<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934.
For the quarterly period ended May 20, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934.
for the transition period from to
Commission file number 1-13192
CKE RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
33-0602639
(I.R.S. Employer Identification No.)
1200 North Harbor Boulevard, Anaheim, CA 92801
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (714) 774-5796 2639
NOT APPLICABLE
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
$.01 par value common - 18,658,289 shares as of June 20, 1996
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CKE RESTAURANTS, INC.
INDEX
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Page
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Part I. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of May 20, 1996 and January 29, 1996............... 3
Consolidated Statements of Income for the sixteen weeks ended
May 20, 1996 and May 22, 1995................................................. 4
Consolidated Statements of Cash Flows for the sixteen weeks ended
May 20, 1996 and May 22, 1995................................................. 5-6
Notes to Consolidated Financial Statements........................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 8-10
Part II. Other Information
Item 1. Legal Proceedings ....................................................... 11
Item 6. Exhibits and Reports on Form 8-K ........................................ 11-14
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CKE RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
May 20, January 29,
1996 1996
--------- -----------
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ASSETS
Current assets:
Cash and cash equivalents $ 16,712 $ 23,429
Marketable securities 2,507 2,510
Accounts receivable 5,427 8,009
Related party receivables 1,030 977
Inventories 7,208 6,132
Deferred income taxes, net 10,005 10,056
Other current assets and prepaid expenses 6,449 5,656
--------- ---------
Total current assets 49,338 56,769
Property and equipment, net 123,305 127,346
Property under capital leases, net 27,662 28,399
Long-term investments 31,386 19,814
Notes receivable 6,319 7,236
Related party notes receivable 900 969
Other assets 7,425 6,226
--------- ---------
$ 246,335 $ 246,759
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,387 $ 8,575
Current portion of capital lease obligations 3,806 3,745
Accounts payable 15,028 15,824
Other current liabilities 36,479 33,173
--------- ---------
Total current liabilities 62,700 61,317
--------- ---------
Long-term debt 23,066 30,321
Capital lease obligations 39,369 40,233
Other long-term liabilities 14,645 13,699
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
19,294,985 and 19,200,141 shares 193 192
Additional paid-in capital 39,421 38,713
Retained earnings 72,050 67,393
Treasury stock, at cost; 670,300
shares and 670,300 shares (5,109) (5,109)
--------- ---------
Total stockholders' equity 106,555 101,189
--------- ---------
$ 246,335 $ 246,759
========= =========
</TABLE>
3
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CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
-------------------------
May 20, May 22,
1996 1995
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Revenues:
Company-operated restaurants $ 129,510 $ 116,032
Franchised and licensed restaurants 23,424 21,593
--------- ---------
Total revenues 152,934 137,625
--------- ---------
Operating costs and expenses:
Restaurant operations:
Food and packaging 39,755 35,889
Payroll and other employee benefits 35,631 33,813
Occupancy and other operating expenses 26,539 25,058
--------- ---------
101,925 94,760
Franchised and licensed restaurants 22,176 20,656
Advertising expenses 7,571 6,263
General and administrative expenses 11,186 10,682
--------- ---------
Total operating costs and expenses 142,858 132,361
--------- ---------
Operating income 10,076 5,264
Interest expense (2,595) (2,832)
Other income, net 1,274 707
--------- ---------
Income before income taxes 8,755 3,139
Income tax expense 3,422 1,224
--------- ---------
Net income $ 5,333 $ 1,915
========= =========
Net income per common and common equivalent share $ .28 $ .11
========= =========
Common and common equivalent shares used in
computing per share amounts 19,109 18,199
========= =========
</TABLE>
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CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
------------------------
May 20, May 22,
1996 1995
--------- ---------
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Net cash flow from operating activities:
Net income $ 5,333 $ 1,915
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Noncash franchise income (98) --
Depreciation and amortization 6,384 7,165
Loss on sale of property and equipment 237 32
Reversal of rent subsidy reserves -- (327)
Write-off of accounts and notes receivable 47 --
Net noncash investment and dividend income (232) (81)
Deferred income taxes 51 78
Noncash increase in reserves 297 --
Write-down of long-lived assets 1,250 --
Net change in receivables, inventories and other current assets (2,479) (2,545)
Net change in other assets (1,251) (381)
Net change in accounts payable and other current liabilities 4,953 (11,698)
-------- --------
Net cash provided by (used in) operating activities 14,492 (5,842)
-------- --------
Cash flow from investing activities:
Purchases of:
Marketable securities (266) --
Property and equipment (7,599) (12,873)
Long-term investments (9,103) --
Proceeds from sales of:
Marketable securities 388 589
Property and equipment 2,478 21
Collections on leases receivable 46 39
Increases in notes receivable and related party notes receivable -- (70)
Collections on notes receivable and related party notes receivable 614 533
-------- --------
Net cash used in investing activities (13,442) (11,761)
-------- --------
Cash flow from financing activities:
Net change in bank overdraft 1,868 1,546
Short-term borrowings 600 19,460
Repayments of short-term debt (600) (19,210)
Long-term borrowings -- 10,937
Repayments of long-term debt (8,432) (1,230)
Repayments of capital lease obligations (803) (763)
Net change in other long-term liabilities (366) (703)
Purchase of treasury stock -- (551)
Payment of dividends (743) (728)
Exercise of stock options 709 --
-------- --------
Net cash provided by (used in) financing activities (7,767) 8,758
-------- --------
Net decrease in cash and cash equivalents $ (6,717) $ (8,845)
======== ========
</TABLE>
5
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CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
---------------------
May 20, May 22,
1996 1995
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Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest (net of amount capitalized) $ 2,499 $ 2,906
Income taxes 128 784
Noncash investing and financing activities:
Investing activities:
Sale of property and equipment 2,469 --
Increase in long-term investments (2,469) --
Franchise activities and reorganization:
Increase in property and equipment (441) --
Decrease in various liabilities (75) --
Decrease in notes receivable and accounts receivable 418 --
</TABLE>
6
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CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 20, 1996 AND MAY 22, 1995
NOTE (A) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of CKE Restaurants, Inc. and its wholly owned subsidiaries (the
"Company" or "CKE") and have been prepared in accordance with the requirements
of Form 10-Q and, therefore, do not include all information and footnotes which
would be presented were such consolidated financial statements prepared in
accordance with generally accepted accounting principles. These statements
should be read in conjunction with the audited financial statements presented in
the Company's Fiscal 1996 Annual Report to Stockholders. In the opinion of
management, all adjustments, consisting of normal recurring accruals, necessary
for a fair presentation of financial position and results of operations for the
interim periods presented have been reflected herein. The results of operations
for such interim periods are not necessarily indicative of results to be
expected for the full year.
NOTE (B) NEW ACCOUNTING PRONOUNCEMENT
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"). SFAS 121 requires the assessment of
certain long-lived assets for possible impairment when events or circumstances
indicate their carrying amounts may not be recoverable. The adoption of SFAS 121
resulted in a $1.3 million noncash pretax charge, equivalent to $0.04 per share,
to restaurant operations in the first quarter of fiscal 1997.
NOTE (C) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is subject to various
claims, lawsuits and other disputes with third parties incidental to its
operations. While certain of these matters involve claims for substantial
amounts, the Company intends to defend these actions vigorously and it is the
opinion of the Company's management, in consultation with its attorneys, that
their ultimate resolution will not have a material adverse affect on the
Company's consolidated financial statements.
NOTE (D) EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
common shares outstanding during the period, after consideration of the dilutive
effect of outstanding options. For all periods presented, primary earnings per
share approximate fully diluted earnings per share.
NOTE (E) RECLASSIFICATIONS
Certain prior year amounts in the accompanying financial statements
have been reclassified to conform to the fiscal 1997 presentation.
7
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CKE RESTAURANTS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Consolidated net income for the 16-week period ended May 20, 1996
increased $3.4 million to $5.3 million, or $.28 per share, as compared with the
corresponding period of the prior year. During the current period, the Company
adopted SFAS 121, resulting in a $1.3 million non-recurring charge to restaurant
operations. Net income would have been $6.1 million, or $.32 per share, the
highest quarterly net income reported by the Company in eight years, excluding
the effect of this adoption. The improved first quarter performance reflects the
continued sales growth resulting from the Company's innovative advertising,
dual-branding venture, and image enhancement program, as well as its continued
efforts to reduce operating costs through improved operating efficiencies.
The Company is continuing with the conversion of existing Carl's Jr.
locations into Carl's Jr./Green Burrito dual-brand restaurants, pursuant to an
agreement with GB Foods Corporation. As of May 20, 1996, there were 33
dual-brand restaurants operating, with sales tracking approximately 25% over
year ago same-store sales.
As of the quarter end, 27 of the Company-operated Carl's Jr.
restaurants have been revitalized with a fresh, contemporary exterior and
interior look as part of the Company's image enhancement program. Early sales
results in these remodeled restaurants continue to be encouraging. Currently,
the Company is remodeling three restaurants per week and anticipates that a
total of 160 restaurants will be remodeled this fiscal year.
In the current quarter, the Company purchased from Giant Group Ltd.
("Giant"), in settlement of certain litigation, a 15% stake in Rally's
Hamburgers, Inc. ("Rally's") for approximately $4.1 million in cash and has
options to buy another 7.5% of Rally's stock from Giant over the next two years.
Additionally, in an effort to expand the Company's presence in the western
United States, the Company and Rally's announced, shortly after the quarter end,
that the two companies have entered into an operating agreement whereby 28
Rally's-owned restaurants located in California and Arizona will be operated by
the Company as of July 1, 1996. The Company currently is assessing the
possibility of converting several of these locations, which contain a double
drive-thru feature and generally do not have an interior dining area, into
Carl's Jr. restaurants which will offer selected menu items to its customers.
Stockholders of Summit Family Restaurants Inc. ("Summit"), will vote on
the previously announced proposed merger of Summit with and into the Company
(the "Merger") at a special meeting to be held on Friday, July 12, 1996. In the
event that Summit stockholders approve the Merger, the Company will acquire
Summit for a combination of cash and stock with an aggregate value of
approximately $30.9 million, of which $5.0 million was paid in April 1996 in
connection with the purchase of Summit's Series A Convertible Preferred Stock.
The number of shares of CKE stock to be issued will be determined pursuant to a
formula described in the Merger Agreement.
This Quarterly Report on Form 10-Q contains forward looking statements,
all of which are subject to risks and uncertainties. The Company's actual
results may differ significantly from results discussed in the forward looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 1996 and those described in the Company's other
filings with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Revenues from Company-operated restaurants, comprised mainly of sales
from Carl's Jr. restaurants, increased 11.6% for the 16-week period ended May
20, 1996 to $129.5 million as compared with the first quarter of fiscal 1996. On
a same-store sales basis, the Company's Carl's Jr. sales, which are calculated
using only restaurants open for the full periods being compared, increased 12.7%
for the current period as compared with a 0.6% decrease in the comparable prior
year period. This quarterly increase is the fourth consecutive quarterly
increase and the highest same-store sales increase reported by the Company since
the first quarter of fiscal 1990. The increase in revenues from Company-operated
restaurants in the current period is primarily the result of the continued
momentum in the
8
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CKE RESTAURANTS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Company's numerous sales enhancement programs which include the image
enhancement of its restaurants through a chain-wide remodeling program, the
continuation of its conversion of existing Carl's Jr. locations into Carl's
Jr./Green Burrito dual-brand restaurants and the continued focus on promoting
great tasting new and existing food products through innovative advertising.
Also contributing to the rise in revenues for the current period are higher
average sales and transaction counts per restaurant and an increase in the
weighted average number of Company restaurants operating in fiscal 1997 as
compared with fiscal 1996.
Revenues from franchised and licensed restaurants for all periods
presented include sales of food service products by the Company's distribution
centers, rental income, royalties and initial franchise fees. Revenues from
franchised and licensed restaurants increased 8.5% to $23.4 million over the
same prior year period largely due to increased food purchases and royalties
from franchisees as a result of increased franchisee sales, which were partially
offset by a decrease in the weighted average number of franchised restaurants in
operation as compared to the prior year period.
Restaurant-level margins of the Company's restaurant operations
increased approximately 3.0% to 21.3% for the current 16-week period as compared
with the same period a year ago. Excluding the adoption of SFAS 121 during the
current quarter, restaurant-level margins would have been 22.2%. These favorable
results in the Company's restaurant-level operating margins reflect the
Company's continued commitment to improve the cost structure of its Carl's Jr.
restaurants, particularly in the areas of improving labor productivity and
reducing workers' compensation costs. As a percentage of revenues from
Company-operated restaurants, food and packaging, payroll and other employee
benefits and occupancy and other operating expenses have all decreased in the
current period as compared with the same period of the prior year.
Restaurant-level margins in the prior year 16-week period were unfavorably
impacted by the start-up nature of the Company's Boston Market operations.
Franchised and licensed restaurant costs have followed a similar
pattern during the current quarter as the revenues from franchised and licensed
restaurants. These costs have increased in absolute dollars by 7.4% to $22.2
million for the current period as compared with the same period of the prior
year, but decreased as a percentage of revenues for franchised and licensed
restaurants. The increase is primarily attributable to the increase in food
purchases from franchisees offset, in part, by a decrease in the weighted
average number of franchised restaurants in operation in the current period as
compared with the prior year period.
Advertising expenses, as a percentage of Company-operated restaurant
revenues, were 5.9% and 5.4% for the first quarter of fiscal 1997 and fiscal
1996, respectively. Advertising expenses have become increasingly important in
the current competitive environment and have therefore grown as a percentage of
revenues in fiscal 1997. Since the Company started its innovative advertising in
May 1995, same-store sales have increased in each consecutive fiscal quarter
thereafter.
General and administrative expenses for the 16-week period ended May
20, 1996 increased $0.5 million to $11.2 million. These expenses as a percentage
of total revenues, however, have decreased 0.5% to 7.3% in the current period as
compared with the same period of the prior year. General and administrative
expenses in the prior year period were unfavorably impacted by the inclusion of
approximately $1.6 million of expenses associated with the Company's Boston
Market operations. The increase in general and administrative expenses in the
current period is primarily the result of recording incentive compensation
accruals for regional restaurant management and selected corporate employees in
support of higher revenues from Company-operated restaurants and improved
restaurant operating performance, increased amortization expense and increased
reserves provided for the Company's accounts and notes receivable.
Interest expense for the first quarter of fiscal 1997 decreased 8.4% to
$2.6 million as compared with the first quarter of fiscal 1996 as a result of
lower levels of borrowings outstanding, the prepayment of certain indebtedness
and lower interest rates.
9
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CKE RESTAURANTS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Other income, net, in the first quarter of both fiscal 1997 and fiscal
1996 was primarily comprised of investment income, interest on notes and leases
receivable, gains and losses on sales of restaurants, and other non-recurring
income. Other income, increased $0.6 million from the first quarter of fiscal
1996 primarily due to lease income generated from the leasing of certain
equipment and real property to Boston West, L.L.C. ("Boston West"), which began
in April 1995 when Boston West was formed.
FINANCIAL CONDITION
For the 16-week period ended May 20, 1996, the Company generated cash
flows from operating activities of $14.5 million, compared with the use of $5.8
million in cash for the same period of the prior year. Cash and cash equivalents
in the current period decreased $6.7 million from January 29, 1996, as the
Company used cash flows from operations to fund purchases of property and
equipment of approximately $7.6 million and to repay long-term debt and capital
lease obligations of approximately $9.2 million, of which $6.5 million
represented the early repayment of certain indebtedness. Also contributing to
the decrease in cash and cash equivalents was the purchase of long-term
investments in Rally's and Summit of approximately $4.1 million and $5.0
million, respectively. The decrease in cash and cash equivalents was partially
offset by the proceeds from the sale of real property of $2.5 million,
collections on notes and related party receivables of $0.6 million and the
exercise of stock options of $0.7 million. Total cash available to the Company
as of May 20, 1996 was $19.2 million, which included $2.5 million of holdings in
marketable securities.
The Company's primary source of liquidity is its revenues from
Company-operated restaurants, which are generated in cash. Future capital needs
will arise, principally for the construction of new Carl's Jr. restaurants, the
remodeling of existing restaurants, the conversion of certain restaurants to the
Carl's Jr./Green Burrito dual-brand concept, the conversion of selected Rally's
restaurants to Carl's Jr. restaurants, the payment of lease obligations, the
repayment of debt and the anticipated closing of the acquisition of Summit.
During fiscal 1997, the Company expects to open 15 new restaurants, to remodel
as many as 160 existing restaurants under the Company's image enhancement
program and to complete a minimum of 40 dual-brand conversions. In addition, in
the current quarter, the Company's Board of Directors elected not to co-fund any
future capital requirements of Boston West.
The Company believes that cash generated from its Carl's Jr.
operations, along with cash and marketable securities on hand as of May 20,
1996, and a combination of proceeds from its 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 capital leases, the further development of its Carl's
Jr. operations and other obligations described above.
10
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 19, 1995, Giant Group, Ltd. ("Giant"), filed an action in
the U.S. District court for the Central District of California against the
Company, Fidelity National Financial, Inc., William P. Foley II, and certain
other individuals. Mr. Foley is the Company's Chairman of the Board and Chief
Executive Officer and is also the Chairman of the Board and Chief Executive
Officer of Fidelity National Financial, Inc. In its complaint, Giant alleged
violations of Section 13(d) of the Exchange Act, fraud, breach of fiduciary
duty, conspiracy and breach of contract in connection with purchases of
securities of Giant by Fidelity National Financial, Inc. and Mr. Foley. On
January 16, 1996, Mr. Foley and Fidelity National Financial, Inc. denied Giant's
material allegations and asserted counterclaims against Giant, its directors and
certain other individuals for defamation and breaches of fiduciary duty with
respect to certain actions taken by Giant, including Giant's adoption of a
shareholder rights plan and certain other transactions taken or proposed by
Giant. On April 26, 1996, the parties entered into a Settlement Agreement and
Release, in which they agreed to settle this litigation and to irrevocably
release their respective claims.
Under the terms of the Settlement Agreement, the Company acquired from
Giant 2,350,432 shares of Rally's common stock (representing approximately 15%
of Rally's then outstanding shares) for a cash purchase price of $1.75 per
share, and has the option to purchase an additional 7.5% of Rally's stock from
Giant over the next two years. Finally, pursuant to the Settlement Agreement,
Mr. Foley and Tom Thompson, President and Chief Operating Officer of the
Company, were appointed to Rally's Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.42 Settlement Agreement and Release dated as of April
26, 1996, by and between Giant Group, Ltd.; William
P. Foley II; CKE Restaurants, Inc.; Fidelity National
Financial, Inc.; and other parties.
10.43 Operating Agreement by and between Rally's
Hamburgers, Inc. and Carl Karcher Enterprises, Inc.
dated May 22, 1996. The schedules to the Operating
Agreement are omitted. The Registrant agrees to
furnish supplementally any omitted schedule to the
Securities and Exchange Commission on request.
10.44 First Amendment to Employment Agreement dated March
31, 1996, by and between Carl Karcher Enterprises,
Inc. and C. Thomas Thompson.
10.45 Employment Agreement dated January 24, 1996, by and
between CKE Restaurants Inc. and Robert E. Wheaton.
11 Calculation of Earnings Per Share.
27 Financial Data Schedule (included in electronic
filing only).
(b) Current Reports on Form 8-K:
A Current Report on Form 8-K dated April 3, 1996 was filed
during the first quarter of the fiscal year to report matters
relating to the Company's proposed acquisition of Summit.
11
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SIGNATURES
Pursuant to the requirements 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.
---------------------
(Registrant)
July 3, 1996 /s/ Joseph N. Stein
- ------------ ---------------------
Date Senior Vice President,
Chief Financial Officer
12
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit # Description
- --------- -----------
<S> <C>
10.42 Settlement Agreement and Release dated as of April 26, 1996, by
and between Giant Group, Ltd.; William P. Foley II; CKE
Restaurants, Inc.; Fidelity National Financial, Inc.; and other
parties.
10.43 Operating Agreement by and between Rally's Hamburgers, Inc. and
Carl Karcher Enterprises, Inc. dated May 22, 1996. The schedules
to the Operating Agreement are omitted. The Registrant agrees to
furnish supplementally any omitted schedule to the Securities and
Exchange Commission on request.
10.44 First Amendment to Employment Agreement dated March 31, 1996, by
and between Carl Karcher Enterprises, Inc. and C. Thomas Thompson.
10.45 Employment Agreement dated January 24, 1996, by and between CKE
Restaurants, Inc. and Robert E. Wheaton.
11 Calculation of Earnings Per Share.
27 Financial Data Schedule (included in electronic filing only).
</TABLE>
13
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Exhibit 10.42
SETTLEMENT AGREEMENT AND RELEASE
--------------------------------
1. Effective Date.
--------------
This Settlement Agreement and Release (the "Agreement") is made as of
the Closing Date pursuant to Paragraph 9 herein.
2. Parties.
-------
The parties to this agreement (collectively, the "Parties") are as
follows:
a. GIANT GROUP, LTD. ("GIANT");
b. Burt Sugarman;
c. Terry Christensen;
d. Robert Wynn;
e. David Gotterer;
f. William P. Foley, II;
g. Fidelity National Financial, Inc. ("Fidelity");
h. CKE Restaurants, Inc. ("CKE");
i. William Davenport; and
j. Robert Martyn.
3. Recitals.
--------
This agreement is entered into with reference to the following matters
and facts:
a. GIANT GROUP, LTD. v. William P. Foley, II; CKE
Restaurants, Inc.; Fidelity National Financial, Inc.; William Davenport; and
Robert Martin and Related Counterclaims, Case No. SACV 95-1095 LHM (EEx),
United States District Court, Central District of California (the "Action"),
involves both claims and counterclaims between and among GIANT, Mr. Sugarman,
Mr.
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Christensen, Mr. Wynn, Mr. Gotterer, Mr. Foley, Fidelity, CKE, Mr. Davenport
and Mr. Martyn.
b. GIANT commenced the Action on December 19, 1995 by
filing a complaint against Mr. Foley, CKE, Fidelity, Mr. Davenport and Mr.
Martyn for violations of section 13(d) of the Securities Exchange Act, fraud,
breach of fiduciary duty, conspiracy and breach of contract. GIANT amended the
complaint as of right on January 4, 1996 (the "First Amended Complaint").
c. Mr. Foley and Fidelity filed an answer to the First
Amended Complaint, denying all material allegations, and asserted counterclaims
on January 16, 1996 (the "Counterclaim") against GIANT, and its directors, Mr.
Sugarman, Mr. Christensen, Mr. Wynn and Mr. Gotterer (collectively, the
"Directors") for defamation and breach of fiduciary duty with respect the
GIANT's adoption of a shareholder rights plan on January 4, 1996. Mr. Foley
and Fidelity amended the Counterclaim as of right on February 16, 1996 (the
"First Amended Counterclaim"), adding additional claims for breach of fiduciary
duty with respect to (1) GIANT's adoption of a program to exchange newly
issued, non-voting GIANT preferred stock for Rally's Hamburgers, Inc.'s
("Rally's") common stock; (2) GIANT's repurchase of its shares pursuant to a
stock repurchase program (the "Stock Repurchases"); and (3) Rally's decision to
repurchase from GIANT some of its outstanding debt (the "Debt Buy-Back"). Mr.
Foley and Fidelity amended their First Amended Counterclaim with leave of the
Court on March 22, 1996 (the "Second Amended Counterclaim"),
2
<PAGE> 3
eliminating the claims for breach of fiduciary duty with respect to the Stock
Repurchases and the Debt Buy-Back. Although GIANT and the Directors have not
answered the Second Amended Counterclaim, they deny all material allegations
therein.
d. CKE filed an answer to the First Amended Complaint on
January 29, 1996, denying all material allegations therein.
e. Mr. Davenport and Mr. Martyn filed answers to the
First Amended Complaint on January 11, 1996, denying all material allegations
therein.
f. Each of the Parties considers it to be in his or its
best interests, and to his or its advantage, forever to dismiss, settle, adjust
and compromise all claims and counterclaims which have been asserted, or which
could have been asserted, in the Action; and
g. The Agreement effects the compromise and settlement
of claims and counterclaims which are denied and contested, and nothing
contained herein shall be construed as an admission by any party hereto of any
liability of any kind to any other party hereto or to any person whatsoever,
all such liability being expressly denied.
4. Dismissals
----------
a. Subject to the satisfaction or waiver of the
conditions to closing specified below in Paragraphs 8 and 9 of the Agreement,
the Parties will file a stipulated request for dismissal with prejudice of the
Action, substantially in the form of Exhibit "A" hereto, and will file same
promptly after the
3
<PAGE> 4
Closing Date. The Parties hereby authorized their respective counsel of record
in the Action to execute all documents necessary to effectuate such dismissal
with prejudice.
5. General Release.
---------------
a. Effective at and upon the Closing Date of the
Agreement, GIANT, Mr. Sugarman, Mr. Christensen, Mr. Gotterer, and Mr. Wynn
generally relieves, releases and forever discharges Mr. Foley, CKE, Fidelity,
Mr. Davenport and Mr. Martyn and their respective officers, directors,
employees, agents, shareholders, subsidiaries, affiliates, successors, assigns,
personal representatives, predecessors, parent entities, affiliated
organizations, divisions, attorneys, and their heirs, executors, trustees,
administrators, successors and assigns or any such persons, entities, and each
of them, of and from any and all claims, debts, liabilities, demands,
judgments, accounts, obligations, promises, acts, agreements, costs, expenses
(including but not limited to attorneys' fees), damages, actions and causes of
action, of any kind or nature, whether known or unknown, suspected or
unsuspected (collectively, the "Claims") based on, arising out of, relating to,
or in connection with the Action and the transactions contemplated by or
effected pursuant to the Agreement or the Purchase and Standstill Agreement,
dated as of April 26, 1996, (the "Purchase Agreement") among GIANT, Fidelity
and CKE.
b. Effective at and upon the Closing Date of the
Agreement Mr. Foley, CKE, Fidelity, Mr. Davenport and Mr. Martyn
4
<PAGE> 5
generally relieve, release and forever discharge GIANT, Mr. Sugarman, Mr.
Christensen, Mr. Wynn and Mr. Gotterer and their respective officers,
directors, employees, agents, shareholders, subsidiaries, affiliates,
successors, assigns, personal representative, predecessors, parent entities,
affiliated organizations, divisions, attorneys, and their heirs, executors,
trustees, administrators, successors and assigns or any such persons, entities,
and each of them, of and from any Claims based on, arising out of, relating to,
or in connection with the Action and the transactions contemplated by or
effected pursuant to the Agreement or the Purchase Agreement.
c. Notwithstanding the foregoing, nothing contained
herein constitutes a release of any Claim that might arise in the future based
on (i) any continuing obligation(s) owing by one party to any other party
pursuant to the Agreement or the Purchase Agreement or any other agreement
referred to herein or therein or contemplated hereby or thereby, or (ii) the
breach by any party of any representations, warranties, covenants or agreements
contained in the Agreement, the Purchase Agreement or any other agreement
referred to herein or therein or contemplated hereby or thereby.
6. Waiver Under Section 1542 of the California Civil Code.
------------------------------------------------------
The Parties each understand, agree and do hereby waive any and all
rights each may have under Section 1542 of the California Civil Code, which
provides as follows:
5
<PAGE> 6
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
In connection with this waiver and relinquishment, the Parties acknowledge that
they are aware that they may subsequently discover Claims presently unknown or
unsuspected, or facts in addition to or different from those which they now
know or believe to be true, with respect to the matters released herein.
Nevertheless, it is their intention, through the Agreement, to fully, finally
and forever settle and release all such matters, and all Claims relative
thereto.
7. Execution of Additional Documents.
---------------------------------
The Parties covenant and agree to execute and deliver such additional
documents and do all such acts and things as may be reasonably necessary or
requisite to carry out the full intent and meaning of the Agreement, including
but not limited to execution of documentation necessary to effectuate a
dismissal of the Action with prejudice.
8. Conditions to Closing.
---------------------
The following conditions must be satisfied on or prior to the Closing
Date, unless waived in writing by all Parties:
a. Execution of the purchase and standstill agreement by
and among Fidelity, CKE and GIANT (the "Purchase Agreement"),
6
<PAGE> 7
a true and correct copy of which is attached hereto as Exhibit "B," on or
before April 26, 1996.
9. Closing.
-------
a. The closing pursuant to the Agreement shall occur at
10:00 a.m on April 26, 1996 (the "Closing Date"), at the offices of
Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP, 2121 Avenue of
the Stars, 18th Floor, Los Angeles, California 90067.
b. The following items must be delivered at closing:
i) Executed Settlement Agreement and Release;
ii) Executed Purchase Agreement and all items
required to be delivered at the closing pursuant thereto; and
iii) Executed request for dismissal of the Action.
10. Representations and Warranties.
------------------------------
The Parties, and each of them, represent and warrant to each other and
agree with each other as follows:
a. Each of the Parties has carefully read and reviewed
the Agreement and understands it fully, and each of the Parties has reviewed
the terms of the Agreement with an attorney of the Parties' choice prior to
executing the Agreement, or has had a full opportunity to obtain an attorney
for this purpose and has expressly elected not to do so with full knowledge of
the consequences.
b. Each of the Parties specifically does not rely upon
any statement, representation, legal opinion, accounting opinion, or promise of
any other party or any person representing
7
<PAGE> 8
them, in executing the Agreement, or in making the settlement provided for
herein, except as expressly stated in the Agreement.
c. There have been and are no other agreements or
understandings between the Parties relating to the matters settled or released
herein, except as stated in the Agreement.
d. Each of the Parties has made such an investigation of
the law and the facts pertaining to this settlement and the Agreement and of
all matters pertaining thereto as it deems necessary. The Agreement has been
carefully read by, the contents hereof are known and understood by, and it is
signed freely by, each person executing the Agreement.
e. The Agreement is the result of protracted, arms'
length negotiation between the Parties.
f. Each of the Parties agrees that, absent and subject
to an order from a court of competent jurisdiction or similar compulsion of
law, such party will not, either directly or indirectly, take any action which
would interfere with the performance of the Agreement by any party hereto, or
which would adversely affect any of the rights provided for herein.
g. Each of the Parties hereto hereby covenants and
agrees not to bring any claim, action, suit or proceeding against any other
party hereto, directly or indirectly, regarding or related in any manner to the
matters settled and released hereby, except as provided in the Agreement.
h. Each of the Parties hereto represents and warrants to
every other party hereto that he or it is the sole and lawful
8
<PAGE> 9
owner of all right, title and interest in and to every claim and other matter
which he or it releases herein, and that he or it has not otherwise heretofore
assigned or transferred, or purported to assign or transfer, to any person or
entity, any claim or other matter which he or it releases herein.
i. Each of the Parties executing the Agreement warrants
that he or it has the authority to execute the Agreement from the party on
whose behalf said person is purporting to execute it.
11. Integration.
-----------
The Agreement and all of its exhibits constitute a single integrated,
written contract expressing the entire agreement of the Parties relative to the
subject matter hereof. No recitals, covenants, agreements, representations or
warranties of any kind whatsoever have been made and/or relied upon by any of
the Parties except as specifically set forth in the Agreement. All prior
discussions and negotiations have been or are merged and integrated into, and
are superseded by, the Agreement.
12. Joint Negotiation.
-----------------
The Agreement has been jointly negotiated and drafted. The language
the Agreement shall be construed as a whole according to its fair meaning and
not strictly for or against any party, and it is agreed that no provision
hereof shall be construed against any party hereto by virtue of the activities
of that party or such party's attorneys.
9
<PAGE> 10
13. Severability.
------------
The Parties covenant and agree that in the event that any provision of
the Agreement should be held by a court of competent jurisdiction to be void,
voidable, illegal or unenforceable in any respect, the remaining portions
thereof and provisions hereof shall nevertheless remain in full force and
effect as if such void, voidable, illegal or unenforceable provision had never
been contained herein.
14. Governing Law.
-------------
The Agreement shall be construed in accordance with, and governed by,
the laws of the State of California, and each party hereto consents to the
jurisdiction of any court of competent subject matter jurisdiction located in
the State of California, County of Los Angeles, for the purpose of an action,
suit or proceeding arising out of or based on the Agreement or any provision
hereof, in accordance with Paragraph 16 herein.
15. Execution in Counterparts.
-------------------------
The Agreement may be executed and delivered in two or more
counterparts, each of which, when so executed and delivered, shall be an
original.
16. Dispute Resolution.
------------------
a. Any controversy or claim arising out of or relating
to the Agreement, or any breach thereof, shall be settled by the appointment of
a retired judge of the Superior or Appellate Courts of California who shall act
pursuant to Section 638.1 of the California Code of Civil Procedure "to try any
and
10
<PAGE> 11
all of the issues in an action or proceeding, whether of fact or of law, and to
report a state of decision thereon." The Parties stipulate to the use of the
reference procedure and agree that the Superior Court of Los Angeles County of
the State of California may issue such orders as are necessary to implement the
Parties' intent that any such controversy or claim shall be resolved through
the use of the reference procedure.
b. In accordance with the foregoing paragraph, the
Parties shall be entitled to discovery as provided in the California Code of
Civil Procedure. However, the referee may regulate the extent and scope of
such discovery based upon the nature of the controversy, the amounts involved
and the expected benefits from any discovery.
c. If the Parties are unable to agree on the appointment
of a retired judge to serve as a referee, then the court shall appoint a
retired judge to act as the referee.
d. The referee shall apply applicable substantive law
and the rules of evidence set forth in the California Evidence Code and
applicable case authority. The Parties shall not be required to file formal
pleadings and shall take other steps as may be appropriate and necessary to
assure that any controversy be resolved as efficiently and expeditiously as
possible.
e. The decision reached by the referee shall be entered
as a judgment of the Superior Court appointing the referee and such decision
shall be fully appealable.
11
<PAGE> 12
f. All fees and expenses of the referee shall be
initially borne on a pro rata basis by the Parties, but shall be recoverable by
the prevailing party.
17. Cost of Suit.
------------
If, suit, action or arbitration is brought to enforce or interpret any
provision of the Agreement, or the rights or obligations of any party hereto,
the prevailing party shall be entitled to recover, as an element of such
party's costs of suit, action or arbitration and not as damages, all reasonable
costs and expenses incurred or sustained by such prevailing party in connection
with such suit, action or arbitration, including, without limitation, legal
fees and court costs.
18. Notices.
-------
Any notice or communication by or between the Parties to the Agreement
is duly given if in writing and delivered in person, mailed by registered or
certified mail, postage prepaid, return receipt requested or delivered by
telecopier or overnight air courier guaranteeing next day delivery to the
other's address:
If to GIANT, Mr. Sugarman, Mr. Christensen, Mr. Wynn or Mr. Gotterer:
GIANT GROUP, LTD.
150 El Camino Drive, Suite 303
Beverly Hills, CA 90212
Attn: Burt Sugarman
12
<PAGE> 13
With a copy to:
Eric Landau
Christensen, White, Miller, Fink, Jacobs,
Glaser & Shapiro, LLP
2121 Avenue of the Stars, 18th Floor
Los Angeles, CA 90067
Telephone: (310) 553-3000
Telecopier: (310) 553-2920
If to Mr. Foley or Fidelity:
Fidelity National Title Insurance
17911 Von Karman Avenue
Irvine, CA 92714
Attn: Andrew Puzder
With a copy to:
Stephen Howard
Milbank, Tweed, Hadley & McCloy
601 S. Figueroa Street, 30th Floor
Los Angeles, CA 90017-5735
Telephone: (213) 892-4000
Telecopier: (213) 629-5063
If to CKE:
CKE Restaurants, Inc.
1200 N. Harbor Boulevard
Anaheim, CA 92801
Attn: Thomas Thompson
With a copy to:
Richard Goodman
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Telephone: (714) 725-4000
Telecopier (714) 725-4100
If to Mr. Davenport:
PaineWebber, Inc.
610 Newport Center Drive, 13th Floor
Newport Beach, CA 92660
13
<PAGE> 14
With a copy to:
Milford Dahl, Jr.
Rutan & Tucker
611 Anton Boulevard, 14th Floor
Cosa Mesa, CA 92626
Telephone: (714) 641-5100
Telecopier: (714) 546-9035
If to Mr. Martyn:
Burns Pauli Mahoney Co
7733 Forsyth Boulevard, Suite 2000
St. Louis, Missouri 63105
With a copy to:
Milford Dahl, Jr.
Rutan & Tucker
611 Anton Boulevard, 14th Floor
Cosa Mesa, CA 92626
Telephone: (714) 641-5100
Telecopier: (714) 546-9035
Any party by notice to the others may designate additional or
different addresses for subsequent notices or communications.
All notices and communications shall be deemed to have been duly given
at the time delivered by hand, if personally served; the date receipt is
acknowledged, if mailed by registered or certified mail; when confirmation is
received, if telecopied; and the next business day after timely delivery to the
courier, if sent by overnight air courier guaranteeing next day delivery.
14
<PAGE> 15
IN WITNESS WHEREOF, the Parties each have approved and executed the
Agreement effective as of the date first set forth hereinabove.
GIANT GROUP, LTD. BURT SUGARMAN
Dated: Dated:
------------------ ---------------------
By:
--------------------- ----------------------
Burt Sugarman
Its:
--------------------
TERRY CHRISTENSEN ROBERT WYNN
Dated: 04/26/96 Dated: 04/26/96
------------------ ----------------------
/s/ TERRY CHRISTENSEN /s/ ROBERT WYNN
- ------------------------- -----------------------------
Terry Christensen Robert Wynn
DAVID GOTTERER WILLIAM P. FOLEY, II
Dated: Dated:
------------------ ---------------------
- ------------------------- ----------------------------
David Gotterer William P. Foley, II
CKE RESTAURANTS, INC. FIDELITY NATIONAL FINANCIAL, INC.
Dated: Dated:
----------------- ---------------------
By: By:
--------------------- ------------------------
Its: Its:
-------------------- -----------------------
WILLIAM DAVENPORT ROBERT MARTYN
Dated: Dated:
------------------ ---------------------
- ------------------------- ----------------------------
William Davenport Robert Martyn
15
<PAGE> 16
IN WITNESS WHEREOF, the Parties each have approved and executed the
Agreement effective as of the date first set forth hereinabove.
GIANT GROUP, LTD. BURT SUGARMAN
Dated: 04/26/96 Dated: 04/26/96
------------------ ---------------------
By: /s/ BURT SUGARMAN /s/ BURT SUGARMAN
--------------------- ----------------------
Burt Sugarman
Its: CEO
--------------------
TERRY CHRISTENSEN ROBERT WYNN
Dated: Dated:
------------------ ----------------------
- ------------------------- -----------------------------
Terry Christensen Robert Wynn
DAVID GOTTERER WILLIAM P. FOLEY, II
Dated: Dated:
------------------ ---------------------
- ------------------------- ----------------------------
David Gotterer William P. Foley, II
CKE RESTAURANTS, INC. FIDELITY NATIONAL FINANCIAL, INC.
Dated: Dated:
----------------- ---------------------
By: By:
--------------------- ------------------------
Its: Its:
-------------------- -----------------------
WILLIAM DAVENPORT ROBERT MARTYN
Dated: Dated:
------------------ ---------------------
- ------------------------- ----------------------------
William Davenport Robert Martyn
15
<PAGE> 17
IN WITNESS WHEREOF, the Parties each have approved and executed the
Agreement effective as of the date first set forth hereinabove.
GIANT GROUP, LTD. BURT SUGARMAN
Dated: Dated:
------------------ ---------------------
By:
--------------------- ----------------------
Burt Sugarman
Its:
--------------------
TERRY CHRISTENSEN ROBERT WYNN
Dated: Dated:
------------------ ----------------------
- ------------------------- -----------------------------
Terry Christensen Robert Wynn
DAVID GOTTERER WILLIAM P. FOLEY, II
Dated: Dated: 04/26/96
------------------ ---------------------
/s/ WILLIAM P. FOLEY, II
- ------------------------- ----------------------------
David Gotterer William P. Foley, II
CKE RESTAURANTS, INC. FIDELITY NATIONAL FINANCIAL, INC.
Dated: 04/26/96 Dated: 04/26/96
----------------- ---------------------
By: /s/ WILLIAM P. FOLEY, II By: /s/ WILLIAM P. FOLEY, II
------------------------ ------------------------
Its: CEO & CHAIRMAN Its: CEO & CHAIRMAN
-------------------- -----------------------
WILLIAM DAVENPORT ROBERT MARTYN
Dated: Dated:
------------------ ---------------------
- ------------------------- ----------------------------
William Davenport Robert Martyn
15
<PAGE> 18
IN WITNESS WHEREOF, the Parties each have approved and executed the
Agreement effective as of the date first set forth hereinabove.
GIANT GROUP, LTD. BURT SUGARMAN
Dated: Dated:
------------------ ---------------------
By:
--------------------- ----------------------
Burt Sugarman
Its:
--------------------
TERRY CHRISTENSEN ROBERT WYNN
Dated: Dated:
------------------ ----------------------
- ------------------------- -----------------------------
Terry Christensen Robert Wynn
DAVID GOTTERER WILLIAM P. FOLEY, II
Dated: 04/26/96 Dated:
------------------ ---------------------
/s/ DAVID GOTTERER
- ------------------------- ----------------------------
David Gotterer William P. Foley, II
CKE RESTAURANTS, INC. FIDELITY NATIONAL FINANCIAL, INC.
Dated: Dated:
----------------- ---------------------
By: By:
--------------------- ------------------------
Its: Its:
-------------------- -----------------------
WILLIAM DAVENPORT ROBERT MARTYN
Dated: Dated:
------------------ ---------------------
- ------------------------- ----------------------------
William Davenport Robert Martyn
15
<PAGE> 19
PURCHASE AND STANDSTILL AGREEMENT
This PURCHASE AND STANDSTILL AGREEMENT ("Agreement") is made as of
April 26, 1996 by and among GIANT GROUP, LTD., a Delaware corporation
("GIANT"), Fidelity National Financial, Inc., a Delaware corporation
("Fidelity"), and CKE Restaurants Inc., a Delaware corporation ("CKE").
R E C I T A L S
- - - - - - - -
This Agreement is made with reference to the following facts and
objectives:
A. GIANT, Fidelity, CKE and certain other persons are parties to
that certain action entitled GIANT GROUP, LTD. v. William P. Foley, II; CKE
Restaurants, Inc.; Fidelity National Financial, Inc.; William Davenport and
Robert Martyn (and related counterclaims), currently pending in the United
States District Court for the Central District of California (Case No. SACV
95-1095 LHM (EEx)) (the "Civil Action").
B. GIANT and its wholly owned subsidiary KCC Delaware Company, a
Delaware corporation ("KCC"), are the owners of an aggregate of 7,430,302
shares of the outstanding common stock, par value $.10 per share (the "Rally's
Stock"), of Rally's Hamburgers, Inc., a Delaware corporation ("Rally's").
C. Fidelity is the beneficial owner of 705,489 shares of the
outstanding common stock, par value $.01 per share (the "GIANT Stock"), of
GIANT.
D. GIANT, Fidelity and CKE are parties to a Settlement Agreement
and Release (the "Settlement Agreement") pursuant to which the Civil Action
will be dismissed.
E. The obligations of the parties to the Settlement Agreement are
conditioned upon the execution by GIANT, Fidelity and CKE of this Agreement.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants and agreements contained herein, the
parties agree as follows:
1. Sale of Stock.
-------------
a. Fidelity hereby agrees to sell to GIANT, and GIANT
hereby agrees to purchase from Fidelity, 705,489 shares of GIANT Stock for a
purchase price of $8.625 per share, payable in cash.
<PAGE> 20
b. GIANT hereby agrees to sell, or cause KCC to sell, to
CKE, and CKE hereby agrees to purchase from GIANT or KCC, as applicable,
2,350,432 shares of Rally's Stock for a price of $1.75 per share, payable in
cash.
c. GIANT hereby agrees to sell, or cause KCC to sell, to
Fidelity, and Fidelity hereby agrees to purchase from GIANT or KCC, as
applicable, 767,807 shares of Rally's Stock for an aggregate purchase price of
$638,172.38, payable in cash.
2. Closing.
-------
a. The closing of the purchase and sale of the Rally's
Stock (the "Closing") shall take place on May 3, 1996 at 5:00 p.m., Los Angeles
time, at the offices of Christensen, White, Miller, Fink, Jacobs, Glaser &
Shapiro, LLP ("Christensen, White"), 2121 Avenue of the Stars, 18th Floor, Los
Angeles, California 90067, provided, however, that GIANT may in its sole
discretion elect to have the Closing take place on May 6, 1996 at 10:00 a.m.,
Los Angeles time, at the offices of Christensen, White.
b. At the Closing: (i) Fidelity shall deliver to GIANT
stock certificate(s), duly endorsed for transfer or accompanied by separate
stock transfer powers, representing an aggregate of 705,489 shares of GIANT
Stock and $638,172.38 in cash; and (ii) GIANT shall deliver to Fidelity stock
certificate(s) duly endorsed for transfer or accompanied by separate stock
transfer powers, representing an aggregate of 767,807 shares of Rally's Stock
and $6,084,842.63 in cash.
c. At the Closing, GIANT shall deliver to CKE stock
certificate(s), duly endorsed for transfer or accompanied by separate stock
transfer powers, representing an aggregate of 2,350,432 shares of Rally's Stock
and CKE shall deliver to GIANT $4,113,256.00 in cash.
3. Grant of Options.
----------------
a. Subject to paragraph c. of this Section 3, GIANT
hereby grants to (i) Fidelity an irrevocable option (the "Fidelity First
Option") to purchase from GIANT, on the terms and conditions set forth herein,
587,607 shares of Rally's Stock for an exercise price of $3.00 per share and
(ii) CKE an irrevocable option (the "CKE First Option" and together with the
Fidelity First Option, the "First Options") to purchase from GIANT, on the
terms and conditions set forth herein 587,607 shares of Rally's Stock for an
exercise price of $3.00 per share.
b. Subject to paragraph c. of this Section 3, GIANT
hereby grants to (i) Fidelity an irrevocable option (the "Fidelity Second
Option") to purchase from GIANT, on the terms and conditions set forth herein,
587,607 shares of Rally's Stock for an exercise price of $4.00 per share and
(ii) CKE an irrevocable option (the "CKE Second Option" and together with the
Fidelity Second Option, the "Second Options") to
- 2 -
<PAGE> 21
purchase from GIANT, on the terms and conditions set forth herein 587,607
shares of Rally's Stock for an exercise price of $4.00 per share.
c. In the event of any change in the Rally's Stock by
reason of any stock dividend, recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or of any similar
change affecting the Rally's Stock (a "Recapitalization Event"), the number and
class of shares or other consideration which thereafter may be acquired upon
exercise of the First Options and the Second Options and the exercise price of
such options following the Recapitalization Event, shall be appropriately
adjusted consistent with such change such that Fidelity and CKE shall upon
exercise of the First Options and Second Options after such Recapitalization
Event, to the extent such options are exercisable, receive the same securities
and other consideration as they would have received had they exercised the
First Options and Second Options immediately prior to the Recapitalization
Event.
d. In the event that Fidelity or CKE shall not purchase
the Rally's Stock pursuant to Section 7 hereof, then the First Options and the
Second Options shall be void.
4. Exercise of the Options.
-----------------------
a. Unless earlier terminated pursuant to Section 5
hereof and subject to the requirements of Section 9 hereof, the Fidelity First
Option and the CKE First Option may be exercised by Fidelity and CKE,
respectively, in whole or in part at any time after the date hereof until 5:00
p.m., Los Angeles time, on the first anniversary of the date hereof, provided,
however, that if CKE shall not have exercised the CKE First Option on or before
April 21, 1997 then thereafter until the first anniversary of the date hereof
either Fidelity or CKE may exercise the CKE First Option (but GIANT shall not
be obligated to sell more than 587,607 shares of Rally's Stock pursuant to the
CKE First Option). Thereafter the First Options may not be exercised.
b. Unless earlier terminated pursuant to Section 5
hereof and subject to the requirements of Section 9 hereof, the Fidelity Second
Option and the CKE Second Option may be exercised by Fidelity and CKE,
respectively, in whole or in part at any time after the date hereof until 5:00
p.m., Los Angeles time, on the second anniversary of the date hereof, provided,
however, that if CKE shall not have exercised the CKE Second Option on or
before April 20, 1998 then thereafter until the second anniversary of the date
hereof either Fidelity or CKE may exercise the CKE Second Option (but GIANT
shall not be obligated to sell more than 587,607 shares of Rally's Stock
pursuant to the CKE Second Option). Thereafter the Second Options may not be
exercised.
c. Fidelity and CKE may exercise the First Options
and/or the Second Options, as applicable, by delivering written notice (the
"Exercise Notice") to GIANT at
- 3 -
<PAGE> 22
the address set forth in Section 15 hereof. The Exercise Notice shall set
forth which of the options are being exercised and the number of Rally's Shares
to be purchased.
d. The closing of the purchase and sale of the Rally's
Stock pursuant to the First Options and/or the Second Options (a "First Option
Closing" and a "Second Option Closing," respectively) shall occur three (3)
business days following receipt by GIANT of the applicable Exercise Notice.
e. At each First Option Closing and Second Option
Closing, if the First Options and the Second Options, respectively, are
exercised GIANT will deliver to Fidelity and/or CKE, as applicable, stock
certificate(s), duly endorsed for transfer or accompanied by separate stock
transfer powers, representing the number of shares of Rally's Stock to be
purchased and Fidelity and/or CKE, as applicable, shall deliver to GIANT the
purchase price for the Rally's Stock to be purchased. Such purchase price
shall be paid in cash.
5. Rights of First Refusal on Sales of Rally's Stock by Fidelity
-------------------------------------------------------------
or CKE.
------
a. If, prior to the tenth (10th) anniversary of the date
hereof, Fidelity or CKE proposes to sell shares of Rally's Stock, Fidelity or
CKE, as applicable, shall give notice to GIANT (the "Fidelity/CKE Sale Notice")
of their intent to sell such shares of Rally's Stock. A Fidelity/CKE Sale
Notice shall set forth the number of shares of Rally's Stock proposed to be
sold and the proposed sales price of such shares. A Fidelity/CKE Sale Notice
shall constitute an offer by Fidelity or CKE, as applicable, to sell the
Rally's Stock described therein to GIANT for the price set forth in the
Fidelity/CKE Sale Notice.
b. If GIANT elects to purchase the shares of Rally's
Stock described in the Fidelity/CKE Sale Notice: (i) GIANT shall give written
notice to Fidelity or CKE, as applicable, of such election within four (4)
business days after receipt of the Fidelity/CKE Sale Notice; and (ii) the
closing of such purchase shall take place at 10:00 a.m., Los Angeles time, on
the sixth (6th) business day following receipt by GIANT of the Fidelity/CKE
Sale Notice at the offices of Christensen, White, 2121 Avenue of the Stars,
18th Floor, Los Angeles, California 90067. If GIANT elects not to purchase the
Rally's Stock described in the Fidelity/CKE Sale Notice or shall not respond to
the Fidelity/CKE Sale Notice within the time specified herein, Fidelity or CKE,
as applicable, shall be entitled to sell the Rally's Stock described in the
Fidelity/CKE Sale Notice for a price per share no less than that specified in
the Fidelity/CKE Sale Notice, provided however, that if such sale is not
consummated within thirty (30) days of the date of the Fidelity/CKE Sale Notice
then Fidelity and CKE may not sell such shares without renewed compliance with
the provisions of this Section 5.
- 4 -
<PAGE> 23
6. Early Termination of Options; Rights of First Refusal on Sales
--------------------------------------------------------------
of Rally's Stock by GIANT.
-------------------------
a. If, prior to the tenth (10th) anniversary of the date
hereof, GIANT proposes to sell shares of Rally's Stock, GIANT shall give notice
to Fidelity and CKE (the "GIANT Sale Notice") of its intent to sell such shares
of Rally's Stock. A GIANT Sale Notice shall set forth the number of shares of
Rally's Stock proposed to be sold and the proposed sales price of such shares.
b. A GIANT Sale Notice delivered on or prior to December
31, 1996 or after the period the First Options and Second Options are
exercisable, shall constitute an offer to Fidelity and CKE to sell the Rally's
Stock described in the GIANT Sale Notice to them (in equal amounts unless
otherwise agreed between them) for the price set forth in the GIANT Sale
Notice.
c. A GIANT Sale Notice delivered after December 31, 1996
and during the period the First Options and the Second Options are exercisable
shall constitute an offer to Fidelity and CKE to sell the Rally's Stock
described in the GIANT Sale Notice for the lower of (i) the price set forth in
the GIANT Sale Notice and (ii) the exercise price of the First Options to the
extent exercisable or the Second Options to the extent exercisable. In the
event that following such sale GIANT would not own a sufficient number of
shares of Rally's Stock to permit the exercise in full of the First Options and
the Second Options, the number of shares of Rally's Stock subject to the First
Options and Second Options shall be reduced by the number of shares of Rally's
Stock which are subject to a GIANT Sale Notice delivered after December 31,
1996 and during the period the First Options and the Second Options are
exercisable and only to the extent the Rally's Stock GIANT owns following such
sale is below the amount needed to satisfy GIANT's obligations under the First
Options and the Second Options, whether or not such shares are purchased by
Fidelity and/or CKE. Such reduction shall apply first equally to the First
Options until no shares of Rally's Stock are subject to the First Options and
then equally to the Second Options.
d. If Fidelity and/or CKE elects to purchase the shares
of Rally's Stock described in a GIANT Sale Notice: (i) Fidelity and/or CKE, as
applicable, shall give written notice to GIANT of such election within three
(3) business days after receipt of the Sale Notice, provided, however, that if
CKE shall not elect to purchase the shares of Rally's Stock within such time
period, then Fidelity may elect to purchase such shares by giving written
notice to GIANT of such election within four (4) business days after receipt of
the GIANT Sale Notice; and (ii) the closing of such purchase shall take place
at 10:00 a.m., Los Angeles time, on the sixth (6th) business day following
receipt by Fidelity and CKE of the GIANT Sale Notice at the offices of
Christensen, White, 2121 Avenue of the Stars, 18th Floor, Los Angeles,
California 90067. If Fidelity and CKE elect not to purchase the Rally's Stock
described in the GIANT Sale Notice or shall not respond to the GIANT Sale
Notice within the time specified herein, GIANT shall be
- 5 -
<PAGE> 24
entitled to sell the Rally's Stock described in the GIANT Sale Notice, for a
price per share no less than that specified in the GIANT Sale Notice, provided
however, that if such sale is not consummated within thirty (30) days of the
date of the GIANT Sale Notice then GIANT may not sell such shares without
renewed compliance with the provisions of this Section 6.
7. Due Diligence. From the date hereof through 11:00 a.m. Los
-------------
Angeles time on May 3, 1996, CKE and Fidelity may conduct such due diligence
investigation of the operations, books and records of Rally's as they determine
to be advisable. At any time through and including 11:00 a.m. Los Angeles
time, on May 3, 1996, Fidelity and/or CKE may notify GIANT of its intent not to
purchase the Rally's Stock as provided in Sections 1.b. and 1.c. hereof, in
which case they shall not be obligated to purchase such shares.
8. Standstill Provisions.
---------------------
a. From the date hereof through and including the tenth
(10th) anniversary of the date hereof Fidelity agrees that, without GIANT's
prior written consent, Fidelity will not:
(i) acquire, announce an intention to acquire,
offer or propose to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise beneficial ownership of any GIANT
Stock or other voting securities of GIANT (collectively with the GIANT
Stock, the "Voting Securities") or direct or indirect rights or
options to acquire (through purchase, exchange, conversion or
otherwise) any Voting Securities if immediately after such
acquisition, Fidelity would own Voting Securities representing more
than 0.5% of the total voting power of all outstanding Voting
Securities (after giving effect to the transactions provided for in
Section 1.a.);
(ii) make, or in any way participate, directly or
indirectly, in any "solicitation" of "proxies" (as such terms are
defined in Rule 14a-1 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) to vote any Voting Securities, seek to
advise, encourage or influence any person or entity with respect to
the voting of any Voting Securities, initiate or propose any
shareholder proposal or induce or attempt to induce any other person
to initiate any shareholder proposal;
(iii) make any statement or proposal, whether
written or oral, to the Board of Directors of GIANT, or to any
director, officer or agent of GIANT, or make any public announcement
or proposal whatsoever with respect to a merger or other business
combination, sale or transfer of assets, recapitalization, dividend,
share repurchase, liquidation or other extraordinary corporate
transaction with GIANT or any other transaction which could result in
a change
- 6 -
<PAGE> 25
of control, or solicit or encourage any other person to make such
statement or proposal;
(iv) after consummation of the transactions
described in Sections 1.a. and 1.b. hereof, form, join or in any way
participate in a "group" (within the meaning of Section 13(d)(3) of
the Exchange Act) with respect to any securities of GIANT;
(v) otherwise act, alone or in concert with
others, to seek to exercise any control over the management, Board of
Directors or policies of GIANT;
(vi) make a public request to GIANT (or its
directors, officers, shareholder's employees or agents) to amend or
waive any provisions of this Agreement, the Certificate of
Incorporation or By-Laws of GIANT, the GIANT Stockholders Rights Plan
or Rights issued pursuant thereto, including without limitation any
public request to permit Fidelity or any other person to take any
action not permitted by this Section 8.a.;
(vii) take any action which might require GIANT to
make a public announcement regarding the possibility of any
transaction referred to in paragraph (iii) above or similar
transaction or, advise, assist or encourage any other persons in
connection with the foregoing; or
(viii) disclose any intention, plan or arrangement
inconsistent with the foregoing.
b. For purposes of this Section 8 the term "Fidelity"
shall include Fidelity, its officers, directors, affiliates and associates and
their respective family members.
9. Future Acquisitions of Rally's Stock by Fidelity and CKE.
--------------------------------------------------------
For so long as the 9 7/8% Senior Notes (the "Senior Notes") issued by Rally's
are outstanding, Fidelity and CKE each agree that neither they nor their
affiliates will, individually or as part of a group of persons, take any action
that would cause them to become the beneficial owner (within the meaning of
Rule 13d-3 of the Exchange Act), whether pursuant to the exercise of the First
Options or the Second Options or otherwise, of 35% or more of the combined
voting power of the then outstanding voting stock of Rally's without first
obtaining (i) approval of the Board of Directors of Rally's, and (ii) a waiver
from the holders of the Senior Notes of the provisions of Section 4.14 of the
Indenture pursuant to which the Senior Notes were issued.
- 7 -
<PAGE> 26
10. Future Acquisitions of Rally's Stock by GIANT
---------------------------------------------
a. In the event that GIANT or its affiliates (other than
Rally's) shall purchase additional shares of Rally's Stock (other than on
exercise of a first refusal right pursuant to Section 5 hereof), GIANT shall
give notice to Fidelity and CKE (the "Purchase Notice") of such purchase. The
Purchase Notice shall set forth the number of shares of Rally's Stock purchased
and the average purchase price of such shares. Fidelity and CKE may, upon
written request to GIANT received within three (3) business days after receipt
of the Purchase Notice, purchase from GIANT, for the same average price set
forth in the Purchase Notice, a portion of the shares of Rally's Stock
described in the Purchase Notice such that following such purchases the
proportional ownership of Rally's Stock among GIANT, Fidelity and CKE shall be
the same as immediately prior to such purchases (without giving effect to the
First Options and Second Options to the extent not exercised); provided,
however, that if Fidelity or CKE shall not elect to purchase shares of Rally's
Stock pursuant to a Purchase Notice, the other party may purchase all the
shares of Rally's Stock described in the Purchase Notice. If Fidelity and/or
CKE elects to purchase the shares of Rally's Stock described in the Purchase
Notice the closing of such purchase shall take place at 10:00 a.m. on the sixth
(6th) business day following receipt by Fidelity and CKE of the Purchase Notice
at the offices of Christensen, White, 2121 Avenue of the Stars, 18th Floor, Los
Angeles, California 90067.
b. GIANT agrees that neither it nor its affiliates will
individually or as part of a group of persons, become the beneficial owner
(within the meaning of Rule 13d-3 of the Exchange Act) of 35%, or more of the
combined voting power of Rally's without the consent of Fidelity and CKE.
c. In the event that GIANT on the one hand, and Fidelity
and CKE on the other hand, shall each own at least 34.0% of the outstanding
Rally's Stock (without giving effect to the First Options and Second Options to
the extent not exercised), the parties agree that at each election of directors
of Rally's, GIANT may nominate up to one-half of the number of directors to be
elected and Fidelity and CKE may nominate up to one-half of the number of
directors to be elected. The parties further agree that they will vote all
shares of Rally's Stock owned by them in favor of the election of the nominees
of the other parties. In addition, if one, but not both, of GIANT on the one
hand, and Fidelity and CKE on the other hand, own at least 34.0% of the
outstanding Rally's Stock (without giving effect to the First Options and
Second Options to the extent not exercised), the parties agree that at each
election of directors the party(ies) owning at least 34.0% of the outstanding
Rally's Stock may nominate up to one-half of the number of directors to be
elected and the other party(ies) will vote all shares of Rally's Stock owned by
them in favor of such nominees.
d. The provisions of this Section 10 shall expire and be
of no further force or effect on the tenth (10th) anniversary of the date
hereof.
- 8 -
<PAGE> 27
e. In the event that Fidelity or CKE shall elect not to
purchase the Rally's Stock pursuant to Section 7 hereof, then this Section 10
shall be of no force or effect.
11. Conditions to CKE's Obligation to Purchase Rally's Stock.
--------------------------------------------------------
The obligation of CKE to purchase the Rally's Stock shall be conditioned upon,
in addition to any other conditions contained herein, (i) the approval by the
Board of Directors of Rally's of CKE as an Interested Stockholder (as defined
in Section 203 of the General Corporation Law of the State of Delaware) (ii)
the election of two (2) persons designated by CKE to the Board of Directors of
Rally's conditioned upon the occurrence of the Closing, and (iii) CKE shall not
have notified GIANT in accordance with Section 7 hereof of CKE's election not
to purchase the Rally's Stock.
12. Representation and Warranties of Fidelity and CKE. Fidelity
-------------------------------------------------
and CKE, severally and not jointly, hereby represent and warrant to GIANT as
follows:
a. Fidelity and CKE are each purchasing the Rally's
Stock (including the Rally's Stock to be purchased upon exercise of the First
Option and the Second Option) for their own account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof. Fidelity and CKE acknowledge that the Rally's Stock
acquired from GIANT will be "restricted securities" under the Securities Act of
1933, as amended. Fidelity and CKE further acknowledge that the certificates
representing the Rally's Stock acquired by them from GIANT will contain
appropriate legends to indicate that such Rally's Stock are "restricted
securities." Fidelity and CKE agree that they will not, directly or
indirectly, offer, transfer, sell, pledge, hypothecate or otherwise dispose of
any of the Rally's Stock in violation of applicable securities laws.
b. Fidelity and CKE each has such knowledge and
experience in financial and business matters that they are capable of
evaluating the merits and risks of the investment in the Rally's Stock.
c. This Agreement has been duly and validly authorized,
executed and delivered by Fidelity and CKE, and constitutes a valid and binding
agreement of each of them, enforceable against them in accordance with its
terms.
d. Fidelity and its wholly owned subsidiary Fidelity
National Title Insurance Company of Pennsylvania are the sole record and
beneficial owners of the shares of GIANT Stock to be sold to GIANT pursuant to
this Agreement and upon payment therefor and delivery thereof at the Closing as
provided herein, GIANT will own the shares of GIANT Stock purchased free and
clear of all claims, liens and encumbrances other than those created by GIANT.
- 9 -
<PAGE> 28
e. The execution and delivery of this Agreement by
Fidelity and CKE do not, and the performance by them of their obligations
hereunder will not, violate, conflict with or result in a breach of any
agreement to which Fidelity or CKE is a party which would cause a material
adverse effect on the business or assets of Fidelity or CKE.
13. Representations and Warranties of GIANT. GIANT hereby
---------------------------------------
represents, warrants and covenants to Fidelity and CKE as follows:
a. GIANT and KCC are the sole record and beneficial
owners of the shares of Rally's Stock to be sold to Fidelity and CKE pursuant
to this Agreement and upon payment therefor and delivery thereof at the
Closing, the First Option Closing and/or the Second Option Closing, as
applicable, Fidelity and CKE will own the shares of Rally's Stock purchased
free and clear of all claims, liens and encumbrances other than those created
by GIANT.
b. This Agreement has been duly and validly authorized,
executed and delivered by GIANT and constitutes a valid and binding agreement
of it, enforceable against it in accordance with its terms.
c. The Form 10-K of Rally's for the year ended December
31, 1995 (the "Form 10-K") and any filings made by Rally's with the Securities
and Exchange Commission since December 31, 1995 comply in all material respects
with applicable securities laws and regulations. None of such filings contain
any misstatements of material fact or fail to state all material facts
necessary to make the statements therein not misleading. The capitalization of
Rally's is as set forth in the Form 10-K.
d. GIANT agrees that until the tenth (10th) anniversary
of the date hereof it shall not, without the consent of Fidelity and CKE, take
any action to increase the size of the Board of Directors of Rally's and shall
vote its shares in favor of the two persons designated by CKE pursuant to
Section 11 hereof (and their successors).
e. The execution and delivery of this Agreement by GIANT
does not, and the performance by it of its obligations hereunder will not,
violate, conflict with or result in a breach of any agreement to which GIANT or
Rally's is a party which would cause a material adverse effect on the business
or assets of GIANT or Rally's.
14. Entire Agreement. This Agreement, together with the
----------------
Settlement Agreement and any exhibits attached hereto and thereto shall be
deemed to be the complete and entire agreement among the parties hereto with
respect to the subject matter hereof and supersedes any and all prior
negotiations, correspondence, understandings or other agreements or statements
between the parties and/or their representatives.
- 10 -
<PAGE> 29
15. Notices. Any and all notices and demands by any party hereto
-------
to any other party, required or desired to be given hereunder, shall be in
writing and shall be validly given or made only if (i) sent by United States
mail, express, certified or registered, postage prepaid, return receipt
requested, (ii) made by Federal Express or other similar delivery service
keeping records of deliveries and attempted deliveries, or (iii) sent by
telecopy. The parties may change their address for the purpose of receiving
notices or demands as herein provided by a written notice given in the manner
aforesaid to the other. Notices sent by United States mail, express, certified
or registered or by Federal Express or other similar delivery service shall be
deemed received upon receipt or attempted delivery. Notices sent by telecopy
shall be deemed received upon electronic confirmation of transmission. Notices
shall be sent to the parties as follows:
To GIANT: GIANT GROUP, LTD.
150 El Camino Drive, Suite 303
Beverly Hills, California 90212
Attention: Chief Executive Officer
Fax: (310) 273-5249
with a copy to: Gary N. Jacobs, Esq.
Christensen, White, Miller,
Fink, Jacobs, Glaser & Shapiro, LLP
2121 Avenue of the Stars, 18th Floor
Los Angeles, California 90067
Fax: (310) 556-2920
To Fidelity: Fidelity National Financial, Inc.
17911 Von Karman Avenue, Suite 500
Irvine, California 92714
Attention: Andrew Puzder, Esq.
Fax: (714) 622-4116
with a copy to: Lawrence Lederman, Esq.
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Fax: (212) 530-5219
To CKE: CKE Restaurants, Inc.
1200 N. Harbor
Anaheim, California 92801
Attention: Chief Executive Officer
Fax: (714) 490-3965
- 11 -
<PAGE> 30
with a copy to: Richard Goodman, Esq.
Stradling Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Fax: (714) 725-4100
16. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California, without
regard to conflicts of laws principles. The parties agree that the sole forum
for any action relating to this Agreement shall be the appropriate state or
federal court in Los Angeles County, California. Each party hereto consents to
personal jurisdiction in such courts and waives all rights to contest the venue
of any action brought in such courts relating to this Agreement.
17. Specific Performance. The parties hereto acknowledge and
--------------------
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, it is agreed that, in
addition to any other remedies which they may have, the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of
competent jurisdiction.
18. Further Assurances. Each party to this Agreement shall
------------------
execute all instruments and documents and take all actions as may reasonably be
necessary in order to effectuate this Agreement.
19. Amendments. This Agreement may be amended or modified only
----------
in a writing executed by the party(ies) to this Agreement against whom
enforcement of such amendment or modification is sought.
20. Construction. Each party to this Agreement and its counsel
------------
have reviewed and revised this Agreement. The rule of construction that any
ambiguity shall be resolved against the drafting party shall not be employed in
the interpretation of this Agreement.
21. Survival. All representations, warranties and agreements
--------
contained herein shall survive the execution of this Agreement and the closing
of the transactions contemplated hereby.
22. Successors and Assigns; Assignment. All of the terms,
----------------------------------
covenants and conditions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
No party hereto shall be permitted to assign its rights under this Agreement
other than to a wholly-owned subsidiary. No assignment or transfer permitted
hereunder shall relieve any such assignor or transferor of any of its
obligations hereunder and any assignee or transferee
- 12 -
<PAGE> 31
shall assume in writing all of the undertakings of assignor or transferor under
this Agreement.
23. Attorneys' Fees. Should an action be instituted by either of
---------------
the parties hereto in any court of law or equity pertaining to the enforcement
of any of the provisions of this Agreement, the prevailing party shall be
entitled to recover, in addition to any judgment or decree rendered therein,
all court costs and reasonable attorneys' fees and expenses.
24. Headings. All of the section headings herein are inserted for
--------
convenience only and shall have no meaning for purposes of this Agreement.
25. Counterparts. This Agreement may be executed in any number of
------------
counterparts, which when so executed and delivered shall be deemed an original,
and such counterparts shall constitute one and the same Agreement.
[remainder of page intentionally left blank]
- 13 -
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first above written.
GIANT GROUP, LTD., a Delaware
corporation
by: /s/ BURT SUGARMAN
----------------------------
name: Burt Sugarman
title: CEO
Fidelity National Financial, Inc., a
Delaware corporation
by:
----------------------------
name:
title:
CKE Restaurants, Inc., a Delaware
corporation
by:
-----------------------------
name:
title:
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first above written.
GIANT GROUP, LTD., a Delaware
corporation
by:
----------------------------
name:
title:
Fidelity National Financial, Inc., a
Delaware corporation
by: /s/ WILLIAM P. FOLEY, II
----------------------------
name: William P. Foley, II
title: CEO & Chairman
CKE Restaurants, Inc., a Delaware
corporation
by: /s/ WILLIAM P. FOLEY, II
----------------------------
name: William P. Foley, II
title: CEO & Chairman
<PAGE> 1
Exhibit 10.43
--------------------------------------
OPERATING AGREEMENT
BY AND BETWEEN
RALLY'S HAMBURGERS, INC.
AND
CARL KARCHER ENTERPRISES
--------------------------------------
May 22, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS.......................................................................................... 1
ARTICLE 2 ENGAGEMENT AND TERM.................................................................................. 7
Section 2.1 Engagement.......................................................... 7
Section 2.2 Term................................................................ 8
Section 2.3 Inspection.......................................................... 8
ARTICLE 3 RIGHTS OF OWNER...................................................................................... 8
Section 3.1 Audit Rights........................................................ 8
Section 3.2 Approval Rights..................................................... 9
ARTICLE 4 RIGHTS AND RESPONSIBILITIES OF OPERATOR.............................................................. 9
Section 4.1 Scope of Operator's Responsibilities................................ 9
Section 4.2 Funding............................................................. 10
Section 4.3 No Assumption of Liabilities........................................ 10
Section 4.4 Operator Obligations................................................ 10
Section 4.5 Use of Name......................................................... 11
Section 4.6 Payment of Taxes and Utilities...................................... 12
Section 4.7 Records, Financial Statements and Tax
Returns............................................................. 13
Section 4.8 Management Meetings................................................. 13
Section 4.9 Converted Stores.................................................... 13
Section 4.10 Closure of Stores................................................... 13
Section 4.11 Unused Equipment.................................................... 14
ARTICLE 5 COVENANTS............................................................................................ 14
Section 5.1 Lease Agreements.................................................... 14
Section 5.2 Non-Disturbance..................................................... 15
Section 5.3 Sales, Marketing and Advertising.................................... 15
Section 5.4 Insurance........................................................... 15
Section 5.5 No Sale of Stores................................................... 15
Section 5.6 Green Burrito....................................................... 16
Section 5.7 Lease Agreement Extensions.......................................... 16
ARTICLE 6 COMPENSATION......................................................................................... 16
Section 6.1 Owner Fee and Owner Advertising Fee................................. 16
Section 6.2 Wire Transfer Instructions.......................................... 17
Section 6.3 Compensation to Operator............................................ 17
ARTICLE 7 REPRESENTATIONS AND WARRANTIES....................................................................... 17
Section 7.1 Owner Representations and Warranties................................ 17
Section 7.2 Operator Representations and Warranties............................. 19
ARTICLE 8 DAMAGE; DESTRUCTION OR CONDEMNATION.................................................................. 20
Section 8.1 Application of Insurance Proceeds................................... 20
ARTICLE 9 INDEMNIFICATION...................................................................................... 21
Section 9.1 Indemnification by Owner............................................ 21
Section 9.2 Indemnification by Operator......................................... 21
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 10 DEFAULT............................................................................................. 22
Section 10.1 Events of Operator Default....................................................... 22
Section 10.2 Owner Remedies................................................................... 23
Section 10.3 Events of Owner Default.......................................................... 23
Section 10.4 Operator Remedies................................................................ 24
ARTICLE 11 TERMINATION......................................................................................... 24
Section 11.1 Termination For Cause by Owner................................................... 24
Section 11.2 Termination For Cause by Operator................................................ 24
Section 11.3 Termination Without Cause by Operator............................................ 24
Section 11.4 Termination with Respect to a Specific
Store....................................................................... 25
Section 11.5 Cessation of Activities by Operator upon
Termination................................................................. 25
Section 11.6 Other Rights Upon Termination.................................................... 25
ARTICLE 12 MISCELLANEOUS PROVISIONS............................................................................ 26
Section 12.1 Binding Arbitration......................................................... 26
Section 12.2 No Joint Venture; Independent Entity........................................ 26
Section 12.3 Inquiry..................................................................... 27
Section 12.4 Affiliates.................................................................. 27
Section 12.5 Expense..................................................................... 27
Section 12.6 Confidentiality............................................................. 27
Section 12.7 Assignment.................................................................. 28
Section 12.8 Notices..................................................................... 28
Section 12.9 Incorporation of Schedules.................................................. 29
Section 12.10 Complete Agreement.......................................................... 29
Section 12.11 Amendment of Agreement...................................................... 29
Section 12.12 Attorneys' Fees............................................................. 29
Section 12.13 Third-Party Beneficiaries................................................... 29
Section 12.14 Successors and Assigns...................................................... 29
Section 12.15 Governing Law............................................................... 29
Section 12.16 Severability................................................................ 30
Section 12.17 Captions.................................................................... 30
Section 12.18 References to Articles and Sections......................................... 30
Section 12.19 Counterparts................................................................ 30
Section 12.20 Execution of Other Documents................................................ 30
Section 12.21 Due Dates................................................................... 30
</TABLE>
SCHEDULES
Schedule A - Stores
Schedule B-1 - Approved Sources (The suppliers and vendors
currently used by Owner in the operation of
the Stores)
(ii)
<PAGE> 4
Schedule B-2 - Approved Sources (Those suppliers and vendors
used by Operator from time to time which are
approved by Owner for use by Operator)
Schedule C - Consumables (by category)
Schedules D-1 - Existing Assets
Schedules E-1 - Lease Agreements
through E-28
Schedule F - Consumables (by quantity and cost)
Schedule G - Insurance Coverage
Schedule H - Existing Contracts
Schedule I - Liabilities
Schedule J - Taxes
(iii)
<PAGE> 5
OPERATING AGREEMENT
BY AND BETWEEN
RALLY'S HAMBURGERS, INC.
AND
CARL KARCHER ENTERPRISES
THIS OPERATING AGREEMENT (this "AGREEMENT") is entered into as of May
22, 1996, by and between Rally's Hamburgers, Inc., a Delaware corporation
("OWNER"), and Carl Karcher Enterprises, a California corporation ("OPERATOR").
RECITALS
WHEREAS, Owner owns and operates certain Rally's Hamburgers restaurants
located in California and Arizona, as set forth on SCHEDULE A attached hereto
(collectively, the "STORES"); and
WHEREAS, Owner desires to hire Operator, and Operator desires to be
hired by Owner, to manage and operate each of the Stores either as a Rally's
Hamburgers restaurant (a "RALLY'S STORE") or as a restaurant which has been
converted, in Operator's sole and absolute discretion, into a Carl's Jr.
restaurant (a "CONVERTED STORE"), upon the terms and conditions set forth in
this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, mutual covenants,
representations and warranties set forth in this Agreement, Owner and Operator
hereby agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings specified:
"AFFILIATE" shall mean any person or entity that directly or indirectly
controls, is controlled by or is under common control with Owner or Operator, as
the case may be. For purposes of determining the existence of an Affiliate,
"control" shall mean ownership of fifty percent (50%) or more of the ownership
interests in an entity in question or the possession of direct or indirect power
to direct or cause the direction of the management and policies of such entity,
whether through the ownership of voting securities or by contract or otherwise.
1
<PAGE> 6
"APPROVED SOURCES" shall mean (i) the suppliers and vendors currently
used by Owner in the operation of the Stores as listed on SCHEDULE B-1 attached
hereto (which Schedule shall be amended from time to time by Owner to reflect
additions and deletions of suppliers and vendors), and (ii) those suppliers and
vendors used by Operator from time to time which are approved by Owner for use
by Operator (which approval shall not be unreasonably withheld or delayed)
including, without limitation, the suppliers and vendors listed on SCHEDULE B-2
attached hereto.
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"CLASS A STORES" shall mean those Stores identified under the heading
"Class A Stores" on SCHEDULE A attached hereto.
"CLASS B STORES" shall mean those Stores identified under the heading
"Class B Stores" on SCHEDULE A attached hereto.
"CLOSING COSTS" shall mean all Losses related to the closing of a Store
including but not limited to all payments required under any Lease Agreements.
"CLOSURE DATE" shall have the meaning set forth in
SECTION 4.10(a).
"CONSUMABLES" shall mean paper supplies, cleaning materials, eating
utensils, restaurant supplies, food and beverage inventories, office inventories
and all other consumables, as described on SCHEDULE C attached hereto .
"CONVERTED STORES" shall have the meaning set forth in the Recitals
above.
"DEMAND DATE" shall have the meaning set forth in SECTION 4.10(a).
"ENVIRONMENTAL LIABILITY OF OPERATOR" shall mean any and all
Liabilities arising out of (i) environmental conditions, including, without
limitation, the presence of any Hazardous Substances at, on, in or under the
Stores; (ii) the release or threat of release of Hazardous Substances at the
Stores whether into the air, soil, ground or surface waters on or off-site;
(iii) any violation of any federal, state, regional or local environmental law,
regulation, rule, order, ordinance or notice arising from or relating to the
acts or omissions of, or permitted by, Operator; or (iv) the use, possession,
handling, generation, treatment, storage, recycling, transportation or disposal
by Operator of Hazardous Substance on the Stores, where
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the events or conditions in clauses (i), (ii), (iii) or (iv) arise out of or are
caused (directly and indirectly) by acts or omissions of Operator or Operator's
employees or agents after the Implementation Date including, without limitation,
any and all fines, penalties, obligations, injunctive or other equitable relief,
awards, costs and expenses (including reasonable attorneys' fees and
disbursements and court costs) for personal injury, death, natural resource
damages, property damage and the costs of environmental investigation or
studies, clean-up or remediation, including, without limitation, any liabilities
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, 42 U.S.C. 9601, et seq. ("CERCLA"); the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq. ("HMTA"); the Resource
Conservation and Recovery Act, 42 U.S.C. Section6901, et seq. ("RCRA"); the
Clean Water Act 33 U.S.C. Section 1251, et seq. ("CWA"); the Clean Air Act, 42
U.S.C. Section7401, et seq. ("CAA"); the Occupational Safety and Health Act, 84
Stat. 1590 ("OSHA"); and the California Health and Safety Code ("CHSC"); and any
rules and regulation promulgated under any of the foregoing.
"ENVIRONMENTAL LIABILITY OF OWNER" shall mean any and all liabilities
arising out of (i) environmental conditions, including, without limitation, the
presence of any Hazardous Substances at, on, in or under the Stores; (ii) the
release or threat of release of Hazardous Substances at the Stores whether into
the air, soil, ground or surface waters on- or off-site; (iii) any violation of
any federal, state, regional or local environmental law, regulation, rule,
order, ordinance or notice arising from or relating to the acts or omissions of,
or permitted by, Owner; or (iv) the use, possession, handling, generation,
treatment, storage, recycling, transportation or disposal by Owner of Hazardous
Substances on the Stores, where the events or conditions in clauses (i), (ii),
(iii), or (iv) arise out of or are caused (directly or indirectly) by acts or
omissions of Owner or Owner's employees or agents prior to the Implementation
Date including, without limitation, any and all fines, penalties, obligations,
injunctive or other equitable relief, awards, costs, and expenses (including
reasonable attorneys' fees and disbursements and court costs) for personal
injury, death, natural resource damages, property damage and the cost of
environmental investigation or studies, clean-up or remediation, including,
without limitation, any liabilities under CERCLA, HMTA, RCRA, CWA, CAA, OSHA and
CHSC and any rules and regulations promulgated under any of the foregoing.
"EXISTING ASSETS" shall mean the values of all the tangible and
intangible assets (other than Consumables) located at each of the Stores on the
Implementation Date, as contemplated by SCHEDULE D-1 attached hereto. In
addition, it is further understood and agreed that at the Implementation Date,
each Store's Total Net Book Value (as described in Schedule D-1) which
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has an asterisk to the left of the address of each Store shall have its Total
Net Book Value restated to $100,000, reduced by $5,000 per year (or portion
thereof) from the initial opening date of the Store by Owner (i.e. not the
Implementation Date) to the date of valuation. Otherwise, Existing Assets will
be valued at Owner's net book set forth on the financial statements of Owner
(which have been prepared in accordance with GAAP) as of the date of valuation.
"FINANCIAL STATEMENTS" shall mean statements calculating the amount of
Net Sales of each Store (i.e. specifying gross sales and permitted deductions
therefrom) and the value of the New Assets (specifying a Significant Operating
Expense) purchased for each Store during a Fiscal Period or Fiscal Year.
"FISCAL PERIOD" shall mean each of the thirteen (13) four (4) week
fiscal periods of Operator during a Fiscal Year commencing and ending after the
Implementation Date; provided, that the initial Fiscal Period shall commence on
the Implementation Date and shall end on the last day of that fiscal period.
"FISCAL YEAR" shall mean each fiscal year of Operator commencing and
ending after the Implementation Date; provided, that the initial Fiscal Year
shall commence on the Implementation Date and shall end on the last day of that
fiscal year.
"GAAP" shall mean generally accepted accounting principles.
"HAZARDOUS SUBSTANCE" shall mean, without limitation, all substances
and waste materials covered by CERCLA, HMTA, RCRA, CWA, CAA, OSHA and CHSC and
any rules and regulations promulgated under any of the foregoing.
"IMPLEMENTATION DATE" shall mean July 1, 1996.
"INTELLECTUAL PROPERTY" shall mean (i) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (ii)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (iii) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (iv) all mask works and all applications,
registrations, and renewals in connection therewith, (v) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, recipes and
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unique food formulas) compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (vi) all computer software (including data and related
documentation), (vii) all other proprietary rights, and (viii) all copies and
tangible embodiments thereof (in whatever form or medium).
"LEASE AGREEMENTS" shall mean those certain Lease Agreements entered
into by Owner with respect to Owner's lease of the property underlying the
Stores and the improvements thereon, as set forth on SCHEDULE E-1 through
SCHEDULE E-28 attached hereto.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due).
"LOSSES" shall mean all claims, demands, losses, actions, causes of
action (whether legal, equitable, or administrative), costs, expenses,
obligations, Liabilities, damages (whether actual, punitive or otherwise),
remedies, judgments and penalties, including interest, penalties and reasonable
attorneys' fees and expenses.
"NET SALES" shall mean all revenue from the sale of all food,
merchandise, or services sold or rendered by the Store including, without
limitation, catering and sales and services where orders originate or are
accepted by Operator in the Store by delivery or performance thereof is made
from or at any place other than the Store or which are pursuant to telephone or
other similar orders received or filled at or in the Store, whether for cash or
credit and regardless of collection in the case of credit, and income of every
kind and nature related to the Store business, deducting or excluding therefrom
(i) receipts from refunds to customers and non-food vending items, (ii) any
sales taxes or other taxes collected from customers by Operator for transmittal
to the appropriate taxing authority, (iii) any sales of Existing Assets or New
Assets, (iv) non-food promotional items sold at no profit to Operator, (v) the
amount of discount on sales to employees, and (vi) the amount of discount on
coupon sales.
"NEW ASSETS" shall mean all of the tangible assets (other than
Consumables) located at each of the Stores which are purchased by Operator after
the Implementation Date and shall include all Significant Operating Expenses.
The New Assets shall be valued at Operator's net book value set forth on the
financial statements of Operator (which have been prepared in accordance with
GAAP) determined on the date of such valuation.
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"OPERATOR" shall mean Carl Karcher Enterprises, a California
corporation.
"OPERATOR DEFAULT" shall have the meaning set forth in
SECTION 10.1.
"OPERATOR DISTRIBUTION PERCENTAGE" shall mean the quotient of (a) the
value of New Assets divided by (b) the sum of the value of the Existing Assets
and the value of the New Assets.
"OPERATOR INDEMNITEES" shall mean Operator and its Affiliates, and each
of their employees, agents, legal representatives, officers, directors and
shareholders.
"OWNER" shall mean Rally's Hamburgers, Inc., a Delaware
corporation.
"OWNER ADVERTISING FEE" shall have the meaning set forth in
SECTION 6.1.
"OWNER CHANGE OF CONTROL" shall mean (i) any transaction or series of
related transactions in which fifty percent (50%) or more of Owner's outstanding
voting stock is transferred to holders different from those who held the stock
immediately prior to such transactions; (ii) a merger or consolidation in which
Owner is not the surviving entity, other than a merger in which the principal
purpose is to change the state of incorporation of Owner, (iii) the sale,
transfer or other disposition of all or substantially all of the assets of
Owner; or (iv) any reverse merger in which Owner is the surviving entity but in
which fifty percent (50%) or more of Owner's outstanding voting stock is
transferred to holders different from those who held the stock immediately prior
to such merger.
"OPERATOR DEFAULT" shall have the meaning set forth in
SECTION 10.3.
"OWNER DISTRIBUTION PERCENTAGE" shall mean the quotient of (a) the
value of the Existing Assets divided by (b) the sum of the value of the Existing
Assets and the value of the New Assets.
"OWNER FEE" shall have the meaning set forth in SECTION 6.1.
"OWNER INDEMNITEES" shall mean Operator and its Affiliates, and each of
their employees, agents, legal representatives, officers, directors and
shareholders.
"OWNER OPERATIONAL STANDARDS" shall mean Owner's current standards for
operating a Rally's Store as set forth in Owner's current Operations Manual
previously provided to Operator and the other standards and policies of
operation of Owner (including, without limitation, (i) all menu changes proposed
by Operator
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(which changes shall be made only with the consent of Owner, which consent shall
not be unreasonably withheld or delayed) and (ii) Operator's use of the Approved
Sources), all as may be amended or modified from time to time by Owner with the
consent of the Operator, which consent shall not be unreasonably withheld.
"RALLY'S STORE" shall have the meaning set forth in the Recitals above.
"REASONABLY UNFORESEEABLE CIRCUMSTANCES" shall mean the occurrence of
reasonably unforeseeable events including, but not limited to, (i) expropriation
or confiscations of property or facilities in any eminent domain, condemnation,
compulsory acquisition or like proceeding by any competent authority for any
public or quasi-public use or purpose, or (ii) acts of nature including, fires,
floods and earthquakes. Any dispute between Owner and Operator which relates to
the existence of Reasonably Unforeseeable Circumstances shall be resolved by
binding arbitration pursuant to the provisions of SECTION 12.1.
"SIGNIFICANT OPERATING EXPENSE" shall mean the aggregate repair or
maintenance costs of any individual New Asset or Existing Asset which are
capitalized on the financial statements of Operator (which have been prepared in
accordance with GAAP). In no event shall any single such cost item which is less
than Five Hundred Dollars ($500) be capitalized.
"STORES" shall have the meaning set forth in the Recitals
above.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
ARTICLE 2
ENGAGEMENT AND TERM
SECTION 2.1 ENGAGEMENT.
(a) Owner hereby hires Operator as an independent contractor,
and Operator hereby accepts such engagement to operate and perform or have
performed all of the day-to-day operations of the Stores upon the terms,
conditions and covenants and other provisions set forth in this Agreement.
Subject to
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such terms, conditions, covenants and other provisions, Operator shall have the
right to determine operating policy, standards of operation, quality of service
and any other matters affecting customer relations or efficient management and
operation of the Stores. Owner and Operator agree that Operator shall operate
the Rally's Stores substantially in accordance with the Owner Operational
Standards. Owner and Operator agree further that each will cooperate with and
assist the other in every reasonable and proper way to permit Operator to carry
out its duties hereunder.
(b) On the Implementation Date, Operator shall purchase from
Owner each Store's then-current Consumables, as listed on SCHEDULE F attached
hereto, and all cash on hand at each Store for a purchase price (paid pursuant
to a wire transfer on the Implementation Date in accordance with SECTION 6.2)
equal to the sum of (i) Owner's actual cost of such Consumables and (ii) the
amount of such cash.
SECTION 2.2 TERM. Subject to SECTION 2.3 below, the term of this
Agreement shall commence upon the Implementation Date and, subject to earlier
termination pursuant to the provisions of ARTICLE 11, shall expire ten (10)
years from the Implementation Date. Notwithstanding the foregoing, Operator
shall have the right to extend the term of this Agreement for at least two (2)
renewal periods of five (5) years each, the first to commence on the day
following the expiration of the term of this Agreement and the second to
commence on the day following the expiration of the first renewal term, provided
Operator gives Owner written notice of Operator's election to extend the term of
this Agreement at least ninety (90) days prior to a renewal period.
SECTION 2.3 INSPECTION. It shall be a condition to the commencement of
the term of this Agreement and the obligations of Owner and Operator under this
Agreement, that a joint inspection of the Stores be conducted prior to the
Implementation Date and upon the Implementation Date, that there be a mutually
executed written list of required repairs at the Stores. The reasonable cost of
such repairs shall not exceed One Thousand Dollars ($1,000) per Store (i.e.
maximum of Twenty-Eight Thousand Dollars ($28,000) and shall be an offset
against the Owner Fee.
ARTICLE 3
RIGHTS OF OWNER
SECTION 3.1 AUDIT RIGHTS. Throughout the term of this Agreement, Owner
and its authorized representatives shall have the right to examine the books,
records and receipts relating to the operations of the Stores for the purpose of
determining the accuracy of any (i) payment received by Owner hereunder, and
(ii) the amount of any purchase of New Assets or incurrence of a
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Significant Operating Expense. Each examination shall take place at the offices
of Operator at such times as are reasonably convenient to Owner and Operator
after at least thirty (30) days prior written notice to Operator requesting such
examination. Owner may, within thirty (30) days after completion of its
examination, give notice to Operator of any amount alleged to be owing to Owner
and/or the amount disputed of any item appearing in or excluded from the
Financial Statements delivered to Owner. If Owner and Operator do not resolve
any such dispute item within thirty (30) days after Owner gives notice to
Operator of a disputed item, the dispute shall be determined by an audit by an
accounting firm mutually acceptable to Owner and Operator. Upon the conclusion
of such audit, the amount of any previous underpayment to Owner, if any, shall
be paid to Owner. The costs of the audit shall be paid by Owner; provided,
however, if the amount of such underpayments during a Fiscal Year is greater
than four percent (4%) of the total payments due Owner hereunder in such Fiscal
Year, the reasonable costs of such audit shall be paid by Operator.
SECTION 3.2 APPROVAL RIGHTS. Owner shall have the right to pre-approve
in writing (i) the form and content of all press releases and other items of
general publicity relating to any Rally's Store; (ii) the encumbering of any of
the Stores or any portion thereof by any mechanics', laborers', materialmen's,
contractors', subcontractors' or any other liens or encumbrances or charges,
except for each Converted Store where Operator has assumed the Lease Agreement
applicable to such Converted Store pursuant to SECTION 4.9; and (iii) the use of
Owner's name or the name "Rally's" and the accompanying text included in any
advertising (other than local advertising for which there is no pre-approval
right) or any document intended for public, semipublic or governmental
disclosure (other than documents prepared by Operator pursuant to the Securities
Act of 1933 or the Securities Exchange Act of 1934); provided, that upon receipt
from Operator of a request seeking Owner's approval of the name use and
accompanying text, Owner shall have five (5) business days within which to
notify Operator either verbally or in writing of its approval or denial thereof,
and in the event that Operator fails to receive such notice from Owner within
such five (5) business-day period, Owner shall be deemed conclusively to have
failed to so notify Operator and to have approved such request.
ARTICLE 4
RIGHTS AND RESPONSIBILITIES OF OPERATOR
SECTION 4.1 SCOPE OF OPERATOR'S RESPONSIBILITIES. In performance of its
duties pursuant to this Agreement, Operator shall act solely as an independent
contractor of Owner. All licenses, permits and approvals including, without
limitation,
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liquor licenses and business permits, shall be obtained by Operator; provided,
that in the event that such government authorities prohibit Operator from
obtaining such licenses, permits and approvals, Operator shall notify Owner of
such prohibition and shall first attempt to obtain such licenses, permits and
approvals in the name of Owner and Operator (or their respective designees)
jointly, and if such joint holding is prohibited by the proper government
authorities, Operator may obtain such licenses, permits and approvals in the
name of Owner or its designees. Upon termination of this Agreement, Operator and
its respective designees shall cooperate with Owner to transfer all such
licenses, permits and approvals to the name of Owner or Owner's designees alone;
provided, however, if Operator has assumed the Lease Agreement applicable to a
Converted Store pursuant to SECTION 4.9, (i) Operator shall not be required to
transfer such licenses, permits and approvals with respect to such Converted
Store to the name of Owner or Owner's designees and (ii) Owner and its
respective designees shall cooperate with Operator to transfer all such
licenses, permits and approvals to the name of Operator or Operator's designees
alone.
SECTION 4.2 FUNDING. Operator agrees to provide all funds, throughout
the term of this Agreement, as shall be necessary to perform and satisfy
Operator's responsibilities under this Agreement.
SECTION 4.3 NO ASSUMPTION OF LIABILITIES. Except as specifically agreed
to by Owner and Operator pursuant to SECTION 4.9 with respect to the permitted
assumption by Operator of one or more Lease Agreements and as to two (2)
agreements relating to billboard advertising (in Los Angeles and Bakersfield)
which Operator hereby agrees to assume as of the Implementation Date; Operator
does not agree to assume or become responsible for any Liabilities of Owner.
SECTION 4.4 OPERATOR OBLIGATIONS. Following the Implementation Date and
thereafter during the term of this Agreement, Operator shall operate and perform
all day-to-day operations of the Stores, including, without limitation, the
obligations set forth below, in a manner consistent with the terms, conditions,
covenants and other provisions of this Agreement:
(a) Manage, operate and maintain the Stores including, without
limitation, the payment of all operating and maintenance costs to third parties
(including but not limited to all payments required under the Lease Agreements).
In connection therewith, Operator shall have uninterrupted control over the
operation of the Stores and Owner shall not interfere with or involve itself in
any way with the day-to-day operation of the Stores by Operator.
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(b) Hire, promote, discharge, direct, train and supervise and
determine the compensation, other benefits and terms of employment of all
employees of the Stores and use its reasonable efforts to comply with all
employee related laws and regulations (including the provision of worker's
compensation insurance benefits to Stores employees). In the exercise of its
reasonable discretion Operator is to be the sole and absolute judge of the
fitness and qualifications of such employees and, except to the extent provided
in this Agreement, is vested with absolute discretion in hiring, promoting,
discharging, directing, training and supervising and determining the
compensation, other benefits and terms of employment of such personnel. It is
expressly understood and agreed that all of such employees are in the sole
employ of Operator. Owner shall not interfere with or give orders or
instructions to any personnel employed at the Stores. Operator shall have the
option, but shall not be required, to continue the employment of, hire,
maintain, or give any preferential treatment to, current or future employees of
Owner or the Stores.
(c) Subject to SECTION 4.1, use its reasonable efforts to
maintain all licenses and permits required for the operation of the Stores
(including liquor and restaurant licenses).
(d) Purchase all Consumables. With respect to Rally's Stores,
such purchases shall be made exclusively from Approved Sources.
(e) Replace all furniture fixtures and equipment of the Stores
as necessary to maintain the Stores. In connection therewith, Operator shall
make or cause to be made all repairs, replacements, corrections and maintenance
items as shall be required in the normal and ordinary course of operation of the
Stores.
(f) Subject to SECTION 5.3, initiate and carry out local
promotional and advertising programs.
(g) Enforce all Stores rules and regulations.
(h) Use reasonable efforts to comply with all federal, state,
regional or local environmental laws, regulations, rules, orders, ordinances or
notices arising relating to the operation of the Stores.
(i) Fulfill Operator's other obligations pursuant to this
Agreement.
SECTION 4.5 USE OF NAME.
(a) Throughout the term of this Agreement, Operator shall have
the non-exclusive right and license to use the name
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"Rally's" in connection with marketing, advertising and describing the operation
of the Rally's Stores to third parties. In the event of termination of this
Agreement, Operator shall not use the name "Rally's."
(b) Owner and Operator hereby agree that in the event Owner
and/or Operator is (are) the subject of any litigation or action brought by any
party seeking to restrain the use, for or with respect to the Stores, by Owner
and/or Operator of the name "Rally's," any such litigation or action shall be
defended entirely at the expense of Owner, notwithstanding that Operator may or
may not be named as a party thereto. In the event Owner desires to bring suit
against any user of such name, then such suit shall be brought at the expense of
Owner notwithstanding that such user may be a prior or subsequent user. In all
cases, the conduct of any suit (whether brought by Owner or instituted against
Owner and/or Operator) shall be under the absolute control of counsel to be
nominated by Owner notwithstanding that Operator may not be a party to such suit
and that Owner may be responsible for all costs of such counsel as provided
herein. Owner hereby agrees and covenants to hold Operator harmless from and to
indemnify Operator against any Losses which Operator is required to pay and/or
pays arising from the use of the name "Rally's" or names or similar rights or
registrations for or on the Stores in accordance with the terms of this
Agreement.
SECTION 4.6 PAYMENT OF TAXES AND UTILITIES. After the Implementation
Date and throughout the term of this Agreement, Operator shall determine and pay
out of Stores operations all utilities, Taxes, assessments, excises, levies and
other charges of any kind upon the Stores that may be charged or levied by any
proper authority after the Implementation Date. Owner shall be responsible for
paying its pro rata share of such charges which were incurred or relate to any
period of time prior to the Implementation Date. Owner shall indemnify, defend
and hold harmless the Operator from and against any and Losses that such person
or persons shall incur or suffer relating to or arising out of the failure of
Owner to pay, in accordance with this SECTION 4.6, its pro rata share of such
charges. In case any action or proceeding is brought against any such Operator
by reason of any such Loss, Owner, upon notice from Operator, shall defend the
same at Owner's expense by counsel reasonably satisfactory to Operator. Operator
shall indemnify, defend and hold harmless the Owner from and against any and
Losses that such person or persons shall incur or suffer relating to or arising
out of the failure of Operator to pay, in accordance with this SECTION 4.6, its
pro rata share of such charges. In case any action or proceeding is brought
against any such Owner by reason of any such Loss, Operator upon notice from
Owner, shall defend the same at Operator's expense by counsel reasonably
satisfactory to Owner.
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SECTION 4.7 RECORDS, FINANCIAL STATEMENTS AND TAX RETURNS. Operator
shall cause complete and accurate accounts of all transactions reflected on the
Financial Statements to be kept in proper books to be made available for
inspection by Owner at all reasonable times as set forth in SECTION 3.1. As soon
as practicable, but in no event later than twenty (20) days after the close of
each Fiscal Period, Operator shall furnish to Owner the Financial Statements for
the preceding Fiscal Period. As soon as practicable, but in no event later than
forty-five (45) days following the close of each Fiscal Year, Operator shall
furnish to Owner final Financial Statements for the preceding Fiscal Year.
SECTION 4.8 MANAGEMENT MEETINGS. Representatives of Operator shall meet
with representatives of Owner at least once per fiscal quarter at a specific
time and place to be agreed upon by Owner and Operator, for the purpose of
discussing the performance of the Stores.
SECTION 4.9 CONVERTED STORES. Operator shall have the right, at any
time during the term of this Agreement, to convert any of the Rally's Stores to
a Converted Store. The costs of such conversion shall be at the sole expense of
Operator. Upon such conversion, Operator shall have the right, but not the
obligation, to assume the Lease Agreement applicable to such Converted Store. In
connection therewith, upon the request of Operator, Owner shall use its best
efforts to obtain all consents and renewals with respect to such Lease Agreement
necessary or desirable for Operator to continue the operation of such Store as a
Converted Store. Upon Operator's assumption of such Lease Agreement, Operator
shall reimburse to Owner the actual amount of any security deposit previously
paid by Owner pursuant to the provisions of such Lease Agreement. If Operator
terminates this Agreement pursuant to SECTION 11.3, Operator shall assume the
Lease Agreements applicable to each Converted Store and Owner shall use its best
efforts to obtain all consents and renewals with respect to such Lease Agreement
necessary or desirable for Operator to continue the operation of such Store as a
Converted Store.
SECTION 4.10 CLOSURE OF STORES.
(a) Operator shall have the right, in its sole and absolute
discretion, to effect the closure of (i) the three Class B Stores specified in
Schedule A at the expiration of the term of their respective Lease Agreements;
and, (ii) the Class A Stores sixty (60) months or more after the Implementation
Date. Notice of any closure of a Store shall be delivered to Operator by Owner
within sixty (60) days prior to the effective date of such Closure (the "CLOSURE
DATE"). Notwithstanding the foregoing, if Owner demands in writing to Operator,
within thirty (30) days prior to the Closure Date (the "DEMAND DATE"), that a
closure of
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a Store not be effected, then such Store shall not be closed and Operator shall
continue to operate such Store in accordance with the provisions of this
Agreement; provided, however, (i) in no event shall any of the Operator or its
Affiliates be liable or responsible for any continuing direct or indirect
operational loss from such Store or any Losses resulting from Operator's
operation of the Store after the Demand Date and (ii) Owner shall indemnify,
defend and hold harmless the Operator and its Affiliates from and against any
such operational loss and Losses that such person or persons shall incur or
suffer after the Demand Date. In case any action or proceeding is brought
against any such Operator and its Affiliate by reason of any such Loss, Owner,
upon notice from Operator, shall defend the same at Owner's expense by counsel
reasonably satisfactory to Operator.
(b) Upon the closure of a Store, all Existing Assets, New
Assets and Consumables of such Store shall be liquidated and the proceeds
therefrom shall be used to pay such Store's Closing Costs. If there are excess
proceeds from the liquidation of the Existing Assets, New Assets and Consumables
after payment of such Closing Costs, then such excess proceeds shall be
distributed pro rata to Owner and Operator in accordance with the Owner
Distribution Percentage and Operator Distribution Percentage, respectively. All
remaining Closing Costs with respect to the closure of a Store, if any, shall be
at the sole expense of Owner.
(c) In the event of any Rally's Store closure, Owner has the
right to repossess such Rally's Store and its operations upon a payment to
Operator equal to the value of New Assets in such Store.
(d) In the event of any Converted Store closure, Operator
shall pay all Closing Costs.
SECTION 4.11 UNUSED EQUIPMENT. If Operator elects not to use any of the
Existing Assets at any Store (e.g. grills), it shall notify Owner who shall have
the right (at its sole expense) to remove any such Existing Asset.
ARTICLE 5
COVENANTS
SECTION 5.1 LEASE AGREEMENTS. Subject to Operator's compliance with
SECTION 4.4, Owner shall maintain the Lease Agreements in full force and effect
through the term of this Agreement; provided, however, Owner shall have no such
obligation to maintain a Lease Agreement applicable to a Converted Store after
the assumption of such Lease Agreement by Operator has been fully consummated
pursuant to SECTION 4.9. Owner shall obtain
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all consents and approvals required by landlords for the Stores prior to the
Implementation Date.
SECTION 5.2 NON-DISTURBANCE. Owner covenants that during the term
hereof Operator shall and may peaceably and quietly operate the Stores in
accordance with the terms of this Agreement, free from molestation, eviction or
disturbance by Owner or by any other person whom Owner shall derive its right to
occupy and use the Stores or by any other person or persons claiming by, through
or under Owner. Owner further covenants and agrees, at Owner's own expense, to
undertake and prosecute all appropriate actions, judicial or otherwise, required
to assure such quiet and peaceable operation by Operator. During the term of
this Agreement, upon Operator's request, Owner agrees to furnish Operator copies
of all documents by and through which Owner has the right of possession to the
Stores and consequently the ability to enter into this Agreement.
SECTION 5.3 SALES, MARKETING AND ADVERTISING. Operator shall advertise
and promote the business of the Stores and shall institute and supervise a sales
and marketing program and, with respect to Rally's Stores, coordinate and
cooperate with the sales and marketing programs of Owner. In its sole and
absolute discretion, Operator may cause the Stores to participate in sales and
promotional campaigns and activities involving complimentary food and beverages
where such is in furtherance of the profitability of the Stores' business. Owner
shall use the Owner Advertising Fee received by Owner to fund the National Fund
(as defined in Owner's current franchise agreement) for uses including point of
purchase advertising and menu slats and otherwise as other contributions to the
National Fund are utilized. Operator shall apply three and one-half percent
(3.5%) of the Net Sales from the operation of each Rally's Store exclusively
towards local advertising for the Rally's Stores as determined by Operator in
its sole and absolute discretion.
SECTION 5.4 INSURANCE. Throughout the term of this Agreement, Operator
shall, at Operator's sole cost and expense, obtain, maintain, and account for
the insurance coverage described in SCHEDULE G attached hereto, which insurance
(except as to Converted Stores) shall name Owner as an additional insured. Such
insurance shall be effected by policies issued by insurance companies of good
reputation and of sound financial responsibility as determined in the sole and
absolute discretion of Operator.
SECTION 5.5 NO SALE OF STORES. Owner shall not sale, lease or otherwise
transfer any of the Stores or the Existing Assets to any third parties; provided
Owner shall be entitled to consummate a sale/lease back transaction with respect
to a Store or Existing Assets without the prior written consent of Operator
provided that (i) such transaction does effect any adverse
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economic impact (and will not effect any impact if the Lease Agreement
applicable to such Store is assumed by Operator pursuant to SECTION 4.9) to
Operator as determined by Operator in its sole and absolute discretion and (ii)
the documents evidencing such transaction specifically acknowledge the fact such
transaction will not effect such adverse economic impact.
SECTION 5.6 GREEN BURRITO. On or promptly following the Implementation
Date, Owner shall (at its sole cost and expense) terminate any or all existing
franchise agreements with GB Foods, Inc. (aka "Green Burrito") with respect to
the Stores.
SECTION 5.7 LEASE AGREEMENT EXTENSIONS. In the event that a term for a
Lease Agreement for a Class A Store expires prior to July 2, 2001, then Owner
and Operator shall use their best reasonable efforts to extend the terms of the
Lease Agreements (or longer as mutually agreed) to July 2, 2001. If a Lease
Agreement can only be extended beyond July 2, 2001, then Owner can elect (i) not
to extend the term in which case the Store will be closed when the term expires;
or (ii) extend the term beyond July 2, 2001, which extension will not change
Operator's rights under Section 4.10(a)(ii).
ARTICLE 6
COMPENSATION
SECTION 6.1 OWNER FEE AND OWNER ADVERTISING FEE. Owner shall be
entitled to receive from the operations of the Stores the following fees (the
"OWNER FEE"):
(a) From the operations of each Rally's Store, five percent
(5.0%) of the Net Sales of such Rally's Store during a Fiscal Period, payable
within fifteen (15) days following such Fiscal Period; and,
(b) From the operations of each Converted Store, five percent
(5.0%) of the Net Sales of such Converted Store during a Fiscal Period, payable
within fifteen (15) days following such Fiscal Period.
Upon the Implementation Date, Operator shall prepay
Seventy-Five Thousand Dollars ($75,000) of the Owner Fee. This sum may be repaid
by Owner at any time and shall be repaid not later than July 2, 1997 or Operator
may offset the sum against remaining Owner Fees.
In addition, Owner shall be entitled to receive from the operations of each
Rally's Stores one-half of one percent (0.5%) of the Net Sales of such Rally's
Store during a Fiscal Period, payable within fifteen (15) days following such
Fiscal Period (the "OWNER ADVERTISING FEE").
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SECTION 6.2 WIRE TRANSFER INSTRUCTIONS. Set forth below are the wire
transfer instructions for all payments to be made by Operator to Owner pursuant
to SECTION 6.1 which shall be followed until such time as Owner notifies
Operator in writing of a change therein:
Account Number: 30-9555-6688
Account Name: Rally's Hamburgers, Inc.
ABA Number: PNC Bank, Kentucky, Inc.
SECTION 6.3 COMPENSATION TO OPERATOR. For its services hereunder,
Operator shall be entitled to receive all income and profits from the operations
of the Stores (after payment of the Owner Fee and Owner Advertising Fee),
payable to Operator from time to time as determined in the sole and absolute
discretion of Operator. Operator shall also be entitled to retain all direct and
indirect benefits from contracts or obligations it is paying for in connection
with Store operations, including, but not limited to, the National Value Pouring
Level and Local Store Marketing Allowance provided by the Coca Cola Company (or
its affiliates).
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
SECTION 7.1 OWNER REPRESENTATIONS AND WARRANTIES. Owner makes the
following representations and warranties to Operator, which shall survive the
execution and delivery of this Agreement and, to the extent events or conditions
occur which cause such representations and warranties to no longer remain true,
Owner shall give Operator written notice of such fact as soon as is practicable
following Owner's knowledge of such fact:
(a) Owner is a corporation duly organized, validly existing
and in good standing under the laws of the State of California with full
corporate power to enter into this Agreement and execute all documents required
hereunder.
(b) The making, execution, delivery and performance of this
Agreement by Owner has been duly authorized and approved by all requisite
corporate action, and this Agreement has been duly executed and delivered by
Owner and constitutes the valid and binding obligations of Owner, enforceable
against Owner in accordance with its terms, subject to applicable bankruptcy,
reorganization, insolvency and other similar laws affecting creditors' rights
generally and general equitable principles.
(c) Neither the execution and delivery of this Agreement by
Owner nor Owner's performance of its obligations hereunder will result in a
violation or breach of any material
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term or provision of, or constitute a material default or accelerate the
performance required under, any other material agreement or document to which
Owner is a party or by which Owner is otherwise bound and will not constitute a
violation of any law, ruling, regulation or order to which Owner is subject.
(d) Owner has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which Owner or Operator could become liable
or obligated.
(e) Owner owns or leases all buildings, machinery, equipment,
and other assets necessary for the conduct of the Stores as presently conducted
and as presently proposed to be conducted. Except as disclosed in writing as
contemplated by Section 2.3, each such asset is free from defects (patent and
latent), has been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used and presently is
proposed to be used. All Consumables currently located in the Stores are
merchantable and fit for the purpose for which they were procured.
(f) Set forth on SCHEDULE H attached hereto is a list of the
existing contracts, commitments or obligations directly or indirectly related to
a Store to which Owner or the Stores are or may become subject.
(g) Owner is not presently aware of any fact or condition
which would result in the termination of the (i) current access to the Stores
from existing roads or (ii) current access to existing utility services.
(h) Owner does not have any Liability (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to any
Liability) with respect to any of the Stores, except for lease obligations with
respect to each Store and for Liabilities set forth on SCHEDULE I attached
hereto (none of which results from, arises out of, relates to, is in the nature
of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
(i) There are no existing or, to Owner's knowledge, pending
actions, suits, litigation, claims, proceedings or governmental investigations
with respect to any aspect of the Stores, which would have a material adverse
affect on the ability of Operator to perform its obligations pursuant to this
Agreement, nor, to the knowledge of Owner, have any such actions, suits,
litigation, claims, proceedings or governmental investigations been threatened
or asserted.
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(j) Except as set forth on SCHEDULE J attached hereto, (i) all
Taxes owed by Owner have been paid; (ii) Owner has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or other third
party, (iii) to the best of Owner's knowledge, no director or officer (or
employee responsible for Tax matters) of Owner expects any authority to assess
any additional Taxes for any period prior to the Implementation Date, (iv) there
is no dispute or claim concerning any Tax Liability of Owner either claimed or
raised by any authority.
(k) Owner has complied fully with the requirements of all
laws, rules, regulations and orders applicable to the Stores, including, but not
limited to, all applicable environmental laws and regulations.
(l) Owner is the owner of the registered trademark "Rally's
Hamburgers" and any derivative thereof necessary to operate a Rally's Store.
Owner owns or has the right to use pursuant to license, sublicense, agreement,
or permission all Intellectual Property necessary or desirable for the operation
of the Stores as presently conducted and as presently proposed to be conducted.
To the best of Owner's knowledge, each item of such Intellectual Property owned
or used by Owner immediately prior to the Implementation Date will be available
for use by Operator on identical terms and conditions immediately subsequent to
the Implementation Date. Owner has taken and will continue to take all necessary
and desirable action to maintain and protect each item of such Intellectual
Property that it owns or uses.
(m) To the best of Owner's knowledge, Owner has not interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and none of the directors and
officers (and employees with responsibility for Intellectual Property matters)
of Owner has ever received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or violation
(including any claim that Owner must license or refrain from using any
Intellectual Property rights of any third party).
(n) The representations and warranties of Owner contained in
this SECTION 7.1 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this SECTION 7.1 not misleading.
SECTION 7.2 OPERATOR REPRESENTATIONS AND WARRANTIES. Operator makes the
following representations and warranties to Owner, which shall survive the
execution and delivery of this Agreement and, to the extent events or conditions
occur which
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cause such representations and warranties to no longer remain true, Operator
shall give Owner written notice of such fact as soon as is practicable following
Operator's knowledge of such fact:
(a) Operator is a corporation duly organized, validly existing
and in good standing under the laws of the State of California with full
corporate power to enter into this Agreement and execute all documents required
hereunder.
(b) The making, execution, delivery and performance of this
Agreement by Operator has been duly authorized and approved by all requisite
corporate action, and this Agreement has been duly executed and delivered by
Operator and constitutes valid and binding obligations of Operator, enforceable
against Operator in accordance with its terms, subject to applicable bankruptcy,
reorganization, insolvency and other similar laws affecting creditors' rights
generally and general equitable principles.
(c) Neither the execution and delivery of this Agreement by
Operator nor Operator's performance of its obligations hereunder will result in
a violation or breach of any material term or provision of, or constitute a
material default or accelerate the performance required under, any other
material agreement or document to which Operator is a party or by which Operator
is otherwise bound and will not constitute a violation of any law, ruling,
regulation or order to which Operator is subject.
(d) Operator has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which Operator or Owner could become liable
or obligated.
(e) The representations and warranties of Operator contained
in this SECTION 7.2 do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements and
information contained in this SECTION 7.2 not misleading.
ARTICLE 8
DAMAGE; DESTRUCTION OR CONDEMNATION
SECTION 8.1 APPLICATION OF INSURANCE PROCEEDS.
(a) Owner shall have the right to approve in writing (which
approval shall not be unreasonably withheld or delayed) all settlements of
insurance claims with respect to all insurance maintained by Operator pursuant
to the terms of this Agreement. If all or any portion of a Store shall be
damaged, destroyed, taken or condemned at any time during the term of this
Agreement
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as a result of Reasonably Unforeseeable Circumstances, the proceeds of any such
insurance maintained by Operator or the proceeds from such taking shall be
turned over to Owner and Owner may terminate this Agreement by giving written
notice thereof to Operator, unless Operator shall request in writing (delivered
to Owner within ten (10) days after Operator receipt of such written notice from
Owner) that Owner use such proceeds to restore or reconfigure such Store. If
such Store is to be restored or reconfigured in accordance with this SECTION
8.1(a) following any such casualty, taking or condemnation, upon the request of
Operator, Owner shall diligently restore or reconfigure the Store in accordance
with plans and specifications reasonably acceptable to Operator. Notwithstanding
the foregoing, if Operator has assumed the Lease Agreement with respect to a
Converted Store, then the proceeds of any such insurance maintained by Operator
or the proceeds from such taking shall be turned over to Operator and Operator
may terminate this Agreement with respect to a Converted Store in accordance
with SECTION 11.4 or Operator may use such proceeds to restore or reconfigure
such Converted Store.
(b) If the proceeds of any such insurance maintained by
Operator or the proceeds from such taking shall not be used to restore or
reconfigure a Store pursuant to SECTION 8.1(a), such Store shall be closed and
such proceeds shall be used to pay such Store's Closing Costs. If there are
excess proceeds after payment of such Closing Costs, then such excess proceeds
shall be distributed pro rata to Owner and Operator in accordance with the Owner
Distribution Percentage and Operator Distribution Percentage, respectively. All
remaining Closing Costs with respect to the closure of such Store shall be at
the sole expense of Owner.
This Article shall not apply with respect to Lease Agreements
assumed by Operator pursuant to SECTION 4.9.
ARTICLE 9
INDEMNIFICATION
SECTION 9.1 INDEMNIFICATION BY OWNER. Owner shall indemnify, defend and
hold harmless the Operator Indemnitees from and against any and all Losses that
such person or persons shall incur or suffer relating to or arising out of (i)
any breach of any agreement, covenant, representation or warranty made by Owner
in this Agreement, or (ii) any Environmental Liability of Owner. In case any
action or proceeding is brought against such person or persons by reason of any
such Losses, Owner, upon notice from Operator, shall defend the same at Owner's
expense by counsel reasonably satisfactory to Operator.
SECTION 9.2 INDEMNIFICATION BY OPERATOR. Operator shall indemnify,
defend and hold harmless the Owner Indemnitees from
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and against any and all Losses that such person or persons shall incur or suffer
relating to or arising out of (i) any breach of any agreement, covenant,
representation or warranty made by Operator in this Agreement; or (ii) any
Environmental Liability of Operator. In case any action or proceeding is brought
against such person or persons by reason of any such Losses, Operator, upon
notice from Owner, shall defend the same at Operator's expense by counsel
reasonably satisfactory to Owner.
ARTICLE 10
DEFAULT
SECTION 10.1 EVENTS OF OPERATOR DEFAULT. The occurrence of any one or
more of the following events which is not cured in the time permitted, if any,
shall constitute a default by Operator under this Agreement (a "OPERATOR
DEFAULT"):
(a) If Operator shall fail to pay, when due, the Owner Fee or
the Owner Advertising Fee and such failure shall continue for a period of three
(3) business days after receipt of written notice thereof from Owner.
(b) If Operator shall fail to pay any expenses and debts
incurred in the operation of the Stores (e.g. including without limitation
payments under the Lease Agreements) when due and such failure shall continue
for a period of thirty (30) days after written notice from Owner unless Operator
is in good faith contesting the payment of such expense or debt.
(c) If Operator is grossly negligent in the performance of any
of its obligations under this Agreement (other than the obligations of Operator
set forth in (a) and (b) above) and such failure shall continue for a period of
thirty (30) days after written notice thereof from the Owner specifying the
nature of such failure with reasonable detail; provided, that if such failure is
not one that is susceptible of being cured within thirty (30) days, then no
Operator Default shall be deemed to have occurred so long as Operator initiates
such cure within such thirty (30)-day period and thereafter diligently pursues
to complete such cure as soon as is reasonably possible.
(d) If Operator shall file a voluntary petition in bankruptcy,
or shall be adjudicated bankrupt or insolvent, or shall file any petition or
answer seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the present or any future
federal bankruptcy act or any other present or future applicable federal or
state statute or law, or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of itself or of all or any
substantial portion of its assets.
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(e) If within sixty (60) days after the commencement of any
proceeding against Operator seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under the
present or any future federal bankruptcy act or any other present or future
applicable federal or state statute or law, such proceeding shall not have been
dismissed; or if within sixty (60) days after the appointment, without the
consent or acquiescence of Operator of any trustee, receiver or liquidator of
such party or of all or any substantial portion of its properties, such
appointment shall not have been vacated or stayed on appeal or otherwise; or if
within sixty (60) days after the expiration of any such stay, such appointment
shall not have been vacated.
(f) If Operator fails to comply with provisions of the Lease
Agreements for the Stores (other than obtaining required consents or approvals
for the transfers contemplated by this Agreement).
SECTION 10.2 OWNER REMEDIES. Upon the occurrence of any Operator
Default, Owner shall be entitled to all remedies hereunder, now or hereafter
existing at law, in equity or by statute and no remedy is intended to be
exclusive of any other remedy. No delay or omission of Owner to exercise any
right, power or remedy accruing upon an Operator Default shall impair the
exercise of any other right, power or remedy or shall be construed to be a
waiver thereof.
SECTION 10.3 EVENTS OF OWNER DEFAULT. The occurrence of any one or more
of the following events which is not cured in the time permitted, if any, shall
constitute a default by owner under this Agreement (an "OWNER DEFAULT"):
(a) If Owner fails to perform any of its material obligations
under this agreement and such failure shall continue for a period of thirty (30)
days after receipt of written notice thereof from Operator specifying the nature
of such failure with reasonable detail; provided, that if such failure is not
one that is susceptible of being cured within thirty (30) days, then no default
shall be deemed to have occurred so long as Owner initiates such cure as soon
within such thirty (30)-day period and thereafter diligently pursues to complete
such cure as soon as is reasonably possible.
(b) If Owner shall file a voluntary petition in bankruptcy, or
shall be adjudicated bankrupt or insolvent, or shall file any petition or answer
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
act or any other present or future applicable federal or state statute or law,
or shall seek or consent to or acquiesce
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in the appointment of any trustee, receiver or liquidator of itself or of all or
any substantial portion of its assets.
(c) If within sixty (60) days after the commencement of any
proceeding against Owner seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the present or
any future federal bankruptcy act or any other present or future applicable
federal or state statute or law, such proceeding shall not have been dismissed;
or if within sixty (60) days after the appointment, without the consent or
acquiescence of Owner of any trustee, receiver or liquidator of such party or of
all or any substantial portion of its properties, such appointment shall not
have been vacated or stayed on appeal or otherwise; or if within sixty (60) days
after the expiration of any such stay, such appointment shall not have been
vacated.
SECTION 10.4 OPERATOR REMEDIES. Upon the occurrence of any Owner
Default, Operator shall be entitled to all remedies hereunder, now or hereafter
existing at law, in equity or by statute and no remedy is intended to be
exclusive of any other remedy. No delay or omission of Operator to exercise any
right, power or remedy accruing upon an Operator Default shall impair the
exercise of any other right, power or remedy or shall be construed to be a
waiver thereof.
ARTICLE 11
TERMINATION
SECTION 11.1 TERMINATION FOR CAUSE BY OWNER. Owner may terminate this
Agreement at any time during its term upon the occurrence of any Operator
Default, and such termination shall be effective immediately upon the delivery
of a written notice of termination to Operator.
SECTION 11.2 TERMINATION FOR CAUSE BY OPERATOR. Operator may terminate
this Agreement at any time during its term upon the occurrence of any Owner
Default or upon the consummation of an Owner Change of Control, and such
termination shall be effective immediately upon the delivery of a written notice
of termination to Owner.
SECTION 11.3 TERMINATION WITHOUT CAUSE BY OPERATOR. Notwithstanding any
other provision contained in this Agreement, at any time on or after the fifth
(5th) anniversary of the Implementation Date, Operator shall have the right to
terminate this Agreement, in Operator's sole and absolute discretion, upon
delivery of written notice of termination to Owner at least forty-five (45) days
prior to the effective date of such termination.
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SECTION 11.4 TERMINATION WITH RESPECT TO A SPECIFIC STORE. Subject to
Sections 4.10 and 5.7 above, this Agreement shall automatically terminate with
respect to a specific Store when the Lease Agreement applicable to such Store
(i) is terminated; (ii) is terminable by lessee as a result of an occurrence at
such Store (e.g. damage, destruction or condemnation); or (iii) otherwise
expires pursuant to the terms thereof.
Upon any such termination of this Agreement with respect to a specific Store,
such Store shall be closed and all Existing Assets, New Assets and Consumables
of such Store shall be liquidated and the proceeds therefrom shall be used to
pay such Store's Closing Costs. If there are excess proceeds from the
liquidation of the Existing Assets, New Assets and Consumables after payment of
such Closing Costs, then such excess proceeds shall be distributed pro rata to
Owner and Operator in accordance with the Owner Distribution Percentage and
Operator Distribution Percentage, respectively. All remaining Closing Costs, if
any, with respect to the closure of a Store shall be at the sole expense of
Owner.
In the event of any Rally's Store closure, Owner has the right to
repossess such Rally's Store and its operations upon a payment to Operator equal
to the value of New Assets in such Store.
SECTION 11.5 CESSATION OF ACTIVITIES BY OPERATOR UPON TERMINATION. Upon
any termination of this Agreement, each of the Rally's Stores shall be closed
and all Existing Assets, New Assets and Consumables of each such Store shall be
liquidated and the proceeds therefrom shall be used to pay each such Store's
Closing Costs. If there are excess proceeds from the liquidation of the Existing
Assets, New Assets and Consumables after payment of such Closing Costs, then
such excess proceeds shall be distributed pro rata to Owner and Operator in
accordance with the Owner Distribution Percentage and Operator Distribution
Percentage, respectively. All remaining Closing Costs, if any, with respect to
the closure of a Store shall be at the sole expense of Owner.
SECTION 11.6 OTHER RIGHTS UPON TERMINATION. Upon any termination of
this Agreement, Owner and Operator shall be relieved of further performance
pursuant to this Agreement; provided, that no termination of this Agreement
shall in any way effect Owner's or Operator's indemnity obligations or other
legal liability provided for in this Agreement or invalidate, reduce or restrict
the rights of Owner or Operator to pursue remedies for any Operator Default or
Owner Default, as the case may be, under this Agreement or wrongful act, error
or omission occurring prior to such termination, regardless whether such
Operator Default, Owner Default, act, error or omission was known by the
aggrieved party at the time of termination. Notwithstanding anything to
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the contrary contained in this Agreement, in the event of any Rally's Store
closure, Owner has the right to repossess such Rally's Store from Operator and
its operations upon a payment to Operator equal to the value of New Assets in
such Store.
ARTICLE 12
MISCELLANEOUS PROVISIONS
SECTION 12.1 BINDING ARBITRATION. Any controversy involving a claim by
either of the parties against the other in connection with any dispute that may
arise from this Agreement shall be finally settled by arbitration in Orange
County, California, if commenced by Owner and in Los Angeles County, California,
if commenced by Operator in accordance with the then-current rules for
arbitration as established by Judicial Arbitration Mediation Services, Inc.
("JAMS"), and judgment upon the award rendered by such arbitration may be
entered in any court having jurisdiction thereof. Such arbitration shall be
conducted by one (1) arbitrator mutually agreed to by Owner and Operator from
the JAMS panel of retired judges, or an arbitrator appointed by JAMS in the
event that no such mutual agreement is reached.
SECTION 12.2 NO JOINT VENTURE; INDEPENDENT ENTITY. Nothing herein
contained shall be construed to place the parties in the relationship of
partners, joint venturers, or principal and agent and neither shall have any
power to obligate or bind the other with respect to third parties in any matter
whatsoever. Owner recognizes and acknowledges that Operator is an independent
corporation, adequately capitalized and chartered under the laws of California,
to which Owner will solely look and which is solely responsible for the
obligations and liabilities of Operator recited herein (but only to the extent
provided by law), arising hereunder, or in any manner related to the
transactions contemplated hereby, and Owner further recognizes and acknowledges
that no other entities, including (i) any parent corporation of Operator, (ii)
any individual, (iii) any corporation Affiliated with Operator which may supply
services to or take actions on behalf of or for the benefit of Operator with
respect to the transactions contemplated herein (it being agreed among the
parties thereto that such parents of and/or the Affiliated corporations may
form, organize, provide services to, provide loans and funds to, negotiate for,
provide personnel to, make representations on behalf of and, from time to time
take actions on behalf of or for the benefit of Operator by direct dealings with
Operator or those acting for Operator) is in any manner liable or responsible
for the obligations and Liabilities of Operator, whether recited herein, arising
hereunder, or in any manner related to the transactions contemplated hereby.
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SECTION 12.3 INQUIRY. Owner warrants and represents that it has made
such inquiry investigation as it deems appropriate as to the financial ability
of Operator to perform all of its respective obligations, duties, Liabilities
and undertakings contemplated by the transactions from which this Agreement
arises and that it has no further inquiry it desires to make. Owner further
warrants and represents that it is not relying on any other entity to contribute
the financial wherewithal to Operator to carry out its obligations, duties,
Liabilities and undertakings, and that no oral representations have been made as
to other financial support of Operator by any party or entity. Owner is thus
solely relying on the financial ability of Operator.
SECTION 12.4 AFFILIATES. It is agreed and understood among and between
the parties hereto that the Affiliates of Operator may provide services for a
fee to Operator and that the provision of such services for a fee and the
actions taken in providing such services shall in no manner be construed to
constitute the undertaking by such Affiliate of any obligation, duty, or
Liability of Operator or Owner under the terms of this Agreement or any other
relationship existing between Operator and Owner, unless specifically set forth
in a document executed by the party to be charged with such obligation, duty, or
Liability.
SECTION 12.5 EXPENSE. Operator and Owner shall be responsible for the
payment of their respective legal, financial advisor and accounting fees, and
any other expenses incurred by them in connection with this Agreement and the
transactions contemplated thereby.
SECTION 12.6 CONFIDENTIALITY. Operator and Owner shall each keep all
information and reports obtained from the other or relating to the Stores, this
Agreement, the other's Intellectual Property and the transactions contemplated
hereby confidential and will not disclose any such confidential information to
any other person or entity without obtaining the prior written consent of the
party from whom the confidential information was obtained; provided, that either
party may disclose such information (i) to its legal counsel banks and bank
appraisers, employees or Affiliates, but only to the extent such persons are
bound to maintain the confidentiality thereof and (ii) as may be required by
law. Each party hereto acknowledges the value and goodwill associated with the
other's Intellectual Property and agrees that each parties' Intellectual
Property and all rights therein and the good will pertaining thereto belong
exclusively to the respective party. Each party also agrees that its every use
of the other's Intellectual Property shall inure to the benefit of the owner of
such Intellectual Property and that neither party shall acquire nor claim any
rights in the Intellectual Property of the other party by virtue of any such
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use. The Agreements set forth in this SECTION 12.6 shall survive the termination
of this Agreement.
SECTION 12.7 ASSIGNMENT. The obligations, rights and interests of Owner
under this Agreement may only be assigned with the prior written consent of
Operator. The obligations, rights and interests of Operator under this Agreement
may only be assigned with the prior written consent of Owner, which consent may
not be unreasonably withheld or delayed; provided, however, Operator may assign
this Agreement to an Affiliate of Operator without any consent of Owner.
SECTION 12.8 NOTICES. Any notice, request, demand, waiver, consent,
approvals or other communication which is required or permitted to be given to
any party hereunder shall be in writing and shall be deemed given only if
delivered to the party personally or sent to the party by telecopy, telegram
(followed by hard copy sent by registered or certified mail) or by registered,
certified or overnight mail or courier service (return receipt requested) with
postage and registration or certification fees thereon prepaid, addressed to the
party at its address set forth below:
Operator: Carl Karcher Enterprises, Inc.
1200 North Harbor Boulevard
P.O. Box 4349
Anaheim, California 92803-4349
Attn: Robert A. Wilson, Esq.
Fax No.: (714) 520-4485
with a copy to: McDermott, Will & Emery
1301 Dove Street, Suite 500
Newport Beach, California 92660
Attn: John B. Miles, Esq.
Fax No.: (714) 851-9348
Owner: Rally's Hamburgers, Inc.
10002 Shelbyville Road
Louisville, Kentucky 40223
Attn: Mr. Evan Hughes
Fax No.: (502) 254-5232
with a copy to: Christensen, White, Miller,
Fink & Jacobs
2121 Avenue of the Stars,
18th Floor
Los Angeles, California 90067
Attn: Roger H. Howard, Esq.
Fax No.: (310) 556-2920
Any such notice sent by registered or certified mail shall be deemed to have
been duly give three (3) business days after it is
28
<PAGE> 33
so addressed and mailed with postage prepaid. Any such notice personally
delivered or sent by telecopy or telegram shall be deemed to have been duly
given on the day such notice is sent. Any notice sent by any other manner shall
be effective only upon actual receipt thereof. Any party may change its address
for the purposes of this Agreement by giving notice to the other party as
provided in this SECTION 12.8.
SECTION 12.9 INCORPORATION OF SCHEDULES. Each of the Schedules referred
to in the Agreement is incorporated into this Agreement by this reference. In
the event of inconsistency between the text of this Agreement and the Schedules,
the text of this Agreement shall control.
SECTION 12.10 COMPLETE AGREEMENT. This Agreement contains all of the
agreements and understandings of the parties hereto with respect to the subject
matter hereof, and all prior or contemporaneous agreements, prior negotiations
or discussions, representations or understandings, oral or written, shall be
merged into this Agreement.
SECTION 12.11 AMENDMENT OF AGREEMENT. This Agreement may not be renewed
or extended, and no provision of this Agreement may be amended or supplemented,
except by an agreement in writing signed by the parties hereto or their
respective successors in interest and expressly stating that it is a renewal,
extension or amendment of this Agreement, as the case may be.
SECTION 12.12 ATTORNEYS' FEES. In any proceeding (arbitration or
otherwise) or action between Owner and Operator seeking enforcement of any term
or provision of this Agreement, the prevailing party in such action or
proceeding shall be awarded its reasonable costs and expenses, including,
without limitation, reasonable attorneys' fees, court costs and disbursements,
in addition to any other relief that may be granted.
SECTION 12.13 THIRD-PARTY BENEFICIARIES. This Agreement and each
provision of this Agreement is for the exclusive benefit of the parties to this
Agreement and not for the benefit of any third party.
SECTION 12.14 SUCCESSORS AND ASSIGNS. Every provision of this Agreement
shall inure to the benefit of and shall be binding upon the permitted successors
and assigns of Owner and Operator.
SECTION 12.15 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California without regard to the
conflicts of laws provisions thereof.
29
<PAGE> 34
SECTION 12.16 SEVERABILITY. If any provision of this Agreement is held
illegal, invalid or unenforceable by a court of competent jurisdiction, that
provision will be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and enforceable.
Should any provision of this Agreement require judicial interpretation, it is
agreed that the court interpreting or considering same shall not apply the
presumption that the terms hereof shall be more strictly construed against a
party by reason of the rule or conclusion that a document should be construed
more strictly against the party who itself or through its agent prepared the
same. It is agreed and stipulated that all parties hereto have participated
equally in the preparation of this Agreement and that legal counsel was
consulted by each party before the execution of this Agreement.
SECTION 12.17 CAPTIONS. The captions used in this Agreement are for
convenience only and are not a part of this Agreement and do not in any way
limit, amplify or explain any of the provisions of this Agreement.
SECTION 12.18 REFERENCES TO ARTICLES AND SECTIONS. All uses of the
words "Article" and "Section" in this Agreement are references to an article and
section of this Agreement, unless otherwise specified.
SECTION 12.19 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be an original but all of which shall
constitute one and the same instrument.
SECTION 12.20 EXECUTION OF OTHER DOCUMENTS. To the extent necessary to
carry out the intent of this Agreement, Owner and Operator agree to execute any
and all other documents as reasonably necessary to facilitate the orderly
operation of the Stores by Operator.
SECTION 12.21 DUE DATES. In the event that the due date hereunder for
the delivery of any document and/or payment falls on a weekend day or a holiday,
such document and/or payment shall be delivered on the immediately succeeding
business day.
[SIGNATURE PAGE FOLLOWS]
30
<PAGE> 35
IN WITNESS WHEREOF, Owner and Operator have executed this Operating
Agreement as of the date first written above.
"OWNER"
RALLY'S HAMBURGERS, INC.,
a Delaware corporation
By: /s/ Donald E. Doyle
----------------------------
Its: President and CEO
------------------------
"OPERATOR"
CARL KARCHER ENTERPRISES, INC.,
a California corporation
By: /s/ Joseph N. Stein
---------------------------
Its: CFO
-----------------------
31
<PAGE> 1
EXHIBIT 10.44
AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement ("First Amendment"), dated
as of March 31, 1996, by and between CARL KARCHER ENTERPRISES, INC., a
California corporation (the "Company") and C. THOMAS THOMPSON (the "Executive").
WITNESSETH:
WHEREAS, the parties hereto made and entered into a written Employment
Agreement, dated November 8, 1994 ("Agreement");
WHEREAS, the parties hereto desire, and it is in the best interests of
each party, to amend the Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and obligations hereinafter set forth, the parties agree as follows:
1. Paragraph 3, EMPLOYMENT TERM, is amended to extend the Employment
Term from October 31, 1996 until the close of business on March 31, 1999.
2. Paragraph 4, COMPENSATION, is amended as follows:
a. BASE COMPENSATION. Commencing April 1, 1996, and subject to
the other provisions of this First Amendment, the Company shall pay the
Executive an annual base salary as compensation for his services hereunder of
$285,000 ("Base Salary"), payable in equal installments not less often than once
in each calendar month. The Base Salary shall be increased to $325,000 for the
fiscal year ending January 26, 1998 if the Executive earns a bonus of $150,000
or greater for the fiscal year ending January 27, 1997. The Base Salary shall be
increased to $350,000 for the fiscal year ending January 25, 1999 if the
Executive earns a bonus of $150,000 or greater for the fiscal year ending
January 26, 1998.
b. BONUS. In addition to the current bonus for the Second Year
provided for under the Agreement, Executive shall be entitled to a one time cash
bonus based on performance criteria specified by the Company's Compensation
Committee. During the extended Employment Term, Company also shall pay
Executive, as additional compensation, an annual bonus based on performance
criteria specified by the Company's Compensation Committee.
c. VACATION. During each of the remaining calendar years of
the Employment Term, the Executive shall be entitled to four (4) weeks of paid
vacation time.
<PAGE> 2
3. Paragraph 5, REIMBURSEMENT OF EXPENSES INCURRED IN PERFORMANCE OF
EMPLOYMENT, is amended by adding the following new sentence following the second
sentence of the second paragraph, ending with "temporary housing allowance of
$2,000 per month," and deleting the balance of the paragraph:
"If during the Employment Term the Executive relocates his primary
residence to Southern California (defined as Los Angeles County and south), the
$2,000 per month payable as a temporary housing allowance will be added to
Executive's Base Salary."
4. Except as specifically set forth above, the Agreement and the terms
and conditions thereof, will remain in full force and effect. From and after the
date of execution of this First Amendment, all references to the Agreement shall
be deemed to be references to the Agreement as amended hereby.
IN WITNESS WHEREOF, the parties have executed this First Amendment on
the day and year first above written.
CARL KARCHER ENTERPRISES, INC., EXECUTIVE
a California corporation
/s/ Robert A. Wilson /s/ C. Thomas Thompson
- ------------------------------- -------------------------
By: Robert A. Wilson C. Thomas Thompson
Its: Vice President and General Counsel
<PAGE> 1
EXHIBIT 10.45
EMPLOYMENT AGREEMENT
CKE RESTAURANTS, INC.
AGREEMENT, dated as of January 24, 1996 by and between CKE RESTAURANTS,
INC., a California corporation (the "Company") and Robert E. Wheaton (the
"Executive") presently residing at 4716 East Valley Vista Lane, Paradise Valley,
Arizona 85253.
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 Executive Vice President of Finance 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 Chief Executive Officer and the President 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 Executive Vice President of Finance. The Executive shall devote
the Executive's full time and best efforts to the business affairs of the
Company; however, with the approval of the Board of Directors, the Executive may
devote reasonable time and attention to:
(i) serving as a director or member of a committee of
any non-for-profit organization or engaging in other
charitable or community activities;
(ii) upon approval of the Board of Directors, serving
as a director of a corporation or as a member of a committee
of an organization;
(iii) managing 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.
3. EMPLOYMENT TERM. The Executive shall be employed under this
<PAGE> 2
Agreement for a term of two (2) years from the date of execution of this
Agreement, (the "Employment Term") commencing on the date hereof and terminating
on the close of business on January 24, 1998, unless sooner terminated as
provided in paragraphs 6, 7, 8, 9 or 10. Said contract shall automatically renew
each year for an additional one year term unless the Company notifies Executive
that it is terminating this renewal prior to January 23rd of such year. If the
Company so informs Executive, this Agreement shall terminate one year from the
January 23rd following or upon which the Company so informs Executive.
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 $200,000 (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 Chief Executive Officer or President.
4.d. BENEFITS. During the Employment Term, the Executive shall
be entitled to participate in all pension, profit sharing and other retirement
plans, all inventive 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 physical examination by a physician
selected by the Company. The cost of said examination shall be borne by the
Company.
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 Phoenix, Arizona 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 reasonably
incurred out-of-pocket travel expenses not to exceed $2,000 per month for the
first twelve (12) months of Executive's employment hereunder. Should Executive
decide to relocate to Orange County California during the term of this
<PAGE> 3
Agreement, the Company shall reimburse Executive for his moving expenses not to
exceed $5,000.
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 this 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, his Base Salary for the balance of the Employment Term (which shall
not exceed two (2) years) 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 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 Chief Executive Officer or President 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 Chief Executive Officer and President.
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 is
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.
<PAGE> 4
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 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 constitutes 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
<PAGE> 5
whom he proposes 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.
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 he 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
of 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 President 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 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
<PAGE> 6
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.
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 of any other term or condition. This Agreement is intended to
be performed in accordance with, and
<PAGE> 7
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.
CKE RESTAURANTS, INC.
By: /s/ C. Thomas Thompson
----------------------------------
Its: President
---------------------------------
EXECUTIVE
/s/ Robert E. Wheaton
------------------------------
Robert E. Wheaton
<PAGE> 1
EXHIBIT 11
CKE RESTAURANTS, INC.
CALCULATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
----------------------
May 20, May 22,
1996 1995
-------- --------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income $ 5,333 $ 1,915
======== ========
Weighted average number of common shares outstanding
during the period 18,571 18,255
Incremental common shares attributable to
exercise of outstanding options 378 15
Repurchase of shares -- (72)
-------- --------
Total shares 18,949 18,198
======== ========
Primary earnings per share $ .28 $ .11
======== ========
FULLY DILUTED EARNINGS PER SHARE
Net income $ 5,333 $ 1,915
======== ========
Weighted average number of common shares outstanding
during the period 18,571 18,255
Incremental common shares attributable to
exercise of outstanding options 538 16
Repurchase of shares -- (72)
-------- --------
Total shares 19,109 18,199
======== ========
Fully diluted earnings per share $ .28 $ .11
======== ========
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CKE
RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
INCOME AS OF AND FOR THE SIXTEEN WEEKS ENDED MAY 20, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MAY
20, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JAN-27-1997
<PERIOD-START> JAN-30-1996
<PERIOD-END> MAY-20-1996
<CASH> 16,712
<SECURITIES> 2,507
<RECEIVABLES> 13,676
<ALLOWANCES> 0
<INVENTORY> 7,208
<CURRENT-ASSETS> 49,338
<PP&E> 280,098
<DEPRECIATION> 156,793
<TOTAL-ASSETS> 246,335
<CURRENT-LIABILITIES> 62,700
<BONDS> 0
0
0
<COMMON> 193
<OTHER-SE> 106,362
<TOTAL-LIABILITY-AND-EQUITY> 246,335
<SALES> 129,510
<TOTAL-REVENUES> 152,934
<CGS> 101,925
<TOTAL-COSTS> 142,858
<OTHER-EXPENSES> (1,274)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,595
<INCOME-PRETAX> 8,755
<INCOME-TAX> 3,422
<INCOME-CONTINUING> 5,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,333
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
