<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1997
REGISTRATION NO. 333-27921
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
CKE RESTAURANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0602639
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
------------------
1200 NORTH HARBOR BOULEVARD, ANAHEIM, CALIFORNIA 92801
(714) 774-5796
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
ANDREW F. PUZDER, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
CKE RESTAURANTS, INC.
1200 NORTH HARBOR BOULEVARD, ANAHEIM, CALIFORNIA 92801
(714) 774-5796
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------
COPIES TO:
<TABLE>
<S> <C>
C. CRAIG CARLSON, ESQ. PAUL C. PRINGLE, ESQ.
J. MICHAEL VAUGHN, ESQ. BROWN & WOOD LLP
STRADLING, YOCCA, CARLSON & RAUTH, 555 CALIFORNIA STREET, SUITE 5000
A PROFESSIONAL CORPORATION SAN FRANCISCO, CALIFORNIA 94104
660 NEWPORT CENTER DRIVE, SUITE 1600 (415) 772-1200
NEWPORT BEACH, CALIFORNIA 92660
(714) 725-4000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
=============================================================================================================
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (.01 par value)............. 8,337,500 shares $27.00 $225,112,500 $61,551.14(3)
=============================================================================================================
</TABLE>
(1) Includes up to 1,087,500 shares of Common Stock which may be purchased by
the Underwriters to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee.
(3) $49,397.73 of the registration fee was paid concurrently with the filing of
this Registration Statement on May 28, 1997.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a United States offering (the "U.S. Prospectus") and one
to be used in a concurrent international offering (the "International
Prospectus"). The two prospectuses will be identical in all respects except for
the front and back cover pages and the sections entitled "Underwriting." Pages
to be included in the International Prospectus and not the U.S. Prospectus are
marked "Alternate Page."
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 16, 1997
PROSPECTUS
7,250,000 SHARES
[LOGO OF CKE RESTAURANTS]
COMMON STOCK
------------------------
All of the shares of Common Stock being offered hereby are being sold by
CKE Restaurants, Inc. ("CKE"). Of the 7,250,000 shares of Common Stock offered
hereby, 5,800,000 shares are being offered in the United States and Canada by
the U.S. Underwriters (the "U.S. Offering") and 1,450,000 shares are being
offered in a concurrent offering outside the United States and Canada by the
International Managers (the "International Offering"). The price to public and
underwriting discount per share are identical for the U.S. Offering and the
International Offering. See "Underwriting." CKE's Common Stock is listed on the
New York Stock Exchange under the symbol "CKR." On June 12, 1997, the last
reported sale price of the Common Stock on the New York Stock Exchange Composite
Tape was $26 3/4 per share. See "Price Range of Common Stock and Dividend
Policy."
The Common Stock offered hereby is being issued to provide part of the
financing necessary for CKE's acquisition of Hardee's Food Systems, Inc.
("Hardee's") (the "Acquisition"). Prior to or concurrently with this offering,
CKE will enter into the New Credit Facility (as defined herein). This offering
is contingent upon the effectiveness of the New Credit Facility, and CKE plans
to close this offering concurrently with the closing of the Acquisition. See
"The Acquisition" and "Use of Proceeds."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING COMPANY(2)
DISCOUNT(1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $ $ $
- --------------------------------------------------------------------------------------------------------
Total(3)................................ $ $ $
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</TABLE>
(1) CKE has agreed to indemnify the several Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933.
See "Underwriting."
(2) Before deducting expenses payable by CKE estimated at $750,000.
(3) CKE has granted the several U.S. Underwriters and the International Managers
(the "Underwriters") options to purchase up to 870,000 and 217,500
additional shares, respectively, of Common Stock to cover over-allotments,
if any. See "Underwriting." If such options are exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively.
------------------------
The shares of Common Stock are being offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares of
Common Stock will be made in New York, New York on or about ,
1997.
------------------------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
MORGAN STANLEY DEAN WITTER
EQUITABLE SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY
------------------------
The date of this Prospectus is , 1997
LOGO
<PAGE> 4
[PHOTOGRAPHS OF EXTERIOR AND INTERIOR OF REPRESENTATIVE
RESTAURANTS AND PHOTOGRAPHS OF REPRESENTATIVE PRODUCTS
AND MAP INDICATING DOMESTIC RESTAURANT LOCATIONS]
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Common Stock.
Such transactions may include stabilizing, the purchase of Common Stock to cover
syndicate short positions and the imposition of penalty bids. For a description
of these activities, see "Underwriting."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus or in the documents incorporated by reference herein. This
summary is qualified in its entirety by reference to such information. The
Company's fiscal year is the 52- or 53-week period ending on the last Monday in
January of each year. For example, references to fiscal 1997 refer to the
52-week period ended January 27, 1997. For clarity of presentation, all fiscal
years are presented herein as if the fiscal year ended on January 31. As used in
this Prospectus, unless otherwise expressly stated or the context otherwise
requires, (i) the term "Company" refers to CKE and its consolidated subsidiaries
(including Hardee's) as if the Acquisition has been consummated, and (ii) the
term "Hardee's" refers to Hardee's Food Systems, Inc. prior to the consummation
of the Acquisition. Unless otherwise expressly indicated or the context
otherwise requires, all information herein reflects the three-for-two stock
split of the Common Stock, which was completed on January 22, 1997 in the form
of a 50% stock dividend, and assumes that the Underwriters' over-allotment
options granted in the offering are not exercised.
THE COMPANY
Upon the consummation of the Acquisition, the Company will own, operate,
franchise and license 4,082 branded restaurant units in the United States and
abroad. The Company is principally engaged in the quick-service restaurant
segment, where the Company's branded units will include 3,856 hamburger
restaurants and 107 Mexican restaurants. The Company's quick-service hamburger
restaurant chain will be the third largest such network in the United States
based on combined system-wide sales. Upon the consummation of the Acquisition,
the Company will own the following quick-service restaurant brands:
- CARL'S JR.(R) -- Carl's Jr. was founded in 1956 and is the nation's
seventh largest quick-service hamburger restaurant chain, based on
system-wide sales, with a leading market presence in California. The
Carl's Jr. menu features several charbroiled hamburgers and chicken
sandwiches, including the Famous Star, Western Bacon Cheeseburger(R),
Super Star(R), Charbroiler Chicken Sandwiches(R), and Crispy Chicken
Sandwiches. Carl's Jr. charbroiled hamburgers, chicken sandwiches and
other signature items are generally made-to-order, meet exacting quality
standards, are offered in generous portions and have a strong reputation
for quality and taste. CKE believes that its focus on customer service,
superior food quality and taste and generous portions enables Carl's Jr.
restaurants to maintain a strong price-value image with its customers. As
of May 19, 1997, the Carl's Jr. system included 678 restaurants, of which
421 were operated by CKE and 257 were operated by CKE's franchisees and
licensees.
- HARDEE'S(R) -- Hardee's was founded in 1961 and is the nation's fourth
largest quick-service hamburger restaurant chain, based on system-wide
sales, with a leading market presence in the Southeastern and Midwestern
United States. Hardee's strength is in its breakfast menu, which
generates approximately 30% of its overall revenues, the highest
percentage in the quick-service hamburger industry. Hardee's breakfast
menu features made from scratch biscuits, biscuit breakfast sandwiches
and other items such as hash rounds and breakfast platters. The current
Hardee's lunch and dinner menu includes hamburgers, fried chicken and
other products. Management intends to improve Hardee's menu by
streamlining its product offerings and adding certain Carl's Jr. lunch
and dinner menu items to its strong breakfast menu. As of March 31, 1997,
the Hardee's system included 3,152 restaurants, of which 788 were
operated by Hardee's and 2,364 were operated by Hardee's franchisees and
licensees.
- TACO BUENO(R) -- The Company owns and operates 107 Taco Bueno
quick-service Mexican restaurants located in Texas and Oklahoma. Taco
Bueno seeks to differentiate itself from its principal competitors by
offering a diverse menu featuring generous portions of freshly prepared,
high quality food items. In addition to typical quick-service Mexican
offerings, such as burritos, tacos, tostadas and combination meals, Taco
Bueno features a number of signature menu items, such as its Chicken Taco
Salad and Mucho Burrito Platter.
The Company's principal executive offices are located at 1200 North Harbor
Boulevard, Anaheim, California 92801, and its telephone number is (714)
774-5796.
3
<PAGE> 6
BUSINESS STRATEGY
After an extended period of growth, CKE made certain strategic decisions in
the early 1990s which adversely impacted sales and profitability. Beginning in
October 1994, CKE hired a new management team which implemented a variety of
strategic and operational programs designed to revitalize the Carl's Jr. brand
and improve its financial results. Since then, CKE has experienced significant
increases in revenues, restaurant-level margins and net income. For the past two
fiscal years, Carl's Jr. has reported quarter-over-quarter increases in
company-operated restaurant revenues and restaurant-level margins and CKE has
reported quarter-over-quarter growth in net income and earnings per share. CKE
believes these results are directly related to its renewed customer focus and
the implementation of its management practices.
Customer Focus. CKE believes its ability to deliver high quality food to
customers with superior service in clean and friendly restaurant environments
has been central to its operating success. The Company's Carl's Jr. restaurants
are leaders in the quick-service hamburger restaurant industry in the critical
categories of quality, service and cleanliness.
- High Quality Food. CKE seeks to differentiate itself by providing higher
quality and better tasting food than its competitors, featuring generous
portions of freshly prepared food items that appeal to a broad audience.
CKE emphasizes its signature menu items and manages the total number of
menu items offered at its restaurants in order to establish clear brand
identities and maintain operational efficiencies.
- Superior Service. CKE provides a level of customer service which it
believes has helped it establish a higher level of customer satisfaction
than its competitors. In particular, the Company's Carl's Jr. restaurants
have a reputation for being able to deliver quality products in a timely,
efficient and customer-friendly manner.
- Clean and Friendly Environment. CKE strives to offer a pleasant,
customer-friendly environment at its restaurants by providing attractive,
updated restaurant decor and by emphasizing cleanliness in all areas of
its operations. CKE's remodeling program, implemented at over half its
company-operated Carl's Jr. restaurants within the last two years, is
currently scheduled to be completed by early 1998.
Management Practices. CKE believes that many of the management practices
that revitalized the Carl's Jr. brand can also be applied to other restaurant
concepts such as Hardee's. The key elements of these management practices are:
- Restaurant Management. CKE has developed food, labor and customer service
management practices and reporting mechanisms that allow management to
effectively monitor restaurant-level operations, benchmark restaurant
performance statistics, and communicate best-practices across its
restaurant concepts. Management supports these practices through the use
of restaurant-level incentive and bonus programs. CKE believes this
fosters an environment where employees are encouraged to share their
ideas and cost saving suggestions with management.
- Brand Management. CKE aggressively promotes and enhances its brand
awareness through innovative advertising, with an emphasis on the premium
quality and generous portions of its core product offerings. CKE's
regular maintenance and periodic remodeling of its restaurant facilities
further reinforce CKE's high quality brand image.
- Cost Management. CKE is committed to controlling costs at each level of
operations. CKE believes it can continue to leverage its corporate
infrastructure and achieve additional synergies in purchasing,
information systems, finance and accounting, benefits and human resource
management across its restaurant concepts.
4
<PAGE> 7
THE HARDEE'S ACQUISITION
On April 27, 1997, CKE entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") with Hardee's and Imasco Holdings, Inc., a Delaware
corporation ("Imasco Holdings") and wholly-owned subsidiary of Imasco Limited,
pursuant to which CKE agreed to acquire all of the outstanding capital stock of
Hardee's for a purchase price of $327.0 million, subject to certain adjustments
(the "Purchase Price"). CKE plans to close the Acquisition concurrently with the
closing of this offering (the "Closing"). See "The Acquisition."
CKE believes that the acquisition of Hardee's provides it with a unique
opportunity to significantly expand the scope of its operations and to become
one of the leading nationwide operators of quick-service hamburger restaurants.
However, in recent years Hardee's has experienced operating difficulties, the
effect of which was compounded by increased competition in the industry. These
difficulties have resulted in declining system-wide restaurant revenues and
same-store sales over the past three years.
Despite Hardee's poor recent performance, the Company believes that there
is significant value in Hardee's and CKE's complementary geographic markets and
relative menu strengths, Hardee's significant market presence in many of its
existing markets and Hardee's established brand name. CKE believes it can
meaningfully improve the same-store sales trends and profitability levels at
Hardee's and has developed a plan to integrate Hardee's into the Company and
improve its operations by implementing the strategies which it has used to
improve the operations of its Carl's Jr. restaurants. The key elements of these
strategies include improving the quality of food, enhancing the quality of
service, updating restaurant facilities, implementing CKE's management
practices, leveraging Hardee's brand name and better managing its costs. In
addition, the Company has identified up to 114 underperforming restaurants that
it intends to sell or franchise subsequent to the Closing to an independent
third party. There can be no assurance, however, that these strategies can be
successfully applied to Hardee's or that the implementation of such strategies
will improve the financial performance of Hardee's.
GROWTH STRATEGY
The Company is currently pursuing a strategy of growth and expansion
through increasing sales and profitability at its existing and newly-acquired
restaurants, opening both company-operated and franchised restaurants in
existing and new markets, and acquisitions and investments in similar concepts
to create new avenues for growth.
Increasing Restaurant Sales and Profitability. The Company believes it can
increase customer traffic, restaurant sales and profitability by continuing to
dual-brand its restaurant concepts and completing its planned remodeling and
image enhancement programs. The Company also seeks to aggressively enhance
customer awareness and drive incremental restaurant sales by continuing its
advertising campaign with innovative television commercials emphasizing its
brands and quality products.
Opening New Restaurants. The Company intends to continue its Carl's Jr.
expansion program by opening new restaurants in both traditional, freestanding
structures and alternative formats. For fiscal 1998, the Company currently
anticipates that it will open up to 30 new Carl's Jr. restaurants and that its
franchisees will open up to 15 new Carl's Jr. restaurants.
Acquisitions and Investments. The Company has completed or announced
several acquisitions and investments in other restaurant companies over the past
year. While the Company is not currently contemplating any significant
additional acquisitions or investments, it will continue to evaluate
opportunities to expand its operations.
5
<PAGE> 8
THE OFFERING
COMMON STOCK OFFERED HEREBY........ 7,250,000 shares
COMMON STOCK OFFERED FOR SALE IN:
THE U.S. OFFERING................ 5,800,000 shares
THE INTERNATIONAL OFFERING....... 1,450,000 shares
TOTAL COMMON STOCK OFFERED.... 7,250,000 shares
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING................. 40,694,420 shares(1)
NEW YORK STOCK EXCHANGE SYMBOL..... CKR
USE OF PROCEEDS.................... To provide part of the total cash
consideration payable in connection with
the Acquisition. See "Use of Proceeds."
RISK FACTORS....................... Prospective investors should carefully
consider all the information set forth and
incorporated by reference herein and, in
particular, should evaluate the specific
factors set forth under "Risk Factors"
before purchasing any of the shares
offered hereby.
DIVIDEND POLICY.................... The Company currently follows a policy of
paying semi-annual cash dividends of $0.04
per share. See "Price Range of Common
Stock and Dividend Policy."
- ---------------
(1) Based upon the number of outstanding shares at May 19, 1997. Excludes
5,808,018 shares of Common Stock reserved for issuance under the Company's
stock option plans.
6
<PAGE> 9
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following tables present certain summary historical and pro forma
financial information with respect to CKE and Hardee's. Pro forma financial
information does not reflect certain cost savings that management believes may
be realized following the Acquisition. These savings are expected to be realized
primarily through rationalization of operations and implementation of CKE's
management practices. Additionally, the Company believes the Acquisition will
enable it to continue to achieve economies of scale, such as enhanced purchasing
power. The following summary financial and restaurant operating data should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations, and with CKE's consolidated and pro forma
financial statements and Hardee's combined financial statements, and the related
notes, included elsewhere herein.
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
---------------------------------
FISCAL YEAR ENDED JANUARY 31, PRO
--------------------------------------------- HISTORICAL FORMA(1)
HISTORICAL PRO FORMA(1) ------------------- -----------
------------------------------ ------------ MAY 20, MAY 19, MAY 19,
1995 1996 1997(2) 1997 1996 1997(2) 1997
-------- -------- -------- ------------ -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA --
CKE:
Total revenues........................... $443,747 $465,437 $614,080 $1,359,142 $152,934 $235,470 $ 407,615
Operating income......................... 8,602 25,735 42,000 22,893 10,076 18,231 9,553
Interest expense......................... 9,202 10,004 9,877 28,074 2,595 2,871 7,145
Net income (loss)........................ 1,264 10,952 22,302 (356) 5,333 10,586 2,828
Net income (loss) per common and common
equivalent share....................... $ 0.05 $ 0.39 $ 0.73 $ (0.01) $ 0.19 $ 0.31 $ 0.07
Common and common equivalent shares used
in computing per share amounts
(000's)................................ 28,076 28,019 30,414 36,704 28,664 34,300 41,550
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------- ---------------------------------
AS AS
ADJUSTED(3) HISTORICAL ADJUSTED(4)
------------ ------------------- -----------
1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- ------------ -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENTS OF OPERATIONS
DATA -- HARDEE'S(5):
Total revenues........................... $838,641 $820,830 $806,044 $ 745,062 $192,688 $173,089 $ 172,145
Operating income (loss).................. 68,292 (15,112) (30,386) (17,822) (11,544) (10,339) (8,282)
Net income (loss)........................ 27,236 (17,758) (27,859) (14,691) (9,022)
</TABLE>
<TABLE>
<CAPTION>
CKE HARDEE'S CKE
MAY 19, MARCH 31, MAY 19,
1997 1997 1997
ACTUAL ACTUAL PRO FORMA(1)
-------- --------- ------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets.................................................................... $409,981 $493,203 $902,667
Total long-term debt and capital lease obligations, including current portion... 86,096 28,040 236,955
Stockholders' equity............................................................ 225,416 315,034 409,876
</TABLE>
- ---------------
(1) Adjusted to give pro forma effect to the Acquisition, the effectiveness of
the New Credit Facility (as defined herein) and the sale of the 7,250,000
shares of Common Stock offered hereby at an assumed public offering price of
$26.75 per share and the application of the net proceeds therefrom. See "Use
of Proceeds," "Capitalization" and "Unaudited Pro Forma Combined Condensed
Financial Information."
(2) Fiscal 1997 and the 16-week period ended May 19, 1997 include results of
operations of the Rally's restaurants operated by CKE from and after July 2,
1996, Summit Family Restaurants Inc. ("Summit") from and after July 15, 1996
and Casa Bonita Incorporated ("Casa Bonita") from and after October 1, 1996.
Share and per share data was also affected during fiscal 1997 by a public
offering of 4,312,500 shares of Common Stock completed in November 1996.
(3) Adjusted to reflect the continuing operations of the 808 company-operated
Hardee's restaurants open and operating as of December 31, 1996. See Note 21
of Notes to Hardee's Combined Financial Statements as of and for each of the
years in the three-year period ended December 31, 1996 (the "Annual
Financial Statements").
(4) Adjusted to reflect the continuing operations of the 788 company-operated
Hardee's restaurants open and operating as of March 31, 1997. See Note 4 of
Notes to Hardee's Combined Financial Statements as of and for the three
months ended March 31, 1997 (the "Interim Financial Statements").
(5) Includes an extraordinary loss on early extinguishment of debt of $6.1
million in 1994 and non-recurring promotional costs of $5.6 million in 1996.
Also includes results of operations of 114 underperforming restaurants which
the Company intends to sell or franchise to an independent third party
subsequent to the Closing.
7
<PAGE> 10
SUMMARY RESTAURANT AND OTHER OPERATING DATA
(DOLLARS IN THOUSANDS)
The following tables present certain summary restaurant and other operating
data with respect to the Carl's Jr. restaurants operated by CKE and the Hardee's
restaurants operated by Hardee's.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, SIXTEEN WEEKS ENDED
------------------------------------ ---------------------------
1995 1996 1997 MAY 20, 1996 MAY 19, 1997
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CARL'S JR. RESTAURANTS:
System-wide restaurant revenues:
Company-operated restaurants........................ $ 364,278 $ 389,214 $ 443,304 $129,510 $144,827
Franchised and licensed restaurants................. 201,170 193,984 204,700 61,930 63,432
---------- ---------- ---------- -------- --------
Total system-wide revenues.................... $ 565,448 $ 583,198 $ 648,004 $191,440 $208,259
========== ========== ========== ======== ========
Restaurants open (at end of period):
Company-operated restaurants........................ 383 394 415 395 421
Franchised and licensed restaurants................. 277 273 258 266 257
---------- ---------- ---------- -------- --------
Total......................................... 660 667 673 661 678
========== ========== ========== ======== ========
Average annual sales per company-operated
restaurant(1)....................................... $ 966 $ 1,006 $ 1,114 $ 1,043 $ 1,132
Percentage increase (decrease) in comparable
company-operated restaurant sales(2)................ (3.8)% 4.4% 10.7% 12.7% 6.1%
Restaurant-level operating margins.................... 17.6% 20.6% 21.9% 21.3% 23.0%
General and administrative expenses as a percentage of
total revenues...................................... 8.7% 8.1% 6.8% 7.3% 6.8%
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ ---------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
HARDEE'S RESTAURANTS(3):
Revenues from company-operated restaurants............ $ 593,391 $ 596,593 $ 645,409 $141,208 $150,075
Operating income (loss)............................... 91,575 19,578 (17,822) (5,634) (8,282)
System-wide restaurant revenues:
Company-operated restaurants(4)..................... $ 711,979 $ 702,693 $ 706,391 $168,976 $151,019
Franchised and licensed restaurants................. 2,760,588 2,582,514 2,350,733 550,350 504,259
---------- ---------- ---------- -------- --------
Total system-wide revenues.................... $3,472,567 $3,285,207 $3,057,124 $719,326 $655,278
========== ========== ========== ======== ========
Restaurants open (at end of period):
Company-operated restaurants(5)..................... 692 733 808 730 788
Franchised and licensed restaurants................. 2,711 2,600 2,417 2,535 2,364
---------- ---------- ---------- -------- --------
Total......................................... 3,403 3,333 3,225 3,265 3,152
========== ========== ========== ======== ========
Average annual sales per company-operated
restaurant(6)....................................... $ 968 $ 888 $ 848 $ 879 $ 841
Percentage increase (decrease) in comparable company-
operated restaurant sales(7)........................ (3.5)% (6.8)% (4.4)% (4.5)% (1.6)%
Restaurant-level operating margins.................... 14.3% 7.5% 5.2% 2.9% 2.3%
General and administrative expenses as a percentage of
total revenues...................................... 7.9% 10.5% 10.7% 10.9% 11.3%
</TABLE>
- ---------------
(1) Calculated on a 52-week trailing basis for all periods presented.
(2) Includes only Carl's Jr. restaurants open throughout the full periods being
compared.
(3) Except as otherwise noted, Hardee's restaurant data for the three fiscal
years ending December 31, 1996 and for the three months ended March 31, 1996
and March 31, 1997 excludes the results of Hardee's restaurants sold or
closed prior to December 31, 1996 and March 31, 1997, respectively, which
are not to be acquired by the Company in connection with the Acquisition
(the "Closed Restaurants"). See Note 21 of Notes to Hardee's Combined Annual
Financial Statements and Note 4 of Notes to Hardee's Interim Financial
Statements.
(4) Restaurant revenues from company-operated restaurants include revenues of
$118.6 million, $106.1 million, $61.0 million, $27.8 million and $944,000 in
fiscal 1994, 1995, 1996, the three months ended March 31, 1996 and the three
months ended March 31, 1997, respectively, from Closed Restaurants.
(5) The number of company-operated restaurants open at December 31, 1994 and
1995 excludes 113 restaurants and 131 restaurants, respectively, that were
closed on or prior to December 31, 1996. The number of company-operated
restaurants open at March 31, 1996 excludes 162 restaurants that were closed
on or prior to March 31, 1997.
(6) Calculated on a 12-month trailing basis for all periods presented.
(7) Includes only Hardee's restaurants open throughout the periods being
compared.
8
<PAGE> 11
RISK FACTORS
In addition to the other information set forth and incorporated by
reference in this Prospectus, prospective investors should carefully consider
the following information in evaluating the Company and its business before
making an investment in the securities offered hereby. The information contained
and incorporated by reference herein contains forward-looking statements that
involve a number of risks and uncertainties. A number of factors could cause
results to differ materially from those anticipated by such forward-looking
statements. These factors include, but are not limited to, the competitive
environment in the quick-service restaurant industry in general and in the
Company's specific market areas, changes in prevailing interest rates and the
availability of financing, inflation, changes in costs of goods and services,
economic conditions in general and in the Company's specific market areas, and
demands placed on management by the substantial increase in the size of the
Company resulting from the Acquisition. In addition, such forward-looking
statements are necessarily dependent upon assumptions, estimates and data that
may be incorrect or imprecise. Accordingly, any forward-looking statements
included or incorporated by reference herein do not purport to be predictions of
future events or circumstances and may not be realized. Forward-looking
statements can be identified by, among other things, the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," "seeks,"
"pro forma" or "anticipates," or the negative thereof, or other variations
thereon or comparable terminology, or by discussions of strategies, plans or
intentions.
Uncertainties Related to the Acquisition. The acquisition of Hardee's will
significantly increase the size of the Company. Managing the Company and
integrating the acquired business operations of Hardee's will present a
significant challenge to the Company's management. Hardee's is a
well-established but underperforming brand which has recently experienced
declining same-store sales, a declining market share in the quick-service
hamburger restaurant industry and significant operating losses. CKE is
performing an ongoing evaluation of the restaurant operations of Hardee's and
various short- and long-term strategic considerations in the process of
assessing the extent to which Hardee's restaurant operations will be integrated,
restructured or otherwise modified by the Company following the Acquisition. One
of the objectives of the Company's turnaround strategies for Hardee's will be to
stem the recent negative operating trends experienced by Hardee's. However,
there can be no assurance that these strategies will be successful or that the
Company will be able to return Hardee's to profitability. In addition, certain
of the Company's strategies for Hardee's will require significant capital
expenditures. If the Company is unable to achieve anticipated improvements in
restaurant-level operating margins or reductions in corporate overhead costs in
its Hardee's operations on a timely basis, cash flows generated from Hardee's
operations may not be adequate to support the Company's turnaround strategies
for Hardee's. The Company may also decide to close or to sell or otherwise
dispose of underperforming Hardee's restaurants in specific markets.
Specifically, the Company has identified up to 114 underperforming Hardee's
restaurants, which generated aggregate operating losses of $12.9 million in 1996
and $2.8 million for the three month period ended March 31, 1997, and intends to
sell or franchise those restaurants to an independent third party, for a
purchase price approximating the net book value of those restaurants, and to
provide to such purchaser up to $25.0 million in credit facilities for working
capital, at or promptly following the Closing. However there can be no assurance
that this transaction will be completed. The Company's success will also depend,
in part, on its franchisees and the manner in which they operate their
restaurants and manage their organizational and financial resources.
Restructuring and integrating the restaurant operations of Hardee's will require
the dedication of significant capital and management resources, which may cause
an interruption of, or a loss of momentum in, the activities of the Company. The
difficulties of such restructuring and integration may be increased by the
necessity of coordinating geographically separate organizations and introducing
the Carl's Jr. brand into markets in which CKE has never operated, all of which,
together with other factors beyond the Company's control, may adversely affect
the cost, implementation, execution and timing of the Company's turnaround
strategies for Hardee's. Failure to effectively accomplish the integration of
CKE's and Hardee's operations or to improve Hardee's results of operations could
have a material adverse effect on the Company's financial condition and results
of operations.
Increased Leverage. In order to finance the Acquisition and to make
borrowings available to the Company for working capital and other corporate
purposes, the Company expects to obtain a new term loan facility for up to
$150.0 million (the "Term Loan Facility") and a new $150.0 million revolving
credit facility
9
<PAGE> 12
(the "Revolving Credit Facility" and, collectively with the Term Loan Facility,
the "New Credit Facility"). At the present time, the Company expects to incur
approximately $142.5 million of borrowings under the Term Loan Facility, which
will increase the ratio of its long-term debt to its total capitalization from
26.3% at May 19, 1997 to 33.9%, as adjusted to give pro forma effect to the
Acquisition, the New Credit Facility and this offering. The Company's increased
degree of leverage could have important consequences to investors, including the
following: (i) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions and general corporate purposes may
be impaired in the future; (ii) a substantial portion of the Company's cash flow
from operations will be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) most of the Company's borrowings are and will continue to be at
variable rates of interest (including borrowings under the New Credit Facility),
which exposes the Company to the risk of increased interest rates; (iv) the
Company may be substantially more leveraged than certain of its competitors,
which may place the Company at a competitive disadvantage; and (v) the Company's
substantial degree of leverage may limit its flexibility to adjust to changing
market conditions, reduce its ability to withstand competitive pressures and
make it more vulnerable to a downturn in general economic conditions or its
business. The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness, and to comply with the financial
covenants and other obligations under its debt instruments, will depend on its
financial and operating performance, which in turn will be subject to economic
conditions and to financial, business and other factors beyond its control.
There can be no assurance that the Company's operating results, cash flow and
capital resources will be sufficient for payment of its indebtedness in the
future. See "Capitalization," "Unaudited Pro Forma Combined Condensed Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Description of
Certain Indebtedness."
Risks Associated with Growth Strategy. The Company's growth strategy
includes, among other things, increasing the numbers of company-operated and
franchised restaurants, dual-branding its restaurant concepts and remodeling its
restaurants. The success of the Company's growth strategy will depend on
numerous factors, many of which are beyond the control of the Company and its
franchisees, including the hiring, training and retention of qualified
management and other restaurant personnel, the ability to obtain necessary
governmental permits and approvals, the availability of appropriate financing
and general economic conditions. The Company and its franchisees face
competition from other restaurant operators, retail chains, companies and
developers for desirable site locations, which may adversely affect the cost,
implementation and timing of the Company's expansion plans. To manage its
planned expansion, the Company must ensure the continuing adequacy of its
existing systems and procedures, including its supply and distribution
arrangements, restaurant management, financial controls and information systems.
The Company's growth will also depend in part on its ability to increase
sales at existing restaurants. In addition to its turnaround strategies for
Hardee's, the Company plans to complete the remodeling of substantially all of
its company-operated Carl's Jr. restaurants by early 1998 and to convert 60 of
its Carl's Jr. restaurants to Carl's Jr./Green Burrito dual-brand restaurants in
each of the next four years. The Company will incur substantial aggregate costs
in remodeling and converting restaurants and will experience a loss of revenues
during the period of time that restaurants are closed for remodeling or
conversion. There can be no assurance that such remodels and conversions will
increase the revenues generated by these restaurants or, even if revenues are
increased, that such increases will be sustainable. In addition, although the
sales results experienced by the company-operated Carl's Jr. restaurants that
have been remodeled or converted to dual-brand restaurants have generally been
favorable to date, there can be no assurance that such favorable sales results
are sustainable or that they are indicative of sales results that will be
achieved by restaurants to be remodeled or converted in the future. There can
also be no assurance that the Company will be able to achieve same-store sales
increases in its company-operated restaurants. See "Business -- Business
Strategy" and "-- Growth Strategy."
Risks Relating to Flagstar Arbitration. A subsidiary of Flagstar Companies,
Inc. ("Flagstar") is Hardee's largest franchisee and operates 580 Hardee's
restaurants located primarily in the Southeast. Flagstar has asserted claims
that Hardee's has failed to satisfy certain contractual obligations under its
license
10
<PAGE> 13
agreements with Flagstar. Flagstar notified Hardee's on March 19, 1997 that
Flagstar is seeking to arbitrate certain claims against Hardee's. In its demand
for Arbitration, Flagstar alleges that Hardee's has breached certain
contractual, fiduciary and statutory duties allegedly owed to Flagstar, and
seeks, among other remedies, a declaration relieving Flagstar from its
obligation under the post-termination covenants against competition contained in
its license agreements. Hardee's has advised the Company that it believes
Flagstar's claims to be without merit and intends to vigorously defend them.
There can be no assurance that Hardee's will achieve a favorable outcome in such
arbitration proceeding or that the proceeding will not otherwise have a material
adverse effect on the Company. See Note 20 of Notes to Hardee's Combined Annual
Financial Statements.
Risks Associated with Franchise Operations. As a result of the Acquisition,
the scope of the Company's franchise operations will dramatically increase.
Consequently, the Company's ability to attract, retain, and contract with
qualified franchisees will become increasingly more important to its overall
operations. Hardee's five principal franchisees operate a total of 1,142
restaurants, or approximately 47% of the total Hardee's restaurants franchised.
This concentration will expose the Company to the risk that an interruption of
operations or a change in the Company's relationships with, or a material
deterioration in the financial condition or results of operation of, one or more
of its principal franchisees could have a material adverse effect on the
Company's results of operations.
Environmental Matters. The Company is subject to federal, state and local
laws, regulations and ordinances that (i) govern activities or operations that
may have adverse environmental effects, such as discharges to air and water, as
well as handling and disposal practices for solid and hazardous wastes, and (ii)
impose liability for the costs of cleaning up, and certain damages resulting
from, sites of past spills, disposals or other releases of hazardous materials
(together, "Environmental Laws"). In particular, under applicable Environmental
Laws, the Company may be responsible for remediation of environmental conditions
and may be subject to associated liabilities (including liabilities resulting
from lawsuits brought by private litigants) relating to its restaurants and the
land on which its restaurants are located, regardless of whether the Company
leases or owns the restaurants or land in question and regardless of whether
such environmental conditions were created by the Company or by a prior owner or
tenant. There can be no assurance that environmental conditions relating to
prior, existing or future restaurants or restaurant sites (including those to be
acquired in the Acquisition) will not have a material adverse effect on the
Company.
Risks Related to Acquisition Strategy. Although the Company is not
currently contemplating any significant additional acquisitions or investments
in other restaurant companies, it will continue to evaluate opportunities to
expand its operations. Acquisitions involve a number of special risks that could
adversely affect the Company's operating results, including the diversion of
management's attention, the assimilation of the operations and personnel of the
acquired companies, the amortization of acquired intangible assets and the
potential loss of key employees. No assurance can be given that any acquisition
or investment by the Company will not materially and adversely affect the
Company or that any such acquisition or investment will enhance the Company's
business. If the Company determines to make any significant acquisitions of, or
investments in, other businesses, the Company may be required to sell additional
equity or debt securities or obtain additional credit facilities. The sales, if
any, of additional equity or convertible debt securities could result in
additional dilution to the Company's stockholders.
Competition. The food service industry is intensely competitive with
respect to the quality and value of food products offered, concept, service,
price, dining experience and location. The Company primarily competes with major
restaurant chains, some of 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, health and nutrition-oriented
restaurants, delicatessens and prepared food stores, as well as supermarkets and
convenience stores. Many of the Company's competitors 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 at
discounted prices. In recent years, the Company's restaurant sales were
adversely affected by aggressive promotions and price reductions by its
competitors. Future changes in the pricing or other marketing strategies
11
<PAGE> 14
of one or more of the Company's competitors could have a material adverse effect
on the Company's financial condition and results of operations. As the Company's
competitors expand operations, competition can be expected to intensify. Such
increased competition could have a material adverse effect on the Company's
financial condition and results of operations. See "Business -- Competition."
Food Service Industry. Food service businesses are often affected by
changes in consumer tastes, national, regional and local economic conditions and
demographic trends. The performance of individual restaurants may be adversely
affected by factors such as traffic patterns, demographics and the type, number
and location of competing restaurants. Multi-unit food service businesses such
as the Company's can also be materially and adversely affected by publicity
resulting from poor food quality, illness, injury or other health concerns or
operating issues stemming from one restaurant or a limited number of restaurants
or from consumer concerns with respect to the nutritional value of quick-service
food. Dependence on frequent deliveries of fresh produce and groceries subjects
food service businesses such as the Company's to the risk that shortages or
interruptions in supply, caused by adverse weather or other conditions, could
adversely affect the availability, quality and cost of ingredients. In addition,
unfavorable trends or developments concerning factors such as inflation,
increased food, labor and employee benefit costs (including increases in hourly
wage and unemployment tax rates), increases in the number and locations of
competing quick-service restaurants, regional weather conditions and the
availability of experienced management and hourly employees may also adversely
affect the food service industry in general and the Company's financial
condition and results of operations in particular. Changes in economic
conditions affecting the Company's customers could reduce traffic in some or all
of the Company's restaurants or impose practical limits on pricing, either of
which could have a material adverse effect on the Company's financial condition
and results of operations. The continued success of the Company will depend in
part on the ability of the Company's management to anticipate, identify and
respond to changing conditions.
Dependence on Key Personnel. The Company believes that its success will
depend in part on the continuing services of its key executives, including
William P. Foley II, Chairman of the Board and Chief Executive Officer and C.
Thomas Thompson, President and Chief Operating Officer. Certain of the Company's
executive officers also serve as executive officers of Fidelity National
Financial, Inc. ("Fidelity"), and a meaningful portion of their time is devoted
to Fidelity's business. The loss of the services of any of these executives
could have a material adverse effect upon the Company's business, and there can
be no assurance that qualified replacements would be available. The Company's
continued growth will also depend in part on its ability to attract and retain
additional skilled management personnel. See "Management."
Government Regulation. The restaurant industry is subject to extensive
federal, state and local governmental 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 relationships with employees, including minimum wage requirements,
overtime, working and safety conditions and citizenship requirements. The
Company is also subject to federal regulation and certain state laws which
govern the offer and sale of franchises. Many state franchise laws impose
substantive requirements on franchise agreements, 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 licenses or approvals to sell franchises could adversely
affect the Company and its franchisees. Many of the Company's employees are paid
hourly rates based upon the federal and state minimum wage laws. Recent
legislation increasing the minimum wage has resulted in higher labor costs to
the Company and its franchisees. The Company anticipates that increases in the
minimum wage may be offset through pricing and other cost control efforts;
however, there can be no assurance that the Company or its franchisees will be
able to pass such additional costs on to customers in whole or in part. See
"Business -- Government Regulations."
Litigation. The Company is from time to time the subject of complaints and
litigation from customers alleging illness, injury or other food quality, health
or operational concerns. The Company also is the subject of complaints or
allegations from employees and franchisees from time to time. The Company
believes that the lawsuits, claims and other legal matters to which it is
subject in the course of its business are not material to the Company's
financial condition or results of operations, but an existing or future lawsuit
or claim could
12
<PAGE> 15
result in an adverse decision against the Company that could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business -- Legal Proceedings."
Anti-Takeover Provisions. The Company's Certificate of Incorporation and
Bylaws include several provisions and features intended to render more difficult
certain unsolicited or hostile attempts to acquire the Company. These features
include, among other things, the establishment of a classified Board of
Directors with staggered terms of office, the requirement of a supermajority
vote of stockholders to approve certain business combinations, the elimination
of the right of stockholders to call special meetings of stockholders or to act
by written consent, and advance notice requirements for stockholder proposals
and director nominations. In addition, the Board of Directors has the authority,
without further action by the Company's stockholders, to issue up to five
million shares of preferred stock in one or more series, and to fix the rights,
preferences and restrictions thereof. These provisions could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. Such provisions
could also limit the price that investors might be willing to pay in the future
for shares of the Company's Common Stock.
Stock Price Volatility. The market price of the Company's Common Stock has
risen substantially since the beginning of fiscal 1996. See "Price Range of
Common Stock and Dividend Policy." The market price of the Common Stock could be
substantially affected by quarterly variations in the actual or anticipated
results of operations of the Company, its competitors and other companies in the
restaurant industry, as well as changes in general conditions in the economy,
the financial markets or the quick-service restaurant industry, the failure by
the Company to meet securities analysts' expectations, changes in securities
analysts' recommendations regarding the Common Stock, the occurrence of natural
disasters, or other developments affecting the Company or its competitors. In
recent years the stock market has experienced significant price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock.
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after this offering could adversely affect the market
price of the Common Stock. The Company, its executive officers and directors
have agreed that, for a period of 90 days after the date of this Prospectus,
they will not sell or otherwise dispose of any shares of Common Stock or other
securities convertible into or exchangeable or exercisable for shares of Common
Stock, subject to certain limited exceptions, without the prior written consent
of Merrill Lynch, Pierce, Fenner & Smith Incorporated. As provided in the Stock
Purchase Agreement, Imasco Holdings has agreed to accept up to $50.0 million of
the Purchase Price in certain circumstances, at the Company's option, in the
form of a subordinated convertible note (the "Subordinated Note"). Imasco
Holdings has agreed that, if the Subordinated Note is issued in connection with
the Acquisition, it will not sell or otherwise dispose of the Subordinated Note
or the shares of Common Stock issuable upon conversion thereof for a period of
90 days after the Closing without the prior written consent of the Company. The
Company has agreed to register the Subordinated Note, if issued in connection
with the Acquisition, and the shares of Common Stock issuable upon conversion
thereof immediately after the Closing. See "Underwriting."
Ability to Pay Dividends. The Company currently follows a policy of paying
semi-annual cash dividends of $0.04 per share on the Common Stock. However, the
continued payment of dividends on the Common Stock will depend on the Company's
operating results, business requirements and financial condition and such other
factors that the Company's Board of Directors considers relevant. Under certain
circumstances, the New Credit Facility will restrict the ability of the Company
to pay cash dividends on the Common Stock. See "Price Range of Common Stock and
Dividend Policy" and "Description of Certain Indebtedness."
13
<PAGE> 16
THE ACQUISITION
The statements made under this heading relating to the Acquisition include
summaries of the agreements described herein, which do not purport to be
complete and are qualified in their entirety by reference to such agreements.
STOCK PURCHASE AGREEMENT
CKE, Hardee's and Imasco Holdings entered into a Stock Purchase Agreement
on April 27, 1997, pursuant to which CKE agreed to purchase from Imasco
Holdings, and Imasco Holdings agreed to sell to CKE, all of the issued and
outstanding shares of capital stock of Hardee's, subject to the terms and
conditions specified therein. The aggregate consideration to be paid by CKE for
Hardee's will be $327.0 million, subject to adjustment.
The Stock Purchase Agreement provides for a post-closing adjustment to the
Purchase Price, which will be determined on the basis of a statement of net
assets of Hardee's, as of the Closing, to be prepared by Imasco Holdings and
delivered to CKE no later than 30 days following the Closing. If the net assets
of Hardee's set forth in such statement is greater or less than $327.0 million,
Imasco Holdings and CKE have agreed that Imasco Holdings will pay CKE an amount
in cash by which the value of such net assets is less than $327.0 million, or
CKE will pay Imasco Holdings an amount in cash by which the value of such net
assets is greater than $327.0 million, together with interest as provided in the
Stock Purchase Agreement.
Imasco Holdings and Hardee's have agreed to operate Hardee's through the
Closing only in the ordinary course of business consistent with past practices,
unless otherwise consented to by CKE, and for Hardee's to effectuate by stock
dividend or otherwise the transfer of Fast Food Merchandisers, Inc. ("FFM") and
MRO Mid-Atlantic Corp. ("MRO") to Imasco Holdings. FFM and MRO are wholly-owned
subsidiaries of Hardee's, but are not included in the businesses of Hardee's to
be acquired by CKE. FFM supplies and distributes food and other products for the
Hardee's system and other restaurant operators. MRO franchises and operates the
Roy Rogers quick-service restaurant chain. See "Supply and Distribution
Agreements" and "Roy Rogers Operations." Imasco Holdings has also agreed to
reimburse the Company for a portion of certain severance benefits which the
Company anticipates Hardee's will be required to pay following the Closing and
to indemnify the Company against certain losses which may be incurred by the
Company. Provided all other conditions to Closing have been satisfied, the
Closing of the Acquisition will occur concurrently with the consummation of this
offering.
SUPPLY AND DISTRIBUTION AGREEMENTS
Hardee's currently purchases substantially all of the food products and
cleaning products sold or used in its restaurants from FFM, certain of which are
manufactured by FFM for Hardee's according to Hardee's food product
formulations. FFM currently distributes such products, together with most food
and other products sold or used by Hardee's in its restaurants, to restaurants
operated by Hardee's and to many of the Hardee's restaurants operated by its
franchisees. Pursuant to the terms of product supply and distribution agreements
to be entered into with FFM at the Closing (the "FFM Agreements"), Hardee's will
be obligated to purchase substantially all of its requirements for certain
specified products from FFM for a five-year term, and FFM will continue to
provide exclusive distribution services to Hardee's for its company-operated
restaurants with respect to such products, as well as products purchased from
other vendors, for a seven-year term. The prices to be paid by Hardee's for FFM
products, and delivery fees to be paid by Hardee's to FFM for distribution
services, will be subject to adjustment in certain circumstances, which may
include increases resulting from changes in FFM's cost structure. The Closing of
the Acquisition is conditioned on the execution and delivery of the FFM
Agreements. Although the Company believes the prices anticipated to be paid to
FFM pursuant to the FFM Agreements are consistent with FFM's prior practices
with Hardee's and will remain competitive, there can be no assurance that the
prices and fees paid by Hardee's to FFM will not increase, perhaps
substantially, which could have a material adverse effect on the Company.
14
<PAGE> 17
ROY ROGERS OPERATIONS
MRO was acquired by Hardee's in April 1990, at which time MRO franchised or
operated approximately 648 Roy Rogers quick-service restaurants. In December
1995, Imasco Holdings publicly disclosed its intention to sell or dispose of
MRO's Roy Rogers restaurant operations. Hardee's has sold or closed all but six
of its company-operated Roy Rogers restaurants, and ownership of such
restaurants and the Roy Rogers franchise system will be retained by Imasco
Holdings. The Stock Purchase Agreement provides that Hardee's and MRO will enter
into a management agreement, pursuant to which the Company will operate, for its
own account, the six Roy Rogers restaurants currently operated by Hardee's, and
a property management agreement, pursuant to which the Company will continue to
provide certain real property management services with respect to approximately
140 properties on which Hardee's previously operated Roy Rogers restaurants
which have been sold or closed. The Company has also agreed to perform certain
services relating to the continued franchise operations of the Roy Rogers
restaurant chain. As consideration for the services to be performed by the
Company pursuant to these agreements, Imasco Holdings has agreed to pay to the
Company aggregate cash consideration of $1.5 million over three years.
FINANCING
The Company will require approximately $331.0 million in cash in order to
complete the Acquisition and to pay related fees and expenses. The Company
expects to raise $142.5 million from borrowings under the Term Loan Facility and
$184.5 million from the net proceeds of this offering, and that the balance of
the cash required to complete the Acquisition will be provided from cash on hand
at the date of Closing. As provided in the Stock Purchase Agreement, Imasco
Holdings has agreed to accept, at the Company's option, the Subordinated Note in
an amount not to exceed $50.0 million as a portion of the Purchase Price in
certain circumstances. See "Use of Proceeds" and "Description of Certain
Indebtedness."
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $184.5 million ($212.2 million if the
Underwriters' over-allotment options are exercised in full), at an assumed
public offering price of $26.75 per share and after deducting underwriting
discounts and estimated offering expenses.
The Company expects to use all of the net proceeds of this offering,
together with cash on hand and approximately $142.5 million of borrowings under
the New Credit Facility, to pay the $327.0 million Purchase Price for Hardee's
in connection with the Acquisition and to pay an estimated $4.0 million in
related fees and expenses. See "The Acquisition -- Financing."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "CKR." The following table sets forth, for the periods indicated, the
high and low closing sales prices of the Company's Common Stock, as reported on
the New York Stock Exchange Composite Tape:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1996
First Quarter.................................. $ 5.42 $ 4.25
Second Quarter................................. 7.50 4.92
Third Quarter.................................. 10.58 7.83
Fourth Quarter................................. 11.92 9.58
FISCAL 1997
First Quarter.................................. $16.08 $ 9.92
Second Quarter................................. 18.67 13.67
Third Quarter.................................. 22.83 15.42
Fourth Quarter................................. 24.00 19.08
FISCAL 1998
First Quarter.................................. $25.50 $18.38
Second Quarter (through June 12, 1997)......... 27.00 22.38
</TABLE>
As of May 19, 1997, there were approximately 1,800 holders of record of the
Common Stock.
The Company has followed a policy of paying semi-annual cash dividends at
the semi-annual rate of $0.025 per share on its Common Stock in each of the last
three fiscal years. On March 27, 1997, the Company's Board of Directors
increased the semi-annual dividend rate to $0.04 per share and declared a $0.04
cash dividend, which was paid on April 25, 1997 to holders of record of Common
Stock as of April 4, 1997. The continued payment of dividends on the Common
Stock will depend upon the Company's operating results, business requirements
and financial condition and such other factors that the Company's Board of
Directors considers relevant. Under certain circumstances, the New Credit
Facility will restrict the ability of the Company to pay cash dividends on its
Common Stock. See "Description of Certain Indebtedness."
16
<PAGE> 19
CAPITALIZATION
The following table sets forth (i) the capitalization of CKE as of May 19,
1997, and (ii) the capitalization of the Company as of May 19, 1997, as adjusted
to give pro forma effect to the Acquisition and borrowings expected to be made
under the New Credit Facility and to the receipt and application of the net
proceeds of this offering at an assumed public offering price of $26.75 per
share. The following pro forma data does not purport to be indicative of the
actual capitalization that would have existed had the transactions and events
reflected therein in fact occurred on the dates specified. The information set
forth in the following table should be read in conjunction with the unaudited
pro forma financial statements of the Company and the consolidated financial
statements of CKE and the combined financial statements of Hardee's, and related
notes, which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MAY 19, 1997
---------------------
PRO
ACTUAL FORMA
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.............................. $ 28,201 $ 31,068
======== ==========
Current portion of long-term debt and capital lease
obligations.......................................... $ 5,718 $ 26,345(1)
======== ==========
Long-term debt:
New Credit Facility.................................. $ -- $122,540(2)
Other debt........................................... 34,055 35,739
Capital lease obligations............................ 46,323 52,331
-------- ----------
Total long-term debt.............................. $ 80,378 $210,610
Stockholders' equity:
Preferred Stock: $0.01 par value, 5,000,000 shares
authorized; no shares issued or outstanding....... -- --
Common Stock: $0.01 par value, 50,000,000 shares
authorized; 33,444,420 shares issued and
outstanding: 40,694,420 shares issued and
outstanding pro forma(3).......................... 334 407
Additional paid-in capital........................... 127,637 312,024
Retained earnings.................................... 97,445 97,445
-------- ----------
Total stockholders' equity........................ $225,416 $409,876
-------- ----------
Total capitalization.............................. $305,794 $620,486
======== ==========
</TABLE>
- ---------------
(1) Includes $20.0 million principal amount of borrowings under the New Credit
Facility which are required to be repaid within one year.
(2) On a pro forma basis, the Company would have had $150.0 million of
borrowings available under the Revolving Credit Facility, less amounts
allocable to letters of credit. See "Description of Certain
Indebtedness -- New Credit Facility."
(3) Excludes 5,808,018 shares of Common Stock reserved for issuance under the
Company's stock option plans, of which 3,055,053 shares were issuable upon
the exercise of stock options outstanding as of May 19, 1997 at a weighted
average exercise price of $11.94 per share.
- ---------------
See Note 5 of Notes to CKE's Consolidated Financial Statements and Note 12 of
Notes to Hardee's Combined Annual Financial Statements for information
concerning obligations under operating leases.
17
<PAGE> 20
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information
is based upon the historical consolidated financial statements of CKE and has
been prepared to illustrate the effects of the Acquisition.
The unaudited pro forma combined condensed balance sheet as of May 19, 1997
gives effect to the Acquisition and certain related transactions, the
application of the estimated net proceeds from this offering and borrowings
under the New Credit Facility to finance the Acquisition, as if all such
transactions had been completed on May 19, 1997 and was prepared based upon the
consolidated balance sheet of CKE as of May 19, 1997 and the combined balance
sheet of Hardee's as of March 31, 1997. The unaudited pro forma combined
condensed statements of operations for the fiscal year ended January 31, 1997
and for the 16 weeks ended May 19, 1997 give effect to the transactions
described above as if all such transactions had been completed on February 1,
1996. The unaudited pro forma combined condensed statement of operations for the
fiscal year ended January 31, 1997 was prepared based upon the consolidated
statement of income of CKE for the fiscal year ended January 31, 1997 and the
combined statement of operations of Hardee's for the year ended December 31,
1996. The unaudited pro forma combined condensed statement of operations for the
16 weeks ended May 19, 1997 was prepared based upon the consolidated statement
of income of CKE for the 16 weeks ended May 19, 1997 and the combined statement
of operations of Hardee's for the three months ended March 31, 1997.
The unaudited pro forma combined condensed financial information is
provided for comparative purposes only and is not indicative of the results of
operations or financial position of the combined companies that would have
occurred had the Acquisition occurred at the beginning of the periods presented
or on the date indicated, nor is it indicative of future operating results or
financial position. The unaudited pro forma adjustments are based upon currently
available information and upon certain assumptions that management of the
Company believes are reasonable under the circumstances. The unaudited pro forma
combined condensed financial information and the related notes thereto should be
read in conjunction with CKE's consolidated financial statements and the
combined financial statements of Hardee's, and the related notes, included
elsewhere herein. In addition, the unaudited pro forma combined condensed
financial information does not reflect certain cost savings that management
believes may be realized following the Acquisition. These savings are expected
to be realized primarily through the rationalization of Hardee's operations and
implementation of CKE's management practices. See "Business -- The Hardee's
Acquisition." Additionally, the Company believes the Acquisition will enable it
to continue to achieve economies of scale, such as enhanced purchasing power.
The historical combined statement of operations of Hardee's for the year
ended December 31, 1996 has been adjusted to reflect the continuing operations
of the 808 company-operated Hardee's restaurants open and operating as of
December 31, 1996. The historical combined statement of operations of Hardee's
for the three months ended March 31, 1997 has been adjusted to reflect the
continuing operations of the 788 company-operated Hardee's restaurants open and
operating as of March 31, 1997. The historical combined financial statements of
Hardee's also include (i) promotional costs in the amount of $5.6 million in
1996, which the Company believes will be non-recurring in future periods and
(ii) up to 114 under-performing company-operated restaurants which the Company
intends to sell or franchise to an independent third party subsequent to the
Closing. These 114 restaurants generated revenues of $74.2 million and operating
losses of $12.9 million in 1996 and revenues of $18.0 million and operating
losses of $2.8 million for the three months ended March 31, 1997.
The Acquisition will be accounted for using the purchase method of
accounting. Accordingly, the Company's cost to acquire Hardee's will be
allocated to the assets acquired and liabilities assumed according to their
estimated fair values as of the date of acquisition after giving effect to the
purchase price adjustments required by the Stock Purchase Agreement. The
allocation is dependent upon certain valuations and other studies that have not
progressed to a stage where there is sufficient information to make a definitive
allocation. Accordingly, the purchase allocation adjustments made in connection
with the preparation of the unaudited pro forma combined condensed financial
information are preliminary, and have been made solely for the purpose of
preparing such unaudited pro forma combined condensed financial information;
however, no material effect on the statements of operations is anticipated.
18
<PAGE> 21
CKE RESTAURANTS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MAY 19, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
CKE HARDEE'S
MAY 19, MARCH 31, PRO FORMA PRO FORMA
1997 1997 COMBINED ADJUSTMENTS COMBINED
-------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 28,201 $ 2,867 $ 31,068 $ $ 31,068
Marketable securities............................ 573 0 573 573
Accounts receivable.............................. 6,752 18,406 25,158 (7,300)C 17,858
Related party receivables........................ 2,056 -- 2,056 2,056
Income tax receivables........................... -- 12,472 12,472 (12,472)D --
Inventories...................................... 9,058 12,101 21,159 21,159
Deferred income taxes, net....................... 7,214 -- 7,214 7,214
Other current assets and prepaid expenses........ 11,279 3,058 14,337 125E 14,462
-------- -------- -------- --------- --------
Total current assets........................... 65,133 48,904 114,037 (19,647) 94,390
Property and equipment, net........................ 211,256 395,787 607,043 607,043
Property under capital leases, net................. 35,951 4,091 40,042 40,042
Long-term investments.............................. 47,119 -- 47,119 47,119
Notes receivable................................... 6,036 8,733 14,769 14,769
Related party receivables.......................... 6,078 -- 6,078 6,078
Costs in excess of net assets of businesses
acquired, net.................................... 24,331 -- 24,331 51,436F 75,767
Other assets....................................... 14,077 35,688 49,765 (32,306)E,G 17,459
-------- -------- -------- --------- --------
Total assets.............................. $409,981 $493,203 $903,184 $ (517) $902,667
======== ======== ======== ========= ========
Current liabilities:
Current portion of long-term debt................ $ 758 $ 9,066 $ 9,824 $ 11,000A,I $ 20,824
Current portion of capital lease obligations..... 4,960 561 5,521 5,521
Accounts payable................................. 25,165 16,599 41,764 41,764
Other current liabilities........................ 51,694 74,511 126,205 12,648E,H,I 138,853
-------- -------- -------- --------- --------
Total current liabilities...................... 82,577 100,737 183,314 23,648 206,962
Long-term debt..................................... 34,055 21,405 55,460 102,819A,I 158,279
Capital lease obligations.......................... 46,323 6,008 52,331 52,331
Other long-term liabilities........................ 21,610 27,378 48,988 21,225J,K,L 70,213
Post retirement benefits........................... -- 22,641 22,641 (17,635)M 5,006
-------- -------- -------- --------- --------
Total liabilities......................... 184,565 178,169 362,734 130,057 492,791
Stockholders' equity............................... 225,416 315,034 540,450 (130,574)A,B 409,876
-------- -------- -------- --------- --------
Total liabilities and stockholders'
equity.................................. $409,981 $493,203 $903,184 $ (517) $902,667
======== ======== ======== ========= ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
19
<PAGE> 22
CKE RESTAURANTS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL HARDEE'S
CKE --------------------------------------
FISCAL YEAR CKE &
ENDED YEAR ENDED DECEMBER 31, 1996 ADJUSTED
JANUARY 31, -------------------------------------- HARDEE'S PRO FORMA PRO FORMA
1997 HISTORICAL ADJUSTMENTS(Q) ADJUSTED COMBINED ADJUSTMENTS COMBINED
------------ ---------- -------------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues.................... $614,080 $806,044 $(60,982) $745,062 $1,359,142 $ $1,359,142
Operating costs and expenses:
Restaurant operations:
Food and packaging............ 167,625 238,359 (18,800) 219,559 387,184 387,184
Payroll and other employee
benefits.................... 149,846 264,195 (26,591) 237,604 387,450 387,450
Occupancy and other
expenses.................... 112,689 175,892 (21,477) 154,415 267,104 267,104
Franchised and licensed
restaurants................... 71,986 34,174 1,001 35,175 107,161 107,161
Advertising expenses............ 28,291 44,075 (7,679) 36,396 64,687 64,687
General and administrative
expenses...................... 41,643 79,735 -- 79,735 121,378 1,285F 122,663
-------- -------- -------- -------- ---------- --------- ----------
572,080 836,430 (73,546) 762,884 1,334,964 1,285 1,336,249
Operating income (loss)........... 42,000 (30,386) 12,564 (17,822) 24,178 (1,285) 22,893
Interest expense.................. (9,877) (6,981) -- (6,981) (16,858) (11,216)E,N (28,074)
Other income, net................. 4,587 9,508 -- 9,508 14,095 (9,508)O 4,587
-------- -------- -------- -------- ---------- --------- ----------
Income (loss) before income
taxes........................... 36,710 (27,859) 12,564 (15,295) 21,415 (22,009) (594)
Income tax expense (benefit)...... 14,408 -- -- -- 14,408 (14,646)P (238)
-------- -------- -------- -------- ---------- --------- ----------
Net income (loss)................. $ 22,302 $(27,859) $ 12,564 $(15,295) $ 7,007 $ (7,363) $ (356)
======== ======== ======== ======== ========== ========= ==========
Net income (loss) per common and
common equivalent share......... $ 0.73 $ (0.01)
======== ==========
Common and common equivalent
shares used in computing per
share amounts (000's)........... 30,414 36,704
======== ==========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
20
<PAGE> 23
CKE RESTAURANTS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE 16 WEEKS ENDED MAY 19, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL HARDEE'S
CKE --------------------------------------
SIXTEEN
WEEKS THREE MONTHS ENDED CKE &
ENDED MARCH 31, 1997 ADJUSTED
MAY 19, -------------------------------------- HARDEE'S PRO FORMA PRO FORMA
1997 HISTORICAL ADJUSTMENTS(Q) ADJUSTED COMBINED ADJUSTMENTS COMBINED
---------- ---------- -------------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues........................ $235,470 $173,089 $ (944) $172,145 $407,615 $ $407,615
Operating costs and expenses:
Restaurant operations:
Food and packaging................ 65,302 50,308 132 50,440 115,742 115,742
Payroll and other employee
benefits........................ 59,606 59,657 (847) 58,810 118,416 118,416
Occupancy and other expenses...... 43,178 38,700 (1,333) 37,367 80,545 80,545
Franchised and licensed
restaurants....................... 22,496 6,218 -- 6,218 28,714 28,714
Advertising expenses................ 10,545 9,095 (953) 8,142 18,687 18,687
General and administrative
expenses.......................... 16,112 19,450 -- 19,450 35,562 396F 35,958
-------- -------- -------- -------- -------- ------- --------
217,239 183,428 (3,001) 180,427 397,666 396 398,062
Operating income (loss)............... 18,231 (10,339) 2,057 (8,282) 9,949 (396) 9,553
Interest expense...................... (2,871) (823) -- (823) (3,694) (3,451)E,N (7,145)
Other income, net..................... 2,305 2,140 -- 2,140 4,445 (2,140)O 2,305
-------- -------- -------- -------- -------- ------- --------
Income (loss) before income taxes..... 17,665 (9,022) 2,057 (6,965) 10,700 (5,987) 4,713
Income tax expense (benefit).......... 7,079 -- -- -- 7,079 (5,194)P 1,885
-------- -------- -------- -------- -------- ------- --------
Net income (loss)..................... $ 10,586 $ (9,022) $ 2,057 $ (6,965) $ 3,621 $ (793) $ 2,828
======== ======== ======== ======== ======== ======= ========
Net income per common and common
equivalent share.................... $ 0.31 $ 0.07
======== ========
Common and common equivalent shares
used in computing per share amounts
(000's)............................. 34,300 41,550
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
21
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
A The unaudited pro forma combined condensed balance sheet has been prepared
to reflect the acquisition of Hardee's by CKE for an aggregate estimated
purchase price of $327,000, which is subject to adjustment and expected to
be financed as follows:
<TABLE>
<S> <C>
New Credit Facility............................................... $142,540
Common Stock offered hereby....................................... 184,460
--------
Total................................................... $327,000
========
</TABLE>
The current portion of the New Credit Facility is $20,000.
B The unaudited pro forma combined condensed balance sheet has been adjusted
to eliminate the shareholder's equity of Hardee's.
C To eliminate $7,300 of receivables not acquired by the Company.
D To eliminate $12,472 of federal and state income taxes receivable not
acquired by the Company.
E To record estimated acquisition costs of $1,875 and $2,000 of debt issuance
costs and $125 annual debt administration fee. The $2,000 debt issuance
costs are capitalized as other assets and amortized over 5 years.
Amortization of debt issuance costs is $400 for the fiscal year ended
January 31, 1997. Amortization for the 16 weeks ended May 19, 1997 for the
annual debt administration fee and for debt issuance costs is $162.
Acquisition costs are included as part of the costs in excess of net assets
of business acquired, net.
F To record $51,436 for the excess of consideration paid over the preliminary
estimate of the fair value of net assets acquired, to be amortized over 40
years, and to record goodwill amortization of $1,285 and $396 for the
fiscal year ended January 31, 1997 and the 16 weeks ended May 19, 1997,
respectively.
G To eliminate deferred income tax assets of $34,306 not available to the
Company.
H To record estimated severance liability of $11,400.
I To eliminate deferred income tax liabilities of $1,166, a deferred gain of
$1,586, short-term borrowings of $9,000 and long-term debt of $19,721 not
assumed by the Company.
J To record estimated store closure reserves, at the net present value of the
anticipated lease subsidy (excess of current rent over estimated sublease
income, discounted at 10%), of $22,200.
K To record a lease subsidy reserve for area offices of $5,000.
L To eliminate other long-term liabilities of $5,975 not assumed by the
Company.
M To eliminate post retirement benefits of $17,635 not assumed by the Company.
N To record interest expense on borrowings under the New Credit Facility of
$10,691 and $3,289 for the fiscal year ended January 31, 1997 and the 16
weeks ended May 19, 1997, respectively using an estimated 7.5% interest
rate. A 0.125% increase/decrease in the estimated interest rate
incrementally increases/decreases income before income taxes by $178 and $55
for the fiscal year ended January 31, 1997 and the 16 weeks ended May 19,
1997, respectively.
O To eliminate net management fee income of $9,508 and $2,140 received by
Hardee's from FFM (a related party) during the year ended December 31, 1996
and the three months ended March 31, 1997, respectively, which will not be
recurring.
P To record the income tax effects of the pro forma adjustments and
consolidation of the entities at a pro forma tax rate of 40.0%.
Q During the year ended December 31, 1996 and the three months ended March
31, 1997, Hardee's sold or closed 155 and 31 restaurants, respectively, the
revenues and expenses of which are included in the historical statement of
operations of Hardee's. Adjustments in this column remove the operating
results of these restaurants, as disclosed in Note 21 of Notes to Hardee's
Combined Annual Financial Statements, and Note 4 of Notes to Hardee's
Combined Interim Financial Statements, respectively. In addition, Hardee's
operating results for the year ended December 31, 1996 included a write
down of assets pursuant to Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and the reversal of a 1995 overaccrual relating
to the disposition of restaurants in certain non-core Hardee's markets.
22
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CKE RESTAURANTS, INC.
The following table sets forth selected historical consolidated financial
data of CKE as of and for each of the years in the three-year period ended
January 31, 1997 and for the 16 weeks ended May 20, 1996 and May 19, 1997. The
data for the three fiscal years have been derived from consolidated financial
statements of CKE which have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, whose report with respect thereto is included
elsewhere in this Prospectus. The consolidated financial data of CKE as of and
for the 16 weeks ended May 20, 1996 and May 19, 1997 are derived from unaudited
consolidated financial statements of CKE which include all adjustments,
consisting only of normal recurring adjustments and accruals, that CKE considers
necessary for a fair presentation of its financial position and results of
operations for the relevant period. Operating results for the 16 weeks ended May
19, 1997 are not necessarily indicative of the results that may be expected for
the full fiscal year ending January 31, 1998 or any future period. The selected
consolidated financial data of CKE should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and CKE's consolidated financial statements and the notes thereto
included in this Prospectus.
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
FISCAL YEAR ENDED JANUARY 31, -------------------
------------------------------ MAY 20, MAY 19,
1995 1996 1997 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Revenues:
Company-operated restaurants.............. $370,045 $393,486 $536,808 $129,510 $210,903
Franchised and licensed restaurants....... 73,702 71,951 77,272 23,424 24,567
-------- -------- -------- -------- --------
Total revenues.................... 443,747 465,437 614,080 152,934 235,470
-------- -------- -------- -------- --------
Operating costs and expenses:
Restaurant operations:
Food and packaging..................... 111,985 121,029 167,625 39,755 65,302
Payroll and other employee benefits.... 112,177 109,942 149,846 35,631 59,606
Occupancy and other operating
expenses............................. 82,172 82,095 112,689 26,539 43,178
-------- -------- -------- -------- --------
306,334 313,066 430,160 101,925 168,086
Franchised and licensed restaurants....... 69,871 68,839 71,986 22,176 22,496
Advertising expenses...................... 20,148 19,940 28,291 7,571 10,545
General and administrative expenses....... 38,792 37,857 41,643 11,186 16,112
-------- -------- -------- -------- --------
Total operating costs and
expenses........................ 435,145 439,702 572,080 142,858 217,239
-------- -------- -------- -------- --------
Operating income............................ 8,602 25,735 42,000 10,076 18,231
Interest expense............................ (9,202) (10,004) (9,877) (2,595) (2,871)
Other income, net........................... 2,998 2,222 4,587 1,274 2,305
-------- -------- -------- -------- --------
Income before income taxes.................. 2,398 17,953 36,710 8,755 17,665
Income tax expense.......................... 1,134 7,001 14,408 3,422 7,079
-------- -------- -------- -------- --------
Net income.................................. $ 1,264 $ 10,952 $ 22,302 $ 5,333 $ 10,586
======== ======== ======== ======== ========
Net income per common and common equivalent
share..................................... $ 0.05 $ 0.39 $ 0.73 $ 0.19 $ 0.31
======== ======== ======== ======== ========
Common and common equivalent shares used in
computing per share amounts............... 28,076 28,019 30,414 28,664 34,300
======== ======== ======== ======== ========
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD
END):
Total assets................................ $244,361 $246,759 $401,217 $246,335 $409,981
Long-term debt and capital lease obligations
(including current portion)............... 81,618 82,874 87,412 73,628 86,096
Stockholders' equity........................ 88,474 101,189 214,804 106,555 225,416
</TABLE>
23
<PAGE> 26
HARDEE'S FOOD SYSTEMS, INC.
The following table sets forth selected historical combined financial data
of Hardee's as of and for each of the years in the three-year period ended
December 31, 1996 and for the three months ended March 31, 1996 and March 31,
1997. The data for the three fiscal years have been derived from combined
financial statements of Hardee's which have been audited by Deloitte & Touche
LLP, independent certified public accountants, whose report thereon appears
elsewhere in this Prospectus. The combined financial data of Hardee's as of and
for the three months ended March 31, 1996 and March 31, 1997 are derived from
unaudited combined financial statements of Hardee's which include all
adjustments, consisting only of normal recurring adjustments and accruals, that
Hardee's considers necessary for a fair presentation of its financial position
and results of operations for the relevant period. Operating results for the
three months ended March 31, 1997 are not necessarily indicative of the results
that may be expected for any future period. The following information for the
three fiscal years and for the three month periods include results of operations
with respect to restaurants which have been sold, closed or otherwise disposed
of by Hardee's prior to December 31, 1996 and March 31, 1997 respectively, which
are not to be acquired by the Company in connection with the Acquisition.
Accordingly, restaurant revenues, operating results and net income (loss) may
not be comparable to or indicative of post-Acquisition results. The selected
combined financial data of Hardee's should be read in conjunction with
"Management's Discussion and Analysis of Results of Operation and Financial
Condition" and Hardee's combined financial statements and notes thereto included
in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
COMBINED STATEMENTS OF OPERATIONS DATA:
Revenues:
Company-operated restaurants................... $711,979 $702,693 $706,391 $168,976 $151,019
Franchised and licensed restaurants and
other....................................... 126,662 118,137 99,653 23,712 22,070
-------- -------- -------- -------- --------
Total revenues......................... 838,641 820,830 806,044 192,688 173,089
-------- -------- -------- -------- --------
Operating costs and expenses:
Restaurant operations:
Food and packaging.......................... 234,251 240,074 238,359 58,779 50,308
Payroll and other employee benefits......... 234,596 255,942 264,195 66,081 59,657
Occupancy and other operating expenses...... 174,982 185,829 175,892 43,739 38,700
-------- -------- -------- -------- --------
643,829 681,845 678,446 168,599 148,665
Franchised and licensed restaurants and
other....................................... 34,010 35,451 34,174 7,495 6,218
Advertising expenses........................... 35,744 43,734 44,075 10,215 9,095
General and administrative expenses............ 56,766 74,912 79,735 17,923 19,450
-------- -------- -------- -------- --------
Total operating costs and expenses..... 770,349 835,942 836,430 204,232 183,428
-------- -------- -------- -------- --------
Operating income (loss).......................... 68,292 (15,112) (30,386) (11,544) (10,339)
Interest expense................................. (12,155) (13,985) (6,981) (2,932) (823)
Other income (expense), net...................... (500) (500) 9,508 (215) 2,140
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item............................. 55,637 (29,597) (27,859) (14,691) (9,022)
Income tax expense (benefit)..................... 22,255 (11,839) -- -- --
-------- -------- -------- -------- --------
Income (loss) before extraordinary item.......... 33,382 (17,758) (27,859) (14,691) (9,022)
Extraordinary loss on early extinguishment of
debt, net of income tax benefit of $4,097...... (6,146) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)................................ $ 27,236 $(17,758) $(27,859) $(14,691) $ (9,022)
======== ======== ======== ======== ========
COMBINED BALANCE SHEET DATA (AT PERIOD END):
Total assets..................................... $541,273 $576,669 $490,620 $595,709 $493,203
Long-term debt and capital lease obligations
(including current portion).................... 168,691 141,317 8,485 159,038 28,040
Shareholder's equity............................. 216,660 288,902 324,056 274,211 315,034
</TABLE>
24
<PAGE> 27
SUMMARY RESTAURANT AND OTHER OPERATING DATA
(DOLLARS IN THOUSANDS)
The following tables present certain summary restaurant and other operating
data with respect to the Carl's Jr. restaurants operated by CKE and the Hardee's
restaurants operated by Hardee's.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, SIXTEEN WEEKS ENDED
------------------------------------ ---------------------------
1995 1996 1997 MAY 20, 1996 MAY 19, 1997
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CARL'S JR. RESTAURANTS:
System-wide restaurant revenues:
Company-operated restaurants........................ $ 364,278 $ 389,214 $ 443,304 $129,510 $144,827
Franchised and licensed restaurants................. 201,170 193,984 204,700 61,930 63,432
---------- ---------- ---------- -------- --------
Total system-wide revenues.................... $ 565,448 $ 583,198 $ 648,004 $191,440 $208,259
========== ========== ========== ======== ========
Restaurants open (at end of period):
Company-operated restaurants........................ 383 394 415 395 421
Franchised and licensed restaurants................. 277 273 258 266 257
---------- ---------- ---------- -------- --------
Total......................................... 660 667 673 661 678
========== ========== ========== ======== ========
Average annual sales per company-operated
restaurant(1)....................................... $ 966 $ 1,006 $ 1,114 $ 1,043 $ 1,132
Percentage increase (decrease) in comparable
company-operated restaurant sales(2)................ (3.8)% 4.4% 10.7% 12.7% 6.1%
Restaurant-level operating margins.................... 17.6% 20.6% 21.9% 21.3% 23.0%
General and administrative expenses as a percentage of
total revenues...................................... 8.7% 8.1% 6.8% 7.3% 6.8%
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ ---------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
HARDEE'S RESTAURANTS(3):
Revenues from company-operated restaurants............ $ 593,391 $ 596,593 $ 645,409 $141,208 $150,075
Operating income (loss)............................... 91,575 19,578 (17,822) (5,634) (8,282)
System-wide restaurant revenues:
Company-operated restaurants(4)..................... $ 711,979 $ 702,693 $ 706,391 $168,976 $151,019
Franchised and licensed restaurants................. 2,760,588 2,582,514 2,350,733 550,350 504,259
---------- ---------- ---------- -------- --------
Total system-wide revenues.................... $3,472,567 $3,285,207 $3,057,124 $719,326 $655,278
========== ========== ========== ======== ========
Restaurants open (at end of period):
Company-operated restaurants(5)..................... 692 733 808 730 788
Franchised and licensed restaurants................. 2,711 2,600 2,417 2,535 2,364
---------- ---------- ---------- -------- --------
Total......................................... 3,403 3,333 3,225 3,265 3,152
========== ========== ========== ======== ========
Average annual sales per company-operated
restaurant(6)....................................... $ 968 $ 888 $ 848 $ 879 $ 841
Percentage increase (decrease) in comparable company-
operated restaurant sales(7)........................ (3.5)% (6.8)% (4.4)% (4.5)% (1.6)%
Restaurant-level operating margins.................... 14.3% 7.5% 5.2% 2.9% 2.3%
General and administrative expenses as a percentage of
total revenues...................................... 7.9% 10.5% 10.7% 10.9% 11.3%
</TABLE>
- ---------------
(1) Calculated on a 52-week trailing basis for all periods presented.
(2) Includes only Carl's Jr. restaurants open throughout the full periods being
compared.
(3) Except as otherwise noted, Hardee's restaurant data for the three fiscal
years ending December 31, 1996 and for the three months ended March 31, 1996
and March 31, 1997 excludes the results of Closed Restaurants. See Note 21
of Notes to Hardee's Combined Annual Financial Statements and Note 4 of
Notes to Hardee's Combined Interim Financial Statements.
(4) Restaurant revenues from company-operated restaurants include revenues of
$118.6 million, $106.1 million, $61.0 million, $27.8 million and $944,000 in
fiscal 1994, 1995, 1996, the three months ended March 31, 1996 and the three
months ended March 31, 1997, respectively, from Closed Restaurants.
(5) The number of company-operated restaurants open at December 31, 1994 and
1995 excludes 113 restaurants and 131 restaurants, respectively, that were
closed on or prior to December 31, 1996. The number of company-operated
restaurants open at March 31, 1996 excludes 162 restaurants that were closed
on or prior to March 31, 1997.
(6) Calculated on a 12-month trailing basis for all periods presented.
(7) Includes only Hardee's restaurants open throughout the periods being
compared.
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Set forth below is a discussion of (i) the financial condition and results
of operations of CKE for the three fiscal years ended January 31, 1997 and for
the 16 weeks ended May 20, 1996 and May 19, 1997 and (ii) results of operations
of Hardee's for the three fiscal years ended December 31, 1996 and for the three
months ended March 31, 1996 and 1997. Because of the significant effect of the
Acquisition on the Company's results of operations, the Company's historical
results of operations and period-to-period comparisons will not be indicative of
future results and may not be meaningful.
OVERVIEW
CKE owns, operates, franchises and licenses the Carl's Jr. quick-service
restaurant concept, which is the seventh largest quick-service hamburger
restaurant chain in the United States. As of May 19, 1997, the Carl's Jr. system
included 678 restaurants, of which 421 were operated by CKE and 257 were
operated by its franchisees and licensees. The Carl's Jr. restaurants are
located in the Western United States, predominantly in California, and in Mexico
and the Pacific Rim. Primarily as a result of recent acquisitions, the Company
also operates a total of 252 other restaurants, including 107 Taco Bueno
quick-service Mexican food restaurants located in Texas and Oklahoma.
The first Carl's Jr. restaurant was opened in 1956 by Carl N. Karcher,
CKE's founder, in Anaheim, California. After an extended period of growth, CKE
made certain strategic decisions and experienced operational difficulties in the
early 1990s which adversely impacted CKE's sales and profitability. In response
to the introduction of value pricing by its quick-service restaurant
competitors, CKE reduced prices and initiated an extensive value-priced menu
advertising campaign. Beginning in October 1994, CKE hired a new management team
which began implementing a variety of strategic and operational programs
designed to revitalize the Carl's Jr. brand and improve financial results. These
programs included, among others, a renewed focus on offering superior products,
the elimination of most value-priced menu items, a new advertising campaign, a
dual-branding program with The Green Burrito and the commencement of a
remodeling program for Carl's Jr. restaurants. As a result of these strategies,
together with CKE's successful efforts to reduce expenses at both the corporate
and operating levels, CKE experienced significant improvements in sales and
operating results in fiscal 1996 and fiscal 1997. CKE is continuing to implement
its dual-branding and remodeling programs and to focus on reducing expenses, and
believes it will continue to benefit from such activities in the future.
Image-Enhancement and Dual-Branding Programs. During fiscal 1996, CKE
commenced its image enhancement program, aimed at remodeling and revitalizing
its Carl's Jr. restaurants. As of May 19, 1997, CKE had remodeled over half of
its Carl's Jr. restaurants and plans to complete the remodeling of substantially
all of its company-operated Carl's Jr. restaurants by early 1998. The cost of
remodeling ranges from $100,000 to $140,000 for each location. CKE also
initiated its Green Burrito dual-branding program during fiscal 1996. As of May
19, 1997, CKE had converted 69 company-operated Carl's Jr. restaurants to Carl's
Jr./Green Burrito dual-brand locations, and CKE plans to convert 60 additional
restaurants per year in each of the next four years. Post-conversion revenues in
the 16 weeks ended May 19, 1997 for the 49 company-operated Carl's Jr./Green
Burrito dual-brand restaurants operating less than a year were approximately 17%
higher than same-store sales in the comparable prior year period. CKE incurs
approximately $40,000 to $50,000 in equipment and signage costs in converting a
Carl's Jr. restaurant into a dual-brand restaurant. At the time of the
conversions of Carl's Jr. restaurants to Carl's Jr./Green Burrito dual-brand
restaurants, CKE intends to remodel such restaurants as described above.
Restaurant Performance. For the trailing 52-week period ended May 19, 1997,
CKE's average annual sales per company-operated Carl's Jr. restaurant was
$1,132,000. For the 16 weeks ended May 19, 1997, company-operated Carl's Jr.
restaurants generated restaurant-level margins of 23.0%. CKE believes its
company-operated Carl's Jr. restaurants generate strong restaurant-level margins
and per-store average sales that are among the highest of the major
quick-service hamburger restaurant chains.
26
<PAGE> 29
General. CKE's revenues are derived primarily from sales by
company-operated restaurants and revenues from franchisees, including franchise
and royalty fees, rentals under real property leases and sales of food and
packaging products. Restaurant operating expenses consist primarily of food and
packaging costs, payroll and other employee benefits and occupancy and other
operating expenses of company-operated restaurants. Operating costs of CKE's
franchised and licensed restaurants include the cost of food and packaging
products sold to CKE's franchisees and licensees and lease payments on
properties subleased to CKE's franchisees. Other operating expenses, including
advertising expenses and general and administration expenses, relate to the
company-operated restaurants, as well as franchisee and licensee operations.
CKE's revenues and expenses are directly affected by the number and sales
volumes of company-operated restaurants and, to a lesser extent, franchised and
licensed restaurants.
Approximately 78% of CKE's fiscal 1997 revenues from franchised and
licensed restaurants were derived from sales of food and packaging products
through CKE's distribution operations to its Carl's Jr. franchisees and
licensees. CKE's distribution operations support both company-operated and
franchised Carl's Jr. restaurants by maintaining system-wide product quality and
consistency and by utilizing volume buying power, which CKE believes lowers the
costs of food and packaging products.
RESULTS OF OPERATIONS -- CKE
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of certain items included in CKE's
consolidated statements of income for the periods indicated:
<TABLE>
<CAPTION>
SIXTEEN
FISCAL YEAR ENDED WEEKS ENDED
JANUARY 31, ------------------
------------------------- MAY 20, MAY 19,
1995 1996 1997(1) 1996 1997(1)
----- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Company-operated restaurants...................... 83.4% 84.5% 87.4% 84.7% 89.6%
Franchised and licensed restaurants............... 16.6 15.5 12.6 15.3 10.4
----- ----- ----- ----- -----
Total revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Operating costs and expenses:
Restaurant operations(2):
Food and packaging............................. 30.3% 30.8% 31.2% 30.7% 31.0%
Payroll and other employee benefits............ 30.3 27.9 27.9 27.5 28.2
Occupancy and other operating expenses......... 22.2 20.9 21.0 20.5 20.5
----- ----- ----- ----- -----
82.8 79.6 80.1 78.7 79.7
Franchised and licensed restaurants(3)............ 94.8 95.7 93.2 94.7 91.6
Advertising expenses(2)........................... 5.4 5.1 5.3 5.9 5.0
General and administrative expenses............... 8.7 8.1 6.8 7.3 6.8
Operating income.................................... 1.9 5.5 6.8 6.6 7.7
Interest expense.................................... (2.1) (2.1) (1.6) (1.7) (1.2)
Other income, net................................... 0.7 0.5 0.8 0.8 1.0
----- ----- ----- ----- -----
Income before income taxes.......................... 0.5 3.9 6.0 5.7 7.5
Income tax expense.................................. 0.2 1.5 2.4 2.2 3.0
----- ----- ----- ----- -----
Net income.......................................... 0.3% 2.4% 3.6% 3.5% 4.5%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Fiscal 1997 and the 16-week period ended May 19, 1997 include results of
operations of the Rally's restaurants operated by CKE from and after July 2,
1996, Summit from and after July 15, 1996 and Casa Bonita from and after
October 1, 1996.
(2) As a percentage of revenues from company-operated restaurants.
(3) As a percentage of revenues from franchised and licensed restaurants.
27
<PAGE> 30
SIXTEEN WEEKS ENDED MAY 19, 1997 COMPARED TO SIXTEEN WEEKS ENDED MAY 20, 1996
REVENUES
Company-operated Restaurants. Revenues from company-operated restaurants,
comprised mainly of sales from Carl's Jr. restaurants, increased $81.4 million
or 62.8% for the 16-week period ended May 19, 1997 to $210.9 million. Carl's Jr.
revenues for the 16-week period ended May 19, 1997 accounted for sales increases
of $15.3 million. Also contributing to the increase were the restaurant concepts
which were added in fiscal 1997, including $35.6 million and $26.0 million from
Summit and Casa Bonita, respectively, and $4.5 million from Rally's. On a
same-store sales basis (calculated using only restaurants in operation for the
full periods being compared), revenues from company-operated Carl's Jr.
restaurants increased 6.1% in the 16-week period ended May 19, 1997 as compared
with 12.7% in the first quarter of fiscal 1997. Per store averages in
company-operated Carl's Jr. restaurants continue to increase and reached
$1,132,000 on a 13-period rolling basis. The increase in revenues from
company-operated Carl's Jr. restaurants is primarily the result of the continued
momentum in CKE's various sales enhancement programs which include the image
enhancement of its restaurants through a chain-wide remodeling program, the
continuation of its conversion of existing Carl's Jr. locations into Carl's
Jr./Green Burrito dual-brand restaurants and the continued focus on promoting
great tasting new and existing food products through increased innovative
advertising. Higher average sales and transaction counts per restaurant and an
increase in the number of company-operated restaurants operating in fiscal 1998
as compared with the prior year also contributed to the increase in revenues
from company-operated Carl's Jr. restaurants.
Franchised and Licensed Restaurants. Revenues from franchised and licensed
restaurants for the 16-week period ended May 19, 1997 increased 4.9% to $24.6
million over the same prior year period. This increase is largely due to
increased royalties from, and food purchases by, franchisees as a result of
higher sales volume at franchised Carl's Jr. restaurants, partially offset by a
decrease in the number of franchised and licensed Carl's Jr. restaurants
operating as compared with the prior year.
OPERATING COSTS AND EXPENSES
Restaurant Operations. Restaurant-level margins of CKE's consolidated
restaurant operations decreased in the 16-week period ended May 19, 1997 by 1.0%
as compared with the prior year period, primarily reflecting the impact of
higher operating costs at Summit's family-style restaurant concepts, which were
acquired in the second quarter of fiscal 1997. The family-style segment of the
restaurant industry typically has lower margins than the quick-service segment
of the industry, mainly due to increased labor and food costs. While CKE's
consolidated restaurant-level margins decreased in the first quarter of fiscal
1998, restaurant-level margins for CKE's Carl's Jr. restaurants chain continued
to increase, reaching 23.0% for the 16-week period ended May 19, 1997. These
improved results in CKE's Carl's Jr. restaurant-level operating margins reflect
its continued commitment to improve the cost structure of its Carl's Jr.
restaurants, particularly in the areas of improving labor productivity and
reducing workers' compensation costs. As a percentage of revenues from
company-operated Carl's Jr. restaurants, payroll and other employee benefits
have decreased 1.5% to 26.0% for the 16-week period ended May 19, 1997 as
compared with the same period a year ago, despite the October 1, 1996 increase
in the federal minimum wage and the additional March 1997 increase in California
state minimum wage level. Occupancy and other operating expenses as a percentage
of revenues from company-operated restaurants have decreased 0.3% to 20.2% from
the same period in the first quarter of the prior year mainly due to the
adoption of Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," in the prior year which resulted in a non-recurring charge of $1.3 million.
Food and packaging costs have increased marginally as a percentage of
company-operated revenues due to increased pressure from commodity prices and a
change in the product mix as a result of the promotion of larger, more expensive
sandwiches.
Many of CKE's employees are paid hourly rates related to the federal and
state minimum wage laws. Legislation increasing the federal minimum wage as of
October 1, 1996 has resulted in higher labor costs to CKE and its franchisees.
An additional increase in the federal minimum wage will become effective in
September 1997. Moreover, as a result of recent legislation in California, the
California state minimum wage
28
<PAGE> 31
was increased effective March 1997. CKE anticipates that increases in the
minimum wage may be offset through pricing and other cost control efforts;
however, there can be no assurance that CKE or its franchisees will be able to
pass such additional costs on to customers in whole or in part.
Franchised and Licensed Restaurants. Franchised and licensed restaurant
costs have increased 1.4% for the 16-week period ended May 19, 1997 over the
same period of the prior year. The increase is primarily due to increased food
purchases by Carl's Jr. franchisees, partially offset by a decrease in the
number of franchised and licensed Carl's Jr. restaurants in operation in the
first quarter of fiscal 1998 as compared with the same prior year quarter.
Advertising Expenses. Advertising expenses increased $3.0 million for the
16-week period ended May 19, 1997 over the same prior year period. Advertising
expenses have become increasingly important in the current competitive
environment and, as a result, have increased in terms of dollars spent in the
first quarter of fiscal 1998 as compared with the first quarter of the prior
year while remaining relatively consistent as a percentage of company-operated
revenues. CKE has seen positive same-store sales growth in each subsequent
quarter since CKE began its innovative advertising campaign in May 1995.
General and Administrative Expenses. General and administrative expenses
increased $4.9 million to $16.1 million for the 16-week period ended May 19,
1997 over the comparable prior year period. However, as a percentage of total
revenues, these expenses decreased 0.5% as compared with the same prior year
period, reflecting the economies of scale CKE is realizing by absorbing certain
costs from acquired businesses into CKE's existing infrastructure. The increase
in general and administrative expenses in the 16-week period ended May 19, 1997
is primarily the result of recording incentive compensation accruals for
regional restaurant management and selected corporate employees as a result of
improved restaurant operating performance, in addition to increased amortization
expense and various corporate legal expenses.
INTEREST EXPENSE
Interest expense for the 16-week period ended May 19, 1997 increased 10.6%
or $0.3 million to $2.9 million as compared with the prior year period,
primarily as a result of higher levels of debt outstanding during the first
quarter of fiscal 1998 as compared with the first quarter of fiscal 1997.
OTHER INCOME, NET
Other income, net, is primarily comprised of investment income, interest on
notes and leases receivable, gains and losses on sales of restaurants, income
and loss on long-term investments, and other non-recurring income. Other income,
net, increased $1.0 million from the 16-week period ended May 20, 1996,
primarily resulting from interest income earned on CKE's note receivable from
Checkers and amortization of the related discount in addition to dividend income
recorded from CKE's long-term investment in Boston West, L.L.C. ("Boston West").
FISCAL 1997 COMPARED TO FISCAL 1996 AND FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES
Company-operated Restaurants. CKE's revenues from company-operated
restaurants, comprised mainly of sales from Carl's Jr. restaurants, increased
$143.3 million or 36.4% to $536.8 million in fiscal 1997 as compared with $393.5
million in fiscal 1996. Carl's Jr. revenues for fiscal 1997 accounted for sales
increases of $54.1 million, while revenues from CKE's Rally's, Summit and Casa
Bonita restaurant concepts accounted for $10.1 million, $57.3 million and $26.1
million of revenues from company-operated restaurants, respectively, in fiscal
1997. Fiscal 1996 revenues included approximately $4.3 million from CKE's Boston
Market operations. On a same-store sales basis, CKE's Carl's Jr. sales, which
are calculated using only restaurants open for the full years being compared,
increased 10.7% as compared with a 4.4% increase a year ago. This marks the
second consecutive yearly increase in same-store sales and the highest
same-store sales reported by CKE's Carl's Jr. chain in nearly a decade. Per
store averages in company-operated Carl's Jr. restaurants continue to increase
and reached $1,114,000 on a 13-period rolling basis, an increase of $108,000
over the prior year and
29
<PAGE> 32
the highest per store average attained since fiscal 1991. The increase in
revenues from company-operated Carl's Jr. restaurants is primarily the result of
the continued momentum in CKE's various sales enhancement programs that were
implemented in fiscal 1996. These improvements include the image enhancement of
its restaurants through a chainwide remodeling program, the continuation of its
conversion of existing Carl's Jr. locations into Carl's Jr./Green Burrito
dual-brand restaurants and the continued focus on promoting great tasting new
and existing food products through increased innovative advertising. An increase
in the number of company-operated restaurants operating in fiscal 1997 as
compared with the prior year also contributed to the increase in revenues from
company-operated Carl's Jr. restaurants.
CKE's revenues from company-operated restaurants totaled $393.5 million in
fiscal 1996, an increase of $23.4 million, or 6.3%, as compared with fiscal
1995. This increase was primarily the result of the numerous sales enhancement
programs that were implemented in fiscal 1996. Also contributing to the rise in
revenues were higher average sales and transaction counts per restaurant and an
increase in the number of Carl's Jr. restaurants in operation in fiscal 1996 as
compared with fiscal 1995. The 4.4% increase in same-store sales in fiscal 1996
over fiscal 1995 was the first yearly increase in same-store sales experienced
by CKE in six years.
Franchised and Licensed Restaurants. CKE's revenues from franchised and
licensed restaurants for fiscal 1997 increased 7.4% to $77.3 million over fiscal
1996, while fiscal 1996 revenues reflected a decrease of 2.4% as compared with
fiscal 1995. The fiscal 1997 increase is largely due to increased royalties
from, and food purchases by, franchisees as a result of higher sales volume at
franchised Carl's Jr. restaurants, partially offset by a decrease in the number
of franchised and licensed Carl's Jr. restaurants operating as compared with the
prior year. The decrease in 1996 was largely due to lower prices of food and
other products supplied to franchisees by CKE, which were passed along to
franchisees, along with a slight decrease in the number of franchised Carl's Jr.
restaurants in operation in fiscal 1996 as compared with fiscal 1995.
OPERATING COSTS AND EXPENSES
Restaurant Operations. Restaurant-level margins of CKE's restaurant
operations decreased 0.6% in fiscal 1997 to 19.9% as compared with fiscal 1996,
primarily reflecting the impact of higher operating costs from Summit's
family-style restaurant concepts since the date of acquisition. The family-style
restaurant segment of the restaurant industry typically has lower margins than
the quick-service segment of the industry, mainly due to increased labor and
food costs. Excluding the $1.3 million effect of the adoption of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," during the first
quarter of fiscal 1997, CKE's restaurant-level margins for the fiscal year would
have been 20.1%.
While CKE's consolidated restaurant-level margins decreased in fiscal 1997,
CKE's efforts to reduce the restaurant-level cost structure of its Carl's Jr.
restaurants, which began in fiscal 1994, have resulted in significant
improvement in CKE's Carl's Jr. restaurant-level margins. These margins, as a
percentage of revenues from company-operated Carl's Jr. restaurants were 21.9%,
20.6%, and 17.6% in fiscal 1997, 1996, and 1995, respectively. These improved
results in CKE's Carl's Jr. restaurant-level operating margins in fiscal 1997
reflect CKE's continued commitment to improve the cost structure of its Carl's
Jr. restaurants, particularly in the areas of improving labor productivity and
reducing workers' compensation claims and losses. The 3.0% restaurant-level
margin improvement in fiscal 1996 was primarily attributable to material
declines in payroll and other employee benefit costs.
CKE's Carl's Jr. food and packaging costs have remained relatively
consistent at 31.0%, 30.7% and 30.1% of revenues from company-operated Carl's
Jr. restaurants for fiscal 1997, 1996 and 1995, respectively. During fiscal 1997
and 1996, food costs increased marginally due to increased pressure from
commodities prices and a change in the mix of products sold to higher food cost
products, such as the Big Bacon Star, which was introduced in the first quarter
of fiscal 1997, the Guacamole Bacon Cheeseburger, which was introduced in the
fourth quarter of fiscal 1997, the Crispy Chicken Sandwiches, which were
introduced during the third quarter of fiscal 1996, and the Famous Star, which
is offered at participating restaurants at $0.99 and is currently CKE's only
value-priced product.
30
<PAGE> 33
Carl's Jr. payroll and other employee benefit costs, as a percentage of
revenues from company-operated Carl's Jr. restaurants, declined 1.4% in fiscal
1997 to 26.5% and decreased 2.3% in fiscal 1996 to 27.9%. These significant
reductions in payroll and other employee benefit costs were achieved despite the
October 1, 1996 increase in the federal minimum wage. The cost reductions came
primarily as a result of labor productivity programs implemented during fiscal
1996 to further decrease costs and improve direct labor efficiencies. Moreover,
CKE added new safety and other programs in fiscal 1994, which, coupled with
changes in state regulations, have resulted in a decrease in work-related
injuries and reduced CKE's worker's compensation claims and losses during fiscal
1997 and 1996.
Many of CKE's employees are paid hourly rates related to the federal and
state minimum wage laws. Recent legislation increasing the federal minimum wage
as of October 1, 1996 has resulted in higher labor costs to CKE and its
franchisees. An additional increase in the federal minimum wage will become
effective in September 1997. Further, as a result of recent California state
legislation, the state minimum wage in California was increased in March 1997.
CKE anticipates that increases in the minimum wage may be offset through pricing
and other cost control efforts; however, there can be no assurance that CKE or
its franchisees will be able to pass such additional costs on to customers in
whole or in part.
Occupancy and other operating expenses for CKE's Carl's Jr. restaurant
chain, as a percentage of revenues from company-operated Carl's Jr. restaurants,
were 20.6%, 20.8% and 22.2% in fiscal 1997, 1996 and 1995, respectively. The
decreases in fiscal 1997 and 1996 were largely due to CKE's efforts to maintain
costs at the prior fiscal year levels, which included reducing utility costs
through the installation of energy-efficient lighting during fiscal 1996.
Further, since these items are generally fixed in nature, they decrease as a
percentage of company-operated restaurant revenues as revenues increase.
Franchised and Licensed Restaurants. Franchised and licensed restaurant
costs have followed a similar trend over the past three fiscal years to the
revenues from franchised and licensed restaurants. These costs have increased
4.6% in fiscal 1997 to $72.0 million while fiscal 1996 costs decreased 1.5% to
$68.8 million. The overall increase in fiscal 1997 is primarily due to increased
food purchases by Carl's Jr. franchisees, partially offset by a decrease in the
number of franchised and licensed restaurants in operation in fiscal 1997 as
compared with the prior year. The fiscal 1996 decrease was primarily
attributable to the decrease in the number of franchised restaurants in
operation.
Advertising Expenses. Advertising expenses have become increasingly
important in the current competitive environment and, accordingly, CKE has
increased the dollars spent on advertising by $8.4 million to $28.3 million in
fiscal 1997 as compared with fiscal 1996, while keeping advertising expenses as
a percentage of revenues from company-operated restaurants relatively consistent
with the prior fiscal years. In fiscal 1997, CKE spent more on advertising
production and increased the number of weeks on electronic media as compared
with the prior fiscal year. During fiscal 1996, a new advertising agency was
appointed to assist CKE in redirecting its Carl's Jr. marketing programs and
restoring its reputation of offering superior quality products. An innovative
new advertising campaign was introduced in May 1995 and CKE has seen seven
consecutive quarterly increases in same-store sales in company-operated Carl's
Jr. restaurants since the start of the campaign.
General and Administrative Expenses. General and administrative expenses in
fiscal 1997 increased $3.8 million to $41.6 million, or 6.8% of total revenues.
However, as a percentage of total revenues, these expenses decreased 1.3% as
compared to the prior fiscal year, reflecting the economies of scale CKE is
achieving by collapsing certain costs from acquired businesses into CKE's
existing infrastructure. The increase in general and administrative expenses in
fiscal 1997 is primarily the result of recording incentive compensation accruals
for regional restaurant management and selected corporate employees as a result
of improved restaurant operating performance. Also contributing to the increase
were increased amortization expense and various corporate legal expenses. In
fiscal 1996, general and administrative expenses amounted to $37.9 million, or
8.1% of sales, a decrease of $0.9 million, or 2.4% from fiscal 1995. During
fiscal 1996, CKE benefited, through reduced payroll and employee benefit costs,
from various reorganizations and headcount reductions that occurred both in
fiscal 1996 and prior years. Also contributing to the decrease in general and
administrative expenses in fiscal 1996 was the formation in April 1995 of Boston
West, which assumed the
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operations of all of CKE's existing Boston Market stores and agreed to fulfill
CKE's remaining obligations under its area development agreement. See Note 6 of
Notes to CKE's Consolidated Financial Statements.
INTEREST EXPENSE
Interest expense for fiscal 1997 decreased 1.3% to $9.9 million as compared
with the prior year as a result of lower levels of borrowings outstanding during
fiscal 1997, the prepayment of certain indebtedness early in the year and lower
interest rates. Interest expense for fiscal 1996 increased 8.7% to $10.0
million, primarily as a result of higher levels of borrowings and higher
interest rates in fiscal 1996 as compared with fiscal 1995.
OTHER INCOME, NET
Other income, net, is primarily comprised of investment income, interest on
notes and leases receivable, gains and losses on sales of restaurants and income
and losses from long-term investments. Other income, net, increased $2.4 million
from fiscal 1996, primarily due to an increase in investment income as a result
of increased cash levels on hand during fiscal 1997 and gain on the sale of
restaurants in fiscal 1997 as compared with a loss in the prior year. These
fiscal 1997 increases in other income, net, were partially offset by a decrease
in interest income on notes receivable due to the sale of certain of its
franchise notes receivable in fiscal 1996. In addition, included in fiscal 1996
was a $1.6 million decrease in CKE's Boston Market investment which resulted
from CKE recording its pro-rata share of the losses from Boston West. Other
income, net, decreased 25.9% to $2.2 million in fiscal 1996, largely due to
decreases in investment income resulting from lower investment levels as
compared with fiscal 1995.
RESULTS OF OPERATIONS -- HARDEE'S
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of certain items included in Hardee's
combined statements of operations for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, ----------------------
----------------------- MARCH 31, MARCH 31,
1994 1995 1996 1996 1997
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Company-operated restaurants.................... 84.9% 85.6% 87.6% 87.7% 87.2%
Franchised and licensed restaurants and other... 15.1 14.4 12.4 12.3 12.8
----- ----- ----- ----- -----
Total revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Operating costs and expenses:
Restaurant operations(1):
Food and packaging........................... 32.9% 34.2% 33.7% 34.8% 33.3%
Payroll and other employee benefits.......... 32.9 36.4 37.4 39.1 39.5
Occupancy and other operating expenses....... 24.6 26.4 24.9 25.9 25.6
----- ----- ----- ----- -----
90.4 97.0 96.0 99.8 98.4
Franchised and licensed restaurants and
other(2)..................................... 26.9 30.0 34.3 31.6 28.2
Advertising expenses(1)......................... 5.0 6.2 6.2 6.0 6.0
General and administrative expenses............. 6.8 9.1 9.9 9.3 11.2
Operating income (loss)........................... 8.1 (1.8) (3.8) (6.0) (6.0)
Interest expense.................................. (1.4) (1.7) (0.9) (1.5) (0.4)
Other income (expense), net....................... -- -- 1.2 (0.1) 1.2
----- ----- ----- ----- -----
Income (loss) before income taxes and
extraordinary item.............................. 6.7 (3.6) (3.5) (7.6) (5.2)
Income tax expense (benefit)...................... 2.7 (1.4) -- -- --
----- ----- ----- ----- -----
Income (loss) before extraordinary item........... 4.0 (2.2) (3.5) (7.6) (5.2)
Extraordinary loss on early extinguishment of
debt............................................ 0.7 -- -- -- --
----- ----- ----- ----- -----
Net income (loss)................................. 3.3% (2.2)% (3.5)% (7.6)% (5.2)%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) As a percentage of revenues from company-operated restaurants.
(2) As a percentage of revenues from franchised and licensed restaurants and
other.
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<PAGE> 35
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
REVENUES
Company-operated Restaurants. Hardee's revenues from company-operated
restaurants, comprised of sales from restaurants operating under the Hardee's
trademark, decreased $18.0 million or 10.6% to $151.0 million in the first
quarter of 1997 as compared with $169.0 million in the first quarter of 1996.
The decrease in revenues from company-operated restaurants is the result of
operating a monthly average of 111 fewer restaurants during the first quarter of
1997 as compared with the same period in 1996. On a comparable restaurant basis,
which excludes the effects of restaurants opened, acquired, closed or divested
during the period, average unit volume ("AUV") for Hardee's company-operated
restaurants declined 1.6%. The disappointing AUV performance is attributable to
a very difficult industry environment, characterized by competitive pricing
activities and continued expansion by competing chains, as well as to weaknesses
in Hardee's operations.
Franchised and Licensed Restaurants. Hardee's revenues from franchised and
licensed restaurants consist of sales of supplies and equipment by Hardee's
Equipment Division to franchisees and other third parties, and service and
license fees. Hardee's revenues from franchised and licensed restaurants for the
first quarter of 1997 declined 6.9% to $22.1 million from the first quarter of
1996. Lower gross service fee revenues resulted from the reduction in the number
of licensed restaurants and the decline in AUVs from these restaurants.
Furthermore, the difficult industry environment resulted in an increase in the
amount of service fees earned but not recognized as revenues because their
ultimate collection is in doubt.
OPERATING COSTS AND EXPENSES
Restaurant Operations. Hardee's restaurant-level margins, as a percentage
of company-operated restaurant revenues, increased 1.4% in the first quarter of
1997 to 1.6% primarily due to price increases on certain menu items in late 1996
and lower food and packaging costs.
Hardee's food and packaging costs were 33.3% of revenues from
company-operated restaurants in the first quarter of 1997, as compared with
34.8% in the first quarter of 1996, an improvement of 1.5%. The changes in food
costs were primarily due to the mix of products sold. Fried chicken was removed
from the menu in certain markets in the Midwest and offered only during dinner
hours in other Midwest markets beginning in the second quarter of 1996. A change
in the burger patty size in May 1996 also contributed to the improvement in food
costs in the first quarter of 1997. In addition, 0.5% of the change in food and
packaging costs was the result of lower product waste and improvements in
inventory controls in the restaurants.
Hardee's payroll and other employee benefit costs, as a percentage of
revenues from company-operated restaurants, increased 0.4% in the first quarter
of 1997 to 39.5%. Labor efficiencies achieved in the restaurants in the first
quarter of 1997 were not enough to offset the impact of the October 1, 1996
increase in the federal minimum wage and an increase in restaurant management
salaries to bring them to parity with Hardee's competitors.
Many of Hardee's employees are paid hourly rates related to the federal and
state minimum wage laws. Recent legislation increasing the federal minimum wage
as of October 1, 1996 has resulted in higher labor costs to Hardee's and its
franchisees. An additional increase in the federal minimum wage will become
effective in September 1997. Hardee's anticipates that increases in the minimum
wage may be offset through pricing and other cost control efforts; however,
there can be no assurance that Hardee's or its franchisees will be able to pass
such additional costs on to customers in whole or in part.
Occupancy and other operating expenses for Hardee's, as a percentage of
revenues from company-operated restaurants, were 25.6% in the first quarter of
1997 as compared with 25.9% in the same period of 1996. The improvement was
primarily the result of a lower provision for excess properties in the first
quarter of 1997 as compared with the first quarter of 1996.
Franchised and Licensed Restaurants and Other. Franchised and licensed
restaurant costs, as a percentage of revenue from franchised and licensed
restaurants, decreased 3.4% in the first quarter of 1997 as
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<PAGE> 36
compared with the first quarter of 1996. The improvement is primarily the result
of a change in the mix in equipment sales to franchisees and other third
parties. The improvement from lower cost of sales on equipment was offset
somewhat by an increase in franchise support expenses as a percentage of revenue
from franchised and licensed restaurants. While the level of administrative
support provided to franchisees has remained fairly level, the costs have
increased as a percentage of franchised and licensed revenue due to the decline
in gross service fee income from declining AUVs and service fees earned but not
recognized because their ultimate collectibility is in doubt.
Advertising Expenses. Hardee's advertising expenses, as a percentage of
company-operated restaurants, were 6.0% in the first quarters of 1997 and 1996.
In 1996, Hardee's launched a new creative approach to advertising that draws on
the talents of a number of advertising groups and consolidated media buying in
one service to increase the efficiency of dollars invested.
General and Administrative Expenses. General and administrative expenses in
the first quarter of 1997 increased $1.5 million to $19.5 million, or 11.2% of
revenues. The increase in general and administrative expenses in the first
quarter of 1997 is primarily due to initiatives to improve training programs for
restaurant management and to improve Hardee's information systems.
INTEREST EXPENSE
Interest expense decreased 71.9% in the first quarter of 1997, as compared
with the first quarter of 1996, to $0.8 million primarily as the result of lower
levels of borrowings outstanding with its parent, Imasco Holdings, and
subsidiaries of Imasco Holdings' parent, Imasco Limited.
OTHER EXPENSES (INCOME), NET
Other expenses (income), net is comprised of management fees paid to is
parent, Imasco Holdings in the first quarters of 1997 and 1996, and a management
fee received from FFM in the first quarter of 1997.
1996 COMPARED TO 1995 AND 1995 COMPARED TO 1994
REVENUES
Company-operated Restaurants. Hardee's revenues from company-operated
restaurants, comprised of sales from restaurants operating under the Hardee's
trademark, increased $3.7 million or 0.5% to $706.4 million in 1996 as compared
with $702.7 million in 1995. The increase in revenues from company-operated
restaurants is the result of operating a monthly average of 51 more restaurants
during 1996 as compared with 1995. The AUV for all company-operated Hardee's
restaurants was $845,000 in 1996, compared with $857,000 in 1995, a decrease of
1.4%. On a comparable restaurant basis, which excludes the effects of
restaurants opened, acquired, closed or divested during the period, AUVs for
Hardee's company-operated restaurants declined 4.4%. The decline in AUV is
attributable to a difficult industry environment, characterized by competitive
pricing activities and continued expansion by competing chains, as well as to
weaknesses in Hardee's operations.
Hardee's revenues from company-operated restaurants decreased $9.3 million
or 1.3% to $702.7 million in 1995 from $712.0 million in 1994. The decrease in
revenues from company-operated restaurants is primarily the result of lower
AUVs. The AUV for all company-operated restaurants was $857,000 in 1995,
compared with $968,000 in 1994, a decrease of 11.5%. On a comparable restaurant
basis, AUVs for Hardee's company-operated restaurants declined 6.7%.
Franchised and Licensed Restaurants and Other. Hardee's revenues from
franchised and licensed restaurants consist of sales of supplies and equipment
by Hardee's Equipment Division to franchisees and other third parties, and
service and license fees. Hardee's revenues from franchised and licensed
restaurants for 1996 declined 15.6% to $99.7 million from 1995, while 1995
revenues reflected a decrease of 6.7% as compared with 1994. Lower gross service
fee revenues resulted from the reduction in the number of licensed restaurants
and the decline in AUVs from these restaurants. Furthermore, the difficult
industry environment
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<PAGE> 37
resulted in an increase in the amount of service fees earned but not recognized
as revenues because their ultimate collection is in doubt.
OPERATING COSTS AND EXPENSES
Restaurant Operations. Hardee's restaurant-level margins, as a percentage
of company-operated restaurant revenues, increased 1.0% in 1996 to 4.0%
primarily due to lower occupancy and other operating expenses. The improvement
in 1996 follows a 6.6% decline in restaurant-level margins in 1995 as the result
of higher costs for food and packaging, payroll and other employee benefits and
occupancy and other expenses.
Hardee's food and packaging costs were 33.7% of revenues from
company-operated restaurants in 1996, as compared with 34.2% in 1995, an
improvement of 0.5% following a 1.3% increase in food and packaging costs in
1995 as compared with 1994. The changes in food and packaging costs were
primarily due to the mix of products sold. Along with the introduction of the
"Big Hardee" in 1995, Hardee's changed to a larger patty for all hamburgers on
the menu. The larger burger patty and a marketing emphasis on fried chicken
early in 1995 resulted in higher food and packaging costs for the year. The
return to the smaller patty size and a marketing emphasis on hamburgers in 1996
contributed to the improvement in food and packaging costs in 1996.
Hardee's payroll and other employee benefit costs, as a percentage of
revenues from company-operated restaurants, increased 1.0% in 1996 to 37.4% and
increased 3.5% in 1995 to 36.4%. Labor efficiencies achieved in the restaurants
in 1996 were not enough to offset the impact of the October 1, 1996 increase in
the federal minimum wage and an increase in restaurant management salaries to
bring them to parity with Hardee's competitors. The increase in payroll costs in
1995 was due to the addition of labor in Hardee's restaurants to improve quality
and service along with wage increases in response to market pressures. Many of
Hardee's employee's are paid hourly rates related to the federal and state
minimum wage laws. Legislation increasing the federal minimum wage on October 1,
1996 resulted in higher labor costs to Hardee's and its franchisees. An
additional increase in the federal minimum wage will become effective in
September 1997.
Occupancy and other operating expenses for Hardee's, as a percentage of
revenues from company-operated restaurants, were 24.9%, 26.4% and 24.6% in 1996,
1995 and 1994, respectively. In 1995, Hardee's recorded a provision of $23.0
million related to the divestiture of certain restaurants in non-core Hardee's
markets. Due to higher than expected proceeds from the sale of these
restaurants, the provision was reduced by $10.6 million in 1996.
Hardee's adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" in 1996 and recorded an impairment loss of $12.2 million.
Franchised and Licensed Restaurants and Other. Franchised and licensed
restaurant costs, as a percentage of revenue from franchised and licensed
restaurants, increased 4.3% in 1996 as compared to 1995 and increased 3.1% in
1995 as compared with 1994. While the level of administrative support provided
to franchisees has remained relatively constant, the costs have increased as a
percentage of franchised and licensed restaurant revenue due to the decline in
gross service fee income from declining AUVs and service fees earned but not
recognized because their ultimate collectibility is in doubt.
Advertising Expenses. Hardee's advertising expenses, as a percentage of
revenue from company-operated restaurants, were 6.2%, 6.2% and 5.0% in 1996,
1995 and 1994, respectively. Advertising expenses were increased in 1995 as a
percentage of revenue from company-operated restaurants to achieve more frequent
communication with customers to support Hardee's "cravable taste" positioning.
In 1996, Hardee's launched a new creative approach to advertising that draws on
the talents of a number of advertising groups and consolidated media buying in
one service to increase the efficiency of dollars expended.
General and Administrative Expenses. General and administrative expenses
in 1996 increased $4.8 million to $79.7 million, or 9.9% of total revenues. The
increase in general and administrative expenses in 1996 is primarily due to an
increase of $6.7 million in the provision for doubtful accounts over the amount
provided in 1995. General and administrative expenses in 1995 increased $18.1
million to $74.9 million, or 9.1% of total
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<PAGE> 38
revenues. In the fourth quarter of 1995, Hardee's announced its intention to
reduce the work force at Hardee's corporate offices by 10% and recorded a $3.0
million provision for severance and other related costs. In 1994, Hardee's
recognized a gain of $7.0 million on the curtailment of its qualified defined
benefit pension plan, and changes in other employee benefits programs reduced
expenses by $3.8 million.
INTEREST EXPENSE
Interest expense decreased to $7.0 million in 1996 as compared to
approximately $14.0 million in 1995 primarily as the result of levels of
borrowings outstanding with its parent, Imasco Holdings and subsidiaries of
Imasco Holdings' parent, Imasco Limited.
OTHER EXPENSES (INCOME), NET
Other expenses (income), net is comprised of management fees paid by
Hardee's to its parent, Imasco Holdings, in 1996, 1995 and 1994 and a management
fee received from FFM in 1996.
IMPACT OF INFLATION
Management recognizes that inflation has an impact on food, construction,
occupancy, labor and benefit costs, all of which can significantly affect CKE's
operations. Historically, CKE has been able to pass any higher costs due to
these inflationary factors along to its customers because those factors have
impacted nearly all restaurant companies. During fiscal 1997 and fiscal 1996,
however, management has emphasized cost controls rather than price increases,
given the competitive pressure within the quick-service restaurant industry.
LIQUIDITY AND CAPITAL RESOURCES
For the 16-week period ended May 19, 1997, CKE generated cash flows from
operating activities of $19.1 million, compared with $15.8 million for the same
period of the prior year. This increase was primarily due to increased sales
levels and increased operating margins in CKE's Carl's Jr. restaurants. Cash and
cash equivalents in the current period decreased $11.6 million from January 27,
1997, as CKE used cash flows from operations to fund capital additions of
approximately $14.4 million, to fund CKE's long-term investment in Checkers, to
reduce CKE's capital lease obligations by $1.2 million, to pay dividends to its
stockholders of approximately $1.3 million, and to reduce CKE's bank overdraft
by $3.0 million. The decrease in cash and cash equivalents was partially offset
by cash generated from collections on notes receivable and related party
receivables of approximately $4.2 million and the exercise of stock options
which generated approximately $1.4 million. Total cash and cash equivalents
available to CKE as of May 19, 1997 was $28.8 million, which included $0.6
million invested in marketable securities.
CKE's existing credit facility (the "Current Credit Facility") consists of
(i) a revolving credit facility for working capital and other general corporate
purposes, under the terms of which CKE may borrow from time to time up to $30.0
million (including a letter of credit subfacility of up to $20.0 million), and
(ii) a revolving credit facility for the purpose of financing investments in and
acquisitions of other companies, under the terms of which CKE may borrow from
time to time up to $25.0 million. As of May 19, 1997, no borrowings remained
outstanding under the Current Credit Facility, and CKE was in compliance with
all financial covenants contained therein. The Current Credit Facility will be
replaced by the New Credit Facility prior to or concurrently with the Closing of
this offering and the Acquisition.
During the fourth quarter of fiscal 1997, CKE issued 4.3 million shares of
its Common Stock at a public offering price of $19.08 per share. Proceeds from
the offering, net of underwriting discounts and commissions and other related
expenses, were $77.6 million and were used primarily to repay indebtedness.
The Company's primary source of liquidity is its revenues from
company-operated restaurants, which are generated in cash. Future capital needs
will arise primarily for the construction of new restaurants, the remodeling of
existing restaurants, the conversion of certain restaurants to the Carl's
Jr./Green Burrito dual-brand concept and capital expenditures expected to be
incurred in connection with the Company's integration
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<PAGE> 39
of Hardee's. The Company plans to open 30 new Carl's Jr. restaurants in fiscal
1998 and is evaluating opening additional Taco Bueno restaurants in its existing
markets in fiscal 1998. During fiscal 1998, the Company also expects to continue
to remodel the remaining company-operated Carl's Jr. restaurants and to convert
up to 60 Carl's Jr. locations into Carl's Jr./Green Burrito units.
The Company believes that cash generated from its various restaurant
concept operations and cash and cash equivalents and marketable securities on
hand as of May 19, 1997 and borrowings to be available under the New Credit
Facility will be sufficient to satisfy the Company's capital spending
requirements for at least the next 12 months. If those sources of capital are
insufficient to satisfy the Company's capital spending and working capital
requirements, or if the Company determines to make any other significant
acquisitions of or investments in other businesses, the Company may be required
to sell additional equity or debt securities or obtain additional credit
facilities. The sales, if any, of additional equity or convertible debt
securities could result in additional dilution to the Company's stockholders.
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<PAGE> 40
BUSINESS
OVERVIEW
Upon the consummation of the Acquisition, the Company will own, operate,
franchise and license 4,082 branded restaurant units in the United States and
abroad. The Company is principally engaged in the quick-service restaurant
segment, in which the Company's branded units will include 3,856 hamburger
restaurants and 107 Mexican restaurants. The Company's quick-service hamburger
restaurant chain will be the third largest such chain in the United States based
on combined system-wide sales. Upon the consummation of the Acquisition, the
Company will own the following quick-service restaurant brands:
- CARL'S JR. -- Carl's Jr., was founded in 1956 and is the nation's seventh
largest quick-service hamburger restaurant chain, based on system-wide
sales, with a leading market presence in California. The Carl's Jr. menu
features several charbroiled hamburgers and chicken sandwiches, including
the Famous Star, Western Bacon Cheeseburger, Super Star, Charbroiler
Chicken Sandwiches, and Crispy Chicken Sandwiches. Carl's Jr. charbroiled
hamburgers, chicken sandwiches and other signature items are generally
made-to-order, meet exacting quality standards, are offered in generous
portions and have a strong reputation for quality and taste. CKE believes
that its focus on customer service, superior food quality and taste and
generous portions enables Carl's Jr. restaurants to maintain a strong
price-value image with its customers. As of May 19, 1997, the Carl's Jr.
system included 678 restaurants, of which 421 were operated by CKE and
257 were operated by CKE's franchisees and licensees.
- HARDEE'S -- Hardee's was founded in 1961 and is the nation's fourth
largest quick-service hamburger restaurant chain, based on system-wide
sales, with a leading market presence in the Southeastern and Midwestern
United States. Hardee's strength is in its breakfast menu, which
generates approximately 30% of its overall revenues, the highest
percentage in the quick-service hamburger industry. Hardee's breakfast
menu features made from scratch biscuits, biscuit breakfast sandwiches
and items such as hash rounds and breakfast platters. The current
Hardee's lunch and dinner menu includes hamburgers, fried chicken and
other products. Management intends to improve Hardee's menu by
streamlining its product offerings and adding certain Carl's Jr. lunch
and dinner menu items to its strong breakfast menu. As of March 31, 1997,
the Hardee's system included 3,152 restaurants, of which 788 were
operated by Hardee's and 2,364 were operated by Hardee's franchisees and
licensees.
- TACO BUENO -- The Company owns and operates 107 Taco Bueno quick-service
Mexican restaurants located in Texas and Oklahoma. Taco Bueno seeks to
differentiate itself from its principal competitors by offering a diverse
menu featuring generous portions of freshly prepared, high quality food
items. In addition to typical quick-service Mexican offerings, such as
burritos, tacos, tostadas and combination meals, Taco Bueno features a
number of signature menu items such as its Chicken Taco Salad and Mucho
Burrito platter.
BUSINESS STRATEGY
After an extended period of growth, CKE made certain strategic decisions in
the early 1990s which adversely impacted sales and profitability. Beginning in
October 1994, CKE hired a new management team which implemented a variety of
strategic and operational programs designed to revitalize the Carl's Jr. brand
operations and improve its financial results. Since then, CKE has experienced
significant increases in revenues, restaurant-level margins and net income. For
the past two fiscal years, Carl's Jr. has reported quarter-over-quarter
increases in company-operated restaurant revenues and restaurant-level margins
and CKE has reported quarter-over-quarter growth in net income and earnings per
share. CKE believes these results are directly related to its renewed customer
focus and the implementation of its management practices.
Customer Focus. CKE believes its ability to deliver high quality food to
customers with superior service in clean and friendly restaurant environments
has been central to its operating success. The Company's Carl's Jr. restaurants
are leaders in the quick-service hamburger restaurant industry in the critical
categories of quality, service and cleanliness.
- High Quality Food. CKE seeks to differentiate itself by providing higher
quality and better tasting food than its competitors. Within each
restaurant concept, the menus feature generous portions of freshly
prepared food items that appeal to a broad audience. CKE emphasizes its
signature menu items
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<PAGE> 41
and manages the total number of menu items offered at its restaurants in
order to establish clear brand identities and maintain operational
efficiencies.
- Superior Service. CKE provides a level of customer service which it
believes has helped it establish a higher level of customer satisfaction
than its competitors. In its Carl's Jr. restaurants, the Company provides
partial table service as a means of both minimizing the customer wait
time at its counters and of ensuring that customers are satisfied with
their made-to-order sandwiches. By taking orders at the counter and then
having a waitperson deliver the prepared foods to the customers at their
tables, Carl's Jr. provides a final customer service contact point to
assure that customers have what they need to enjoy their dining
experience. In addition, the Company has installed timers in its Carl's
Jr. restaurants and drive-thru windows in order to manage the speed of
delivery and maintain Carl's Jr.'s reputation for being able to deliver
quality products in a timely, efficient and customer-friendly manner.
- Clean and Friendly Environment. CKE strives to offer a pleasant,
customer-friendly environment at its restaurants by providing attractive,
updated restaurant decors and by emphasizing cleanliness in all areas of
its operations. CKE believes that its restaurants' designs increase the
consumer awareness of its restaurant brands by providing distinct
atmospheres at its various restaurant concepts. Further, through regular
maintenance and periodic remodeling CKE continually seeks to enhance the
customer dining experience by keeping its restaurants clean and pleasant.
Within the past two years, CKE has remodeled over half of its
company-operated Carl's Jr. restaurants, and currently plans to complete
the remodeling of substantially all of its company-operated Carl's Jr.
restaurants by early 1998.
Management Practices. CKE's management team has developed and implemented a
series of management practices which have revitalized the Carl's Jr. brand and
increased its sales and profitability. Management believes that many of the
practices and policies that contributed to achieving the sales increase,
operational efficiencies and margin improvements at Carl's Jr., can be applied
to other quick-service restaurant concepts. The key elements of these management
practices are:
- Restaurant Management. CKE has developed food, labor and customer service
management practices and reporting mechanisms that allow management to
effectively monitor restaurant-level operations, benchmark restaurant
performance statistics, and communicate best-practices across its
restaurant concepts. Management supports these practices through the use
of restaurant-level incentive and bonus programs oriented towards
motivating restaurant-level employees. Through these incentive and bonus
programs as well as through traditional recognition programs, CKE
believes this fosters an environment where employees are encouraged to
share their ideas and cost saving suggestions with management.
- Brand Management. CKE aggressively promotes and enhances its brand
awareness through innovative advertising. In early 1995, CKE discontinued
its value pricing strategy for Carl's Jr. and focused its advertising
programs on building the Carl's Jr. brand by emphasizing the key
differentiating attributes of its concept. Further, CKE's advertising
typically highlights the core product offerings of its various restaurant
concepts, with an emphasis on the premium quality and generous portions
offered. This high-quality brand image is further reinforced through
CKE's active image enhancement program including the regular maintenance
and periodic remodeling of its restaurant facilities. CKE believes that
the combination of these practices produces a high quality brand image
which builds brand value over time.
- Cost Management. CKE is committed to controlling costs at each level of
its operations. CKE believes it can continue to leverage its corporate
infrastructure and achieve additional synergies in purchasing,
information systems, finance and accounting, benefits and human resource
management across its restaurant concepts.
The success of the implementation of these management practices is best
exemplified by the recent increases in Carl's Jr.'s same-store sales, operating
margins and profitability. Carl's Jr.'s company-operated same-store sales
increased by 10.7% in fiscal 1997 and have increased for each of the last eight
consecutive quarters. In addition, Carl's Jr. company-operated restaurant-level
margins have increased from 17.6% of
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<PAGE> 42
revenues in fiscal 1995 to 21.9% of revenues in fiscal 1997 and to 23.0% in the
first quarter of fiscal 1998. The Company has also implemented many of these
practices at the 26 Rally's locations that it is operating. In the first seven
months of its operating agreement with Rally's, the Company has improved
restaurant-level margins at these locations from 4.9% of revenues to 11.4% of
revenues. These management practices have also contributed to the operating
improvements that have occurred at Taco Bueno. In the past year, Taco Bueno's
same-store sales increased by 7.9% and the Company significantly reduced Taco
Bueno's corporate overhead. In the first quarter of fiscal 1998, Taco Bueno's
same-store sales increased by 8.0%, contributing to restaurant-level margins of
23.1%.
The Company believes that these management practices can be implemented to
successfully improve the financial performance of Hardee's. However, there can
be no assurance that these management practices can be successfully applied to
Hardee's or that the implementation of such practices will improve the financial
performance of Hardee's.
THE HARDEE'S ACQUISITION
Hardee's was founded in 1961 and has grown over the past 36 years to become
the nation's fourth largest quick-service hamburger restaurant chain based on
system-wide sales, with a leading market presence in the Southeastern and
Midwestern United States. As of March 31 1997, the Hardee's system included
3,152 restaurants, of which 788 were operated by Hardee's and 2,364 were
operated by Hardee's franchisees and licensees. For the year ended December 31,
1996, Hardee's had system-wide sales of approximately $3.1 billion and revenues
of $645.4 million from company-operated restaurants open and operating as of
December 31, 1996. On April 27, 1997, CKE entered into the Stock Purchase
Agreement to acquire Hardee's for a purchase price of $327.0 million, subject to
certain adjustments. See "The Acquisition."
CKE believes that the Acquisition of Hardee's provides it with a unique
opportunity to significantly expand the scope of its operations and to become
one of the leading nationwide operators of quick-service hamburger restaurants.
However, in recent years Hardee's has experienced operating difficulties, the
effect of which was compounded by increased competition in the industry. These
difficulties have resulted in declining system-wide revenues and same-store
sales over the past three years. Further, and partly as a result of declining
unit revenues, restaurant-level margins at Hardee's have declined from 14.3% of
revenues from company-operated restaurants for the year ended December 31, 1994
to 5.2% of revenues from company-operated restaurants for the year ended
December 31, 1996. As a consequence, operating income declined from a reported
$91.6 million profit for the year ended December 31, 1994 to a $17.8 million
loss for the year ended December 31, 1996. See Note 21 of Notes to Hardee's
Combined Annual Financial Statements.
Despite Hardee's poor recent performance, the Company believes that there
is significant value in Hardee's and CKE's complementary geographic markets and
relative menu strengths, Hardee's significant market presence in many of its
existing markets and Hardee's established brand name. CKE believes that it can
meaningfully improve the same-store sales trends and profitability levels at
Hardee's and has developed a plan to integrate Hardee's into the Company and
improve its operations by implementing the strategies which it has used to
improve the operations of its Carl's Jr. restaurants. The key elements of these
strategies are as follows:
Improve Food Quality. While Hardee's has been successful at promoting its
breakfast menu, which generates approximately 30% of its overall revenues, its
lunch and dinner business has suffered from the lack of core products and poorly
received new product offerings. The Company intends to remedy this through the
introduction of its higher quality Carl's Jr. products, including the use of its
charbroiling cooking method, into the Hardee's brand restaurants. In addition,
the Company intends to simplify and complement Hardee's menu offerings and
better define its core products.
Enhance Service Quality. Research indicates that Hardee's fares poorly in
customer ratings of service. To address this situation, the Company will
selectively utilize certain policies it has successfully implemented at its
Carl's Jr. restaurants to improve the quality of service.
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Update Restaurant Facilities. The Company intends to accelerate a program
initiated by Hardee's to remodel all of its company-operated restaurants over
the next three years. The remodeling will include new signage and menu boards
and new exterior and interior improvements.
Implement CKE Management Practices. The Company intends to restructure the
field management organization of Hardee's, including the selective introduction
of CKE management personnel. The Company believes there is a significant
opportunity to improve restaurant-level margins, which are lower than
restaurant-level margins at Carl's Jr. company-operated restaurants, by
implementing labor scheduling management practices and incentive and bonus
programs similar those in place at Carl's Jr. Further, the Company is currently
developing a means of integrating Hardee's point of sales systems into its
Carl's Jr. reporting system so that restaurants can be managed in the same
manner that has proven successful at Carl's Jr.
Leverage Brand Recognition. With over 36 years of operations, Hardee's has
a well-known brand name in its principal markets and is recognized for its
consistent, high-quality breakfast offerings. The Company has identified two
test markets where it intends to test the format of a combined Hardee's
breakfast menu and Carl's Jr. lunch and dinner menu, which includes the
introduction of the Carl's Jr. brand name. As part of its introduction of Carl's
Jr. higher quality lunch and dinner menu items, the Company intends to launch a
concurrent image oriented advertising campaign.
Manage Costs. The Company has prepared a comprehensive plan for the
reorganization of Hardee's management which includes a significant reduction in
headcount and rationalization of corporate services. However, there can be no
assurance that the Company's plan will result in any cost savings.
In addition, the Company has identified up to 114 underperforming
restaurants that it intends to sell or franchise subsequent to the Closing to an
independent third party for a purchase price of approximately the net book value
of those restaurants, and to provide to such purchaser up to $25.0 million in
credit facilities for working capital, subsequent to the Closing. These
restaurants generated revenues of $74.2 million and operating losses of
approximately $12.9 million in 1996 and revenues of $18.0 million and operating
losses of $2.8 million for the three months ended March 31, 1997. See "Risk
Factors -- Uncertainties Related to the Acquisition."
GROWTH STRATEGY
The Company is currently pursuing a strategy of growth and expansion
through: (i) increasing sales and profitability at its existing and
newly-acquired restaurants, (ii) opening both company-operated and franchised
restaurants in existing and new markets, and (iii) acquisitions and investments
in similar concepts to create new avenues for growth.
Increasing Restaurant Sales and Profitability. The Company believes it can
increase customer traffic, restaurant sales and profitability by continuing to
dual-brand its restaurant concepts and completing its planned remodeling and
image enhancement programs. The Company also seeks to aggressively enhance
customer awareness and drive incremental restaurant sales by continuing its
advertising campaign with innovative television commercials emphasizing its
brands and quality products.
- Dual Branding. Dual-branding remains an important vehicle for
driving sales growth through the Company's established restaurant sites. By
offering customers an additional, distinct concept and a separate menu at a
single restaurant location, the Company believes it both attracts new
customers to its restaurants and increases the frequency of its existing
customers' visits to the converted sites. Post-conversion revenues in the
16 weeks ended May 19, 1997 for the 49 company-operated Carl's Jr./Green
Burrito dual-brand restaurants operating less than a year were
approximately 17% higher than same-store sales in the comparable prior year
period. The Company plans to aggressively continue the dual-branding of its
Carl's Jr. restaurants with Green Burrito and plans to convert
approximately 60 additional restaurants per year to that format over the
next four years. In addition, the Company is evaluating other avenues for
dual-branding among its other restaurant brands, such as introducing the
Carl's Jr. brand into the Company's Taco Bueno restaurants.
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- Remodeling. The Company plans to complete its Carl's Jr. remodeling
programs in early 1998. In accordance with the Company's franchise
agreements, the Company's Carl's Jr. franchisees have until August 1999 to
remodel their restaurants. Company-operated Carl's Jr. restaurants
remodeled as of January 27, 1997 have experienced same-store sales
increases of approximately 12%. The Company is also in the process of
enhancing the Taco Bueno brand image with new signage and menu boards and
is considering a more extensive remodeling program.
- Advertising. The Company has developed image oriented marketing
campaigns to enhance customer awareness and drive incremental restaurant
sales. Based upon the success of its Carl's Jr. advertising campaign, most
of the Company's Carl's Jr. franchisees have agreed to increase their
contributions for marketing and advertising, and the Company plans to
partially match such contributions. Since the start of this innovative
advertising campaign, Carl's Jr. has experienced seven consecutive
quarterly increases in company-operated same-store sales. The Company plans
to continue its advertising through innovative television commercials that
emphasize its brands and its quality products.
Opening New Restaurants. The Company intends to continue its Carl's Jr.
expansion program by opening new restaurants in both traditional, freestanding
structures and alternative formats. Although a significant portion of
management's time and capital is expected to be devoted to integrating Hardee's
into the Company's existing operations, the Company anticipates that it will
open up to 30 new Carl's Jr. restaurants in fiscal 1998. In addition, the
Company will be actively pursuing franchise and licensing opportunities for all
of its brands. The Company presently anticipates that its franchisees and
licensees will open up to 15 new Carl's Jr. restaurants during fiscal 1998.
Acquisitions and Investments. The Company has completed or announced
several acquisitions and investments in other restaurant companies over the past
year. While the Company is not currently contemplating any significant
additional acquisitions or investments, it will continue to evaluate
opportunities to expand its operations.
CARL'S JR.
Concept. The Company believes that its Carl's Jr. restaurants' superior
food quality, diverse menu and attentive customer service differentiate the
Company from its competitors and are critical to its success. Unlike many
quick-service restaurants which emphasize lower prices, Carl's Jr. restaurants
focus on offering customers a higher quality dining experience at a reasonable
price. Carl's Jr. charbroiled hamburgers, chicken sandwiches and signature items
are generally made-to-order, meet exacting quality standards and are offered in
generous portions. Carl's Jr.'s menu features freshly prepared food items that
appeal to a broad audience. By providing partial table service, unlimited drink
refills and an attractive restaurant decor, Carl's Jr. restaurants offer a
pleasant, customer-friendly environment. The Company believes that its focus on
customers and customer service, superior food quality and generous portions
enables the Carl's Jr. restaurants to maintain a strong price-value image with
its customers.
Menu and Restaurant Design. Carl's Jr. restaurants offer a variety of
products that have a strong reputation for quality and taste. The Carl's Jr.
menu is relatively uniform throughout the chain and features several charbroiled
hamburgers and chicken sandwiches, including the Famous Star, Western Bacon
Cheeseburger, Super Star, Charbroiler Chicken Sandwiches and Crispy Chicken
Sandwiches. Other entrees include a fish sandwich, 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 was also among the first to
offer self-service salad bars and all-you-can-drink beverage bars.
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 and drive-thru
facilities. Some restaurants are located in shopping malls and other in-line
facilities. Currently, several building designs and floor plans are in use
system-wide, depending upon operational needs, local zoning requirements and
real estate availability.
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The Company is currently remodeling its Carl's Jr. restaurants to provide
them with a fresh, contemporary look. Exterior improvements include brighter
colors, red awnings and a large, tilted Happy Star logo. The new interiors
feature the same bright colors, food murals, display cases for salads and
desserts and accent lighting throughout the dining area. The Company believes
that its new restaurant design will further increase the consumer's awareness of
the Carl's Jr. brand.
Operations. 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 are 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 Carl's Jr. restaurant is operated by a manager who
has received nine to 13 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 is
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.
Green Burrito Development Agreement. Dual-branding is an emerging concept
in the quick-service restaurant industry that allows a single restaurant to
offer consumers two distinct brand menus. In May 1995, the Company entered into
a five-year agreement with GB Foods Corporation, the operator and franchisor of
The Green Burrito quick-service Mexican food concept ("GB Foods"), to offer the
Green Burrito as a second brand menu at selected Carl's Jr. locations. The
Company believes that Green Burrito's position in the popular Mexican food
segment and its dinner menu orientation complement the Carl's Jr. menu.
Customers of the Carl's Jr./Green Burrito dual-brand restaurants are able to
order items from both the Carl's Jr. menu board and the Green Burrito menu board
from the same counter and both menus are available to customers utilizing the
drive-thru. The Green Burrito menu offered at the dual-brand restaurants
features a broad range of traditional Mexican food items, including burritos,
tostadas, enchiladas, tacquitos and nachos. A variety of condiments such as
jalapeno peppers, hot sauce and mild and hot salsa are available at self-serve
salsa bars so that customers can spice and garnish their meals according to
individual taste. The Company believes that this dual-branding program has
attracted new customers while increasing the frequency of customer visits at
converted restaurants.
In order to convert an existing Carl's Jr. restaurant to a Carl's Jr./Green
Burrito restaurant, the additional equipment necessary to offer the Green
Burrito menu is added to the Carl's Jr. restaurant, as well as new menu boards
and new signage, both inside and outside, indicating the offering of both
brands. In most cases, changes to the seating area or other parts of the
physical structure of the restaurant are unnecessary.
The Company's agreement with GB Foods initially provided for the conversion
of 140 Carl's Jr. restaurants to Carl's Jr./Green Burrito dual-brand restaurants
by July 2000. The original agreement was modified in February 1997 to provide
for the conversion of a minimum of 60 restaurants per year to dual-brand
locations for each of the next four years. The Company is required to pay an
initial franchise fee for each store opened and remit royalties on Green Burrito
food sales to GB Foods. At the end of fiscal 1996, the Company elected to
sub-franchise, and recently began offering, the Carl's Jr./Green Burrito
dual-brand to its franchise community. There are currently five franchised
Carl's Jr. restaurants which have been converted to the Carl's Jr./Green Burrito
concept. The Company will receive a portion of the fee for each franchise
conversion and royalties from its franchisees' Green Burrito food sales.
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 Carl's Jr. restaurants.
Franchise arrangements with Carl's Jr. franchisees, who operate in Arizona,
California, Hawaii, Nevada, Oregon and Utah, generally provide for initial fees
and continuing royalty payments to the Company based upon a percentage of sales.
Additionally, most franchisees purchase food,
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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 and to pay related occupancy costs, which include maintenance,
insurance and property taxes. The Company also plans to continue to pursue
non-traditional franchise development opportunities through innovative formats,
including gasoline stations, convenience stores and institutional food service
outlets.
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. 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 May 19, 1997, 257 Carl's Jr. restaurants were operated by the
Company's franchisees and licensees. The majority of the Company's franchisees
own more than one restaurant, with 13 franchisees owning seven or more
restaurants. The Company presently anticipates that its franchisees and
licensees will open up to 15 new Carl's Jr. restaurants during fiscal 1998.
To expand the Carl's Jr. presence internationally, the Company entered into
nine exclusive licensing agreements that allow the Carl's Jr. licensees to use
the Carl's Jr. name and trademarks and provide for initial fees and continuing
royalties based upon a percent of sales. As of May 19, 1997, there were 29
licensed restaurants in operation, most of which are located in Mexico and the
Pacific Rim. Royalties from the Company's licensing agreements were not material
in fiscal 1997, 1996 or 1995.
TACO BUENO
The Company currently owns and operates 107 Taco Bueno quick-service
Mexican restaurants located in Texas and Oklahoma. The Taco Bueno restaurants
are operated by Casa Bonita, which was acquired by the Company in October 1996.
Taco Bueno seeks to differentiate itself from its principal competitors by
offering a diverse menu featuring generous portions of freshly prepared, high
quality food items. In addition to typical quick-service Mexican offerings, such
as burritos, tacos, tostadas and combination meals, Taco Bueno features a number
of signature menu items such as its Chicken Taco Salad and Mucho Burrito
Platter. Taco Bueno's Mexican platters include taco and burrito platters, beef
and chicken taco salads and nacho platters, each of which are accompanied by
rice, beans, freshly prepared guacamole and chips. The restaurants also feature
a salsa bar which includes sliced jalapenos, diced onions, pico de gallo, and
hot sauce.
Taco Bueno restaurants generally feature a "Santa Fe/Pueblo" architecture
and exterior decor, which is designed to increase visibility and consumer
recognition, and generally range in size from 2,400 square feet to 3,200 square
feet. Restaurant interiors include wooden tables and chairs, booth seating,
stucco walls, warm colors and a southwestern theme, all of which are intended to
create a distinctive atmosphere. The Company is also in the process of enhancing
the Taco Bueno brand image with new signage and menu boards and is considering a
more extensive remodeling program.
The Company's strategy with respect to its Taco Bueno concept is to
increase its market share and competitive presence in existing markets. The
Company believes that the growing popularity of Mexican food and the relatively
few national or regional Mexican quick-service restaurant chains provide a
significant opportunity to expand the Taco Bueno concept within its core markets
in the areas of Dallas/Ft. Worth, Tulsa and Oklahoma City and to enter into new
markets. The Company is evaluating opening additional Taco Bueno restaurants in
its existing markets during fiscal 1998. The Company may franchise the Taco
Bueno concept and is considering dual-branding certain of its Taco Bueno
restaurants with other quick-service restaurant concepts.
INVESTMENTS IN OTHER RESTAURANT CONCEPTS
The Company has selectively acquired or invested in other restaurant
concepts as follows:
Rally's. Rally's operates and franchises the Rally's Hamburgers double
drive-thru quick-service hamburger restaurant concept. As of March 30, 1997,
there were approximately 469 Rally's restaurants operating in 19 states,
primarily in the Midwest and the Sunbelt, of which 214 were owned and operated
by
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Rally's, 229 were operated by its franchisees and 26 were operated by the
Company. The Company and Rally's entered into an operating agreement, effective
in July 1996, pursuant to which Rally's retains ownership of the assets of such
restaurants and receives a percentage of the restaurants' sales.
The Company has invested $7.8 million in Rally's for an 18% interest in
Rally's outstanding shares, and has the right to acquire an additional 2%
interest. Since the time of the Company's initial investment in Rally's in April
1996, Rally's company-operated restaurant-level margins have improved to 24.1%
for the quarter ended March 31, 1997 from 15.2% for the quarter ended March 31,
1996.
Checkers. Checkers operates and franchises the Checkers Drive-In
Restaurants double drive-through quick-service hamburger restaurant concept. As
of March 24, 1997, there were 477 Checkers restaurants operating in 23 states,
of which 232 were operated by Checkers or its joint ventures and 245 were
operated by franchisees. The Company has invested $14.1 million in Checkers for
approximately 10% of Checkers' outstanding common shares, and has the right to
acquire shares of common stock representing an additional 12% of Checkers'
outstanding shares. The Company also holds $6.9 million aggregate principal
amount of Checkers' senior secured debt net of related discount.
On March 25, 1997, Rally's and Checkers agreed in principal to a merger
transaction, pursuant to which Rally's would be acquired by Checkers.
Consummation of the Rally's -- Checkers merger is subject to negotiation of
definitive agreements, the receipt of fairness opinions and stockholder and
other required approvals, as well as other customary conditions.
Summit. Summit, which was acquired by the Company in July 1996, operates
three restaurant concepts: JB's Restaurant, a family dining chain of 74
company-operated and 21 franchised restaurants; 16 HomeTown Buffet restaurants,
which are operated by Summit as a franchisee of HomeTown Buffet, Inc.; and six
Galaxy Diners, a "50's style" casual theme restaurant. Since the Summit
acquisition, the Company has determined that its principal focus is on the
quick-serve segment of the restaurant industry as opposed to the family-dining
segment in which Summit operates. As such, the Company is considering selling or
otherwise disposing of all or a portion of Summit. However, the Company has not
entered into any agreements providing for any such transaction and there can be
no assurance that the Company will be able to sell or otherwise dispose of such
assets for a financial gain, on favorable terms, in a timely manner or at all.
Since completing the acquisition of Summit, the Company has eliminated a
substantial portion of Summit's corporate staff, resulting in reduced general
and administrative expenses. In addition, the Company has closed five JB's
Restaurants. Summit's results of operations have not been material to the
Company's overall operating performance since the date of acquisition.
Boston Market. The Company continues to hold an interest in Boston West,
which acquired the Company's Boston Market restaurant assets and operations in
fiscal 1995 and is developing Boston Market stores in designated markets in
California under an area development agreement with Boston Chicken, Inc., the
franchisor of the Boston Market restaurant concept. As of May 19, 1997, Boston
West operated 97 Boston Market stores located in Southern California.
See Notes 2 and 6 of Notes to CKE's Consolidated Financial Statements.
PURCHASING AND DISTRIBUTION
CKE purchases most of the primary food products and packaging supplies used
in the Carl's Jr. restaurant system and warehouses and distributes such items to
both company-operated and franchised Carl's Jr. restaurants. Although not
required to do so, substantially all of CKE's Carl's Jr. franchisees purchase
most of their supplies from CKE. CKE is one of the few businesses in the
quick-service restaurant industry that has elected not to outsource all of its
distribution activities.
The Company relies on third party distributors for its Taco Bueno
restaurants and, pursuant to the anticipated terms of product supply and
distribution agreements expected to be entered into at the Closing with FFM, FFM
will provide exclusive supply and distribution services to Hardee's. See "The
Acquisition -- Supply and Distribution Agreements."
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The Company believes its mature procurement process allows it to
effectively manage food costs, provide adequate quantities of food and supplies
at competitive prices, and generate revenues from franchisees by adding a
nominal mark-up to cover direct costs and provide better overall service to its
restaurants. The Company seeks competitive bids from suppliers on many of its
food products, approves suppliers of those products and requires them to adhere
to product specifications established by the Company. Whenever possible, the
Company negotiates sole source contracts for particular products which tend to
produce deeper discounts. In addition to the Company's supply and distribution
agreements with FFM to be entered into at the Closing of the Acquisition, the
Company operates a distribution center at its corporate headquarters in Anaheim,
California and a smaller distribution facility in Manteca, California.
COMPETITION
The food service industry is intensely competitive with respect to the
quality and value of food products offered, concept, service, price, dining
experience and location. The Company primarily competes with major restaurant
chains, some of 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, health and nutrition-oriented
restaurants, delicatessens and prepared food stores, as well as supermarkets and
convenience stores. Many of the Company's competitors 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 at
discounted prices. In recent years, the Company's restaurant sales were
adversely affected by aggressive promotions and price reductions by its
competitors. Future changes in the pricing or other marketing strategies of one
or more of the Company's competitors could have a material adverse effect on the
Company's financial condition and results of operations. As the Company's
competitors expand operations, competition can be expected to intensify. Such
increased competition could have a material adverse effect on the Company's
financial condition and results of operations. The Company also faces
competition from other quick-service operators, retail chains, other companies
and developers for desirable site locations, which may adversely affect the
cost, implementation and timing of the Company's expansion plans.
TRADEMARKS AND SERVICE MARKS
The Company owns numerous trademarks and service marks. The Company has
registered many of those marks, including Carl's Jr., the Happy Star(R) logo,
and proprietary names for a number of the Carl's Jr. and Taco Bueno menu items,
with the United States Patent and Trademark Office. Upon the Acquisition, the
Company will also acquire the Hardee's trademark and logo and proprietary names
for a number of Hardee's menu items. The Company believes that its trademarks
and service marks have significant value and play an important role in its
marketing efforts. Green Burrito(R) is a registered trademark of GB Foods.
GOVERNMENT REGULATIONS
Each company-operated and franchised restaurant must comply with
regulations adopted by federal agencies and with licensing and other regulations
enforced by state and local health, sanitation, safety, fire and other
departments. In addition, these restaurants also must comply with federal and
state environmental regulations, but those regulations have not had a material
effect on the restaurants' operations. More stringent and varied requirements of
local governmental bodies with respect to zoning, land use, and environmental
factors can delay and sometimes prevent development of new restaurants and
remodeling of existing restaurants in particular locations.
The Company is also subject to federal laws and a substantial number of
state laws regulating the offer and sale of franchises. Such laws impose
registration and disclosure requirements on franchisors in the offer and sale of
franchises and may also apply substantive standards to the relationship between
franchisor and franchisee, including limitations on the ability of franchisors
to terminate franchisees and alter franchise arrangements. The Company believes
it is operating in substantial compliance with applicable laws and regulations
governing its operations.
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The Company and its franchisees must comply with the Fair Labor Standards
Act and various federal and state laws governing employment matters, such as
minimum wages, overtime and other working conditions and citizenship
requirements. Many of the Company's employees are paid hourly rates related to
the federal and state minimum wage laws and accordingly, increases in the
minimum wage increase the Company's labor cost. See "Risk Factors -- Government
Regulation."
EMPLOYEES
As of May 19, 1997, CKE employed approximately 20,000 persons, of whom
approximately 18,600 were hourly restaurant, distribution or clerical employees
and the remainder were 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. As of March 31, 1997, Hardee's employed approximately 28,800
persons, of whom approximately 25,800 were part-time employees. None of the
Company's employees is currently covered by a collective bargaining agreement.
The Company has never experienced a work stoppage attributable to labor disputes
and believes its employee relations are good.
PROPERTIES
Substantially all of the restaurants operated by CKE are located on
properties which are leased from others. In addition, CKE leases and subleases
certain properties to its franchisees. Hardee's owns the land and buildings
occupied by 368 of its company-operated restaurants and leases the premises for
the balance of its company-operated restaurants. The terms of the Company's
leases or subleases vary in length and currently average 10 years. 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.
CKE's corporate headquarters and primary distribution center, located in
Anaheim, California, are leased and contain approximately 78,000 and 102,000
square feet, respectively. Hardee's owns its corporate headquarters facility in
Rocky Mount, North Carolina.
LEGAL PROCEEDINGS
Flagstar, which is Hardee's largest franchisee, has asserted claims that
Hardee's has failed to satisfy certain contractual obligations under its license
agreements with Flagstar. Flagstar notified Hardee's on March 19, 1997 that
Flagstar is seeking to arbitrate certain claims against Hardee's. In its Demand
for Arbitration, Flagstar alleges that Hardee's has breached certain
contractual, fiduciary and statutory duties allegedly owed to Flagstar and
seeks, among other remedies, a declaration relieving Flagstar from its
obligations under the post-termination covenants against competition contained
in its license agreements. Hardee's has advised the Company that it believes
Flagstar's claims to be without merit and intends to vigorously defend them.
There can be no assurance that Hardee's will achieve a favorable outcome in such
arbitration proceeding or that the proceeding will not otherwise have a material
adverse effect on the Company. See Note 20 of Notes to Hardee's Combined Annual
Financial Statements.
The Company is also from time to time the subject of complaints or
litigation from customers 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 employees and franchisees
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 condition or results of operations, but
an existing or future lawsuit or claim could result in an adverse decision
against the Company that could have a material adverse effect on the Company's
financial condition and results of operations. See "Risk Factors -- Risks
Relating to Flagstar Arbitration" and "-- Litigation."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following description of certain existing and anticipated provisions of
certain indebtedness of the Company does not purport to be complete, and is
subject to, and is qualified in its entirety by reference to, the forms of such
instruments, copies of which may be obtained as described under "Available
Information."
NEW CREDIT FACILITY
It is expected that the New Credit Facility will consist of (i) the $150.0
million Term Loan Facility and (ii) the $150.0 million Revolving Credit
Facility. Principal repayments under the Term Loan Facility are expected to be
due in quarterly installments through the final maturity of the New Credit
Facility in July 2002, with required annual principal repayments of $20.0
million in the first year of the Term Loan Facility (increasing by $5.0 million
in each of the succeeding four years). The Company will be required to repay
borrowings under the Term Loan Facility with the proceeds from certain asset
sales and issuances of certain debt and equity securities. The Revolving Credit
Facility is expected to be available for working capital and other general
corporate purposes, including permitted acquisitions, and any outstanding
amounts thereunder will become due in July 2002. The New Credit Facility is
expected to become effective prior to or concurrently with the consummation of
this offering and the Acquisition. The Company anticipates that, on the date the
New Credit Facility becomes effective, the Current Credit Facility will be
terminated. See "The Acquisition -- Financing." It is expected that at the
Company's option, the interest rate per annum applicable to the New Credit
Facility will either be (i) Morgan Guaranty Trust Company's base rate, as
announced from time to time, or (ii) LIBOR plus a margin (1.375% initially), in
each case with margin adjustments dependent on the Company's total debt to
EBITDA ratio from time to time.
It is expected that borrowings and other obligations of the Company under
the New Credit Facility will be general unsubordinated obligations of the
Company and secured by a pledge of the capital stock of the Company's operating
subsidiaries, which will guarantee such obligations. The Company expects that
the New Credit Facility will contain a number of significant covenants that,
among other things, will (i) restrict the ability of the Company and its
subsidiaries to incur additional indebtedness and incur liens on their assets,
in each case subject to specified exceptions, (ii) impose specified financial
tests as a precondition to the Company's and its subsidiaries' acquisition of
other businesses and (iii) limit the Company and its subsidiaries from making
capital expenditures and certain restricted payments (including dividends and
repurchases of stock), subject in certain circumstances to specified financial
tests. In addition, the Company expects to be required to comply with specified
financial ratios and tests, including minimum EBITDA requirements, minimum
interest coverage and fixed charge coverage ratios, and maximum leverage ratios.
The Company expects that the New Credit Facility will contain customary
events of default, including a default triggered by a default in the payment of
other material outstanding indebtedness which permits the acceleration thereof,
and a change of control of the Company. It is expected that upon the occurrence
of an event of default, the lenders who are parties to the New Credit Facility
would be able to declare all borrowings under the New Credit Facility to be due
and payable. Upon the occurrence of an event of default triggered by certain
events of bankruptcy, insolvency or reorganization, such borrowings would
immediately become due and payable. It is also expected that upon such an
acceleration, the lenders would also be able to seek to liquidate the collateral
pledged as security for the New Credit Facility and enforce the related
subsidiary guarantees.
THE SUBORDINATED NOTE
Pursuant to the Stock Purchase Agreement, CKE may elect to pay a portion of
the Purchase Price equal to the difference between $150.0 million and the net
proceeds of this offering, but not more than $50.0 million, in the form of the
Subordinated Note. If the Subordinated Note is issued, CKE and Imasco Holdings
will enter into a Registration Rights Agreement, which will provide for the
registration of the Subordinated Note and the shares of Common Stock issuable
upon conversion thereof under the Securities Act within 90 days after the
Closing. The Subordinated Note will be issued pursuant to, and entitled to the
benefits of, an indenture (the "Indenture").
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<PAGE> 51
The Subordinated Note, if issued, will bear interest, payable
semi-annually, at a rate of approximately % per annum, will mature in July
2004 and will be convertible into shares of Common Stock at a conversion rate
which will be 122% of the average of the closing prices of the Common Stock on
the New York Stock Exchange for the 20-day period ending 10 days before the day
of Closing. The Subordinated Note will also be redeemable, in whole or in part,
at the option of the Company beginning two and one-half years after the Closing,
at a redemption price declining over time from a specified percentage of the
principal amount in the year 2000 to 100% of the principal amount in the year
2004 and thereafter, in each case plus accrued and unpaid interest to the
redemption date.
The Subordinated Note, if issued, will be a general unsecured obligation of
the Company subordinated in right of payment to all existing and future Senior
Debt (to be defined in the Indenture) of the Company, including borrowings under
the New Credit Facility. Upon a Change of Control (as defined in the Indenture),
the Company will be required to offer to repurchase the Subordinated Note at the
outstanding principal amount thereof, plus accrued and unpaid interest to the
date of repurchase. The Indenture will contain customary events of default,
including a cross-default provision triggered by the acceleration or nonpayment
of outstanding indebtedness in excess of a specified amount.
The Stock Purchase Agreement provides Imasco Holdings with a right to
designate one nominee approved by CKE for election to the Company's Board of
Directors if the principal amount of the Subordinated Note, if issued at the
Closing, exceeds $25.0 million.
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<PAGE> 52
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- ----------------------------------------------------------
<S> <C> <C>
William P. Foley II 52 Chairman of the Board, Chief Executive Officer and
Director
C. Thomas Thompson 47 President and Chief Operating Officer
Rory J. Murphy 49 Executive Vice President, Restaurant Operations
Carl A. Strunk 59 Executive Vice President, Chief Financial Officer
Andrew F. Puzder 46 Executive Vice President, General Counsel
Robert E. Wheaton 45 Executive Vice President
Loren C. Pannier 55 Senior Vice President, Investor Relations
Byron Allumbaugh 65 Director
Peter Churm 71 Director
Carl L. Karcher 48 Director
Carl N. Karcher 80 Chairman Emeritus and Director
Daniel D. (Ron) Lane 62 Vice Chairman of the Board and Director
W. Howard Lester 61 Director
Frank P. Willey 43 Director
</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,
President (until January 1995) and Chief Executive Officer of Fidelity, a
company engaged in title insurance and related services. Mr. Foley is also a
member of the Boards of Directors of Rally's, Checkers, DataWorks Corporation
and Micro General Corporation.
C. Thomas Thompson was appointed President and Chief Operating Officer in
October 1994. Mr. Thompson has been a franchisee of the Company since 1984, and
currently operates 15 Carl's Jr. Restaurants in the San Francisco Bay Area. Mr.
Thompson also currently serves as Vice Chairman and Chief Executive Officer of
Checkers. Mr. Thompson has more than 20 years of experience in the restaurant
industry. He previously held positions with Jack-in-the-Box and Pacific Fresh
Restaurants, a full-service restaurant chain in the Bay Area.
Rory J. Murphy was appointed Executive Vice President, Restaurant
Operations in June 1996, and had served as Senior Vice President, Restaurant
Operations from February 1993 until June 1996. Mr. Murphy has been employed by
the Company in various positions for 18 years.
Carl A. Strunk was appointed Executive Vice President, Chief Financial
Officer in February 1997. Mr. Strunk also serves as Executive Vice President,
Chief Financial Officer for Fidelity and has been with Fidelity since 1992. Mr.
Strunk previously served as President of Land Resources Corporation from 1986 to
1991. Mr. Strunk is a Certified Public Accountant and is also a member of the
Board of Directors of Micro General Corporation.
Andrew F. Puzder became Executive Vice President, General Counsel in
February 1997. Mr. Puzder also serves as Executive Vice President, General
Counsel for Fidelity. Mr. Puzder has been with Fidelity since January 1995. From
March 1994 to December 1994, he was a partner with the law firm of Stradling,
Yocca, Carlson & Rauth. Prior to that, he was a partner with the law firm of
Lewis, D'Amato, Brisbois & Bisgard, from September 1991 through March 1994, and
he was a partner of the Stolar Partnership from February 1984 through September
1991.
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
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<PAGE> 53
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.
Loren C. Pannier was appointed Senior Vice President, Investor Relations in
September 1996 and served as Senior Vice President, Purchasing/Distribution from
January 1996 to September 1996. Mr. Pannier also served as Chief Financial
Officer of the Company from 1980 to May 1995. Mr. Pannier has been a Senior Vice
President since 1980, and he has been employed by the Company for 25 years.
Byron Allumbaugh was elected as a director of CKE in December 1996. Mr.
Allumbaugh retired as Chairman of the Board of Ralphs Grocery Store on January
31, 1997, where he held numerous management positions from 1958, serving as
Chairman of the Board and Chief Executive Officer from 1976 to 1995, and
Chairman of the Board from 1995 until his retirement. Currently a self-employed
business consultant, Mr. Allumbaugh is also a member of the Boards of Directors
of H. F. Ahmanson and Company, Automobile Club of Southern California, El Paso
Energy Company, and Ultramar Diamond Shamrock Incorporated.
Peter Churm was elected as a director of CKE in June 1979. Mr. Churm was
Chairman of the Board of Furon Company, a publicly held diversified
manufacturing company, from May 1980 through February 1992 and was President of
that company for more than 16 years. Since February 1992, he has been Chairman
Emeritus and a member of the Board of Directors of Furon Company. Mr. Churm is
also a member of the Board of Directors of Diedrichs Coffee, Inc.
Carl L. Karcher is the President of CLK, Inc., a franchisee of CKE. Mr.
Karcher has been a franchisee of CKE since May 1985. For more than 17 years
prior to that time, Mr. Karcher was employed by CKE in several capacities,
including Vice President, Manufacturing and Distribution. Mr. Karcher first
became a director in May 1992. Carl L. Karcher is Carl N. Karcher's son.
Carl N. Karcher, the Company's founder, purchased his first hot dog stand
on July 17, 1941 and has been developing CKE's concepts since that time. He
first became a director of CKE in 1966 and has served as Chairman Emeritus since
January 1994. He was Chairman of the Board of CKE until October 1993, and served
as Chief Executive Officer until December 1992. Prior to 1980, he was President
of CKE. Carl N. Karcher is Carl L. Karcher's father.
Daniel D. (Ron) Lane was elected as a director of CKE in December 1993 and
became Vice Chairman of the Board of CKE in October 1994. Since February 1983,
he has been a principal, Chairman and Chief Executive Officer of Lane/Kuhn
Pacific, Inc., a real estate development company. Mr. Lane is a director of
Fidelity National Financial, Inc., and also serves as a director of Resort
Income Investors, Inc.
W. Howard Lester was elected as a director of CKE in January 1996. Mr.
Lester became Chief Executive Officer of San Francisco based Williams-Sonoma,
Inc., a retailer of kitchen and cooking supplies and equipment, in 1978 and
Chairman of its Board in 1986. Mr. Lester also serves as a director of The Good
Guys, Inc., Harold's Stores, Inc. and Il Fornaio America Corp.
Frank P. Willey became President of Fidelity National Financial, Inc. in
January 1995 and has been a director and Executive Vice President of Fidelity
National Financial, Inc. since February 1984, and was General Counsel of
Fidelity National Financial, Inc. from 1984 to January 1995. Mr. Willey also
serves on the Boards of Directors of Southern Pacific Funding Corporation and
Ugly Duckling Holdings, Inc.
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<PAGE> 54
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
Non-U.S. Holder. For this purpose, a "Non-U.S. Holder" is any person who is, for
United States federal income tax purposes, a foreign corporation, a non-resident
alien individual, a foreign partnership or a foreign estate or trust. This
discussion does not address all aspects of U.S. federal income and estate taxes
and does not deal with foreign, state and local consequences that may be
relevant to such Non-U.S. Holders in light of their personal circumstances.
Furthermore, this discussion is based on provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), existing and proposed regulations promulgated
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change. EACH PROSPECTIVE PURCHASER OF
COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO CURRENT AND
POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF COMMON
STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY U.S.
STATE, MUNICIPALITY OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Common Stock generally will be
subject to withholding of U.S. federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty. However, dividends
that are effectively connected with the conduct of a trade or business by the
Non-U.S. Holder within the United States are not subject to the withholding tax,
but instead are subject to U.S. federal income tax on a net income basis at
applicable graduated individual or corporate rates. Any such effectively
connected dividends received by a foreign corporation may, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.
Under current law, dividends paid to an address outside the United States
are presumed to be paid to a resident of such country (unless the payor has
knowledge to the contrary) for purposes of the withholding tax discussed above
and, under the current interpretation of United States Treasury regulations, for
purposes of determining the applicability of a tax treaty rate. Under proposed
United States Treasury regulations not currently in effect, a Non-U.S. Holder of
Common Stock who wishes to claim the benefit of an applicable treaty rate (and
avoid back-up withholding as discussed below) would be required to satisfy
applicable certification and other requirements. Currently, certain
certification and disclosure requirements must be complied with in order to be
exempt from withholding under the effectively connected income exemption
discussed above.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of U.S.
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale or other disposition of Common Stock
unless (i) the gain is effectively connected with a trade or business of the
Non-U.S. Holder in the United States, (ii) in the case of a Non-U.S. Holder who
is an individual and holds the Common Stock as a capital asset, such holder is
present in the United States for 183 or more days in the taxable year of the
sale or other disposition and certain other conditions are met, or (iii) the
Company is or has been a "U.S. real property holding corporation" for U.S.
federal income tax purposes.
The Company has not determined whether it is a "U.S. real property holding
corporation" for federal income tax purposes. If the Company is or becomes a
U.S. real property holding corporation, so long as the Common Stock continues to
be regularly traded on an established securities market, only a Non-U.S. Holder
who holds or held (at any time during the shorter of the five year period
preceding the date of disposition or the holder's holding period) more than five
percent of the Common Stock will be subject to U.S. federal income tax on the
disposition of the Common Stock.
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<PAGE> 55
An individual Non-U.S. Holder described in clause (i) above will be taxed
on the net gain derived from the sale under regular graduated U.S. federal
income tax rates. An individual Non-U.S. Holder described in clause (ii) above
will be subject to a flat 30% tax on the gain derived from the sale, which may
be offset by U.S. capital losses (notwithstanding the fact that the individual
is not considered a resident of the United States). If a Non-U.S. Holder that is
a foreign corporation falls under clause (i) above, it will be taxed on its gain
under regular graduated U.S. federal income tax rates and, in addition, may be
subject to the branch profits tax equal to 30% of its effectively connected
earnings and profits within the meaning of the Code for the taxable year, as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable income tax treaty.
FEDERAL ESTATE TAX
Common Stock held by an individual Non-U.S. Holder at the time of death
will be included in such holder's gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
Under current law, backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the U.S. information reporting requirements) generally
will not apply to dividends paid to a Non-U.S. Holder at an address outside the
United States (unless the payer has knowledge that the payee is a U.S. person).
Under proposed United States Treasury regulations not currently in effect,
however, a Non-U.S. Holder will be subject to back-up withholding unless
applicable certification requirements are met.
Payment of the proceeds of a sale of Common Stock by or through a U.S.
office of a broker is subject to backup withholding and information reporting
unless the beneficial owner certifies under penalties of perjury that it is a
Non-U.S. Holder, or otherwise establishes an exemption. In general, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Stock by or through a foreign office of a broker.
If, however, such broker is, for U.S. federal income tax purposes, a U.S.
person, a controlled foreign corporation, or a foreign person that derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States, such payments will be subject to information
reporting, but not backup withholding, unless (i) such broker has documentary
evidence in its records that the beneficial owner is a Non-U.S. Holder and
certain other conditions are met, or (ii) the beneficial owner otherwise
establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
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<PAGE> 56
UNDERWRITING
Subject to the terms and conditions contained in a purchase agreement (the
"U.S. Purchase Agreement"), the Company has agreed to sell to the U.S.
Underwriters named below (the "U.S. Underwriters"), and the U.S. Underwriters,
for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Alex. Brown & Sons
Incorporated, Morgan Stanley & Co. Incorporated, Equitable Securities
Corporation and Robertson, Stephens & Company LLC are acting as representatives
(the "U.S. Representatives"), have severally agreed to purchase, the number of
shares of Common Stock set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................
Alex. Brown & Sons Incorporated...........................
Morgan Stanley & Co. Incorporated.........................
Equitable Securities Corporation..........................
Robertson, Stephens & Company LLC.........................
---------
Total........................................ 5,800,000
=========
</TABLE>
The Company has also entered into a purchase agreement (the "International
Purchase Agreement" and, together with the U.S. Purchase Agreement, the
"Agreements") with certain underwriters outside the United States and Canada
(the "International Managers"), for whom Merrill Lynch International, Alex.
Brown & Sons Incorporated, Morgan Stanley & Co. International Limited, Equitable
Securities Corporation and Robertson, Stephens & Company LLC are acting as lead
managers (the "International Representatives"). Subject to the terms and
conditions set forth in the International Purchase Agreement, the Company has
agreed to sell to the International Managers, and the International Mangers have
severally agreed to purchase, an aggregate of 1,450,000 shares of Common Stock.
The initial public offering price per share and the underwriting discount per
share are identical under the U.S. Purchase Agreement and the International
Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers
(collectively, the "Underwriters"), respectively, have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of Common
Stock being sold pursuant to such Agreement if any of the shares of Common Stock
being sold pursuant to such Agreement are purchased. The U.S. Purchase Agreement
provides that in the event of a default by a U.S. Underwriter, the purchase
commitments of the non-defaulting U.S. Underwriters may in certain circumstances
be increased, and the International Purchase Agreement provides that, in the
event of a default by an International Manager, the purchase commitments of the
non-defaulting International Managers may in certain circumstances be increased.
The closing with respect to the sale of the shares of Common Stock pursuant to
the U.S. Purchase Agreement is a condition to the closing with respect to the
sale of the shares of Common Stock pursuant to the International Purchase
Agreement, and the closing with respect to the sale of the shares of Common
Stock pursuant to the International Purchase Agreement is a condition to the
closing with respect to the sale of the shares of Common Stock pursuant to the
U.S. Purchase Agreement. In addition, the closing with respect to the sale of
the shares of Common Stock pursuant to both of the Agreements is contingent upon
the effectiveness of the New Credit Facility and the concurrent consummation of
the Acquisition. See "The Acquisition."
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") which provides for the
coordination of their activities. Under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and the International Managers are permitted to
sell shares of Common Stock to each other. Pursuant to the Intersyndicate
Agreement, sales may be made
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<PAGE> 57
between the International Managers and the U.S. Underwriters of such number of
shares of Common Stock as may be mutually agreed. The price of any shares of
Common Stock so sold shall be the initial public offering price, less an amount
not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and
any dealer to whom they sell shares of Common Stock will agree to offer to sell
or sell shares of Common Stock only to persons whom they believe are United
States Persons or Canadian Persons (as defined in the Intersyndicate Agreement)
or to persons whom they believe intend to reoffer or resell the same to United
States Persons or Canadian Persons, and the International Managers and any bank,
broker or dealer to whom they sell shares of Common Stock will agree not to
offer to sell or sell shares of Common Stock to persons whom they believe to be
United States Persons or Canadian Persons or to persons whom they believe intend
to reoffer or resell the same to United States Persons or Canadian Persons,
except in each case for transactions pursuant to the Intersyndicate Agreement
which, among other things, permits the Underwriters to purchase from each other
and offer for resale such number of shares of Common Stock as the selling
Underwriter or Underwriters and the purchasing Underwriter or Underwriters may
agree.
The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the shares of Common Stock offered
hereby to the public at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share. The U.S. Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the offering contemplated hereby, the public
offering price concession and discount may be changed.
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days after the date hereof, to purchase up to 870,000 additional shares of
Common Stock and to the International Managers an option, exercisable for 30
days after the date hereof, to purchase up to 217,500 additional shares of
Common Stock, in each case solely to cover over-allotments, if any, at the
initial public offering price less the underwriting discount. To the extent that
the U.S. Underwriters exercise such option, each of the U.S. Underwriters will
be obligated, subject to certain conditions, to purchase approximately the same
percentage of such shares which the number of shares of Common Stock to be
purchased by it shown in the foregoing table bears to the total number of shares
of Common Stock set forth in such table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act.
The Company has agreed that it will not, with certain exceptions, offer,
sell or otherwise dispose of any shares of Common Stock for a period of 90 days
from the date of this Prospectus without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated. This prohibition will not affect
shares of Common Stock issued by the Company pursuant to employee or director
benefit plans, any dividend reinvestment plan or the conversion or exercise of
securities convertible or exercisable for Common Stock. Each of the Company's
directors and executive officers has agreed that, for a period of 90 days from
the date of this Prospectus, he will not, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, offer, sell or otherwise
voluntarily dispose of any shares of Common Stock or any securities convertible
into or exercisable for Common Stock. In addition, Imasco Holdings has agreed
with the Company that it will not sell or otherwise dispose of the Subordinated
Note, if issued in connection with the Acquisition, or any shares of Common
Stock issuable upon conversion thereof for a period of 90 days from the
consummation of the Acquisition, and the Company has agreed that it will not
waive or modify such agreement without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the U.S. Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock.
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<PAGE> 58
If the Underwriters create a short position in the Common Stock in
connection with the offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the U.S.
Representatives may reduce that short position by purchasing Common Stock in the
open market. The U.S. Representatives may also elect to reduce any short
position through the exercise of all or part of the over-allotment options
described above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce the
Underwriters' short position or to stabilize the price of the Common Stock, they
may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the U.S.
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, Newport Beach, California. Certain legal matters in connection with
the offering will be passed upon for the Underwriters by Brown & Wood LLP, San
Francisco, California.
EXPERTS
The consolidated financial statements of CKE Restaurants, Inc. and its
subsidiaries as of January 31, 1996 and 1997, and for each of the years in the
three-year period ended January 31, 1997, have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere or incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The combined financial statements of Hardee's Food Systems, Inc. as of
December 31, 1995 and 1996, and for each of the years in the three-year period
ended December 31, 1996 included in this Prospectus have been audited by
Deloitte and Touche LLP, independent auditors, as stated in their report
appearing herein and are included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The consolidated financial statements of Summit Family Restaurants Inc. and
its subsidiaries as of September 26, 1994 and September 25, 1995, and for each
of the years in the three-year period ended September 25, 1995, have been
incorporated by reference herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Casa Bonita Incorporated and its
subsidiaries as of April 3, 1995 and April 1, 1996, and for each of the years in
the two-year period ended April 1, 1996, have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
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<PAGE> 59
AVAILABLE INFORMATION
CKE is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy and
information statements and other information filed by CKE can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
the following regional offices of the Commission: New York Regional Office,
Seven World Trade Center, 13th Floor, New York, New York 10048; and Chicago
Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, IL 60661-2511. Copies of such material can also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed rates. The Commission
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, such as CKE,
that file electronically with the Commission. Copies of such reports, proxy and
information statements and other information concerning CKE can also be
inspected at the offices of the New York Stock Exchange at 20 Broad Street, New
York, New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended. This Prospectus omits certain of the
information contained in the Registration Statement in accordance with the rules
and regulations of the Commission. Reference is hereby made to the Registration
Statement for further information with respect to the Company and the securities
offered hereby. Copies of the Registration Statement are on file at the offices
of the Commission and may be obtained upon payment of the prescribed fee or may
be examined without charge at the public reference facilities of the Commission
described above.
No action has been or will be taken in any jurisdiction by the Company or
by any Underwriter that would permit the public offering of the Common Stock or
the possession or distribution of this Prospectus in any jurisdiction where
action for that purpose is required, other than in the United States. Persons
into whose possession this Prospectus comes are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Common Stock and the distribution of this Prospectus.
57
<PAGE> 60
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference: (i) CKE's
Annual Report on Form 10-K for the fiscal year ended January 31, 1997; (ii)
CKE's Quarterly Report on Form 10-Q for the 16-week period ended May 19, 1997;
(iii) CKE's Current Reports on Form 8-K dated April 27, 1997, October 1, 1996
and July 15, 1996; and (iv) the description of the Company's Common Stock
contained in the Company's Registration Statement on Form 8-A dated April 6,
1994, including any amendment or report filed for the purpose of updating such
description.
All documents filed by CKE pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the Offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the respective dates of filing such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein, or
in an amendment or supplement hereto, or in any subsequently filed document
which also is or is deemed to be incorporated herein by reference, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide, without charge, to each person to whom a
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents referred to above that have been
incorporated in this Prospectus by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
the documents that are incorporated herein). Requests for such copies should be
directed to General Counsel, CKE Restaurants, Inc., 1200 North Harbor Boulevard,
Anaheim, California 92801, telephone (714) 774-5796.
58
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CKE RESTAURANTS, INC.
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets as of January 31, 1996 and 1997......................... F-3
Consolidated Statements of Income for each of the fiscal years in the three-year
period ended January 31, 1997.................................................... F-4
Consolidated Statements of Stockholders' Equity for each of the fiscal years in the
three-year period ended January 31, 1997......................................... F-5
Consolidated Statements of Cash Flows for each of the fiscal years in the three-year
period ended January 31, 1997.................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Consolidated Balance Sheets as of January 31, 1997 and May 19, 1997 (unaudited)..... F-25
Consolidated Statements of Income for the sixteen weeks ended May 20, 1996 and
May 19, 1997 (unaudited)......................................................... F-26
Consolidated Statements of Cash Flows for the sixteen weeks ended May 20, 1996 and
May 19, 1997 (unaudited)......................................................... F-27
Notes to Consolidated Financial Statements (unaudited).............................. F-28
HARDEE'S FOOD SYSTEMS, INC.
Independent Auditors' Report........................................................ F-29
Combined Balance Sheets as of December 31, 1995 and 1996............................ F-30
Combined Statements of Operations for each of the years in the three-year period
ended December 31, 1996.......................................................... F-31
Combined Statements of Shareholder's Equity for each of the years in the three-year
period ended December 31, 1996................................................... F-32
Combined Statements of Cash Flows for each of the years in the three-year period
ended December 31, 1996.......................................................... F-33
Notes to Combined Financial Statements.............................................. F-35
Combined Balance Sheets as of December 31, 1996 and March 31, 1997 (unaudited)...... F-48
Combined Statements of Operations for the three months ended March 31, 1996 and
March 31, 1997 (unaudited)....................................................... F-49
Combined Statements of Shareholder's Equity for the year ended December 31, 1996 and
the three months ended March 31, 1997 (unaudited)................................ F-50
Combined Statements of Cash Flows for the three months ended March 31, 1996 and
March 31, 1997 (unaudited)....................................................... F-51
Notes to Combined Financial Statements (unaudited).................................. F-52
</TABLE>
F-1
<PAGE> 62
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 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 subsidiaries as of January 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 31, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Orange County, California
March 17, 1997
F-2
<PAGE> 63
CKE RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1996 1997
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 23,429 $ 39,782
Marketable securities................................................ 2,510 --
Accounts receivable.................................................. 7,295 7,942
Related party receivables............................................ 977 2,088
Inventories.......................................................... 6,132 9,223
Deferred income taxes, net........................................... 10,056 7,214
Other current assets and prepaid expenses............................ 5,656 6,608
-------- --------
Total current assets......................................... 56,055 72,857
Property and equipment, net............................................ 119,128 205,805
Property under capital leases, net..................................... 28,399 37,115
Long-term investments.................................................. 19,814 33,218
Notes receivable....................................................... 7,801 6,210
Related party receivables.............................................. 969 9,325
Other assets........................................................... 14,593 36,687
-------- --------
$246,759 $401,217
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................... $ 8,575 $ 735
Current portion of capital lease obligations......................... 3,745 4,766
Accounts payable..................................................... 15,824 33,930
Other current liabilities............................................ 31,756 44,463
-------- --------
Total current liabilities.................................... 59,900 83,894
-------- --------
Long-term debt......................................................... 30,321 33,770
Capital lease obligations.............................................. 40,233 48,141
Other long-term liabilities............................................ 15,116 20,608
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 28,800,211 shares and 33,218,751 shares........... 288 332
Additional paid-in capital........................................... 38,617 126,279
Retained earnings.................................................... 67,393 88,193
Treasury stock, at cost; 1,005,450 shares and -0- shares............. (5,109) --
-------- --------
Total stockholders' equity................................... 101,189 214,804
-------- --------
$246,759 $401,217
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 64
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
----------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues:
Company-operated restaurants:
Carl's Jr............................................. $364,278 $389,214 $443,304
Taco Bueno............................................ -- -- 22,146
JB's Restaurants...................................... -- -- 33,517
HomeTown Buffet....................................... -- -- 20,590
Other................................................. 5,767 4,272 17,251
-------- -------- --------
370,045 393,486 536,808
-------- -------- --------
Franchised and licensed restaurants:
Carl's Jr............................................. 73,702 71,951 76,491
JB's Restaurants...................................... -- -- 781
-------- -------- --------
73,702 71,951 77,272
-------- -------- --------
Total revenues................................... 443,747 465,437 614,080
-------- -------- --------
Operating costs and expenses:
Restaurant operations:
Food and packaging.................................... 111,985 121,029 167,625
Payroll and other employee benefits................... 112,177 109,942 149,846
Occupancy and other operating expenses................ 82,172 82,095 112,689
-------- -------- --------
306,334 313,066 430,160
Franchised and licensed restaurants...................... 69,871 68,839 71,986
Advertising expenses..................................... 20,148 19,940 28,291
General and administrative expenses...................... 38,792 37,857 41,643
-------- -------- --------
Total operating costs and expenses............... 435,145 439,702 572,080
-------- -------- --------
Operating income........................................... 8,602 25,735 42,000
Interest expense........................................... (9,202) (10,004) (9,877)
Other income, net.......................................... 2,998 2,222 4,587
-------- -------- --------
Income before income taxes................................. 2,398 17,953 36,710
Income tax expense......................................... 1,134 7,001 14,408
-------- -------- --------
Net income................................................. $ 1,264 $ 10,952 $ 22,302
======== ======== ========
Net income per common and common equivalent share.......... $ 0.05 $ 0.39 $ 0.73
======== ======== ========
Common and common equivalent shares used in computing per
share amounts............................................ 28,076 28,019 30,414
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 65
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,
1994.................... 28,016 $280 -- $ -- $ 33,648 $58,148 $ 92,076
Cash dividends ($.05 per
share)............... -- -- -- -- -- (1,499) (1,499)
Exercise of stock
options.............. 251 3 -- -- 1,096 -- 1,099
Tax benefit associated
with exercise of
stock options........ -- -- -- -- 280 -- 280
Purchase of treasury
stock................ -- -- 885 (4,558) -- -- (4,558)
Net unrealized loss on
investment
securities........... -- -- -- -- -- (188) (188)
Net income.............. -- -- -- -- -- 1,264 1,264
------ ---- ------ ------- -------- ------- --------
BALANCE AT JANUARY 31,
1995.................... 28,267 283 885 (4,558) 35,024 57,725 88,474
Cash dividends ($.05 per
share)............... -- -- -- -- -- (1,460) (1,460)
Exercise of stock
options.............. 533 5 -- -- 2,745 -- 2,750
Tax benefit associated
with exercise of
stock options........ -- -- -- -- 848 -- 848
Purchase of treasury
stock................ -- -- 120 (551) -- -- (551)
Net unrealized gain on
investment
securities........... -- -- -- -- -- 176 176
Net income.............. -- -- -- -- -- 10,952 10,952
------ ---- ------ ------- -------- ------- --------
BALANCE AT JANUARY 31,
1996.................... 28,800 288 1,005 (5,109) 38,617 67,393 101,189
Cash dividends ($.05 per
share)............... -- -- -- -- -- (1,502) (1,502)
Exercise of stock
options.............. 360 4 -- -- 2,226 -- 2,230
Purchase of Summit...... 752 7 -- -- 11,404 -- 11,411
Common stock offering,
net.................. 4,312 43 -- -- 77,572 -- 77,615
Retirement of treasury
stock................ (1,005) (10) (1,005) 5,109 (5,099) -- --
Tax benefit associated
with exercise of
stock options........ -- -- -- -- 1,559 -- 1,559
Net income.............. -- -- -- -- -- 22,302 22,302
------ ---- ------ ------- -------- ------- --------
BALANCE AT JANUARY 31,
1997.................... 33,219 $332 -- $ -- $126,279 $88,193 $214,804
====== ==== ====== ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 66
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------
1995 1996 1997
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income................................................... $ 1,264 $ 10,952 $ 22,302
Adjustments to reconcile net income to net cash provided by
operating activities, excluding the effect of
acquisitions:
Noncash franchise (income) expense........................ 170 209 (146)
Depreciation and amortization............................. 22,755 21,372 27,056
Loss on sale of property and equipment and capital
leases.................................................. 2,118 1,828 1,520
Reversal of rent subsidy reserves......................... (2,680) -- --
Income (loss) from long-term investments.................. -- 1,898 (140)
Net noncash investment and dividend income................ (25) (851) (1,117)
Deferred income taxes..................................... 3,434 4,211 6,380
Write-down of long-lived assets........................... -- -- 1,250
Settlement of notes receivable............................ -- (1,292) --
Net change in receivables, inventories and other current
assets.................................................. (4,329) (1,757) (5,204)
Net change in other assets................................ (1,119) (463) (528)
Net change in accounts payable and other current
liabilities............................................. (133) 1,672 11,834
--------- -------- --------
Net cash provided by operating activities............ 21,455 37,779 63,207
--------- -------- --------
Cash flows from investing activities:
Purchases of:
Marketable securities..................................... (3,549) (921) (760)
Property and equipment.................................... (40,010) (27,148) (47,906)
Long-term investments..................................... -- (1,670) (7,855)
Proceeds from sale of:
Marketable securities and long-term investments........... 15,994 1,972 5,418
Property and equipment.................................... 110 905 7,816
Increases in notes receivable and related party
receivables............................................... (1,985) (2,640) (14,020)
Collections on and sale of notes receivable, related party
receivables and leases receivable......................... 2,441 9,900 3,840
Acquisitions, net of cash acquired........................... -- -- (61,453)
--------- -------- --------
Net cash used in investing activities................ (26,999) (19,602) (114,920)
--------- -------- --------
Cash flows from financing activities:
Net proceeds from common stock offering...................... -- -- 77,614
Net change in bank overdraft................................. 10,203 (11,477) 8,355
Short-term borrowings........................................ 32,806 57,060 1,200
Repayments of short-term debt................................ (13,981) (57,060) (1,200)
Long-term borrowings......................................... -- 14,573 76,808
Repayments of long-term debt................................. (14,771) (11,149) (86,274)
Repayments of capital lease obligations...................... (2,878) (3,129) (3,814)
Net change in other long-term liabilities.................... (3,076) (327) (6,910)
Purchase of treasury stock................................... (4,558) (551) --
Payment of dividends......................................... (1,499) (1,460) (1,502)
Exercise of stock options.................................... 1,099 2,750 2,230
Tax benefit associated with the exercise of stock options.... 280 848 1,559
--------- -------- --------
Net cash provided by (used in) financing
activities......................................... 3,625 (9,922) 68,066
--------- -------- --------
Net increase (decrease) in cash and cash equivalents......... $ (1,919) $ 8,255 $ 16,353
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 67
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.
DESCRIPTION OF BUSINESS
CKE Restaurants, Inc. ("CKE" and collectively with its subsidiaries, the
"Company") owns, operates, franchises and licenses the Carl's Jr. quick-service
restaurant concept. As of January 31, 1997, the Carl's Jr. system included 673
restaurants, of which 415 were operated by the Company and 258 were operated by
the Company's franchisees and licensees. The Carl's Jr. restaurants are located
in the western United States, predominantly in California, and in Mexico and the
Pacific Rim. Primarily as a result of acquisitions which occurred in fiscal
1997, the Company also operates and franchises a total of 257 other restaurants,
including 107 Taco Bueno quick-service Mexican food restaurants located in Texas
and Oklahoma.
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 the Company, a Delaware corporation organized
during fiscal 1995. In fiscal 1997, the Company made two restaurant
acquisitions. Summit Family Restaurants Inc. ("Summit") was acquired in July
1996 and Casa Bonita Incorporated ("Casa Bonita") was acquired in October 1996
(see Note 2). Both Summit and Casa Bonita are wholly-owned subsidiaries of the
Company.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions are
eliminated. The Company's fiscal year is 52 or 53 weeks, ending the last Monday
in January each year. Fiscal years 1995, 1996 and 1997 each included 52 weeks of
operations. For clarity of presentation, the Company has described all years
presented as if the fiscal year ended January 31.
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, and consist primarily of restaurant food items and paper supplies.
PRE-OPENING COSTS
The Company capitalizes certain costs incurred in conjunction with the
opening of new restaurants. These costs are amortized on a straight-line basis
over a one-year period from the date of opening.
DEFERRED FINANCING COSTS
Costs related to the issuance of debt are deferred and amortized on a
straight-line basis as a component of interest expense over the terms of the
respective debt issues.
INVESTMENT IN JOINT VENTURES
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 another joint venture agreement, in which the Company owns 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
F-7
<PAGE> 68
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
joint venture agreements, which are accounted for by the equity method, are not
considered material to the Company's consolidated financial statements.
RESTAURANT OPERATING AGREEMENT
The Company and Rally's Hamburgers, Inc. ("Rally's") entered into an
operating agreement, effective in July 1996, whereby the Company began operating
28 Rally's-owned restaurants located in California and Arizona. Rally's retains
ownership of the restaurants' assets and receives a percentage of the
restaurants' sales. One of the Rally's restaurants operated by the Company has
been converted into a Carl's Jr. "Jr." restaurant, which offers a limited Carl's
Jr. menu in a double drive-thru and walk-up service format. The Company is
considering the conversion of more of these Rally's restaurants to Carl's Jr.
"Jr." restaurants. The Company's results of operations include the revenue and
expenses of these 28 restaurants from July 2, 1996.
PROPERTY AND EQUIPMENT
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 forty years.
Leasehold improvements are amortized on a straight-line basis over the lesser of
the estimated useful lives of the assets or the related lease terms.
IMPAIRMENT OF LONG-LIVED ASSETS
In fiscal 1997 the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires the
assessment of certain long-lived assets for possible impairment when events or
circumstances indicate their carrying amounts may not be recoverable. 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 Company adopted SFAS 121 in the first quarter of fiscal 1997 and
recorded a $1.3 million noncash pretax charge, equivalent to $0.03 per share, to
restaurant operations to adjust the carrying value of those assets identified as
impaired.
The cost in excess of net assets acquired is amortized on a straight-line
basis, principally over 40 years. The Company periodically reviews the cost in
excess of net assets acquired in accordance with SFAS 121. Accumulated
amortization of cost in excess of net assets acquired was $1.7 million and $2.6
million at January 31, 1996 and 1997, respectively.
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 using the asset and liability method
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
F-8
<PAGE> 69
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
SHARE AND PER SHARE RESTATEMENT
On December 19, 1996, the Company declared a three-for-two stock split,
payable in the form of a stock dividend, to shareholders of record on January 2,
1997, distributed on January 22, 1997.
All data with respect to earnings per share, dividends per share and share
information, including price per share where applicable, in the consolidated
financial statements and notes to consolidated financial statements have been
retroactively adjusted to reflect the stock split.
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 consolidated financial
statements have been reclassified to conform with the fiscal 1997 presentation.
NOTE 2 -- ACQUISITIONS
On July 15, 1996, the Company acquired Summit, which was accounted for as a
purchase. Summit has restaurant operations in nine western states, including 73
Company-operated and 22 franchised JB's Restaurants, 16 HomeTown Buffet
restaurants and six Galaxy Diner restaurants. In connection with the
acquisition, each of the 4,809,446 outstanding shares of Summit common stock was
converted into the right to receive 0.15645 shares of the Company's common stock
(and cash in lieu of fractional shares) and cash in the amount of $2.63.
Accordingly, the aggregate number of shares of common stock of the Company
issued in the acquisition was 752,082. The source of funds for the cash portion
of the consideration was cash on hand and borrowings under the Company's then
existing revolving credit facility.
On October 1, 1996, the Company acquired Casa Bonita. Casa Bonita operates
107 Taco Bueno restaurants located in Texas and Oklahoma in addition to two Casa
Bonita Restaurants and three Crystal's Pizza and Spaghetti Restaurants. All
three of the Crystals were closed subsequent to the fiscal year end. The
acquisition was completed by CBI Restaurants, Inc. ("CBI"), a newly-formed
corporation in which the Company originally held an 80% equity interest. CBI
paid $42.0 million in cash, which was financed by short-term loans of $9.0
million from the Company, $8.0 million from Fidelity National Financial, Inc.
("Fidelity"), and $5.0 million from Giant Group, Ltd. ("Giant"). The balance of
the purchase price, $20.0 million, was financed through the Company's investment
of $16.0 million in cash for an 80% equity interest in CBI and Fidelity's
investment of $4.0 million in cash for the remaining 20% equity interest in CBI.
The Company's investment in CBI was funded out of borrowings under the Company's
revolving acquisition facility. The acquisition of CBI was accounted for as a
purchase. On December 3, 1996, the Company purchased Fidelity's 20% equity
interest in CBI for $4.5 million, giving the Company 100.0% ownership of CBI and
Casa Bonita. CBI also repaid the short-term loans of $8.0 million to Fidelity
and $5.0 million to Giant. The purchase of Fidelity's equity interest and the
repayment of short-term loans was provided by the net proceeds of the Company's
common stock offering (see Note 11).
F-9
<PAGE> 70
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The assets acquired, including the cost in excess of net assets acquired,
and liabilities assumed in the acquisitions of Summit and Casa Bonita are as
follows:
<TABLE>
<CAPTION>
SUMMIT CASA BONITA
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tangible assets acquired at fair value........................ $ 59,772 $40,672
Costs in excess of net assets acquired........................ -- 9,860
Liabilities assumed at fair value............................. (30,716) (8,532)
-------- -------
Total purchase price..................................... $ 29,056 $42,000
======== =======
</TABLE>
Selected unaudited pro forma combined results of operations for the years
ended January 31, 1996 and 1997, assuming the Summit and Casa Bonita
acquisitions occurred on February 1, 1995 and 1996, using actual
restaurant-level margins and general and administrative expenses prior to the
acquisition of each entity, are presented as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
(DOLLARS IN
THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Total revenues................................................. $666,797 $747,586
Net income..................................................... $ 11,026 $ 22,319
Net income per common and common equivalent share.............. $ 0.38 $ 0.72
</TABLE>
Since the Summit acquisition, the Company has determined that its principal
focus is on the quick-service segment of the restaurant industry as opposed to
the family-dining segment in which Summit operates. As such, the Company is
considering selling or otherwise disposing of all of or a portion of Summit.
However, the Company has not entered into any agreements providing for any such
transaction and there can be no assurance that the Company will be able to sell
or otherwise dispose of such assets for a financial gain, on favorable terms, or
at all.
NOTE 3 -- ACCOUNTS RECEIVABLE
Details of accounts receivable are as follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Accounts receivable:
Trade receivables.............................................. $3,232 $5,982
Notes receivable, current...................................... 594 1,022
Income tax receivable.......................................... 3,231 714
Other.......................................................... 238 224
------ ------
$7,295 $7,942
====== ======
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1996 1997
----------- -------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Land.............................................. $ 27,891 $ 50,487
Leasehold improvements............................ 4-25 years 80,883 109,508
Buildings and improvements........................ 7-40 years 34,476 99,245
Equipment, furniture and fixtures................. 3-10 years 128,670 192,336
-------- --------
271,920 451,576
Less: Accumulated depreciation and amortization... 152,792 245,771
-------- --------
$119,128 $205,805
======== ========
</TABLE>
F-10
<PAGE> 71
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- LEASES
The Company occupies land and buildings under terms of numerous lease
agreements expiring on various dates through 2035. Many 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>
1996 1997
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Buildings........................................................ $64,186 $85,850
Less: Accumulated amortization................................... 35,787 48,735
------- -------
$28,399 $37,115
======= =======
</TABLE>
Amortization is calculated on the straight-line basis over the shorter of
the respective lease terms or the estimated useful lives of the related assets.
Minimum lease payments for all leases and the present value of net minimum
lease payments for capital leases as of January 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Fiscal Year
1998.......................................................... $10,448 $ 37,456
1999.......................................................... 10,128 36,268
2000.......................................................... 9,545 34,052
2001.......................................................... 9,017 31,280
2002.......................................................... 8,537 29,211
Thereafter.................................................... 43,231 216,677
------- --------
Total minimum lease payments.................................... $90,906 $384,944
========
Less: Amount representing interest.............................. 37,999
-------
Present value of minimum lease payments......................... 52,907
Less: Current portion........................................... 4,766
-------
Capital lease obligations, excluding current portion............ $48,141
=======
</TABLE>
Total minimum lease payments have not been reduced by minimum sublease
rentals of $42.5 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>
1996 1997
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net minimum lease payments receivable............................ $9,887 $6,680
Less: Unearned income............................................ 5,135 2,721
------ ------
Net investment................................................... $4,752 $3,959
====== ======
</TABLE>
F-11
<PAGE> 72
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum future rentals to be received as of January 31, 1997 are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES OR LESSOR
SUBLEASES LEASES
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fiscal Year:
1998........................................................ $ 647 $ 258
1999........................................................ 652 260
2000........................................................ 651 260
2001........................................................ 644 260
2002........................................................ 649 261
Thereafter.................................................. 3,437 1,768
------ ------
Total minimum future rentals.................................. $6,680 $3,067
====== ======
</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
and $1.6 million at January 31, 1996 and 1997, respectively.
Aggregate rents under noncancelable operating leases during fiscal 1997,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals....................................... $29,173 $29,225 $33,597
Contingent rentals.................................... 1,459 1,384 1,937
Less: Sublease rentals................................ 5,029 5,058 5,644
------- ------- -------
$25,603 $25,551 $29,890
======= ======= =======
</TABLE>
NOTE 6 -- LONG-TERM INVESTMENTS
CHECKERS DRIVE-IN RESTAURANTS, INC.
On November 14, 1996, the Company, together with a group of investors
purchased $35.8 million of aggregate principal amount of Checkers Drive-In
Restaurants, Inc. ("Checkers") 13.75% senior secured debt, due on July 31, 1998.
The aggregate purchase price for this senior secured debt was $35.1 million. In
addition to the Company, the investors included KCC Delaware, a wholly-owned
subsidiary of Giant, Fidelity, The Travelers Indemnity Company ("Travelers") and
certain affiliated individual investors. The Company paid $12.9 million in cash
for $13.2 million, or 36.75% share of the debt.
On November 22, 1996, the investors restructured Checkers' indebtedness
under its existing credit agreement. Pursuant to the restructuring, the term of
the credit agreement was extended by one year until July 31, 1999 and the fixed
interest rate on such indebtedness was reduced to 13.0%. The investors modified
certain financial covenants and the timing and amount of principal payments due
under the credit agreement. In connection with the restructuring, the Company
received warrants to purchase 7,350,423 shares of Checkers common stock at an
exercise price of $0.75 per share ("the Checkers Warrants"). The Company
recorded the difference between the fair market value of Checkers' common stock
and the exercise price of the Checkers Warrants on the date of grant as a
reduction, or discount, to the note receivable from Checkers. This discount is
amortized on a straight-line basis into interest income over the life of the
note. The Company, KCC Delaware and Travelers also provided a $2.5 million
short-term revolving line of credit to Checkers, of which the Company
contributed $0.5 million. As of January 31, 1997, the Company's note receivable
from Checkers, including the revolving line of credit advance and related
discount, was $10.1 million and is included in related party receivables.
F-12
<PAGE> 73
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Subsequent to the fiscal year end, on February 19, 1997, the Company
purchased 6,162,299 shares of Checkers common stock at $1.14 per share and
61,636 shares of Checkers Series A preferred stock at $114.00 per share for an
aggregate purchase price of $14.1 million in connection with a private placement
of Checkers' securities to the Company and other investors, including certain
related parties. Registration rights with respect to the common stock will
commence one year from the date of purchase. The shares of Checkers common stock
acquired by the Company represent approximately 10% of Checkers' outstanding
shares. The shares of Series A preferred stock acquired by the Company are
convertible into an aggregate of 6,162,299 additional shares of common stock;
provided, however, that such conversion is subject to the approval of Checkers'
stockholders at its next annual meeting. If Checkers stockholders fail to
approve the common stock provisions of the Series A preferred stock, cash
dividends will accrue at a rate of 14.5% six months from the date of issuance
and quarterly thereafter. Assuming full exercise of the Checkers Warrants and
the conversion of all of the Series A preferred stock into Checkers common
stock, the Company would beneficially own approximately 22% of Checkers'
outstanding shares.
In connection with the private placement of securities, Checkers repaid
$8.0 million of the senior secured debt and paid in full the $2.5 million
revolving line of credit. As a result, as of February 20, 1997, the Company's
note receivable from Checkers, net of the related discount, was $6.7 million.
RALLY'S HAMBURGERS, INC.
On April 20, 1996, the Company purchased from Giant, in settlement of
certain litigation, 2,350,432 shares of Rally's common stock for $4.1 million,
representing approximately 15% of Rally's outstanding shares. In connection with
this settlement, the Company also received options to purchase Rally's common
stock from Giant over the next two years.
Effective August 31, 1996, the Company participated in Rally's rights
offering, pursuant to which the Company received one right for each of the
2,350,432 shares of Rally's common stock the Company already owned. In
accordance with the terms of the rights offering, holders of rights were
entitled to purchase one unit for each 3.25 rights surrendered for a cash
payment of $2.25 per unit. Each unit consists of one share of Rally's common
stock and one warrant to purchase an additional share of Rally's common stock
upon payment of a $2.25 exercise price. The Company contributed approximately
$1.7 million in cash and acquired 775,488 shares of Rally's common stock in
connection with the rights offering, with warrants to acquire another 775,488
shares.
Additionally, on November 29, 1996, the Company elected to exercise 626,607
options to purchase common stock of Rally's from Giant for a total of
approximately $1.9 million.
On December 20, 1996, Rally's issued the Company warrants to purchase
750,000 restricted shares of Rally's common stock at an exercise price of $4.375
per share. The warrants have a three year term and are not exercisable until
December 20, 1997.
As of January 31, 1997, the Company's investment in Rally's was $7.9
million, representing an approximate 18% ownership interest of Rally's. In
addition, the Company has the right to acquire an additional 2% ownership
interest upon exercise of all the warrants.
On March 25, 1997, Checkers and Rally's agreed in principle to a merger
transaction, pursuant to which Rally's would be acquired by Checkers. The
agreement contemplates that each share of Rally's common stock will be converted
into three shares of Checkers common stock. Consummation of the
Rally's -- Checkers merger is subject to negotiation of definitive agreements,
the receipt of fairness opinions and stockholder and other required approvals,
as well as other customary conditions.
F-13
<PAGE> 74
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BOSTON MARKET
In January 1994, the Company acquired from Boston Chicken, Inc. ("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.
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, LLC ("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.
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 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 interest in Boston West under the cost method of accounting
for investments.
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. In fiscal
1997, the Company received $2.5 million in cash and $2.5 million in additional
preferred units in exchange for real property that the Company was leasing to
Boston West. 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 funded approximately
$1.7 million in fiscal 1996 through the purchase of additional preferred units.
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, the Company's interest in Boston West may be
increased to up to approximately 32% upon conversion of the preferred units.
As of January 31, 1996 and 1997, the Company's total long-term investment
in Boston West was $19.8 million and $22.3 million, respectively, 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 84 Boston Market stores were opened under the area
development agreement with BCI as of fiscal 1997.
F-14
<PAGE> 75
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- OTHER ASSETS
Other assets are comprised of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Costs in excess of net assets acquired, net...................... $ 8,215 $24,363
Leases receivable................................................ 4,515 3,735
Other assets..................................................... 1,863 8,589
------- -------
$14,593 $36,687
======= =======
</TABLE>
NOTE 8 -- OTHER CURRENT LIABILITIES
Other current liabilities are comprised of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Salaries, wages and other benefits............................... $ 8,564 $13,849
State sales taxes................................................ 5,881 7,685
Self-insured workers' compensation reserve....................... 6,854 6,781
Deferred revenues................................................ 4,351 4,403
Other self-insurance reserves.................................... 1,328 3,103
Other accrued liabilities........................................ 4,778 8,642
------- -------
$31,756 $44,463
======= =======
</TABLE>
NOTE 9 -- LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Secured notes payable, principal payments in varying amounts
monthly beginning September 1997 through July 2017, interest
based on LIBOR plus 2.0% through July 31, 1997 and 2.75%
thereafter..................................................... $ -- $20,000
Secured note payable, principal payments in specified amounts
monthly through 2001, interest at 8.17%........................ 5,398 5,111
Industrial Revenue Bonds, payable in 1999, variable interest rate
averaging 3.4% in fiscal 1997.................................. 3,600 3,600
Unsecured note payable to bank, principal payments in specified
amounts quarterly through 1998, interest based on the bank
prime rate plus 0.25%.......................................... 22,750 --
Secured note payable, principal payments in specified amounts
annually through 2000, interest at 13.5%....................... 3,993 --
Other............................................................ 3,155 5,794
------- -------
38,896 34,505
Less: Current portion............................................ 8,575 735
------- -------
$30,321 $33,770
======= =======
</TABLE>
Effective August 12, 1996, the Company entered into a new credit agreement
with a group of financial institutions. Under the terms of the credit agreement,
the Company borrowed the principal amount of $20.0 million under a five-year,
fully amortizing term loan, the proceeds of which were used to repay existing
indebtedness. The credit agreement also provides the Company with (i) a
revolving credit facility for working capital and other general corporate
purposes, under the terms of which the Company may borrow from time to time up
to $30.0 million (including a letter of credit subfacility of up to $20.0
million), and (ii) a revolving
F-15
<PAGE> 76
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
credit facility for the purpose of financing investments in and acquisitions of
other companies, under the terms of which the Company may borrow from time to
time up to $25.0 million. The Company borrowed $25.0 million under this
revolving credit facility in connection with the acquisition of Casa Bonita on
October 1, 1996 (see Note 2), the total of which, together with the outstanding
principal amount of the term loan was paid in full with the net proceeds of the
Company's common stock offering (see Note 11). The amounts advanced, if any, to
the Company and remaining outstanding under the revolving acquisition facility
will convert after two years into a three-year, fully amortizing loan. Both of
the foregoing revolving credit facilities mature on July 31, 2001. As of January
31, 1997, no borrowings were outstanding under its credit facility.
The credit agreement also includes customary affirmative and negative
covenants which, among other things, restrict the Company's ability to (i) incur
or create indebtedness on or with respect to its properties, (ii) incur
additional indebtedness, (iii) merge or consolidate with other entities, (iv)
sell assets and (v) declare or pay dividends or repurchase shares of capital
stock, subject in each of the foregoing cases to certain exceptions. In
addition, the credit agreement requires the Company to maintain certain
specified financial ratios and operating results. As of fiscal year end, the
Company was in compliance with all of its covenants governing its credit
facility.
Secured notes payable are collateralized by certain restaurant property
deeds of trust, with a carrying value of $36.1 million as of January 31, 1997.
Long-term debt matures in fiscal years ending after January 31, 1997 as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-------------
<S> <C>
Fiscal Year:
1998................................................................... $ 735
1999................................................................... 1,073
2000................................................................... 4,769
2001................................................................... 5,130
2002................................................................... 848
Thereafter............................................................. 21,950
-------
$34,505
=======
</TABLE>
NOTE 10 -- OTHER LONG-TERM LIABILITIES
Other long-term liabilities consists of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Self-insured workers' compensation reserve....................... $ 6,784 $ 7,283
Exit costs....................................................... 5,274 5,263
Other............................................................ 3,058 8,062
------- -------
$15,116 $20,608
======= =======
</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 $14.1 million was accrued as of
January 31, 1996 and 1997, 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 in both fiscal 1996 and 1997.
In prior years, the Company initiated programs to dispose of or franchise
its Arizona and Texas operations. As of January 31, 1996 and 1997, $6.7 million
and $6.0 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.
F-16
<PAGE> 77
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
franchised restaurants from a related party during fiscal 1995 (see Note 13).
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 these lease subsidies at January 31, 1997 was $4.5
million and will be amortized to operations over the remaining sublease terms,
which range up to 18 years.
NOTE 11 -- 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
three million shares of the Company's common stock. A total of 1,005,450 shares
of stock were repurchased to date, which includes the purchase of 93,750 shares
in fiscal 1995 from the Chairman Emeritus at the then market price of $6.09 per
share. The balance of these shares were purchased in a series of open market
transactions, at an average price of approximately $4.99 per share, for an
aggregate purchase price of approximately $4.5 million. On October 28, 1996, the
Board of Directors of the Company retired 1,005,450 shares of the Company's
common stock which were previously held as treasury stock.
During the fourth quarter of fiscal 1997, the Company issued 4,312,500
shares of its common stock at a public offering price of $19.08 per share.
Proceeds from the offering, net of underwriting discounts and commissions and
other related expenses, were $77.6 million. The net proceeds were used to reduce
the Company's existing indebtedness and for working capital and other general
corporate purposes, including the Company's investments in Checkers and
additional investments in Rally's (see Note 6).
NOTE 12 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents information on the Company's financial
instruments:
<TABLE>
<CAPTION>
1996 1997
---------------------- ----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents................ $ 23,429 $23,429 $ 39,782 $39,782
Marketable securities.................... 2,510 2,510 -- --
Notes receivable......................... 9,051 9,097 17,761 17,864
Financial liabilities:
Long-term debt, including current
portion............................... 38,896 37,009 34,505 34,310
</TABLE>
The fair value of cash and cash equivalents approximates their carrying
amount due to their short maturity. 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 13 -- RELATED PARTY TRANSACTIONS
Certain members of management and the Karcher family are franchisees of the
Company. A total of 41 restaurants have been sold to these individuals, three of
which occurred during fiscal 1997. As part of these transactions, the Company
received cash and accepted $10.4 million of interest-bearing notes at rates
ranging from 7.0% to 12.5%, of which $626,000 and $47,000 remained outstanding
as of January 31, 1996 and 1997,
F-17
<PAGE> 78
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
respectively. 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. As of January 31, 1996 and 1997,
$595,000 and $220,000, respectively, remained outstanding. The entire amount
will be repaid by December 1998.
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 $1.3 million remained
accrued in other long-term liabilities as of January 31, 1997. The Company
anticipates funding these obligations as they become due.
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 10, certain
previously established lease subsidy reserves totaling $2.7 million were
reversed in fiscal 1995 as a result of this transaction.
The Company leases various properties, including its corporate
headquarters, one of its distribution facilities and three of its restaurants,
from the Chairman Emeritus. Included in capital lease obligations were $4.5
million and $4.0 million, representing the present value of lease obligations
related to these various properties at January 31, 1996 and 1997, respectively.
Lease payments under these leases for fiscal 1995, 1996 and 1997 amounted to
$1.4, $1.4, and $1.3 million, respectively. This was net of sublease rentals of
$154,000 in fiscal 1995 and $148,000 in both fiscal 1996 and 1997. In September
1996, the Company purchased a restaurant from the Chairman Emeritus for a
purchase price of $1.1 million.
NOTE 14 -- FRANCHISE AND LICENSE OPERATIONS
Franchise arrangements, with franchisees who operate in Arizona,
California, Hawaii, 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.
F-18
<PAGE> 79
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenues from franchised and licensed restaurants consist of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Food service.......................................... $57,070 $56,015 $60,035
Rental income......................................... 10,257 10,116 9,932
Royalties............................................. 6,284 5,704 7,000
Initial fees.......................................... 91 116 305
------- ------- -------
$73,702 $71,951 $77,272
======= ======= =======
</TABLE>
Operating costs and expenses for franchised and licensed restaurants
consist of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Food service.......................................... $57,334 $56,590 $59,606
Occupancy and other operating expenses................ 12,537 12,249 12,380
------- ------- -------
$69,871 $68,839 $71,986
======= ======= =======
</TABLE>
NOTE 15 -- INTEREST EXPENSE
Interest expense consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations............................ $(6,194) $ (5,898) $(6,083)
Notes payable and revolving credit facility.......... (2,484) (3,585) (3,059)
Other................................................ (524) (521) (735)
------- -------- -------
$(9,202) $(10,004) $(9,877)
======= ======== =======
</TABLE>
NOTE 16 -- OTHER INCOME, NET
Other income, net is comprised of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income......................................... $3,261 $ 2,494 $1,402
Lease income............................................ -- 981 1,081
Net gain (loss) on sale of investments.................. (157) (145) 728
Dividend income......................................... 357 854 720
Net gain (loss) on sale of restaurants.................. (463) (338) 516
Income (loss) from long-term investments................ -- (1,624) 140
------ ------- ------
$2,998 $ 2,222 $4,587
====== ======= ======
</TABLE>
F-19
<PAGE> 80
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 -- INCOME TAXES
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................................. $(1,996) $2,018 $ 5,963
State................................................ (304) 772 2,065
------- ------ -------
(2,300) 2,790 8,028
------- ------ -------
Deferred:
Federal.............................................. 2,517 3,878 5,529
State................................................ 917 333 851
------- ------ -------
3,434 4,211 6,380
------- ------ -------
$ 1,134 $7,001 $14,408
======= ====== =======
</TABLE>
A reconciliation of income tax expense at the federal statutory rate to the
Company's provision for taxes on income is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income taxes at statutory rate........................ $ 815 $ 6,104 $12,849
State income taxes, net of federal income tax
benefit............................................. 800 738 2,822
Targeted jobs tax credits............................. (338) (243) (1,528)
Alternative minimum tax credit........................ (551) -- (19)
Increase (decrease) in valuation allowance............ 298 152 (76)
Other, net............................................ 110 250 360
------- ------- -------
$ 1,134 $ 7,001 $14,408
======= ======= =======
</TABLE>
Temporary differences and carryforwards gave rise to a significant amount
of deferred tax assets and liabilities as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Capitalized leases............................................. $ 8,641 $ 6,801
Workers' compensation reserve.................................. 5,905 5,908
Targeted jobs tax credit carryforward.......................... 3,055 3,654
Exit costs..................................................... 2,905 2,522
Alternative minimum tax credits................................ 700 1,647
Store closure reserve.......................................... 136 1,613
Other.......................................................... 4,601 7,799
------- -------
25,943 29,944
Less: Valuation allowance...................................... 1,945 4,917
------- -------
Total deferred tax assets........................................ 23,998 25,027
------- -------
Deferred tax liabilities:
Long-term investments.......................................... 2,017 8,271
Depreciation................................................... 9,896 7,088
Safe harbor leases............................................. 586 48
Other.......................................................... 1,443 2,406
------- -------
Total deferred tax liabilities................................... 13,942 17,813
------- -------
Net deferred tax assets.......................................... $10,056 $ 7,214
======= =======
</TABLE>
F-20
<PAGE> 81
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 assets at January 31, 1997, based on the
Company's current, historical and future pre-tax earnings.
The Company had targeted jobs tax credit carryforwards of $3.7 million,
which expire in the years 2005 through 2011, available at January 31, 1997. The
Company also had an alternative minimum tax credit carryforward of $1.6 million
with no expiration date.
NOTE 18 -- 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 were $344,000.
PENSION PLAN
On January 1, 1996, the Company's pension plan, covering substantially all
operations employees qualified as to age and service, was amended to limit
participation in the plan only to those employees who had become participants in
the plan on or before December 31, 1995. Future contributions of plan benefits
discontinued after this date.
During fiscal year 1997, the plan was terminated and approximately $2.6
million of the accumulated benefit obligation was settled. As a result of the
termination, the Company recorded approximately $1.3 million in pension plan
expense which was based upon an independent actuarial valuation study. During
fiscal 1995 and 1996, pension contributions were $438,000 and $512,000,
respectively.
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 and subsequent amendments, eligible employees may
voluntarily purchase, at current market prices, up to 750,000 shares of the
Company's common stock through payroll deductions. Pursuant to the ESPP,
employees may contribute an amount between 3% and 15% of their base salary. The
Company contributes varying amounts as specified in the ESPP. During fiscal 1996
and 1997, 38,673 and 42,435 shares, respectively, were purchased and allocated
to employees, based upon their contributions, at an average price of $8.47 and
$17.58 per share, respectively. The Company contributed $8,000 or an equivalent
of 690 shares for the year ended January 31, 1996 and $116,000 or an equivalent
of 6,168 shares for the year ended January 31, 1997.
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 5,250,000
shares are available for grants
F-21
<PAGE> 82
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of options or other awards under this plan, of which 2,383,849 stock options
were outstanding as of January 31, 1997, with exercise prices ranging from $4.50
per share to $23.33 per share.
The Company's 1993 stock incentive plan was superseded by the 1994 plan, as
discussed above. As of January 31, 1997, 552,565 stock options, with exercise
prices ranging from $4.83 per share to $8.92 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 4,500,000
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 prices of the 250,139 stock options
outstanding as of January 31, 1997 under this plan range from $4.00 per share to
$8.92 per share.
In connection with the acquisition of Summit, the Company assumed the
options outstanding under Summit's existing option plans: the 1984 Incentive
Stock Option Plan, the 1987 Nonqualified Stock Option Plan, the 1987 Employee
Incentive Stock Option Plan and the 1992 Stock Option Plan. Pursuant to the
terms of the acquisition, options under these plans became fully vested on July
15, 1996. The options granted in accordance with these four plans generally had
a term of five to ten years. Under these plans, there were 57,694 stock options
outstanding at January 31, 1997 with exercise prices ranging from $12.90 to
$26.21 per share. No further shares may be granted under these plans.
Transactions under all plans are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at beginning of year.................. 2,058,954 1,782,053 2,417,695
Options assumed in Summit acquisition............. -- -- 77,131
Granted........................................... 655,809 1,344,609 1,130,876
Canceled.......................................... (681,444) (176,463) (21,801)
Exercised......................................... (251,266) (532,504) (359,654)
--------- --------- ---------
Outstanding at end of year........................ 1,782,053 2,417,695 3,244,247
========= ========= =========
Exercisable at end of year........................ 972,486 932,612 1,235,492
========= ========= =========
</TABLE>
For purposes of the following pro forma disclosures required by Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") the fair value of each option granted after fiscal
1995 has been estimated on the date of grant using the Black-Scholes
option-pricing model, with the following assumptions used for grants in fiscal
1996 and 1997: annual dividends consistent with the Company's current dividend
policy, which resulted in payments of $0.05 per share in fiscal 1996 and 1997;
expected volatility of 29% in fiscal 1996 and 25% in fiscal 1997; risk free
interest rates of 5.25% in fiscal 1996 and 6.25% in fiscal 1997; and an expected
life of 5.45 years. The weighted average fair value of each option granted
during fiscal 1996 and 1997 was $2.51 and $6.80, respectively. Had compensation
expense been recognized for fiscal 1996 and 1997 grants for stock-based
compensation plans in accordance with provisions of SFAS 123, the Company would
have recorded net income and earnings per share of $10.7 million, or $0.38 per
share in fiscal 1996 and $20.5 million, or $0.67 per share in fiscal 1997. Since
the pro forma compensation expense for stock-based compensation plans is
recognized over a three year vesting period, the foregoing pro forma reductions
in the Company's net income are not representative of anticipated amounts in
future years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that do not have vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options and because
F-22
<PAGE> 83
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
changes in the subjective input assumptions can materially affect the value of
an estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
NOTE 19 -- SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest and income taxes are as
follows:
Interest (net of amount capitalized)................ $ 9,208 $10,198 $ 9,549
Income taxes........................................ 645 2,156 2,778
Noncash investing and financing activities are as
follows:
Sale of property and equipment...................... $ -- $ -- $ 2,469
Increase in long-term investments................... -- -- (2,469)
Transfers of marketable securities to (from) other
current assets................................... (6,776) -- --
Transfer of inventory, current assets and property
and equipment to long-term investments........... -- 20,352 --
Stock issued in exchange for Summit's assets........ -- -- 11,411
</TABLE>
NOTE 20 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly results.
<TABLE>
<CAPTION>
QUARTER
--------------------------------------------
1ST 2ND 3RD 4TH
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<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.................................... $ 0.07 $ 0.10 $ 0.11 $ 0.11
======== ======== ======== ========
FISCAL 1997
Total revenues............................. $152,934 $128,123 $162,291 $170,732
Operating income........................... 10,324 9,982 10,909 10,785
Net income................................. 5,333 5,192 5,588 6,189
Net income per common and common equivalent
share.................................... $ 0.19 $ 0.18 $ 0.19 $ 0.18
======== ======== ======== ========
</TABLE>
Quarterly operating results are not necessarily representative of
operations for a full year for various reasons, including the seasonal nature of
the quick-service restaurant industry and 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 fiscal
1996 and 1997, which have 16-week accounting periods.
NOTE 21 -- COMMITMENTS AND CONTINGENT LIABILITIES
In conjunction with the new credit facility established during fiscal 1997,
a letter of credit subfacility in the amount of $20.0 million was established
(see Note 9). Several letters of credit are outstanding under this facility
which secure the Company's potential workers' compensation claims. The State of
California requires that the Company provide a letter of credit each year based
on its existing workers' compensation claims experience, or set aside a
comparable amount of cash or investment securities in a trust account. The
upcoming annual security agreement, which begins May 1, 1997, was raised to $9.2
million due to increased labor hours. A new letter of credit will be issued for
this amount on or before May 1, 1997. Additionally there
F-23
<PAGE> 84
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
is a $3.9 million letter of credit outstanding under the subfacility which
secures the Industrial Revenue Bonds issued in connection with the construction
of the Company's Northern California distribution facility.
The Company's standby letter of credit agreements with various banks expire
as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
April 1997................................................................ $ 55
July 1997................................................................. 8,947
September 1997............................................................ 124
October 1997.............................................................. 1,355
January 1998.............................................................. 3,852
April 2000................................................................ 275
-------
$14,608
=======
</TABLE>
In fiscal 1996, the Company sold certain of its franchise notes receivable,
with recourse, to an independent third party (see Note 14). In addition, the
Company entered into two limited term guarantees with an independent third party
during fiscal 1997 on behalf of certain of its franchisees. The Company is
contingently liable for an aggregate of approximately $6.6 million under these
guarantees as of January 31, 1997.
In September 1992, Summit sold certain of its restaurants. In connection
with this sale, Summit assigned its rights and obligations under real property
leases to the buyer. As such, Summit remains contingently liable for these
obligations. Future minimum payments under these leases amounts to $1.3 million
in fiscal 1998, $1.2 million in both fiscal 1999 and fiscal 2000, $1.0 million
in fiscal 2001, $800,000 in fiscal 2002 and $2.1 million thereafter.
F-24
<PAGE> 85
CKE RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JANUARY 27, MAY 19,
1997 1997
------------ --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................ $ 39,782 $ 28,201
Marketable securities.................................................... -- 573
Accounts receivable...................................................... 7,942 6,752
Related party receivables................................................ 2,088 2,056
Inventories.............................................................. 9,223 9,058
Deferred income taxes, net............................................... 7,214 7,214
Other current assets and prepaid expenses................................ 6,608 11,279
-------- --------
Total current assets.................................................. 72,857 65,133
Property and equipment, net................................................ 205,805 211,256
Property under capital leases, net......................................... 37,115 35,951
Long-term investments...................................................... 33,218 47,119
Notes receivable........................................................... 6,210 6,036
Related party receivables.................................................. 9,325 6,078
Other assets............................................................... 36,687 38,408
-------- --------
$401,217 $409,981
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................................ $ 735 $ 758
Current portion of capital lease obligations............................. 4,766 4,960
Accounts payable......................................................... 33,930 25,165
Other current liabilities................................................ 44,463 51,694
-------- --------
Total current liabilities............................................. 83,894 82,577
-------- --------
Long-term debt............................................................. 33,770 34,055
Capital lease obligations.................................................. 48,141 46,323
Other long-term liabilities................................................ 20,608 21,610
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 33,218,751 and 33,444,420 shares.......................... 332 334
Additional paid-in capital............................................... 126,279 127,637
Retained earnings........................................................ 88,193 97,445
-------- --------
Total stockholders' equity............................................ 214,804 225,416
-------- --------
$401,217 $409,981
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-25
<PAGE> 86
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
---------------------
MAY 20, MAY 19,
1996 1997
-------- --------
<S> <C> <C>
Revenues:
Company-operated restaurants:
Carl's Jr......................................................... $129,510 $144,827
Taco Bueno........................................................ -- 22,388
JB's Restaurants.................................................. -- 20,690
HomeTown Buffet................................................... -- 13,170
Other............................................................. -- 9,828
-------- --------
129,510 210,903
-------- --------
Franchised and licensed restaurants:
Carl's Jr......................................................... 23,424 24,218
JB's Restaurants.................................................. -- 349
-------- --------
23,424 24,567
-------- --------
Total Revenues.................................................... 152,934 235,470
-------- --------
Operating costs and expenses:
Restaurant operations:
Food and packaging................................................ 39,755 65,302
Payroll and other employee benefits............................... 35,631 59,606
Occupancy and other operating expenses............................ 26,539 43,178
-------- --------
101,925 168,086
Franchised and licensed restaurants.................................. 22,176 22,496
Advertising expenses................................................. 7,571 10,545
General and administrative expenses.................................. 11,186 16,112
-------- --------
Total operating costs and expenses................................ 142,858 217,239
-------- --------
Operating income....................................................... 10,076 18,231
Interest expense....................................................... (2,595) (2,871)
Other income, net...................................................... 1,274 2,305
-------- --------
Income before income taxes............................................. 8,755 17,665
Income tax expense..................................................... 3,422 7,079
-------- --------
Net income............................................................. $ 5,333 $ 10,586
======== ========
Net income per common and common equivalent share...................... $ .19 $ .31
======== ========
Common and common equivalent shares used in computing per share
amounts.............................................................. 28,664 34,300
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-26
<PAGE> 87
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
---------------------
MAY 20, MAY 19,
1996 1997
-------- --------
<S> <C> <C>
Net cash flow from operating activities:
Net income..................................................................... $ 5,333 $ 10,586
Adjustments to reconcile net income to net cash provided by operating
activities:
Noncash franchise income..................................................... (98) --
Depreciation and amortization................................................ 6,440 10,247
Loss on sale of property and equipment and capital leases.................... 237 87
Write-off of accounts and notes receivable................................... 47 --
Loss from long-term investments.............................................. -- 150
Write-down of long-lived assets.............................................. 1,250 --
Net noncash investment and dividend income................................... (232) (1,063)
Deferred income taxes........................................................ 51 --
Noncash increase in reserves................................................. 297 280
Net change in receivables, inventories and other current assets.............. (2,479) (3,871)
Net change in accounts payable and other current liabilities................. 4,953 2,722
--------- ---------
Net cash provided by operating activities.................................... 15,799 19,138
--------- ---------
Cash flow from investing activities:
Purchases of:
Marketable securities........................................................ (266) (573)
Property and equipment....................................................... (8,413) (14,363)
Long-term investments........................................................ (9,190) (14,268)
Proceeds from sale of:
Marketable securities and long-term investments.............................. 388 --
Property and equipment....................................................... 2,478 11
Collections on leases receivable............................................... 46 57
Increases in notes receivable and related party receivables.................... -- (100)
Collections on notes receivable and related party receivables.................. 614 4,156
Net change in other assets................................................... (406) (927)
--------- ---------
Net cash used in investing activities........................................ (14,749) (26,007)
--------- ---------
Cash flow from financing activities:
Net change in bank overdraft................................................... 1,868 (2,998)
Short-term borrowings.......................................................... 600 2,000
Repayments of short-term debt.................................................. (600) (2,000)
Long-term borrowings........................................................... -- 489
Repayments of long-term debt................................................... (8,432) (179)
Repayments of capital lease obligations........................................ (803) (1,232)
Deferred financing costs....................................................... -- (553)
Net change in other long-term liabilities...................................... (366) (265)
Payment of dividends........................................................... (743) (1,334)
Exercise of stock options...................................................... 709 1,360
--------- ---------
Net cash used in financing activities........................................ (7,767) (4,712)
--------- ---------
Net decrease in cash and cash equivalents.................................... $ (6,717) $(11,581)
========= =========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest (net of amount capitalized)......................................... $ 2,499 $ 2,543
Income taxes................................................................. 128 1,770
Noncash investing and financing activities:
Investing activities:
Sale of property and equipment............................................. 2,469 --
Increase in long-term investments.......................................... (2,469) --
</TABLE>
See accompanying notes to consolidated financial statements
F-27
<PAGE> 88
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE (A) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of CKE Restaurants, Inc. and its consolidated wholly-owned subsidiaries
(the "Company" or "CKE") and have been prepared in accordance with generally
accepted accounting principles, the instructions to Form 10-Q, and Article 10 of
Regulation S-X. These statements should be read in conjunction with the audited
consolidated financial statements presented in the Company's 1997 Annual Report
to Stockholders. In the opinion of management, all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of financial
position and results of operations for the interim periods presented have been
reflected herein. The results of operations for such interim periods are not
necessarily indicative of results to be expected for the full year or for any
other future periods. Certain reclassifications have been made to the fiscal
1997 consolidated financial statements to conform to the fiscal 1998
presentation. Share and per share information has been retroactively adjusted to
reflect the three-for-two stock split which occurred in January 1997.
NOTE (B) LONG-TERM INVESTMENT IN CHECKER'S DRIVE-IN RESTAURANTS, INC.
On February 19, 1997, the Company purchased 6,162,299 shares of Checkers
Drive-In Restaurants, Inc. ("Checkers") common stock at $1.14 per share and
61,636 shares of Checkers Series A preferred stock at $114.00 per share for an
aggregate purchase price of $14.1 million in connection with a private placement
of Checkers' securities to the Company and other investors, including certain
related parties. Registration rights with respect to the common stock will
commence one year from the date of purchase. The shares of Checkers' common
stock acquired by the Company represent approximately 10% of Checkers'
outstanding shares. The shares of Series A preferred stock acquired by the
Company are convertible into an aggregate of 6,162,299 additional shares of
common stock; provided, however, that such conversion is subject to the approval
of Checkers' stockholders at its next annual meeting. If Checkers' stockholders
fail to approve the common stock provisions of the Series A preferred stock,
cash dividends will accrue at a rate of 14.5% six months from the date of
issuance and quarterly thereafter. Assuming full exercise of the Checkers'
Warrants and the conversion of all of the Series A preferred stock into
Checkers' common stock, the Company would beneficially own approximately 22% of
Checkers' outstanding shares.
NOTE (C) ACQUISITION OF HARDEE'S FOOD SYSTEMS, INC.
On April 27, 1997, the Company entered into a Stock Purchase Agreement with
Imasco Holdings, Inc., a Delaware corporation ("Imasco") and Hardee's Food
Systems, Inc., a North Carolina corporation ("Hardee's"), pursuant to which the
Company has agreed to acquire from Imasco all of the issued and outstanding
shares of capital stock of Hardee's for a purchase price of $327.0 million
(subject to adjustment). The Company proposes to finance the acquisition of
Hardee's with a combination of new senior secured indebtedness, net proceeds
from a proposed public offering of shares of the Company's Common Stock and cash
on hand at the time of closing. Consummation of the transaction is subject to
the satisfaction of certain conditions, including receipt of the proceeds of the
proposed public stock offering.
F-28
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
To the Boards of Directors and Shareholders of
Hardee's Food Systems, Inc.
We have audited the accompanying combined balance sheets as of December 31,
1996 and 1995 of Hardee's Food Systems, Inc. (the "Company"), as defined in Note
1, consisting of the Restaurant and Equipment Divisions, to be acquired by CKE
Restaurants, Inc. ("CKE"), and the related combined statements of operations,
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1996. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined 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.
The accompanying financial statements were prepared to present the
financial position and related results of operations and cash flows of the
Company, which is to be acquired by CKE, and may not necessarily reflect the
financial position, results of operations and cash flows of the Company that
might have resulted had they operated as a stand-alone company.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Company
as of December 31, 1996 and 1995 and its results of operations and cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 121 in 1996.
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
January 17, 1997, except for Note 20,
as to which the date is April 27, 1997
F-29
<PAGE> 90
HARDEE'S FOOD SYSTEMS, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 26,112 $ --
Receivables......................................................................... 27,897 22,277
Federal and state income taxes receivable........................................... 18,225 11,237
Inventories......................................................................... 13,936 10,906
Prepaid expenses and other current assets........................................... 2,957 3,016
Deferred income taxes............................................................... 18,561 --
-------- --------
Total current assets......................................................... 107,688 47,436
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land................................................................................ 118,067 93,065
Buildings, including improvements to leased properties.............................. 402,915 388,757
Equipment, vehicles and fixtures.................................................... 239,415 240,145
Construction in progress............................................................ 2,828 1,722
Leased property under capital leases................................................ 12,615 10,518
-------- --------
775,840 734,207
Less accumulated depreciation and amortization...................................... 345,729 336,883
-------- --------
Total property, plant and equipment, net..................................... 430,111 397,324
-------- --------
OTHER ASSETS:
Notes receivable due after one year................................................. 13,412 10,607
Intangible assets................................................................... 323 299
Deferred charges.................................................................... 1,138 627
Deferred income taxes............................................................... 23,511 34,306
Other............................................................................... 486 21
-------- --------
Total other assets........................................................... 38,870 45,860
-------- --------
TOTAL ASSETS.......................................................................... $576,669 $490,620
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Bank overdraft...................................................................... $ -- $ 5,359
Short-term borrowings............................................................... -- 10,000
Trade accounts payable.............................................................. 7,778 10,317
Trade accounts payable -- affiliate................................................. 6,708 5,851
Other accounts payable and accrued expenses......................................... 90,909 75,956
Deferred income..................................................................... 2,448 1,569
Current maturities of long-term debt................................................ 114 46
Current maturities of obligations under capital leases.............................. 730 606
Deferred income taxes............................................................... -- 1,166
-------- --------
Total current liabilities.................................................... 108,687 110,870
-------- --------
POSTRETIREMENT BENEFITS............................................................... 16,910 20,440
-------- --------
ESTIMATED FUTURE COST OF EXCESS PROPERTIES............................................ 14,738 21,403
-------- --------
LONG-TERM DEBT TO PARENT.............................................................. 131,777 --
-------- --------
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES.......................................... 1,690 1,709
-------- --------
OBLIGATIONS UNDER CAPITAL LEASES, EXCLUDING CURRENT MATURITIES........................ 7,006 6,124
-------- --------
DEFERRED CREDITS -- OTHER............................................................. 6,959 6,018
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock of no par value.
Authorized 10,000,000 shares;
155 and 225 shares issued at stated value of $.50 per share in 1995 and 1996,
respectively...................................................................... 1 1
Additional paid-in capital.......................................................... 253,583 316,596
Retained earnings................................................................... 35,318 7,459
-------- --------
Total Shareholder's Equity................................................... 288,902 324,056
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............................................ $576,669 $490,620
======== ========
</TABLE>
See Accompanying Notes to Combined Financial Statements.
F-30
<PAGE> 91
HARDEE'S FOOD SYSTEMS, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Company-operated restaurants............................. $711,979 $702,693 $706,391
Franchised and licensed restaurants and other............ 126,662 118,137 99,653
-------- -------- --------
Total revenues........................................ 838,641 820,830 806,044
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Restaurant operations:
Food and packaging.................................... 234,251 240,074 238,359
Payroll and other employee benefits................... 234,596 255,942 264,195
Occupancy and other operating expenses................ 174,982 185,829 175,892
-------- -------- --------
643,829 681,845 678,446
Franchised and licensed restaurants and other............ 34,010 35,451 34,174
Advertising expenses..................................... 35,744 43,734 44,075
General and administrative expenses...................... 56,766 74,912 79,735
-------- -------- --------
Total operating costs and expenses............... 770,349 835,942 836,430
-------- -------- --------
OPERATING INCOME (LOSS).................................... 68,292 (15,112) (30,386)
INTEREST EXPENSE........................................... 12,155 13,985 6,981
OTHER EXPENSES (INCOME), NET............................... 500 500 (9,508)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY LOSS... 55,637 (29,597) (27,859)
INCOME TAX EXPENSE (BENEFIT)............................... 22,255 (11,839) --
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.................... 33,382 (17,758) (27,859)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT, NET OF
INCOME TAX BENEFIT OF $4,097............................. (6,146) -- --
-------- -------- --------
NET INCOME (LOSS).......................................... $ 27,236 $(17,758) $(27,859)
======== ======== ========
</TABLE>
See Accompanying Notes to Combined Financial Statements.
F-31
<PAGE> 92
HARDEE'S FOOD SYSTEMS, INC.
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
COMMON STOCK AT BEGINNING AND END OF YEAR.................. $ 1 $ 1 $ 1
ADDITIONAL PAID-IN CAPITAL:
Amount at beginning of year.............................. 142,074 153,583 253,583
Capital contributions.................................... 11,509 100,000 63,013
-------- -------- --------
Amount at end of year............................ 153,583 253,583 316,596
-------- -------- --------
RETAINED EARNINGS:
Amount at beginning of year.............................. 56,009 63,076 35,318
Net income (loss)........................................ 27,236 (17,758) (27,859)
Dividends paid........................................... (20,169) (10,000) --
-------- -------- --------
Amount at end of year............................ 63,076 35,318 7,459
-------- -------- --------
TOTAL SHAREHOLDER'S EQUITY................................. $216,660 $288,902 $324,056
======== ======== ========
</TABLE>
See Accompanying Notes to Combined Financial Statements.
F-32
<PAGE> 93
HARDEE'S FOOD SYSTEMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss)............................................... $ 27,236 $ (17,758) $ (27,859)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation (including amortization of leased property under
capital leases)............................................. 43,044 43,939 49,400
Amortization of intangible assets............................ 200 251 180
Loss (gain) on disposition of property, plant and
equipment................................................... 1,939 4,376 (222)
Provision for postretirement benefits........................ 642 1,331 3,530
Amortization of gain on sale of real estate.................. (1,995) (886) (941)
Provision (benefit) for (from) excess properties expense..... (2,018) (3,204) 6,665
Provision (benefit) for (from) deferred income taxes......... (1,867) 7,172 8,932
Provision for bad debts...................................... 6,986 16,575 6,800
Loss on early extinguishment of debt......................... 10,243 -- --
Changes in assets and liabilities:
Receivables................................................ 4,124 (17,573) 4,266
Inventories................................................ 1,381 1,167 3,030
Prepaid expenses and other current assets.................. 215 230 (59)
Trade accounts payable..................................... (6,418) (2,531) 1,682
Other accounts payable and accrued expenses................ 1,300 7,456 (2,790)
Federal and state income taxes............................. 8,479 (19,276) 6,988
Deferred income............................................ 237 (1,632) (879)
--------- --------- ---------
Net cash provided by operating activities.................... 93,728 19,637 58,723
--------- --------- ---------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment...................... (32,720) (83,550) (68,262)
Proceeds from disposition of property, plant and equipment...... 42,093 2,177 42,019
Decrease in intangibles and other assets........................ 127 335 820
Issuance of notes receivable.................................... (24,479) (932) (7,298)
Collection on notes receivable and direct financing leases...... 14,987 2,597 2,346
Purchase of investment.......................................... (4,000) -- --
Purchase of joint venture, net of cash acquired................. (20,400) -- --
--------- --------- ---------
Net cash used in investing activities........................ (24,392) (79,373) (30,375)
--------- --------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayment of long-term debt..................................... (6,978) (3) (49)
Proceeds from short-term borrowings............................. 5,934 -- 10,000
Repayment of short-term borrowings.............................. -- (5,934) --
Proceeds (repayment) of notes payable to parent................. 95,213 24,144 (181,777)
Bank overdrafts................................................. -- -- 5,359
Repayment of obligations under capital leases................... (928) (1,515) (1,006)
Repurchase of long-term debt.................................... (155,161) -- --
Net transfers from (to) parent.................................. (20,169) 40,000 113,013
--------- --------- ---------
Net cash provided by (used in) financing activities.......... (82,089) 56,692 (54,460)
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS......................... (12,753) (3,044) (26,112)
CASH AND CASH EQUIVALENTS -- BEGINNING OF YEAR.................... 41,909 29,156 26,112
--------- --------- ---------
CASH AND CASH EQUIVALENTS -- END OF YEAR.......................... $ 29,156 $ 26,112 $ --
========= ========= =========
See Accompanying Notes to Combined Financial Statements
</TABLE>
F-33
<PAGE> 94
HARDEE'S FOOD SYSTEMS, INC.
COMBINED STATEMENTS OF CASH FLOWS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of capitalized amount)......................... $ 16,919 $ 18,479 $ 13,657
Income taxes................................................. 10,274 10,440 2,938
Purchase of joint venture, net of cash acquired:
Working capital, other than cash............................. $ (712) $ -- $ --
Property, plant and equipment................................ (101,541) -- --
Long-term debt............................................... 80,855 -- --
Noncurrent liabilities....................................... 998 -- --
--------- --------- ---------
Net cash used to acquire joint venture.................. $ (20,400) $ -- $ --
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Exchange of accounts receivable for notes receivable............ $ -- $ -- $ 377
Property, plant and equipment, net has been written down against
a provision for impairment of long-lived assets.............. $ -- $ -- $ 12,163
In conjunction with the acquisition/sale of restaurants to
franchisees, the Company exchanged notes receivable in the
amount of.................................................... $ 1,717 $ 151 $ 2,311
In conjunction with the sale of restaurants to a third party,
the Company recorded the following losses against a reserve
in other accounts payable:
Property, plant and equipment................................ $ 16,831 $ -- $ --
Intangible assets............................................ 2,054 -- --
In conjunction with the contribution of joint venture interest
by the parent company, the Company received or reclassed the
following assets and liabilities:
Working capital.............................................. $ (1,328) $ -- $ --
Property, plant and equipment................................ (82,432) -- --
Investment in joint venture.................................. 250 -- --
Other assets................................................. (1,066) -- --
Long-term debt............................................... 72,337 -- --
Noncurrent liabilities....................................... 730 -- --
Additional paid-in capital................................... 11,509 -- --
In conjunction with the sale of 20 shares of Hardee's common
stock to Imasco Holdings, the Company received a note which
is included as a reduction in long-term debt in the amount
of........................................................... $ -- $ 50,000 $ --
The following amounts have been recorded against a reserve in
other accounts payable:
Receivables.................................................. $ -- $ 18,489 $ --
Inventories.................................................. -- (377) --
Prepaid expenses and other current assets.................... -- (49) --
Property, plant and equipment, net........................... -- (9,442) --
Equity investment............................................ -- 4,000 --
Other accounts payable and accrued expenses.................. -- 14,053 --
The Company reduced the basis in the fixed assets acquired
through a sale and leaseback real estate transaction by the
related unamortized deferred gain............................ $ 45,472 $ -- $ --
</TABLE>
See Accompanying Notes to Combined Financial Statements.
F-34
<PAGE> 95
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements include the accounts of Hardee's Food
Systems, Inc. (the "Company") a North Carolina Corporation and wholly-owned
subsidiary of Imasco Holdings, Inc. ("Imasco Holdings"), a Delaware Corporation.
Imasco Holdings is a wholly-owned subsidiary of Imasco Limited, a Canadian
Corporation.
The accounts of Hardee's Food Systems, Inc. include the Restaurant and
Equipment Divisions, however, they do not include the accounts of Fast Food
Merchandisers, Inc. ("FFM") and MRO Mid-Atlantic ("MRO"), two directly owned
subsidiaries.
The common stock of Hardee's Food Systems, Inc. will be sold to CKE
Restaurants, Inc. under a stock purchase agreement dated April 27, 1997. See
Note 20. FMM and MRO will be spun off to Imasco Holdings or one of its
affiliates.
The Restaurant Division operates a system of approximately 3,200 company
and franchise quick-service restaurants under the Hardee's trademark in 37
states and 10 foreign countries. The Equipment Division is engaged in the
business of selling equipment and small wares to Hardee's and other restaurant
businesses.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories. Inventories are carried at the lower of cost (first-in,
first-out) or replacement market.
Property, Plant and Equipment. Property, plant and equipment ("PP&E") are
stated at cost, except for PP&E that have been impaired, for which the carrying
amount is reduced to estimated fair value. For financial reporting purposes,
depreciation is provided on a straight-line basis. Various accelerated methods
are used for income tax reporting. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Restaurant buildings.......................... 25 years primarily
Building upgrades and leasehold
improvements................................ 3 to 10 years
Restaurant equipment and signs................ 3 to 7 years
Furniture, fixtures and other equipment....... 3 to 7 years
Office and warehouse buildings................ 20 to 40 years
Leased property under capital leases and
leasehold improvements...................... Lesser of useful life of
asset or term of lease
</TABLE>
Interest costs for construction projects are capitalized during the
construction period by applying current interest rates paid by the Company to
the amount of funds expended on a daily basis until the project is completed.
Expenses incurred in locating sites for new restaurants and supervising
construction of new and remodeled restaurant buildings are capitalized and
included in the cost of the related assets.
Leases. Leases which meet certain criteria are designated as capital leases
and are recorded as if the Company had acquired the related assets through debt
financing. The assets are classified on the balance sheets as "Leased property
under capital leases" and the related liabilities as "Obligations under capital
leases." This accounting method results in the recording of interest expense and
depreciation rather than rental expense for such leases for financial reporting
purposes. This accounting method is not utilized for income tax purposes. The
land element of the Company's capital leases and other leases which do not meet
the criteria of capital leases are classified as operating leases; accordingly,
the rental expense related to the land element and other leases is recorded in
the period in which such rental expense occurs.
The Company leases some restaurant locations and equipment to others and
treats those which meet the requirements for capitalization as direct financing
or sales-type leases.
F-35
<PAGE> 96
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Amortization of Intangible Assets. Intangible assets are amortized
straight-line over forty years or less.
Pre-operating Expenses. Pre-operating expenses of new restaurants are
charged to expense as incurred.
Federal and State Income Taxes. The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." This Statement requires the use of the asset and liability
approach for financial accounting and reporting for income taxes.
License Fee Income. The Company's current standard initial license fee for
license holders as of December 31, 1995 is $15,000. For first time license
holders subsequent to December 31, 1995, the current standard initial license
fee is $35,000 for the first restaurant and $30,000 thereafter. The license
agreement requires a monthly service fee equal to 3 1/2% of gross sales for the
first five years of operations and 4% thereafter. Licenses currently are granted
for initial terms of 20 years. Initial license fee income is recognized when the
licensed restaurant opens. The Company is generally obligated to provide site
selection counseling, building and equipment plans and specifications, training,
preopening and operating assistance, advertising and marketing assistance,
continual individual and group counseling, accounting forms and an operating
manual.
Excess Properties. At the time decisions are made to close restaurants,
earnings are charged and a provision is established, subject to periodic review
and adjustment, for asset disposal costs and for estimated future expenditures
for rents, real estate taxes and other occupancy costs, net of estimated
sublease income and other recoveries from the properties. Such amounts are
recorded at the present value of the future payments.
Retirement Plans. Prior to January 1, 1995, the Company and its
subsidiaries had defined benefit pension plans covering employees between the
ages of 21 and 70 with at least 1,000 hours of service annually. Employees were
eligible to participate in the plans after one year of service and became vested
after five years of service. There were no contributions by employees.
Effective December 31, 1994, the Company curtailed its qualified defined
benefit pension plans and implemented a 401(k) defined contribution plan on
January 1, 1995.
On January 1, 1995, the Company amended and restated its qualified
after-tax savings plan and implemented a 401(k) defined contribution Retirement
Savings Plan ("RSP"). The plan obtained its latest determination letter on
February 2, 1996, in which the Internal Revenue Service stated that the plan, as
then designed, was in compliance with the applicable requirements of the
Internal Revenue Code. The RSP covers non-highly compensated employees that have
reached age 21 with at least one year of service. Restaurant hourly employees
are not eligible to participate in the RSP.
Effective January 3, 1995, the Company also amended its non-qualified
savings plan and implemented the Management Savings Plan ("MSP"), a
non-qualified deferred annuity arrangement for its highly compensated employees.
Both the RSP and the MSP permit voluntary employee contributions and provide for
service-related matching and profit-sharing contributions by the Company.
The Company has a non-qualified defined benefit pension plan for officers.
The plan is unfunded. The officer must have five years of credited service and
five years as an officer to receive full benefits.
Postemployment Benefits. Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Post-employment Benefits," requires employers
who provide benefits to former or inactive employees after employment but before
retirement to recognize the liability for these benefits on an accrual basis
rather than as paid. Such benefits provided by the Company are immaterial and do
not require any additional accruals.
Postretirement Benefits Other Than Pensions. The Company provides an
unfunded retiree medical benefit plan for substantially all employees (except
restaurant hourly employees) who retire on or after age 55
F-36
<PAGE> 97
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
with at least 5 years of service. The retiree pays the actual costs of the plan
with a Company subsidy provided for retirees with 10 or more years of credited
service. The dollar amount of this subsidy will be capped in 2003.
Accounting Changes. The Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" in the fourth quarter of
1996. SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment and written down to fair value whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
Pervasiveness of Estimates. 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.
Statement of Cash Flows. For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Reclassifications. Certain prior year amounts have been reclassified to
conform with 1996 presentations.
NOTE 3 -- IMPAIRMENT OF LONG-LIVED ASSETS
As noted above, the Company adopted SFAS 121 in 1996 for purposes of
determining and measuring impairment of certain long-lived assets to be held and
used in the business. The Company deems an asset to be impaired if a forecast of
undiscounted future operating cash flows directly related to the asset,
including disposal value if any, is less than its carrying amount. SFAS 121
stipulates that when evaluating and measuring impairment, assets shall be
grouped at the lowest level for which there are identifiable, largely
independent cash flows. The Company has identified the appropriate grouping of
assets to be designated market areas for the restaurant division. Factors
leading to impairment were a combination of historical losses and anticipated
future losses. If an asset is determined to be impaired, the loss is measured as
the amount by which the carrying amount of the asset exceeds its fair value.
Fair value is based on quoted market prices in active markets, if available. If
quoted market prices are not available, an estimate of fair value is based on
the best information available, including prices for similar assets or the
results of valuation techniques.
Adoption of SFAS 121 resulted in a non-cash pre-tax charge of $12.2 million
related to restaurants located in designated market areas for which a forecast
of undiscounted future operating cash flows is less than their carrying value.
Considerable management judgment is necessary to estimate future cash flows.
Accordingly, actual results could vary significantly from such estimates.
NOTE 4 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
Notes Receivable
The fair value of notes receivable is estimated by discounting their future
cash flows using an interest rate being used in current transactions, reduced by
an estimate of doubtful accounts. The carrying value of notes receivable, net of
allowance for doubtful accounts, approximates the estimated fair market value.
F-37
<PAGE> 98
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Long-Term Debt
The carrying amount approximates fair value because the debt is primarily
with related parties and rates paid are based on market rates negotiated
annually.
NOTE 5 -- RECEIVABLES
Receivables consist of the following at December 31, 1995 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Trade accounts................................... $23,093 $28,539
Notes............................................ 26,918 23,183
Other accounts................................... 12,420 9,022
------- -------
Total.................................. 62,431 60,744
Less allowance for doubtful accounts............. 21,122 27,860
------- -------
Receivables, net....................... $41,309 $32,884
======= =======
</TABLE>
The receivables are presented in the balance sheets as follows:
<TABLE>
<S> <C> <C>
Current assets................................... $27,897 $22,277
======= =======
Other assets..................................... $13,412 $10,607
======= =======
</TABLE>
NOTE 6 -- INVENTORIES
Inventories consist of the following at December 31, 1995 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Restaurant inventories........................... $ 7,110 $ 6,182
Equipment for sale............................... 6,563 4,382
Supplies and promotional items................... 263 342
------- -------
Total inventories...................... $13,936 $10,906
======= =======
</TABLE>
NOTE 7 -- DEFERRED CREDITS -- OTHER AND SALE AND LEASEBACK OF RESTAURANTS
In 1988, the Company entered into a real estate transaction in which the
commercial real property and improvements of 279 of its restaurants were
contributed to a joint venture formed by the Company and an unrelated third
party and subsequently leased back for a period of 15 years. In 1988, the
Company sold 98% of its 50% interest in the joint venture to an affiliated
company. On April 6, 1994, the Company exercised its buyout option pursuant to
the joint venture agreement and purchased 96% of the unrelated third party
interest in the joint venture for a cash consideration of approximately $19.6
million. On April 7, 1994, the joint venture liquidated the third party's
remaining 2% interest for approximately $817,000. Prior to the buyout on April
6, 1994, the Company accounted for its investment in the joint venture under the
equity method. Its share of joint venture earnings for the year ended December
31, 1994 was $9,000.
Also in 1988, the Company entered into a real estate transaction in which
it sold commercial real property and improvements of 101 restaurant locations to
an unaffiliated third party and leased the properties back for a period of
fifteen and one-half years. The lease is being accounted for as an operating
lease.
The gain that the Company realized on both of the above real estate
transactions was deferred and classified in the accompanying balance sheets as
Deferred Credits -- Other. At the date of the joint venture buyout, the basis in
the fixed assets acquired was reduced by the related unamortized deferred gain
of
F-38
<PAGE> 99
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
$45,472,000. The gain on the sale of the 101 restaurant locations is being
amortized over the life of the lease which expires in June 2004.
The remaining lease transaction contains certain covenants which requires
maintenance of a minimum amount of shareholder's equity and a minimum amount of
combined shareholder's equity and affiliated indebtedness. The Company is in
compliance with these covenants as of December 31, 1996.
NOTE 8 -- PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following at
December 31, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Land............................................. $116,188 $ 92,171
Buildings and leasehold improvements............. 394,156 381,291
Restaurant equipment............................. 119,178 122,662
Other equipment and signs........................ 93,011 89,386
Automotive and aircraft.......................... 3,493 3,493
Furniture, fixtures and other.................... 23,493 24,471
Construction in progress......................... 2,828 1,722
Capital leases................................... 12,615 10,518
Leased to licensees and others:
Land........................................... 1,879 894
Buildings and leasehold improvements........... 8,759 7,466
Equipment and signs............................ 240 133
-------- --------
Total.................................. $775,840 $734,207
======== ========
</TABLE>
NOTE 9 -- INTANGIBLE ASSETS AND DEFERRED CHARGES
Intangible assets and deferred charges are stated at cost, net of
accumulated amortization of $816,000 and $3,149,000 at December 31, 1995 and
1996, respectively.
NOTE 10 -- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Other accounts payable and accrued expenses consist of the following at
December 31, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Salaries and wages............................... $ 8,459 $ 5,630
Rent............................................. 12,220 12,447
Taxes, other than income......................... 12,184 11,439
Insurance........................................ 28,273 28,604
Savings plan contributions....................... 5,516 4,332
Utilities........................................ 2,048 2,167
Other............................................ 22,209 11,337
------- -------
Total.................................. $90,909 $75,956
======= =======
</TABLE>
F-39
<PAGE> 100
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
NOTE 11 -- LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
-------- ------
<S> <C> <C>
Unsecured credit facility with Imasco Finance LLC
(formerly Imasco B.V.)................................. $221,162 $ --
Advances to Imasco Holdings.............................. (58,126) --
Advances from ITL........................................ 4,132 --
Advances to Genstar Land................................. (8,680) --
Advances to Fast Food Merchandisers, Inc................. (26,711) --
Other.................................................... 1,804 1,755
-------- ------
133,581 1,755
Less current maturities.................................. 114 46
-------- ------
Portion payable after one year........................... $133,467 $1,709
======== ======
</TABLE>
The aggregate principal maturities of other long-term debt are as follows
(in thousands):
<TABLE>
<S> <C>
1997.............................................. $ 46
1998.............................................. 176
1999.............................................. 30
2000.............................................. 30
2001 and thereafter............................... 1,473
</TABLE>
At December 31, 1996, the Company had an unsecured credit facility with
Imasco Finance, LLC for an amount of $750 million. The ten-year facility expires
December 31, 2004, and is to be used by the Company as needed. Interest is
negotiated annually with the average rates being 8.4%, 8.5%, and 8.5% for the
years ended December 31, 1994, 1995, and 1996, respectively.
In 1994, the Company had various credit facilities with Imasco B.V.
(Amsterdam and Luxembourg Branches), a Netherlands corporation and wholly-owned
subsidiary of Imasco Limited. On January 2, 1995, Imasco B.V. sold the Company's
existing outstanding credit facility (in the aggregate amount of $511 million)
to Imasco Finance, LLC.
The Company advances and borrows funds to and from Imasco Holdings and
subsidiaries of Imasco Limited at negotiated rates. The Company considers Imasco
Limited's subsidiaries as one group for financing purposes.
In 1994, the Company purchased at a premium $138.3 million of its 10.5%
mortgage notes. The purchase resulted in an extraordinary charge of $9.8
million. On January 5, 1995, the Company purchased at a premium its remaining
10.5% mortgage notes. The purchase resulted in an extraordinary charge of
approximately $350,000 for which a reserve was established in December 1994.
The Company has a line of credit with a commercial bank for an amount of
$15 million of which $0 and $10 million was utilized at December 31, 1995 and
1996, respectively.
NOTE 12 -- LEASES
The Company is a party to a number of noncancelable lease agreements
primarily involving restaurant land and buildings expiring on various dates
through 2018. The leases generally have initial terms of 10 to 25 years with
renewal options ranging from one five-year period to four five-year periods and
provide for
F-40
<PAGE> 101
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
minimum rents or a rent based on a percentage of sales, whichever is greater.
The Company is also responsible for executory costs.
The following is a schedule of future minimum payments under capital leases
and operating leases and obligations under capital leases (present value of
future minimum rentals) as of December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- -----------
REAL REAL
PERIODS ESTATE ESTATE TOTAL
---------------------------------------- ------- ----------- --------
<S> <C> <C> <C>
1997.................................... $ 1,617 $ 41,723 $ 43,340
1998.................................... 1,524 37,454 38,978
1999.................................... 1,468 32,851 34,319
2000.................................... 1,434 27,560 28,994
2001.................................... 1,406 24,177 25,583
2002 and thereafter..................... 5,355 77,852 83,207
------- -------- --------
Total minimum lease payments............ 12,804 $ 241,617 $254,421
======== ========
Less amount representing interest....... 6,074
-------
Total obligations under capital
leases................................ 6,730
Less current maturities of obligations
under capital leases.................. 606
-------
Obligations under capital leases payable
after one year........................ $ 6,124
=======
</TABLE>
The Company is contingently liable on leases which have been assigned to
unaffiliated companies with aggregate minimum annual rentals of $1,072,000
expiring in various years through 2011.
The following is a schedule of future minimum rentals receivable under
operating leases and subleases at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
PERIODS
---------------------------------------------------
<S> <C>
1997............................................... $ 6,597
1998............................................... 6,264
1999............................................... 5,666
2000............................................... 4,914
2001............................................... 4,260
2002 and thereafter................................ 29,463
-------
Total minimum rentals receivable................... $57,164
=======
</TABLE>
Rent expense entering into the determination of net earnings follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
Minimum rent on operating leases......................... $37,101 $ 29,821 $30,225
Contingent rent based on sales for:
Capital leases......................................... 309 265 142
Operating leases....................................... 4,579 3,629 3,862
Rent income from subleases............................... (13,972) (12,288) (8,901)
Transportation equipment rent............................ 2,021 1,866 1,980
------- -------- -------
Net rent expense......................................... $30,038 $ 23,293 $27,308
======= ======== =======
</TABLE>
F-41
<PAGE> 102
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
NOTE 13 -- RESTAURANTS IN OPERATION
The following table sets forth the total number of restaurants in operation
at December 31, 1994, 1995, and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Hardee's Company............................................ 805 864 808
Hardee's Franchise.......................................... 2,711 2,600 2,417
----- ----- -----
Total..................................................... 3,516 3,464 3,225
===== ===== =====
</TABLE>
NOTE 14 -- RETIREMENT AND SAVINGS PLANS
Effective December 31, 1994, the Company curtailed its qualified defined
benefit pension plans and implemented a qualified defined contribution plan
beginning January 1, 1995. As a result of the curtailment of the defined benefit
plan, the Company realized a gain of $7.0 million.
The Company's funding policy for its qualified defined benefit plans is to
contribute amounts determined in accordance with the minimum contribution
requirements of the Internal Revenue Service regulations. The Company made a
cash contribution of $712,000 for the plan year ended December 31, 1994 and
$984,000 for the plan year ended December 31, 1995, and will make no cash
contributions for the plan year ended December 31, 1996.
Additionally, the Company funds non-qualified defined benefit plan benefits
on a current basis. These cash contributions were $1,048,000 in 1994, $1,029,000
in 1995 and $1,077,000 in 1996.
The net periodic pension (benefit) cost for 1994, 1995, and 1996 includes
the following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Curtailment gain...................................... $(7,046) $ -- $ --
Service cost -- benefits earned during the period..... 2,622 192 386
Interest cost on projected benefit obligation......... 4,310 3,694 3,885
Actual return on assets............................... (3,414) (3,646) (3,179)
Amortization of prior service cost.................... 129 157 157
Amortization of (gains) losses........................ 86 (516) 162
Amortization of unrecognized net asset at January 1,
1985................................................ (407) (407) (407)
------- ------- -------
Net periodic pension (benefit) cost................... $(3,720) $ (526) $ 1,004
======= ======= =======
</TABLE>
The net periodic pension (benefit) cost was determined for the Company's
fiscal year using the pension plan year of January 1 through December 31. The
plans' funded status was determined as of December 31, 1995 and 1996 using the
following assumptions:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Discount rates....................................................... 7.75% 7.75%
Rates of increase in compensation levels............................. 4.75% 4.75%
Expected long-term rate of return on assets.......................... 7.75% 7.75%
</TABLE>
The discount rates are interest rates at which it is estimated that the
obligations of the plans could be settled through purchase of annuities as of
the dates shown.
F-42
<PAGE> 103
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
The following table sets forth the plans' funded status and the amounts
recognized in the Company's combined balance sheets at December 31, 1995 and
1996 (in thousands).
<TABLE>
<CAPTION>
1995 1996
----------------------------- -----------------------------
NON-QUALIFIED NON-QUALIFIED
QUALIFIED UNFUNDED QUALIFIED UNFUNDED
PLANS PLANS PLANS PLANS
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation............... $ (34,439) $(11,738) $ (37,922) $(11,622)
======== ======== ======== ========
Accumulated benefit obligation.......... $ (35,472) $(11,797) $ (38,936) $(11,699)
======== ======== ======== ========
Projected benefit obligation.............. $ (35,472) $(14,053) $ (38,936) $(13,404)
Plan assets at fair value................. 44,848 -- 48,199 --
-------- -------- -------- --------
Projected benefit obligation less plan
assets.................................. 9,376 (14,053) 9,263 (13,404)
Unrecognized net (gain) loss.............. (2,998) 1,124 (3,900) (46)
Prior service (benefit) cost not yet
recognized in net periodic pension
cost.................................... 12 1,408 11 1,272
Unrecognized net (asset) obligation at
January 1, 1985......................... (2,019) 357 (1,544) 289
Additional minimum liability.............. -- (633) -- --
-------- -------- -------- --------
Pension asset (liability) recognized in
the combined balance sheets............. $ 4,371 $(11,797) $ 3,830 $(11,889)
======== ======== ======== ========
</TABLE>
Prior to January 1, 1995, the Company had a qualified savings plan which
provided for basic and supplemental employee contributions and for the Company
to match up to 25% of the employee's basic contributions not to exceed 6% of the
employee's earnings. Prior to January 3, 1995, the Company had a non-qualified
savings plan in which it matched up to 30% of the employee's basic
contributions. The expense to the Company for the savings plans was
approximately $1,686,000 for the year ended December 31, 1994.
The RSP permits voluntary employee contributions on a pre-tax or after-tax
basis, and provides for the Company to match from 25%-60%, depending upon years
of service, of the first 6% of the employee's contributions. The MSP permits
voluntary employee contributions on an after-tax basis and provides for the
Company to match from 31.25%-75% of the first 6% of the employee's
contributions. The RSP and MSP provide for profit-sharing contributions from
2%-6% and 2.5%-7.5%, respectively, of the employee's earnings, based on years of
service. The expense to the Company for the RSP and MSP was approximately
$6,162,000 and $4,224,000 for the years ended December 31, 1995 and 1996,
respectively.
NOTE 15 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides an unfunded retiree medical benefit plan for
substantially all employees (except restaurant hourly employees) who retire on
or after age 55 with at least 5 years of service. The retiree pays the actual
costs of the plan with a Company subsidy provided for retirees with 10 or more
years of credited service. The dollar amount of this subsidy will be capped in
2003.
The total postretirement benefit cost for 1994, 1995, and 1996 includes the
following components (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Service cost -- benefits attributed to service during the
period...................................................... $170 $114 $112
Interest cost on accumulated postretirement benefit
obligation.................................................. 258 222 208
Amortization of (gains) losses................................ 2 (42) (49)
---- ---- ----
Net periodic postretirement benefit cost...................... $430 $294 $271
==== ==== ====
</TABLE>
F-43
<PAGE> 104
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
The following sets forth the components of the accumulated postretirement
benefit obligation of the plan and the amounts recognized in the Company's
combined balance sheets at December 31, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Fully eligible active plan participants........................ $ (96) $ (82)
Other active participants...................................... (1,794) (1,608)
Retirees....................................................... (1,425) (1,249)
------- -------
Total.................................................. (3,315) (2,939)
Unrecognized net gain............................................ (831) (1,477)
------- -------
Postretirement benefit obligation recognized in the combined
balance sheets................................................. $(4,146) $(4,416)
======= =======
</TABLE>
The assumed health care cost trend rates used to measure the expected cost
of benefits was 12.5% for the current year decreasing 0.5% per year to an
ultimate rate of 7% due to capping the Company subsidy at that time.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996, by $540,000 and would
increase the service and cost components of net periodic postretirement benefit
cost for 1996 by $53,000.
The weighted-average assumed discount rate used to measure the accumulated
postretirement benefit obligation for the years 1995 and 1996 was 7.75%.
NOTE 16 -- FEDERAL AND STATE INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended December 31, 1994, 1995, and 1996 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
Current:
Federal............................................ $22,382 $(18,311) $(9,478)
State and local.................................... 1,740 (700) 546
------- -------- -------
Total........................................... 24,122 (19,011) (8,932)
------- -------- -------
Deferred:
Federal............................................ (1,634) 6,275 7,816
State and local.................................... (233) 897 1,116
------- -------- -------
Total........................................... (1,867) 7,172 8,932
------- -------- -------
Provision (benefit) before extraordinary item........ 22,255 (11,839) --
Benefit of extraordinary item........................ (4,097) -- --
------- -------- -------
Provision (benefit) for income taxes................. $18,158 $(11,839) $ --
======= ======== =======
</TABLE>
F-44
<PAGE> 105
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Significant components of the Company's deferred income tax assets and
liabilities at December 31, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current deferred tax assets (liabilities):
Receivables.................................................. $ 4,486 $ 7,141
Inventories.................................................. 180 255
Accrued expenses............................................. 9,301 12,449
Closed store reserve......................................... 12,906 16,945
Other........................................................ 652 (16,610)
Valuation allowance.......................................... (8,964) (21,346)
-------- --------
Total current deferred tax assets.................... 18,561 (1,166)
-------- --------
Noncurrent deferred tax assets (liabilities):
Depreciation................................................. 18,246 15,273
Receivables.................................................. 3,930 3,810
Deferred gain -- real estate................................. (12,115) (12,538)
Estimated future cost of excess properties................... 10,756 --
Postretirement benefits...................................... 7,599 7,754
Credit carryforward.......................................... -- 9,858
AMT carryforward............................................. -- 6,539
Other........................................................ (141) 20,135
Valuation allowance.......................................... (4,764) (16,525)
-------- --------
Total noncurrent deferred tax assets................. 23,511 34,306
-------- --------
Net deferred tax assets........................................ $ 42,072 $ 33,140
======== ========
</TABLE>
The credit carryforwards are principally comprised of targeted jobs tax
credits and other credits of $9.9 million which expire from 2005 through 2007
and alternative minimum tax credits of $6.5 million which have indefinite
carryover periods.
A valuation allowance has been recognized, based on the weight of available
evidence, as it is more likely than not that some portion or all of the deferred
tax asset will not be realized.
A reconciliation of the provision for income taxes to income tax expense
(benefit) computed by applying the statutory federal income tax rate to pre-tax
earnings, is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax.............. $ 19,473 35.0% $(10,359) 35.0% $(9,751) 35.0%
Creditable minimum tax.................... -- -- -- -- 1,583 (5.7)
State and local income taxes, net of
federal income tax benefits............. 2,782 5.0 (1,480) 5.0 (1,393) 5.0
Valuation reserve......................... -- -- 13,728 (46.3) 24,143 (86.6)
Other permanent differences and
miscellaneous........................... -- -- (13,728) 46.3 (14,582) 52.3
----
-
-------- -------- ----- ------- ----
Provision (benefit) before extraordinary
item and accounting change.............. $ 22,255 40.0% $(11,839) 40.0% $ -- --%
======== ===== ======== ===== ======= ====
</TABLE>
The Company is a wholly-owned subsidiary of Imasco Holdings and is included
in its consolidated federal income tax returns. Imasco Holdings allocates income
tax expense or benefit as if the Company were filing separate federal income tax
returns. The amount of federal income taxes due to (from) Imasco Holdings for
1994, 1995, and 1996 was $6,177,000, ($12,614,000), and ($14,188,000),
respectively.
F-45
<PAGE> 106
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
The Internal Revenue Service is currently examining Imasco Holdings' 1993
and 1994 income tax returns. As of December 31, 1996, no adjustments have been
assessed. The Company believes that it has made adequate provision for income
taxes that may become payable with respect to this examination.
NOTE 17 -- LITIGATION
In the ordinary course of its business the Company is a party to a number
of legal proceedings as a plaintiff or defendant; however, management does not
believe that the ultimate disposition of any or all of these proceedings will
have a material effect on the financial statements of the Company.
NOTE 18 -- COMMITMENTS AND CONTINGENCIES
At December 31, 1996, the Company had outstanding capital commitments of
approximately $23,720,000.
NOTE 19 -- RELATED PARTY TRANSACTIONS
In addition to the Company, the following companies are controlled directly
or indirectly by Imasco Limited:
Imasco Finance, LLC ("Imasco LLC")
ITL (USA) Limited ("ITL")
Genstar Land Company ("Genstar Land")
During the years ended December 31, 1994, 1995, and 1996, the Company had
the following transactions with affiliates (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Payment of management fee to Imasco
Holdings................................... $ 500 $ 500 $ 860
Receipt of management fee from FFM........... -- -- (10,368)
Payment of interest to Imasco Holdings....... 112 389 205
Payment of interest to Imasco LLC............ 13,902 15,757 11,337
Payment of interest to ITL................... 729 839 515
Receipt of interest from Genstar Land........ (931) (840) (2,619)
Receipt of interest from FFM................. (4,332) (3,654) (2,725)
</TABLE>
On December 18, 1995, the Company issued 20 shares of its no par value,
$.50 per share stated value common stock to Imasco Holdings in exchange for
$50,000,000 cash and a $50,000,000 note. The note was paid on March 1, 1996. On
April 19, 1996, the Company issued 30 shares of its no par value, $.50 per share
stated value common stock to Imasco Holdings in exchange for $100,000,000. On
October 16, 1996, the Company issued an additional 40 shares of its no par
value, $.50 per share stated value common stock to Imasco Holdings in exchange
for $100,000,000. A return of capital of $136,987 has been offset against the
1996 capital contributions.
NOTE 20 -- SUBSEQUENT EVENTS
On March 19, 1997, Flagstar Enterprises, Inc. ("Flagstar"), which operates
approximately 580 Hardee's restaurants, commenced an arbitration proceeding
against Hardee's pursuant to provisions of its license agreements. The Demand
for Arbitration, which contains six claims, (i) alleges that Hardee's has
breached certain contractual, fiduciary, and statutory duties allegedly owed to
Flagstar, (ii) seeks a declaration relieving Flagstar from its obligations under
the post-termination covenants against competition contained in its license
agreements, and (iii) seeks an award of monetary damages in excess of $500
million (subject to trebling
F-46
<PAGE> 107
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
pursuant to the statutory claim). The proceeding is in its early stages. Based
on currently available information, Hardee's believes that these claims are
without merit and intends to defend against them vigorously. Therefore, no
estimate of any possible loss to Hardee's can be made at this time.
On April 27, 1997, an agreement was reached for the sale of the Company to
CKE Restaurants, Inc. ("CKE"). FFM, a wholly owned subsidiary of the Company
engaged in the food processing and distribution business and MRO, are not
included in the transaction. The purchase price is $327 million, subject to
post-closing adjustments. Up to $50 million of the consideration may be in the
form of a CKE convertible note. The transaction is subject to certain
conditions, including the completion of an equity issue by CKE and is expected
to close within the third quarter of 1997.
NOTE 21 -- SUPPLEMENTAL INFORMATION
The following results of operations for the three years ended December 31,
1996 represent the continuing operations of Hardee's Food Systems, Inc. after
the sale to CKE Restaurants, Inc. as discussed in Note 1. Included are the
results for the 808 restaurants open and operating as of December 31, 1996, the
franchising operations and the Equipment Division.
<TABLE>
<CAPTION>
(THOUSANDS)
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Company-operated restaurants............................. $593,391 $596,593 $645,409
Franchised and licensed restaurant and other............. 126,757 118,137 99,653
-------- -------- --------
Total revenues................................... 720,148 714,730 745,062
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Restaurant operations:
Food and packaging.................................... 192,971 204,125 219,559
Payroll and other employee benefits................... 190,907 213,302 237,604
Occupancy and other operating expenses................ 124,934 134,241 154,415
-------- -------- --------
508,812 551,668 611,578
Franchised and licensed restaurants and other............ 34,010 35,451 35,175
Advertising expenses..................................... 28,985 33,121 36,396
General and administrative expenses...................... 56,766 74,912 79,735
-------- -------- --------
Total operating costs and expenses............... 628,573 695,152 762,884
-------- -------- --------
OPERATING INCOME (LOSS).................................... $ 91,575 $ 19,578 $(17,822)
======== ======== ========
Number of Units............................................ 692 733 808
</TABLE>
Total general and administrative expenses for each year have been included
in operating results with no allocation to non-operating units.
F-47
<PAGE> 108
HARDEE'S FOOD SYSTEMS, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ -- $ 2,867
Receivables....................................................................... 22,277 18,406
Federal and state income taxes receivable......................................... 11,237 12,472
Inventories....................................................................... 10,906 12,101
Prepaid expenses and other current assets......................................... 3,016 3,058
--------- ---------
Total current assets............................................................ 47,436 48,904
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land.............................................................................. 93,065 92,035
Buildings, including improvements to leased properties............................ 388,757 393,281
Equipment, vehicles and fixtures.................................................. 240,145 246,496
Construction in progress.......................................................... 1,722 1,629
Leased property under capital leases.............................................. 10,518 10,645
--------- ---------
734,207 744,086
Less accumulated depreciation and amortization.................................... (336,883) (344,208)
--------- ---------
Total property, plant and equipment, net........................................ 397,324 399,878
--------- ---------
OTHER ASSETS:
Notes receivable due after one year............................................... 10,607 8,733
Intangible assets................................................................. 299 294
Deferred charges.................................................................. 627 595
Deferred income taxes............................................................. 34,306 34,306
Other............................................................................. 21 493
--------- ---------
Total other assets.............................................................. 45,860 44,421
--------- ---------
TOTAL ASSETS........................................................................ $ 490,620 $ 493,203
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Bank overdrafts................................................................... $ 5,359 $ --
Short-term borrowings............................................................. 10,000 9,000
Trade accounts payable............................................................ 10,317 10,281
Trade accounts payable -- affiliate............................................... 5,851 6,318
Other accounts payable and accrued expenses....................................... 75,956 71,759
Deferred income................................................................... 1,569 1,586
Current maturities of long-term debt.............................................. 46 66
Current maturities of obligations under capital leases............................ 606 561
Deferred income taxes............................................................. 1,166 1,166
--------- ---------
Total current liabilities......................................................... 110,870 100,737
--------- ---------
POSTRETIREMENT BENEFITS............................................................. 20,440 22,641
--------- ---------
ESTIMATED FUTURE COST OF EXCESS PROPERTIES.......................................... 21,403 21,403
--------- ---------
LONG-TERM DEBT TO PARENT............................................................ -- 19,721
--------- ---------
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES........................................ 1,709 1,684
--------- ---------
OBLIGATIONS UNDER CAPITAL LEASES, EXCLUDING CURRENT MATURITIES...................... 6,124 6,008
--------- ---------
DEFERRED CREDITS -- OTHER........................................................... 6,018 5,975
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock of no par value...................................................... -- --
Authorized 10,000,000 shares; 155 and 225 shares issued at stated value of $.50
per share in 1996 and 1997, respectively........................................ 1 1
Additional paid-in capital........................................................ 316,596 316,596
(Accumulated deficit) Retained earnings........................................... 7,459 (1,563)
--------- ---------
Total shareholder's equity...................................................... 324,056 315,034
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.......................................... $ 490,620 $ 493,203
========= =========
</TABLE>
See Accompanying Notes to Combined Financial Statements.
F-48
<PAGE> 109
HARDEE'S FOOD SYSTEMS, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
REVENUES:
Company-operated restaurants......................................... $168,976 $151,019
Franchised and licensed restaurants and other........................ 23,712 22,070
-------- --------
Total revenues............................................... 192,688 173,089
-------- --------
OPERATING COSTS AND EXPENSES:
Restaurant operations:
Food and packaging................................................ 58,779 50,308
Payroll and other employee benefits............................... 66,081 59,657
Occupancy and other operating expenses............................ 43,739 38,700
-------- --------
168,599 148,665
Franchised and licensed restaurants and other........................ 7,495 6,218
Advertising expenses................................................. 10,215 9,095
General and administrative expenses.................................. 17,923 19,450
-------- --------
Total operating costs and expenses........................... 204,232 183,428
-------- --------
OPERATING LOSS......................................................... (11,544) (10,339)
INTEREST EXPENSE....................................................... 2,932 823
OTHER EXPENSES (INCOME), NET........................................... 215 (2,140)
-------- --------
LOSS BEFORE INCOME TAXES............................................... (14,691) (9,022)
INCOME TAX............................................................. -- --
-------- --------
NET LOSS............................................................... $(14,691) $ (9,022)
======== ========
</TABLE>
See Accompanying Notes to Combined Financial Statements.
F-49
<PAGE> 110
HARDEE'S FOOD SYSTEMS, INC.
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
COMMON STOCK AT BEGINNING AND END OF PERIOD............................ $ 1 $ 1
-------- --------
ADDITIONAL PAID-IN CAPITAL:
Amount at beginning of period........................................ 253,583 316,596
Capital contributions................................................ 63,013 --
-------- --------
Amount at end of period........................................... 316,596 316,596
-------- --------
(ACCUMULATED DEFICIT) RETAINED EARNINGS:
Amount at beginning of period........................................ 35,318 7,459
Net loss............................................................. (27,859) (9,022)
-------- --------
Amount at end of period........................................... 7,459 (1,563)
-------- --------
TOTAL SHAREHOLDER'S EQUITY............................................. $324,056 $315,034
======== ========
</TABLE>
See Accompanying Notes to Combined Financial Statements.
F-50
<PAGE> 111
HARDEE'S FOOD SYSTEMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $(14,691) $ (9,022)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation (including amortization of leased property under capital
leases)..................................................................... 12,094 11,947
Amortization of intangible assets............................................ 61 37
Loss (gain) on disposition of property, plant and equipment.................. (83) 1,867
Provision for postretirement benefits........................................ 4,241 2,201
Amortization of gain on sale of real estate.................................. (288) (43)
Provision for excess properties expense...................................... 3,002 --
Provision for deferred income taxes.......................................... 666 --
Provision for bad debts...................................................... 272 1,704
Changes in assets and liabilities:
Receivables................................................................ (307) 3,890
Inventories................................................................ 1,151 (1,195)
Prepaid expenses and other current assets.................................. 428 (42)
Trade accounts payable..................................................... 3,530 431
Other accounts payable and accrued expenses................................ 2,852 (4,197)
Federal and state income taxes............................................. (1,238) (1,235)
Deferred income............................................................ 1,132 17
--------- ---------
Net cash provided by (used in) operating activities.......................... 12,822 6,360
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment..................................... (13,918) (20,807)
Proceeds from disposition of property, plant and equipment..................... 3,655 4,778
Increase in intangibles and other assets....................................... (972) (472)
Issuance of notes receivable................................................... -- (893)
Collection on notes receivable and direct financing leases..................... 2,247 705
--------- ---------
Net cash used in investing activities........................................ (8,988) (16,689)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayment of long-term debt.................................................... (13) (5)
Repayment of short-term borrowings............................................. -- (1,000)
Proceeds from notes payable to parent.......................................... 17,919 19,721
Bank overdrafts................................................................ -- (5,359)
Repayment of obligations under capital leases.................................. (185) (161)
--------- ---------
Net cash provided by financing activities.................................... 17,721 13,196
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................ 21,555 2,867
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................... 26,112 --
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................................... $ 47,667 $ 2,867
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of capitalized amount)......................................... $ (14) $ 326
Income taxes (net of refunds)................................................ (6,094) 1,701
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In conjunction with the acquisition/sale of restaurants to franchisees, the
Company exchanged notes receivable in the amount of......................... $ -- $ 339
--------- ---------
</TABLE>
See Accompanying Notes to Combined Financial Statements.
F-51
<PAGE> 112
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements include the accounts of Hardee's Food
Systems, Inc. (the "Company") a North Carolina Corporation and wholly-owned
subsidiary of Imasco Holdings, Inc. ("Imasco Holdings"), a Delaware corporation.
Imasco Holdings is a wholly-owned subsidiary of Imasco Limited, a Canadian
Corporation.
The accounts of Hardee's Food Systems, Inc. include the Restaurant and
Equipment Divisions, however, they do not include the accounts of Fast Food
Merchandisers, Inc. ("FFM") and MRO Mid-Atlantic, ("MRO") two directly owned
subsidiaries.
The common stock of Hardee's Food Systems, Inc. will be sold to CKE
Restaurants, Inc. under a stock purchase agreement dated April 27, 1997 (See
Note 3). FFM and MRO will be spun off to Imasco Holdings or one of its
affiliates.
The Restaurant Division operates a system of approximately 3,200 company
and franchise quick service restaurants under the Hardee's trademark in 37
states and 10 foreign countries. The Equipment Division is engaged in the
business of selling equipment and small wares to Hardee's and other restaurant
businesses.
NOTE 2 -- COMMITMENTS AND CONTINGENCIES
On March 19, 1997, Flagstar Enterprises, Inc. ("Flagstar"), which operates
approximately 580 Hardee's restaurants, commenced an arbitration proceeding
against Hardee's pursuant to provisions of its license agreements. The Demand
for Arbitration, which contains six claims, (i) alleges that Hardee's has
breached certain contractual, fiduciary and statutory duties allegedly owed to
Flagstar, (ii) seeks a declaration relieving Flagstar from its obligations under
the post-termination covenants against competition contained in its license
agreements, and (iii) seeks an award of monetary damages in excess of $500
million (subject to trebling pursuant to the statutory claim). The proceeding is
in its early stages. Based on currently available information, Hardee's believes
that these claims are without merit and intends to defend against them
vigorously. Therefore, no estimate of any possible loss to Hardee's can be made
at this time.
NOTE 3 -- SUBSEQUENT EVENTS
On April 27, 1997, an agreement was reached for the sale of the Company to
CKE Restaurants, Inc. ("CKE"). FFM, a wholly owned subsidiary of the Company
engaged in the food processing and distribution business, and MRO are not
included in the transaction. The purchase price is $327 million, subject to
post-closing adjustments. Up to $50 million of the consideration may be in the
form of a CKE convertible note. The transaction is subject to certain
conditions, including the completion of an equity issue by CKE and is expected
to close within the third quarter of 1997.
F-52
<PAGE> 113
HARDEE'S FOOD SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
NOTE 4 - SUPPLEMENTAL INFORMATION
The following results of operations for the three months ended March 31,
1996 and 1997 represent the continuing operations of Hardee's Food Systems, Inc.
after the sale to CKE Restaurants, Inc. as discussed in Note 1. Included are the
results for the 788 restaurants open and operating as of March 31, 1997, the
franchising operations and the Equipment Division.
<TABLE>
<CAPTION>
(THOUSANDS)
---------------------
1996 1997
-------- --------
<S> <C> <C>
REVENUES:
Company-operated restaurants................................. $141,208 $150,075
Franchised and licensed restaurants and other................ 23,712 22,070
-------- --------
Total revenues....................................... 164,920 172,145
-------- --------
OPERATING COSTS AND EXPENSES:
Restaurant operations:
Food and packaging........................................ 49,061 50,440
Payroll and other employee benefits....................... 54,193 58,810
Occupancy and other operating expenses.................... 33,812 37,367
-------- --------
137,066 146,617
Franchised and licensed restaurants and other................ 7,495 6,218
Advertising expenses......................................... 8,070 8,142
General and administrative expenses.......................... 17,923 19,450
-------- --------
Total operating costs and expenses................... 170,554 180,427
-------- --------
OPERATING LOSS................................................. $ (5,634) $ (8,282)
======== ========
Number of Units................................................ 730 788
</TABLE>
Total general and administrative expenses for each period have been
included in operating results with no allocation to non-operating units.
F-53
<PAGE> 114
[PHOTOGRAPHS OF EXTERIOR AND INTERIOR OF REPRESENTATIVE
RESTAURANTS AND PHOTOGRAPHS OF REPRESENTATIVE PRODUCTS]
<PAGE> 115
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
The Acquisition....................... 14
Use of Proceeds....................... 16
Price Range of Common Stock and
Dividend Policy..................... 16
Capitalization........................ 17
Unaudited Pro Forma Combined Condensed
Financial Information............... 18
Selected Consolidated Financial and
Operating Data...................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 38
Description of Certain Indebtedness... 48
Management............................ 50
Certain U.S. Tax Consequences to Non-
U.S. Holders........................ 52
Underwriting.......................... 54
Legal Matters......................... 56
Experts............................... 56
Available Information................. 57
Incorporation of Certain Documents by
Reference........................... 58
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
7,250,000 SHARES
[LOGO OF CKE RESTAURANTS]
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
MORGAN STANLEY DEAN WITTER
EQUITABLE SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY
, 1997
======================================================
<PAGE> 116
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION [ALTERNATE PAGE]
PRELIMINARY PROSPECTUS DATED JUNE 16, 1997
PROSPECTUS
7,250,000 SHARES
[LOGO OF CKE RESTAURANTS]
COMMON STOCK
------------------------
All of the shares of Common Stock being offered hereby are being sold by
CKE Restaurants, Inc. ("CKE"). Of the 7,250,000 shares of Common Stock offered
hereby, 1,450,000 shares are being offered outside of the United States and
Canada by the International Managers (the "International Offering") and
5,800,000 shares are being offered in a concurrent offering in the United States
and Canada by the U.S. Underwriters (the "U.S. Offering"). The price to public
and underwriting discount per share are identical for the International Offering
and U.S. Offering. See "Underwriting." CKE's Common Stock is listed on the New
York Stock Exchange under the symbol "CKR." On June 12, 1997, the last reported
sale price of the Common Stock on the New York Stock Exchange Composite Tape was
$26 3/4 per share. See "Price Range of Common Stock and Dividend Policy."
The Common Stock offered hereby is being issued to provide part of the
financing necessary for CKE's acquisition of Hardee's Food Systems, Inc.
("Hardee's") (the "Acquisition"). Prior to or concurrently with this offering,
CKE will enter into the New Credit Facility (as defined herein). This offering
is contingent upon the effectiveness of the New Credit Facility, and CKE plans
to close this offering concurrently with the closing of the Acquisition. See
"The Acquisition" and "Use of Proceeds."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
======================================================================================================
PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING COMPANY(2)
DISCOUNT(1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3).............................. $ $ $
======================================================================================================
</TABLE>
(1) CKE has agreed to indemnify the several Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933.
See "Underwriting."
(2) Before deducting expenses payable by CKE estimated at $750,000.
(3) CKE has granted the several International Managers and the U.S. Underwriters
(the "Underwriters") options to purchase up to 217,500 and 870,000
additional shares, respectively, of Common Stock to cover over-allotments,
if any. See "Underwriting." If such options are exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively.
------------------------
The shares of Common Stock are being offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares of
Common Stock will be made in New York, New York on or about ,
1997.
------------------------
MERRILL LYNCH INTERNATIONAL
ALEX. BROWN & SONS
INTERNATIONAL
MORGAN STANLEY DEAN WITTER
EQUITABLE SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY
------------------------
The date of this Prospectus is , 1997.
<PAGE> 117
[ALTERNATE PAGE]
UNDERWRITING
Subject to the terms and conditions contained in a purchase agreement (the
"International Purchase Agreement"), the Company has agreed to sell to the
International Managers named below (the "International Managers"), and the
International Managers, for whom Merrill Lynch International, Alex. Brown & Sons
Incorporated, Morgan Stanley & Co. International Limited, Equitable Securities
Corporation and Robertson, Stephens & Company LLC are acting as representatives
(the "International Representatives"), have severally agreed to purchase, the
number of shares of Common Stock set forth opposite their respective names
below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
---------
<S> <C>
Merrill Lynch International...............................
Alex. Brown & Sons Incorporated...........................
Morgan Stanley & Co. International Limited ...............
Equitable Securities Corporation..........................
Robertson, Stephens & Company LLC.........................
---------
Total........................................ 1,450,000
=========
</TABLE>
The Company has also entered into a purchase agreement (the "U.S. Purchase
Agreement" and, together with the International Purchase Agreement, the
"Agreements") with certain underwriters in the United States and Canada (the
"U.S. Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Alex. Brown & Sons Incorporated, Morgan Stanley & Co.
Incorporated, Equitable Securities Corporation and Robertson, Stephens & Company
LLC are acting as representatives (the "U.S. Representatives"). Subject to the
terms and conditions set forth in the U.S. Purchase Agreement, the Company has
agreed to sell to the U.S. Underwriters, and the U.S. Underwriters have
severally agreed to purchase, an aggregate of 5,800,000 shares of Common Stock.
The initial public offering price per share and the underwriting discount per
share are identical under the International Purchase Agreement and the U.S.
Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Managers and the several U.S. Underwriters
(collectively, the "Underwriters"), respectively, have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of Common
Stock being sold pursuant to such Agreement if any of the shares of Common Stock
being sold pursuant to such Agreement are purchased. The International Purchase
Agreement provides that, in the event of a default by an International Manager,
the purchase commitments of the non-defaulting International Managers may in
certain circumstances be increased, and the U.S. Purchase Agreement provides
that, in the event of a default by a U.S. Underwriter, the purchase commitments
of the non-defaulting U.S. Underwriters may in certain circumstances be
increased. The closing with respect to the sale of the shares of Common Stock
pursuant to the International Purchase Agreement is a condition to the closing
with respect to the sale of the shares of Common Stock pursuant to the U.S.
Purchase Agreement, and the closing with respect to the sale of the shares of
Common Stock pursuant to the U.S. Purchase Agreement is a condition to the
closing with respect to the sale of the shares of Common Stock pursuant to the
International Purchase Agreement. In addition, the closing with respect to the
sale of the shares of Common Stock pursuant to both of the Agreements is
contingent upon the effectiveness of the New Credit Facility and the concurrent
consummation of the Acquisition. See "The Acquisition."
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") which provides for the
coordination of their activities. Under the terms of
54
<PAGE> 118
[ALTERNATE PAGE]
the Intersyndicate Agreement, the International Managers and the U.S.
Underwriters are permitted to sell shares of Common Stock to each other.
Pursuant to the Intersyndicate Agreement, sales may be made between the
International Managers and the U.S. Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares of Common Stock
so sold shall be the initial public offering price, less an amount not greater
than the selling concession.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and
any dealer to whom they sell shares of Common Stock will agree to offer to sell
or sell shares of Common Stock only to persons whom they believe are United
States Persons or Canadian Persons (as defined in the Intersyndicate Agreement)
or to persons whom they believe intend to reoffer or resell the same to United
States Persons or Canadian Persons, and the International Managers and any bank,
broker or dealer to whom they sell shares of Common Stock will agree not to
offer to sell or sell shares of Common Stock to persons whom they believe to be
United States Persons or Canadian Persons or to persons whom they believe intend
to reoffer or resell the same to United States Persons or Canadian Persons,
except in each case for transactions pursuant to the Intersyndicate Agreement
which, among other things, permits the Underwriters to purchase from each other
and offer for resale such number of shares of Common Stock as the selling
Underwriter or Underwriters and the purchasing Underwriter or Underwriters may
agree.
The International Representatives have advised the Company that the
International Managers propose initially to offer the shares of Common Stock
offered hereby to the public at the public offering price set forth on the cover
page of this Prospectus, and to certain dealers at such price less a concession
not in excess of $ per share. The International Managers may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the offering contemplated hereby, the public
offering price, concession and discount may be changed.
The Company has granted to the International Managers an option,
exercisable for 30 days after the date hereof, to purchase up to 217,500
additional shares of Common Stock and the U.S. Underwriters an option,
exercisable for 30 days after the date hereof, to purchase up to 870,000
additional shares of Common Stock, in each case solely to cover over-allotments,
if any, at the initial public offering price less the underwriting discount. To
the extent that the International Managers exercise such option, each of the
International Managers will be obligated, subject to certain conditions, to
purchase approximately the same percentage of such shares which the number of
shares of Common Stock to be purchased by it shown in the foregoing table bears
to the total number of shares of Common Stock set forth in such table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act.
The Company has agreed that it will not, with certain exceptions, offer,
sell or otherwise dispose of any shares of Common Stock for a period of 90 days
from the date of this Prospectus without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated. This prohibition will not affect
shares of Common Stock issued by the Company pursuant to employee or director
benefit plans, any dividend reinvestment plan or the conversion or exercise of
securities convertible or exercisable for Common Stock. Each of the Company's
directors and executive officers has agreed that, for a period of 90 days from
the date of this Prospectus, he will not, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, offer, sell or otherwise
voluntarily dispose of any shares of Common Stock or any securities convertible
into or exercisable for Common Stock. In addition, Imasco Holdings has agreed
with the Company that it will not sell or otherwise dispose of the Subordinated
Note, if issued in connection with the Acquisition, or any shares of Common
Stock issuable upon conversion thereof for a period of 90 days from the
consummation of the Acquisition, and the Company has agreed that it will not
waive or modify such agreement without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the U.S. Representatives are permitted to
55
<PAGE> 119
[ALTERNATE PAGE]
engage in certain transactions that stabilize the price of the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the U.S.
Representatives may reduce that short position by purchasing Common Stock in the
open market. The U.S. Representatives may also elect to reduce any short
position through the exercise of all or part of the over-allotment options
described above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce the
Underwriters' short position or to stabilize the price of the Common Stock, they
may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the U.S.
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Each International Manager has agreed that (i) it has not offered or sold
and will not offer or sell any shares of Common Stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issue of the Common
Stock to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom such document may otherwise lawfully be issued or passed on; and
(iii) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation to
any shares of Common Stock in, from or otherwise involving the United Kingdom.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
their country of purchase, in addition to the offering price set forth on the
cover page hereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, Newport Beach, California. Certain legal matters in connection with
the offering will be passed upon for the Underwriters by Brown & Wood LLP, San
Francisco, California.
EXPERTS
The consolidated financial statements of CKE Restaurants, Inc. and its
subsidiaries as of January 31, 1996 and 1997, and for each of the years in the
three-year period ended January 31, 1997, have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
56
<PAGE> 120
[ALTERNATE PAGE]
independent certified public accountants, appearing elsewhere or incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The combined financial statements of Hardee's Food Systems, Inc. as of
December 31, 1995 and 1996, and for each of the years in the three-year period
ended December 31, 1996 included in this Prospectus have been audited by
Deloitte and Touche LLP, independent auditors, as stated in their report
appearing herein and are included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The consolidated financial statements of Summit Family Restaurants Inc. and
its subsidiaries as of September 26, 1994 and September 25, 1995, and for each
of the years in the three-year period ended September 25, 1995, have been
incorporated by reference herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Casa Bonita Incorporated and its
subsidiaries as of April 3, 1995 and April 1, 1996, and for each of the years in
the two-year period ended April 1, 1996, have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
CKE is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy and
information statements and other information filed by CKE can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
the following regional offices of the Commission: New York Regional Office,
Seven World Trade Center, 13th Floor, New York, New York 10048; and Chicago
Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, IL 60661-2511. Copies of such material can also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed rates. The Commission
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, such as CKE,
that file electronically with the Commission. Copies of such reports, proxy and
information statements and other information concerning CKE can also be
inspected at the offices of the New York Stock Exchange at 20 Broad Street, New
York, New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended. This Prospectus omits certain of the
information contained in the Registration Statement in accordance with the rules
and regulations of the Commission. Reference is hereby made to the Registration
Statement for further information with respect to the Company and the securities
offered hereby. Copies of the Registration Statement are on file at the offices
of the Commission and may be obtained upon payment of the prescribed fee or may
be examined without charge at the public reference facilities of the Commission
described above.
No action has been or will be taken in any jurisdiction by the Company or
by any Underwriter that would permit the public offering of the Common Stock or
the possession or distribution of this Prospectus in any jurisdiction where
action for that purpose is required, other than in the United States. Persons
into whose possession this Prospectus comes are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Common Stock and the distribution of this Prospectus.
57
<PAGE> 121
[ALTERNATE PAGE]
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference: (i) CKE's
Annual Report on Form 10-K for the fiscal year ended January 31, 1997; (ii)
CKE's Quarterly Report on Form 10-Q for the 16-week period ended May 19, 1997;
(iii) CKE's Current Reports on Form 8-K dated April 27, 1997, October 1, 1996
and July 15, 1996; and (iv) the description of the Company's Common Stock
contained in the Company's Registration Statement on Form 8-A dated April 6,
1994, including any amendment or report filed for the purpose of updating such
description.
All documents filed by CKE pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the Offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the respective dates of filing such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein, or
in an amendment or supplement hereto, or in any subsequently filed document
which also is or is deemed to be incorporated herein by reference, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide, without charge, to each person to whom a
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents referred to above that have been
incorporated in this Prospectus by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
the documents that are incorporated herein). Requests for such copies should be
directed to General Counsel, CKE Restaurants, Inc., 1200 North Harbor Boulevard,
Anaheim, California 92801, telephone (714) 774-5796.
58
<PAGE> 122
[ALTERNATE PAGE]
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
The Acquisition....................... 14
Use of Proceeds....................... 16
Price Range of Common Stock and
Dividend Policy..................... 16
Capitalization........................ 17
Unaudited Pro Forma Combined Condensed
Financial Information............... 18
Selected Consolidated Financial and
Operating Data...................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 38
Description of Certain Indebtedness... 48
Management............................ 50
Certain U.S. Tax Consequences to Non-
U.S. Holders........................ 52
Underwriting.......................... 54
Legal Matters......................... 56
Experts............................... 56
Available Information................. 57
Incorporation of Certain Documents by
Reference........................... 58
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
7,250,000 SHARES
[LOGO OF CKE RESTAURANTS]
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH INTERNATIONAL
ALEX. BROWN & SONS
INTERNATIONAL
MORGAN STANLEY DEAN WITTER
EQUITABLE SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY
, 1997
======================================================
<PAGE> 123
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereunder. All of the amounts
shown are estimates except for the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee...................................... $ 61,551
NASD filing fee........................................... 22,803
Printing expenses......................................... 250,000
Legal fees and expenses................................... 200,000
Accounting fees and expenses.............................. 125,000
Transfer agent and registrar fees......................... 5,000
Miscellaneous............................................. 85,646
--------
Total........................................... $750,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors in terms
sufficiently broad to indemnify officers and directors of the Registrant under
certain circumstances from liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. The Registrant's Certificate
of Incorporation and Bylaws provide, in effect, that, to the fullest extent and
under the circumstances permitted by Section 145 of the DGCL, the Registrant
will indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is a director or officer of the Registrant or is or was serving
at the request of the Registrant as a director or officer of another corporation
or enterprise. The Registrant may, in its discretion, similarly indemnify its
employees and agents. The Registrant's Certificate of Incorporation relieves the
Registrant's directors from monetary damages to the Registrant or its
stockholders for breach of such directors' fiduciary duty as directors to the
fullest extent permitted by the DGCL. Under Section 102(b)(7) of the DGCL, a
corporation may relieve its directors from personal liability to such
corporation or its stockholders for monetary damages for any breach of their
fiduciary duty as directors except (i) for any breach of the directors' duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for willful or negligent violations of certain provisions of the DGCL
imposing certain requirements with respect to stock repurchases, redemptions and
dividends, or (iv) for any transaction from which the director derived an
improper personal benefit. Depending upon the character of the proceeding, under
Delaware law, the Registrant may indemnify against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with any action, suit or proceeding if the
person indemnified acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interest of the Registrant, and,
with respect to a criminal action or proceeding, had no cause to believe his or
her conduct was unlawful. To the extent that the director or officer of the
Registrant has been successful in the defense of any action, suit or proceeding
referred to above, the Registrant would have the right to indemnify him or her
against expenses (including attorneys' fees) actually and reasonably incurred in
connection therewith.
II-1
<PAGE> 124
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
1.1 Form of U.S. Purchase Agreement.
1.2 Form of International Purchase Agreement.
3.1 Certificate of Incorporation of the Registrant, filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-4 (registration No. 33-52523), which is
incorporated herein by this reference.
3.2 Bylaws of the Registrant, filed as Exhibit 3.2 to the Registrant's Registration
Statement on Form S-4 (Registration No. 333-05305), which is incorporated herein by
this reference.
*5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation.
23.1 Consent of KPMG Peat Marwick LLP (with respect to the consolidated financial
statements of the Registrant and its subsidiaries).
23.2 Consent of KPMG Peat Marwick LLP (with respect to the consolidated financial
statements of Summit Family Restaurants Inc. and its subsidiaries).
23.3 Consent of KPMG Peat Marwick LLP (with respect to the consolidated financial
statements of Casa Bonita Incorporated and its subsidiaries).
23.4 Consent of Deloitte & Touche LLP (with respect to the combined financial statements
of Hardee's Food Systems, Inc.).
*23.5 Consent of Stradling, Yocca, Carlson & Rauth, a Professional Corporation (see Exhibit
5.1).
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each posteffective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provision described in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Anaheim, State of California, on the 13th day of
June, 1997.
CKE RESTAURANTS, INC.
By: /s/ CARL A. STRUNK
------------------------------------
Carl A. Strunk
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- --------------
<S> <C> <C>
* Chairman of the Board of June 13, 1997
- --------------------------------------------- Directors and Chief Executive
William P. Foley II Officer (Principal Executive
Officer)
/s/ CARL A. STRUNK Executive Vice President and June 13, 1997
- --------------------------------------------- Chief Financial Officer
Carl A. Strunk (Principal Financial Officer)
* Director June 13, 1997
- ---------------------------------------------
Byron Allumbaugh
* Director June 13, 1997
- ---------------------------------------------
Peter Churm
* Director June 13, 1997
- ---------------------------------------------
Carl L. Karcher
* Director June 13, 1997
- ---------------------------------------------
Carl N. Karcher
* Vice Chairman of the Board June 13, 1997
- ---------------------------------------------
Daniel D. (Ron) Lane
* Director June 13, 1997
- ---------------------------------------------
W. Howard Lester
* Director June 13, 1997
- ---------------------------------------------
Frank P. Willey
</TABLE>
*By: /s/ CARL A. STRUNK
-------------------------------
Carl A. Strunk
Attorney-in-Fact
II-3
<PAGE> 126
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
1.1 Form of U.S. Purchase Agreement.
1.2 Form of International Purchase Agreement.
3.1 Certificate of Incorporation of the Registrant, filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-4 (registration No. 33-52523), which is
incorporated herein by this reference.
3.2 Bylaws of the Registrant, filed as Exhibit 3.2 to the Registrant's Registration
Statement on Form S-4 (Registration No. 333-05305), which is incorporated herein by
this reference.
*5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation.
23.1 Consent of KPMG Peat Marwick LLP (with respect to the consolidated financial
statements of the Registrant and its subsidiaries).
23.2 Consent of KPMG Peat Marwick LLP (with respect to the consolidated financial
statements of Summit Family Restaurants Inc. and its subsidiaries).
23.3 Consent of KPMG Peat Marwick LLP (with respect to the consolidated financial
statements of Casa Bonita Incorporated and its subsidiaries).
23.4 Consent of Deloitte & Touche LLP (with respect to the combined financial statements
of Hardee's Food Systems, Inc.).
*23.5 Consent of Stradling, Yocca, Carlson & Rauth, a Professional Corporation (see Exhibit
5.1).
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CKE Restaurants, Inc.
(a Delaware corporation)
7,250,000 Shares of Common Stock
U.S. PURCHASE AGREEMENT
------------------------
Dated: -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
U.S. PURCHASE AGREEMENT.................................................................... 1
SECTION 1. Representations and Warranties............................................. 3
(a) Representations and Warranties by the Company...................... 3
(i) Compliance with Registration Requirements..................... 3
(ii) Incorporated Documents....................................... 4
(iii) Independent Accountants..................................... 4
(iv) Financial Statements......................................... 4
(v) No Material Adverse Change in Business........................ 4
(vi) Good Standing of the Company................................. 5
(vii) Good Standing of Subsidiaries............................... 5
(viii) Capitalization............................................. 5
(ix) Authorization of Agreement................................... 5
(x) Authorization and Description of Securities................... 6
(xi) Absence of Defaults and Conflicts............................ 6
(xii) Absence of Labor Dispute.................................... 6
(xiii) Absence of Proceedings..................................... 7
(xiv) Accuracy of Exhibits........................................ 7
(xv) Possession of Intellectual Property.......................... 7
(xvi) Absence of Further Requirements............................. 7
(xvii) Possession of Licenses and Permits......................... 7
(xviii) Title to Property......................................... 8
(xix) Compliance with Cuba Act.................................... 8
(xx) Investment Company Act....................................... 8
(xxi) Environmental Laws.......................................... 8
(xxii) Closing of the Hardee's Acquisition........................ 9
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing............................ 9
(a) Initial Securities................................................. 9
(b) Option Securities.................................................. 9
(c) Payment............................................................ 10
(d) Denominations; Registration........................................ 10
SECTION 3. Covenants of the Company................................................... 11
(a) Compliance with Securities Regulations and Commission
Requests........................................................... 11
(b) Filing of Amendments............................................... 11
(c) Delivery of Registration Statements................................ 11
(d) Delivery of Prospectuses........................................... 11
(e) Continued Compliance with Securities Laws.......................... 12
(f) Blue Sky Qualifications............................................ 12
(g) Rule 158........................................................... 13
(h) Use of Proceeds.................................................... 13
(i) Listing............................................................ 13
(j) Restriction on Sale of Securities.................................. 13
(k) Reporting Requirements............................................. 13
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 4. Payment of Expenses........................................................ 13
(a) Expenses.............................................................. 13
(b) Termination of Agreement.............................................. 14
SECTION 5. Conditions of U.S. Underwriters' Obligations............................... 14
(a) Effectiveness of Registration Statement............................ 14
(b) Opinion of Counsel for Company..................................... 14
(c) Opinion of Counsel for U.S. Underwriters........................... 15
(d) Officers' Certificate.............................................. 15
(e) Accountant's Comfort Letter........................................ 15
(f) Bring-down Comfort Letter.......................................... 15
(g) Approval of Listing................................................ 16
(h) No Objection....................................................... 16
(i) Lock-up Agreements................................................. 16
(j) Closing of Acquisition............................................. 16
(k) Additional Documents............................................... 16
(l) Purchase of International Securities............................... 16
(m) Conditions to Purchase of U.S. Option Securities................... 16
(n) Additional Documents............................................... 17
(o) Termination of Agreement........................................... 17
SECTION 6. Indemnification............................................................ 17
(a) Indemnification of U.S. Underwriters............................... 17
(b) Indemnification of Company, Directors and Officers................. 18
(c) Actions against Parties; Notification.............................. 18
(d) Settlement without Consent if Failure to Reimburse................. 19
SECTION 7. Contribution............................................................... 19
SECTION 8. Representations, Warranties and Agreements to Survive Delivery............. 20
SECTION 9. Termination of Agreement................................................... 20
(a) Termination; General............................................... 20
(b) Liabilities........................................................ 21
SECTION 10. Default by One or More of the U.S. Underwriters............................ 21
SECTION 11. Notices.................................................................... 22
SECTION 12. Parties.................................................................... 22
SECTION 13. GOVERNING LAW AND TIME..................................................... 22
SECTION 14. Effect of Headings......................................................... 22
SCHEDULES
Schedule A - List of Underwriters.............................................Sch A-1
Schedule B - Pricing Information..............................................Sch B-1
Schedule C - List of Subsidiaries.............................................Sch C-1
Schedule D - List of Persons subject to Lock-up...............................Sch D-1
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel...................................A-1
Exhibit B - Form of Lock-up Letter.................................................B-1
</TABLE>
ii
<PAGE> 4
CKE RESTAURANTS, INC.
(a Delaware corporation)
7,250,000 Shares of Common Stock
(Par Value $0.01 Per Share)
U.S. PURCHASE AGREEMENT
-, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
ALEX. BROWN & SONS INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
EQUITABLE SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY LLC
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
CKE Restaurants, Inc., a Delaware corporation (the "Company"), confirms
its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "U.S. Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Alex. Brown & Sons Incorporated, Morgan Stanley
& Co. Incorporated, Equitable Securities Corporation and Robertson, Stephens &
Company LLC are acting as representatives (in such capacity, the "U.S.
Representatives"), with respect to the issue and sale by the Company and the
purchase by the U.S. Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $0.01 per share, of the
Company ("Common Stock") set forth in said Schedule A, and with respect to the
grant by the Company to the U.S. Underwriters, acting severally and not jointly,
of the option described in Section 2(b) hereof to purchase all or any part of
870,000 additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 5,800,000 shares of
<PAGE> 5
Common Stock (the "Initial U.S. Securities") to be purchased by the U.S.
Underwriters and all or any part of the 870,000 shares of Common Stock subject
to the option described in Section 2(b) hereof (the "U.S. Option Securities")
are hereinafter called, collectively, the "U.S. Securities".
It is understood that the Company is concurrently entering into an
International Purchase Agreement dated the date hereof (the "International
Purchase Agreement") providing for the offering by the Company of an aggregate
of 1,450,000 shares of Common Stock (the "Initial International Securities")
through arrangements with certain underwriters outside of the United States and
Canada (the "International Underwriters") for whom Merrill Lynch International,
Alex. Brown & Sons Incorporated, Morgan Stanley & Co. International Ltd.,
Equitable Securities Corporation and Robertson, Stephens & Company LLC are
acting as lead managers (the "International Representatives"), and the grant by
the Company to the International Underwriters of an option to purchase all or
any part of an additional 217,500 shares of Common Stock (the "International
Option Securities") to cover over-allotments, if any. The Initial International
Securities and the International Option Securities are hereinafter sometimes
called, collectively, the "International Securities."
The U.S. Securities and the International Securities are hereinafter
sometimes called, collectively the "Securities;" the Initial U.S. Securities and
the Initial International Securities are hereinafter sometimes called,
collectively, the "Initial Securities;" the U.S. Option Securities and the
International Option Securities are hereinafter sometimes called, collectively,
the "Option Securities;" the U.S. Underwriters and the International
Underwriters are hereinafter sometimes called, collectively, the "Underwriters"
and, individually, an "Underwriter;" the U.S. Representatives and the
International Representatives are hereinafter sometimes called, collectively,
the "Representatives" and, individually, a "Representative;" and this Agreement
and the International Purchase Agreement are hereinafter sometimes called,
collectively, the "Purchase Agreements" and, individually, a "Purchase
Agreement."
The Company understands that the U.S. Underwriters and the International
Underwriters will concurrently enter into an Intersyndicate Agreement of even
date herewith (the "Intersyndicate Agreement") providing for the coordination of
certain transactions among the U.S. Underwriters and the International
Underwriters under the direction of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch").
The Company has entered into a Stock Purchase Agreement dated April 27,
1997, as amended (the "Stock Purchase Agreement"), with Imasco Holdings, Inc.
("Imasco"), and Hardee's Food Systems, Inc. ("Hardee's"), pursuant to which the
Company agreed to acquire all of the outstanding capital stock of Hardee's for a
purchase price of approximately $327 million, subject to certain adjustments
(the "Acquisition"). The Company plans to close the Acquisition concurrently
with the closing of the offering of the Common Stock and the effectiveness of a
new credit facility (the "New Credit Facility").
The Company understands that the U.S. Underwriters propose to make a
public offering of the Securities as soon as the U.S. Representatives deem
advisable after this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-27921) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
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after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto, schedules thereto, if any, and the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus,
including the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the 1933 Act, in the form first furnished to the Underwriters for
use in connection with the offering of the Securities is herein called the
"Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the
preliminary prospectus dated _____, 199_ together with the Term Sheet and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the Prospectus or any Term
Sheet or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
It is understood that any representation or warranty of the Company in
Section 1 hereof which relates to Hardee's is made to the best of the Company's
knowledge, with due inquiry by the Company.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") which is
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectus, as the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each U.S. Underwriter as of the date hereof, as of
the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each U.S.
Underwriter, as follows:
(i) Compliance with Registration Requirements. The Company meets
the require ments for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information has
been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
(including the filing of the Company's most recent Annual Report on Form
10-K with the Commission) became effective and at the Closing Time (and,
if any Option Securities are purchased, at the Date of Delivery), the
Registration Statement, the Rule 462(b) Registration Statement and any
amendments and supplements thereto complied and will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither the Prospectus nor any amendments or supplements thereto, at the
time the Prospectus or any such amendment or supplement was issued and
at the Closing Time (and, if any Option Securities are purchased,
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<PAGE> 7
at the Date of Delivery), included or will include an untrue statement
of a material fact or omitted or will omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus
made in reliance upon and in conformity with information furnished to
the Company in writing by any U.S. Underwriter or International
Underwriter through Merrill Lynch expressly for use in the
Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of
the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus delivered
to the Underwriters for use in connection with this offering was
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or
deemed to be incorporated by reference in the Registration Statement and
the Prospectus, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read
together with the other information in the Prospectus, at the time the
Registration Statement became effective, at the time the Prospectus was
issued and at the Closing Time (and if any Option Securities are
purchased, at the Date of Delivery), did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(iii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements of the
Company and the financial statements of Hardee's included in the
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the
Company and its consolidated subsidiaries at the dates indicated and the
statement of operations, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries for the periods specified;
said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present fairly
in accordance with GAAP the information required to be stated therein.
The selected financial data and the summary financial information
included in the Prospectus present fairly the information shown therein
and have been compiled on a basis consistent with that of the Company's
and Hardee's, as applicable, audited financial statements included in
the Registration Statement. The pro forma financial statements and the
related notes
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<PAGE> 8
thereto included in the Registration Statement and the Prospectus
present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to
pro forma financial statements and have been properly compiled on the
bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate
to give effect to the transactions and circumstances referred to
therein.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of
(1) the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business (a "Material
Adverse Effect"), or (2) Hardee's and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business,
(B) there have been no transactions entered into by the Company or any
of its subsidiaries, other than those in the ordinary course of
business, which are material with respect to the Company and its
subsidiaries considered as one enterprise, and (C) except for regular
semi-annual dividends on the Common Stock in amounts per share that are
consistent with past practice, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock. For purposes of this Agreement, all
references to "subsidiaries" of the Company shall include, without
limitation, in the case of any representation or warranty made or deemed
to have been made as of the Closing Time or at any time thereafter,
Hardee's and its subsidiaries.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing in
each other jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) and Hardee's (a "Subsidiary") has been duly organized
and is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect; except as otherwise disclosed
in the Registration Statement, all of the issued and outstanding capital
stock of each such Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and
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<PAGE> 9
is owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights
of any securityholder of such Subsidiary; all of the issued and
outstanding capital stock of Hardee's has been duly authorized and
validly issued, is fully paid and non-assessable and, at the Closing
Time will be owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity (except for liens created by the New Credit
Facility). The only subsidiaries of the Company are (a) the subsidiaries
listed on Schedule C hereto.
(viii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus). The shares of issued and
outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company.
(ix) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(x) Authorization and Description of Securities. The
Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered
by the Company pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued, fully paid and
non-assessable; the Common Stock conforms to all statements relating
thereto contained in the Prospectus and such description conforms to the
rights set forth in the instruments defining the same; no holder of the
Securities will be subject to personal liability by reason of being such
a holder; and the issuance of the Securities is not subject to the
preemptive or other similar rights of any securityholder of the Company.
(xi) Absence of Defaults and Conflicts. Neither the Company,
any of its subsidiaries nor Hardee's is in violation of its charter or
by-laws or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or any
subsidiary or Hardee's is subject (collectively, "Agreements and
Instruments") except for such defaults that would not result in a
Material Adverse Effect; and the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
herein and in the Registration Statement (including the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company with its obligations hereunder
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have been duly authorized by all necessary corporate action and do not
and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary or Hardee's pursuant to, the
Agreements and Instruments (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation
of the provisions of the charter or by-laws of the Company or any
subsidiary or Hardee's or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
the Company or any subsidiary or Hardee's or any of their assets,
properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any subsidiary.
(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any subsidiary or Hardee's exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of
its or any subsidiary's or Hardee's principal suppliers, manufacturers,
customers or contractors, which, in either case, may reasonably be
expected to result in a Material Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any subsidiary or Hardee's, which is required to be disclosed
in the Registra tion Statement (other than as disclosed therein), or
which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of
the transactions contemplated in this Agreement or the performance by
the Company of its obligations hereunder; the aggregate of all pending
legal or governmental proceedings to which the Company or any subsidiary
or Hardee's is a party or of which any of their respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material
Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or documents
which are required to be described in the Registration Statement, the
Prospectus or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(xv) Possession of Intellectual Property. The Company, its
subsidiaries and Hardee's own or possess, or can acquire on reasonable
terms, adequate patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented
and/or
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unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company,
any of its subsidiaries nor Hardee's has received any notice or is
otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company, any of its
subsidiaries or Hardee's therein, and which infringement or conflict (if
the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities laws.
(xvii) Possession of Licenses and Permits. The Company, its
subsidiaries and Hardee's possess such permits, licenses, approvals,
consents and other authorizations (collectively, "Governmental
Licenses") issued by the appropriate federal, state, local or foreign
regulatory agencies or bodies necessary to conduct the business now
operated by them; the Company, its subsidiaries and Hardee's are in
compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to comply would not, singly or in
the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company, any of its
subsidiaries nor Hardee's has received any notice of proceedings
relating to the revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material
Adverse Effect.
(xviii) Title to Property. The Company, its subsidiaries and
Hardee's have good and marketable title to all real property owned by
the Company, its subsidiaries and Hardee's and good title to all other
properties owned by them, in each case, free and clear of all mortgages,
pledges, liens, security interests, claims, restrictions or encumbrances
of any kind except such as (a) are described in the Prospectus or (b) do
not, singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company, any of its subsidiaries and Hardee's;
and all of the leases and subleases material to the business of the
Company, its subsidiaries and Hardee's, considered as one enterprise,
and under which the Company, any of its subsidiaries or Hardee's holds
properties described in the Prospectus, are in full force and effect,
and neither the Company, any subsidiary nor Hardee's has any notice of
any material claim of any sort that has been asserted by anyone adverse
to the rights of the Company, any subsidiary or Hardee's
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under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company, such subsidiary or Hardee's to
the continued possession of the leased or subleased premises under any
such lease or sublease.
(xix) Compliance with Cuba Act. The Company has complied with,
and is and will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with Cuba, codified
as Section 517.075 of the Florida statutes, and the rules and
regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(xx) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xxi) Environmental Laws. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company,
any of its subsidiaries nor Hardee's is in violation of any federal,
state, local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company its subsidiaries and Hardee's
have all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or
proceedings relating to any Environmental Law against the Company, any
of its subsidiaries and Hardee's and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company, any of its subsidiaries or Hardee's relating to Hazardous
Materials or any Environmental Laws.
(xxii) New Credit Facility. At or prior to the Closing Time, the
New Credit Facility will have been duly authorized by the Company; at or
prior to the Closing Time, the New Credit Facility will have been duly
executed and delivered by, and will be a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general principles of
equity, and all conditions precedent to the
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effectiveness of the New Credit Facility, and all conditions to the right of the
Company to make borrowings under the New Credit Facility will have been
satisfied or waived.
(xxiii) Closing of the Hardee's Acquisition. The Company has
complied with all terms and conditions with respect to the Acquisition
by the Company of Hardee's pursuant to the terms and provisions of the
Stock Purchase Agreement entered into among the Company, Imasco and
Hardee's, and no further action has to be taken to close the
Acquisition.
(b) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each U.S. Underwriter, severally and not
jointly, and each U.S. Underwriter, severally and not jointly, agrees to
purchase from the Company, at the price per share set forth in Schedule B, the
number of Initial U.S. Securities set forth in Schedule A opposite the name of
such U.S. Underwriter, plus any additional number of Initial U.S. Securities
which such U.S. Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the U.S.
Underwriters, severally and not jointly, to purchase up to an additional 870,000
shares of Common Stock at the price per share set forth in Schedule B, less an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial U.S. Securities but not payable on the U.S. Option
Securities. The option hereby granted will expire 30 days after the date hereof
and may be exercised in whole or in part from time to time only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial U.S. Securities upon notice by the U.S.
Representatives to the Company setting forth the number of U.S. Option
Securities as to which the several U.S. Underwriters are then exercising the
option and the time and date of payment and delivery for such U.S. Option
Securities. Any such time and date of delivery (a "Date of Delivery") shall be
determined by the U.S. Representatives, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Time, as hereinafter defined. If the option is exercised as to all or
any portion of the U.S. Option Securities, each of the U.S. Underwriters, acting
severally and not jointly, will purchase that proportion of the total number of
U.S. Option Securities then being purchased which the number of Initial
Securities set forth in Schedule A opposite the name of such U.S. Underwriter
bears to the total number of Initial U.S. Securities, subject in each case to
such adjustments as the U.S. Representatives in their discretion shall make to
eliminate any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial U.S. Securities shall be made at the offices of
Stradling, Yocca, Carlson & Rauth, a Professional Corporation, 660 Newport
Center Drive, Suite 1600, Newport Beach, California 92660, or at such
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other place as shall be agreed upon by the U.S. Representatives and the Company,
at 7:00 A.M. (California time) on the third (fourth, if the pricing occurs after
4:30 P.M. (Eastern time) on any given day) business day after the date hereof
(unless postponed in accordance with the provisions of Section 10), or such
other time not later than ten business days after such date as shall be agreed
upon by the U.S. Representatives and the Company (such time and date of payment
and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
U.S. Representatives and the Company, on each Date of Delivery as specified in
the notice from the U.S. Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the U.S. Representatives for the respective accounts of the U.S. Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the U.S. Representatives, for its account, to
accept delivery of, receipt for, and make payment of the purchase price for, the
Initial U.S. Securities and the U.S. Option Securities, if any, which it has
agreed to purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial U.S. Securities or the U.S. Option Securities, if any, to
be purchased by any Underwriter whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such U.S. Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the U.S. Representatives immediately, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement
shall become effective, or any supplement to the Prospectus or any
amended Prospectus shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information, and (iv) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
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suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) Filing of Amendments. The Company will give the U.S.
Representatives notice of its intention to file or prepare any amendment
to the Registration Statement (including any filing under Rule 462(b))
or any amendment, supplement or revision to either the prospectus
included in the Registration Statement at the time it became effective
or to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or
otherwise, will furnish the U.S. Representatives with copies of any such
documents a reasonable amount of time prior to such proposed filing or
use, as the case may be, and will not file or use any such document to
which the U.S. Representatives or counsel for the U.S. Underwriters
shall object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the U.S. Representatives and counsel for
the U.S. Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein and
documents incorporated or deemed to be incorporated by reference
therein) and signed copies of all consents and certificates of experts,
and will also deliver to the U.S. Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of
each amendment thereto (without exhibits) for each of the U.S.
Underwriters. The copies of the Registration Statement and each
amendment thereto furnished to the U.S. Underwriters will be identical
to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
U.S. Underwriter, without charge, as many copies of each preliminary
prospectus as such U.S. Underwriter reasonably requested, and the
Company hereby consents to the use of such copies for purposes permitted
by the 1933 Act. The Company will furnish to each U.S. Underwriter,
without charge, during the period when the Prospectus is required to be
delivered under the 1933 Act or the 1934 Act, such number of copies of
the Prospectus (including the Prospectus Supplement) (as amended or
supplemented) as such U.S. Underwriter may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
U.S. Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to
the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act
and the 1934 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement and in
the Prospectus. If at any time when a prospectus is required by the 1933
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<PAGE> 16
Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is
necessary, in the opinion of counsel for the U.S. Underwriters or for
the Company, to amend the Registration Statement or amend or supplement
the Prospectus in order that the Prospectus will not include any untrue
statements of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser,
or if it shall be necessary, in the opinion of such counsel, at any such
time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or
the 1933 Act Regulations, the Company will promptly prepare and file
with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such statement or omission or
to make the Registration Statement or the Prospectus comply with such
requirements, and the Company will furnish to the U.S. Underwriters such
number of copies of such amendment or supplement as the U.S.
Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the U.S. Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws of
such states and other jurisdictions (domestic or foreign) as the U.S.
Representatives may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject. In each jurisdiction in which the Securities
have been so qualified, the Company will file such statements and
reports as may be required by the laws of such jurisdiction to continue
such qualification in effect for a period of not less than one year from
the effective date of the Registration Statement and any Rule 462(b)
Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant
to the 1934 Act as are necessary in order to make generally available to
its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectus under "Use of Proceeds".
(i) Listing. The Company will comply with all rules and
regulations of the New York Stock Exchange in respect of the listing of
the Common Stock and will use its best efforts to effect the listing of
the Securities on the New York Stock Exchange.
(j) Restriction on Sale of Securities. During a period of 90 days
from the date of the Prospectus, the Company will not, without the prior
written consent of Merrill Lynch, (i) directly or indirectly, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or
warrant to
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purchase or otherwise transfer or dispose of any share of Common Stock
or any securities convertible into or exercisable or exchangeable for
Common Stock or file any registration statement under the 1933 Act with
respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not
apply to (A) the Securities to be sold hereunder, (B) any shares of
Common Stock issued by the Company upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof
and referred to in the Prospectus, (C) any shares of Common Stock issued
or options to purchase Common Stock granted pursuant to existing
employee benefit plans of the Company referred to in the Prospectus or
(D) any shares of Common Stock issued pursuant to any non-employee
director stock plan or dividend reinvestment plan.
(k) Reporting Requirements. The Company, during the period when
the Prospectus is required to be delivered under the 1933 Act or the
1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the 1934 Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters, and any
transfers of Securities between U.S. Underwriters and International Underwriters
pursuant to the Intersyndicate Agreement, (iv) the fees and disbursements of the
Company's counsel, accountants and other advisors, (v) the qualification of the
Securities under securities laws in accordance with the provisions of Section
3(f) hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection therewith and in connection with the
preparation of the Blue Sky Survey and any supplement thereto and any Canadian
"wrapper," (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus supplements and of the Prospectus and any amendments or
supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities and
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Securities and (x) the fees and expenses incurred in connection with the
listing of the Securities on the New York Stock Exchange.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the U.S. Underwriters.
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SECTION 5. Conditions of U.S. Underwriters' Obligations. The obligations
of the several U.S. Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the 1933 Act
or proceedings therefor initiated or threatened by the Commission, and
any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of counsel
to the U.S. Underwriters. A prospectus containing the Rule 430A
Information shall have been filed with the Commission in accordance with
Rule 424(b) (or a post-effective amendment providing such information
shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon
Rule 434, a Term Sheet shall have been filed with the Commission in
accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, counsel for the Company, in form and substance satisfactory
to counsel for the U.S. Underwriters, together with signed or reproduced
copies of such letter for each of the other U.S. Underwriters to the
effect set forth in Exhibit A hereto and to such further effect as
counsel to the U.S. Underwriters may reasonably request.
(c) Opinion of Counsel for U.S. Underwriters. At Closing Time,
the U.S. Representatives shall have received the favorable opinion,
dated as of Closing Time, of Brown & Wood LLP, counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters with respect to the matters set
forth in clauses (i), (v), (vi) (solely as to preemptive or other
similar rights arising by operation of law or under the charter or
by-laws of the Company), (viii) through (x), inclusive, (xiv) (solely as
to the description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A dated April 6, 1994, and
the penultimate paragraph of Exhibit A hereto). In giving such opinion
such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the
federal law of the United States, upon the opinions of counsel
satisfactory to the U.S. Representatives. Such counsel may also state
that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of
the Company and its subsidiaries and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in
the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company, its subsidiaries and
Hardee's considered as one enterprise, whether or not arising in the
ordinary course of business, and
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the U.S. Representatives shall have received a certificate of the
President or a Vice President of the Company and of the chief financial
or chief accounting officer of the Company, dated as of Closing Time, to
the effect that (i) there has been no such material adverse change, (ii)
the representations and warranties in Section 1(a) hereof are true and
correct with the same force and effect as though expressly made at and
as of Closing Time, (iii) the Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied at
or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or are
contemplated by the Commission.
(e) Accountants' Comfort Letters. At the time of the execution of
this Agreement, the Representatives shall have received from each of
KPMG Peat Marwick LLP and Deloitte & Touche LLP a letter dated such
date, in form and substance satisfactory to the Representatives,
together with signed or reproduced copies of such letter for each of the
other Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(f) Bring-down Comfort Letters. At Closing Time, the U.S.
Representatives shall have received from each of KPMG Peat Marwick LLP
and Deloitte & Touche LLP a letter, dated as of Closing Time, to the
effect that they reaffirm the statements made in their response letters
furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three business
days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall
have been approved for listing on the New York Stock Exchange, subject
only to official notice of issuance.
(h) No Objection. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the U.S.
Representatives shall have received an agreement substantially in the
form of Exhibit B hereto signed by the persons listed on Schedule D
hereto.
(j) Closing of Acquisition. At Closing Time, the Company shall
have complied with all terms and conditions with respect to the
Acquisition by the Company of Hardee's pursuant to the terms and
provisions of the Stock Purchase Agreement entered into among the
Company, Imasco and Hardee's, and no further action shall be required to
close the Acquisition.
(k) Additional Documents. At Closing Time and at each Date of
Delivery counsel for the U.S. Underwriters shall have been furnished
with such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings
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<PAGE> 20
taken by the Company in connection with the issuance and sale of the
Securities as herein contemplated shall be satisfactory in form and
substance to the U.S. Representatives and counsel for the U.S.
Underwriters.
(l) Purchase of International Securities. Concurrently with the
purchase of the Initial U.S. Securities by the U.S. Underwriters, the
International Underwriters shall have purchased and paid for the Initial
International Securities under the International Purchase Agreement.
(m) Conditions to Purchase of U.S. Option Securities. In the
event that the U.S. Underwriters exercise their option provided in
Section 2(b) hereof to purchase all or any portion of the U.S. Option
Securities, the representations and warranties of the Company contained
herein and the statements in any certificates furnished by the Company
or any subsidiary of the Company hereunder shall be true and correct as
of each Date of Delivery and, at the relevant Date of Delivery, the U.S.
Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and
of the chief financial or chief accounting officer of the Company
confirming that the certificate delivered at the Closing Time
pursuant to Section 5(d) hereof remains true and correct as of
such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of
Stradling, Yocca, Carlson & Rauth, a Professional Corporation,
counsel for the Company, in form and substance satisfactory to
counsel for the U.S. Underwriters, dated such Date of Delivery,
relating to the U.S. Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(b) hereof.
(iii) Opinion of Counsel for U.S. Underwriters. The favorable
opinion of Brown & Wood LLP, counsel for the U.S. Underwriters,
dated such Date of Delivery, relating to the U.S. Option
Securities to be purchased on such Date of Delivery and otherwise
to the same effect as the opinion required by Section 5(c)
hereof.
(iv) Bring-down Comfort Letter. A letter from each of KPMG Peat
Marwick LLP and Deloitte & Touche LLP, in form and substance
satisfactory to the U.S. Representatives and dated such Date of
Delivery, substantially in the same form and substance as the
letter furnished to the U.S. Representatives pursuant to Section
5(f) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more
than five days prior to such Date of Delivery.
(n) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the U.S. Underwriters shall have been furnished
with such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company
in connection with the issuance and sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the U.S. Underwriters.
(o) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any
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condition to the purchase of U.S. Option Securities, on a Date of
Delivery which is after the Closing Time, the obligations of the several
U.S. Underwriters to purchase the relevant U.S. Option Securities, may
be terminated by the U.S. Representatives by notice to the Company at
any time at or prior to Closing Time or such Date of Delivery, as the
case may be, and such termination shall be without liability of any
party to any other party except as provided in Section 4 and except that
Sections 1, 6, 7 and 8 shall survive any such termination and remain in
full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of U.S. Underwriters. (1) The Company agrees to
indemnify and hold harmless each U.S. Underwriter and each person, if any, who
controls any U.S. Underwriter within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act as follows:
(i) Against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission
or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) Against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission; provided that (subject to
Section 6(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) Against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i), (ii) or (iii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if
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applicable, or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(b) Indemnification of Company, Directors and Officers. Each U.S.
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus, the
Preliminary Prospectus Supplement or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Company by such U.S. Underwriter through Merrill Lynch
expressly for use in the Registration Statement (or any amendment thereto) or
such preliminary prospectus, the Preliminary Prospectus Supplement or the
Prospectus (or any amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemni fying party shall not relieve
such indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circum stances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could
be sought under this Section 6 or Section 7 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
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entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the U.S. Underwriters on the other hand from the offering of the U.S.
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the U.S.
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
U.S. Underwriters on the other hand in connection with the offering of the U.S.
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the U.S.
Underwriters, in each case as set forth on the cover of the Prospectus, bear to
the aggregate initial public offering price of the Securities as set forth on
such cover.
The relative fault of the Company on the one hand and the U.S.
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the U.S. Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the U.S. Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the U.S. Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities
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underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such U.S. Underwriter has otherwise been
required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The U.S. Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial U.S. Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any U.S.
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the U.S. Underwriters and the
International Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The U.S. Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the U.S.
Representatives, impracticable to market the U.S. Securities or to enforce
contracts for the sale of the U.S. Securities, or (iii) if trading in any
securities of the Company has been suspended or materially limited by the
Commission or the New York Stock Exchange, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the
National Association of Securities Dealers, Inc. or any other governmental
authority, or (iv) if a banking moratorium has been declared by either Federal
or New York authorities.
21
<PAGE> 25
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the U.S. Underwriters. If one or
more of the Underwriters shall fail at Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the U.S. Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the number of Securities to be purchased on such date, each of the
non-defaulting U.S. Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the Underwriters to purchase and of the Company
to sell the Option Securities to be purchased and sold on such Date of
Delivery shall terminate without liability on the part of any
non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
U.S. Underwriters to purchase and the Company to sell the relevant U.S. Option
Securities, as the case may be, either the U.S. Representatives or the Company
shall have the right to postpone Closing Time or the relevant Date of Delivery,
as the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "U.S. Underwriter" includes
any person substituted for an U.S. Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of Syndicate
Operations; and notices to the Company shall be directed to it at 1200 North
Harbor Boulevard, Anaheim, California 92801, attention of Carl A. Strunk,
Executive Vice President and Chief Financial Officer, with copies to Andrew F.
Puzder, Executive Vice President and General Counsel and to Stradling, Yocca,
Carlson & Rauth, a Professional Corporation, 660 Newport Center Drive, Suite
1600, Newport Beach, California 92660.
22
<PAGE> 26
SECTION 12. Parties. This Agreement shall each inure to the benefit of
and be binding upon the U.S. Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the U.S.
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the U.S. Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any U.S.
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF
DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
23
<PAGE> 27
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the U.S. Underwriters and the Company in accordance with its terms.
Very truly yours,
CKE RESTAURANTS, INC.
By
--------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
ALEX. BROWN & SONS INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
EQUITABLE SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY LLC
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
-------------------------------------
Authorized Signatory
For themselves and as U.S. Representatives of the other
U.S. Underwriters named in Schedule A hereto.
24
<PAGE> 28
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial U.S.
Name of U.S. Underwriter Securities
------------------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated...............
Alex. Brown & Sons Incorporated..................................
Morgan Stanley & Co. Incorporated................................
Equitable Securities Corporation.................................
Robertson, Stephens & Company LLC................................
---------
Total............................................................ 5,800,000
=========
</TABLE>
Sch A - 1
<PAGE> 29
SCHEDULE B
CKE Restaurants, Inc.
7,250,000 Shares of Common Stock
(Par Value $0.01 Per Share)
1. The initial public offering price per share for the
U.S. Securities, determined as provided in said Section 2, shall be $-.
2. The purchase price per share for the U.S. Securities to be
paid by the several U.S. Underwriters shall be $-, being an amount equal
to the initial public offering price set forth above less $- per share;
provided that the purchase price per share for any Option Securities
purchased upon the exercise of the over-allotment option described in
Section 2(b) shall be reduced by an amount per share equal to any
dividends or distributions declared by the Company and payable on the
Initial U.S. Securities but not payable on the U.S. Option Securities.
Sch B - 1
<PAGE> 30
[SCHEDULE C]
[List of subsidiaries]
Sch C- 1
<PAGE> 31
[SCHEDULE D]
[List of persons and entities
subject to lock-up]
Sch D- 1
<PAGE> 32
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure
so to qualify or to be in good standing would not result in a Material
Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to the Purchase Agreement or pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus); the shares of issued and out
standing capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; and none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company.
(v) The Securities have been duly authorized for issuance and
sale to the Underwriters pursuant to the Purchase Agreement and, when
issued and delivered by the Company pursuant to the Purchase Agreement
against payment of the consideration set forth in the Purchase
Agreement, will be validly issued and fully paid and non-assessable and
no holder of the Securities is or will be subject to personal liability
by reason of being such a holder.
(vi) The issuance of the Securities is not subject to the
preemptive or other similar rights of any securityholder of the Company.
(vii) Each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good
A-1
<PAGE> 33
standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued and
outstanding capital stock of each Subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and, to the best of
our knowledge, is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; none of the outstanding shares of
capital stock of any Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary.
(viii) The Purchase Agreement has been duly authorized,
executed and delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b);
and, to the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or
threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectus, excluding the documents
incorporated by reference therein, and each amendment or supplement to
the Registration Statement and Prospectus, excluding the documents
incorporated by reference therein, as of their respective effective or
issue dates (other than the financial statements and supporting
schedules included therein or omitted therefrom, as to which we need
express no opinion) complied as to form in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations.
(xi) The documents incorporated by reference in the
Prospectus (other than the financial statements and supporting schedules
included therein or omitted therefrom, as to which we need express no
opinion), when they were filed with the Commission complied as to form
in all material respects with the requirements of the 1933 Act or the
1934 Act and the rules and regulations of the Commission thereunder.
(xii) The form of certificate used to evidence the Common
Stock complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the charter and
by-laws of the Company and the requirements of the New York Stock
Exchange.
(xiii) To the best of our knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to
which the Company or any subsidiary is a party, or to which the property
of the Company or any subsidiary is subject, before or brought by any
court or governmental agency or body, domestic or foreign, which might
reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of the transactions
contemplated in the Purchase Agreement or the performance by the Company
of its obligations thereunder.
A-2
<PAGE> 34
(xiv) The information contained in the Company's registration
statement on Form 8-A dated April 6, 1994 under "Description of Capital
Stock--Common Stock", "Business-- Trademarks and Service Marks",
"Business--Government Regulations", "Business--Properties",
"Business--Legal Proceedings", and "Description of Certain Indebtedness"
and in the Registration Statement under Item 15, to the extent that it
constitutes matters of law, summaries of legal matters, the Company's
charter and bylaws or legal proceedings, or legal conclusions, has been
reviewed by us and is correct in all material respects.
(xv) To the best of our knowledge, there are no statutes or
regulations that are required to be described in the Prospectus that are
not described as required.
(xvi) All descriptions in the Registration Statement of
contracts and other documents to which the Company or its subsidiaries
are a party are accurate in all material respects; to the best of our
knowledge, there are no franchises, contracts, indentures, mortgages,
loan agreements, notes, leases or other instruments required to be
described or referred to in the Registration Statement or to be filed as
exhibits thereto other than those described or referred to therein or
filed or incorporated by reference as exhibits thereto, and the
descriptions thereof or references thereto are correct in all material
respects.
(xvii) To the best of our knowledge, neither the Company nor
any subsidiary is in violation of its charter or by-laws and no default
by the Company or any subsidiary exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument that is described or referred to
in the Registration Statement or the Prospectus or filed or incorporated
by reference as an exhibit to the Registration Statement.
(xviii) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other than under
the 1933 Act and the 1933 Act Regulations, which have been obtained, or
as may be required under the securities or blue sky laws of the various
states, as to which [we] need express no opinion) is necessary or
required in connection with the due authorization, execution and
delivery of the Purchase Agreement or for the offering, issuance, sale
or delivery of the Securities.
(xix) The execution, delivery and performance of the Purchase
Agreement and the consum mation of the transactions contemplated in the
Purchase Agreement and in the Registration Statement (including the
issuance and sale of the Securities and the use of the proceeds from the
sale of the Securities as described in the Prospectus under the caption
"Use Of Proceeds") and compliance by the Company with its obligations
under the Purchase Agreement do not and will not, whether with or
without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in
Section 1(a)(xi) of the Purchase Agreement) under or result in the
creation or imposition of any lien, charge or encum brance upon any
property or assets of the Company or any subsidiary pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or any other agreement or instrument, known to us, to which
the Company or any subsidiary is a party or by which it or
any of them may be bound, or to which any of the property or assets of
the Company or any subsidiary is subject (except for such conflicts,
breaches or defaults
A-3
<PAGE> 35
or liens, charges or encumbrances that would not have a Material Adverse
Effect), nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or any subsidiary, or any
applicable law, statute, rule, regulation, judgment, order, writ or
decree, known to us, of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
subsidiary or any of their respective properties, assets or operations.
(xx) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the 1940 Act.
Nothing has come to our attention that would lead us to believe
that the Registration Statement or any amendment thereto, including the
Rule 430A Information and Rule 434 Informa tion (if applicable), (except
for financial statements and schedules and other financial data included
or incorporated by reference therein or omitted therefrom, as to which
we need make no statement), at the time such Registration Statement or
any such amendment became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or
that the Prospectus or any amendment or supplement thereto (except for
financial statements and schedules and other financial data included or
incorporated by reference therein or omitted therefrom, as to which we
need make no statement), at the time the Prospectus was issued, at the
time any such amended or supplemented prospectus was issued or at the
Closing Time, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering such opinion, such counsel may rely as to matters of
fact (but not as to legal conclusions), to the extent they deem proper,
on certificates of responsible officers of the Company and public
officials. Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written
policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law
(1991).
A-4
<PAGE> 36
Exhibit B
-, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
ALEX. BROWN & SONS INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
EQUITABLE SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY LLC
as U.S. Representatives of the several
U.S. Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
MERRILL LYNCH INTERNATIONAL
ALEX. BROWN & SONS INCORPORATED
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
EQUITABLE SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY LLC
as International Representatives of the several
International Underwriters to be named in the
within-mentioned International Purchase Agreement
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Re: Proposed Public Offering by CKE Restaurants, Inc.
Dear Sirs:
The undersigned, a stockholder and an officer and/or director of CKE
Restaurants, Inc., a Delaware corporation (the "Company"), understands that Me
rill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), Alex. Brown & Sons Incorporated, Morgan Stanley & Co. Incorporated,
Equitable Securities Corporation and Robertson, Stephens & Company LLC, as the
U.S. Representatives of the several U.S. Underwriters (the "U.S. Underwriters")
to be named in the U.S. Purchase Agreement hereinafter referred to, and Merrill
Lynch International, Alex. Brown & Sons Incorporated, Morgan Stanley & Co.
International Limited, Equitable Securities Corporation and Robertson, Stephens
& Company LLC, as the international representatives of the several International
Underwriters (the "International Underwriters") to be named as the International
Purchase Agreement hereinafter referred to propose to enter into a Purchase
Agreement (the "Purchase Agreement") with the Company providing for the public
offering of shares (the "Securities") of the Company's common stock, par value
$0.01 per share (the "Common Stock"). In recognition of the benefit that such an
offering will confer upon the undersigned as a stockholder and an officer and/or
director of the Company, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned agrees
with each underwriter to be named in the Purchase Agreement that, during a
period of 90 days from the date of the Purchase Agreement, the under signed will
not, without the prior written consent of Merrill Lynch, directly or indirectly,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of, or otherwise dispose of or transfer any shares of the
Company's Common Stock or any securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the under signed has or hereafter acquires
the power of disposition, or file any registration statement under the
Securities Act of 1933, as amended, with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in
B-1
<PAGE> 37
part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction is to be settled by delivery
of Common Stock or other securities, in cash or otherwise.
Very truly yours,
Signature:
--------------------------
Print Name:
--------------------------
B-2
<PAGE> 38
Annex A
[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(e)]
[We are independent public accountants with respect to the Company within the
meaning of the 1933 Act and the applicable published 1933 Act Regulations]
(i) in our opinion, the audited financial statements [and the
related financial statement schedules] included or incorporated by
reference in the Registration Statement and the Prospectus comply as to
form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder;
(ii) on the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a
reading of the unaudited interim [consolidated] financial statements of
the Company for the [three month periods ended _________, 19___ and
_________, 19___ , the three and six month periods ended _________,
19___ and _________, 19___ and the three and nine month periods ended
_________, 19___ and _________, 19___, included or incorporated by
reference in the Registration Statement and the Prospectus
(collectively, the "10-Q Financials")] [, a reading of the unaudited
interim [consolidated] financial statements of the Company for the
_____-month periods ended _________, 19___ and _________, 19___,
included in the Registration Statement and the Prospectus (the
"____-month financials")] [, a reading of the latest available unaudited
interim [consolidated] financial statements of the Company], a reading
of the minutes of all meetings of the stockholders and directors of the
Company [and its subsidiaries] and the _____________ and ____________
Committees of the Company's Board of Directors [and any subsidiary
committees] since [day after end of last audited period], inquiries of
certain officials of the Company [and its subsidiaries] responsible for
financial and accounting matters, a review of interim financial
information in accordance with standards established by the American
Institute of Certified Public Accountants in Statement on Auditing
Standards No. 71, Interim Financial Information ("SAS 71"), with respect
to the [description of relevant periods] and such other inquiries and
procedures as may be specified in such letter, nothing came to our
attention that caused us to believe that:
[(A) the 10-Q Financials incorporated by reference in the
Registration Statement and the Prospectus do not comply as to
form in all material respects with the applicable accounting
requirements of the 1934 Act and the 1934 Act Regulations
applicable to unaudited financial statements included in Form
10-Q or any material modifications should be made to the 10-Q
Financials incorporated by reference in the Registration
Statement and the Prospectus for them to be in conformity
with generally accepted accounting principles;]
[( ) the _____-month financials included in the
Registration Statement and the Prospectus do not comply
as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1933 Act
Regulations applicable to unaudited interim financial
statements included in
Annex A-1
<PAGE> 39
registration statements or any material modifications
should be made to the _____-month financials included in
the Registration Statement and the Prospectus for them
to be in conformity with generally accepted accounting
principles;]
( ) at [_________, 19___ and at] a specified date not more
than five days prior to the date of this Agreement, there was
any change in the ___________ of the Company [and its
subsidiaries] or any decrease in the __________ of the
Company [and its subsidiaries] or any increase in the
__________ of the Company [and its subsidiaries,] in each
case as compared with amounts shown in the latest balance
sheet included in the Registration Statement, except in each
case for changes, decreases or increases that the
Registration Statement discloses have occurred or may occur;
or
( ) [for the period from _________, 19___ to _________,
19___ and ] for the period from _________, 19___ to a
specified date not more than five days prior to the date of
this Agreement, there was any decrease in _________,
__________ or ___________, in each case as compared with the
comparable period in the preceding year, except in each case
for any decreases that the Registration Statement discloses
have occurred or may occur;
(iii) based upon the procedures set forth in clause (ii)
above and a reading of the [Selected Financial Data] included
in the Registration Statement [and a reading of the financial
statements from which such data were derived], nothing came
to our attention that caused us to believe that the [Selected
Financial Data] included in the Registration Statement do not
comply as to form in all material respects with the
disclosure requirements of Item 301 of Regulation S-K of the
1933 Act [, that the amounts included in the [Selected
Financial Data] are not in agreement with the corresponding
amounts in the audited [consolidated] financial statements
for the respective periods or that the financial statements
not included in the Registration Statement from which certain
of such data were derived are not in conformity with
generally accepted accounting principles];
(iv) we have compared the information in the
Registration Statement under selected captions with the
disclosure requirements of Regulation S-K of the 1933
Act and on the basis of limited procedures specified
herein. nothing came to our attention that caused us to
believe that this information does not comply as to form
in all material respects with the disclosure
requirements of Items 302, 402 and 503(d), respectively,
of Regulation S-K;
[(v) based upon the procedures set forth in clause (ii)
above, a reading of the unaudited financial statements
of the Company for [the most recent period] that have
not been included in the Registration Statement and a
review of such financial statements in accordance with
SAS 71, nothing came to our attention that caused us to
believe that the unaudited amounts for _____________ for
the
Annex A-2
<PAGE> 40
[most recent period] do not agree with the amounts
set forth in the unaudited consolidated financial
statements for those periods or that such unaudited
amounts were not determined on a basis substantially
consistent with that of the corresponding amounts in the
audited [consolidated] financial statements;]
[(vi)] we are unable to and do not express any opinion on
the [Pro Forma Combining Statement of Operations] (the "Pro
Forma Statement") included in the Registration Statement or
on the pro forma adjustments applied to the historical
amounts included in the Pro Forma Statement; however, for
purposes of this letter we have:
(A) read the Pro Forma Statement;
(B) performed [an audit] [a review in accordance
with SAS 71] of the financial statements to which the pro
forma adjustments were applied;
(C) made inquiries of certain officials of the
Company who have responsibility for financial and
accounting matters about the basis for their determination
of the pro forma adjustments and whether the Pro Forma
Statement complies as to form in all material respects
with the applicable accounting requirements of Rule 11-02
of Regulation S-X; and
(D) proved the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the Pro Forma Statement; and
on the basis of such procedures and such other inquiries and
procedures as specified herein, nothing came to our attention
that caused us to believe that the Pro Forma Statement
included in the Registration Statement does not comply as to
form in all material respects with the applicable
requirements of Rule 11-02 of Regulation S-X or that the pro
forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
and
[(vii)]in addition to the procedures referred to in clause
(ii) above, we have performed other procedures, not
constituting an audit, with respect to certain amounts,
percentages, numerical data and financial information
appearing in the Registration Statement, which are specified
herein, and have compared certain of such items with, and
have found such items to be in agreement with, the accounting
and financial records of the Company; and
[(viii)in addition, we [COMFORT ON A FINANCIAL FORECAST
THAT IS INCLUDED IN THE REGISTRATION STATEMENT].
Annex A-3
<PAGE> 1
EXHIBIT 1.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CKE Restaurants, Inc.
(a Delaware corporation)
7,250,000 Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
Dated: -
- --------------------------------------------------------------------------------
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<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
INTERNATIONAL PURCHASE AGREEMENT........................................................... 1
SECTION 1. Representations and Warranties............................................. 3
(a) Representations and Warranties by the Company...................... 3
(i) Compliance with Registration Requirements..................... 3
(ii) Incorporated Documents....................................... 4
(iii) Independent Accountants..................................... 4
(iv) Financial Statements......................................... 4
(v) No Material Adverse Change in Business........................ 4
(vi) Good Standing of the Company................................. 5
(vii) Good Standing of Subsidiaries............................... 5
(viii) Capitalization............................................. 5
(ix) Authorization of Agreement................................... 5
(x) Authorization and Description of Securities................... 6
(xi) Absence of Defaults and Conflicts............................ 6
(xii) Absence of Labor Dispute.................................... 6
(xiii) Absence of Proceedings..................................... 7
(xiv) Accuracy of Exhibits........................................ 7
(xv) Possession of Intellectual Property.......................... 7
(xvi) Absence of Further Requirements............................. 7
(xvii) Possession of Licenses and Permits......................... 7
(xviii) Title to Property......................................... 8
(xix) Compliance with Cuba Act.................................... 8
(xx) Investment Company Act....................................... 8
(xxi) Environmental Laws.......................................... 8
(xxii) Closing of the Hardee's Acquisition........................ 9
SECTION 2. Sale and Delivery to International Underwriters; Closing................... 9
(a) Initial Securities................................................. 9
(b) Option Securities.................................................. 9
(c) Payment............................................................ 10
(d) Denominations; Registration........................................ 10
SECTION 3. Covenants of the Company................................................... 11
(a) Compliance with Securities Regulations and Commission
Requests........................................................... 11
(b) Filing of Amendments............................................... 11
(c) Delivery of Registration Statements................................ 11
(d) Delivery of Prospectuses........................................... 11
(e) Continued Compliance with Securities Laws.......................... 12
(f) Blue Sky Qualifications............................................ 12
(g) Rule 158........................................................... 13
(h) Use of Proceeds.................................................... 13
(i) Listing............................................................ 13
(j) Restriction on Sale of Securities.................................. 13
(k) Reporting Requirements............................................. 13
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 4. Payment of Expenses........................................................ 13
(a) Expenses.............................................................. 13
(b) Termination of Agreement.............................................. 14
SECTION 5. Conditions of International Underwriters' Obligations...................... 14
(a) Effectiveness of Registration Statement............................ 14
(b) Opinion of Counsel for Company..................................... 14
(c) Opinion of Counsel for International Underwriters.................. 15
(d) Officers' Certificate.............................................. 15
(e) Accountant's Comfort Letter........................................ 15
(f) Bring-down Comfort Letter.......................................... 15
(g) Approval of Listing................................................ 16
(h) No Objection....................................................... 16
(i) Lock-up Agreements................................................. 16
(j) Closing of Acquisition............................................. 16
(k) Additional Documents............................................... 16
(l) Purchase of U.S. Securities........................................ 16
(m) Conditions to Purchase of International Option Securities.......... 16
(n) Additional Documents............................................... 17
(o) Termination of Agreement........................................... 17
SECTION 6. Indemnification............................................................ 17
(a) Indemnification of International Underwriters...................... 17
(b) Indemnification of Company, Directors and Officers................. 18
(c) Actions against Parties; Notification.............................. 18
(d) Settlement without Consent if Failure to Reimburse................. 19
SECTION 7. Contribution............................................................... 19
SECTION 8. Representations, Warranties and Agreements to Survive Delivery............. 20
SECTION 9. Termination of Agreement................................................... 20
(a) Termination; General............................................... 20
(b) Liabilities........................................................ 21
SECTION 10. Default by One or More of the International Underwriters................... 21
SECTION 11. Notices.................................................................... 22
SECTION 12. Parties.................................................................... 22
SECTION 13. GOVERNING LAW AND TIME..................................................... 22
SECTION 14. Effect of Headings......................................................... 22
SCHEDULES
Schedule A - List of Underwriters.............................................Sch A-1
Schedule B - Pricing Information..............................................Sch B-1
Schedule C - List of Subsidiaries.............................................Sch C-1
Schedule D - List of Persons subject to Lock-up...............................Sch D-1
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel...................................A-1
Exhibit B - Form of Lock-up Letter.................................................B-1
</TABLE>
ii
<PAGE> 4
CKE RESTAURANTS, INC.
(a Delaware corporation)
7,250,000 Shares of Common Stock
(Par Value $0.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
-, 1997
MERRILL LYNCH INTERNATIONAL
ALEX. BROWN & SONS INCORPORATED
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
EQUITABLE SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY LLC
as International Representatives of the
several International Underwriters
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
CKE Restaurants, Inc., a Delaware corporation (the "Company"), confirms
its agreement with Merrill Lynch International ("Merrill Lynch International")
and each of the other Underwriters named in Schedule A hereto (collectively, the
"International Underwriters", which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch International, Alex. Brown & Sons Incorporated, Morgan Stanley & Co.
International Limited, Equitable Securities Corporation and Robertson, Stephens
& Company LLC are acting as lead managers (in such capacity, the "International
Representatives"), with respect to the issue and sale by the Company and the
purchase by the International Underwriters, acting severally and not jointly, of
the respective numbers of shares of Common Stock, par value $0.01 per share, of
the Company ("Common Stock") set forth in said Schedule A, and with respect to
the grant by the Company to the International Underwriters, acting severally and
not jointly, of the option described in Section 2(b) hereof to purchase all or
any part of 217,500 additional shares of Common Stock to cover over-allotments,
if any. The aforesaid 1,450,000 shares of
<PAGE> 5
Common Stock (the "Initial International Securities") to be purchased by the
International Underwriters and all or any part of the 217,500 shares of Common
Stock subject to the option described in Section 2(b) hereof (the "International
Option Securities") are hereinafter called, collectively, the "International
Securities."
It is understood that the Company is concurrently entering into a U.S.
Purchase Agreement dated the date hereof (the "U.S. Purchase Agreement")
providing for the offering by the Company of an aggregate of 5,800,000 shares of
Common Stock (the "Initial U.S. Securities") through arrangements with certain
underwriters in the United States and Canada (the "U.S. Underwriters") for whom
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Alex.
Brown & Sons Incorporated, Morgan Stanley & Co. Incorporated, Equitable
Securities Corporation and Robertson, Stephens & Company LLC are acting as
representatives (the "U.S. Representatives"), and the grant by the Company to
the U.S. Underwriters of an option to purchase all or any part of an additional
870,000 shares of Common Stock (the "U.S. Option Securities") to cover
over-allotments, if any. The Initial U.S. Securities and the U.S. Option
Securities are hereinafter sometimes called, collectively, the "U.S.
Securities."
The International Securities and the U.S. Securities are hereinafter
sometimes called, collectively the "Securities;" the Initial International
Securities and the Initial U.S. Securities are hereinafter sometimes called,
collectively, the "Initial Securities;" the International Option Securities and
the U.S. Option Securities are hereinafter sometimes called, collectively, the
"Option Securities;" the International Underwriters and the U.S. Underwriters
are hereinafter sometimes called, collectively, the "Underwriters" and,
individually, an "Underwriter;" the International Representatives and the U.S.
Representatives are hereinafter sometimes called, collectively, the
"Representatives" and, individually, a "Representative;" and this Agreement and
the U.S. Purchase Agreement are hereinafter sometimes called, collectively, the
"Purchase Agreements" and, individually, a "Purchase Agreement."
The Company understands that the International Underwriters and the U.S.
Underwriters will concurrently enter into an Intersyndicate Agreement of even
date herewith (the "Intersyndicate Agreement") providing for the coordination of
certain transactions among the International Underwriters and the U.S.
Underwriters under the direction of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch").
The Company has entered into a Stock Purchase Agreement dated April 27,
1997, as amended (the "Stock Purchase Agreement"), with Imasco Holdings, Inc.
("Imasco"), and Hardee's Food Systems, Inc. ("Hardee's"), pursuant to which the
Company agreed to acquire all of the outstanding capital stock of Hardee's for a
purchase price of approximately $327 million, subject to certain adjustments
(the "Acquisition"). The Company plans to close the Acquisition concurrently
with the closing of the offering of the Common Stock and the effectiveness of a
new credit facility (the "New Credit Facility").
The Company understands that the International Underwriters propose to
make a public offering of the Securities as soon as the International
Representatives deem advisable after this Agreement has been executed and
delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-27921) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
2
<PAGE> 6
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto, schedules thereto, if any, and the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus,
including the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the 1933 Act, in the form first furnished to the Underwriters for
use in connection with the offering of the Securities is herein called the
"Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the
preliminary prospectus dated _____, 199_ together with the Term Sheet and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the Prospectus or any Term
Sheet or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
It is understood that any representation or warranty of the Company in
Section 1 hereof which relates to Hardee's is made to the best of the Company's
knowledge, with due inquiry by the Company.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") which is
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectus, as the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each International Underwriter as of the date hereof,
as of the Closing Time referred to in Section 2(c) hereof, and as of each Date
of Delivery (if any) referred to in Section 2(b) hereof, and agrees with each
International Underwriter, as follows:
(i) Compliance with Registration Requirements. The Company meets
the requirements for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information has
been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
(including the filing of the Company's most recent Annual Report on Form
10-K with the Commission) became effective and at the Closing Time (and,
if any Option Securities are purchased, at the Date of Delivery), the
Registration Statement, the Rule 462(b) Registration Statement and any
amendments and supplements thereto complied and will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither the Prospectus nor any amendments or supplements thereto, at the
time the Prospectus or any such amendment or supplement was issued and
at the Closing Time (and, if any Option Securities are purchased,
3
<PAGE> 7
at the Date of Delivery), included or will include an untrue statement
of a material fact or omitted or will omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus
made in reliance upon and in conformity with information furnished to
the Company in writing by any U.S. Underwriter or International
Underwriter through Merrill Lynch International expressly for use in the
Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of
the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus delivered
to the U.S. Underwriters or International Underwriters for use in
connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or
deemed to be incorporated by reference in the Registration Statement and
the Prospectus, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read
together with the other information in the Prospectus, at the time the
Registration Statement became effective, at the time the Prospectus was
issued and at the Closing Time (and if any Option Securities are
purchased, at the Date of Delivery), did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(iii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements of the
Company and the financial statements of Hardee's included in the
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the
Company and its consolidated subsidiaries at the dates indicated and the
statement of operations, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries for the periods specified;
said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present fairly
in accordance with GAAP the information required to be stated therein.
The selected financial data and the summary financial information
included in the Prospectus present fairly the information shown therein
and have been compiled on a basis consistent with that of the Company's
and Hardee's, as applicable, audited financial statements included in
the Registration Statement. The pro forma financial statements and the
related notes
4
<PAGE> 8
thereto included in the Registration Statement and the Prospectus
present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to
pro forma financial statements and have been properly compiled on the
bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate
to give effect to the transactions and circumstances referred to
therein.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of
(1) the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business (a "Material
Adverse Effect"), or (2) Hardee's and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business,
(B) there have been no transactions entered into by the Company or any
of its subsidiaries, other than those in the ordinary course of
business, which are material with respect to the Company and its
subsidiaries considered as one enterprise, and (C) except for regular
semi-annual dividends on the Common Stock in amounts per share that are
consistent with past practice, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock. For purposes of this Agreement, all
references to "subsidiaries" of the Company shall include, without
limitation, in the case of any representation or warranty made or deemed
to have been made as of the Closing Time or at any time thereafter,
Hardee's and its subsidiaries.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing in
each other jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) and Hardee's (a "Subsidiary") has been duly organized
and is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect; except as otherwise disclosed
in the Registration Statement, all of the issued and outstanding capital
stock of each such Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and
5
<PAGE> 9
is owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights
of any securityholder of such Subsidiary; all of the issued and
outstanding capital stock of Hardee's has been duly authorized and
validly issued, is fully paid and non-assessable and, at the Closing
Time will be owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity (except for liens created by the New Credit
Facility). The only subsidiaries of the Company are (a) the subsidiaries
listed on Schedule C hereto.
(viii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus). The shares of issued and
outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company.
(ix) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(x) Authorization and Description of Securities. The
Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered
by the Company pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued, fully paid and
non-assessable; the Common Stock conforms to all statements relating
thereto contained in the Prospectus and such description conforms to the
rights set forth in the instruments defining the same; no holder of the
Securities will be subject to personal liability by reason of being such
a holder; and the issuance of the Securities is not subject to the
preemptive or other similar rights of any securityholder of the Company.
(xi) Absence of Defaults and Conflicts. Neither the Company,
any of its subsidiaries nor Hardee's is in violation of its charter or
by-laws or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or any
subsidiary or Hardee's is subject (collectively, "Agreements and
Instruments") except for such defaults that would not result in a
Material Adverse Effect; and the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
herein and in the Registration Statement (including the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company with its obligations hereunder
6
<PAGE> 10
have been duly authorized by all necessary corporate action and do not
and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary or Hardee's pursuant to, the
Agreements and Instruments (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation
of the provisions of the charter or by-laws of the Company or any
subsidiary or Hardee's or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
the Company or any subsidiary or Hardee's or any of their assets,
properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any subsidiary.
(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any subsidiary or Hardee's exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of
its or any subsidiary's or Hardee's principal suppliers, manufacturers,
customers or contractors, which, in either case, may reasonably be
expected to result in a Material Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any subsidiary or Hardee's, which is required to be disclosed
in the Registra tion Statement (other than as disclosed therein), or
which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of
the transactions contemplated in this Agreement or the performance by
the Company of its obligations hereunder; the aggregate of all pending
legal or governmental proceedings to which the Company or any subsidiary
or Hardee's is a party or of which any of their respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material
Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or documents
which are required to be described in the Registration Statement, the
Prospectus or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(xv) Possession of Intellectual Property. The Company, its
subsidiaries and Hardee's own or possess, or can acquire on reasonable
terms, adequate patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented
and/or
7
<PAGE> 11
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company,
any of its subsidiaries nor Hardee's has received any notice or is
otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company, any of its
subsidiaries or Hardee's therein, and which infringement or conflict (if
the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities laws.
(xvii) Possession of Licenses and Permits. The Company, its
subsidiaries and Hardee's possess such permits, licenses, approvals,
consents and other authorizations (collectively, "Governmental
Licenses") issued by the appropriate federal, state, local or foreign
regulatory agencies or bodies necessary to conduct the business now
operated by them; the Company, its subsidiaries and Hardee's are in
compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to comply would not, singly or in
the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company, any of its
subsidiaries nor Hardee's has received any notice of proceedings
relating to the revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material
Adverse Effect.
(xviii) Title to Property. The Company, its subsidiaries and
Hardee's have good and marketable title to all real property owned by
the Company, its subsidiaries and Hardee's and good title to all other
properties owned by them, in each case, free and clear of all mortgages,
pledges, liens, security interests, claims, restrictions or encumbrances
of any kind except such as (a) are described in the Prospectus or (b) do
not, singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company, any of its subsidiaries and Hardee's;
and all of the leases and subleases material to the business of the
Company, its subsidiaries and Hardee's, considered as one enterprise,
and under which the Company, any of its subsidiaries or Hardee's holds
properties described in the Prospectus, are in full force and effect,
and neither the Company, any subsidiary nor Hardee's has any notice of
any material claim of any sort that has been asserted by anyone adverse
to the rights of the Company, any subsidiary or Hardee's
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under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company, such subsidiary or Hardee's to
the continued possession of the leased or subleased premises under any
such lease or sublease.
(xix) Compliance with Cuba Act. The Company has complied with,
and is and will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with Cuba, codified
as Section 517.075 of the Florida statutes, and the rules and
regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(xx) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xxi) Environmental Laws. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company,
any of its subsidiaries nor Hardee's is in violation of any federal,
state, local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company its subsidiaries and Hardee's
have all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or
proceedings relating to any Environmental Law against the Company, any
of its subsidiaries and Hardee's and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company, any of its subsidiaries or Hardee's relating to Hazardous
Materials or any Environmental Laws.
(xxii) New Credit Facility. At or prior to the Closing Time, the
New Credit Facility will have been duly authorized by the Company; at or
prior to the Closing Time, the New Credit Facility will have been duly
executed and delivered by, and will be a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general principles of
equity, and all conditions precedent to the
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effectiveness of the New Credit Facility, and all conditions to the right of the
Company to make borrowings under the New Credit Facility will have been
satisfied or waived.
(xxiii) Closing of the Hardee's Acquisition. The Company has
complied with all terms and conditions with respect to the Acquisition
by the Company of Hardee's pursuant to the terms and provisions of the
Stock Purchase Agreement entered into among the Company, Imasco and
Hardee's, and no further action has to be taken to close the
Acquisition.
(b) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to International Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each International Underwriter, severally
and not jointly, and each International Underwriter, severally and not jointly,
agrees to purchase from the Company, at the price per share set forth in
Schedule B, the number of Initial International Securities set forth in Schedule
A opposite the name of such International Underwriter, plus any additional
number of Initial International Securities which such International Underwriter
may become obligated to purchase pursuant to the provisions of Section 10
hereof.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
International Underwriters, severally and not jointly, to purchase up to an
additional 217,500 shares of Common Stock at the price per share set forth in
Schedule B, less an amount per share equal to any dividends or distributions
declared by the Company and payable on the Initial International Securities but
not payable on the International Option Securities. The option hereby granted
will expire 30 days after the date hereof and may be exercised in whole or in
part from time to time only for the purpose of covering over-allotments which
may be made in connection with the offering and distribution of the Initial
International Securities upon notice by the International Representatives to the
Company setting forth the number of International Option Securities as to which
the several International Underwriters are then exercising the option and the
time and date of payment and delivery for such International Option Securities.
Any such time and date of delivery (a "Date of Delivery") shall be determined by
the International Representatives, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Time, as hereinafter defined. If the option is exercised as to all or
any portion of the International Option Securities, each of the International
Underwriters, acting severally and not jointly, will purchase that proportion of
the total number of International Option Securities then being purchased which
the number of Initial International Securities set forth in Schedule A opposite
the name of such International Underwriter bears to the total number of Initial
International Securities, subject in each case to such adjustments as the
International Representatives in their discretion shall make to eliminate any
sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial International Securities shall be made at the
offices of Stradling, Yocca, Carlson & Rauth, a Professional Corporation, 660
Newport Center Drive, Suite 1600, Newport Beach, California 92660, or at such
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other place as shall be agreed upon by the International Representatives and the
Company, at 7:00 A.M. (California time) on the third (fourth, if the pricing
occurs after 4:30 P.M. (Eastern time) on any given day) business day after the
date hereof (unless postponed in accordance with the provisions of Section 10),
or such other time not later than ten business days after such date as shall be
agreed upon by the International Representatives and the Company (such time and
date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the International Option
Securities are purchased by the International Underwriters, payment of the
purchase price for, and delivery of certificates for, such International Option
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the International Representatives and the Company, on
each Date of Delivery as specified in the notice from the International
Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the International
Underwriters of certificates for the Securities to be purchased by them. It is
understood that each Underwriter has authorized the International
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial International Securities and the
International Option Securities, if any, which it has agreed to purchase.
Merrill Lynch, individually and not as representative of the International
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial International Securities or the International Option
Securities, if any, to be purchased by any International Underwriter whose funds
have not been received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such International
Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
International Securities and the International Option Securities, if any, shall
be in such denominations and registered in such names as the International
Representatives may request in writing at least one full business day before the
Closing Time or the relevant Date of Delivery, as the case may be. The
certificates for the Initial International Securities and the International
Option Securities, if any, will be made available for examination and packaging
by the International Representatives in The City of New York not later than
10:00 A.M. (Eastern time) on the business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the International Representatives immediately, and confirm the notice in
writing, (i) when any post-effective amendment to the Registration
Statement shall become effective, or any supplement to the Prospectus or
any amended Prospectus shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information, and (iv) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
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suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) Filing of Amendments. The Company will give the International
Representatives notice of its intention to file or prepare any amendment
to the Registration Statement (including any filing under Rule 462(b))
or any amendment, supplement or revision to either the prospectus
included in the Registration Statement at the time it became effective
or to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or
otherwise, will furnish the International Representatives with copies of
any such documents a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file or use any such
document to which the International Representatives or counsel for the
International Underwriters shall object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the International Representatives and
counsel for the International Underwriters, without charge, signed
copies of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein and documents incorporated or deemed to be
incorporated by reference therein) and signed copies of all consents and
certificates of experts, and will also deliver to the International
Representatives, without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without
exhibits) for each of the International Underwriters. The copies of the
Registration Statement and each amendment thereto furnished to the
International Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
International Underwriter, without charge, as many copies of each
preliminary prospectus as such International Underwriter reasonably
requested, and the Company hereby consents to the use of such copies for
purposes permitted by the 1933 Act. The Company will furnish to each
International Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934
Act, such number of copies of the Prospectus (including the Prospectus
Supplement) (as amended or supplemented) as such International
Underwriter may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the International Underwriters will be
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act
and the 1934 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement and in
the Prospectus. If at any time when a prospectus is required by the 1933
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<PAGE> 16
Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is
necessary, in the opinion of counsel for the International Underwriters
or for the Company, to amend the Registration Statement or amend or
supplement the Prospectus in order that the Prospectus will not include
any untrue statements of a material fact or omit to state a material
fact necessary in order to make the statements therein not misleading in
the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel,
at any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly
prepare and file with the Commission, subject to Section 3(b), such
amendment or supplement as may be necessary to correct such statement or
omission or to make the Registration Statement or the Prospectus comply
with such requirements, and the Company will furnish to the
International Underwriters such number of copies of such amendment or
supplement as the International Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the International Underwriters, to qualify
the Securities for offering and sale under the applicable securities
laws of such states and other jurisdictions (domestic or foreign) as the
International Representatives may designate and to maintain such
qualifications in effect for a period of not less than one year from the
later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; provided, however, that the Company shall
not be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject. In each jurisdiction in which the Securities
have been so qualified, the Company will file such statements and
reports as may be required by the laws of such jurisdiction to continue
such qualification in effect for a period of not less than one year from
the effective date of the Registration Statement and any Rule 462(b)
Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant
to the 1934 Act as are necessary in order to make generally available to
its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectus under "Use of Proceeds".
(i) Listing. The Company will comply with all rules and
regulations of the New York Stock Exchange in respect of the listing of
the Common Stock and will use its best efforts to effect the listing of
the Securities on the New York Stock Exchange.
(j) Restriction on Sale of Securities. During a period of 90 days
from the date of the Prospectus, the Company will not, without the prior
written consent of Merrill Lynch, (i) directly or indirectly, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or
warrant to
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purchase or otherwise transfer or dispose of any share of Common Stock
or any securities convertible into or exercisable or exchangeable for
Common Stock or file any registration statement under the 1933 Act with
respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not
apply to (A) the Securities to be sold hereunder, (B) any shares of
Common Stock issued by the Company upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof
and referred to in the Prospectus, (C) any shares of Common Stock issued
or options to purchase Common Stock granted pursuant to existing
employee benefit plans of the Company referred to in the Prospectus or
(D) any shares of Common Stock issued pursuant to any non-employee
director stock plan or dividend reinvestment plan.
(k) Reporting Requirements. The Company, during the period when
the Prospectus is required to be delivered under the 1933 Act or the
1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the 1934 Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the International Underwriters
and any transfers of Securities between the International Underwriters and U.S.
Underwriters pursuant to the Intersyndicate Agreement, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto and any Canadian "wrapper," (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus supplements and of the
Prospectus and any amendments or supplements thereto, (vii) the preparation,
printing and delivery to the Underwriters of copies of the Blue Sky Survey and
any supplement thereto, (viii) the fees and expenses of any transfer agent or
registrar for the Securities and (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Securities and (x) the fees and expenses
incurred in connection with the listing of the Securities on the New York Stock
Exchange.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the International Underwriters for
all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the International Underwriters.
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SECTION 5. Conditions of International Underwriters' Obligations. The
obligations of the several International Underwriters hereunder are subject to
the accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any
subsidiary of the Company delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and other obligations hereunder, and
to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the 1933 Act
or proceedings therefor initiated or threatened by the Commission, and
any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of counsel
to the International Underwriters. A prospectus containing the Rule 430A
Information shall have been filed with the Commission in accordance with
Rule 424(b) (or a post-effective amendment providing such information
shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon
Rule 434, a Term Sheet shall have been filed with the Commission in
accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, counsel for the Company, in form and substance satisfactory
to counsel for the International Underwriters, together with signed or
reproduced copies of such letter for each of the other International
Underwriters to the effect set forth in Exhibit A to the U.S. Purchase
Agreement and to such further effect as counsel to the International
Underwriters may reasonably request.
(c) Opinion of Counsel for International Underwriters. At Closing
Time, the International Representatives shall have received the
favorable opinion, dated as of Closing Time, of Brown & Wood LLP,
counsel for the International Underwriters, together with signed or
reproduced copies of such letter for each of the other International
Underwriters with respect to the matters set forth in clauses (i), (v),
(vi) (solely as to preemptive or other similar rights arising by
operation of law or under the charter or by-laws of the Company), (viii)
through (x), inclusive, (xiv) (solely as to the description of the
Company's Common Stock contained in the Company's registration statement
on Form 8-A dated April 6, 1994, and the penultimate paragraph of
Exhibit A hereto). In giving such opinion such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the law of
the State of New York and the federal law of the United States, upon the
opinions of counsel satisfactory to the International Representatives.
Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in
the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company, its subsidiaries and
Hardee's considered as one enterprise, whether or not arising in the
ordinary course of business, and
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the International Representatives shall have received a certificate of
the President or a Vice President of the Company and of the chief
financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1(a)
hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time, (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (iv) no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or
are pending or are contemplated by the Commission.
(e) Accountants' Comfort Letters. At the time of the execution of
this Agreement, the Representatives shall have received from each of
KPMG Peat Marwick LLP and Deloitte & Touche LLP a letter dated such
date, in form and substance satisfactory to the Representatives,
together with signed or reproduced copies of such letter for each of the
other Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(f) Bring-down Comfort Letters. At Closing Time, the
Representatives shall have received from each of KPMG Peat Marwick LLP
and Deloitte & Touche LLP a letter, dated as of Closing Time, to the
effect that they reaffirm the statements made in their response letters
furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three business
days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall
have been approved for listing on the New York Stock Exchange, subject
only to official notice of issuance.
(h) No Objection. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the
International Representatives shall have received an agreement
substantially in the form of Exhibit B hereto signed by the persons
listed on Schedule D hereto.
(j) Closing of Acquisition. At Closing Time, the Company shall
have complied with all terms and conditions with respect to the
Acquisition by the Company of Hardee's pursuant to the terms and
provisions of the Stock Purchase Agreement entered into among the
Company, Imasco and Hardee's, and no further action shall be required to
close the Acquisition.
(k) Additional Documents. At Closing Time and at each Date of
Delivery counsel for the International Underwriters shall have been
furnished with such documents and opinions as they may require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings
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taken by the Company in connection with the issuance and sale of the
Securities as herein contemplated shall be satisfactory in form and
substance to the International Representatives and counsel for the
International Underwriters.
(l) Purchase of U.S. Securities. Concurrently with the purchase
of the Initial International Securities by the International
Underwriters, U.S. Underwriters shall have purchased and paid for the
Initial U.S. Securities under the U.S. Purchase Agreement.
(m) Conditions to Purchase of International Option Securities. In
the event that the International Underwriters exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the
International Option Securities, the representations and warranties of
the Company contained herein and the statements in any certificates
furnished by the Company or any subsidiary of the Company hereunder
shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and
of the chief financial or chief accounting officer of the Company
confirming that the certificate delivered at the Closing Time
pursuant to Section 5(d) hereof remains true and correct as of
such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of
Stradling, Yocca, Carlson & Rauth, a Professional Corporation,
counsel for the Company, in form and substance satisfactory to
counsel for the International Underwriters, dated such Date of
Delivery, relating to the International Option Securities to be
purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(b) hereof.
(iii) Opinion of Counsel for International Underwriters. The
favorable opinion of Brown & Wood LLP, counsel for the
International Underwriters, dated such Date of Delivery, relating
to the International Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from each of KPMG Peat
Marwick LLP and Deloitte & Touche LLP, in form and substance
satisfactory to the International Representatives and dated such
Date of Delivery, substantially in the same form and substance as
the letter furnished to the International Representatives
pursuant to Section 5(f) hereof, except that the "specified date"
in the letter furnished pursuant to this paragraph shall be a
date not more than five days prior to such Date of Delivery.
(n) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the International Underwriters shall have been
furnished with such documents and opinions as they may require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the
Company in connection with the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the International Underwriters.
(o) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any
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condition to the purchase of International Option Securities, on a Date
of Delivery which is after the Closing Time, the obligations of the
several International Underwriters to purchase the relevant
International Option Securities, may be terminated by the International
Representatives by notice to the Company at any time at or prior to
Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of International Underwriters. (1) The Company
agrees to indemnify and hold harmless each International Underwriter and each
person, if any, who controls any International Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) Against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission
or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) Against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission; provided that (subject to
Section 6(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) Against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i), (ii) or (iii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if
18
<PAGE> 22
applicable, or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(b) Indemnification of Company, Directors and Officers. Each
International Underwriter severally agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus, the Preliminary Prospectus Supplement or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by such International Underwriter through
Merrill Lynch expressly for use in the Registration Statement (or any amendment
thereto) or such preliminary prospectus, the Preliminary Prospectus Supplement
or the Prospectus (or any amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemni fying party shall not relieve
such indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circum stances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
19
<PAGE> 23
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the International Underwriters on the other hand from the offering of
the International Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and of the International Underwriters on the other hand in connection with
the statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
International Underwriters on the other hand in connection with the offering of
the International Securities pursuant to this Agreement shall be deemed to be in
the same respective proportions as the total net proceeds from the offering of
the Securities pursuant to this Agreement (before deducting expenses) received
by the Company and the total underwriting discount received by the International
Underwriters, in each case as set forth on the cover of the Prospectus, bear to
the aggregate initial public offering price of the Securities as set forth on
such cover.
The relative fault of the Company on the one hand and the International
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the International Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the International Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the International Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 7. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
7 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no International
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the International Securities
20
<PAGE> 24
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such International Underwriter has
otherwise been required to pay by reason of any such untrue or alleged untrue
statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
International Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The
International Underwriters' respective obligations to contribute pursuant to
this Section 7 are several in proportion to the number of Initial International
Securities set forth opposite their respective names in Schedule A hereto and
not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
International Underwriter or controlling person, or by or on behalf of the
Company, and shall survive delivery of the Securities to the International
Underwriters and the U.S. Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The International Representatives may
terminate this Agreement, by notice to the Company, at any time at or prior to
Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the International Representatives, impracticable to market the
International Securities or to enforce contracts for the sale of the
International Securities, or (iii) if trading in any securities of the Company
has been suspended or materially limited by the Commission or the New York Stock
Exchange, or if trading generally on the American Stock Exchange or the New York
Stock Exchange or in the Nasdaq National Market has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal or New York authorities.
21
<PAGE> 25
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the International Underwriters. If
one or more of the Underwriters shall fail at Closing Time or a Date of Delivery
to purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the International Representatives shall
have the right, within 24 hours thereafter, to make arrangements for one or more
of the non-defaulting International Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the number of Securities to be purchased on such date, each of the
non-defaulting International Underwriters shall be obligated, severally
and not jointly, to purchase the full amount thereof in the proportions
that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting International
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the International Underwriters to purchase and
of the Company to sell the Option Securities to be purchased and sold on
such Date of Delivery shall terminate without liability on the part of
any non-defaulting International Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
International Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
International Underwriters to purchase and the Company to sell the relevant
International Option Securities, as the case may be, either the International
Representatives or the Company shall have the right to postpone Closing Time or
the relevant Date of Delivery, as the case may be, for a period not exceeding
seven days in order to effect any required changes in the Registration Statement
or Prospectus or in any other documents or arrangements. As used herein, the
term "International Underwriter" includes any person substituted for an
International Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
International Underwriters shall be directed to the International
Representatives at Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY,
England, attention of Syndicate Operations; and notices to the Company shall be
directed to it at 1200 North Harbor Boulevard, Anaheim, California 92801,
attention of Carl A. Strunk, Executive Vice President and Chief Financial
Officer, with copies to Andrew F. Puzder, Executive Vice President and General
Counsel and to Stradling, Yocca, Carlson & Rauth, a Professional Corporation,
660 Newport Center Drive, Suite 1600, Newport Beach, California 92660.
22
<PAGE> 26
SECTION 12. Parties. This Agreement shall each inure to the benefit of
and be binding upon the International Underwriters and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the International Underwriters and the Company and their respective
successors and the controlling persons and officers and directors referred to in
Sections 6 and 7 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the
International Underwriters and the Company and their respective successors, and
said controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities from any International Underwriter shall be deemed to be
a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT
AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY
TIME.
SECTION 14. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
23
<PAGE> 27
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the International Underwriters and the Company in accordance with
its terms.
Very truly yours,
CKE RESTAURANTS, INC.
By
--------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
ALEX. BROWN & SONS INCORPORATED
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
EQUITABLE SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY LLC
By: MERRILL LYNCH INTERNATIONAL
By
-------------------------------------
Authorized Signatory
For themselves and as International Representatives
of the other International Underwriters named in
Schedule A hereto.
24
<PAGE> 28
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
International
Name of International Underwriter Securities
--------------------------------- -------------
<S> <C>
Merrill Lynch International .....................................
Alex. Brown & Sons Incorporated..................................
Morgan Stanley & Co. International Limited ......................
Equitable Securities Corporation.................................
Robertson, Stephens & Company LLC................................
---------
Total............................................................ 1,450,000
=========
</TABLE>
Sch A - 1
<PAGE> 29
SCHEDULE B
CKE restaurants, Inc.
7,250,000 Shares of Common Stock
(Par Value $0.01 Per Share)
1. The initial public offering price per share for the
International Securities, determined as provided in said Section 2,
shall be $-.
2. The purchase price per share for the International
Securities to be paid by the several International Underwriters shall be
$-, being an amount equal to the initial public offering price set forth
above less $- per share; provided that the purchase price per share for
any Option Securities purchased upon the exercise of the over-allotment
option described in Section 2(b) shall be reduced by an amount per share
equal to any dividends or distributions declared by the Company and
payable on the Initial International Securities but not payable on the
International Option Securities.
Sch B - 1
<PAGE> 30
[SCHEDULE C]
[List of subsidiaries]
Sch C- 1
<PAGE> 31
[SCHEDULE D]
[List of persons and entities
subject to lock-up]
Sch D- 1
<PAGE> 32
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure
so to qualify or to be in good standing would not result in a Material
Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to the Purchase Agreement or pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus); the shares of issued and out
standing capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; and none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company.
(v) The Securities have been duly authorized for issuance and
sale to the Underwriters pursuant to the Purchase Agreement and, when
issued and delivered by the Company pursuant to the Purchase Agreement
against payment of the consideration set forth in the Purchase
Agreement, will be validly issued and fully paid and non-assessable and
no holder of the Securities is or will be subject to personal liability
by reason of being such a holder.
(vi) The issuance of the Securities is not subject to the
preemptive or other similar rights of any securityholder of the Company.
(vii) Each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good
A-1
<PAGE> 33
standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued and
outstanding capital stock of each Subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and, to the best of
our knowledge, is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; none of the outstanding shares of
capital stock of any Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary.
(viii) The Purchase Agreement has been duly authorized,
executed and delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b);
and, to the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or
threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectus, excluding the documents
incorporated by reference therein, and each amendment or supplement to
the Registration Statement and Prospectus, excluding the documents
incorporated by reference therein, as of their respective effective or
issue dates (other than the financial statements and supporting
schedules included therein or omitted therefrom, as to which we need
express no opinion) complied as to form in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations.
(xi) The documents incorporated by reference in the
Prospectus (other than the financial statements and supporting schedules
included therein or omitted therefrom, as to which we need express no
opinion), when they were filed with the Commission complied as to form
in all material respects with the requirements of the 1933 Act or the
1934 Act and the rules and regulations of the Commission thereunder.
(xii) The form of certificate used to evidence the Common
Stock complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the charter and
by-laws of the Company and the requirements of the New York Stock
Exchange.
(xiii) To the best of our knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to
which the Company or any subsidiary is a party, or to which the property
of the Company or any subsidiary is subject, before or brought by any
court or governmental agency or body, domestic or foreign, which might
reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of the transactions
contemplated in the Purchase Agreement or the performance by the Company
of its obligations thereunder.
A-2
<PAGE> 34
(xiv) The information contained in the Company's registration
statement on Form 8-A dated April 6, 1994 under "Description of Capital
Stock--Common Stock", "Business-- Trademarks and Service Marks",
"Business--Government Regulations", "Business--Properties",
"Business--Legal Proceedings", and "Description of Certain Indebtedness"
and in the Registration Statement under Item 15, to the extent that it
constitutes matters of law, summaries of legal matters, the Company's
charter and bylaws or legal proceedings, or legal conclusions, has been
reviewed by us and is correct in all material respects.
(xv) To the best of our knowledge, there are no statutes or
regulations that are required to be described in the Prospectus that are
not described as required.
(xvi) All descriptions in the Registration Statement of
contracts and other documents to which the Company or its subsidiaries
are a party are accurate in all material respects; to the best of our
knowledge, there are no franchises, contracts, indentures, mortgages,
loan agreements, notes, leases or other instruments required to be
described or referred to in the Registration Statement or to be filed as
exhibits thereto other than those described or referred to therein or
filed or incorporated by reference as exhibits thereto, and the
descriptions thereof or references thereto are correct in all material
respects.
(xvii) To the best of our knowledge, neither the Company nor
any subsidiary is in violation of its charter or by-laws and no default
by the Company or any subsidiary exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument that is described or referred to
in the Registration Statement or the Prospectus or filed or incorporated
by reference as an exhibit to the Registration Statement.
(xviii) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other than under
the 1933 Act and the 1933 Act Regulations, which have been obtained, or
as may be required under the securities or blue sky laws of the various
states, as to which [we] need express no opinion) is necessary or
required in connection with the due authorization, execution and
delivery of the Purchase Agreement or for the offering, issuance, sale
or delivery of the Securities.
(xix) The execution, delivery and performance of the Purchase
Agreement and the consum mation of the transactions contemplated in the
Purchase Agreement and in the Registration Statement (including the
issuance and sale of the Securities and the use of the proceeds from the
sale of the Securities as described in the Prospectus under the caption
"Use Of Proceeds") and compliance by the Company with its obligations
under the Purchase Agreement do not and will not, whether with or
without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in
Section 1(a)(xi) of the Purchase Agreement) under or result in the
creation or imposition of any lien, charge or encum brance upon any
property or assets of the Company or any subsidiary pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or any other agreement or instrument, known to us, to which
the Company or any subsidiary is a party or by which it or
any of them may be bound, or to which any of the property or assets of
the Company or any subsidiary is subject (except for such conflicts,
breaches or defaults
A-3
<PAGE> 35
or liens, charges or encumbrances that would not have a Material Adverse
Effect), nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or any subsidiary, or any
applicable law, statute, rule, regulation, judgment, order, writ or
decree, known to us, of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
subsidiary or any of their respective properties, assets or operations.
(xx) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the 1940 Act.
Nothing has come to our attention that would lead us to believe
that the Registration Statement or any amendment thereto, including the
Rule 430A Information and Rule 434 Informa tion (if applicable), (except
for financial statements and schedules and other financial data included
or incorporated by reference therein or omitted therefrom, as to which
we need make no statement), at the time such Registration Statement or
any such amendment became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or
that the Prospectus or any amendment or supplement thereto (except for
financial statements and schedules and other financial data included or
incorporated by reference therein or omitted therefrom, as to which we
need make no statement), at the time the Prospectus was issued, at the
time any such amended or supplemented prospectus was issued or at the
Closing Time, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering such opinion, such counsel may rely as to matters of
fact (but not as to legal conclusions), to the extent they deem proper,
on certificates of responsible officers of the Company and public
officials. Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written
policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law
(1991).
A-4
<PAGE> 36
Exhibit B
-, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
ALEX. BROWN & SONS INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
EQUITABLE SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY LLC
as U.S. Representatives of the several
U.S. Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
MERRILL LYNCH INTERNATIONAL
ALEX. BROWN & SONS INCORPORATED
MORGAN STANLEY & CO. INTERNATIONAL LTD.
EQUITABLE SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY LLC
as International Representatives of the several
International Underwriters to be named in the
within-mentioned International Purchase Agreement
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Re: Proposed Public Offering by CKE Restaurants, Inc.
Dear Sirs:
The undersigned, a stockholder and an officer and/or director of CKE
Restaurants, Inc., a Delaware corporation (the "Company"), understands that Me
rill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), Alex. Brown & Sons Incorporated, Morgan Stanley & Co. Incorporated,
Equitable Securities Corporation and Robertson, Stephens & Company LLC, as the
U.S. Representatives of the several U.S. Underwriters (the "U.S. Underwriters")
to be named in the U.S. Purchase Agreement hereinafter referred to, and Merrill
Lynch International, Alex. Brown & Sons Incorporated, Morgan Stanley & Co.
International Ltd., Equitable Securities Corporation and Robertson, Stephens &
Company LLC, as the international representatives of the several International
Underwriters (the "International Underwriters") to be named as the International
Purchase Agreement hereinafter referred to propose to enter into a Purchase
Agreement (the "Purchase Agreement") with the Company providing for the public
offering of shares (the "Securities") of the Company's common stock, par value
$0.01 per share (the "Common Stock"). In recognition of the benefit that such an
offering will confer upon the undersigned as a stockholder and an officer and/or
director of the Company, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned agrees
with each underwriter to be named in the Purchase Agreement that, during a
period of 90 days from the date of the Purchase Agreement, the under signed will
not, without the prior written consent of Merrill Lynch, directly or indirectly,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of, or otherwise dispose of or transfer any shares of the
Company's Common Stock or any securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the under signed has or hereafter acquires
the power of disposition, or file any registration statement under the
Securities Act of 1933, as amended, with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in
B-1
<PAGE> 37
part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction is to be settled by delivery
of Common Stock or other securities, in cash or otherwise.
Very truly yours,
Signature:
--------------------------
Print Name:
--------------------------
B-2
<PAGE> 38
Annex A
[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(e)]
[We are independent public accountants with respect to the Company within the
meaning of the 1933 Act and the applicable published 1933 Act Regulations]
(i) in our opinion, the audited financial statements [and the
related financial statement schedules] included or incorporated by
reference in the Registration Statement and the Prospectus comply as to
form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder;
(ii) on the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a
reading of the unaudited interim [consolidated] financial statements of
the Company for the [three month periods ended _________, 19___ and
_________, 19___ , the three and six month periods ended _________,
19___ and _________, 19___ and the three and nine month periods ended
_________, 19___ and _________, 19___, included or incorporated by
reference in the Registration Statement and the Prospectus
(collectively, the "10-Q Financials")] [, a reading of the unaudited
interim [consolidated] financial statements of the Company for the
_____-month periods ended _________, 19___ and _________, 19___,
included in the Registration Statement and the Prospectus (the
"____-month financials")] [, a reading of the latest available unaudited
interim [consolidated] financial statements of the Company], a reading
of the minutes of all meetings of the stockholders and directors of the
Company [and its subsidiaries] and the _____________ and ____________
Committees of the Company's Board of Directors [and any subsidiary
committees] since [day after end of last audited period], inquiries of
certain officials of the Company [and its subsidiaries] responsible for
financial and accounting matters, a review of interim financial
information in accordance with standards established by the American
Institute of Certified Public Accountants in Statement on Auditing
Standards No. 71, Interim Financial Information ("SAS 71"), with respect
to the [description of relevant periods] and such other inquiries and
procedures as may be specified in such letter, nothing came to our
attention that caused us to believe that:
[(A) the 10-Q Financials incorporated by reference in the
Registration Statement and the Prospectus do not comply as to
form in all material respects with the applicable accounting
requirements of the 1934 Act and the 1934 Act Regulations
applicable to unaudited financial statements included in Form
10-Q or any material modifications should be made to the 10-Q
Financials incorporated by reference in the Registration
Statement and the Prospectus for them to be in conformity
with generally accepted accounting principles;]
[( ) the _____-month financials included in the
Registration Statement and the Prospectus do not comply
as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1933 Act
Regulations applicable to unaudited interim financial
statements included in
Annex A-1
<PAGE> 39
registration statements or any material modifications
should be made to the _____-month financials included in
the Registration Statement and the Prospectus for them
to be in conformity with generally accepted accounting
principles;]
( ) at [_________, 19___ and at] a specified date not more
than five days prior to the date of this Agreement, there was
any change in the ___________ of the Company [and its
subsidiaries] or any decrease in the __________ of the
Company [and its subsidiaries] or any increase in the
__________ of the Company [and its subsidiaries,] in each
case as compared with amounts shown in the latest balance
sheet included in the Registration Statement, except in each
case for changes, decreases or increases that the
Registration Statement discloses have occurred or may occur;
or
( ) [for the period from _________, 19___ to _________,
19___ and ] for the period from _________, 19___ to a
specified date not more than five days prior to the date of
this Agreement, there was any decrease in _________,
__________ or ___________, in each case as compared with the
comparable period in the preceding year, except in each case
for any decreases that the Registration Statement discloses
have occurred or may occur;
(iii) based upon the procedures set forth in clause (ii)
above and a reading of the [Selected Financial Data] included
in the Registration Statement [and a reading of the financial
statements from which such data were derived], nothing came
to our attention that caused us to believe that the [Selected
Financial Data] included in the Registration Statement do not
comply as to form in all material respects with the
disclosure requirements of Item 301 of Regulation S-K of the
1933 Act [, that the amounts included in the [Selected
Financial Data] are not in agreement with the corresponding
amounts in the audited [consolidated] financial statements
for the respective periods or that the financial statements
not included in the Registration Statement from which certain
of such data were derived are not in conformity with
generally accepted accounting principles];
(iv) we have compared the information in the
Registration Statement under selected captions with the
disclosure requirements of Regulation S-K of the 1933
Act and on the basis of limited procedures specified
herein. nothing came to our attention that caused us to
believe that this information does not comply as to form
in all material respects with the disclosure
requirements of Items 302, 402 and 503(d), respectively,
of Regulation S-K;
[(v) based upon the procedures set forth in clause (ii)
above, a reading of the unaudited financial statements
of the Company for [the most recent period] that have
not been included in the Registration Statement and a
review of such financial statements in accordance with
SAS 71, nothing came to our attention that caused us to
believe that the unaudited amounts for _____________ for
the
Annex A-2
<PAGE> 40
[most recent period] do not agree with the amounts
set forth in the unaudited consolidated financial
statements for those periods or that such unaudited
amounts were not determined on a basis substantially
consistent with that of the corresponding amounts in the
audited [consolidated] financial statements;]
[(vi)] we are unable to and do not express any opinion on
the [Pro Forma Combining Statement of Operations] (the "Pro
Forma Statement") included in the Registration Statement or
on the pro forma adjustments applied to the historical
amounts included in the Pro Forma Statement; however, for
purposes of this letter we have:
(A) read the Pro Forma Statement;
(B) performed [an audit] [a review in accordance
with SAS 71] of the financial statements to which the pro
forma adjustments were applied;
(C) made inquiries of certain officials of the
Company who have responsibility for financial and
accounting matters about the basis for their determination
of the pro forma adjustments and whether the Pro Forma
Statement complies as to form in all material respects
with the applicable accounting requirements of Rule 11-02
of Regulation S-X; and
(D) proved the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the Pro Forma Statement; and
on the basis of such procedures and such other inquiries and
procedures as specified herein, nothing came to our attention
that caused us to believe that the Pro Forma Statement
included in the Registration Statement does not comply as to
form in all material respects with the applicable
requirements of Rule 11-02 of Regulation S-X or that the pro
forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
and
[(vii)]in addition to the procedures referred to in clause
(ii) above, we have performed other procedures, not
constituting an audit, with respect to certain amounts,
percentages, numerical data and financial information
appearing in the Registration Statement, which are specified
herein, and have compared certain of such items with, and
have found such items to be in agreement with, the accounting
and financial records of the Company; and
[(viii)in addition, we [COMFORT ON A FINANCIAL FORECAST
THAT IS INCLUDED IN THE REGISTRATION STATEMENT].
Annex A-3
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
CKE Restaurants, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the headings "Selected Consolidated Financial and Operating Data" and
"Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Orange County, California
June 13, 1997
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
CKE Restaurants, Inc.:
We consent to the use of our report for Summit Family Restaurants Inc. and
subsidiaries incorporated herein by reference and to the reference to our firm
under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Salt Lake City, Utah
June 13, 1997
<PAGE> 1
EXHIBIT 23.3
The Board of Directors
CKE Restaurants, Inc.:
We consent to the use of our report for Casa Bonita Incorporated and
subsidiaries incorporated herein by reference and to the reference to our firm
under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Dallas, Texas
June 13, 1997
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of CKE Restaurants,
Inc. on Form S-3 of our report dated January 17, 1997, except for Note 20, as to
which the date is April 27, 1997, (which expresses an unqualified opinion and
includes an explanatory paragraph relating to the adoption of Statement of
Financial Accounting Standards No. 121 in 1996) on the combined financial
statements of Hardee's Food Systems, Inc. appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
- --------------------------------
Deloitte & Touche LLP
Raleigh, North Carolina
June 13, 1997
