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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER: 1-13192
CKE RESTAURANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0602639
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 NORTH HARBOR BOULEVARD
ANAHEIM, CALIFORNIA 92801
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-5796
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(TITLE OF EACH CLASS) NAME OF EACH EXCHANGE ON WHICH REGISTERED:
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 31, 1996 was $211,965,890.
The number of shares outstanding of the registrant's common stock, as of March
31, 1996 was 18,587,970.
Portions of the registrant's Proxy Statement for the 1996 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission
within 120 days after January 29, 1996, are incorporated by reference into Part
III of this Registration Statement.
The Exhibit Index is contained in Part IV herein on Page E-1.
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CKE RESTAURANTS, INC. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 29, 1996
PART I
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Item 1. Business.................................................................................. 1
Item 2. Properties................................................................................ 7
Item 3. Legal Proceedings......................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders....................................... 9
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters..................... 9
Item 6. Selected Financial Data................................................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 10
Item 8. Financial Statements and Supplementary Data............................................... 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................................................... 16
PART III
Item 10. Directors and Executive Officers of the Registrant........................................ 16
Item 11. Executive Compensation.................................................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 16
Item 13. Certain Relationships and Related Transactions............................................ 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 17
</TABLE>
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS FORM 10-K UNDER "ITEM 1. BUSINESS," "ITEM 3. LEGAL
PROCEEDINGS," "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS FORM 10-K CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND THE SECURITIES ACT OF 1934. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE, OR ACHIEVEMENTS OF CKE RESTAURANTS, INC. ("CKE" AND
COLLECTIVELY WITH ITS SUBSIDIARIES, THE "COMPANY") TO BE MATERIALLY DIFFERENT
FROM ANY FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY
SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE
FOLLOWING: GENERAL ECONOMIC AND BUSINESS CONDITIONS; THE IMPACT OF COMPETITIVE
PRODUCTS AND PRICING; SUCCESS OF OPERATING INITIATIVES; DEVELOPMENT AND
OPERATING COSTS; ADVERTISING AND PROMOTIONAL EFFORTS; ADVERSE PUBLICITY;
ACCEPTANCE OF NEW PRODUCT OFFERINGS; CONSUMER TRIAL AND FREQUENCY; AVAILABILITY,
LOCATIONS, AND TERMS OF SITES FOR RESTAURANT DEVELOPMENT; CHANGES IN BUSINESS
STRATEGY OR DEVELOPMENT PLANS; QUALITY OF MANAGEMENT; AVAILABILITY, TERMS, AND
DEPLOYMENT OF CAPITAL; THE RESULTS OF FINANCING EFFORTS; BUSINESS ABILITIES AND
JUDGMENT OF PERSONNEL; AVAILABILITY OF QUALIFIED PERSONNEL; FOOD, LABOR, AND
EMPLOYEE BENEFIT COSTS; CHANGES IN, OR THE FAILURE TO COMPLY WITH, GOVERNMENT
REGULATIONS; WEATHER CONDITIONS; CONSTRUCTION SCHEDULES; RISKS THAT SALES GROWTH
RESULTING FROM THE COMPANY'S CURRENT AND FUTURE REMODELING AND DUAL-BRANDING OF
RESTAURANTS CAN BE SUSTAINED AT THE CURRENT LEVELS EXPERIENCED; AND OTHER
FACTORS REFERENCED IN THIS FORM 10-K.
ITEM 1. BUSINESS
GENERAL
CKE Restaurants, Inc. ("CKE" and collectively with its subsidiaries, the
"Company"), is a Delaware corporation formed in 1994 that is engaged primarily
in the food service industry. The Company's restaurant operations are conducted
through its two wholly-owned subsidiaries, Carl Karcher Enterprises, Inc.
("Enterprises") and Boston Pacific, Inc. ("Boston Pacific").
Enterprises, the predecessor entity of CKE, commenced operations in the
mid-1950s and continues to operate, franchise and license the Carl's Jr.(R)
quick-service restaurant concept, principally in the Western United States,
Mexico and the Pacific Rim. As of January 29, 1996, there were a total of 667
Carl's Jr. restaurants in operation, of which 394 were operated by Enterprises,
239 were operated by its franchisees and 34 were operated by its international
licensees.
Boston Pacific holds a minority interest in Boston West, L.L.C. ("Boston
West"), which operates Boston Market franchises under an area development
agreement with Boston Chicken, Inc. ("BCI"). The area development agreement
allows Boston West the rights to develop, own and operate up to 300 Boston
Market stores, primarily in Southern California. As of January 29, 1996, a total
of 54 Boston Market stores were opened under the area development agreement with
BCI, the first of which commenced operations in July 1994.
CKE's principal executive offices are located at 1200 North Harbor
Boulevard, Anaheim, California 92801. Its telephone number is (714) 774-5796.
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CARL'S JR. RESTAURANTS
COMPANY OPERATIONS
The Company believes that it is one of the innovators in the quick-service
restaurant industry. A variety of products that have a strong reputation for
quality and taste are offered in its Carl's Jr. restaurants, along with
comfortable dining rooms and partial table service. The Company was among the
first to offer self-service salad bars, all-you-can-drink beverage bars and the
convenience of an automated debit card for payment of a meal. The Carl's Jr.
menu is relatively uniform throughout the chain and features several charbroiled
hamburgers and chicken sandwiches, including the Famous Big Star, Western Bacon
Cheeseburger(R), Super Star(R), Charbroiler Chicken Sandwiches(R) and the new
Crispy Chicken Sandwiches, which were introduced during the current fiscal year.
Other entrees include a fish sandwich, several baked potatoes and prepackaged
salads. Side orders, such as french fries, onion rings and fried zucchini are
also offered. Most restaurants also have a breakfast menu including eggs, bacon,
sausage, French Toast Dips(R), the Sunrise Sandwich(R) and a breakfast burrito.
In addition, the restaurants sell a variety of promotional products on a limited
basis.
The Company strives to maintain high standards in all materials used by its
restaurants as well as the operations related to food preparation, service and
cleanliness. Hamburgers and chicken sandwiches at Carl's Jr. restaurants are
generally prepared or assembled after the customer has placed an order and
served promptly. Hamburger patties and chicken breasts are charbroiled in a
gas-fired double broiler that sears the meat on both sides. The meat is conveyed
through the broiler automatically to maintain uniform heating and cooking time.
Each Company-operated restaurant is operated by a manager who has received
13 to 17 weeks of management training. This training program involves a
combination of classroom instruction and on-the-job training in specially
designated training restaurants. Other restaurant employees are trained by the
restaurant manager in accordance with Company guidelines. Restaurant managers
are supervised by district managers, each of whom are responsible for 11 to 14
restaurants. Approximately 35 district managers are under the supervision of
four regional vice presidents, all of whom regularly inspect the operations in
their respective districts and regions.
In May 1995, the Company entered into a five-year agreement with GB Foods
Corporation, operator of The Green Burrito(R) quick-service restaurants. The
agreement calls for a minimum of 40 Carl's Jr./Green Burrito dual-brand
conversions in fiscal 1997, with up to 200 dual-brand restaurants over the next
five years. The Company is required to pay a $7,500 initial franchise fee for
each store opened and remit royalties on Green Burrito food sales to GB Foods
Corporation, pursuant to this agreement. This strategic opportunity allows the
Company to offer its customers more choices under one roof. In addition, Green
Burrito's Mexican menu matches the Carl's Jr. menu in terms of superior quality
and generous portions.
At year end, the Company elected to sub-franchise the Carl's Jr./Green
Burrito dual-brand to its franchise community. The Company anticipates 10
franchise dual-brand conversions in fiscal 1997. As of fiscal year end, the
Company has converted 22 Carl's Jr. restaurants to the Green Burrito
dual-concept. Sales in these dual-brand restaurants are averaging approximately
25% over same-store sales prior to the conversions.
FRANCHISED AND LICENSED OPERATIONS
The Company's franchise strategy is designed to further the development of
the Carl's Jr. chain and reduce the total capital required of the Company for
development of new restaurants. Franchise arrangements with franchisees, who
operate in Arizona, California, Nevada, Oregon and Utah, generally provide for
initial fees and continuing royalty payments to the Company based upon a
percentage of sales. Additionally, franchisees may purchase food, paper and
other supplies from the Company. Franchisees may also be obligated to remit
lease payments for the use of Company-owned or leased restaurant facilities.
Under the terms of these leases, they are generally required to pay related
occupancy costs, which include maintenance, insurance and property taxes.
The Company also receives notes from franchisees in connection with the
sales of Company-operated restaurants. During fiscal 1996, the Company sold
certain of its franchise notes receivable, with partial recourse, to an
independent third party for cash proceeds of approximately $8.4 million. The
remaining notes bear interest from 7.0% to 12.5%, mature in five to 15 years and
are secured by an interest in the restaurant equipment sold.
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The Company's franchising philosophy is such that only candidates with
appropriate experience are considered for the program. Specific net worth and
liquidity requirements must also be satisfied. Absentee ownership is not
permitted and franchise owners are encouraged to live within a one-hour drive of
their restaurants. Area development agreements generally require franchisees to
open a specified number of Carl's Jr. restaurants in a designated geographic
area within a specified time period. As of January 29, 1996, 239 Carl's Jr.
restaurants were operated by its franchisees.
In an effort to expand the Carl's Jr. presence internationally, Enterprises
has entered into nine exclusive licensing agreements that allow licensees the
use of the Carl's Jr. name and trademarks and provide for initial fees and
continuing royalties based upon a percent of sales. In May 1995, the Company
entered into a joint venture agreement with its Malaysia-based licensee, MBf
Holdings Berhad, under the terms of which a minimum of 130 Carl's Jr.
restaurants will be developed in 16 Asian countries over the next five years.
The Company will hold a 30% equity interest in this venture with no capital
outlays. As of January 29, 1996, there were 16 licensed restaurants in operation
in Mexico, one licensed restaurant in operation in Japan, five licensed
restaurants in operation in Malaysia, 10 sub-licensed restaurants in operation
in the Philippines and two sub-licensed restaurants in operation in Indonesia.
None of the Company's licensing agreements generated material royalties in the
fiscal year ended January 29, 1996.
DISTRIBUTION CENTERS
The Company operates a distribution center at its corporate headquarters in
Anaheim, California and a smaller distribution facility in Manteca, California.
Produce, frozen meat patties, dairy and other food and supply items, excluding
bakery products, are distributed to Company-operated Carl's Jr. restaurants,
generally twice a week. Many of these products are sold to franchisees and, in
some cases, to certain licensees.
INVESTMENT IN BOSTON MARKET FRANCHISE OPERATIONS
Boston Pacific holds a minority interest in Boston West, which operates
Boston Market franchise operations under the terms of an area development
agreement with BCI. BCI operates and franchises food service stores in the
fast-growing home meal replacement category of the food service industry, a
category that combines appealing meals associated with traditional home cooking
with the convenience and value associated with quick-service restaurants. The
area development agreement with BCI allows Boston West the rights to develop,
own and operate up to 300 Boston Market stores, primarily in Southern
California. (See Note 2 of Notes to Consolidated Financial Statements.)
Boston Markets feature rotisserie-roasted chicken, breast of turkey,
double-glazed baked ham and double-sauced meat loaf, fresh-baked chicken pot
pies, a variety of sandwiches, chicken soup and fresh vegetables, salads and
other side dishes, including mashed potatoes made from scratch, corn, stuffing
and creamed spinach, as well as beverages and desserts. The signature menu item
is chicken that is marinated and then slow-roasted in rotisserie ovens in full
view of the customer. All of these stores offer meals in a bright, inviting
retail setting and are staffed by friendly and knowledgeable salespeople.
The Company believes that the Boston Market concept, which provides the
freshness and flavor of home-style meals with a high level of convenience and
value, combined with the resurgence of the traditional family meal and the need
for convenience, has become very popular in many areas of the United States.
As of January 29, 1996, a total of 54 Boston Market stores were opened
under the area development agreement with BCI, the first of which commenced
operations in July 1994.
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RECENT DEVELOPMENTS
The Company and Summit Family Restaurants Inc. ("Summit") signed an
Agreement and Plan of Merger and Reorganization ("Merger Agreement") dated as of
November 30, 1995, amended as of January 24, 1996 and further amended as of
April 2, 1996. Under the terms of the Merger Agreement, as amended, CKE acquired
from ABS MB (JB) Limited Partnership 946,714 shares of Series A Convertible
Preferred Stock of Summit on April 4, 1996 at a purchase price of $5.27 per
share in cash, and will complete the acquisition of Summit in a merger
transaction in which all 4,805,902 shares of Summit common stock (other than
dissenting shares, if any) will be converted into $2.63 in cash and .165 shares
of CKE common stock (the "Summit Merger"). The number of shares of CKE common
stock to be issued in the Summit Merger remains subject to adjustment under
certain circumstances. The consummation of the Summit Merger is currently
expected to occur in May 1996, and remains subject to a number of conditions,
including Summit's shareholder approval and other customary conditions. The
total estimated purchase price of this transaction is approximately $30.3
million. (See Note 21 of Notes to Consolidated Financial Statements.)
Summit operates restaurants under three concepts: 77 company-operated and
24 franchised family style JB's Restaurants; six Galaxy Diner restaurants, which
is a promising new 50's diner concept; and 16 HomeTown Buffet restaurants, which
are operated by Summit as a franchisee.
SOURCES OF RAW MATERIALS
The Company's ability to maintain consistent quality depends in part upon
its ability to acquire and distribute food products, restaurant equipment,
signs, fixtures and supplies from reliable sources in accordance with Company
specifications. The Company, its franchisees and its licensees have not
experienced any material shortages of these items which the Company purchases
from numerous independent suppliers. Alternate sources of these items are
generally available.
TRADEMARKS AND PATENTS
The Company has registered trademarks and service marks which are of
material importance to the Company's business, including Carl's Jr.(R), the
Happy Star(R) logo and proprietary names for a number of the Carl's Jr. menu
items. The Green Burrito(R) is a registered trademark of GB Foods Corporation.
SEASONALITY
The Company's business is moderately seasonal. Average restaurant sales are
normally higher in the summer months than during the winter months.
WORKING CAPITAL PRACTICES
Historically, current assets included marketable securities and restaurant
property costs to be sold and leased back. Subsequent to January 25, 1993, as
part of its strategic initiatives, the Company began liquidating a significant
portion of its investment portfolio, using the proceeds to repay its borrowings
under the Company's revolving credit line. The sale/leaseback program has not
been emphasized during the last three fiscal years, and thus existing
inventories of restaurant property costs to be sold and leased back were
significantly reduced in fiscal 1994. Currently, the Company is utilizing cash
flows from operations to fund the expansion of new Carl's Jr. restaurants, the
remodeling of its restaurants under the Company's image enhancement program and
the conversion of its dual-concept restaurants.
The Company does not carry significant amounts of inventory, experience
material returns of merchandise, or generally provide extended payment terms to
its franchisees or licensees. Cash from operations, along with cash,
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cash equivalents and marketable securities on hand, and a combination of
proceeds from its revolving credit line and borrowings from other banks or
financial institutions should enable the Company to meet its financing
requirements.
CUSTOMERS
No material part of the Company's business is dependent upon a single
customer or a few customers.
BACKLOG
Backlog orders are not material to the Company's business.
GOVERNMENT CONTRACTS AND REGULATIONS
The Company has no material contracts with the United States government or
any of its agencies.
The restaurant industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and those relating to building and zoning requirements. The Company and its
franchisees are also subject to laws governing their relationship with
employees, including minimum wage requirements, overtime, working and safety
conditions and citizenship requirements. The Company is also subject to
regulation by the FTC and certain state laws which govern the offer and sale of
franchises. Many state franchise laws impose substantive requirements on the
franchise agreement, including limitations on noncompetition provisions and on
provisions concerning the termination or nonrenewal of a franchise. Some states
require that certain materials be registered before franchises can be offered or
sold in that state. The failure to obtain or retain food licenses or approvals
to sell franchises, or an increase in the minimum wage rate, employee benefit
costs (including costs associated with mandated health insurance coverage) or
other costs associated with employees could adversely affect the Company and its
franchisees.
COMPETITION
The food service industry is intensely competitive with respect to the
quality and value of food products offered, concept, quality of service, price,
dining experience and location. The Company primarily competes with major
restaurant chains which dominate the quick-service restaurant industry, and also
competes with a variety of other take-out food service companies and fast-food
restaurants. The Company's competitors also include a variety of mid-price,
full-service casual dining restaurants, traditional self-service buffet and
other soup and salad restaurants, healthful and nutrition-oriented restaurants,
delicatessens, and prepared food stores, as well as supermarkets and convenience
stores. Many of the Company's competitors have a more established market
presence and have substantially greater financial, marketing and other resources
than the Company, which may give them certain competitive advantages. Certain of
the major quick-service restaurant chains have increasingly offered selected
food items and combination meals, temporarily or permanently, at discounted
prices. Changes in the pricing or other marketing strategies of one or more of
the Company's competitors could have an adverse impact on the Company's sales
and earnings in affected markets. As the Company's competitors expand operations
in various geographic areas, competition can be expected to intensify. Such
increased competition could increase the Company's operating costs or adversely
affect its revenues.
The Company believes that its particular emphasis on higher quality foods
that appeal to a broad consumer base allows the Company to compete effectively
with significantly larger quick-service restaurant chains. Careful attention to
dining accommodations, including periodic upgrading of existing facilities, also
plays an important role.
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RESEARCH AND DEVELOPMENT
The Company maintains a test kitchen for its Carl's Jr. operations at its
headquarters in which new products and production concepts are developed on an
ongoing basis. In addition, the Company is currently testing a number of
dual-concepts which include the sale of other branded products from within
Carl's Jr. restaurants. While these efforts are critical to the Company, amounts
expended for these activities are not considered material. There are no
customer-sponsored research and development activities.
ENVIRONMENTAL MATTERS
Compliance with federal, state and local environmental provisions
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment did not have a material effect on capital
expenditures, earnings or the competitive position of the Company in fiscal
1996. The Company cannot predict the effect on its operations from possible
future legislation or regulation.
EMPLOYEES
The Company employs approximately 11,100 persons, of whom approximately
10,300 are hourly restaurant, distribution or clerical employees, and
approximately 800 are managerial, salaried employees engaged in administrative
and supervisory capacities. A majority of the hourly employees are employed on a
part-time basis to provide service necessary during peak periods of restaurant
operations.
None of the Company's employees are currently covered by a collective
bargaining agreement. The Company has never experienced a work stoppage
attributable to labor disputes and believes its employee relations to be good.
The Company is subject to the Fair Labor Standards Act, which governs such
matters as minimum wage requirements, overtime and other working conditions. A
large portion of the Company's food service personnel are paid at a minimum wage
level and, accordingly, increases in the federal or state minimum wage affect
the Company's labor costs. The California minimum wage is currently $4.25 and is
equal to the established federal minimum wage.
EXECUTIVE OFFICERS
The executive officers of the Company as of the date of this filing are
listed below.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
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<S> <C> <C>
William P. Foley II 51 Chief Executive Officer and Chairman of the Board of Directors
C. Thomas Thompson 46 President and Chief Operating Officer
Robert E. Wheaton 43 Executive Vice President
Richard C. Celio 45 Senior Vice President, Development
Rory J. Murphy 48 Senior Vice President, Restaurant Operations
Loren C. Pannier 54 Senior Vice President, Purchasing/Distribution
Joseph N. Stein 35 Senior Vice President, Chief Financial Officer
Robert W. Wisely 50 Senior Vice President, Marketing
Carl A. Arena 42 Vice President, Real Estate
Robert A. Wilson 36 Vice President, General Counsel and Secretary
</TABLE>
William P. Foley II became Chief Executive Officer in October 1994,
Chairman of the Board of Directors in March 1994, and has served as a director
since December 1993. Since 1981, Mr. Foley has been Chairman of the Board and
Chief Executive Officer of Fidelity National Financial, Inc., a holding company
engaged in title insurance and related services.
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C. Thomas Thompson was appointed President and Chief Operating Officer in
October 1994. Mr. Thompson has been a franchisee of Enterprises since 1984.
Robert E. Wheaton became Executive Vice President in January 1996. Mr.
Wheaton served as Vice President and Chief Financial Officer of Denny's, Inc., a
subsidiary of Flagstar Corporation, from April 1995 to January 1996. From 1991
to 1995, Mr. Wheaton served as President and Chief Executive Officer, and from
1989 to 1991 as Vice President and Chief Financial Officer, of The Bekins
Company.
Richard C. Celio was appointed to his current position in February 1996.
Mr. Celio joined the Company as Vice President, General Counsel in January 1989
and was promoted to Senior Vice President in July 1995. Prior to joining the
Company, he was an attorney at law and partner of the law firm of Holden, Fergus
& Celio for seven years, a firm which provided various legal services to, and
acted as General Counsel for the Company.
Rory J. Murphy has been Senior Vice President, Restaurant Operations for
the past three years. He has been employed by the Company in various positions
for 17 years.
Loren C. Pannier was appointed to his current position in January 1996.
Prior to January 1996, Mr. Pannier served as Treasurer since May 1995 and as
Chief Financial Officer from 1980 to May 1995. Mr. Pannier has been a Senior
Vice President since 1980 and he has been employed by the Company for 24 years.
Joseph N. Stein was appointed Chief Financial Officer in May 1995. Mr.
Stein served as Senior Vice President and Director of National Agency Operations
of Fidelity National Title Insurance Company from April 1990 to May 1995 and as
a Certified Public Accountant with KPMG Peat Marwick LLP from July 1985 to April
1990.
Robert W. Wisely has been Senior Vice President, Marketing since January
1995. Mr. Wisely has been a franchisee of Enterprises since 1990. Prior to 1990,
Mr. Wisely served as Senior Vice President, Marketing from 1985 to 1990 and as
Group Vice President, Marketing from 1974 to 1979.
Carl A. Arena was promoted to his current position in July 1995 and had
previously served as the Director of Real Estate since 1987. Prior to joining
the Company in 1987, Mr. Arena was a real estate acquisition officer with
Security Pacific National Bank in Los Angeles, California.
Robert A. Wilson became Vice President, General Counsel and Secretary in
February 1996. Mr. Wilson served as Senior Litigation Counsel of Fidelity
National Title Insurance Company from August 1995 to February 1996 and as an
attorney at law with Stradling, Yocca, Carlson & Rauth from October 1987 to
March 1994 and from January 1995 to August 1995. From March 1994 to January
1995, Mr. Wilson served as General Counsel for Orchids Paper Products Company.
ITEM 2. PROPERTIES
Most Carl's Jr. restaurants are freestanding, ranging in size from 2,500 to
4,000 square feet, with a seating capacity of 65 to 115 persons. Some
restaurants are located in shopping malls and other in-line facilities.
Currently, several building plan types are in use system-wide, depending upon
operational needs. Most restaurants are constructed with drive-thru facilities.
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A majority of Company-operated restaurants are leased from others. The
following table sets forth the types of real estate interests that the Company
had in its sites in operation at January 29, 1996:
<TABLE>
<CAPTION>
Type of Interest
<S> <C>
Lease land and building........................................ 347
Lease land only (building owned)............................... 22
Lease building only (land owned)............................... 1
Own land and building.......................................... 24
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394
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</TABLE>
The Company subleases certain sites to its franchisees and owns an
additional 33 restaurant properties which are leased primarily to franchisees.
The terms of the Company's leases or subleases generally range between
three and 35 years and expire at various dates through 2026. The expiration of
these leases is not expected to have a material impact on the Company's
operations in any particular year as the expiration dates are staggered over a
number of years and many of the leases contain renewal options.
Once a potential restaurant site is identified, the Company's real estate
personnel either seek to negotiate with the owner to construct a restaurant to
the Company's specifications and enter into a long-term lease of the premises,
or purchase the site. Spaces for restaurants in shopping malls and in-line
buildings are typically leased and developed to the Company's specifications
with the Company owning the leasehold improvements. The Company generally
performs the construction management function while utilizing outside general
contractors to construct its buildings.
The following table summarizes the California, Arizona, and Oregon regions
in which the Company's Carl's Jr. restaurants are located:
<TABLE>
<CAPTION>
<S> <C>
Los Angeles and Orange County............................ 262
Sacramento............................................... 37
San Diego................................................ 38
Fresno................................................... 25
Bakersfield.............................................. 9
Santa Maria/San Luis Obispo.............................. 8
San Francisco............................................ 1
Tucson, Arizona.......................................... 11
Portland, Oregon......................................... 3
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394
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</TABLE>
The Company's corporate headquarters and distribution center, located in
Anaheim, California, are leased and occupy approximately 78,000 and 102,000
square feet, respectively. The Manteca, California distribution facility has
42,000 square feet and is owned by the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time the subject of complaints, threat letters
or litigation from guests alleging illness, injury or other food quality, health
or operational concerns. Adverse publicity resulting from such allegations may
materially adversely affect the Company and its restaurants, regardless of
whether such allegations are valid or whether the Company is liable. The Company
also is the subject of complaints or allegations from former or prospective
employees from time to time. The Company believes that the lawsuits, claims and
other legal matters to which it has become subject in the course of its business
are not material to the Company's financial position or results of operations,
but an existing or future lawsuit or claim could result in an adverse decision
against the Company that could materially and adversely affect the Company or
its business.
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On December 19, 1995, Giant Group, Ltd., a Delaware corporation, filed an
action in the U.S. District court against William P. Foley II, the Company's
Chairman of the Board and Chief Executive Officer, Fidelity National Financial,
Inc., the Company and certain other individuals alleging that the defendants
have engaged in various unlawful activities, including trading on non-public
confidential information and violating the disclosure requirements of Section
13(d) of the Securities Exchange Act of 1934, in connection with purchases of
shares of Giant Group by Fidelity National Financial, Inc. and Mr. Foley. The
Company did not purchase, does not own, and has no intention to purchase or own
any Giant Group shares. The Company believes the allegations in the complaint to
be totally without merit and intends to defend this action vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of April 25, 1994, shares of the Company's Common Stock were traded on
the New York Stock Exchange under the symbol "CKR." Prior to that date, the
Company's Common Stock was regularly quoted on the NASDAQ National Market System
under the symbol "CARL." At January 29, 1996, there were approximately 1,900
record holders of the Company's Common Stock. The high and low closing prices,
during each quarter, for the last two fiscal years were as follows:
<TABLE>
<CAPTION>
QUARTER 1ST 2ND 3RD 4TH
------- --- --- --- ---
<S> <C> <C> <C> <C>
Fiscal 1996
High........................................... $ 8 1/8 $11 1/4 $15 7/8 $17 7/8
Low............................................ 6 3/8 7 3/8 11 3/4 14 3/8
Fiscal 1995
High........................................... $14 $10 1/2 $ 9 1/8 $ 8 3/8
Low............................................ 10 1/8 7 5/8 7 3/4 6 5/8
</TABLE>
During fiscal 1996 and 1995 the Company paid two consecutive semi-annual
dividends of $.04 per share of Common Stock, for a total of $.08 per share.
9
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with the
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Form 10-K.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RESTAURANT DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OR AS OF JANUARY 31, (1)
-------------------------------------------------------
1996 1995 1994(2) 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
System-wide sales:
Company-operated (3)........................... $393,486 $370,045 $384,859 $417,268 $469,736
Franchised..................................... 175,716 178,428 190,434 184,658 138,664
Licensed....................................... 18,268 22,742 18,780 17,451 9,535
-------- -------- -------- -------- --------
Total system-wide sales...................... $587,470 $571,215 $594,073 $619,377 $617,935
======== ======== ======== ======== ========
Revenues (3)..................................... $465,437 $443,747 $463,494 $505,390 $543,908
Income (loss) before cumulative effect of
changes in accounting principles............... 10,952 1,264 4,433 (3,057) 13,038
Net income (loss)................................ 10,952 1,264 3,665 (5,507) 13,038
Income (loss) per share before cumulative
effect of changes in accounting principles..... .59 .07 .24 (.17) .72
Net income (loss) per share...................... .59 .07 .20 (.31) .72
Cash dividends paid per common share (4)......... .08 .08 .08 .08 .08
Total assets .................................... 246,759 244,361 242,135 268,924 294,375
Long-term debt, including capital lease
obligations.................................... 70,554 69,869 63,300 80,254 102,074
Stockholders' equity............................. $101,189 $ 88,474 $ 92,076 $ 84,732 $ 89,679
Ratio of debt to equity (5)...................... 0.8x 0.9x 0.9x 1.3x 1.5x
Number of restaurants at year end:
Company-operated (6)........................... 394 383 376 379 414
Franchised .................................... 239 246 255 244 196
Licensed....................................... 34 31 17 19 12
-------- -------- -------- -------- --------
Total system-wide restaurants.................... 667 660 648 642 622
======== ======== ======== ======== ========
</TABLE>
- ----------------
(1) The Company's fiscal year is 52 or 53 weeks, ending the last Monday in
January. For clarity of presentation, all years are presented as if the
fiscal year ended January 31.
(2) Fiscal 1994 includes 53 weeks.
(3) Prior year amounts have been reclassified to conform with the fiscal 1996
presentation.
(4) During fiscal 1996 and 1995, the Company paid two consecutive semi-annual
dividends of $.04 per share of Common Stock, for a total of $.08 per share
per year. Prior to fiscal 1995, the Company paid four consecutive quarterly
dividends of $.02 per share of Common Stock, for a total of $.08 per share
per year.
(5) Debt, as defined in this computation, includes long-term debt, capital
lease obligations and their related current portions.
(6) The number of restaurants at year end for fiscal 1995 excludes 22 Boston
Market stores which were owned and operated by Boston Pacific under an area
development agreement with BCI. (See Note 2 of Notes to Consolidated
Financial Statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes and "Selected Financial
Data" included elsewhere in this Form 10-K.
10
<PAGE> 13
OVERVIEW
CKE Restaurants, Inc. ("CKE" and collectively with its subsidiaries, the
"Company"), a Delaware corporation, was formed in June 1994 to provide overall
strategic direction and administrative support to its two wholly-owned
subsidiaries, Carl Karcher Enterprises, Inc. ("Enterprises") and Boston Pacific,
Inc. ("Boston Pacific"). Enterprises, the predecessor entity of the Company,
commenced operations in the mid-1950s and continues to operate, franchise and
license approximately 667 Carl's Jr. restaurants. Boston Pacific holds a
minority interest in Boston West, L.L.C. ("Boston West"), which operates Boston
Market franchises under an area development agreement with Boston Chicken, Inc.
("BCI").
Fiscal 1996 was an outstanding year for the Company. Consolidated net
income for the current year increased to $11.0 million, or $.59 per share, as
compared with $1.3 million, or $.07 per share for the prior fiscal year.
Operating income in fiscal 1996 of $25.7 million, an increase of $17.1 million
over the prior year, marked the highest operating income reported by the Company
in five years. Same-store sales for the current 52-week reporting period,
increased 4.4%, the first yearly same-store sales increase reported by the
Company since fiscal 1990 and the highest yearly same-store sales increase since
fiscal 1989. Per store averages in the Company-operated restaurants grew to more
than $1.0 million by the end of the fiscal year. Cash flows from operations at
year end totaled $37.8 million, a $16.3 million increase from the prior year.
The improved fiscal year operating performance in the Company's Carl's Jr.
top-line revenues and cost structure is the result of the programs implemented
over the last three fiscal years, and further emphasized in the current fiscal
year, to enhance sales growth and to reduce costs through improved operating
efficiencies.
The Company appointed a new advertising agency in February 1995 to improve
and redirect its customers' value perceptions by increasing their awareness of
the Company's superior quality products. The campaign was kicked off in May 1995
with aggressive new television and radio commercials featuring messy, drippy,
juicy burgers. Since the start of the campaign, the Company has seen consecutive
quarterly increases in both same-store sales and customer transactions. In
fiscal 1997 the Company plans to spend an additional $3.0 million on media
advertising to increase exposure of the Company's quality food products to
consumers and to remain competitive with other companies within the food service
industry.
In April 1995, the Company completed a transaction in which Boston Pacific
contributed a majority of its existing Boston Market restaurants assets to
Boston West, which assumed the operations of the existing Boston Market stores
and agreed to fulfill the Company's obligations under the BCI area development
agreement. The area development agreement allows Boston West the rights to
develop, own and operate up to 300 Boston Market stores, primarily in Southern
California. (See Note 2 of Notes to Consolidated Financial Statements.)
During the current year, the Company commenced its image enhancement
program, aimed at revitalizing its Carl's Jr. restaurants. All Company-operated
Carl's Jr. restaurants will be remodeled with a fresher, more contemporary look.
Exterior improvements include new brighter colors -- white and red accented with
Monet blue, red awnings and a large tilted Happy Star(R) logo. The new interiors
feature the same fresh colors, food murals, display cases for salads and
desserts and accent lighting. Early sales results in the 10 restaurants that
have been remodeled as of fiscal year end have been very exciting. The cost of
remodeling is expected to range from $100,000 to $130,000 for each location, and
the Company anticipates remodeling approximately 40 restaurants per quarter in
fiscal 1997. In accordance with the Company's Franchise Agreements, after 25% of
the Company-operated Carl's Jr. restaurants have been remodeled, the Company's
franchisees will have three years to complete the image enhancement program on
all franchised Carl's Jr. restaurants.
In May 1995, the Company entered into a five-year agreement with GB Foods
Corporation, operator of The Green Burrito concept, under which the Company and,
in some cases, its franchisees, will convert up to 200 Carl's Jr./Green Burrito
dual-brand restaurants. Sales in the 22 Carl's Jr./Green Burrito dual-brand
restaurants operating as of fiscal year end are averaging approximately 25% over
same-store sales prior to the conversions. The Company plans to aggressively
continue the conversion of Carl's Jr. restaurants to the Carl's Jr./Green
Burrito concept and anticipates opening a minimum of 40 such dual-brand
restaurants over the next twelve months in conjunction with the Company's image
enhancement remodeling program. At year end, the Company elected to
sub-franchise the Carl's Jr./Green Burrito dual-brand to its franchise
community. The Company anticipates that 10 franchised Carl's Jr. restaurants
will convert to the Carl's Jr./Green Burrito concept over the next fiscal year,
which will generate initial franchise fees and additional royalties for the
Company.
11
<PAGE> 14
As part of the Company's plans to offer Carl's Jr. products from smaller,
non-traditional sites, the Company has teamed with UNOCAL 76 Products Company to
offer Carl's Jr. products from UNOCAL Fast Break convenience stores and gasoline
stations in California. The first two UNOCAL 76/Carl's Jr. locations have opened
within recent months with eight more locations anticipated to open within this
calendar year.
Internationally, the Company entered into a joint venture agreement with
its Malaysia-based licensee, MBf Holdings Berhad in May 1995. Under the terms of
this agreement, a minimum of 130 Carl's Jr. restaurants will be developed in 16
Asian countries over the next five years. The Company will hold a 30% interest
in this venture with no capital outlay requirements.
The Company and Summit Family Restaurants Inc. ("Summit") signed an
Agreement and Plan of Merger and Reorganization ("Merger Agreement") dated as of
November 30, 1995, amended as of January 24, 1996 and further amended as of
April 2, 1996. Under the terms of the Merger Agreement, as amended, CKE acquired
from ABS MB (JB) Limited Partnership 946,714 shares of Series A Convertible
Preferred Stock of Summit on April 4, 1996 at a purchase price of $5.27 per
share in cash, and will complete the acquisition of Summit in a merger
transaction in which all 4,805,902 shares of Summit Common Stock (other than
dissenting shares, if any) will be converted into $2.63 in cash and .165 shares
of CKE Common Stock (the "Summit Merger"). The number of shares of CKE Common
Stock to be issued in the Summit Merger remains subject to adjustment under
certain circumstances. The consummation of the Summit Merger is currently
expected to occur in May 1996, and remains subject to a number of conditions,
including Summit's shareholder approval and other customary conditions. The
total estimated purchase price of this transaction is approximately $30.3
million.
Summit operates restaurants under three concepts: 77 company-operated and
24 franchised family style JB's Restaurants; six Galaxy Diner restaurants, which
is a promising new 50's diner concept; and 16 HomeTown Buffet restaurants, which
are operated by Summit as a franchisee.
The Company anticipates the potential disposition of Summit's 16 HomeTown
Buffet Restaurants for cash. Any such sale would generate positive cash flows to
reduce the total cash outlay required for the Summit Merger, and for use in the
expansion of the Galaxy Diner concept. CKE's management is performing an ongoing
evaluation regarding the nature and scope of Summit's JB's Restaurants
operations. Various short- and long-term strategic considerations are being
assessed, including: the sale, franchise, or other disposition of certain JB's
Restaurants; the conversion of certain JB's Restaurants to the Carl's Jr. and
Galaxy Diner concept and the retention of a number of JB's Restaurants.
Of the 667 Carl's Jr. restaurants in operation as of January 31, 1996, 394
were Company-operated, 239 were franchised and 34 were licensed, representing a
system-wide increase of seven restaurants as compared with fiscal 1995.
RESULTS OF OPERATIONS
REVENUES
Company-operated Restaurants
Retail sales, comprised mainly of sales from Carl's Jr. restaurants,
totaled $393.5 million in fiscal 1996, an increase of $23.4 million, or 6.3% as
compared with the prior year. The increase in retail sales in the current fiscal
year is primarily the result of the numerous sales enhancement programs
implemented by the Company in the later part of the fiscal year which include:
the roll out of its Carl's Jr./Green Burrito dual-brand program, the image
enhancement of its restaurants through a chain-wide remodeling program and the
introduction, in May 1995, of the Company's new advertising campaign to promote
great tasting new and existing food products. Also contributing to the rise in
retail sales are the efficiencies made in the Carl's Jr. restaurants in the area
of speed of service, higher average sales and transaction counts per restaurant
and an increase in the number of restaurants in operation in fiscal 1996 as
compared with fiscal 1995. On a same-store sales basis, the Company's Carl's Jr.
sales, which are calculated using only restaurants open for the full fiscal
years being compared, increased 4.4% in fiscal 1996 to $371.9 million, following
a 3.8% decrease during fiscal 1995 to $356.0 million. The increase in same-store
sales in fiscal 1996 is the first yearly increase in same-store sales
experienced by the Company in six years.
Carl's Jr. restaurant sales were adversely affected in fiscal 1995 by
aggressive promotions and price reductions by the Company's principal
competitors. Further, the Company experienced lower average sales per restaurant
and fewer restaurants in operation in fiscal 1995 as compared with fiscal 1994.
As a result of these factors, retail sales decreased $14.8 million, or 3.8% from
fiscal 1994 to 1995. Total retail sales for fiscal 1995 also reflect one week's
fewer sales than for 1994 because fiscal 1994 was a 53-week reporting period.
12
<PAGE> 15
Franchised and Licensed Restaurants
Revenues from franchised and licensed restaurants in all fiscal years
presented were mainly comprised of sales of food and supplies to franchisees,
initial franchise fees, annual franchise royalties and rents and other
occupancy-related amounts collected from many of the Company's franchisees.
Overall, these revenues decreased 2.4% to $72.0 million in fiscal 1996 and 6.3%
to $73.7 million in fiscal 1995. The fiscal 1996 decrease was largely due to
lower prices of food and other products supplied to franchisees by the Company
and a decrease in chicken and beef commodity costs, which were passed along to
the franchisees. A 4.0% decrease in the number of franchised restaurants in
operation on a weighted average basis as compared with fiscal 1995 also
contributed to a reduction in revenues for the current year. The fiscal 1995
decrease was due primarily to declining franchisee sales and lower commodities
costs, which were passed along to the franchisees, on chicken, beef and
tomatoes.
OPERATING COSTS AND EXPENSES
Company-operated Restaurants
The Company's efforts to reduce the restaurant-level cost structure of its
Carl's Jr. restaurants, which began in fiscal 1994, have resulted in significant
improvements in the gross margins of its retail operations. These margins, as a
percentage of retail sales, were 20.4%, 17.2% and 17.1% in fiscal years 1996,
1995 and 1994, respectively. The 3.2% gross margin improvement in fiscal 1996
was primarily attributable to notable declines in the payroll and other employee
benefit costs. The slight improvement in fiscal 1995 over fiscal 1994 is
particularly noteworthy considering Boston Pacific's start-up nature during its
first year of operations and that Carl's Jr. retail sales declined during fiscal
1995.
The Company's food and packaging costs have remained relatively consistent
at 30.8%, 30.3% and 30.0% of retail sales for fiscal 1996, 1995 and 1994,
respectively. The Company's exit from the manufacturing business, which was
completed in fiscal 1994, resulted in the lowering of these overall food costs.
During the current fiscal year, food costs increased marginally as a result of
the change in the mix of products sold to higher-food cost products, such as the
new Crispy Chicken sandwiches which were introduced during the third quarter of
the current fiscal year, and the Famous Big Star, which is currently the
Company's only value-priced product with a competitive selling price, in
participating restaurants, of $.99. The Company anticipates that a more
favorable product cost mix will be obtained with its two new burger products
that are planned for fiscal 1997.
Payroll and other employee benefit costs, as a percentage of retail sales,
declined 3.1% in fiscal 1994 to 30.9%, followed by a .6% decrease in fiscal 1995
to 30.3% and a further reduction of 2.4% during fiscal 1996 to 27.9%. These
significant reductions in payroll and other employee benefit costs were achieved
during the past three years as a result of the Company's continued commitment to
improve the cost structure of its Carl's Jr. restaurants. Labor productivity
programs have been implemented in the current fiscal year to decrease costs and
to improve direct labor efficiencies. Further, in fiscal 1994, the Company added
new safety and other programs which, coupled with changes in state regulations,
have resulted in a drop in the incident rate of 13.1% and 23.7% in its workers
compensation claims during fiscal 1996 and 1995, respectively.
Occupancy and other operating expenses as a percentage of retail sales were
20.9%, 22.2% and 22.0% in fiscal 1996, 1995 and 1994, respectively. The decrease
in fiscal 1996 was largely due to the Company's effort to maintain costs at the
fiscal 1995 level, which included reducing utility costs through the
installation of energy-efficient lighting and a reduction in the cost of certain
promotional items offered. Further, since these costs are generally fixed in
nature, as sales increase, these costs as a percentage of sales decrease.
Occupancy and other operating expenses remained relatively flat as a percentage
of retail sales from fiscal 1994 to 1995. Rent and selected other increases in
fiscal 1995 were more than offset by reductions in repair and maintenance costs.
Franchised and Licensed Restaurants
Franchised and licensed restaurant costs have followed a similar trend over
the past three fiscal years as the revenues from franchised and licensed
restaurants. These costs have decreased 1.5% in fiscal 1996 to $68.8 million,
following a 5.0% decrease in fiscal 1995 to $69.9 million. The decrease in
fiscal 1996 was primarily attributable to the decrease in the weighted average
number of franchised restaurants in operation as compared with fiscal 1995. The
fiscal 1995 decrease was largely due to lower costs which were passed along to
franchisees, with little change in the number of franchised restaurants.
13
<PAGE> 16
Advertising Expenses
Advertising expenses, as a percentage of the Company's retail sales were
5.1%, 5.4% and 5.0% in fiscal 1996, 1995 and 1994, respectively. Advertising
expenses have become increasingly important in the current competitive
environment and have therefore grown as a percentage of retail sales in fiscal
1994 and 1995. During the current fiscal year, a new advertising agency was
appointed to assist the Company in redirecting its Carl's Jr. marketing programs
and restoring its reputation of offering superior quality products. An
aggressive new advertising campaign was introduced in May 1995 and the Company
has seen consecutive quarterly increases in both same-store sales and customer
transactions since the start of the campaign while spending less in advertising,
both in terms of dollars spent and as a percentage of retail sales.
General and Administrative Expenses
Excluding the effects of certain nonrecurring charges in fiscal 1995 and
1994, which are discussed below, general and administrative expenses amounted to
$37.9 million, $41.5 million and $36.5 million in fiscal 1996, 1995 and 1994,
respectively, which represented 8.1%, 9.4% and 7.9% of total consolidated
revenues in those years. During the current fiscal year, the Company benefited,
through reduced payroll and employee benefit costs, from various reorganizations
and headcount reductions that occurred both in the current and prior fiscal
years. Also contributing to the decrease in general and administrative expenses
in fiscal 1996 was the formation in April 1995 of Boston West, whereby this
entity assumed the operations of all of the Company's existing Boston Market
stores and agreed to fulfill the Company's remaining obligations under its area
development agreement with BCI. (See Note 2 of Notes to Consolidated Financial
Statements.) The fiscal 1995 increase was due primarily to start-up costs
associated with the Company's Boston Pacific operations (including the costs to
convert seven Carl's Jr. restaurants to Boston Market stores), the write-off of
the former Carl's Jr. menu boards and expenses related to the plan of
reorganization and merger completed during fiscal 1995.
Included in general and administrative expenses for fiscal 1995 and 1994
were certain nonrecurring charges. Fiscal 1995 general and administrative
expenses were reduced by $2.7 million as a result of the reversal of certain
previously established lease subsidy reserves in connection with the
reacquisition of 12 Carl's Jr. franchised restaurants. In fiscal 1994, these
expenses included a $3.0 million charge related to a binding arbitration
judgment and a $1.7 million charge representing the net present value of future
retirement benefits granted to the Chairman Emeritus in October 1993.
INTEREST EXPENSE
Interest expense for fiscal 1996 increased 8.7% to $10.0 million primarily
as a result of higher levels of borrowings outstanding and higher interest rates
in the current fiscal year. Interest expense decreased 11.4% to $9.2 million in
fiscal 1995 as a result of lower average notes payable balances throughout
fiscal 1995 as compared with fiscal 1994.
OTHER INCOME, NET
Other income, net for all periods presented was comprised primarily of
investment income, interest on notes and leases receivable, gains and losses on
sales of restaurants, and other nonrecurring income. Other income, net
decreased 25.9% in fiscal 1996 to $2.2 million and 51.2% in fiscal 1995 to $3.0
million, largely due to decreases in investment income resulting from the
redefining of the Company's cash management activities in fiscal 1994.
Effective as of the beginning offiscal 1995, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." As a result of adopting this new
standard, net unrealized gains and losses on the Company's marketable securities
portfolio, which is comprised of securities that are considered
available-for-sale, are included in stockholders' equity while such unrealized
gains and losses in fiscal 1994 were included in other income, net. The adoption
of this new standard was not material to the Company's consolidated financial
statements.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $8.3 million to $23.4 million in fiscal
1996. Total cash provided by the Company's consolidated operations increased
$16.3 million in fiscal 1996 to $37.8 million. Consolidated investing and
financing activities required the Company to use a net of $19.6 million and $9.9
million, respectively. Purchases of property and equipment of $27.1 million and
a $2.6 million increase in notes receivable and related party notes receivable
were offset by cash proceeds of $9.7 million from the collection on and sale of
notes receivable and related party notes
14
<PAGE> 17
receivable and by the liquidation of $1.7 million of the Company's marketable
securities portfolio. Financing activities provided the Company with $14.6
million from increased bank borrowings and $3.6 million from the exercise of
stock options. Cash provided by these financing activities were more than offset
by a $11.5 million decrease in the bank overdraft, repayments of long-term debt
and capital leases totaling $14.3 million, which included a prepayment of $3.0
million on secured notes payable, and dividend payments of $1.5 million. Total
cash available to the Company as of January 31, 1996 was $25.9 million, which
included $2.5 million of holdings in a diversified, highly liquid investment
portfolio with minimal interest rate risk.
Following the formation of Boston West, the Company's loan agreement with
its bank was amended such that borrowings totaling $28.0 million, drawn against
a former revolving credit line primarily to fund the development of the
Company's Boston Market operations, were converted to a term loan, payable in
quarterly installments through September 1998. In addition, a new $15.0 million
unsecured revolving credit line that expires in August 1996 was established for
use in the Company's ongoing Carl's Jr. operations, of which no such amounts
were drawn against as of the fiscal year end. Subsequent to year end, the
Company's bank agreement was amended such that certain of the covenants
governing this agreement were modified for the current fiscal year and for
future measurement periods. As a result of the amendment, the Company was in
compliance with all of the covenants governing its bank agreement as of January
31, 1996.
The Company's primary sources of liquidity are its retail sales, which are
generated in cash. As the Company is no longer the exclusive provider of capital
for Boston West, 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 payment of lease obligations, the repayment of
debt, and in fiscal 1997 the purchase of Series A Convertible Preferred Stock of
Summit, the anticipated closing of the Summit Merger and the early repayment of
certain indebtedness. 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.
The Company believes that cash generated from its Carl's Jr. operations,
along with cash and marketable securities on hand as of January 31, 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, the
further development of its Carl's Jr. operations and other obligations described
above.
On March 12, 1996, the Company's Board of Directors declared a $0.04 per
share semi-annual cash dividend, payable on April 26, 1996 to stockholders of
record on April 5, 1996.
IMPACT OF INFLATION
Management recognizes that inflation has an impact on food, construction,
labor and benefit costs, all of which can significantly affect the Company's
operations. High interest rates can negatively affect lease payments for new
restaurants, as well. Historically, the Company has been able to pass any
associated higher costs due to these inflationary factors along to its customers
because those factors have impacted nearly all restaurant companies. During
fiscal 1996, however, management emphasized cost controls rather than price
increases, given the competitive pressure within the quick-service industry and
the recessionary environment in the Company's core markets.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("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 Company must adopt this new pronouncement by fiscal 1997
and, upon adoption, any impairment losses recognized for assets to be held and
used must be recorded as a non-cash charge in continuing operations while such
losses attributable to assets to be disposed of must be reported as a cumulative
effect of a change in accounting principle. The Company is still finalizing the
impact of this statement, but estimates the range of exposure to be
approximately $1.0 million to $3.0 million.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"), effective for fiscal years beginning after December
15, 1995. SFAS 123 establishes the fair value based method of accounting for
stock-based compensation arrangements,
15
<PAGE> 18
under which compensation cost is determined using the fair value of the stock
option at the grant date and the number of options vested, and is recognized
over the periods in which the related services are rendered. If the Company were
to retain its current intrinsic value based method, as allowed by SFAS 123, it
would be required to disclose the pro forma effect of adopting the fair value
based method for all stock options granted in fiscal years beginning after
December 14, 1994. The Company has decided to retain its current intrinsic value
based method and to therefore disclose the pro forma effect; however, the
Company has not yet completed all of the analysis required to estimate the
impact of this new statement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index included at "Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing in the "Information Concerning Nominees" section
of the Company's Proxy Statement prepared in connection with the Annual Meeting
of Stockholders to be held in 1996, to be filed with the Commission within 120
days of January 29, 1996, is hereby incorporated by reference. Information
concerning the current executive officers of the Company is contained in Item 1
of Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the "Executive Compensation" section of the
Company's Proxy Statement prepared in connection with the Annual Meeting of
Stockholders to be held in 1996, to be filed with the Commission within 120 days
of January 29, 1996, is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the "Ownership of the Company's Securities"
section of the Company's Proxy Statement prepared in connection with the Annual
Meeting of Stockholders to be held in 1996, to be filed with the Commission
within 120 days of January 29, 1996, is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the "Transactions with Officers and Directors"
section of the Company's Proxy Statement prepared in connection with the Annual
Meeting of Stockholders to be held in 1996, to be filed with the Commission
within 120 days of January 29, 1996, is hereby incorporated by reference.
16
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
(a)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS: NUMBER
------
<S> <C>
Independent Auditors' Report.................................................. F-1
Consolidated Balance Sheets -- as of January 31, 1996 and 1995................ F-2
Consolidated Statements of Income -- for the years ended January 31, 1996,
1995 and 1994............................................................. F-3
Consolidated Statements of Stockholders' Equity -- for the years ended
January 31, 1996, 1995 and 1994........................................... F-4
Consolidated Statements of Cash Flows -- for the years ended January 31, 1996,
1995 and 1994.............................................................. F-5
Notes to Consolidated Financial Statements.................................... F-6
</TABLE>
(a)(2) INDEX TO FINANCIAL STATEMENTS SCHEDULES:
All schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule,
or because the information required is included in the consolidated
financial statements and notes thereto.
(a)(3) EXHIBITS:
An "Exhibit Index" has been filed as a part of this Form 10-K
beginning on page E-1 hereof and is incorporated herein by reference.
(b) CURRENT REPORTS ON FORM 8-K:
Current reports on Form 8-K dated December 1, 1995 and January 25,
1996 were filed during the fourth quarter of the fiscal year to
report matters relating to the Company's proposed acquisition of
Summit.
17
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CKE RESTAURANTS, INC.
By /s/ WILLIAM P. FOLEY II
----------------------------------
William P. Foley II
Chairman of the Board and
Chief Executive Officer
Date: April 16, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM P. FOLEY II Chairman of the Board and April 16, 1996
- ------------------------------ Chief Executive Officer
William P. Foley II (Principal Executive Officer)
/s/ JOSEPH N. STEIN Senior Vice President, April 16, 1996
- ------------------------------- Chief Financial Officer
Joseph N. Stein (Principal Financial Officer)
/s/ JOHN C. FULLER Controller April 16, 1996
- ------------------------------- (Principal Accounting Officer)
John C. Fuller
/s/ PETER CHURM Director April 16, 1996
- -------------------------------
Peter Churm
/s/ CARL L. KARCHER Director April 16, 1996
- --------------------------------
Carl L. Karcher
/s/ CARL N. KARCHER Director April 16, 1996
- --------------------------------
Carl N. Karcher
/s/ DANIEL D. (Ron) LANE Vice Chairman of the Board April 16, 1996
- ---------------------------------
Daniel D. (Ron) Lane
/s/ W. HOWARD LESTER Director April 16, 1996
- ---------------------------------
W. Howard Lester
/s/ FRANK P. WILLEY Director April 16, 1996
- ---------------------------------
Frank P. Willey
</TABLE>
18
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CKE Restaurants, Inc. and Subsidiaries
We have audited the accompanying consolidated financial statements of CKE
Restaurants, Inc. and its subsidiaries as listed in the accompanying index.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CKE
Restaurants, Inc. and its subsidiaries as of January 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the years in the
three-year period ended January 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Orange County, California
March 19, 1996
F-1
<PAGE> 22
CKE RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
January 31 1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 23,429 $ 15,174
Marketable securities.......................................... 2,510 3,088
Accounts receivable............................................ 8,009 12,411
Related party receivables...................................... 977 1,509
Inventories.................................................... 6,132 5,950
Deferred income taxes, net..................................... 10,056 12,254
Other current assets and prepaid expenses...................... 5,656 6,438
-------- --------
Total current assets....................................... 56,769 56,824
Property and equipment, net...................................... 127,346 133,248
Property under capital leases, net............................... 28,399 30,515
Long-term investments............................................ 19,814 --
Notes receivable................................................. 7,236 13,139
Related party notes receivable................................... 969 2,109
Other assets..................................................... 6,226 8,526
-------- --------
$246,759 $244,361
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............................. $ 8,575 $ 8,168
Current portion of capital lease obligations................... 3,745 3,581
Accounts payable............................................... 15,824 29,754
Other current liabilities...................................... 33,173 30,065
-------- --------
Total current liabilities.................................. 61,317 71,568
-------- --------
Long-term debt................................................... 30,321 27,178
Capital lease obligations........................................ 40,233 42,691
Other long-term liabilities...................................... 13,699 14,450
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 19,200,141 shares
and 18,845,138 shares ....................................... 192 188
Additional paid-in capital..................................... 38,713 35,119
Retained earnings.............................................. 67,393 57,725
Treasury stock, at cost; 670,300 shares and 590,000 shares..... (5,109) (4,558)
-------- --------
Total stockholders' equity................................. 101,189 88,474
-------- --------
$246,759 $244,361
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 23
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal year ended January 31 1996 1995 1994
---- ---- ----
(In thousands except per share amounts)
<S> <C> <C> <C>
Revenues:
Retail sales............................................. $393,486 $370,045 $384,859
Franchised and licensed restaurants...................... 71,951 73,702 78,635
-------- -------- --------
Total revenues....................................... 465,437 443,747 463,494
-------- -------- --------
Operating costs and expenses:
Retail operations:
Food and packaging..................................... 121,029 111,985 115,444
Payroll and other employee benefits.................... 109,942 112,177 118,774
Occupancy and other operating expenses................. 82,095 82,172 84,890
-------- -------- --------
313,066 306,334 319,108
Franchised and licensed restaurants...................... 68,839 69,871 73,552
Advertising expenses..................................... 19,940 20,148 19,104
General and administrative expenses...................... 37,857 38,792 41,222
-------- -------- --------
Total operating costs and expenses................... 439,702 435,145 452,986
-------- -------- --------
Operating income .......................................... 25,735 8,602 10,508
Interest expense........................................... (10,004) (9,202) (10,387)
Other income, net.......................................... 2,222 2,998 6,148
-------- -------- --------
Income before income taxes and cumulative
effect of change in accounting principle................. 17,953 2,398 6,269
Income tax expense ........................................ 7,001 1,134 1,836
-------- -------- --------
Income before cumulative effect of change in
accounting principle..................................... 10,952 1,264 4,433
Cumulative effect of change in accounting principle
(net of income tax benefit of $512)...................... -- -- (768)
-------- -------- --------
Net income ................................................ $ 10,952 $ 1,264 $ 3,665
======== ======== ========
Net income per common and common equivalent share:
Income before cumulative effect of change
in accounting principle................................ $ .59 $ .07 $ .24
Cumulative effect of change in accounting principle...... -- -- (.04)
-------- -------- --------
Net income .......................................... $ .59 $ .07 $ .20
======== ======== ========
Common and common equivalent shares
used in computing per share amounts...................... 18,679 18,717 18,567
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 24
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------ ------------------ Additional Total
Number of Number of Paid-In Retained Stockholders'
Shares Amount Shares Amount Capital Earnings Equity
--------- ------ --------- ------ ------- -------- -------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 31, 1993......... 18,091 $181 -- $-- $ 28,612 $55,939 $84,732
Cash dividends
($.08 per share)....... -- -- -- -- -- (1,456) (1,456)
Exercise of stock options 646 6 -- -- 4,351 -- 4,357
Tax benefit associated
with exercise of
stock options.......... -- -- -- -- 1,191 -- 1,191
Remeasurement of stock
options................ -- -- -- -- 9 -- 9
Repurchase and
retirement of shares... (60) (1) -- -- (421) -- (422)
Net income............... -- -- -- -- -- 3,665 3,665
------- ----- ----- ------- -------- -------- --------
BALANCE AT
JANUARY 31, 1994......... 18,677 186 -- -- 33,742 58,148 92,076
Cash dividends
($.08 per share)....... -- -- -- -- -- (1,499) (1,499)
Exercise of stock options 168 2 -- -- 1,097 -- 1,099
Tax benefit associated
with exercise of
stock options.......... -- -- -- -- 280 -- 280
Purchase of treasury
shares................. -- -- 590 (4,558) -- -- (4,558)
Net unrealized loss on
investment securities.. -- -- -- -- -- (188) (188)
Net income............... -- -- -- -- -- 1,264 1,264
------ ------ ----- -------- -------- -------- --------
BALANCE AT
JANUARY 31, 1995......... 18,845 188 590 (4,558) 35,119 57,725 88,474
Cash dividends
($.08 per share)....... -- -- -- -- -- (1,460) (1,460)
Exercise of stock options 355 4 -- -- 2,746 -- 2,750
Tax benefit associated
with exercise of
stock options.......... -- -- -- -- 848 -- 848
Purchase of treasury
shares................. -- -- 80 (551) -- -- (551)
Net unrealized gain on
investment securities.. -- -- -- -- -- 176 176
Net income............... -- -- -- -- -- 10,952 10,952
------ ----- ----- -------- -------- ------- --------
BALANCE AT
JANUARY 31, 1996........ 19,200 $192 670 $(5,109) $ 38,713 $67,393 $101,189
====== ==== ==== ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 25
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal year ended January 31 1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income......................................................... $ 10,952 $ 1,264 $ 3,665
Adjustments to reconcile net income to net cash
provided by operating activities:
Noncash franchise (revenue) expense.............................. 209 170 (151)
Depreciation and amortization.................................... 21,372 22,755 22,842
Settlement of notes receivable................................... (1,292) -- --
Arbitration judgment ............................................ -- -- 3,000
Loss on sale of property and equipment and capital leases........ 1,828 2,118 613
Reversal of certain lease subsidy reserves....................... -- (2,680) --
Loss on long-term investments.................................... 1,898 -- --
Write-off of accounts and notes receivable....................... -- -- 406
Write-down of marketable securities.............................. -- -- 213
Net noncash investment income.................................... (851) (25) (63)
Deferred income taxes............................................ 2,198 3,434 (1,675)
Post-employment benefits......................................... -- -- 1,668
Cumulative effect of change in accounting principle.............. -- -- 768
Net change in marketable securities reserve...................... -- -- (479)
Net change in receivables, inventories and other current assets.. 256 (4,329) 4,257
Net change in other assets....................................... (463) (1,119) (2,699)
Net change in accounts payable and other current liabilities 1,672 (133) (4,617)
-------- --------- --------
Net cash provided by operating activities........................ 37,779 21,455 27,748
-------- --------- --------
Cash flows from investing activities:
Sale of or reimbursement on restaurant property to
be sold and leased back.......................................... -- -- 487
Purchases of:
Marketable securities............................................ (921) (3,549) (12,722)
Property and equipment........................................... (27,148) (40,010) (13,865)
Long-term investments............................................ (1,670) -- --
Proceeds from sale of:
Marketable securities............................................ 1,662 15,994 30,177
Property and equipment........................................... 905 110 490
Long-term investments............................................ 310 -- --
Collections on leases receivable................................... 164 148 129
Increases in notes receivable and related party notes receivable... (2,640) (1,985) --
Collections on and sale of notes receivable and related party
notes receivable................................................. 9,736 2,293 4,824
--------- --------- --------
Net cash provided by (used in) investing activities.............. (19,602) (26,999) 9,520
--------- --------- --------
Cash flows from financing activities:
Net change in bank overdraft....................................... (11,477) 10,203 170
Net change in obligations secured by marketable securities
and long-term investments........................................ -- -- (2,422)
Short-term borrowings.............................................. 57,060 32,806 15,150
Repayments of short-term debt...................................... (57,060) (13,981) (33,250)
Long-term borrowings............................................... 14,573 -- --
Repayments of long-term debt....................................... (11,149) (14,771) (11,488)
Repayments of capital lease obligations............................ (3,129) (2,878) (2,650)
Net change in other long-term liabilities.......................... (327) (3,076) (887)
Repurchase and retirement of common stock.......................... -- -- (422)
Purchase of treasury stock......................................... (551) (4,558) --
Payment of dividends............................................... (1,460) (1,499) (1,456)
Exercise of stock options.......................................... 2,750 1,099 4,366
Tax benefit associated with the exercise of stock options.......... 848 280 1,191
---------- --------- --------
Net cash provided by (used in) financing activities.............. (9,922) 3,625 (31,698)
---------- --------- --------
Net increase (decrease) in cash and cash equivalents............... $ 8,255 $ (1,919) $ 5,570
========== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 26
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
A summary of certain significant accounting policies not disclosed elsewhere in
the footnotes to the consolidated financial statements is set forth below.
Basis of Presentation and Fiscal Year
In June 1994, a plan of reorganization and merger (the "Merger") was approved by
the stockholders of Carl Karcher Enterprises, Inc. ("Enterprises"), whereby
Enterprises, the predecessor entity of the Company that was a publicly held
corporation, and Boston Pacific, Inc. ("Boston Pacific") became wholly-owned
subsidiaries of CKE Restaurants, Inc. ("CKE" and collectively with its
subsidiaries, the "Company"), a Delaware corporation organized during fiscal
1995. Since Boston Pacific began its start-up operations in February 1994 and
the Company did not commence its operations until June 1994, the accompanying
consolidated financial statements for fiscal 1994 were comprised solely of the
results of operations and financial condition of Enterprises.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions are
eliminated. The Company's fiscal year is 52 or 53 weeks, ending the last Monday
in January each year. Fiscal years 1996 and 1995 each included 52 weeks of
operations and fiscal year 1994 included 53 weeks of operations. For clarity of
presentation, the Company has described all years presented as if the fiscal
year ended January 31.
Nature of Operations
The Company is engaged primarily in the food service industry. Enterprises
operates, franchises and licenses the Carl's Jr. quick-service restaurant
concept, primarily in the Western United States, Mexico and the Pacific Rim. The
Carl's Jr. menu is relatively uniform throughout the chain and features several
charbroiled hamburgers and chicken sandwiches, including the Famous Big Star,
Western Bacon Cheeseburger(R), Super Star(R) and Charbroiler Chicken
Sandwiches(R). Boston Pacific holds a minority interest in Boston West, L.L.C.
("Boston West"), which owns and operates Boston Market stores in Southern
California as a franchisee of Boston Chicken, Inc. ("BCI"). Boston Market stores
primarily feature rotisserie-roasted chicken, breast of turkey, double-glazed
baked ham and double-sauced meatloaf.
Cash Equivalents
For purposes of reporting cash flows, highly liquid investments purchased with
original maturities of three months or less are considered cash equivalents. The
carrying amounts reported in the consolidated balance sheets for these
instruments approximate their fair value.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Deferred Pre-opening Costs
Deferred pre-opening costs consist of the direct and incremental costs
associated with the opening of restaurants or stores and are deferred and
amortized over the first year they are in operation. Such costs include uniforms
and promotional costs related to the grand opening of each new location.
Additionally, these costs include initial food, beverage, supply and direct
labor costs associated with the testing of all equipment and recipes, and the
simulation of other operational procedures shortly before a restaurant or store
opens.
Deferred pre-opening costs also include, if significant, the cost of required
training classes for new managers, assistant managers and regional managers;
airfare and lodging related to this training; and the salaries of these
individuals during their training classes. Such costs, including training, were
not significant in fiscal years 1996 and 1994. These costs were more significant
in fiscal 1995 since there was not an existing employee base from which to hire
Boston Market store management and the training related to the opening of Boston
Market stores was conducted outside of California.
F-6
<PAGE> 27
Investment in Joint Venture
In fiscal 1994, the Company entered into a joint venture agreement with a
Mexican company to operate a Carl's Jr. restaurant in Baja California. The
Company owns a 50% interest in this joint venture. In fiscal 1996, the Company
entered into a joint venture agreement, in which the Company has a 30% interest,
with one of its licensees to operate 130 Carl's Jr. restaurants in 16 Asian
countries over the next five years. Both joint venture agreements, which are
accounted for by the equity method, are not considered material to the Company's
financial statements.
Depreciation and Amortization
Property and equipment are recorded at cost, less depreciation and amortization.
Depreciation is computed using the straight-line method based on the assets'
estimated useful lives, which range from three to thirty-five years. Leasehold
improvements and the cost of business in excess of net assets at acquisition are
amortized on a straight-line basis over the lesser of the estimated useful lives
of the assets or the related lease terms. The Company assesses the
recoverability of cost of business in excess of net assets at acquisition by
determining whether the amortization of the balance over its remaining life can
be recovered through projected undiscounted future cash flows.
Advertising
Production costs of commercials and programming are charged to operations in the
fiscal year first aired. The costs of other advertising, promotion and marketing
programs are charged to operations in the fiscal year incurred.
Income Taxes
The Company accounts for income taxes under the provision of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." Under this
method, income tax assets and liabilities are recognized using enacted tax rates
for the expected future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. A change in tax rates is recognized
in income in the period that includes the enactment date.
Estimations
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Earnings per Share
Earnings per share is computed based on the weighted average number of common
shares outstanding during the year, after consideration of the dilutive effect
of outstanding stock options. For all years presented, primary earnings per
share approximate fully diluted earnings per share.
Reclassifications
Certain prior year amounts in the accompanying financial statements have been
reclassified to conform with the fiscal 1996 presentation.
NOTE 2 -- LONG-TERM INVESTMENTS
In January 1994, the Company acquired from BCI the rights to develop, own and
operate up to 300 Boston Market stores throughout designated markets in
California. Boston Pacific was formed during fiscal 1995 to conduct the
Company's Boston Market franchise operations. The Company's obligation under the
terms of this agreement included opening 20 Boston Market stores during fiscal
1995, followed by an additional 40 to 50 stores per year during the next four
years, for an aggregate of 200 stores by January 1999. This agreement also
contained an option to develop an additional 100 stores under certain
conditions.
F-7
<PAGE> 28
In April 1995, the Company's overall strategic plans were revised and the
Company determined that its available cash should be used to fund the expansion
and image enhancement of its Carl's Jr. restaurants. As such, management
determined it would opt for a more passive investment role and eliminate its
control and significant influence in the Boston Market concept. The Company
formed a new privately owned company, Boston West, which assumed the operations
of all of the Company's 25 existing Boston Market stores and agreed to fulfill
the Company's remaining obligation to develop an additional 175 Boston Market
stores under its January 1994 area development agreement with BCI. In connection
with this transaction, the Company received preferred units and all the
outstanding common equity units in Boston West, for a cost of approximately
$19.7 million and $620,000, respectively, in exchange for a majority of its
existing Boston Market restaurant assets.
The Company is entitled to receive dividends on its preferred units at rates
ranging from 8.6% to 9.0%. The dividends earned through June 1997 will be paid
in cash upon conversion of the Company's preferred units into common equity
units. In addition, this transaction provided for the leasing of approximately
$12.0 million of equipment and real property retained by the Company to Boston
West at current market rates. An affiliate of BCI has an option to purchase all
the equipment and real property leased by the Company to Boston West. BCI agreed
to lend Boston West, over time, up to $63.8 million as part of this transaction.
This loan is convertible to common equity units in Boston West, at BCI's option,
at 115% of the original equity price. In addition, pursuant to this agreement,
the Company has an option to co-fund, along with BCI loan proceeds, the capital
requirements of Boston West up to a maximum of $15.0 million, of which the
Company has funded approximately $1.7 million as of January 31, 1996 through the
purchase of additional preferred units. The $15.0 million may be funded, in
part, by proceeds of the purchase option in the equipment and real property
leases when and if they are exercised.
On May 30, 1995, Boston West issued an additional $2.5 million of common equity
units to an independent investor group in return for cash and certain notes
receivable, which are secured by $1.2 million of Boston West common equity
units. As of this date, the Company ceased consolidating the operations of
Boston West into its financial statements and commenced realizing a pro-rata
share of the losses of its minority interest in Boston West.
On September 12, 1995, Boston West formally agreed to repurchase one half of the
Company's outstanding common equity units in Boston West, at a purchase price of
$10.00 per unit, or $310,000. As of this date, the Company began accounting for
its minority interest in Boston West using the cost method of accounting for
investments.
As of January 31, 1996, the Company's total long-term investment in Boston West
was $19.8 million, which approximates fair value. The Company's estimate of fair
value of its long-term investment was based on a number of factors including,
the discounted future cash flows of Boston West and the present value of
expected future preferred dividend distributions. A total of 54 Boston Market
stores were opened under the area development agreement with BCI as of fiscal
year end.
Subsequent to year end, an affiliate of BCI exercised its option to purchase a
portion of the real property leased by the Company to Boston West. The Company
received $2.5 million in cash and $2.5 million in additional preferred units in
exchange for the real property. In March 1996, the Company's Board of Directors
elected to cease participation in the option to co-fund the capital requirements
of Boston West. With the amounts co-funded to date and the potential exercise of
the purchase option in the equipment and the remaining real property, the
Company's minority interest in Boston West may be increased to up to
approximately 33% upon conversion of the preferred units.
NOTE 3 -- MARKETABLE SECURITIES
The Company accounts for its marketable securities under the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
Under this method, the Company's marketable securities are categorized as
available-for-sale, and as a result are stated at fair value. Unrealized holding
gains and losses are included as a component of stockholders' equity until
realized. Fair values are based on quoted market prices where available. For
marketable securities not actively traded, fair values are estimated using
values obtained from independent sources.
F-8
<PAGE> 29
Marketable securities consist primarily of holdings in investment-grade
preferred stock and debt securities in a variety of industries. The fair value
and cost of marketable securities, classified as current assets, are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- ---------------
FAIR FAIR
(DOLLARS IN THOUSANDS) VALUE COST VALUE COST
------ ------ ------ ------
<S> <C> <C> <C> <C>
Adjustable rate preferred stock........................ $ 193 $ 225 $ 503 $ 536
Fixed rate preferred stock............................. 1,633 1,891 1,510 1,921
Debt securities........................................ 563 462 763 763
Mutual funds and common stock.......................... 121 276 312 372
------ ------ ------ ------
$2,510 $2,854 $3,088 $3,592
====== ====== ====== ======
</TABLE>
Gross unrealized holding gains and unrealized holding (losses) as of January 31,
1996 were $144,000 and $(488,000), respectively, and, as of January 31, 1995,
were $41,000 and $(545,000), respectively.
Dividend income is recorded on the ex-dividend date and interest income is
recorded as earned. Securities transactions are accounted for on the trade date,
or the date the order to buy or sell is executed. Realized gains and losses from
securities transactions are determined on a specific identification basis.
NOTE 4 -- ACCOUNTS RECEIVABLE
Details of accounts receivable are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1996 1995
---- ----
<S> <C> <C>
Accounts receivable:
Trade receivables................................................... $3,232 $ 3,961
Income tax receivable............................................... 3,231 5,171
Notes receivable, current........................................... 594 3,062
Dividend receivable................................................. 714 --
Other............................................................... 238 217
------ -------
$8,009 $12,411
====== =======
</TABLE>
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
(DOLLARS IN THOUSANDS) USEFUL LIFE 1996 1995
----------- ---- ----
<S> <C> <C> <C>
Land ............................................... $ 27,891 $ 25,621
Leasehold improvements............................... 4-25 years 96,243 92,421
Buildings and improvements........................... 7-35 years 29,038 35,064
Equipment, furniture and fixtures.................... 3-10 years 128,670 124,735
-------- --------
281,842 277,841
Less: Accumulated depreciation and amortization...... 154,496 144,593
-------- --------
$127,346 $133,248
======== ========
</TABLE>
Provision is made for an impairment loss if the Company determines that the
carrying amount of a real estate asset may not be recoverable. Management
evaluates current and anticipated market conditions of the respective
properties to
F-9
<PAGE> 30
determine if an impairment loss has occurred. Losses are recognized when the
carrying value of these assets exceeds the total estimated undiscounted cash
flows expected to be generated over the assets' estimated life. The impairment
loss for all years presented is not considered material.
NOTE 6 -- LEASES
The Company occupies land and buildings under terms of numerous lease agreements
expiring on various dates through 2026. Many of these leases provide for future
rent escalations and renewal options. In addition, contingent rentals,
determined as a percentage of sales in excess of specified levels, are often
stipulated. Most of these leases obligate the Company to pay costs of
maintenance, insurance and property taxes.
Property under capital leases is comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
Buildings................................................ $64,186 $65,017
Less: Accumulated amortization........................... 35,787 34,502
------- -------
$28,399 $30,515
======= =======
</TABLE>
Amortization is calculated on the straight-line basis over the shorter of the
lease term or estimated useful lives of the assets.
Minimum lease payments for all leases and the present value of net minimum lease
payments for capital leases as of January 31, 1996 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Capital Operating
------- ---------
<S> <C> <C>
Fiscal Year
1997................................................... $ 8,533 $29,262
1998................................................... 8,217 28,333
1999................................................... 7,925 27,458
2000................................................... 7,446 25,894
2001................................................... 7,194 23,846
Thereafter............................................... 42,161 197,571
------- --------
Total minimum lease payments............................. $81,476 $332,364
========
Less: Amount representing interest....................... 37,498
-------
Present value of minimum lease payments.................. 43,978
Less: Current portion.................................... 3,745
-------
Capital lease obligations, excluding current portion..... $40,233
=======
</TABLE>
Total minimum lease payments have not been reduced by minimum sublease rentals
of $41.2 million due in the future under certain operating subleases.
The Company has leased and subleased land and buildings to others, primarily as
a result of the franchising of certain restaurants. Many of these leases provide
for fixed payments with contingent rent when sales exceed certain levels, while
others provide for monthly rentals based on a percentage of sales. Lessees
generally bear the cost of maintenance, insurance and property taxes. Components
of the net investment in leases receivable, included in other assets, are as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
Net minimum lease payments receivable................... $9,887 $10,690
Less: Unearned income................................... 5,135 5,774
------ -------
Net investment.......................................... $4,752 $ 4,916
====== =======
</TABLE>
F-10
<PAGE> 31
Minimum future rentals to be received as of January 31, 1996 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases or Lessor
(Dollars in thousands) Subleases Leases
---------- --------
<S> <C> <C>
Fiscal Year:
1997................................................ $ 803 $ 257
1998................................................ 804 257
1999................................................ 809 258
2000................................................ 808 259
2001................................................ 801 259
Thereafter.......................................... 5,862 1,884
------ -----
Total minimum future rentals.......................... $9,887 $3,174
====== ======
</TABLE>
Total minimum future rentals do not include contingent rentals which may be
received under certain leases.
The Company's investment in land under operating leases was $1.8 million at
January 31, 1996 and 1995.
Aggregate rents under noncancelable operating leases during fiscal 1996, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Minimum rentals.......................................... $29,225 $29,173 $28,989
Contingent rentals....................................... 1,384 1,459 1,583
Less: Sublease rentals................................... 5,058 5,029 4,812
------- ------- -------
$25,551 $25,603 $25,760
======= ======= =======
</TABLE>
NOTE 7 -- OTHER CURRENT LIABILITIES
Other current liabilities are comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
Salaries, wages and other benefits....................... $ 9,981 $ 7,732
Self-insured workers' compensation reserve (see Note 9).. 6,854 7,650
Other self-insurance reserves............................ 1,328 1,323
State sales taxes........................................ 5,881 2,525
Deferred revenues........................................ 4,351 3,020
Other accrued liabilities................................ 4,778 7,815
------- -------
$33,173 $30,065
======= =======
</TABLE>
F-11
<PAGE> 32
NOTE 8 -- CREDIT FACILITIES AND LONG-TERM DEBT
As of January 31, 1995, advances totaling $18.8 million were drawn against the
Company's former revolving credit line, primarily to fund the Company's Boston
Market franchise operations. Following the formation of Boston West in April
1995, the Company's loan agreement with its bank was amended such that these
borrowings were converted to a term loan, payable in quarterly installments
through September 1998. In addition, a new $15.0 million unsecured revolving
credit line that expires in August 1996 was also established for use in the
Company's ongoing Carl's Jr. operations. As of January 31, 1996, a total of
$15.0 million was available to the Company under this new line of credit.
Subsequent to year end, the Company's bank agreement was amended such that
certain of the covenants governing this agreement were modified for the current
fiscal year and for future measurement periods. As a result of the amendment,
the Company was in compliance with all of the covenants governing its bank
agreement as of January 31, 1996.
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
Unsecured note payable to bank, principal payments in specified amounts
quarterly through 1998, interest based on the bank prime rate plus .25%.. $22,750 $18,825
Secured note payable to bank, principal payments in specified amounts
annually through 1999, interest at 12.95%; prepaid in January 1996....... -- 4,494
Secured note payable, principal payments in specified amounts annually
through 2000, interest at 13.5%.......................................... 3,993 5,168
Secured note payable, principal payments in specified amounts
monthly through 2001, interest at 8.17%.................................. 5,398 --
Industrial Revenue Bonds, payable in 1999, variable interest
rate averaging 3.82% in 1996 and 3.02% in fiscal 1995.................... 3,600 3,600
Other...................................................................... 3,155 3,259
------- -------
38,896 35,346
Less: Current portion...................................................... 8,575 8,168
------- -------
$30,321 $27,178
======= =======
</TABLE>
Notes payable mature in fiscal years ending after January 31, 1996 as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year:
1997....................................................................... $ 8,575
1998....................................................................... 9,242
1999....................................................................... 9,139
2000....................................................................... 4,703
2001....................................................................... 4,801
Thereafter................................................................... 2,436
-------
$38,896
=======
</TABLE>
Secured notes payable are collateralized by certain restaurant property deeds of
trust, with a carrying value of $15.5 million as of January 31, 1996.
In February 1996, the Company paid in full the 13.5% secured note payable of
$4.0 million and also paid $2.5 million against its term loan payable. After
consideration of these debt payments subsequent to year end, the Company's total
long-term debt obligation would be $32.4 million, payable as follows: $7.4
million in 1997; $8.2 million in 1998; $5.9 million in 1999; $4.1 million in
2000, $4.4 million in 2001 and $2.4 million thereafter. The carrying value of
property secured by notes payable after such payments of debt would be $9.4
million.
F-12
<PAGE> 33
NOTE 9 -- OTHER LONG-TERM LIABILITIES
Other long-term liabilities consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
Self-insured workers' compensation reserve........ $6,784 $7,160
Exit costs........................................ 5,274 5,649
Other .......................................... 1,641 1,641
------ ------
$13,699 $14,450
======= =======
</TABLE>
The Company presently self-insures for group insurance, workers' compensation
and fire and comprehensive protection on most equipment and certain other
assets. A total of $13.6 million and $14.8 million was accrued as of January 31,
1996 and 1995, respectively, representing the current and long-term portions of
the net present value of an independent actuarial valuation of the Company's
workers' compensation claims. These amounts are net of a discount of $2.0
million and $1.7 million in fiscal 1996 and 1995, respectively.
In prior years, the Company initiated programs to dispose of or franchise its
Arizona and Texas operations. As of January 31, 1996 and 1995, $6.7 million and
$7.0 million, respectively, were accrued for these reserves, including the
current portion. These balances were mainly comprised of estimated lease
subsidies, $2.7 million of which were reduced in connection with the
reacquisition of several Carl's Jr. franchised restaurants from a related party
during fiscal 1995 (see Note 12). These lease subsidies represent the net
present value of the excess of future lease payments over estimated sublease
income. The remaining unamortized discount to present value of these lease
subsidies at January 31, 1996 was $4.4 million and will be amortized to
operations over the remaining sublease terms, which range up to 21 years.
NOTE 10 -- STOCKHOLDERS' EQUITY
Upon consummation of the Merger, stockholders of Enterprises received one share
of the Company's common stock for each share of Enterprises' common stock owned
by them just prior to the Merger. In connection with this transaction, the
Certificate of Incorporation was adopted for CKE which authorizes 50,000,000
shares of common stock and 5,000,000 shares of preferred stock, both of which
have a par value of $.01 per share.
In July 1994, the Board of Directors authorized the repurchase of up to two
million shares of the Company's common stock. A total of 670,300 shares of stock
were repurchased to date, which includes the purchase of 62,500 shares in fiscal
1995 from the Chairman Emeritus at the then market price of $9.13 per share. The
balance of these shares were purchased in a series of open market transactions,
at an average price of approximately $7.48 per share, for an aggregate purchase
price of approximately $4.5 million. All shares purchased are being held as
treasury stock.
During the second quarter of fiscal 1994, the Company purchased a total of
59,750 shares from the Carl N. and Margaret M. Karcher Trust for an aggregate
purchase price of $422,000. All shares purchased were canceled and retired.
F-13
<PAGE> 34
NOTE 11 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents information on the Company's financial instruments:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---------------------- ----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents......................... $23,429 $23,429 $15,174 $15,174
Marketable securities............................. 2,510 2,510 3,088 3,088
Notes receivable.................................. 9,051 9,097 18,112 17,976
Financial liabilities:
Long-term debt, including current portion......... 36,412 34,525 32,832 31,953
</TABLE>
The estimated fair values of marketable securities were based on quoted market
prices. The estimated fair values of notes receivable were determined by
discounting future cash flows using current rates at which similar loans would
be made to borrowers with similar credit ratings. The estimated fair value of
long-term debt was determined by discounting future cash flows using rates
currently available to the Company for debt with similar terms and remaining
maturities.
NOTE 12 -- RELATED PARTY TRANSACTIONS
Certain members of management and the Karcher family are franchisees of the
Company. A total of 38 restaurants have been sold to these individuals, one of
which occurred during fiscal 1996. As part of these transactions, the Company
received cash and accepted $10.4 million of interest-bearing notes.
Additionally, these franchisees regularly purchase food and other products from
the Company on the same terms and conditions as other franchisees. During fiscal
1995, the Company made a salary advance to the Chairman Emeritus totaling
$715,000, a majority of which is non-interest bearing and is to be repaid
through payroll deductions. The entire amount will be repaid by December 1998.
Details of amounts outstanding are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
Advance to Chairman Emeritus.............. $ 595 $ 667
7.0% Secured notes....................... 249 296
10.0% Secured notes....................... 72 --
12.0% Secured notes....................... -- 297
12.5% Secured notes....................... 305 1,318
------ ------
1,221 2,578
Less: Long-term portion................... 969 2,109
------ ------
252 469
Trade receivables......................... 725 1,040
------ ------
$ 977 $1,509
====== ======
</TABLE>
In June 1994, the Company reacquired 12 Arizona restaurants from a Karcher
family member who was formerly an officer of the Company. As part of this
transaction, the Company took possession of certain restaurant assets in
exchange for the forgiveness of two notes receivable totaling $1.4 million, and
a cash payment of $650,000. In addition, as described in Note 9, certain
previously established lease subsidy reserves totaling $2.7 million were
reversed in fiscal 1995 as a result of this transaction.
F-14
<PAGE> 35
The Company leases various properties, including its corporate headquarters, one
of its distribution facilities and three of its restaurants, from the Chairman
Emeritus. Included in capital lease obligations was $4.5 million and $4.9
million, representing the present value of lease obligations related to these
various properties at January 31, 1996 and 1995, respectively. Lease payments
under these leases for fiscal 1996, 1995 and 1994 amounted to $1.4, $1.4, and
$1.5 million, respectively. This was net of sublease rentals of $148,000,
$154,000 and $171,000 in fiscal 1996, 1995 and 1994, respectively.
In fiscal 1994, the Chairman Emeritus was granted future retirement benefits for
past services consisting principally of payments of $200,000 per year for life
and supplemental health benefits, which had a net present value of $1.7 million
as of that date. This amount was computed using certain actuarial assumptions,
including a discount rate of 7%. A total of $1.4 million remained accrued in
other current liabilities as of January 31, 1996. The Company anticipates
funding these obligations as they become due.
NOTE 13 -- CARL'S JR. FRANCHISE AND LICENSE OPERATIONS
Franchise arrangements, with franchisees who operate in Arizona, California,
Nevada, Oregon and Utah, generally provide for initial fees and continuing
royalty payments to the Company based upon a percent of sales. The Company
generally charges an initial franchise fee for each new franchised restaurant
that is added to its system, and in some cases, an area development fee, which
grants exclusive rights to develop a specified number of Carl's Jr. restaurants
in a designated geographic area within a specified time period. Similar fees are
charged in connection with the Company's international licensing operations.
These fees are recognized ratably when substantially all the services required
of the Company are complete and the restaurants covered by these agreements
commence operations.
Franchisees may also purchase food, paper and other supplies from the Company.
Additionally, franchisees may be obligated to remit lease payments for the use
of restaurant facilities owned or leased by the Company, generally for a period
of 20 years. Under the terms of these leases, they are required to pay related
occupancy costs which include maintenance, insurance and property taxes.
The Company receives notes from franchisees in connection with the sales of
Company-operated restaurants. During fiscal 1996, the Company sold certain of
its franchise notes receivable, with partial recourse, to an independent third
party for cash proceeds of approximately $8.4 million. The remaining notes bear
interest from 7.0% to 12.5%, mature in five to 15 years and are secured by an
interest in the restaurant equipment sold.
Revenues from franchised and licensed restaurants consist of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Food service................. $56,036 $57,058 $60,979
Rental income................ 10,116 10,257 10,575
Royalties.................... 5,704 6,284 6,253
Initial fees................. 116 91 297
Other ..................... (21) 12 531
------- ------- -------
$71,951 $73,702 $78,635
======= ======= =======
</TABLE>
Operating costs and expenses for franchised and licensed restaurants consist of
the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Food service............................................ $56,590 $57,334 $60,827
Occupancy and other operating expenses.................. 12,249 12,537 12,725
------- ------- -------
$68,839 $69,871 $73,552
======= ======= =======
</TABLE>
F-15
<PAGE> 36
NOTE 14 -- INTEREST EXPENSE
Interest expense consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Notes payable and revolving credit lines........... $ (3,585) $(2,484) $ (3,472)
Capital lease obligations.......................... (5,898) (6,194) (6,454)
Other ........................................... (521) (524) (461)
--------- -------- --------
$(10,004) $(9,202) $(10,387)
======== ======= ========
</TABLE>
NOTE 15 -- OTHER INCOME, NET
Other income, net is comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net losses on sales of restaurants................. $ (338) $ (463) $ (162)
Gains on sales of investments...................... 206 564 2,675
Losses on sales of investments..................... (351) (721) (1,325)
Loss on long-term investments...................... (1,624) -- --
Dividend income.................................... 854 357 559
Lease income....................................... 981 -- --
Interest income.................................... 2,494 3,261 4,401
------- ------ -------
$ 2,222 $2,998 $ 6,148
======= ====== =======
</TABLE>
NOTE 16 -- INCOME TAXES
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal...................................... $2,018 $(1,996) $ 2,327
State ....................................... 772 (304) 672
------ ------- -------
2,790 (2,300) 2,999
------ ------- -------
Deferred:
Federal...................................... 3,878 2,517 (1,471)
State ....................................... 333 917 (204)
------ ------- -------
4,211 3,434 (1,675)
------ ------- -------
7,001 1,134 1,324
Tax effect of cumulative effect of change in
accounting principle......................... -- -- 512
------ ------- -------
$7,001 $ 1,134 $ 1,836
====== ======= =======
</TABLE>
F-16
<PAGE> 37
A reconciliation of income tax expense at the federal statutory rate of 34% to
the Company's provision for taxes on income is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income taxes at statutory rate................................. $6,104 $ 815 $ 2,131
State income taxes, net of federal income tax benefit.......... 738 800 306
Dividend exclusion............................................. (29) (86) (161)
Targeted jobs tax credits...................................... (243) (338) (774)
Alternative minimum tax credit................................. -- (551) --
Adjustment of prior years' estimated liabilities............... 289 157 --
Increase in valuation allowance................................ 152 298 200
Other, net..................................................... (10) 39 134
------- ------- -------
$ 7,001 $ 1,134 $ 1,836
======= ======= =======
</TABLE>
Temporary differences and carryforwards gave rise to a significant amount of
deferred tax assets and liabilities as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deferred tax asset:
Capitalized leases........................................... $ 8,641 $ 8,589 $ 8,449
Workers' compensation reserve................................ 5,905 6,413 6,976
Exit costs................................................... 2,905 3,068 4,997
Targeted jobs tax credit carryforward........................ 3,055 2,695 2,137
Arbitration judgment and other litigation.................... -- -- 1,539
Other........................................................ 5,437 5,208 5,612
------- ------- -------
25,943 25,973 29,710
Less: Valuation allowance.................................... 1,945 1,793 1,495
------- ------- -------
Total deferred tax asset....................................... 23,998 24,180 28,215
------- ------- -------
Deferred tax liability:
Depreciation................................................. 9,896 9,537 10,210
Safe harbor leases........................................... 586 1,054 1,461
Long-term investment......................................... 2,017 -- --
Other........................................................ 1,443 1,335 1,234
------- ------- -------
Total deferred tax liability................................... 13,942 11,926 12,905
------- ------- -------
Net deferred tax asset......................................... $10,056 $12,254 $15,310
======= ======= =======
</TABLE>
While there can be no assurance that the Company will generate any earnings or
any specific level of earnings in future years, management believes it is more
likely than not that the Company will realize the majority of the benefit of the
existing net deferred tax asset at January 31, 1996, based on the Company's
current, historical and future pre-tax earnings.
The Company had targeted jobs tax credit carryforwards of $3.1 million, which
expire in the years 2007 through 2011, available at January 31, 1996. The
Company also had an alternative minimum tax credit carryforward of $700,000 with
no expiration date.
NOTE 17 -- EMPLOYEE BENEFIT AND RETIREMENT PLANS
Profit Sharing and Savings Plan
The Company maintains a voluntary contributory profit sharing and savings
investment plan for all eligible employees other than operations hourly
employees. Annual contributions under the profit sharing portion of the plan
are determined at the discretion of the Company's Board of Directors. Under the
savings investment portion of the plan, participants may elect to contribute up
to 15% of their annual salary to the plan. Through December 31, 1994, up to 4%
of employee contributions were matched by the Company. Total Company
contributions to this plan for fiscal 1995 and 1994 were $344,000 and $813,000,
respectively.
F-17
<PAGE> 38
Pension Plan
The Company also maintains a defined benefit pension plan covering substantially
all operations employees qualified as to age and service. For fiscal 1996, 1995
and 1994, pension contributions were $512,000, $438,000 and $442,000,
respectively. Under the terms of the defined benefit plan, pension expense is
computed based upon an independent actuarial valuation study. Company
contributions under this plan are funded quarterly. As of February 1, 1995 and
1994, the accumulated benefit obligation related to the plan was $2.0 million
and $1.8 million, respectively. On January 1, 1996, the pension plan was amended
to limit participation in the plan only to those employees who have become
participants in the plan on or before December 31, 1995 and any future
contribution of plan benefits will discontinue after December 31, 1995.
Stock Purchase Plan
In fiscal 1995, the Board of Directors adopted, and stockholders subsequently
approved in fiscal 1996, an Employee Stock Purchase Plan ("ESPP"). Under the
terms of the ESPP, eligible employees may voluntarily purchase, at current
market prices, up to 500,000 shares of the Company's common stock through
payroll deductions. Pursuant to the ESPP, employees may contribute an amount
between 3% and 10% of their base salary. The Company contributes varying amounts
as specified in the ESPP. During fiscal 1996, 25,782 shares were purchased and
allocated to employees, based upon their contributions, at an average price of
$12.71 per share. The Company contributed $8,000 or an equivalent of 460 shares
for the year ended January 31, 1996.
Stock Incentive Plans
The Company's 1994 stock incentive plan was approved by stockholders in June
1994. The 1994 plan is substantially similar to the 1993 plan under which, as a
result of the merger, no further options may be granted. Awards granted to
eligible employees under the 1994 plan are not restricted as to any specified
form or structure, with such form, vesting and pricing provisions determined by
the Compensation Committee of the Board of Directors. The 1994 plan also
provides for the automatic annual award of stock options to nonemployee
directors and nonemployee director members of the Executive Committee. Options
generally have a term of five years from the date of grant for the nonemployee
directors and ten years from the date of grant for employees, become exercisable
at a rate of 33-1/3% per year following the grant date and are priced at the
fair market value of the shares on the date of grant. A total of 1,750,000
shares are available for grants of options or other awards under this plan, of
which 859,235 stock options were outstanding as of January 31, 1996, with
exercise prices ranging from $6.75 per share to $16.00 per share.
The Company's 1993 stock incentive plan was superseded by the 1994 plan, as
discussed above. As of January 31, 1996, 424,522 stock options, with exercise
prices ranging from $7.13 per share to $13.38 per share, were outstanding under
the plan. No further awards may be granted under this plan.
The Company's 1982 stock option plan expired in September 1992. Under this plan,
stock options were granted to key employees to purchase up to 3,000,000 shares
of its common stock at a price equal to or greater than the fair market value at
the date of grant. The options generally had a term of 10 years from the grant
date and became exercisable at a rate of 25%, 35% and 40% per year following the
grant date. The exercise price of the 328,037 options outstanding as of January
31, 1996 under this plan ranges from $5.21 per share to $13.38 per share.
Transactions under all plans are as follows:
<TABLE>
<CAPTION>
Number of Shares 1996 1995 1994
- ---------------- ---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year.............. 1,188,033 1,372,634 1,554,766
Granted....................................... 896,406 437,206 579,812
Cancelled..................................... (117,642) (454,296) (116,349)
Exercised..................................... (355,003) (167,511) (645,595)
--------- --------- ---------
Outstanding at end of year.................... 1,611,794 1,188,033 1,372,634
========== ========= =========
Exercisable at end of year.................... 621,741 648,324 745,310
========== ========= =========
</TABLE>
F-18
<PAGE> 39
NOTE 18 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest (net of amount capitalized)............................................. $10,198 $ 9,208 $10,558
Income taxes..................................................................... 2,571 645 1,675
Noncash investing and financing activities are as follows:
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- ----
Noncash investing and financing activities:
Transfers of marketable securities to (from) other current assets............. $ -- $(6,776) $ 6,776
Transfer of inventory, current assets and property and
equipment to long-term investments.......................................... 20,352 -- --
Other investing activities:
Net change in dividend receivable........................................... (714) -- --
Leasing activities:
Capital lessee additions...................................................... 856 -- 505
Capital lessor additions .................................................... -- -- 538
Other leasing activities:
Increase in property and equipment.......................................... -- (1,356) --
Reverse certain lease subsidy reserves...................................... -- 2,680 --
Franchising and other disposition activities:
(Increase) decrease in property and equipment................................. (2,875) -- 344
(Increase) decrease in notes receivable....................................... 2,796 1,356 (551)
Decrease in accounts receivable............................................... 689 -- --
Sale/leaseback activities:
Transfer of restaurant property costs to property
and equipment............................................................... -- -- 6,750
</TABLE>
NOTE 19 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly results.
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter 1ST 2ND 3RD 4TH
------ ------ ------ ------
<S> <C> <C> <C> <C>
FISCAL 1996
Total revenues................................. $137,625 $108,040 $113,074 $106,698
Operating income .............................. 5,264 6,554 7,373 6,544
Net income ................................... 1,915 2,808 3,021 3,208
Net income per common and
common equivalent share....................... $ .11 $ .15 $ .16 $ .17
======== ======== ======== ========
FISCAL 1995
Total revenues................................. $135,006 $105,308 $103,791 $ 99,642
Operating income.............................. 2,904 2,392 1,581 1,725
Net income (loss).............................. 656 864 286 (542)
Net income (loss) per common and
common equivalent share....................... $ .04 $ .05 $ .02 $ (.03)
======== ======== ======== ========
</TABLE>
F-19
<PAGE> 40
Quarterly operating results are not necessarily representative of operations for
a full year for various reasons, including the seasonal nature of the
quick-service restaurant industry, unpredictable adverse weather conditions
which may affect sales volume and food costs. In addition, all quarters have
12-week accounting periods, except the first quarters of 1996 and 1995, which
have 16-week accounting periods.
NOTE 20 -- COMMITMENTS AND CONTINGENT LIABILITIES
Concurrent with the new unsecured line of credit (see Note 8), a letter of
credit facility, totalling $12.4 million, was established. Two letters of credit
are outstanding under this facility, one for $8.5 million issued in May 1995 and
a second one for $3.9 million issued in September 1994. The $8.5 million letter
of credit secures the Company's potential workers' compensation claims and will
expire on June 30, 1996. The State of California requires that the Company
provide this letter of credit each year based on its existing claims experience,
or set aside a comparable amount of cash or investment securities in a trust
account. The upcoming annual security requirement, which begins May 1, 1996, was
lowered to $8.3 million due to an improvement in the Company's claims
experience. A new letter of credit will be issued for this amount on or before
May 1, 1996. The $3.9 million letter of credit secures the Industrial Revenue
Bonds issued in connection with the construction of the Company's Northern
California distribution facility and expires in January 1997.
The Company's standby letter of credit agreements with various banks expire as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
June 1996............................. $ 8,586
January 1997.......................... 3,852
April 2000............................ 275
-------
$12,713
=======
</TABLE>
The Company sold certain of its franchise notes receivable, with recourse, to an
independent third party (see Note 13). Under the terms of the sale agreement, as
of January 31, 1996, the Company is contingently liable for approximately $5.9
million.
NOTE 21 -- SUMMIT ACQUISITION
The Company and Summit Family Restaurants Inc. ("Summit") signed an Agreement
and Plan of Merger and Reorganization ("Merger Agreement") dated as of November
30, 1995, amended as of January 24, 1996 and further amended as of April 2,
1996. Under the terms of the Merger Agreement, as amended, CKE acquired from ABS
MB (JB) Limited Partnership 946,714 shares of Series A Convertible Preferred
Stock of Summit on April 4, 1996 at a purchase price of $5.27 per share in cash,
and will complete the acquisition of Summit in a merger transaction in which all
4,805,902 shares of Summit common stock (other than dissenting shares, if any)
will be converted into $2.63 in cash and .165 shares of CKE common stock (the
"Summit Merger"). The number of shares of CKE common stock to be issued in the
Summit Merger remains subject to adjustment under certain circumstances. The
consummation of the Summit Merger is currently expected to occur in May 1996,
and remains subject to a number of conditions, including Summit's shareholder
approval and other customary conditions. The total estimated purchase price of
this transaction is approximately $30.3 million.
Summit operates restaurants under three concepts: 77 company-operated and 24
franchised family style JB's Restaurants; six Galaxy Diner restaurants, which is
a promising new 50's diner concept; and 16 HomeTown Buffet restaurants, which
are operated by Summit as a franchisee.
The Company anticipates the potential disposition of Summit's 16 HomeTown Buffet
Restaurants for cash. Any such sale would generate positive cash flows to reduce
the total cash outlay required for the Summit Merger, and for use in the
expansion of the Galaxy Diner concept. CKE's management is performing an ongoing
evaluation regarding the nature and scope of Summit's JB's Restaurants
operations. Various short- and long-term strategic considerations are being
assessed, including: the sale, franchise, or other disposition of certain JB's
Restaurants; the conversion of certain JB's Restaurants to the Carl's Jr. and
Galaxy Diner concept and the retention of a number of JB's Restaurants.
F-20
<PAGE> 41
EXHIBIT INDEX
EXHIBITS
2-1 Agreement and Plan of Merger and Reorganization, dated as of
November 30, 1995; First Amendment to Agreement and Plan of Merger
and Reorganization, dated as of January 24, 1996; and Second
Amendment to Agreement and Plan of Merger and Reorganization, dated
as of April 2, 1996 between CKE Restaurants, Inc. and Summit Family
Restaurants Inc. The schedules to the Merger Agreement are omitted.
The Registrant agrees to furnish supplementally any omitted
schedule to the Securities and Exchange Commission upon request.
(1)
3-1 Certificate of Incorporation of the Registrant, incorporated herein
by reference to exhibit 3-1 to the Registrant's Form S-4
Registration Statement Number 33-52523.
3-2 Bylaws of Registrant as currently in effect. (1)
10-1 Franchise Development Agreement dated May 17, 1985 by and between
Carl Karcher Enterprises, Inc. and Carl Leo Karcher, filed as
exhibit 10-53 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
10-2 Form of Franchise Agreement by and between Carl Karcher
Enterprises, Inc., and Carl Leo Karcher or CLK, Inc. filed as
exhibit 10-54 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is herein incorporated
by reference, relating to the following units:
<TABLE>
<CAPTION>
Date Unit Address
---- ---- -------
<S> <C> <C>
May 17, 1985 724 68980 Highway 111
May 17, 1985 725 102 N. Sunrise Way
May 17, 1985 726 72840 Highway 111
May 17, 1985 727 81-770 Highway 111
May 17, 1985 728 73-125 Highway 111
May 17, 1985 729 57222 29 Palms Highway
May 17, 1985 730 13010 Palm Drive
May 17, 1985 731 2520 Palm Canyon Drive
December 31, 1985 768 2601 W. Broadway
January 25, 1986 769 160 S. Lovekin
January 25, 1986 770 1750 4th Avenue
January 25, 1986 771 2215 S. Fourth
October 27, 1987 772 115 Main Street
March 3, 1987 786 1489 Adams Avenue
July 6, 1987 793 72305 Vaimer Road
October 27, 1987 794 2195 Highway 95
June 14, 1988 811 40050 Washington
June 26, 1989 820 I-8 Business Loop
November 12, 1990 873 32-250 Date Palm Drive
April 1, 1991 895 50-087 Harrison Street
December 16, 1991 7013 41717 Big Bear Blvd.
January 20, 1992 7038 275 N. Lake Havasu Blvd.
April 7, 1993 7085 78-672 Highway 111
</TABLE>
E-1
<PAGE> 42
10-3 Form of Sublease between Carl Karcher Enterprises, Inc., and Carl
Leo Karcher or CLK, Inc., filed as exhibit 10-62 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is herein incorporated by reference, relating to the
following units:
<TABLE>
<CAPTION>
Date Unit Address
---- ---- -------
<S> <C> <C>
May 16, 1985 724 68980 Highway 111
May 16, 1985 725 102 N. Sunrise Way
May 16, 1985 728 73-125 Highway 111
May 16, 1985 729 57222 29 Palms Highway
May 15, 1985 730 13010 Palm Drive
May 16, 1985 731 2520 Palm Canyon Drive
September 25, 1987 794 2195 Highway 95
December 16, 1991 7013 41717 Big Bear Blvd.
</TABLE>
10-4 Land and Building Sublease Agreement dated December 31, 1985 by and
between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, filed
as exhibit 10-71 to the Company's Form 10-K Annual Report as
amended for fiscal year ended January 27, 1992, and is hereby
incorporated by reference.
10-5 Lease Agreement dated September 25, 1987 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment
to Lease dated October 19, 1990 (Unit 772), filed as exhibit 10-81
to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-6 Form of Assignment of Franchise Agreement, Release and Continuing
Guaranty between Carl Karcher Enterprises, Inc., and Carl Leo
Karcher or CLK, Inc., filed as exhibit 10-51 to the Company's Form
10-K Annual Report as amended for fiscal year ended January 27,
1992, and is herein incorporated by reference, relating to the
following units:
<TABLE>
<CAPTION>
Date Unit Address
---- ---- -------
<S> <C> <C>
June 9, 1992 724 68980 Highway 111
June 9, 1992 725 102 N. Sunrise Way
June 9, 1992 727 81-770 Highway 111
June 9, 1992 728 73-125 Highway 111
June 9, 1992 729 57222 29 Palms Highway
June 9, 1992 731 2520 Palm Canyon Drive
June 9, 1992 768 2601 W. Broadway
June 9, 1992 769 160 S. Lovekin
June 9, 1992 770 1750 4th Avenue
June 9, 1992 771 2215 S. Fourth
October 27, 1987 772 115 Main Street
January 27, 1987 786 1498 Adams Avenue
October 5, 1987 793 72305 Vaimer Road
August 1, 1988 811 40050 Washington
January 1, 1990 820 388 West 32nd Street
November 13, 1990 873 32-250 Date Palm Drive
March 29, 1991 895 50-087 Harrison Street
December 16, 1991 7013 41717 Big Bear Boulevard
January 20, 1992 7038 275 N. Lake Havasu Boulevard
April 7, 1993 7085 78-672 Highway 111
</TABLE>
10-7 Assignment of Franchise Agreement and Sublease Agreement by Carl
Leo Karcher to CLK, Inc. and Continuing Guaranty each dated August
17, 1989 (Unit 730), filed as exhibit 10-39 to the Company's Form
10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-8 Assignment of Franchise Agreement and Lease Agreement by Carl Leo
Karcher to CLK, Inc. and Continuing Guaranty each dated August 17,
1989 (Unit 726) filed as exhibit 10-94 to the Company's Form 10-K
Annual Report as amended for fiscal year ended January 27, 1992,
and is hereby incorporated by reference.
E-2
<PAGE> 43
10-9 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to
CLK, Inc. dated November 28, 1989 (Unit 704), filed as exhibit
10-95 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-10 License Agreement dated January 27, 1987 by and between Carl
Karcher Enterprises, Inc. and CLK, Inc., as amended by the
Amendment to License Agreement dated October 10, 1990, filed as
exhibit 10-76 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
10-11 Agreement to Purchase dated October 27, 1987 by and between Carl
Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 772), filed as
exhibit 10-83 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
10-12 Agreement to Purchase dated October 27, 1987 by and between Carl
Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 794), filed as
exhibit 10-84 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
10-13 Conditional Assignment of Lease dated November 7, 1990 between CLK,
Inc. and Carl Karcher Enterprises, Inc. (Unit 770), filed as
exhibit 10-97 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
10-14 Conditional Assignment of Lease dated November 7, 1990 between CLK,
Inc. and Carl Karcher Enterprises, Inc. (Unit 771), filed as
exhibit 10-98 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
10-15 Conditional Assignment of Lease dated December 18, 1990 by and
between CLK, Inc. and Carl Karcher Enterprises, Inc. (Unit 726),
filed as exhibit 10-101 to the Company's Form 10-K Annual Report as
amended for fiscal year ended January 27, 1992, and is hereby
incorporated by reference.
10-16 Development Agreement dated March 22, 1991 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-102 to
the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-17 Security Agreement dated December 16, 1991 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 7013/433), filed as
exhibit 10-111 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
10-18 Carl Karcher Enterprises, Inc. Profit Sharing Plan, as amended,
filed as exhibit 10-21 to the Company's Registration Statement on
Form S-1, file No. 2-73695, and is hereby incorporated by
reference.(2)
10-19 Carl Karcher Enterprises, Inc. Key Employee Stock Option Plan,
filed as exhibit 10-24 to the Company's Registration Statement on
Form S-1, file No. 2-80283, and is hereby incorporated by
reference.(2)
10-20 Carl Karcher Enterprises, Inc. 1993 Employee Stock Incentive Plan,
filed as exhibit 10-123 to the Company's Form 10-K Annual Report
for fiscal year ended January 25, 1993, and is hereby incorporated
by reference.(2)
10-21 CKE Restaurants, Inc. 1994 Stock Incentive Plan, incorporated
herein by reference to exhibit 99 to the Registrant's Form S-8
Registration Statement Number 33-55337.(2)
10-22 CKE Restaurants, Inc. 1994 Employee Stock Purchase Plan,
incorporated herein by reference to exhibit 99 to the Registrant's
Form S-8 Registration Statement Number 33-56313.(2)
10-23 Employment Agreement dated January 1, 1994, by and between Carl
Karcher Enterprises, Inc. and Carl N. Karcher, filed as exhibit
10-89 to the Company's Form 10-K Annual Report for fiscal year
ended January 31, 1994, and is hereby incorporated by reference.
10-24 Employment Agreement dated November 8, 1994, by and between Carl
Karcher Enterprises, Inc. and C. Thomas Thompson, filed as exhibit
10-83 to the Company's Form 10-K Annual Report for fiscal year
ended January 30, 1995, and is hereby incorporated by reference.(2)
E-3
<PAGE> 44
10-25 Business Loan Agreement dated October 31, 1994, by and between CKE
Restaurants, Inc., Carl Karcher Enterprises, Inc., Boston Pacific,
Inc. and Bank of America National Trust and Savings Association,
filed as exhibit 10-79 to the Company's Form 10-K Annual Report for
fiscal year ended January 30, 1995, and is hereby incorporated by
reference.
10-26 Continuing Guaranty dated October 31, 1994, by and between CKE
Restaurants, Inc. and Bank of America National Trust and Savings
Association, filed as exhibit 10-80 to the Company's Form 10-K
Annual Report for fiscal year ended January 30, 1995, and is hereby
incorporated by reference.
10-27 Amendment No. One to Loan Agreement dated April 5, 1995, by and
between CKE Restaurants, Inc., Carl Karcher Enterprises, Inc.,
Boston Pacific, Inc. and Bank of America National Trust and Savings
Association, filed as exhibit 10-81 to the Company's Form 10-K
Annual Report for fiscal year ended January 30, 1995, and is hereby
incorporated by reference.
10-28 Amendment No. Two and Waiver to Business Loan Agreement dated April
28, 1995, by and between CKE Restaurants, Inc., Carl Karcher
Enterprises, Inc. and Bank of America National Trust and Savings
Association, filed as exhibit 10-82 to the Company's Form 10-K
Annual Report for fiscal year ended January 30, 1995, and is hereby
incorporated by reference.
10-29 Amendment No. Three and Waiver to Business Loan Agreement dated as
of July 3, 1995, by and between CKE Restaurants, Inc., Carl Karcher
Enterprises, Inc. and Bank of America National Trust and Savings
Association.(1)
10-30 Amendment No. Four and Consent to Business Loan Agreement dated as
of April 15, 1996, by and between CKE Restaurants, Inc., Carl
Karcher Enterprises, Inc. and Bank of America National Trust and
Savings Association.(1)
10-31 Settlement and Development Agreement by and between Carl Karcher
Enterprises, Inc., CKE Restaurants, Inc. and GB Foods Corporation
dated as of May 1995. (1)
10-32 Agreement to Contribute Assets dated April 17, 1995 by and between
Boston West, L.L.C. and Boston Pacific, Inc., filed as exhibit
10-84 to the Company's Form 10-K Annual Report for fiscal year
ended January 30, 1995, and is hereby incorporated by reference.
10-33 Amended and Restated Limited Liability Company Agreement of Boston
West, L.L.C. (a Delaware Limited Liability Company) dated April 16,
1995, filed as exhibit 10-85 to the Company's Form 10-K Annual
Report for fiscal year ended January 30, 1995, and is hereby
incorporated by reference.
10-34 First Amendment to the Amended and Restated Limited Liability
Company Agreement of Boston West, L.L.C. dated May 15, 1995. (1)
10-35 Second Amendment to the Amended and Restated Limited Liability
Company Agreement of Boston West, L.L.C. dated May 30, 1995. (1)
10-36 Third Amendment to the Amended and Restated Limited Liability
Company Agreement of Boston West, L.L.C. dated September 12, 1995.
(1)
10-37 Fourth Amendment to the Amended and Restated Limited Liability
Company Agreement of Boston West, L.L.C. dated January 31, 1996.
(1)
10-38 Unit Option Agreement by and between Boston West, L.L.C. and Boston
Pacific, Inc., dated as of September 12, 1995. (1)
10-39 Unit Repurchase Agreement by and between Boston West, L.L.C. and
Boston Pacific, Inc. dated as of September 12, 1995. (1)
10-40 Term Loan and Security Agreement between Carl Karcher Enterprises,
Inc. and Heller Financial, Inc., dated December 19, 1995. (1)
10-41 Amendment No. One to Term Loan and Security Agreement dated as of
January 22, 1996, by and between Carl Karcher Enterprises, Inc. and
Heller Financial, Inc. (1)
E-4
<PAGE> 45
11-1 Computation of Earnings Per Share.(1)
12-1 Computation of Ratios. (1)
21-1 Subsidiaries of Registrant.(1)
23-1 Consent of KPMG Peat Marwick LLP.(1)
27-1 Financial Data Schedule (included only with electronic filing).
- -----------------------
(1) Filed herewith.
(2) A management contract or compensatory plan or arrangement required
to be filed as an exhibit to this report pursuant to Item 14(c) of
Form 10-K.
E-5
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.
AND
CKE RESTAURANTS, INC.
DATED: NOVEMBER 30, 1995
--------------
FOLLOWED BY
--------------
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.
AND
CKE RESTAURANTS, INC.
DATED: JANUARY 24, 1996
--------------
FOLLOWED BY
--------------
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.
AND
CKE RESTAURANTS, INC.
DATED: APRIL 2, 1996
A-1
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.
AND
CKE RESTAURANTS, INC.
DATED: NOVEMBER 30, 1995
A-2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1
MERGER AND CLOSING
1.1 Formation of Merger Sub......................................................... 1
1.2 The Merger...................................................................... 1
1.3 Closing......................................................................... 1
1.4 Effects of the Merger........................................................... 1
1.5 Certificate of Incorporation and Bylaws......................................... 1
ARTICLE 2
CONVERSION OF SECURITIES; DISSENTING SHARES
2.1 Conversion of Securities........................................................ 2
2.2 Dissenting Shares............................................................... 2
2.3 Fractional Shares............................................................... 2
2.4 Exchange of Certificates........................................................ 2
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SUMMIT
3.1 Organization, Good Standing and Authority....................................... 3
3.2 Binding Agreement............................................................... 3
3.3 Capitalization.................................................................. 3
3.4 Subsidiaries.................................................................... 4
3.5 No Violation.................................................................... 4
3.6 Exchange Act Reports and Financial Statements................................... 4
3.7 Information in Registration Statement and Proxy Statement....................... 4
3.8 Consents and Approvals.......................................................... 5
3.9 No Brokers...................................................................... 5
3.10 Insurance....................................................................... 5
3.11 Labor Matters................................................................... 5
3.12 ERISA........................................................................... 5
3.13 Taxes........................................................................... 6
3.14 Title to Properties............................................................. 6
3.15 Environmental Matters........................................................... 6
3.16 Litigation...................................................................... 7
3.17 Contracts and Commitments....................................................... 7
3.18 Compliance with Laws............................................................ 7
3.19 Absence of Certain Developments................................................. 7
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CKE
4.1 Organization, Good Standing and Authority....................................... 8
4.2 Binding Agreement............................................................... 8
4.3 Capitalization.................................................................. 8
4.4 Subsidiaries.................................................................... 9
4.5 No Violation.................................................................... 9
4.6 Exchange Act Reports and Financial Statements................................... 9
</TABLE>
A-3
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
4.7 Information in Registration Statement and Proxy Statement....................... 9
4.8 Consents and Approvals.......................................................... 10
4.9 No Brokers...................................................................... 10
4.10 Litigation...................................................................... 10
4.11 Compliance with Laws............................................................ 10
4.12 Absence of Certain Developments................................................. 10
ARTICLE 5
ACTIONS BY SUMMIT AND CKE PENDING THE MERGER
5.1 Maintenance of Business......................................................... 11
5.2 Certain Prohibited Transactions................................................. 11
5.3 Registration Statement/Proxy Statement.......................................... 12
5.4 Investigation by CKE............................................................ 12
5.5 Title Reports................................................................... 13
5.6 Consents and Best Efforts....................................................... 13
5.7 Notification of Certain Matters................................................. 13
5.8 Reasonable Best Efforts......................................................... 13
5.9 Letter of Summit's Accountants.................................................. 13
5.10 Letter of CKE's Accountants..................................................... 13
5.11 Stockholders Meeting............................................................ 14
5.12 New York Stock Exchange Listing................................................. 14
5.13 Benefit Plans................................................................... 14
5.14 Stock Option Plans.............................................................. 14
5.15 Change of Control Letters....................................................... 15
5.16 Exclusivity..................................................................... 15
ARTICLE 6
CONDITIONS TO SUMMIT'S OBLIGATIONS
6.1 Completion of Other Transactions................................................ 15
6.2 Representations, Warranties and Covenants....................................... 15
6.3 Consents........................................................................ 16
6.4 No Governmental Proceeding or Litigation........................................ 16
6.5 Certificates.................................................................... 16
6.6 Tax Opinion..................................................................... 16
6.7 Corporate Documents............................................................. 16
6.8 HSR Act......................................................................... 16
6.9 Fairness Opinion................................................................ 16
ARTICLE 7
CONDITIONS TO CKE'S OBLIGATIONS
7.1 Completion of Other Transactions................................................ 16
7.2 Representations, Warranties and Covenants....................................... 17
7.3 Consents........................................................................ 17
7.4 No Governmental Proceeding or Litigation........................................ 17
7.5 Certificates and Opinions....................................................... 17
7.6 Tax Opinion..................................................................... 17
7.7 Corporate Documents............................................................. 17
</TABLE>
A-4
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
7.8 HSR Act......................................................................... 17
7.9 Dissenting Shares............................................................... 17
7.10 Fairness Opinion................................................................ 17
ARTICLE 8
ACTIONS BY SUMMIT AND CKE AFTER THE CLOSING
8.1 Further Assurances.............................................................. 18
8.2 Directors' and Officers' Insurance.............................................. 18
ARTICLE 9
TERMINATION AND AMENDMENT
9.1 Termination..................................................................... 18
9.2 Effect of Termination........................................................... 19
9.3 Certain Fees.................................................................... 19
ARTICLE 10
DEFINITIONS
10.1 Defined Terms................................................................... 19
ARTICLE 11
MISCELLANEOUS
11.1 Survival of Representations, Etc. .............................................. 22
11.2 Assignment...................................................................... 23
11.3 Notices......................................................................... 23
11.4 Choice of Law................................................................... 23
11.5 Entire Agreement; Amendments and Waivers........................................ 23
11.6 Counterparts.................................................................... 23
11.7 Invalidity...................................................................... 23
11.8 Headings........................................................................ 23
11.9 Expenses........................................................................ 24
11.10 Specific Performance............................................................ 24
11.11 Attorneys Fees.................................................................. 24
11.12 Publicity....................................................................... 24
11.13 Confidential Information........................................................ 24
</TABLE>
SUMMIT DISCLOSURE SCHEDULE
CKE DISCLOSURE SCHEDULE
A-5
<PAGE> 6
[CONFORMED COPY]
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization, dated as of November
30, 1995 (this "Agreement"), is by and among Summit Family Restaurants Inc., a
Delaware corporation ("Summit"), and CKE Restaurants, Inc., a Delaware
corporation ("CKE"). Capitalized terms not otherwise defined have the meanings
set forth in Article 10.
RECITALS
A. The respective Boards of Directors of Summit and CKE have determined
that the merger (the "Merger") of Summit with and into a newly-formed
wholly-owned subsidiary ("Merger Sub") of CKE, with Merger Sub surviving the
Merger, would be advantageous and beneficial to their respective corporations
and stockholders.
B. For United States federal income tax purposes, the parties intend that
the Merger qualify as a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and promises contained herein and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
MERGER AND CLOSING
1.1 FORMATION OF MERGER SUB. Prior to the Effective Time, CKE shall
organize Merger Sub as a wholly-owned subsidiary of CKE incorporated under the
laws of the State of Delaware.
1.2 THE MERGER. At the Effective Time, in accordance with this Agreement
and the applicable provisions of the Delaware General Corporation Law ("DGCL"),
Summit shall in the Merger merge with and into Merger Sub, with Merger Sub
surviving the Merger, the separate existence of Summit shall cease, and Merger
Sub shall continue as the surviving corporation as set forth in the Certificate
of Merger. Merger Sub is sometimes referred to herein as the "Surviving
Corporation."
1.3 CLOSING. The closing of the Merger and the other transactions
contemplated herein (the "Closing") shall be held at 10:00 a.m., Utah time on
February 28, 1996 or such later date to which Summit and CKE shall agree (the
"Closing Date") at the offices of Summit, unless the parties hereto otherwise
agree. After satisfaction or waiver of all conditions to the Closing, the
parties hereto will cause the Merger to be consummated on the Closing Date by
filing with the Secretary of State of the State of Delaware a certificate of
merger as is required by, and executed in accordance with, the relevant
provisions of DGCL (the time of such filing being the "Effective Time").
1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
the DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, the separate corporate existence of Summit shall cease
and Merger Sub shall be the Surviving Corporation and shall have all of the
rights, privileges, immunities and power and shall be subject to all duties and
liabilities of a corporation organized under the DGCL.
1.5 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Merger Sub in effect at the Effective Time shall be the
Certificate of the Surviving Corporation. The Bylaws of Merger Sub in effect
A-6
<PAGE> 7
at the Effective Time shall be the Bylaws of the Surviving Corporation until
amended in accordance with applicable law.
ARTICLE 2
CONVERSION OF SECURITIES; DISSENTING SHARES
2.1 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any action on the part of the parties hereto each share of
Summit Common Stock and Summit Preferred Stock issued and outstanding
immediately prior to the Effective Time, other than shares of Summit Common
Stock and Summit Preferred Stock for which appraisal rights have been exercised
pursuant to Section 262 of the DGCL, will be converted into the right to receive
the Merger Consideration.
"Merger Consideration" means, for each share of Summit Common Stock and
each share of Summit Preferred Stock: (a) $3.00 in cash (without interest) and
(b) a number of shares of CKE Common Stock equal to $3.00 divided by the
Adjusted CKE Price.
"Adjusted CKE Price" means (a) if the Average CKE Price is equal to or
greater than $17.00, $14.625 plus the amount by which the Average CKE Price
exceeds $17.00, (b) if the Average CKE Price is less than $17.00 and equal to or
greater than $12.25, $14.625, (c) if the Average CKE Price is less than $12.25
and CKE has not exercised the Fill-Up Election, $14.625 and (d) if the Average
CKE Price is less than $12.25 and CKE has exercised the Fill-Up Election,
$14.625 less the amount by which $12.25 exceeds the Average CKE Price.
"Average CKE Price" means the average of the per share closing sales prices
of CKE Common Stock on the New York Stock Exchange for the 20 consecutive
trading days ending two days prior to the Closing Date.
2.2 DISSENTING SHARES. Notwithstanding Section 2.1, shares of Summit
Common Stock and Summit Preferred Stock outstanding immediately prior to the
Effective Time and held by holders who have not voted in favor of the Merger or
consented thereto in writing and who have demanded appraisal for such shares in
accordance with Section 262 of the DGCL shall not be converted into rights to
receive the Merger Consideration, and holders of such shares of Summit Common
Stock and Summit Preferred Stock shall be entitled to receive payment from
Summit of the appraised value of such shares of Summit Common Stock and Summit
Preferred Stock in accordance with the provisions of such Section 262 unless and
until such holders fail to perfect or shall have effectively withdrawn or lost
their rights to appraisal and payment under the DGCL. If after the Effective
Time any such holder fails to perfect or withdraws or otherwise loses his right
to appraisal or payment, such shares shall be treated as if they had been
converted as of the Effective Time into a right to receive the Merger
Consideration.
2.3 FRACTIONAL SHARES. No fractional shares of CKE Common Stock shall be
issued in the Merger. All fractional shares of CKE Common Stock that a holder of
CKE Common Stock would otherwise be entitled to receive as a result of the
Merger shall be aggregated, and if a fractional share results from such
aggregation, such holder shall be entitled to receive from Summit, in lieu
thereof, an amount in cash (without interest) derived through the aggregation by
Summit of all such fractional shares otherwise issuable, the sale of such shares
of CKE Common Stock in the market and the distribution of the proceeds thereof
calculated by multiplying the average per share sales price by the fraction of a
share of CKE Common Stock to which such holder would otherwise have been
entitled. Under no circumstances will the aggregate cash consideration paid by
CKE in the Merger constitute more than 50% of the total aggregate consideration
paid by CKE in the Merger, with the CKE Common Stock issued in the Merger being
valued at the Adjusted CKE Price.
2.4 EXCHANGE OF CERTIFICATES. From and after the Effective Time, each
holder of an outstanding certificate which immediately prior to the Effective
Time represented outstanding shares of Summit Common Stock and Summit Preferred
Stock shall be entitled to receive in exchange therefor, upon surrender thereof
to an exchange agent to be selected by CKE, a certificate or certificates
representing the number of whole shares of CKE Common Stock into which such
holder's shares were converted and a check representing (i) any cash payable in
lieu of any fractional share of CKE Common Stock computed set forth above and
(ii) the cash
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portion of the Merger Consideration into which such holder's shares were
converted. No holder of a certificate or certificates which immediately prior to
the Effective Time represented shares of Summit Common Stock or Summit Preferred
Stock shall be entitled to receive any dividend or other distribution from CKE
until surrender of such holder's certificate for a certificate or certificates
representing shares of Summit Common Stock or Summit Preferred Stock. Upon such
surrender, there shall be paid to the holder the amount of any dividends or
other distributions (without interest) which became payable on or after the
Effective Time, but which were not paid by reason of the foregoing, with respect
to the number of whole shares of CKE Common Stock represented by the
certificates issued upon such surrender. After the Effective Time, there shall
be no further registration of transfers of Summit Common Stock and Summit
Preferred Stock and holders of certificates representing Summit Common Stock or
Summit Preferred Stock shall not enjoy the rights and privileges of holders of
such stock or CKE Common Stock other than to exchange the certificates for the
Merger Consideration. If, after the Effective Time, certificates representing
Summit Common Stock or Summit Preferred Stock are presented to the Surviving
Corporation, they shall be cancelled and exchanged for the Merger Consideration.
From and after the Effective Time, CKE shall, however, be entitled to treat
certificates for shares of Summit Common Stock and Summit Preferred Stock which
have not yet been surrendered for exchange and for which appraisal rights have
not been perfected pursuant to the DGCL as evidencing solely the right to
receive the Merger Consideration represented by such certificates,
notwithstanding any failure to surrender such certificates in exchange therefor.
If any certificate for shares of CKE Common Stock is to be issued in a name
other than that in which the certificate for shares of Summit Common Stock or
Summit Preferred Stock surrendered in exchange therefor is registered, it shall
be a condition of such issuance that the person requesting such issuance shall
pay any transfer or other tax required by reason of the issuance of certificates
for such shares of CKE Common Stock in a name other than that of the registered
holder of the certificate surrendered, or shall establish to the satisfaction of
CKE or its agent that such tax has been paid or is not applicable.
Notwithstanding the foregoing, CKE shall not be liable to any holder of shares
of Summit Common Stock or Summit Preferred Stock for any shares of CKE Common
Stock (or dividends or distributions with respect thereto) or cash in lieu of
fractional shares delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SUMMIT
Except as otherwise set forth in the Summit Disclosure Schedule, Summit
hereby represents and warrants to CKE as follows:
3.1 ORGANIZATION, GOOD STANDING AND AUTHORITY. Each of Summit and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation. Each of Summit and
its Subsidiaries has full corporate power to carry on its business, as it is now
being conducted, and to own, lease or operate the properties and assets it now
owns, leases or operates. Each of Summit and its Subsidiaries is qualified to do
business, is in good standing and has all required business licenses in each
jurisdiction in which its failure to obtain or maintain such qualification, good
standing or license could have a Material Adverse Effect on Summit.
3.2 BINDING AGREEMENT. Summit has all requisite corporate power and
corporate authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all requisite corporate action, subject to approval of Summit's
stockholders. This Agreement is a legal, valid and binding obligation of Summit,
enforceable against it in accordance with its terms, except as enforcement
thereof may be limited by general principles of equity (regardless of whether
such enforceability is considered in a proceeding at law or in equity) and the
effect of applicable bankruptcy, insolvency, moratorium and other similar laws
of general application relating to or affecting creditors' rights generally,
including, without limitation, the effect of statutory or other law regarding
fraudulent conveyances and preferential transfers.
3.3 CAPITALIZATION. The authorized capitalization of Summit consists
solely of (a) 10,000,000 shares of Summit Common Stock, of which 4,798,811
shares were issued and outstanding as of November 30, 1995;
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(b) 500,000 shares of $.01 par value junior common stock, none of which are
outstanding on the date hereof; and (c) 1,000,000 shares of Summit Preferred
Stock, of which 946,714 shares were issued and outstanding as of the date
hereof. On the Closing Date there will not be outstanding: (i) any options,
warrants or other rights to purchase from Summit any capital stock of Summit,
except for (x) the options, warrants and other rights to purchase capital stock
of Summit outstanding as of the date of this Agreement as set forth on the
Summit Disclosure Schedule, (y) options, warrants or other rights to purchase
capital stock of Summit granted to employees and officers of Summit as set forth
on the Summit Disclosure Schedule and (z) options, warrants and other rights to
purchase in the aggregate not more than 50,000 shares of Summit Common Stock
granted to new or newly promoted employees in the ordinary course of business;
(ii) any securities convertible into or exchangeable for shares of such stock;
or (iii) any other commitments of any kind for the issuance of additional shares
of capital stock or options, warrants or other securities of Summit.
3.4 SUBSIDIARIES. There is set forth in the Summit Disclosure Schedule (i)
the name and percentage ownership by Summit of each of its Subsidiaries; (ii)
the jurisdiction of incorporation, capitalization and ownership of each
Subsidiary; and (iii) the names of the officers and directors of each
Subsidiary.
3.5 NO VIOLATION.
(a) Except as set forth in the Summit Disclosure Schedule, none of Summit
or any of its Subsidiaries is (i) in violation of its respective Charter
Documents, or (ii) to Summit's best knowledge, in default in the performance of
any obligation, agreement or condition contained in any Applicable Agreement,
which violation or default could, singly or in the aggregate, have a Material
Adverse Effect on Summit.
(b) Except as set forth in the Summit Disclosure Schedule, neither the
execution or delivery by Summit of this Agreement or the performance by Summit
of its obligations under this Agreement will (i) constitute a breach or
violation under the Charter Documents of Summit or any of its Subsidiaries; or
(ii) conflict with, violate, constitute a material breach or material violation
of or a material default (with the passage of time or otherwise) under, require
the consent of any Person under, give to others any rights of termination,
amendment, acceleration or cancellation of or result in the imposition of a
material Lien on any of the properties or assets of Summit or any of its
Subsidiaries or an acceleration of material indebtedness pursuant to, any
Applicable Agreement.
3.6 EXCHANGE ACT REPORTS AND FINANCIAL STATEMENTS. Summit has furnished or
will upon request furnish CKE with copies of its Annual Report on Form 10-K for
the fiscal years ended September 28, 1992, September 27, 1993, September 26,
1994 and September 25, 1995 (when available), in each case with exhibits, and
all other reports filed or required to be filed with the Securities and Exchange
Commission (the "SEC") under applicable laws, rules and regulations since
September 26, 1994 (all such reports being herein collectively called the
"Summit SEC Reports"), each as filed with the SEC. Each such Summit SEC Report
when it became effective or was filed with the SEC, or as amended, as the case
may be, complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable,
and the rules and regulations of the SEC thereunder, and did not on the date of
filing or amendment, if any, contain any untrue statement of material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. The financial
statements contained in said Summit SEC Reports: (i) were prepared in accordance
with the books and records of Summit and its Subsidiaries; (ii) were prepared in
accordance with GAAP and with Regulation S-X promulgated under the Exchange Act;
(iii) fairly present Summit's consolidated financial condition and the
consolidated results of its operations, cash flows and shareholders equity as at
the relevant dates thereof and for the periods covered thereby; (iv) contain and
reflect all necessary adjustments and accruals for a fair presentation of its
consolidated financial condition and the consolidated results of its operations,
cash flows and shareholders equity for the periods covered by said financial
statements; (v) contain and reflect adequate provisions for all reasonably
anticipated liabilities for all taxes, federal, state, local or foreign, with
respect to the periods then ended and all prior periods; and (vi) with respect
to contracts and commitments for the sale of goods or the provision of services
by Summit or any Subsidiary, contain and reflect adequate reserves for all
reasonably anticipated material losses, costs and expenses in excess of expected
receipts.
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3.7 INFORMATION IN REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by Summit for inclusion or incorporation
by reference in (i) the registration statement on Form S-4 to be filed with the
SEC by CKE in connection with the issuance of shares of CKE Common Stock in the
Merger (the "Registration Statement"), will, at the time it becomes effective
under the Securities Act and at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and (ii) the proxy
statement relating to the meeting of Summit's stockholders to be held in
connection with the Merger (the "Proxy Statement") will, at the date mailed to
Summit's stockholders, at the time of the meeting of stockholders to be held in
connection with the Merger and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy Statement
will, when filed with the SEC by Summit, comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder, except that no representation is made by Summit with respect to
statements made therein about CKE and based on information supplied by CKE in
writing specifically for inclusion in the Proxy Statement.
3.8 CONSENTS AND APPROVALS. No consent, approval or authorization of, or
declaration, filing or registration with, any United States federal or state
governmental or regulatory authority is required to be made or obtained by
Summit in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby, other
than any filings required under the HSR Act, the Exchange Act and the Securities
Act and filings with NASDAQ.
3.9 NO BROKERS. Except as set forth in the Summit Disclosure Schedule,
neither Summit nor any affiliate thereof has entered into or will enter into any
agreement, arrangement or understanding with any person or firm which will
result in any obligation of Summit to pay any finder's fee, brokerage commission
or similar payment in connection with the transactions contemplated hereby.
3.10 INSURANCE. Summit and its Subsidiaries maintain, with reputable
insurers, insurance in such amounts, including deductible arrangements, and of
such a character as is usually maintained by reasonably prudent managers of
companies engaged in the same or similar business.
3.11 LABOR MATTERS. Except as set forth in the Summit Disclosure Schedule,
(i) there is no labor strike, dispute, slowdown, work stoppage or lockout
pending or, to the best knowledge of Summit, threatened against or affecting
Summit or any Subsidiary and, during the past five years, there has not been any
such action; (ii) there are no union claims to represent the employees of Summit
or any Subsidiary; (iii) neither Summit nor any Subsidiary is a party to or
bound by any collective bargaining or similar agreement with any labor
organization, or work rules or practices agreed to with any labor organization
or employee association applicable to employees of Summit or any Subsidiary;
(iv) none of the employees of Summit or any Subsidiary are represented by any
labor organization and none of Summit or any Subsidiary have any knowledge of
any current union organizing activities among the employees of Summit or any
Subsidiary, nor to their best knowledge does any question concerning
representation exist concerning such employees; (v) Summit and its Subsidiaries
are, and have at all times been, in material compliance with all Applicable
Employment Laws and are not engaged in any ULP; (vi) there is no ULP charge or
complaint against Summit or any Subsidiary pending or, to the best knowledge of
Summit, threatened before the NLRB; and (vi) there is no grievance or
arbitration proceeding arising out of any collective bargaining agreement or
other grievance procedure relating to Summit or any Subsidiary.
3.12 ERISA.
(a) Summit and its Subsidiaries are in compliance with the provisions of
ERISA and the Code, and (ii) have not incurred any material liability with
respect to any Benefit Plan or Multiemployer Plan to the Pension Benefit
Guaranty Corporation (the "PBGC"), the Internal Revenue Service (the "IRS"), any
Benefit Plan or Multiemployer Plan or any other party (other than to make
premium payments to the PBGC or benefit payments to participants in the ordinary
course of business). Each of the Benefit Plans of Summit is in material
compliance with all Applicable Laws. The IRS has determined that each such
Benefit Plan that is intended to be a qualified plan under section 401(a) of the
Code is so qualified and Summit is aware of no
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event or circumstance that would adversely affect such determination. The
liabilities incurred under each such Benefit Plan are accurately reflected on
the financial statement included in the Summit SEC Reports. No condition exists
or event or transaction has occurred that could result in Summit or any
Subsidiary incurring any liability, fine or penalty with respect to any Benefit
Plan or Multiemployer Plan that could, singly or in the aggregate, have a
Material Adverse Effect on Summit.
(b) Summit has previously furnished the Buyer with (i) a true and complete
copy of each Benefit Plan, (ii) a copy of each trust or other funding
arrangement applicable to each Benefit Plan, (iii) the most recent summary plan
description and any applicable summary of material modifications of each Benefit
Plan, and (iv) the most recently prepared actuarial report and financial
statement, if applicable. Except as contemplated herein, Summit and its
Subsidiaries have no commitment or obligation to (x) create or incur any
material liability with respect to, or cause to exist any other, employee
benefit plan, program or arrangement, (y) enter into any material contract or
agreement to provide compensation or benefits to any individual or (z) modify or
terminate any Benefit Plan, other than with respect to a modification or
termination required by ERISA or the Code.
3.13 TAXES. Except as set forth on the Summit Disclosure Schedule, all Tax
Returns and reports required to be filed by Summit or any of its Subsidiaries
have been filed or will be timely filed (taking into account extensions), all
such Tax Returns are true, correct and complete in all material respects, and
all Taxes, due or claimed to be due from Summit or any of its Subsidiaries have
been paid, other than those currently payable without penalty or interest and
for which an adequate reserve or accrual has been established. There are no: (a)
tax audits pending with respect Tax Returns filed by Summit or of any of its
Subsidiaries, (b) no waivers of the statute of limitations with respect to any
Tax Return filed by Summit of any of the Subsidiaries or (c) to Summit's best
knowledge, no actual or proposed additional Tax assessments for any fiscal
period ending on or prior to the Closing Date against Summit or any of its
Subsidiaries for which an adequate reserve or accrual has not been established.
3.14 TITLE TO PROPERTIES. Each of Summit and each Subsidiary (a) has legal
and valid title to all the real properties and other assets (tangible,
intangible or mixed) it reflects in the financial statements included in the
Summit SEC Reports as owned, free and clear of all Liens (other than Permitted
Liens) and free and clear of restrictions on the manner in which such property
is presently being used, and (b) enjoys peaceful and undisturbed possession
under all leases to which it is a party as lessee. All of the leases to which
Summit or any Subsidiary is a party are legal, valid and binding and in full
force and effect, and no payment default by Summit, any Subsidiary or, to the
best knowledge of Summit, any other party thereto has occurred or is continuing
thereunder. Except as set forth in the financial statements included in the
Summit SEC Reports or on the Summit Disclosure Schedule, no property or asset,
the value of which is reflected in the balance sheets included in the financial
statements included in the Summit SEC Reports, is held under any lease or under
any conditional sale or other title retention agreement. Except for such assets
and facilities as are immaterial in the aggregate to the business of Summit and
its Subsidiaries taken as a whole, all tangible assets and facilities of each of
Summit and its Subsidiaries are in good condition and repair and are adequate
for the uses to which they are being put.
3.15 ENVIRONMENTAL MATTERS.
(a) Each of Summit and its Subsidiaries is in compliance with the
provisions of all Environmental Laws, which compliance includes, but is not
limited to, the possession by Summit or its Subsidiaries, as appropriate, of all
licenses, permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof where the failure to comply could, singly or in the aggregate, have a
Material Adverse Effect on Summit. None of Summit or any of its Subsidiaries has
received any communication (written or oral), whether from a Governmental
Authority, employee or otherwise, that alleges that Summit or any of its
Subsidiaries is not in such compliance where the failure to comply could, singly
or in the aggregate, have a Material Adverse Effect on Summit, and there are no
currently existing circumstances known to Summit that, if not corrected, could
prevent such compliance in the future.
(b) There is no Environmental Claim pending or, to the best knowledge of
Summit, threatened against Summit or any of its Subsidiaries or against any
Person whose liability for any Environmental Claim Summit
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or any of its Subsidiaries has retained or assumed either contractually or by
operation of law. To the best knowledge of Summit, there is no basis for any
such claim.
3.16 LITIGATION. All Proceedings against Summit or any of its Subsidiaries
or any of their properties or assets, and a brief description thereof are listed
in the Summit Disclosure Schedule. There is no Proceeding or series of related
Proceedings against or affecting Summit or any of its Subsidiaries or any of
their properties or assets, that could, singly or in the aggregate, have a
Material Adverse Effect on Summit. Neither Summit nor any of its Subsidiaries is
subject to any judgment, injunction, decree, writ, interpretation or order of
any Governmental Authority that could, singly or in the aggregate, have a
Material Adverse Effect on Summit.
3.17 CONTRACTS AND COMMITMENTS.
(a) Except as set forth in the Summit Disclosure Schedule, neither Summit
nor any of its Subsidiaries will have any (i) agreement for the employment of
any individual or agreements that contain any severance pay liabilities or
obligations; or (ii) contract or commitment not terminable without penalty or
cost on notice of thirty (30) days or less and which contains an obligation to
pay and/or accrue more than $100,000 per year, other than real estate and
equipment leases and franchise agreements.
(b) Except as set forth in the Summit Disclosure Schedule: (i) to the best
knowledge of Summit, neither Summit nor any of its Subsidiaries has breached,
nor has received notice in writing or otherwise of any claim that it has
breached, any of the terms of conditions of any agreement, contract or
commitment set forth or required to be set forth in the Summit Disclosure
Schedule, any agreement with HomeTown Buffet, Inc. or any franchise agreement
with respect to a JB's restaurant, which breach or breaches singly or in the
aggregate are reasonably likely to have a Material Adverse Effect on Summit, and
(ii) to the best knowledge of Summit, there are no facts or conditions which
have occurred or are anticipated to occur which, through the passage of time or
the giving of notice, or both, would constitute a breach under any such contract
which breach is reasonably likely to have a Material Adverse Effect on Summit.
3.18 COMPLIANCE WITH LAWS. Except as set forth on the Summit Disclosure
Schedule, to the best knowledge of Summit, Summit and its Subsidiaries have
complied with all applicable laws, regulations (including, without limitation,
applicable occupational health and safety laws and regulations, applicable
immigration laws and regulations and applicable laws governing the sale of
franchises) and zoning ordinances of foreign, federal, state and local
governments and all agencies thereof which affect the business, business
practices or any owned or leased properties of Summit and its Subsidiaries and
to which Summit and its Subsidiaries may be subject, except where such failure
to comply would not singly or in the aggregate have a Material Adverse Effect on
Summit.
3.19 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on the Summit
Disclosure Schedule and except as expressly contemplated by this Agreement,
since September 25, 1995, neither Summit nor any of its Subsidiaries has:
(i) suffered a Material Adverse Effect in its business, financial
condition, operating results, earnings, assets, customer, supplier,
employee and sales representative relations, business prospects, business
condition or financing arrangements or material casualty loss or damage to
its assets (whether or not covered by insurance);
(ii) issued, sold or transferred any notes, bonds or other debt
securities or any equity securities, securities convertible, exchangeable
or exercisable into equity securities, or warrants, options or other rights
to acquire equity securities, in each case of Summit or any Subsidiary
thereof;
(iii) redeemed or repurchased, directly or indirectly, any shares of
capital stock or declared, set aside or paid any dividends or made any
other distributions with respect to any shares of its capital stock;
(iv) borrowed any amount or incurred or become subject to any
liabilities, except liabilities incurred in the ordinary course of
business;
(v) entered into, amended or terminated any lease, contract, agreement
or commitment, or taken any other action or entered into any other
transaction other than in the ordinary course of business and in
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accordance with past custom and practice or as contemplated by this
Agreement, or entered into any transaction with any insider except as
contemplated by this Agreement;
(vi) entered into any other material transaction, whether or not in
the ordinary course of business, or materially changed any business
practice;
(vii) made or granted any bonus or any wage, salary or compensation
increase in excess of $50,000 per year to any director, officer, employee
or sales representative, group of employees or consultant or made or
granted any increase in any employee benefit plan or arrangement, or
amended or terminated any existing employee benefit plan or arrangement or
adopted any new employee benefit plan or arrangement;
(viii) conducted its cash management customs and practices (including
the collection of receivables, inventory control and payment of payables)
other than in the usual and ordinary course of business in accordance with
past custom and practice;
(ix) changed or authorized any change in its Charter Documents; or
(x) committed to any of the foregoing.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CKE
Except as otherwise set forth in the CKE Disclosure Schedule, CKE hereby
represents and warrants to Summit as follows:
4.1 ORGANIZATION, GOOD STANDING AND AUTHORITY. Each of CKE and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation. Each of CKE and its
Subsidiaries has full corporate power to carry on its business, as it is now
being conducted, and to own, lease or operate the properties and assets it now
owns, leases or operates. Each of CKE and its Subsidiaries is qualified to do
business, is in good standing and has all required business licenses in each
jurisdiction in which its failure to obtain or maintain such qualification, good
standing or license could have a Material Adverse Effect on CKE.
4.2 BINDING AGREEMENT. CKE has all requisite corporate power and corporate
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite corporate action. This Agreement is a legal, valid and binding
obligation of CKE, enforceable against it in accordance with its terms, except
as enforcement thereof may be limited by general principles of equity
(regardless of whether such enforceability is considered in a proceeding at law
or in equity) and the effect of applicable bankruptcy, insolvency, moratorium
and other similar laws of general application relating to or affecting
creditors' rights generally, including, without limitation, the effect of
statutory or other law regarding fraudulent conveyances and preferential
transfers.
4.3 CAPITALIZATION. The authorized capitalization of CKE consists solely
of (a) 50,000,000 shares of CKE Common Stock, of which 18,676,587 shares were
issued and outstanding as of October 31, 1995; and (b) 5,000,000 shares of
Preferred Stock, $.01 per share, of which no shares were issued or outstanding
as of the date hereof. On the Closing Date there will not be outstanding: (i)
any options, warrants or other rights to purchase from CKE any capital stock of
CKE, except for (x) the options, warrants and other rights to purchase capital
stock of CKE outstanding as of the date of this Agreement as set forth on the
CKE Disclosure Schedule, or (y) options, warrants or other rights to purchase
capital stock of CKE granted to employees and officers of CKE as set forth on
the CKE Disclosure Schedule; (ii) any securities convertible into or
exchangeable for shares of such stock; or (iii) any other commitments of any
kind for the issuance of additional shares of capital stock or options, warrants
or other securities of CKE other than rights to purchase not more than 400,000
shares of CKE Common Stock granted to existing officers, directors and employees
and to new or newly promoted employees in the ordinary course of business.
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4.4 SUBSIDIARIES. There is set forth in the CKE Disclosure Schedule (i)
the name and percentage ownership by CKE of each of its Subsidiaries; (ii) the
jurisdiction of incorporation, capitalization and ownership of each Subsidiary;
and (iii) the names of the officers and directors of each Subsidiary.
4.5 NO VIOLATION.
(a) Except as set forth in the CKE Disclosure Schedule, none of CKE or any
of its Subsidiaries is (i) in violation of its respective Charter Documents, or
(ii) to CKE's best knowledge, in default in the performance of any obligation,
agreement or condition contained in any Applicable Agreement, which violation or
default could, singly or in the aggregate, have a Material Adverse Effect on
CKE.
(b) Except a set for in the CKE Disclosure Schedule, neither the execution
or delivery by CKE of this Agreement or the performance by CKE of its
obligations under this Agreement will (i) constitute a material breach or
material violation under the Charter Documents of CKE or any of its
Subsidiaries; or (ii) conflict with, violate, constitute a material breach or
material violation of or a material default (with the passage of time or
otherwise) under, require the consent of any Person under, give to others any
rights of termination, amendment, acceleration or cancellation of or result in
the imposition of a material Lien on any of the properties or assets of CKE or
any of its Subsidiaries or an acceleration of material indebtedness pursuant to,
any Applicable Agreement.
4.6 EXCHANGE ACT REPORTS AND FINANCIAL STATEMENTS. CKE has furnished or
will upon request furnish CKE with copies of its Annual Report on Form 10-K for
the fiscal years ended January 31, 1993, 1994 and 1995 and its Quarterly Reports
on Form 10-Q for the quarters ended May 22, 1995 and August 14, 1995, in each
case with exhibits, and all other reports filed or required to be filed with the
Securities and Exchange Commission (the "SEC") under applicable laws, rules and
regulations since January 31, 1995 (all such reports being herein collectively
called the "CKE SEC Reports"), each as filed with the SEC. Each such CKE SEC
Report when it became effective or was filed with the SEC, or as amended, as the
case may be, complied in all material respects with the requirements of the
Exchange Act, as applicable, and the rules and regulations of the SEC thereunder
and did not on the date of filing or amendment, if any, contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements contained in said CKE SEC
Reports: (i) were prepared in accordance with the books and records of CKE and
its Subsidiaries; (ii) were prepared in accordance with GAAP and with Regulation
S-X promulgated under the Exchange Act; (iii) fairly present CKE's consolidated
financial condition and the consolidated results of its operations, cash flows
and shareholders equity as at the relevant dates thereof and for the periods
covered thereby; (iv) contain and reflect all necessary adjustments and accruals
for a fair presentation of its consolidated financial condition and the
consolidated results of its operations, cash flows and shareholders equity for
the periods covered by said financial statements; (v) contain and reflect
adequate provisions for all reasonably anticipated liabilities for all taxes,
federal, state, local or foreign, with respect to the periods then ended and all
prior periods; and (vi) with respect to contracts and commitments for the sale
of goods or the provision of services by CKE or any Subsidiary, contain and
reflect adequate reserves for all reasonably anticipated material losses, costs
and expenses in excess of expected receipts.
4.7 INFORMATION IN REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by CKE for inclusion or incorporation by
reference in (i) the Registration Statement will, at the time it becomes
effective under the Securities Act and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and (ii) the Proxy
Statement will, at the date mailed to Summit's stockholders, at the time of the
meeting of stockholders to be held in connection with the Merger and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Registration Statement will, when filed with the SEC by CKE,
comply as to form in all material respects with the provisions of the Securities
Act and the rules and regulations thereunder, except that no representation is
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made by CKE with respect to statements made therein based on information
supplied by Summit for inclusion in the Registration Statement.
4.8 CONSENTS AND APPROVALS. No consent, approval or authorization of, or
declaration, filing or registration with, any United States federal or state
governmental or regulatory authority is required to be made or obtained by CKE
in connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby, other than any filings
required under the HSR Act, the Exchange Act, the Securities Act and filings
with the New York Stock Exchange.
4.9 NO BROKERS. Except as set forth in the CKE Disclosure Schedule,
neither CKE nor any affiliate thereof has entered into or will enter into any
agreement, arrangement or understanding with any person or firm which will
result in any obligation of CKE to pay any finder's fee, brokerage commission or
similar payment in connection with the transactions contemplated hereby.
4.10 LITIGATION. All material proceedings against CKE or any of its
Subsidiaries or any of their properties or assets, and a brief description
thereof are listed in the Disclosure Schedule. There is no Proceeding or series
of related Proceedings against or affecting CKE or any of the Subsidiaries or
any of their properties or assets, that could, singly or in the aggregate, have
a Material Adverse Effect on CKE. Neither CKE nor any of its Subsidiaries is
subject to any judgment, injunction, decree, writ, interpretation or order of
any Governmental Authority that could, singly or in the aggregate, have a
Material Adverse Effect on CKE.
4.11 COMPLIANCE WITH LAWS. Except as set forth on the CKE Disclosure
Schedule, to the best knowledge of CKE, CKE and its Subsidiaries have complied
with all applicable laws, regulations (including, without limitation, applicable
occupational health and safety laws and regulations and applicable immigration
laws and regulations) and zoning ordinances of foreign, federal, state and local
governments and all agencies thereof which affect the business, business
practices or any owned or leased properties of CKE and its Subsidiaries and to
which CKE and its Subsidiaries may be subject, except where such failure to
comply would not singly or in the aggregate have a Material Adverse Effect on
CKE.
4.12 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on the CKE
Disclosure Schedule and except as expressly contemplated by this Agreement,
since August 14, 1995, neither CKE nor any of its Subsidiaries has:
(i) suffered a Material Adverse Effect in its business, financial
condition, operating results, earnings, assets, customer, supplier,
employee and sales representative relations, business prospects, business
condition or financing arrangements or material casualty loss or damage to
its assets (whether or not covered by insurance);
(ii) issued, sold or transferred any notes, bonds or other debt
securities or any equity securities, securities convertible, exchangeable
or exercisable into equity securities, or warrants, options or other rights
to acquire equity securities, in each case of CKE or any Subsidiary
thereof;
(iii) redeemed or repurchased, directly or indirectly, any shares of
capital stock or declared, set aside or paid any dividends or made any
other distributions with respect to any shares of its capital stock;
(iv) borrowed any amount or incurred or become subject to any
liabilities, except liabilities incurred in the ordinary course of
business;
(v) entered into, amended or terminated any lease, contract, agreement
or commitment, or taken any other action or entered into any other
transaction other than in the ordinary course of business and in accordance
with past custom and practice or as contemplated by this Agreement, or
entered into any transaction with any insider except as contemplated by
this Agreement;
(vi) entered into any other material transaction, whether or not in
the ordinary course of business, or materially changed any business
practice;
(vii) made or granted any bonus or any wage, salary or compensation
increase in excess of $50,000 per year to any director, officer, employee
or sales representative, group of employees or consultant or made or
granted any increase in any employee benefit plan or arrangement, or
amended or terminated
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any existing employee benefit plan or arrangement or adopted any new
employee benefit plan or arrangement;
(viii) conducted its cash management customs and practices (including
the collection of receivables, inventory control and payment of payables)
other than in the usual and ordinary course of business in accordance with
past custom and practice;
(ix) changed or authorized any change in its Charter Documents; or
(x) committed to any of the foregoing.
ARTICLE 5
ACTIONS BY SUMMIT AND
CKE PENDING THE MERGER
Summit and CKE covenant as follows for the period from the date hereof
through the Closing Date:
5.1 MAINTENANCE OF BUSINESS. Summit shall, and shall cause each Subsidiary
to, diligently carry on its business in the ordinary course consistent with past
practice, including, without limitation, meeting its obligations as they become
due and fulfilling its commitments to suppliers. Summit shall cause its existing
insurance policies to be maintained in effect through the Closing Date.
5.2 CERTAIN PROHIBITED TRANSACTIONS. Without the prior written approval of
CKE or except as otherwise contemplated under this Agreement, prior to the
Effective Time Summit shall not, and shall cause each of its Subsidiaries not
to:
(a) incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise become responsible for obligations of any other
individual, partnership, firm or corporation, or make any loans or advances
to any individual, partnership, firm or corporation, except in the ordinary
course of business and consistent with past practice and, with respect to
indebtedness, pursuant to existing agreements;
(b) issue any shares of its capital stock or any other securities or
any securities convertible into shares of its capital stock or any other
securities, other than shares issued upon exercise of issued and
outstanding options, warrants and other rights to purchase capital stock of
Summit, which rights are outstanding as of the date hereof and are
reflected in Schedule 3.3 of the Summit Disclosure Schedule;
(c) pay or incur any obligation to pay any dividend on its capital
stock or make or incur any obligation to make any distribution or
redemption with respect to capital stock;
(d) make any change to its Certificate of Incorporation or bylaws
other than the filing of the Certificate of Merger;
(e) mortgage, pledge or otherwise encumber any of its properties or
assets or sell, transfer or otherwise dispose of any of its properties or
assets (other than (i) shares of HomeTown Buffet, Inc. common stock held by
Summit and (ii) restaurants in the process of being disposed of or
transferred as set forth in the Summit Disclosure Schedule) or cancel,
release, compromise or assign any indebtedness owed to it or any claims
held by it, except in the ordinary course of business and consistent with
past practice;
(f) make any investment of a capital nature either by purchase of
stock or securities, contributions to capital, property transfer or
otherwise, or by the purchase of any property or assets of any other
individual, partnership, firm or corporation, except in the ordinary course
of business and consistent with past practice;
(g) make any material tax election or make any material change in
Summit's accounting principles or practices;
(h) enter into any material contracts that would involve the payment
or accrual of payments of more than $100,000 in any fiscal year or enter
into any additional franchise agreements; or
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(i) do any other act which would cause any representation or warranty
of Summit in this Agreement to be or become untrue.
5.3 REGISTRATION STATEMENT/PROXY STATEMENT. Subject to the terms and
conditions of this Agreement, Summit and CKE each agree to use their respective
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable by such party
with respect to (i) the prompt preparation and filing of the Registration
Statement by CKE with the SEC under the Securities Act relating to the offer and
sale of the CKE Common Stock in the Merger and (ii) the prompt preparation and
filing by Summit of the Proxy Statement pertaining to solicitation of approval
of Summit's stockholders, the form of which shall be included as part of the
Registration Statement, (iii) such actions as may be required to have the
Registration Statement declared effective under the Securities Act and to have
the Proxy Statement cleared by the SEC, in each case as promptly as practicable,
including by consulting with the other parties hereto as to, and responding
promptly to, any SEC comments with respect thereto, and (iv) such actions as may
be required to be taken under applicable state securities or blue sky laws in
connection with the issuance of the CKE Common Stock contemplated hereby. Each
party hereto shall promptly consult with the other party with respect to,
provide any necessary information with respect to and provide the other party
(and its counsel) copies of, all filings made with respect to the Registration
Statement and the Proxy Statement. The information supplied by each party for
inclusion in the Registration Statement and the Proxy Statement shall not, at
(i) the time the Registration Statement (or any amendment or supplement thereto)
is declared effective, (ii) the time the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to the stockholders of Summit and
(iii) the time of the Summit stockholders' meeting, respectively, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading and shall comply as to form in all material respects with the
requirements of the Securities Act. In addition, if at any time prior to the
Effective Time any event or circumstance relating to either Summit or CKE or any
of their respective subsidiaries, or any of their respective officers or
directors, should be discovered by Summit or CKE, as the case may be, and which
are required to be set forth in an amendment or supplement to the Registration
Statement or the Proxy Statement, the discovering party shall promptly inform
the other party of such event or circumstance.
5.4 INVESTIGATION BY CKE. Summit shall, and shall cause the Subsidiaries
to, allow CKE during regular business hours through their employees, agents,
advisors and representatives, to make such investigation of the business,
properties, books and records of Summit and its Subsidiaries, and to conduct
such examination of the condition of Summit and its Subsidiaries, as CKE deems
necessary or advisable to familiarize itself and its lenders with such business,
properties, books, records, condition and other matters, and to investigate the
accuracy and completeness of the representations and warranties of Summit
hereunder; provided however, that any information so obtained is subject to the
confidentiality agreement previously entered into. Such access shall include
authorizing Summit's legal, accounting, tax, insurance and environmental
consultants and advisors to cooperate with CKE, its lenders and their advisors.
In particular, Summit and its consultants and advisors shall cooperate with CKE
to allow CKE (a) to conduct full environmental reviews or studies of Summit's
properties and facilities and (b) to arrange for meetings between CKE and the
franchisees under the Summit's franchise agreements; provided, that
representatives from Summit may attend all such meetings.
5.5 TITLE REPORTS. As promptly as possible after the date hereof, Summit
shall order preliminary title reports from a title insurance company or
companies reasonably satisfactory to CKE for all real properties that are owned
by Summit. Summit shall use its best efforts to cause such reports to be
delivered to CKE on or prior to [30] days following the date hereof.
5.6 CONSENTS AND BEST EFFORTS. As promptly as possible after the date
hereof, CKE and Summit shall make all filings required under the HSR Act. Summit
and CKE will, as soon as possible, commence to take all action required to
obtain all consents, approvals and agreements of, and to give all notices and
make all other filings with, any third parties, including governmental
authorities, necessary to authorize, approve or permit the Merger and the other
transactions contemplated by this Agreement. In addition, subject to the terms
and conditions herein provided, each of the parties hereto covenants and agrees
to use its reasonable
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best efforts to take, or cause to be taken, all action or do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby and to cause the fulfillment of the parties' obligations hereunder.
5.7 NOTIFICATION OF CERTAIN MATTERS. Summit shall give prompt notice to
CKE, and CKE shall give prompt notice to Summit, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate any time from the date hereof to the Closing Date and (ii) any
material failure of Summit or CKE, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder, and each party shall use all reasonable efforts to remedy same.
Summit and the CKE acknowledge that they are presently unaware of any facts that
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate.
5.8 REASONABLE BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
Each party shall promptly consult with the other with respect to, provide any
necessary information with respect to and provide the other (or its counsel)
copies of, all filings made by such party with any Governmental Entity in
connection with this Agreement and the transactions contemplated hereby. In
addition, if at any time prior to the Effective Time any event or circumstance
relating to either Summit or CKE or any of their respective Subsidiaries, or any
of their respective officers or directors, should be discovered by Summit or
CKE, as the case may be, and which should be set forth in an amendment or
supplement to the Registration Statement or the Proxy Statement, the discovering
party shall promptly inform the other party of such event or circumstance.
5.9 LETTER OF SUMMIT'S ACCOUNTANTS. Following receipt by KMPG Peat Marwick
LLP, Summit's independent auditors, of an appropriate request from CKE pursuant
to Statement on Auditing Standards ("SAS") No. 72, Summit shall use its
reasonable best efforts to cause to be delivered to CKE a letter of KMPG Peat
Marwick LLP, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to CKE, in form and
substance reasonably satisfactory to CKE and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement, which letter
shall be brought down to the Effective Time.
5.10 LETTER OF CKE'S ACCOUNTANTS. Following receipt by KMPG Peat Marwick
LLP, CKE's independent auditors, of an appropriate request from CKE pursuant to
SAS No. 72, CKE shall use its reasonable best efforts to cause to be delivered a
letter of KMPG Peat Marwick LLP, dated a date within two business days before
the date on which the Registration Statement shall become effective and
addressed to CKE, in form and substance reasonably satisfactory to CKE and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement, which letter shall be brought down to the Effective
Time.
5.11 STOCKHOLDERS MEETING. Summit shall call a meeting of its stockholders
for the purpose of voting upon this Agreement, the Merger and related matters.
Summit will, through its Board of Directors, recommend to its stockholders
approval of such matters and will coordinate and cooperate with respect to the
timing of this meetings and shall use its reasonable best efforts to hold such
meeting as soon as practicable after the date hereof.
5.12 NEW YORK STOCK EXCHANGE LISTING. CKE shall use its reasonable best
efforts to cause the CKE Common Stock to be issued in the Merger to be approved
for listing on the New York Stock Exchange, subject to official notice of
issuance, prior to the Closing Date.
5.13 BENEFIT PLANS.
(a) It is CKE's present intent to provide continuing employees of Summit
and its Subsidiaries with employee benefits comparable to those provided to CKE
employees.
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(b) CKE will, and will cause the Surviving Corporation to, honor without
modification all employee severance plans (or policies) and employment and
severance agreements of Summit or any of its Subsidiaries hereto identified in
the Summit Disclosure Schedule as such agreements (or policies) are in effect on
the date of this Agreement.
5.14 STOCK OPTION PLANS.
(a) On or prior to the Effective Time, Summit and its Board of Directors
(or a committee thereof) shall take all action necessary to implement the
provisions contained herein; provided, that such provisions do not create an
aggregate cash liability at the Effective Time in excess of $606,000.
(b) At the election of each holder of an option to purchase shares of
Summit Common Stock (a "Summit Stock Option") which is currently vested under a
Summit Stock Option Plan, at the Effective Time, (i) all Summit Stock Options
held by such holder shall become fully exercisable, (ii) such Summit Stock
Options shall be cancelled and (iii) in consideration of such cancellation,
Summit shall pay to such holders of such Summit Stock Options an amount in
respect thereof equal to the product of (x) the excess, if any, of $6.00 over
the respective exercise price thereof and (y) the number of shares of Summit
Common Stock subject thereto, respectively (such payment to be net of any
required withholding taxes). From and after the Effective Time, each outstanding
Summit Stock Option, whether vested or unvested, that is not so cancelled shall
constitute an option to acquire, on the same terms and conditions as were
applicable under such Summit Stock Option, a number of shares of CKE Common
Stock equal to (w) the product of $6.00 and the number of shares of Summit
Common Stock purchasable upon exercise of the Summit Stock Option prior to the
Effective Time divided by (x) the Average CKE Price, at an exercise price per
share equal to (y) the aggregate exercise price for the shares of Summit Common
Stock purchasable upon exercise of the Summit Stock Option prior to the
Effective Date divided by (z) the aggregate number of shares of CKE Common Stock
purchasable upon exercise of such Summit Stock Option following the Effective
Date.
(c) Except as provided herein or as otherwise agreed to by the parties, and
to the extent permitted by the Summit Stock Option Plan, the Summit Stock Option
Plan shall terminate as of the Effective Time and the provisions in any other
plan, program or arrangement, providing for the issuance or grant of any other
interest in respect of the capital stock of Summit or any of its Subsidiaries
shall be deleted as of the Effective Time.
5.15 CHANGE OF CONTROL LETTERS. Summit shall cause the seven employees who
have signed the Change of Control letters dated August 17, 1995 identified in
Schedule 3.17(a)(i)(c) and Mr. McComas under the employment agreement dated
November 24, 1993 to sign modifications extending to 90 days following the
Closing the date after which such employees may voluntarily resign and obtain
the severance benefits set forth therein.
5.16 EXCLUSIVITY.
(a) Until the termination of this Agreement pursuant to Section 9.1, Summit
will not, nor will it permit its officers, directors, affiliates,
representatives or agents, directly or indirectly, to do any of the following:
(i) discuss, negotiate, undertake, authorize, recommend, propose or
enter into, either as the proposed surviving, merged, acquiring or acquired
corporation, any transaction (other than the Merger) involving any
disposition or other change of ownership of Summit's stock or assets, other
than acquisitions and dispositions of equipment and other property in the
ordinary course of Summit's business and dispositions of HomeTown Buffet,
Inc. common stock owned by Summit (an "Acquisition Transaction");
(ii) facilitate, encourage, solicit or initiate or in any way engage
in any discussion, negotiation or submission of a proposal or offer in
respect of an Acquisition Transaction;
(iii) furnish or cause to be furnished to any Person any information
concerning the business, operations, properties or assets of Summit in
connection with an Acquisition Transaction; or
(iv) otherwise cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any other Person to
do or seek any of the foregoing.
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Summit will inform CKE by telephone within 24 hours of its receipt of any
proposal or bid (including the terms thereof and the Person making such proposal
or bid) in respect of any Acquisition Transaction.
ARTICLE 6
CONDITIONS TO SUMMIT'S OBLIGATIONS
The obligations of Summit under this Agreement are subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions:
6.1 COMPLETION OF OTHER TRANSACTIONS. Simultaneously with Summit's
effectuation of the transactions to be effected by it at the Closing:
(a) The Registration Statement shall have become effective under the
Securities Act, the Proxy Statement shall have been cleared by the staff of
the SEC and no stop order or proceeding seeking stop orders shall have been
issued with respect to the Registration Statement or the Proxy Statement.
(b) The Merger shall have been completed and the Certificate of Merger
shall have been filed with the Secretary of State of the State of Delaware.
(c) This Agreement and the Merger shall have been approved and adopted
by the holders of the Summit Common Stock and the Summit Preferred Stock
pursuant to and in accordance with the Charter Documents of Summit.
(d) The CKE Common Stock shall have been approved for listing on the
New York Stock Exchange, subject to official notice of issuance.
6.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties of CKE contained in this Agreement shall be true and correct at and
as of the Closing Date as if such representations and warranties were made at
and as of the Closing Date, and CKE shall have performed in all material
respects all agreements and covenants required hereby to be performed by it
prior to or at the Closing Date. There shall be delivered to Summit a
certificate (signed by the President or a Vice President of CKE on behalf of the
CKE) to the foregoing effect.
6.3 CONSENTS. All consents, approvals and waivers from governmental
authorities, and other parties necessary to permit Summit to consummate the
transactions as contemplated hereby, shall have been obtained, unless the
failure to obtain any such consent, approval or waiver would not have a Material
Adverse Effect upon Summit.
6.4 NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action,
investigation, inquiry or other Proceeding by any Governmental Authority shall
have been instituted or threatened which questions the validity or legality of
the transactions contemplated hereby. No suit, action, investigation, inquiry or
other Proceeding by any Governmental Authority or other Person shall have been
instituted or threatened which questions the validity or legality of the
transactions contemplated hereby and which could reasonably be expected to have
a Material Adverse Effect on Summit or its Subsidiaries.
6.5 CERTIFICATES. CKE will furnish Summit with such certificates of its
officers, directors and others to evidence compliance with the conditions set
forth in this Article 6 as may be reasonably requested by Summit and Summit
shall have received an opinion of counsel to CKE reasonably acceptable to
Summit.
6.6 TAX OPINION. Summit shall have received an opinion of counsel (a copy
of which will be delivered to CKE) to the effect that the Merger shall
constitute a tax-free reorganization within the meaning of Section 368(a) of the
Code.
6.7 CORPORATE DOCUMENTS. Summit shall have received from CKE resolutions
adopted by the board of directors of CKE approving this Agreement and the
transactions contemplated hereby, certified by CKE's corporate secretary.
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6.8 HSR ACT. The applicable waiting period, including any extension
thereof, under the HSR Act shall have expired.
6.9 FAIRNESS OPINION. Summit shall have received a letter from Piper
Jaffray Inc. confirming the opinion rendered to Summit's Board of Directors on
or prior to the date hereof to the effect that the terms of the Merger are fair
to the holders of Summit Common Stock from a financial point of view, a copy of
which will be delivered to CKE at the Closing.
ARTICLE 7
CONDITIONS TO CKE'S OBLIGATIONS
The obligations of CKE under this Agreement, including the obligation to
pay the Merger Consideration as provided hereby, are subject, in the discretion
of CKE, to the satisfaction, on or prior to the Closing Date, of each of the
following conditions:
7.1 COMPLETION OF OTHER TRANSACTIONS. Simultaneously with or prior to
CKE's effectuation of the transactions to be effected by it at the Closing:
(a) The Registration Statement shall have become effective under the
Securities Act, the Proxy Statement shall have been cleared by the staff of
the SEC and no stop order or proceeding seeking stop orders shall have been
issued with respect to the Registration Statement or the Proxy Statement.
(b) The Merger shall have been completed and the Certificate of Merger
shall have been filed with the Secretary of State of the State of Delaware.
(c) This Agreement and the Merger shall have been approved and adopted
by the holders of the Summit Common Stock and the Summit Preferred Stock
pursuant in accordance with the Charter Documents of Summit.
(d) The CKE Common Stock shall have been approved for listing on the
New York Stock Exchange, subject to official notice of issuance.
7.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties of Summit contained in this Agreement shall be true and correct at
and as of the Closing Date as if such representations and warranties were made
at and as of the Closing Date, and Summit and each Subsidiary shall have
performed in all material respects all agreements and covenants required hereby
to be performed by any of them prior to or at the Closing Date. There shall be
delivered to CKE a certificate (signed by the President or a Vice President of
Summit on behalf of Summit) to the foregoing effect.
7.3 CONSENTS. All consents, approvals and waivers from governmental
authorities, and other parties necessary to permit Summit or CKE to consummate
the transactions as contemplated hereby, shall have been obtained, unless the
failure to obtain any such consent, approval or waiver would not have a Material
Adverse Effect upon Summit.
7.4 NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action,
investigation, inquiry or other Proceeding by any Governmental Authority shall
have been instituted or threatened which questions the validity or legality of
the transactions contemplated hereby. No suit, action, investigation, inquiry or
other Proceeding by any Governmental Authority or other Person shall have been
instituted or threatened which questions the validity or legality of the
transactions contemplated hereby and which could reasonably be expected to have
a Material Adverse Effect on Summit or its Subsidiaries.
7.5 CERTIFICATES AND OPINIONS. Summit shall furnish CKE with such
certificates of the respective officers of Summit and others to evidence
compliance with the conditions set forth in this Article 7 as may be reasonably
requested by CKE and CKE shall have received an opinion of counsel to Summit
reasonably acceptable to CKE.
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7.6 TAX OPINION. CKE shall have received an opinion of counsel to CKE (a
copy of which will be delivered to Summit) to the effect that the Merger shall
constitute a tax-free reorganization within the meaning of Section 368(a) of the
Code.
7.7 CORPORATE DOCUMENTS. CKE shall have received from Summit resolutions
adopted by the respective boards of directors of Summit approving this Agreement
and the transactions contemplated hereby, certified by the corporate secretary
of Summit. CKE shall have also received the corporate minute books, Certificates
of Incorporation, bylaws and stock transfer books of Summit and each of the
Subsidiaries.
7.8 HSR ACT. The applicable waiting period, including any extension
thereof, under the HSR Act shall have expired.
7.9 DISSENTING SHARES. To the extent that holders of Summit Common Stock
and Summit Preferred Stock are entitled to dissent from the Merger, the holders
of not more than 10% of the shares of Summit Common Stock or Summit Preferred
Stock shall have asserted dissenters' rights in accordance with the DGCL.
7.10 FAIRNESS OPINION. CKE shall have received a letter from NatWest
Markets confirming the opinion rendered to CKE's Board of Directors on or prior
to the date 10 days following to the date hereof to the effect that the terms of
the Merger are fair to the holders of CKE Common Stock from a financial point of
view, a copy of which will be delivered to Summit at the Closing.
ARTICLE 8
ACTIONS BY SUMMIT AND CKE AFTER THE CLOSING
8.1 FURTHER ASSURANCES. On and after the Closing Date, Summit and CKE will
take all appropriate action and execute all documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the provisions hereof, including without limitation, putting CKE in
possession and operating control of the business of Summit.
8.2 DIRECTORS' AND OFFICERS' INSURANCE. CKE shall either: (i) cause Summit
to provide directors' and officers' and fiduciary liability insurance having
substantially similar terms and conditions and providing substantially similar
coverage as the directors' and officers' and fiduciary liability insurance
maintained by Summit at the Effective Time for a period of one year following
the Effective Time for all present directors and officers of Summit and its
Subsidiaries, provided that CKE may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions which are no less
advantageous, or (ii) cause Summit to purchase runoff extensions under its
existing directors' and officers' and fiduciary liability insurance policies,
extending the period for making claims under such policies for at least one year
following the Effective Time; provided, however, that the total expense for such
extensions shall not exceed $40,000.
ARTICLE 9
TERMINATION AND AMENDMENT
9.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time:
(a) by mutual consent of CKE and Summit;
(b) by either CKE or Summit if the Merger shall not have been
consummated before April 15, 1996 despite the good faith effort of such
party to effect such consummation (unless the failure to so consummate the
Merger by such date shall be due to the action or failure to act of the
party seeking to terminate this Agreement, which action or failure to act
constitutes a breach of this Agreement);
(c) by CKE if (i) (A) there are inaccuracies in the representations
and warranties of Summit that would have a Material Adverse Effect on
Summit, or (B) there has been a material breach on the part of Summit in
the covenants of Summit set forth herein, or any failure on the part of
Summit to comply with its material obligations hereunder, or any other
events or circumstances shall have occurred, such that, in
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any such case, Summit could not satisfy on or prior to April 15, 1996, any
of the conditions to the Closing set forth herein, or (ii) Summit's
stockholders do not approve the Merger at the Summit stockholders' meeting;
(d) by Summit if (i) (A) there are inaccuracies in the representations
and warranties of CKE having a Material Adverse Effect on CKE or (B) there
has been a material breach on the part of CKE in the covenants of CKE set
forth herein, or any failure on the part of CKE to comply with its material
obligations hereunder, or any other events or circumstances shall have
occurred, such that, in any such case, CKE could not satisfy on or prior to
April 15, 1996, any of the conditions to the Closing set forth in this
Agreement, (ii) Summit's stockholders do not approve the Merger at the
Summit stockholders' meeting, (iii) prior to the approval of the Merger by
Summit's stockholders, Summit receives a firm offer with respect to an
Acquisition Transaction that is reasonably capable of being financed and,
in the good faith determination of its Board of Directors after
consultation with its financial advisors, is financially superior to the
Merger and the Board of Directors of Summit, after consulting with its
outside counsel, determines that to proceed with the Merger would violate
its fiduciary duties under applicable law, or (iv) if the Average CKE Price
is less than $12.25, unless CKE notifies Summit in writing that it elects
to proceed with the Closing by issuing additional shares of CKE Common
Stock to compensate for the reduction in the Average CKE Price below $12.25
(the "Fill-Up Election"); or
(e) by holders of the Summit Preferred Stock through written notice to
Summit and CKE if the Average CKE Price is less than $12.25, unless CKE
makes the Fill-Up Election.
9.2 EFFECT OF TERMINATION. In the event of a termination of this Agreement
by either Summit or CKE as provided in Section 9.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of CKE or Summit or their respective officers or directors (other than as
provided in Section 9.3 below for termination by Summit pursuant to Section
9.1(d)(iii)) except for breach of the confidentiality provisions of Section
11.13, and except to the extent that such termination results from the willful
breach by a party hereto of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
9.3 CERTAIN FEES. In the event that Summit terminates the Agreement
pursuant to Section 9.1(d)(iii), Summit shall promptly pay CKE a cash fee of
$800,000. In the event that all conditions to CKE's obligations as set forth in
Article 7 are satisfied and CKE nevertheless fails to proceed with the Merger,
CKE shall forthwith pay Summit a fee of $800,000, in addition to all other
damages that Summit may suffer as a result of such breach.
ARTICLE 10
DEFINITIONS
10.1 DEFINED TERMS. As used herein, the terms below shall have the
following meanings:
"Adjusted CKE Price" has the meaning set forth in Section 2.1.
"Average CKE Price" has the meaning set forth in Section 2.1.
"Acquisition Transaction" has the meaning set forth in Section 5.14.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" has the meaning set forth in the Preamble hereof.
"Applicable Agreement" means, with respect to any Person, any bond,
debenture, note or any other evidence of indebtedness, indenture, mortgage, deed
of trust, lease, contract, agreement, license or instrument
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to which such Person or any of the Subsidiaries is a party or by which any of
their respective properties or assets is bound.
"Applicable Employment Law" means any Applicable Law governing or
respecting employment or the termination thereof, employment practices, terms
and conditions of employment, wages, hours of work, occupational safety and
health, or discriminatory, wrongful or tortious conduct in connection with the
employment relationship.
"Applicable Law" means any law, statute, ordinance, judgment, injunction,
decree, writ, regulation, interpretation, rule or order of any court or
Governmental Authority, and any other governmental restrictions or requirements,
including (without limitation) pursuant to any permit or license in effect on or
prior to the Closing Date.
"Benefit Plan" means, with respect to any Person, an employee benefit plan
(as defined in Section 3(3) of ERISA) whether or not covered by ERISA, bonus or
other incentive plan, deferred compensation, severance arrangement, executive
compensation or any material fringe benefit plan or program maintained or
contributed to by such Person or any of its Subsidiaries or with respect to
which such Person or any of its Subsidiaries has an obligation, actual or
potential.
"Charter Documents" means, with respect to any Person, the articles or
certificate of incorporation and by-laws, partnership agreement or other
organizational documents of such Person.
"CKE" has the meaning set forth in the Preamble.
"CKE Common Stock" means the Common Stock, par value $.01 per share, of
CKE.
"CKE Disclosure Schedule" means a schedule delivered by CKE to Summit as of
the date hereof (and which may be amended or modified on or prior to the Closing
Date) which sets forth exceptions to the representations and warranties
contained in Article 4 hereof and certain other information called for by
Article 4 hereof and other provisions of this Agreement.
"Closing" has the meaning set forth in Section 1.2.
"Closing Date" has the meaning set forth in Section 1.2.
"Code" has the meaning set forth in Recital B.
"DGCL" has the meaning set forth in Section 1.1.
"Effective Time" has the meaning set forth in Section 1.2.
"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any Person alleging potential
liability (including, without limitation, potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of or resulting
from (a) the presence, or release into the environment, of any Materials of
Environmental Concern at any location, whether or not owned or operated by
Summit or any of the Subsidiaries, or (b) any noncompliance with any
Environmental Law.
"Environmental Law" means any and all Applicable Laws relating to pollution
or the protection of human health or the environment or to emissions,
discharges, releases or threatened releases of any Materials of Environmental
Concern into the environment (including without limitation ambient air, surface
water, ground water, or land), or otherwise relating to the manufacture,
processing, distribution, generation, treatment, storage, disposal, transport or
handling of any Materials of Environmental Concern.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" has the meaning set forth in Section 3.6.
"Fill-Up Election" has the meaning set forth in Section 9.1(d)(iv).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements
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and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of this Agreement.
"Governmental Authority" means any Federal, state, local or foreign court
or governmental, administrative or regulatory authority or agency.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"IRS" has the meaning set forth in Section 3.12.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim, or a security interest of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof and any option or other agreement to sell).
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on (i) the condition (financial or otherwise), results of
operations, assets, liabilities, business or business prospects of such Person,
(ii) the ability of such Person or any of its Affiliates to perform its
obligations hereunder or (iii) the validity or enforceability of this Agreement.
"Merger" shall have the meaning set forth in Recital A.
"Merger Consideration" has the meaning set forth in Section 2.1.
"Materials of Environmental Concern" means pesticides, chemicals,
pollutants, contaminants, wastes, toxic substances and hazardous substances.
"Multiemployer Plan" means, with respect to any Person, on any date, a
multiemployer plan defined as such in Section 3(37) of ERISA to which
contributions have been made at any time during the six-year period ending on or
prior to such date, by such Person and that is covered by Title IV of ERISA.
"NLRB" means the National Labor Relations Board.
"PBGC" has the meaning set forth in Section 3.12.
"Permitted Liens" means (i) Liens securing indebtedness under the Summit's
credit facility with Zions National Bank; (ii) Liens in favor of Summit or any
Subsidiary; (iii) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (iv) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (v)
carriers', warehousemen's, mechanics', materialmen's, repairmen's, or other
similar Liens arising in the ordinary course of business which are not overdue
for a period of more than 60 days or which are being contested in good faith by
appropriate proceedings diligently conducted, (vi) Liens of landlords or of
mortgagees of landlords arising by operation of law, provided that the rental
payments secured thereby are not yet due and payable, (vii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (viii)
easements, rights-of-way, restrictions, minor defects or irregularities in title
and other similar charges or encumbrances not interfering in any material
respect with the business of Summit or any of its Subsidiaries, (ix) Purchase
Money Liens (including extensions and renewals thereof); (x) any interest or
title of a lessor in property subject to any capital lease obligation or
operating lease; and (xi) Liens arising from filing Uniform Commercial Code
financing statements regarding leases.
"Person" means any individual, partnership, corporation, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or agency or political subdivision thereof, or other entity.
"Proceeding" means an action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
"Proxy Statement" has the meaning set forth in Section 3.7.
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"Purchase Money Lien" means a Lien granted on an asset or property to
secure incurred incurred solely to finance the purchase, or the cost of
construction or improvement, of such asset or property.
"Registration Statement" has the meaning set forth in Section 3.7.
"SAS" has the meaning set forth in Section 5.8.
"SEC" has the meaning set forth in Section 3.6.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of directors.
"Summit" has the meaning set forth in the Preamble.
"Summit Common Stock" means the Common Stock, par value $.10 per share, of
Summit.
"Summit Disclosure Schedule" means a schedule delivered by Summit to CKE as
of the date hereof (and which may be amended or modified on or prior to the
Closing Date) which sets forth exceptions to the representations and warranties
contained in Article 3 hereof and certain other information called for by
Article 3 hereof and other provisions of this Agreement.
"Summit Preferred Stock" means the Series A Convertible Preferred Stock,
par value $1.00 per share, of Summit.
"Summit Stock Option" has the meaning set forth in Section 5.13.
"Summit Stock Option Plans" means the 1987 Nonqualified Stock Option Plan,
the 1987 Incentive Stock Option Plan, the 1984 Incentive Stock Option Plan, as
amended on February 13, 1987, and the 1992 Stock Option Plan, as amended on
April 8, 1994 and November 18, 1994, in each case of Summit.
"Tax or Taxes" means any federal, state, local, foreign or other income,
gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, transfer, stamp, occupation, alternative
or add-on minimum, estimated or other taxes of any kind whatsoever (including,
without limitation, deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Returns" means any United States Federal, state, local and foreign
returns, declarations, elections, statements, reports, schedules and information
returns pertaining to any Tax or the refiling or amendment of any such Tax
Returns previously filed.
"ULP" means an unfair labor practice as defined in the National Labor
Relations Act.
ARTICLE 11
MISCELLANEOUS
11.1 SURVIVAL OF REPRESENTATIONS, ETC. All statements contained in the
Disclosure Schedule or in any certificate or instrument of conveyance delivered
by or on behalf of the parties pursuant to this Agreement or in connection with
the transactions contemplated hereby shall be deemed to be representations and
warranties by the parties hereunder. The representations and warranties of
Summit and CKE contained herein shall not survive the Closing Date.
11.2 ASSIGNMENT. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by Summit without the prior written
consent of CKE, or by CKE without the prior written consent of Summit. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, and no other person shall have any
right, benefit or obligation hereunder.
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11.3 NOTICES. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the others
shall be in writing and delivered in person or by courier, telegraphed, telexed
or by facsimile transmission (with confirmation given) or mailed by certified
mail, postage prepaid, return receipt requested (such mailed notice to be
effective on the date of such receipt is acknowledged), as follows:
If to Summit: Charlotte L. Miller
Senior Vice President &
General Counsel
Summit Family Restaurants Inc.
440 Lawndale Drive
Salt Lake City, Utah 84115-2917
(801) 463-5500 Phone
(801) 463-5585 Facsimile
If to CKE: Richard C. Celio
Senior Vice President &
General Counsel
CKE Restaurants, Inc.
1200 North Harbor Boulevard
Anaheim, California 92801
(714) 774-5796 Phone
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
11.4 CHOICE OF LAW. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
Delaware except with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject of this
Agreement, and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern.
11.5 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, together
with all exhibits and schedules hereto, constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
11.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.7 INVALIDITY. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
11.8 HEADINGS. The headings of the Articles and Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
11.9 EXPENSES. Summit and CKE will each be liable for its own, costs and
expenses incurred in connection with the negotiation, preparation, execution or
performance of this Agreement.
11.10 SPECIFIC PERFORMANCE. The parties hereto agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist, and that the parties shall be entitled to
specific performance of the terms hereof, in addition to actions for damages and
any other remedy at law or equity.
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11.11 ATTORNEYS FEES. The parties hereby agree that if any party hereto
pursues a Proceeding to enforce the terms of this Agreement, the prevailing
party in any such Proceeding shall be entitled to recover its attorneys fees and
other costs and expenses incurred in such Proceeding from the other party.
11.12 PUBLICITY. Neither party shall issue or make or permit any Affiliate
or advisor to issue or make any press release or other public statement
regarding the transactions contemplated hereby, without the prior approval of
the other party, except as required by law in the opinion of counsel to each
party. The parties shall issue a mutually acceptable press release as soon as
possible after execution of this Agreement and as soon as practicable after the
Closing Date.
11.13 CONFIDENTIAL INFORMATION. The parties acknowledge that the
transaction described herein is of a confidential nature and shall not be
disclosed except to consultants, lenders, advisors and affiliates, or as
required by law, until such time as the parties make a public announcement
regarding the transaction. Neither Summit nor CKE shall make any public
disclosure of the specific terms of this Agreement, except as required by law.
In connection with the negotiation of this Agreement and the preparation for the
consummation of the transactions contemplated hereby, each party acknowledges
that it will have access to confidential information relating to the other
party. Each party shall treat such information as confidential, preserve the
confidentiality thereof and not duplicate or use such information, except to
advisors, consultants, lenders and affiliates in connection with the
transactions contemplated hereby. Summit, at a time and in a manner which it
reasonably determines and after prior notice to and consultation with CKE, may
notify employees, unions and bargaining agents of the fact of the subject
transaction. In the event of the termination of this Agreement for any reason
whatsoever, each party shall return to the other all documents, work papers and
other material (including all copies thereof) obtained in connection with the
transactions contemplated hereby and will use all reasonable efforts, including
instructing its employees and others who have had access to such information, to
keep confidential and not to use any such information, unless such information
is now, or is hereafter disclosed, through no act or omission of such party, in
any manner making it available to the general public.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
SUMMIT FAMILY RESTAURANTS INC.
By: /s/ DON M. MCCOMAS
-------------------------------------
Don M. McComas
President and Chief Executive Officer
By: /s/ CHARLOTTE L. MILLER
-------------------------------------
Charlotte L. Miller
Senior Vice President &
General Counsel
CKE RESTAURANTS, INC.
By: /s/ JOSEPH N. STEIN
-------------------------------------
Name: Joseph N. Stein
Title: Senior Vice President,
Chief Financial Officer
By: /s/ RICHARD C. CELIO
-------------------------------------
Name: Richard C. Celio
Title: Senior Vice President,
General Counsel
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<PAGE> 30
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.
AND
CKE RESTAURANTS, INC.
DATED: JANUARY 24, 1996
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<PAGE> 31
[CONFORMED COPY]
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
This First Amendment, dated as of January 24, 1996 (this "Amendment"), to
the Agreement and Plan of Merger and Reorganization, dated as of November 30,
1995 (the "Original Agreement"), is by and among Summit Family Restaurants Inc.,
a Delaware corporation ("Summit"), and CKE Restaurants, Inc., a Delaware
corporation ("CKE"). Capitalized terms not defined herein have the meanings set
forth in the Original Agreement. Except as specifically amended below, all
provisions of the Original Agreement remain in full force and effect.
RECITAL
The respective Boards of Directors of Summit and CKE have determined to
amend the Original Agreement in as set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and promises contained herein and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. MERGER AND CLOSING. Recital A is hereby amended to provide that Summit
will survive the Merger. Recital B is hereby deleted in its entirety. In
addition, Sections 1.2, 1.4 and 1.5 are hereby amended to read in full as
follows:
1.2 The Merger. At the Effective Time, in accordance with this
Agreement and the applicable provisions of the Delaware General Corporation
Law ("DGCL"), the Merger Sub shall in the Merger merge with and into
Summit, with Summit surviving the Merger, the separate existence of Merger
Sub shall cease, and Summit shall continue as the surviving corporation as
set forth in the Certificate of Merger. Summit is sometimes referred to
herein as the "Surviving Corporation."
1.4 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, the separate corporate existence of
Merger Sub shall cease and Summit shall be the Surviving Corporation and
shall have all of the rights, privileges, immunities and powers and shall
be subject to all duties and liabilities of a corporation organized under
the DGCL.
1.5 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of Summit shall be amended and restated to conform to the
Certificate of Incorporation of Merger Sub in effect at the Effective Time.
The Bylaws of Summit shall be amended and restated to conform to the Bylaws
of Merger Sub in effect at the Effective Time until amended in accordance
with applicable law.
2. MERGER CONSIDERATION (SECTION 2.1). The definitions of "Merger
Consideration" and "Adjusted CKE Price" in Section 2.1 of the Original Agreement
are hereby amended to read in full as follows:
"Merger Consideration" means, for each share of Summit Common Stock
and each share of Summit Preferred Stock: (a) $2.77 in cash (without
interest) and (b) a number of shares of CKE Common Stock equal to $2.78
divided by the Adjusted CKE Price.
The Merger Consideration shall be increased by one-half of the amount,
if any, by which the consideration to be received from the purchasers under
the draft Asset Purchase Agreements with Flagstar and HomeTown Buffet dated
January 24, 1996 (which CKE has provided to Summit) increases in an
immediately quantifiable dollar amount from the amounts currently provided
for in such drafts (either through an increase in the consideration paid or
an increase in the liabilities the proposed buyer assumes) pursuant to
fully executed definitive Asset Purchase Agreements in effect as of the
Closing. The amount of any increase shall be determined at Closing and
shall not be further affected by any other transactions involving Summit
assets or properties subsequent to Closing. The increase, if any, shall be
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<PAGE> 32
allocated one-half to the cash portion of the Merger Consideration and
one-half to the CKE Common Stock portion of the Merger Consideration.
"Adjusted CKE Price" means (a) if the Average CKE Price is equal to or
greater than $17.00, $16.00 plus the amount by which the Average CKE Price
exceeds $17.00, (b) if the Average CKE Price is less than $17.00 and equal
to or greater than $15.00, $16.00, (c) if the Average CKE Price is less
than $15.00 and equal to or greater than $13.25, $16.00 less the amount by
which $15.00 exceeds the Average CKE Price, (d) if the Average CKE Price is
less than $13.25 and CKE has not exercised the Fill-Up Election, $14.25 and
(e) if the Average CKE Price is less than $13.25 and CKE has exercised the
Fill-Up Election, $16.00 less the amount by which $15.00 exceeds the
Average CKE Price.
3. FRACTIONAL SHARES (SECTION 2.3). Section 2.3 of the Original Agreement
is hereby amended to read as follows:
No fractional shares of CKE Common Stock shall be issued in the
Merger. In lieu thereof, cash shall be paid for any fractional shares
calculated by multiplying the Adjusted CKE Price by the fraction of a share
of CKE Common Stock to which the holder would otherwise have been entitled.
4. FAIRNESS OPINION (SECTION 6.9). Section 6.9 of the Original Agreement
is hereby modified to read in full as follows:
Summit shall have received a letter from Piper Jaffray Inc. on or
prior to the date of the Amendment to the effect that the terms of the
Merger are fair to the holders of Summit Common Stock from a financial
point of view, a copy of which will be delivered to CKE prior to the
Closing.
5. FAIRNESS OPINION (SECTION 7.10). Section 7.10 of the Original
Agreement, providing for a fairness opinion from NatWest Markets, is hereby
deleted in its entirety.
6. TAX OPINIONS (SECTION 6.6 AND 7.6). Sections 6.6 and 7.6 of the
Original Agreement, providing for legal opinions regarding certain tax matters,
are hereby deleted in their entirety.
7. TREATMENT OF STOCK OPTIONS (SECTIONS 5.14(A) AND 5.14(B)). Sections
5.14(a) and 5.14(b) of the Original Agreement are hereby amended to read in full
as follows:
(a) On or prior to the Effective Time, Summit and its Board of
Directors (or a committee thereof) shall take all action necessary to
implement the provisions contained herein; provided, that such provisions
do not create an aggregate cash liability at the Effective Time in excess
of $375,000, adjusted for any per share increase in the Merger
Consideration as provided in paragraph 2 of this Amendment.
(b) At the Effective Time, all options to purchase shares of Summit
Common Stock (a "Summit Stock Option") under a Summit Stock Option Plan
shall become fully exercisable in accordance with the terms of the Stock
Option Plan. Each holder of Summit Stock Options may elect to have such
Summit Stock Options cancelled in consideration of the payment of an amount
equal to the product of (x) the excess, if any, of the aggregate dollar
amount of the Merger Consideration over the exercise price thereof and (y)
the number of shares of Summit Common Stock subject thereto, respectively
(such payment to be net of any required withholding taxes). From and after
the Effective Time, each outstanding Summit Stock Option that is not so
cancelled shall constitute an option to acquire, on the same terms and
conditions as were applicable under such Summit Stock Option, a number of
shares of CKE Common Stock equal to (w) the product of the aggregate dollar
amount of the Merger Consideration and the number of shares of Summit
Common Stock purchasable upon exercise of the Summit Stock Option prior to
the Effective Time divided by (x) the Average CKE Price, at an exercise
price per share equal to (y) the aggregate exercise price for the shares of
Summit Common Stock purchasable upon exercise of the Summit Stock Option
prior to the Effective Date divided by (z) the aggregate number of shares
of CKE Common Stock purchasable upon exercise of such Summit Stock Option
following the Effective Date.
8. TERMINATION (SECTION 9.1). The date April 15, 1996 in every instance it
appears in Section 9.1 in the Original Agreement is hereby changed to May 30,
1996. The reference to $12.25 in Section 9.1(d) and Section 9.1(e) is hereby
changed to $13.25.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
have caused this Amendment to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the date and year
first above written.
SUMMIT FAMILY RESTAURANTS INC.
By: /s/ DON M. MCCOMAS
-------------------------------------
Don M. McComas
President and Chief Executive Officer
By: /s/ CHARLOTTE L. MILLER
-------------------------------------
Charlotte L. Miller
Senior Vice President &
General Counsel
CKE RESTAURANTS, INC.
By: /s/ JOSEPH N. STEIN
-------------------------------------
Joseph N. Stein
Senior Vice President,
Chief Financial Officer
By: /s/ RICHARD C. CELIO
-------------------------------------
Richard C. Celio
Senior Vice President,
General Counsel
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SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.
AND
CKE RESTAURANTS, INC.
DATED: APRIL 2, 1996
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<PAGE> 35
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
This Second Amendment, dated as of April 2, 1996 (this "Second
Amendment"), to the Agreement and Plan of Merger and Reorganization, dated as
of November 30, 1995 (the "Original Agreement"), as amended pursuant to the
First Amendment to Agreement and Plan of Reorganization, dated as of January 24,
1996 (the "First Amendment") is by and among Summit Family Restaurants
Inc., a Delaware corporation ("Summit"), and CKE Restaurants, Inc., a Delaware
corporation ("CKE"). Capitalized terms not defined herein have the meanings set
forth in the Original Agreement and the First Amendment. Except as specifically
amended below, all provisions of the Original Agreement and First Amendment
remain in full force and effect.
RECITAL
The respective Boards of Directors of Summit and CKE have determined to
amend the Original Agreement and the First Amendment as set forth in this
Second Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and promises contained herein and for other good and
valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. PURCHASE OF SUMMIT PREFERRED STOCK. On or prior to April 4,
1996, CKE shall purchase all of the shares of Summit Preferred Stock from the
holder thereof at a purchase price of $5.27 per share in cash. CKE hereby
agrees to vote all of such shares of Summit Preferred Stock in favor of the
transactions set forth in the Original Agreement, as amended by the First
Amendment and the Second Amendment.
2. CONVERSION OF SECURITIES (SECTION 2.1). The first paragraph of
Section 2.1 of the Original Agreement and the first paragraph of the definition
of "Merger Consideration" in Section 2.1 of the Original Agreement, as amended
by the First Amendment, are amended to read in full as follows:
At the Effective Time, by virtue of the Merger and without any action
on the part of the parties hereto each share of Summit Common Stock and
Summit Preferred Stock issued and outstanding immediately prior
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to the Effective Time, other than shares of Summit Common Stock for
which appraisal rights have been exercised pursuant to Section 262 of
the DGCL, and other than shares owned by CKE or its subsidiaries (which
will be cancelled), will be converted into the right to receive the
Merger Consideration.
"Merger Consideration" means, for each share of Summit Common
Stock and Summit Preferred Stock (other than shares owned by CKE or its
subsidiaries, which will be cancelled): (a) $2.63 in cash (without
interest) and (b) a number of shares of CKE Common Stock equal to $2.64
divided by the Adjusted CKE Price.
3. FAIRNESS OPINION (SECTION 6.9): Section 6.9 of the Original
Agreement, as amended by the First Amendment, is hereby modified to read in
full as follows:
Summit shall have received letters from Piper Jaffray Inc. confirming
the opinions rendered to Summit's Board of Directors on or prior to the
date of the Original Agreement, on or prior to the date of the First
Amendment and on or prior to the date of the Second Amendment to the
effect that the terms of the Merger are fair to the holders of Summit
Common Stock from a financial point of view, copies of which will be
delivered to CKE at the Closing.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. Sections 3.19(i) and
4.12(i) of the Original Agreement are hereby deleted in their entirety. CKE
acknowledges receipt of the information provided to it regarding the separation
compensation plan and procedures and other matters pursuant to the letter,
dated February 29, 1996, from Summit. CKE and Summit agree that such
information does not constitute a violation of the Original Agreement, as
amended, including Sections (3.19(vii) and 5.2(a) thereof.
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5. TERMINATION (SECTION 9.1). Section 9.1(c)(i)(A) and
9.1(d)(i)(A) are hereby deleted in their entirety. The date May 30, 1996 in
every instance it appears in Section 9.1 in the Original Agreement, as amended
by the First Amenment, is hereby changed to June 30, 1996.
6. ADOPTION OF ORIGINAL AGREEMENT BY MERGER SUB. Summit Merger,
Inc., a Delaware corporation ("Summit Merger"), was recently organized by CKE
for purposes of completing the Merger. Summit Merger, by its execution and
delivery hereof, agrees to be bound by the terms and provisions of the Original
Agreement, as amended, and is hereby made a party to the Original Agreement.
For all purposes of the Original Agreement, all references to "Merger Sub"
shall be deemed to refer to Summit Merger.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
have caused this Amendment to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
SUMMIT FAMILY RESTAURANTS INC.
BY /s/ DON M. McCOMAS
-----------------------------------------
Don M. McComas
President and Chief Executive Officer
BY /s/ CHARLOTTE L. MILLER
-----------------------------------------
Charlotte L. Miller
Senior Vice President &
General Counsel
CKE RESTAURANTS, INC.
BY
-----------------------------------------
BY
-----------------------------------------
SUMMIT MERGER, INC.
BY
-----------------------------------------
BY
-----------------------------------------
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
have caused this Amendment to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
SUMMIT FAMILY RESTAURANTS INC.
BY
-----------------------------------------
Don M. McComas
President and Chief Executive Officer
BY
-----------------------------------------
Charlotte L. Miller
Senior Vice President &
General Counsel
CKE RESTAURANTS, INC.
BY /s/ ROBERT E. WHEATON
-----------------------------------------
Robert E. Wheaton
Executive Vice President
BY /s/ ROBERT A. WILSON
-----------------------------------------
Robert A. Wilson
Vice President, General Counsel
SUMMIT MERGER, INC.
BY /s/ ROBERT E. WHEATON
-----------------------------------------
Robert E. Wheaton
Executive Vice President
BY /s/ ROBERT A. WILSON
-----------------------------------------
Robert A. Wilson
Vice President, General Counsel
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
CARL KARCHER ENTERPRISES, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The board of directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office
is located outside the State of California, and the corporation has one or more
business offices in the State of California, the board of directors shall
likewise fix and designate a principal business office in the State of
California.
Section 2. OTHER OFFICES. The corporation may also establish offices
at such other places, both within and outside the State of California, as the
board of directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held
at any place within or outside the State of California designated by the board
of directors. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETINGS. The annual meeting of shareholders shall
be held on the 9th day of June in each year at ten o'clock a.m., or such other
date or time as may be fixed by the board of directors; provided, however, that
should said day fall upon a legal holiday, such annual meeting of shareholders
shall be held at the same time on the next succeeding day which is a full
business day. At such meeting, directors shall be elected and any other proper
business may be transacted.
Section 3. SPECIAL MEETINGS. A special meeting of the shareholders
may be called at any time by the board of directors, the chairman of the board,
the president, or one or more shareholders holding in the aggregate shares
entitled to cast not less than 10% of the votes at any such meeting.
If a special meeting is called by anyone other than the board of
directors, the request shall be in writing, specifying the time of the meeting
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president or the secretary of the corporation. The officer receiving such
request forthwith shall cause notice to be given to the shareholders entitled
to vote, in accordance with the provisions of Sections 4 and 5 of this Article
II, that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within
twenty (20) days after receipt of the request, the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
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Section 4. NOTICE OF MEETINGS. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting being noticed. The notice shall specify the place, date
and hour of the meeting and (i) in the case of a special meeting, the general
nature of the business to be transacted, or (ii) in the case of the annual
meeting, those matters which the board of directors, at the time of giving the
notice, intends to present for action by the shareholders. The notice of any
meeting at which directors are to be elected shall include the name of any
nominee or nominees whom, at the time of the notice, management intends to
present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to
Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to
Section 1201 of the Code, (iv) a voluntary dissolution of the corporation,
pursuant to Section 1900 of the Code, or (v) a distribution in dissolution
other than in accordance with the rights of outstanding preferred shares,
pursuant to Section 2007 of the Code, the notice shall also state the general
nature of such proposal.
Section 5. MANNER OF GIVING NOTICE. Notice of any meeting of
shareholders shall be given personally or by first-class mail or telegraphic or
other written communication, charges prepaid, addressed to the shareholder at
the shareholder's address appearing on the books of the corporation or given by
the shareholder to the corporation for the purpose of notice. If no such
address appears on the corp[oration's books or is given, notice shall be deemed
to have been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the country in which the principal executive office is located.
Notice shall be deemed to have been given when delivered personally or
deposited in the mail or sent by telegram or other means of written
communication.
If any notice addressed to a shareholder at the address of such
shareholder appearing on the books of the corporation is returned to the
corporation by the Untied States Postal Service marked to indicate that the
Service is unable to deliver the notice to the shareholder at such address, all
future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder upon written
demand at the principal executive office of the corporation for a period of one
year from the date of the giving of such notice or report to all other
shareholders.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary
or any transfer agent of the corporation, and shall be filed and maintained in
the minute book of the corporation.
Section 6. QUORUM. Unless otherwise provided in the articles of
incorporation, the presence in person or by proxy of the holders of a majority
of the shares entitled to vote at any meeting of shareholders shall constitute
a quorum for the transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
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Section 7. ADJOURNMENT. Any shareholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of a majority of the shares represented at such meeting, either in
person or by proxy, but in the absence of a quorum, no other business may be
transacted at such meeting, except as provided in Section 6 of this Article II.
When any meeting of shareholders, annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at a meeting at which the adjournment is
taken, unless a new record date for the adjourned meeting is fixed, or unless
the adjournment is for more than forty-five (45) days from the date set for the
original meeting, in which case the board of directors shall set a new record
date. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 4 and 5 of this Article II. At any adjourned meeting,
the corporation may transact any business which might have been transacted at
the original meeting.
Section 8. VOTING. The shareholders entitled to vote at any meeting
of shareholders shall be determined in accordance with the provisions of
Section II of this Article II, subject to the provisions of Sections 702 to
704, inclusive, of the Code (relating to voting shares held by a fiduciary, in
the name of a corporation or in the names of two or more persons). The vote
may be by voice vote or by ballot; provided, however, that any election for
directors must be by ballot if demanded by a shareholder at the meeting and
before the voting begins. Any shareholder entitled to vote on any matter
(other than elections of directors) may vote part of the shares in favor of the
proposal and refrain from voting the remaining shares or vote them against the
proposal, but, if the shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares such shareholder is
entitled to vote. If a quorum is present, the affirmative vote of the majority
of the shares represented at the meeting and entitled to vote on any matter
(other than the election of directors) shall be the act of the shareholders,
unless the vote of a greater number of voting by classes is required by the
Code or the articles of incorporation.
At a shareholders' meeting involving the election of directors, no
shareholder shall be entitled to cumulate votes on behalf of any candidate for
director (i.e., each shareholder shall be entitled to cast for any one or more
candidates no greater number of votes than the number of shares held by such
shareholder) unless such candidate or candidates' names have been placed in
nomination prior to the voting and the shareholder has given notice prior to
the voting of the shareholder's intention to cumulate votes. If any
shareholder has given such notice, every shareholder entitled to vote may
cumulate votes for candidates in nomination and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the number
of votes to which such shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among as many candidates as the
shareholder thinks fit. The candidates receiving the highest number of votes,
up to the number of directors to be elected, shall be elected.
Section 9. WAIVER OF NOTICE: CONSENT. The transactions of any
meeting of shareholders, annual or special, however called and noticed, and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum is present either in person or by proxy,
and if, either before or after the meeting, each person entitled to vote, who
was not present in person or by proxy, signs a written waiver of notice, or a
consent to a holding of the meeting, or an approval of the minutes thereof.
The waiver of notice or consent need not specify either the business to be
transacted for the purpose of any
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annual or special meeting of shareholders, except that if action is taken or
proposed to be taken for approval of any matters specified in the second
paragraph of Section 4 of this Article II, the waiver of notice or consent
shall state the general nature of the proposal. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meetings is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of such meeting if such objection is expressly made at the meeting.
Section 10. ACTION WITHOUT MEETING. Unless otherwise provided in the
articles of incorporation, any action which may be taken at any annual or
special meeting of shareholders may be taken without a meeting and without
prior notice, if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
In the case of election of directors, such consent shall be effective only if
signed by the holders of all outstanding shares entitled to vote for the
election of directors; provided, however, that a director may be elected at any
time to fill a vacancy on the board of directors not filled by the directors,
by the written consent of the holders of a majority of the outstanding shares
entitled to vote for the election of directors. All such consents shall be
filed with the secretary of the corporation and shall be maintained in the
corporate records. Any shareholder giving a written consent, or the
shareholder's proxy holder, or a transferee of the shares or a personal
representative of the shareholder or their respective proxy holders, may revoke
the consent by a writing received by the secretary of the corporation prior to
the time that written consents of the number of shares required to authorize
the proposed action have been filed with the secretary.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, the secretary shall give prompt notice of any corporate
action approved by the shareholders without a meeting by less than unanimous
written consent to those shareholders entitled to vote who have not consented
in writing. Such notice shall be given in the manner specified in Section 5 of
this Article II. In the case of approval of (i) contracts or transactions in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of agents of the corporation,
pursuant to Section 317 of the Code, (iii) a reorganization of the corporation,
pursuant to Section 1201 of the Code, or (iv) a distribution in dissolution
other than in accordance with the rights of outstanding preferred shares,
pursuant to Section 2007 of the Code, such notice shall be given at least ten
(10) days before the consummation of the action authorized by any such
approval.
Section 11. RECORD DATE. For purposes of determining the
shareholders entitled to notice of any meeting or to vote or entitled to give
consent to corporate action without a meeting, the board of directors may fix,
in advance, a record date, which shall not be more than sixty (60) days nor
less than ten (10) days prior to the date of the meeting nor more than sixty
(60) days prior to the action without a meeting, and in such case only
shareholders of record on the date so fixed are entitled to notice and to vote
or to give consents, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in the California General Corporation Law.
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If the board of directors does not so fix a record date:
(a) The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on
the business day next preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, (i)
when no prior action by the board has been taken, shall be the day on
which the first written consent is given, or (ii) when prior action of
the board has been taken, shall be at the close of business on the day
on which the board adopts the resolution relating thereto, or the
sixtieth (60th) day prior to the date of such other action, whichever
is later.
Section 12. PROXIES. Every person entitled to vote for directors or
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, prior to the vote pursuant thereto, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of the proxy is received by the corporation before the
vote pursuant thereto is counted; provided, however, that no such proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy. The revocability of a proxy that
states on its face that it is irrevocable shall be governed by the provision of
Section 705(e) and (f) of the Code.
Section 13. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the board of directors may appoint any persons (other than
nominees for office) to act as inspectors of election at the meeting or any
adjournments thereof. If inspectors of election are not so appointed, the
chairman of the meeting may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders or proxies,
the majority of shares represented in person or by proxy shall determine
whether one (1) or three (3) inspectors are to be appointed. If any person
appointed as inspector fails to appear or refuses to act, the chairman of the
meeting may, and upon the request of any shareholder or a shareholder's proxy
shall, appoint a person to replace the one who so failed or refused. If there
are three (3) inspectors of election, the decision, act or certificate of a
majority of them is effective in all respects as the decision, act or
certificate of all. Any report or certificate made by the inspectors of
election is prima facie evidence of the facts stated therein.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California
General Corporation Law and any limitations in the articles of incorporation
and these bylaws relating to action required to be approved by the shareholders
or by the outstanding shares, the business and
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affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the board of directors.
Section 2. The authorized number of directors of the Corporation
shall be nine (9) until this Section 3.2 is amended by a resolution duly
adopted by the Board. Directors need not be stockholders. With the exception
of Carl N. Karcher, no person who has attained the age of 75 shall be eligible
for election to the Board. Each of the directors of the Corporation shall hold
office until such director's successor shall have been duly elected and shall
qualify or until such director shall resign or shall have been removed in the
manner provided by these Bylaws.
Section 3. ELECTION AND TERM OF OFFICE. Directors shall be elected
at each annual meeting of the shareholders to hold office until the next annual
meeting. Each director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Section 4. REMOVAL. Any or all of the directors may be removed by
order of court pursuant to Section 304 of the Code, or by the shareholders
pursuant to the provisions of Section 303 of the Code.
Section 5. VACANCIES. Vacancies in the board of directors may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director, except that a vacancy created by the removal of a
director may be filled only by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is present, or by the
written consent of holders of a majority of the outstanding shares entitled to
vote. Each director so elected shall hold office until the next annual meeting
of the shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist in the case of the death, resignation or removal of any director, or if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or who has been
convicted of a felony, or if the authorized number of directors is increased,
or if the shareholders fail, at any meeting of shareholders at which any
director or directors are elected, to elect the number of directors to be voted
for at that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective upon giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation of a director is effective at a future time,
the board of directors may elect a successor to take office when the
resignation becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his or her term of
office.
Section 6. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular
meetings of the board of directors may be held at any place within or outside
the State of California that has been designated from time to time by
resolution of the board. In the absence of such designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board shall be held at any place within or outside the
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State of California that has been designated in the notice of the meeting or,
if not stated in the notice or there is no notice, at the principal executive
office of the corporation. Any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating can hear one another, and all such directors shall be
deemed to be present in person at such meeting.
Section 7. REGULAR MEETINGS. Immediately following each annual
meeting of shareholders, the board of directors shall hold a regular meeting
for the purpose of organization, any desired election of officers and the
transaction of other business. Other regular meetings of the board of
directors shall be held without call at such time as shall from time to time be
fixed by the board of directors. Notice of regular meetings shall not be
required.
Section 8. SPECIAL MEETINGS. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the chairman
of the board or the president or any vice president or the secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered to
each director personally or by telephone or sent by first-class mail or
telegram, charges prepaid, addressed to each director at his or her address as
it is shown on the records of the corporation. In case the notice is mailed,
it shall be deposited in the Untied States mail at least four (4) days prior to
the time of the holding of the meeting. In case such notice is delivered
personally or by telephone or telegraph, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours prior to
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation.
Section 9. QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (appointment of committees), and Section 317(e) of the code
(indemnification of directors). A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
require quorum for such meeting.
Section 10. WAIVER OF NOTICE: CONSENT. The transactions of any
meeting of the board of directors, however called and noticed or wherever held,
shall be as valid as though had at a meeting duly held after regular call and
notice if a quorum is present and if, either before or after the meeting, each
of the directors not present signs a written waiver of notice, a consent to
holding the meeting or an approval of the minutes thereof. The waiver of
notice or consent need not specify the purpose of the meeting. All such
waivers, consents and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting. Notice of a meeting shall also be
deemed given to any director who attends the meeting without protesting, prior
thereto or at its commencement, the lack of notice to that director.
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Section 11. ADJOURNMENT. A majority of the directors present, whether
or not constituting a quorum, may adjourn any meeting to another time and
place. Notice of the time and place of holding an adjourned meeting need not
be given, unless the meeting is adjourned for more than twenty-four (24) hours,
in which case notice of such time and place shall be given prior to the time of
the adjourned meeting, in the manner specified in Section 8 of this Article
III, to the directors who were not present at the time of the adjournment.
Section 12. ACTION WITHOUT MEETING. Any action required or permitted
to be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
such action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. The written consent or
consents shall be filed with the minutes of the proceedings of the board.
Section 13. FEES AND COMPENSATION. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. Nothing contained herein shall be construed to preclude
any director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for such service.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The board of directors may,
by resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the board, may have all the authority of the
board, except with respect to:
(a) the approval of any action which, under the
California General Corporation Law, also requires shareholders'
approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or
in any committee;
(c) the fixing of compensation of the directors for
serving on the board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of
new bylaws;
(e) the amendment or repeal of any resolution of the
board of directors which by its express terms is not so amendable or
repealable;
(f) a distribution to the shareholders of the
corporation, except at a rate or in a periodic amount or within a
price range determined by the board of directors; or
(g) the appointment of any other committees of the board
of directors or the members thereof.
Section 2. MEETINGS AND ACTION. Meetings and action of committees
shall be governed by, and held and taken in accordance with, the provisions of
Article III of these
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bylaws, Sections 6 (place of meetings and meetings by telephone), 7 (regular
meetings), 8 (special meetings), 9 (quorum), 10 (waiver of notice), 11
(adjournment) and 12 (action without meeting), with such changes in the context
of those bylaws as are necessary to constitute the committee and its members
for the board of directors and its members, except that the time of regular
meetings of committees may be determined by resolution of the board of
directors as well as the committee; special meetings of committees may also be
called by resolution of the board of directors; and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may
adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
president, a secretary and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article V. Any number of offices may
be held by the same person.
Section 2. ELECTION. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the board of directors, and
each shall serve at the pleasure of the board, subject to the rights, if any,
of an officer under any contract of employment.
Section 3. OTHER OFFICERS. The board of directors may appoint, and
may empower the president to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the bylaws or as
the board of directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION. Subject to the rights, if any,
of any officer under any contract of employment, any officer may be removed,
either with or without cause, by the board of directors or, except in case of
an officer chosen by the board of directors, by any officer upon whom such
power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any such resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer is a party.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in these bylaws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such
an officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him or her by the board of directors or prescribed by
the bylaws. If there is no president, the chairman of the board shall in
addition be the chief executive officer of the corporation and shall have the
powers and duties prescribed in Section 7 of this Article V.
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Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the board of directors to the chairman of the board, if there
be such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and the officers of
the corporation. He or she shall preside at all meetings of the shareholders
and, in the absence of the chairman of the board, or if there be none, at all
meetings of the board of directors. He or she shall have the general powers
and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed by
the board of directors or the bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors, or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by
the board of directors or the bylaws and the president or the chairman of the
board.
Section 9. SECRETARY. The secretary shall keep, or cause to be kept,
at the principal executive office or such other place as the board of directors
may direct, a book of minutes of all meetings and actions of directors,
committees of directors and shareholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' and committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, a share register, or a duplicate share register, showing the names
of all shareholders and their addresses, the number and classes of shares held
by each, the number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholder and of the board of directors required by the bylaws or by
law to be given, and he or she shall keep the seal of the corporation, if one
be adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by the bylaws.
Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer
shall keep and maintain, or cause to be kept and maintained, adequate and
correct books and records of accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained earnings and shares.
The books of account shall at all reasonable times be open to inspection by any
director.
The chief financial officer shall deposit, or cause to be deposited,
all moneys and other valuables in the name and to the credit of the corporation
with such depositaries as may be designated by the board of directors. He or
she shall disburse, or cause to be disbursed, the funds of the corporation as
may be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all financial transactions
and of the financial condition of the corporation, and shall have such other
powers and perform such other duties as may be prescribed by the board of
directors or the bylaws.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
Section 1. INDEMNIFICATION. The corporation may, to the maximum
extent permitted by the California General Corporation Law, indemnify each of
its agents against expenses, judgements, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that any such person is or was an agent of the corporation.
For purposes of this Article VI, an "agent" of the corporation includes any
person who is or was a director, officer, employee or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or was a director, officer, employee or
agent of a corporation which was a predecessor corporation of the corporation
or of another enterprise at the request of such predecessor corporation.
Section 2. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this corporation prior to the final disposition
of such proceeding upon receipt of an undertaking by or on behalf of the agent
to repay such amount unless it shall be determined ultimately that the agent is
entitled to be indemnified as authorized in this Article.
Section 3. OTHER CONTRACTUAL RIGHTS. Nothing contained in this
Article shall affect any right to indemnification to which persons other than
directors and officers of this corporation or any subsidiary hereof may be
entitled by contract or otherwise.
Section 4. INSURANCE. Upon and in the event of a determination
by the board of directors of this corporation to purchase such insurance, this
corporation shall purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether or not this
corporation would have the power to indemnify the agent against such liability.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed, a record of its
shareholders, giving the names and addresses of all shareholders and the number
and class of shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours upon five (5) days'
prior written demand upon the corporation, or (ii) obtain from the transfer
agent of the corporation, upon written demand and upon the tender of the
transfer agent's usual charges for such list, a list of the shareholders' names
and addresses, who are entitled to vote for the election of directors, and
their shareholdings, as of the most recent record date for which such list has
been compiled or as of a date specified by the shareholder subsequent to the
date of demand. The list shall be made available to that shareholder on or
before the later of five (5) days after the demand is received or the date
specified therein as the date as of which the list is to be compiled. The
record of shareholders shall also be open to inspection upon the written demand
of any shareholder or holder of a voting trust certificate, at any time
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during usual business hours, for a purpose reasonably related to such holder's
interests as a shareholder or as the holder of a voting trust certificate. Any
inspection and copying under this Section may be made in person or as an agent
or attorney of the shareholder or holder of a voting trust certificate making
such demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation
shall keep at its principal executive office, or if its principal executive
office is not in the State of California,at its principal business office in
that State, the original or a copy of the bylaws as amended to date, which
shall be open to inspection by the shareholders at all reasonable times during
office hours. If the principal executive office of the corporation is outside
the State of California and the corporation has no principal business office in
that State, the secretary shall, upon the written request of any shareholder,
furnish to such shareholder a copy of the bylaws as amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The Accounting books and records and minutes of proceedings of the shareholders
and the board of directors and any committee or committees of the board of
directors shall be kept at such place or places designated by the board of
directors, or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. Such minutes and
accounting books and records shall be open to inspection upon the written
demand of any shareholder or holder of a voting trust certificate, at any
reasonable time during usual business hours, for a purpose reasonably related
to the holder's interests as a shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney,
and shall include the right to copy and make extracts. The foregoing rights of
inspection shall extend to the records of each subsidiary of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of every kind and the physical properties of the corporation and each
subsidiary corporation. Such inspection by a director may be made in person or
by agent or attorney and the right of inspection includes the right to copy and
make extracts.
Section 5. ANNUAL REPORTS. The Board of Directors of the corporation
shall cause an annual report to be sent to the shareholders not later than one
hundred twenty (120) days after the close of the fiscal year, provided that
such report shall in any event be sent to shareholders at least fifteen (15)
(or, if sent by third-class mail, thirty-five (35) days prior to the annual
meeting of shareholders to be held during the next fiscal year. Such report
shall contain a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year
and shall be accompanied by any report thereon of independent accountants.
Such report shall also contain any additional matters required by Section
1501(b) of the General Corporation Law, the Securities Exchange Act of 1934 and
other applicable laws.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as
of the end of each such period, that has been prepared by the corporation shall
be kept on file in the principal executive office of the corporation for twelve
(12) months and each such statement shall be exhibited at all reasonable times
to any shareholder demanding examination of any such statement or a copy shall
be mailed to any such shareholder.
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If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days prior to the date of the request, and a
balance sheet of the corporation as of the end of such period, the chief
financial officer shall cause such statement or statements to be prepared, if
not already prepared, and shall deliver personally or mail such statement or
statements to the person making the request within thirty (30) days after the
receipt of such request. If the corporation has not sent to the shareholders
its annual report for the last fiscal year, this report shall likewise be
delivered or mailed to such shareholder or shareholders within thirty (30) days
after such request.
The corporation also shall, upon the written request of any
shareholder, mail to the shareholder a copy of the last annual, semi-annual or
quarterly income statement which it has prepared and a balance sheet as of the
end of such period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report thereon, if any, of any independent
accounts engaged by the corporation or the certificate of an authorized officer
of the corporation that such financial statements were prepared without audit
from the books and records of the corporation.
ARTICLE VIII
GENERAL MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
prior to any such action, and in such case only shareholders of record on the
date so fixed are entitled to receive the dividend, distribution or allotment
of rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date for
determining shareholders for any such propose shall be at the close of business
on the date on which the board adopts the resolution relating thereto, or the
sixtieth (60th) day prior to the date of such action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts or other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time
to time, shall be determined by resolution of the board of directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
board of directors, except as otherwise provided in these bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of an on behalf of the corporation, and such
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors or within the agency power of
an officer, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or
to render it liable for
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any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates
for shares of the capital stock of the corporation shall be issued to each
shareholder when any such shares are fully paid and the board of directors may
authorize the issuance of certificates or shares as partly paid provided that
such certificates shall state the amount of the consideration to be paid
therefor and the amount paid thereon. All certificates shall be signed in the
name of the corporation by the chairman of the board or vice chairman of the
board or the president or vice president and by the chief financial officer or
an assistant treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by the
shareholder. Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
Section 5. LOST CERTIFICATES. Except as hereinafter in this Section
provided, no new certificates for shares shall be issued in lieu of an old
certificate unless the latter is surrendered to the corporation and cancelled.
The board of directors may, in case any share certificate or certificate for
any other security is lost, stolen or destroyed, authorize the issuance of a
new certificate in lieu thereof, upon such terms and conditions as the board
may require, including provision for indemnification of the corporation secured
by a bond or other adequate security sufficient to protect the corporation
against any claim that may be made against it, including any expense or
lability, on account of the alleged loss, theft or destruction of such
certificate or the issuance of replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
chairman of the board, the president, or any vice president, or any other
person authorized by resolution of the board of directors or by any of the
foregoing designated officers, is authorized to vote on behalf of the
corporation any and all shares of any other corporation or corporations,
foreign or domestic, standing in the name of the corporation. The authority
granted to said officers to vote or represent on behalf of the corporation any
and all shares held by the corporation in any other corporation or corporations
may be exercised by any such officer in person or by any person authorized to
do so by proxy duly executed by said officer.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in
the California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of the foregoing, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person. All references in
these bylaws to the California General Corporation Law or to sections of the
Code shall be deemed to be such Law or sections as they may be amended and in
effect and, if renumbered, to such renumbered provisions at the time of any
action taken under the bylaws.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or
these bylaws may be amended or repealed by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that if the articles of incorporation of the corporation set forth the
number of authorized directors of the
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corporation, the authorized number of directors may be changed only by an
amendment of the articles of incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders to adopt, amend or repeal bylaws as provided in Section 1 of this
Article IX, bylaws may be adopted, amended or repealed by the board of
directors.
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CERTIFICATE OF AMENDMENT
OF BYLAWS OF
CARL KARCHER ENTERPRISES, INC.
a California corporation
The undersigned, Daniel W. Holden, certifies as follows:
1. He is the duly elected and acting Secretary of Carl Karcher
Enterprises, Inc., a California corporation (Corporation).
2. Article V, Section 1. of the ByLaws of the Corporation is
hereby amended to read as follows:
"Section 1. The officers of the Corporation shall be a
Chairman of the Board, President, Chief Financial Officer,
Executive Vice President, Group Vice President(s), Treasurer,
Corporate Counsel and Secretary. Notwithstanding the above,
any Vice-President who held a vice-presidential position
existing prior to June 30, 1988, shall be an officer of the
corporation until such Vice President vacates said
vice-presidential position.
3. The foregoing amendment of the ByLaws has been duly approved
by the Board of Directors of the Corporation.
I declare under penalty of perjury under the laws of the State of California
that the matters set forth in this Certificate are true and correct of my own
knowledge.
Dated: September 28, 1990. /s/ DANIEL W. HOLDEN
___________________________
Daniel W. Holden, Secretary
<PAGE> 17
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
CARL KARCHER ENTERPRISES, INC.
a California corporation
The undersigned, Daniel W. Holden, certifies as follows:
1. He is the duly elected and acting Secretary of Carl Karcher
Enterprises, Inc., a California corporation (Corporation).
2. Article V, Section 1. of the ByLaws of the Corporation is
hereby amended to read as follows:
"Section 1. The officers of the Corporation shall be the
President and Chief Executive Officer, Chief Financial
Officer, Senior Vice Presidents, General Counsel, Controller,
Vice President Strategic Development, Vice President Human
Resources, Vice President Marketing, and Secretary."
3. The foregoing amendment of the ByLaws has been duly approved
by the Board of Directors of the Corporation.
I declare under penalty of perjury under the laws of the State of California
that the matters set forth in this Certificate are true and correct of my own
knowledge.
Dated: April 7, 1993 /s/ DANIEL W. HOLDEN
___________________________
Daniel W. Holden, Secretary
<PAGE> 18
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
CARL KARCHER ENTERPRISES, INC.
a California corporation
The undersigned, Daniel W. Holden, certifies as follows:
1. He is the duly elected and acting Secretary of Carl Karcher
Enterprises, Inc., a California corporation (Corporation).
2. Article V, Section 1. of the ByLaws of the Corporation is
hereby amended to read as follows:
"Section 1. The officers of the Corporation shall be the
Chairman of the Board, President and Chief Executive Officer,
Chief Financial Officer, Senior Vice Presidents, Vice
President/General Counsel, Vice President/Controller, Vice
President Systems & Technology, Vice President Human
Resources, Vice President Marketing, and Secretary."
3. The foregoing amendment of the ByLaws has been duly approved
by the Board of Directors of the Corporation.
I declare under penalty of perjury under the laws of the State of California
that the matters set forth in this Certificate are true and correct of my own
knowledge.
Dated: May 7, 1993 /s/ DANIEL W. HOLDEN
___________________________
Daniel W. Holden, Secretary
<PAGE> 19
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
CARL KARCHER ENTERPRISES, INC.
a California corporation
The undersigned, Daniel W. Holden, certifies as follows:
1. He is the duly elected and acting Secretary of Carl Karcher
Enterprises, Inc., a California corporation (Corporation).
2. Article V, Section 1. of the ByLaws of the Corporation is
hereby amended to read as follows:
"Section 1. The officers of the Corporation shall be the
Chairman of the board, President and Chief Executive Officer,
Chief Financial Officer, Senior Vice Presidents, General
Counsel, Controller, Vice President Strategic Development,
Vice President Human Resources, Vice President Marketing, and
Secretary."
3. The foregoing amendment of the ByLaws has been duly approved
by the Board of Directors of the Corporation.
I declare under penalty of perjury under the laws of the State of California
that the matters set forth in this Certificate are true and correct of my own
knowledge.
Dated: July 28, 1993 /s/ DANIEL W. HOLDEN
___________________________
Daniel W. Holden, Secretary
<PAGE> 20
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
CKE RESTAURANTS, INC.
a Delaware corporation
The undersigned, Robert A. Wilson, certifies as follows:
1. He is the duly elected and acting Secretary of CKE Restaurants, a
Delaware corporation (the "Corporation").
2. Article III, Section 3.2. of the ByLaws of the Corporation is
hereby amended to read as follows:
"Section 3.2. Election of Directors. The authorized number of
directors of the Corporation shall be nine (9) until this
Section 3.2 is amended by a resolution duly adopted by the Board.
Directors need not be stockholders. With the exception of Carl
N. Karcher, no person who has attained the age of 75 shall be
eligible for election to the Board. Each of the directors of the
Corporation shall hold office until such director's successor
shall have been duly elected and shall qualify or until such
director shall resign or shall have been removed in the manner
provided by these Bylaws."
3. The foregoing amendment of the ByLaws was been duly approved by
resolution of the Board of Directors of the Corporation on
May 5, 1996.
I declare under penalty of perjury under the laws of the State of California
that the matters set forth in this Certificate are true and correct of my own
knowledge.
Dated: March 7, 1996
/s/ Robert A. Wilson
- -------------------------------
Robert A. Wilson, Secretary
<PAGE> 1
EXHIBIT 10.29
AMENDMENT NO. THREE AND WAIVER TO
BUSINESS LOAN AGREEMENT
This Amendment No. Three and Waiver (the "Amendment") dated as
of July 3, 1995, is between Bank of America National Trust and Savings
Association (the "Bank"), CKE Restaurants, Inc. ("CKR") and Carl Karcher
Enterprises, Inc. ("CKE"). CKR and CKE are sometimes referred to collectively as
the "Borrowers" and individually as the "Borrower"
RECITALS
A. The Bank and the Borrowers entered into a certain
Business Loan Agreement dated as of October 31, 1994, as amended by Amendment
No. One dated as of April 5, 1995, and by Amendment No. Two and Waiver dated
April 28, 1995 (the "Agreement").
B. The Borrowers are in default of certain covenants of
the Agreement and have requested that the Bank waive such defaults.
C. The Borrowers have requested that the Bank agree to
further amend the Agreement on the terms and conditions herein contained.
D. The Bank has agreed to waive the defaults and amend
the Agreement on the terms and conditions herein contained.
AGREEMENT
1. Definitions. Capitalized terms used but not defined
in this Amendment shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as
follows:
2.1 Paragraph 1.10 of the Agreement is amended
to add clause (c) to read as follows:
"(c) The Borrowers may prepay the term loan
in full or in part at any time. The prepayment will be applied
to the most remote installment of principal of the term loan
due under this Agreement."
2.2 Paragraph 6.10 of the Agreement is amended
by substituting the figure "Five Million One Hundred Ten Thousand dollars
($5,110,000)" for the figure "Five Million Dollars ($5,000,000)" appearing
therein.
3. Defaults. The Borrowers hereby acknowledge that they
have breached the following covenants of the Agreement:
(a) Paragraph 6.10 for the fiscal quarter ending
May 22, 1995; and
- 1 -
<PAGE> 2
(b) Paragraphs 6.21(c) as result of CKE entering
into the joint venture, MBF Holdings Berhad.
4. Waivers.
(a) The Bank hereby waives the failure of the
Borrowers to comply with Paragraph 6.10 for the fiscal period set forth above.
(b) The Bank hereby waives any violation of
Paragraph 6.2(c) resulting from CKE entering into the joint venture, MBF
Holdings Berhad, provided that CKE is not required to make any capital
contribution to the joint venture and is not liable for any direct or contingent
debt of said joint venture.
5. Representations and Warranties. When the Borrowers
sign this Amendment, the Borrowers represent and warrant to the Bank that: (a)
other than the defaults listed above, there is no event which is, or with notice
of, or lapse of time, or both would be, a default under the Agreement; (b) the
representations and warranties in the Agreement are true as of the date of this
Amendment as if made on the date of this Amendment; (c) this Amendment is within
the Borrowers' powers, has been duly authorized and does not conflict with any
organizational papers of the Borrowers; and (d) this Amendment does not conflict
with any law, agreement, by which any Borrower is bound.
6. Effect of Amendment and Waivers. The above waivers
shall be limited precisely as written and relate solely to the sections of the
Agreement and for the time referred to above. Except as expressly set forth
herein, the terms, provisions, and conditions of the Agreement shall remain in
full force and effect and in all other respects are hereby ratified and
confirmed.
This Amendment is executed as of the date stated at the
beginning of this Amendment.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ E. M. Amendt
--------------------------
E. M. Amendt
Vice President
(Signatures continue)
- 2 -
<PAGE> 3
CKE RESTAURANTS, INC.
By: /s/ C. T. T. /s/ Loren Pannier
------------------------------------
C. Loren Pannier
Title: Senior Vice President
By: /s/ Laurie A. Ball
------------------------------------
Laurie A. Ball
Title: Vice President/Controller
CARL KARCHER ENTERPRISES, INC.
By: /s/ C. T. T.
------------------------------------
C. T. Thompson
Title: President & COO
By: /s/ Laurie A. Ball
------------------------------------
Laurie A. Ball
Title: Vice President/Controller
- 3 -
<PAGE> 1
EXHIBIT 10.30
AMENDMENT NO. FOUR AND CONSENT TO
BUSINESS LOAN AGREEMENT
This Amendment No. Four and Consent (the "Amendment") executed as of April 15,
1996, having an effective date as of January 29, 1996, is between Bank of
America National Trust and Savings Association (the "Bank"), CKE Restaurants,
Inc. ("CKR") and Carl Karcher Enterprises, Inc. ("CKE"). CKR and CKE are
sometimes referred to collectively as the "Borrowers" and individually as the
"Borrower").
RECITALS
a. The Bank and the borrowers entered into a certain
Business Loan Agreement dated as of October 31, 1994, as amended by Amendment
No. One dated as of April 5, 1995, by Amendment No. Two and Waiver dated April
28, 1995 and by Amendment No. Three and Waiver dated as of July 3, 1995 (the
"Agreement").
B. Pursuant to the terms of the Agreement and Plan of
Merger and Reorganization, dated as of November 30, 1995, as amended by a First
Amendment, dated as of January 24, 1996 and a Second Amendment, dated as of
April 2, 1996 ("Merger Agreement") by and among CKR and Summit Family
Restaurants, Inc. ("Summit"), a merger (the "Merger") of Summit with and into a
newly-formed wholly-owned subsidiary of CKR, with Summit as the surviving
corporation, is contemplated.
C. Concurrently with or shortly after the Effective Date
(as defined in the Merger Agreement) of the Merger, CKR is planning to sell
Summit's franchised HomeTown Buffet restaurant operations and related are a
development rights, all or a portion of Summit's JB's Restaurants and the JB's
Restaurant franchise system, and an interest in Summit's Galaxy Diner operations
(collectively, "Summit's Sale Assets").
D. The Borrowers have requested that the Bank agree to
further amend the Agreement on the terms and conditions herein contained.
E. The Bank has agreed to amend the Agreement on the terms
and conditions herein contained.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in
this Amendme nt shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 In Paragraph 1.2, the date "June 30, 1996" is
amended to read "August 31, 1996".
- 1 -
<PAGE> 2
2.2 Subparagraph 1.7(ii) is amended and restated in
its entirety to read as follows:
"(ii) Standby letters of credit (including
amounts drawn on the letters of credit and not yet reimbursed)
with a maximum maturity date of: (i) January 27, 1997, for the
letter of credit issued pursuant to the Reimbursement
Agreement (as defined in Paragraph 4.3) not exceeding Three
Million Eight Hundred Sixty Thousand Dollars ($3,860,000);
(ii) June 30, 1997, for the letter of credit issued in favor
of Self Insurance Plans State of California in an amount not
to exceed $8,600,000; and (iii) other standby letters of
credit with a maturity not to extend beyond the Expiration
Date."
2.3 Subparagraph 1.7(g) is amended and restated in
its entirety to read as follows:
"(g) if the line of credit is terminated for
any reason, Borrowers will immediately deliver to the Bank as
collateral, cash or cash equivalents acceptable to the Bank,
or an acceptable standby letter of credit in favor of the Bank
from an issuer acceptable to the Bank, in the amount of all
outstanding letters of credit (including amounts drawn on
letters of credit and not yet reimbursed), together with such
security agreements as Bank may require."
2.4 Paragraph 6.1 is amended and restated in its
entirety to read as follows:
"6.1 Use of Proceeds. To use the proceeds of
the credit only for working capital, restaurant development
costs, costs in connection with the Summit Merger, and for
other general corporate purposes."
2.5 Paragraph 6.4 is amended and restated in its
entirety to read as follows:
"6.4 Fixed charge Coverage Ratio. To
maintain a Fixed Charge Coverage Ratio, determined on a
consolidated basis, of at least 1.75:1.0.
For purposes of this Agreement, 'Fixed Charge Coverage Ratio'
means the following calculation, expressed as a ratio for any
fiscal period: (a) EBITDA less the net gain realized on sales
of fixed assets (or EBITDA plus the net loss incurred on sales
of fixed assets), less taxes and less dividends divided by (b)
the sum of (i) interest expense, (ii) current portion of
long-term debt and (iii) current portion of capital leases.
The current portion of long term debt and the current portion
of capital leases will be the amount shown on the balance
sheet as of the end of each quarter. 'EBITDA' means earnings
before interest and tax expense, depreciation, amortization,
and other non-cash charges. This ratio shall be calculated
quarterly using a Four Quarter Rolling Basis. 'Four Quarter
Rolling Basis' shall mean the four quarters calculated using
the results of the fiscal quarter then most recently ended and
the immediately preceding three (3) quarters."
- 2 -
<PAGE> 3
2.6 Paragraph 6.7 is amended and restated in its
entirety to read as follows:
"6.7 Capital Expenditures. With respect to
CKE, not to spend or incur obligations to acquire fixed or
capital assets of more than Twenty Five Million Dollars
($25,000,000) through the fiscal year ending January 29, 1996.
Commencing with the fiscal year beginning January 30, 1996,
Borrowers, on a consolidated basis, will not permit the sum of
(i) commitments to acquire fixed or capital assets, plus (ii)
capital expenditures incurred fiscal year-to-date, to exceed
Thirty Million Dollars ($30,000,000)."
2.7 Subparagraph 6.8(h) is amended and restated in
its entirety to read as follows:
"6.8 (h) Contingent obligations incurred in
connection with franchisee financing agreements, provided that
prior to issuance of such obligations, Bank has received
copies of such agreements. Any contingent liabilities created
hereunder are further subject to the limitations set forth in
Subparagraphs 6.8(d), (e), (g) and (i)."
2.8 Subparagraph 6.8(i) is amended and restated in
its entirety to read as follows:
"(i)Effective as of the fiscal year ending
January 29, 1996, contingent debts not to exceed $23,000,000
in the aggregate at any one time, including obligations under
Paragraph 6.8(g) and (h)."
2.9 In Paragraph 6.21, the following is added at
the beginning of Subparagraph (f):
"Except as provided in Paragraph 6.25, ..."
2.10 In Paragraph 6.21, the following is added as
subparagraph (g):
"(g) pledge stock of CKR or any subsidiary
(including, but not limited to CKE and Summit) to any third party."
2.11 Paragraph 6.23 is amended and restated in its
entirety to read as follows:
"6.23 Loans. Not to make any loans, advances
or other extensions of credit to any of Borrowers' executives,
officers, directors, shareholders of CKR or affiliates (other
than to any Borrower and to Summit) (or any relatives of the
foregoing) in excess of an aggregate amount of $100,000,
excluding affiliates notes receivable shown on the balance
sheet fiscal year end 1996."
- 3 -
<PAGE> 4
2.12 The following is added as a new Paragraph 6.25:
"6.25 Summit's Sale Assets.
(a) Within 45 days of Effective Date (as
defined in the Merger Agreement) of the Merger, Borrowers
shall deliver to the Bank an executed sale purchase agreement
with respect to the sale of any of Summit's Sale Assets which
shall evidence that, upon closing, the net sale proceeds
received by Summit shall not be less than $13,000.00.
(b) Promptly following the closing of the
sale of any of Summit's Sale Assets, Borrowers shall deliver
to Bank a reconciliation of net proceeds realized from such
sale.
(c) Net sale proceeds from Summit's Sale
Assets may be used for general corporate purposes, including
capital expenditures after reserve for payment of (or after
payment of) 100% of balance sheet liabilities and intercompany
debt resulting from the Summit Merger."
3. Consent. Pursuant to Paragraph 6.21 (c) and (e) of the
Agreement, the Bank hereby consents to the Merger of Summit with a wholly owned
subsidiary of CKR, with Summit as the surviving corporation, pursuant to the
terms of the Merger Agreement.
4. Conditions. This amendment will be effective when the
Bank receives the following items, in form and content acceptable to the Bank:
4.1 This Amendment duly executed by Borrowers
and Bank.
4.2 A certificate from the chief financial
officer, dated as of the date of execution of this Amendment
certifying that, on a consolidated basis, commitments for
capital expenditures plus capital expenditures incurred
year-to-date do not exceed Thirty Million Dollars
($30,000,000).
5. Representations and Warranties. When the Borrowers sign
this Amendment, the Borrowers represent and warrant to the Bank that: (a) there
is no event which is, or with notice of, or lapse of time, or both would be, a
default under the Agreement; (b) the representations and warranties in the
Agreement are true as of the date of this Amendment as if made on the date of
this Amendment; (c) this Amendment is within the Borrowers' powers, has been
duly authorized and does not conflict with any organizational papers of the
Borrowers; and (d) this Amendment does not conflict with any law, agreement, by
which any Borrower is bound.
6. Effect of Amendment. Except as expressly set forth
herein, the terms, provisions, and conditions of the Agreement shall remain in
full force and effect and in all other respects are hereby ratified and
confirmed.
- 4 -
<PAGE> 5
This Amendment is executed as of the date stated at the
beginning of this Amendment.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Deborah L. Miller
---------------------------------
Deborah L. Miller
Vice President
CKE RESTAURANTS, INC.
By: /s/ Robert A. Wilson
---------------------------------
Title: Vice President, General Counsel
---------------------------------
By: /s/ Joseph N. Stein
---------------------------------
Title: Senior Vice President, Chief Financial Officer
----------------------------------------------
CARL KARCHER ENTERPRISES, INC.
By: /s/ Robert A. Wilson
---------------------------------
Title: Vice President, General Counsel
---------------------------------
By: /s/ Joseph N. Stein
---------------------------------
Title: Senior Vice President, Chief Financial Officer
----------------------------------------------
- 5 -
<PAGE> 1
EXHIBIT 10.31
CARL'S JR/GREEN BURRITO
SETTLEMENT AND DEVELOPMENT AGREEMENT
This Settlement and Development Agreement (the "Agreement") is entered
into as of May _____, 1995, by and between CARL KARCHER ENTERPRISES, INC., a
California corporation ("CARL"), CKE RESTAURANTS, INC., a Delaware corporation
("CKE") and GB FOODS CORPORATION, a Delaware corporation ("GBFC").
R E C I T A L S
This Agreement is made with reference to the following facts,
circumstances and objectives:
A. CARL and GBFC are both operators and franchisors of quick
service restaurants and both own firmly established trademarks, trade names,
goodwill, proprietary products, and well-established specialty menus.
B. CARL's parent corporation, CKE, and GBFC, have previously
analyzed the potential of the Carl's Jr./Green Burrito Dual Product Concept,
employing the side-by-side presentation and marketing of CARL's products and
GBFC's products at CARL's company and franchisee locations. CARL, CKE, and GBFC
believe that their respective products and specialty menus, marketed together,
will create synergies and further opportunities for the parties hereto, and
their respective franchise networks.
C. As part of their analysis, the parties hereto have entered
into various documents of agreement, and have also engaged in litigation and
extensive discovery pursuant to the litigation. This has involved extensive
disclosure of GBFC information including manuals, training materials, franchise
offering circulars, franchise agreements, and other matters related to its dual
product concept.
D. The parties now desire to put all past differences aside;
settle all past and present disputes; develop a new relationship; make
arrangements for the Franchise Agreements which will apply to the respective
arrangements between GBFC and CARL and/or CARL's franchisees, and to provide for
an orderly conversion of CARL restaurants to employ the side-by-side
presentation and marketing of CARL's products and GBFC products at CARL's
Company and Franchise locations, herein the "Dual Product Concept".
A G R E E M E N T
THEREFORE, in consideration of the mutual covenants and promises
contained herein, and in consideration of the recitals set forth above, the
parties agree as follows:
1. DUAL CONCEPT LOCATIONS. Pursuant to the terms of this Agreement, CARL
and CKE agree to use their best efforts to utilize the Dual Product Concept in
as many of the company
<PAGE> 2
owned Carl's Jr. restaurants and franchisee-owned Carl's Jr. restaurants as CARL
management deems appropriate to aid and enhance the total sales and profits of
CARL.
A. COMPANY STORES. CARL will convert a minimum of forty (40)
company owned Carl's Jr. locations per fiscal year during each
of the five (5) following fiscal years, subject to the
following:
(i) Fiscal Year. for purposes of this Agreement, a fiscal
year shall be July 15 through July 14.
(ii) 25% Sales Average. On October 15, 1997, after the
restaurants converted through fiscal year 1 and
fiscal year 2 have been converted, a calculation
shall be made to determine the collective percentage
sales increase actually experienced by all of the
stores which qualify for inclusion in the
calculation.
(iii) Calculation of Average Store Increase. the
calculation shall be a comparison of the "annualized
collective post conversion sales" for the stores
qualifying for inclusion in the calculation to the
"annualized collective pre-conversion sales" of those
same stores for the respective twelve (12) months
prior to conversion.
(1) The numerator shall be computed as follows:
the total sales for each store during the
post-opening period shall be determined
separately, commencing with the ninth week
after conversion. (For purposes of this
calculation, the first eight weeks of the
post conversion period shall be
disregarded.) This sales number shall then
be divided by the number of weeks the store
has been open following the eighth week of
conversion, and then multiplied by 52 to
obtain a calculated annualized sales number
for the store. Each of the calculated
annualized sales numbers for each store
shall be added together. The total shall be
referenced as the "Annualized Collective
Post-conversion Sales".
(2) The denominator shall be the sum of the
total sales for each of the same stores for
the respective twelve full months applicable
to each store for the period immediately
preceding the conversion. This number shall
be referenced as the "Annualized Collective
Pre-Conversion Sales".
(3) Stores qualifying for inclusion in the
calculation will be all stores converted up
to the date of the calculation, whether a
company owned or franchisee location,
provided such converted store is, for the
ninety (90) days prior to the calculation,
selling both Carl's
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<PAGE> 3
and GBFC products pursuant to the applicable
franchise agreements.
(4) Expressed as a series of steps, the equation
is as follows:
STEP 1:
<TABLE>
<S> <C>
(a) Total Converted Store Sales for Week 9 et seq = Computed Weekly Converted
--------------------------------------------- Store Sales
Number of Weeks Following Week 8
(b) Computed Weekly Converted Store Sales x 52 =
Annualized Converted Store Sales
</TABLE>
Carry out Step 1 for all stores included in
calculation.
STEP 2:
Sum the Annualized converted Store Sales to
arrive at: Annualized Collective
Post-Conversion Sales. This is the
numerator, i.,e., "Annualized collective
Post-Conversion Sales".
STEP 3:
Sum the actual sales for each store included
in the calculation for the respective
fifty-two (52) week period prior to
conversion. This is the denominator, i.e.,
the Annualized Collective Pre-Conversion
Sales.
STEP 4:
<TABLE>
<S> <C>
Annualized Collective Post-Conversion Sales = Comparison Ratio
-------------------------------------------
Annualized Collective Pre-Conversion Sales
STEP 5:
Comparison Ratio = ______% Sales Increase
----------------
100%
</TABLE>
(iv) 25% Threshold. If the overall sales percentage
increase computed above does not equal or exceed 25%,
then CARL may, at its option, lower the number of
annual conversions from 40 restaurants to 20
restaurants for fiscal year 3. On October 15, 1998,
another overall percentage increase calculation shall
be repeated for the stores converted up to that point
and which qualify for inclusion in the calculation.
If the overall sales percentage increase then
computed does not then equal or exceed 25%, then CARL
may, at its option, convert only 20 stores in fiscal
year 4 and
-3-
<PAGE> 4
fiscal year 5. If the average sales percentage
increase equals or exceeds 25%, then CARL shall
resume the 40 store conversion schedule for fiscal
years 4 and 5.
(v) For purposes of meeting the number of conversions
required in Years 1 and 2, in all events, CARL must
convert a minimum of thirty (30) company stores in
each of Years 1 and 2; and for purposes of complying
with the forty (40) store requirement, during Years 1
and 2, ten (10) franchise stores shall be counted
toward the achievement of the forty (40) store
obligation.
For purposes of meeting the number of conversions
required in Years 3, 4, and 5, in all events CARL
must convert a minimum of twenty (20) company stores
in each of Years 3, 4, and 5; and, for purposes of
complying with the forty (40) store requirement, if
applicable, during Years 3, 4, and 5, franchisee
stores shall be counted toward the achievement of
this obligation of the forty (40) stores.
(vi) Flexibility. The parties recognize that due to
circumstances beyond their control, store opening
deadlines may not be achieved. Accordingly, it shall
not be a material breach of this agreement if the
annual restaurant conversions required are 80%
achieved in a particular fiscal year, provided those
that do not achieve the planned opening date for
fiscal year compliance are in progress and are
eventually opened in a timely fashion. A restaurant
conversion shall be deemed in progress if the
franchise agreement is signed and equipment for the
conversion is ordered, and the store is opened in the
first half of the following fiscal year. In addition,
if more than the requisite number of company store
conversions are completed in any fiscal year, the
excess number beyond the minimum threshold shall be
credited to the subsequent fiscal year, thereby
reducing the requirement for company-owned store
conversions for that respective year.
(vii) Conversions. A new store location which utilizes the
Dual Product Concept, and each of the two (2)
existing Picante Grill locations, when converted,
will be deemed a converted store, and counted against
the minimum threshold but shall not be used in
computing the twenty-five percent (25%) sales average
increase. Throughout this Agreement, the terms,
"convert", "conversion(s)" or "converted" shall
include new store locations.
B. FRANCHISE STORES. CARL will use its best efforts to permit
Carl's Jr. franchisees to convert their stores to the Dual
Product Concept, at the franchisee's election, subject to the
following:
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<PAGE> 5
(i) Financially Capable. Franchisee must obtain Carl's
pre-approval that franchisee is financially capable
(in Carl's discretion) to accomplish the conversion
and to accomplish store enhancements for the
particular location being converted.
(ii) Good Standing. Franchisee must obtain Carl's
determination that the franchisee is in good standing
with CARL.
(iii) Improvements. Franchisee must agree to make such
reasonable improvements (over and above required
equipment) as CARL deems necessary to adapt the
franchisee restaurant to the GB Dual Product Concept.
(iv) Carl's Jr. Royalties. Franchisee must agree, unless
waived by CARL, to pay minimum annual royalties on
Carl's Jr. sales equal to the royalty rate specified
for the franchisee in the Carl's Jr. Franchise
Agreement for the respective location, applied to the
sales level for the respective location, for the
twelve months immediately proceeding conversion.
CARL will not unreasonably withhold its approval or permission
for franchisees to convert their stores to the Dual Product
Concept, but the parties hereto recognize that CARL cannot
mandate the conversion of any franchisee to the Dual Product
Concept.
C. GOING CONCERN. Neither CKE nor CARL shall be required to
perform the above-described conversion commitments for company
store locations, pursuant to Subsection A. of this Section 1,
nor shall CKE or CARL be required to permit franchisees to
convert franchise locations, pursuant to Subsection B of this
Section 1, if there shall be a qualification on the GBFC audit
opinion from the independent Certified Public Accountant
retained by GBFC to perform its annual audit relating to the
ability of GBFC to continue as a "going concern" (as defined
by the American Institute of Certified Public Accountant
Standards, SAS No. 59 and SAS No. 64, and the interpretations
thereunder).
2. SELECTION AND APPROVAL OF LOCATIONS.
A. COMPANY STORES. CARL will select the locations for conversion
taking into account its desire to increase overall sales and
profits the greatest amount, and its need to timely convert
according to the Schedule described in Section 1 above. GBFC
shall have the right to approve or disapprove the site
selected, which approval shall not be unreasonably withheld.
However, taking into account the same desire as CARL, GBFC may
disapprove a location, or request its conversion be later in
sequence, if it deems the location selected will be detri-
-5-
<PAGE> 6
mental, at the time selected, to achieving the twenty-five
percent (25%) collective sales percentage increase described
in Section 1 above.
In the event of a dispute over GBFC's refusal to approve a
location in Carl'[s "core market" (i.e., the State of
California and Pima County, Arizona), then CARL may proceed
with a conversion, and be granted a franchise for same by GBFC
(absent: (i) a territorial conflict with the protected GBFC
territories set forth in Attachment 5; (ii) a territorial
conflict with a GBFC franchisee added after the date of this
Agreement [the protected territory under such new franchise
agreement in the core areas shall not exceed 1.5 miles]; or
(iii) a prohibition which GBFC has not created and which it
cannot avoid or eliminate), provided such non-approved
conversion shall be excluded from the collective sales
percentage increase test described in Section 1 above, if its
inclusion negatively impacts the percentage increase
calculations by reducing the percentage otherwise attained
without reference to these stores. Such non-approved
conversion shall, however, count as a converted restaurant for
purposes of CARL satisfying the yearly minimum in Section 1A.
above.
B. FRANCHISE STORES. A CARL franchisee, upon obtaining prior
written approval from CARL, may be granted a franchise from
GBFC, provided however, GBFC will not grant a franchise to a
Carl's Jr. Franchisee in the absence of a prior approval by
CARL.
3. FEES AND ROYALTIES.
A. COMPANY STORES:
(i) Franchise Fee. GBFC shall be paid a franchise fee of
Seven Thousand Five Hundred Dollars ($7,500.00) for
each company store location converted pursuant to the
GBFC Dual Concept Franchise Agreement for company
owned stores. This shall be subject to proration as
described in the Franchise Agreement.
(ii) Royalties. GBFC shall be paid royalties of four
percent (4%) on GBFC gross revenues as defined in the
GBFC Dual Concept Franchise Agreement for company
owned stores.
(iii) Duration. the above fee and royalty payment shall
remain fixed and may not be increased by GBFC.
B. FRANCHISEE STORES:
(i) Franchise Fee. Franchisee shall be charged a
franchise fee of Twelve Thousand Five Hundred Dollars
($12,500.00) payable Seven Thousand
-6-
<PAGE> 7
Five Hundred Dollars ($7,500.00) to GBFC, and Five
Thousand Dollars ($5,000.00) to CARL, for each
franchise location converted pursuant to the GBFC
Dual Concept Franchise Agreement for franchise
stores. This shall be subject to pro ration as
described in the Franchise Agreement.
(ii) Royalties -- Existing Stores. Franchisees shall be
charged a royalty of five percent (5%) on GBFC gross
revenue as described in the GBFC Dual Concept
Franchise Agreement for franchisee stores, payable
three percent (3%) to GBFC and two percent (2%) to
CARL.
(iii) Royalties -- New Stores. The royalty charged for new
stores will be phased in from zero to five percent
(5%) on the same time basis as applicable for the new
Carl's Jr. franchise stores pursuant to the CARL
Franchise Agreement, provided five percent (5%) will
be reached in all events by the fifth (5th) year, and
the royalties will be split 3/5 to GBFC and 2/5 to
CARL.
(iv) Duration. The fees and royalties charged to
franchisees shall remain the same until May 31, 2000,
unless a change is mutually agreed upon prior thereto
by GBFC and CARL.
4. TERM.
A. EXISTING LOCATIONS. The GBFC Franchise Agreements shall grant
franchises for an initial term of fifteen (15) years, with a
renewal option for ten (10) additional years, subject to an
adjustment to a shorter term or longer term for existing
franchisee locations as of April 1, 1995, to coincide with the
initial termination date provided in the Carl Franchise
Agreement. In no event does an existing Carl Franchise
Agreement extend longer than a duration of twenty (20) years
from January 1, 1995.
B. NEW LOCATIONS. The GBFC franchise fee has been based on a
15-year franchise. If new locations are granted both CARL and
GBFC franchises to utilize the Dual Product Concept, and the
CARL franchise agreement terms exceeds fifteen (15) years,
then CARL may select one of the following options:
(i) Grant the franchisee a twenty- (20-) year GBFC
franchise by increasing the franchise fee paid to
GBFC by $2,500.00; or
(ii) Grant the franchisee a fifteen- (15-) year GBFC
franchise, and add a five (5) year renewal increment
for $2,500.00 to be paid at the date of renewal. The
10-year renewal provision in the franchise agreement
would then follow the initial 5-year renewal.
-7-
<PAGE> 8
C. FRANCHISEE TERMINATION. In all events, upon termination of the
CARL franchisee pursuant to the terms of the Carl Franchise
Agreement, the GBFC Franchise Agreement shall terminate
concurrently.
5. TRAINING AND SUPERVISION. CARL desires to provide the training and
supervision of its company store personnel and of its franchisees.
Accordingly, GBFC will provide to CARL materials, training and
supervision sufficient to permit CARL to carry out its training of its
own personnel and franchisees. Presently, CARL has sufficiently trained
personnel to accomplish training and supervision. GBFC shall undertake
to update the training for the most current operational items,
standards and techniques.
At any training sessions or supervision visits conducted by CARL
personnel, GBFC shall have the opportunity to be present and to
participate to the degree GBFC deems appropriate to achieve its quality
control requirements. GBFC and CARL will each use their best efforts
and cooperate with each other to achieve and maintain high quality and
efficient levels of performance.
6. PROTECTED RADIUS. The GBFC Franchise Agreement shall provide a
protected radius of 1.5 miles for each CARL location converted. If
another CARL or CARL Franchisee location is within the 1.5 mile
protected radius, GBFC will, at CARL's request, grant a GBFC franchise
to such CARL or CARL Franchisee location; notwithstanding the 1.5 mile
radius protection stated herein.
7. FRANCHISE AGREEMENTS.
A. COMPANY STORES. The GBFC Dual Concept Franchise Agreement
applicable to company stores is set forth at Attachment 1.
b. FRANCHISEE STORES. The GBFC Dual Concept Franchise Agreement
applicable to franchise stores is set forth as Attachment 2.
Notwithstanding the terms of the Franchise Agreement in
Attachment 2, in order for CARL to maintain and enhance its
relations with its franchisees and to assure the proper
integration of the Dual Product Concept, GBFC covenants and
agrees with CARL as follows:
(i) GBFC shall only have contact with a CARL franchisee
or prospective CARL franchisee through or in a manner
approved in writing by CARL;
(ii) All training, consultations and supervision of any
CARL franchisee shall be as provided in Section 5
above.
-8-
<PAGE> 9
(iii) All operational, advertising or other requirements
imposed on a CARL franchisee by GBFC shall be subject
to CARL's prior written approval, not to be
unreasonably withheld; and,
(iv) In the event that GBFC has a dispute with, or a
complaint about a CARL franchisee or its conduct of
the Dual Product Concept (whether it is an alleged
breach of the Franchise Agreement or otherwise), GBFC
shall follow the following dispute/complaint
procedure: (i) GBFC shall provide franchisee a
written notice with a copy to CARL; (ii) which notice
shall contain a detailed explanation of the issue;
and (iii) a reasonable period of time not to exceed
forty-five (45) days shall be provided for GBFC and
CARL to resolve the issues with the franchisee.
Pursuant to Subsection C. below, the parties will cooperate in
good faith to substitute a revised franchise agreement as
needed.
C. ALTERNATIVE FRANCHISE AGREEMENT FOR FRANCHISEES. At CARL's
sole option, CARL may hereafter elect to become a Master
Sub-Franchisor for the GBFC Dual Concept Franchise Agreement
awarded to CARL franchisees in which event the parties will in
good faith develop a Master Sub-Franchisor Agreement to
appoint CARL as the Master Sub-Franchisor, and shall cooperate
to satisfy all legal requirements and filings. Upon completion
of that process, CARL may, at its option, substitute a
franchise agreement in lieu of Attachment 2 to be utilized
between CARL and its franchisees provided said document:
(i) Is approved by GBFC, which approval will not be
unreasonably withheld.
(ii) Is in conformance with all franchise laws, reporting,
and filing requirements.
(iii) Is not materially less favorable to GBFC than the
terms set forth in Attachment 2 as modified by the
terms of this Agreement, including Sections 5 and 7B.
above.
In all events, for purposes of GBFC's orderly administration,
compliance with contract terms and protection of the integrity
of the GBFC franchise system, each such franchisee and
franchise location to be granted by CARL must be pre-approved
by GBFC, which approval will not be unreasonably withheld. In
addition, GBFC must be timely provided with a copy of each
such GBFC Franchise Agreement entered into between CARL and
its franchisees.
8. EXCLUSIVITY. In addition to the 1.5 mile Protected Radius, GBFC will
not authorize GBFC Dual Concept conversions to other traditional quick
service restaurant chains featuring hamburgers as their main menu
specialty in the core CARL market which is
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<PAGE> 10
the State of California and Pima County, Arizona, for a period of
twenty (20) years from the date of this Agreement, subject to the
following:
A. For purposes of this provision, traditional quick service
restaurants featuring hamburgers as their main menu specialty
include, but are not limited to, McDonalds, Burger King.
Wendy's, Jack-in-the-Box, In and Out, Rally's, and Checkers,
with the exception of the existing Rally's/Green Burrito
located at Sunset & Highland, Los Angeles, California.
B. In the event GBFC elects to enter into a dual concept
arrangement with Rally's, GBFC shall be permitted to offer
franchises of the GB system and products to Rally's for use on
a per store basis in San Diego, California, subject to the
following:
(i) GBFC shall offer its franchise for one offering
period of two (2) weeks to the Rally's franchisee for
the San Diego territory for no more than fifteen (15)
locations. (In all events, this two-week period must
be completed no later than ninety [90] days following
the execution of this Agreement.)
(ii) During such two-week period, the Rally's franchisee
may accept or reject the GB franchise.
(iii) If said Rally's franchisee accepts, then he may
utilize the GB system and products on a per store
basis (for no more than fifteen [15] stores) in the
San Diego area if said franchisee executes a GB
Franchise Agreement on a per location basis prior to
CARL or a Carl's franchisee executing a GB Franchise
Agreement in the same territory. For purposes of this
subsection, a territory shall be a straight line
radius of 1.5 miles from the affected location of
either a CARL or Rally's location. The first of CARL
or Rally's to execute a GB Franchise Agreement at
each San Diego location shall be entitled to the
protected 1.5 mile territory to the exclusion of the
other within that 1.5 mile protected territory. If
CARL or a CARL franchisee has executed first, the 1.5
mile territory shall belong to CARL or CARL's
franchisee.
(iv) If, and only if, said Rally's franchise rejects the
GBFC franchise opportunity for all San Diego
locations during the two-week offering period, then
immediately thereafter, for one offering period of
two (2) weeks (which must in all events conclude no
later than ninety (90) days following the execution
of this Agreement), GBFC may make a similar offer to
Rally's for a like number of Rally's stores in the
Los Angeles area as exist in San Diego (not to exceed
fifteen [15]), which again on a per store basis may
become GB franchisees, provided that for each such
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<PAGE> 11
Rally's store which could potentially be converted
within 1.5 miles of a CARL location, CARL or CARL's
franchisee has not prior thereto executed a GBFC
Franchise Agreement for such location. If CARL or a
CARL franchisee has executed the GB Franchise
Agreement first, the 1.5 mile territory shall belong
to CARL or CARL's franchisee.
(v) As an alternative to the above Rally's arrangement,
to preclude the use of the GREEN BURRITO trade name,
trademark, logo, or other indicia of origin at
locations other than CARL in the State of California,
GBFC may, at its option, offer the GBFC products,
system and concept at the fifteen (15) Rally's
locations under a substantially different trade name,
trademark, logo, or other indicia of origin. In all
events, the 1.5 mile protected area applies as though
the location were utilizing the Green Burrito trade
name and trademarks.
C. The exclusivity provision in this Section 8 shall not apply if
CARL is in material breach of the Development Agreement; or,
if, after CARL's converts stores, it terminates continued
featuring of GBFC in more than twenty-five percent (25%) of
the stores converted to the GBFC Dual Concept.
9. COVENANT NOT TO COMPETE. During the term of this Agreement which for
purposes of this Section shall be deemed to be a period of five (5)
years from the date of execution, and for a period of four (4) years
thereafter, CARL and its affiliates will not feature or operate in its
Carl's Jr. locations, or dual concept in its Carl's Jr. locations, any
concept which it develops, owns, operates, or is a licensee thereof if
that concept features Mexican food as its main menu attraction which is
similar to the GBFC Mexican products and concepts. Nothing herein shall
preclude CARL from selling those Mexican offerings which were listed on
its menu prior to August 9, 1994. for purposes of this agreement, any
sandwich comprised of bread or buns and a main component of hamburger,
chicken, or fish, even though garnished with traditional Mexican sauces
or flavorings, shall not be deemed a Mexican-type product competing
against Green Burrito.
Nothing herein shall preclude CKE from owning any restaurant, company,
or chain, regardless of the products it features, whether Mexican or
otherwise, provided the first sentence of this Section 9 is adhered to
by CKE or CARL and its affiliates.
This covenant shall cease:
A. In the event GBFC files voluntarily or involuntarily for
protection under the Bankruptcy laws:
(i) If an involuntary bankruptcy, one (1) year after
filing of GBFC is not relieved within ninety (90)
days; and
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<PAGE> 12
(ii) If voluntary, one (1) year after filing.
B. In the event of a material breach by GBFC under this
Agreement.
C. In the event the twenty-five percent (25%) calculation is not
satisfied.
For purposes of this provision, "affiliates" is defined as CARL, CKE,
and any of its or their parent corporations, subsidiary corporations,
or any partnership or joint ventures in which CARL or CKE own more than
fifty percent (50%) of the voting power.
10. TRADEMARK APPLICATION. GBFC and CARL have both applied for registration
of the mark, "Two Great Tastes, One Great Place", and/or "One Great
Place, Two Great Tastes". Both parties will take all reasonable action
to protect this mark, and shall jointly utilize it solely for the
promotion of Carl's Jr./Green Burrito Dual Product Concept restaurants.
11. PICANTE GRILL. CARL shall terminate all use of the Picante Grill
Concept at such time as the two existing Picante Grills can be
converted to Dual Concept restaurants. The two (2) Picante Grill
Concept locations will be converted in the first twenty (20)
conversions, and count toward the minimum company store conversions
required pursuant to Section 1. In all events, CARL will cease all use
of the Picante Grill concept and abandon same no later than December
31, 1995.
12. REIMBURSEMENTS.
A. CARSON. CARL and GBFC shall upon execution of this Agreement,
execute and comply with the standard GBFC Dual Concept
Franchise Agreement (Attachment 1) with respect to the Carson
store. In addition, CARL shall remit to GBFC the sum of
$83,352.00 for reimbursement of sums expended by GBFC in
connection with the Carson conversion. In exchange, GBFC shall
convey all of its right, title and interest in an to any and
all equipment and/or improvements provided by GBFC for the
Carson store.
B. LA QUINTA STORE. CARL shall, upon execution of this Agreement,
remit to GBFC the sum of $114,475.00 for reimbursement of sums
expended by GBFC in connection with the La Quinta conversion.
In exchange, GBFC shall convey all its right, title and
interest in and to any and all equipment, and/or improvements,
provided by GBFC to the La Quinta store, and any and all
right, title and interest to lease such equipment to Carl Leo
Karcher, Lessee, pursuant to Attachment 3. The store shall
also be subject to a standard GBFC Dual Concept Franchise
Agreement (Attachment 2), but such agreement shall be modified
to be free of franchise fees and royalties payable to GBFC for
the initial term of such franchise.
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<PAGE> 13
13. SUPERSEDING AGREEMENT. This Agreement supersedes, nullifies and
replaces all prior agreements between the parties, including, but not
limited to:
A. Confidentiality Agreement dated July 27, 1993.
B. Master Agreement dated August 9, 1994.
14. DISMISSAL OF LITIGATION. The parties hereto shall as soon as practical
dismiss, with prejudice the claims and counter claims of each in the
case in the Superior court of the State of California for the County of
Los Angeles captioned:
GB Foods Corporation vs. CKE Restaurants, Inc., et al
Case No. BC 119345
This shall include a dismissal and release of and by William P. Foley,
III, which CARL represents and warrants it will procure forthwith. In
addition, although not a party, a release will be provided by William
M. Theisen, which GBFC represents and warrants it will procure
forthwith.
15. OWNERSHIP OF TRADEMARKS/FORMULAS/SYSTEMS. Each party acknowledges the
value and goodwill associated with the other's Trademarks (as defined
below) and agrees that each parties' Trademarks and all rights therein
and the goodwill pertaining thereto belong exclusively to the
respective party and that the respective parties' Trademarks have
secondary meaning in the mind of the public. Each party also agrees
that its every use of the other's Trademarks shall inure to the benefit
of the owner of the Trademark and that neither party shall acquire nor
claim any rights in the Trademark of the other party by virtue of any
such use, or attempt to develop marks similar to a competitor with the
other's marks. As used herein, "Trademarks" shall mean a party's marks,
logos, or other symbols for which such party has been granted federal
trademark protection under the laws of the United States, or for which
such party may, pursuant to federal, state or common law, be entitled
to protection from unfair competition.
GBFC further agrees that all information concerning Carl's Jr. concept
of operations, unique food items, recipes, ingredients, methods of food
preparation, systems for food preparation, and the like utilized by
CARL in the production and sale of any products sold under the Carl
Jr.'s Trademark belong exclusively to Carl Jr.'s and that GBFC shall
not disclose or otherwise use any such formulas or recipes now or in
the future. GBFC further agrees that it will not reverse engineer or
otherwise seek to discover the product formulation of any food product
sold by Carl Jr.'s under Carl Jr.'s Trademark and that nothing in this
Agreement shall be construed as granting GBFC a license or any other
right to disclose or use any product formulation of any food product
sold by Carl Jr.'s under the Carl Jr.'s Trademark, or a license or
right to use or disclosure any information concerning Carl Jr.'s
concept of operations, unique food items, recipes, ingredients, methods
of food preparation, systems for food preparation and the like.
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<PAGE> 14
Carl Jr.'s further agrees that all information concerning GBFC concept
of operations, unique food items, recipes, ingredients, methods of food
preparation, systems for food preparation, and the like utilized by
GBFC in the production and sale of any products sold under the GBFC
Trademark belong exclusively to GBFC and that Carl Jr.'s shall not
disclose or otherwise use any such formulas or recipes now or in the
future. Carl Jr.'s further agrees that it will not reverse engineer or
otherwise seek to discover the product formulation of any food product
sold by GBFC under a GBFC Trademark and that nothing in this Agreement
shall be construed as granting Carl Jr.'s a license or any other right
to disclose or use any product formulation of any food product sold by
GBFC under the GBFC Trademark, or a license or right to use or disclose
any information concerning GBFC concept of operations, unique food
items, recipes, ingredients, methods of food preparation, systems for
food preparation and the like.
The last two (2) paragraphs of this Section 15 are intended only to
restrict the disclosure of use by a party of (i) a "trade secret" (as
that term is defined under California law) of the other party for so
long as it is a "trade secret" of such party; or "trade dress" as that
term is defined in Section 43 (a) of the Trademark Act of 1946.
16. GBFC RELEASE. GBFC forever discharges and releases CARL, its employees,
officers, directors, and attorneys from any and all rights, claims,
demands, damages, debts, liabilities, accounts, reckonings, liens,
attorney's fees, costs, expenses, actions and causes of action of every
kind and nature whatsoever, whether in contract, tort, at law or in
equity, or otherwise, suspected or unsuspected, which Green Burrito
owns or holds, or at any time heretofore have ever had, owned or held,
related to or arising out of or in any way connected to the Agreements
described and superseded at Section 13 above, and in connection with
the Picante Grill.
17. CARL RELEASE. CARL forever discharges and releases GBFC, its employees,
officers, directors, and attorneys, from any and all rights, claims,
demands, damages, debts, liabilities, accounts, reckonings, liens,
attorney's fees, costs, expenses, actions and causes of action of every
kind and nature whatsoever, whether in contract, tort, at law or in
equity, or otherwise, suspected or unsuspected, which Carl owns or
holds, or at any time heretofore have ever had, owned or held, related
to or arising out of or in any way connected to the Agreements
described and superseded at Section 13 above, and in connection with
the Picante Grill.
18. WAIVER OF CIVIL CODESS.1542. With the exception of the parties'
respective contractual rights and obligation sunder this Settlement and
Development Agreement, and the franchise agreements appended hereto, it
is the intention of the parties hereto that the foregoing releases in
Sections 16 and 17 above shall be effective as a bar to all demands,
liens, assignments, contracts, covenants, actions, suits, causes of
action, obligations, costs, expenses, attorney's fees, damages, losses,
claims, controversies, judgments, orders, and liabilities of whatsoever
character, nature, and kind, known or unknown, suspected or
unsuspected, and whether or not concealed or hidden, hereinabove
specified
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<PAGE> 15
to be so barred; in furtherance of this intention, the parties hereto
expressly, knowingly, and voluntarily waive any and all rights and
benefits conferred upon them by the provision of Section 1542 of the
California Civil Code, which are as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
The parties hereto expressly consent that this release shall be given
full force and effect in accordance with each and all of its express
terms and provisions, relating to unknown and unsuspected claims,
demands, causes of action, if any, to the same affect as those terms
and provisions relating to any other claims, demands, and causes of
action hereinabove specified.
19. CROSS INDEMNIFICATION. GBFC, on one hand, and CKE and CARL on the
other, hereby mutually cross-indemnify and hold each other and their
respective directors, officers, and employees, agents, representatives,
and attorneys harmless against claims, damages, liabilities and losses,
including reasonable attorneys fees and defense costs, arising directly
or indirectly from the actions of the other in connection with (i) the
Dual Product Concept Franchise Agreements; (ii) the CARL's franchisee's
operation of the GBFC Dual Product Concept franchise; (iii) the
awarding of Dual Product franchises to CARL's franchisees; (iv) the
services to be provided by CARL's under the GBFC Franchise Agreements
to the CARL's/GBFC franchisees; (v) in connection with any product
liability claims with respect to any food products; and (vi) claims by
the existing GBFC franchisees or claims by future GBFC franchisees that
are not part of the CARL system.
Notwithstanding anything to the contrary in this Section 19, GBFC shall
indemnify and hold harmless CARL, CKE, and their affiliates, directors,
officers, employees, agents, representatives, and attorneys with
respect to:
A. Any action by a GBFC franchisee (who is not also a CARL
franchisee) or Rally's or Rally's franchisee based on the
grant of a GBFC franchise to CARL or one of its franchisees;
B. Failure of GBFC to perform under this Agreement or any
franchise agreement with CARL franchisees;
C. Any alleged infringement on the rights of any third parties
based on CARL or its franchisees or CKE utilizing GBFC's
trademarks, trade names, recipes, unique food items or the
like as authorized by this Agreement or any GBFC Franchise
Agreement involving CARL or a CARL franchisee;
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<PAGE> 16
D. The failure of GBFC to comply with any franchise, securities
or other applicable law.
Notwithstanding anything to the contrary in this Section 19, CARL shall
indemnify and hold harmless GBFC, and their affiliates, directors,
officers, employees, agents, representatives, and attorneys with
respect to:
A. Any action by a CARL franchisee (who is not also a GBFC
franchisee) based on the grant of a GBFC franchise to CARL or
one of its franchisees;
B. Failure of CARL to perform under this Agreement or any
franchise agreement with CARL franchisees;
C. Any alleged infringement on the rights of any third parties
based on GBFC utilizing CARL's trademarks, trade names, or the
like as authorized by any agreement involving CARL and GBFC;
D. The failure of CARL to comply with any franchise, securities
or other applicable law.
20. EMPLOYEES. For so long as CARL is the Master Franchisee of GBFC, and
for one (1) year thereafter, the parties hereto shall not, directly or
indirectly, or by action in concert with others, induce or influence,
or seek to induce or influence, any person who is engaged as an
employee by any other party hereto to (a) end his or his engagement or
employment; and (b) to work for one of the other parties to this
Agreement. Nothing herein shall preclude any party from hiring an
individual who voluntarily and without enticement by such party left
employment of another party.
21. CARL REPRESENTATIONS.
A. Each of CARL and the person executing this Agreement on behalf
of CARL represent and warrant to GBFC that the execution,
delivery and performance of this Agreement by CARL and such
person have been duly and validly authorized by all necessary
corporate action on the party of CARL.
B. In addition, CARL represents and warrants to GBFC that:
(i) CARL has the requisite corporate power and authority
to enter into, and to carry out its obligations under
this Agreement.
(ii) This Agreement constitutes the valid and binding
obligation of CARL, enforceable against CARL in
accordance with its terms.
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<PAGE> 17
(iii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
and compliance with its terms will not (a) conflict
with, or result in any violation of any provision of,
the Articles of Incorporation or Bylaws of CARL; (b)
violate or conflict with, or result in a breach of
termination of or default under, any agreement,
instrument, license, judgment, order, decree,
statute, law or regulation applicable to CARL.
22. GBFC REPRESENTATIONS.
A. Each of GBFC and the person executing this Agreement on behalf
of GBFC represent and warrant to CARL that the execution,
delivery and performance of this Agreement by GBFC and such
person have been duly and validly authorized by all necessary
corporate action on the part of GBFC.
B. In addition, GBFC represents and warrants to CARL that:
(i) GBFC has the requisite corporate power and authority
to enter into and to carry out its obligation sunder
this Agreement.
(ii) This Agreement constitutes the valid and binding
obligation of GBFC, enforceable against GBFC in
accordance with its terms.
(iii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
and compliance with its terms will not (a) conflict
with, or result in any violation of any provision of,
the Articles of Incorporation or Bylaws of GBFC; (b)
violate or conflict with, or result in a breach of
termination of or default under, any agreement,
instrument, license, judgment, order, decree, statue,
law or regulation applicable to GBFC.
23. MISCELLANEOUS PROVISIONS.
A. OTHER DUAL CONCEPTS. Nothing herein should preclude CARL from
utilizing other concepts in CARL locations (company or
franchisee) which are not utilizing Carl's Jr./Green Burrito
Dual Concept, provided such other concept is not Mexican in
nature.
B. UNOCAL. CARL is presently party to an agreement with UNOCAL
pursuant to which CARL may offer Carl's Jr. products in UNOCAL
locations. The UNOCAL agreement requires CARL to also offer
various Mexican products. Accordingly, CARL shall consider
Green Burrito as the supplier of the Mexican system and/or
products for CARL's UNOCAL contract, but CARL has no
obligation to utilize Green Burrito and Green Burrito has no
obligation to supply.
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<PAGE> 18
In the event Green Burrito does not provide the Mexican
products and system, the covenant not to compete at Section 9
above shall not be violated as a result of a third party
providing the Mexican products and system to CARL for the
UNOCAL contract.
C. GOVERNING LAW. All questions with respect to the construction
of this Agreement and the rights and liabilities of the
parties shall be governed by the internal laws of the State of
California.
D. PUBLIC ANNOUNCEMENTS. CKE and GBFC are both public companies
and therefore have obligations to make good faith disclosures
and dissemination of information from time to time to the
public. Attachment 4 is the mutual announcement of this
Settlement and Development Agreement. Future public
announcements shall be made in good faith and neither party
shall disparage the other, or its products, concept, or
system.
E. SUCCESSORS AND ASSIGNS. This Agreement and the Exhibits
referred to herein shall be binding upon and inure to the
benefit of the parties hereto, and their respective successors
and assigns; however, neither party shall assign its interest
under this Agreement without the prior written consent of the
other.
F. ENTIRE AGREEMENT. this Agreement and the Exhibits referred to
herein contain all of the terms and conditions agreed upon by
the parties, and supersede any prior agreements or
understandings, with respect to the subject matter of this
Agreement.
The parties represent and acknowledge that there are no
representations separate and apart from this Agreement and its
exhibits, each having relied upon their own investigation of
the facts and circumstances surrounding this transaction.
G. AMENDMENT OR MODIFICATION OF AGREEMENT. This Agreement may be
modified, altered or amended only by the written agreement of
both parties. The parties recognize and acknowledge that their
continued cooperation with each other will be necessary to
modify or amend such documents as may reasonably be required
or prudent in order to deal with franchisees and franchise
laws and regulations.
H. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of
which shall constitute one and the same instrument.
I. FURTHER ACTIONS. Each party agrees to execute and deliver any
further documents and to do any additional acts reasonably
required to carry out the terms of this Agreement.
J. WAIVERS. Any provision of this Agreement may be waived at any
time by the party entitled to the benefit thereof by a written
instrument by the party of by a duly authorized officer of the
party. No waiver of any of the provisions of this
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Agreement will be deemed, or will constitute, a waiver of any
other provision, whether or not similar, nor will any waiver
constitute a continuing waiver.
K. NOTICES. all notices, requests, demands and other
communications given or required to be given under this
Agreement shall be in writing and duly addressed to the
parties as follows:
If to CARL: CKE RESTAURANTS, INC.
1200 NORTH HARBOR BOULEVARD
ANAHEIM, CALIFORNIA 92801
ATTN: TOM THOMPSON
With copy to: RICHARD CELIO
CKE RESTAURANTS, INC.
1200 NORTH HARBOR BOULEVARD
ANAHEIM, CALIFORNIA 92801
and
ANDREW PUZDER
FIDELITY NATIONAL TITLE
17911 VON KARMAN, SUITE 300
IRVINE, CALIFORNIA 92714
If to GBFC: GB FOODS CORPORATION
23 CORPORATE PLAZA, SUITE 240
NEWPORT BEACH, CALIFORNIA 92660
ATTN: WILLIAM M. THEISEN
and
GB FOODS CORPORATION
10010 NORTH 84 STREET
OMAHA, NEBRASKA 68122
ATTN: MICHAEL J. SCHERR
With copy to: BRUCE ROHDE
McGRATH, NORTH, MULLIN & KRATZ, P.C.
1400 ONE CENTRAL PARK PLAZA
OMAHA, NEBRASKA 68102
Any notices properly addressed and sent by certified mail,
return receipt requested, shall be deemed to have been duly
given and received seventy-two hours after they are deposited
in the United States mail, postage prepaid. Notice
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shall be deemed delivered and received at the time delivered
if properly addressed and delivered to the addresses set forth
in this Section during normal business hours or personally
delivered to the person to whose attention they are addressed.
Notice sent by any other manner shall be effective only upon
actual receipt by the addressee. Any party may change the
address for purposes of this Section by giving notice to the
other party as provided in this Section.
L. EXPENSES. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party
incurring such costs or expenses.
M. SEVERABILITY. If any paragraph, section, sentence, or clause
of phrase contained in this Agreement becomes or is held by
any court of competent jurisdiction to be illegal, null or
void or against public policy, the remaining paragraphs,
sections, sentences, clauses or phrases contained in this
Agreement shall not be affected thereby.
N. COOPERATION IN DRAFTING. Both CARL and GBFC have cooperated in
the drafting and preparing of this Agreement, and therefore,
construction to be made of this Agreement shall not be
construed against any party.
O. RECITALS AND EXHIBITS. all Recitals and Exhibits referred to
herein and attached hereto are incorporated by this reference,
as though fully set forth in the body of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CARL:
CKE RESTAURANTS, INC. CARL KARCHER ENTERPRISES, INC.
A DELAWARE CORPORATION A CALIFORNIA CORPORATION
By /s/ William P. Foley By: /s/ William P. Foley
--------------------------- -------------------------
Title: Chairman & CEO Title: Chairman
GBFC: GB FOODS CORPORATION,
a Delaware corporation
By: /s/ William M. Theisen
----------------------------------
Title: Chairman and Chief Executive Officer
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1.1. Parties.................................................................................... 1
1.2. Location................................................................................... 1
2. RECITALS ........................................................................................... 1
2.1. Development of system...................................................................... 1
2.2. Carl's Jr. Franchisee System............................................................... 2
2.3. Objective of the Parties................................................................... 2
3. DEFINITIONS.......................................................................................... 2
3.1. Affiliate.................................................................................. 2
3.2. Agreement.................................................................................. 2
3.3. Approved Location.......................................................................... 2
3.4. Breach..................................................................................... 3
3.5. Commencement Date.......................................................................... 3
3.6. Designated Manager......................................................................... 3
3.7. Franchised Business/Restaurant............................................................. 3
3.8. Franchisee................................................................................. 3
3.9. CARL'S JR. Original Food Products.......................................................... 3
3.10. Franchise Network.......................................................................... 3
3.11. Franchisor................................................................................. 4
3.12. "GB Food Products" or "GREEN BURRITO Products"............................................. 4
3.13. GREEN BURRITO Dual Concept System.......................................................... 4
3.14. Dual Product Concept System................................................................ 4
3.15. GREEN BURRITO.............................................................................. 4
3.16. Good Standing.............................................................................. 4
3.17. Gross Revenue.............................................................................. 4
3.18. Training Materials/Manual.................................................................. 5
3.19. Marks...................................................................................... 5
3.20. Proprietary Product........................................................................ 5
3.21. System..................................................................................... 5
3.22. Termination................................................................................ 5
3.23. Trade Name................................................................................. 6
3.24. Transfer................................................................................... 6
3.25. You ...................................................................................... 6
3.26. UNOCAL..................................................................................... 6
4. GRANT OF FRANCHISE................................................................................... 6
4.1. Granting Clause............................................................................ 6
4.1.1 Protected Radius.................................................................... 6
4.2. Term and Renewal........................................................................... 7
4.2.1 Initial Term........................................................................ 7
4.2.2 Relocation.......................................................................... 7
4.2.3 Renewal............................................................................. 7
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
5. SERVICES TO FRANCHISEE............................................................................... 8
5.1. Lay-out and Decor.......................................................................... 8
5.2. Training................................................................................... 8
5.2.1 Initial Training.................................................................... 8
5.2.2 Continuing Education................................................................ 8
5.3. Consultation and Supervision............................................................... 9
5.4. Training Materials/Manual.................................................................. 9
5.5. Advertising................................................................................ 9
5.1.1 Advertising Fund.................................................................... 9
5.6. Suggested Suppliers........................................................................ 10
5.7. Proprietary Product Availability........................................................... 10
6. PAYMENTS BY FRANCHISEE............................................................................... 10
6.1. Initial Fee................................................................................ 10
6.2. Initial Fee Proration...................................................................... 10
6.3. Royalties.................................................................................. 11
6.4. Audit...................................................................................... 11
6.5. Training Fees and Costs.................................................................... 11
6.6. Relocation Fee............................................................................. 11
6.7. Renewal Fee................................................................................ 11
6.8. Transfer Fee............................................................................... 11
6.9. Interest on Late Payments.................................................................. 11
7. OBLIGATIONS OF FRANCHISEE............................................................................ 12
7.1. Use of Trade Name and Marks................................................................ 12
7.1.1 Context............................................................................. 12
7.1.2 Changes in Trade Names and Marks.................................................... 12
7.1.3 Advertising Materials............................................................... 12
7.1.4 Legal Protection.................................................................... 12
7.2. Quality Control............................................................................ 13
7.2.1 Opening............................................................................. 13
7.2.2 Compliance with Manual.............................................................. 13
7.2.3 Products and Services Offered....................................................... 13
7.2.4 Customer Satisfaction Program....................................................... 14
7.2.5 Inspections......................................................................... 14
7.2.6 Use of Proprietary Products......................................................... 14
7.2.7 Notification of Complaints.......................................................... 14
7.3. Personnel.................................................................................. 14
7.3.1 Management.......................................................................... 14
7.3.2 Employees........................................................................... 15
7.4. Local Advertising.......................................................................... 15
7.5. Financial Information...................................................................... 15
7.5.1 Records............................................................................. 15
7.5.2 Reports............................................................................. 15
7.6. Insurance.................................................................................. 15
</TABLE>
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<PAGE> 23
<TABLE>
<S> <C>
7.7. Financial and Legal Responsibility......................................................... 16
7.7.1 Compliance with Law................................................................. 16
8. RELATIONSHIP OF PARTIES.............................................................................. 16
8.1. Interest in Marks and system............................................................... 16
8.2. Independent Status......................................................................... 16
8.3. Display of Disclaimer...................................................................... 16
8.4. Confidentiality............................................................................ 16
8.5. Indemnification............................................................................ 17
8.6. Covenant Not to Compete.................................................................... 17
9. TRANSFER OF FRANCHISE................................................................................ 18
9.1. Purpose of Conditions for Approval of Transfer............................................. 18
9.2. Notice of Proposed Transfer................................................................ 18
9.3. Consent by GREEN BURRITO................................................................... 18
9.4. Conditions for Consent to Transfer......................................................... 18
9.5. Changes of Ownership Deemed Not To Be Transfers............................................ 19
9.6. Assignment by GREEN BURRITO................................................................ 19
10. TERMINATION OF FRANCHISE............................................................................. 19
10.1. Termination by consent of the Parties...................................................... 19
10.2. Termination by GREEN BURRITO............................................................... 19
10.2.1 Acts of Default.................................................................... 19
10.2.2 Notice of Default.................................................................. 21
10.3. Termination by You......................................................................... 21
10.4. Rights and Obligations After Termination................................................... 21
11. MISCELLANEOUS PROVISIONS............................................................................. 22
11.1. Construction of Contract................................................................... 22
11.2. Governing Law.............................................................................. 22
11.3. Notices.................................................................................... 22
11.4. Amendments................................................................................. 22
11.5. Waiver..................................................................................... 22
11.6. Integration................................................................................ 22
11.7. Arbitration/Mediation...................................................................... 22
11.8. Injunctive Remedy for Breach............................................................... 23
11.9. Attorneys' Fees and Costs.................................................................. 23
11.10. Severability............................................................................... 24
11.11. Acceptance by both Parties................................................................. 24
11.12. DISCLAIMER OF REPRESENTATIONS.............................................................. 25
</TABLE>
ATTACHMENT 1. GB Products List
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GREEN BURRITO DUAL CONCEPT
FRANCHISE AGREEMENT
FOR COMPANY OWNED STORE OF
CARL KARCHER ENTERPRISES, INC.
**********
STORE # __________
1.1. PARTIES
This Agreement is signed on ____________ 19____, by and between GB
Franchise Corporation, a California corporation ("GREEN BURRITO"), with its
principal office in Newport Beach, California, and CARL KARCHER ENTERPRISES,
INC., a California corporation, with its principal office in Anaheim,
California, in its capacity as a franchisee solely relating to the location
described immediately below at Section 1.2 ("You" or "CARL'S JR.").
1.2. LOCATION.
This Agreement concerns your restaurant located at ___________________
________________________________________________, and identified as CARL'S JR.
Store #__________.
2. RECITALS
2.1. DEVELOPMENT OF SYSTEM.
GREEN BURRITO is the licensee of certain intellectual property rights,
including GREEN BURRITO's Trade Name "The Green Burrito"and the Marks "Green
Burrito" and the "The Green Burrito and Design", and has spent a considerable
amount of time, effort and money to devise, and continues to develop business
methods, technical knowledge and marketing concepts including, but not limited
to, trade secrets, commercial ideas, advertising materials, marketing
strategies, information on sources of supply, administrative procedures,
business forms, distinctive signage, trade dress, and uniforms, and employee
training techniques, and goodwill that, taken together, comprise a proprietary
System for the operation of Mexican fast-food restaurants.
In addition to the foregoing, GREEN BURRITO has successfully developed
a method for expanding the Franchise Network, and, at the same time,
complementing and enhancing the menus and marketing of other restaurants by use
of the GB Dual Concept System. This proprietary Dual Concept System,
appropriately utilized, allows the insertion of the GB System into an existing
restaurant. It allows the conversion to occur in a short period of time, with
relatively minor interruption or interference with the existing day-to-day
business, complements existing color schemes and decor, occupies only a small
portion of existing restaurant preparation and sales space, and efficiently
utilizes human and fixed asset resources.
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2.2. CARL'S JR. FRANCHISE SYSTEM.
You are the owner of the CARL'S JR. franchise system. As a franchisor
you own and operate restaurants utilizing your own distinctive trademark,
service marks, designs, trade names, copyrights, system, goodwill, specialty
menus, proprietary products, and method of operation. The distinguishing
characteristics of the CARL'S JR. systems includes, without limitation, special
recipes and menu items, distinctive design, decor, color scheme, and
furnishings; uniform standards; specifications and procedures for operations;
consistency and uniformity of products and services offered; procedures for
quality control; training and assistance; and advertising and promotional
programs. Nothing in this Agreement provides GREEN BURRITO any rights whatsoever
in the CARL'S JR. Franchise System, as it is a separate and distinct system from
the GREEN BURRITO System both before and after the addition of the Dual Product
Concept.
2.3. OBJECTIVE OF THE PARTIES.
GREEN BURRITO and CARL'S JR. have analyzed the potential of their
respective systems and believe that their respective products and specialty
menus, marketed through their respective systems at a CARL'S JR. location, may
create synergies and further opportunities for both. Therefore, it is the
objective of the parties to insert the GREEN BURRITO System into CARL'S JR.
locations so that two systems are operated side-by-side from the same location.
3. DEFINITIONS
For purposes of this Franchise Agreement, the following words and
phrases are defined as follows:
3.1. AFFILIATE.
"Affiliate" or "Affiliates" means, in the context of a corporation, a
parent corporation, subsidiary corporations, and "Affiliates" as defined by the
Internal Revenue Code, associated with either GREEN BURRITO or CARL'S JR.
3.2. AGREEMENT.
"The Agreement" or "this Agreement" means this Dual Concept Franchise
Agreement, signed on the date set out in Article 1. above.
3.3. APPROVED LOCATION.
"Approved Location"or "GB Dual Concept Location" means the location
specified in Section 1.2 above, that GREEN BURRITO has, (subject to the
Development Agreement between GREEN BURRITO and CARL'S JR.) approved, as a site
where you may locate the Franchised Restaurant together with your CARL'S JR.
restaurant.
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3.4 BREACH.
As used herein, the term "breach" always infers and implies a "material
breach".
3.5. COMMENCEMENT DATE.
"Commencement Date" means the date when your Restaurant at the location
specified at Section 1.2 above begins to operate under the GB Dual Concept
system, or NINETY (90) days after the execution of this Agreement, whichever is
sooner.
3.6. DESIGNATED MANAGER.
"Designated Manager" means the person whom you appoint as general
manager of a Franchised Restaurant, to include substitutes for the General
Manager, such as Assistance Managers, or Shift Managers.
3.7. FRANCHISED BUSINESS/RESTAURANT.
"Franchised Business" or "Franchised Restaurant" means the aspects of
GB Dual Concept enterprise that GREEN BURRITO has authorized you to conduct
utilizing the Trade Name, Marks, and System of GREEN BURRITO, at your currently
existing business, which utilizes your CARL'S JR. Trade Name, Mark, and System
at the Location approved under this Agreement.
3.8. FRANCHISEE.
"Franchisee" means "you" or CARL'S JR., which is the person or entity
that is named as Franchisee in Article 1 of this Agreement. "Franchisee" means,
in addition, all persons or entities that succeed to your interest as the
original Franchisee by Transfer or operation of law.
3.9. CARL'S JR. ORIGINAL FOOD PRODUCTS.
"CARL'S JR. Food Products" means those CARL'S JR. products, other than
beverages, sold under the CARL'S JR. name and trademark offered prior to the
execution of this Agreement at the Approved Location or such other CARL'S JR.
products as added or modified in the CARL'S JR. menu from time to time, provided
no products added by CARL'S JR. shall be Mexican-type products to compete
against GREEN BURRITO Products. For purposes of this Agreement, any sandwich
comprised of bread or buns and a main component of hamburger, chicken, or fish,
even though garnished with traditional Mexican sauces or flavorings, shall not
be deemed a Mexican-type product competing against Green Burrito.
3.10. FRANCHISE NETWORK.
"Franchise Network" means the network composed of GREEN BURRITO, owners
of all free-standing GREEN BURRITO Restaurants, owners of all dual concept GREEN
BURRITO restaurants, GREEN BURRITO's Affiliates, and any other persons or
business entities that GREEN BURRITO has licensed to use the Trade Name, Marks,
System, or any of them.
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<PAGE> 27
3.11. FRANCHISOR.
"Franchisor"means GB Franchise Corporation or any person or entity to
which GREEN BURRITO assigns all or part of its rights and obligations under this
Agreement.
3.12. "GB FOOD PRODUCTS" OR "GREEN BURRITO PRODUCTS".
"GB Food Products" or "GREEN BURRITO Products" shall mean those
products listed on Attachment I hereto.
3.13. GREEN BURRITO DUAL CONCEPT SYSTEM.
The GREEN BURRITO Dual Concept System is an operating method which
allows the insertion of the GREEN BURRITO concept into another restaurant to
operate side-by-side with another restaurant concept within a single structure
so that the two concepts may share seating and beverage facilities. See Section
2.1 above.
3.14. DUAL PRODUCT CONCEPT SYSTEM.
The Dual Product Concept system as used herein is an operating method
which allows the insertion of the GB System into a CARL'S JR. restaurant within
a single structure so that the two share seating and beverage facilities. See
Section 2.1 above.
3.15. GREEN BURRITO.
"GREEN BURRITO" means GB Franchise Corporation (as it relates only to
the Green Burrito dual concept system and GB Food Products) or any person or
entity to which GREEN BURRITO assigns all or part of its rights and obligations
under this Agreement.
3.16. GOOD STANDING.
"Good Standing" means that you are in material compliance and not in
default as the term "default" is used in Section 10.2.1 and Section 10.2.2
below.
3.17. GROSS REVENUE.
"Gross Revenue" means the total amount of money received by you and
your Affiliates, excluding sales tax and income from non-food items, within an
accounting period for (a) all food items sold at the Approved Location under the
GREEN BURRITO Trade Name or Marks; and (b) GREEN BURRITO's proportionate share
of beverage sales sold at the Approved Location. GREEN BURRITO's proportionate
share of beverage sales shall be computed during the respective accounting
period by comparing the relationship between CARL'S JR. Products (exclusive of
beverage sales) and GREEN BURRITO Products (exclusive of beverage sales), and
multiplying that percentage times all beverage sales.
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3.18. TRAINING MATERIALS/MANUAL.
"Training Materials" or "Manual" means the current version of the
training materials, manuals, and learning aids that GREEN BURRITO will lend to
you during the term of this Agreement to establish and train individuals in the
use of the GREEN BURRITO Dual concept, which contain information, forms, and
requirements for the establishment and operation of a Franchise Restaurant and
for use of GREEN BURRITO's Trade Name and Marks, including any modified manual
which may be modified from time to time in the form of a common training manual
jointly agreed to by the parties hereto.
3.19. MARKS.
"Marks" means selected trade names, trademarks, service marks, logos,
logotypes, emblems, indicia of origin, slogans and other commercial symbols
licensed by GREEN BURRITO to you under this Agreement.
3.20. PROPRIETARY PRODUCT.
"Proprietary Product" means any product that has been manufactured in
accordance with GREEN BURRITO's secret recipes that has been packaged or labeled
with the GREEN BURRITO Marks.
3.21. SYSTEM.
GREEN BURRITO has a franchise system which means the business methods,
technical knowledge and marketing concepts licensed by GREEN BURRITO to you
under this Agreement, including, but not limited to, the right to use GREEN
BURRITO's trade secrets, purchasing arrangements, commercial ideas, advertising
materials, marketing strategies, information on sources of supply for GREEN
BURRITO food products, administrative procedures, distinctive design,
distinctive signage, distinctive decor, distinctive color scheme, distinctive
trade dress, distinctive uniforms, and employee training techniques. As used in
this Agreement, the term "System" refers to the GREEN BURRITO insert system
which allows the insertion of the GREEN BURRITO System into a CARL'S JR.
restaurant utilizing the GREEN BURRITO trademark, service mark, trade dress and
a modified manual. "System", when used alone or not in conjunction with GREEN
BURRITO, does not mean or refer to the CARL'S JR. Franchise System (See Section
2.1) as this Agreement covers only the addition of the GREEN BURRITO System to
your location and does not cover the CARL'S JR. System.
3.22. TERMINATION.
"Termination" means expiration of this Agreement; non-renewal of this
Agreement; or termination, under the circumstances described in Article 10 of
this Agreement, of the then-current term of this Agreement prior to its normal
expiration date.
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3.23. TRADE NAME.
"Trade Name" means the commercial name "The Green Burrito."
3.24. TRANSFER.
"Transfer" means any sale, gift, or other assignment of all or any part
of the rights and obligations of this Agreement or of an interest of the
magnitude described in this Section in the Franchised Restaurant. As a
corporation, one or more transactions (whether or not they are related) in which
there is a cumulative change in beneficial ownership of thirty-four percent
(34%) or more of the your voting stock will be deemed to be a Transfer.
Notwithstanding the foregoing, a Transfer is not a Transfer between related
entities, in which the transferring party owns in excess of 50% of the
transferee party; and a transfer will not be deemed to have occurred in the
event of the acquisition or merger of franchisee with another company.
3.25. YOU.
"You" means the entity that is named as "you" in Article 1 of this
Agreement for the location specified at Section 1.2 above. "You" means, in
addition, all persons or entities that succeed to the interest of the original
franchisee by Transfer or operation of law.
3.26. UNOCAL.
Specifically, this Agreement does not cover or address any Carl's
Jr./UNOCAL location.
4. GRANT OF FRANCHISE
4.1. GRANTING CLAUSE.
GREEN BURRITO grants to you and you accept from GREEN BURRITO a
franchise to operate a GREEN BURRITO Dual Concept Franchised Restaurant at the
Approved Location using the Trade Name, Marks and System in accordance with the
terms of this Agreement. GREEN BURRITO expressly reserves all rights in the
Trade Name, Marks and System not expressly granted in this Agreement, including,
but not limited to, (a) the right to sell food products that have been prepared
following GREEN BURRITO's proprietary recipes, through any means of
distribution; and (b) the right to operate fast-food restaurants that do sell
Mexican food. Nothing herein shall preclude GBFC from owning any restaurant,
company, or chain, regardless of the products it features, whether Mexican or
otherwise.
4.1.1 PROTECTED RADIUS. The territorial protection for you is a
protected radius of one and one-half (1.5) miles determined on a straight line
basis from the approved location ("Protected Area"). GREEN BURRITO agrees not to
establish, or to operate or to license or franchise another person or entity, to
establish or locate a restaurant within the Protected Area, utilizing the
System, nor to allow any other franchisee or company-owned unit using the Trade
Name or System to operate or relocate to a site within the Protected Radius as
long as you and your affiliates are
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in Good Standing under this Agreement. Notwithstanding the foregoing, if another
CARL'S JR. location is within the 1.5 mile protected radius, GBFC may, if
requested by CARL'S JR., grant a GBFC franchise to such CARL'S JR. location.
4.2. TERM AND RENEWAL.
4.2.1 INITIAL TERM. The initial term of the Franchise will begin on the
Commencement Date and will continue for a period of fifteen (15) years, or the
term of your lease, whichever is shorter.
4.2.2. RELOCATION. You may relocate the GREEN BURRITO Restaurant within
the Protected area or anywhere within CARL'S JR. core markets, with GREEN
BURRITO's prior written consent, which will not be unreasonably withheld, if the
following conditions are substantially fulfilled:
a. You and your Affiliates are in Good Standing under the
Franchise Agreement, any other Agreement between GREEN BURRITO
or GREEN BURRITO's Affiliate and you, and the Manual;
b. You agree to plan, construct, equip, fixturize, and decorate
your new CARL'S JR./GREEN BURRITO Restaurant so that the
premises meet the standards of appearance and function
applicable to the premises of new GREEN BURRITO/CARL'S JR.
Restaurants at the time of relocation.
c. GREEN BURRITO has given its prior written approval to the new
site and the provisions of the lease for the new premises;
d. You have satisfied GREEN BURRITO on any protected territory
issue conflicts in existence at the time of relocation.
Notwithstanding the foregoing, if you determine the location is no
longer commercially reasonable, and you elect to relocate, you may do so with
adherence to only Section 4.2.2.(d) immediately above.
4.2.3. RENEWAL. You will have the right to renew the Franchise for one
(1) consecutive ten (10) year term on the same terms and conditions, if at the
time of renewal the following conditions are fulfilled:
a. You and your Affiliates are in Good Standing under this
Agreement, any other Agreement between GREEN BURRITO or GREEN
BURRITO's Affiliate and you, and the Manual;
b. You have notified GREEN BURRITO in writing at least one
hundred eighty (180) days before the expiration date of this
Agreement of your desire to renew;
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<PAGE> 31
c. You and any Affiliates that have signed this Agreement have
signed an extension of the Franchise Agreement not less than
thirty (30) days before the expiration of this Agreement;
d. You must, before commencement of the renewal term, at your own
expense, remodel, modernize and redecorate the Franchise
Restaurant premises and replace and modernize the fixtures,
equipment, and signage used in the Franchised Restaurant so
that the premises of the Franchised Restaurant meet the
standards of appearance and function applicable to the
premises of new franchised businesses of GREEN BURRITO and
CARL'S JR. at the time of renewal;
e. You have renewed or have the right to renew the lease for the
Approved Location;
f. You have paid any initial franchise fees abated at the
beginning of this Agreement as a result of a proration of the
franchise fee due GREEN BURRITO to reflect a term of years
less than fifteen (15) in order to correspond with your lease
at the Approved Location.
5. SERVICES TO FRANCHISEE
GREEN BURRITO agrees to perform the following services for you, if you
are, at the time when service is to be rendered in Good Standing under this
Agreement, any other Agreement with GREEN BURRITO or GREEN BURRITO's Affiliate,
and the Manual:
5.1. LAY-OUT AND DECOR.
CARL'S JR. will, if possible, and without undue cost or burden, agree
upon the incremental equipment to be added and installed at the Approved
Location, and installation will proceed in accordance with plans and/or
schematics mutually approved in writing by GREEN BURRITO and CARL'S JR., which
approval will not be unreasonably withheld.
5.2. TRAINING.
5.2.1. INITIAL TRAINING. GREEN BURRITO has provided CARL'S JR.
management and selected personnel with sufficient training in the operation of
Franchised Business under the GREEN BURRITO System. Before the opening of your
Franchised Business at the Approved Location, you, under the supervision of
GREEN BURRITO will provide to your management selected for the Approved Location
an initial training program in the operation of the Franchised Business under
GREEN BURRITO's System. Your Designated Manager for the Approved Location will
attend and successfully complete the training program to the satisfaction of you
and GREEN BURRITO before opening of a Franchised Restaurant at that location. If
the employment of a Designated Manager is ended, you must employ a new
Designated Manager within thirty (30) days who must successfully complete an
initial training program before starting work.
5.2.2. CONTINUING EDUCATION. GREEN BURRITO may offer continuing
education programs on matters related to the operation or promotion of the
Franchised Restaurant on a
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<PAGE> 32
mandatory basis, as it deems appropriate for no additional charge other than
your payment of your incidental costs.
5.3. CONSULTATION AND SUPERVISION.
GREEN BURRITO, for no additional charge, will make its personnel
available to you for as much consultation, at the Approved Location, in regard
to the establishment and opening promotion of the Franchised Restaurant as GREEN
BURRITO in its reasonable discretion deems necessary. In addition, GREEN
BURRITO, for no additional charge, will make its personnel available to
Franchisee for a reasonable amount of consultation by telephone, telecopier, or
in person at GREEN BURRITO's headquarters during the term of this Agreement.
Also, GREEN BURRITO's operations consultants will provide on-site supervision
for one (1) week after opening of your first Approved Location at no additional
charge.
5.4. TRAINING MATERIALS/MANUAL.
In connection with training your personnel, GREEN BURRITO will lend you
Training Materials and/or a Manual. GREEN BURRITO will revise the Manual from
time to time and will distribute up-dated pages containing these revisions to
you. If there is any dispute regarding the contents of the Training Materials or
Manual at any point, GREEN BURRITO's master copy of the Materials will be
dispositive. GREEN BURRITO and CARL'S JR. will, as soon as practical, mutually
develop a common training manual to integrate training for the combined CARL'S
JR./GREEN BURRITO Dual Concept location.
5.5. ADVERTISING.
5.5.1. ADVERTISING FUND. GREEN BURRITO will have no duty to administer
an Advertising fund. CARL'S JR. will in good faith and as part of its overall
advertising, promote GREEN BURRITO. As part of CARL'S JR. overall advertising
and marketing efforts, CARL'S JR. will utilize GREEN BURRITO approved
advertising to the extent CARL'S JR. deems appropriate and necessary to achieve
satisfactory sales level of GREEN BURRITO products. This Section does not
require CARL'S JR. to advertise GREEN BURRITO every time it advertises CARL'S
JR.
GREEN BURRITO shall have the opportunity to submit advertising and
marketing concepts and proposals to CARL'S JR. which shall be considered in good
faith by CARL'S JR. in the development of its CARL'S JR./GREEN BURRITO marketing
schemes. GREEN BURRITO shall have the right to review and approve the CARL'S JR.
proposed advertisements and promotions of GREEN BURRITO which approvals shall
not be unreasonably withheld by GREEN BURRITO.
To the extent funds are expended by CARL'S JR. for
advertisement/marketing by CARL'S JR., they will be applied in a manner which is
no way disparages or diminishes the GREEN BURRITO trade names and trademarks.
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5.6. SUGGESTED SUPPLIERS.
With respect to GREEN BURRITO Food Products and equipment, GREEN
BURRITO will provide to you in the Manual or otherwise in writing, a list of
names and addresses of suppliers of goods and services that currently meet GREEN
BURRITO standards and specifications. In advising you of suppliers which meet
its standards and specifications, GREEN BURRITO expressly disclaims any
warranties or representations as to the condition of the goods or services sold
by such suppliers, including, without limitation, express or implied warranties
as to merchantability or fitness for any intended purpose. You agree to look
solely to the manufacturer of goods or the supplier of services for the remedy
for any defect in the goods or services, except for GREEN BURRITO's negligence
or wilful conduct.
If you desire to purchase any products from an unapproved supplier, you
shall submit to GREEN BURRITO a written request for such approval, or shall
request the supplier itself to do so. GREEN BURRITO shall have the right to
require that its representatives be permitted to inspect the supplier's
facilities, and that samples from the supplier be delivered, either to GREEN
BURRITO or to an independent laboratory designated by GREEN BURRITO for testing.
A charge not to exceed the reasonable cost of the inspection and the actual cost
of the test shall be paid by you or the supplier. GREEN BURRITO reserves the
right, at its option, to approve or disapprove the supplier, to reinspect from
time to time the facilities and products of any such approved supplier to revoke
an approval already given upon the supplier's failure to continue to meet any of
GREEN BURRITO's then-current criteria.
5.7. PROPRIETARY PRODUCT AVAILABILITY.
GREEN BURRITO, will sue all reasonable efforts to ensure that GREEN
BURRITO, its Affiliate, or a designated supplier will at all times have a supply
of Proprietary Products available for sale to you.
6. PAYMENTS BY FRANCHISEE
6.1. INITIAL FEE.
subject to Section 6.2 below, on the day your commence selling GBFC
products at the approved location, you must pay GREEN BURRITO in cash other form
of payment acceptable to GREEN BURRITO an initial fee of Seven Thousand Five
Hundred Dollars ($7,500.00). The initial fee is non-refundable.
6.2. INITIAL FEE PRORATION.
If the term of the lease (including renewal options) from a third party
not controlled or influenced by you is less than fifteen (15) years, then GREEN
BURRITO will pro-rate the Initial Fee to reflect the number of years remaining
in the lease term compared to the 15-year term of the franchise. The portion not
paid due to proration will be deferred and due prior to any renewal of this
Agreement by GREEN BURRITO. If there is no renewal, then no amount deferred is
due.
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6.3. ROYALTIES.
You must pay GREEN BURRITO a weekly royalty of four percent (4%) of the
weekly Gross Revenue (as defined at Section 3.15 above) of the Franchised
Restaurant, calculated on the basis of Gross Revenue received by you in the
immediately preceding week. Your obligation to pay ongoing weekly royalties will
start with the Commencement Date of this Agreement. You must submit to GREEN
BURRITO with each royalty payment a weekly statement of Gross Revenue
calculations, and other date in the form specified in the Manual.
16.4. AUDIT.
GREEN BURRITO will have the right during normal working hours to audit
your books and records with respect to the Franchised Restaurant. If an audit
discloses an underpayment of royalties payable under this Agreement, you must
immediately pay GREEN BURRITO an amount equal to the underpayment and past
interest accrued on the amount underpaid in accordance with the preceding
section. In addition, if the underpayment exceeds five percent (5%) of the total
royalty payable for any period covered under the audit, you must reimburse GREEN
BURRITO for all expenses actually incurred by GREEN BURRITO in connection with
the audit.
6.5. TRAINING FEES AND COSTS.
GREEN BURRITO may reasonably require you to attend continuing education
programs at GREEN BURRITO's cost. You will pay costs of travel, lodging, meals
and other incidental expenses incurred by you or your employees for all training
offered by GREEN BURRITO.
6.6. RELOCATION FEE.
No Relocation Fee will be charged.
6.7. RENEWAL FEE.
As a condition of renewal of this franchise, you must pay, at the time
of signing a renewal of the franchise agreement for the renewal term, any
initial fee deferred as a result of pro-ration as described above in Section
6.2.
6.8. TRANSFER FEE.
As a condition of Transfer of this franchise, you must pay, prior to or
at the time of Transfer, a transfer fee of up to Five Thousand Dollars ($5,000)
to reimburse GREEN BURRITO for its actual legal and administrative costs in
connection with the Transfer, unless the transfer is to an affiliate in which
event no transfer fee shall apply.
6.9. INTEREST ON LATE PAYMENTS.
Any payment not received by GREEN BURRITO when due will bear interest
at eighteen percent (18%) per year or at the highest rate allowed by applicable
law on the date when payment
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is due, whichever is less. Interest charges on late payments are intended to
partially compensate GREEN BURRITO for loss of use of the funds and for internal
administrative costs resulting from late payment which would otherwise be
difficult to measure with precision. The fact that such charges are imposed
should not be construed as a waiver of GREEN BURRITO's right to timely payment.
7. OBLIGATIONS OF FRANCHISEE
7.1. USE OF TRADE NAME AND MARKS.
7.1.1. CONTEXT. The GREEN BURRITO Dual Concept contemplates products
bearing different Trade Names and Trademarks will be sold side-by-side. You
agree to utilize the GREEN BURRITO Trade Name and Marks only in the operation of
a Franchised Restaurant at the Approved Location. You will not use any other
trade name or marks to identify or describe the Franchised Business unless GREEN
BURRITO and you have mutually agreed to do so in writing, nor will GREEN BURRITO
utilize your trademarks or trade names for any purpose other than in relation to
the Dual Product Concept System. In addition, both parties agree to comply with
the terms and conditions of Section 7.1.3. below in connection with the use of
any trademark or trade name.
7.1.2. CHANGE IN TRADE NAMES AND MARKS. The parties have invested
substantial time, energy, and money in the promotion and protection of its Trade
Name and other Marks as they exist on the Commencement Date. Neither has any
present intention of altering them. However, both parties recognizer that rights
in intangible property such as the Trade Name and Marks are often difficult to
establish and defend and that changes in the cultural and economic environment
within which the System operates may make changes in the Trade Name and Marks
desirable or necessary. Both parties understand that each other therefore
reserves the right to change its Trade Name and Marks and the specifications for
each when either believes that the changes will benefit the Franchise Network.
Each party agrees to conform to any such changes.
7.1.3. ADVERTISING MATERIALS. CARL'S JR. desires to utilize its own
creative department or consultants for development of promotional materials for
CARL'S JR./GREEN BURRITO. Recognizing the context of the dual Product Concept
System, the parties agree to submit to each other copies of all regional
advertising materials at least two (2) weeks before the first time those
materials are broadcast or published. The receiving party shall review the
materials within a reasonable time and will promptly notify the sending party
whether it approves or rejects them.Approval will not be unreasonably withheld,
and if no objection is registered within ten (10) business days, the materials
shall be deemed approved. Advertising materials of a local nature shall be
submitted five (5) days in advance of the first broadcast or publication, and if
no objection is registered within three (3) business days, the materials shall
be deemed approved. for purposes of this paragraph, advertising materials that
differ from previously approved materials only in such variables as date, price,
or names of products will be considered to be previously approved. However, even
if a party has approval for specific materials, it may later withdraw its
approval if it reasonably believes it necessary to make the advertising conform
to changes in the System or to correct unacceptable features, including, but not
limited to, intentional or negligent misrepresentation.
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7.1.4. LEGAL PROTECTION. Each party agrees to notify the other
immediately in writing if either becomes aware of any unauthorized use of the
other's Trade Name, Marks, or System. We will also promptly notify each other in
writing of any claim, demand, or suit against either of us based upon or arising
in connection with the use of the other's Trade Name, Marks or System. In any
action or proceeding arising from or in connection with any such claim, demand,
or suit involving either of our Trade Names, Marks, or Systems, the owner of the
respective Trade Name, Mark, or System will prosecute or defend same and
indemnify the other and hold the other harmless from same. We agree that the
respective owner will select legal counsel and will control the proceedings.
7.2. QUALITY CONTROL.
7.2.1. OPENING. You may not open the Franchised Restaurant under the
GREEN BURRITO Dual Concept system until GREEN BURRITO certifies in writing that,
in the view of its management, you and your employees are prepared to open. BY
CERTIFYING THAT GREEN BURRITO'S MANAGEMENT BELIEVES THE RESTAURANT IS PREPARED
TO BEGIN OPERATION, GREEN BURRITO DOES NOT WARRANT THAT THE FRANCHISED
RESTAURANT WILL BE SUCCESSFUL.
7.2.2. COMPLIANCE WITH MANUAL. You must operate the Franchised
Restaurant in compliance with the standards and specifications set out by GREEN
BURRITO in the Manual or otherwise in writing. Employees working in he GREEN
BURRITO area of the Restaurant where they are visible to the public, other than
the Designated Manager, must wear designated and approved uniforms which have
the approval of CARL'S JR. and GREEN BURRITO. CARL'S JR. and GREEN BURRITO will,
in good faith, approve uniforms which reasonably depict the association and
presence of both CARL'S JR. and GREEN BURRITO. GREEN BURRITO may make changes in
the GREEN BURRITO standards and specification, when, in GREEN BURRITO's
reasonable discretion, change is needed for the continued success and
development of the Franchise Network. These changes may necessitate the purchase
of equipment, supplies, furnishings or other goods, completion of additional
training by your employees, or other cost to you. You must always keep your copy
of the Manual current by inserting in it revised pages given to you by GREEN
BURRITO and deleting superseded pages. If there is any dispute as to the
requirements of the Manual at any point in time, the terms of the master copy of
the Manual maintained by GREEN BURRITO will control.
7.2.3. PRODUCTS AND SERVICES OFFERED. You must offer and sell a minimum
of fifteen (15) GREEN BURRITO Products listed in Attachment 1 to this Agreement.
Except for existing CARL'S JR. Mexican offerings set forth on Attachment 2, and
the CARL'S JR. Original Food Products defined at Section 3.9 above, you may
serve only those Mexican food products that GREEN BURRITO has authorized you to
provide. Except for Proprietary Products, you may purchase products that are to
be sold or used in the Franchised Restaurant from any source that has been
approved by GREEN BURRITO. If you wish to use or sell any product which is sold
by a supplier not previously approved by GREEN BURRITO, you should advise GREEN
BURRITO of this fact and, upon GREEN BURRITO's request, give GREEN BURRITO
product specifications, sample products, and/or information about the supplier.
GREEN BURRITO will within fifteen (15) days communicate to you either its
approval of the supplier or its reasons for withholding its approval. Silence
may not be construed as consent. As a condition of approving
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a supplier or product, GREEN BURRITO will require you to reimburse it for any
expenses reasonably incurred by GREEN BURRITO in inspecting the suppliers
premises, checking the supplier's credentials, or testing the product. As a
condition of approving a supplier of any product that bears the Trade Name or
Marks, GREEN BURRITO may require that the supplier sign GREEN BURRITO's License
Agreement. GREEN BURRITO may withdraw its approval of a supplier or product if
it no longer meets GREEN BURRITO's standards.
7.2.4. CUSTOMER SATISFACTION PROGRAM. You must distribute customer
response cards in the form prescribed by GREEN BURRITO or CARL'S JR.'s own form,
provided same is approved by GREEN BURRITO with respect to GREEN BURRITO items,
for return by customers to CARL'S JR. and GREEN BURRITO. If your scores from the
customer response cards do not meet GREEN BURRITO's currently effective
standards, as described in the Manual, GREEN BURRITO will suggest ways in which
you can improve its scores. If you does not take immediate, effective steps to
bring your operation up to GREEN BURRITO's standards, your failure to do so will
constitute a material breach of this Agreement.
7.2.5. INSPECTION. CARL'S JR. will conduct periodic quality control
inspections. In addition, GREEN BURRITO may conduct periodic quality control
inspections of the Franchised Restaurant during normal business hours. Quality
control inspections may be made with or without prior notice and with or without
CARL'S JR. representatives present. In addition, you will cooperate with GREEN
BURRITO in undertaking an annual Franchise Business Review; results of the
review will be used by GREEN BURRITO in advising you how to improve store
performance as well as assessing compliance with system standards.
7.2.6. USE OF PROPRIETARY PRODUCTS. Certain of the proprietary products
used in the Franchised Restaurant are unique and their formula and manufacturing
processes constitute trade secrets integral to the success of the System.
Proprietary products include but are not limited to corn or flour tortillas,
corn or flour taco shells, bean mix, meat mixes, spices and seasonings,
guacamole recipe, cheese mixes and sauces. The Proprietary Products must be used
as prescribed. You may purchase the proprietary products only from GREEN
BURRITO, its Affiliate, or a designated vendor. Use or sale of any substitute
for the Proprietary Products is a material breach of this Agreement and will
result in its immediate Termination, unless such products are not available to
you.
7.2.7. NOTIFICATION OF COMPLAINTS. You will notify GREEN BURRITO
promptly if you are served with a complaint in any material legal proceeding
that is in any way related to the Franchised Restaurant or if you become aware
that you are the subject of any complaint to or investigation by a governmental
licensing authority or consumer protection agency.
7.3 PERSONNEL.
7.3.1. MANAGEMENT. The parties recognize that the Designated Manager
will manage the entire CARL'S JR./GREEN BURRITO Dual Concept restaurants at the
Approved Location and that a second manager will not be required. Your
Designated Manager must devote sufficient time and effort to the management and
operation of the Franchised Restaurant to operate it in accordance with GREEN
BURRITO's standards. The Designated Manager or another employee
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who has successfully completed GREEN BURRITO's initial training program must be
present at the Approved Location whenever the Franchised Restaurant is open for
business. If GREEN BURRITO, reasonably believes that a Designated Manager is not
properly performing his duties, GREEN BURRITO will advise you and you will take
reasonable steps to correct the situation. You must keep GREEN BURRITO informed
as to the identity of your Designated Manager(s). Upon the termination of
employment of a Designated Manager, you must appoint a successor within sixty
(60) days. Any successor Designated Manager must successfully complete the
training program conducted by GREEN BURRITO before starting work in the
Franchised Restaurant.
7.3.2. EMPLOYEES. You will maintain at all times a staff of trained
employees sufficient to operate the Franchised Restaurant to meet GREEN
BURRITO's standards. During the term of this Agreement and for one year after
its termination, you agree that you will not, directly or indirectly or by
action in concert with others, induce or influence or seek to induce or
influence any person who is engaged as an employee by GREEN BURRITO or any other
GREEN BURRITO franchisee to (a) end his or her engagement or employment; and (b)
to work for another member of the Franchise Network or former member of the
Franchise Network.
7.4. LOCAL ADVERTISING.
You will reasonably include GREEN BURRITO in your local advertising and
marketing promotions that you carry for CARL'S JR. purposes. This does not
obligate you to include GREEN BURRITO in all advertising and marketing
promotions. for purposes of this paragraph, "local advertising" means
advertising that is primarily directed to persons or entities within the
geographic area where the Franchised Restaurant is located.
7.5. FINANCIAL INFORMATION.
7.5.1. RECORDS. You must record all sales and all receipts of revenue
on individual machine serial-numbered guest checks. Cash registers must validate
the receipts that are presented at the time of sale to your customers. You must
retain, at a reasonably accessible location, daily sales reporting forms and
accompanying cash register tapes for at least three (3) years after the dates of
sale. If, for any reason, your cash register must be repaired, you will use your
best efforts to obtain a replacement cash register must be used in its absence.
7.5.2. REPORTS. You will submit to GREEN BURRITO, on or before the
fifteenth (15th) day of each month, financial reports on the income and expenses
of the Franchised Restaurant in a format which demonstrates GREEN BURRITO
revenues, total beverages, and costs of sales for GBFC sales. In addition, you
shall, upon request, provide additional data reasonably required to confirm that
you are complying with your obligations under this Agreement, and to aid in the
formulation of forecasts, analysis and trends.
7.6. INSURANCE.
You represent that you are either self-insured or maintain an policy or
policies of comprehensive public liability insurance including product liability
coverage, covering all Franchise Restaurant's assets, personnel, and activities.
You are self-insured or also carry casualty insurance.
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In addition, you are self-insured or maintain policies of worker's compensation
insurance, disability insurance and all other types of insurance required by
applicable law.
7.7. FINANCIAL AND LEGAL RESPONSIBILITY.
7.7.1. COMPLIANCE WITH LAW. You must comply with all federal, state,
and local laws and regulations pertaining, directly or indirectly, to the
Franchised Restaurant. You must keep current all licenses, permits, bonds, and
deposits made to or required by any governmental agency in connection with the
operation of the Franchised Restaurant.
8. RELATIONSHIP OF PARTIES
8.1. INTEREST IN MARKS AND SYSTEM.
Neither party will, at any time, do or cause to be done anything
contesting or impairing the other's interest in its trade name, service marks,
trademarks, logos, emblems, indicia of origin, slogans, or system. Neither party
acquires any rights in any of these things except for each party's right to use
them in accordance with the express terms of this Agreement. Each party retains
the right to grant other franchises or licenses to use its own trade name, marks
and system upon any terms that party wishes, except is limited by the
Development Agreement.
8.2. INDEPENDENT STATUS.
You are an independent legal entity and will make this fact clear in
your dealings with suppliers, lessors, government agencies, employees, customers
and others. You will rely on your own knowledge and judgment in making business
decisions, subject only to the requirements of this Agreement and the Manual.
You may not expressly or impliedly hold yourself out as an employee, partner,
shareholder, joint venturer or representative of GREEN BURRITO, no may you
expressly or impliedly state or suggest that you have the right or power to bind
GREEN BURRITO or to incur any liability on GREEN BURRITO'S behalf, except as
permitted by your appointment as a Master Franchisee pursuant to the Development
Agreement. If you are a corporation, you will not use the Trade Name as part of
your corporate name.
8.3. DISPLAY OF DISCLAIMER.
When appropriate, either party will make such disclaimers as necessary
to reflect their independent status.
8.4. CONFIDENTIALITY.
You acknowledge and agree that the information, ideas, forms, marketing
plans and other materials disclosed to you under this Agreement, whether or not
included in the Manual, are confidential and proprietary information and trade
secrets of GREEN BURRITO. In particular, certain proprietary recipes are key in
differentiating GREEN BURRITO restaurants from their competitors. You agree to
maintain the confidentiality of all such material. You will not disclose any
such information to any third party, except to your employees and agents as
necessary in the
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regular conduct of the Franchised Restaurant and except as authorized in writing
by GREEN BURRITO. You will be responsible for requiring compliance of your
Affiliates with the provisions of this section. Notwithstanding the foregoing,
this Section does not restrict the disclosure of anything that is public or
becomes public, or is generally known in the restaurant industry or that is
acquired in the normal course of business by you or from a source other than
GREEN BURRITO or required to be disclosed by law or legal compulsion.
8.5. INDEMNIFICATION.
Each party will indemnify and hold the other harmless from all expenses
or liabilities of any kind arising from or in any way connected to the
indemnitor's actions pursuant to this Agreement. If either party is made a party
to a legal proceeding in connection with an action of the other, then either
party may hire counsel to protect its interests and bill the other party for all
costs and expenses incurred by that party. Each party will promptly reimburse
the other for such fees.
8.6. COVENANT NOT TO COMPETE.
During the term of this Agreement and for a period of four (4) years
thereafter, you and your affiliates will not feature or operate in this
location, or dual concept in this location, any concept which you develop, own,
operate, or are a licensee thereof, if that concept features Mexican food as its
main menu attraction which is similar to the GBFC Mexican products and concepts.
Nothing herein shall preclude you from selling those Mexican offerings which
were listed on your menu prior to August 9, 1994. for purposes of this
agreement, any sandwich comprised of bread or buns and a main component of
hamburger, chicken, or fish, even though garnished with traditional Mexican
sauces or flavorings, shall not be deemed a Mexican-type product competing
against Green Burrito.
Nothing herein shall preclude you from owning any restaurant, company,
or chain, regardless of the products it features, whether Mexican or otherwise,
provided the first sentence of this Section is adhered to by you and your
affiliates.
This covenant shall cease:
A. In the event GBFC files voluntarily or involuntarily for
protection under the Bankruptcy laws;
(i) If an involuntary bankruptcy, one (1) year after
filing if GBFC is not relieved within ninety (90)
days; and
(ii) If voluntary, one (1) year after filing.
B. In the event of a material breach by GBFC under this
Agreement.
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9. TRANSFER OF FRANCHISE
9.1. PURPOSE OF CONDITIONS FOR APPROVAL OF TRANSFER.
GREEN BURRITO's grant of this Franchise is made in reliance upon your
integrity, ability, experience and financial resources. Neither the franchise
nor the Franchised Restaurant operated under it may be transferred unless you
have first obtained GREEN BURRITO's written consent, which will not be
unreasonably withheld. In order to ensure that no Transfer jeopardizes the Trade
Name, the Marks, or GREEN BURRITO's interest in the successful operation of the
Franchised Restaurant, GREEN BURRITO will consent to a Transfer only if you
comply with the provisions of Section 9.2 and 9.3 of this Agreement and if the
conditions described in Section 9.5 are fulfilled.
9.2. NOTICE OF PROPOSED TRANSFER.
If you wish to Transfer this franchise, you will submit to GREEN
BURRITO: (a) the form of franchise purchase application currently in use by
GREEN BURRITO completed by the prospective transferee; and (b) a written notice,
setting forth all the terms and conditions of the proposed Transfer.
9.3 CONSENT BY GREEN BURRITO.
GREEN BURRITO must respond to your written notice within fifteen (15)
days after receiving it, or, if GREEN BURRITO requests additional information,
within the later date of fifteen (15) after receipt of the additional
information or the final day of the original fifteen (15) day period. GREEN
BURRITO may either consent to the Transfer or tell you its reason for refusing
consent. Silence will not be construed as consent. If GREEN BURRITO consents,
then you may transfer the interest described in the notice only to the named
transferee and only upon the terms and conditions set forth in the notice.
Consent by GREEN BURRITO to a particular Transfer will not constitute consent to
any other or subsequent Transfer.
9.4. CONDITIONS FOR CONSENT TO TRANSFER.
The consent of GREEN BURRITO is subject to certain conditions,
including but not limited to:
(a) Satisfaction of GREEN BURRITO that the proposed transferee
meets all of the criteria of character, business experience,
financial responsibility, net worth and other standards that
GREEN BURRITO customarily applies to new franchisees at the
time of Transfer;
(b) Payment of all your outstanding debts to GREEN BURRITO;
(c) Cure of all defaults under the Franchise Agreement, any other
agreement between GREEN BURRITO and you and your affiliates,
and the Manual;
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(d) Signing by transferee of the then-current form of Franchise
Agreement, amended to shorten the term to the remainder of
your current term and to waive payment of an initial fee by
the proposed transferee;
(e) Payment by you of the transfer fee described in Article 6 of
this Agreement;
(f) Completion by the transferee of GREEN BURRITO's initial
training program to GREEN BURRITO's satisfaction;
(g) Signing of a general release of claims by you in favor of
GREEN BURRITO;
(h) Your transferring the other restaurant operated jointly with
your GREEN BURRITO Restaurant at the Approved Location to the
same transferee; and
(i) GREEN BURRITO's determination, after review of the Transfer
Agreement, that its terms allow the transferee a reasonable
chance of success. BY MAKING SUCH A DETERMINATION, GREEN
BURRITO DOES NOT WARRANT THAT THE TRANSFEREE WILL BE
SUCCESSFUL. SUCCESS IS DEPENDENT ON A NUMBER OF FACTORS,
INCLUDING YOUR HARD WORK AND ABILITY AND GENERAL ECONOMIC
CONDITIONS, THAT ARE NOT UNDER GREEN BURRITO'S CONTROL.
9.5. CHANGES OF OWNERSHIP DEEMED NOT TO BE TRANSFERS.
As used in this Agreement, the term "Transfer" does not mean an
assignment to any business entity or any other corporate reorganization if the
beneficial ownership of the business entity immediately following the assignment
or reorganization is at least 50% or more in the same proportions as the
beneficial ownership immediately prior to the assignment or reorganization;
provided, however, that no such assignment or reorganization will relieve the
original party of any of its obligations under this Agreement or in the event of
a merger, there shall be no deemed transfer. Information on the identity of the
shareholders and officers of the corporation, the percentage of ownership, and
the address where corporate records are maintained must be submitted promptly to
GREEN BURRITO.
You do not need GREEN BURRITO's consent for a non-Transfer assignment.
9.6. ASSIGNMENT BY GREEN BURRITO.
GREEN BURRITO may assign this Agreement or any rights or obligations
created by it at any time without the consent of you upon the following
conditions: (a) the assignee is financially responsible; (b) has comparable or
better integrity than GREEN BURRITO; (c) the assignee can perform GREEN
BURRITO's obligations under this Agreement; (d) the assignee expressly agrees in
writing to assume GREEN BURRITO's obligations under this Agreement; and (e) the
assignee is not a CARL'S JR. competitor.
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10. TERMINATION OF FRANCHISE
10.1. TERMINATION BY CONSENT OF THE PARTIES.
This Agreement may be terminated upon the mutual written consent of the
parties.
10.2. TERMINATION BY GREEN BURRITO
10.2.2. ACTS OF DEFAULT. Upon the occurrence of any of the following
defaults, GREEN BURRITO, at its option, may terminate this Agreement:
(a) If you misuse the Marks or the System or engage in conduct
which reflects materially and unfavorably upon the goodwill
associated with them;
(b) If you or any of your Affiliates has any direct or indirect
interest in the ownership or operation of any business that is
confusingly similar to the Franchised Restaurant or uses the
System or the Marks;
(c) If you repetitively fail to submit to GREEN BURRITO in a
timely manner any information you are required to submit under
this Agreement;
(d) If you fail to begin operation of the Franchised Restaurant by
the Commencement Date of this Agreement, or if you fail to
operate the Franchised Restaurant in accordance with this
Agreement and the Manual;
(e) If you attempt to assign your rights under this Agreement in
any manner not authorized by this Agreement;
(f) If you or your Affiliate have made any material
misrepresentation in connection with the acquisition of the
Franchised Restaurant or to induce GREEN BURRITO to enter into
this Agreement;
(g) If you act without GREEN BURRITO's prior written approval or
consent in regard to a matter for which GREEN BURRITO's prior
written approval or consent is expressly required by this
Agreement;
(h) If you default in the performance of any material obligation
under this Agreement or any other agreement with GREEN
BURRITO;
(i) If you cease to operate the Franchised Restaurant, unless: (i)
operations are suspended for a period of no more than one
hundred eighty (180) days; (ii) the suspension was caused by
fire, condemnation, or act of God; and (iii) a lease
termination.
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(j) If you fail to permanently correct a breach of this Agreement
or to meet the standards set out in the Manual after being
twice requested in writing by GREEN BURRITO to correct the
problem in any twelve- (12-) month period;
(k) If you fail to make any payment when due under this Agreement
or any other agreement between you and GREEN BURRITO or an
Affiliate of GREEN BURRITO;
(l) If GREEN BURRITO learns that the operation of the Franchised
Restaurant poses a threat to public health or safety;
(m) Except as otherwise required by the United States Bankruptcy
Code, if you become insolvent, are adjudicated a bankrupt; or
(n) If you are convicted of a felony or any criminal misconduct
which is relevant to the operation of the Franchised
Restaurant.
10.2.2. NOTICE OF DEFAULT. Termination will be effective thirty (30)
days after written notice of default is given to you if any of the defaults
described in subsections (a) through (j) above has not been cured. Termination
will be effective ten (10) days after written notice is given to you if the
default described in subsection (k) has not been cured. Termination will be
effective immediately upon written notice to you if any of the defaults
described in subsections (l) through (o) above occurs.
10.30 TERMINATION BY YOU.
If you determine it is no longer commercially reasonable to continue to
operate the Franchised Restaurant, you may elect to terminate this Agreement
upon ninety (90) days' written notice to GREEN BURRITO if the conditions of the
next section of this Agreement, entitled "Rights and Obligations After
Termination," are met in full within the specified time periods.
For purposes of this Agreement, GREEN BURRITO will agree that it is no
longer commercially reasonable to operate the Franchised Business if you are not
in breach, are operating in good faith to promote the sale of Green Burrito
products, and notwithstanding your efforts the total royalties payable by you
for GBFC sales are less than $3,000 for the trailing 12-month period.
10.4. RIGHT AND OBLIGATIONS AFTER TERMINATION.
Upon termination of this Agreement for any reason, the parties will
have the following rights and obligations:
(a) GREEN BURRITO will have no further obligations under this
Agreement, except for indemnity, nondisclosure, and protected
areas, or other obligations arising from a GREEN BURRITO
breach;
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(b) You must give GREEN BURRITO a final accounting for the
Franchised Restaurant; pay GREEN BURRITO, within thirty (30)
days after Termination, all payments due to GREEN BURRITO; and
return the Manual and any other items belonging to GREEN
BURRITO to GREEN BURRITO;
(c) You must immediately and permanently cease the use of the
Marks or any confusingly similar marks, the System, and
advertising, signs, stationery, or forms that bear identifying
marks or colors that might give others the impression that you
are operating a Franchised Restaurant;
(d) You must promptly sign any documents and take any steps that
in the judgment of GREEN BURRITO are necessary to delete your
listings from classified telephone directories, and terminate
all other references that indicate you is or ever was
associated with the GREEN BURRITO; by signing this Agreement,
you irrevocably appoints GREEN BURRITO its attorney-in-fact to
take the actions described in this paragraph if you do not do
so within seven (7) days after Termination of this Agreement.
(e) You must maintain all records required by GREEN BURRITO
pursuant to this Agreement for a period of not less than
ninety (90) days after final payment of any amounts you owes
to GREEN BURRITO when this Agreement is Terminated.
(f) You must comply with the provisions of Section 8.6 above
(covenant Not to Compete).
If the franchise granted in this Agreement is terminated because of
default, the rights of the parties described above will not necessarily
be the parties' exclusive remedies, but will instead supplement any
other equitable or legal remedies available to the parties. Termination
of this Agreement will not extinguish any obligation of either party
that has accrued prior to Termination. If this Agreement is terminated
because of a material default, nothing in this section will be
construed to deprive either party of the right to recover damages as
compensation for lost profits. All obligations of the parties which by
their terms or by reasonable implication are to be performed in whole
or in part after Termination will survive Termination.
11. MISCELLANEOUS PROVISIONS
11.1. CONSTRUCTION OF CONTRACT.
Section headings in this Agreement are for reference purposes only and
will not in any way modify the statements contained in any section of this
Agreement. Each word in this Agreement will be deemed to include any number or
gender that the context requires. If there is any conflict between this
Agreement and the Manual, this Agreement will control.
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11.1. GOVERNING LAW.
This Agreement is made in the state where the franchise is to be
operated and its provisions will be governed by and interpreted under the laws
of that State, with the following exception; the arbitration clause will be
governed by and interpreted in accordance with the Federal Arbitration Act.
11.3. NOTICES.
The parties to this Agreement should direct any notices to the other
party at the address below that party's name on the final page of this Agreement
or at another address if advised in writing that the address has been changed.
Notice may be delivered by facsimile (with simultaneous posting of a copy by
first class mail), courier, or first class mail. Notice by facsimile will be
deemed delivered upon transmission; by courier, upon delivery; and by first
class mail, three days after posting. Notice of Termination or non-renewal must
be given by a receipted form of delivery.
11.4. AMENDMENTS.
This Agreement may be amended only by a document signed by all of the
parties to this Agreement or by their authorized agents.
11.5. WAIVER.
Waiver of any breach of this Agreement will not be interpreted as a
waiver of any subsequent breach.
11.6. INTEGRATION.
This Agreement, any exhibits or attachments to it constitute the entire
agreement between the parties concerning the franchise granted under this
Agreement. All prior and contemporaneous agreements and representations are
superseded by it.
11.7. ARBITRATION/MEDIATION.
Any dispute arising out of or in connection with this Agreement will be
determined in accordance with the then current rules for commercial arbitration
and mediation of the Judicial Arbitration and Mediation Services, Inc. (JAMS).
The location shall be any city in which JAMS maintains an office, other than in
the State of California for purposes of neutrality and eliminating conflicts of
interest, unless agreed to the contrary by both parties. Both parties prefer a
neutral location, with the further provision that neither party prefers a city
on the East coast or West Coast. If JAMS maintains an office in Phoenix,
Arizona, or Denver, Colorado, both parties acknowledge those cities as
preferable locations. The arbitrator will have the power and obligation to grant
injunctive relief on a provisional or permanent basis, in addition to any other
relief that is available, if the Trade Name, Marks, or goodwill of either
parties' Franchise Network are jeopardized or harmed by any act or omission of
either party. This arbitration clause will not
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deprive either party of any right it may otherwise have to seek provisional
injunctive relief from a court of competent jurisdiction. If proper notice of
any hearing has been given, the arbitrator(s) will have full power to proceed to
take evidence or to perform any other acts necessary to arbitrate the matter in
the absence of any party who fails to appear. BOTH PARTIES WAIVE ANY RIGHT THEY
MAY HAVE TO DEMAND TRIAL BY JURY OR TO SEEK PUNITIVE DAMAGES FROM THE OTHER. The
arbitrator will have no power to (1) stay the effectiveness of any pending
Termination of franchise; (2) assess penitive damages; or (3) make any award
that modifies or suspends any lawful provision of this Agreement. All expenses
of arbitration must be paid by the party against whom the arbitrator(s) render a
decision. Judgment upon any aware and/or enforcing any order of the arbitrator
may be entered by any court of competent jurisdiction.
11.8. INJUNCTIVE REMEDY FOR BREACH.
The parties recognize that your Franchised Restaurant is only one of
several businesses operating under CARL'S JR./GREEN BURRITO's Trade Names and in
substantial association with the respective marks. Failure on the part of a
single franchisee to comply with the terms of its franchise agreement is likely
to cause irreparable damage to CARL'S JR. or GREEN BURRITO and to some or all of
the respective franchisees. For this reason, the parties agree that if CARL'S
JR. or GREEN BURRITO can demonstrate to a court of competent jurisdiction that
there is a substantial likelihood of a breach or threatened breach of any of the
terms of this Agreement by CARL'S JR. or GREEN BURRITO, then the harmed party
will be entitled, without posting of a bond, to an injunction restraining the
breach and/or to a decree of specific performance, without showing or proving
any actual damage, until a final determination is made by an arbitrator.
11.9. ATTORNEYS' FEES AND COSTS.
If legal action, including any action on appeal, or arbitration is
necessary to enforce the terms and conditions of this Agreement, the prevailing
party will be entitled to recover reasonable compensation for preparation,
investigation and court and/or arbitral costs and reasonable attorneys' fees, as
fixed by a court of competent jurisdiction or by the arbitrator.
11.10. SEVERABILITY.
Each provision of this Agreement will be considered severable. If, for
any reason, any provision of it is determined to be invalid or in conflict with
any existing or future law or regulation, that provision will not impair the
operation of the remaining provisions of this Agreement. The invalid provisions
will be deemed not to be a part of this Agreement.
11.11. ACCEPTANCE BY BOTH PARTIES.
This Agreement will not be binding on either party unless and until it
has been signed by an authorized officer of each party.
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11.12. DISCLAIMER OF REPRESENTATIONS.
NO REPRESENTATIONS OR PROMISES OF ANY KIND HAVE BEEN MADE BY EITHER
PARTY TO INDUCE YOU TO EXECUTE THIS AGREEMENT EXCEPT THOSE SPECIFICALLY SET
FORTH IN THE FRANCHISE DISCLOSURE DOCUMENTS AND THE DEVELOPMENT AGREEMENT THAT
HAVE BEEN DELIVERED TO THE PARTIES. WE ACKNOWLEDGE THAT NEITHER CARL'S JR. NOR
GREEN BURRITO NOR ANY OTHER PERSON HAS GUARANTEED THAT EITHER WILL SUCCEED IN
THE OPERATION OF THE FRANCHISED RESTAURANT OR HAS PROVIDED ANY SALES OR INCOME
PROJECTIONS OF ANY KIND TO YOU. WE HAVE MADE AN INDEPENDENT INVESTIGATION OF ALL
IMPORTANT ASPECTS OF THE FRANCHISED RESTAURANT. WE UNDERSTAND THAT GREEN BURRITO
AND CARL'S JR. ARE NOT A FIDUCIARY AND HAVE NO SPECIAL RESPONSIBILITIES BEYOND
THE NORMAL RESPONSIBILITIES OF A SELLER OR BUYER IN A BUSINESS TRANSACTION.
IN WITNESS TO THE PROVISIONS OF THIS AGREEMENT, the undersigned have
signed this Franchise Agreement on the date set forth in Article 1.
GB FRANCHISE CORPORATION
By: _______________________________
Title: ____________________________
23 Corporate Plaza, Suite 240
Newport Beach, CA 92660
CARL KARCHER ENTERPRISES, INC.
By: ________________________________
Title: _____________________________
Address: ___________________________
Date: ______________________________
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GREEN BURRITO PRODUCTS
The following lists "Green Burrito Products" for purposed of the GB
Dual Concept Franchise Agreement, which may be modified from time to time at the
discretion of GREEN BURRITO:
BURRITOS Super Bean Burrito (Rice, beans, guacamole, enchilada sauce &
cheese) Super Meat Burrito (Choice of steak, chicken or carnitas) Green
Burrito (Pork, Green Chile Sauce, cheese & beans) Meat, Bean & Cheese
Burrito (Choice of steak, chicken or carnitas) Meat & Cheese Burrito
(Choice of steak, chicken or carnitas) Wet Red Burrito (Steak & rice)
Wet Green Burrito (Rice, beans & pork) Big Ed Burrito
NACHOS Super Nachos (Choice of steak, chicken or carnitas)
Mini Super Nachos (Small version of Super Nachos)
Nachos (Chips with melted Jack & Cheddar Cheese)
SINGLES
Hard Taco
Soft Taco
Bean & Cheese Burrito
Tostada
Cheese Quesadilla
Two Taquitos with Guacamole Fijitas
Chile Relleno
Cheese Enchilada
Taco
Super Taco
COMBINATIONS
Any combination of any of the above
ADDITIONAL ITEMS
Any items offered by GBFC at solo franchise locations
ATTACHMENT 1
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ATTACHMENT 2
<PAGE> 51
GREEN BURRITO
DUAL CONCEPT
FRANCHISE AGREEMENT
FOR
FRANCHISEES OF
CARL KARCHER ENTERPRISES, INC.
********************
FRANCHISE STORE
#_________
__________________________
(GBFC UNIT #__________)
<PAGE> 52
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1.1. Parties.................................................................................... 1
1.2. Location................................................................................... 1
2. RECITALS ........................................................................................... 1
2.1. Development of System...................................................................... 1
2.2. Carl's Jr. Franchisee Relationship......................................................... 2
2.3. Objectives of the Parties.................................................................. 2
3. DEFINITIONS.......................................................................................... 2
3.1. Affiliate.................................................................................. 2
3.2. Agreement.................................................................................. 2
3.3. Approved Location.......................................................................... 2
3.4. Breach..................................................................................... 3
3.5. Commencement Date.......................................................................... 3
3.6. Designated Manager......................................................................... 3
3.7. Franchised Business/Restaurant............................................................. 3
3.8. Franchisee................................................................................. 3
3.9. CARL'S JR. Original Food Products.......................................................... 3
3.10. Franchise Network.......................................................................... 4
3.11. Franchisor................................................................................. 4
3.12. "GB Food Products" or "GREEN BURRITO Products"............................................. 4
3.13. GREEN BURRITO Dual concept system.......................................................... 4
3.14 Dual Product concept system................................................................ 4
3.15. GREEN BURRITO.............................................................................. 4
3.16. Good Standing.............................................................................. 4
3.17. Gross Revenue.............................................................................. 4
3.18. Training Materials/Manual.................................................................. 5
3.19. Marks...................................................................................... 5
3.20. Proprietary Product........................................................................ 5
3.21. System..................................................................................... 5
3.22. Termination................................................................................ 6
3.23. Trade Name................................................................................. 6
3.24. Transfer................................................................................... 6
3.25. You ...................................................................................... 6
3.26. UNOCAL..................................................................................... 6
4. GRANT OF FRANCHISE................................................................................... 6
4.1. Granting clause............................................................................ 6
4.1.1 Protected Radius..................................................................... 7
4.2. Term and Renewal........................................................................... 7
4.2.1 Initial Term......................................................................... 7
4.2.2 Relocation........................................................................... 7
4.2.3 Renewal.............................................................................. 7
</TABLE>
<PAGE> 53
<TABLE>
<S> <C>
5. SERVICES TO FRANCHISEE............................................................................... 8
5.1. Lay-out and Decor.......................................................................... 8
5.2. Training................................................................................... 8
5.2.1 Initial Training..................................................................... 8
5.2.2 Continuing Education................................................................. 9
5.3. Consultation and Supervision............................................................... 9
5.4. Training Materials/Manual.................................................................. 9
5.5. Advertising................................................................................ 9
5.6. Suggested Suppliers........................................................................ 10
5.7. Proprietary product Availability........................................................... 10
6. PAYMENTS BY FRANCHISEE............................................................................... 10
6.1. Initial Fee................................................................................ 10
6.2. Initial Fee Proration...................................................................... 10
6.3. Royalties.................................................................................. 11
6.4. Audit...................................................................................... 11
6.5. Training Fees and Costs.................................................................... 11
6.6 Relocation Fee............................................................................. 11
6.7. Renewal Fee................................................................................ 11
6.8. Transfer Fee............................................................................... 11
6.9. Interest on Late Payments.................................................................. 12
7. OBLIGATIONS OF FRANCHISEE............................................................................ 12
7.1. Use of Trade Name and Marks................................................................ 12
7.1.1 Contest.............................................................................. 12
7.1.2 Changes in Trade Names and Marks..................................................... 12
7.1.3 Advertising Materials................................................................ 12
7.1.4 Legal Protection..................................................................... 13
7.2. Quality Control............................................................................ 13
7.2.1 Opening.............................................................................. 13
7.2.2 Compliance with Manual............................................................... 13
7.2.3 Products and Services Offered........................................................ 13
7.2.4 Customer Satisfaction Program........................................................ 14
7.2.5 Inspections.......................................................................... 14
7.2.6 Use of Proprietary Products.......................................................... 14
7.2.7 Notification of complaints........................................................... 14
7.3. Personnel.................................................................................. 15
7.3.1 Management........................................................................... 15
7.3.2 Employees............................................................................ 15
7.4. Local Advertising.......................................................................... 15
7.5. Financial Information...................................................................... 15
7.5.1 Records.............................................................................. 15
7.5.2 Reports.............................................................................. 15
7.6. Insurance.................................................................................. 16
</TABLE>
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<TABLE>
<S> <C>
7.7. Financial and Legal Responsibility......................................................... 16
7.7.1 Compliance with Law.................................................................. 16
8. RELATIONSHIP OF PARTIES.............................................................................. 16
8.1. Interest in Marks and system............................................................... 16
8.2. Independent Status......................................................................... 16
8.3. Display of disclaimer...................................................................... 17
8.4. Confidentiality............................................................................ 17
8.5. Indemnification............................................................................ 17
8.6. Covenant Not to compete.................................................................... 17
9. TRANSFER OF FRANCHISE................................................................................ 17
9.1. Purpose of Conditions for Approval of Transfer............................................. 17
9.2. Notice of Proposed Transfer................................................................ 18
9.3. Consent by GREEN BURRITO................................................................... 18
9.4. Conditions for Consent to Transfer......................................................... 18
9.5. Changes of Ownership Deemed Not To Be Transfers............................................ 19
9.6. Transfer Upon Your Death................................................................... 19
9.7. Assignment by GREEN BURRITO................................................................ 20
10. TERMINATION OF FRANCHISE............................................................................. 20
10.1. Termination by Consent of the Parties...................................................... 20
10.2. Termination by GREEN BURRITO............................................................... 20
10.2.1 Acts of Default..................................................................... 20
10.2.2 Notice of Default................................................................... 21
10.3. Termination by You......................................................................... 21
10.4. Rights and Obligations After Termination................................................... 21
11. MISCELLANEOUS PROVISIONS............................................................................. 23
11.1. Construction of Contract................................................................... 23
11.2. Governing Law.............................................................................. 23
11.3. Notices.................................................................................... 23
11.4. Amendments................................................................................. 23
11.5. Waiver..................................................................................... 23
11.6. Integration................................................................................ 23
11.7. Arbitration/Mediation...................................................................... 23
11.8. Injunctive Remedy for Breach............................................................... 24
11.9. Attorneys' Fees and Costs.................................................................. 24
11.10. Severability............................................................................... 24
11.11. Approval and Guarantees.................................................................... 25
11.12. Acceptance by Both Parties................................................................. 25
11.13. DISCLAIMER OF REPRESENTATIONS.............................................................. 25
</TABLE>
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ATTACHMENTS:
1: GB Products List
2: Guaranty and Subordination Agreement
iv
<PAGE> 56
GREEN BURRITO DUAL CONCEPT
FRANCHISE AGREEMENT
FOR FRANCHISEES OF
CARL KARCHER ENTERPRISES, INC.
***********
STORE #________
1.1. PARTIES
This Agreement is signed on ___________________ 19___, by and between
GB Franchise Corporation, a California corporation ("GREEN BURRITO"), with its
principal office in Newport Beach, California, and ____________________________
______________________________________, in its capacity as a franchisee solely
relating to the location described immediately below at Section 1.2, ("You").
1.2. LOCATION.
This Agreement concerns the Carl's Jr. Restaurant located at
__________________________________________, and identified as CARL'S JR. Store
#____________.
2. RECITALS
2.1. DEVELOPMENT OF SYSTEM.
GREEN BURRITO is the licensee of certain intellectual property rights,
including GREEN BURRITO's Trade Name "The Green Burrito" and the Marks "Green
Burrito" and "The Green Burrito and Design", and has spent a considerable amount
of time, effort and money to devise, and continues to develop business methods,
technical knowledge and marketing concepts including, but not limited to, trade
secrets, commercial ideas, advertising materials, marketing strategies,
information on sources of supply, administrative procedures, business forms,
distinctive signage, trade dress, and uniforms, and employee training
techniques, and goodwill that, taken together, comprise a proprietary System for
the operation of Mexican fast-food restaurants.
In addition to the foregoing, GREEN BURRITO has successfully developed
a method for expending the Franchise Network, and, at the same time,
complementing and enhancing the menus and marketing of other restaurants by use
of the GB Dual Concept system. This proprietary Dual Concept System,
appropriately utilized, allows the insertion of the GB System into an existing
restaurant. It allows the conversion to occur in a short period of time, with
relatively minor interruption or interference with the existing day-to-day
business, complements existing color schemes and decor, occupies only a small
portion of existing restaurant preparation and sales space, and efficiently
utilizes human and fixed asset resources.
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2.2. CARL'S JR. FRANCHISEE RELATIONSHIP.
You are presently a franchisee of Carl Karcher Enterprises, Inc.
(CARL'S JR.) which owns a proprietary system that includes, inter alia special
recipes and menu items, distinctive design, decor, color scheme, and
furnishings; uniform standards; specifications and procedures for operations;
consistency and uniformity of products and services offered; procedures for
quality control; training and assistance; and advertising and promotional
programs; and trade names, service marks, trademarks, logos, emblems, and
indicia or origin including but not limited to the mark "CARL'S JR.".
2.3. OBJECTIVE OF THE PARTIES.
GREEN BURRITO and CARL'S JR. have analyzed the potential of their
respective systems and believe that their respective products and specialty
menus, marketed through their respective systems at a CARL'S JR. location, may
create synergies and further opportunities for both. Therefore, it is the
objective of the parties to insert the GREEN BURRITO System into CARL'S JR.
locations so that two systems are operated side-by-side from the same location.
3. DEFINITIONS
For purposes of this Franchise Agreement, the following words and
phrases are defined as follows:
3.1. AFFILIATE.
"Affiliate" or "Affiliates" means people and companies associated with
GREEN BURRITO or you, as the context indicates, including, but not limited to,
owners, general partners, limited partners owning a Substantial Interest in
GREEN BURRITO or you, shareholders owning a substantial Interest in GREEN
BURRITO or you, corporations in which GREEN BURRITO or you have a Substantial
Interest, corporations in which any person or entity owning a Substantial
Interest in you also has Substantial Interest, you officers, directors,
employees or agents, or officers cure,s directors, employees or agents of GREEN
BURRITO. As used in this paragraph, the phrase "Substantial Interest" means the
right to twenty-five percent (25%) or more of the capital or earnings of a
partnership, or alternatively, ownership of twenty-five (25%) or more of the
voting stock of a corporation.
3.2. AGREEMENT.
"The Agreement" or "this Agreement" means this dual Concept Franchise
Agreement, signed on the date set out in Article 1. above.
3.3. APPROVED LOCATION.
"Approved Location" or "GB Dual Concept Location" means the location
specified in Section 1.2 above, that GREEN BURRITO has (subject to the Develop
Agreement between
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GREEN BURRITO and CARL'S JR.) approved as a site where you may locate the
Franchised Restaurant together with your CARL'S JR. restaurant.
3.4 BREACH.
As used herein, the term "breach" always infers and implies a "material
breach".
3.5. COMMENCEMENT DATE.
"Commencement Date" means the date when your Restaurant at the location
specified at Section 1.2 above begins to operate under the GB Dual Concept
System, or NINETY (90) days after the execution of this Agreement, whichever is
sooner.
3.6. DESIGNATED MANAGER.
"Designated Manager" means the person whom you appoint as general
manager of a Franchised Restaurant, to include substitutes for the General
Manager, such as Assistance Managers, or Shift Managers.
3.7. FRANCHISED BUSINESS/RESTAURANT.
"Franchised Business" or "Franchised Restaurant" means the aspects of
GB Dual Concept enterprise that GREEN BURRITO has authorized you to conduct
utilizing the Trade Name, Marks, and System of GREEN BURRITO, at your currently
existing business, which utilizes your CARL'S JR. Trade Name, Mark, and System
at the Location approved under this Agreement.
3.8. FRANCHISEE.
"Franchisee" means "you", which is the person or entity that is named
as Franchisee in Article 1 of this Agreement. "Franchisee" means, in addition,
all persons or entities that succeed to the interest as the original Franchisee
by Transfer or operation of law.
3.9. CARL'S JR. ORIGINAL FOOD PRODUCTS.
"CARL'S JR. Food Products" means those CARL'S JR. products, other than
beverages, sold under the CARL'S JR. name and trademark offered prior to the
execution of this Agreement at the Approved Location or such other CARL'S JR.
products as added or modified in the CARL'S JR. menu from time to time, provided
no products added by CARL'S JR. shall be Mexican-type products to compete
against GREEN BURRITO Products. For purposes of this Agreement, any sandwich
comprised of bread or buns and a main component of hamburger, chicken, or fish,
even though garnished with traditional Mexican sauces or flavorings, shall not
be deemed a Mexican-type product competing against GREEN BURRITO.
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3.10. FRANCHISE NETWORK.
"Franchise Network" means the network composed of GREEN BURRITO, owners
of all free-standing GREEN BURRITO Restaurants, owners of all Dual Concept GREEN
BURRITO restaurants, GREEN BURRITO's Affiliates, and any other persons or
business entities that GREEN BURRITO has licensed to use the Trade Name, Marks,
System, or any of them.
3.11. FRANCHISOR.
"Franchisor" means GB Franchise Corporation or any person or entity to
which GREEN BURRITO assigns all or part of its rights and obligations under this
Agreement.
3.12. "GB FOOD PRODUCTS" OR "GREEN BURRITO PRODUCTS".
"GB Food Products" or "GREEN BURRITO Products" shall mean those
products listed on Attachment I hereto.
3.13. GREEN BURRITO DUAL CONCEPT SYSTEM.
The GREEN BURRITO Dual Concept System is an operating method which
allows the insertion of the GB System into a CARL'S JR. restaurant within a
single structure so that the two share seating and beverage facilities. See
Section 2.1 above.
3.14. DUAL PRODUCT CONCEPT SYSTEM.
The Dual Product Concept System as used herein is an operating method
which allows the insertion of the GB System into a CARL'S JR. restaurant within
a single structure so that the two share seating and beverage facilities. See
Section 2.1 above.
3.15 GREEN BURRITO.
"GREEN BURRITO" means GB Franchise Corporation (as it relates only to
the Green Burrito Dual Concept System and GB Food Products) or any person or
entity to which GREEN BURRITO assigns all or part of its rights and obligations
under this Agreement.
3.16. GOOD STANDING.
"Good Standing" means that you are in material compliance and not in
default as the term "default" is used in Section 10.2.1 and Section 10.2.2
below.
3.17. GROSS REVENUE.
"Gross Revenue" means the total amount of money received by you and
your Affiliates, excluding sales tax and income from non-food items, within an
accounting period for (a) all food items sold at the Approved Location under the
GREEN BURRITO Trade Name or Marks; and (b) GREEN BURRITO's proportionate share
of beverage sales sold at the Approved Location.
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GREEN BURRITO's proportionate share of beverage sales shall be computed during
the respective accounting period by comparing the relationship between CARL'S
JR. Products (exclusive of beverage sales) and GREEN BURRITO Products (exclusive
of beverage sales), and multiplying that percentage times all beverage sales.
3.18. TRAINING MATERIALS/MANUAL.
"Training Materials" or "Manual" means the current version of the
training materials, manuals, and learning aids that GREEN BURRITO will lend to
you during the term of this Agreement to establish and train individuals in the
use of the GREEN BURRITO Dual Concept, which contain information, forms, and
requirements for the establishment and operation of a Franchise Restaurant and
for use of GREEN BURRITO's Trade Name and Marks, including any modified manual
which may be modified from time to time in the form of a common training manual
jointly agreed to by the parties hereto.
3.19. MARKS.
"Marks" means selected trade names, trademarks, service marks, logos,
logotypes, emblems, indicia of origin, slogans and other commercial symbols
licensed by GREEN BURRITO to you under this Agreement.
3.20. PROPRIETARY PRODUCT.
"Proprietary Product" means any product that has been manufactured in
accordance with GREEN BURRITO's secret recipes or that has been packaged or
labeled with the GREEN BURRITO Marks.
3.21. SYSTEM.
GREEN BURRITO has a franchise system which means the business methods,
technical knowledge and marketing concepts licensed by GREEN BURRITO to you
under this Agreement, including, but not limited to, the right to use GREEN
BURRITO's trade secrets, purchasing arrangements, commercial ideas, advertising
materials, marketing strategies, information on sources of supply for GREEN
BURRITO food products, administrative procedures, distinctive design,
distinctive signage, distinctive decor, distinctive color scheme, distinctive
trade dress, distinctive uniforms, and employee training techniques. As used in
this Agreement, the term "System" refers to the GREEN BURRITO insert system
which allows the insertion of the GREEN BURRITO System into a CARL'S JR.
restaurant utilizing the GREEN BURRITO trademark, service marks, trade dress and
a modified manual. "System", when used alone or not in conjunction with GREEN
BURRITO, does not mean or refer to the CARL'S JR. Franchise System (See Section
2.1) as this Agreement covers only the addition of the GREEN BURRITO System to
your location and does not cover the CARL'S JR. System.
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3.22. TERMINATION.
"Termination" means expiration of this Agreement; non-renewal of this
Agreement; or termination, under the circumstances described in Article 10 of
this Agreement, of the then-current term of this Agreement prior to its normal
expiration date.
3.23. TRADE NAME.
"Trade Name" means the commercial name The Green Burrito."
3.24. TRANSFER.
"Transfer" means any sale, gift, or other assignment of all or any part
of the rights and obligations of this Agreement or of an interest of the
magnitude described in this Section in the Franchised Restaurant. If you are a
partnership, then one or more transactions (whether or not they are related) in
which there are a cumulative change in the rights to thirty-four percent (34%)
or more of the your capital or profits will be deemed to be a Transfer; if you
are a corporation, then one or more transactions (whether or not they are
related) in which there is a cumulative change in beneficial ownership of
thirty-four (34%) or more of the your voting stock will be deemed to be a
Transfer. Notwithstanding the foregoing, a Transfer is not a Transfer between
related entities, in which the transferring party owns in excess of 50% of the
transferee party; and a transfer will not be deemed to have occurred in the
event of the acquisition or merger of franchisee with another company.
3.25. YOU.
"You" means the person or entity that is named as "you" in Article 1 of
this Agreement, for the location specified at Section 1.2 above. "You" means, in
addition, all persons or entities that succeed to the interest of the original
franchisee by Transfer or operation of law.
3.26 UNOCAL.
Specifically, this Agreement does not cover or address any CARL'S
JR./UNOCAL location.
4. GRANT OF FRANCHISE
4.1. GRANTING CLAUSE.
GREEN BURRITO grants to you and you accept from GREEN BURRITO a
franchise to operate a GREEN BURRITO Dual Concept Franchised Restaurant at the
Approved Location using the Trade Name, Marks and System in accordance with the
terms of this Agreement. GREEN BURRITO expressly reserves all rights in the
Trade Name, Marks and System not expressly granted in this Agreement, including,
but not limited to, (a) the right to sell food products that have been prepared
following GREEN BURRITO's proprietary recipes, through any means of
distribution; and (b) the right to operate fast-food restaurants that do sell
Mexican food. Nothing
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herein shall preclude GBFC from owning any restaurant, company, or chain,
regardless of the products it features, whether Mexican or otherwise.
4.1.1. PROTECTED RADIUS. The territorial protection for you is a
protected radius of one and one-half (1.5) miles determined on a straight line
basis from the approved location ("Protected Area"). GREEN BURRITO agrees not to
establish, or to operate or to license or franchise another person or entity, to
establish or locate a restaurant within the Protected Area, utilizing the
System, nor to allow any other franchisee or company-owned unit using the Trade
Name or System to operate or relocate to a site within the Protected Radius as
long as you and your affiliates are in Good Standing under this Agreement.
Notwithstanding the foregoing, if another CARL'S Jr. location is within the 1.5
mile protected radius, GBFC may, if requested by CARL'S JR., grant a GBFC
franchise to such CARL'S JR. location.
4.2. TERM AND RENEWAL.
4.2.1. INITIAL TERM. The initial term of the Franchise will begin
on the Commencement Date and will continue for a period of fifteen (15) years,
or the term of your lease, whichever is shorter.
4.2.2. RELOCATION. You may relocate the GREEN BURRITO Restaurant
within the Protected area or anywhere within CARL'S JR. core markets, with GREEN
BURRITO's prior written consent, which will not be unreasonably withheld if the
following conditions are fulfilled:
a. You and your Affiliates are in Good Standing under the
Franchise Agreement, any other Agreement between GREEN BURRITO
or GREEN BURRITO's Affiliate and you and the Manual;
b. You agree to plan, construct, equip, fixturize, and decorate
your new CARL'S JR./GREEN BURRITO Restaurant so that the
premises meet the standards of appearance and function
applicable to the premises of new GREEN BURRITO/CARL'S JR.
Restaurants at the time of relocation.
c. GREEN BURRITO has given its prior written approval to the new
site and the provisions of the lease for the new premises;
d. You have satisfied GREEN BURRITO on any protected territory
issue conflicts in existence at the time of relocation.
Notwithstanding the foregoing, if you determine the location is no
longer commercially reasonable and you elect to relocate, you may do so with
adherence to only Section 4.2.2(d) immediately above.
4.2.3. RENEWAL. You will have the right to renew the Franchise for
one (1) consecutive ten (10) year term on the same terms and conditions, if at
the time of renewal the following conditions are fulfilled:
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a. You and your Affiliates are in Good Standing under this
Agreement, any other Agreement between GREEN BURRITO or GREEN
BURRITO's Affiliate and you, and the Manual;
b. You have notified GREEN BURRITO in writing at least one
hundred eighty (180) days before the expiration date of this
Agreement of your desire to renew;
c. You and any Affiliates that have signed this Agreement have
signed an extension of the new Franchise Agreement not less
than thirty (30) days before the expiration of this Agreement;
d. You must, before commencement of the renewal term, at your own
expense, remodel, modernize and redecorate the Franchise
Restaurant premises and replace and modernize the fixtures,
equipment, and signage used in the Franchised Restaurant so
that the premises of the Franchised Restaurant meet the
standards of appearance and function applicable to the
premises of new franchised businesses of GREEN BURRITO and
CARL'S JR. at the time of renewal;
e. You have renewed or have the right to renew the lease for the
Approved Location;
f. You have paid any initial franchise fees abated at the
beginning of this Agreement as a result of a proration of the
franchise fee due GREEN BURRITO to reflect a term of years
less than fifteen (15) in order to correspond with your lease
or a CARL'S JR. franchise agreement at the Approved Location.
5. SERVICES TO FRANCHISEE
GREEN BURRITO agrees to perform the following services for you, if you
are, at the time when service is to be rendered, in Good Standing under this
Agreement, any other Agreement with GREEN BURRITO or GREEN BURRITO's Affiliate,
and the Manual:
5.1. LAY-OUT AND DECOR.
CARL'S JR. will, if possible and without undue cost or burden, agree
upon the incremental equipment to be added and installed at the Approved
Location, and installation will proceed in accordance with plans and/or
schematics mutually approved in writing by GREEN BURRITO and CARL'S JR., which
approval will not be unreasonably withheld.
5.2. TRAINING.
5.2.1. INITIAL TRAINING. GREEN BURRITO has provided CARL'S JR.
management and selected personnel with sufficient training in the operation of
Franchised Business under the GREEN BURRITO System. Before the opening of your
Franchised Business at the Approved Location, you, under the supervision of
GREEN BURRITO will be provided an initial training program in the operation of
the Franchised Business under GREEN BURRITO's System. Your Designated Manager
for the Approved Location will attend and successfully complete the training
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program to the satisfaction of you and GREEN BURRITO before opening of a
Franchised Restaurant at that location. If the employment of a Designated
Manager is ended, you must employ a new Designated Manager within thirty (30)
days who must successfully complete an initial training program before starting
work.
5.2.2. CONTINUING EDUCATION. GREEN BURRITO may offer continuing
education programs on matters related to the operation or promotion of the
Franchised Restaurant on a mandatory basis, as it deems appropriate for no
additional charge other than your payment of your incidental costs.
5.3. CONSULTATION AND SUPERVISION.
GREEN BURRITO, for no additional charge, will make its personnel
available to you for as much consultation, at the approved Location, in regard
to the establishment and opening promotion of the Franchised Restaurant as GREEN
BURRITO in its reasonable discretion deems necessary. In addition, GREEN
BURRITO, for no additional charge, will make its personnel available to
Franchisee for a reasonable amount of consultation by telephone, telecopier, or
in person at GREEN BURRITO's headquarters during the term of this Agreement.
Also, GREEN BURRITO's operations consultants will provide on-site supervision
for (1) week after opening of your first Approved Location at no additional
charge.
5.4. TRAINING MATERIALS/MANUAL.
In connection with training your personnel, GREEN BURRITO will lend you
Training Materials and/or a Manual. GREEN BURRITO will revise the Manual from
time to time and will distribute up-dated pages containing these revisions to
you. If there is any dispute regarding the contents of the Training Materials or
Manual at any point, GREEN BURRITO's master copy of the Materials will be
dispositive. GREEN BURRITO and CARL'S JR. will, as soon as practical, mutually
develop a common training manual to integrate training for the combined CARL'S
JR./GREEN BURRITO Dual Concept location.
5.5. ADVERTISING.
5.5.1. ADVERTISING FUND. GREEN BURRITO will have no duty to
administer an Advertising fund. CARL's JR. will in good faith and as part of its
overall advertising, promote GREEN BURRITO. As part of CARL'S JR. overall
advertising and marketing efforts, CARL'S JR. will utilize GREEN BURRITO
approved advertising to the extent CARL'S JR. deems appropriate and necessary to
achieve satisfactory sales level of GREEN BURRITO products. This Section does
not require CARL'S JR. to advertise GREEN BURRITO every time it advertises
CARL'S JR.
GREEN BURRITO shall have the opportunity to submit advertising and
marketing concepts and proposals to CARL'S JR. which shall be considered in good
faith by CARL'S JR. in the development of its CARL'S JR./GREEN BURRITO marketing
schemes. GREEN BURRITO shall have the right to review and approve the CARL'S JR.
proposed advertisements and promotions of GREEN BURRITO which approvals shall
not be unreasonably withheld by GREEN BURRITO.
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To the extent funds are expended by CARL'S JR. for
advertisement/marketing by CARL'S JR. they will be applied in a manner which is
no way disparages or diminishes the GREEN BURRITO trade names and trademarks.
5.6. SUGGESTED SUPPLIERS.
With respect to GREEN BURRITO Food Products and equipment, GREEN
BURRITO will provide to you in the Manual or otherwise in writing, a list of
names and addresses of suppliers of goods and services that currently meet GREEN
BURRITO standards and specifications. In advising you of suppliers which meet
its standards and specifications, GREEN BURRITO expressly disclaims any
warranties or representations as to the condition of the goods or services sold
by such suppliers, including, without limitation, express or implied warranties
as to merchantability or fitness for any intended purpose. You agree to look
solely to the manufacturer of goods or the supplier of services for the remedy
for any defect in the goods or services, except for GREEN BURRITO'S negligence
or wilful conduct.
If you desire to purchase any products from an unapproved supplier, you
shall submit to GREEN BURRITO a written request for such approval, or shall
request the supplier itself to do so. GREEN BURRITO shall have the right to
require that its representatives be permitted to inspect the supplier's
facilities, and that samples from the supplier be delivered, either to GREEN
BURRITO or to an independent laboratory designated by GREEN BURRITO for testing.
A charge not to exceed the reasonable cost of the inspection and the actual cost
of the test shall be paid by you or the supplier. GREEN BURRITO reserves the
right, at its option, to approve or disapprove the supplier, to reinspect from
time to time the facilities and products of any such approved supplier to revoke
an approval already given upon the supplier's failure to continue to meet any of
GREEN BURRITO's then-current criteria.
5.7. PROPRIETARY PRODUCT AVAILABILITY.
GREEN BURRITO, will use all reasonable efforts to ensure that GREEN
BURRITO, its Affiliate, or a designated supplier will at all times have a supply
of Proprietary Products available for sale to you.
6. PAYMENTS BY FRANCHISEE
6.1. INITIAL FEE.
Subject to Section 6.2 below, on the day you commence selling GBFC
Products at the approved location, you must pay GREEN BURRITO in cash or other
form of payment acceptable to GREEN BURRITO an initial fee of Seven Thousand
Five Hundred Dollars ($7,500.00) and you must pay CARL KARCHER ENTERPRISES, INC.
Five Thousand Dollars ($5,000.00). The initial fee is non-refundable.
6.2. INITIAL FEE PRORATION.
If the term of your franchise from CARL'S JR. is less than fifteen (15)
years, then GREEN BURRITO will pro-rate the Initial Fee to reflect the number of
years remaining in the franchise
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term compared to the 15-year term of the franchise. The portion not paid due to
proration will be deferred and due prior to any renewal of this Agreement by
GREEN BURRITO. If there is no renewal, then no amount deferred is due.
6.3. ROYALTIES.
You must pay GREEN BURRITO a weekly royalty of three percent (3%) and
CARL'S JR. a weekly royalty of two percent (2%) of the weekly Gross Revenue (as
defined at Section 3.15 above) of the Franchised Restaurant, calculated on the
basis of Gross Revenue received by you in the immediately preceding week. Your
obligation to pay ongoing weekly royalties will start with the Commencement Date
of this Agreement. You must submit to GREEN BURRITO with each royalty payment a
weekly statement of Gross Revenue calculations, and other data in the form
specified in the Manual.
6.4. AUDIT.
GREEN BURRITO will have the right during normal working hours to audit
your books and records, including your tax returns, with respect to the
Franchised Restaurant. If an audit discloses an underpayment of royalties
payable under this Agreement, you must immediately pay GREEN BURRITO an amount
equal to the underpayment and past interest accrued on the amount underpaid in
accordance with the preceding section. In addition, if the underpayment exceeds
five percent (5%) of the total royalty payable for any period covered under the
audit, you must reimburse GREEN BURRITO for all expenses actually incurred by
GREEN BURRITO in connection with the audit.
6.5. TRAINING FEES AND COSTS.
GREEN BURRITO may reasonably require you to attend continuing education
programs at GREEN BURRITO's cost. You will pay costs of travel, lodging, meals
and other incidental expenses incurred by you or your employees for all training
offered by GREEN BURRITO.
6.6. RELOCATION FEE.
No Relation Fee will be charged.
6.7. RENEWAL FEE.
As a condition of renewal of this franchise, you must pay, at the time
of signing a renewal of the franchise agreement for the renewal term, any
initial fee deferred as a result of pro-ration as described above in Section
6.2.
6.8. TRANSFER FEE.
As a condition of Transfer of this franchise, you must pay, prior to or
at the time of Transfer, a transfer fee of up to five Thousand dollars ($5,000)
to reimburse GREEN BURRITO
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for its actual legal and administrative costs in connection with the Transfer,
unless the transfer is to an affiliate in which event no transfer fee shall
apply.
6.9. INTEREST ON LATE PAYMENTS.
Any payment not received by GREEN BURRITO when due will bear interest
at eighteen percent (18%) per year or at the highest rate allowed by applicable
law on the date when payment is due, whichever is less. Interest charges on late
payments are intended to partially compensate GREEN BURRITO for loss of use of
the funds and for internal administrative costs resulting from late payment
which would otherwise be difficult to measure with precision. The fact that such
charges are imposed should not be construed as a waiver of GREEN BURRITO's right
to timely payment.
7. OBLIGATIONS OF FRANCHISEE
7.1. USE OF TRADE NAME AND MARKS.
7.1.1. CONTEXT. The GREEN BURRITO Dual Concept contemplates products
bearing different Trade Names and Trademarks will be sold side-by-side. You
agree to utilize the GREEN BURRITO Trade Name and Marks only in the operation of
a Franchised Restaurant at the Approved Location. You will not use any other
trade name or marks to identify or describe the Franchised Business unless GREEN
BURRITO and you have mutually agreed to do so in writing, nor will GREEN BURRITO
utilize your trademarks or trade names for any purpose other than in relation to
the Dual Product Concept system. In addition, both parties agree to comply with
the terms and conditions of Section 7.1.3. below in connection with the use of
any trademark or trade name.
7.1.2. CHANGES IN TRADE NAMES AND MARKS. GREEN BURRITO has invested
substantial time, energy, and money in the promotion and protection of its Trade
Name and other Marks as they exist on the Commencement Date. It has no present
intention of altering them. However, GREEN BURRITO recognizes that rights in
intangible property such as the Trade Name and Marks are often difficult to
establish and defend and that changes in the cultural and economic environment
within which the System operates may make changes in the Trade Name and Marks
desirable necessary. You understand that GREEN BURRITO therefore reserves the
right to change its Trade Name and Marks and the specifications for each when
GREEN BURRITO believes that the changes will benefit the Franchise Network. You
agree that you will conform to any such changes.
7.1.3. ADVERTISING MATERIALS. CARL'S JR. desires to utilize its own
creative department or consultants for development of promotional materials for
CARL'S JR./GREEN BURRITO. Recognizing the context of the Dual Product Concept
System, the parties agree to submit to each other copies of all regional
advertising materials at least two (2) weeks before the first time those
materials are broadcast or published. The receiving party shall review the
materials within a reasonable time and will promptly notify the sending party
whether it approves or rejects them. Approval will not be unreasonably withheld,
and if no objection is registered within ten (10) business days, the materials
shall be deemed approved. Advertising materials of a local nature
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shall be submitted five (5) days in advance of the first broadcast or
publication, and if no objection is registered within three (3) business days,
the materials shall be deemed approved. For purposes of this paragraph,
advertising materials that differ from previously approved materials only in
such variables as date, price, or names of products will be considered to be
previously approved. However, even if a party has approval for specific
materials, it may later withdraw its approval if it reasonably believes it
necessary to make the advertising conform to changes in the System or to correct
unacceptable features, including, but not limited to, intentional or negligent
misrepresentation.
7.1.4. LEGAL PROTECTION. You agree to notify GREEN BURRITO immediately
in writing if you become aware of any unauthorized use of GREEN BURRITO's Trade
Name, marks, or System. You must promptly notify GREEN BURRITO in writing of any
claim, demand, or suit against you or against your principals based upon or
arising in connection with your use of the Trade Name, Marks or system. In any
action or proceeding arising from or in connection with any such claim, demand,
or suit involving the GREEN BURRITO Trade Name, Marks, or System, GREEN BURRITO
will prosecute and defend same and indemnify you and hold you harmless from
same. You agree that GREEN BURRITO will select legal counsel and will control
the proceedings.
7.2. QUALITY CONTROL.
7.2.1. OPENING. You may not open the Franchised Restaurant under the
GREEN BURRITO Dual Concept system until GREEN BURRITO certifies in writing that,
in the view of its management, you and your employees are prepared to open. BY
CERTIFYING THAT GREEN BURRITO'S MANAGEMENT BELIEVES THE RESTAURANT IS PREPARED
TO BEGIN OPERATION, GREEN BURRITO DOES NOT WARRANT THAT THE FRANCHISED
RESTAURANT WILL BE SUCCESSFUL.
7.2.2. COMPLIANCE WITH MANUAL. You must operate the Franchised
Restaurant in compliance with the standards and specifications set out by GREEN
BURRITO in the Manual or otherwise in writing. Employees working in the GREEN
BURRITO area of the Restaurant where they are visible to the public, other than
the Designated Manager, must wear designated and approved uniforms which have
the approval of CARL'S JR. and GREEN BURRITO. CARL'S JR. and GREEN BURRITO will,
in good faith, approve uniforms which reasonably depict the association and
presence of both CARL'S JR. and GREEN BURRITO. GREEN BURRITO may make changes in
the GREEN BURRITO standards and specification, when, in GREEN BURRITO's
reasonable discretion, change is needed for the continued success and
development of the Franchise Network. These changes may necessitate the purchase
of equipment, supplies, furnishings or other goods, completion of additional
training by your employees, or other cost to you. You must always keep your copy
of the Manual current by inserting in it revised pages given to you by GREEN
BURRITO and deleting superseded pages. If there is any dispute as to the
requirements of the Manual at any point in time, the terms of the master copy of
the Manual maintained by GREEN BURRITO will control.
7.2.3. PRODUCTS AND SERVICES OFFERED. You must offer and sell a
minimum of fifteen (15) GREEN BURRITO Products listed in Attachment 1 to this
Agreement. Except for existing
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CARL'S JR. Mexican offerings set forth on Attachment 2, and the CARL'S JR.
Original Food Products defined at Section 3.9 above, you may serve only those
Mexican food products that GREEN BURRITO has authorized you to provide. Except
for Proprietary Products, you may purchase products that are to be sold or used
in the Franchised Restaurant from any source that has been approved by GREEN
BURRITO. If you wish to use or sell any product which is sold by a supplier not
previously approved by GREEN BURRITO, you should advise GREEN BURRITO of this
fact and, upon GREEN BURRITO's request, give GREEN BURRITO product
specifications, sample products, and/or information about the supplier. GREEN
BURRITO will within fifteen (15) days communicate to you either its approval of
the supplier or its reasons for withholding its approval. Silence may not be
construed as consent. As a condition of approving a supplier or product, GREEN
BURRITO will require you to reimburse it for any expenses reasonably incurred by
GREEN BURRITO in inspecting the supplier's premises, checking the supplier's
credentials, or testing the product. As a condition of approving a supplier of
any product that bears the Trade Name or Marks, GREEN BURRITO may require that
the supplier sign GREEN BURRITO's License Agreement. GREEN BURRITO may withdraw
its approval of a supplier or product if it no longer meets GREEN BURRITO's
standards.
7.2.4. CUSTOMER SATISFACTION PROGRAM. You must distribute customer
response cards in the form prescribed by GREEN BURRITO or CARL'S JR.'s own form,
provided same is approved by GREEN BURRITO with respect to GREEN BURRITO items,
for return by customers to CARL'S JR. and GREEN BURRITO. If your scores from the
customer response cards do not meet GREEN BURRITO's currently effective
standards, as described in the Manual, GREEN BURRITO will suggest ways in which
you can improve its scores. If you does not take immediate, effective steps to
bring your operation up to GREEN BURRITO's standards, your failure to do so will
constitute a material breach of this Agreement.
7.2.5. INSPECTIONS. CARL'S JR. will conduct periodic quality control
inspections. In addition, GREEN BURRITO may conduct periodic quality control
inspections of the Franchised Restaurant during normal business hours. Quality
control inspections may be made with or without prior notice and with or without
CARL'S JR. representatives present. In addition, You will cooperate with GREEN
BURRITO in undertaking an annual Franchise Business Review; results of the
review will be used by GREEN BURRITO in advising you how to improve store
performance as well as assessing compliance with system standards.
7.2.6. USE OF PROPRIETARY PRODUCTS. Certain of the proprietary products
used in the Franchised Restaurant are unique and their formula and manufacturing
processes constitute trade secrets integral to the success of the System.
Proprietary products include but are not limited to corn or flour tortillas,
corn or flour taco shells, bean mix, meat mixes, spices and seasonings,
guacamole recipe, cheese mixes and sauces. The Proprietary Products must be used
as prescribed. You may purchase the proprietary products only from GREEN
BURRITO, its Affiliate, or a designated vendor. Use or sale of any substitute
for the Proprietary Products is a material breach of this Agreement and will
result in its immediate Termination, unless such products are not available to
you.
7.2.7. NOTIFICATION OF COMPLAINTS. You will notify GREEN BURRITO
promptly if you are served with a complaint in any material legal proceeding
that is in any way related to the
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Franchised Restaurant or if you become aware that you are the subject of any
complaint to or investigation by a governmental licensing authority or consumer
protection agency.
7.3 PERSONNEL.
7.3.1. MANAGEMENT. The parties recognize that the Designated Manager
will manage the entire CARL'S JR./GREEN BURRITO Dual Concept restaurants at the
Approved Location and that a second manager will not be required. Your
Designated Manager must devote sufficient time and effort to the management and
operation of the Franchised Restaurant to operate it in accordance with GREEN
BURRITO's standards. The Designated Manager or another employee who has
successfully completed GREEN BURRITO's initial training program must be present
at the Approved Location whenever the Franchised Restaurant is open for
business. If GREEN BURRITO, reasonably believes that a Designated Manager is not
properly performing his duties, GREEN BURRITO will advise you and you will take
reasonable steps to correct the situation. You must keep GREEN BURRITO informed
as to the identity of your Designated Manager(s). Upon the termination of
employment of a Designated Manager, you must appoint a successor within sixty
(60) days. Any successor Designated Manager must successfully complete the
training program conducted by GREEN BURRITO before starting work in the
Franchised Restaurant.
7.3.2. EMPLOYEES. You will maintain at all times a staff of trained
employees sufficient to operate the Franchised Restaurant to meet GREEN
BURRITO's standards. During the term of this Agreement and for one year after
its termination, you agree that you will not, directly or indirectly or by
action in concert with others, induce or influence or seek to induce or
influence any person who is engaged as an employee by GREEN BURRITO or any other
GREEN BURRITO franchisee to (a) end his or her engagement or employment; and (b)
to work for another member of the Franchise Network or former member of the
Franchise Network.
7.4. LOCAL ADVERTISING.
You will reasonably include GREEN BURRITO in your local advertising
and marketing promotions that you carry for CARL'S JR. purposes. This does not
obligate you to include GREEN BURRITO in all advertising and marketing
promotions. For purposes of this paragraph, "local advertising" means
advertising that is primarily directed to persons or entities within the
geographic area where the Franchised Restaurant is located.
7.5. FINANCIAL INFORMATION.
7.5.1. RECORDS. You must record all sales and all receipts of revenue
on individual machine serial-numbered guest checks. Cash registers must validate
the receipts that are presented at the time of sale to your customers. You must
retain, at a reasonably accessible location, daily sales reporting forms and
accompanying cash register tapes for at least three (3) years after the dates of
sale. If, for any reason, your cash register must be repaired, you will use your
best efforts to obtain a replacement cash register must be used in its absence.
7.5.2. REPORTS. You will submit to GREEN BURRITO, on or before the
fifteenth (15th) day of each month, financial reports on the income and expenses
of the Franchised Restaurant in
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a format which demonstrates GREEN BURRITO revenues, total beverages, and costs
of sales for GBFC sales. In addition, you shall, upon request, provide
additional data reasonably required to confirm that you are complying with your
obligations under this Agreement, and to aid in the formulation of forecasts,
analysis and trends.
7.6. INSURANCE.
You represent that you are either self-insured or maintain a policy or
policies of comprehensive public liability insurance including product liability
coverage, covering all Franchise Restaurant's assets, personnel, and activities.
You are self-insured or also carry casualty insurance. In addition, you are
self-insured or maintain policies of worker's compensation insurance, disability
insurance and all other types of insurance required by applicable law.
7.7. FINANCIAL AND LEGAL RESPONSIBILITY.
7.7.1. COMPLIANCE WITH LAW. You must comply with all federal, state,
and local laws and regulations pertaining, directly or indirectly, to the
Franchised Restaurant. You must keep current all licenses, permits, bonds, and
deposits made to or required by any governmental agency in connection with the
operation of the Franchised Restaurant.
8. RELATIONSHIP OF PARTIES
8.1. INTEREST IN MARKS AND SYSTEM.
You may not at any time do or cause to be done anything contesting or
impairing the other's interest in its trade name, service marks, trademarks,
logos, emblems, indicia of origin, slogans, or system. You acquire no rights in
any of these things except for your right to use them according to the express
terms of this Agreement. GREEN BURRITO retains the right to grant other
franchises or licenses to use its own trade name, marks and system upon any
terms that GREEN BURRITO wishes.
8.2. INDEPENDENT STATUS.
You are an independent legal entity and will make this fact clear in
your dealings with suppliers, lessors, government agencies, employees, customers
and others. You will rely on your own knowledge and judgment in making business
decisions, subject only to the requirements of this Agreement and the Manual.
You may not expressly or impliedly hold yourself out as an employee, partner,
shareholder, joint venturer or representative of GREEN BURRITO, nor may you
expressly or impliedly state or suggest that you have the right or power to bind
GREEN BURRITO or to incur any liability on GREEN BURRITO's behalf, except as
permitted by your appointment as a Master Franchisee pursuant to the Development
Agreement. If you are a corporation, you will not use the Trade Name as part of
your corporate name.
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8.3. DISPLAY OF DISCLAIMER.
When appropriate, either party will make such disclaimers as necessary
to reflect their independent status.
8.4. CONFIDENTIALITY.
You acknowledge and agree that the information, ideas, forms, marketing
plans and other materials disclosed to you under this Agreement, whether or not
included in the Manual, are confidential and proprietary information and trade
secrets of GREEN BURRITO. In particular, certain proprietary recipes are key in
differentiating GREEN BURRITO restaurants from their competitors. You agree to
maintain the confidentiality of all such material. You will not disclose any
such information to any third party, except to your employees and agents as
necessary in the regular conduct of the Franchised Restaurant and except as
authorized in writing by GREEN BURRITO. You will be responsible for requiring
compliance of your Affiliates with the provisions of this section.
Notwithstanding the foregoing, this Section does not restrict the disclosures of
anything that is public or becomes public or that is acquired in the normal
course of business by you or a source other than GREEN BURRITO.
8.5. INDEMNIFICATION.
You will indemnify and hold GREEN BURRITO harmless from all expenses or
liabilities of any kind arising from or in any way connected to any of your acts
or omissions. If GREEN BURRITO is made a party to a legal proceeding in
connection with an actor omission, GREEN BURRITO may hire counsel to protect its
interests and bill you for all costs and expenses incurred by GREEN BURRITO. You
must promptly reimburse GREEN BURRITO.
8.6. COVENANT NOT TO COMPETE.
You will not, during the term of this Agreement and for four (4) years
after its Termination, operate or own more than a ten percent (10%) beneficial
interest in any company or fast-food restaurant that sells Mexican food and is
located within a radius of seventy-five (75) miles of any Company-Owned or
Franchised Restaurant of GREEN BURRITO.
9. TRANSFER OF FRANCHISE
9.1. PURPOSE OF CONDITIONS FOR APPROVAL OF TRANSFER.
GREEN BURRITO's grant of this Franchise is made in reliance upon your
integrity, ability, experience and financial resources. Neither the franchise
nor the Franchised Restaurant operated under it may be transferred unless you
have first obtained GREEN BURRITO's written consent, which will not be
unreasonably withheld. In order to ensure that no Transfer jeopardizes the Trade
Name, the Marks, or GREEN BURRITO's interest in the successful operation of the
Franchised Restaurant, GREEN BURRITO will consent to a Transfer only if you
comply with the provisions of Section 9.2 and 9.3 of this Agreement and if the
conditions described in Section 9.5 are fulfilled.
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9.2. NOTICE OF PROPOSED TRANSFER.
If you wish to Transfer this franchise, you will submit to GREEN
BURRITO: (a) the form of franchise purchase application currently in use by
GREEN BURRITO completed by the prospective transferee; and (b) a written notice,
setting forth all the terms and conditions of the proposed Transfer.
9.3 CONSENT BY GREEN BURRITO.
GREEN BURRITO must respond to your written notice within fifteen (15)
days after receiving it, or, if GREEN BURRITO requests additional information,
within the later date of fifteen (15) days after receipt of the additional
information or the final day of the original fifteen (15) day period. GREEN
BURRITO may either consent to the Transfer or tell you its reason for refusing
to consent. Silence will not be construed as consent. If GREEN BURRITO consents,
then you may transfer the interest described in the notice only to the named
transferee and only upon the terms and conditions set forth in the notice.
Consent by GREEN BURRITO to a particular Transfer will not constitute consent to
any other or subsequent Transfer.
9.4. CONDITIONS FOR CONSENT TO TRANSFER.
The consent of GREEN BURRITO is subject to certain conditions,
including but not limited to:
(a) Satisfaction of GREEN BURRITO that the proposed transferee
meets all of the criteria of character, business experience,
financial responsibility, net worth and other standards that
GREEN BURRITO customarily applies to new franchisees at the
time of Transfer;
(b) Payment of all your outstanding debts to GREEN BURRITO;
(c) Cure of all defaults under the Franchise Agreement, any other
agreement between GREEN BURRITO and you and your affiliates,
and the Manual;
(d) Signing by the transferee of the then-current form of
Franchise Agreement, amended to shorten the term to the
remainder of your current term and to waive payment of an
initial fee by the proposed transferee;
(e) Payment by you of the transfer fee described in Article 6 of
this Agreement;
(f) Completion by the transferee of GREEN BURRITO's initial
training program to GREEN BURRITO's satisfaction;
(g) Signing of a general release of claims by you in favor of
GREEN BURRITO;
(h) Your transferring the other restaurant operated jointly with
your GREEN BURRITO Restaurant at the Approved Location to the
same transferee; and
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(i) GREEN BURRITO's determination, after review of the Transfer
Agreement, that its terms allow the transferee a reasonable
change of success. BY MAKING SUCH A DETERMINATION, GREEN
BURRITO DOES NOT WARRANT THAT THE TRANSFEREE WILL BE
SUCCESSFUL. SUCCESS IS DEPENDENT ON A NUMBER OF FACTORS,
INCLUDING YOUR HARD WORK AND ABILITY AND GENERAL ECONOMIC
CONDITIONS, THAT ARE NOT UNDER GREEN BURRITO'S CONTROL.
9.5. CHANGES OF OWNERSHIP DEEMED NOT TO BE TRANSFERS.
As used in this Agreement, the term "Transfer" does not mean an
assignment to:
(a) Any Trustee, Guardian or Conservator for the account and
benefit of a souse, ancestor or descendent; or
(b) Any business entity if the beneficial ownership of the
business entity immediately following the assignment is the
same and in the same proportions as the beneficial ownership
immediately prior to the assignment; provided, however, that
no such assignment or reorganization will relieve the original
party of any of its obligations under this Agreement, or in
the event of a merger, there shall be no deemed transfer.
Information on the identity of the shareholders and officers
of the corporation, the percentage of ownership, and the
address where corporate records are maintained must be
submitted promptly to GREEN BURRITO.
You do not need GREEN BURRITO's consent for a non-Transfer assignment.
9.6 TRANSFER UPON YOUR DEATH.
If you die within the term of this Agreement, your heirs or
beneficiaries will have sixty (60) days within which to demonstrate to GREEN
BURRITO's satisfaction that they meet all of the criteria of character, business
experience, financial responsibility, net worth and other standards that GREEN
BURRITO requires of new franchisees at that time. If GREEN BURRITO approves your
heirs or beneficiaries as transferee of the franchise, GREEN BURRITO will waive
any transfer fee in connection with the Transfer. If GREEN BURRITO advises your
heirs or beneficiaries in writing that GREEN BURRITO will not approve them as
transferee of the franchise, or if GREEN BURRITO fails to approve or disapprove
the Transfer within sixty (60) days following your death, your heirs or
beneficiaries will have one hundred twenty (120) additional days from the date
of disapproval of the Transfer within which to find and notify GREEN BURRITO of
a proposed Transfer to a qualified transferee in conformity with the provision
of Section 9.2, 9.3, and 9.4 of this Agreement. If your heirs or beneficiaries
do not advise GREEN BURRITO of a qualified transferee within the specified
period, the franchise will automatically Terminate at the end of the period
unless a written extension of time has been granted by GREEN BURRITO.
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9.7. ASSIGNMENT BY GREEN BURRITO.
GREEN BURRITO may assign this Agreement or any rights or obligations
created by it at any time without the consent of you upon the following
conditions: (a) the assignee is financially responsible; (b) has comparable or
better integrity than GREEN BURRITO; (c) the assignee can perform GREEN
BURRITO's obligations under this Agreement; (d) the assignee expressly agrees in
writing to assume GREEN BURRITO's obligations under this Agreement; and (e) the
assignee is not a CARL'S JR. competitor.
10. TERMINATION OF FRANCHISE
10.1. TERMINATION BY CONSENT OF THE PARTIES.
This Agreement may be terminated upon the mutual written consent of the
parties.
10.2. TERMINATION BY GREEN BURRITO.
10.2.1. ACTS OF DEFAULT. Upon the occurrence of any of the following
defaults, GREEN BURRITO, at its option, may terminate this Agreement:
(a) If you misuse the Marks or the System or engage in conduct
which reflects materially and unfavorably upon the goodwill
associated with them;
(b) If you or any of your Affiliates has any direct or indirect
interest in the ownership or operation of any business that is
confusingly similar to the Franchised Restaurant or uses the
System or the Marks;
(c) If you repetitively fail to submit to GREEN BURRITO in a
timely manner any information you are required to submit under
this Agreement;
(d) If you fail to begin operation of the Franchised Restaurant by
the Commencement Date of this Agreement, or if you fail to
operate the Franchised Restaurant in accordance with this
Agreement and the Manual;
(e) If you attempt to assign your rights under this Agreement in
any manner not authorized by this Agreement;
(f) If you or your Affiliate have made any material
misrepresentation in connection with the acquisition of the
Franchised Restaurant or to induce GREEN BURRITO to enter into
this Agreement;
(g) If you act without GREEN BURRITO's prior written approval or
consent in regard to a matter for which GREEN BURRITO's prior
written approval or consent is expressly required by this
Agreement;
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(h) If you default in the performance of any material obligation
under this Agreement or any other agreement with GREEN
BURRITO;
(i) If you cease to operate the Franchised Restaurant, unless: (i)
operations are suspended for a period of no more than one
hundred eighty (180) days; (ii) the suspension was caused by
fire, condemnation, or act of God; and (iii) a lease
termination;
(j) If you fail to permanently correct a breach of this Agreement
or to meet the standards set out in the Manual after being
twice requested in writing by GREEN BURRITO to correct the
problem in any twelve- (12-) month period;
(k) If you fail to make any payment when due under this Agreement
or any other agreement between you and GREEN BURRITO or an
Affiliate of GREEN BURRITO;
(l) If GREEN BURRITO learns that the operation of the Franchised
Restaurant poses a threat to public health or safety;
(m) Except as otherwise required by the United States Bankruptcy
Code, if you become insolvent, are adjudicated a bankrupt; or
(n) If you are convicted of a felony or any criminal misconduct
which is relevant to the operation of the Franchised
Restaurant.
10.2.2. NOTICE OF DEFAULT. Termination will be effective thirty (30)
days after written notice of default is given to you if any of the defaults
described in subsections (a) through (j) above has not been cured. Termination
will be effective ten (10) days after written notice is given to you id the
default described in subsection (k) has not been cured. Termination will be
effective immediately upon written notice to you if any of the defaults
described in subsections (l) through (o) above occurs.
10.3. TERMINATION BY YOU.
If you determine it is no longer commercially reasonable to continue to
operate the Franchised Restaurant, you may elect to terminate this Agreement
upon ninety (90) days' written notice to GREEN BURRITO if the conditions of the
next section of this Agreement, entitled "Rights and Obligations After
Termination," are met in full within the specified time periods.
For purposes of this Agreement, GREEN BURRITO will agree that it is no
longer commercially reasonable to operate the Franchised Business if you are not
in breach, are operating in good faith to promote the sale of Green Burrito
products, and notwithstanding your efforts the total royalties payable by you
for GBFC sales are less than $3,000 for the trailing 12-month period.
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10.4. RIGHTS AND OBLIGATIONS AFTER TERMINATION.
Upon termination of this Agreement for any reason, the parties will
have the following rights and obligations:
(a) GREEN BURRITO will have no further obligations under this
Agreement, except for indemnity, nondisclosure, and protected
areas, or other obligations arising from a GREEN BURRITO
breach;
(b) You must give GREEN BURRITO a final accounting for the
Franchised Restaurant; pay GREEN BURRITO, within thirty (30)
days after Termination, all payments due to GREEN BURRITO; and
return the Manual and any other items belonging to GREEN
BURRITO to GREEN BURRITO;
(c) You must immediately and permanently cease the use of the
Marks or any confusingly similar marks, the System, and
advertising, signs, stationery, or forms that bear identifying
marks or colors that might give others the impression that you
are operating a Franchised Restaurant;
(d) You must promptly sign any documents and take any steps that
in the judgment of GREEN BURRITO are necessary to delete your
listings from classified telephone directories, and terminate
all other references that indicate you is or ever was
associated with the GREEN BURRITO; by signing this Agreement,
you irrevocably appoints GREEN BURRITO its attorney-in-fact to
take the actions described in this paragraph if you do not do
so within seven (7) days after Termination of this Agreement.
(e) You must maintain all records required by GREEN BURRITO
pursuant to this Agreement for a period of not less than
ninety (90) days after final payment of any amounts you owes
to GREEN BURRITO when this Agreement is Terminated.
(f) You must comply with the provisions of Section 8.6 above
(Covenant Not to Compete).
If the franchise granted in this Agreement is terminated because of default, the
rights of the parties described above will not necessarily be the parties'
exclusive remedies, but will instead supplement any other equitable or legal
remedies available to the parties. Termination of this Agreement will not
extinguish any obligation of either party that has accrued prior to Termination.
If this Agreement is terminated because of a material default, nothing in this
section will be construed to deprive either party of the right to recover
damages as compensation for lost profits. All obligations of the parties which
by their terms or by reasonable implication are to be performed in whole or in
part after Termination will survive Termination.
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11. MISCELLANEOUS PROVISIONS
11.1. CONSTRUCTION OF CONTRACT.
Section headings in this Agreement are for reference proposes only and
will not in any way modify the statements contained in any section of this
Agreement. Each word in this Agreement will be deemed to include any number or
gender that the context requires. If there is any conflict between this
Agreement and the Manual, this Agreement will control.
11.2. GOVERNING LAW.
This Agreement is made in the state where the franchise is to be
operated and its provisions will be governed by and interpreted under the laws
of that State, with the following exception; the arbitration clause will be
governed by and interpreted in accordance with the Federal Arbitration Act.
11.3. NOTICES.
The parties to this Agreement should direct any notices to the other
party at the address below that party's name on the final page of this Agreement
or at another address if advised in writing that the address has been changed.
Notice may be delivered by facsimile (with simultaneous posting of a copy by
first class mail), courier, or first class mail. Notice by facsimile will be
deemed delivered upon transmission; by courier, upon delivery; and by first
class mail, three days after posting. Notice of Termination or non-renewal must
be given by a receipted form of delivery.
11.4. AMENDMENTS.
This Agreement may be amended only by a document signed by all of the
parties to this Agreement or by their authorized agents.
11.5. WAIVER.
Waiver of any breach of this Agreement will not be interpreted as a
waiver of any subsequent breach.
11.6. INTEGRATION.
This Agreement, any exhibits or attachments to it constitute the entire
agreement between the parties concerning the franchise granted under this
Agreement. All prior and contemporaneous agreements and representations are
superseded by it.
11.7. ARBITRATION/MEDIATION.
Any dispute arising out of or in connection with this Agreement will be
determined in accordance with the then current rules for commercial arbitration
and mediation of the Judicial
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Arbitration and Mediation Services, Inc. (JAMS). The location shall be any city
in which JAMS maintains an office, other than the State of California for
purposes of neutrality and eliminating conflicts of interest, unless agreed to
the contrary by both parties. Both parties prefer a neutral location, with the
further provision that neither party prefers a city on the East coast or West
Coast. If JAMS maintains an office in Phoenix, Arizona, or Denver, Colorado,
both parties acknowledge those cities as preferable locations. The arbitrator
will have the power and obligation to grant injunctive relief on a provisional
or permanent basis, in addition to any other relief that is available, if the
Trade Name, Marks, or goodwill of either parties' Franchise Network are
jeopardized or harmed by any act or omission of either party. This arbitration
clause will not deprive GREEN BURRITO of any right it may otherwise have to seek
provisional injunctive relief from a court of competent jurisdiction. If proper
notice of any hearing has been given, the arbitrator(s) will have full power to
proceed to take evidence or to perform any other acts necessary to arbitrate the
matter in the absence of any party who fails to appear. BOTH PARTIES WAIVE ANY
RIGHT THEY MAY HAVE TO DEMAND TRAIL BY JURY OR TO SEEK PUNITIVE DAMAGES FROM THE
OTHER. The arbitrator will have no power to (1) stay the effectiveness of any
pending Termination of franchise; (2) assess punitive damages; or (3) make any
award that modifies or suspends any lawful provision of this Agreement. All
expenses of arbitration must be paid by the party against whom the arbitrator(s)
render a decision. Judgment upon any aware and/or enforcing any order of the
arbitrator may be entered by any court of competent jurisdiction.
11.8. INJUNCTIVE REMEDY FOR BREACH.
You recognize that your Franchised Restaurant is only one of several
businesses operating under GREEN BURRITO's Trade Name and in substantial
association with its Marks. Failure on the part of a single franchisee to comply
with the terms of its franchise agreement is likely to cause irreparable damage
to GREEN BURRITO and to some or all of the other franchisees of you. For this
reason, you agrees that if GREEN BURRITO can demonstrate to a court of competent
jurisdiction that there is a substantial likelihood of a breach or threatened
breach of any of the terms of this Agreement by you, GREEN BURRITO will be
entitled, without posting of a bond, to an injunction restraining the breach
and/or to a decree of specific performance, without showing or proving any
actual damage, until a final determination is made by an arbitrator.
11.9. ATTORNEYS' FEES AND COSTS.
If legal action, including any action on appeal, or arbitration is
necessary to enforce the terms and conditions of this Agreement, the prevailing
party will be entitled to recover reasonable compensation for preparation,
investigation and court and/or arbitral costs and reasonable attorneys' fees, as
fixed by a court of competent jurisdiction or by the arbitrator.
11.10. SEVERABILITY.
Each provision of this Agreement will be considered severable. If, for
any reason, any provision of it is determined to be invalid or in conflict with
any existing or future law or regulation, that provision will not impair the
operation of the remaining provisions of this Agreement. The invalid provisions
will be deemed not to be a part of this Agreement.
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11.11. APPROVAL AND GUARANTEES.
If you are a corporation, all officers and shareholders with a ten
percent (10%) or greater interest in you, or, if you are a partnership, all your
general partners must approve this Agreement, permit you to furnish the
financial information required by GREEN BURRITO, and agree to the restrictions
placed on them, including restrictions on the transferability of their interests
in the franchise and Franchised Restaurant and limitations on their rights to
compete, and sign separately written guarantees of your payments and performance
in accordance with Attachment 2 of this Agreement.
11.12. ACCEPTANCE BY BOTH PARTIES.
This Agreement will not be binding on either party unless and until it
has been signed by an authorized officer of each party.
11.13. DISCLAIMER OF REPRESENTATIONS.
NO REPRESENTATIONS OR PROMISES OF ANY KIND HAVE BEEN MADE BY GREEN
BURRITO TO INDUCE YOU TO EXECUTE THIS AGREEMENT EXCEPT THOSE SPECIFICALLY SET
FORTH IN THE FRANCHISE DISCLOSURE DOCUMENTS THAT HAVE BEEN DELIVERED TO YOU. YOU
ACKNOWLEDGE THAT NEITHER GREEN BURRITO NOR ANY OTHER PERSON HAS GUARANTEED THAT
YOU WILL SUCCEED IN THE OPERATION OF THE FRANCHISED RESTAURANT OR HAS PROVIDED
ANY SALES OR INCOME PROJECTIONS OF ANY KIND TO YOU. YOU HAVE MADE AN INDEPENDENT
INVESTIGATION OF ALL IMPORTANT ASPECTS OF THE FRANCHISED RESTAURANT. YOU
UNDERSTAND THAT GREEN BURRITO IS NOT A FIDUCIARY AND HAS NO SPECIAL
RESPONSIBILITIES BEYOND THE NORMAL RESPONSIBILITIES OF A SELLER IN A BUSINESS
TRANSACTION.
IN WITNESS TO THE PROVISIONS OF THIS AGREEMENT, the undersigned have
signed this Franchise Agreement on the date set forth in Article 1.
GB FRANCHISE CORPORATION
By: ______________________
Title: ____________________
23 Corporate Plaza, Suite 240
Newport Beach, CA 92660
********SIGNATURES CONTINUED ON NEXT PAGE********
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FRANCHISE OWNER:
NAME: ___________________________
By: _____________________________
Title: __________________________
Address: ________________________
_________________________________
Date: ___________________________
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GREEN BURRITO PRODUCTS
The following lists "Green Burrito Products" for purposes of the GB
Dual Concept Franchise Agreement, which may be modified from time to time at the
discretion of GREEN BURRITO:
BURRITOS Super Bean Burrito (Rice, beans, guacamole, enchilada sauce &
cheese) Super Meat Burrito (Choice of steak, chicken or carnitas) Green
Burrito (Pork, Green Chile Sauce, cheese & beans) Meat, Bean & Cheese
Burrito (Choice of steak, chicken or carnitas) Meat & Cheese Burrito
(Choice of steak, chicken or carnitas) Wet Red Burrito (Steak & rice)
Wet Green Burrito (Rice, beans & pork) Big Ed Burrito
NACHOS Super Nachos (Choice of steak, chicken or carnitas)
Mini Super Nachos (Small version of Super Nachos)
Nachos (Chips with melted Jack & Cheddar Cheese)
SINGLES
Hard Taco
Soft Taco
Bean & Cheese Burrito
Tostada
Cheese Quesadilla
Two Taquitos with Guacamole Fijitas
Chile Relleno
Cheese Enchilada
Taco
Super Taco
COMBINATIONS
Any combination of any of the above
ADDITIONAL ITEMS
Any items offered by GBFC at solo franchise locations
ATTACHMENT 1
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<PAGE> 83
GUARANTY AND SUBORDINATION AGREEMENT
The undersigned, to induce GB Franchise Corporation ("Franchisor") to
enter into GREEN BURRITO Franchise Agreement with _____________________________
("Franchisee") for Unit #_____, unconditionally, guarantees to Franchisor, its
successors, or its assignees, the prompt and full payment and performance of all
obligations of Franchisee that are or may become due and owing to Franchisor,
including, but not limited to, all obligations arising out of the Franchise
Agreement or any other agreement between the parties and all extensions or
renewal of it in the same manner as if the Franchise Agreement was signed
between Franchisor and the undersigned directly, as Franchisee.
The undersigned expressly waives notice of the acceptance by Franchisor
or for the benefit of Franchisee, of the purchase of inventory and goods by
Franchisee, the maturing of bills and the failure to pay the same, the incurring
by franchisee of an additional future obligations and liability to Franchisor,
and other notices and demands. This Guaranty will not be effected by the
modification, extension, or renewal of any agreement between Franchisor and
Franchisee, the taking of a note or other obligation from Franchisee or others,
the taking of security for payment, the granting of an extension of time for
payment, the filing by or against Franchisee of bankruptcy, insolvency,
reorganization or other debtor relief afforded Franchisee under the Federal
Bankruptcy Act or any other state or federal statute or by the decision of any
court or any other matter, whether similar or dissimilar to any of the
foregoing, and this Guaranty will cover the terms and obligations of any of the
modifications, notes, security agreements, extensions, or renewals. The
obligations of the undersigned will be unconditional in spite of any defect in
the genuineness, validity, regularity, or enforceability of the Franchisee's
obligations or liability to validity, regularity, or enforceability of the
Franchisee's obligations or liability to Franchisor, or any other circumstances
where or not referred to in this Guaranty that might otherwise constitute a
legal or equitable discharge of a surety or guarantor.
This is an irrevocable, unconditional and absolute guaranty of payment
and performance the undersigned agrees that its liability under this guaranty
will be immediate and will not be continue upon the exercise or enforcement by
Franchisor of whatever remedies it may have against the Franchisee or others, or
the enforcement of any lien or realization upon any security Franchisor may at
any time possess.
The undersigned agree that any indebtedness by the Franchisee to the
undersigned for any reason, currently existing or which might arise in the
future, will always be inferior and subordinate to any indebtedness owed by the
Franchisee to Franchisor. The undersigned will promptly modify any financing
statements on file with state agencies to specify that Franchisor's rights are
senior to those of Guarantor.
ATTACHMENT 2
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The undersigned further agrees that as long as the Franchisee owes any
money to Franchisor (other than royalty payments that are not past due) the
Franchisee will not pay and the undersigned will not accept payment of any part
of any indebtedness owed by Franchisee to any of the undersigned, either
directly or indirectly, without the consent of Franchisor.
In connection with any litigation or arbitration to determine the
undersigned's liability under this Guaranty, the undersigned expressly waives
his or her right to trail by jury and agrees to pay costs and reasonable
attorneys' fees as fixed by the court or arbitrator.
The undersigned represents that full and appropriate corporate
authority has been duly granted to authority the execution and delivery of this
Guaranty.
This Guaranty will remain in full force and effect until all
obligations arising out of and under the Franchise Agreement, including all
renewals and extension of it, are fully paid and satisfied.
DATED: ________________________
GUARANTORS:
____________________________________
____________________________________
____________________________________
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ATTACHMENT 3
<PAGE> 86
EXHIBIT 1
EQUIPMENT LEASE
THIS EQUIPMENT LEASE is entered into between _________________________
__________________, a ____________ corporation, (herein referred to as "CARL" or
"Lessee") and GB FOODS CORPORATION, INC., a Delaware corporation, (herein
referred to as "GBFC" or "Lessor"), effective the _______ day of
___________________, 19_____, pertaining to equipment to be located at a
franchised location of ________________________, a ____________ corporation.
RECITALS:
1. CARL and GBFC commenced Dual Concept marketing of CARL and GBFC
products marketed through CARL locations. To facilitate these initial
Dual Concept locations. GBFC leased certain items of equipment to
Lessee pursuant to the terms of this Lease.
2. The CARL restaurant location at which the GBFC leased equipment is
located is:
___________________________
___________________________
3. The equipment was placed in service as of the effective date above.
AGREEMENT:
IT IS HEREBY AGREED by and between Lessor and Lessee as follows:
1. LEASE: Lessor hereby leases to Lessee the GBFC equipment set forth in
Exhibit "A" attached hereto and incorporated herein by reference, which
equipment is located at the address first listed above.
2. RENT AND PAYMENT: The rent for the leased equipment set forth on
Exhibit "A" shall be payable solely out of GBFC sales generated in the
above-described Dual Concept Store. The initial rent is FIVE PERCENT
(5%) of the GBFC sales generated in the Dual Concept Store until the
total rent paid equals the initial GBFC capital expenditure cost set
forth on Exhibit "A". After initial rent described in the immediately
preceding sentence has been paid so that GBFC has recouped its Capital
Expenditure outlay for such equipment, the rent thereafter for the
remainder of the term of the Lease shall be ONE PERCENT (1%) of the
GBFC sales generated in the Dual Concept Store.
3. GBFC SALES: For purposes of this Agreement, GBFC sales generated in the
CARL/GBFC Dual Concept Stores shall include:
<PAGE> 87
A. The cash receipts generated by GBFC products; plus
B. GBFC's proportionate share of beverage sales, which proportion
shall be computed during each respective period by comparing
the relationship between CARL products (exclusive of beverage
sales) and GBFC products (exclusive of beverage sales).
4. TERM: The term of the Lease shall be for a period of FIFTEEN (15)
years. Rent shall be payable on the last day of each month at the rate
specified above.
5. PURCHASE OPTION:
A. Upon completion of the Lease term, the leased property shall
forthwith be returned by Lessee, to GBFC, as Lessor, subject
to Lessee's option to purchase the Leased Equipment for its
then market value, which shall not exceed ten percent (10%) of
its original purchase price as set forth in Exhibit A. Market
value shall be determined by appraisal accomplished by any
reputable entity experienced in the sale of restaurant
equipment. Valuation as finally determined by the appraisers
shall be binding on both parties.
B. The appraisal shall be completed concurrent with the
termination of the Lease. The Lessee shall have no obligation
to proceed with the exercise of the option until the appraised
value is finally determined by the appraiser.
C. In the event the Lessee elects to exercise its purchase
option, closing shall be accomplished by delivery of certified
funds or wire transfer to Lessor no later than TEN (10)
business days following the finalization of the appraisal.
6. TITLE: Lessee assumes the risk for the equipment leased hereunder and
for the use, operation, and storage thereof. This is a contract of
lease only and nothing herein contained shall be construed as conveying
to Lessee any right, title or interest in or to the Leased Equipment.
The Leased Equipment shall at all times during the term of this Lease
be and remain the personal property of Lessor and title thereto shall
remain in the Lessor exclusively and Lessee shall conspicuously
identify each unit by suitable lettering thereon to indicate Lessor's
ownership. Lessee shall keep the equipment free from any and all liens
and claims and shall not do or permit any act or thing whereby Lessor's
title or rights may be encumbered or impaired.
7. TAXES, INSURANCE, REPAIR: Lessor shall pay all local taxes and fees
assessed in connection with the use or possession of the equipment.
Lessee shall, at its own expense, carry adequate public liability
insurance against bodily injury and against property damage and such
insurance shall protect both Lessor and Lessee. Each unit shall be
insured against
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<PAGE> 88
fire and theft and under extended coverage. Lessee will, at its
expense, during the term of this Lease maintain each unit in good
operating order, repair and appearance.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
LESSOR: LESSEE:
GBFC: GB FOODS CORPORATION __________________________________
BY: ___________________________________ BY: ______________________________
TITLE: ________________________________ TITLE: ___________________________
DATE: _________________________________ DATE: ____________________________
-3-
<PAGE> 1
EXHIBIT 10.34
FIRST AMENDMENT TO THE
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT OF
BOSTON WEST, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY
THIS FIRST AMENDMENT TO THE OPERATING AGREEMENT ("Amendment"), of
BOSTON WEST, L.L.C., a Delaware limited liability company ("Company"), is made
effective May 15, 1995 ("Effective Date"), and is entered into by and among all
of the members of the Company whose names are reflected on the signature pages
hereof (the "Members").
1.0 RECITALS.
1.1 CKE RESTAURANTS, INC. and BOSTON PACIFIC, INC. formed the
Company pursuant to and in accordance with the Delaware Limited Liability
Company Act (6 Del. C. ss. 18-10, et. seq.) ("the Act"), as amended from time to
time by entering into a Limited Liability Company Agreement on March 29, 1995
("Original Agreement"), and filing a Certificate of Formation of the Company
with the office of the Secretary of State of the State of Delaware on March 29,
1995.
1.2 On April 16, 1996, the Members executed the Amended and
Restated Limited Liability Company Agreement ("Amended Agreement"), to amend and
restate the Original Agreement in its entirety.
1.3 The Members desire to modify the initial capital
contribution to purchase the Class A Units of the Company and make other changes
to the Amended Agreement.
NOW, THEREFORE, in consideration of the mutual promises set
forth herein and for other good and valuable consideration, it is agreed as
follows:
2.0 DEFINITIONS. Any undefined capitalized terms herein shall have the
same meaning as those set forth in the Amended Agreement.
3.0 AMENDMENTS. The following sections of the Amended Agreement are
amended to read as follows:
3.1 Section 2.2 [Intentionally Omitted] is replaced with the
following language:
"2.2 Total Capital Contributions. The Company
shall be authorized to issue a total of 9,851,744 of
the Class A Units (5,543,478 of which shall be
reserved for issuance to BCI in the event it
-1-
<PAGE> 2
exercises all or any portion of its Conversion Right,
3,300,067 of which shall be reserved for issuance to
Class B Members in the event they convert the Class B
Units into Class A Units pursuant to Section 2.4
hereinbelow, and 696,197 of which shall be reserved
for issuance pursuant to the Plan defined below) and
37,951 Class B Units (15,000 reserved for issuance to
the Class B Members pursuant to Section 2.3
hereinbelow) at a price and upon such terms as the
Managers determine without the issuance of the class
A or Class B Units being construed as a
recapitalization or reorganization of the Company.
3.2 The first sentence in Section 4.5 Tax Matters partner is
amended to read as follows:
"The 'tax matters partner' (as such term is defined
in Section 6231(a)(7) of the Code) of the Company
shall be Boston Pacific, Inc., a California
corporation, or any other Member selected by a
majority of the Members to succeed it or any of its
successors, who shall be subject to the control of
the Management Committee."
3.3 Section 5.3 Voting by Members shall be amended to read as
follows:
"Only the Class A Members shall have the right to
vote, except as otherwise provided by law; provided
that in the event of the Company is in arrears in
distributions to be made pursuant to Section 3.6 by
one year (two distributions), the Class B Members,
voting as a class, shall be entitled to elect one of
the Managers of the Company. This right shall be in
addition to any other voting rights. Each class A
Member shall have one vote for each class A Unit held
by such Member.
3.4 Section 6.6 (c) Appointment of Managers shall be added as
follows:
"(c) Not withstanding anything to the contrary
contained in this Agreement, until the earlier of (I)
conversion of the Class B Units into Class A Units,
or (ii) BCI exercises its Conversion Right, Boston
-2-
<PAGE> 3
Pacific, Inc., a California corporation, shall be
able to elect one Manager and not participate in the
election of the remaining five (5) Managers."
3.5 Section 9.1 (b)(iv) Transfer of Interests shall be amended
to read as follows:
"(iv) such Transfer shall not impose liability or
reporting obligations on the Company or any Member
thereof in any jurisdiction, whether domestic or
foreign, or result in the Company or any Member
thereof becoming subject to the jurisdiction of any
court or government entity anywhere other than
Delaware."
3.6 Section 9.1 (d) Transfer of Interests shall be added as
follows:
"Notwithstanding any other provision of this Section
9.1, and subject to BCI's approval, any Member may
transfer all or any portion of such Member's Interest
to any other Member.
3.7 Schedule 1, Class A Members shall be amended to read as
follows:
"Schedule 1
CLASS A MEMBERS
<TABLE>
<CAPTION>
Units
-----
<S> <C>
Boston Pacific, Inc. 62,000
CKE Restaurants, Inc. 2
Authorized Unissued Units 9,789,742
---------
Total Authorized Units 9,851,744"
=========
</TABLE>
3.8 Schedule 2, Class B Members shall be amended to read as
follows:
-3-
<PAGE> 4
"Schedule 2
CLASS B MEMBERS
<TABLE>
<CAPTION>
Units
-----
<S> <C>
Boston Pacific, Inc. 22,951
Authorized Unissued Units 15,000
------
Total Authorized Units 37,951"
======
</TABLE>
3.9 Schedule 3, Initial Capital Contributions shall be amended
to read as follows:
"Schedule 3
INITIAL CAPITAL CONTRIBUTIONS
<TABLE>
<S> <C> <C>
CKE Restaurants, Inc. $ 20.00 (2 Class A Units)
Boston Pacific, Inc. 20,000.00 (20,000 Class A Units)
22,951,000.00 (22,951 Class B Units)
-------------
$ 23,571,000.00 (Class A and Class B Units)
</TABLE>
4.0 RATIFICATION. In all other respects, the Amended Agreement is
ratified and confirmed in its entirety.
5.0 COOPERATION. The Members agree to cooperate with the Managers in
connection with any of the matters set forth in this Amendment, including
executing any documents as may reasonably be requested for the purpose of giving
effect to, evidencing, or giving notice of the items set forth in this
Amendment.
6.0 SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns.
7.0 COUNTERPARTS. Any number of counterparts of this Amendment may be
executed. Each counterpart will be deemed to be an original instrument, and all
counterparts taken together will constitute one agreement.
8.0 GOVERNING LAW. This Amendment will be governed by the laws of the
State of Delaware, without giving effect to principles of conflict of laws of
that state.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have subscribed to this
Amendment as of the Effective Date.
MEMBERS
CLASS A MEMBERS:
BOSTON PACIFIC, INC.,
a California corporation
By: /s/ Robin D. Downing
------------------------------
ROBIN DOWNING
Its: Chief Financial Officer
CKE RESTAURANTS, INC.,
a California corporation
By: /s/ Joseph N. Stein
------------------------------
JOSEPH STEIN
Its: Chief Financial Officer
CLASS B MEMBERS:
BOSTON PACIFIC, INC.,
a California corporation
By: /s/ Robin D. Downing
------------------------------
ROBIN DOWNING
Its: Chief Financial Officer
-5-
<PAGE> 1
EXHIBIT 10.35
SECOND AMENDMENT TO THE
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT OF
BOSTON WEST, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY
THIS SECOND AMENDMENT TO THE OPERATING AGREEMENT ("Amendment"), of
BOSTON WEST, L.L.C., a Delaware limited liability company ("Company"), is made
effective May 30, 1995 ("Effective Date"), and is entered into by and among all
of the members of the Company whose names are reflected on the signature pages
hereof (the "Members").
1.0 RECITALS.
1.1 CKE RESTAURANTS, INC. and BOSTON PACIFIC, INC. formed the
Company pursuant to and in accordance with the Delaware Limited Liability
Company Act (6 Del. C. ss. 18-10, et. seq.) ("the Act"), as amended from time to
time by entering into a Limited Liability Company Agreement on March 29, 1995
("Original Agreement"), and filing a Certificate of Formation of the company
with the office of the Secretary of State of the State of Delaware on march 29,
1995.
1.2 On April 16, 1996, the Members executed the Amended and
Restated Limited Liability Company Agreement ("Amended Agreement"), to append
and restate the Original Agreement in its entirety.
1.3 On May 15, 1995, the Members executed the First Amendment
to the Amended and Restated Limited Liability Company Agreement.
1.4 Whereas, the Company has sold additional Class A Units and
desires to increase the number of its Managers as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises set
forth herein and for other good and valuable consideration, it is agreed as
follows:
2.0 DEFINITIONS. Any undefined capitalized terms herein shall have the
same meaning as those set forth in the Amended Agreement.
3.0 AMENDMENTS. The following sections of the Amended Agreement are
amended to read as follows:
3.1 Section 5.3 Voting by Members shall be amended to read as
follows:
"Only the Class A Members shall have the right to
vote, except as otherwise provided by law; provided
that in the event the Company is in arrears in
distributions to be made pursuant to Section 3.6 by
-1-
<PAGE> 2
one year (two distributions), the Class B Members,
voting as a class, shall be entitled to elect one of
the Managers of the Company. This right shall be in
addition to any other voting rights.
The voting rights granted above shall be
further restricted in that until the earlier of:
(i) conversion of the Class B
Units into Class A Units,
(ii) BCI's exercise of its
Conversion Right, or
(iii) the existence of more than six (6)
Class A Members (excluding Boston Pacific,
Inc., a California corporation ("BPI") and
CKE Restaurants, Inc., a California
corporation ("CKE"))
each Class A Member (excluding BPI and CKE) shall
have the right to appoint one (1) Manager regardless
of the number of Units owned by the Member (totaling
six (6) Managers) and BPI and CKE shall be able to
collectively elect the one (1) remaining Manager.
However, in the event the Company is in arrears in
distributions to be made pursuant to Section 3.6 by
one (1) year (two (2) distributions) the Class A
Members (excluding BPI and CKE) shall have the right
to elect a total of five (5) Managers (with each
Member voting having one (1) vote for each Class A
Unit held by such Member), BPI and CKE shall be able
to collectively elect one (1) Manager, and the Class
B Members shall be entitled to elect the one (1)
remaining Manager. After the occurrence of any of the
events noted in (i), (ii), or (iii) above and for all
other voting purposes, each Class A Member shall have
one (1) vote for each Class A Unit held by such
Member."
3.2 Section 6.2 Number, Tenure and Qualifications of Managers
shall be amended to read as follows:
Until the earlier of:
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<PAGE> 3
(i) conversion of the Class B
Units into Class A Units, or
(ii) BCI's exercise of its
Conversion Right,
the Management Committee shall be comprised of seven
(7) managers (the "Managers"); provided however that
after the occurrence of either of the events noted in
(i) or (ii) above, the Management Committee shall be
comprised of six (6) Managers. The Managers shall be
selected in the manner set forth in Section 6.6. The
names and addresses of the initial individuals
selected to serve as the Managers are set forth on
Schedule 5 hereto. The number of Managers comprising
the Management Committee may be amended from time to
time by the vote or written consent of Members
holding at least two-thirds (2/3) of the Class A
Units, provided, that from and at all time after the
time that the number of Class Units owned by BCI and
its successors and assignees (the "BCI Units")
constitutes at least a majority of the then
outstanding Class A Units (the "BCI Effective Time"),
the number of Managers shall be fixed by the Holders
of a Majority of the BCI Units. Each Manager shall
hold office until the next annual meeting of the
Members or until a successor shall have been elected
and qualified. Managers need not be residents of the
State of Delaware or Members of the Company. No
Manager of the Company may, at the same time, serve
as an officer or director of CKE Restaurants, Inc.,
provided that from time to time one (1), but only one
(1), Manager may also be an officer or director of
CKE Restaurants, Inc.
3.3 Subsection (c) of Section 6.6 shall be deleted in it
entirety.
4.0 RATIFICATION. In all other respects, the Amended Agreement is
ratified and confirmed in its entirety.
5.0 COOPERATION. The Members agree to cooperate with the Managers in
connection with any of the matters set forth in this Amendment, including
executing any documents as may reasonably be requested for the purpose of giving
effect to, evidencing, or giving notice of the items set forth in this
Amendment.
-3-
<PAGE> 4
6.0 SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns.
7.0 COUNTERPARTS. Any number of counterparts of this Amendment may be
executed. Each counterpart will be deemed to be an original instrument, and all
counterparts taken together will constitute one agreement.
8.0 GOVERNING LAW. This Amendment will be governed by the laws of the
State of Delaware, without giving effect to principles of conflict of laws of
that state.
IN WITNESS WHEREOF, the parties hereto have subscribed to this
Amendment as of the Effective Date.
MEMBERS
CLASS A MEMBERS:
BOSTON PACIFIC, INC.,
a California corporation
By: /s/ Robin D. Downing
--------------------------------
ROBIN DOWNING
Its: Chief Financial Officer
CKE RESTAURANTS, INC.,
a California corporation
By: /s/ Joseph N. Stein
--------------------------------
JOSEPH STEIN
Its: Chief Financial Officer
/s/ Gregory G. Brightman
------------------------------------
GREGORY G. BRIGHTMAN
/s/ Hollis Gieger, Jr.
------------------------------------
HOLLIS GIEGER, JR.
/s/ Donald William Manuel
------------------------------------
DONALD WILLIAM MANUEL
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
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<PAGE> 5
EDGEMON PROPERTIES,
an Alabama sole proprietorship
By /s/ James H. Edgemon
-------------------------------
JAMES H. EDGEMON
Its: President
/s/ J. Thomas Talbot
-------------------------------
J. THOMAS TALBOT
/s/ S. Kent Stewart
----------------------------------
S. KENT STEWART
CLASS B. MEMBERS:
BOSTON PACIFIC, INC.,
a California corporation
By: /s/ Robin D. Downing
----------------------------------
ROBIN DOWNING
Its: Chief Financial Officer
-5-
<PAGE> 1
EXHIBIT 10.36
THIRD AMENDMENT TO THE
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT OF
BOSTON WEST, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY
THIS THIRD AMENDMENT TO THE OPERATING AGREEMENT ("Amendment") of BOSTON
WEST, L.L.C., a Delaware limited liability company ("Company"), is made
effective as of September 12, 1995 ("Effective Date"), and is entered into by
and among all of the members of the Company whose names are reflected on the
signature pages hereof (the "Members").
1. RECITALS.
1.1 CKE RESTAURANTS, INC. and BOSTON PACIFIC, INC. formed the
Company pursuant to and in accordance with the Delaware Limited Liability
Company Act (6 Del. C. ss. 18-10, et. seq.) (the "Act"), as amended from time to
time by entering into a Limited Liability Company Agreement on March 29, 1995
("Original Agreement"), and filing a Certificate of Formation of the Company
with the office of the Secretary of State of the State of Delaware on March 29,
1995.
1.2 On April 16, 1995, the Members executed the Amended and
Restated Limited Liability Agreement ("Amended Agreement"), to amend and restate
the Original Agreement in its entirety.
1.3 On May 15, 1995, the Members executed the First Amendment
to the Amended and Restated Limited Liability Company Agreement.
1.4 On May 30, 1995, the Members executed the Second Amendment
to the Amended and Restated Limited Liability Company Agreement.
1.5 Whereas, the Company desires to modify the amount of the
Class B Rate applicable to the initial investment in Class B Units as set forth
herein.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein and for other good and valuable consideration, it is agreed as follows:
2. DEFINITIONS. any undefined capitalized terms herein shall have the
same meaning as those set forth in the Amended Agreement.
-1-
<PAGE> 2
3. AMENDMENTS. The following sections of the Amended Agreement are
amended to read as follows:
3.1 The definition of "Class B Rate" in Section 1.8 of the
ended Agreement shall be amended to read as follows:
"Class B Rate" shall mean an annual rate equal to (i)
8.55% with respect to the initial Capital
Contribution (i.e., $22,951,000 represented by 22,951
Class B Units) of the original Class B Member and
(ii) 9.0% with respect to all other Capital
Contributions made by Class B Members after the date
of such initial Capital Contribution.
4. RATIFICATION. In all other respects, the Amended Agreement is
ratified and confirmed in its entirety.
5. COOPERATION. The Members agree to cooperate with the Managers in
connection with any of the matters set forth in this Amendment, including
executing any documents as may reasonably be requested for the purpose of giving
effect to , evidencing, or giving notice of the items set forth in this
Amendment.
6. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns.
7. COUNTERPARTS. Any number of counterparts of this Amendment may be
executed. Each counterpart will be deemed to be an original instrument, and all
counterparts taken together will constitute one agreement.
8. GOVERNING LAW. This Amendment will be governed by the laws of the
State of Delaware, without giving effect to principles of conflict of laws of
that state.
IN WITNESS WHEREOF, the parties hereto have subscribed to this
Amendment as of the Effective Date.
CLASS A MEMBERS; BOSTON PACIFIC, INC.
a California corporation
BY: /s/ Joseph N. Stein
-------------------------------
Its: Chief Financial Officer
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
-2-
<PAGE> 3
CKE RESTAURANTS, INC.,
a Delaware corporation
BY: /s/ Joseph N. Stein
-------------------------------
JOSEPH STEIN
Its: Chief Financial Officer
/s/ Gregory G. Brightman
----------------------------------
GREGORY G. BRIGHTMAN
/s/ Hollis Gieger, Jr.
----------------------------------
HOLLIS GIEGER, JR.
/s/ Donald W. Manuel
----------------------------------
DONALD W. MANUEL
EDGEMON PROPERTIES,
an Alabama sole proprietorship
By: /s/ James H. Edgemon
------------------------------
JAMES H. EDGEMON
Its: President
/s/ J. Thomas Talbot
----------------------------------
J. THOMAS TALBOT
/s/ S. Kent Stewart
----------------------------------
S. KENT STEWART
CLASS B MEMBERS: BOSTON PACIFIC, INC.,
a California corporation
By: /s/ Joseph N. Stein
------------------------------
Its: Chief Financial Officer
-3-
<PAGE> 1
EXHIBIT 10.37
FOURTH AMENDMENT TO THE
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT OF
BOSTON WEST, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY
THIS FOURTH AMENDMENT TO THE OPERATING AGREEMENT ("Amendment") of
BOSTON WEST, L.L.C., a Delaware limited liability company (the "Company"), is
made effective January 31, 1996 ("Effective Date"), and is entered into by and
among all of the members of the Company whose names and signatures are reflected
on the signature pages hereof (the "Members").
1. RECITALS.
1.1 CKE RESTAURANTS, INC. and BOSTON PACIFIC, INC. formed the
Company pursuant to and in accordance with the Delaware Limited Liability
Company Act (6 Del. C. ss. 18-10, et. seq.) (the "Act"), as amended from time to
time by entering into a Limited Liability Company Agreement on March 29, 1995
(the "Original Agreement"), and by filing a Certificate of Formation of the
Company with the office of the Secretary of State of Delaware on March 29, 1995.
1.2 On April 16, 1995 the Members executed the Amended and
Restated Limited Liability Company Agreement (the "Amended Agreement"), to amend
and restate the Original Agreement in its entirety.
1.3 On May 15, 1995 the Members executed the first Amendment
to the Amended Agreement.
1.4 On May 30, 1995 the Members executed the Second Amendment
to the Amended Agreement.
1.5 On September 12, 1995 the Members executed the Third
Amendment to the Amended Agreement.
1.6 The Members now have determined that Sections 3.5 and 8.3
of the Amended Agreement fail to fully and accurately reflect the agreement of
the Members as to the allocation of Net Income and Net Losses (as defined in the
Amended Agreement) among the Members for federal and other income tax purposes.
Specifically, the Amended Agreement could be interpreted so as to require a full
allocation of Net Income to the Members in proportion to their Class A Units to
as to eliminate a negative balance in the Class A Members' Capital Accounts,
without making adjustments to reflect (or otherwise taking into account) the
prior allocation of Net Losses, solely for federal and other applicable income
tax purposes, to
- 1 -
<PAGE> 2
Members other than in proportion to their Class A Units in accordance with the
requirements of federal income tax laws and regulations; such an interpretation
of the Amended Agreement is not in accordance with the Members' understanding of
the way in which Net Income and Net Loss is to be allocated among the Members
for federal and other income tax purposes, as such allocations are described in
the Confidential Private Placement Memorandum dated on may 15, 1995, as amended,
in connection with the offering of $2,500,000 of Class A Membership Units in the
Company.
1.7 On October 30, 1995 the Internal Revenue Service published
proposed regulations (PS-34-92) governing the requirements for the designation
of the tax matters partner for limited liability companies which are organized
as partnerships for federal income tax purposes.
NOW, THEREFORE, in consideration of the mutual promises set
forth herein and for other good and valuable consideration, it is agreed as
follows:
2. DEFINITIONS. Any undefined capitalized terms used herein shall have
the same meaning as set forth in the Amended Agreement.
3. AMENDMENTS. The following sections of the Amended Agreement are
further amended in the manner set for below, and to read as set forth below:
3.1 Section 3.5(g) shall be renumbered as Section 3.5(i);
Section 3.5(f) shall be deleted, and the following three sections shall be
inserted after Section 3.5(e):
"(f) The allocations set forth in Sections 3.2, 3.3, 3.4
and 3.5(a) through (e) shall be interpreted and
applied in such as manner as to comply with the
provisions of Section 704(b) of the code and the
regulations issued thereunder (the "Substantial
Economic Effect Provisions") to the maximum extent
possible. However, to the extent that, in the
judgement of the Managers, such allocations as
required by this Agreement do not meet the
requirements of the Substantial Economic Effect
Provisions, the Managers are authorized, solely for
federal income tax purposes and, if applicable, state
and local income tax purposes, to allocate those
items which would not meet the requirements of the
Substantial Economic Effect Provisions if allocated
pursuant to the Agreement in a manner that will
satisfy the requirements of the Substantial Economic
Effect Provisions.
(g) The allocations set forth in Section 3.5(a) through
(f) hereof (the "Regulatory Allocations") shall be
taken into account in allocating Net Income and Net
Losses among
- 2 -
<PAGE> 3
the Members so that, to the extent possible, the net
amount of such allocations of Net Income and Net
Losses for federal income tax purposes and, if
applicable, state and local income tax purposes,
shall be equal to the net amount that would have been
allocated to each Member if the Regulatory
Allocations had not been taken into account.
(h) The Regulatory Allocations are intended to comply
with the Substantial Economic Effect Provisions.
Notwithstanding any other provisions of this
Agreement, to the extent that the Regulatory
Allocations result in allocations for federal income
tax purposes, and, if applicable, for state and local
income tax purposes, that differ from the allocations
provided by Sections 3.2, 3.3, and 3.4 hereof without
regard to the Regulatory Allocations, such
differences shall be corrected or reversed as quickly
as reasonably possible by means of subsequent
allocations of Net Income and Net Losses among the
Members solely for federal income tax purposes and,
if applicable, state and local income tax purposes,
provided that such subsequent allocations shall meet
the requirements of the Substantial Economic Effect
Provisions as determined by the Managers in their
sole discretion."
3.2 The first sentence of Section 4.5 Tax Matters Partner
is amended to read as follows:
"The 'tax matters partner' (as such term is defined
in Section 6231(a)(7) of the Code) of the Company
shall be Hollis Gieger, Jr., of any other Member or
Member-Manager which is qualified to serve as tax
matters partner in accordance with applicable
Treasury Regulations, and which is selected by a
majority of the Members to succeed it or any of its
successors, which shall be subject to the control of
the Management Committee."
3.3 Section 8.3(c) is amended to read as follows:
"(c) Net Income or Net Loss of the company
for the year of liquidation shall be credited or
charged to the Capital Accounts of the Members in
accordance with the allocation provisions set forth
in Sections 3.2, 3.3, 3.4 and 3.5 hereof."
3.4 The final two sentences of Section 8.3(d) are amended
to read as follows:
- 3 -
<PAGE> 4
"Third, to the Class B Members up to the
amount equal to the positive balance of the Capital
Accounts of the Class B Members (as such Capital
Accounts are maintained for federal income tax
purposes, taking into account the adjustments, if
any, made in accordance with Sections 3.5(f) and
3.5(g) hereof).
Fourth, to the Class A Members up to the
amount equal to the positive balance of the Capital
Accounts of the Class A Members (as such Capital
Accounts are maintained for federal income tax
purposes, taking into account the adjustments, if
any, made in accordance with Sections 3.5(f) and
3.5(g) hereof)."
4. RATIFICATION. In all other respects, the Amended Agreement is
ratified and confirmed in its entirety.
5. COOPERATION. The Members agree to cooperate with the Managers in
connection with any of the matters set forth in this Amendment, including the
execution of any documents which may reasonably be requested for the purpose of
giving effect to, evidencing, or giving notice of the Amendments set forth
herein.
6. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns.
7. COUNTERPARTS. Any number of counterparts of this Amendment may be
executed. Each such executed counterpart shall be deemed to be an original
instrument, and all such counterparts taken together shall constitute one
agreement.
8. GOVERNING LAW. This Amendment will be governed by the laws of the
State of Delaware, without giving effect to principles of conflict of laws of
that state.
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have subscribed to this
Amendment as of the date first above written.
MEMBERS
CLASS A MEMBERS:
BOSTON PACIFIC, INC.
a California corporation
By: /s/ Joseph Stein
----------------------------
JOSEPH STEIN
Its: chief Financial Officer
CKE RESTAURANTS, INC.
a California corporation
By: /s/ Joseph Stein
----------------------------
JOSEPH STEIN
Its: Chief Financial Officer
/s/ Gregory G. Brightman
--------------------------------
GREGORY G. BRIGHTMAN
/s/ Hollis Gieger, Jr.
--------------------------------
HOLLIS GIEGER, JR.
/s/ Donald W. Manuel
--------------------------------
DONALD W. MANUEL
EDGEMON PROPERTIES,
an Alabama sole proprietorship
By: /s/ James H. Edgemon
-----------------------------
JAMES H. EDGEMON
Its: Owner
[SIGNATURES CONTINUED ON NEXT PAGE]
- 5 -
<PAGE> 6
/s/ S. Kent Stewart
------------------------------
S. KENT STEWART
/s/ Michael J. Adams
------------------------------
MICHAEL J. ADAMS
/s/ David Lamm
------------------------------
DAVID LAMM
BALLARD INVESTMENTS
By: /s/ Michael B. Ballard
--------------------------
Its: General Partner
--------------------------
CLASS B MEMBERS:
BOSTON PACIFIC, INC.
-------------------------------
a California corporation
By: /s/ Joseph Stein
--------------------------
JOSEPH STEIN
Its: Chief Financial Officer
- 6 -
<PAGE> 1
EXHIBIT 10.38
UNIT OPTION AGREEMENT
THIS UNIT OPTION AGREEMENT is issued as of this 12th day of
September, 1995, by Boston West, L.L.C., a Delaware limited liability company,
(the ("COMPANY"), to Boston Pacific Inc., a California corporation ("OPTIONEE").
WITNESSETH:
WHEREAS, the Company is of the opinion that the interests of
the Company will be advanced by encouraging Optionee to acquire or increase its
proprietary interest in the Company, thus providing Optionee with a more direct
stake in its welfare and assuring a closer identification of its interests with
those of the Company.
NOW, THEREFORE, in consideration of the premises set forth
above and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the Company hereby grants an option to purchase units of
the Company to Optionee on the terms hereinafter expressed.
1. OPTION GRANT. The Company hereby grants to Optionee an option to
purchase a total of 31,000 Class A Units (as defined in the Limited Liability
Company Agreement of the Company) at an option exercise price of $10 per Class A
Unit.
2. TIME OF EXERCISE. This option may not be exercised before January
15, 1996 but may be exercised (in the manner provided in paragraph 3 below) in
whole or in part, and from time to time thereafter; provided, however, this
option may not be exercised after January 15, 1997. Notwithstanding the
foregoing, once those certain investors, who are required to pay the Company by
January 15, 1996, an aggregate sum of $1,250,000 in connection with the
completion of their purchase of Class A Units of the Company, pay such sum in
full to the Company, Optionee shall be required to exercise this option within
15 days following Optionee's receipt of written notice from the Company of the
completion of such payment in full.
3. METHOD OF EXERCISE. this option may be exercised only by notice in
writing delivered to the Treasurer of the Company and accompanied by:
(a) The full purchase price of the Class A Units
purchased payable by a certified or cashier's check payable to
the order of the Company;
<PAGE> 2
(b) Such other documents or representations as the Company may
reasonably request in order to comply with securities, tax or other
laws then applicable to the exercise of the option; and,
(c) Written notice of exercise to Boston Chicken, Inc.
4. ADJUSTMENTS.
(a) If the Company shall at any time change the number of
issued Class A Units without new consideration to the Company (such as by stock
dividend, stock split, recapitalization, reorganization, exchange of Class A
Units, liquidation, combination or other change in corporate structure affecting
the Class A Units) or make a distribution of cash or property which has a
substantial impact on the value of issued Class A Units, the total number of
Class A Units then remaining subject to purchase hereunder and the option
exercise price per Class A Unit shall be adjusted so that the total
consideration payable to the Company upon the purchase of all Class A Units not
theretofore purchased shall not be changed.
(b) In the case of any sale of assets, merger, consolidation,
combination or other corporate reorganization or restructuring of the Company
with or into another corporation which results in the outstanding Class A Units
being converted into or exchanged for different securities, cash or other
property, or any combination thereof (an "ACQUISITION"), Optionee shall have the
right thereafter and during the term of this Option (subject however to all of
the terms and conditions set forth herein), to receive upon exercise thereof the
Acquisition Consideration (as defined below) receivable upon the Acquisition by
a holder of the number of Class A Units which might have been obtained upon
exercise of this Option or portion thereof, as the case may be, immediately
prior to the Acquisition. The term "ACQUISITION CONSIDERATION" shall mean the
kind and amount of securities, cash or other property or any combination thereof
receivable in respect of one Class A Unit upon consummation of an Acquisition.
5. RIGHTS AND RESTRICTIONS. The Class A Units issuable upon exercise of
this Option shall be entitled to, and shall be subject to, all of the rights,
preferences, privileges and restrictions then applicable to the other Class A
Units then held by Optionee including but not limited to the Pledge Agreement
dated April 16, 1995.
6. MISCELLANEOUS.
(a) PROMPT DELIVERY OF DOCUMENTS. To the extent that any
documents are required to be executed by a party to
<PAGE> 3
effectuate this Agreement, the party will execute and deliver the document as
promptly as practicable.
(b) Amendment. This Agreement cannot be altered, amended, or
modified, in any respect, except by a writing duly executed by all of the
parties and with the prior written consent of Boston Chicken, Inc., which
consent will not be unreasonably withheld or delayed.
(c) entire Agreement. This Agreement, including the Exhibits
referenced herein, is the entire agreement between the parties with respect to
the subject matter hereof and all prior agreements, understandings, oral
agreements and writings are expressly superseded hereby.
(d) SEVERABILITY. The provisions of this Agreement are
severable. If a court of competent jurisdiction rules that any provision of this
Agreement is invalid or unenforceable, the court's ruling will not effect the
validity and enforceability of the other provisions of this Agreement.
(e) GOVERNING LAW. This Agreement and the legal
relations between the parties shall be governed by and construed in
accordance with the internal laws of the State of Delaware, without
giving effect to principles of conflicts of laws.
(f) HEADINGS. The title of the various paragraphs in this
Agreement are intended solely for convenience of reference, and are not intended
and shall not be deemed for any purpose whatsoever to modify, explain or place
any construction upon any of the provisions of this Agreement and shall not
affect the meaning or interpretation of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 4
IN WITNESS WHEREOF, the Company has caused this Unit Option
Agreement to be executed on the date first above written.
BOSTON WEST, L.L.C.,
A Delaware limited liability company
By: /s/ Robin D. Downing
----------------------------------
Its CFO
ACCEPTED BY OPTIONEE:
BOSTON PACIFIC, INC.
By /s/ Joseph N. Stein
----------------------------------
Its CFO
The undersigned agrees that the transaction contemplated by this
Agreement shall not be a "Default" as defined in the Secured Loan Agreement
dated April 16, 1995.
BOSTON CHICKEN, INC.
a Delaware corporation
By: /s/ Donald J. Bingle
----------------------------------
Its Vice President
<PAGE> 1
EXHIBIT 10.39
UNIT REPURCHASE AGREEMENT
THIS UNIT REPURCHASE AGREEMENT is made as of this 12th day of
September, 1995 by and between Boston West, L.L.C., a Delaware limited liability
company ("BOSTON WEST"), and Boston Pacific, Inc., a California corporation
("BPI").
WHEREAS, BPI owns an aggregate of 62,000 Class Units (as defined in the
Limited Liability Company Agreement of Boston West); and,
WHEREAS, in accordance with the terms, conditions and provisions of
this Agreement, Boston West desires to repurchase from BPI, and BPI desires to
sell to Boston West, 31,000 Class A Units (the "REPURCHASED UNITS").
FOR GOOD AND VALUABLE CONSIDERATION, the sufficiency and receipt of
which is hereby acknowledged, and in consideration of the mutual covenants and
agreements set forth herein, the parties hereby agree as follows:
ARTICLE 1
REPURCHASE OF THE UNITS
1.1 TRANSFER OF THE UNITS. On the date hereof, BPI will tender for
purchase and sell, transfer, assign, release and convey to Boston West, as
provided herein, all of BPI's right, title and interest in the Repurchased
Units.
1.2 PAYMENT. On the date hereof, Boston West shall pay to BPI the sum
of Three Hundred Ten Thousand Dollars ($310,000.00) as full payment and
satisfaction for the repurchase of the Repurchase Units.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 BY BPI. BPI represents and warrants to Boston West that as of the
date hereof:
2.1.1 AUTHORITY AND RIGHT. BPI has the full power, authority
and right to execute and deliver this Agreement, and consummate the transactions
contemplated hereby.
2.1.2 BINDING AND ENFORCEABLE. This Agreement has been duly
and validly executed and delivered by BPI and constitutes a legal, valid and
binding agreement of BPI enforceable against BPI in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, reorganization
<PAGE> 2
or other laws affecting the enforcement of creditors' rights generally now or
hereafter in effect, and subject to the availability of equitable remedies.
2.1.3 OWNERSHIP OF REPURCHASED UNITS. BPI has the absolute
right to sell, transfer, assign and convey the Repurchased Units to Boston West,
free and clear of all security interests, liens, pledges, encumbrances, adverse
claims and demands of every kind or character and subject to no legal or
equitable restrictions of any kind.
2.1.4 CONSENTS. No consent, approval or other authorization of
any third party is required in connection with the execution, delivery and
performance by BPI of BPI's obligations under this Agreement, except for those
consents which have already been obtained.
2.2 BY BOSTON WEST. Boston West represents and warrants to BPI that as
of the date hereof:
2.2.1 AUTHORITY AND RIGHT. Boston West has the full power,
authority and right to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
2.2.2 BINDING AND ENFORCEABLE. This Agreement has been duly
and validly executed and delivered by Boston West and constitutes a legal, valid
and binding agreement of Boston West enforceable against BPI in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally now or hereafter in effect, and subject to the availability of
equitable remedies.
2.2.3 CONSENTS. No consent, approval or other authorization of
any third party is required in connection with the execution, delivery and
performance by Boston West of Boston West's obligations under this Agreement,
except for those consents which have already been obtained.
2.3 BPI'S CLOSING DOCUMENTS. BPI shall execute and deliver, or cause to
be delivered, to Boston West such documents and agreements as may be either
reasonable or necessary to carry out the purpose and intention of this
Agreement.
2.4 BOSTON WEST'S CLOSING DOCUMENTS. Boston West shall execute and
deliver to BPI such documents and agreements as may be either reasonable or
necessary to carry out the purpose and intention of this Agreement.
<PAGE> 3
ARTICLE 3
MISCELLANEOUS
3.1 PROMPT DELIVERY OF DOCUMENTS. to the extent that any documents are
required to be executed by a party to effectuate this Agreement, the party will
execute and deliver the document as promptly as practicable.
3.2 AMENDMENT. This Agreement cannot be altered, amended, or modified,
in any respect, except by a writing duly executed by all of the parties and with
the prior written consent of Boston Chicken, inc., which consent will not be
unreasonably withheld or delayed.
3.3 ENTIRE AGREEMENT. This Agreement, including the Exhibits referenced
herein, is the entire agreement between the parties with respect to the subject
matter hereof and all prior agreements, understandings, oral agreements and
writings are expressly superseded hereby.
3.4 SEVERABILITY. The provisions of this Agreement are severable. If a
court of competent jurisdiction rules that any provision of this Agreement is
invalid or unenforceable, the court's ruling will not effect the validity and
enforceability of the other provisions of this Agreement.
3.5 GOVERNING LAW. this Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the internal laws
of the State of [Delaware], without giving effect to principles of conflicts of
laws.
3.6 HEADINGS. the title of the various paragraphs in this Agreement are
intended solely for convenience of reference, and are not intended and shall not
be deemed for any purpose whatsoever to modify, explain or place any
construction upon any of the provisions of this Agreement and shall not affect
the meaning or interpretation of this Agreement.
3.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have entered into and executed
this Unit Repurchase Agreement on the date first indicated above.
BOSTON WEST, L.L.C.,
a Delaware limited liability company
By: /s/ Robin D. Downing
------------------------------------
Its: CFO
BOSTON PACIFIC, INC.,
a California corporation
By: /s/ Joseph N. Stein
------------------------------------
Its: CFO
The undersigned agrees that the transaction contemplated by this
Agreement shall not be a "Default" as defined in the Secured Loan Agreement
dated April 16, 1995.
BOSTON CHICKEN, INC.
a Delaware corporation
By: /s/ Donald J. Bingle
------------------------------------
Its: Vice President
<PAGE> 1
EXHIBIT 10.40
TERM LOAN AND SECURITY AGREEMENT
BETWEEN
CARL KARCHER ENTERPRISES, INC.,
AS BORROWER
AND
HELLER FINANCIAL, INC.,
AS LENDER
CLOSING DATE: DECEMBER 19, 1995
PRINCIPAL AMOUNT: $7,000,000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Definitions, Terms and References................................................................. 1
1.1 Certain Definitions....................................................................... 1
1.2 Use of Defined Terms...................................................................... 8
1.3 Accounting Terms.......................................................................... 8
1.4 UCC Terms................................................................................. 8
1.5 Terminology............................................................................... 8
1.6 Exhibits.................................................................................. 8
2. The Financing..................................................................................... 8
2.1 Term Loan Facility........................................................................ 8
2.2 Amortization.............................................................................. 9
2.3 Interest.................................................................................. 9
2.4 Term Notes................................................................................ 10
2.5 Security Deposit/Closing Fee.............................................................. 10
2.6 Late Charge; Liquidated Damages........................................................... 10
2.7 Voluntary Prepayment...................................................................... 11
2.8 Nature of Charges Imposed................................................................. 11
2.9 Savings Clause............................................................................ 12
3. Security Interest -- Collateral................................................................... 13
3.1 Representations and Warranties............................................................ 14
3.2 Special Provisions Regarding Sales and Closings of Financed Restaurant Locations.......... 16
4. General Representations and Warranties............................................................ 17
4.1 Existence................................................................................. 18
4.2 Authority................................................................................. 18
4.3 No Material Litigation.................................................................... 18
4.4 Payment of Taxes.......................................................................... 18
4.5 No Violations Generally................................................................... 18
4.6 Financial Statements; Liabilities......................................................... 19
4.7 Pollution and Environmental Control....................................................... 19
5. Affirmative Covenants............................................................................. 20
5.1 Books and Records......................................................................... 20
5.2 Periodic Financial Statements............................................................. 20
5.3 Annual Financial Statements............................................................... 21
5.4 Compliance Certificates................................................................... 21
5.5 SEC Filings............................................................................... 21
5.6 Payment of Taxes.......................................................................... 21
5.7 Maintenance of Insurance.................................................................. 22
5.8 Preservation of Existence................................................................. 23
5.9 Compliance with Laws...................................................................... 23
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.10 Environmental Law Complaint............................................................... 23
5.11 Litigation; Events of Default, Etc........................................................ 25
6. Negative Covenant................................................................................. 25
6.1 Dividends and Distributions.................................................................. 25
6.2 Green Burrito Co-Branding Arrangements....................................................... 25
7. Events of Default................................................................................. 26
7.1 Term Notes................................................................................ 26
7.2 Other Obligations......................................................................... 26
7.3 Misrepresentations........................................................................ 26
7.4 Covenants................................................................................. 26
7.5 Other Debts............................................................................... 26
7.6 Voluntary Bankruptcy...................................................................... 26
7.7 Involuntary Bankruptcy.................................................................... 27
7.8 Judgments................................................................................. 27
7.9 Change of Control......................................................................... 27
7.10 Loss of Collateral........................................................................ 27
7.11 Guarantor................................................................................. 28
7.12 Total Debt Service Coverage Ratio......................................................... 28
7.13 Total Liabilities to Total Net Worth Ratio................................................ 29
7.14 Material Agreements....................................................................... 29
8. Remedies.......................................................................................... 29
8.1 Acceleration of the Obligations........................................................... 29
8.2 Remedies of a Secured Party............................................................... 30
8.3 Repossession of the Collateral............................................................ 30
8.4 Other Remedies............................................................................ 30
9. Miscellaneous..................................................................................... 31
9.1 Waiver.................................................................................... 31
9.2 Governing Law............................................................................. 31
9.3 Survival.................................................................................. 31
9.4 No Assignment by Borrower; Lender may Assign.............................................. 31
9.5 Counterparts.............................................................................. 32
9.6 Reimbursement............................................................................. 32
9.7 Successors and Assigns.................................................................... 32
9.8 Severability.............................................................................. 32
9.9 Notices................................................................................... 33
9.10 Entire Agreement - Amendment.............................................................. 33
9.11 Time of the Essence....................................................................... 33
9.12 Interpretation............................................................................ 34
9.13 Lender Not a Joint Venturer............................................................... 34
9.14 Jurisdiction.............................................................................. 34
9.15 Payment on Non-Business Days.............................................................. 34
9.16 Waiver of Rights.......................................................................... 34
9.17 Cure of Defaults by Lender................................................................ 35
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
9.18 Recitals.................................................................................. 35
9.19 Attorney-in-Fact.......................................................................... 35
9.20 Sole Benefit.............................................................................. 35
9.21 Remedies.................................................................................. 35
9.22 Indemnity................................................................................. 35
9.23 Acceptance................................................................................ 36
10. Conditions Precedent.............................................................................. 36
</TABLE>
<PAGE> 5
TERM LOAN AND SECURITY AGREEMENT
THIS TERM LOAN AND SECURITY AGREEMENT, made, entered into and effective
as of the 19th day of December, 1995, by and between CARL KARCHER ENTERPRISES,
INC., a California corporation ("Borrower"), and HELLER FINANCIAL, INC., a
Delaware corporation ("Lender");
W I T N E S S E T H :
WHEREAS, Borrower has applied to Lender for a term loan facil ity in
the principal amount of Seven Million Dollars ($7,000,000), the proceeds from
which, when obtained, will be used by Borrower to finance the renovation of
existing Carl's Jr. restaurants owned by Borrower, the conversion of existing
Carl's Jr. restaurants to a co-branded concept with Green Burrito and the
construction of new Carl's Jr. restaurants and for general corporate purposes of
Borrower; and
WHEREAS, Lender has considered Borrower's request for such financing
and is willing to extend such financing to Borrower for such purposes in
accordance with the terms of this Agreement upon the execution of this Agreement
by Borrower, compliance by Borrower with all of the terms and provisions of this
Agreement and fulfillment by Borrower of all conditions precedent to Lender's
obligations herein contained;
NOW, THEREFORE, in consideration of the foregoing premises, to induce
Lender to extend the financing provided for herein, and for other good and
valuable consideration, the sufficiency and receipt of all of which are
acknowledged by Borrower, Lender and Borrower agree as follows:
1. DEFINITIONS, TERMS AND REFERENCES.
1.1. CERTAIN DEFINITIONS. In addition to such other terms as are
elsewhere defined herein, as used in this Agreement and in any Exhibits, the
following terms shall have the following meanings, unless the context requires
otherwise:
"Agreement" shall mean this Term Loan and Security Agreement, as
amended or supplemented from time to time.
"Applicable Rate" shall mean the Fixed Rate or the Default Rate, as
applicable to each Term Loan pursuant to Section 2.3 hereof.
"Bankruptcy Code" shall mean Title 11 of the United States Code, as
amended from time to time.
1
<PAGE> 6
"Borrower" shall have the meaning ascribed thereto in the ini tial
recitals to this Agreement.
"Business Day" shall mean a day on which Lender is open for the conduct
of business at its offices in Atlanta, Georgia and Chicago, Illinois.
"Closing Date" shall mean the date of this Agreement, as specified
hereinabove.
"Collateral" shall mean, collectively, the Equipment Col lateral, the
Real Estate Collateral and any and all other property of Borrower described in
Article 3, or any part thereof, or else where herein or in any Loan Document,
all as the context shall require, in which Lender has, or is to have, or
hereafter may ob tain, a security interest, lien or encumbrance pursuant
thereto, as security for payment of the Obligations.
"Compliance Certificate" shall mean a certificate of Borrower executed
by the chief financial officer of Borrower, on Borrower's behalf, stating that
no Event of Default or Default Condition has occurred or exists, or if an Event
of Default or Default Condition has occurred or exists, specifying the nature
and period of exist ence thereof and what action Borrower has taken or proposes
to take with respect thereto.
"Contaminant" shall mean those substances which are regulated by or
form the basis of liability under federal, state or local environmental, health
and safety statutes or regulations including, without limitation, asbestos,
polychlorinated biphenyls ("PCBs"), radioactive substances, petroleum, petroleum
products, each "hazardous substance", as defined in Section 25281(f) of the
California Health and Safety Code, "waste", as defined in Section 13050(d) of
the California Water Code, or any other material or substance which constitutes
a material health, safety or environ mental hazard to any Person or Property.
"Default Condition" shall mean the occurrence of any event which, after
satisfaction of any requirement for the giving of notice or the lapse of time,
or both, would become an Event of Default.
"Default Rate" shall mean, as to each Term Loan, that simple interest
rate equal to two percent (2%) per annum in excess of the Fixed Rate applicable
to such Term Loan.
"Environmental Claim" shall mean any notice of violation, claim, suit,
demand, abatement or other order or direction (condi tional or otherwise) by any
Governmental Authority or any Person for personal injury (including sickness,
disease or death), tan gible or intangible property damage, damage to the
2
<PAGE> 7
environment, nuisance, pollution, contamination or other adverse effects on the
environment, or for fines, penalties or restrictions, resulting from or based
upon (i) the existence, or the continuation of the existence, of a Release
(including, without limitation, sudden or non-sudden, accidental or
non-accidental Releases) of, or exposure to, any Contaminant, odor or audible
noise (other than noise resulting from the use of Borrower's drive-thru speaker
equipment at its restaurant locations) or other release or emission in, into or
onto the environment (including, without limitation, the air, ground, surface
water, groundwater or any surface) in, by, from, or related to any Property,
(ii) the environmental aspects of the transportation, storage, treatment or
disposal of materials, in connection with the operation of any Property or (iii)
the violation, or alleged violation, of any statutes, ordinances, orders, rules,
regulations, Permits, licenses, registrations or ap provals of or from any
Governmental Authority relating to envi ronmental matters connected with any
Property.
"Environmental Laws" shall mean all laws relating to the en
vironmental, safety, health and the regulation of Contaminants, including,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. ss. 9601 et seq.), the Superfund Amendments and
Reauthorization Act of 1986, Public Law No. 99-499, 100 Stat. 163, the Hazardous
Material Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Con
servation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Clean Water Act (33
U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the
Toxic Substances Control Act, as amended (15 U.S.C. ss. 2601 et seq.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.),
the Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.), Division 20
of the California Health and Safety Code, and Division 7 of the California Water
Code, as such laws have been and hereafter may be amended or supplemented, and
any analogous future federal, or present or future state or local laws and all
rules and regulations promulgated pursuant thereto.
"Equipment Collateral" shall mean all equipment, machinery, furniture,
furnishings and fixtures located on, or used or useful in the operation of a
Restaurant Business at each Financed Res taurant Location, including, without
limitation, each Restaurant, together with all furniture, fixtures and equipment
in each Restau rant, any and all lighting (including without limitation any and
all lighting fixtures, lighting pedestals, and flood lights), re movable signage
of all varieties, sprinkler controls, sprinkler solenoids, sprinkler heads,
exterior menu boards and exterior in tercom ordering systems, exterior music
speakers and pedestals, and any and all personal property of any kind or nature
contained in, on, or around and/or associated with in any manner the operation
of each Restaurant, and all building and construction
3
<PAGE> 8
materials, supplies and equipment incorporated in each Restaurant and all
machinery, appliances, pipes, conduits, generators, engines, pumps, motors,
compressors, boilers, condensing units, disposals, sprinklers, wiring, and
furnishings of every kind and description which may be used or useful in
connection with the operation of and located inside each Restaurant; all outside
seats, tables and umbrellas, outside trash bins and trash cans; all outside
removable electrical transformers; all grills, ranges, fryers, broilers, ice
machines, ice cream machines, warmers, refrigerators, freezers, ov ens,
toasters, mixers and grinders; all security, fire, smoke and other alarm
systems; all cash registers and point-of-sale termi nals; all computers
(hardware and software); all in-store com munication devices; together with any
and all extensions, addi tions, improvements, betterments, after-acquired
property, renew als, replacements and substitutions or proceeds from a voluntary
or involuntary sale, liquidation or conversion of any of the fore going; and all
attachments, additions and accessions thereto, and any and all tools, cooking
and cleaning utensils, repair parts and spare parts therefor; all whether now or
hereafter existing.
"Event of Default" shall mean any of the events or conditions described
in Article 7, provided that any requirement for the giv ing of notice or the
lapse of time, or both, has been satisfied.
"Financed Restaurant Location" shall mean each parcel of real property
owned by Borrower and set forth and described on Exhibit "A" attached hereto on
which Borrower is conducting, or is to con duct, a Restaurant Business out of a
Restaurant, together with all buildings and other improvements thereto and all
appurtenances thereto. After acceptance thereof by Lender pursuant to Section
3.2 hereof, each Substitute Financed Restaurant Location shall be a Financed
Restaurant Location for all purposes of this Agreement.
"Fixed Rate" shall mean, as to each Term Loan, a simple inter est rate
equal to ______________ percent (____%) per annum.
"GAAP" shall mean generally accepted accounting principles which are
(a) consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors as in effect on January 1, 1993,
(b) such that a certified public accountant would, insofar as the use of
accounting principles is pertinent, be in a position to deliver an unqualified
opinion as to financial statements in which such principles have been properly
applied and (c) applied on a basis consistent with prior periods.
"Governmental Authority" shall mean any nation or government, federal,
state, city, town, municipality, county, local or
4
<PAGE> 9
political subdivision thereof or thereto and any department, commission,
instrumentality or agency exercising executive, legislative, judi cial,
regulatory or administrative functions on behalf thereof.
"Guarantor" shall mean, CKE Restaurants, Inc., a Delaware corporation.
"Headquarters" shall mean the principal place of business and chief
executive of Borrower, and the office where all books and records of Borrower
are maintained, being 1200 North Harbor Boule vard, Anaheim, California 92803.
"Indebtedness" shall mean all obligations, contingent and oth erwise,
which in accordance with GAAP should be classified upon an obligor's balance
sheet as liabilities, or to which reference should be made by footnotes thereto,
including, without limitation, in any event and whether or not so classified:
(a) all debt and similar monetary obligations, whether direct or indirect; (b)
all liabilities secured by any mortgage, pledge, security interest, lien,
charge, or other encumbrance existing on property owned or acquired subject
thereto, whether or not the liability secured thereby shall have been assumed;
and (c) all guarantees, endorsements and other contingent obligations, whether
direct or indirect, in respect of Indebtedness of others, including any ob
ligation to supply funds to or in any manner to invest in, directly or
indirectly, the debtor, to purchase Indebtedness, or to assure the owner of
Indebtedness against loss, through an agreement to purchase goods, supplies, or
services for the purpose of enabling the debtor to make payment of the
Indebtedness held by such owner or otherwise, and the obligations to reimburse
the issuer in respect of any letters of credit.
"Independent Accountants" shall mean KPMG Peat Marwick or an other firm
of nationally recognized independent certified public accountants selected on
behalf of Guarantor and Borrower by the Board of Directors of Guarantor and
reasonably acceptable to Lender.
"Lender" shall have the meaning ascribed thereto in the initial
recitals to this Agreement. The term "Lender" shall also include any Participant
to whom Lender shall assign, in whole or in part, its right, title and interest
in and to the Obligations and here under subsequent to the Closing Date.
"Loan Documents" shall mean this Agreement, each Term Note, each
Mortgage, each financing statement, and each and every other document,
instrument, certificate and agreement executed and/or delivered by Borrower in
connection herewith, or any one, more, or all of the foregoing, all as the
context shall require.
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"Material Adverse Change" shall mean (a) any change occurring in the
business, operations, properties or condition (financial or otherwise) of
Borrower or Guarantor, which materially and adversely affects (i) the ability of
Borrower or Guarantor to own or operate its assets or conduct its business as a
going concern, (ii) the collateral value to Lender of the whole of, or any
material portion of, the Collateral, or (iii) the ability of Borrower to pay the
Obligations as and when due and payable or otherwise perform its obligations
hereunder or under the other Loan Documents; or (iv) the ability of Guarantor to
perform its obligations to Lender under its guaranty of the Obligations; or (b)
the failure or inability, of either Borrower or Guarantor to pay or perform its
obligations to its creditors generally.
"Material Adverse Effect" shall mean an effect that has re sulted in,
will result in, or is reasonably likely to result in, a Material Adverse Change.
"Material Agreements" shall mean all loan and other debt in struments
and agreements; all management, employment and labor agreements; and any other
agreements, not specified hereinabove, the loss, dimunition or impairment of
which would have, or would reasonably be expected to have, a Material Adverse
Effect.
"Mortgage" shall mean each mortgage, deed of trust or similar
instrument pursuant to which Lender shall obtain a mortgage lien, security
interest or security title on or in any right, title and ownership of Borrower,
as owner, in and to any Financed Restaurant Location.
"Obligations" shall mean and include any and all indebtedness,
liabilities and obligations of Borrower to Lender arising hereunder or as a
result hereof, whether evidenced by the Term Notes or otherwise, and any and all
extensions or renewals thereof in whole or in part; together with any and all
other indebtedness, li abilities and obligations of Borrower to Lender, whether
existing as of the date hereof or hereafter arising, existing or incurred,
whether under a loan, lease, line of credit, letter of credit or other type of
financing, whether direct, indirect, absolute or contingent, as maker, endorser,
guarantor, surety or otherwise, and whether evidenced by, arising out of, or
relating to, a promissory note, bill of exchange, check, draft, bond, letter of
credit, guaranty agreement or otherwise issued in favor of, or acquired by,
Lender.
"Participant" shall mean any Person to whom, now or hereafter, Lender
sells a participation interest in, or makes an assignment of, its right, title
or interest hereunder and in the Obligations (whether in whole or in part).
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"Permit" shall mean any permit, approval, authorization, li cense,
variance, or permission required from a Governmental Au thority having
jurisdiction under an applicable Environmental Law.
"Person" shall mean any individual, partnership, corporation, trust,
unincorporated association, business trust, sole propri etorship, or joint
venture, a government or any department, agency, political subdivision or
instrumentality thereof, or any other entity or organization.
"Property" or "Properties" shall mean any real or personal property
owned, leased or operated by Borrower.
"Real Estate Collateral" shall mean all right, title and in terest of
Borrower as owner in fee simple of the Financed Res taurant Locations, inclusive
of all buildings and other improve ments thereon and all appurtenances thereto.
"Release" shall mean any actual or threatened release, spill, emission,
leaking, pumping, injection, deposit, disposal, dis charge, dispersal, leaching
or migration into the indoor or outdoor environment or into or out of any
Property, including the movement of Contaminants through or into the air, soil,
subsurface strata, surface water or groundwater.
"Remedial Action" shall mean all actions required to (1) clean up,
remove, treat or in any other way address Contaminants in the indoor or outdoor
environment; (2) prevent the Release or threat of Release or minimize the
further Release of Contaminants so they do not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment; or
(3) perform pre- remedial studies and investigations and post-remedial
monitoring and care in respect of actions contemplated in the preceding clauses
(1) and (2), in each instance in compliance with Environmental Laws.
"Restaurant" shall mean each Carl's Jr. Restaurant building owned by
Borrower and situated at a Financed Restaurant Location, on which Borrower is
conducting, or is to conduct, a Restaurant Business.
"Restaurant Business" shall mean the operation of a Restaurant by
Borrower at a Financed Restaurant Location.
"Subsidiary" shall mean, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person
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or one or more of the other Subsidiaries of that Person or a combination
thereof.
"Substitute Financed Restaurant Location" shall have the meaning
assigned thereto in Section 3.2 hereof.
"Term Loan" shall mean each term loan made by Lender to Bor rower
pursuant to Section 2.1 below. "Term Loans" shall refer, collectively, to all
such loans from time to time outstanding.
"Term Loan Facility" shall mean the term loan facility in the maximum
amount of Seven Million Dollars ($7,000,000) established by Lender in favor of
Borrower pursuant to Section 2.1.
"Term Note" shall mean each Term Promissory Note issued by Borrower to
Lender to evidence the repayment obligation associated with a Term Loan,
together with any extensions or renewals thereof, in whole or in part.
"UCC" shall mean the Uniform Commercial Code of Illinois, as in effect
on the Closing Date.
1.2. USE OF DEFINED TERMS. All terms defined in this Agree ment and the
Exhibits shall have the same defined meanings when used in any other Loan
Documents, unless the context shall require otherwise.
1.3. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall have the meanings generally attributed to such terms under GAAP.
1.4. UCC TERMS. The terms "equipment", "proceeds" and "prod ucts", as
and when used in the Loan Documents, together with any other or similar terms
not specifically defined herein but which are defined in the UCC shall have the
same meanings as given to such terms therein.
1.5. TERMINOLOGY. All personal pronouns used in this Agree ment,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; the singular shall include the plural, and the plural shall
include the singular. Titles of Articles and Sections in this Agreement are for
convenience only, and neither limit nor amplify the provisions of this
Agreement, and all references in this Agreement to Articles, Sections, Sub
sections, paragraphs, clauses, subclauses or Exhibits shall refer to the
corresponding Article, Section, Subsection, paragraph, clause, subclause of, or
Exhibit attached to, this Agreement, un less specific reference is made to the
articles, sections or other subdivisions divisions of, or Exhibit to, another
document or in strument.
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1.6. EXHIBITS. All Exhibits attached hereto are by reference made a
part hereof as fully as if the contents thereof were set forth expressly herein.
2. THE FINANCING.
2.1. TERM LOAN FACILITY. Lender hereby creates the Term Loan Facility
in favor of Borrower so that on the Closing Date Borrower may obtain two (2)
Term Loans, as follows: (i) a Term Loan of Six Million Four Hundred Eighty-Eight
Thousand Dollars ($6,488,000) in principal amount (herein, sometimes called
"Term Loan A") and (ii) a Term Loan of Five Hundred Twelve Thousand Dollars
($512,000) in principal amount (herein, sometimes called "Term Loan B"). The
Term Loans shall be cross-collateralized and cross-defaulted, each to and with
the other, until both Term Loans are fully paid and satisfied and this Agreement
is terminated. Each Term Loan so obtained shall reduce, dollar-for-dollar, the
amount which may be borrowed under the Term Loan Facility. No amount of either
Term Loan may be reborrowed once disbursed, notwithstanding its repayment.
2.2. AMORTIZATION. The principal amount of each Term Loan, together
with accrued interest thereon at the then Applicable Rate, shall be paid as
follows: (a) as to Term Loan A, in fifty-nine (59) equal (or nearly equal)
monthly installments (based on one hundred eighty month amortization),
commencing on January 1, 1996, and concluding on November 1, 2000, followed by a
balloon payment in the amount of the unpaid principal balance of Term Loan A and
all accrued and unpaid interest thereon, due and payable on December 1, 2000;
and (b) as to Term Loan B, in sixty (60) equal (or nearly equal) monthly
installments (based on a sixty month amortization), commencing on January 1,
1996, and continuing through December 1, 2000; it being understood and agreed
that: (i) all payments on a Term Loan shall be applied, when received, first to
accrued interest on such Term Loan until paid in full and, then, to the
principal amount thereof; (ii) the amortization of the Term Loans shall be based
on level monthly payments (inclusive of principal and accrued interest); and
(iii) the last payment on each Term Loan shall, in any event, be in that amount
necessary to pay in full the then unpaid principal balance of such Term Loan
together with all accrued, but unpaid, interest thereon. Attached as Schedules I
and II hereto are the respective amortization schedules for Term Loan A and Term
Loan B.
2.3. INTEREST. Each Term Note shall bear interest at the Fixed Rate.
Interest shall be computed on the unpaid principal balance of each Term Note
from time to time outstanding, computed on the daily outstanding principal
balance thereof on the basis of a year of 360 days (based on twelve 30-day
months). Interest on each Term Loan shall be payable monthly in arrears,
commencing
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on January 1, 1996, to be collected for the preceding calendar month (or, in the
case of the first such payment, from such disbursement date through the end of
such calendar month, regardless whether such period is greater or lesser than a
calendar month), and continuing on the first day of each succeeding calendar
month and upon payment or prepayment in full of each Term Note. Notwithstanding
the foregoing, however, from and after the occurrence of any Event of Default,
and continuing for so long thereafter as such Event of Default shall be
continuing, Lender shall have the right to increase the interest rate payable on
each Term Note to the Default Rate applicable thereto upon giving Bor rower ten
(10) calendar days' advance written notice thereof, and Borrower shall be
responsible for the payment of the additional interest resulting therefrom.
2.4. TERM NOTES. The indebtedness represented by each Term Loan shall
be evidenced by a Term Note corresponding in principal amount thereto. Each Term
Note shall be executed by Borrower and delivered to Lender coincident with the
disbursement of the Term Loan on the Closing Date.
2.5. SECURITY DEPOSIT/CLOSING FEE. Heretofore, Borrower made a security
deposit of Sixty Thousand Dollars ($60,000) with Lender in connection with its
initial application for the Term Loan Fa cility (the "Deposit"), which Lender
continues to hold in escrow as of the Closing Date. On or as soon as practicable
after the Closing Date, Lender will determine the amount of expenses incurred by
it in connection with the closing of this transaction which are reimbursable by
Borrower pursuant to Section 9.6 and apply the Deposit to the payment thereof,
and any remainder shall be returned to Borrower, but Borrower shall be liable to
Lender for any deficiency after such applications is made. On the Closing Date,
Borrower will pay Lender a non-refundable closing fee of Thirty- Five Thousand
Dollars ($35,000). This fee shall be deemed earned on the Closing Date.
2.6. LATE CHARGE; LIQUIDATED DAMAGES. If payment of any principal of,
or interest on, any Term Note or any other sum payable hereunder or under any
other Loan Document is not received within five (5) calendar days after its due
date, Lender shall have the right to impose a late charge relative to such
payment in an amount equal to up to five percent (5%) of the amount of such past
due payment, which charge, if imposed by Lender, shall be due and payable by
Borrower immediately upon receipt of notice thereof. In connection with the
foregoing, Borrower recognizes that its default in making, when due, any payment
of principal or interest due under either Term Note or any other sum payable
hereunder or under any other Loan Document, or the occurrence of any other Event
of Default, will require Lender to incur additional expense in servicing and
administering the Term Loans, in loss to Lender of the use of the money due and
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<PAGE> 15
in frustration to Lender in meeting its other financial and loan commitments and
that the damages caused thereby would be extremely difficult and impractical to
ascertain. Borrower agrees that (a) an amount equal to the late charge described
in the first sentence of this Section 2.6 plus the accrual of interest at the
default rate of interest set forth in the last sentence of Section 2.3 hereof is
a reasonable estimate of the damage to Lender in the event of a late payment and
(b) the accrual of interest at the default rate of interest set forth in the
last sentence of Section 2.3 hereof is a reasonable estimate of the damages to
Lender in the event of such other Event of Default, regardless of whether there
has been acceleration of the Term Loans. Nothing herein shall be construed as an
obligation on the part of Lender to accept, at any time, less than the full
amount then due hereunder, or as a waiver or limitation of Lender's right to
compel prompt performance.
2.7. VOLUNTARY PREPAYMENT. Provided that no Default Condition or Event
of Default has occurred which is then continuing, both Term Notes may be
prepaid, in whole as to both Term Notes but, except as provided in Section 3.2
hereof, not in part, by Borrower at any time or from time to time after the
Closing Date; provided, however, that (i) any such prepayment (inclusive of any
prepayment pursuant to Section 3.2 hereof) may be made only on a date on which a
regularly scheduled payment of principal is to be made; (ii) any such prepayment
must be preceded by at least forty-five (45) calendar days prior written notice
thereof to Lender; and (iii) any partial prepayment of a Term Note must be made
only in compliance with Section 3.2 below and shall be applied when received to
the then remaining installments of such Term Note in the reverse order of their
respective maturities (beginning with the balloon payment in the case of Term
Loan A); and, provided, further, that any such prepayment must be accompanied by
the payment of all then accrued, but unpaid, interest on the principal amount to
be prepaid, to gether with a prepayment premium, representing liquidated damages
to Lender for the loss of its bargain and not a penalty, equal in amount to (A)
four percent (4%) of the principal amount of the Term Note so prepaid, if such
prepayment is made during the period from the Closing Date through the first
anniversary of the Closing Date; (B) three percent (3%) of the principal amount
of the Term Note so prepaid, if such prepayment is made during the period after
the first anniversary of the Closing Date through the second anniversary of the
Closing Date; (C) two percent (2%) of the prin cipal amount of the Term Note so
prepaid, if such prepayment is made during the period after the second
anniversary of the Closing Date through the third anniversary of the Closing
Date; and (D) one percent (1%) of the principal amount of the Term Note so
prepaid, if such prepayment is made during the period during the period after
the third anniversary of the Closing Date through the fourth anniversary of the
Closing Date. In the event
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that at any time hereafter, as a result of the occurrence and continuation of
any Event of Default, payment of the Term Notes is accelerated by Lender,
Borrower shall become obligated to pay Lender, in addition to any and all other
sums payable hereunder, as liquidated damages for the loss of its bargain and
not as a penalty, an amount equal to the then applicable amount of the
prepayment premium described above which would have been due and payable to
Lender on the date on which such acceleration occurs as if, on such date, the
Term Notes then outstanding had been voluntarily prepaid in full, which sum
shall be added to the Obligations and be due and payable in full automatically
upon such acceleration occurring.
2.8. NATURE OF CHARGES IMPOSED. Lender and Borrower hereby agree that
(i) the only charges imposed by Lender upon Borrower for the use of money in
connection with the Term Loan Facility are and shall be interest at the rates
per annum expressed in Section 2.3 hereinabove and in each Term Note and (ii)
all other charges im posed by Lender upon Borrower in connection with the Term
Loan Facility, including, without limitation, the Deposit heretofore made by
Borrower, as described in Section 2.5, the closing fee described in Section 2.5,
and any prepayment premium hereafter paid by Borrower pursuant to Section 2.7,
are and shall be deemed to be charges made to compensate Lender for underwriting
and administra tive services and costs, and other services and costs performed
and incurred, and to be performed and incurred, by Lender in connection with the
creation and administration of the Term Loan Facility, and shall under no
circumstances be deemed to be charges for the use of money for purposes of
Illinois law.
2.9. SAVINGS CLAUSE. Notwithstanding the foregoing or any provision
contained in this Agreement, any Term Note or any other Loan Document to the
contrary, if at any time the amount of interest computed with respect to any
Term Note on the basis of the Applicable Rate would exceed the amount of such
interest computed upon the basis of the maximum rate of interest permitted by ap
plicable state or federal law in effect from time to time hereaf ter, after
taking into account, to the extent required by applicable law, any and all
fees, payments, charges and calculations provided for in this Agreement or in
any other agreement between Borrower and Lender (the "Maximum Legal Rate"), the
interest pay able under this Agreement shall be computed upon the basis of the
Maximum Legal Rate, but any subsequent reduction in the Applicable Rate shall
not reduce such interest thereafter payable hereunder below the amount computed
on the basis of the Maximum Legal Rate until the aggregate amount of such
interest accrued and payable under this Agreement equals the total amount of
interest which would have accrued if such interest had been at all times
computed solely on the basis of the Interest Rate. No agreements, conditions,
provisions or stipulations contained in
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this Agreement, any Term Note or any other Loan Document or default of the
Borrower, or the exercise by the Lender of the right to accelerate the payment
of the maturity of principal and interest, or to exercise any option whatsoever
contained in this Agreement or any other Loan Document, or arising of any
contingency whatsoever, shall entitle Lender to collect, in any event, interest
exceeding the Maximum Legal Rate and in no event shall the Borrower be obligated
to pay interest exceeding such Maximum Legal Rate and all agreements, conditions
or stipulations, if any, which may in any event or con tingency whatsoever
operate to bind, obligate or compel the Bor rower to pay a rate of interest
exceeding the Maximum Legal Rate, shall be without binding force or effect, at
law or in equity, to the extent only of the excess of interest over such Maximum
Legal Rate. In the event any interest is charged in excess of the Maxi mum Legal
Rate ("Excess Interest"), Borrower acknowledges and stipulates that any such
charge shall be the result of an ac cidental and bona fide error, and such
Excess Interest shall be, first, applied to reduce the principal then unpaid
hereunder; sec ond, applied to reduce any other Obligations, until paid in full;
and third, returned to the Borrower, it being the intention of the parties
hereto not to enter at any time into a usurious or other wise illegal
relationship. The Borrower recognizes that, with fluctuations in the interest
rate and the Maximum Legal Rate, such an unintentional result could
inadvertently occur. By the execu tion of this Agreement, the Borrower covenants
that (i) the credit or return of any Excess Interest shall constitute the
acceptance by the Borrower of such Excess Interest, and (ii) the Borrower shall
not seek or pursue any other remedy, legal or equitable, against Lender, based
in whole or in part upon the charging or receiving of any interest in excess of
the maximum authorized by applicable law. For the purpose of determining whether
or not any Excess Interest has been contracted for, charged or received by
Lender, all interest at any time contracted for, charged or received by the
Lender in connection with this Agreement shall be amortized, prorated, allocated
and spread in equal parts during the entire term of this Agreement. The
provisions of this Section shall be deemed to be incorporated into each and
every Term Note and other Loan Document or communication relating to the
Obligations which sets forth or prescribes any account, right or claim or
alleged account, right or claim of the Lender with respect to the Borrower (or
any other obligor in respect of Obligations), whether or not any provision of
this Section is referred to therein. All such documents and communications and
all figures set forth therein shall, for the sole purpose of computing the
extent of the liabilities and obligations of the Borrower (or other obligor)
asserted by the Lender thereunder, be automatically recomputed by any Borrower
or obligor, and by any court considering the same, to give effect to the
adjustments or credits required by this Section. If the applicable state or
federal law is amended in the future to allow
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a greater rate of interest to be charged under this Agreement or any other Loan
Documents than is presently allowed by applicable state or federal law, then the
limitation of interest under this Section shall be increased to the maximum rate
of interest allowed by applicable state or federal law as amended, which
increase shall be effective hereunder on the effective date of such amendment,
and all interest charges owing to the Lender by reason thereof shall be payable
upon demand.
3. SECURITY INTEREST -- COLLATERAL. As security for the pay ment of the
Term Notes and all other Obligations, Borrower hereby grants to Lender a
continuing, general lien upon, security interest in, and security title to the
Equipment Collateral, to the full extent of Borrower's interest therein,
together with any and all products and proceeds of the foregoing, including,
without limita tion, insurance proceeds. The foregoing shall be in addition to,
and be cumulative with, the Real Estate Collateral obtained by Lender pursuant
to the Mortgages on Financed Restaurant Locations on or after the Closing Date.
3.1. REPRESENTATIONS AND WARRANTIES. With respect to the Col lateral,
Borrower hereby, represents, warrants and covenants to Lender as set forth in
Subsections (a) through (i), inclusive.
(a) GOOD TITLE; NO EXISTING ENCUMBRANCES. Borrower owns the
Collateral free and clear of any prior security interest, lien or encumbrance
thereon other than in favor of Lender and, with regard to each Financed
Restaurant Location, other than "Permitted Encumbrances" (as that term is
defined in the Mortgage encumbering such Financed Restaurant Location) and other
than the interest of the landlord in the leased equipment described on Exhibit
"B" attached hereto, and no financing statements, registration statements,
certificates of title or other evidences of the grant of a security interest
respecting the Collateral exist on any public records as of the date hereof,
other than any in favor of Lender.
(b) RIGHT TO GRANT SECURITY INTEREST; NO FURTHER ENCUM BRANCES.
Borrower has the right to grant the security interest in the Collateral
prescribed hereinabove in this Article 3; Borrower will pay all sales, use,
franchise and other taxes and other charges against the Collateral; Borrower
will not use the Collateral illegally or allow the Collateral to be encumbered
except for the security interest in favor of Lender granted herein.
(c) CONDITION OF COLLATERAL; CASUALTY. All Equipment Collateral
is in good working order and repair as of the Closing Date. Borrower will
maintain the Equipment Collateral in good working order and repair subsequent to
the Closing Date, ordinary wear and tear excepted, and subject to Borrower's
right to
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replace Equipment Collateral as provided in Section 3.1(d) hereof. Bor rower
further will take such actions subsequent to the Closing Date as may be
necessary to keep any manufacturer's warranty in effect with respect to the
Equipment Collateral. Borrower further will promptly report to Lender any
material loss, damage, theft or other casualty to any Equipment Collateral, and
whether Borrower has re paired (or caused to be repaired) or replaced, or
intends to repair (or cause to be repaired) or replace, such Equipment
Collateral.
(d) NO SALE OF COLLATERAL. Except as permitted pursuant to
Section 3.2 hereof, Borrower will not sell, assign, lease, li cense, exchange,
mortgage, encumber, hypothecate, grant a security interest in, or otherwise
dispose of its right, title or interest in any of the Collateral, without in
each case first obtaining the prior written consent of Lender thereto; provided,
however, that (i) Borrower may replace Equipment Collateral in the ordinary
course of its business and consistent with past practice so long as (x) the
replacement Equipment Collateral has a value equal to or
greater than that of the Equipment Collateral being replaced, and (y) Lender has
a perfected first priority security interest in the replacement Equipment
Collateral, subject to no other security interests, liens or encumbrances and
(ii) Lender will not unreasonably withhold its consent to the granting by
Borrower of easements with regard to the Financed Restaurant Locations which do
not interfere with Borrower's Restaurant Business operated thereon.
(e) WAIVERS. Borrower agrees to obtain, on Lender's be half,
such waivers or consents from third parties, including, without limitation, any
lessor, licensor, operator, servicer or vendor, as Lender may reasonably request
at any time, in order to assure Lender in regard to the perfection and priority
of its se curity interest in, and ability to realize on, the Collateral.
(f) FURTHER ASSURANCES. Borrower further shall duly ex ecute
and/or deliver (or cause to be duly executed and/or deliv ered) to Lender any
instrument, invoice, registration certificate, certificate of title,
application, document, document of title, dock warrant, dock receipt, warehouse
receipt, bill of lading, or der, financing statement, assignment, waiver,
consent or other writing which may be necessary to Lender to carry out the terms
of this Agreement and any of the other Loan Documents and to perfect its
security interest in and facilitate its realization on the Collateral. Borrower
shall perform or cause to be performed such acts as Lender may reasonably
request to establish and maintain for Lender a valid and perfected first
priority security interest in the Collateral, free and clear of any liens,
encumbrances or security interests other than in favor of Lender and other than
Permitted Encumbrances.
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(g) RIGHT TO INSPECT. Lender or any Participant shall have the
right to call at the Headquarters at any reasonable time, and, without hindrance
or delay, inspect, audit and check the Col lateral and make extracts from
Borrower's books, records, journals, orders, receipts and any correspondence and
other data relating to the transactions contemplated herein and to the
Collateral; provided, however, that unless an Event of Default has occurred and
is continuing (in which event no notice need be given), Lender will give
Borrower at least twenty-four (24) hours advance notice of any visit to the
Headquarters for such purposes.
(h) CHANGE OF NAME. Borrower hereby acknowledges and agrees that
if, at any time hereafter, Borrower elects to move its chief executive office
and principal place of business from the Headquarters, or if Borrower elects to
change its name, identity or its structure to other than a corporate structure
Borrower will notify Lender in writing at least thirty (30) days prior thereto
(provided that the foregoing shall not be deemed a consent to any action
otherwise prohibited by the terms of this Agreement or any of the other Loan
Documents) and execute (or cause to be executed) such financing statements, or
amendments thereto, or other docu ments as Lender then may require in response
to such changed con dition in accordance with Sections 3.1(e) and 3.1(f).
(i) CHANGE OF LOCATION. Except in accordance with Sec tion
3.1(d) or 3.2, Borrower further agrees not to remove any Equipment Collateral
from a Financed Restaurant Location to any other location except another
Financed Restaurant Location.
3.2. SPECIAL PROVISIONS REGARDING SALES AND CLOSINGS OF FI
NANCED RESTAURANT LOCATIONS.
(a) SALE OF FINANCED RESTAURANT LOCATIONS. Borrower may sell any
Financed Restaurant Location and the Equipment Collateral located thereon;
provided, that (i) at the time of such sale, no Default Condition or Event of
Default has occurred and is con tinuing, (ii) Borrower provides Lender with at
least forty-five (45) calendar days prior written notice thereof, (iii)
concurrently with any such sale, Borrower prepays the Term Loans in an amount
equal to the greater of (A) an amount determined by multiplying the "Pro Rata
Appraised Value" (as defined below) of such Financed Restaurant Location and
related Equipment Collateral times the aggregate outstanding principal balance
of the Term Loans or (B) an amount determined by multiplying the "Pro Rata
EBITDA Value" (as defined below) of such Financed Restaurant Location times the
aggregate outstanding principal balance of the Term Loans, and (iv) in
connection with such prepayment, Borrower pays to Lender any prepayment premium
payable pursuant to Section 2.7 hereof and all accrued and unpaid
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interest on the portion of the Term Loans being prepaid. For purposes hereof,
(i) "Pro Rata Appraised Value" for each Financed Restaurant Location and related
Equipment Collateral shall mean the fraction obtained by dividing (A) the
appraised value for such Financed Restaurant Location and related Equipment
Collateral, as specified on Exhibit "A" attached hereto by (B) the appraised
values for all Financed Restaurant Locations and Equipment Collateral, as
specified on Exhibit "A" and (ii) "Pro Rata EBITDA Value" for each Financed
Restaurant Location shall mean the fraction obtained by dividing (A) "EBITDA"
(as hereinafter defined) for such Financed Restaurant Location for the then most
recently ended period of twelve full months by (B) EBITDA for all Financed
Restaurant Locations for such period. For purposes hereof, "EBITDA" for any
Financed Restaurant Location for any period shall mean net income generated by
such Financed Restaurant for such period plus interest expense, income taxes,
depreciation and amortization attributed to such Financed Restaurant Location
for such period. At least ten (10) days prior to consummating any such sale,
Borrower shall deliver to Lender a calculation of Pro Rata EBITDA for the
Financed Restaurant that is to be sold, in such detail as Lender shall require,
and certified by its chief financial officer to be true, correct and complete.
(b) CLOSING OF FINANCED RESTAURANT LOCATIONS. Borrower may close
any Financed Restaurant Location; provided, that (i) at the time of such
closing, no Default Condition or Event of Default has occurred and is
continuing, (ii) Borrower provides Lender with at least forty-five (45) days
prior written notice thereof, and (iii) within one hundred twenty (120) days
after closing, Borrower either (A) prepays the Term Loans in an amount
determined in accordance with the provisions of Section 3.2(a) above with regard
to the Financed Restaurant Location that has been closed, together with any
applicable prepayment premium pursuant to Section 2.7 and accrued and unpaid
interest on the portion of the Term Loans being prepaid or (B) provides to
Lender a "Substitute Financed Restaurant Location" (as hereinafter defined) as
Collateral hereunder. For purposes hereof, a Substitute Financed Restaurant
Location shall mean a Carl Jr.'s Restaurant (inclusive of Equipment located
thereon and therein) approved by Lender as Collateral hereunder as to which (i)
Borrower has provided to Lender (A) an appraisal satisfying the conditions
specified in Section 10.1(f)(8), (B) an as-built survey satisfying the
conditions specified in Section 10.1(f)(10), (C) environmental assessments
performed by an independent environmental engineer selected by Borrower but
acceptable to Lender, the scope and substance of which shall be satisfactory to
Lender, (D) a mortgagee's title insurance policy satisfying the conditions
specified in Section 10.1(f)(12), (E) evidence of insurance satisfying the
conditions specified in Section 10.1(f)(13), (F) a Mortgage and UCC financing
statements
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sufficient to grant to Lender a perfected first priority security interest and
lien on such Financed Restaurant Location, and (G) such other documents,
instruments and agreements as Lender shall reasonably request and (ii) Lender
has satisfied itself that it shall have a perfected, first priority security
interest and lien thereon subject to no other liens, security interests or
encumbrances.
(c) APPLICATION OF PREPAYMENT. Any prepayments made pur suant to
this Section 3.2 shall be applied as between Term Loan A and Term Loan B on such
basis as Lender shall elect and, as to each such Term Loan, shall be applied to
the outstanding principal installments thereof in the reverse order of their
respective ma turities (beginning with the balloon payment in the case of Term
Loan A).
(d) RELEASE OF LIENS. Upon satisfaction by Borrower of the
conditions for sale of, or closing of, a Financed Restaurant Location specified
in clause (a) or clause (b) above, as ap plicable, Lender shall release its
liens on such Financed Restau rant Location.
4. GENERAL REPRESENTATIONS AND WARRANTIES. In order to induce
Lender to enter into this Agreement, Borrower hereby, represents
and warrants to Lender as set forth in Sections 4.1 through 4.7,
inclusive.
4.1. EXISTENCE. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation.
Borrower has qualified to transact business as a foreign corporation in any
other jurisdiction where such qualification is necessary. Guarantor is the sole
shareholder of Borrower as of the Closing Date. No Person other than the Guaran
tor has any stockholder or other ownership interest in Borrower or any right to
acquire any such interest. The principal place of business and chief executive
office of Borrower is located at the Headquarters. Borrower keeps its books and
records concerning the Collateral at the Headquarters. Borrower has not done
business during the five (5) years preceding the Closing Date under any name
other than "Carl's Jr." Borrower has no Subsidiaries as of the Closing Date.
4.2. AUTHORITY. Borrower has the corporate power to make, deliver and
perform under this Agreement, the Term Notes and the other Loan Documents, and
to borrow hereunder, and has taken all necessary and appropriate corporate
action to authorize the execu tion, delivery and performance of the Loan
Documents. This Agree ment constitutes, and the Term Notes and the remainder of
the Loan Documents, when executed and delivered for value received, will
constitute, the valid obligations of Borrower, legally binding upon it and
enforceable against it in accordance
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with their respective terms. The officers of Borrower whose names are inscribed
below are duly authorized and empowered to execute, attest and deliver this
Agreement, the Term Notes and the remainder of the Loan Documents for and on
behalf of Borrower, and to bind Borrower accordingly thereby.
4.3. NO MATERIAL LITIGATION. There are no proceedings pending or, so far
as Borrower knows, threatened, before any court, arbitration panel or
administrative agency, no material disputes with any contract party and no
pending or threatened labor action which, in each case, if decided adversely to
Borrower, would have a Material Adverse Effect.
4.4. PAYMENT OF TAXES. Borrower has filed or caused to be filed any
federal income tax returns required to be filed by it, and, to the best of its
knowledge following diligent inquiry, all other tax returns required to be filed
by it, and has paid all taxes shown to be due and payable by it on said returns
or on any assessments made against it. Borrower has not participated in any
"prohibited transaction" (as defined in Section 4975 of the Inter nal Revenue
Code of 1986) that could subject Borrower to any tax or penalty.
4.5. NO VIOLATIONS, GENERALLY. The execution, delivery and performance
by Borrower of this Agreement, the Term Notes and the other Loan Documents do
not and will not require any consent or ap proval of any Person, except to the
extent obtained by Borrower on or prior to the Closing Date; or violate
Borrower's articles or certificate of incorporation or bylaws or any provision
of any law, rule, regulation, order, writ, judgment, injunction, decree, de
termination or award presently in effect having applicability to Borrower; or
result in a breach of or constitute a default under any agreement that is
material to Borrower's business; and, to the best of Borrower's knowledge
following diligent inquiry, Borrower is not in default under any such law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award or
mate rial agreement.
4.6. FINANCIAL STATEMENTS; LIABILITIES. The audited financial statements
of Guarantor and its consolidated Subsidiaries (including Borrower) for its
fiscal year ending closest to the Closing Date and the unaudited financial
statements of Borrower for its fiscal quarter ending on August 14, 1995,
accurately and fairly represent the financial condition of Guarantor and
Borrower, respectively, and the transactions in their respective equity accounts
as of the dates referred to therein, and have been prepared in accordance with
GAAP. There are no material liabilities, direct or indirect, fixed or
contingent, of Borrower as of the date hereof which are not reflected in such
financial statements or in the notes thereto. There has been no Material Adverse
Change since the date of the aforesaid
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audited financial statements.
4.7. POLLUTION AND ENVIRONMENTAL CONTROL.
(a) The business operations of Borrower comply in all material respects
with all applicable Environmental Laws; Borrower has generally obtained all
environmental, health and safety Permits necessary for the operation of
Borrower's business; and all such permits are valid, and in good standing and
Borrower is in compliance in all material respects with all terms and conditions
of such Permits except where failure to comply would not, and would not
reasonably be expected to, have a Material Adverse Effect; and Borrower has no
material liability with regard to any Environmental Claim or under any
Environmental Laws.
(b) Further, with specific reference to the Financed Restaurant
Locations and the conduct of Borrower's Restaurant Business (i) Borrower has
obtained all environmental, health and safety Permits necessary for the
operation of Borrower's Restaurant Business; and all such permits are valid and
in good standing and Borrower is in compliance in all respects with all terms
and conditions of such Permits except where failure to comply would not, and
would not reasonably be expected to, have a Material Adverse Effect; (ii)
Borrower is not subject to any outstanding written order or agreement with any
Governmental Authority or with any private Person with respect to (A) any
Environmental Laws, (B) any Remedial Actions, or (C) any Environmental Claims
arising from the Release of a Contaminant into the environment with respect to
any Financed Restaurant Location; (iii) none of the operations of Borrower at
any Financed Restaurant Location is subject to any judicial or administration
proceeding alleging a violation of any Environmental Law; (iv) none of the
operations of Borrower is the subject of any federal or state investigation
evaluating whether any Remedial Action is needed to respond to a Release of any
Con taminant into the environment under any applicable law; (v) neither Borrower
nor any predecessor of Borrower has filed any notice under any federal or state
law indicating past or present treatment, storage, or disposal of a hazardous
waste or reporting a spill or Release of a Contaminant into the environment
under any applicable law with respect to any Financed Restaurant Location; (vi)
Borrower has no known contingent liability in connection with any Release of any
Contaminant into the environment with respect to any Financed Restaurant
Location; (vii) Borrower's operations at the Financed Restaurant Locations do
not involve the generation, transportation, treatment or disposal of any
hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state
equivalent (other than any done in compliance with all Environmental Laws);
(viii) Borrower has not disposed of any Contaminant by placing it in or on the
ground,
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groundwater or surface water of any Financed Restaurant Location, and, to the
best of Borrower's knowledge, neither has any lessee, prior owner, or other
Person; and (ix) no Lien in favor of any Governmental Authority for (A) any
liability under Environmental Laws or regulations, or (B) damages arising from
or costs incurred by such governmental authority in response to a Release of a
Contaminant into the environment has been filed or attached to any Financed
Restaurant Location.
5. AFFIRMATIVE COVENANTS. Borrower agrees that, so long as
any Obligations are outstanding and this Agreement has not been
terminated in writing by Lender, Borrower will comply with the
covenants set forth in the following Sections 5.1 through 5.11.
5.1. BOOKS AND RECORDS. Borrower shall maintain, at all
times, true and complete books, records and accounts in which true
and correct entries are made of its transactions in accordance with
GAAP.
5.2. PERIODIC FINANCIAL STATEMENTS. Borrower shall, as soon as
practicable, and in any event within ninety (90) days after the end of each
fiscal quarter, furnish to Lender and each Participant unaudited financial
statements of Guarantor and its consolidated Subsidiaries (including Borrower),
including, in each instance, balance sheets, income statements and cash flow
statements, on a consolidated and consolidating basis, as of and for the
quarterly period then ended and for their fiscal year to date, prepared in
accordance with GAAP, certified as to truth and accuracy by Guarantor's and
Borrower's chief financial officers, plus, if requested by Lender or any
Participant, a quarterly profit and loss statement for each Financed Restaurant
Location, and accompanied by a report of Guarantor's and Borrower's performance
or condition as of or for the corresponding date or period in the preceding
fiscal year, displayed on a comparative basis.
5.3. ANNUAL FINANCIAL STATEMENTS. Borrower shall, as soon as
practicable, and in any event within one hundred twenty (120) days after the end
of each fiscal year of Guarantor, furnish to Lender and each Participant annual
audited financial statements of Guarantor and its consolidated Subsidiaries
(including Borrower), including, in each instance, balance sheets, income
statements and cash flow statements for the fiscal year then ended, on a
consolidated and consolidating basis, which have been prepared by Guarantor's
and Borrower's Independent Accountants. Such audited financial statements will
be required to be accompanied by the Independent Accountant's opinion, which
opinion shall be in form generally recognized as "unqualified" and shall state:
(i) that such financial statements fairly present the financial position of
Guarantor and Borrower and the results of their respective operations and
changes in their respective
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financial positions or cash flows for the year ended; (ii) that such financial
statements have been prepared in accordance with GAAP applied on a basis
consistent with that of the preceding fiscal year (except for changes, if any,
as shall be specified and concurred in by such accountants in such opinion); and
(iii) that the audit by such accountants in con nection with such financial
statements has been made in accordance with generally accepted auditing
standards relating to reporting.
5.4. COMPLIANCE CERTIFICATES. Together with each of the fi nancial
statements described in Sections 5.2 and 5.3 above, and more frequently, if
requested by Lender, Borrower shall deliver a Compliance Certificate and a
covenant compliance worksheet to Lender, including calculations of Guarantor's
"Fixed Charge Coverage Ratio" and "NetWorth" for the applicable period, as such
terms are defined in Sections 7.12 and 7.13, respectively, each signed by the
chief financial officers of Guarantor and Borrower.
5.5. SEC FILINGS. Promptly following the filing thereof by Guarantor
with the Securities and Exchange Commission or the delivery thereof by Guarantor
to its shareholders, Borrower shall deliver to Lender copies of any quarterly,
annual or other reports required to be filed by Guarantor with the Securities
and Exchange Commission or delivered by Guarantor to its shareholders.
5.6. PAYMENT OF TAXES. Borrower shall pay and discharge all taxes,
assessments and governmental charges pertaining to the Financed Restaurant
Locations and all other material taxes, assessments and governmental charges
upon it, its income and its properties prior to the date on which penalties
attach thereto, unless and to the extent only that (x) such taxes, assessments
and governmental charges are being contested in good faith and by appropriate
proceedings by Borrower and (y) Borrower maintains reasonable reserves on its
books therefor.
5.7. MAINTENANCE OF INSURANCE. Borrower shall insure the Col lateral
against fire, theft and such other risks (including, but not limited to boiler
and machinery) as Lender shall require from time to time at the full replacement
cost thereof, and maintain at least six (6) months of business interruption
insurance, with Lender shown by endorsement and named on a certificate of
insurance as loss payee, additional insured and mortgagee thereof, with re
sponsible insurance companies rated "A-" or better by A.M. Best Company. As to
other Properties and risks, including, without limitation, liability coverage,
Borrower shall maintain such in surance, with such insurers (having the minimum
qualifications described above) on such Properties, in such amounts and against
such risks as is customarily maintained by similar businesses op erating in the
same vicinity; provided that such insurance shall not be less, in terms of
insurers, amounts, coverages or limitations, than the insurance being
maintained by
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Borrower on the Closing Date; and, provided, further, that such insurance shall
include, in any event, at all times, comprehensive general li ability (inclusive
of products liability coverage) of at least Five Million Dollars ($5,000,000),
in aggregate combined single limit coverage; and, provided, further, that Lender
shall be shown by endorsement and named on a certificate of insurance as
"additional insured" thereon and with breach of warranty endorsement favoring
Lender. All such insurance in existence on the Closing Date shall not be
cancellable or modifiable by Borrower, thereafter, unless with the prior written
consent of Lender, or by Borrower's insurer, unless with at least thirty (30)
days advance written notice to Lender thereof (except as may be necessary to
bring such insurance into compliance herewith from time to time). Borrower shall
file with Lender on the Closing Date and at least annually thereafter or, at
Lender's request at any time from and after the occurrence of, and during the
continuance of, any Event of Default, upon its request, an insurer's certificate
evidencing Borrower's compliance with the requirements of this Section 5.7. All
casualty insurance proceeds paid with respect to the Collateral shall, after
deduction of reasonable expenses of Lender actually incurred in collecting such
proceeds (if any), (a) if no Event of Default has occurred and is continuing, be
applied to repair or restoration of the Collateral (upon compliance with such
terms and conditions as may be required by Lender) and (b) if an Event of
Default has occurred and is continuing, at Lender's option be (i) applied (upon
compliance with such terms and conditions as may be required by Lender) to
repair or restoration, either partly or entirely, of the Collateral or (ii)
applied to the payment of the Obligations in such order and manner as Lender may
elect, whether or not due. In the event that Borrower receives any such
insurance proceeds di rectly or that a check for such proceeds is made payable
to Bor rower and Lender jointly Borrower shall take all actions necessary to
convey such proceeds to Lender. In the event that pursuant hereto such proceeds
are to be used for repair or restoration of the Collateral, at its option,
Lender will either release such proceeds directly to Borrower or use such
proceeds to pay directly invoices for repair or restoration work, in each case
upon compliance with such terms and conditions as it may require.
Notwithstanding anything contained herein or in any other Loan Document to the
contrary, in the event that Lender receives proceeds of Borrower's business
interruption insurance at a time when no Default Condition or Event of Default
has occurred and is continuing, Lender will return such proceeds to Borrower for
use in Borrower's business.
5.8. PRESERVATION OF EXISTENCE. Borrower shall preserve and maintain its
corporate existence, rights, franchises and privileges in the State of
California, in each jurisdiction in which a Financed Restaurant Location exists
and in each other jurisdiction where the nature of the Restaurant Business
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conducted therein or the location of any Property therein requires that such
rights, franchises and privileges be preserved and maintained; and obtain and
maintain for itself all Permits, licenses, certificates of convenience and
necessity, operating rights, authorizations and consents as shall be necessary
or advisable to permit it to con tinue to operate its business in the manner
contemplated to be conducted by it on the Closing Date.
5.9. COMPLIANCE WITH LAWS. Borrower shall comply with the requirements
of all applicable laws, rules, regulations, permits, hearings, approvals and
clearances and orders of any Governmental Authority, including particularly, but
without limitation, in re spect of Environmental Laws.
5.10. ENVIRONMENTAL LAW COMPLIANCE.
(a) On or before the Closing Date, Borrower will provide Lender with
copies of any environmental assessments or similar reports made by or on behalf
of Borrower with respect to any of the Real Estate Collateral within the
preceding five (5) years together with environmental questionnaires concerning
all such Properties in such form and detail as Lender shall request; and,
subsequent to the Closing Date, Borrower will provide Lender with copies of any
such assessments or reports thereafter made by or on behalf of Borrower with
respect to any location where Collateral is located, promptly as and when made
or received by Borrower, but not later than thirty (30) days thereafter.
(b) Borrower will notify Lender in writing of any Envi ronmental Claim
or an accusation or allegations which may give rise to an Environmental Claim
hereafter made against it or received by it which would or would reasonably be
expected to have a Material Adverse Effect if determined adversely to Borrower
within ten (10) days after it first obtains knowledge or notice thereof. Each
such notice to Lender shall include a copy of any claim, citation, order, notice
or other communication (to the extent in writing) received by Borrower from the
person making such Environmental Claim, allegation or accusation, a description
of the nature of such Environmental Claim, allegation or accusation, the name of
the Person making such Environmental Claim, allegation or accusation; Borrower's
anticipated defense to such Environmental Claim, allega tion or accusation or
the action Borrower proposes to take in respect of such Environmental Claim,
allegation or accusation and the anticipated costs to be incurred by Borrower in
connection with such Environmental Claim, allegation or accusation (including,
with limitation, that amount of any anticipated damages, the costs of defending
such Environmental Claims and the costs of any cleanup or corrective action).
(c) In addition, Borrower will promptly notify Lender of any
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Release with regard to any Financed Restaurant Location or at any Property if
such Release would or would reasonably be expected to have a Material Adverse
Effect or of material change in the nature or extent of any Contaminants used,
transported or stored by Borrower or any Subsidiary, and allow no material
change in the use thereof or Borrower's or any Subsidiary's operations that
would increase in any material amount the risk of violation of the Environmental
Laws without the express prior written approval of Lender.
(d) Borrower further agrees to indemnify and hold Lender, each
Participant and the officers, directors, agents, employees, affiliates and
representatives of Lender and each Participant (in dividually an "Indemnified
Party" and collectively the "Indemnified Parties") harmless from and against any
and all damages, penalties, fines, claims, liens, suits, liabilities, costs
(including necessary and actual clean-up and response costs), judgments, and
expenses (including reasonable attorneys' fees and any consultants' or other
experts' fees and expenses) of every kind and nature suffered by or asserted
against any Indemnified Party (i) under or on account of the Environmental Laws,
including, without limitation, as a result of the past, present or future
institution of any suits, claims, actions, or proceedings by any person against
Borrower or Lender in respect of any alleged violation of the Environmental Laws
by Borrower or Borrower's use, storage or disposition of Contaminants, (ii) with
respect to any past, present or future Release of Contaminants affecting any
Property, whether or not the same originates or emanates from any Property or
any contiguous real estate, (iii) with respect to any other past, present, or
future matters affecting any Property within the jurisdiction of any
Governmental Authority administering the Environmental Laws or (iv) with respect
to any past, present or future requirement under the Environmental Laws which
requires the elimination or removal of any Contaminants or other substances
regulated pursuant to any Environmental Laws, rules, or regulations of any
Governmental Authority having jurisdiction over Borrower, whether attributable
to events occurring before or after the Closing Date. Any payments required to
be made hereunder shall be due and payable on demand.
(e) The agreements contained in this Section shall survive the
termination of this Agreement and shall continue in full force and effect for so
long as the prospect of any loss or liability covered by the indemnity contained
in such clause (d) above exists.
5.11. LITIGATION; EVENTS OF DEFAULT, ETC. Promptly, after
receipt of notice or knowledge thereof, but not later than ten (10)
days thereafter, Borrower will report to Lender: (i) any
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lawsuit or administrative proceeding or arbitration proceeding in which
Borrower is a defendant wherein the amount of damages claimed against Borrower
exceeds Five Hundred Thousand Dollars ($500,000) or in which the validity of
this Agreement or any Loan Document or any action taken or to be taken pursuant
hereto or thereto is ques tioned; (ii) any strike, walkout, lockout or other
related legal action, whether pending or threatened pertaining to Borrower;
(iii) the existence and nature of any Default Condition or Event of Default; and
(iv) any Environmental Claim or an accusation or allegation which may give rise
to an Environmental Claim hereafter made against it, or received by it or of
which it obtains knowledge, whether or not made against it, which would or would
reasonably be expected to have a Material Adverse Effect if determined adversely
to Borrower.
6. NEGATIVE COVENANTS.
6.1. DIVIDENDS AND DISTRIBUTIONS. Borrower further agrees that, so long
as any Obligations are outstanding and this Agreement has not been terminated in
writing by Lender, Borrower will not pay any dividend or other distribution to
Guarantor at any time when an Event of Default has occurred and is continuing or
would result therefrom; provided, however, that the foregoing shall not prevent
Borrower from paying in the ordinary course of its business fees to Guarantor
for services actually provided by Guarantor to Borrower which are necessary to
the operation of Borrower's business, at the regular rates agreed to between
Borrower and Guarantor.
6.2. GREEN BURRITO CO-BRANDING ARRANGEMENTS. Borrower shall not enter
into any co-branding arrangements with Green Burrito with regard to any Financed
Restaurant Location unless Borrower shall have first (a) delivered to Lender
copies of its agreements with Green Burrito in regard thereto, which shall be in
form and substance satisfactory to Lender, and (b) delivered to Lender such
estoppel and other agreements of Green Burrito in favor of Lender as Lender
shall request, each to be in form and substance satisfactory to Lender.
7. EVENTS OF DEFAULT. The occurrence of any events or con ditions
described in Sections 7.1 through 7.14 shall constitute an Event of Default
hereunder, provided that any requirement for the giving of notice or the lapse
of time, or both, has been satisfied.
7.1. TERM NOTES. Borrower shall fail to make any payments of principal
of, or interest on, either Term Note, within ten (10) calendar days after the
same shall become due and payable.
7.2. OTHER OBLIGATIONS. Borrower shall fail to pay any Ob ligations
(other than as evidenced by the Term Notes) to Lender,
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within ten (10) calendar days after the same shall become due and payable
(unless a longer or shorter grace period is provided therefor in any document,
instrument or agreement evidencing, per taining to or securing the repayment of
such other Obligations, in which event such other grace period shall apply).
7.3. MISREPRESENTATIONS. Borrower shall make any represen tation or
warranty, respectively, in this Agreement or any of the Loan Documents or in any
certificate or statement furnished at any time hereunder or in connection with
this Agreement or any of the Loan Documents which proves to have been untrue or
misleading in any material respect when made or furnished.
7.4. COVENANTS. Borrower shall default in the observance or performance
of any covenant or agreement contained in either Sec tion 5 or 6; or Borrower
shall default in the observance or per formance of any other covenant or
agreement contained in this Agreement or any of the Loan Documents, except for
any default of the types described in Sections 7.1, 7.2 or 7.3 above, and such
de fault shall continue for a period of twenty (20) calendar days from the date
of receipt by Borrower of written notice from Lender specifying such default
(unless a longer or shorter cure period is provided therefor in any such Loan
Document, in which case such other grace period shall apply), without such
default being waived or cured.
7.5. OTHER DEBTS. Guarantor or Borrower shall default in con nection
with any agreement for borrowed money or other credit with any creditor other
than Lender, exceeding in face amount the sum of Two Million Dollars
($2,000,000), in the case of Guarantor, and Two Million Dollars ($2,000,000), in
the case of Borrower, including particularly, but without limitation, under any
real property lease or any equipment lease, and, as a result of such default,
said creditor shall have the right to accelerate the maturity thereof.
7.6. VOLUNTARY BANKRUPTCY. Borrower or Guarantor shall file a voluntary
petition in bankruptcy or a voluntary petition or an swer seeking liquidation,
reorganization, arrangement, readjust ment of its debts, or for any other relief
under the Bankruptcy Code, or under any other act or law pertaining to
insolvency or debtor relief, whether state, federal, or foreign, now or
hereafter existing; Borrower or Guarantor shall enter into any agreement
indicating its consent to, approval of, or acquiescence in, any such petition or
proceeding; Borrower or Guarantor shall apply for or permit the appointment by
consent or acquiescence of a receiver, custodian or trustee for all or a
substantial part of its property; Borrower or Guarantor shall make an assignment
for the benefit of creditors; or Borrower or Guarantor shall be unable or shall
fail to pay its debts generally as such debts become due; or Borrower or
Guarantor
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shall admit, in writing, its inability or failure to pay its debts generally as
such debts become due.
7.7. INVOLUNTARY BANKRUPTCY. There shall have been filed against
Borrower or Guarantor an involuntary petition in bankruptcy or seeking
liquidation, reorganization, arrangement, re adjustment of its debts or for any
other relief under the Bank ruptcy Code, or under any other act or law
pertaining to insol vency or debtor relief, whether state, federal or foreign,
now or hereafter existing; or Borrower or Guarantor shall suffer or permit the
involuntary appointment of a receiver, custodian or trustee or for all or a
substantial part of its property; or Borrower or Guarantor shall suffer or
permit the issuance of a warrant of at tachment, execution or similar process
against all or any substantial part of its property; unless, in each other case,
such petition, appointment or process is fully bonded against, vacated or
dismissed within sixty (60) days from its effective date, but not later than ten
(10) days prior to any proposed disposition of any assets pursuant to any such
proceeding.
7.8. JUDGMENTS. If one or more final, nonappealable judgments or
decrees shall be entered against Borrower or Guarantor which, in Lender's
reasonable credit judgment, could have a Material Adverse Effect (or in the
event Borrower or Guarantor fails to pursue the appeal of such judgment or any
rights to appeal any such judgment have been revoked or have expired) and all
such judgments or de crees shall not have been vacated, discharged, stayed or
bonded pending appeal within thirty (30) days from the date such judgment
becomes nonappealable.
7.9. CHANGE OF CONTROL. If: (i) Guarantor shall cease to own and
control one hundred percent (100%) of the issued and out standing capital stock
of Borrower; or (ii) Borrower shall merge with, or consolidate into, any other
corporation; or (iii) Guarantor shall merge or consolidate with any other
corporation unless Guarantor is the survivor of such merger or consolidation; or
(iv) Guarantor or Borrower shall sell all, or substantially all, of its assets.
7.10. LOSS OF COLLATERAL. If all or any material portion of the
Collateral: (i) suffers any loss, damage, theft or other ca sualty, in a single
occurrence or series of related occurrences; or (ii) becomes subject to any
lien, claim or encumbrance; or (iii) is made the subject of any proceeding in
which the existence, scope, coverage, or priority of the security interest of
Lender therein is disputed.
7.11. GUARANTOR. If Guarantor shall default in its observance or
performance of any term of its guaranty of the Obligations issued in favor of
Lender which is not cured or waived within any applicable grace period
prescribed therein.
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<PAGE> 33
7.12. FIXED CHARGE COVERAGE RATIO. If Guarantor's Fixed Charge Coverage
Ratio, determined on a consolidated basis, is less than the ratio indicated at
the end of such fiscal period as specified below:
<TABLE>
<CAPTION>
FISCAL PERIOD ENDING RATIO
-------------------- -----
<S> <C>
at first quarter 1996, and
second quarter 1996 .50:1.00
at third quarter 1996, and
at fourth quarter 1996 .55:1.00
at each quarter of 1997 .65:1.00
at first, second and third
quarter 1998 .75:1.00
at fourth quarter 1998 .85:1.00
at first quarter 1999 and
thereafter 1.00:1.00
</TABLE>
For purposes of this Agreement, "Fixed Charge Coverage Ratio" means the
following calculation, expressed as a ratio for any fiscal period: (a) EBITDA of
Guarantor and its consolidated Subsidiaries less the net gain realized on sales
of fixed assets (or the EBITDA of Guarantor and its consolidated Subsidiaries
less the net loss incurred on sales of fixed assets), less unfinanced capital
expenditures of Guarantor and its consolidated Subsidiaries, less taxes and less
dividends divided by (b) the sum of (i) interest expense, (ii) the current
portion of long-term debt and (iii) the current portion of capital leases. The
current portion of long term debt and the current portion of capital leases will
be the amount shown on the consolidated balance sheet of Guarantor as of the end
of the applicable quarter. "EBITDA" means earnings of Guarantor and its
consolidated Subsidiaries before interest and tax expense, depreciation,
amortization and other non-cash charges. This ratio shall be calculated
quarterly using a Four Quarter Rolling Basis. "Four Quarter Rolling Basis" shall
mean the four quarters calculated using the results of the fiscal quarter then
most recently ended and the immediately preceding fiscal three (3) quarters.
7.13. NET WORTH. If Guarantor fails to maintain, on a
consolidated basis for Guarantor and its consolidated Subsidiaries
determined at the end of each quarter, Net Worth
29
<PAGE> 34
equal to at least the amounts indicated for each period specified below:
<TABLE>
<CAPTION>
PERIOD AMOUNT
------ ------
<S> <C>
at end of second quarter 1996 $ 94,000,000
at fiscal year end 1996 $ 96,000,000
at end of second quarter 1997 $101,000,000
at fiscal year end 1997 and
thereafter $105,000,000
</TABLE>
For the purposes of this Agreement, "Net Worth" for Guarantor and its
consolidated Subsidiaries, shall mean the total amount of shareholders' equity
shown on the consolidated balance sheet of Guarantor at the end of each fiscal
quarter or fiscal year end, as the case may be, plus the aggregate amount of
stock repurchases permitted under Guarantor's financing arrangements with Bank
of America.
7.14. MATERIAL AGREEMENTS. Borrower or any Guarantor shall default in
the payment or performance of any Material Agreement which default entitles the
other party or parties thereto to terminate or repudiate such contract.
8. REMEDIES. Upon the occurrence or existence of any Event of Default,
or at any time thereafter, without prejudice to the rights of Lender to enforce
its claims against Borrower for damages for failure by Borrower to fulfill any
of its obligations hereunder, subject only to prior receipt by Lender of payment
in full of all Obligations then outstanding in a form acceptable to Lender,
Lender shall have all of the rights and remedies described in Sections 8.1
through 8.4, inclusive, and it may exercise any one, more, or all of such
remedies, in its sole discretion, without thereby waiving any of the others.
8.1. ACCELERATION OF THE OBLIGATIONS. Lender, at its option, may
declare all of the Obligations (including but not limited to that portion
thereof evidenced by the Term Notes) to be immediately due and payable,
whereupon the same shall become immediately due and payable without presentment,
demand, protest, notice of non payment or any other notice required by law
relative thereto, all of which are hereby expressly waived by Borrower, anything
con tained herein to the contrary notwithstanding and, in connection therewith,
if Lender so elects, by further written notice to Bor rower, Lender may increase
the rate of interest charged on each Term Note then outstanding for so long
thereafter as Lender further shall elect to the Default Rate. Thereafter,
Lender, at its option, may, but shall not be obligated to, accept
30
<PAGE> 35
less than the entire amount of Obligations due, if tendered, provided, however,
that unless then agreed to in writing by Lender, no such acceptance shall or
shall be deemed to constitute a waiver of any Event of Default or a
reinstatement of any commitments of Lender hereunder.
8.2. REMEDIES OF A SECURED PARTY. Lender shall thereupon have the
rights and remedies of a secured party under the UCC in effect on the date
thereof (regardless of whether the same has been enacted in the jurisdiction
where the rights or remedies are as serted), including, without limitation, the
right to take posses sion of any of the Collateral or the proceeds thereof, to
sell or otherwise dispose of the same, to apply the proceeds therefrom to any of
the Obligations in such order as Lender, in its sole discretion, may elect.
Lender shall give Borrower written notice of the time and place of any public
sale of the Collateral or the time after which any other intended disposition
thereof is to be made. The requirement of sending reasonable notice shall be met
if such notice is given to Borrower pursuant to Section 9.9 at least ten (10)
days before such disposition. Expenses of retaking, holding, insuring,
preserving, protecting, preparing for sale or selling or the like with respect
to the Collateral shall include, in any event, reasonable attorneys' fees and
other legally recoverable collection expenses, all of which shall constitute
Obligations.
8.3. REPOSSESSION OF THE COLLATERAL. Lender may take the Collateral or
any portion thereof into its possession, by such means (without breach of the
peace) and through agents or otherwise as it may elect (and, in connection
therewith, demand that Borrower assemble the Collateral at a place or places and
in such manner as Lender shall prescribe), and sell, lease or otherwise dispose
of the Collateral or any portion thereof in its then condition or following any
commercially reasonable preparation or processing, which disposition may be by
public or private proceedings, by one or more contracts, as a unit or in
parcels, at any time and place and on any terms, so long as the same are
commercially reasonable. To facilitate the foregoing, Borrower agrees to make
available to Lender the Restaurants or any other premises then owned or leased
by Borrower on which Collateral then may be situated for such purposes, without
charge or undue delay, and on such terms as Lender then may reasonably request
(including, without limitation, if Lender so requests, the temporary or
permanent vacation by Bor rower of any leased premises).
8.4. OTHER REMEDIES. Unless and except to the extent ex pressly provided
for to the contrary herein, the rights of Lender specified herein shall be in
addition to, and not in limitation of, Lender's rights under the UCC, as amended
from time to time, or any other statute or rule of law or equity, or under any
31
<PAGE> 36
other provision of any of the Loan Documents, or under the provisions of any
other document, instrument or other writing executed by Bor rower or any third
party in favor of Lender, all of which may be exercised successively or
concurrently.
9. MISCELLANEOUS.
9.1. WAIVER. Each and every right granted to Lender under this
Agreement, or any of the other Loan Documents, or any other document delivered
hereunder or in connection herewith or allowed it by law or in equity, shall be
cumulative and may be exercised from time to time. No failure on the part of
Lender to exercise, and no delay in exercising, any right shall operate as a
waiver thereof, nor shall any single or partial exercise by Lender of any right
preclude any other or future exercise thereof or the exercise of any other
right. No waiver by Lender of any Default Condition or Event of Default shall
constitute a waiver of any subsequent Default Condition or Event of Default.
9.2. GOVERNING LAW. THIS AGREEMENT AND, UNLESS OTHERWISE EXPRESSLY
PROVIDED THEREIN, THE TERM NOTES AND THE OTHER LOAN DOC UMENTS, AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
ILLINOIS.
9.3. SURVIVAL. All representations, warranties and covenants made
herein and in the other Loan Documents shall survive the ex ecution and delivery
of this Agreement and such other Loan Docu ments. On the Closing Date, Borrower
shall be deemed to have restated, renewed and reaffirmed as of each such date
all of such representations, warranties and covenants. The terms and provi sions
of this Agreement shall continue in full force and effect, notwithstanding the
payment of the Term Notes, until all of the Obligations have been paid in full
and Lender has terminated this Agreement in writing.
9.4. NO ASSIGNMENT BY BORROWER; LENDER MAY ASSIGN. No as signment
hereof shall be made by Borrower without the prior written consent of Lender.
Lender may assign, or sell participations in, its right, title and interest
herein and in the Loan Documents at any time hereafter without notice to or
consent of Borrower to any Participant. Upon any assignment by Lender, the
assignee shall be entitled to all the rights, powers, privileges and remedies of
Lender to the extent assigned, and the obligations of Borrower shall not be
subject, as against any such assignee, to any defense, set-off or counterclaim
available to Borrower against Lender and any such defense, set-off or
counterclaim may be asserted only against Lender.
9.5. COUNTERPARTS. This Agreement may be executed in two
32
<PAGE> 37
or more counterparts, each of which when fully executed shall be an original,
and all of said counterparts taken together shall be deemed to constitute one
and the same agreement.
9.6. REIMBURSEMENT. Borrower agrees to reimburse Lender for its
out-of-pocket expenses, actually incurred, including, without limitation, the
reasonable fees and disbursements of its legal counsel (including a reasonable
allocation of the costs, compen sation and expenses of internal counsel),
incurred in connection with the preparation of the Loan Documents and any and
all other documents, notes, and agreements pursuant hereto, including the
furnishing of any opinions which may be requested of such counsel by the Lender
on questions incident to this transaction. Borrower will pay all expenses
incurred by Borrower in this transaction. If any taxes, fees or other costs
shall be payable on account of the execution, issuance, delivery or recording of
any of the Loan Documents, by reason of any existing or hereafter enacted
federal or state statute, Borrower agrees to pay all such taxes, fees or other
costs, including any applicable interest and penalty, and to indemnify and hold
Lender harmless from and against liability in connection therewith. If any
attorney (including, without limitation, internal counsel) is engaged (a) to
collect the Obligations, whether or not legal proceedings are thereafter
instituted by Lender, (b) to represent Lender in any bankruptcy, reorganization,
receivership or other proceedings affecting creditors' rights and involving a
claim under this Agreement or any of the other Loan Documents, (c) to protect
the lien of the Mortgages or any of the other Loan Documents, (d) to represent
Lender in any other proceedings whatsoever in connection with this Agreement,
the Mortgages or any other Loan Documents, including, without limitation, post
judgment proceedings to enforce any judgment related to the Loan Documents, or
(e) in connection with seeking of an out-of-court workout or settlement of any
of the foregoing, then Borrower shall pay to Lender all costs, attorneys'
fees and expenses in connection therewith (including a reasonable allocation of
the costs, compensation and expenses of internal counsel), in addition to all
other amounts due hereunder. This provision is separate and several and shall
survive the merger of this provision into any judgment.
9.7. SUCCESSORS AND ASSIGNS. This Agreement and every Loan Document
shall be binding upon and inure to the benefit of the successors and permitted
assigns of the parties hereto and thereto. The foregoing shall expressly
include, without limitation, in the case of Lender, any Participant.
9.8. SEVERABILITY. If any provision of this Agreement or of the Loan
Documents or the application thereof to any party thereto or circumstances shall
be invalid or unenforceable to any extent, the remainder of such Loan Documents
and the application
33
<PAGE> 38
of such provisions to any other party thereto or circumstance shall not be
affected thereby and shall be enforced to the greatest extent per mitted by law.
9.9. NOTICES. All notices, requests and demands to or upon the
respective parties hereto shall be deemed to have been given or made when
personally delivered or deposited in the mail, registered or certified mail,
postage prepaid, or delivered by overnight courier, addressed as follows or to
such other address as may be designated hereafter in writing by the respective
parties hereto (which, in the case of Lender, may include the name and address
of each Participant):
Borrower:
Carl Karcher Enterprises, Inc.
1200 North Harbor Boulevard
Anaheim, California 92803
Attn: Loren Pannier
Senior Vice President
and Chief Financial Officer
Lender:
Heller Financial, Inc.
Commercial Equipment Finance Division
900 Circle 75 Parkway, N.W.
Suite 1600
Atlanta, Georgia 30339
Attn: Dominick J. Masciantonio, Vice President
and Region Credit Manager
except in cases where it is expressly provided herein or by ap plicable law that
such notice, demand to request is not effective until received by the party to
whom it is addressed.
9.10. ENTIRE AGREEMENT - AMENDMENT. This Agreement, together with the
Term Notes and the other Loan Documents, constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and thereof and
supersedes any agreement or understanding, oral or written, heretofore made in
regard thereto. Neither this Agreement, the Term Notes nor any other Loan
Document may be changed, waived, discharged, modified or terminated orally, but
only by an instrument in writing signed by the party against whom enforcement is
sought.
9.11. TIME OF THE ESSENCE. Time is of the essence in this Agreement,
the Term Notes and the other Loan Documents.
9.12. INTERPRETATION. No provision of this Agreement or
34
<PAGE> 39
any Loan Document shall be construed against or interpreted to the disadvantage
of any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured or dictated such
provision.
9.13. LENDER NOT A JOINT VENTURER. Neither this Agreement nor any
agreements, instruments, documents or transactions contemplated hereby
(including the Loan Documents) shall in any respect be interpreted, deemed or
construed as making Lender a partner or joint venturer with Borrower or as
creating any similar relation ship or entity, and Borrower agrees that it will
not make any con trary assertion, contention, claim or counterclaim in any
action, suit or other legal proceeding involving Lender and Borrower.
9.14. JURISDICTION. BORROWER AGREES THAT ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT, THE TERM NOTES OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR THE UNITED STATES OF AMERICA
FOR THE NORTHERN DISTRICT OF ILLINOIS, CHICAGO DIVISION, ALL AS LENDER MAY
ELECT. BY EXECU TION OF THIS AGREEMENT, BORROWER HEREBY SUBMITS TO EACH SUCH JU
RISDICTION, HEREBY EXPRESSLY WAIVING WHATEVER RIGHTS MAY CORRESPOND TO IT BY
REASON OF ITS PRESENT OR FUTURE DOMICILE AND CONSENTS TO SERVICE OF PROCESS BY
WRITTEN NOTICE GIVEN IN THE MANNER SPECIFIED FOR THE GIVING OF NOTICES IN
SECTION 9.9 ABOVE; PROVIDED, HOWEVER, THAT NOTHING HEREIN SHALL AFFECT THE RIGHT
OF LENDER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN
ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED OR REQUIRED
BY LAW. EACH OF LENDER AND BORROWER WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
SUCH PROCEEDING. EACH OF LENDER AND BORROWER FURTHER AGREES THAT NEITHER SHALL
BE LIABLE TO THE OTHER FOR CONSEQUENTIAL OR SPECIAL DAMAGES ARISING FROM BREACH
OF CONTRACT, TORT OR OTHER WRONG OR CLAIM RELATING TO THE ESTABLISHMENT,
ADMINISTRATION OR COLLECTION OF ANY OBLIGATIONS OR ANY LOAN DOCUMENT OR ANY
ACTION (OR INACTION) BY EITHER PARTY THEREUNDER.
9.15. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder or under the Term Notes shall be stated to be due on a Saturday,
Sunday or a public holiday under the laws of the State of Georgia or the State
of Illinois, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
payment of interest hereunder or under the Term Notes.
9.16. WAIVER OF RIGHTS. BORROWER HEREBY WAIVES ANY AND ALL RIGHTS, IF
ANY, WHICH BORROWER OTHERWISE HAS OR MAY HAVE UNDER AND BY VIRTUE OF ANY LAW,
WITH RESPECT TO THE RIGHT OF BORROWER TO NOTICE AND TO A JUDICIAL OR
ADMINISTRATIVE HEARING
35
<PAGE> 40
PRIOR TO SEIZURE OF ANY COLLATERAL BY LENDER.
9.17. CURE OF DEFAULTS BY LENDER. If, hereafter, Borrower defaults in
the performance of any duty or obligation to Lender hereunder, Lender may, at
its option, but without obligation, cure such default and any costs, fees and
expenses incurred by Lender in connection therewith including, without
limitation, for the purchase of insurance, the payment of taxes and the removal
or settlement of liens and claims, shall constitute Obligations, be payable on
demand and bear interest until paid at the Default Rate applicable to the Term
Note with the then highest contract rate.
9.18. RECITALS. All recitals contained herein are hereby incorporated
by reference into this Agreement and made part thereof.
9.19. ATTORNEY-IN-FACT. Borrower hereby designates, appoints and
empowers Lender irrevocably to act as its attorney-in-fact, at Borrower's cost
and expense, to do in the name of Borrower any and all actions which Lender may
deem necessary or advisable to carry out the terms hereof, upon the failure,
refusal or inability of Borrower to do so, and Borrower hereby agrees to
indemnify and hold Lender harmless from any costs, damages, expenses or
liabilities arising against or incurred by Lender in connection therewith.
9.20. SOLE BENEFIT. The rights and benefits set forth in this Agreement
and in all the other Loan Documents are for the sole and exclusive benefit of
Lender, its Participants (if any) and Borrower and may be relied upon only by
them.
9.21. REMEDIES. UNLESS EXPRESSLY PROVIDED TO THE CONTRARY, LENDER MAY
ENFORCE ITS RIGHTS UNDER THIS AGREEMENT AND ALL OTHER LOAN DOCUMENTS WITHOUT
RESORT TO PRIOR JUDICIAL PROCESS OR JUDICIAL HEARING, AND BORROWER EXPRESSLY
WAIVES, RENOUNCES AND KNOWINGLY RELINQUISHES ANY LEGAL RIGHT WHICH MIGHT
OTHERWISE REQUIRE LENDER TO ENFORCE ITS RIGHTS BY JUDICIAL PROCESS. IN SO
PROVIDING FOR A NON-JUDICIAL REMEDY, BORROWER RECOGNIZES AND CONCEDES THAT SUCH
A REMEDY IS CONSISTENT WITH THE USAGE OF THE TRADE, IS RESPONSIVE TO COMMERCIAL
NECESSITY AND IS THE RESULT OF BARGAINING AT ARM'S LENGTH. NOTHING IN THIS
AGREEMENT IS INTENDED TO PREVENT BORROWER OR LENDER FROM RESORTING TO JUDICIAL
PROCESS AT EITHER PARTY'S OPTION.
9.22. INDEMNITY. Without limiting any provisions of Sec tions 5.10 or
9.6, Borrower agrees to save, indemnify and hold harmless Lender from and
against any and all debts, liabilities, obligations, damages, costs, expenses or
other claims incurred by Lender as a result of its entry into, and performance
under, this
36
<PAGE> 41
Agreement or any other Loan Documents, including, without limitation, with
respect to the claims of any broker or other intermedi ary.
9.23. ACCEPTANCE. THIS AGREEMENT, TOGETHER WITH THE TERM NOTES AND ALL
OTHER LOAN DOCUMENTS, SHALL NOT BECOME EFFECTIVE UNLESS AND UNTIL (I) DULY
EXECUTED BY BORROWER, (II) DELIVERED TO LENDER FOR ACCEPTANCE IN CHICAGO,
ILLINOIS, (III) ACCEPTED BY LENDER IN CHICAGO, ILLINOIS AND (IV) DULY EXECUTED
BY LENDER, AS APPROPRIATE, IN CHICAGO, ILLINOIS. THE DISBURSEMENT OF THE PRO
CEEDS OF THE TERM LOANS BY LENDER FROM ATLANTA, GEORGIA SHALL BE EVIDENCE THAT
THE FOREGOING CONDITIONS HAVE BEEN FULFILLED.
10. CONDITIONS PRECEDENT. Unless waived in writing by Lender at or
prior to the execution and delivery of this Agreement, the conditions set forth
below shall constitute express conditions precedent to any obligation of Lender
hereunder:
(a) NO INJUNCTION; ETC. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain,
or prohibit, or to obtain substantial damages in respect of, or which is related
to or arises out of this Agreement, or the consummation of the transactions
contemplated hereby, or which Lender determines would make it inadvisable to
consummate the transactions contemplated hereby.
(b) NO DEFAULT. No Default Condition or Event of Default shall have
occurred and be continuing.
(c) COMPLIANCE WITH LAWS GENERALLY; ENVIRONMENTAL LAW COM PLIANCE.
Lender shall be satisfied in all respects that Borrower is in material
compliance with all applicable federal, state and local laws and regulations,
including particularly, but without limitation, all Environmental Laws.
(d) MATERIAL AGREEMENTS. Lender shall have reviewed all of Borrower's
Material Agreements, and all of the foregoing shall be satisfactory to Lender.
(e) LITIGATION. Lender shall have reviewed all existing litigation,
injunctions and proceedings, if any, pending or threatened against Borrower and
the results of such review shall be satisfactory to Lender.
(f) DOCUMENTATION. Lender shall have received the following documents,
each to be in form and substance satisfactory to Lender and its counsel, and
duly executed and delivered by the party or parties thereto:
37
<PAGE> 42
(1) LOAN DOCUMENTS. This Agreement and all other Loan Documents to be
executed and delivered by Borrower hereunder and under the Loan Documents on the
Closing Date, to the extent not otherwise specified below;
(2) INSURANCE CERTIFICATES. Receipt by Lender of a cer tificate from
Borrower's insurer (or an authorized agent thereof) respecting all insurance
required hereunder, together with copies of all insurance policies evidencing
such insurance in each case in form and substance acceptable to Lender.
(3) OPINIONS OF BORROWER'S AND GUARANTOR'S COUNSEL. Re ceipt by Lender
of satisfactory opinions of counsel from Borrower's and Guarantor's legal
counsel, in form and substance satisfactory to Lender, including, in the case of
the Real Estate Collateral, opinions of counsel under the laws of the States of
California and Oregon;
(4) SECRETARIES' CERTIFICATES. Receipt by Lender of secretaries'
certificates from Guarantor and Borrower, certifying to their respective
articles or certificates of incorporation, bylaws and resolutions approving the
transactions contemplated hereby;
(5) GUARANTY. Receipt by Lender of an unconditional guaranty of all
Obligations from Guarantor, in form and substance satisfactory to Lender;
(6) TERM NOTES. Receipt by Lender of Term Notes in an aggregate
principal amount equal to the aggregate principal amount of the Term Loans;
(7) FINANCING STATEMENTS. Copies of all filing receipts or
acknowledgments issued by any Governmental Authority to evidence any filing or
recordation necessary to perfect the security inter ests of Lender in all
Collateral and evidence in a form acceptable to Lender that such security
interests constitute value and per fected first priority security interests in
Lender's favor;
(8) APPRAISAL. An appraisal, performed at Borrower's ex pense, of each
Financed Restaurant Location, by a nationally rec ognized independent appraiser
selected by Borrower, but acceptable to Lender, using a methodology of appraisal
which is acceptable to Lender, demonstrating a satisfactory range of appraised
values for such Property;
(9) ENVIRONMENTAL ASSESSMENT. Environmental Questionnaires, as
described in Section 5.10, together with an environmental regulatory review for
each Financed Restaurant
38
<PAGE> 43
Location, prepared at Borrower's expense, by independent environmental experts
selected by Lender, together with, if Lender shall so request in its sole
discretion, based on the results of such environmental regulatory review, "Phase
1" environmental audits and such additional environmental testing as Lender
shall so require with respect to each Financed Restaurant Location, in each
case, performed at Borrower's expense by independent environmental experts
selected by Lender;
(10) SURVEY. A current "as-built" boundary survey for each Financed
Restaurant Location together with a surveyor's certificate prepared at
Borrower's expense from a registered land surveyor;
(11) MORTGAGE. A deed of trust, mortgage, deed to se cure debt or
other, similar instrument pursuant to which Borrower shall convey to Lender or
to a trustee for the benefit of Lender the entirety of Borrower's right, title
and interest in and to each Financed Restaurant Location;
(12) MORTGAGEE'S TITLE INSURANCE POLICIES. A mortgagee's title
insurance policy, issued, at Borrower's expense, by a title insurer selected by
Borrower, but acceptable to Lender insuring Lender's security interest in each
Financed Restaurant Location in such amount, and containing only such
conditions, limitations and exceptions as shall be acceptable to Lender;
(13) EVIDENCE OF INSURANCE. Evidence that each Financed Restaurant
Location is covered by the insurance required under Section 5.7 and in the other
Loan Documents and as otherwise may be reasonably required by Lender in
connection with the disbursement of the Term Loans;
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and Borrower has caused its seal to be affixed hereto, all as of the
day and year first above written.
"BORROWER"
CARL KARCHER ENTERPRISES, INC.
By:_____________________________
Loren Pannier
Senior Vice President
39
<PAGE> 44
[CORPORATE SEAL]
"LENDER"
HELLER FINANCIAL, INC.
By:____________________________
Dominick J. Masciantonio,
Vice President and Region
Credit Manager
40
<PAGE> 45
EXHIBIT A
FINANCED RESTAURANT LOCATIONS
<TABLE>
<CAPTION>
APPRAISED PRO RATA
LOCATION VALUE APPRAISED VALUE
- -------- ----- ---------------
<S> <C> <C>
4880 Campus Drive $2,200,000 27.12%
Newport Beach,CA
5166 Vineland $1,210,000 14.91%
North Hollywood, CA
4424 University Parkway $ 860,000 10.60%
San Bernardino, CA
1403 NE 102nd Avenue $ 960,000 11.83%
Portland, Oregon
7359 Miliken Avenue $1,140,000 14.05%
Rancho Cucamonga, CA
1075 Mono Way $ 740,000 9.12%
Sonora, CA
200 Louise Avenue $1,000,000 12.33%
Lathrop, CA
---------- ------
$8,110,000 100.00%
</TABLE>
41
<PAGE> 46
EXHIBIT B
LEASED EQUIPMENT
Borrower leases certain IBM point of sale equipment from Computer Sales
International, Inc.
42
<PAGE> 1
EXHIBIT 10.41
AMENDMENT NO. 1 TO TERM
LOAN AND SECURITY AGREEMENT ("AMENDMENT")
January 22, 1996
Carl Karcher Enterprises, Inc.
1200 North Harbor Boulevard
Anaheim, California 92803
Attn: Loren Pannier
Senior Vice President
Ladies and Gentlemen:
Preamble. We refer to our Term Loan and Security Agreement with you dated as of
December 19, 1995 (the "Loan Agreement"). Capitalized terms used herein and not
defined herein have the meanings assigned to them in the Loan Agreement.
Pursuant to the Loan Agreement it was contemplated that Lender would
make the Term Loans available to Borrower against, initially, the security of
the Collateral located on or comprising the seven (7) restaurant locations of
Borrower described on Ex hibit "A" to the Loan Agreement. Lender has determined,
however, that with regard to Borrower's restaurant location at 4424 Univer sity
Parkway, San Bernardino, California (the "San Bernardino Lo cation") and
Borrower's restaurant location at 1403 NE 102nd Av enue, Portland, Oregon (the
"Portland Location"), certain of the conditions precedent to the funding of the
Term Loans specified in Section 10 of the Loan Agreement have not been
satisfied.
As a result of the foregoing, Borrower and Lender have agreed that, (a)
initially neither the San Bernardino Location nor the Portland Location will be
included as a Financed Restaurant Location under the Loan Agreement, (b)
initially the equipment and realty located at or constituting the San Bernardino
Location and the Portland Location will not constitute Collateral for purposes
of the Loan Agreement and (c) as more fully described herein, Term Loan A and
Term Loan B will be made available to Borrower in mul tiple disbursements,
consisting of an initial disbursement of Five Million Thirty-Two Thousand
Dollars ($5,032,000) in the case of Term Loan A and Three Hundred Sixty-Five
Thousand Seven Hundred Fourteen and 29/100 Dollars ($365,714.29) in the case of
Term Loan B, and, subject to the satisfaction of the conditions specified in
this Amendment and in the Loan Agreement, not more than two ad ditional
disbursements in the aggregate amount of up to One Million Four Hundred
Fifty-Six Thousand Dollars ($1,456,000) in the case of Term Loan A and One
Hundred Forty-Six Thousand Two Hundred Eighty- Five and 71/100 Dollars
($146,285.71) in the case of Term Loan B.
The purpose of this Amendment is to memorialize our mutual
understanding as to certain amendments to the Loan Agreement
<PAGE> 2
pertaining to the foregoing matters and certain related matters.
Accordingly you and we hereby agree as follows:
1. Amendments to Section 1.1 of the Loan Agreement.
(a) Section 1.1 of the Loan Agreement is hereby amended by
adding in appropriate alphabetical order the following additional
defined terms:
"Additional Financed Restaurant Locations" shall mean the San
Bernardino Location and/or the Portland Location, if either of
such restaurant locations of Borrower becomes a Financed
Restaurant Location pursuant to Section 2.1 of this Agreement
and any other restaurant location of Borrower which becomes a
Financed Restaurant Location pursuant to the provisions of
such Section 2.1.
"Portland Location: shall mean Borrower's restaurant
location at 1403 NE 102nd Avenue, Portland, Oregon.
"San Bernardino Location" shall mean Borrower's restau
rant location at 4424 University Parkway, San Bernardino,
California.
(b) Section 1.1 of the Loan Agreement is hereby further amended by
deleting in its entirety the definition of "Closing Date" set forth
therein and substituting in lieu thereof the following revised
definition of "Closing Date":
"Closing Date" shall mean January 23, 1996.
(c) Section 1.1 of the Loan Agreement is hereby further amended by
deleting in its entirety the last sentence of the definition of
"Financed Restaurant Location" set forth therein and substituting in
lieu thereof the following sentence:
After acceptance thereof by Lender pursuant to Sec tion 2.1
hereof in the case of Additional Financed Res taurant
Locations and Section 3.2 hereof in the case of Substitute
Financed Restaurant Locations, each Additional Financed
Restaurant Location and Substitute Financed Res taurant
Location shall be a Financed Restaurant Location for all
purposes of this Agreement.
(d) Section 1.1 of the Loan Agreement is hereby further
amended by deleting in its entirety the definition of "Fixed Rate" set
forth therein and substituting in lieu thereof the following revised
definition of "Fixed Rate":
2
<PAGE> 3
"Fixed Rate" shall mean, as to each Term Loan, a simple
interest rate equal to 8.17 percent (8.17%) per annum.
2. Amendments to Section 2.1 of the Loan Agreement.
Section 2.1 of the Loan Agreement is hereby deleted in its
entirety and the following revised Section 2.1 is substituted in lieu
thereof:
2.1 Term Loan Facility.
(a) Term Loans. Lender hereby creates the Term Loan Facility
in favor of Borrower consisting of two (2) Term Loans, as
follows: (i) a Term Loan of up to Six Million Four Hundred
Eighty-Eight Thousand Dollars ($6,488,000) in principal amount
(herein, sometimes called "Term Loan A") and (ii) a Term Loan
of up to Five Hundred Twelve Thousand Dollars ($512,000) in
principal amount (herein, sometimes called "Term Loan B"). The
Term Loans shall be disbursed in up to three (3) disbursements
as follows: (i) on the Closing Date, subject to satisfaction
of the conditions precedent set forth in Article 10 hereof,
Lender shall make an initial disbursement of Term Loan A in
the amount of Five Million Thirty-Two Thousand Dollars
($5,032,000) and an initial disbursement of Term Loan B in the
amount of Three Hundred Sixty-Five Thousand Seven Hundred
Fourteen and 29/100 Dollars ($365,714.29) and (ii) subject to
satisfaction of the conditions precedent specified in clause
(b) below, Borrower may obtain not more than two additional
disbursements of Term Loan A in the aggregate amount of not
more than One Million Four Hundred Fifty-Six Thousand Dollars
($1,456,000) and not more than two additional disbursements of
Term Loan B in the aggregate amount of not more than One
Hundred Forty- Six Thousand Two Hundred Eighty-Five and 71/100
Dollars ($146,285.71), provided, however, that such additional
disbursements of the Term Loans must be made, if at all, on or
prior to March 14, 1996.
(b) Additional Disbursements of Term Loans. The making of
additional disbursements of the Term Loans shall be governed
by the following provisions:
(i) Portland Location. Subject to clause (iv) below, Borrower
may obtain an additional disbursement of Term Loan A in the
amount of Seven Hundred Sixty Eight Thou sand Dollars
($768,000) and an additional disbursement of Term Loan B in
the amount of Seventy-Three Thousand One Hundred Forty-Two and
86/100 Dollars ($73,142.86),
3
<PAGE> 4
upon delivering to Lender, at least ten (10) days prior to the
desired disbursement date, a duly completed and executed
Addendum to Term Loan and Security Agreement, in the form of
Annex 1 attached hereto (a "Term Loan Addendum"), accompanied
by each of the following with regard to the Portland Location,
prepared or obtained at Borrower's expense (to the extent not
delivered on or prior to the Closing Date): (A) a First
Amendment to Property Agreement, in the form of Annex 2
attached hereto; (B) a Mortgage and UCC financing statements
sufficient to grant to Lender a perfected first priority
security interest and lien on the Equipment Collateral and
Real Estate Collateral located at or comprising the Portland
Location; (C) a mortgagee's title insurance policy satisfying
the conditions specified in Section 10.1(f)(12) hereof; (D)
evidence of insurance satisfying the conditions specified in
Section 10.1(f)(13) hereof; (E) such updated lien search
reports as Lender shall request evidencing that there are no
liens of record encumbering the Portland Location; and (F)
such other documents, instruments and agreements as Lender
reasonably requests.
(ii) San Bernardino Location. Subject to clause (iv) below
Borrower may obtain an additional disbursement of Term Loan A
in the amount of Six Hundred Eighty-Eight Thousand Dollars
($688,000) and an additional disburse ment of Term Loan B in
the amount of Seventy-Three Thousand One Hundred Forty-Two and
86/100 Dollars ($73,142.86) upon delivering to Lender, at
least ten (10) days prior to the desired disbursement date, a
duly completed and executed Term Loan Addendum, accompanied by
each of the following with regard to the San Bernardino
Location (to the extent not delivered on or prior to the
Closing Date), prepared or obtained at Borrower's expense: (A)
such environmental assessments, reports and testing, prepared
and performed by environmental experts satisfactory to Lender,
as Lender and the environmental experts employed by it shall
request in order to demon strate (x) the absence of
Contaminants on, in or under the San Bernardino Location and
surrounding properties and (y) that such property is in
compliance with ap plicable Environmental Laws; (B) a Mortgage
and UCC financing statements sufficient to grant to Lender a
perfected first priority security interest and lien on the
Equipment Collateral and Real Estate Collateral located at or
comprising the San Bernardino Location; (C) a mortgagee's
title insurance policy satisfying the conditions specified in
4
<PAGE> 5
Section 10.1(f)(12) hereof; (D) evidence of insurance
satisfying the conditions specified in Section 10.1(f)(13)
hereof; (E) such updated lien search reports as Lender shall
request evidencing that there are no liens of record
encumbering the San Bernardino Location; and (F) such other
documents, instruments and agreements as Lender reasonably
requests.
(iii) Other Additional Financed Restaurant Locations. In lieu
of satisfying the conditions specified in the preceding clause
(i) and/or clause (ii) and obtaining additional disbursements
of the Term Loans thereunder, Borrower may provide to Lender
as additional collateral up to two (2) other Carl's Jr.
restaurant locations of Borrower, selected by Borrower and
approved by Lender, as to which, in each case, subject to
satisfaction of each of the conditions precedent specified
below, subject to clause (iv) below and subject to the
aggregate limitations on additional disbursements of the Term
Loans specified hereinabove, Lender shall make an additional
disbursement of Term Loan A in an amount of up to eighty
percent (80%) of the appraised as-is market value of the real
estate comprising such Additional Financed Restaurant Location
and, concurrently therewith, an additional disbursement of
Term Loan B in the amount of up to Seventy-Three Thousand One
Hundred Forty Two and 86/100 Dollars ($73,142.86) (based on
Lender's determination of the value of the equipment located
at such Additional Financed Restaurant Location). In the event
that Borrower desires to obtain additional disbursements of
the Term Loans based on the security of any such Additional
Financed Restaurant Location, Borrower shall be required to
deliver to Lender, at least twenty (20) days prior to the
desired disbursement date, at its expense, a duly completed
and executed Term Loan Addendum accompanied by each of the
following with regard to such Additional Financed Restaurant
Location: (A) an appraisal satisfying the conditions specified
in Section 10.1(f)(8) hereof; (B) an as-built survey
satisfying the conditions specified in Section 10.1(f)(10)
hereof; (C) an Environmental Questionnaire, as described in
Section 5.10 hereof, together with an environmental regulatory
review for such Additional Financed Restaurant Location,
prepared by independent experts selected by Lender, together
with, if Lender so requests in its sole discretion, based on
the results of such environmental regulatory review, a "Phase
I" environmental audit and such additional environmental
testing as Lender shall so require with respect to such
Additional Financed Restaurant Location, in each case
performed by environmental experts selected by Lender and the
results of which
5
<PAGE> 6
shall be satisfactory to Lender; (D) a mortgagee's title
insurance policy satisfying the conditions specified in
Section 10.1(f)(12) hereof; (E) a Mortgage and UCC financing
statements sufficient to grant to Lender a perfected first
priority security interest and lien on such Additional
Financed Restaurant Location; (F) evidence of insurance
satisfying the conditions specified in Section 10.1(f)(13) of
the Loan Agreement; (G) such lien search reports as Lender
shall request evidencing that there are no liens of record
encumbering such Additional Financed Restaurant Location; and
(H) such other documents, instruments and agreements as Lender
reasonably requests.
(iv) No Default Condition or Event of Default; Represen
tations and Warranties True and Correct. Borrower shall have
no right to obtain any additional disbursements of the Term
Loans if at the time any such disbursement is to be made, any
Default Condition or Event of Default has occurred and is
continuing, or, except as otherwise approved by Lender, any
representation or warranty made hereunder is no longer true
and correct.
3. Amendment to Section 2.2 of The Loan Agreement.
(a) Section 2.2 of the Loan Agreement, pertaining to the amortization
of the Term Loans, is hereby deleted in its entirety and the following
revised Section 2.2 is substituted in lieu thereof:
2.2 Amortization. The principal amount of each Term Loan,
together with accrued interest thereon at the then Applicable
Rate, shall be paid as follows: (a) as to Term Loan A, in
fifty-nine (59) monthly installments, in accordance with the
amortization schedule set forth on Schedule I attached
hereto, as amended from time to time as provided in the last
sentence hereof, commencing on February 1, 1996, and
concluding on December 1, 2000, followed by a balloon payment
in the amount of the unpaid principal balance of Term Loan A
and all accrued and unpaid interest thereon, due and payable
on January 1, 2001; and (b) as to Term Loan B, in sixty (60)
monthly installments, in accordance with the amortization
schedule set forth on Schedule II attached hereto, as amended
from time to time as provided in the last sentence hereof,
commencing on February 1, 1996, and continuing through January
1, 2001; it being under
6
<PAGE> 7
stood and agreed that: (i) all payments on a Term Loan shall
be applied, when received first to accrued interest on such
Term Loan until paid in full and, then, to the principal
amount thereof; (ii) the amortization of the Term Loans shall
be based on level monthly payments (inclusive of principal
and accrued interest); and (iii) the last payment on each Term
Loan shall, in any event, be in that amount necessary to pay
in full the then unpaid principal balance of such Term Loan
together with all accrued, but unpaid, interest thereon.
Attached as Schedules I and II hereto are the respective
amortization schedules for Term Loan A and Term Loan B based
on the disbursements of the Term Loans made on the Closing
Date. In the event of any additional disbursements of the Term
Loans pursuant to Section 2.1 hereof, the amortization
schedules set forth on Schedules I and II shall be amended in
the manner set forth on Schedules I and II to the then
applicable Term Loan Addendum.
(b) Borrower hereby further agrees with Lender that the initial
amortization schedules for Term Loan A and Term Loan B shall be as set
forth in Schedule I and Schedule II, respectively, attached hereto,
and authorizes Lender to attach such schedules as Schedule I and
Schedule II to the Loan Agreement.
4. Amendment to Section 2.3 of the Loan Agreement
Section 2.3 of the Loan Agreement pertaining to the payment of
interest is hereby amended by deleting the date "January 1, 1996" in
the second sentence thereof and substituting in lieu thereof the date
"February 1, 1996".
5. Amendment to Section 2.4 of the Loan Agreement.
Section 2.4 of the Loan Agreement is hereby deleted in its
entirety and the following revised Section 2.4 is hereby substituted in
lieu thereof:
2.4 Term Notes. The indebtedness represented by each
Term Loan shall be evidenced by a Term Note corresponding to
the maximum principal amount thereof which may be disbursed
hereunder; provided, however, that Borrower's obligations
under each Term Note shall be limited to the amount of the
Term Loan evidenced thereby which is actually disbursed
hereunder. Each Term Note shall be executed by Borrower and
delivered to Lender on or prior to the Closing Date.
6. Amendment to Section 2.5 of the Loan Agreement.
Section 2.5
7
<PAGE> 8
of the Loan Agreement is hereby amended by deleting in their entirety
the last two sentences thereof and substituting in lieu thereof the
following two sentences:
Coincident with each disbursement of the Term Loans, Borrower
will pay to Lender a non-refundable closing fee with regard to
such disbursement in an amount equal to one-half of one
percent (1/2%) of the amount of such disbursement. Each such
closing fee shall be deemed to be fully earned on the date of
such disbursement.
7. Amendment to Exhibit A to the Loan Agreement. Exhibit A to the Loan
Agreement is hereby amended by deleting such exhibit in its entirety
and substituting in lieu thereof Exhibit A attached hereto. In the
event of any subsequent disbursements of the Term Loans pursuant to
Section 2.1 hereof, as amended hereby, Exhibit A shall be further
amended as set forth in each applicable Term Loan Addendum.
8. Term Notes; Mortgages. The Term Notes, dated as of December 19, 1995,
executed and delivered by Borrower to Lender, are in the respective
maximum principal amounts of Term Loan A and Term Loan B. Likewise, the
Mortgages, dated as of December 19, 1995, executed and delivered by
Borrower to Lender, provide that they secure the maximum principal
amounts of Term Loan A and Term Loan B. Lender hereby acknowledges that
at all times Borrower's obligations to repay principal under the Term
Notes, and the principal amount of the Term Notes secured by the
Mortgages, shall be limited to the amount of the Term Loans actually
disbursed by Lender under the Loan Agreement.
9. Miscellaneous.
(a) Effect of Amendment. Except as set forth expressly
herein, all terms of the Loan Agreement and the
other Loan Documents, as amended hereby, shall be
and remain in full force and effect and shall con
stitute the legal, valid, binding and enforceable
obligations of Borrower to Lender. To the extent any
terms and conditions in any of the Loan Documents
shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect
to this Amendment, such terms and conditions are
hereby deemed modified and amended accordingly to
reflect the terms and conditions of the Loan
Agreement as modified and amended hereby. In
connection herewith, Borrower shall execute such
amendments to the other Loan Documents or re-execute
such of the other Loan
8
<PAGE> 9
Documents as Lender shall request.
(b) Ratification. Borrower hereby restates, ratifies and reaffirms
each and every term and condition set forth in the Loan
Agreement, as amended hereby, and the Loan Documents effective
as of the date hereof.
(c) Estoppel. To induce Lender to enter into this Amendment
and to make the Term Loans to Borrower under the Loan
Agreement, Borrower hereby acknowledges and agrees that,
as of the date hereof, no Default Condition or Event of
Default has occurred and is continuing and, in addition,
there exists no right of offset, defense, counterclaim or
objection in favor of Borrower as against Lender with
respect to the Obligations.
(d) Governing Law. This Amendment shall be governed by, and
construed in accordance with, the internal laws (and not
the laws of conflicts) of the State of Illinois and all
applicable federal laws of the United States of America.
9
<PAGE> 10
Please countersign in the space provided below to acknowledge
your concurrence with the foregoing.
Sincerely yours,
HELLER FINANCIAL, INC.
By:
---------------------------
Dominick J. Masciantonio
Vice President and
Region Credit Manager
Acknowledged and agreed:
CARL KARCHER ENTERPRISES, INC.
By:
---------------------------
Loren Pannier
Senior Vice President
10
<PAGE> 11
ACKNOWLEDGMENT OF GUARANTOR
The undersigned, CKE Restaurants, Inc. being a guarantor of
the obligations of Carl Karcher Enterprises, Inc. ("Borrower") under the "Loan
Agreement" referenced in the within and foregoing Amendment No. 1 to Term Loan
and Security Agreement; capitalized terms used herein and not defined herein
have the meanings assigned to them in the Amendment, pursuant to a Guaranty,
dated as of December 19, 1995 (the "Guaranty") hereby (a) acknowledges its
receipt of a copy of the Amendment and Agreement with its terms and (b)
acknowledges and agrees that the Guaranty shall continue in full force and
effect, without diminution or impairment, from and after the execution and
delivery of the Amendment.
IN WITNESS WHEREOF, the undersigned has set its hand and seal
as of the 23 day of January, 1996.
CKE RESTAURANTS, INC.
By:___________________
Name:_________________
Title:________________
11
<PAGE> 12
ANNEX 1
[FORM OF ADDENDUM TO TERM
LOAN AND SECURITY AGREEMENT]
[TO BE COMPLETED]
12
<PAGE> 13
ANNEX 1
[FORM OF ADDENDUM TO TERM LOAN AND SECURITY AGREEMENT]
ADDENDUM NO.___ TO TERM LOAN
AND SECURITY AGREEMENT
Date:________ __, 1996
To: Heller Financial, Inc.
Suite 1600
900 Circle 75 Parkway
Atlanta, Georgia 30339
Attn: Dominick J. Masciantonio,
Vice President and Region Credit Manager
(1) Preamble. We refer to that certain Term Loan and Security
Agreement, dated as of December 19, 1995, between you and the undersigned, as
amended to date, including, without limitation pursuant to a certain Amendment
No. 1 to Term Loan and Security Agreement, dated as of January 22, 1996 (as so
amended, the "Loan Agreement"), capitalized terms used herein and not defined
herein have the meanings assigned to them in the Loan Agreement.
(2) Request for Additional Disbursements. Pursuant to Section 2.1 of
the Loan Agreement, we hereby request that you make an additional disbursement
of the Term Loans as follows:
(a) Date of requested disbursement: ________ __, 1996
(b) Amount of requested disbursement of Term Loan
A: $__________
(c) Amount of requested disbursement of Term Loan
B: $__________
(d) Disbursement Instructions: As set forth on attachment 1 hereto.
(3) Additional Financed Restaurant Location. In connection with such
request, we are providing to you a Mortgage and all other items required to be
delivered to you pursuant to Section 2.1(b) of the Loan Agreement with respect
to our restaurant location at
_____________________________________________________ which shall be a Financed
Restaurant Location for all purposes of the Loan Agreement.
(4) Confirmation of Grant of Security Interest. In order to induce you
to make the additional disbursements of the Term Loans requested hereby, we
hereby grant to you, as further
<PAGE> 14
security for the Obligations, a continuing, general lien upon, security interest
in, and security title to the Equipment Collateral located at the Financed
Restaurant Location described in the preceding paragraph 3, to the full extent
of our interest herein, together with any and all products and proceeds of the
foregoing, including, without limitation, insurance proceeds, and agree with you
that such Equipment Collateral shall constitute Collateral for all purposes of
the Loan Agreement.
(5) Replacement of Exhibit A to the Loan Agreement. We hereby agree
with you that effective upon your making of the additional disbursements of the
Term Loans requested hereby Exibit A to the Loan Agreement shall be deleted in
its entirety and Exhibit A attached hereto shall be substituted in lieu thereof.
(6) Replacement of Schedules I and II of the Loan Agreement. We hereby
agree with you that effective upon your making of the additional disbursements
of the Term Loans requested hereby Schedules I and II to the Loan Agreement
shall be deleted in their entireties and Schedules I and II attached hereto
shall be substituted in lieu thereof.
(7) Representations and Warranties. In order to induce you to make the
additional disbursements of the Term Loans contemplated hereby, we hereby
represent and warrant to you that as of the date thereof (a) each of the
representations and warranties set forth in the Loan Agreement and the in the
other Loan Documents is true and correct, including, without limitation, with
reference to the Additional Financed Restaurant location described herein and
the Collateral located on or comprising such Additional Financed Restaurant
Location, (b) no Default Condition or Event of Default has occurred and is
continuing and (c) we have satisfied each of the conditions to the making of the
additional disbursements of the Term Loans requested hereby set forth in Section
2.1(b) of the Loan Agreement.
IN WITNESS WHEREOF, the undersigned has set its hand as of the day and
year first above written.
CARL KARCHER
ENTERPRISES, INC.
By:___________________
Name: ____________
Title: ____________
2
<PAGE> 15
ANNEX 2
[FORM OF FIRST AMENDMENT
TO PROPERTY AGREEMENT]
[SEE ATTACHED]
<PAGE> 16
Recording requested
by and when recorded
return to:
Carl Karcher Enterprises, Inc.
1200 North Harbor Boulevard
Anaheim, California 92803-4349
Attn: Judy Butterworth
Lease/Escrow Manager
FIRST AMENDMENT TO PROPERTY AGREEMENT
THIS FIRST AMENDMENT ("Amendment"), made as of the ___ day of January,
1996, by and between REC RESOLUTION COMPANY, an Oregon corporation ("REC"), and
CARL KARCHER ENTERPRISES, INC., a Cali fornia corporation ("Karcher");
WITNESSETH:
WHEREAS, REC and Karcher are parties to a certain Property Agreement, dated
as of August 11, 1994, and recorded on February 3, 1995 at file number 95 14041
in the real estate records of Multnomah County, Oregon (the "Property
Agreement"), pursuant to which REC and Karcher have made certain agreements with
regard to the property in the Gateway Shopping Center in Portland, Multnomah
County, Oregon owned by Karcher as described on Exhibit "C" to the Property
Agreement (the "Property"); and
WHEREAS, Karcher desires to obtain certain financing from Heller Financial,
Inc. ("Heller") and to secure its obligations in respect of such financing by
granting to Heller, or to a trustee on its behalf, pursuant to a deed of trust
and other security documents (collectively, the "Heller Security Documents"),
liens and security interests in the Property and in all improvements, equipment
and fixtures located thereon or used in connection therewith; and
WHEREAS, in order to permit Karcher to obtain such financing from Heller,
Karcher has requested that REC join with it in the execution of this Amendment
and REC has agreed to do so;
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not defined herein shall
have the meanings assigned to them in the Property Agreement.
2. Right of Repurchase; Use Restrictions. Notwithstanding anything contained in
the Property Agreement to the contrary, REC
<PAGE> 17
and Karcher hereby agree that, in connection with the exercise by Heller of any
of its rights and remedies under the Heller Security Documents, including,
without limitation, by way of taking possession of the Property, conducting a
foreclosure sale of the Property or accepting a deed of the Property in lieu of
foreclosure (collectively, the "Heller Remedies"), and following such exercise,
neither Heller, any of its successors or assigns, including, without limitation,
any purchaser in a foreclosure sale of the Property conducted by or on behalf of
Heller, nor any subsequent purchaser of the Property following exercise of any
Heller Remedies shall be subject to either (A) the provisions of Section 4 of
the Property Agreement granting to REC certain repurchase rights or (B) the
restrictions on use of the Property set forth in Section 5 of the Property
Agreement.
3. Third Party Beneficiaries. Heller, its successors and assigns, including,
without limitation, any purchaser in a foreclosure sale of the Property
conducted by or on behalf of Heller, and any subsequent purchasers of the
Property following exercise of any of the Heller Remedies shall be third party
beneficiaries of the provisions of this Amendment, and such provisions may not
be amended, modified, waived, terminated or supplemented in any respect without
the prior written consent of Heller and any such other person then in possession
of the Property.
4. Effect of Amendment. As amended hereby, all provisions of the
Property Agreement shall continue in full force and effect and be
binding upon REC, Karcher and Heller and its successors and
assigns.
2
<PAGE> 18
IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to be
executed, under seal, by its duly authorized officer, as of the date and year
first above written.
REC RESOLUTION COMPANY
By:________________________
Name:___________________
Title:__________________
CARL KARCHER ENTERPRISES,
INC.
By:________________________
Name:___________________
Title:__________________
3
<PAGE> 19
ACKNOWLEDGMENTS
STATE OF _______________
COUNTY OF ______________
This instrument was acknowledged before me on the ___ day of January, 1996
by _____________________, the ____________________ of REC Resolution Company, an
Oregon corporation, on behalf of said corporation.
________________________________
Notary Public for the State of
________________________________
My commission expires:
________________________________
[NOTARY SEAL]
4
<PAGE> 20
STATE OF ________________
COUNTY OF________________
This instrument was acknowledged before me on the ___ day of January, 1996
by _____________________, the ____________________ of Carl Karcher Enterprises,
Inc., a California corporation, on behalf of said corporation.
________________________________
Notary Public for the State of
________________________________
My Commission Expires:
________________________________
[NOTARY SEAL]
5
<PAGE> 21
EXHIBIT A
FINANCED RESTAURANT LOCATIONS
[TO BE COMPLETED]
<PAGE> 22
EXHIBIT A
FINANCED RESTAURANT LOCATIONS
<TABLE>
<CAPTION>
APPRAISED PRO RATA
LOCATION VALUE APPRAISED VALUE
- -------- ----- ---------------
<S> <C> <C>
4880 Campus Drive $2,200,000 34.98%
Newport Beach,CA
5166 Vineland $1,210,000 19.24%
North Hollywood, CA
7359 Miliken Avenue $1,140,000 18.12%
Rancho Cucamonga, CA
1075 Mono Way $ 740,000 11.76%
Sonora, CA
200 Louise Avenue $1,000,000 15.90%
Lathrop, CA
---------- ------
$6,290,000 100.00%
</TABLE>
<PAGE> 1
EXHIBIT 11-1
CKE RESTAURANTS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
-----------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net income (loss).................................... $10,952 $ 1,264 $ 3,665 $(5,507) $13,038
======= ======= ======= ======== =======
Weighted average number of common shares
outstanding during the year........................ 18,382 18,779 18,215 18,034 18,107
Incremental common shares attributable to
exercise of stock options...................... 208 82 66 294 (1) 293
Repurchase and retirement of shares.............. -- -- (28) -- (208)
Purchase of treasury shares....................... (72) (144) -- -- --
--------- -------- ------- --------- -------
18,518 18,717 18,253 18,328 18,192
======= ======= ======= ======= =======
Primary earnings (loss) per share..................... $ .59 $ .07 $ .20 $ (.30)(1) $ .72
======== ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
----------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE:
Net income (loss)..................................... $10,952 $ 1,264 $ 3,665 $(5,507) $13,038
======= ======= ======= ======= ======
Weighted average number of common shares
outstanding during the year......................... 18,382 18,779 18,215 18,034 18,107
Incremental common shares attributable to
exercise of stock options....................... 369 82 380 334 (1) 309
Repurchase and retirement of shares............... -- -- (28) -- (208)
Purchase of treasury shares....................... (72) (144) -- -- --
------- -------- ------- ---------- -------
18,679 18,717 18,567 18,368 18,208
======= ======= ======= ======== =======
Fully diluted earnings (loss) per share............... $ .59 $ .07 $ .20 $ (.30) (1) $ .72
======= ======= ======= ========== =======
</TABLE>
- ---------------
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of Accounting Principles
Board Opinion No. 15 because it produces an antidilutive effect.
<PAGE> 1
EXHIBIT 12-1
CKE RESTAURANTS, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF DEBT TO EQUITY
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
---------------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- -------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Debt:
Current portion of long-term debt................. $ 8,575 $ 8,168 $13,207 $ 28,467 $ 29,759
Current portion of capital lease obligations...... 3,745 3,581 3,354 3,158 2,959
--------- ------- ------- --------- --------
12,320 11,749 16,561 31,625 32,718
-------- ------- ------- -------- --------
Long-term debt.................................... 30,321 27,178 17,414 31,742 50,485
Capital lease obligations......................... 40,233 42,691 45,886 48,512 51,589
-------- ------- ------- --------- --------
70,554 69,869 63,300 80,254 102,074
-------- ------- ------- -------- --------
$ 82,874 $81,618 $79,861 $111,879 $134,792
======== ======= ======= ======== ========
Stockholders' equity:
Common stock...................................... $ 192 $ 188 $ 186 $ 181 $ 179
Additional paid-in capital........................ 38,713 35,119 33,742 28,612 26,609
Retained earnings................................. 67,393 57,725 58,148 55,939 62,891
Treasury stock.................................... (5,109) (4,558) -- -- --
-------- -------- ------- -------- --------
$101,189 $88,474 $92,076 $ 84,732 $ 89,679
======== ======= ======= ======== ========
Ratio of debt to equity........................... 0.8x 0.9x 0.9x 1.3x 1.5x
======== ======= ======= ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21-1
CKE RESTAURANTS, INC.
LIST OF SUBSIDIARIES
Set forth below is a list of all the Company's subsidiaries as of January 29,
1996:
<TABLE>
<CAPTION>
Control by
Jurisdiction of -------------------------
Name of Subsidiary Incorporation Registrant Subsidiary
- ----------------------------- --------------- ---------- ----------
<S> <C> <C> <C>
Carl Karcher Enterprises, Inc. California 100%
Boston Pacific, Inc. California 100%
</TABLE>
<PAGE> 1
EXHIBIT 23-1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
CKE Restaurants, Inc. and Subsidiaries
We consent to incorporation by reference in the Registration Statements (Nos.
33-56313 and 33-55337) on Forms S-8 of CKE Restaurants, Inc. and Subsidiaries of
our report dated March 19, 1996, relating to the consolidated balance sheets of
CKE Restaurants, Inc. and Subsidiaries as of January 31, 1996 and 1995 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended January 31, 1996, which
report appears in the January 31, 1996 Annual Report on Form 10-K of CKE
Restaurants, Inc. and Subsidiaries.
KPMG Peat Marwick LLP
Orange County, California
April 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) CKE
RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
INCOME AS OF AND FOR THE YEAR ENDED JANUARY 29, 1996. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-K FOR THE YEAR ENDED JANUARY 29, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-1996
<PERIOD-START> JAN-31-1995
<PERIOD-END> JAN-29-1996
<CASH> 23,429
<SECURITIES> 2,510
<RECEIVABLES> 17,191
<ALLOWANCES> 0
<INVENTORY> 6,132
<CURRENT-ASSETS> 56,769
<PP&E> 281,842
<DEPRECIATION> 154,496
<TOTAL-ASSETS> 246,759
<CURRENT-LIABILITIES> 61,317
<BONDS> 0
0
0
<COMMON> 192
<OTHER-SE> 100,997
<TOTAL-LIABILITY-AND-EQUITY> 246,759
<SALES> 393,486
<TOTAL-REVENUES> 465,437
<CGS> 313,066
<TOTAL-COSTS> 439,702
<OTHER-EXPENSES> (2,222)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,004
<INCOME-PRETAX> 17,953
<INCOME-TAX> 7,001
<INCOME-CONTINUING> 10,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,952
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
</TABLE>
