
"Bank"), CKE Restaurants, Inc. ("CKR"), Carl Karcher Enterprises, Inc. ("CKE")
and Boston Pacific, Inc. ("BPI"). CKR, CKE and BPI are sometimes referred to
collectively as the "Borrowers" and individually as the "Borrower").
RECITALS
A. The Bank and the Borrowers entered into a certain
Business Loan Agreement dated as of October 31, 1994 (the "Agreement").
B. An Event of Default ("Pre-Existing Event of Default")
has occurred in a certain covenant contained in the Agreement as is specified
in that letter from the Bank to the borrowers dated March 1, 1995.
C. The Borrowers' 1995 fiscal year-end forecasted
operating results provided to the Bank by Borrowers indicated the likelihood of
additional covenant violations occurring as of fiscal year-end 1995, also as
mentioned in the above-referenced letter.
D. Pursuant to the above-referenced letter, the Bank and
the Borrowers agreed to amend the Agreement on the terms and conditions herein
contained.
AGREEMENT
1. Definitions. Capitalized terms used but not defined
in this Amendment shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as
follows:
2.1 Paragraph 1.1(a) of the Agreement is hereby
amended in full to read as follows:
"(a) During the availability period
described below, the Bank will provide a line of credit to the
Borrowers. The amount of the line of credit (the
'Commitment') is Fifty One Million Dollars ($51,000,000)."
2.2 Paragraph 1.1(b) of the Agreement is amended
in full to read as follows:
"(b) This is a revolving line of credit
with a within line facility for letters of credit. During the
availability period, the Borrowers may repay principal amounts
and reborrow them; provided, however, that direct advances
outstanding under this line of credit may not exceed Thirty
Five Million Dollars ($35,000,000) at any time and when added
to the amount of letters of credit outstanding at any one time
(including the letter of credit
-1-
<PAGE> 2
issued by the Bank pursuant to the Reimbursement Agreement
defined in Paragraph 4.3 herein and including amounts drawn on
letters of credit and not yet reimbursed) may not exceed Fifty
One Million Dollars ($51,000,000) in the aggregate."
2.3 Paragraph 1.2 is hereby amended in full to
read as follows:
"1.2 Availability Period. The line of
credit is available between the date of this Agreement and
January 29, 1996 (the 'Expiration Date'), unless any Borrower
is in default."
2.4 Paragraph 1.7(iii) of the Agreement is hereby
amended in full to read as follows:
"(iii) the amount of the letters of credit
outstanding at any one time (including that letter of credit
issued by the Bank pursuant to the Reimbursement Agreement and
including amounts drawn on letters of credit and not yet
reimbursed) may not exceed Seventeen Million Dollars
($17,000,000)."
3. Effect of Amendment. Except as provided in this
Amendment, all of the terms and conditions of the Agreement shall remain in
full force and effect. The Bank has not waived the Pre-Existing Event of
Default or any breach of the Agreement based upon future financial results,
including those resulting from the projections the Borrowers have provided the
Bank, as discussed in the above letter, and nothing contained in this Amendment
shall be deemed to constitute a waiver of any right available to the Bank as a
result of the Pre-Existing Event of default or those resulting from the
projections or future financial results. The Bank may still exercise its
rights or any other or future rights against the Borrowers because of the
Pre-Existing Event of Default or any other breach of the Agreement, including
those base upon the above mentioned projections.
This Amendment is executed as of the date stated at the
beginning of this Amendment.
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/ Deborah Miller
----------------------------------------
Deborah Miller
Title: Vice President
(Signatures continue)
-2-
<PAGE> 3
CKE RESTAURANTS, INC.
By: /s/ William P. Foley
-------------------------------------
Title: Chief Executive Officer
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
CARL KARCHER ENTERPRISES, INC.
By: /s/ William P. Foley
-------------------------------------
Title: Chief Executive Officer
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
BOSTON PACIFIC, INC.
By: /s/ Ron Lane
-------------------------------------
Title: CEO
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
-3-
<PAGE> 1
Exhibit 10.82
AMENDMENT NO. TWO AND WAIVER TO
BUSINESS LOAN AGREEMENT
This Amendment No. Two and Waiver (the "Amendment") dated as
of April 28, 1995, is between Bank of America National Trust and Savings
Association (the "Bank"), CKE Restaurants, Inc. ("CKR") and Carl Karcher
Enterprises, Inc. ("CKE"). CKR and CKE are sometimes referred to collectively
as the "Borrowers" and individually as the "Borrower").
RECITALS
A. The Bank, the Borrowers and Boston Pacific, Inc.
("BPI") entered into a certain Business Loan Agreement dated as of October 31,
1994, as amended by Amendment No. One dated as of April 5, 1995 (the
"Agreement").
B. The Borrowers are in default of certain covenants of
the Agreement and have requested that the Bank waive such defaults.
C. The Borrowers have requested that the Bank agree to
amend the Agreement to eliminate BPI as a borrower under the Agreement and
release BPI from any and all liability under the Agreement.
D. The Borrowers have requested that the Bank agree to
further amend the Agreement on the terms and conditions herein contained.
E. The Bank has agreed to waive the defaults and amend
the Agreement on the terms and conditions herein contained.
AGREEMENT
1. Definitions. Capitalized terms used but not defined
in this Amendment shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as
follows:
2.1 Upon the effective date of this Amendment,
the parties hereto agree that the Agreement is hereby amended to delete all
references to BPI as a Borrower in the preamble to the Agreement and on the
signature page and BPI shall no longer be a party entitled to any benefit of or
have any liability under the Agreement.
2.2 Paragraph 1.1(a) of the Agreement is hereby
amended in full to read as follows:
"(a) During the availability period
described below, the Bank will provide a line of credit to the
Borrowers. The amount of the line of credit (the 'Commitment')
is Twenty Seven Million Dollars ($27,000,000)."
-1-
<PAGE> 2
2.3 Paragraph 1.1(b) of the Agreement is amended
in full to read as follows:
"(b) This is a revolving line of credit
with a within line facility for letters of credit. During the
availability period, the borrowers may repay principal amounts
and reborrow them; provided, however, that direct advances
outstanding under this line of credit may not exceed Fifteen
Million Dollars ($15,000,000) at any time and when added to
the amount of letters of credit outstanding at any one time
(including the letter of credit issued by the Bank pursuant to
the Reimbursement Agreement defined in Paragraph 4.3 herein
and including amounts drawn on letters of credit and not yet
reimbursed) may not exceed Twenty Seven Million Dollars
($27,000,000) in the aggregate."
2.4 Paragraph 1.2 is hereby amended in full to
read as follows:
"1.2 Availability Period. The line of
credit is available between the date of this Agreement and
June 30, 1996 (the 'Expiration Date'), unless any Borrower is
in default."
2.5 Paragraph 1.7(iii) of the Agreement is hereby
amended in full to read as follows:
"(iii) the amount of the letters of credit
outstanding at any one time (including that letter of credit
issued by the Bank pursuant to the Reimbursement Agreement and
including amounts drawn on letters of credit and not yet
reimbursed) may not exceed Twelve Million Five Hundred
Thousand Dollars ($12,500,000)."
2.6 The Agreement is hereby amended to add
Paragraphs 1.8, 1.9, 1.10, 1.11, 1.12 and 1.13 to read as follows:
"1.8 Term Loan Commitment. Upon the
effective date of Amendment No. Two, the Bank agrees to
provide a term loan to the Borrowers. The amount of the term
loan (the "Term Loan Commitment") shall not exceed Twenty
Eight Million Dollars ($28,000,000).
1.9 Term Loan Interest Rate. Unless the
Borrowers elect an optional interest rate as described below,
the interest rate is the Bank's Reference Rate plus one
quarter of one percent (.25%).
1.10 Term Loan Repayment Terms.
(a) The Borrowers will pay interest
on any principal outstanding on June 1, 1995, and then monthly
thereafter until payment in full of any principal outstanding
under the term loan.
-2-
<PAGE> 3
(b) The Borrowers will repay
principal in successive, quarterly installments as indicated
below:
<TABLE>
<CAPTION>
Quarterly Period Installment Amount
---------------- ------------------
<S> <C>
Commencing June 30, 1995
through and including
March 31, 1997 $1,750,000
June 30, 1997
through and including
March 31, 1998 $2,000,000
June 30, 1998 through and
including September 30, 1998 $3,000,000
</TABLE>
On September 30, 1998, the borrower will repay the remaining
principal balance plus any interest then due.
1.11 Mandatory Prepayment, Early
Termination. Anything herein to the contrary notwithstanding,
if the revolving line of credit, as now in effect or as
hereafter renewed, amended or restated, terminates for any
reason, including, without limitation, termination resulting
from failure by the Bank to renew the revolving line of credit
beyond any availability period applicable thereto, or
termination as otherwise provided or permitted under this
Agreement, the entire principal balance of the term loan,
together with all accrued interest thereon, shall be due and
payable on the effective date of such termination, provided,
however, that if the revolving line of credit is terminated by
reason of the Bank's failure to renew the revolving line of
credit and the Borrower is not then in default under this
Agreement such term loan shall be due and payable within
ninety (90) days after the termination of the revolving line
of credit, and provided, further, that if a default shall
occur under this Agreement during such ninety (90) day period
the term loan shall become immediately due and payable.
1.12 Term Loan Optional Interest Rate.
Instead of the interest rate based on the Bank's Reference
Rate, the Borrowers may elect to have all or portions of the
term loan bear interest at the rate described below during an
interest period agreed to by the Bank and the Borrowers. Each
interest rate is a rate per year. Interest will be paid on the
first day of each month and on the last day of each interest
period. At the end of any interest period, the interest rate
will revert to the rate based on the Reference Rate, unless
the Borrowers have designated another optional interest rate
for the portion. Upon the occurrence of an event of default
under this Agreement, the Bank may terminate the availability
of optional interest rates for interest periods commencing
after the default occurs.
-3-
<PAGE> 4
1.13 Offshore Rate. The Borrowers may
elect to have all or portions of the principal balance of the
term loan bear interest at the Offshore Rate plus 1.75
percentage points. All other provisions applicable to the
Offshore Rate set forth in subparagraphs (a) through (g) of
Paragraph 1.6 are incorporated herein by reference."
2.7 Paragraph 6.4 of the Agreement is amended in
full to read:
"6.4 Fixed Charge Coverage Ratio. to
maintain a Fixed Charge Coverage Ratio, determined on a
consolidated basis, of not less than the ratio indicated at
the end of each fiscal period as specified below:
<TABLE>
<CAPTION>
Fiscal Period Ending Ratio
-------------------- -----
<S> <C>
at first quarter 1996, and
second quarter 1996 .50:1.00
at third quarter 1996, and
at fourth quarter 1996 .55:1.00
at each quarter of 1997 .65:1.00
at first, second and third
quarter 1998 .75:1.00
at fourth quarter 1998 .85:1.00
at first quarter 1999 and
thereafter 1.00:1.00
</TABLE>
For purposes of this Agreement, 'Fixed Charge Coverage Ratio"
means the following calculation, expressed as a ratio for any
fiscal period: (a) EBITDA less the net gain realized on sales
of fixed assets (or the EBITDA less the net loss incurred on
sales of fixed assets), less unfinanced capital expenditures
of CKE, less taxes and less dividends divided by (b) the sum
of (i) interest expense, (ii) current portion of long-term
debt and (iii) current portion of capital leases. The current
portion of long term debt and the current portion of capital
leases will be the amount shown on the balance sheet as of the
end of each quarter. 'EBITDA' means earnings before interest
and tax expense, depreciation, amortization, and other
non-cash charges. This ratio shall be calculated quarterly
using a Four Quarter Rolling Basis. 'Four Quarter Rolling
Basis' shall mean the four quarters calculated using the
results of the fiscal quarter then most recently ended and the
immediately preceding three (3) quarters."
2.8 Paragraph 6.5 of the Agreement is amended in
full to read:
-4-
<PAGE> 5
"6.5 Net Worth. To maintain, on a
consolidated basis determined at the end of each quarter, Net
Worth equal to at least the amounts indicated for each period
specified below:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
at end of second quarter 1996 $ 94,000,000
at fiscal year end 1996 $ 96,000,000
at end of second quarter 1997 $101,000,000
at fiscal year end 1997
and thereafter $105,000,000
</TABLE>
For the purpose of this Agreement, "Net Worth" for CKR and its
subsidiaries, on a consolidated basis, shall mean the total
amount of shareholders' equity shown on the balance sheet at
the end of each fiscal quarter or fiscal year end, as the case
may be, plus the aggregate amount of stock repurchases
permitted under this Agreement."
2.9 Paragraph 6.6 of the Agreement is deleted in
its entirety.
2.10 Paragraph 6.7 of the Agreement is amended in
full to read:
"6.7 Capital Expenditures. With respect
to CKE, not to spend more than the amount indicated for each
period specified below to acquire fixed or capital assets:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Through fiscal year end 1996 $22,500,000
Through fiscal year end 1997
and thereafter $25,000,000."
</TABLE>
2.11 Subparagraphs (e), (f) and (i) of Paragraphs
6.8 of the Agreement are amended to read:
"(e) Additional debts (including capital
lease obligations) for the acquisition of real property or the
refinancing thereof so long as the net proceeds of any
refinancing are applied first to reduce any amounts
outstanding under the term loan and then to reduce any amounts
outstanding under the line of credit.
(f) Additional debts for the acquisition
of personal property not to exceed Fifteen Million Dollars
($15,000,000) or the refinancing thereof so long as the net
proceeds of any refinancing are applied first to reduce any
-5-
<PAGE> 6
amounts outstanding under the term loan and then to reduce any
amounts outstanding under the line of credit.
(i) Contingent debts not to exceed
$13,000,000 in the aggregate, including obligations under
Paragraphs 6.8(g) and 6.8(h)."
2.12 paragraph 6.11 of the Agreement is amended in
full to read:
"6.11 Profitability. To maintain on a
consolidated basis a positive net income before taxes and
extraordinary items for each quarterly accounting period."
2.13 The Agreement is hereby amended to add a new
Paragraph 6.24 to read:
"6.24 Out of Debt Period. To repay any
advances in full, and not to draw any additional advances on
the revolving line of credit, for a period of at least 30
consecutive days in each semi-annual fiscal period beginning
the second semi-annual fiscal period of fiscal 1996. for
purposes of this paragraph, 'advances' does not include
undrawn amounts of outstanding letters of credit."
2.14 Paragraph 8.13 of the Agreement is deleted in
its entirety.
3. Defaults. the Borrowers hereby acknowledge that they
have breached the following covenants of the Agreement:
(a) Paragraph 6.5 for the fiscal quarter ending
November 7, 1994; and
(b) Paragraphs 6.4, 6.5, 6.6 and 6.11 for the
fiscal quarter ending January 31, 1995.
4. Waivers. The Bank hereby waives the failure of the
Borrowers to comply with the covenants referred to above during the fiscal
periods set forth above.
5. Representations and Warranties. When the Borrowers
sign this Amendment, the Borrowers represent and warrant to the Bank that: (a)
other than the defaults listed above, there is no event which is, or with
notice of, or lapse of time, or both would be, a default under the Agreement;
(b) the representations and warranties in the Agreement are true as of the date
of this Amendment as if made on the date of this Amendment; (c) this Amendment
is within the Borrowers' powers, has been duly authorized and does not conflict
with any organizational papers of the Borrowers; and (d) this Amendment does
not conflict with any law, agreement, by which any Borrower is bound.
6. Effect of Amendment and Waivers. The above waivers
shall be limited precisely as written and relate solely to the sections of the
Agreement and for the time referred to above. Except as expressly set forth
herein, the terms, provisions, and conditions of
-6-
<PAGE> 7
the Agreement shall remain in full force and effect and in all other
respects are hereby ratified and confirmed.
-7-
<PAGE> 8
This Amendment is executed as of the date stated at the
beginning of this Amendment.
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/ DEBORAH MILLER
-----------------------------
Deborah Miller
Vice President
CKE RESTAURANTS, INC.
By: /s/ LOREN PANNIER
----------------------------------
Title: Chief Financial Officer
-------------------------------
By: /s/ RICHARD C. CELIO
----------------------------------
Title: VICE PRESIDENT, GENERAL COUNSEL
-------------------------------
CARL KARCHER ENTERPRISES, INC.
Acknowledged by: By: /s/ RICHARD C. CELIO
----------------------------------
BOSTON PACIFIC, INC. Title: VICE PRESIDENT, GENERAL COUNSEL
-------------------------------
By: /s/ DANIEL D. (RON) LANE By: /s/ LAURIE A. BALL
-------------------------- -----------------------------------
Title: Chief Ececutive Officer Title: VICE PRESIDENT, CONTROLLER
----------------------- -------------------------------
-8-
<PAGE> 1
EXHIBIT 10.83
EMPLOYMENT AGREEMENT
CARL KARCHER ENTERPRISES, INC.
AGREEMENT, dated as of November 8, 1994 by and between CARL KARCHER
ENTERPRISES, INC., a California corporation (the "Company") and Thomas Thompson
(the "Executive") presently residing at 1175 Jackling Drive, Hillsborough,
California 94010.
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed to provide his services to the Company, all on the terms
and subject to the conditions, as hereinafter set forth:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations hereinafter set forth, the parties agree as follows:
1. EMPLOYMENT. The Company agrees to employ the
Executive as its President and Chief Operating Officer during the Employment
Term (as defined in paragraph 3) and the Executive hereby accepts such
employment and agrees to serve the Company subject to the general supervision,
advice and direction of the Board of Directors and upon the terms and
conditions set forth in this Agreement.
2. DUTIES. During the Employment Term, the Executive
shall perform such services and duties as would normally be ascribed to a
person with the position of President and Chief Operating Officer. The duties
would include but not be limited to final responsibility for all aspects of the
Company's business and establishing both current and long range objectives.
Executive may be requested to serve as a member of the Board of Directors based
on the guidelines of the by-laws of the Company without compensation in
addition to that specified in paragraph 4.a. below.
The Executive shall devote the Executive's full time and best
efforts to the business affairs of the Company; however, with the approval of
the Board of Directors, the Executive may divide reasonable time and attention
to:
(i) serving as a director or member of a committee
of any non-for-profit organization or engaging in other
charitable or community activities;
(ii) upon approval of the Board of Directors,
serving as a director of a corporation or as a member of a
committee of an organization;
<PAGE> 2
(iii) managing his personal investments;
provided that the Executive agrees to be bound by the conflict of interests
policy of the Company and may not accept employment or any engagement with any
other individual or other entity, or engage in any other venture which is in
conflict with the business of the Company.
Notwithstanding the foregoing, the Company acknowledges that Executive
has an ownership interest in an entity which is a franchisee of the Company and
therefore to that extent there exists the potential for conflicting interests.
3. EMPLOYMENT TERM. The Executive shall be
employed under this Agreement for a term of two (2) years from date of
execution of this Agreement, (the "Employment Term") commencing on the date
hereof and terminating on the close of business on October 31, 1996, unless
sooner terminated as provided in paragraphs 6, 7, 8, 9 or 10.
4. COMPENSATION.
4.a. BASE COMPENSATION. During the Employment Term,
the Company will pay the Executive an annual base salary as compensation for
his services hereunder of $250,000 the "Base Salary"), payable in equal
installments not less often than once in each calendar month.
4.b. BONUS. As additional compensation to Executive,
Company shall pay an annual bonus based on performance criteria specified by
the Compensation Committee for the Company.
4.c. VACATION. During each calendar year of the
Employment Term, the Executive shall be entitled to take paid vacation time for
such length of time as determined by the Board of Directors. For calendar year
1995 vacation time shall be two (2) weeks.
4.d. BENEFITS. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other executives of the Company participate. Executive
may, at his option, not participate in the Company's group health and
hospitalization plan in which case the Company shall pay up to $400 per month
during the Employment Term towards Executive's current health plan.
4.e. MEDICAL EXAMINATION. Executive agrees to submit,
at any time requested by the Company, to a medical
2
<PAGE> 3
physical examination by a physician selected by the Company. The cost of said
examination shall be borne by the Company.
4.f. AUTOMOBILE. The Company shall provide at no
expense to the Executive a late model automobile to be utilized by the
Executive in connection with the Company's business.
5. REIMBURSEMENT OF EXPENSES INCURRED IN PERFORMANCE OF
EMPLOYMENT. In addition to the compensation provided for under paragraph 4
hereof, upon submission of proper vouchers, the Company shall pay or reimburse
the Executive for all normal and reasonable expenses, including travel
expenses, incurred by the Executive prior to the termination of the Employment
Term in connection with the Executive's responsibilities to the Company.
The Executive currently resides in northern California and he
will incur travel expenses in commuting to the Company's headquarters in Orange
County. The Company agrees to reimburse Executive for all such reasonable
out-of-pocket travel expenses not to exceed $20,000 per annum and provide a
temporary housing allowance of $2,000 per month. If during the Employment Term
the Executive relocates his primary residence to Southern California (i.e. Los
Angeles County or south) such travel reimbursement and temporary housing
allowance shall terminate; however, the Company shall reimburse Executive for
all usual and customary moving expenses and closing costs incurred in
connection with the acquisition of a single family residence (e.g. loan
application fees, appraisal fees, recording costs, inspection fees, title
insurance fees) but in no event shall such reimbursement exceed $10,000.00.
6. TERMINATION FOR CAUSE. The Company may dismiss
Executive for good and valid cause and shall then and thereafter be relieved of
its obligations hereunder. In such event, Executive shall not receive any
severance pay or pro-rata portion of any bonus compensation otherwise payable
pursuant to paragraph 4 hereof. As used herein, "good and valid cause" shall
mean a breach of material duty by Executive in the course of his employment,
the habitual neglect of his duties, or the commission by Executive of any act
of a fraudulent or criminal nature (excluding minor traffic violations or other
infractions of a non-serious nature).
7. TERMINATION WITHOUT CAUSE BY THE COMPANY. If
Executive is terminated for reasons other than cause as defined in paragraph 6
hereof, the Company will pay Executive, not later than 30 days after such
termination, in a lump sum, the lesser of (a) Base Salary for six (6) months;
or (b) Base Salary for the balance of the Employment Term together with all
accrued but unpaid compensation and benefits pursuant to paragraph 4 hereof
including prorated bonus (if any), through the date of the Executive's
termination. Executive shall be deemed to have been
3
<PAGE> 4
terminated for reasons other than cause if Executive voluntarily terminates his
employment in response to the Company relocating its headquarters for executive
offices to a location outside the state of California.
The date of termination of employment by the Company under
paragraphs 6 and 7 shall be the date specified in a written notice of
termination by the Board of Directors to Executive which shall be at least
twenty (20) days after the date of the written notice of termination. If no
date is specified, termination date will be the date Executive is given notice
by the Board.
8. RESIGNATION. In the event, at anytime during the
term of this Agreement, Executive resigns for reasons other than as specified
in paragraph 7 or 9, Company shall then and thereafter be relieved from its
obligations hereunder.
9. CHANGE OF CONTROL. In the event, at any time
during the term of this Agreement, the Company is acquired by or merged with
another corporation or entity (or a subsidiary thereof) such that the direction
or control of the Company is acquired, or all or substantially all of the
assets of the Company are acquired in a transaction or series of transactions,
by an individual, entity or group of individuals or entities acting together
that had no such direction or control prior to such acquisition or merger and
in anticipation of that acquisition or after it is completed, the Executive is
terminated for other than cause, then the Executive shall be entitled to
receive in a lump sum payment all amounts provided for by paragraph 4.a.,
above, for the balance of the Employment Term, plus all other compensation and
all benefits that would have been payable or available to Executive in the
event of a termination under Section 7 of this Agreement. For purposes of this
Section 9, direct or indirect ownership of stock having at least 30 percent of
the voting power of the Company (or a contract or other arrangement conferring
similar rights) shall be deemed to constitute control and thus be deemed the
type of acquisition contemplated by this Section 9.
10. DISABILITY OR DEATH.
10.a. Disability of the Executive. If Executive for
any reason whatsoever becomes permanently disabled so that the Executive is
unable to perform the duties described in Paragraph 2 herein, the Company
agrees to pay Executive fifty percent (50%) of Executive's annual salary
payable in the same manner as provided for the payment of salary herein for the
remainder of the Employment Term provided for herein.
"Permanent disability" shall mean the Executive is unable to
perform the duties contemplated by this Agreement by
4
<PAGE> 5
reason of a physical or mental disability or infirmity which has continued for
more than 90 consecutive calendar days. Executive agrees to submit such
medical evidence regarding such disability or infirmity as may be requested by
the Company.
10.b. DEATH OF EXECUTIVE. Upon the death of the
Executive for any reason whatsoever, the Company shall then and thereafter be
released from its obligations hereunder.
11. PROTECTED INFORMATION; PROHIBITED SOLICITATION.
11.a. The Executive hereby recognizes and acknowledges that
during the course of this employment by the Company, the Company has disclosed
and will furnish, disclose or make available to the Executive confidential or
proprietary information related to the Company's business, including, without
limitation, customer lists, ideas, processes, inventions and devices, that such
confidential or proprietary information has been developed and will be
developed through the expenditure by the Company of substantial time and money
and that all such confidential information shall constitute trade secrets, and
further agrees to use such confidential proprietary information only for the
purpose of carrying out his duties with the Company and not otherwise to
disclose such information. No information otherwise in the public domain shall
be considered confidential.
11.b. The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that during the Employment Term and for the period ending
on the date which is one (1) year after the later of (A) the termination of the
Employment Term and (B) the date on which the Company is no longer required to
provide the payments and benefits described in paragraph 4, the Executive shall
not, without the written consent of the Company, knowingly solicit, entice or
persuade any other employees of the Company or any affiliate of the Company to
leave the services of the Company or such affiliate for any reason.
11.c. So long as the Executive is employed by the Company
and so long as the restrictions of this paragraph 11 apply, prior to accepting
any engagement to act as an employee, officer, director, trustee, principal,
agent or representative of any type of business or service (other than as an
employee of the Company), the Executive shall (A) disclose such engagement in
writing to the Company, and (B) disclose to the other entity to which he has
agreed to act as an employee, officer, director, trustee, agent or
representative, or to other principals together with whom he proposed to act as
a principal in such business or service, the existence of the covenants set
forth in this paragraph 11 and the provisions of paragraph 12 hereof.
5
<PAGE> 6
11.d. The restrictions of this paragraph 11 shall survive
the termination of this Agreement and shall be in addition to any restrictions
imposed upon the Executive by statute or at common law.
12. INJUNCTIVE RELIEF. The Executive hereby
expressly acknowledges that any breach or threatened breach by the Executive of
any of the terms set forth in paragraph 11 of this Agreement may result in
significant and continuing injury to the Company, the monetary value of which
would be impossible to establish. Therefore, the Executive agrees that the
Company shall be entitled to apply for injunctive relief in a court of
appropriate jurisdiction. The provisions of this paragraph 12 shall survive
the Employment Term.
13. PARTIES BENEFITED; ASSIGNMENTS. This Agreement
shall be binding upon the Executive, the heirs and personal representative or
representatives of the Executive and upon the Company and its successors and
assigns. Neither this Agreement nor any rights or obligations hereunder may be
assigned by the Executive.
The Company will not consolidate with, merge into, or sell all
or substantially all of its assets to another corporation, partnership, or
other entity unless such corporation, partnership, or entity shall assume this
Agreement, and upon such assumption Executive and remaining corporation,
partnership or other entity, shall become obligated to perform all of the terms
and conditions set forth herein. However, that assignment shall not relieve
the Company of its obligations under this Agreement.
14. NOTICES. Any notice required or permitted by
this Agreement shall be in writing, sent by personal delivery or by registered
or certified mail, return receipt requested, addressed to the Chairman of the
Board of the Company at its then principal office, or to the Executive at the
address set forth in the preamble, as the case may be, or to such other address
or addresses as any party hereto may from time to time specify in writing for
the purpose of a notice given to the other parties in compliance with this
paragraph 14. Notice shall be deemed given when received.
15. GOVERNING LAW. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of
California without regard to conflict of law principles.
16. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES.
The Company will indemnify the Executive to the fullest extent permitted by the
laws of the State of California, as in effect at the time of the subject act or
omission, and the Executive shall be entitled to the protection of any
insurance policies the
6
<PAGE> 7
Company may elect to maintain generally for the benefit of its directors and
officers insuring against all costs, charges and expenses whatsoever incurred
or sustained by the Executive in connection with any action, suit or
proceedings to which the Executive may be made a part by reason of being or
having been an officer or employee of the Company or any of its subsidiaries or
serving or having served any other enterprises at the request of the Company
(other than any dispute, claim or controversy described in paragraph 11 of this
Agreement except, that the Executive shall be entitled to reimbursement of
reasonable attorneys' fees and expenses if the Executive is the prevailing
party).
17. OPTIONS. Executive shall receive a grant of
an option to purchase 25,000 shares under the Company's 1994 Stock Incentive
Plan. Vesting of such options shall accelerate to the date of termination (if
any) pursuant to paragraph 7 or 9 above and Executive shall have ninety (90)
days after such termination within which to exercise the option. In the event
of any conflict or inconsistency between the Plan (and any agreements
thereunder) and this Agreement, this Agreement shall control.
18. ARBITRATION. The parties agree that any
controversy or claim arising out of, or in any way related to, this Agreement,
to a breach or alleged breach of this Agreement or to any other aspect of the
Executive's employment shall be settled by Arbitration in accordance with the
Rules of the American Arbitration Association (the "Association"). The parties
further agree that judgment upon any award rendered by the arbitrator may be
entered in any court of competent jurisdiction.
Should either party hereto institute any action or proceeding
to enforce any provision hereof, or for damages by reason of any alleged breach
of any provision of this Agreement, or for a declaration of such party's rights
or obligations hereunder, or for any other judicial remedy, the prevailing
party shall be entitled to costs and expenses incurred thereby, including,
without limitation, reasonable attorneys' fees and expenses, pre-arbitration,
arbitration and appellate costs, costs and expenses incurred in ascertaining or
enforcing such party's rights under this Agreement, and any additional relief
to which such party may be entitled.
The decision of the arbitrator within the scope of the
submission shall be final and binding on all parties, and, accordingly, the
parties agree that any right to judicial action on any matter subject to
arbitration hereunder is hereby waived (unless otherwise provided by applicable
law), except the right to judicial action to compel arbitration or to enforce
the arbitration award, or except in the event arbitration is unavailable to the
parties for any reason.
7
<PAGE> 8
19. SOURCE OF PAYMENTS. All payments provided under
this Agreement, shall be paid in cash from the general funds of the Company and
no special or separate fund shall be established and no other segregation of
assets made to assure payment. To the extent that any person acquires a right
to receive payments from the Company hereunder, such right shall be no greater
than the right of an unsecured creditor of the Company.
20. MISCELLANEOUS. This Agreement contains or refers to
the entire agreement of the parties relating to the subject matter hereof. The
Agreement supersedes any prior written or oral agreements or understandings
between the parties relating to the subject matter hereto. No modification or
amendment of this Agreement shall be valid unless in writing and signed by or
on behalf of the parties hereto. A waiver of the breach of any term or
condition of this Agreement shall not be deemed to constitute a waiver of any
subsequent breach of the same or any other term or condition. This Agreement
is intended to be performed in accordance with, and only to the extent
permitted by, all applicable laws, ordinances, rules and regulations. If any
provision of this Agreement, or the application thereof to any person or
circumstance, shall for any reason and to any extent, be held invalid or
unenforceable, such invalidity and unenforceability shall not affect the
remaining provisions hereof and the application of such provisions to other
persons or circumstances, all of which shall be enforced to the greatest extent
permitted by law. The compensation provided to the Executive pursuant to this
Agreement shall be subject to any withholdings and deductions required by any
applicable tax laws. Any amounts payable to the Executive hereunder after the
death of the Executive shall be paid to the Executive's estate or legal
representative.
The headings in this Agreement are inserted for convenience of
reference only and shall not be part of or control or affect the meaning of any
provision hereof.
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the day and year first above written.
CARL KARCHER ENTERPRISES, INC.
By: /s/ Richard C. Celio
------------------------------------
Richard C. Celio
Its: Vice President/General Counsel
-----------------------------------
/s/ Charles T. Thompson
----------------------------------
Employee
Charles T. (Tom) Thompson
8
<PAGE> 9
Insert
As additional compensation to Executive, Company shall pay an annual
bonus based on (i) for the first year of the Employment Term a certain
percentage cost savings, if any, realized by the Company during the first year
of the Employment Term; and (ii) for the second year of the Employment Term a
formula applied to the amount, if any, by which the average November 1996
market value of the stock for CKE Restaurants, Inc. over a base market value.
First Year
Percentage cost savings shall be measured by changes in costs as a
percentage of total gross revenue by an overall period to period comparison
from a base period of November 8, 1993 through November 8, 1994 against the
first twelve (12) month periods comprising the Employment Term. The costs
included in the measurement shall be an aggregation of the following line items
on the Company's internal profit and loss statement: food, labor, restaurant
management personnel, paper, labor benefits, supply, uniform and "cash shorts."
Calculation of such line item costs shall be in accordance with the Company's
present accounting principles consistently applied and in the event of
disagreement, the decision of the Company's outside accounting firm shall be
final, binding and conclusive.
The bonus shall be as follows:
<TABLE>
<CAPTION>
Percentage Cost Savings Annual Bonus
----------------------- ------------
<S> <C>
3% or more $200,000
2% or more but
less than 3% $100,000
Less than 2% $ -0-
</TABLE>
By way of hypothetical example only, if included costs for the base
period were in the aggregate 75% of total gross revenue for such period and
included costs for the period November 8, 1994 through November 8, 1995 were
73% of total gross revenue for that period, the percentage cost savings is 2%
and Executive would receive a $100,000 bonus for that year.
Second Year
For the second year of the Employment Term, Employee shall be entitled
to a cash bonus payable on December 31, 1996 equal to the amount by which the
average daily closing price of CKE Restaurants, Inc. on the New York Stock
Exchange for November 1996 exceeds $9 per share multiplied by $50,000 but in no
event
9
<PAGE> 10
shall the bonus exceed $250,000. The average daily closing price shall be
adjusted as appropriate and proportionate for all stock dividends, stock
splits, reorganizations, mergers or similar events occurring after November 8,
1994.
By way of hypothetical examples only, if the average daily closing
price for CKE Restaurants, Inc. stock November 1996 is $9, 10-1/2 or $15, the
Executive would receive a bonus for that year respectively of $0, $75,000 or
$250,000.
To the extent that the bonus is to be calculated for a period which is
less than a twelve (12) month period and yet a bonus is earned (e.g.
termination of Executive without cause), (i) the bonus for the first year shall
be measured against the same months of the base period; and (ii) the bonus for
such second year period market shall be calculated on the basis of the average
closing price for the twenty (20) trading day period prior to termination of
employment and payable on the 20th day after that termination.
This bonus shall be payable in cash only and is intended not to be a
derivative security as exempted under Rule 16a-1(c) (3).
10
<PAGE> 1
EXHIBIT 10.84
AGREEMENT TO CONTRIBUTE ASSETS
BY AND BETWEEN
BOSTON WEST, L.L.C.
AND
BOSTON PACIFIC, INC.
<PAGE> 2
AGREEMENT TO CONTRIBUTE ASSETS
This agreement to contribute assets (the "Agreement") is made and
entered into this day of April 17, 1995 by and between Boston Pacific,
Inc., a California corporation (the "Transferor"), and Boston West, L.L.C., a
Delaware limited liability company (the "Transferee").
RECITALS
A. The Transferee is being formed for the purpose of acquiring,
developing and operating food service businesses as part of the system of food
service businesses developed by Boston Chicken, Inc. ("BCI") and its
franchisees and area developers, which food service businesses sell, among
other things, rotisserie roasted chicken, roasted turkey, baked ham, meatloaf,
pot pies, vegetables, salads, soups, desserts, beverages, and other food
products ("Boston Chicken/Boston Market Stores").
B. Transferor currently owns and operates certain assets and
properties constituting (a) certain open Transferor-leased Boston
Chicken/Boston Market Stores all as set forth on Schedule A hereto
(collectively known as the "Leased Stores"), (b) certain open Transferor-owned
Boston Chicken/Boston Market Stores, all as set forth on Schedule B hereto,
excluding the real estate relating thereto (collectively known as the "Owned
Stores"), (c) the Transferor's interest in certain Boston Chicken/Boston Market
Stores being developed pursuant to certain executed leases relating to
potential Boston Chicken/Boston Market Store sites, all as set forth on
Schedule C hereto (collectively known as the "Leased Sites"), (d) the
Transferor's interest in certain Boston Chicken/Boston Market Stores being
developed on sites owned by the Transferor, all as set forth on Schedule D
hereto (collectively, the "Owned Sites"), (e) the Transferor's interest, if any,
in certain Boston Chicken/Boston Market Stores contemplated in connection with
leases being negotiated for the sites set forth on Schedule E hereto
(collectively known as the "Sites in Progress"), (f) the Transferor's interest
in certain contracts executed by the Transferor for the purchase of real
property ("Real Estate Contracts") for potential Boston Chicken/Boston Market
Store sites, all as set forth on Schedule F hereto (collectively known as the
"Contracted Sites"), and (g) certain of the Transferor's corporate facilities,
all as set forth on Schedule G hereto (collectively known as the "Corporate
Facilities"), all as set forth below. As used herein, the term "Stores" shall
mean the Leased Stores and the Owned Stores, and the term "Sites" shall mean
the Leased Sites, the Owned Sites and the Contracted Sites. The assets and
properties constituting the Stores, the Sites, and the Corporate Facilities, as
well as the business and operations thereof, shall be referred to herein as the
"Business." References in this Agreement to the Transferor's ownership or
operation of the Business or any part thereof or otherwise with respect to the
status or condition of the Business or any part thereof shall be deemed to
include the ownership and operation of all or any part of the Business at any
time whatsoever by Carl Karcher Enterprises, Inc., a California corporation and
affiliate of the Transferor ("Carl Karcher
<PAGE> 3
Enterprises") or CKE Restaurants, Inc., a Delaware corporation and the parent
company of the Transferor ("CKER").
C. The Transferor desires to contribute to the Transferee and the
Transferee desires to accept from the Transferor all of the net assets and
properties of the Business in exchange for certain Class A membership units and
Class B membership units of the Transferee (as described below) (such
membership units of the Transferee are referred to herein as the "Exchange
Units"), cash, and the assumption by the Transferee of certain liabilities of
the Transferor, all as herein provided and on the terms and conditions
hereinafter set forth.
D. Concurrent with the Closing (hereinafter defined), the
Transferee shall enter into a Secured Loan Agreement with BCI, substantially in
the form attached hereto as Exhibit A (the "Loan Agreement"), and shall
receive a contribution of cash from certain third party investors in exchange
for certain membership units of the Transferee.
E. Subsequent to the Closing, the parties contemplate that the
Transferee will expand the Business in California as more fully set forth in the
Area Development Agreement (defined hereinafter)
COVENANTS
In consideration of the mutual representations, warranties and
covenants and subject to the conditions herein contained, the parties hereto
agree as follows:
1. CONTRIBUTED AND EXCLUDED ASSETS
A. Contributed Assets.
The Transferor agrees to and will contribute, convey, transfer,
assign and deliver to the Transferee at the Closing (as hereinafter defined),
free and clear of all liens, mortgages, pledges, encumbrances and charges of
every kind, except as set forth on Schedule 3.F., on the terms and subject to
the conditions set forth in this Agreement, all of the Transferor's properties,
business and assets used in the Business, of every kind and description, real,
personal and mixed, tangible and intangible, wherever located (except those
assets of the Transferor which are specifically excluded from this transaction
by Section 1.B. hereof) as they shall exist at the Closing Date (as hereinafter
defined), whether or not appearing on the Balance Sheet (as hereinafter defined)
(collectively, the "Contributed Assets"). Without limiting the generality of
the foregoing, the Contributed Assets shall include the following:
(1) other than those Fixed Assets to be leased by the
Transferor to the Transferee, as further described in Section 1.B.
below, all machinery, equipment, tools, supplies, leasehold
improvements, computer hardware and software, vehicles, construction
in progress, and furniture and fixtures relating to or necessary for
the operation of the Business and all other fixed assets owned by the
Transferor and used in or related to the Business (the "Contributed
Fixed Assets");
2
<PAGE> 4
(2) all inventories and raw materials of the Transferor
used in or related to the Business (the "Contributed Inventory");
(3) all of the Transferor's right, title, and interest in
and to any and all buildings and improvements of every kind and
description, including, without limitation, all fixtures, attachments,
appliances, equipment, machinery and other articles attached to said
buildings and improvements (collectively, "Improvements"), located on
the real property owned by the Transferor and related to the Business
(the "Owned Real Property") (the "Contributed Improvements on the
Owned Real Property");
(4) (a) all of the interest of and the rights and
benefits accruing to the Transferor as lessee under leases of real
property and all Improvements located thereon used in or related to
the Business, including without limitation those described in Schedule
3.E. attached hereto (the "Contributed Leasehold Premises"), and (b)
all leases or rental agreements covering machinery, equipment, tools,
supplies, vehicles, furniture and fixtures and other fixed assets and
personal property used in or related to the Business, including
without limitation those described in Schedule 1.A. attached hereto
(the leasehold rights and improvements described in clauses (a) and
(b) are collectively referred to as the "Contributed Leasehold
Rights");
(5) all of the rights and benefits accruing to the
Transferor under all sales orders, sales contracts, supply contracts,
purchase orders and purchase commitments used in or related to the
Business and made by the Transferor in the ordinary course of
business, all other agreements to which the Transferor is a party or
by which it is bound with respect to the Business, including, without
limitation, the Real Estate Contracts, and all other choses in action,
causes of action and other rights of every kind of the Transferor, in
each case relating to or necessary for the operation of the Business
(the "Contributed Contract and Other Rights");
(6) all operating data and records of the Transferor
related to the Business, including, without limitation, customer
lists, financial, accounting and credit records, correspondence,
budgets and other similar documents and records (the "Contributed
Records");
(7) all of the proprietary rights of the Transferor
related to the Business, including, without limitation, all
trademarks, trade names, patents, patent applications, licenses
thereof, trade secrets, technology, know-how, formulae, designs and
drawings, computer software, slogans, copyrights, processes, operating
rights, other licenses and permits, and other similar intangible
property and rights relating to the Business (the "Contributed
Proprietary Rights");
(8) all prepaid and deferred items of the Transferor
related to the Business, including, without limitation, prepaid
rentals, insurance, taxes and unbilled charges and
3
<PAGE> 5
deposits relating to the operation of the Business (the "Contributed
Prepaid Items"); and
(9) all of the Transferor's right, title and interest in
and to its corporate and trade names and all of the other intangibles
of the Transferor used in or related to the Business (the "Contributed
Intangibles").
B. EXCLUDED ASSETS.
Anything to the contrary in Section 1.A. notwithstanding, the
Contributed Assets shall exclude the following assets of the Transferor: (1)
the Consideration (as hereinafter defined) and the Transferor's other rights
under this Agreement; (2) any shares of capital stock of Boston Pacific which
are owned and held by the Transferor; (3) the corporate minute books and stock
records of the Transferor; (4) the Transferor's right, title, and interest in
and to the Owned Real Property, which Owned Real Property shall be leased by
the Transferor to the Transferee pursuant to certain Ground Lease Agreements
between the Transferor and the Transferee, each of which Ground Lease Agreement
shall be in the form attached hereto as Exhibit B (the "Ground Lease
Agreement"); (5) the Transferor's right, title and interest in and to the
fixed assets owned by the Transferor and related to the Business (the "Owned
Fixed Assets"), which Owned Fixed Assets shall be leased by the Transferor to
the Transferee pursuant to a certain Equipment Lease Agreement between the
Transferor and the Transferee, which Equipment Lease Agreement shall be in the
form attached hereto as Exhibit C.; and (6) those assets described in
Schedule 1.B.
2. CONSIDERATION TO BE EXCHANGED FOR CONTRIBUTED ASSETS.
A. CONSIDERATION AND RIGHT TO ACQUIRE ADDITIONAL UNITS.
As consideration for the Contributed Assets (the "Consideration"), the
Transferee agrees, subject to the terms, conditions and limitations set forth
in this Agreement, to deliver to the Transferor the Exchange Units plus cash,
all determined in accordance with the provisions hereof. The number of Class A
Exchange Units to be delivered to the Transferor shall be 62,000. The number of
Class B Exchange Units to be delivered to the Transferor shall be the quotient
derived by dividing (a) the difference between (i) the sum of the Contributed
Assets Valuation (hereinafter defined) as of March 27, 1995 plus the net loss of
the Business through March 27, 1995 (the "Original Net Loss") and (ii)
$620,000 by (b) $1,000. The amount of cash to be delivered to the Transferor
shall be an amount equal to the sum of (y) the difference between the
Contributed Assets Valuation as of the Closing Date and the Contributed Assets
Valuation as of March 27, 1995, and (z) the net loss of the Business expressed
as a positive number for the period from March 28, 1995 to the Closing Date
(the "Closing Date Net Loss"). All amounts specified herein shall be determined
in accordance with generally accepted accounting principles applied on a
consistent basis (the "Cash Calculation"). In the event the Cash Calculation
results in a positive number, the Transferor shall pay said amount to the
Transferee at the Closing. For purposes hereof, the term "Contributed Assets
Valuation" shall mean the sum of the net book value of the Contributed Fixed
Assets, Contributed Improvements on the Owned Real Property, Contributed
Inventory, Contributed Leasehold Rights, Contributed Proprietary Rights,
Contributed Prepaid Items, and
4
<PAGE> 6
Contributed Intangibles. The Original Net Loss and the Closing Date Net Loss
shall not include depreciation of the Owned Fixed Assets. Subject to the
provisions of Section 2.F. below, the parties agree that the Contributed Assets
Valuations and the calculations of the Original Net Loss and Closing Date Net
Loss shall be agreed upon as of the Closing Date by the Transferor, the
Transferee, and BCI.
Subject to the terms and conditions described herein, the Transferor
shall also have the right to acquire up to $15,000,000 of additional Class B
membership units of the Transferee, whether pursuant to the provisions hereof
or as otherwise contemplated under any other agreement between or among the
Transferee, the Transferor, BCI or any or all of the foregoing. After the
three (3) month anniversary of the Closing Date, in connection with each
request the Transferee makes for an advance under the Loan Agreement between
the Transferee and BCI to be entered into as of the Closing Date following, the
Transferee shall, simultaneously therewith, request the Transferor to purchase
additional Class B membership units at a price equal to $1,000 per unit (each
such request to the Transferor to purchase the Class B membership units is
herein referred to as a "Request to Purchase"). Each such Request to Purchase
Class B membership units shall be for an aggregate purchase price equal to
19.048% of the Draw Amount (as defined in Section 1.11 of the Loan
Agreement) the ("Purchase Price"). Within 7 days after receipt of the Request
to Purchase, the Transferor shall notify the Transferee and BCI in writing that
(1) the Transferor elects to purchase the requested number of Class B
membership units, or (2) the Transferor elects to purchase some but not all of
the Class B membership units (a "Partial Purchase"), or (3) the Transferor has
declined the Request to Purchase. If the Transferor elects to purchase the
additional Class B membership units, (i) the Transferor shall pay to the
Company the Purchase Price (or portion thereof if Transferor elects a Partial
Purchase) for the Class B membership units by wire transfer of immediately
available funds to the Transferee's bank account, and (ii) the Transferee shall
issue the requisite number of Class B membership units, which units shall be
subject to the Pledge Agreement (as defined in the Loan Agreement). In the
event the Transferor shall have declined Requests to Purchase, in full or in
part, in the aggregate amount of $1,500,000, the Transferor's option to acquire
up to $15,000,000 of additional Class B membership units or any remaining
portion thereof shall automatically terminate without notice. All transactions
under this subsection shall be consummated in compliance with all applicable
federal and state securities laws.
B. ASSUMED LIABILITIES.
The Transferee agrees to and will at the Closing assume and agree to pay,
discharge and perform when lawfully due the obligations of the Transferor under
the leases described in Schedule 3.E which arise and relate to periods after
the Closing and the items set forth on Schedule 2.B. attached hereto (the
"Assumed Liabilities"). The Transferee shall not assume or otherwise be
responsible for any other liabilities, contracts, commitments, or obligations
of the Transferor of any nature whatsoever (all such other liabilities,
contracts, commitments, and obligations, including contingent and off-balance
sheet liabilities and particularly including all liabilities or obligations
arising or relating to acts, events, or omissions prior to the Closing, being
herein collectively referred to as the "Excluded Liabilities").
5
<PAGE> 7
C. EXCLUDED LIABILITIES.
Anything to the contrary in Section 2.B. notwithstanding, the Assumed
Liabilities shall exclude the following liabilities, contracts, commitments and
other obligations of the Transferor (the "Excluded Liabilities"):
(1) the Transferor's obligations and any liabilities
arising under this Agreement;
(2) any obligation for federal, state, local or foreign
income liability (including interest and penalties) arising from the
Transferor's operation of the Business up to the Closing Date or
arising out of the contribution by the Transferor of the Contributed
Assets pursuant hereto, including without limitation the liabilities,
if any, shown on the Balance Sheet as "Deferred Taxes";
(3) any obligation for any transfer, sales, use or other
taxes, fees or levies (including motor vehicle sales taxes) imposed by
any state or other governmental entity on or arising out of the
contribution of the Contributed Assets pursuant hereto;
(4) any obligation or liability, known or unknown,
arising in tort, strict liability, or otherwise for damages due to
actions or omissions to operation of the Business or the Stores up to
the Closing Date, unless expressly listed as an Assumed Liability on
Schedule 2.B hereto;
(5) any obligation or liability of the Transferor except
as listed in Section 2.B. or on Schedule 2.B.; and
(6) any liability, contract, commitment or other
obligation of the Transferor, known or unknown, fixed or contingent,
the existence of which will make any representation or warranty of the
Transferor contained in or made pursuant to this Agreement incomplete,
inaccurate or untrue.
The Transferor shall be responsible for the prompt payment or discharge of
all Excluded Liabilities.
D. NO EXPANSION OF THIRD PARTY RIGHTS.
The assumption by the Transferee of the Assumed Liabilities shall in
no way expand the rights or remedies of any third party against the Transferee
or the Transferor as compared to the rights and remedies which such third party
would have had against the Transferor had the Transferee not assumed such
liabilities. Without limiting the generality of the preceding sentence, the
assumption by the Transferee of the Assumed Liabilities shall not create any
third party beneficiary rights.
6
<PAGE> 8
E. ALLOCATION OF THE CONSIDERATION AMONG THE CONTRIBUTED ASSETS.
The Consideration shall be allocated among each item or class of the
Contributed Assets (e.g., fixtures and equipment, leasehold improvements,
goodwill) as reasonably determined by mutual agreement of the parties in
compliance with applicable law. In the event the parties do not agree on such
an allocation, such reasonable allocation shall be determined by a tax attorney
selected by the parties. The Transferor and the Transferee agree that they
will prepare and file their federal and any state or local income tax returns
based on such allocation of the Contribution. The Transferor and the
Transferee agree that they will prepare and file any notices or other filings
required pursuant to Section 1060 of the Internal Revenue Code of 1986, as
amended (the "Code"), and that any such notices or filings will be prepared
based on such allocation of the Consideration.
F. POST CLOSING ADJUSTMENT OF CONSIDERATION.
The Transferee shall have the right, during the sixty (60) day period
immediately following the Closing Date, to verify the Contributed Assets
Valuations and the Original Net Loss and the Closing Date Net Loss described in
Section 2.A. above. The Transferor hereby agrees that the Transferee shall
have access to its books and records in order to perform such verification. In
the event the Transferee determines within said sixty (60) day period that it
disputes the Contributed Assets Valuations, the Original Net Loss calculation,
or the Closing Date Net Loss calculation, the Transferee shall notify the
Transferor of such dispute (the "Transferee's Notice"). During the (15) day
period following the Transferor's receipt of the Transferee's Notice, the
Transfer and the Transferee shall endeavor to reach agreement on the
Contributed Assets Valuations, the Original Net Loss calculation, and the
Closing Date Net Loss calculation. If the parties are unable to reach agreement
within such (15) day period, the matter shall be submitted to Arthur Andersen,
LLP, a firm of independent certified public accountants, the decision of which
shall be final and binding upon the Transferor and the Transferee. The
Transferor and the Transferee shall bear equally the expenses of Arthur
Andersen, LLP. If it is determined that the Consideration delivered by the
Transferee to the Transferor at the Closing was erroneous in light of the
foregoing verification, the Transferor and the Transferee agree to appropriately
adjust the Consideration at the time of such determination, which adjustment may
involve the delivery of cash or return of Exchange Shares to the Transferee.
3. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR.
In order to induce the Transferee to enter into this Agreement and to
consummate the transactions contemplated hereunder, the Transferor makes the
following representations and warranties:
A. ORGANIZATION, POWER AND AUTHORITY OF THE TRANSFEROR.
The Transferor is a corporation duly organized and legally existing in
good standing under the laws of its state of incorporation and has full
corporate power and authority (i) to own or lease its properties and to carry
on its business as it is now being conducted, (ii) to enter into this Agreement
and to sell, convey, transfer, assign and deliver the Contributed Assets to the
Transferee
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as provided herein, and (iii) to carry out the other transactions and agreements
contemplated hereby. The Transferor is legally qualified to transact business
as a foreign corporation in each of the jurisdictions in which its business or
Property is such as to require that it be thus qualified, and it is in good
standing in each of the jurisdictions in which it is so qualified. Except as
set forth on Schedule 3.A., the Transferor has no subsidiaries and owns no
equity interest in any corporation, partnership, joint venture, association or
other entity.
B. FINANCIAL STATEMENTS OF THE TRANSFEROR.
The Transferor has previously furnished to the Transferee: (1) an
unaudited balance sheet at January 31, 1995 (the "Balance Sheet") with respect
to the Business; and (2) an unaudited statement of income for the year ended
January 31, 1995 (the "Income Statement"), including the notes pertaining
thereto (the "Financial Statements"), of the Business.
The Financial Statements present fairly in accordance with generally
accepted accounting principles, the consolidated financial position of the
Business at the said balance sheet date and the results of the Transferor's
operation of the Business for each of the said periods covered, and have been
certified by the Chief Financial Officer of the Transferor to such effect, such
certification being attested to by the Secretary of the Transferor and
referred to herein as the "CFO Certificate."
C. LIABILITIES OF THE TRANSFEROR.
The Business has no liabilities or obligations, either accrued,
absolute, contingent or otherwise, which are required to be reported under
generally accepted accounting principles, except: (i) to the extent reflected or
taken into account in determining net worth in the Balance Sheet and not
heretofore paid or discharged; (ii) to the extent specifically set forth in any
of the schedules attached hereto; and (iii) normal liabilities incurred in
the ordinary course of the Transferor's operation of the Business since the
date of the Balance Sheet.
D. TAX MATTERS.
(1) The Transferor has timely filed all tax returns and
reports required to be filed by it with respect to the Business,
including, without limitation, all federal, state, local and foreign
tax returns, and has paid in full or made adequate provision by the
establishment of reserves for all taxes and other charges which have
become due with respect to the Business. There is no tax deficiency
proposed or, to the Transferor's knowledge, threatened against the
Transferor with respect to the Business. There are no tax liens upon
any property or assets of the Business other than liens for taxes
which are not yet due and payable. The Transferor has made all
payments of estimated taxes when due in amounts sufficient to avoid
the imposition of any penalty with respect to the Business.
(2) All taxes and other assessments and levies which the
Transferor was required by law to withhold or to collect with respect
to the Business have been duly withheld and collected, and have been
paid over to the proper governmental entity or
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are being held by the Transferor in separate bank accounts for such
payment, and all such withholdings and collection and all other
payments due in connection therewith as of the date of the Balance
Sheet are duly reflected on the Balance Sheet.
(3) The federal and state income tax returns of the
Transferor with respect to the Business have been closed by applicable
statute or, to the Transferor's knowledge, examined by all appropriate
tax authorities. Except as set forth in Schedule 3.D., there are no
outstanding agreements or waivers extending the statute of limitations
applicable to any federal or state income tax returns of the
Transferor for any period with respect to the Business.
(4) The Transferor is not currently being audited by, and
has not received any notice of intention to audit from, any federal,
state or local taxing authority.
E. REAL ESTATE OF THE TRANSFEROR.
(1) Attached hereto as part of Schedule 3.E. is an
accurate and complete list of each lease agreement with respect to the
Contributed Leasehold Premises which list sets forth: (i) the lessor
and lessee thereof and the date and term of the lease governing such
property; and (ii) the location, including address, thereof. The
leases covering the Contributed Leasehold Premises are in full force
and effect, and the Transferor is not in default or breach under any
such lease. To the Transferor's knowledge, no event has occurred
which with the passage of time or the giving of notice or both would
cause a material breach of or default under any of such leases. There
is no breach or, to the Transferor's knowledge, anticipated breach by
any other party to any such lease. The Transferor has delivered true,
correct and complete copies of each lease agreement covering the
Contributed Leasehold Premises to the Transferee.
(2) The Transferor has valid leasehold interests in the
Contributed Leasehold Premises, such interests being free and clear of
all liens, mortgages, pledges, encumbrances, charges, assessments, or
unrecorded restrictions, covenants and easements or title defects of
any nature whatsoever.
(3) The portions of the buildings located on the
Contributed Leasehold Premises and Owned Real Property that are used
in the Business are each in good operating condition, normal wear and
tear excepted, and are in the aggregate sufficient for the
Transferor's current normal and reasonably anticipated sales levels
and business activities as conducted there.
(4) Each parcel of the Contributed Leasehold Premises and
the Owned Real Property: (i) has direct access to public roads or
access to public roads by means of a perpetual access easement, such
access being sufficient to satisfy the current and reasonably
anticipated normal transportation requirements of the Business as
presently conducted at such parcel; and (ii) is served by all
utilities in such quantity and quality
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as are sufficient to satisfy the Transferor's current normal and
reasonably anticipated sales levels and business activities as
conducted there.
(5) The Transferor has not received notice of: (i) any
condemnation proceeding with respect to any portion of the Contributed
Leasehold Premises or the Owned Real Property or any access thereto,
and no proceeding is contemplated by any governmental authority; or
(ii) any special assessment which may affect any parcel of the
Contributed Leasehold Premises or the Owned Real Property, and, to the
Transferor's knowledge, no such special assessment is contemplated by
any governmental authority except the County of Orange which is
contemplating a number of solutions to its financial situation,
including the imposition of a special assessment.
F. GOOD TITLE TO AND CONDITION OF THE CONTRIBUTED ASSETS.
(1) Except as set forth on Schedules 1.A. and 3.F., the
Transferor has good and marketable title to all of the Contributed
Assets (other than the Contributed Leasehold Premises), free and clear
of all liens, mortgages, pledges, encumbrances or charges of every
kind, nature, and description whatsoever.
(2) The Contributed Fixed Assets are in good operating
condition, normal wear and tear excepted.
(3) The Contributed Inventory consists of items of a
quality and quantity usable and saleable in the normal course of the
Transferor's operation of the Business and at values in the aggregate
at least equal to the values at which such items are carried on the
Transferor's books. The values of obsolete or slow-moving inventory
and inventory of below standard quality, if any, have been written
down to the lower of cost or realizable market values or have been
written off. The value at which the Contributed Inventory is carried
on the Balance Sheet reflects the normal inventory valuation policies
of the Transferor, stating inventories at the lower of cost or market
on a last-in first-out basis, all determined in accordance with
generally accepted accounting principles.
G. [INTENTIONALLY OMITTED].
H. LICENSES AND PERMITS OF THE TRANSFEROR.
The Transferor possesses all licenses and required governmental or
official approvals, permits or authorizations, the failure to possess which
would have a material adverse effect on the Business, including, without
limitation, the financial condition or results of operations of the Business.
All such licenses, approvals, permits and authorizations are in full force
and effect, the Transferor is in compliance with their requirements, and no
proceeding is pending or, to the Transferor's knowledge, threatened to revoke
or amend any of them. Except as indicated on such Schedule 3.H., none of
such licenses, approvals, permits and authorizations are or will be
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impaired or in any way affected by the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
I. PROPRIETARY RIGHTS OF THE TRANSFEROR.
(1) The Contributed Proprietary Rights include all
proprietary rights, the failure to possess which would have a material
adverse effect on the Business, including, without limitation, the
financial condition or results of operations of the Business.
Schedule 3.1. contains a complete list of all of the Contributed
Proprietary Rights.
(2) Except as set forth on Schedule 3.I.,(i) the
Transferor owns all right, title and interest in and to all of the
Contributed Proprietary Rights, (ii) there have been no claims made
against the Transferor asserting the invalidity, abuse, misuse, or
unenforceability of any such rights, and, to the Transferor's
knowledge, there are not grounds for the same, (iii) the Transferor
has not received a notice of conflict with the asserted rights of
others within the last five years, and (iv) to the Transferor's
knowledge, the Transferor's conduct of the Business has not infringed
any rights of others.
J. ADEQUACY OF THE CONTRIBUTED ASSETS AND THE TRANSFEROR'S
RELATIONSHIPS WITH ITS CUSTOMERS AND SUPPLIERS.
The Contributed Assets constitute, in the aggregate, all of the
property necessary or currently utilized for the conduct of the Business in the
manner in which and to the extent to which it is currently being conducted. The
Transferor knows of no written or oral communication, fact, event or action
which exists or has occurred prior to the date of this Agreement, which would
tend to indicate that:
(1) any current customer of the Business which accounted
for over 1% of the total consolidated net revenues of the Business
for the year ended January 31, 1995; or
(2) any current supplier to the Transferor of items
essential to the conduct of the Business, which items cannot be
replaced at comparable cost and the loss of which would have a
material adverse effect on the Business or operations thereof,
will terminate its business relationship with the Transferor. Neither the
Transferor nor any of its affiliates (as hereinafter defined) has any direct or
indirect interest in any customer, supplier or competitor of the Business, or in
any person from whom or to whom the Transferor leases real or personal property
related to the Business, or in any person with whom the Transferor is doing
business with respect to the Business. Except for that certain Area Development
Agreement between Carl Karcher Enterprises and BCI and those certain Franchise
Agreements between the Transferor and BCI and this Agreement, all as set forth
on Schedule 3.J. hereto, the Transferor is not restricted by agreement from
carrying on the Business anywhere in the world.
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K. DOCUMENTS OF AND INFORMATION WITH RESPECT TO THE TRANSFEROR.
(1) Schedule 3.K. attached hereto accurately and
completely sets forth a true and complete list of the following: (i)
each policy of insurance in force with respect to the Business and
each of the performance or other surety bonds maintained by the
Transferor in the conduct of the Business; (ii) each loan, credit
agreement, guarantee, security agreement or similar document or
instrument to which the Transferor is a party or by which it is bound
and which relates to or otherwise affects the Business; (iii) each
lease of personal property to which the Transferor is a party or by
which it is bound and which relates to or otherwise affects the
Business; (iv) any other agreement, contract or commitment to which
the Transferor is a party or by which it is bound which involves a
future commitment by the Transferor in excess of $5,000 and which
cannot be terminated without liability on 30 days or less notice and
which relates to or otherwise affects the Business; (v) the name and
current annual salary of each employee of the Business and the profit
sharing, bonus or any other form of compensation (other than salary)
paid or payable by the Transferor to or for the benefit of each such
person for the year ended January 31, 1995, and any employment or
other agreement of the Transferor with any of such employees; and (vi)
the name of each bank in which the Transferor has an account or
safe-deposit box, the name in which the account or box is held and the
names of all persons authorized to draw thereon or to have access
thereto, provided same relate to or otherwise affect the Business.
The Transferor has previously furnished the Transferee with a true and
complete copy of each such agreement, contract or commitment listed in
Schedule 3.K. There has not been any default in any obligation to be
performed by the Transferor which has had or may have a material
adverse effect on the Business or the Contributed Assets, or, to the
Transferor's knowledge, any other party under any such instrument.
(2) The Transferor carries insurance, which is adequate
in character and amount, with reputable insurers, covering the
Business, and it has provided all required performance or other surety
bonds. All premiums and other payments which have become due under the
policies of insurance listed in Schedule 3.K. have been paid in full,
all of such policies are now in full force and effect and the
Transferor has not received notice from any insurer, agent or broker
of the cancellation of, or any material increase in premium with
respect to, any of such policies or bonds. Except as set forth in
Schedule 3.K, the Transferor has not received any notification from
any insurer, agent or broker denying or disputing any claim made by
the Transferor or denying or disputing any coverage for any such claim
or the amount of any claim, with respect to the Business. Except as
set forth in Schedule 3.K., the Transferor has no claim against any of
its insurers under any of such policies pending or anticipated and, to
the Transferor's knowledge, there has been no occurrence of any kind
which would give rise to any such claim.
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L. LITIGATION INVOLVING THE TRANSFEROR.
Except as set forth in Schedule 3-L., there are no actions, suits,
claims, governmental investigations or arbitration proceedings pending or, to
the knowledge of the Transferor, threatened against or affecting the Transferor
or any of the Contributed Assets and, to the Transferor's knowledge, there is
no basis for any of the foregoing with respect to the Contributed Assets.
There are no outstanding orders, decrees or stipulations issued by any federal,
state, local or foreign judicial or administrative authority in any proceeding
to which the Transferor is or was a party.
M. THE RECORDS OF THE TRANSFEROR.
The Transferor has previously furnished the Transferee with copies of
the Transferor's charter and all amendments thereto to date (certified by the
Chief Executive Officer of the Transferor with such certification attested to
by the Secretary of the Transferor) and of the Transferor's bylaws (certified
by the Transferor's Secretary), and such copies are correct and complete in all
respects. The Contributed Records are accurate and complete in all material
respects and there are no material matters as to which appropriate entries
have not been made in such records. A record of all action taken by the
shareholders and the board of directors of the Transferor and all minutes of
its meetings are contained in the minute books of the Transferor and are
accurate and complete. The records, book and stock ledger of the Transferor
contain an accurate and complete record of all issuances, transfers and
cancellations of shares of capital stock of the Transferor. The books and
records of the Transferor properly reflect all transactions, properties,
assets and liabilities of the Transferor.
N. NO MATERIAL ADVERSE CHANGE.
Since the date of the Balance Sheet, there has not been (i) any change
in the Business, other than changes occurring in the ordinary course of
business which have not had a material adverse effect on the business,
properties, financial condition, business prospects or operating results of the
Business, or (ii) any overtly threatened or prospective event or condition of
any character whatsoever which could adversely affect the Contributed Assets or
the business, financial condition or results of operations of the Business.
O. ABSENCE OF CERTAIN ACTS OR EVENTS.
Except as disclosed in Schedule 3.0., since the date of the Balance
Sheet, the Transferor has not: (i) paid any bonus or increased the rate of
compensation of any of the employees of the Business; (ii) sold or transferred
any of the assets of the Business other than in the ordinary course of
business; (iii) made or obligated itself to make capital expenditures with
respect to the Business aggregating more than $5,000; (iv) made any payment in
respect of the Excluded Liabilities other than in the ordinary course of
business; (v) incurred any material obligations or liabilities (including any
indebtedness) or entered into any material transaction with respect to the
Business, except for this Agreement and the transactions contemplated hereby;
(vi) suffered any theft, damage, destruction or casualty loss with respect to
the Business in excess of $5,000, or (vii) declared or paid any dividends.
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P. COMPLIANCE WITH LAWS BY THE TRANSFEROR.
(1) The Transferor is in compliance with all laws,
regulations and orders applicable to it, the Business, or the
Contributed Assets, the failure with which to comply would have a
material adverse effect on the Business or the Contributed Assets.
The Transferor has not received notification of any asserted past or
present failure to comply with any laws and, to the Transferor's
knowledge, no proceeding with respect to any such violation is
contemplated.
(2) Neither the Transferor nor any employee of the
Transferor, has made any payment of funds in connection with the
Business prohibited by law, and no funds have been set aside to be
used in connection with the Business for any payment prohibited by
law.
Q. ENVIRONMENTAL MATTERS.
The Transferor has not transported, stored, treated, or disposed of,
nor has it allowed or arranged for any third parties to transport, store,
handle, treat, or dispose of Hazardous Substances or other waste to or at any
location other than a site lawfully permitted to receive such Hazardous
Substances or other waste for such purposes, nor has it performed, arranged
for, or allowed by any method or procedure such transportation, storage,
treatment, or disposal in contravention of any laws or regulations or in any
manner giving rise to any liability whatsoever. The Transferor has not stored,
handled, treated, or disposed of, or allowed or arranged for any third parties
to store, handle, treat, or dispose of Hazardous Substances or other waste
upon property owned or leased by it, except as permitted by law. For purposes
of this Section 3.Q., the term "Hazardous Substances" shall include: (i) any
"Hazardous Substance", "Pollutant" or "Contaminant" as defined in the
Comprehensive Environmental Response, Compensation and Liability Act, as amend-
ed, 42 U.S.C. Sections 9601 et seq., or the regulations promulgated thereunder
("CERCLA"); (ii) any hazardous waste as that term is defined in applicable
state or local law; (iii) any substance containing petroleum, as that term is
defined in Section 9001(8) of the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Section 6991(8) or in 40 C.F.R. Section 280.1; or (iv) any
other substance for which any governmental entity with jurisdiction over the
Contributed Leasehold Premises or the Owned Real Property and the Improvements
located thereon requires special handling in its generation, handling, use,
collection, storage, treatment, or disposal.
There has not occurred, nor is there currently occurring, a Release
of any Hazardous Substance on, into, or beneath the surface of any parcel of the
Contributed Leasehold Premises or the Owned Real Property and the Improvements
located thereon. For purposes of this Section 3.Q., the term "Release" shall
have the meaning given it in CERCLA.
The Transferor has not shipped, transported, or disposed of, nor has
it allowed or arranged, by contract, agreement, or otherwise, for any third
parties to ship, transport, or dispose of, any Hazardous Substance or other
waste to or at a site which, pursuant to CERCLA or any similar state law,
(i) has been placed on the National Priorities List or its state equivalent,
or (ii) the
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Environmental Protection Agency or the relevant state agency has proposed or is
proposing to place on the National Priorities List or its state equivalent.
The Transferor has not received notice, nor does it have knowledge of any facts
which could give rise to any notice, that the Transferor is a potentially
responsible party for a federal or state environmental cleanup site or for
corrective action under CERCLA or any other applicable law or regulation. The
Transferor has not submitted nor was it required to submit any notice pursuant
to Section 103(c) of CERCLA with respect to the Contributed Leasehold Premises
or the Owned Real Property and the Improvements located thereon. The Transferor
has not received any written or oral request for information in connection with
any federal or state environmental cleanup site. The Transferor has not been
required to nor has it undertaken any response or remedial actions or clean-up
actions of any kind at the request of any federal, state, or local governmental
entity, or at the request of any other person or entity.
The Transferor does not use, and has not used, any Underground Storage
Tanks, and there are not now nor have there ever been any Underground Storage
Tanks on the Contributed Leasehold Premises or the Owned Real Property and the
Improvements located thereon. For purposes of this Section 3.Q., the term
"Underground Storage Tanks" shall have the meaning given it in the Resource
Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.).
There is no asbestos in or on any of the Contributed Leasehold
Premises or the Owned Real Property and the Improvements located thereon.
There are no laws, regulations, ordinances, licenses, permits, or
orders relating to environmental or worker safety matters requiring any work,
repairs, construction, or capital expenditures with respect to the assets or
properties of the Transferor.
Schedule 3.Q. identifies: (i) all environmental audits, assessments,
or occupational health studies undertaken by the Transferor or its agents or
known to be taken by governmental agencies; (ii) the results of any ground,
water, soil, air, or asbestos monitoring undertaken with respect to the
Contributed Leasehold Premises or the Owned Real Property and the Improvements
located thereon; (iii) all written communications between the Transferor and any
environmental agencies; and (iv) all citations issued under the Occupational
Safety and Health Act (29 U.S.C. Sections 651 et seq.).
R. LABOR RELATIONS OF THE TRANSFEROR.
The Transferor is not a party to or bound by any collective bargaining
agreement or any other agreement with a labor union with respect to the
Business and, to the knowledge of the Transferor, there has been no effort by
any labor union during the 24 months prior to the date hereof to organize any
employees of the Business into one or more collective bargaining units. There
is not pending or, to the knowledge of the Transferor, threatened any labor
dispute, strike or work stoppage which affects or which may affect the
Business or which may interfere with its continued operation. Neither the
Transferor nor any agent, representative or employee of the Transferor has
within the last 24 months committed any unfair labor practice as defined in
the National Labor Relations Act, as amended, and there is not now pending or,
to the knowledge of the Transferor threatened any charge or complaint against
the Transferor by or with the National
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Labor Relations Board or any representative thereof. There has been no strike,
walkout or work stoppage involving any of the employees of the Business during
the 24 months prior to the date hereof. The Transferor is not aware that any
executive or key employee or group of employees with respect to the Business
has any plans to terminate his, her or their employment with the Transferor.
S. Employee Benefits.
Except as set forth on Schedule 3.S., the Transferor does not maintain
or contribute to any "employee pension benefit plan", as such term is defined in
Section 3(2) of the Employment Retirement Income Security Act of 1974, as
amended ("ERISA") with respect to the Business. Each employee pension benefit
plan listed on Schedule 3.S. has complied in all material respects with, and
been administered in all material respects in accordance with, the applicable
requirements of ERISA, any other applicable law and the terms of such plan.
The only "employee welfare benefit plan," as such term is defined in Section
3(1) of ERISA, which the Transferor maintains or to which the Transferor
contributes is group health and life insurance.
T. Product Liability Claims; - Product Warranties and Indemnities.
Schedule 3.T. sets forth all product liability claims which are
pending or, to the knowledge of the Transferor, threatened against the
Transferor with respect to products sold by the Business. Schedule 3.T. also
sets forth, for the last fiscal year of the Transferor, and for the interim
period ended on the date hereof, the aggregate amount of product liability
claims paid by or on behalf of the Transferor with respect to the Business.
The Transferor has not extended to any person any product warranties,
indemnities, or guarantees except those imposed by law with respect to the
Business.
U. Due Authorization; Binding Obligation.
The execution, delivery and performance of this Agreement and each of
the other agreements contemplated hereby and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of the Transferor. This Agreement has been duly executed and
delivered by the Transferor and is a valid and binding obligation of the
Transferor, enforceable in accordance with its terms. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will: (i) conflict with or violate any provision of the Transferor's
charter or bylaws, or of any law, ordinance or regulation or any decree or
order of any court or administrative or other governmental body which is either
applicable to, binding upon or enforceable against the Transferor; (ii) result
in any breach of or default under any mortgage, contract, agreement, indenture,
will, trust or other instrument which is either binding upon or enforceable
against the Transferor or the Contributed Assets; or (iii) violate any legally
protected right arising in the operation of the Transferor's business of any
individual or entity or give to any individual or entity a right or claim
against the Transferee or the Contributed Assets. No consent, approval, or
authorization of any governmental authority is required for the execution,
delivery and performance of this Agreement by the Transferor.
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V. ACCURACY OF INFORMATION FURNISHED BY THE TRANSFEROR OR THE
SHAREHOLDER.
No representation, statement or information made or furnished by the
Transferor to the Transferee, including those contained in this Agreement and
the various schedules attached hereto and the other information and statements
referred to herein and previously furnished by the Transferor to the
Transferee pursuant hereto, contains or shall contain any untrue statement of
a material fact or omits or shall omit any material fact necessary to make the
information contained therein not misleading.
W. BROKERS AND FINDERS.
The Transferor has not engaged or authorized any broker, investment
banker or third party to act on the Transferor's behalf, either directly or
indirectly, as a broker, finder or advisor in connection with the transaction
contemplated hereby.
X. INVESTMENT REPRESENTATIONS.
The Transferor understands that the Exchange Units have not been
registered under the Securities Act of 1933, as amended, or under the
securities laws of any state or other jurisdiction in reliance upon exemptions
for private offerings. The Transferor represents that the Exchange Units
being acquired hereunder are being acquired solely for its own account, for
investment and not with a view to or for resale, distribution, subdivision, or
fractionalization thereof. The Transferor acknowledges and is aware that
there are substantial restrictions on the transferability of the Exchange
Units as set forth in the Operating Agreement of the Transferee. The
Transferor has such knowledge and experience in financial and business matters,
understands the terms of the Operating Agreement, and is capable of evaluating
the relative risks and merits of the Exchange Units.
4. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEREE.
In order to induce the Transferor to enter into this Agreement and to
consummate the transactions contemplated hereunder, the Transferee makes the
following representations and warranties:
A. Organization, Power and Authority of the Transferee.
The Transferee is a limited liability company duly organized and
validly existing under the laws of the State of Delaware, with full power and
authority to enter into this Agreement and perform its obligations hereunder.
B. Due Authorization; Binding Obligation.
The execution, delivery and performance of this Agreement and all other
agreements contemplated hereby and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action of the
Transferee. This Agreement has been duly executed and
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delivered by the Transferee and is a valid and binding obligation of the
Transferee, enforceable in accordance with its terms. Neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will: (i) conflict with or violate any provision of the
Operating Agreement of the Transferee, or of any decree or order of any court
or administrative or other governmental body which is either applicable
to, binding upon or enforceable against the Transferee; or (ii) result in any
breach of or default under any material mortgage, contract, agreement,
indenture, will, trust or other instrument which is either binding upon or
enforceable against the Transferee.
5. ADDITIONAL COVENANTS, AGREEMENTS AND ACKNOWLEDGMENTS OF THE
TRANSFEROR.
In order to induce the Transferee to enter into this Agreement and to
consummate the transactions contemplated hereunder, the Transferor agrees with
the Transferee as follows:
A. NO OTHER DISCUSSIONS.
It will not, prior to the Closing Date, enter into discussions or
negotiate with or entertain or accept the unsolicited offer of any other party
concerning the potential sale of all or any part of the assets of the Business
to, or the merger or consolidation of the Business or Boston Pacific with, any
person other than the Transferee, except as may be required by law.
B. EFFORTS.
It will use its reasonable commercial efforts to cause to be satisfied
as soon as practicable and prior to the Closing Date all of the conditions set
forth in Section 6 to the obligation of the Transferee to accept the
Contributed Assets.
C. CONFIDENTIAL INFORMATION
The Transferor possesses and may further develop and/or acquire
certain confidential and proprietary information and trade secrets including,
but not limited to, information, methods, techniques, procedures and knowledge
developed or to be developed, by or for the Transferor and the Transferee
respecting the Business (the "Confidential Information").
The Transferor acknowledges and agrees that the Confidential
Information is confidential to and a valuable asset of the Business, is
proprietary, and includes trade secrets. The Transferor hereby agrees, that it:
(1) will not use the Confidential Information in any
other business or capacity; and
(2) will maintain the confidentiality of the Confidential
Information; and
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(3) will not make unauthorized copies of any portion of
the Confidential Information disclosed in written or other tangible
form.
Notwithstanding the foregoing, the obligations of the Transferor
specified above shall not apply to any Confidential Information which (i) is
disclosed or available to the public, or is otherwise in the public domain
through no act of the Transferor, its agents or any person or entity which has
received such Confidential Information from or through the Transferor, (ii) is
approved for release by written authorization of an officer of the Transferee,
or (iii) is required to be disclosed by proper order of a court of applicable
jurisdiction after adequate notice to the Transferee to seek a protective
order therefor, the imposition of which protective order the Transferor agrees
to approve and support. The Transferor acknowledges that this Section 5.C is
in addition to, and not in replacement of, any obligations of confidentiality
under any other agreement.
D. RESTRICTIVE COVENANT.
The Transferor acknowledges and agrees that the Transferee would be
unable to protect the Confidential Information against unauthorized use or
disclosure and the Transferee would be unable to realize the benefits of this
Agreement if the Transferor were permitted to engage in, hold interests in or
perform services for entities, other than the Transferee, conducting a business
which (1) offers food products, which are the same as or similar to the
Products (defined below) for consumer consumption through on-premises dining,
carry-out dining, delivery service, catering service or other distribution
channels; or (2) grants or has granted franchises or licenses or establishes
or has established joint ventures, for the development and/or operation of a
business or enterprise described in the foregoing clause (1) (a "Competitive
Business"). For purposes hereof the term "Products" shall mean Products
approved or required by BCI from time to time, in its sole discretion, for
sale at or from Boston Chicken/Boston Market Units, including, without
limitation, rotisserie-roasted chicken, potpies, carved ham, carved turkey,
meatloaf, soups, salads, desserts, baked goods and private label packaged
goods, provided that the foregoing products are subject to modification or
discontinuance in BCI's sole discretion, from time to time, and may include
additional or substitute products. The Transferor further acknowledges and
agrees that the restrictions contained in this Section 5.E. will not hinder
its activities under this Agreement or in general. The Transferor agrees that
for a period of two (2) years from the Closing Date, he/it shall not directly
or indirectly anywhere in the United States:
(1) have any interest as a record or beneficial owner in
any Competitive Business provided, however, the Transferor may have an
interest in any Competitive Business as a passive investor in such
Competitive Business provided such interest does not exceed three
percent (3%) of the outstanding equity securities of any company which
has a class of securities which is registered under Section 12 of the
Securities Exchange Act of 1934, as amended, or traded on a national
securities exchange; or
(2) perform services as a director, officer, manager,
employee, consultant, representative, agent, or otherwise for any
Competitive Business; or
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(3) divert or attempt to divert any business or any
customers of the Business, or the Transferee to any Competitive
Business.
The Transferor and the Transferee hereby acknowledge and agree that
for purposes hereof, the term "Competitive Business" shall not include Carl's
Jr. restaurants provided that such Carl's Jr. restaurants do not offer
rotisserie-roasted chicken, carved turkey, carved ham or meatloaf as dinner
entrees and provided further, that in no event shall the confidential
information of BCI or the Transferee be used in connection with Carl's Jr.
restaurants in any manner.
The parties hereto hereby acknowledge and agree that BCI is a third
party beneficiary of the provisions hereof and shall have the right to seek the
enforcement of same.
E. REMEDIES; WAIVER; JOINDER.
(1) The Transferor agrees that the provisions and
restrictions set forth above in Sections 5.C. and 5.D. and in other
portions hereof are necessary to protect the Transferee and its
successors and assigns in the protection of the Business. The
Transferor agrees that damages cannot compensate the Transferee in the
event of a violation of the covenants contained in Sections 5.C and
5.D. hereof, and that injunctive relief shall be essential for the
protection of the Transferee and its successors and assigns.
Accordingly, the Transferor agrees and consents that, in the event it
shall violate or breach any of said covenants the Transferee shall be
entitled to obtain (and it hereby consents to) such injunctive relief
against it, without bond, in addition to such further or other relief
as may appertain at equity or law. The exercise or enforcement by the
Transferee of any right or remedy hereunder shall not preclude the
exercise or enforcement by the Transferee of any other right or remedy
hereunder or which the Transferee has the right to enforce under
applicable law.
(2) Failure by either party to insist upon strict
compliance with any of the terms, covenants or conditions hereof shall
not be deemed a waiver of such term, covenant or condition, nor shall
any waiver or relinquishment of any right or remedy hereunder at any
one or more times be deemed a waiver or relinquishment of such right
or remedy at any other time or times.
(3) The Transferor agrees that it shall deliver to the
Transferee a joinder agreement pursuant to which Carl Karcher
Enterprises and CKER each agrees to join in and be bound by the
covenants set forth in Sections 5.C and 5.D hereof (the "Joinder
Agreement").
F. CONDUCT OF BUSINESS PRIOR TO CLOSING.
(1) From the date hereof until the Closing Date, the
Transferor shall: (a) conduct the Business in the manner in which it
has heretofore been conducted; (b) use reasonable commercial efforts
to (i) preserve the Business organization intact
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unless otherwise required by BCI, (ii) keep available the services of
its officers, employees, agents, and distributors, and (iii) preserve
its relationships with customers, suppliers, and others having dealings
with the Transferor; (c) maintain all of the Business properties in
customary repair, order and condition, reasonable wear and tear
excepted, and maintain insurance of such types and in such amounts
upon all of the Business properties and with respect to the conduct of
the Business as are in effect on the date of this Agreement. Without
the prior written consent of the Transferee, the Transferor shall not:
(i) grant any lien, pledge, security interest or other
encumbrance upon any of the assets of the Business;
(ii) create, incur, assume or guaranty any indebtedness
for borrowed money with respect to the Business;
(iii) make any capital expenditure with respect to the
Business which exceeds, either singly or in the
aggregate, Five Thousand Dollars ($5,000.00), except
capital expenditures incurred in the ordinary course
of business (which the parties agree that for all
purposes of this Agreement includes the opening of
additional Boston Chicken/Boston Market Stores);
(iv) increase the rate of compensation, pay any bonus,
incentive or other extraordinary compensation or
otherwise materially increase the benefits payable or
to become payable to any employee or independent
contractor of the Business (other than raises or
bonuses made in the ordinary course of business) or
make any material changes to the terms of employment
of any of said employees;
(v) change any accounting policies, procedures or
practices employed by it;
(vi) sell any of the assets of the Business other than
sales of inventory in the ordinary course of business
and sales of equipment made in the ordinary course
of business because of the replacement or abandonment
thereof;
(vii) pay or discharge any long-term liability other than
in accordance with its terms; or
(viii) except in the ordinary course of business enter into
any material contract, agreement or lease which
would be required to be disclosed hereunder, make
any change in any existing contracts, agreements or
leases other than in the ordinary course of business
(or unless otherwise permitted herein), suffer or
permit any defaults to occur
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by the Transferor under any contract or agreement or
as tenant under any lease, assign any lease or
sublease any Contributed Leasehold Premises.
G. ACCESS PENDING CLOSING.
From the date hereof to and including the Closing Date, the Transferor
shall, permit the Transferee and its accountants and other representatives, to
have the right of full and complete access to the books, records, offices, and
other facilities of the Transferor during normal business hours, for the
purpose of making such investigation of the financial condition and operations
of the Business as the Transferee or any such accountant or other
representative may reasonably deem necessary. The Transferee and its
representatives shall have the right to make and utilize copies or extracts of
the Transferor's books, records and other data and information which relates to
the Business for its due diligence investigation and other purposes in
connection with the transactions contemplated hereby.
H. CONSENTS OF THIRD PARTIES.
Prior to the Closing on the Closing Date, the Transferor shall obtain
or cause to be obtained all consents and other approvals of all lessors,
lenders, governmental authorities and other third parties which are required to
be obtained as a result of the transactions contemplated by this Agreement,
which consents and approvals shall continue each applicable lease, loan or
other arrangement related to the Business on substantially identical terms as
exist on the date hereof.
I. INTERIM FINANCIAL STATEMENTS.
From the date hereof to and including the Closing Date, the Transferor
shall promptly deliver to the Transferee interim four-week balance accounting
period sheets, cash flow and statements of income and retained earnings with
respect to the Business, through the end of the four-week accounting period
immediately preceding the Closing Date.
J. PUBLIC DISCLOSURE.
Except for delivery of any memorandum to, and discussions with
potential investors in the Transferee and disclosures necessary to effect the
transactions contemplated hereby, neither the Transferee nor the Transferor
shall provide any information with respect to such transactions to any third
parties not involved in the due diligence investigation except after
consultation with the other party. Further, neither party shall issue any
press release except upon consummation of the transactions contemplated by the
Agreement except with the consent of the other party and BCI, which will not be
unreasonably withheld or delayed or except as may be required to comply with
the Securities Act or applicable state laws.
6. CONDITIONS TO THE OBLIGATION OF THE TRANSFEREE.
The obligation of the Transferee to accept the Contributed Assets shall
be subject to the
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fulfillment at or prior to the Closing Date of each of the following
conditions:
A. ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE
OBLIGATIONS.
The representations and warranties of the Transferor contained in this
Agreement shall have been true and correct at and as of the date hereof, and
they shall be true and correct at and as of the Closing Date with the same
force and effect as though made at and as of that time. The Transferor shall
have performed and complied with all of its obligations by this Agreement to be
performed or complied with at or prior to the Closing Date. The Transferor
shall have delivered to the Transferee a certificate, dated as of the Closing
Date, signed by the Transferor's Chief Executive Officer certifying that such
representations and warranties are thus true and correct and that all such
obligations have been thus performed and complied with (the "CEO Certificate").
B. DELIVERIES.
The deliveries of the Transferor described in Section 8.B. shall have
been received.
C. RECEIPT OF NECESSARY CONSENTS.
All necessary consents or approvals of third parties to any of the
transactions contemplated hereby, the absence of which would materially affect
the Transferee's rights hereunder, shall have been obtained and shown by
written evidence satisfactory to the Transferee. The Transferor shall have
obtained the consent of all lessors of the Contributed Leasehold Premises to
the transactions contemplated hereby and shall have delivered written evidence
thereof to the Transferee in form satisfactory to the Transferee.
D. DUE DILIGENCE.
Transferee shall have been satisfied, in its sole and absolute
discretion, with the results of its business, financial, and legal due diligence
investigation of the Business and the Contributed Assets.
E. BOARD OF DIRECTORS' APPROVAL.
The Transferor shall have delivered to the Transferee a certified
copy of the resolutions duly adopted by the Board of Directors of the
Transferor, authorizing the execution of this Agreement and the consummation of
the transactions contemplated hereby.
F. BCI LOAN AGREEMENT.
The Transferee and BCI shall have executed the Loan Agreement
substantially in the form attached as Exhibit A.
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G. BCI DEVELOPMENT AGREEMENT.
The Transferee and BCI shall have executed an Area Development
Agreement substantially in the form attached as Exhibit D.
H. FRANCHISE AGREEMENTS.
The Transferee and BCI shall have executed a Franchise Agreement,
substantially in the form attached as an exhibit to the Area Development
Agreement, with respect to each Store.
I. TERMINATION AND GENERAL RELEASE.
The Transferor, Boston Pacific, and BCI shall have executed a
Termination Agreement and General Release substantially in the form attached
as Exhibit E.
J. GROUND LEASE AGREEMENTS.
The Transferor and the Transferee shall have executed a Ground Lease
Agreement, in the form attached hereto as Exhibit B, with respect to each
parcel of the Owned Real Property.
K. EQUIPMENT LEASE AGREEMENT.
The Transferor and the Transferee shall have executed an Equipment
Lease Agreement, in the form attached hereto as Exhibit C, with respect to each
Store and the Owned Fixed Assets.
L. LENDER'S CONSENT.
The Transferee shall have received a written consent from Bank of
America, lender to CKER, consenting to the transactions contemplated by this
Agreement.
M. OPERATING AGREEMENT.
The Transferor and CKER shall have executed an Amended and
Restated Operating Agreement forming the Transferee in form and substance
acceptable to BCI.
N. AGREEMENT REGARDING OPTIONS TO PURCHASE.
The Transferor, CKER, BCI, the Transferee, and BC Real Estate
Investments, Inc. ("BCREI"), a wholly-owned subsidiary of BCI, shall have
executed an Agreement Regarding Options to Purchase substantially in the form
attached hereto as Exhibit H.
7. CONDITIONS TO OBLIGATIONS OF THE TRANSFEROR AND THE SHAREHOLDER.
The obligations of the Transferor to contribute the Contributed Assets
shall be subject to the
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fulfillment at or prior to the Closing Date of each of the following
conditions:
A. ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS.
The representations and warranties of the Transferee contained in this
Agreement shall have been true and correct at and as of the date hereof, and
they shall be true and correct at and as of the Closing Date with the same force
and effect as though made at and as of that time. The Transferee shall have
performed and complied with all of its obligations required by this Agreement
to be performed or complied with at or prior to the Closing Date. The
Transferee shall have delivered to the Transferor a certificate, dated as of the
Closing Date and signed by one of its officers, certifying that such
representations and warranties are thus true and correct and that all such
obligations have been thus performed and complied with.
B. BCI LOAN AGREEMENT.
The Transferee and BCI shall have executed the Loan Agreement
substantially in the form attached as Exhibit A.
C. BCI DEVELOPMENT AGREEMENT.
The Transferee and BCI shall have executed an Area Development
Agreement substantially in the form attached as Exhibit D.
D. FRANCHISE AGREEMENTS.
The Transferee and BCI shall have executed a Franchise Agreement,
substantially in the form attached as an exhibit to the Area Development
Agreement, with respect to each Store.
E. TERMINATION AGREEMENT AND GENERAL RELEASE.
The Transferor, Boston Pacific, and BCI shall have executed a
Termination Agreement and General Release substantially in the form attached as
Exhibit E.
F. DELIVERIES.
The deliveries of the Transferee described in Section 8.C. shall have
been received.
G. GROUND LEASE AGREEMENTS.
The Transferor and the Transferee shall have executed a Ground Lease
Agreement, in the form attached hereto as B, with respect to each parcel of the
Owned Real Property.
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H. EQUIPMENT LEASE AGREEMENT.
The Transferor and the Transferee shall have executed an Equipment
Lease Agreement, in the form attached hereto as Exhibit C, with respect to
each Store and the Owned Fixed Assets.
I. LENDER'S CONSENT.
The Transferee shall have received a written consent from Bank of America,
lender to CKER, consenting to the transactions contemplated by this Agreement.
J. OPERATING AGREEMENT.
The Transferor and CKER shall have executed an Amended and Restated
Operating Agreement forming the Transferee in form and substance acceptable to
BCI.
K. AGREEMENT REGARDING OPTIONS TO PURCHASE.
The Transferor, CKER, BCI, the Transferee, and BCREI shall have
executed an Agreement Regarding Options to Purchase substantially in the form
attached hereto as Exhibit H.
8. CLOSING AND CLOSING DELIVERIES.
A. CLOSING.
The closing of the transaction contemplated hereby ("Closing") shall
take place at 10:00 A.M. on April 17, 1995 (the "Closing Date"), at the offices
of BCI; provided, however, that notwithstanding the actual date of the Closing,
the Closing shall be deemed to have occurred on and be effective as of the
close of business on April 16, 1995 (the "Effective Date"); provided, however,
that if any of the conditions which are set forth in Section 6 or Section 7 of
this Agreement has not been satisfied (or waived) by such date, then the
Closing Date shall be on a subsequent date, which shall be determined by the
mutual agreement of the parties hereto.
B. ACTION TO BE TAKEN BY THE TRANSFEROR.
At the Closing, the Transferor shall deliver the following:
(1) evidence, in such form as is satisfactory to the
Transferee, that each of the conditions to the obligation of the
Transferee to accept the Contributed Assets from the Transferor which
is set forth in Section 6 of this Agreement has been satisfied;
(2) certified copies of the Articles of Incorporation and
Bylaws of the Transferor, as amended, to date and certificate of good
standing of the Transferor from the State of Delaware dated within
five days prior to the Closing Date;
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(3) a copy of the resolutions adopted by the Board of
Directors of the Transferor authorizing the Transferor's execution,
delivery and performance of this Agreement, certified by the Secretary
or Assistant Secretary of the Transferor;
(4) such deeds, bills of sale, endorsements, assignments
and other instruments, in such form as in each case is satisfactory to
the Transferee, as shall be sufficient to vest in the Transferee good
and marketable title to the Contributed Assets, free and clear of all
liens, claims, mortgages, pledges, encumbrances, and charges of every
kind;
(5) all consents, waivers, approvals, authorizations or
orders required to be obtained, and evidence of the making of all
filings required to be made, by the Transferor for its execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby;
(6) the CFO Certificate, the CEO Certificate, and the
Joinder;
(7) the results of UCC financing statement searches and
tax lien and judgment searches respecting the Transferor in each
state and county in which the Business is conducted, which show no
liens or encumbrances;
(8) opinion of Richard C. Celio, general counsel of CKER
and counsel to the Transferor, in form attached as Exhibit F;
(9) executed copies of the documents referenced in
Section 6 hereof, and
(10) a receipt acknowledging the Transferor's receipt of
the Consideration.
C. ACTION TO BE TAKEN BY THE TRANSFEREE.
At the Closing, the Transferee shall deliver the following:
(1) evidence, in such form as is satisfactory to the
Transferor, that each of the conditions to the obligations of the
Transferor to contribute the Contributed Assets to the Transferee
which is set forth in Section 7 of this Agreement has been satisfied;
(2) evidence that the Transferee has received the
proceeds from the Additional Contribution;
(3) certified copies of the Certificate of Formation and
Operating Agreement of the Transferee and a certificate of good
standing of the Transferee from the State of California dated within
five days prior to the Closing Date;
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(4) a copy of the resolutions adopted by the managing
member of the Transferee authorizing its execution, delivery and
performance of this Agreement, certified by the managing member of the
Transferee;
(5) all consents, waivers, approvals, authorizations or
orders required to be obtained, and evidence of the making of all
filings required to be made, by the Transferee for its authorization,
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby;
(6) certificates evidencing the Exchange Units in the
name of the Transferor;
(7) opinion of McDermott, Will & Emery, counsel to the
Transferee, in form attached as Exhibit G;
(8) executed copies of the documents referenced in
Section 7 hereof;
(9) instruments, in such form as are satisfactory to the
Transferor, as shall be sufficient to effect the assumption by the
Transferee of the Assumed Liabilities; and
(10) a receipt acknowledging the Transferee's receipt of
the Contributed Assets.
D. FORM OF DOCUMENTS.
All documents to be furnished at the Closing shall be in form and
substance reasonably satisfactory to the Transferor and the Transferee.
E. FURTHER ASSURANCES.
At any time at or after the Closing, the parties shall execute and
deliver such instruments, assignments and other documents as may be reasonably
necessary to convey, assign and transfer the Contributed Assets to the
Transferee or otherwise carry out the purpose of this Agreement.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS.
The representations and warranties contained in this Agreement and in
any instrument or document delivered pursuant to this Agreement shall survive
for a period of three years from the Closing Date notwithstanding any
investigation at any time made by or on behalf of the Transferee and thereafter
all such representations and warranties shall be extinguished; provided however
that (i) the representation and warranty set forth in Section 3D. shall survive
until the Statute of Limitations Date (as below defined), and (ii) the
representations and warranties set forth in Sections 3.A.; 3.F.; 3.U. and 3.X.
shall survive for an indefinite period (the period of such survival being
referred to as the ("Survival Period")). For purposes hereof, the Statute of
Limitations Date means the last day on which the applicable governmental entity
may make an assessment respecting any taxes as provided in the applicable
statute or ordinance. Any claim or
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cause of action (including, without limiting the generality of the foregoing, a
claim for indemnification pursuant to Section 11 based upon or arising out of
any inaccurate representation or warranty made hereunder or in any instrument
or document delivered pursuant hereto must be made within the applicable
Survival Period or the party against which such claim is made shall have no
liability with respect thereto.
Nothing contained in this Section shall affect or limit the obligations
of either party to perform the obligations to be performed by it hereunder
after the Closing Date.
10. CERTAIN ACTIONS AFTER THE CLOSING.
A. THE TRANSFEREE TO ACT AS AGENT FOR THE TRANSFEROR.
This Agreement shall not constitute an agreement to assign any claim,
contract, license, lease, commitment, sales order or purchaser order if any
attempted assignment of the same without the consent of the other party thereto
would constitute a breach thereof or in any way affect the rights of the
Transferor thereunder. If such consent is not obtained or if any attempted
assignment would be ineffective or would affect the Transferor's rights
thereunder so that the Transferee would not in fact receive all such rights,
then subject to the terms and conditions of Section 10.C. hereof the Transferee
shall act as the agent for the Transferor in order to obtain for the Transferee
the benefits thereunder.
B. DELIVERY OF PROPERTY RECEIVED BY THE TRANSFEROR AFTER CLOSING.
From and after the Closing the Transferee shall have the right and
authority to collect, for the account of the Transferee, all Contributed
Receivables and other items which shall be transferred or are intended to be
transferred to the Transferee as part of the Contributed Assets as provided in
this Agreement, and to endorse with the name of the Transferor any checks or
drafts received on account of any such Contributed Receivables or other items of
the Contributed Assets. The Transferor agrees that it will transfer or deliver
to the Transferee, promptly after the receipt thereof, any cash or other
property which the Transferor receives after the Closing Date in respect of any
claims, contracts, licenses, leases, commitments, sales orders, purchase orders,
receivables of any character or any other items transferred or intended to be
transferred to the Transferee as part of the Contributed Assets under this
Agreement.
C. THE TRANSFEREE APPOINTED ATTORNEY FOR THE TRANSFEROR.
Effective at the Closing Date, the Transferor hereby constitutes and
appoints the Transferee, its successors and assigns, the true and lawful
attorney of the Transferor, in the name of either the Transferee or the
Transferor (as the Transferee shall determine in its sole discretion) but for
the benefit and at the expense of the Transferee (except as otherwise herein
provided), (i) to institute and prosecute all proceedings which the Transferee
may deem proper in order to collect, assert or enforce any claim, right or title
of any kind in or to the Contributed Assets as provided for in this Agreement;
(ii) to defend or compromise any and all actions, suits or proceedings in
respect of any of the Contributed Assets, and to do all such acts and things in
relation thereto as the Transferee
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shall deem advisable; and (iii) to take all action which the Transferee may
reasonably deem proper in order to provide for the Transferee the benefits of
the Contributed Assets where any required consent of another party to the sale
or assignment thereof to the Transferee pursuant to this Agreement shall not
have been obtained. The Transferor acknowledges that the foregoing powers are
coupled with an interest and shall be irrevocable. The Transferee shall be
entitled to retain for its own account any amounts collected pursuant to the
foregoing powers, including any amounts payable as interest in respect thereof.
D. EMPLOYMENT BY THE TRANSFEREE OF THE TRANSFEROR'S EMPLOYEES.
(1) The Transferor shall use its reasonable best efforts
to aid the Transferee in engaging such of the Transferor's employees
as are employed by the Business on the Closing Date whom the
Transferee desires to engage after the Closing Date. Except with the
written consent of the Transferee, neither the Transferor nor any
affiliate of the Transferor shall solicit or cause, directly or
indirectly, to be solicited, nor attempt to induce, for a period of
three years after the Closing Date, any person employed by the
Transferor with respect to the Business at or at any time within six
months prior to the Closing Date unless such person was either not
offered employment by the Transferee or was terminated by the
Transferee, (a) not to accept an offer of employment from the
Transferee, (b) if an offer is accepted, to terminate his or her
employment with the Transferee, or (c) to be employed by or otherwise
render services to the Transferor any of its affiliates. As used in
this Agreement, the term "affiliate" means, with respect to a
specified person, any other person which directly, or indirectly
through one or more intermediaries, controls or is controlled by, or
is under common control with, the person specified.
(2) The Transferee shall have no obligation to employ any
of the persons currently employed by the Transferor or to continue, or
institute any replacement or substitution for, any vacation,
severance, incentive, bonus, profit sharing, pension or other employee
benefit plan or program of the Transferor.
E. AGREEMENT REGARDING LEASE LIABILITY.
The Transferee shall use reasonable commercial efforts to obtain, from
each applicable lessor, a release of liability of the Transferor under any
lease agreement or guaranty executed by the Transferor and Boston Pacific, as
applicable, and which relates to the Contributed Leasehold Rights.
11. INDEMNIFICATION.
The Transferor agrees that it will indemnify, defend and hold the
Transferee harmless in respect of the aggregate of all indemnifiable damages
(as defined below) of the Transferee. For this purpose, "indemnifiable
damages" of the Transferee means the aggregate of all expenses, losses, costs,
deficiencies, liabilities and damages (including related counsel fees and
expenses) incurred or suffered by the Transferee (i) resulting from any
inaccurate representation or warranty
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made by the Transferor in or pursuant to this Agreement or any document
delivered in connection herewith; (ii) resulting from any default in the
performance of any of the covenants or agreements made by the Transferor in
this Agreement or any document delivered in connection herewith; (iii)
resulting from the failure of the Transferor to pay, discharge or perform any
liability or obligation of the Transferor which is not expressly assumed by
the Transferee pursuant to this Agreement or any document delivered in
connection herewith or resulting from any dispute concerning any such liability
or obligation; (iv) resulting from any claim, suit, cause of action,
investigation or proceeding whether instituted prior to or after the Closing
Date, arising out of or relating to the conduct of the Business prior to the
Closing Date; or (v) resulting from any failure of the Transferor to obtain
any necessary consent from any person, entity or governmental authority to any
of the transactions contemplated hereby. Without limiting the generality of the
foregoing, with respect to the measurement of "indemnifiable damages," the
Transferee shall have the right to be put in the same financial position as it
would have been in had the events giving rise to the "indemnifiable damages"
not occurred.
12. MISCELLANEOUS.
A. AMENDMENT AND MODIFICATION.
The parties hereto may amend, modify and supplement this Agreement in
such manner as may be agreed upon by them in writing.
B. TERMINATION.
(1) Anything to the contrary herein notwithstanding, this
Agreement may be terminated and the transaction contemplated hereby
may be abandoned:
(a) by the mutual written consent of all of the
parties hereto at any time prior to the Closing Date;
(b) by the Transferee at any time prior to the
Closing Date if there shall be a pending or threatened action
or proceeding by or before any court or other governmental
body which shall seek to restrain, prohibit or invalidate the
contribution of the Contributed Assets to the Transferee or
any other transaction contemplated hereby, or which might
affect the right of the Transferee to own, operate in their
entirety or control the Contributed Assets and which, in the
judgment of the Transferee, makes it inadvisable to proceed
with the transaction contemplated by this Agreement;
(c) by any party in the event of the material
breach by any other party of any provision of this Agreement,
which breach is not remedied by the breaching party within 30
days after receipt of notice thereof from the terminating
party;
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(d) by the Transferee if the Transferee is not
satisfied, in its sole and absolute discretion, with the
results of its business, financial, and legal due diligence
investigation of the Business and the Contributed Assets; or
(e) by either party if the Closing Date has not
occurred by May 14, 1995.
If this Agreement is terminated pursuant to Section 12.B.(1)(a) or (d)
no party shall have any liability for any costs, expenses, loss of
anticipated profit or any further obligation for breach of warranty or
otherwise to any other party to this Agreement. Any termination of
this Agreement pursuant to Section 12.B.(1)(b) or (c) shall be without
prejudice to any other rights or remedies of the respective parties.
(2) The risk of any loss to the properties to be
contributed by the Transferor hereunder and all liability with respect
to injury and damage occurring in connection therewith until the
completion of the Closing shall be the sole responsibility of the
Transferor. If any material part of said properties shall be damaged
by fire or other casualty prior to the completion of the Closing
hereunder, the Transferee shall have the right and option:
(a) to terminate this Agreement, without
liability to any party thereto; or
(b) to proceed with the Closing hereunder, in
which event such casualty shall not constitute a breach by the
Transferor of any representation, warranty or covenant in this
Agreement, and the Transferee shall be entitled to receive and
retain the insurance proceeds arising from such casualty and
to be reimbursed by the Transferor for any uninsured casualty.
C. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns, heirs and legal
representatives.
D. SEVERABILITY.
The parties expressly agree that it is not the intention of any party
to violate any public policy, statutory or common laws, rules, regulations,
treaties or decisions of any government or agency thereof. If any provision of
this Agreement is judicially or administratively interpreted or construed as
being so in violation, such provision shall be inoperative and the remainder of
this Agreement shall remain binding upon the parties hereto. Further, to the
extent any provision hereof is deemed unenforceable by virtue of its scope but
may be enforceable by limitations thereon, the parties hereto agree that the
same shall be enforceable to the fullest extent permissible under the laws and
public policies applied in such jurisdiction in which the enforcement is sought.
The parties hereto hereby authorize any court of competent jurisdiction to
modify the covenants of
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Section 5.D. and 5.E. to the extent necessary to make the same enforceable.
E. ENTIRE AGREEMENT.
This instrument and the exhibits and schedules attached hereto contain
the entire agreement of the parties hereto with respect to the contribution of
the Contributed Assets and the other transactions contemplated herein, and,
unless otherwise indicated, supersede all prior understandings and agreements
of the parties with respect to the subject matter hereof. Any reference herein
to this Agreement shall be deemed to include the schedules and exhibits
attached hereto.
F. HEADINGS.
The descriptive headings in this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.
G. EXECUTION IN COUNTERPART.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
H. NOTICES.
All notices, demands and other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or by confirmed electronic transmission. If mailed, first
class, certified mail, postage prepaid, or sent by reliable overnight delivery
service and addressed as follows, or at such other addresses as the parties
hereto may from time to time designate in writing, such notices, requests,
demands, and other communications shall be deemed delivered three business days
after being so duly posted or the next business day if sent by overnight
delivery service:
To Transferee: Boston West, L.L.C.
222 South Harbor, Suite 300
Anaheim, CA 92805
Attention:
--------------------
Facsimile:
--------------------
With a copy to:
To Transferor: Boston Pacific, Inc.
-------------------------------
-------------------------------
Attention:
--------------------
Facsimile:
--------------------
With a copy to:
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<PAGE> 35
Any party may change the address to which notices hereunder are to be sent to it
by giving written notice of such change of address in the manner herein provided
for giving notice.
I. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware applicable to contracts made and to be
performed therein.
J. CONSTRUCTION.
This Agreement shall not be construed more strictly against one party
than against another merely by virtue of the fact that it may have been prepared
primarily by counsel for one of the parties, it being recognized that all
parties have contributed substantially and materially to the preparation of
this Agreement.
K. PAYMENT OF EXPENSES.
Each party to this Agreement shall pay all of the expenses incurred by
it in connection with this Agreement, including, without limitation, its legal
and accounting fees and expenses, and the commissions, fees and expenses of any
person employed or retained by it to bring about, or to represent it in, the
transactions contemplated hereby.
L. CONFLICT OF INTEREST WAIVER.
The parties to this Agreement acknowledge that the Transferor and the
Transferee are represented by McDermott, Will & Emery ("MW&E"). Attorneys of
MW&E perform services for the Transferor, the Transferee and certain of the
Transferor's affiliates. It is anticipated that MW&E will continue to
represent the Transferor, the Transferee and certain of their affiliates in the
future. If a dispute arises between the Transferor and the Transferee, either
party, or both parties, may request, because of a potential conflict of
interest, that MW&E resign as counsel to the other party and that such other
party retain separate counsel for such matters.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed as of the day and year first above written.
BOSTON WEST, L.L.C.,
a Delaware limited liability company
By: /s/ WILLIAM P. FOLEY, II
--------------------------------
Its: William P. Foley, II, Manager
BOSTON PACIFIC, INC.,
a California corporation
By: /s/ RICHARD C. CELIO
--------------------------------
Its: Vice President, General
Counsel
Richard C. Celio
35
<PAGE> 1
EXHIBIT 10.85
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
BOSTON WEST, L.L.C.
(A Delaware Limited Liability Company)
This Amended and Restated Limited Liability Company Agreement (this
"Agreement") of Boston West, L.L.C., a Delaware limited liability company (the
"Company"), dated as of April 16, 1995, is adopted and entered into by and
among the persons and entities listed on the signature pages hereof as members
(each, a "Member" and collectively, the "Members").
WITNESSETH:
CKE Restaurants, Inc. and Boston Pacific, Inc. have heretofore formed
a limited liability company pursuant to and in accordance with the Delaware
Limited Liability Company Act (6 Del. C. Section 18-10, et seq.), as
amended from time to time (the "Act"), by entering into a Limited Liability
Company Agreement of the Company, dated as of March 29, 1995 (the "Original
Limited Liability Company Agreement"), and filing a Certificate of Formation of
the Company with the office of the Secretary of State of the State of Delaware
on March 29, 1995.
The parties hereto desire to continue the Company as a limited
liability company under the Delaware Act and to amend and restate the Original
Limited Liability Company Agreement of the Company in its entirety.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties hereby agree as follows:
ARTICLE I
FORMATION; NAME; TERM
1.1 Formation. The Members have organized the Company
pursuant to the provisions of the Act. The Members hereby agree that
the Company shall be governed by the terms and conditions of this
Agreement.
1.2 Company Name. The name of the Company shall be Boston West,
L.L.C.
1.3 Effective Date. This Agreement shall become effective as of
the date of this Agreement.
<PAGE> 2
1.4 Term. The Company shall dissolve and its affairs shall be
wound up in accordance with the Act and this Agreement on the termination or
dissolution of the Company in accordance with the terms of this Agreement.
1.5 Purpose. The Company is organized for the purposes of
acquiring, constructing, owning, and operating Boston Chicken or Boston Market
Stores as an area developer of Boston Chicken, Inc. in the areas defined in the
Area Development Agreement, and any other businesses as the Management
Committee (as herein after defined) may determine from time to time, and to
engage in any lawful business, purpose or activity for which a limited
liability company may be organized under the Act, except insurance or banking.
1.6 Offices. The principal office of the Company shall be
maintained and established at 222 South Harbor, Suite 300, Anaheim, CA 92805, or
at such other or additional place or places as the Management Committee shall
determine from time to time. The initial resident agent of the Company in the
State of Delaware shall be The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington, Delaware 19801. The Company may have
other offices, either within or outside of the State of Delaware, at such place
or places as the Management Committee may from time to time designate or the
business of the Company may require.
1.7 Filings. The Members promptly shall execute and deliver
such documents and perform such acts consistent with the terms of this
Agreement as may be necessary to comply with the requirements of law for the
formation, qualification and operation of a limited liability company under
the laws of each jurisdiction in which the Company shall conduct business.
1.8 Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Accumulating Class B Return" shall mean, with respect to any Class B
Member, as of any determination date, the excess, if any, of (i) such Member's
accumulated Class B Return for the period beginning on the date of this
Agreement and ending on the earlier of such determination date or June 30, 1997
over (ii) the sum of the aggregate cash amounts distributed to such Member with
respect to such Accumulating Class B Return pursuant to Sections 3.7(a)(ii) and
3.7(b)(ii).
"Act" shall mean the Delaware Limited Liability Company Act (6
Del. C. Section 18-10, et seq.).
"Agreement" shall means this Limited Liability Company Agreement.
"Area Development Agreement" shall mean the area development agreement
dated as of April 16, 1995 between Boston Chicken, Inc. and the Company, as it
may be amended from time to time.
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"BCI" shall mean Boston Chicken, Inc., a Delaware corporation.
"BCI Option" means the Option, as defined in the Secured Loan
Agreement.
"Book-Up Event" shall mean (a) any capital contribution to the Company
made by one or more Members other than in accordance with the Members' Class A
Units, (b) any Class B Conversion by the Class B Members pursuant to Section
2.4, or (c) the exercise of the Conversion Right or BCI Option.
"Capital Account" shall have the meaning set forth in Section 3.1.
"Capital Contributions" shall mean any contribution by a Member to the
capital of the Company in cash or property or a promissory note or other
obligation to contribute cash or property as specified in Article II.
"Certificate" shall mean the Certificate of Formation for the Company
filed with the Secretary of State of Delaware.
"Class A Members" shall mean those persons listed on Schedule I
together with their permitted successors and assigns.
"Class A Units" shall mean the measure of a Member's right to certain
distributions and allocations, as specified in Article III.
"Class B Contribution" shall mean the contributions by the Class B
Members pursuant to Sections 2.1 and 2.3.
"Class B Members" shall mean those persons listed on Schedule 2
together with their permitted successors and assigns.
"Class B Rate" shall mean an annual rate equal to 9%.
"Class B Return" shall mean a return on a Member's Unrecovered Class B
Contributions at the Class B Rate from the date of this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean Boston West, L.L.C., a Delaware limited liability
company.
"Conversion Right" shall mean the right of BCI to acquire Class A
Units under the Secured Loan Agreement and the Senior Secured Convertible
Note.
"Dissolution Event" shall have the meaning set forth in Section 8.2.
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<PAGE> 4
"Franchise Agreement" shall mean any franchise agreement between BCI
and the Company and "Franchise Agreements" means all such agreements from time
to time in effect.
"Gross Asset Value" shall mean, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except that (i) the Gross Asset
Value of any asset contributed to the Company shall be its fair market value on
the date of such contribution (which, in the case of property (other than cash)
contributed by the Class B Members as their Initial Capital Contribution, shall
be the fair market values set forth on Schedule 3 hereto, and which in any
other case shall be as determined by the Members), (ii) the Gross Asset Value
of any asset distributed in kind to any Member shall be the gross fair market
value of such asset, as determined by the Members, on the date of such
distribution, (iii) the Gross Asset Values of the Company's assets shall be
adjusted, upon any Book-up Event, to equal their fair market values immediately
prior to such Book-up Event, and (iv) if the Gross Asset Value of any asset has
been determined pursuant to clause (i) or (iii), it shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset in
determining Net Income or Net Loss.
"Interest" shall mean any Class A Unit or Class B Unit and the
Member's share of the profits and losses and right to receive distribution of
assets associated with each.
"IRS" shall mean the Internal Revenue Service.
"IRS Regulations" shall mean the rules, regulations, orders, and
interpretations of rules, regulations, and orders adopted by the IRS under the
Code, as in effect from time to time.
"Management Committee" shall have the meaning set forth in Section 6.1.
"Managers" shall mean those individuals indicated in Section 6.2
hereof and any other individuals that succeed any of them as a Manager pursuant
to this Agreement.
"Members" shall have the meaning set forth in the preamble hereto.
"Member Majority" shall mean Holders of Class A Units owning more than
50% of the outstanding Class A Units.
"Net Income" or "Net Loss" shall mean, with respect to any year, the
taxable income or taxable loss of the Company for such year as determined for
federal income tax purposes (determined without regard to the items that are
specially allocated under Section 3.4), with the following adjustments:
(i) Such taxable income or loss shall be increased by the
amount, if any, of tax-exempt income received or accrued by the Company;
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<PAGE> 5
(ii) Such taxable income or loss shall be reduced by the
amount, if any, of all expenditures of the Company described in Section
705(a)(2)(B) of the Code, including expenditures treated as described therein
under IRS Regulation Section 1.704-1(b)(2)(iv)(i);
(iii) If the Gross Asset Value of any asset is adjusted
pursuant to clause (ii) or (iii) of the definition thereof, the amount of such
adjustment shall be taken into account, immediately prior to the event giving
rise to such adjustment, as gain or loss from the disposition of such asset for
purposes of computing Net Income or Net Loss;
(iv) Gain or loss resulting from any disposition of any
asset with respect to which gain or loss is recognized for federal income tax
purpose shall be computed by reference to the Gross Asset Value of the asset
disposed of, notwithstanding that such Gross Asset Value differs from the
adjusted tax basis of such asset; and
(v) In lieu of any depreciation, amortization, and other
cost recovery deductions taken into account in computing such taxable income or
taxable loss, there shall be taken into account an amount of depreciation,
amortization, or other cost recovery deduction (the "Depreciation") that is
determined in accordance with the methods used for federal income tax purposes
and that equals the amount that bears the same ratio to the Gross Asset Value
of such asset as the depreciation, amortization, or cost recovery deduction
computed for federal income tax purposes bears to its adjusted basis for
federal income tax purposes.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, limited liability company, trust,
estate, unincorporated organization, governmental authority or other entity.
"Regulatory Allocations" shall have the meaning set forth in Section
3.5.
"Secured Loan Agreement" shall mean the Secured Loan Agreement dated as
of April 16, 1995 between BCI and the Company, as it may be amended from time
to time.
"Transfer" shall mean any transfer, sale, assignment, pledge,
hypothecation or other disposition of any Interest, whether voluntary or
involuntary, including, without limitation, any such disposition by operation
of law or otherwise to an heir, successor or assign. "Transferor" and
"Transferee" have correlative meanings.
"Unrecovered Class B Contributions" shall mean a Member's aggregate
Class B Contributions, as determined from time to time, reduced by (i) the
amount of all distributions to such Member with respect to such Member's
Unrecovered Class B Contributions pursuant to Section 3.7(a) and (ii) $1,000
for each Class B Unit converted pursuant to Section 2.4.
"Unpaid Class B Return" shall mean, with respect to any Member, as of
any date on or
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<PAGE> 6
after June 30, 1997, the excess, if any, of (i) such Member's cumulative Class
B Return for the period beginning on or after June 30, 1997 over (ii) the sum
of the aggregate amounts distributed to such Member with respect to such
Member's Unpaid Class B Return pursuant to Sections 3.6(a), 3.7(a)(i) and
3.7(b)(i).
ARTICLE II
CAPITAL CONTRIBUTIONS
2.1 Initial Capital Contribution. Upon execution of this
Agreement, (a) each Class A Member shall make an initial capital contribution
in cash in such amount as is set forth on Schedule 3 and shall be entitled to
one Class A Unit for each $10 of capital contributed, and (b) each Class B
Member shall make an initial capital contribution in kind as is set forth on
Schedule 3, which shall be designated as a "Class B Contribution"; and shall be
entitled to one Class B Unit for each $1000 of capital contributed. These
respective contributions shall be the "Initial Capital Contribution" of the
Class B Members and the Class A Members.
2.2 (Intentionally Omitted]
2.3 Additional Contributions. At the request of the Management
Committee, the Class B Members may, at their option, make additional capital
contributions to the Company, which will be designated Class B Contributions,
in such amounts, not to exceed the aggregate amount of $15,000,000, as the
Management Committee may determine, all in accordance with the provisions of
Section 1.11 of the Secured Loan Agreement and that certain Agreement
Regarding Options to Purchase of even date therewith. The Class B Members
shall be entitled to one Class B Unit for each $1000 of such additional
capital contribution made under this Section 2.3.
2.4 Conversion of Class B Units. All Class B Units will be
convertible, as a class and not in part, into 86.956 Class A Units of the
Company for each Class B Unit then outstanding under the following
circumstances (each, a "Class B Conversion"):
(i) at the option of the Class B Members
in connection with a sale of all or substantially all of the Class A Units or
assets of the Company;
(ii) at the option of the Class B Members
within 45 days after the giving of notice to the Class B Members by the Company
of any optional distribution with respect to the Unrecovered Class B
Contributions pursuant to Section 3.7(a)(ii);
(iii) at the option of the Class B Members
at any time after the expiration of the BCI Option and Conversion Right; or
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<PAGE> 7
(iv) at the option of the Company upon
the exercise of the BCI Option and/or Conversion Right.
Upon the conversion, the Class B Units held by the Class B Members shall be
reduced to zero, and the Class B Members shall be entitled to 86.956 Class A
Units for each Class B Unit so converted. In case of any reclassification or
change of outstanding Class A Units of ownership interest in the Company
issuable upon conversion of the Class B Units, or in case of any consolidation
or merger of the Company with or into any partnership, corporation, or other
entity (other than a merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of outstanding
Class A Units, other than a change in number of Class A Units issuable upon
conversion of the Class B Units) or in case of any sale or conveyance to any
partnership, corporation, or other entity of the property of the Company as an
entirety or substantially as an entirety, then the holder of the Class B Units
shall have the right thereafter to convert the Class B Units into the kind and
amount of Class A Units of ownership interest, shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale, or conveyance by a holder of the number of
Class A Units of ownership interest in the Company issuable upon conversion of
the Class B Units immediately prior to such reclassification, change,
consolidation, merger, sale, or conveyance, subject to adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for
herein.
2.5 Admission of BCI and/or its successor and assignees. BCI
and/or its successors and assignees shall be admitted to the Company as Class A
Members upon the exercise of the Conversion Right or the BCI Option in
accordance with the Secured Loan Agreement and without any other or further
action on the part of BCI and its Successors and Assignees or any action on the
part of the Company or its Members, except as may be required by applicable
law. Class A Units acquired by BCI, its successor and assignees as a result of
any exercise of the Conversion Right or the BCI Option shall be allocated among
BCI and its successors and assignees in the manner in which BCI directs the
Company in writing. Notwithstanding anything to the contrary provided in this
Agreement, to the extent permitted under the Act, BCI, its successors and
assignees shall have the right to transfer Units acquired by them without
restrictions and to cause any assignee or transferee thereof to be admitted to
the Company as a Class A Member without the consent or approval of, and without
any other action on the part of, the Company or its Members.
2.6 Employee Unit Option Plan. Pursuant to the 1995 Employee Unit
Option Plan dated of even date herewith (hereinafter called the "Plan"),
certain present and future employees of the Company shall have the right to
acquire Class A Units in the Company and to become Class A Members of the
Company. The terms and provisions of the Plan are incorporated by reference
into this Agreement as if stated herein at length; provided, however, that the
exercise of an option by the employee shall be conditioned upon the employee
becoming a party to this Agreement.
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ARTICLE III
CAPITAL ACCOUNTS; ALLOCATIONS; DISTRIBUTIONS
3.1 Capital Accounts.
(a) A Capital Account shall be maintained for each Member
in accordance with the capital account maintenance rules of IRS Regulation
Section 1.704-1(b)(2)(iv) and as provided herein (the "Capital Account"). The
Capital Account of each Member shall be increased by (i) the amount of any
capital contribution made by such Member to the Company in cash, (ii) the fair
market value (net of liabilities that the Company is considered to assume or
take subject to under Section 752 of the Code) of any capital contribution made
by such Member to the Company in property (other than cash), and (iii)
allocations to such Member of Net Income pursuant to Section 3.2. The Capital
Account of each Member shall be decreased by (x) the amount of any cash
distributed to such Member, (y) the fair market value (net of liabilities that
such Member is considered to assume or take subject to under Section 752 of the
Code) of any property (other than cash) distributed to such Member, and (z)
allocations to such Member of Net Loss (as defined below) pursuant to Section
3.3.
(b) Any transferee of a Member's Interest in the Company
shall succeed to that portion of the Capital Account of the transferor Member
as is equal to the portion of the transferor Member's Interest so transferred.
(c) If the number of Class A Units held by the Members
varies during any year, then their proportionate shares of Net Income or Net
Loss allocated under Sections 3.2(c) and 3.3 shall be appropriately adjusted to
reflect such variations.
3.2 Allocations of Net Income. Net Income for each year shall be
credited to the Capital Accounts of the Members as follows and in the following
order of priority:
(a) First, to the Members in proportion to their Class A
Units until any deficit balance in the Class A Members' Capital Account is
eliminated;
(b) Second, to the Class B Members until such Members'
Capital Account balance (after taking into account the effect of any cash
distributions for such year) equals the sum of such Members' (i) Unrecovered
Class B Contributions and (ii) their Accumulating Class B Return; and
(c) Thereafter, to the Members in proportion to their
Class A Units.
3.3 Allocations of Net Loss. Net Loss for each year shall be
charged to the Capital Accounts of the Members in proportion to their Class A
Units.
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<PAGE> 9
3.4 Special Allocations.
(a) intentionally omitted
(b) Notwithstanding the provisions of Sections 3.2 and
3.3, upon a Class B Conversion by the Class B Members, a special allocation
shall be made to the Class B Members of items of income, gain, deductions, or
losses in such amounts as may be necessary to cause the Class B Members'
Capital Account to bear the same ratio to the aggregate balance of all Members'
Capital Accounts that the Class B Members' Class A Units (taking into account
any additional Class A Units issued upon such Class B Conversion) bear to the
aggregate amount of all Members' Class A Units.
(c) Notwithstanding the provisions of Sections 3.2 and
3.3, upon the exercise of the BCI Option or Conversion Rights, a special
allocation shall be made to BCI or its successors or assignees of items of
income, gain, deductions, or losses in such amounts as may be necessary to
cause the Capital Account of BCI or its successors or assignees to bear the
same ratio to the aggregate balance of all Members' Capital Accounts that the
Class A Units of BCI or its successors or assignees (taking into account any
additional Class A Units issued upon such conversion) bear to the aggregate
amount of all Members' Class A Units.
(d) In the event that each of the two preceding
subparagraphs are applicable at the same time, the required special allocations
shall be made on a proportionate basis.
3.5 Regulatory Allocations.
(a) Notwithstanding any other provision of this Agreement
to the contrary, if there is a net decrease in the Company's partnership
minimum gain (as defined in IRS Regulation Section 1.704-2(b)) during any
year, there shall be specially allocated to each Member items of income and
gain for such year (and, if necessary, subsequent years) in an amount equal to
such Member's share of the net decrease in the Company's partnership minimum
gain (determined in accordance with IRS Regulation Section 1.704-2(g)). The
items to be so allocated shall be determined in accordance with IRS Regulation
Section 1.704-2(f)(6). This Section 3.5(a) is intended to comply with the
partnership minimum gain chargeback requirement in IRS Regulation Section
1.704-2(f) and shall be interpreted in a manner consistent with such intent.
(b) Notwithstanding any other provision of this Agreement
to the contrary, if there is a net decrease in the Company's partner
nonrecourse debt minimum gain (as defined in IRS Regulation Section
1.704-2(i)) during any year, then each Member shall be specially allocated
items of income and gain for such year (and, if necessary, subsequent years) in
an amount equal to such Member's share if any (determined in accordance with
IRS Regulation Section 1.704-2(i)(4)) of the net decrease in the Company's
partner nonrecourse debt partnership minimum gain. The items to be so
allocated shall be determined in accordance with the provisions of IRS
Regulation Section 1.704-2(i)(4). This Section 3.5(b) is intended to comply
with the partner minimum gain chargeback requirement in
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IRS Regulation Section 1.704-2(i) and shall be interpreted in a manner
consistent with such intent.
(c) Notwithstanding any other provision of this
Agreement to the contrary, Company losses, deductions, and expenditures
described in Section 705(a)(2)(B) of the Code that are attributable (as
determined under IRS Regulation Section 1.704-2(b)(1)) to partnership
nonrecourse liabilities shall be allocated as Net Loss pursuant to Section 3.3.
(d) Notwithstanding any other provision of this
Agreement to the contrary, Company losses, deductions, and expenditures
described in Section 705(a)(2)(B) of the Code that are attributable (as
determined under IRS Regulation Section 1.704-2(i)(2)) to a particular partner
nonrecourse liability (as defined in IRS Regulation Section 1.704-2(b)(4))
shall be specially allocated to the Member or Members who bear the economic
risk of loss for such liability. This Section 3.5(d) is intended to comply
with the allocation provision of IRS Regulation Section 1.704-2(i)(1) and
shall be interpreted in a manner consistent with such intent.
(e) If any Member unexpectedly receives any adjustment,
allocation, or distribution described in IRS Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5), or (6) that causes such Member's deficit in its
Capital Account to exceed the maximum amount such Member is obligated (or is
deemed to be obligated) to restore to the Company upon liquidation as
determined in accordance with IRS Regulation Sections 1.704-2(g) and
(i), such Member shall be allocated items of income and gain in an amount and
manner sufficient to eliminate such excess, as rapidly as possible; provided
that allocations pursuant to this Section 3.5(e) shall be made only if and to
the extent that such Member's deficit in its Capital Account exceeds such
amount after all other allocations pursuant to this Article 3 have been
tentatively made as if this Section 3.5(e) were not a part of this Agreement.
This Section 3.5(e) is intended to comply with the qualified income offset
requirement of IRS Regulations Section 1.704-1(b)(2)(iii)(d) and shall be
interpreted in a manner consistent with such intent.
(f) The allocations set forth in Sections 3.5(a) through
(e) (the "Regulatory Allocations") shall be taken into account in allocating
items of income, gain, loss, and deduction among the Members so that, to the
extent possible, the net amount of such allocations of other items and the
Regulatory Allocations to each Member shall be equal to the net amount that
would have been allocated to each such Member if the Regulatory Allocations
had not occurred.
(g) Solely for federal income tax purposes, income, gain,
deduction, and loss of the Company shall be allocated among the Members in
accordance with the principles of Section 704(c) of the Code and the
"traditional method with curative allocations" set forth in IRS Regulation
Section 1.704-3(c) so as to take into account any difference between the
Gross Asset Values of the Company's assets and their adjusted bases for federal
income tax purposes.
3.6 Distributions. Cash distributions to the Members shall be
made as follows:
(a) First, on June 30 and December 31 of each year
beginning on December 31,
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1997, to the Class B Members until such Members shall have received aggregate
distributions pursuant to this Section 3.6(a) equal to such Members' Unpaid
Class B Return with respect to their Unrecovered Class B Contributions; and
(b) Otherwise, at such times and in such amounts as the
Member Majority shall determine, to the Members in proportion to their Class A
Units; provided that from and after June 30, 1997, no distribution shall be
made unless the Class B Members' Unpaid Class B Return is equal to zero.
3.7 Special Distributions.
(a) At the determination of the Management Committee,
the Company may give notice to the Class B Members, at any time after the
second anniversary of the date of this Agreement, and, 60 days after the giving
of such notice, the Company shall make a distribution to the Class B Members in
an amount up to the sum of the Class B Members' Unrecovered Class B
Contributions, Accumulating Class B Return, and Unpaid Class B Return. Any
distribution pursuant to this Section 3.7(a) shall reduce, (i) first, the
amount of any Unpaid Class B Return; and (ii) thereafter to the extent of any
excess, the Unrecovered Class B Contributions and Accumulating Class B Return,
in proportion to the aggregate amount of each. The number of the Class B
Members' Class B Units shall be reduced by 1 for each $1,000 of distribution
with respect to their Unrecovered Class B Contributions.
(b) At any time that the Class B Members are treated as
having made a Class B Conversion pursuant to Section 2.4, a distribution shall
be made to the Class B Members in an amount equal to the sum of (i) their
Unpaid Class B Return and (ii) their Accumulating Class B Return.
ARTICLE IV
ACCOUNTING, FINANCIAL AND TAX MATTERS
4.1 Books and Records, Reports.
(a) The financial officers of the Company shall maintain
a system of accounting established and administered in accordance with
generally accepted accounting principles, and shall set aside on the books of
the Company or otherwise record all such proper reserves as shall be required
by generally accepted accounting principles.
(b) Within 45 days after the end of each of the first
three quarters of each fiscal year of the Company, the financial officers of
the Company shall prepare and distribute to each Member quarterly financial
statements of the Company including a balance sheet and profit and loss
statement.
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(c) Within 90 days after the close of each fiscal year of
the Company there shall be prepared and distributed to each Member the
following financial statements, accompanied by the audited report thereon of
the independent accountants for the Company: (i) a balance sheet of the Company
as at the end of such fiscal year; (ii) a statement of profit and loss for such
fiscal year; (iii) a statement of the Members' Capital Accounts and changes
therein for such fiscal year; (iv) information regarding such Member's
distributive share of all tax items of the Company for such year; and (v) a
statement of cash flows of the Company for such fiscal year.
4.2 Fiscal Year. The fiscal year of the Company shall be the
calendar year unless the Management Committee determines that a Member Majority
uses a different year, in which case the Member Majority shall decide whether
to change the fiscal year of the Company to conform to the fiscal year of the
Member Majority, or unless a different fiscal year is required under the
Secured Loan Agreement.
4.3 Compensation. No Member shall receive any compensation for
services rendered to the Company except as determined by the Management
Committee. The Members shall determine the compensation for the Managers.
The Management Committee (or a committee established by the Management
Committee) shall make all determinations with respect to compensation,
including salaries, bonuses and options of all officers and employees of the
Company.
4.4 Bank and Investment Accounts. All funds of the Company shall
be deposited in its name, or in such name as may be designated by the
Management Committee, in such checking, savings or other accounts, or held in
its name in the form of such other investments as shall be designated by the
Management Committee. All withdrawals of such deposits or liquidations of such
investments by the Company shall be made exclusively upon the signature or
signatures of such officer or officers of the Company as the Management
Committee may designate.
4.5 Tax Matters Partner. The "tax matters partner" (as such term
is defined in Section 6231(a)(7) of the Code) of the Company shall be William
P. Foley, or any other Member selected by a majority of the Members to succeed
it or any of its successors, who shall be subject to the control of the
Management Committee. Each Member, by its execution of this Agreement,
consents to such designation of the tax matters partner, and agrees to execute,
certify, acknowledge, deliver, swear to, file and record at the appropriate
public offices such documents as may be necessary or appropriate to evidence
such consent.
4.6 Tax Elections and Accounting Decisions. All determinations
as to tax elections shall be made by the tax matters partner. All
determinations as to accounting principles shall be made by the Management
Committee.
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ARTICLE V
MEMBERS
5.1 Members. The names and the business, residence or mailing
address of the Members are as set forth on Schedule 4 hereto. As Members are
substituted or new Members added from time to time pursuant to Article IX, the
Management Committee shall amend this Schedule 4.
5.2 Classes of Members. The Company shall have the following two
classes of Members.
(a) Holders of Class A Units; and
(b) Holders of Class B Units.
5.3 Voting by Members. Only the Class A Members shall have the
right to vote, except as otherwise provided by law; provided that in the event
the Company is in arrears in distributions to be made pursuant to Section 3.6
by one year (two distributions), the Class B Members, voting as a class, shall
be entitled to elect one of the Managers of the Company.
5.4 Meetings of Members.
(a) Annual Meetings. The date, time and place of the
annual meeting shall be determined by the Management Committee.
(b) Special Meetings. Special meetings of Members may
be called for any purpose and may be held at such time and place, within or
without the State of Delaware, as shall be stated in a notice of meeting or in
a duly executed waiver of notice thereof. Such meetings may be called at any
time by a Member Majority or by a Manager.
(c) Place of Meetings. A Manager may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by a Manager. If no
designation is made, or if a special meeting is otherwise called, the place of
meeting shall be the principal executive office of the Company.
5.5 Notice. Whenever Members are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time,
and, in the case of special meetings, the purpose or purposes, of such meeting,
shall be given to each Member entitled to vote at such meeting and to each
Manager not less than 10 nor more than 60 days before the date of the meeting.
All such notices shall be delivered, either personally or by mail, by or at the
direction of the Managers, and if mailed, such notice shall be deemed to be
delivered when deposited in the
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United States mail, postage prepaid, addressed to the Member at his, her or its
address as the same appears on the records of the Company. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting is not
lawfully called or convened.
5.6 Quorum. Not less than a Member Majority, present in person or
represented by proxy, shall constitute a quorum at all meetings of the Members,
except as otherwise provided by the Act or this Agreement. If a quorum is not
present, the Members in person or represented by proxy at the meeting, and
entitled to vote at the meeting, may adjourn the meeting to another time and/or
place. When a quorum is once present to commence a meeting of Members, it is
not broken by the subsequent withdrawal of any Members or their proxies.
5.7 Adjourned Meetings. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Company may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjournment meeting, a notice of the adjourned meeting shall be given to
each Member of record entitled to vote at the meeting.
5.8 Vote Required. When a quorum is present, the affirmative vote
of a Member Majority present in person or represented by proxy at the meeting
and entitled to vote on the subject matter shall be the act of the Members,
unless the question is one upon which by express provisions of an applicable
law or of this Agreement a different vote is required, in which case such
express provisions shall govern and control the decision of such question.
5.9 Proxies. Each Member entitled to vote at a meeting of Members
or to express consent or dissent to Company action in writing without a meeting
may authorize another person or persons to act for him or her by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period.
5.10 Action by Written Consent. Unless otherwise restricted by
this Agreement, any action required or permitted to be taken at any Annual or
Special Meeting of Members of the Company may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the actions so taken, shall be signed by the Holders of Class A Units having
not less than the minimum number of votes that would be necessary to authorize
or take such action.
5.11 Action by Members. The Members shall from time to time vote
their Interests as may be required in order to cause the Company to comply with
this Agreement and shall take all actions reasonably required to cause the
Managers designated by them to attend all meetings that are duly called in
accordance with this Agreement.
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5.12 Withdrawal. Except as provided by law, no Member shall be
entitled to the withdrawal or return of such Member's capital contributions,
except to the extent, if any, that distributions made pursuant to this
Agreement or upon termination or dissolution of the Company may be considered
as such by law, and then only to the extent provided for in this Agreement.
5.13 Certificate of Membership Interest. A membership Interest may
be represented by a certificate of membership. The exact contents of a
certificate of membership may be determined by action of the Managers but shall
be issued substantially in conformity with the following requirements. The
certificates of membership shall be respectively numbered serially, as they are
issued, shall be impressed with the Company seal, if any, and shall be signed
by the Managers or officers of the Company. Each certificate of membership
shall state the name of the Company, the fact that the Company is organized
under the laws of the State of Delaware as a limited liability company, the
name of the person to whom issued, the date of issue, and the membership
Interests represented thereby. A statement of the designations, preferences,
qualifications, limitations, restrictions, and special or relative rights of
the membership Interest, if any, shall be set forth in full or summarized on
the face or back of the certificates which the Company shall issue, or in lieu
thereof, the certificate may set forth that such a statement or summary will be
furnished to any Holder of an Interest upon request without charge. Each
certificate of membership shall be otherwise in such form as may be determined
by the Managers.
5.14 Cancellation of Certificate. All certificates of membership
surrendered to the Company for transfer shall be cancelled and no new
certificates of membership shall be issued in lieu thereof until the former
certificates for a like number of membership Interests shall have been
surrendered and cancelled, except as herein provided with respect to lost,
stolen, or destroyed certificates.
5.15 Replacement of Lost, Stolen, or Destroyed Certificate. Any
Member claiming that such Member's certificate of membership is lost, stolen,
or destroyed may make an affidavit or affirmation of that fact and request a
new certificate. Upon the giving of a satisfactory indemnity to the Company
as reasonably required by the Managers, a new certificate may be issued of the
same tenor and representing the same percentage membership Interest as was
represented by the certificate alleged to be lost, stolen, or destroyed.
ARTICLE VI
MANAGEMENT
6.1 Management. Except as otherwise expressly provided for
herein, the business and affairs of the Company shall be managed by and under
the direction of a committee of managers established pursuant to, and with the
powers and authority set forth in this Article VI (the "Management Committee").
The Management Committee shall have the sole and exclusive responsibility and
authority for the management, conduct and operation of the Company's
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business in all respects and in all matters, except to the extent that the
Management Committee delegates any such responsibility or authority to any
other committee of Members or Managers, officer, employee or agent of the
Company. The Management Committee may delegate such general or specific
authority to committees of Members or Managers, officers, employees or agents
of the Company as the Management Committee considers desirable from time to
time, and such committees of Members or Managers, officers, employees or agents
of the Company may, subject to any restraints or limitations imposed by the
Management Committee, exercise the authority granted to them.
6.2 Number, Tenure and Qualifications of Managers. The Management
Committee shall be comprised of six (6) managers (the "Managers"). The
Managers shall be selected in the manner set forth in Section 6.6. The names
and addresses of the initial individuals selected to serve as the Managers are
set forth on Schedule 5 hereto. The number of Managers comprising the
Management Committee may be amended from time to time by the vote or written
consent of Members holding at least two-thirds of the Class A Units, provided,
that from and at all time after the time that the number of Class A Units owned
by BCI and its successors and assignees (the "BCI Units") constitutes at least
a majority of the then outstanding Class A Units (the "BCI Effective Time"),
the number of Managers shall be fixed by the Holders of a Majority of the BCI
Units. Each Manager shall hold office until the next annual meeting of the
Members or until a successor shall have been elected and qualified. Managers
need not be residents of the State of Delaware or Members of the Company. No
Manager of the Company may, at the same time, serve as an officer or director
of CKE Restaurants, Inc., provided that from time to time one, but only one,
Manager may also be an officer or director of CKE Restaurants, Inc.
6.3 Powers of the Managers.
(a) Except as set forth in this Agreement, the Management
Committee shall have power and authority, on behalf of the Company to (i)
purchase, lease or otherwise acquire from, or sell, lease or otherwise dispose
of to, any Person any property, (ii) open bank accounts and otherwise invest
the funds of the Company, (iii) purchase insurance on the business and assets
of the Company, (iv) commence lawsuits and other proceedings, (v) enter into
any agreement, instrument or other writing, (vi) retain accountants, attorneys
or other agents and (vii) take any other lawful action that the Management
Committee consider necessary, convenient or advisable in connection with any
business of the Company.
(b) The Management Committee shall have the sole power to
bind the Company, except and to the extent that such power is expressly
delegated to any other Person by the Management Committee.
6.4 Removal and Resignation. Any Manager or all the Managers may
be removed at any time, with or without cause, by a Member Majority then
entitled to vote at an election of Managers. Any Manager may resign at any
time upon written notice to the Company.
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6.5 Meeting of Managers.
(a) Meetings and Notice. Regular meetings of the
Management Committee may be held on not less than three days' notice at such
time and at such place as shall from time to time be determined by the
Management Committee. Any Manager may require the Company, by notice given not
less than ten days in advance of any regularly scheduled meeting of the
Management Committee, to include in the business to be discussed at the meeting
any one or more proposals submitted by such Manager. Special meetings of the
Management Committee may be called by a Member Majority on at least five days'
notice to each Manager, either personally, by telephone, by mail or by telefax.
(b) Communications Equipment. Managers may participate
in and act at any meeting of the Management Committee through the use of a
conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
the meeting pursuant to this section shall constitute presence in person at the
meeting.
(c) Waiver of Notice and Presumption of Assent. Any
Manager who is present at a meeting shall be conclusively presumed to have
waived notice of such meeting except when such Manager attends for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened. Such Manager
shall be conclusively presumed to have assented to any action taken unless his
or her dissent shall be entered in the minutes of the meeting or unless his or
her written dissent to such action shall be filed before the adjournment
thereof or shall be forwarded by registered mail to the Company immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
any Manager who voted in favor of such action.
(d) Action by Written Consent. Any action required or
permitted to be taken at any meeting of the Management Committee may be taken
without a meeting if all Managers consent thereto in writing, and the writing
or writings are filed with the minutes of the meetings of the Management
Committee.
(e) Quorum, Required Vote and Adjournment. A majority
of the total number of Managers shall constitute a quorum for the transaction
of business. The vote of a majority of Managers present at a meeting at which
a quorum is present shall be the act of the Management Committee. If a quorum
shall not be present at any meeting of the Management Committee, the Managers
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
6.6 Appointment of Managers.
(a) Unless otherwise provided for in Section 5.3, the
Managers of the Company will be appointed by a vote of the Member Majority.
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(b) Vacancies by Managers during terms of office shall be
filled by the Management Committee.
6.7 Designation of Officers, Term, etc.
(a) The Management Committee shall elect officers of the
Company, including a Chairperson, a President, a Secretary and a Treasurer of
the Company, and may elect or appoint one or more Vice Presidents and such
other officers of the Company as the Management Committee may determine. The
Management Committee may use descriptive words or phrases to designate the
standing, seniority or area of special competence of the officers elected or
appointed. Any two or more offices may be held by the same person. All
officers as between themselves and the Company shall have such authority and
perform such duties in the management of the Company as may be provided in this
Section 6.7 or as the Management Committee may from time to time determine, and
may act on behalf of the Company in the manner and regarding such matters as is
provided for in this Section 6.7 or as may be authorized by the Management
Committee. From time to time the Management Committee may establish, increase,
reduce or otherwise modify responsibilities of the officers of the Company or
may create or eliminate offices as the Company may consider appropriate. The
initial officers of the Company are as follows:
<TABLE>
<S> <C>
Chief Executive Officer Daniel D. Lane
President Kerry W. Coin
Secretary Richard C. Celio
Treasurer Robin Downing
</TABLE>
(b) Each officer elected by the Management Committee
shall serve until his or her successor is duly elected as provided herein or,
if earlier, until his or her death, resignation or removal. A vacancy in any
office because of death, resignation, removal, or any other cause shall be
filled for the unexpired portion of the term in the manner prescribed in this
Agreement for the regular election to such office.
(c) Any officer may resign at any time by so notifying
the Management Committee and the Secretary in writing. Such resignation shall
take effect upon receipt of such notice or at such later time as is therein
specified, and unless otherwise specified, the acceptance of such resignation
shall not be necessary to make it effective. Any officer elected by the
Management Committee may be removed with or without cause. The election of an
individual as an officer shall not of itself create a right to continued
employment with the Company.
6.8 The President. The President shall have such powers and
duties as the Management
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Committee assigns to him or her. The President shall, preside at all meetings
of the Management Committee.
6.9 Vice President. The Vice President or, if there shall be more
than one, the Vice Presidents, if any, in the order of their seniority or in
any other order determined by the Management Committee, shall perform, in the
absence or disability of the President, the duties and exercise the powers of
the President and shall have such other powers and duties as the Management
Committee or the President assigns to him or her or to them.
6.10 Secretary. The Secretary, if present, shall act as secretary
of all meetings of the Members and of the Management Committee, shall keep the
minutes thereof in the proper books or books to be provided for that purpose;
shall see that all notices required to be given by the Company or the
Management Committee are duly given and served; shall have charge of the books,
records and papers of the Company relating to its organization and management
and shall see that the reports, statements and other documents required by law
are properly kept and filed at the Company's principal office; and shall, in
general, perform all the duties as from time to time may be assigned to him or
her by the Management Committee or by the President.
6.12 Treasurer. The Treasurer shall have charge and custody of,
and be responsible for, all funds, securities and books of the Company; and, in
general, perform all the duties as from time to time may be assigned to him or
her by the Management Committee or the President.
6.13 Assistant Secretaries and Assistant Treasurers. Assistant
Secretaries and Assistant Treasurers shall perform such duties as shall be
assigned to them by the Secretary or by the Treasurer, respectively, or by the
Management Committee or by the President.
ARTICLE VII
LIABILITY; EXCULPATION; INDEMNIFICATION
7.1 Liability of Members. The Members shall not have any liability
for the obligations or liabilities of the Company except to the extent provided
in the Act and other applicable law. A Member shall not be personally liable
for any indebtedness, liability or obligation of the Company, except that such
Member shall remain personally liable for the payment of the Capital
Contribution of such Member and as otherwise set forth in this Agreement, the
Act and any other applicable law.
7.2 Exculpation of Managers. A Manager or a Member exercising
management powers or responsibilities for or on behalf of the Company shall not
have personal liability to the Company or its Members for damages for any
breach of duty in such capacity, except for a breach of fiduciary duty.
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7.3 Indemnification.
(a) The Company shall indemnify any person (an
"Indemnitee") who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding brought by or
against the Company or otherwise, whether civil, criminal, administrative or
investigative, including, without limitation, an action by or in the right of
the Company to procure a judgment in its favor, by reason of the fact that such
Indemnitee is or was a Member, Manager, officer, employee or agent of the
Company, or that such Indemnitee is or was serving at the request of the
Company as a partner, director, officer, trustee, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against all
expenses, including attorneys' fees and disbursements, judgments, fines and
amounts paid in settlement actually and reasonably incurred by such Indemnitee
in connection with such action, suit or proceeding. Notwithstanding the
foregoing, no indemnification shall be provided to or on behalf of any
Indemnitee if a judgment or other final adjudication adverse to such
Indemnitee establishes that his or her acts were a breach of fiduciary duty.
(b) Any indemnification under subsection (a) of this
Section (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination that the indemnification
of the Indemnitee is proper under the circumstances because he or she has met
the applicable standard of conduct set forth in subsection (a) of this Section
7.3. Such determination shall be made by the Management Committee or, if the
Management Committee so directs, by independent legal counsel in a written
opinion.
(c) The Company will, in the discretion of the
Management Committee, pay expenses incurred in defending any action, suit or
proceeding described in subsection (a) above in advance of the final
disposition of such action, suit or proceeding.
(d) The Company may, in the discretion of the Management
Committee, purchase and maintain insurance on behalf of any Indemnitee against
any liability asserted against him or her, whether or not the Company would
have the power by law to indemnify him or her against such liability.
(e) The indemnification provided by this Section 7.3
shall not be deemed exclusive of any other rights to indemnification to which
those seeking indemnification may be entitled under any agreement,
determination of Members or otherwise. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Section 7.3 shall continue as to an Indemnitee who has ceased to be a
Member or officer (or other person indemnified hereunder) and shall inure to
the benefit of the executors, administrators, legatees and distributees of such
person.
(f) The provisions of this Section 7.3 shall be a contract
between the Company, on the one hand, and each Indemnitee who served in such
capacity at any time while this Section 7.3 is in effect, on the other hand,
pursuant to which the Company and each such Indemnitee intend
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to be legally bound. No repeal or modification of this Section 7.3 shall
affect any rights or obligations with respect to any state of facts then or
theretofore existing or thereafter arising or any proceeding theretofore or
thereafter brought or threatened based in whole or in part upon such state of
facts.
ARTICLE VIII
TERMINATION; DISSOLUTION; LIQUIDATION AND WINDING-UP
8.1 Termination of the Company. In the event of the occurrence of
a Dissolution Event (as defined herein), the Company shall be terminated on the
90th day after the occurrence of such event unless the remaining Members prior
to the close of business on such 90th day elect to continue the business of the
Company by the affirmative vote of a majority in Interest of the remaining
Members.
8.2 Events of Dissolution. The Company shall be dissolved upon
any of the following (each a "Dissolution Event"):
(a) the death or bankruptcy of any Member;
(b) passage of sixty (60) days after the assignment,
sale, transfer or other disposition of all or substantially all of the assets,
properties and business of the Company;
(c) the affirmative vote of a Member Majority for a
dissolution of the Company; or
(d) a transfer in violation of Section 9.1(c);
8.3 Liquidation and Winding-Up. If the Company is dissolved
pursuant to Section 8.2, the Company shall be liquidated and wound up in
accordance with the Act and the following provisions:
(a) The financial officers of the Company shall be
directed to prepare a balance sheet, income statement, and cash flow statement
of the Company in accordance with generally accepted accounting principles as
of the date of dissolution, which balance sheet, income statement and cash flow
statement shall be reported upon by the Company's independent public
accountants.
(b) The assets, properties and business of the Company
shall be liquidated by the Management Committee as promptly as possible, but in
an orderly and businesslike manner so as not to involve undue sacrifice.
Notwithstanding the foregoing, if it is determined by the
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Management Committee not to sell all or any portion of the properties and
assets of the Company, such properties and assets shall be distributed in kind
in the order of priority set forth in subsection (d); provided, however, that
the fair market value of such properties and assets shall be used in
determining the extent and amount of a distribution in kind of such properties
and assets in lieu of actual cash proceeds of any sale or other disposition
thereof.
(c) Net Income or Net Loss of the Company for the year of
liquidation shall be credited or charged to the Capital Accounts of the Members
in accordance with the allocation provisions set forth in Sections 3.2 and 3.3.
(d) The proceeds of sale of all or substantially all of
the properties and assets of the Company and all other properties and assets of
the Company not sold, as provided in subsection (b) above, and valued at the
fair market value thereof as provided in such subsection (b), shall be applied
and distributed as follows, and in the following order or priority:
First, to the payment of all debts and
liabilities of the Company and the expenses of liquidation not otherwise
adequately provided for.
Second, to the setting up of any reserves
that are reasonably necessary for any contingent unforeseen liabilities or
obligations of the Company or of the Members arising out of, or in connection
with, the Company.
Third, to the Class B Members up to the
amount equal to the positive balance of the Capital Accounts of the Class B
Members.
Fourth, to the Class A Members up to the
amount equal to the positive balance of the Capital Accounts of the Class A
Members.
(e) A Certificate of Cancellation shall be filed with the
Secretary of State of Delaware.
8.4 Survival of Rights, Duties and Obligations. Termination,
dissolution, liquidation or winding up of the Company for any reason shall not
release any party from liability which at the time of such termination,
dissolution, liquidation or winding up already had accrued to any other party
or which thereafter may accrue in respect to any act or omission prior to such
termination, dissolution, liquidation or winding up.
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ARTICLE IX
TRANSFER, ASSIGNMENT, ADMISSION OF MEMBERS
9.1 Transfers of Interests.
(a) No Member may Transfer all or any portion of such
Member's Interest (including any beneficial interest therein), except that any
Member may pledge its Interest to the Holders of the Convertible Debt as
security for the Convertible Debt, unless the following conditions are met: (i)
with respect to a Transfer by a Class A Member, a majority of the Class B
Members approves the Transfer and with respect to a Transfer by a Class B
Member, a majority of the Class A Members approves the Transfer; provided,
however, that upon and after the conversion of the Class B Units into Class A
Units pursuant to Section 2.4 above, a Transfer by any Class A Member other
than BCI or its successors or assignees shall require the approval of a
majority of the non-transferring Class A Members, and (ii) an instrument of
Transfer in form and substance satisfactory to the Management Committee,
executed by the transferor and the transferee of the Interest, together with
such additional instruments and documents as shall be reasonably requested by
the Management Committee shall be delivered to the Management Committee; the
transferee shall, if so requested, assume the obligations, if any, of the
transferor to the Company.
(b) Notwithstanding any other provisions of this Section
9.1, no Transfer of a Member's Interest may be made unless in the opinion of
counsel to the Company, satisfactory in form and substance to the Management
Committee (which opinion may be waived, in whole or in part, at the discretion
of the Management Committee):
(i) such Transfer, when added to the total of all
other Transfers of Interests in the Company within the preceding twelve (12)
months, would not result in any federal income tax consequences that may be
materially adverse to the Company or any of the Members;
(ii) such Transfer would not violate the
Securities Act or any state securities or "blue sky" laws applicable to the
Company or the Interest to be Transferred;
(iii) such Transfer would not cause the Company
to lose its status as a partnership for federal income tax purposes; and
(iv) such Transfer shall not impose liability or
reporting obligations on the Company or any Member thereof in any jurisdiction,
whether domestic or foreign, or result in the Company or any Member thereof
becoming subject to the jurisdiction of any court or governmental entity
anywhere other than New York.
(v) Any Person that acquires an Interest pursuant
to this Article IX
23
<PAGE> 24
shall assume all obligations of the transferring Member. To the extent
permitted by law, a transferring Member shall have no liability for amounts
required to be paid with respect to its Interest after the transferee of such
Interest is admitted as a substituted Member (other than with respect to
amounts owed, but not paid, by such transferring Member as an additional
capital contribution or otherwise prior to such Transfer).
(c) Notwithstanding any other provision of this Section
9.1, at any time when the only Members of the Company are CKE Restaurants,
Inc. and Boston Pacific, Inc., neither Member may transfer all or any portion
of such Member's Interest.
9.2 Violative Transfers. No Member may make a Transfer or
withdraw from the Company in violation of Section 9.1, and any such Transfer
or withdrawal shall be null, void and without effect.
9.3 Substituted Members. As a condition to the admission of any
Person as a substituted Member, the Person to be admitted shall execute and
acknowledge such instruments, in form and substance satisfactory to the
Management Committee, as the Management Committee may deem necessary or
desirable to effectuate such admission, and shall confirm that the individual's
legal representative, committee or other entity to be admitted as such Member,
has agreed to be bound by all of the covenants, terms and conditions of this
Agreement, as the same shall have been amended. Such Persons shall become
Members on the last to occur of (a) their making contributions to the capital
of the Company, to the extent required by the Management Committee; (b) their
execution of the instrument described in the first sentence of this Section
9.3; (c) the approval of any other Person whose approval thereof may be
necessary; (d) the making of all necessary amendments, modifications and
restatements of this Agreement as the Management Committee may deem appropriate
to reflect a change or modification of the Company or of the respective rights
of the Members hereunder; and (e) the filing of an Amendment to the Certificate
with the Secretary of State of Delaware if, in the opinion of the Management
Committee, such filing is required; and thereupon such Persons shall be
included in the definition of Members, and as parties to this Agreement, for
all purposes of this Agreement. Anything herein to the contrary
notwithstanding, the Company and the Management Committee shall be entitled to
treat the transferor of an Interest as the absolute owner thereof in all
respects, and shall incur no liability for distributions made in good faith to
the transferor, until such time as a Transfer meeting all of the requirements
of this Article IX has been made and a written assignment that conforms to the
requirements of this Article IX has been received by the Company.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. Wherever provision is made in this Agreement for the
giving of any notice, such notice shall be in writing and shall be deemed to
have been duly given if mailed by first class United States mail, postage
prepaid, addressed to the party entitled to receive the same or
24
<PAGE> 25
delivered personally to such party at the address specified below, or if
delivered personally, telegraphed, telexed, sent by facsimile transmission or
sent by overnight courier, if to the Members, to the addresses therefore set
forth on Schedule 5, or to such other address, in any such case, as any party
hereto shall have last designated by notice to the other party. Notice shall
be deemed to have been given on the day that it is so delivered personally,
telegraphed, telexed or sent by facsimile transmission and the appropriate
answerback received or, if sent by overnight courier, shall be deemed to have
been given one day after delivery by the courier company, or if mailed, three
days following the date on which such notice was so mailed.
10.2 Power of Attorney. Each Member, at the request of the
Management Committee, shall execute such amendment of the Certificate,
restated Certificate or other documents or certificates as the Management
Committee deems necessary or appropriate to comply with the laws of any
jurisdiction in which the Company does business. Each Member appoints the
Management Committee, as its true and lawful representative and
attorney-in-fact, in its name, place and stead to make, execute, sign and file
all instruments, documents and certificates that, from time to time, may be
required by the laws of the United States of America, the State of Delaware or
any other state in which the Company shall determine to do business, or any
political subdivision or agency thereof, and that are consistent with the terms
hereof. The Management Committee, as representatives and attorneys-in-fact,
however, shall not have any right, power of authority to amend or modify this
Agreement when acting in such capacity, which amendment or modification shall
only be effected in accordance with the provisions of Section 10.4.
10.3 Entire Agreement, Non-Waiver. This Agreement constitutes the
entire agreement of the parties hereto. No delay on the part of any party in
exercising any right hereunder shall operate as a waiver thereof, nor shall any
waiver, express or implied, by any party of any right hereunder or of any
failure to perform or breach hereof by any other party constitute or be deemed
a waiver of any other right hereunder or of any other failure to perform or
breach hereof by the same or any other Member, whether of a similar or
dissimilar nature thereof.
10.4 Amendments. This Agreement may be amended from time to time
only upon the approval of a Member Majority, provided that any amendments that
would affect any rights of the Holders of Class B Units shall not be effective
unless approved by a vote of 50% of Class B Units. The date of adoption of an
amendment shall be the date on which the Company shall have received the
requisite approvals or such other date approved by the Management Committee.
10.5 Further Assurances. Each of the Members hereby agrees to
execute and deliver all such other and additional instruments and documents and
to do such other acts and things, at the request of the Management Committee,
as may be reasonably necessary or appropriate to carry out the intent and
purposes of this Agreement.
10.6 Privacy of Certain Agreements. Notwithstanding anything to
the contrary contained herein, the Members acknowledge that the Company is
currently and may in the future be subject to certain agreements, including the
Secured Loan Agreement, the Area Development
25
<PAGE> 26
Agreement and the Franchise Agreements, with terms that are or may be
inconsistent with the provisions of this Agreement, and that to the extent that
they are not in violation of the Act, the provisions of those agreements shall
control in the event of any conflict herewith and may limit or preclude the
Members' ability to exercise their rights or realize any benefits otherwise
available to them hereunder. The Members further agree that any distribution
made or compensation paid in violation of the Secured Loan Agreement, the Area
Development Agreement or any Franchise Agreement shall be reimbursed by the
recipient thereof upon demand by the Company.
10.7 Applicable Law. This Agreement, the relations, rights and
duties of the Members among themselves, and all matters pertaining to the
Members and the Company, shall be governed by and construed under and in
accordance with the laws of the State of Delaware applicable to agreements
entered into and to be performed wholly within such State.
10.8 Severability. In the event that any provision of this
Agreement shall be declared to be invalid, illegal or unenforceable, such
provision shall survive to the extent it is not so declared, and the validity,
legality and enforceability of the other provisions hereof shall not in any way
be affected or impaired thereby, unless such action would substantially impair
the benefits to either party of the remaining provisions of this Agreement.
10.9 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.
10.10 Usage. Any word or term used in this Agreement in any form
shall be masculine, feminine, neuter, singular or plural, as proper reading
requires.
10.11 Table of Contents and Headings. The table of contents and
headings in this Agreement are solely for convenience of reference and shall
not affect the interpretation or construction of any of the provisions hereof.
26
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, or caused this Agreement to be executed, by their respective duly
authorized officers, on the date first above written.
MEMBERS
CLASS A MEMBERS
BOSTON PACIFIC, INC.
By: /s/ ROBIN DOWNING
--------------------------------
Name: Robin Downing
Title: Chief Financial Officer
CKE RESTAURANTS, INC.
By: /s/ LOREN PANNIER
--------------------------------
Name: Loren Pannier
Title: Chief Financial Officer
CLASS B MEMBERS
BOSTON PACIFIC, INC.
By: /s/ ROBIN DOWNING
--------------------------------
Name: Robin Downing
Title: Chief Financial Officer
27
<PAGE> 28
SCHEDULE 1
CLASS A MEMBERS
Boston Pacific, Inc.
CKE Restaurants, Inc.
<PAGE> 29
SCHEDULE 2
CLASS B MEMBERS
Boston Pacific, Inc.
<PAGE> 30
SCHEDULE 3
INITIAL CAPITAL CONTRIBUTIONS
<TABLE>
<S> <C>
CKE Restaurants, Inc. $20.00 (2 Class A Units)
Boston Pacific, Inc. $23,571,241 (62,000 Class A Units and 22,951 Class B Units)
</TABLE>
<PAGE> 31
SCHEDULE 4
NAMES AND ADDRESSES OF MEMBERS
CKE Restaurants, Inc.
1200 North Harbor Boulevard
P.O. Box 4349
Anaheim, CA 92803-4349
Boston Pacific, Inc.
1200 North Harbor Boulevard
P.O. Box 4349
Anaheim CA 92803-4349
<PAGE> 32
SCHEDULE 5
NAMES AND ADDRESSES OF MANAGERS
William Foley
Daniel (Ron) Lane
Tom Thompson
1200 North Harbor Boulevard
P.O. Box 4349
Anaheim, CA 92803-4349
<PAGE> 1
EXHIBIT 11-1
CKE RESTAURANTS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
---------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net income (loss)...................... $ 1,264 $ 3,665 $(5,507) $13,038 $13,036
======= ======= ======= ======= =======
Weighted average shares outstanding:
Common stock outstanding from
beginning of year................. 18,677 18,091 17,918 18,017 17,917
Pro-rata shares:
Exercise of stock options......... 102 124 116 90 21
Repurchase and retirement of
shares.......................... -- (28) -- (208) --
Purchase of treasury shares....... (144) -- -- -- --
Dilutive effect of outstanding stock
options........................... 82 66 294(1) 293 229
------- ------- ------- ------- -------
18,717 18,253 18,328 18,192 18,167
======= ======= ======= ======= =======
Primary earnings (loss) per share...... $ .07 $ .20 $ (.30)(1) $ .72 $ .72
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
---------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE:
Net income (loss)...................... $ 1,264 $ 3,665 $(5,507) $13,038 $13,036
======= ======= ======= ======= =======
Weighted average shares outstanding:
Common stock outstanding from
beginning of year................. 18,677 18,091 17,918 18,017 17,917
Pro-rata shares:
Exercise of stock options......... 102 124 116 90 21
Repurchase and retirement of
shares.......................... -- (28) -- (208) --
Purchase of treasury shares....... (144) -- -- -- --
Dilutive effect of outstanding stock
options........................... 82 380 334(1) 309 229
------- ------- ------- ------- -------
18,717 18,567 18,368 18,208 18,167
======= ======= ======= ======= =======
Fully diluted earnings (loss) per
share................................ $ .07 $ .20 $ (.30)(1) $ .72 $ .72
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of Accounting Principles
Board Opinion No. 15 because it produces an antidilutive effect.
<PAGE> 1
EXHIBIT 12-1
CKE RESTAURANTS, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF DEBT TO EQUITY
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
----------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Debt:
Current portion of long-term
debt........................... $ 8,168 $13,207 $ 28,467 $ 29,759 $ 30,554
Current portion of capital lease
obligations.................... 3,581 3,354 3,158 2,959 2,251
------- ------- -------- -------- --------
11,749 16,561 31,625 32,718 32,805
------- ------- -------- -------- --------
Long-term debt.................... 27,178 17,414 31,742 50,485 58,297
Capital lease obligations......... 42,691 45,886 48,512 51,589 58,840
------- ------- -------- -------- --------
69,869 63,300 80,254 102,074 117,137
------- ------- -------- -------- --------
$81,618 $79,861 $111,879 $134,792 $149,942
======= ======= ======== ======== ========
Stockholders' equity:
Common stock...................... $ 188 $ 186 $ 181 $ 179 $ 180
Additional paid-in capital........ 35,119 33,742 28,612 26,609 27,352
Retained earnings................. 57,725 58,148 55,939 62,891 51,286
Treasury stock.................... (4,558) -- -- -- --
------- ------- -------- -------- --------
$88,474 $92,076 $ 84,732 $ 89,679 $ 78,818
======= ======= ======== ======== ========
Ratio of debt to equity............. 0.9x 0.9x 1.3x 1.5x 1.9x
======= ======= ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21-1
CKE RESTAURANTS, INC. AND SUBSIDIARIES
PARENTS AND SUBSIDIARIES
William P. Foley II, Chairman of the Board and Chief Executive Officer, owned of
record and beneficially, at March 31, 1995, 4,780,752 shares of the Company's
Common Stock, representing approximately 26.3 percent of the Company's total
shares outstanding and may be considered a "parent" of the company as such term
is defined by the rules and regulations of the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
Set forth below is a list of all the Company's subsidiaries as of January 30,
1995:
<TABLE>
<CAPTION>
CONTROL BY
JURISDICTION OF -------------------------
NAME OF SUBSIDIARY INCORPORATION REGISTRANT SUBSIDIARY
- -------------------------------- --------------- ---------- ----------
<S> <C> <C> <C>
Carl Karcher Enterprises, Inc. California 100%
Boston Pacific, Inc. California 100%
</TABLE>
<PAGE> 1
EXHIBIT 23-1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
CKE Restaurants, Inc. and Subsidiaries
We consent to incorporation by reference in the Registration Statement No.
33-56313 on Form S-8 of CKE Restaurants, Inc. and Subsidiaries of our report
dated April 18, 1995, except as to the first and second paragraphs of note 8 to
the consolidated financial statements, which are as of April 28, 1995, relating
to the consolidated balance sheets of CKE Restaurants, Inc. and Subsidiaries as
of January 31, 1995 and 1994 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended January 31, 1995, which report appears in the January
31, 1995 Annual Report on Form 10-K of CKE Restaurants, Inc. and Subsidiaries.
Our report on the consolidated financial statements refers to a change in the
method used to discount the workers' compensation reserve in fiscal 1994 and the
adoption of a new method of accounting for income taxes in fiscal 1993.
KPMG Peat Marwick LLP
Orange County, California
April 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) CKE
RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
OPERATIONS AS OF AND FOR THE FIFTY-TWO WEEKS ENDED JANUARY 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-K FOR THE YEAR ENDED
JANUARY 30, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JAN-30-1995
<CASH> 15,156
<SECURITIES> 3,088
<RECEIVABLES> 29,168
<ALLOWANCES> 0
<INVENTORY> 5,950
<CURRENT-ASSETS> 56,806
<PP&E> 277,841
<DEPRECIATION> 144,593
<TOTAL-ASSETS> 244,343
<CURRENT-LIABILITIES> 71,550
<BONDS> 0
<COMMON> 188
0
0
<OTHER-SE> 88,286
<TOTAL-LIABILITY-AND-EQUITY> 244,343
<SALES> 370,045
<TOTAL-REVENUES> 443,747
<CGS> 306,334
<TOTAL-COSTS> 435,145
<OTHER-EXPENSES> (2,998)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,202
<INCOME-PRETAX> 2,398
<INCOME-TAX> 1,134
<INCOME-CONTINUING> 1,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,264
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
