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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-13192
CKE RESTAURANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 33-0602639
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 NORTH HARBOR BOULEVARD
ANAHEIM, CALIFORNIA 92801
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-5796
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(TITLE OF EACH CLASS) NAME OF EACH EXCHANGE ON WHICH REGISTERED:
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
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The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 31, 1997 was $552,153,292.
The number of shares outstanding of the registrant's common stock was
33,356,566 as of March 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of the registrant's Proxy
Statement for the 1997 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission within 120 days after January 27, 1997,
are incorporated by reference into Part III of this Report.
The Exhibit Index is contained in Part IV herein on Page E-1.
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CKE RESTAURANTS, INC. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 27, 1997
<TABLE>
<S> <C> <C>
PART I Page
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . 13
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . 16
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 22
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 22
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . 23
</TABLE>
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PART I
ITEM 1. BUSINESS
OVERVIEW
CKE Restaurants, Inc., a Delaware corporation ("CKE" and collectively
with its subsidiaries, the "Company"), is engaged primarily in the food service
industry. The Company owns, operates, franchises and licenses the Carl's Jr.(R)
quick-service hamburger restaurant concept, which is the seventh largest
quick-service hamburger restaurant chain in the United States. As of January
27, 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 recent acquisitions, the Company also operates and franchises a total
of 257 other restaurants, including 107 Taco Bueno(R) quick-service Mexican
food restaurants located in Texas and Oklahoma.
The first Carl's Jr. restaurant was opened in 1956 by Carl N. Karcher,
the Company's founder, in Anaheim, California. After an extended period of
growth, the Company made certain strategic decisions and experienced certain
operational difficulties in the early 1990s which adversely impacted the
Company's sales and profitability. In response to the introduction of value
pricing by its quick-service restaurant competitors, the Company reduced prices
and initiated an extensive value-priced menu advertising campaign. Beginning in
October 1994, the Company hired a new management team that 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(R) and the commencement of a remodeling program for
Carl's Jr. restaurants. As a result of these strategies, together with the
Company's successful efforts to reduce expenses at both the corporate and
operating levels, the Company experienced significant improvements in sales and
operating results in fiscal 1996 and fiscal 1997. The Company 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.
BUSINESS STRATEGY
The Company's objective is to enhance and reinforce its position as
one of the leading operators of quick-service restaurants within its targeted
markets. The Company's current management team has implemented a business
strategy which has revitalized the Carl's Jr. brand and increased sales and
profitability. The Company believes that certain elements of this business
strategy can be used successfully to improve the financial performance and
revitalize the brands of its recent and future acquisitions. Key elements of
the Company's business strategy are as follows:
Established, Differentiated Brand. The Company is committed to further
developing established restaurant brands that have a strong consumer identity
in regional markets and target a specific market niche. With over 40 years of
operation, Carl's Jr. is a distinct and identifiable brand and its Happy
Star(R) logo is widely recognized in its core markets. 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. The Company believes that Carl's Jr.'s superior food quality, generous
portions, broad menu and attentive customer service differentiate it from its
competitors and are critical to its success.
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Maintain Efficient Operations. The Company believes its operating and
distribution systems, experienced restaurant-level management and strong
employee training programs are critical to its ability to achieve strong Carl's
Jr. restaurant-level margins. The Company has designed and implemented
restaurant managerial and operating procedures that enable it to control
expenses while improving food quality and customer service. The Carl's Jr.
distribution system takes advantage of volume purchasing of food and supplies
and provides system-wide consistency and economies of scale. To develop and
motivate its restaurant managers, the Company offers performance-based
incentive compensation and opportunities for advancement.
Continue Dual-Branding Programs. The Company believes dual-branding
programs increase sales and customer counts by offering its customers an
additional distinct concept and a separate menu at a single restaurant
location, without requiring a substantial investment or significantly
increasing operating complexities. The Company believes that its dual-branding
program with The Green Burrito has attracted new customers while increasing the
frequency of customer visits at converted restaurants. The Company plans to
aggressively continue the conversion of Carl's Jr. restaurants to the Carl's
Jr./Green Burrito concept and is considering dual-branding certain of its
recently acquired Taco Bueno restaurants with other quick-service restaurant
concepts.
Innovative Advertising. The Company is committed to aggressively
promoting and enhancing its brand awareness through innovative advertising. In
early 1995, the Company 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. Since the start
of this innovative advertising campaign, the Company has experienced seven
consecutive quarterly increases in Company-operated Carl's Jr. same-store sales
as compared with the corresponding quarters of the prior year.
Continue Development of Extensive Franchise System. The Company's
franchise strategy is to increase market penetration without increasing the
total capital required by the Company for development of new restaurants. The
Company has developed a strong Carl's Jr. franchise system by attracting
franchisees with experience in multi-unit restaurant operations and ensuring
that each franchisee adheres to the Company's high operating and quality
standards. The Company believes that the recent strong sales results in the
Carl's Jr. system will attract new franchisees and encourage existing
franchisees to open new restaurants. The Company is also considering
franchising certain of its recently acquired concepts.
GROWTH STRATEGY
The Company is currently pursuing a strategy of growth and expansion
through (i) increasing sales and profitability at its existing restaurants,
(ii) the opening of both Company-operated and franchised restaurants in
existing and new markets, and (iii) acquisitions of, or investments in, similar
concepts to create new avenues for growth.
Increasing Restaurant Sales and Profitability. The Company believes it
can increase consumer awareness, restaurant sales and profitability by
continuing its dual-branding strategy, completing its remodeling and image
enhancement programs and expanding its advertising and marketing program. The
Company's original agreement with GB Foods Corporation ("GB Foods") provided
for an aggregate of 140 dual-brand conversions over the five-year term of the
agreement. The original agreement was modified in February 1997 to provide for
the conversion of a minimum of 60 restaurants per year to dual-brand Green
Burrito locations for each of the next four years, accelerating the original
140-unit commitment to a minimum of 306 stores, including the 66
Company-operated and franchised locations that had been converted as of the
date the agreement was amended. Post-conversion revenues in the 59
Company-operated restaurants converted to Carl's Jr./Green Burrito dual-brand
restaurants (including restaurants converted during the year) as of January 27,
1997 were approximately 25% higher than same-store sales in the comparable
prior year period. The Company is also considering dual-branding certain of its
recently acquired Taco Bueno restaurants with other quick-service restaurant
concepts.
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The Company is currently remodeling Company-operated Carl's Jr.
restaurants with a fresher, more contemporary look. Exterior improvements
include brighter colors, red awnings and a large, tilted Happy Star logo. The
new interiors feature the same fresh 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. As of January 27, 1997, the Company had
remodeled over half of its Company-operated Carl's Jr. restaurants and plans to
complete the remodeling of substantially all of its Company-operated Carl's Jr.
restaurants by the end of fiscal 1998. In accordance with the Company's
franchise agreements, the Company's franchisees will have until August 1999 to
remodel their restaurants. 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 also plans to continue its advertising campaign with
innovative television commercials emphasizing the Carl's Jr. brand and its
quality products. Based upon the success of its advertising campaign, most of
the Company's franchisees have agreed to increase their contributions for
marketing and advertising, and the Company plans to partially match such
contributions.
Opening New Restaurants. The Company intends to accelerate its
expansion program by opening new restaurants in both traditional, freestanding
structures and alternative formats. The Company opened 12 new Carl's Jr.
restaurants during fiscal 1997 and presently anticipates that it will open up
to 30 new Carl's Jr. restaurants and is evaluating opening additional Taco
Bueno restaurants in its existing markets during fiscal 1998. The Company's
franchisees and licensees opened 14 new Carl's Jr. restaurants during fiscal
1997, and the Company presently anticipates that its franchisees and licensees
will open up to 15 new Carl's Jr. restaurants during fiscal 1998.
The Company believes that its existing core and developing markets
offer significant growth opportunity for both Company-operated and franchised
restaurant development. The Company's expansion strategy is designed to
increase market penetration and consumer awareness, thereby enabling the
Company to take advantage of operational and advertising efficiencies through
restaurant clustering within television markets. The Company believes that
increases in average restaurant sales can be achieved in those markets in which
it can open multiple restaurants. The Company will attempt to attract new
qualified franchisees and encourage existing franchisees to open additional
restaurants, and the Company will continue to co-develop markets with its
franchisees. In determining which new markets to develop, the Company considers
many factors, including the size of the market, demographic trends, competition
and real estate availability and pricing.
Pursuing Complementary Acquisitions. The Company also seeks to enhance
its growth and expansion through selective acquisitions of, or investments in,
other restaurant concepts. When evaluating possible acquisitions and
investments, the Company identifies (i) similar concepts for conversion to
Carl's Jr. restaurants, (ii) underperforming brands that the Company believes
can be turned around by improving unit economics and reducing overhead and
(iii) restaurant concepts that the Company believes present the potential for
an additional growth vehicle.
The Company intends to apply certain elements of its business strategy
used to improve the performance of its Carl's Jr. restaurants to its recent and
future acquisitions. In addition, the Company believes that its efficient
operating systems and established corporate infrastructure will enable it to
improve restaurant-level margins and eliminate redundant corporate functions at
companies which it acquires or in which it makes a significant investment.
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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 that 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 diverse menu and
all-you-can-eat salad bar appeal to a broad audience but remain sufficiently
limited to maintain both a distinct identity and operational efficiencies. 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(R), Super Star(R), Charbroiler Chicken Sandwiches(R)
and Crispy Chicken Sandwiches. Other entrees include a fish sandwich, stuffed
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.
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.
Purchasing and Distribution. The Company 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 the Company's Carl's Jr. franchisees purchase most of
their food and paper supplies from the Company. The Company 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 believes its mature
procurement process allows it to effectively manage
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food costs, provide adequate quantities of food and supplies at competitive
prices, generate revenues from franchisees by adding a nominal mark-up to cover
the direct costs and provide better over all service to the Carl's Jr.
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.
The Company operates a distribution center at its corporate
headquarters in Anaheim, California and a smaller distribution facility in
Manteca, California. The food products and supply items are distributed to
Carl's Jr. restaurants, generally twice a week, by refrigerated trucks leased
and operated by the Company.
Green Burrito Development Agreement. Dual-branding is an emerging
concept in the quick-service restaurant industry that allows a single
restaurant to offer customers two distinct brand menus. In May 1995, the
Company entered into a five-year agreement with GB Foods, the operator and
franchisor of The Green Burrito quick-service Mexican food concept, 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 in 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, tacos, 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 that 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, 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.
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The Company's franchising philosophy is such that only candidates with
appropriate experience are considered for the program. Specific net worth and
liquidity requirements must also be satisfied. Area development agreements
generally require franchisees to open a specified number of Carl's Jr.
restaurants in a designated geographic area within a specified time period.
As of January 27, 1997, 258 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. In May 1995, the Company
entered into a joint venture agreement with its Malaysia-based licensee that
provides for the development of Carl's Jr. restaurants in the Pacific Rim. As
of January 27, 1997, there were 30 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.
Carl's Jr. Restaurant Locations. The following table sets forth the
locations of Company-operated and franchised and licensed Carl's Jr.
restaurants as of January 27, 1997:
<TABLE>
<CAPTION>
FRANCHISED
OR
COMPANY-OPERATED LICENSED TOTAL
---------------- -------- -----
<S> <C> <C> <C>
California . . . . . . . . . . . . . . . . . . . . . . . . . . . 399 157 556
Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 27 38
Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 27 27
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 15 18
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 -- 2
Hawaii . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1 1
Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1 1
----- ----- -----
Total United States . . . . . . . . . . . . . . . . . . 415 228 643
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International . . . . . . . . . . . . . . . . . . . . . . . . . . -- 30 30
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . 415 258 673
===== ===== =====
</TABLE>
TACO BUENO
Casa Bonita Incorporated ("Casa Bonita"), which was acquired by the
Company in October 1996, currently 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
broad menu featuring generous portions of freshly prepared 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 fresh salads and Mexican platters. 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 that includes
sliced jalapenos, diced onions and freshly prepared 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
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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 seeks to enhance its growth and expansion through the
selective acquisitions of, or investments in, other restaurant concepts. The
following is a brief description of the Company's investments in other
restaurant concepts:
Checkers Drive-In Restaurants, Inc. ("Checkers"). Checkers operates
and franchises the Checkers Drive-In Restaurants double drive-thru
quick-service hamburger restaurant concept. As of December 30, 1996, there were
478 Checkers restaurants operating in 23 states, of which 232 were operated by
Checkers and 246 were operated by franchisees.
During fiscal 1997, the Company, together with a group of investors,
including certain related parties, purchased and subsequently restructured
$35.8 million of aggregate principal amount of Checkers 13.0% senior secured
debt, due on July 31, 1999. The Company paid $12.9 million for $13.2 million,
or 36.75% share of the debt and also contributed $0.5 million as part of a $2.5
million revolving line of credit to Checkers, of which a combined total of
$10.1 million remained due from Checkers as of January 27, 1997. 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").
Subsequent to January 27, 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. 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.
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. See Note 6
of Notes to Consolidated Financial Statements.
Rally's Hamburgers, Inc. ("Rally's"). Rally's operates and franchises
the Rally's Hamburgers double drive-thru quick-service hamburger restaurant
concept. As of February 24, 1997, there were 471 Rally's restaurants operating
in 19 states, of which 214 were owned and operated by Rally's, 230 were
operated by its franchisees and 27 were owned by Rally's but were operated as
Rally's restaurants by the Company. The Company and Rally's entered into an
operating agreement, effective in July 1996, pursuant to which the Company
began operating 28 Rally's-owned restaurants located in California and Arizona.
Pursuant to the terms of the operating agreement, Rally's retains ownership of
the assets of such restaurants 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
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<PAGE> 10
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 commencing July 2, 1996.
As of January 27, 1997, the Company's investment in Rally's was $7.9
million, representing an approximate 18% ownership interest. In addition, the
Company has the right to acquire an additional 2% ownership interest in Rally's
upon exercise of 775,488 warrants to purchase Rally's common stock at $2.25 per
share that were acquired pursuant to the Company's participation in Rally's
rights offering and 750,000 warrants to purchase Rally's common stock at $4.375
per share that were issued to the Company in December 1996. See Note 6 of Notes
to Consolidated Financial Statements.
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.
Summit Family Restaurants Inc. ("Summit"). Summit, which was acquired
by the Company in July 1996, operates three restaurant concepts: JB's
Restaurant, a family dining chain of 73 Company-operated and 22 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-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
all of or a portion of Summit. 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. See Note 2 of Notes to Consolidated Financial Statements.
Boston Market. The Company continues to hold an interest in Boston West,
L.L.C. ("Boston West"), which acquired the Company's Boston Market restaurant
assets and operations in fiscal 1995 and is developing Boston Markets in
designated markets in California under an area development agreement with
Boston Chicken, Inc. ("BCI"), the franchisor of the Boston Market restaurant
concept. As of January 27, 1997, Boston West operated 84 Boston Market stores
located in southern California. The Company's investment in Boston West as of
January 27, 1997 and January 29, 1996 was $22.3 million and $19.8 million,
respectively, which is recorded at cost and approximates the estimated fair
value of the Company's common and preferred equity units in Boston West. See
Note 6 of Notes to Consolidated Financial Statements.
SOURCES OF RAW MATERIALS
The Company's ability to maintain consistent quality depends in part upon
its ability to acquire and distribute food products, restaurant equipment,
signs, fixtures and supplies from reliable sources in accordance with Company
specifications. The Company, its franchisees and its licensees have not
experienced any material shortages of these items that the Company purchases
from numerous independent suppliers. Alternate sources of these items are
generally available.
8
<PAGE> 11
TRADEMARKS AND SERVICE MARKS
The Company owns numerous trademarks and service marks. The Company has
registered many of those marks, including Carl's Jr.(R), the Happy Star(R)
logo, Taco Bueno(R) and proprietary names for a number of the Carl's Jr. and
Taco Bueno menu items, with the United States Patent and Trademark Office. The
Company believes that its trademarks and service marks have significant value
and play an important role in its marketing efforts.
SEASONALITY
The Company's business is moderately seasonal. Average restaurant sales
are normally higher in the summer months than during the winter months.
WORKING CAPITAL PRACTICES
Currently, the Company is utilizing cash flows from operations to fund the
expansion of new Carl's Jr. restaurants, the remodeling of its restaurants
under the Company's image enhancement program and the conversion of its
dual-concept restaurants.
The Company does not carry significant amounts of inventory, experience
material returns of merchandise, or generally provide extended payment terms to
its franchisees or licensees. Cash from operations, along with cash and cash
equivalents, and a combination of proceeds from its revolving credit facility
and borrowings from other banks or financial institutions should enable the
Company to meet its financing requirements.
GOVERNMENT REGULATION
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 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, including limitations
on the ability of franchisors to terminate franchisees and alter franchise
arrangements, to the relationship between franchisor and franchisee. The
Company believes it is operating in substantial compliance with applicable laws
and regulations governing its operations.
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.
9
<PAGE> 12
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. 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. 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.
RESEARCH AND DEVELOPMENT
The Company maintains a test kitchen for its Carl's Jr. operations at
its headquarters in which new products and production concepts are developed on
an ongoing basis. In addition, the Company is currently testing a number of
dual-concepts which include the sale of other branded products from within the
Company's Carl's Jr. and Taco Bueno restaurants. While these efforts are
critical to the Company, amounts expended for these activities are not
considered material. There are no customer-sponsored research and development
activities.
ENVIRONMENTAL MATTERS
Compliance with federal, state and local environmental provisions
regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment did not have a material effect on
capital expenditures, earnings or the competitive position of the Company in
fiscal 1997. The Company cannot predict the effect on its operations from
possible future legislation or regulation.
EMPLOYEES
As of January 27, 1997, the Company employed approximately 19,400
persons, of whom approximately 18,000 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. None of the Company's employees are
currently covered by a collective bargaining agreement. The Company has never
experienced a work stoppage attributable to labor disputes and believes its
employee relations are good.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
The Company wishes to caution readers that the forward-looking
statements contained in this Form 10-K under "Item 1. Business," "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Form 10-K involve known and unknown risks and
uncertainties which may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by any forward-looking statements made by
or on behalf of the Company. In connection with the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995, the Company is filing the
following cautionary statements identifying important factors that in some
cases have affected, and in the future could cause, the Company's actual
results to differ materially from those expressed in any such forward-looking
statements.
10
<PAGE> 13
In addition to factors discussed in this Form 10-K, among the other
factors that could cause the Company's results to differ materially are:
general economic and business conditions; the impact of competitive products
and pricing; success of operating initiatives; development and operating costs;
advertising and promotional efforts; adverse publicity; acceptance of new
product offerings; consumer trial and frequency; changes in business strategy
or development plans; quality of management; availability, terms, and
deployment of capital; the results of financing efforts; business abilities and
judgment of personnel; availability of qualified personnel; food, labor, and
employee benefit costs; changes in, or the failure to comply with, government
regulations; weather conditions and construction schedules and risks that sales
growth resulting from the Company's current and future remodeling and
dual-branding of restaurants can be sustained at the current levels
experienced.
The Company and its franchisees are pursuing an aggressive growth
strategy. There can be no assurance that the Company or its franchisees will
achieve growth objectives or that new restaurants will be profitable. The
success of the Company's planned expansion will be dependent upon numerous
factors, many of which are beyond the Company's control, including the
identification of suitable markets, the availability and leasing or purchase of
suitable sites on acceptable terms, 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.
In addition to the recent acquisitions of Casa Bonita and Summit, the
Company has had preliminary acquisition discussions with, and has evaluated the
potential acquisition of, other companies over the last few years. As part of
its growth strategy, the Company will continue to consider acquiring, or making
investments in, other companies in the food service industry that the Company
believes may complement or expand its existing business. 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, if any, and the potential loss of key employees. In
addition, the Company's acquisition strategy includes the identification of
companies or properties that are viewed as underperforming by the Company. This
element of the Company's strategy may increase the risks involved with the
Company's acquisitions. There can be no assurance that any such acquisition or
investment will enhance the Company's business.
As of January 27, 1997, the Company's investment in Boston West was
$22.3 million, which is recorded at cost and approximates the estimated fair
value of the Company's common and preferred equity units in Boston West. Boston
West has incurred significant operating losses and there can be no assurance
that the franchisor, BCI, will continue its support. As of January 27, 1997,
the Company's investment in Rally's was $7.9 million. Rally's reported a net
loss of $46.9 million for its fiscal year ended December 31, 1995 and net
income of $2.0 million (including an extraordinary gain, net of tax, of $5.3
million from the early extinguishment of debt) for its fiscal year ended
December 29, 1996. Subsequent to January 27, 1997, the Company purchased an
ownership interest in Checkers, and as of February 20, 1997, the Company's
investment in Checkers was $14.1 million. Checkers reported net losses of $33.2
million and $46.4 million for its fiscal years ended January 1, 1996 and
December 30, 1996, respectively. There can also be no assurance that the fair
values of the Company's investments in Boston West, Rally's or Checkers will
continue to support their recorded carrying values. See Note 6 of Notes to
Consolidated Financial Statements.
11
<PAGE> 14
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William P. Foley II 52 Chairman of the Board and Chief Executive Officer
C. Thomas Thompson 47 President and Chief Operating Officer
Rory J. Murphy 49 Executive Vice President, Restaurant Operations
Carl A. Strunk 58 Executive Vice President, Chief Financial Officer
Andrew F. Puzder 46 Executive Vice President, General Counsel
Robert E. Wheaton 44 Executive Vice President
Loren C. Pannier 55 Senior Vice President, Investor Relations
</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 National
Financial, Inc. ("Fidelity"), a company engaged in title insurance and related
services. Mr. Foley is also a member of the Boards of Directors of Micro
General Corporation, Rally's and Checkers.
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 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 and Pac Rim Holding
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 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.
12
<PAGE> 15
ITEM 2. PROPERTIES
Substantially all of the restaurants operated by the Company are located
on properties that are leased from others. In addition, the Company leases and
subleases certain properties to its franchisees. The terms of the Company's
leases or subleases generally range between three and 35 years and expire at
various dates through 2035. 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.
The Company's corporate headquarters and primary distribution center,
located in Anaheim, California, are leased and contain approximately 78,000 and
102,000 square feet, respectively. The Manteca, California distribution
facility has 42,000 square feet and is owned by the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time the subject of complaints, threat letters
or litigation from guests alleging illness, injury or other food quality,
health or operational concerns. Adverse publicity resulting from such
allegations may materially adversely affect the Company and its restaurants,
regardless of whether such allegations are valid or whether the Company is
liable. The Company also is the subject of complaints or allegations from
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange
under the symbol "CKR". As of March 31, 1997, there were approximately 1,800
record holders of the Company's Common Stock. 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
</TABLE>
13
<PAGE> 16
The foregoing prices have been adjusted to give retroactive effect to
a three-for-two stock split of the Company's Common Stock, which was completed
on January 22, 1997 in the form of a stock dividend. No equity securities of
CKE were sold by the Company during the fiscal year ended January 27, 1997 that
were not registered under the Securities Act of 1933, as amended.
The Company has followed a policy of paying semi-annual cash dividends,
at the annual rate of $0.05 per share (adjusted to give retroactive effect to
the stock split), 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 is payable on April 25, 1997
to holders of record on April 4, 1997. Continued payment of dividends on the
Company's 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. The Company's credit facility
imposes restrictions on the Company's ability to pay dividends or other
distributions on its common stock.
14
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with the
consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-K. Per share data has been retroactively
adjusted for stock splits since the Company's inception.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RESTAURANT DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OR AS OF JANUARY 31, (1)
-----------------------------------------------------------------
1997(2) 1996 1995 1994(3) 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Total revenues . . . . . . . . . . . . . . $ 614,080 $ 465,437 $ 443,747 $ 463,494 $ 505,390
Operating income . . . . . . . . . . . . . 42,000 25,735 8,602 10,508 (7,266)
Interest expense . . . . . . . . . . . . . 9,877 10,004 9,202 10,387 13,630
Net income (loss) . . . . . . . . . . . . . 22,302 10,952 1,264 3,665 (5,507)
Net income (loss) per common and common
equivalent share (4) . . . . . . . . . . $ 0.73 $ 0.39 $ 0.05 $ 0.13 $ (0.20)
Cash dividends paid per common share . . . $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05
Common and common equivalent
shares used in computing per share
amounts (000) . . . . . . . . . . . . . 30,414 28,019 28,076 27,851 27,051
CARL'S JR. RESTAURANT OPERATING DATA (5):
System-wide restaurant revenues:
Company-operated restaurants . . . . . . $ 443,304 $ 389,214 $ 364,278 $ 384,859 $ 417,268
Franchised and licensed restaurants . . 204,700 193,984 201,170 209,214 202,109
--------- --------- --------- --------- ---------
Total system-wide revenues . . . . . . $ 648,004 $ 583,198 $ 565,448 $ 594,073 $ 619,377
========= ========= --------- ========= =========
Restaurants open (at end of fiscal year):
Company-operated . . . . . . . . . . . . 415 394 383 376 379
Franchised and licensed . . . . . . . . 258 273 277 272 263
--------- --------- --------- --------- ---------
Total . . . . . . . . . . . . . . . . 673 667 660 648 642
========= ========= ========= ========= =========
Average annual sales per Company-
operated restaurant (6) . . . . . . . . $ 1,114 $ 1,006 $ 966 $ 992 $ 1,070
Percentage increase (decrease) in
comparable Company-operated
restaurant sales (7) . . . . . . . . . . 10.7% 4.4% (3.8)% (6.5)% (5.6)%
CONSOLIDATED BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . $ 401,217 $ 246,759 $ 244,361 $ 242,135 $ 268,924
Total debt, including current portion . . . 87,412 82,874 81,618 79,861 111,879
Stockholders' equity . . . . . . . . . . . $ 214,804 $ 101,189 $ 88,474 $ 92,076 $ 84,732
</TABLE>
(1) The Company's fiscal year is 52 or 53 weeks, ending the last Monday in
January. For clarity of presentation, all years are presented as if the
fiscal year ended January 31.
(2) Fiscal 1997 includes results of operations of Rally's from and after July
2, 1996, Summit from and after July 15, 1996 and Casa Bonita from and
after October 1, 1996. See Note (5) below. 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) Fiscal 1994 includes 53 weeks.
(4) Net income (loss) per common and common equivalent share in fiscal 1994
and 1993 is net of a cumulative effect of a change in accounting principle
of $(0.03) and $(0.09) per share, respectively.
(5) Includes Carl's Jr. restaurant operating data only. Restaurant revenues
from Company-operated restaurants exclude revenues of $10.1 million, $57.3
million and $26.1 million, of revenues from the Company's Rally's, Summit
and Casa Bonita operations, respectively, in fiscal 1997. Also excludes
revenues of $4.3 million and $5.8 million in fiscal 1996 and 1995,
respectively, from Boston Market stores which are no longer operated by
the Company. See Note 6 of Notes to Consolidated Financial Statements.
(6) Calculated on a 52- or 53-week trailing basis for all years presented.
(7) Includes only Carl's Jr. restaurants open throughout the full years being
compared.
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes and "Selected Financial
Data" included elsewhere in this Form 10-K.
OVERVIEW
The Company 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 January 27, 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
recent acquisitions, 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.
Background. The first Carl's Jr. restaurant was opened in 1956 by Carl
N. Karcher, the Company's founder, in Anaheim, California. After an extended
period of growth, the Company made certain strategic decisions and experienced
operational difficulties in the early 1990s which adversely impacted the
Company's sales and profitability. In response to the introduction of value
pricing by its quick-service restaurant competitors, the Company reduced prices
and initiated an extensive value-priced menu advertising campaign. Beginning in
October 1994, the Company hired a new management team that 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 the Company's
successful efforts to reduce expenses at both the corporate and operating
levels, the Company experienced significant improvements in sales and operating
results in fiscal 1996 and fiscal 1997. The Company 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, the
Company commenced its image enhancement program, aimed at remodeling and
revitalizing its Carl's Jr. restaurants. As of January 27, 1997, the Company
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 the end of fiscal 1998. The cost of remodeling ranges from
$100,000 to $140,000 for each location. The Company also initiated its Green
Burrito dual-branding program during fiscal 1996. As of January 27, 1997, the
Company had converted 59 Company-operated Carl's Jr. restaurants to Carl's
Jr./Green Burrito dual-brand locations and the Company plans to convert 60
additional restaurants during fiscal 1998. During fiscal 1997 post-conversion
revenues in the 59 Company-operated restaurants converted to Carl's Jr./Green
Burrito dual-brand restaurants (including restaurants converted during the
year) were approximately 25% higher than same-store sales in the comparable
prior year period. The Company incurs approximately $40,000 to $50,000 in
equipment and signage costs in converting its Carl Jr. restaurants into
dual-brand restaurants. At the time of the conversions of Carl's Jr.
restaurants to Carl's Jr./Green Burrito dual-brand restaurants, the Company
intends to remodel such restaurants as described above. See "Business --
Carl's Jr. -- Green Burrito Development Agreement."
Restaurant Performance. For the trailing 52-week period ended January
27, 1997, the Company's average annual sales per Company-operated Carl's Jr.
restaurant was $1,114,000. For fiscal 1997, Company-operated Carl's Jr.
restaurants generated restaurant-level margins of 21.9%. The Company 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.
General. The Company'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
16
<PAGE> 19
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 the Company's franchised and licensed restaurants include the cost of food
and packaging products sold to the Company's franchisees and licensees and
lease payments on properties subleased to the Company's franchisees. Other
operating expenses, including advertising expenses and general and
administrative expenses, relate to Company-operated restaurants as well as
franchisee and licensee operations. The Company'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 the Company's fiscal 1997 revenues from
franchised and licensed restaurants were derived from sales of food and
packaging products through the Company's distribution operations to its Carl's
Jr. franchisees and licensees. The Company'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 the Company believes lowers the costs of food and paper products.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of certain items included in the
Company's consolidated statements of income for the years indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------
1997(1) 1996 1995
------ ------ ------
<S> <C> <C> <C>
Revenues:
Company-operated restaurants . . . . . . . . . . . . . . . . . . . . . 87.4% 84.5% 83.4%
Franchised and licensed restaurants . . . . . . . . . . . . . . . . . . 12.6 15.5 16.6
------ ------ ------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
====== ====== ======
Operating costs and expenses:
Restaurants operations(2):
Food and packaging . . . . . . . . . . . . . . . . . . . . . . . . . 31.2% 30.8% 30.3%
Payroll and other employee benefits . . . . . . . . . . . . . . . . . 27.9 27.9 30.3
Occupancy and other operating expenses . . . . . . . . . . . . . . . 21.0 20.9 22.2
------ ------ ------
80.1 79.6 82.8
Franchised and licensed restaurants(3) . . . . . . . . . . . . . . . . 93.2 95.7 94.8
Advertising expenses(2) . . . . . . . . . . . . . . . . . . . . . . . . 5.3 5.1 5.4
General and administrative expenses . . . . . . . . . . . . . . . . . . 6.8 8.1 8.7
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 5.5 1.9
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.6) (2.1) (2.1)
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.5 0.7
------ ------ ------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 6.0 3.9 0.5
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 1.5 0.2
------ ------ ------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6% 2.4% 0.3%
====== ====== ======
</TABLE>
(1) Fiscal 1997 includes results of operations of Rally's 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.
REVENUES
Company-operated Restaurants. 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
17
<PAGE> 20
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 the
Company'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 the Company's Boston Market
operations. On a same-store sales basis, the Company'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 the Company's Carl's Jr. chain in nearly a decade.
Per store averages in Company-operated Carl's Jr. restaurants continued to
increase in fiscal 1997 and reached $1,114,000 on a 13-period rolling basis, an
increase of $108,000 over the prior year and 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 the
Company's various sales enhancement programs that were implemented in fiscal
1996. These programs 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. 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.
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 sales enhancement programs
that were implemented in fiscal 1996. Also contributing to the rise in revenues
were higher average sales and transaction counts per restaurants and an
increase in the number of Carl's Jr. restaurants in operation in fiscal 1996 as
compared with 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
the Company in six years.
Franchised and Licensed Restaurants. Revenues from franchised and
licensed restaurants for fiscal 1997 increased 7.4% to $77.3 million over
fiscal 1996, while fiscal 1996 revenues decreased $1.8 million, or 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 the Company, 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
Company-operated Restaurants. Restaurant-level margins of the
Company'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, the Company's
restaurant-level margins for the fiscal year would have been 20.1%.
While the Company's consolidated restaurant-level margins decreased in
fiscal 1997, the Company's efforts to reduce the restaurant-level cost structure
of its Carl's Jr. restaurants, which began in fiscal 1994, have resulted in
significant improvement in the Company'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 the Company's Carl's Jr.
restaurant-level operating margins in fiscal 1997 reflect the Company's
continued commitment to improve the cost structure of its Carl's Jr.
restaurants, particularly in the areas of improving labor productivity and
reducing workers' compensation 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.
18
<PAGE> 21
The Company'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 the Company's only value-priced product.
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, the Company 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 the Company's worker's
compensation claims and losses during fiscal 1997 and 1996.
Many of the Company'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 the
Company 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. 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.
Occupancy and other operating expenses for the Company'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 the
Company'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 increased
4.6% in fiscal 1997 to $72.0 million while fiscal 1996 costs decreased $1.0
million, or 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, the Company
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, the Company 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 the Company 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
the Company has seen seven consecutive quarterly increases in same-store sales
in Company-operated Carl's Jr. restaurants as compared with the corresponding
quarters of the prior year since the start of the campaign.
19
<PAGE> 22
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 the Company is achieving by collapsing certain costs from acquired
businesses into the Company'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, the Company 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, whereby
this entity assumed the operations of all of the Company's existing Boston
Market stores and agreed to fulfill the Company's remaining obligations under
its area development agreement with BCI. See Note 6 of Notes to 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 loss 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 the Company's Boston Market investment which resulted from the Company
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.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $16.4 million to $39.8 million in
fiscal 1997. Total cash provided by the Company's consolidated operations
increased $25.4 million to $63.2 million which was primarily due to increased
revenues and increased gross margins from its Carl's Jr. restaurants.
Consolidated investing activities required the Company to use $114.9
million in cash to fund capital additions of $47.9 million, to complete the
acquisitions of certain franchised restaurants, Summit and Casa Bonita, net of
cash acquired, of $61.5 million, and to fund the Company's purchase of its
long-term investment in Rally's of approximately $7.9 million and note
receivable from Checkers of approximately $13.4 million. Cash outflows from
investment activities were partially offset by cash proceeds of $17.1 million
as a result of the sale of the Company's marketable securities portfolio and
property and equipment and from the collection on and sale of notes receivable,
related party receivables and leases receivable.
Financing activities provided the Company with $68.1 million primarily
as a result of cash proceeds of $77.6 million from the Company's common stock
offering. See Note 11 to Notes of Consolidated Financial Statements. The
increase in new borrowings of $76.8 million were primarily used to fund the
acquisition of Casa
20
<PAGE> 23
Bonita and to replace an existing $20.0 million term loan. Cash proceeds from
the common stock offering, along with cash flows from operations and cash
proceeds from the exercise of the Company's common stock options, were used to
reduce the Company's long-term debt by approximately $86.3 million. Repayments
of long-term debt included the repayment of the credit facility which was used
to fund the Casa Bonita acquisition, the repayment of the existing $20.0
million term loan and the early repayment of indebtedness of $6.5 million. The
Company also used cash to reduce capital lease obligations by $3.8 million and
to pay dividends of $1.5 million.
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 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 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. The Company's revolving credit facility matures on July 31,
2001. As of January 27, 1997, no borrowings remained outstanding under this
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 is in compliance with all of its covenants governing its credit
facility.
During the fourth quarter of fiscal 1997, the Company issued 4.3
million shares of its common stock at a public offering price of $19.08 per
share (adjusted for the stock split). See Note 11 of Notes to Consolidated
Financial Statements. 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 Carl's Jr. and Taco Bueno
restaurants, the remodeling of existing restaurants, and the conversion of
certain restaurants to the Carl's Jr./Green Burrito dual-brand concept. The
Company plans to open up to 30 new Carl's Jr. restaurants and is evaluating
opening additional new Taco Bueno restaurants in its existing markets during
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 cash generated from its various restaurant
concept operations, cash and cash equivalents as of January 27, 1997 and
amounts available under the Company's revolving 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 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 shareholders.
IMPACT OF INFLATION
Management recognizes that inflation has an impact on food, construction,
labor and benefit costs, all of which can significantly affect the Company's
operations. Historically, the Company has been able to pass any associated
higher costs due to these inflationary factors along to its customers because
those factors have impacted nearly all restaurant companies. During fiscal 1997
and fiscal 1996, however, management emphasized cost controls rather than price
increases, given the competitive pressure within the quick-service industry.
21
<PAGE> 24
NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
effective for fiscal years beginning after December 15, 1996. SFAS 128
introduces and requires the presentation of "basic" earnings per share which
represents net earnings divided by the weighted average shares outstanding
excluding all common stock equivalents. Dual presentation of "diluted"
earnings per share reflecting the dilutive effects of all common stock
equivalents, will also be required. The diluted presentation is similar to the
current presentation of fully diluted earnings per share. Management believes
the adoption of SFAS 128 will not have a material impact on the Company's
consolidated financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index included at "Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information pertaining to directors and executive officers of the
registrant is hereby incorporated by reference to the Company's Proxy Statement
to be used in connection with the Company's 1997 Annual Meeting of
Stockholders, to be filed with the Commission within 120 days of January 27,
1997. Information concerning the current executive officers of the Company is
contained in Item 1 of Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information pertaining to executive compensation is hereby
incorporated by reference to the Company's Proxy Statement to be used in
connection with the Company's 1997 Annual Meeting of Stockholders, to be filed
with the Commission within 120 days of January 27, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information pertaining to security ownership of certain beneficial
owners and management is hereby incorporated by reference to the Company's
Proxy Statement to be used in connection with the Company's 1997 Annual Meeting
of Stockholders, to be filed with the Commission within 120 days of January 27,
1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information pertaining to certain relationships and related
transactions is hereby incorporated by reference to the Company's Proxy
Statement to be used in connection with the Company's 1997 Annual Meeting of
Stockholders, to be filed with the Commission within 120 days of January 27,
1997.
22
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
(A)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS: NUMBER
------
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets -- as of January 31, 1997 and 1996 . . . . . . . . . . . . . . F-2
Consolidated Statements of Income -- for the years ended January 31, 1997,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity -- for the years ended January 31, 1997,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows -- for the years ended January 31, 1997,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-6
</TABLE>
(A)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted since the required information is not
present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
consolidated financial statements or the notes thereto.
(A)(3) EXHIBITS:
An "Exhibit Index" has been filed as a part of this Form 10-K
beginning on page E-1 hereof and is incorporated herein by
reference.
(B) CURRENT REPORTS ON FORM 8-K:
None.
23
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CKE RESTAURANTS, INC.
By /s/ WILLIAM P. FOLEY II
--------------------------------------
William P. Foley II
Chairman of the Board and
Chief Executive Officer
Date: April 11, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ WILLIAM P. FOLEY II Chairman of the Board and April 11, 1997
- --------------------------- Chief Executive Officer
William P. Foley II (Principal Executive Officer)
/s/ CARL A. STRUNK Executive Vice President, April 11, 1997
- --------------------------- Chief Financial Officer
Carl A. Strunk (Principal Financial and
Accounting Officer)
/s/ Director April , 1997
- ---------------------------
Byron Allumbaugh
/s/ PETER CHURM Director April 11, 1997
- ---------------------------
Peter Churm
/s/ CARL L. KARCHER Director April 11, 1997
- ---------------------------
Carl L. Karcher
/s/ CARL N. KARCHER Director April 11, 1997
- ---------------------------
Carl N. Karcher
/s/ DANIEL D. (Ron) LANE Vice Chairman of the Board April 11, 1997
- ---------------------------
Daniel D. (Ron) Lane
/s/ W. HOWARD LESTER Director April 11, 1997
- ---------------------------
W. Howard Lester
/s/ FRANK P. WILLEY Director April 11, 1997
- ---------------------------
Frank P. Willey
24
<PAGE> 27
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, 1997 and 1996, 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-1
<PAGE> 28
CKE RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
January 31 1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 39,782 $ 23,429
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,510
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,942 7,295
Related party receivables . . . . . . . . . . . . . . . . . . . . . . . . 2,088 977
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,223 6,132
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . 7,214 10,056
Other current assets and prepaid expenses . . . . . . . . . . . . . . . . 6,608 5,656
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 72,857 56,055
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 205,805 119,128
Property under capital leases, net . . . . . . . . . . . . . . . . . . . . 37,115 28,399
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,218 19,814
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,210 7,801
Related party receivables . . . . . . . . . . . . . . . . . . . . . . . . . 9,325 969
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,687 14,593
--------- ---------
$ 401,217 $ 246,759
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . $ 735 $ 8,575
Current portion of capital lease obligations . . . . . . . . . . . . . . 4,766 3,745
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,930 15,824
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 44,463 31,756
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 83,894 59,900
--------- ---------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,770 30,321
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . 48,141 40,233
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . 20,608 15,116
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 shares
and 28,800,211 shares . . . . . . . . . . . . . . . . . . . . . . . . 332 288
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 126,279 38,617
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,193 67,393
Treasury stock, at cost; -0- shares and 1,005,450 shares . . . . . . . . -- (5,109)
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 214,804 101,189
--------- ---------
$ 401,217 $ 246,759
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 29
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal year ended January 31 1997 1996 1995
---- ---- ----
(In thousands except per share amounts)
<S> <C> <C> <C>
Revenues:
Company-operated restaurants:
Carl's Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 443,304 $ 389,214 $ 364,278
Taco Bueno . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,146 -- --
JB's Restaurants . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,517 -- --
HomeTown Buffet . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,590 -- --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,251 4,272 5,767
--------- --------- ---------
536,808 393,486 370,045
--------- --------- ---------
Franchised and licensed restaurants:
Carl's Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,491 71,951 73,702
JB's Restaurants . . . . . . . . . . . . . . . . . . . . . . . . . . . 781 -- --
--------- --------- ---------
77,272 71,951 73,702
--------- --------- ---------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . 614,080 465,437 443,747
--------- --------- ---------
Operating costs and expenses:
Restaurant operations:
Food and packaging . . . . . . . . . . . . . . . . . . . . . . . . . . 167,625 121,029 111,985
Payroll and other employee benefits . . . . . . . . . . . . . . . . . 149,846 109,942 112,177
Occupancy and other operating expenses . . . . . . . . . . . . . . . . 112,689 82,095 82,172
--------- --------- ---------
430,160 313,066 306,334
Franchised and licensed restaurants . . . . . . . . . . . . . . . . . . . 71,986 68,839 69,871
Advertising expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 28,291 19,940 20,148
General and administrative expenses . . . . . . . . . . . . . . . . . . . 41,643 37,857 38,792
--------- --------- ---------
Total operating costs and expenses . . . . . . . . . . . . . . . . . 572,080 439,702 435,145
--------- --------- ---------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000 25,735 8,602
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,877) (10,004) (9,202)
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,587 2,222 2,998
--------- --------- ---------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 36,710 17,953 2,398
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,408 7,001 1,134
--------- --------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,302 $ 10,952 $ 1,264
========= ========= =========
Net income per common and common equivalent share . . . . . . . . . . . . . $ 0.73 $ 0.39 $ 0.05
========= ========= =========
Common and common equivalent shares
used in computing per share amounts . . . . . . . . . . . . . . . . . . . 30,414 28,019 28,076
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 30
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-4
<PAGE> 31
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal year ended January 31 1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,302 $ 10,952 $ 1,264
Adjustments to reconcile net income
to net cash provided by operating
activities, excluding the effect
of acquisitions:
Noncash franchise (income) expense . . . . . . . . . . . . . . . (146) 209 170
Depreciation and amortization . . . . . . . . . . . . . . . . . 27,056 21,372 22,755
Loss on sale of property and equipment and capital leases . . . 1,520 1,828 2,118
Reversal of rent subsidy reserves . . . . . . . . . . . . . . . -- -- (2,680)
Income (loss) from long-term investments . . . . . . . . . . . . (140) 1,898 --
Net noncash investment and dividend income . . . . . . . . . . . (1,117) (851) (25)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 6,380 4,211 3,434
Write-down of long-lived assets . . . . . . . . . . . . . . . . 1,250 -- --
Settlement of notes receivable . . . . . . . . . . . . . . . . . -- (1,292) --
Net change in receivables, inventories and other current assets (5,204) (1,757) (4,329)
Net change in other assets . . . . . . . . . . . . . . . . . . . (528) (463) (1,119)
Net change in accounts payable and other current liabilities . . 11,834 1,672 (133)
-------- -------- --------
Net cash provided by operating activities . . . . . . . . . . 63,207 37,779 21,455
-------- -------- --------
Cash flows from investing activities:
Purchases of:
Marketable securities . . . . . . . . . . . . . . . . . . . . . (760) (921) (3,549)
Property and equipment . . . . . . . . . . . . . . . . . . . . . (47,906) (27,148) (40,010)
Long-term investments . . . . . . . . . . . . . . . . . . . . . (7,855) (1,670) --
Proceeds from sale of:
Marketable securities and long-term investments . . . . . . . . 5,418 1,972 15,994
Property and equipment . . . . . . . . . . . . . . . . . . . . . 7,816 905 110
Increases in notes receivable and related party receivables . . . . (14,020) (2,640) (1,985)
Collections on and sale of notes receivable, related party
receivables and leases receivable . . . . . . . . . . . . . . . 3,840 9,900 2,441
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . (61,453) -- --
-------- -------- --------
Net cash used in investing activities . . . . . . . . . . . . (114,920) (19,602) (26,999)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from common stock offering . . . . . . . . . . . . . . 77,614 -- --
Net change in bank overdraft . . . . . . . . . . . . . . . . . . . 8,355 (11,477) 10,203
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . 1,200 57,060 32,806
Repayments of short-term debt . . . . . . . . . . . . . . . . . . . (1,200) (57,060) (13,981)
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . 76,808 14,573 --
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . (86,274) (11,149) (14,771)
Repayments of capital lease obligations . . . . . . . . . . . . . . (3,814) (3,129) (2,878)
Net change in other long-term liabilities . . . . . . . . . . . . . (6,910) (327) (3,076)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . -- (551) (4,558)
Payment of dividends . . . . . . . . . . . . . . . . . . . . . . . (1,502) (1,460) (1,499)
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . 2,230 2,750 1,099
Tax benefit associated with the exercise of stock options . . . . . 1,559 848 280
-------- -------- --------
Net cash provided by (used in) financing activities . . . . . 68,066 (9,922) 3,625
-------- -------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . $ 16,353 $ 8,255 $ (1,919)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 32
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 1997, 1996 and 1995 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.
F-6
<PAGE> 33
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 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 $2.6 million and $1.7
million at January 31, 1997 and 1996, 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.
F-7
<PAGE> 34
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 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
F-8
<PAGE> 35
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).
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>
(Dollars in thousands) Summit Casa Bonita
-------- -----------
<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, 1997 and 1996, assuming the Summit and Casa Bonita acquisitions
occurred on February 1, 1996 and 1995, using actual restaurant-level margins
and general and administrative expenses prior to the acquisition of each
entity, are presented as follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts) 1997 1996
---- ----
<S> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 747,586 $ 666,797
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,319 $ 11,026
Net income per common and common equivalent share . . . . . . . . . . . . . . . $ 0.72 $ 0.38
</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>
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
Accounts receivable:
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,982 $3,232
Notes receivable, current . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,022 594
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714 3,231
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 238
------- -------
$7,942 $7,295
======= =======
</TABLE>
F-9
<PAGE> 36
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
(Dollars in thousands) Useful Life 1997 1996
----------- ---- ----
<S> <C> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,487 $ 27,891
Leasehold improvements . . . . . . . . . . . . . . . . . . 4-25 years 109,508 80,883
Buildings and improvements . . . . . . . . . . . . . . . . 7-40 years 99,245 34,476
Equipment, furniture and fixtures . . . . . . . . . . . . . 3-10 years 192,336 128,670
-------- --------
451,576 271,920
Less: Accumulated depreciation and amortization . . . . . . 245,771 152,792
-------- --------
$205,805 $119,128
======== ========
</TABLE>
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>
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,850 $ 64,186
Less: Accumulated amortization . . . . . . . . . . . . . . . . . 48,735 35,787
-------- --------
$ 37,115 $ 28,399
======== ========
</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>
(Dollars in thousands) Capital Operating
------- ---------
Fiscal Year
<S> <C> <C>
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>
F-10
<PAGE> 37
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>
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
Net minimum lease payments receivable . . . . . . . . . . . . . . $ 6,680 $ 9,887
Less: Unearned income . . . . . . . . . . . . . . . . . . . . . . 2,721 5,135
-------- --------
Net investment . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,959 $ 4,752
======== ========
</TABLE>
Minimum future rentals to be received as of January 31, 1997 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases or Lessor
(Dollars in thousands) Subleases Leases
--------- ------
Fiscal Year:
<S> <C> <C>
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 $1.6 million and
$1.8 million at January 31, 1997 and 1996, respectively.
Aggregate rents under noncancelable operating leases during fiscal 1997, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Minimum rentals . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,597 $ 29,225 $ 29,173
Contingent rentals . . . . . . . . . . . . . . . . . . . . . . . 1,937 1,384 1,459
Less: Sublease rentals . . . . . . . . . . . . . . . . . . . . . 5,644 5,058 5,029
-------- -------- --------
$ 29,890 $ 25,551 $ 25,603
======== ======== ========
</TABLE>
F-11
<PAGE> 38
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.
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
F-12
<PAGE> 39
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.
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
F-13
<PAGE> 40
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, 1997 and 1996, the Company's total long-term investment in
Boston West was $22.3 million and $19.8 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.
NOTE 7 -- OTHER ASSETS
Other assets are comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
Costs in excess of net assets acquired, net . . . . . . . . . . . . . . . . . . . . . $ 24,363 $ 8,215
Leases receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,735 4,515
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,589 1,863
-------- --------
$ 36,687 $ 14,593
======== ========
</TABLE>
NOTE 8 -- OTHER CURRENT LIABILITIES
Other current liabilities are comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
Salaries, wages and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,849 $ 8,564
State sales taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,685 5,881
Self-insured workers' compensation reserve . . . . . . . . . . . . . . . . . . . . . . 6,781 6,854
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,403 4,351
Other self-insurance reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,103 1,328
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,642 4,778
-------- --------
$ 44,463 $ 31,756
======== ========
</TABLE>
F-14
<PAGE> 41
NOTE 9 -- LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
---- ----
<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% . . . . . . . . . . . . . . . . . . . . . 5,111 5,398
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,794 3,155
-------- --------
34,505 38,896
Less: Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 735 8,575
-------- --------
$ 33,770 $ 30,321
======== ========
</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 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.
F-15
<PAGE> 42
Long-term debt matures in fiscal years ending after January 31, 1997 as
follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year:
<S> <C>
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>
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
Self-insured workers' compensation reserve . . . . . . . . . . . . . . . . . . . . . $ 7,283 $ 6,784
Exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,263 5,274
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,062 3,058
-------- --------
$ 20,608 $ 15,116
======== ========
</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 $14.1 million and $13.6 million was accrued as of January
31, 1997 and 1996, 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 1997 and 1996.
In prior years, the Company initiated programs to dispose of or franchise its
Arizona and Texas operations. As of January 31, 1997 and 1996, $6.0 million and
$6.7 million, respectively, were accrued for these reserves, including the
current portion. These balances were mainly comprised of estimated lease
subsidies, $2.7 million of which were reduced in connection with the
reacquisition of several Carl's Jr. franchised restaurants from a related
party during fiscal 1995 (see Note 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
F-16
<PAGE> 43
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>
(Dollars in thousands) 1997 1996
----------------------- ---------------------
ESTIMATED Estimated
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
------- ----- ------- -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $39,782 $39,782 $23,429 $23,429
Marketable securities . . . . . . . . . . . . . . . . . -- -- 2,510 2,510
Notes receivable . . . . . . . . . . . . . . . . . . . 17,761 17,864 9,051 9,097
Financial liabilities:
Long-term debt, including current portion . . . . . . . 34,505 34,310 38,896 37,009
</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 $47,000 and $626,000 remained
outstanding as of January 31, 1997 and 1996, 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, 1997 and 1996 $220,000 and
$595,000, respectively, remained outstanding. The entire amount will be repaid
by December 1998.
F-17
<PAGE> 44
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 $4.0 million and
$4.5 million, representing the present value of lease obligations related to
these various properties at January 31, 1997 and 1996, respectively. Lease
payments under these leases for fiscal 1997, 1996 and 1995 amounted to $1.3,
$1.4, and $1.4 million, respectively. This was net of sublease rentals of
$148,000 in both fiscal 1997 and 1996 and $154,000 in fiscal 1995. 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.
Revenues from franchised and licensed restaurants consist of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Food service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,035 $ 56,015 $ 57,070
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,932 10,116 10,257
Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 5,704 6,284
Initial fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 116 91
-------- -------- --------
$ 77,272 $ 71,951 $ 73,702
======== ======== ========
</TABLE>
F-18
<PAGE> 45
Operating costs and expenses for franchised and licensed restaurants consist of
the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Food service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,606 $ 56,590 $ 57,334
Occupancy and other operating expenses . . . . . . . . . . . . . . . . . . 12,380 12,249 12,537
-------- -------- --------
$ 71,986 $ 68,839 $ 69,871
======== ======== ========
</TABLE>
NOTE 15 -- INTEREST EXPENSE
Interest expense consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . $ (6,083) $ (5,898) $ (6,194)
Notes payable and revolving credit facility . . . . . . . . . . . . . . . . (3,059) (3,585) (2,484)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (735) (521) (524)
-------- -------- --------
$ (9,877) $(10,004) $ (9,202)
======== ======== ========
</TABLE>
NOTE 16 -- OTHER INCOME, NET
Other income, net is comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,402 $ 2,494 $3,261
Lease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,081 981 --
Net gain (loss) on sale of investments . . . . . . . . . . . . . . . . . . 728 (145) (157)
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720 854 357
Net gain (loss) on sale of restaurants . . . . . . . . . . . . . . . . . . 516 (338) (463)
Income (loss) from long-term investments . . . . . . . . . . . . . . . . . 140 (1,624) --
-------- -------- --------
$4,587 $ 2,222 $2,998
======== ======== ========
</TABLE>
NOTE 17 -- INCOME TAXES
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,963 $ 2,018 $ (1,996)
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,065 772 (304)
-------- -------- --------
8,028 2,790 (2,300)
-------- -------- --------
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,529 3,878 2,517
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 851 333 917
-------- -------- --------
6,380 4,211 3,434
-------- -------- --------
$ 14,408 $ 7,001 $ 1,134
======== ======== ========
</TABLE>
F-19
<PAGE> 46
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>
(Dollars in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income taxes at statutory rate . . . . . . . . . . . . . . . . . . . . . . $ 12,849 $ 6,104 $ 815
State income taxes, net of federal income tax benefit . . . . . . . . . . . 2,822 738 800
Targeted jobs tax credits . . . . . . . . . . . . . . . . . . . . . . . . . (1,528) (243) (338)
Alternative minimum tax credit . . . . . . . . . . . . . . . . . . . . . . (19) -- (551)
Increase (decrease) in valuation allowance . . . . . . . . . . . . . . . . (76) 152 298
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360 250 110
-------- -------- --------
$ 14,408 $ 7,001 $ 1,134
======== ======== ========
</TABLE>
Temporary differences and carryforwards gave rise to a significant amount of
deferred tax assets and liabilities as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Capitalized leases . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,801 $ 8,641
Workers' compensation reserve . . . . . . . . . . . . . . . . . . . . . . 5,908 5,905
Targeted jobs tax credit carryforward . . . . . . . . . . . . . . . . . . 3,654 3,055
Exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,522 2,905
Alternative minimum tax credits . . . . . . . . . . . . . . . . . . . . . 1,647 700
Store closure reserve . . . . . . . . . . . . . . . . . . . . . . . . . . 1,613 136
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,799 4,601
-------- --------
29,944 25,943
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . 4,917 1,945
-------- --------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . 25,027 23,998
-------- --------
Deferred tax liabilities:
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . 8,271 2,017
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,088 9,896
Safe harbor leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 586
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,406 1,443
-------- --------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . 17,813 13,942
-------- --------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,214 $ 10,056
======== ========
</TABLE>
While there can be no assurance that the Company will generate any earnings or
any specific level of earnings in future years, management believes it is more
likely than not that the Company will realize the majority of the benefit of
the existing net deferred tax 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
F-20
<PAGE> 47
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 1996 and 1995, pension contributions were $512,000 and $438,000,
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 1997 and
1996, 42,435 and 38,673 shares, respectively, were purchased and allocated to
employees, based upon their contributions, at an average price of $17.58 and
$8.47 per share, respectively. The Company contributed $116,000 or an
equivalent of 6,168 shares for the year ended January 31, 1997 and $8,000 or an
equivalent of 690 shares for the year ended January 31, 1996.
Stock Incentive Plans
The Company's 1994 stock incentive plan was approved by stockholders in June
1994. The 1994 plan is substantially similar to the 1993 plan under which, as a
result of the Merger, no further options may be granted. Awards granted to
eligible employees under the 1994 plan are not restricted as to any specified
form or structure, with such form, vesting and pricing provisions determined by
the Compensation Committee of the Board of Directors. The 1994 plan also
provides for the automatic annual award of stock options to nonemployee
directors and nonemployee director members of the Executive Committee. Options
generally have a term of five years from the date of grant for the nonemployee
directors and ten years from the date of grant for employees, become
exercisable at a rate of 33-1/3% per year following the grant date and are
priced at the fair market value of the shares on the date of grant. A total of
5,250,000 shares are available for grants 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.
F-21
<PAGE> 48
Transactions under all plans are as follows:
<TABLE>
<CAPTION>
Number of Shares 1997 1996 1995
- ---------------- ---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year . . . . . . . . . . . . . . . . . . . . 2,417,695 1,782,053 2,058,954
Options assumed in Summit acquisition . . . . . . . . . . . . . . . . . . 77,131 -- --
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,130,876 1,344,609 655,809
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,801) (176,463) (681,444)
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (359,654) (532,504) (251,266)
---------- ---------- ----------
Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . . 3,244,247 2,417,695 1,782,053
========== ========== ==========
Exercisable at end of year . . . . . . . . . . . . . . . . . . . . . . . 1,235,492 932,612 972,486
========= ========== ==========
</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
1997 and 1996: annual dividends consistent with the Company's current dividend
policy, which resulted in payments of $0.05 per share in fiscal 1997 and 1996;
expected volatility of 25% in fiscal 1997 and 29% in fiscal 1996; risk free
interest rates of 6.25% in fiscal 1997 and 5.25% in fiscal 1996; and an
expected life of 5.45 years. The weighted average fair value of each option
granted during fiscal 1997 and 1996 was $6.80 and $2.51, respectively. Had
compensation expense been recognized for fiscal 1997 and 1996 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 $20.5 million,
or $0.67 per share in fiscal 1997 and $10.7 million, or $0.38 per share in
fiscal 1996. 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 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>
(Dollars in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash paid for interest and income taxes are as follows:
Interest (net of amount capitalized) . . . . . . . . . . . . . . . . . $ 9,549 $ 10,198 $ 9,208
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,778 2,156 645
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>
F-22
<PAGE> 49
NOTE 20 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly results.
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter 1ST 2ND 3RD 4TH
------- ------- ------- -------
<S> <C> <C> <C> <C>
FISCAL 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
========== ========== ========== ==========
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
========== ========== ========== ==========
</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 1997 and 1996,
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 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-23
<PAGE> 50
EXHIBIT INDEX
EXHIBITS
3-1 Certificate of Incorporation of the Registrant, incorporated herein
by reference to exhibit 3-1 to the Registrant's Form S-4 Registration
Statement Number 333-05305.
3-2 Bylaws of Registrants, incorporated herein by reference to exhibit
3-2 to the Registrants Form S-4 Registration Statement Number 333-
05305.
10-1 Franchise Development Agreement dated May 17, 1985 by and between
Carl Karcher Enterprises, Inc. and Carl Leo Karcher, filed as exhibit
10-53 to the Company's Form 10-K Annual Report as amended for fiscal
year ended January 27, 1992, and is hereby incorporated by reference.
10-2 Form of Franchise Agreement by and between Carl Karcher Enterprises,
Inc., and Carl Leo Karcher or CLK, Inc. filed as exhibit 10-54 to the
Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is herein incorporated by reference, relating
to the following units:
Date Unit Address
---- ---- -------
May 17, 1985 724 68980 Highway 111
May 17, 1985 725 102 N. Sunrise Way
May 17, 1985 726 72840 Highway 111
May 17, 1985 727 81-770 Highway 111
May 17, 1985 728 73-125 Highway 111
May 17, 1985 729 57222 29 Palms Highway
May 17, 1985 730 13010 Palm Drive
May 17, 1985 731 2520 Palm Canyon Drive
December 31, 1985 768 2601 W. Broadway
January 25, 1986 769 160 S. Lovekin
January 25, 1986 770 1750 4th Avenue
January 25, 1986 771 2215 S. Fourth
October 27, 1987 772 115 Main Street
March 3, 1987 786 1489 Adams Avenue
July 6, 1987 793 72305 Vaimer Road
October 27, 1987 794 2195 Highway 95
June 14, 1988 811 40050 Washington
June 26, 1989 820 I-8 Business Loop
November 12, 1990 873 32-250 Date Palm Drive
April 1, 1991 895 50-087 Harrison Street
December 16, 1991 7013 41717 Big Bear Blvd.
January 20, 1992 7038 275 N. Lake Havasu Blvd.
April 7, 1993 7085 78-672 Highway 111
10-3 Form of Sublease between Carl Karcher Enterprises, Inc., and Carl
Leo Karcher or CLK, Inc., filed as exhibit 10-62 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is herein incorporated by reference, relating to the
following units:
Date Unit Address
---- ---- -------
May 16, 1985 724 68980 Highway 111
May 16, 1985 725 102 N. Sunrise Way
May 16, 1985 728 73-125 Highway 111
May 16, 1985 729 57222 29 Palms Highway
May 15, 1985 730 13010 Palm Drive
May 16, 1985 731 2520 Palm Canyon Drive
September 25, 1987 794 2195 Highway 95
December 16, 1991 7013 41717 Big Bear Blvd.
E-1
<PAGE> 51
10-4 Land and Building Sublease Agreement dated December 31, 1985 by and
between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, filed
as exhibit 10-71 to the Company's Form 10-K Annual Report as
amended for fiscal year ended January 27, 1992, and is hereby
incorporated by reference.
10-5 Lease Agreement dated September 25, 1987 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment
to Lease dated October 19, 1990 (Unit 772), filed as exhibit 10-81
to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-6 Form of Assignment of Franchise Agreement, Release and Continuing
Guaranty between Carl Karcher Enterprises, Inc., and Carl Leo
Karcher or CLK, Inc., filed as exhibit 10-51 to the Company's Form
10-K Annual Report as amended for fiscal year ended January 27,
1992, and is herein incorporated by reference, relating to the
following units:
Date Unit Address
---- ---- -------
June 9, 1992 724 68980 Highway 111
June 9, 1992 725 102 N. Sunrise Way
June 9, 1992 727 81-770 Highway 111
June 9, 1992 728 73-125 Highway 111
June 9, 1992 729 57222 29 Palms Highway
June 9, 1992 731 2520 Palm Canyon Drive
June 9, 1992 768 2601 W. Broadway
June 9, 1992 769 160 S. Lovekin
June 9, 1992 770 1750 4th Avenue
June 9, 1992 771 2215 S. Fourth
October 27, 1987 772 115 Main Street
January 27, 1987 786 1498 Adams Avenue
October 5, 1987 793 72305 Vaimer Road
August 1, 1988 811 40050 Washington
January 1, 1990 820 388 West 32nd Street
November 13, 1990 873 32-250 Date Palm Drive
March 29, 1991 895 50-087 Harrison Street
December 16, 1991 7013 41717 Big Bear Boulevard
January 20, 1992 7038 275 N. Lake Havasu Boulevard
April 7, 1993 7085 78-672 Highway 111
10-7 Assignment of Franchise Agreement and Sublease Agreement by Carl
Leo Karcher to CLK, Inc. and Continuing Guaranty each dated August
17, 1989 (Unit 730), filed as exhibit 10-39 to the Company's Form
10-K Annual Report as amended for fiscal year ended January 27,
1992, and is hereby incorporated by reference.
10-8 Assignment of Franchise Agreement and Lease Agreement by Carl Leo
Karcher to CLK, Inc. and Continuing Guaranty each dated August 17,
1989 (Unit 726) filed as exhibit 10-94 to the Company's Form 10-K
Annual Report as amended for fiscal year ended January 27, 1992,
and is hereby incorporated by reference.
10-9 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to
CLK, Inc. dated November 28, 1989 (Unit 794), filed as exhibit
10-95 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-10 License Agreement dated January 27, 1987 by and between Carl
Karcher Enterprises, Inc. and CLK, Inc., as amended by the
Amendment to License Agreement dated October 10, 1990, filed as
exhibit 10-76 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
10-11 Agreement to Purchase dated October 27, 1987 by and between Carl
Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 772), filed as
exhibit 10-83 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
E-2
<PAGE> 52
10-12 Agreement to Purchase dated October 27, 1987 by and between Carl
Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 794), filed as
exhibit 10-84 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
10-13 Conditional Assignment of Lease dated November 7, 1990 between CLK,
Inc. and Carl Karcher Enterprises, Inc. (Unit 770), filed as
exhibit 10-97 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
10-14 Conditional Assignment of Lease dated November 7, 1990 between CLK,
Inc. and Carl Karcher Enterprises, Inc. (Unit 771), filed as
exhibit 10-98 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
10-15 Conditional Assignment of Lease dated December 18, 1990 by and
between CLK, Inc. and Carl Karcher Enterprises, Inc. (Unit 726),
filed as exhibit 10-101 to the Company's Form 10-K Annual Report as
amended for fiscal year ended January 27, 1992, and is hereby
incorporated by reference.
10-16 Development Agreement dated March 22, 1991 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-102 to
the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-17 Security Agreement dated December 16, 1991 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 7013/433), filed as
exhibit 10-111 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated
by reference.
10-18 Carl Karcher Enterprises, Inc. Profit Sharing Plan, as amended,
filed as exhibit 10-21 to the Company's Registration Statement on
Form S-1, file No. 2-73695, and is hereby incorporated by
reference.(2)
10-19 Carl Karcher Enterprises, Inc. Key Employee Stock Option Plan,
filed as exhibit 10-24 to the Company's Registration Statement on
Form S-1, file No. 2-80283, and is hereby incorporated by
reference.(2)
10-20 Carl Karcher Enterprises, Inc. 1993 Employee Stock Incentive Plan,
filed as exhibit 10-123 to the Company's Form 10-K Annual Report
for fiscal year ended January 25, 1993, and is hereby incorporated
by reference.(2)
10-21 CKE Restaurants, Inc. 1994 Stock Incentive Plan, as amended,
incorporated herein by reference to exhibit 4-1 to the Registrant's
Form S-8 Registration Statement Number 333-12399.(2)
10-22 CKE Restaurants, Inc. 1994 Employee Stock Purchase Plan, as
amended.(1)(2)
10-23 Summit Family Restaurants Inc. 1992 Stock Option Plan; 1987
Employee Incentive Stock Option Plan; 1987 Non Qualified Stock
Option Plan; and the 1984 Incentive Stock Option Plan, incorporated
herein by reference to exhibits 4-1, 4-2, 4-3 and 4-4 to CKE
Restaurants, Inc. Form S-8 Registration Statement Number
333-12404.(2)
10-24 Employment Agreement dated January 1, 1994, by and between Carl
Karcher Enterprises, Inc. and Carl N. Karcher, filed as exhibit 10-
89 to the Company's Form 10-K Annual Report for fiscal year ended
January 31, 1994, and is hereby incorporated by reference.(2)
10-25 Employment Agreement dated November 8, 1994, by and between Carl
Karcher Enterprises, Inc. and C. Thomas Thompson, filed as exhibit
10-83 to the Company's Form 10-K Annual Report for fiscal year
ended January 30, 1995, and is hereby incorporated by reference.(2)
10-26 First Amendment to Employment Agreement dated March 31, 1996, by
and between Carl Karcher Enterprises, Inc. and C. Thomas Thompson,
filed as exhibit 10-44 to the Company's Form 10-Q Quarterly Report
for the quarterly period ended May 20, 1996, and is hereby
incorporated by reference.(2)
10-27 Employment Agreement dated January 24, 1996, by and between CKE
Restaurants, Inc. and Robert E. Wheaton, filed as exhibit 10-45 to
the Company's Form 10-Q Quarterly Report for the quarterly period
ended May 20, 1996, and is hereby incorporated by reference.(2)
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10-28 Settlement Agreement and Release dated as of April 26, 1996, by and
between Giant Group, Ltd; William P. Foley II; CKE Restaurants,
Inc.; Fidelity National Financial, Inc.; and other parties, filed
as exhibit 10-42 to the Company's Form 10-Q Quarterly Report for
the quarterly period ended May 20, 1996, and is hereby incorporated
by reference.
10-29 Operating Agreement by and between Rally's Hamburgers, Inc. and
Carl Karcher Enterprises, Inc. dated May 26, 1996, filed as exhibit
10-43 to the Company's Form 10-Q Quarterly Report for the quarterly
period ended May 20, 1996, and is hereby incorporated by
reference.*
10-30 Settlement and Development Agreement by and between Carl Karcher
Enterprises, Inc., CKE Restaurants, Inc. and GB Foods Corporation
dated as of May 1995, filed as exhibit 10-31 to the Company's Form
10-K Annual Report for the fiscal year ended January 29, 1996, and
is hereby incorporated by reference.
10-31 First Amendment to Settlement and Development Agreement by and
between Carl Karcher Enterprises, Inc., CKE Restaurants, Inc. and
GB Foods Corporation dated as of February 20, 1997.(1)
10-32 Agreement to Contribute Assets dated April 17, 1995 by and between
Boston West, L.L.C. and Boston Pacific, Inc., filed as exhibit
10-84 to the Company's Form 10-K Annual Report for fiscal year
ended January 30, 1995, and is hereby incorporated by reference.
10-33 Amended and Restated Limited Liability Company Agreement of Boston
West, L.L.C. (a Delaware Limited Liability Company) dated April 16,
1995, filed as exhibit 10-85 to the Company's Form 10-K Annual
Report for fiscal year ended January 30, 1995, and is hereby
incorporated by reference.
10-34 First Amendment to the Amended and Restated Limited Liability
Company Agreement of Boston West, L.L.C. dated May 15, 1995, filed
as exhibit 10-34 to the Company's Form 10-K Annual Report for the
fiscal year ended January 29, 1996, and is hereby incorporated by
reference.
10-35 Second Amendment to the Amended and Restated Limited Liability
Company Agreement of Boston West, L.L.C. dated May 30, 1995, filed
as exhibit 10-35 to the Company's Form 10-K Annual Report for the
fiscal year ended January 29, 1996, and is hereby incorporated by
reference.
10-36 Third Amendment to the Amended and Restated Limited Liability
Company Agreement of Boston West, L.L.C. dated September 12, 1995,
filed as exhibit 10-36 to the Company's Form 10-K Annual Report for
the fiscal year ended January 29, 1996, and is hereby incorporated
by reference.
10-37 Fourth Amendment to the Amended and Restated Limited Liability
Company Agreement of Boston West, L.L.C. dated January 31, 1996,
filed as exhibit 10-37 to the Company's Form 10-K Annual Report for
the fiscal year ended January 29, 1996, and is hereby incorporated
by reference.
10-38 Unit Option Agreement by and between Boston West, L.L.C. and Boston
Pacific, Inc., dated as of September 12, 1995, filed as exhibit
10-38 to the Company's Form 10-K Annual Report for the fiscal year
ended January 29, 1996, and is hereby incorporated by reference.
10-39 Unit Repurchase Agreement by and between Boston West, L.L.C. and
Boston Pacific, Inc. dated as of September 12, 1995, filed as
exhibit 10-39 to the Company's Form 10-K Annual Report for the
fiscal year ended January 29, 1996, and is hereby incorporated by
reference.
10-40 Term Loan and Security Agreement between Carl Karcher Enterprises,
Inc. and Heller Financial, Inc., dated December 19, 1995, filed as
exhibit 10-40 to the Company's Form 10-K Annual Report for the
fiscal year ended January 29, 1996, and is hereby incorporated by
reference.
10-41 Amendment No. One to Term Loan and Security Agreement dated as of
January 22, 1996, by and between Carl Karcher Enterprises, Inc.
and Heller Financial, Inc. filed as exhibit 10-41 to the Company's
Form 10-K Annual Report for the fiscal year ended January 29, 1996,
and is hereby incorporated by reference.
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<PAGE> 54
10-42 Amendment No. Two to Term Loan and Security Agreement dated as of
January 14, 1997, by and between Carl Karcher Enterprises, Inc.
and Heller Financial, Inc.(1)
10-43 Credit Agreement dated August 1, 1996, by and between CKE
Restaurants, Inc.; NationsBank of Texas, N.A.; and other parties,
filed as exhibit 10-1 to the Company's Current Report on Form 8-K,
dated August 20, 1996, and is hereby incorporated by reference.*
10-44 First Amendment to Credit Agreement dated September 30, 1996, by
and between CKE Restaurants, Inc.; NationsBank of Texas, N.A.; and
other parties, filed as exhibit 10-42 to the Company's Form 10-Q
Quarterly Report for the quarterly period ended November 4, 1996,
and is hereby incorporated by reference.
10-45 Second Amendment to Credit Agreement dated November 25, 1996, by
and between CKE Restaurants, Inc., NationsBank of Texas, N.A.; and
other parties.(1)
10-46 Third Amendment to Credit Agreement dated February 14, 1997, by and
between CKE Restaurants, Inc., NationsBank of Texas, N.A.; and
other parties.(1)
10-47 Stock Purchase Agreement, dated as of August 27, 1996, by and
between CKE Restaurants, Inc. and Casa Bonita Holdings, Inc., filed
as exhibit 10-1 to the Company's Current Report on Form 8-K dated
August 27, 1996, and is hereby incorporated by reference.*
10-48 Loan Agreement as of December 18, 1996, by and between FFCA
Mortgage Corporation, CBI Restaurants, Inc., and Casa Bonita Texas,
L.P.(1)*
10-49 Loan Agreement as of December 18, 1996, by and between FFCA
Mortgage Corporation, CBI Restaurants, Inc., and Casa Bonita
Incorporated.(1)*
11-1 Computation of Earnings Per Share.(1)
12-1 Computation of Ratios. (1)
21-1 Subsidiaries of Registrant.(1)
23-1 Consent of KPMG Peat Marwick LLP.(1)
27-1 Financial Data Schedule (included only with electronic filing).
_________________________
* Schedules omitted. The Registrant shall furnish supplementally to
the Securities and Exchange Commission a copy of any omitted
schedule upon request.
(1) Filed herewith.
(2) A management contract or compensatory plan or arrangement required
to be filed as an exhibit to this report pursuant to Item 14(c) of
Form 10-K.
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EXHIBIT 10.22
CKE RESTAURANTS, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose of Plan. The purpose of this 1994 Employee Stock Purchase Plan
(the "Plan") is to encourage a sense of proprietorship on the part of employees
of CKE Restaurants, Inc., a Delaware corporation (the "Company"), and its
subsidiary corporations (as defined below) by assisting them in making regular
purchases of shares of the Company, and thus to benefit the Company by
increasing such employees' interest in the growth of the Company and subsidiary
corporations and in such entities' financial success. Participation in the Plan
is entirely voluntary, and the Company makes no recommendations to its employees
as to whether they should participate.
2. Definitions.
2.1 "Base Earnings" shall mean the Employee's regular salary rate
before deductions required by law and deductions authorized by the Employee.
Base Earnings do not include: pay for overtime, extended workweek schedules, or
any other form of extra compensation; payments by the Company or subsidiary
corporations, as applicable, of social security, worker's compensation,
unemployment compensation, any disability payments or other payments required by
statute; or contributions by the Company or subsidiary corporations, as
applicable, for insurance, annuity, or other employee benefit plans.
2.2 "Board" shall mean the Board of Directors of the Company.
2.3 "Broker" shall mean the financial institution designated to act as
Broker under the Plan pursuant to Paragraph 17 hereof.
2.4 "Brokerage Account" shall mean an account established on behalf of
each Participant pursuant to Paragraph 9.1 hereof.
2.5 "Committee" shall mean a Stock Purchase Committee appointed by the
Board.
2.6 "Common Stock" shall mean the Common Stock of the Company.
2.7 "Company" shall mean the Company Restaurants, Inc., a Delaware
corporation, or any successor.
2.8 "Company Account" shall mean the account established in the name of
the Company pursuant to Paragraph 7.2 hereof.
2.9 "Employee" shall mean any person who has reached the age of
majority and who is currently employed by the Company or one of its subsidiary
corporations (i) on an hourly basis as a restaurant employee for at least 30
hours per week and has been so employed continuously during the preceding one
(1) year (provided that the Board or the Committee may in its discretion waive
such one (1) year requirement), excluding non-employees and persons on leave of
absence; (ii) on an hourly basis as a non-restaurant employee for at least 30
hours per week and has been so employed continuously during the preceding 90
days (provided that the Board or the Committee may in its discretion waive such
90-day requirement), excluding non-employees and persons on leave of absence or
(iii) is exempt from the overtime and minimum wage requirements under federal
and state laws and has been so employed continuously during the preceding 90
days (provided that the Board or the Committee may in its discretion waive such
90-day requirement), excluding non-employees and persons on leave of absence. An
Employee may also be referred to herein as a Participant.
2.10 "Enrollment Form" shall mean the Employee Stock Purchase Plan
Enrollment Form.
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2.11 "Incentive Compensation" shall mean compensation received by any
Employee of the Company, or its subsidiaries, as a bonus or performance-based
award, which is in addition to such Employee's regular salary.
2.12 "Interested Party" shall mean the persons described in Paragraph
16 hereof.
2.13 "Plan" shall mean this 1994 Employee Stock Purchase Plan.
2.14 "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
subsidiary corporation, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a subsidiary corporation.
3. Administration. The Plan shall be administered by the Board or, in the
discretion of the Board, by the Committee which shall consist of not less than
two persons to be appointed by, and to serve at the pleasure of, the Board. No
member of the Board or Committee who is not an Employee shall be eligible to
participate in the Plan. An aggregate of 500,000 shares of Common Stock shall be
subject to the Plan, provided that such number shall be automatically adjusted
to reflect any stock split, reverse stock split, stock dividend,
recapitalization, merger, consolidation, combination, reclassification or
similar corporate change. The Board or the Committee shall have full authority
to construe, interpret, apply and administer the Plan and to establish and amend
such rules and procedures as it deems necessary or appropriate from time to time
for the proper administration of the Plan. In addition, the Board or the
Committee may engage or hire such persons, including without limitation, the
Broker, to provide administrative, recordkeeping and other similar services in
connection with its administration of the Plan, as it may deem necessary or
appropriate from time to time. The members of the Board and the Committee and
the officers of the Company shall be entitled to rely upon all certificates and
reports made by such persons, including the Broker, and upon all opinions given
by any legal counsel or investment adviser selected or approved by the Board or
the Committee. The members of the Board and the Committee and the officers of
the Company shall be fully protected in respect of any action taken or suffered
to be taken by them in good faith in reliance upon any such certificates,
reports, opinions or other advice of any such person, and all action so taken or
suffered shall be conclusive upon each of them and upon all Participants. The
Company shall indemnify each member of the Board and the Committee and any other
officer or employee of the Company who is designated to carry out any
responsibilities under the Plan for any liability arising out of or connected
with his or her duties hereunder, except such liability as may arise from such
person's gross negligence or willful misconduct.
4. Eligibility. Any Employee as defined in Paragraph 2.9 shall be eligible
to participate in the Plan. Any Employee participating in the Plan who, after
the commencement of a particular Offering Period, as defined in Paragraph 5,
shall for any reason fail to meet the standards of eligibility shall be
considered to have withdrawn from the Plan, effective as of the date upon which
the Participant shall have become ineligible. Any reference in this Plan to
withdrawal by a Participant from the Plan shall include ineligibility as
described in this Paragraph.
5. Offering Periods. Shares shall be offered pursuant to this Plan in
periods which coincide with the Company's fiscal quarters ("Offering Periods"),
commencing on the effective date of the Plan pursuant to Paragraph 22 and
continuing thereafter until terminated in accordance with Paragraph 15. The
Board shall have the power to change the duration of Offering Periods if such
change is announced at least 10 days prior to the scheduled beginning of the
first Offering Period to be affected.
6. Participation. Participation in the Plan is voluntary. An eligible
Employee may apply to participate in the Plan by submitting to the Company's
Benefits Department an Enrollment Form authorizing a payroll deduction and
purchase of shares. The Enrollment Form shall be on a form provided by the
Company and may be submitted to the Company at any time. Participation shall not
be effective until the Enrollment Form is reviewed and accepted by the Company
by written notice to the Employee. Once the Enrollment Form has been reviewed
and accepted by the Company, participation in the Plan shall commence
immediately.
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7. Payroll Deductions.
7.1 Election. At the time a Participant submits an Enrollment Form, the
Participant shall elect to have payroll deductions made on each payday during
the Offering Period at a whole percentage from 3% to 15% of the Base Earnings
which the Participant is to receive on such payday. In addition to the deduction
from Base Earnings, or in lieu of the deduction from Base Earnings, a
Participant may elect, upon submission of an Enrollment Form, to have payroll
deductions made at a whole percentage from 3% to 15% of the Incentive
Compensation which the Participant is to receive.
7.2 Holding of Funds. All payroll deductions authorized by each
Participant shall be held in a non-interest account in the name of the Company
Restaurants, Inc. Employee Stock Purchase Plan (the "Company Account") until
used to purchase Common Stock and shall not be used for any other purpose. The
Company shall maintain records reflecting the amount in the Company Account of
each Participant. All withholding taxes in connection with a Participant's
payroll deduction shall be deducted from the remainder of the Base Earnings
and/or Incentive Compensation paid to the Participant and not from the amount to
be placed in the Company Account. A Participant may not make any additional
payments into the Company Account except as provided in Paragraph 18. All
amounts in the Company Account derived from payroll deductions shall be referred
to as the "Participant Contribution."
7.3 Changes in Election. Participation in the Plan will continue until
the Participant withdraws from the Plan, is no longer eligible to participate or
the Plan is terminated. Such participation shall be on the basis of the payroll
deduction election submitted by such Employee to the Company and then currently
in effect. Each such election shall remain in effect until the effective date of
any change in the amount of payroll deduction as requested by the Participant
and accepted by the Company. To be effective in any Offering Period, a change in
the amount of payroll deduction must be requested in writing and submitted to
the Company. A Participant may change his withholding percentage at any time
during an Offering Period, but only one time during any Offering Period. If a
Participant's Base Earnings change during an Offering Period, the amount of the
payroll deduction will be changed to the figure reflecting the Participant's
previously elected deduction percentage applied to his or her new Base Earnings
(but will not in any event be in excess of 15% of the Participant's Base
Earnings).
8. Contribution by the Company or a Subsidiary. The Company or a Subsidiary
shall make matching contributions (the "Matching Contribution") as follows:
8.1 Officers and Directors as Participants. For each officer or director
of the Company or a Subsidiary who participates in the Plan and remains an
Employee of the Company or a Subsidiary for at least one year after the
termination of a particular Offering Period, the Company or Subsidiary shall
make upon the one year anniversary date after such Offering Period a Matching
Contribution equal to either one-half of the number of shares purchased on
behalf of such Participant or equal to one-half of the dollar amount contributed
by such Participant during such one year earlier Offering Period subject to
Paragraph 8.3, at the sole discretion of the Company, less all withholding taxes
in connection with such Matching Contribution. "Officer" shall mean those
individuals elected as Officers by the Board of Directors of the Company and its
Subsidiaries, and shall be determined as of the end of an Offering Period.
"Director" shall mean an employee and a member of the Board of Directors of the
Company and its subsidiaries. "Director" shall also mean employees of the
Company and its subsidiaries who hold the title Director. Withholding taxes as
and when required in connection with such Matching Contribution shall be
withheld based upon the person's existing withholding percentages or as
otherwise required by law from the Participant's base earnings.
8.2 Other Participants. For each Participant in the Plan (other than an
officer or director) who remains an Employee of the Company or a Subsidiary for
at least one year after the termination of a particular Offering Period, the
Company or Subsidiary shall make upon the one year anniversary date after such
Offering Period a Matching Contribution equal to either one-third of the number
of shares purchased on behalf of such Participant or equal to one-third of the
dollar amount contributed by such Participant during such one year earlier
Offering Period subject to Paragraph 8.3, at the sole discretion of the Company.
Withholding taxes as and when required in connection with such Matching
Contribution shall be withheld based upon the person's existing withholding
percentages or as otherwise required by law from the Participant's base
earnings.
8.3 Intentionally Omitted.
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8.4 Timing of Withholding. The Company shall withhold taxes in two
subsequent pay periods or as otherwise required by law.
9. Purchase of Shares Regarding Participant's Contribution.
9.1 Brokerage Account. Following the acceptance by the Company of a
Participant's Enrollment Form, the Company shall direct the Broker to open and
maintain an account (the "Brokerage Account") in the name of such Participant
and to purchase shares of Common Stock on behalf of such Participant as
permitted under this Plan.
9.2 Delivery of Funds to Broker from Company. The Company, from time to
time during an Offering Period, shall deliver to the Broker an amount equal to
the total of all Participant Contributions together with a list of the amount of
such Contributions from each Participant.
9.3 Broker's Purchase of Shares. From time to time, the Broker, as
agent for the Participants, shall purchase as many full shares or fractional
shares of Common Stock as such Contributions will permit. The shares to be
purchased shall be purchased at the then current fair market value and may, at
the election of the Company, be either treasury shares, shares authorized but
unissued, or shares purchased on the open market. The amount of Common Stock
purchased by the Broker pursuant to this Paragraph 9.3 shall be allocated to the
respective Brokerage Account of each Participant on the basis of the average
cost of the Common Stock so purchased, in proportion to the amount allocable to
each Participant. At the end of each Offering Period under the Plan, each
Participant shall acquire full ownership of all full shares and fractional
shares of Common Stock purchased for his Brokerage Account. Unless otherwise
requested by the Participant, all such full shares and fractional shares so
purchased shall be registered in the name of the Broker and will remain so
registered until delivery is requested in accordance with Paragraph 9.5.
9.4 Fees and Commissions. The Company shall pay the Broker's
administrative charges for opening and maintaining the Brokerage Accounts for
active Participants and the brokerage commissions on purchases made for such
Brokerage Accounts which are attributable to Participant Contributions and
Matching Contributions under the Plan. Such Brokerage Accounts may be utilized
for other transactions as described in Paragraph 9.5 below, but any fees,
commissions or other charges by the Broker in connection with such other
transactions shall, in certain circumstances described in Paragraph 9.5, be
payable directly to the Broker by the Participant.
9.5 Participant Accounts with Broker. Each Participant's Brokerage
Account shall be credited with all cash dividends paid with respect to full
shares and fractional shares of Common Stock purchased pursuant to Paragraphs
9.3 and 10 unless such shares are registered in the Participant's name. Unless
otherwise instructed by the Participant, dividends on such Common Stock shall
automatically be reinvested in Common Stock as soon as practicable following
receipt of such dividends by the Broker. Applicable fees and brokerage
commissions on the reinvestment of such dividends will be payable by the
Participant. Any stock dividends or stock splits which are made with respect to
shares of Common Stock purchased pursuant to Paragraphs 9.3 and 10 shall be
credited to the Participant's Brokerage Account without charge. Any Participant
may request that a certificate for any or all of the full shares of Common Stock
credited to his or her Brokerage Account be delivered to him at any time;
provided, however, the Participant shall be charged by the Broker for any fees
applicable to such requests. A Participant may request the Broker at any time to
sell any or all of the full shares or fractional shares of Common Stock credited
to his Brokerage Account. Unless otherwise instructed by the Participant, upon
such sale the Broker will mail to the Participant a check for the proceeds, less
any applicable fees and brokerage commissions and any transfer taxes,
registration fees or other normal charges which shall be payable by the
Participant. Except as provided in Paragraph 13, a request by the Participant to
the Broker to sell shares of Common Stock or for delivery of certificates shall
not affect an Employee's status as a Participant. A Participant who has a
Brokerage Account with the Broker may purchase additional shares of Common Stock
of the Company for his Brokerage Account at any time by separate purchases
arranged through the Broker. When any such purchases are made, the Participant
will be charged by the Broker for any and all fees and brokerage commissions
applicable to such transactions. In addition, any subsequent transactions with
respect to such shares acquired including, but not limited to, purchases, sales,
reinvestment of dividends, requests for certificates, and crediting of stock
dividends or stock splits, shall be at
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the expense of the Participant and the Broker shall charge the Participant
directly for any and all fees and brokerage commissions applicable to such
transactions.
10. Issuance of Shares Regarding Matching Contribution. Subject to
Paragraph 20, on the 10th day after the first anniversary of an Offering Period,
each Participant's direct employer shall make the Matching Contribution for each
qualified Participant in an amount described in Paragraph 8 by delivering to the
Broker an amount equal to the total funds necessary to make the Matching
Contributions described in Paragraph 8 together with a list of the number of
shares allocable to the Brokerage Account of each Participant. As soon as
practicable thereafter, the Broker shall purchase the number of shares of Common
Stock required in order to make the Matching Contributions. The shares to be
purchased shall be purchased at the then current fair market value and allocated
to participant accounts on the settlement date. The shares may, at the election
of the Company, be either treasury shares, shares authorized but unissued, or
shares purchased on the open market. At the time of such allocation, each
Participant shall immediately acquire full ownership of all full and fractional
shares of Common Stock purchased. Unless otherwise requested by the Participant,
all such shares so purchased shall be registered in the name of the Broker and
will remain so registered until delivery is requested in accordance with
Paragraph 9.5.
11. Voting and Shares. All voting rights with respect to the full and
fractional shares of Common Stock held in the Brokerage Account of each
Participant may be exercised by each Participant and the Broker shall exercise
such voting rights in accordance with the Participant's signed proxy instruction
duly delivered to the Broker.
12. Statement of Account. As soon as practicable after the end of each
Offering Period, the Broker shall deliver to each Participant a statement
regarding all activity in his or her Brokerage Account, including his or her
participation in the Plan for such Offering Period. Such statement will show the
number of shares acquired or sold, the price per share, the transaction date,
stock splits, dividends paid, dividends reinvested and the total number of
shares held in the Brokerage Account. The Broker shall also deliver to each
Participant as promptly as practicable, by mail or otherwise, all notices of
meetings, proxy statements and other material distributed by the Company to its
stockholders, including the Company's annual report to its stockholders
containing audited financial statements.
13. Withdrawal from the Plan. A Participant may withdraw from the Plan,
effective as of the end of any Offering Period, by giving written notice to the
Company not later than the 15th day prior to the end of such Offering Period.
Upon any such withdrawal, the Participant shall be entitled to receive as
promptly as possible from the Company all of the Participant's payroll
deductions credited to the Company Account in his or her name during the
applicable Offering period, but shall not be entitled to the benefit of any
Matching Contributions. In the event a Participant withdraws from the Plan
pursuant to this Paragraph 13, the Company shall notify the Broker as soon as
practicable and the broker shall maintain or close the Participant's Brokerage
Account in accordance with the procedures set forth in Paragraph 16. A
Participant who withdraws from the Plan may not reenter the Plan except by
execution and delivery of a new Enrollment Form and payroll deduction election,
and his or her participation shall be effective upon acceptance of the
Enrollment Form by the Company by written notice to the Employee not sooner than
30 days after receipt of the Enrollment Form, provided that the Company may in
its discretion accept an Enrollment Form prior to the expiration of such 30
days.
14. Termination of Employment. In the event of the termination of a
Participant's employment with the Company or a Subsidiary for any reason during
an Offering Period, including, but not limited to, the death of a Participant,
participation in the Plan shall terminate as well as any rights to future
Matching Contributions. The Participant or the personal representative of the
Participant shall be entitled to receive an amount of cash determined in the
same manner and payable at the same time as if the Participant had withdrawn
from the Plan by giving notice of withdrawal effective as of the date such
termination occurs. Notwithstanding the foregoing, termination of employment by
one employer for the purpose of being re-employed immediately by the Company or
one of its Subsidiaries shall not be considered termination under this Paragraph
14. Any reference in this Plan to withdrawal by a Participant from the Plan
shall include termination as described in this Paragraph 14. In the event of the
termination of a Participant's employment
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pursuant to this Paragraph 14, the Company shall notify the broker as soon as
practicable and the Broker shall maintain or close the Participant's Brokerage
Account in accordance with the procedures set forth in Paragraph 16.
15. Amendment, Suspension and Termination of Plan. This Plan may be amended
or terminated by the Board at any time and such amendment or termination shall
be communicated in writing to all Participants as soon as practicable after the
date of such Board action. If the Plan is terminated, each Participant shall be
entitled to receive as promptly as possible from the Company all payroll
deductions attributable to him or her which have not been used for purchase of
Common Stock pursuant to Paragraph 9, ("Account Balance"), but he or she shall
not be entitled to the benefit of any future Matching Contributions with respect
to such deductions or interest or otherwise for any past Offering Periods. In
any event, this Plan shall terminate 20 years from the date the Plan is adopted
or the date the Plan is approved by the stockholders, whichever is earlier. In
the event that the Company terminates the Plan pursuant to this Paragraph 15,
the Broker shall maintain or close the Participant's Brokerage Accounts in
accordance with the procedures set forth in Paragraph 16. Notwithstanding any
other provision to the contrary, any provision of this Plan may be amended by
the Board or the Committee as required to obtain necessary approvals of
governmental agencies if such change does not materially alter the rights and
interests of stockholders of the Company. If there are any changes in the
capitalization of the Company, such as through mergers, consolidations,
reorganizations, recapitalizations, stock splits or stock dividends, appropriate
adjustments will be made by the Company in the number of shares of its Common
stock subject to purchase under the Plan.
16. Disposition of Brokerage Account Following Withdrawal, Death,
Termination of Employment or Termination of Plan. As soon as practicable
following the notification of the withdrawal of a Participant from the Plan, the
notification of the termination of a Participant's employment with the Company
or a Subsidiary (which includes the death of the Participant) or of the
notification that the Plan is terminated pursuant to Paragraph 15 hereof, the
Broker shall notify the former Participant, or in the event of his death, his
designated beneficiary, if any, or if no designated beneficiary the estate of
the deceased Participant (collectively, an "Interested Party), regarding the
disposition of the former Participant's or deceased Participant's Brokerage
Account. As soon as practicable following receipt of the notification set forth
in the preceding sentence, the Interested Party may request the Broker to
dispose of the former Participant's or deceased Participant's Brokerage Account,
at the Interested Party's expense, by any one of the following means:
(a) The Interested Party may request the Broker to maintain the former
Participant's or deceased Participant's Brokerage Account for the benefit
of the Interested Party or any other person. The Interested Person shall be
charged by the Broker for all maintenance fees and any and all other fees
in connection with the Brokerage Account.
(b) The Interested Party may request the Broker to sell all of the
full shares and fractional shares of Common Stock, if any, held in the
former Participant's or deceased Participant's Brokerage Account. Upon such
sale, the Broker will mail to the Interested Party a check for the
proceeds, less any applicable fees and brokerage commissions and any
transfer taxes, registration fees or other charges which shall be payable
by the Interested Party.
(c) The Interested Party may request the Broker to provide a
certificate for all of the full shares of Common Stock, if any, together
with a check in an amount equal to the proceeds of the sale any fractional
shares of Common Stock held in the former Participant's or deceased
Participant's Brokerage Account, less any applicable fees and brokerage
commissions and any transfer taxes, registration fees or other charges
which are payable by the Participant.
17. Broker. The Broker shall be Merrill Lynch, Pierce, Fenner & Smith
Incorporated which has agreed to act as Broker for such period as is determined
by the Company. Either the Company or the Broker may terminate such designation
at any time upon 30 days' written notice. In the event of such termination of
the Broker, the Company may administer the Plan without the use of a Broker or
may appoint a successor Broker. Any successor Broker shall be vested with all
the powers, rights, duties and immunities of the Broker hereunder to the same
extent as if originally named as the Broker hereunder. The relationship between
the
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<PAGE> 7
Broker and the Participant will be the normal relationship of a broker and its
client, and the Company assumes no responsibility in this respect.
18. Initial Contribution. Any Participant who files a Enrollment Form prior
to the first Offering Period may elect to make an initial contribution ("Initial
Contribution") to be allocated to him or her in the Company Account, by check
payable to the Company, in any amount up to 10% of his or her Base Earnings for
the period between August 16, 1994, and the commencement of the first Offering
Period. The amount of the Initial Contribution shall be matched as provided in
Paragraph 8, and withholding taxes in connection with such Matching
Contributions shall be deducted in the same manner as provided in Paragraph 8.
18.1 Lump Sum Contribution. The Board and/or Committee may from time to
time in its discretion allow any Participant in the Plan to make a lump sum
contribution ("Lump Sum Contribution") to be credited to him or her in the
Company Account, by check payable to the Company, in any amount up to 15% of his
or her Base Earnings, for a period prescribed by the Board and/or Committee. The
amount of the Lump Sum Contribution shall be matched as provided in Paragraph 8,
and withholding taxes in connection with such Matching Contributions shall be
deducted in the same manner as provided in Paragraph 8.
19. Conditions to Issuance of Shares. Shares shall not be issued under the
Plan unless issuance and delivery of such shares pursuant to the Plan shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended; the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, the securities laws of the state in which any Employee resides, NASD
requirements and the requirements of any stock exchange upon which the Common
Stock may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. By execution of the
Enrollment Form, the Participant covenants and agrees that all shares are being
purchased only for investment and without any present intention to sell or
distribute such shares.
20. Notices.
20.1 To Company or Subsidiaries. Any notice hereunder to the Company or
to its Subsidiaries shall be in writing and such notice shall be deemed made
only when delivered or three days after being mailed by certified mail, return
receipt requested, to the Company's principal office at 1200 North Harbor
Boulevard, Anaheim, California 92801 or to such other address as the Company may
designate by notice to the Participants.
20.2 To Participant. Any notice to a Participant hereunder shall be in
writing and any such communication and any delivery to a Participant shall be
deemed made if mailed or delivered to the Participant at such address as the
Participant may have on file with the Company and with the Broker.
21. Miscellaneous.
21.1 No Limitation on Termination of Employment. Nothing in the Plan
shall in any manner be construed to limit in any way the right of the Company or
any of its Subsidiaries to terminate an Employee's employment at any time,
without regard to the effect of such termination on any right such Employee
would otherwise have under the Plan, or give any right to an Employee to remain
employed by the Company in any particular position or at any particular rate of
remuneration.
21.2 Liability. The Company, its Subsidiaries, any member of the Board
or Committee and any other person participating in any determination of any
question under the Plan, or in the interpretation, administration or application
of the Plan, shall have no liability to any party for any action taken or not
taken in good faith under the Plan, or based on or arising out of a
determination of any question under the Plan or an interpretation,
administration or application of the Plan made in good faith.
21.3 Captions. The captions of the paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or construction of
any of its provisions.
21.4 Assignment. Any rights of Employees hereunder shall be
nonforfeitable, and no Account Balance or contribution made by any employer may
revert or inure to the benefit of the Company or any
A-7
<PAGE> 8
Subsidiary, provided that no Participant shall be entitled to sell, assign,
pledge or hypothecate any right or interest in his or her Account Balance.
21.5 Governing Law. Delaware law governs this Plan.
21.6 Severability. In case any provision of this Plan shall be held
illegal or invalid for any reason, said illegality or invalidity shall not
affect the remaining parts hereof, but this Plan shall be construed and enforced
as if such illegal and invalid provision had never been inserted herein.
21.7 Successors. The provisions of this Plan shall bind and inure to
the benefit of the Company and its successors and assigns. The term "successors"
as used herein shall include any corporate or other business entity which shall
by merger, consolidation, purchase or otherwise acquire all or substantially all
of the business and assets of the Company, and successors of any such
corporation or other business entity.
22. Effective Date of Plan. The Plan shall become effective upon the first
day of the next fiscal quarter after which the Board approves the Plan, subject
to ratification by the stockholders of the Company, and all necessary approvals
of governmental agencies have been received.
A-8
<PAGE> 1
EXHIBIT 10.31
Tom Thompson
President
Chief Operating Officer
February 20, 1997
Mr. William M. Thiesen
Chairman and Chief Executive Officer
GB Foods Corporation
23 Corporate Plaza, #246
Newport Beach, CA 92660
Dear Willy:
As of May 30, 1995, Carl Karcher Enterprises, Inc. ("Carl"), CKE Restaurants,
Inc. ("CKE") and GB Foods Corporation ("GBFC") entered into a Carl's Jr./Green
Burrito Settlement and Development Agreement (the "Agreement"). There
subsequently have arisen certain questions about store conversions under
Section 1 of the Agreement. In addition, there has arisen a difference of
opinion on the interpretation of Section 9 of the Agreement with respect to
certain proposed actions by CKE.
As we have discussed, we both believe that it is in our mutual best interest to
resolve these matters and "reset" the conversion obligations of Carl and CKE
under the Agreement as hereinafter provided. Accordingly, Carl, CKE and GBFC
agree as follows:
1. Notwithstanding our dispute with respect to Section 9 of the Agreement
and without prejudice to either side's position, the parties hereby modify and
amend the Agreement to the extent necessary, if any, to permit Carl or CKE (or
any of its franchisees or affiliates) to feature Carl's Jr. products in any
Taco Bueno restaurant now owned by Carl or CKE in Texas, or hereafter
established by Carl or CKE (or any of its franchisees or affiliates) in Texas.
Accordingly, the combination of Carl's Jr. with Taco Bueno restaurants in Texas
shall not be deemed by GBFC to be a violation of Section 9 of the Agreement.
2. Notwithstanding Section 1 of the Agreement, the parties hereby modify
and amend the Agreement to the extent necessary to provide that for each of the
four fiscal years in the period March 1, 1997 through February 28, 2001, Carl
will convert a minimum of sixty (60) Carl's Jr. locations, all without regard
to subparts (i) through (v) of Section 1A of the Agreement, which subparts are
hereby deleted. At least fifty (50) of the conversions shall be company-owned
Carl's Jr. locations, and Carl may fill the remaining ten (10) with either
company-owned or franchisee Carl's Jr. locations. GBFC hereby acknowledges and
agrees that all of Carl's and CKE's obligations under Section 1 of the
Agreement have been fully satisfied through February 28, 1997.
Except as otherwise amended hereby, the provisions of the Agreement will remain
in full force and effect.
If you agree to the above, please so indicate in the space provided below and
return one copy to me.
Carl Karcher Enterprises, Inc. CKE Restaurants, Inc.
By: /s/ C. Thomas Thompson By: /s/ C. Thomas Thompson
-------------------------- -----------------------------
Accepted and Agreed: GB Foods Corporation
By: /s/ William M. Thiesen, President
-------------------------------------
<PAGE> 1
EXHIBIT 10.42
AMENDMENT NO. 2 TO TERM
-----------------------
LOAN AND SECURITY AGREEMENT ("AGREEMENT")
-----------------------------------------
JANUARY 14, 1997
Carl Karcher Enterprises, Inc.
1200 North Harbor Boulevard
Anaheim, California 92803
Attn: Loren Pannier
Senior Vice President
Ladies and Gentlemen:
PREAMBLE. We refer to our Term Loan and Security Agreement with you dated as of
December 19, 1995 (the "Loan Agreement"), as amended by that certain Amendment
No. 1 to the Loan Agreement dated January 22, 1996. Capitalized terms used
herein and not defined herein have the meanings assigned to them in the Loan
Agreement.
Pursuant to the Loan Agreement, it was contemplated that the Fixed
Charge Coverage Ratio set forth in Section 7.12 of the Loan Agreement would
subtract capital expenditures, tax expense and dividends from EBITDA. Lender has
determined, however, that Borrower's new consortium of banks lead by NationsBank
has redefined "Fixed Charge Coverage Ratio" and "EBITDA".
As a result of the foregoing, Borrower and Lender have agreed that it
would be in the Borrower's and Heller's best interest to conform the definitions
of "Fixed Charge Coverage Ratio" and "EBITDA" in the Loan Agreement to coincide
with the redefined terms and ratios used by NationsBank.
The purpose of this Amendment is to memorialize our mutual
understanding and to amend to the Loan Agreement pertaining to the foregoing
matter and certain related matters.
Accordingly you and we hereby agree as follows:
1. AMENDMENTS TO SECTION 7.12 OF THE LOAN AGREEMENT.
Section 7.12 of the Loan Agreement is hereby deleted in its entirety
and the following revised Section 7.12 is substituted in lieu thereof:
7.12. FIXED CHARGE COVERAGE RATIO. If Guarantor's Fixed
Charge Coverage Ratio, determined on a Consolidated basis, is
less than the ratio indicated at the end of such fiscal period
as specified below:
FISCAL PERIOD ENDING RATIO
-------------------- -----
at each quarter of 1997
and up to 1/26/98 1.10 : 1.00
at first quarter 1998
and thereafter 1.30 : 1.00
For purposes of this Agreement, "Fixed Charge Coverage Ratio"
means the following calculation, expressed as a ratio for any
fiscal period: (a) EBITDAR of Guarantor and its consolidated
Subsidiaries divided by (b) the sum of (I) interest expense,
(ii) the
<PAGE> 2
current portion of long-term debt, (iii) the current portion
of capital leases, (iv) rentals payable under leases of real
or personal, or mixed, property, (v) cash taxes, and (vi)
principal amounts due on funded debt. The current portion of
long-term debt, the current portion of capital leases, rentals
payable under leases, cash taxes and principal amounts due on
funded debt will be the amount shown on the consolidated
balance sheet of Guarantor as of the end of the applicable
quarter. "EBITDAR" means earnings before interest and tax
expense, depreciation, amortization and other non-cash
charges, and rent expense. This ratio shall be calculated
quarterly using a Four Quarter Rolling Basis. "Four Quarter
Rolling Basis" shall mean the four quarters calculated using
the results of the fiscal quarter then most recently ended and
the immediately preceding fiscal three (3) quarters.
2. MISCELLANEOUS.
(a) EFFECT OF AMENDMENT. Except as set forth expressly herein, all
terms of the Loan Agreement and the other Loan Documents, as amended
hereby, shall be and remain in full force and effect and shall
constitute the legal, valid, binding and enforceable obligations of
Borrower to Lender. To the extent any terms and conditions in any of
the Loan Documents shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect to this
Amendment, such terms and conditions are hereby deemed modified and
amended accordingly to reflect the terms and conditions of the Loan
Agreement as modified and amended hereby. In connection herewith,
Borrower shall execute such amendments to the other Loan Documents or
re-execute such of the other Loan documents as Lender shall request.
(b) RATIFICATION. Borrower hereby restates, ratifies and reaffirms
each and every term and condition set forth in the Loan Agreement, as
amended hereby, and the Loan documents effective as of the date hereof.
(c) ESTOPPEL. To induce Lender to enter into this Amendment,
Borrower hereby acknowledges and agrees that, as of the date hereof, no
Default Condition or Event of Default has occurred and is continuing
and, in addition, there exists no right of offset, defense,
counterclaim or objection in favor of Borrower as against Lender with
respect to the Obligations.
(d) GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the internal laws (and not the laws of
conflicts) of the State of Illinois and all applicable federal laws of
the United States of America.
Please countersign in the space provided below to acknowledge your
concurrence with the foregoing.
Sincerely,
HELLER FINANCIAL, INC.
By: /s/Domminick J. Masciantonio
-------------------------------
Name: Domminick J. Masciantonio
Its: Senior Vice President
ACKNOWLEDGED AND AGREED
CARL KARCHER ENTERPRISES, INC.
By: /s/Robert A. Wilson
----------------------
Name: Robert A. Wilson
Title: Vice President
General Counsel
<PAGE> 1
EXHIBIT 10.45
SECOND AMENDMENT
TO
CKE RESTAURANTS, INC.
CREDIT AGREEMENT
DATED AS OF NOVEMBER 25, 1996
This SECOND AMENDMENT (this "Amendment") is among CKE
RESTAURANTS, INC., a Delaware corporation (the "Borrower"), the Financial
Institutions party to the Credit Agreement referred to below (the "Lenders"),
and NATIONSBANK OF TEXAS, N.A., as agent (the "Agent") for the Lenders
thereunder.
PRELIMINARY STATEMENTS:
1. The Borrower, the Lenders and the Agent are parties
to a Credit Agreement dated as of August 1, 1996, as amended by the First
Amendment dated as of September 30, 1996 (as so amended, the "Credit Agreement";
capitalized terms used and not otherwise defined herein have the meanings
assigned to such terms in the Credit Agreement).
2. The Borrower has requested that the Agent and the
Lenders amend the Credit Agreement to increase the amount of Designated
Investments permitted thereunder.
3. The Agent and the Lenders are willing to grant
the request of the Borrower on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit
Agreement is, effective concurrently with the satisfaction of the conditions
precedent set forth in Section 2 hereof, hereby amended as follows:
(a) Section 1.01 of the Credit Agreement is hereby
amended by adding thereto the following defined term in the appropriate
alphabetical order:
"'SECOND AMENDMENT' means the Second Amendment to
this Agreement, dated as of November 25, 1996."
(b) Section 6.02(f)(iv) of the Credit Agreement is
hereby amended and restated in its entirety to read as follows:
"(iv) other Designated Investments in an
aggregate amount invested and not recovered not to exceed at
any one time (A) $20,000,000 minus (B) the amount, if any, by
which the aggregate consideration paid by the Borrower and its
Subsidiaries in connection with all Permitted Acquisitions
after the date hereof (excluding from the calculation of such
aggregate consideration (I) consideration paid in the form of
common stock of the Borrower, (II) consideration paid with the
proceeds of Permitted Subordinated Debt and consideration paid
or refinanced with the proceeds of the Permitted Acquisition
Financing, and (III) in the case of a Permitted Acquisition
<PAGE> 2
by a Subsidiary of the Borrower which is not a wholly-owned
Subsidiary of the Borrower, the consideration paid by such
Subsidiary with the proceeds of equity contributions to such
Subsidiary by Persons other than the Borrower and its
Subsidiaries) exceeds the sum of (1) $5,000,000 plus (2) the
Additional Investment Amount;".
SECTION 2. CONDITIONS TO EFFECTIVENESS. This Amendment shall
become effective when:
(a) the Agent has executed this Amendment and has
received counterparts of this Amendment executed by the Borrower and
the Required Lenders; and
(b) the Agent has received counterparts of the Consent
appended hereto (the "Consent") executed by each of the Guarantors
(such Guarantors, together with the Borrower, each a "Loan Party" and,
collectively, the "Loan Parties").
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants as follows:
(a) AUTHORITY. The Borrower and each other Loan
Party has the requisite corporate power and authority to execute and deliver
this Amendment or the Consent, as applicable, and to perform its obligations
hereunder and under the Loan Documents (as amended or modified hereby) to which
it is a party. The execution, delivery and performance by the Borrower of this
Amendment and by each other Loan Party of the Consent, and the performance by
each Loan Party of each Loan Document (as amended or modified hereby) to which
it is a party have been duly approved by all necessary corporate action of such
Loan Party and no other corporate proceedings on the part of such Loan Party are
necessary to consummate such transactions.
(b) ENFORCEABILITY. This Amendment has been duly executed
and delivered by the Borrower. The Consent has been duly executed and delivered
by each Guarantor. This Amendment and each Loan Document (as amended or modified
hereby) is the legal, valid and binding obligation of each Loan Party party
hereto or thereto, enforceable against such Loan Party in accordance with its
terms, and is in full force and effect.
(c) REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in each Loan Document (other than any such
representations or warranties that, by their terms, are specifically made as of
a date other than the date hereof) are correct on and as of the date hereof as
though made on and as of the date hereof.
(d) NO DEFAULT. No event has occurred and is
continuing that constitutes a Default.
SECTION 4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a)
Upon and after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as modified and amended hereby.
2
<PAGE> 3
(b) Except as specifically amended above, the Credit
Agreement and all other Loan Documents, are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender or the Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 5. EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement. Delivery of an executed counterpart of a signature
page to this Amendment or the Consent by telefacsimile shall be effective as
delivery of a manually executed counterpart of this Amendment or such Consent.
SECTION 6. GOVERNING LAW. This Amendment shall be
governed by, and construed in accordance with, the laws of the State of
California.
[Signature Pages Follow]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
CKE RESTAURANTS, INC.
By: /s/ Robert A. Wilson
-------------------------------------
Title: Vice President
NATIONSBANK OF TEXAS, N.A.,
as Agent
By: /s/ Tom F. Sharfenberg
-------------------------------------
Title: Senior Vice President
LENDERS:
NATIONSBANK OF TEXAS, N.A.
By: /s/ Tom F. Sharfenberg
-------------------------------------
Title: Senior Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ S. Devaney
-------------------------------------
Title: Commercial Banking Manager
MELLON BANK, N.A.
By: /s/ Abdi Rais
-------------------------------------
Title: Vice President
<PAGE> 5
SUMITOMO BANK OF CALIFORNIA, N.A.
By: /s/ Matt R. Van Steenhuyse
-------------------------------------
Title: Vice President
U. S. NATIONAL BANK OF OREGON
By: /s/ Janet Jordan
-------------------------------------
Title: Vice President
WELLS FARGO BANK, N.A.
By: /s/ Sandra D. Martin
-------------------------------------
Title:
<PAGE> 1
EXHIBIT 10.46
THIRD AMENDMENT
TO
CKE RESTAURANTS, INC.
CREDIT AGREEMENT
DATED AS OF FEBRUARY 14, 1997
This THIRD AMENDMENT (this "Amendment") is among CKE
RESTAURANTS, INC., a Delaware corporation (the "Borrower"), the Financial
Institutions party to the Credit Agreement referred to below (the "Lenders"),
and NATIONSBANK OF TEXAS, N.A., as agent (the "Agent") for the Lenders
thereunder.
PRELIMINARY STATEMENTS:
1. The Borrower, the Lenders and the Agent are parties
to a Credit Agreement dated as of August 1, 1996, as amended by the First
Amendment dated as of September 30, 1996 and the Second Amendment dated as of
November 25, 1996 (as so amended, the "Credit Agreement"; capitalized terms
used and not otherwise defined herein have the meanings assigned to such terms
in the Credit Agreement).
2. The Borrower has requested that the Agent and the
Lenders amend the Credit Agreement to modify the amount of Designated
Investments permitted thereunder.
3. The Agent and the Lenders are willing to grant the
request of the Borrower on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit
Agreement is, effective concurrently with the satisfaction of the conditions
precedent set forth in Section 2 hereof, hereby amended as follows:
(a) Section 1.01 of the Credit Agreement is hereby
amended by adding thereto the following defined terms in the appropriate
alphabetical order:
"`DESIGNATED INVESTMENT ADVANCE' means Revolving B Advances
made on a day on which the Borrower makes a Designated
Investment in an amount equal to the lesser of (a) the sum of
all such Revolving B Advances or (b) the amount of the
Designated Investment.
`DESIGNATED INVESTMENT AMOUNT' means, at any time, the
aggregate amount of all outstanding Designated Investment
Advances at such time.
`TOTAL CONSOLIDATED ASSETS' means, as of any time of
determination, the total assets of the Borrower and its
Subsidiaries at such time determined on a Consolidated basis
and in accordance with GAAP."
(b) Section 2.05(a) of the Credit Agreement is hereby
amended by (i) deleting the word "and" in the second to the last line thereof
and (ii) deleting the period at the end thereof and inserting the following in
lieu thereof:
<PAGE> 2
", and (iii) in the case of any prepayment of Revolving B
Advances, shall first be applied to reduce the Revolving B
Advances that are not Designated Investment Advances and then
to reduce the Designated Investment Advances."
(c) Section 6.02(f)(iv) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
"(iv) other Designated Investments in an
aggregate amount invested and not recovered not to exceed,
immediately after any Designated Investment is made, 20% of
the Total Consolidated Assets of the Borrower as shown on the
10-K or 10-Q most recently filed by the Borrower with the
Securities and Exchange Commission as of the date on which
such Designated Investment is made, provided that immediately
after any Designated Investment is made, (A) there are no
outstanding Revolving A Advances, (B) the Designated
Investment Amount does not exceed $15,000,000 and (C) the
Borrower has timely made all filings required of it by the
Securities and Exchange Commission;".
(d) Section 6.02(f)(v)(G) of the Credit Agreement is
amended and restated in its entirety as follows:
"(G) the aggregate consideration paid by
the Borrower and its Subsidiaries in connection with all
Permitted Acquisitions after the date hereof (excluding from
the calculation of such aggregate consideration (I)
consideration paid in the form of common stock of the
Borrower, (II) consideration paid with the proceeds of
Permitted Subordinated Debt and consideration paid or
refinanced with the proceeds of the Permitted Acquisition
Financing and (III) in the case of a Permitted Acquisition by
a Subsidiary of the Borrower which is not a wholly-owned
Subsidiary of the Borrower, the consideration paid by such
Subsidiary with the proceeds of equity contributions to such
Subsidiary by Persons other than the Borrower and its
Subsidiaries) shall not exceed the sum of (a) $25,000,000 plus
(b) the Additional Investment Amount."
(e) Section 6.03 of the Credit Agreement is amended by
adding thereto a new Section 6.03(n) to read as follows:
"(N) TOTAL CONSOLIDATED ASSETS. On the
Business Day immediately prior to the date on which the
Borrower makes any Designated Investment, a copy of the 10-K
or 10-Q most recently filed by the Borrower with the
Securities and Exchange Commission, and certified by the chief
financial officer of the Borrower as to the truth and accuracy
thereof.".
SECTION 2. CONDITIONS TO EFFECTIVENESS. This Amendment shall
become effective when:
(a) the Agent has executed this Amendment and has received
counterparts of this Amendment executed by the Borrower and the
Required Lenders;
(b) the Agent has received counterparts of the Consent
appended hereto (the "Consent") executed by each of the Guarantors
(such Guarantors, together with the Borrower, each a "Loan Party" and,
collectively, the "Loan Parties"); and
2
<PAGE> 3
(c) the Borrower has paid to the Agent in accordance with
Section 2.09(a) of the Credit Agreement for the account of each
Lender, a fee equal to 0.05% of the sum of the principal amount of all
outstanding Advances owed to such Lender, the Unused Revolving A
Commitment, if any, of such Lender, the Unused Revolving B Commitment,
if any, of such Lender and such Lender's Pro Rata Share of the
aggregate outstanding Letter of Credit Obligations as of such date.
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants as follows:
(A) AUTHORITY. The Borrower and each other Loan Party
has the requisite corporate power and authority to execute and deliver this
Amendment or the Consent, as applicable, and to perform its obligations
hereunder and under the Loan Documents (as amended or modified hereby) to which
it is a party. The execution, delivery and performance by the Borrower of this
Amendment and by each other Loan Party of the Consent, and the performance by
each Loan Party of each Loan Document (as amended or modified hereby) to which
it is a party have been duly approved by all necessary corporate action of such
Loan Party and no other corporate proceedings on the part of such Loan Party
are necessary to consummate such transactions.
(B) ENFORCEABILITY. This Amendment has been duly
executed and delivered by the Borrower. The Consent has been duly executed and
delivered by each Guarantor. This Amendment and each Loan Document (as amended
or modified hereby) is the legal, valid and binding obligation of each Loan
Party hereto or thereto, enforceable against such Loan Party in accordance with
its terms, and is in full force and effect.
(C) REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in each Loan Document (other than any such
representations or warranties that, by their terms, are specifically made as of
a date other than the date hereof) are correct on and as of the date hereof as
though made on and as of the date hereof.
(D) NO DEFAULT. No event has occurred and is continuing
that constitutes a Default.
SECTION 4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon and after the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Credit Agreement, and each reference in the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as modified and amended hereby.
(b) Except as specifically amended above, the Credit
Agreement and all other Loan Documents, are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver
of any right, power or remedy of any Lender or the Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
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<PAGE> 4
SECTION 5. EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement. Delivery of an executed counterpart of a signature
page to this Amendment or the Consent by telefacsimile shall be effective as
delivery of a manually executed counterpart of this Amendment or such Consent.
SECTION 6. GOVERNING LAW. This Amendment shall be governed
by, and construed in accordance with, the laws of the State of California.
SECTION 7. COSTS, EXPENSES AND TAXES. The Borrower agrees to
pay on demand all out-of-pocket expenses of the Agent in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Amendment and any other documents prepared or obtained in connection
therewith, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Agent with respect thereto and with respect to
advising the Agent as to its rights and responsibilities hereunder and
thereunder. Borrower further agrees to pay on demand all costs and expenses, if
any (including, without limitation, reasonable counsel fees and expenses), of
the Agent, and the Lenders in connection with the enforcement (whether through
negotiations, legal proceedings or otherwise) of this Amendment, including,
without limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 7.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
CKE RESTAURANTS, INC.
By: /s/ Robert Wilson
------------------------------------
Title: Vice President
NATIONSBANK OF TEXAS, N.A.,
as Agent
By: /s/ Tom F. Scharfenberg
------------------------------------
Title: Senior Vice President
LENDERS:
NATIONSBANK OF TEXAS, N.A.
By: /s/ Tom F. Scharfenberg
------------------------------------
Title: Senior Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Deborah Miller
------------------------------------
Title: Vice President
MELLON BANK, N.A.
By /s/ Abdi Rais
------------------------------------
Title: Vice President
S-1
<PAGE> 6
SUMITOMO BANK OF CALIFORNIA, N.A.
By: /s/ Matthew R. Van Steenhuyse
------------------------------------
Title: Vice President
U. S. NATIONAL BANK OF OREGON
By: /s/ Janet Jordan
------------------------------------
Title: Vice President
WELLS FARGO BANK, N.A.
By: /s/ Kevin M. Terry
------------------------------------
Title: Vice President
S-2
<PAGE> 1
EXHIBIT 10.48
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of December 18, 1996,
by and among FFCA MORTGAGE CORPORATION, a Delaware corporation ("FFCA"), whose
address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, CBI
RESTAURANTS, INC., a Delaware corporation ("CBI"), whose address is 1200 North
Harbor Boulevard, Anaheim, California 92803-4349 and CASA BONITA Texas, L.P., a
Texas limited partnership ("Casa"), whose address is 1200 North Harbor
Boulevard, Anaheim, California 92803-4349.
PRELIMINARY STATEMENT:
Unless otherwise expressly provided herein, all defined terms used in
this Agreement shall have the meanings set forth in Section 1. Debtor has
requested from FFCA, and applied for, the Loans to provide long-term financing
for the Premises, and for no other purpose whatsoever. Each Loan will be
evidenced by a Note and secured by a first priority security interest in the
corresponding Premises pursuant to a Deed of Trust. FFCA has committed to make
the Loans pursuant to the terms and conditions of the Commitment, this Agreement
and the other Loan Documents.
AGREEMENT:
In consideration of the mutual covenants and provisions of this
Agreement, the parties agree as follows:
1. DEFINITIONS. The following terms shall have the following
meanings for all purposes of this Agreement:
"Affiliate" means any Entity controlling, controlled by or under common
control with any other Entity.
"Casa Loan Agreement" means that certain Loan Agreement dated as of the
date hereof among FFCA, CBI and Casa Bonita Incorporated, a Texas corporation.
"Closing" shall have the meaning set forth in Section 4.
"Closing Date" means the date specified as the closing date in
Section 4.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101
et seq., as amended.
"Counsel" means legal counsel to Debtor and Guarantor, licensed in the
state(s) in which (i) the Premises are located, (ii) Debtor and/or Guarantor are
incorporated or formed and (iii) Debtor and/or Guarantor maintain principal
places of business, as selected by Debtor and Guarantor, as the case may be, and
approved by FFCA.
<PAGE> 2
"Debtor" means, collectively, Casa and CBI.
"Deed of Trust" means the deed of trust or mortgage, assignment of
rents and leases, security agreement and fixture filing to be executed by Casa
for the benefit of FFCA substantially in the form of Exhibit C attached to this
Agreement. A Deed of Trust will be executed for each Premises.
"De Minimis Amounts" means with respect to any given level of hazardous
substance or solid waste, that level or quantity of hazardous substance or solid
waste in any form or combination of forms which does not constitute a violation
of any Environmental Laws and is customarily employed in, or associated with,
similar businesses located in the applicable county in which the Premises is
located.
"Entity" shall mean any corporation, trust, limited liability company,
unincorporated organization, governmental authority or any other form of entity.
"Environmental Condition" means any condition with respect to soil,
surface waters, groundwaters, land, stream sediments, surface or subsurface
strata, ambient air and any environmental medium comprising or surrounding the
Premises, whether or not yet discovered, which could reasonably be expected to
result in any damage, loss, cost, expense, claim, demand, order or liability to
or against Debtor or FFCA by any third party (including, without limitation, any
government entity) arising under any Environmental Laws, including, without
limitation, any condition resulting from the operation of Debtor's business
and/or the operation of the business of any other property owner or operator in
the vicinity of the Premises and/or any activity or operation formerly conducted
by any person or entity on or off the Premises.
"Environmental Indemnity Agreement" means the environmental indemnity
agreement to be executed by Debtor for the benefit of FFCA substantially in the
form of Exhibit F attached to this Agreement. An Environmental Indemnity
Agreement will be executed for each Premises.
"Environmental Laws" means any present and future federal, state and
local laws, statutes, ordinances, rules, regulations and the like, as well as
common law relating to Hazardous Materials, relating to liability for or costs
of Remediation or prevention of Releases or relating to liability for or costs
of other actual or threatened danger from any Environmental Condition.
"Environmental Laws" includes, but is not limited to, the following statutes, as
amended, any successor thereto, and any regulations promulgated pursuant
thereto, and any state or local statutes, ordinances, rules, regulations and the
like addressing similar issues: the Comprehensive Environmental Response,
Compensation and Liability Act; the Emergency Planning and Community
Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource
Conservation and Recovery Act (including but not limited to Subtitle I relating
to underground storage tanks); the Solid Waste Disposal Act; the Clean Water
Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking
Water Act; the Occupational Safety and Health Act; the Federal Water Pollution
Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the
Endangered Species Act; the National
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Environmental Policy Act; and the River and Harbors Appropriation Act.
"Environmental Laws" also includes, but is not limited to, any present and
future federal, state and local laws, statutes, ordinances, rules, regulations
and the like, as well as common law: conditioning transfer of property upon a
negative declaration or other approval of a governmental authority of the
environmental condition of the property and requiring notification or disclosure
of Releases or other environmental condition of the Premises to any governmental
authority or other person or entity, whether or not in connection with transfer
of title to or interest in property.
"Environmental Reports" means the environmental reports provided to
FFCA by Debtor with respect to each of the Premises pursuant to Section 9.E.
"Event of Default" has the meaning set forth in Section 10.
"Fee" means an underwriting, site assessment, valuation, processing and
commitment fee equal to $99,367.50.
"Guarantor" means CKE Restaurants, Inc., a Delaware corporation.
"Guaranty" means a guaranty of payment and performance substantially in
the form of Exhibit D attached to this Agreement to be executed by Guarantor for
the benefit of FFCA. A Guaranty shall be executed for each Premises.
"Hazardous Materials" means (a) any toxic substance or hazardous waste,
substance or related material, or any pollutant or contaminant; (b) radon gas,
asbestos in any form which is or could become friable, urea formaldehyde foam
insulation, transformers or other equipment which contains dielectric fluid
containing levels of polychlorinated biphenyls in excess of federal, state or
local safety guidelines, whichever are more stringent, or any petroleum product;
(c) any substance, gas, material or chemical which is or may be defined as or
included in the definition of "hazardous substances," "toxic substances,"
"hazardous materials," hazardous wastes" or words of similar import under any
Environmental Laws; and (d) any other chemical, material, gas or substance the
exposure to or release of which is or may be prohibited, limited or regulated by
any governmental or quasi-governmental entity or authority that asserts or may
assert jurisdiction over the Premises or the operations or activity at the
Premises, or any chemical, material, gas or substance that does or may pose a
hazard to the health and/or safety of the occupants of the Premises or the
owners and/or occupants of property adjacent to or surrounding the Premises.
"Loan" means the loan for each Premises described in Section 2 and in
the amount set forth in Exhibit A. Each Loan will be evidenced by a Note and
secured by a Deed of Trust.
"Loan Amount" means, with respect to each Premises, the amount set
forth in Section 2.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Deeds of Trust, the Environmental Indemnity Agreements, the UCC-1 Financing
Statements, the Guaranties, the Title Matters Agreement and all other documents
executed in connection therewith or contemplated
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thereby.
"Note" means the promissory note substantially in the form of Exhibit B
attached to this Agreement to be executed by Debtor in favor of FFCA. A Note in
the corresponding Loan Amount will be executed for each Premises.
"Permitted Exceptions" means those exceptions to title approved in
writing by FFCA pursuant to Section 9 of this Agreement.
"Premises" means the parcels of real estate described in Exhibit A
attached hereto, all rights, privileges and appurtenances associated therewith,
and all buildings, fixtures and other improvements now or hereafter located
thereon (whether or not affixed to such real estate).
"Release" means any presence, release, deposit, discharge, emission,
leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying,
escaping, dumping, disposing or other movement of Hazardous Materials.
"Remediation" means any response, remedial, removal, or corrective
action, any activity to cleanup, detoxify, decontaminate, contain or otherwise
remediate any Hazardous Material, any actions to prevent, cure or mitigate any
Release, any action to comply with any Environmental Laws or with any permits
issued pursuant thereto, any inspection, investigation, study, monitoring,
assessment, audit, sampling and testing, laboratory or other analysis, or any
evaluation relating to any Hazardous Materials.
"Threatened Release" means a substantial likelihood of a Release which
requires action to prevent or mitigate damage to the soil, surface waters,
groundwaters, land, stream sediments, surface or subsurface strata, ambient air
or any other environmental medium comprising or surrounding the Premises which
may result from such Release.
"Title Company" means the title insurance company described in
Section 4.
"Title Matters Agreement" means that certain agreement dated as of the
date of this Agreement among Debtor, Guarantor and FFCA with respect to certain
title matters described therein.
"UCC-1 Financing Statements" means such UCC-1 Financing Statements as
FFCA shall require to be executed and delivered by Debtor with respect to the
Premises.
2. TRANSACTION. (a) On the terms and subject to the conditions set
forth in the Loan Documents, FFCA shall make the Loans. The Loans will be
evidenced by the Notes and secured by the Deeds of Trust. The Guarantor will
provide further security for the Loans by executing and delivering a Guaranty
with respect to each Loan. Debtor shall repay the outstanding principal amount
of the Loans together with interest thereon in the manner and in accordance with
the terms and conditions of the Notes and the other Loan Documents. The
aggregate Loan Amount shall not
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<PAGE> 5
exceed $13,249,000.00, allocated among the Premises as set forth on the attached
Exhibit A. The Loans shall be advanced at the Closing in cash or its equivalent
subject to any prorations and adjustments required by this Agreement.
(b) Debtor shall have the option (the "Conversion Option") from
and after the Closing Date, subject to the conditions hereinafter set forth, to
convert the interest rate accruing under any Note from the Adjustable Rate (as
defined in the Note) to a fixed rate of interest (the "Base Interest Rate") by
providing FFCA written notice of Debtor's election ("Debtor's Notice") to
exercise the Conversion Option not less than thirty (30) days prior to such
conversion becoming effective (the "Notice Period"). The conversion shall be
effective on the first calendar day of the first month which follows the month
in which the last day of the Notice Period occurs (the "Conversion Date").
Debtor shall have the right to exercise the Conversion Option upon satisfaction
of the following conditions:
(i) Debtor shall have provided FFCA with financial statements
(either audited financial statements or, if Debtor does not
have audited financial statements, certified financial
statements) and such other information concerning itself which
FFCA requires to assess Debtor's then financial condition,
and, FFCA's investment committee shall have approved such
financial condition in its sole discretion;
(ii) There shall be no event of default under this Agreement, the
Note, the Deed of Trust or any of the other Loan Documents or
any other document further securing the Note;
(iii) Debtor shall have delivered to FFCA an amendment and
restatement of the Note in a form acceptable to FFCA to
reflect Debtor's exercise of the Conversion Option;
(iv) Debtor shall have delivered to FFCA a confirmation of the
Deed of Trust in a form acceptable to FFCA;
(v) Debtor shall have caused Title Company to deliver to FFCA an
endorsement to the Title Policy, dated as of the Conversion
Date, insuring title to the Premises in FFCA, free and clear
of all defects and encumbrances except those approved in
writing by FFCA and its counsel, with all standard exceptions
deleted to the extent permitted by law and containing:
(a) full coverage against liens of
mechanics, materialmen, laborers and any other
parties who might claim statutory or common law liens
in the Loan Amount, as updated from time to time;
(b) no survey exceptions other than
those previously approved by FFCA and FFCA's counsel
in writing;
(c) such other endorsements or
agreements which provide
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equivalent protection in the event that the foregoing
described endorsements are not available, as FFCA and
its counsel may reasonably request; and
(d) such other endorsements as FFCA
deems appropriate or necessary.
Debtor agrees to deliver or cause to be delivered such affidavits,
indemnities, notices and/or other agreements as Title Company may
require in order to provide the title insurance coverage required
pursuant to this and all other agreements between FFCA and Title
Company with respect to the subject matter of this Agreement. Title
Company shall not agree to delete from the Title Policy any exceptions
without FFCA's prior consent.
The Base Interest Rate shall be determined as of the Conversion Date
and shall be a rate of interest established by FFCA's investment committee in
its sole discretion based on the then financial condition of Debtor and such
investment committee's customary underwriting criteria then in effect.
From and after the Conversion Date, fixed equal monthly payments, based
on the amortization of the outstanding principal amount of the Note as of the
Conversion Date (including any accrued interest at the Adjustable Rate) over the
period from and after the Conversion Date until the Maturity Date (as such term
is defined in the Note) at the Base Interest Rate shall be due and payable
commencing on the first day of the calendar month following the month in which
the Conversion Date occurs and continuing on the first day of each month
thereafter until the Maturity Date, at which time the outstanding principal
balance of the Note and unpaid interest accrued at the Base Interest Rate shall
be due and payable. From and after the Conversion Date, Debtor shall have the
right to pre-pay the Note, as amended and restated, in accordance with the terms
thereof; provided, however, the foregoing is not intended to restrict Debtor's
rights of prepayment pursuant to the terms and conditions of any Note at any
time prior to the Conversion Date.
Debtor shall be responsible for the payment of all reasonable costs and
expenses incurred by Debtor and FFCA as a result of Debtor's exercise of the
Conversion Option, including, without limitation, attorneys' fees and expenses,
title insurance endorsements and charges, survey costs and the cost of
assessments and inspections of the Premises, as applicable.
3. UNDERWRITING, SITE ASSESSMENT, VALUATION, PROCESSING AND
COMMITMENT FEE. Debtor paid FFCA a portion of the Fee in the amount of
$66,245.00 pursuant to the Commitment, and such portion was deemed nonrefundable
and fully earned when received. The remainder of the Fee shall be paid at the
Closing and shall be deemed nonrefundable and fully earned upon the Closing. The
Fee constitutes FFCA's underwriting, site assessment, valuation, processing and
commitment fee. If the Closing does not occur for any reason other than a breach
or default by FFCA or the failure of FFCA to satisfy all conditions precedent
imposed upon it prior to the consummation of the transactions described in the
Commitment, FFCA shall retain the Fee (without affecting or limiting FFCA's
remedies set forth in this Agreement or in the Commitment).
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4. CLOSING. (a) The Loan shall be closed (the "Closing") within 30
days following the satisfaction of all of the terms and conditions contained in
this Agreement, but in no event shall the date of the Closing be extended beyond
December 31, 1996 (the "Closing Date"), unless such extension shall be approved
by FFCA in its sole discretion.
(b) FFCA has ordered a title insurance commitment for each Premises
from Fidelity National Title Insurance Company ("Title Company"). Prior to the
Closing Date, the parties hereto shall deposit with Title Company all documents
and moneys necessary to comply with their obligations under this Agreement.
Title Company shall not cause the transaction to close unless and until it has
received written instructions from FFCA to do so. All costs of such transaction
shall be borne by Debtor, including, without limitation, the cost of title
insurance premiums and endorsements, the attorneys' fees and expenses of Debtor,
the attorneys' fees and expenses of FFCA, the Phase I environmental reports to
be delivered pursuant to 9.E of this Agreement, FFCA's in-house inspection costs
and fees, the cost of the surveys, stamp taxes, transfer fees, escrow and
recording fees and site inspection fees for the Premises. All real and personal
property and other applicable taxes and assessments and other charges relating
to the Premises which are due and payable on or prior to the Closing Date as
well as taxes and assessments due and payable subsequent to the Closing Date but
which Title Company requires to be paid at Closing as a condition to the
issuance of the title insurance policies described in Section 9.C, shall be paid
by Debtor at or prior to the Closing, and all other taxes and assessments shall
be paid by Debtor. The closing documents shall be dated as of the Closing Date.
Debtor and FFCA hereby employ Title Company to act as escrow agent in
connection with this transaction. Debtor and FFCA will deliver to Title Company
all documents, pay to Title Company all sums and do or cause to be done all
other things necessary or required by this Agreement, in the reasonable judgment
of Title Company, to enable Title Company to comply herewith and to enable any
title insurance policies provided for herein to be issued. Title Company is
authorized to pay, from any funds held by it for FFCA's or Debtor's respective
credit all amounts necessary to procure the delivery of such documents and to
pay, on behalf of FFCA and Debtor, all charges and obligations payable by them,
respectively. Debtor will pay all charges payable by it to Title Company. Title
Company is authorized, in the event any conflicting demand is made upon it
concerning these instructions or the escrow, at its election, to hold any
documents and/or funds deposited hereunder until an action shall be brought in a
court of competent jurisdiction to determine the rights of Debtor and FFCA or to
interplead such documents and/or funds in an action brought in any such court.
Deposit by Title Company of such documents and funds, after deducting therefrom
its charges and its expenses and attorneys' fees incurred in connection with any
such court action, shall relieve Title Company of all further liability and
responsibility for such documents and funds. Title Company's receipt of this
Agreement and opening of an escrow pursuant to this Agreement shall be deemed to
constitute conclusive evidence of Title Company's agreement to be bound by the
terms and conditions of this Agreement pertaining to Title Company. Disbursement
of any funds shall be made by, certified check or wire transfer, as directed by
FFCA and Debtor. Title Company shall be under no obligation to disburse any
funds represented by check or draft, and no check or draft shall be payment to
Title Company in compliance with any of the requirements hereof, until it is
advised by the bank in which such
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check or draft is deposited that such check or draft has been honored. Title
Company is authorized to act upon any statement furnished by the holder or
payee, or a collection agent for the holder or payee, of any lien on or charge
or assessment in connection with the Premises, concerning the amount of such
charge or assessment or the amount secured by such lien, without liability or
responsibility for the accuracy of such statement. The employment of Title
Company as escrow agent shall not affect any rights of subrogation under the
terms of any title insurance policy issued pursuant to the provisions thereof.
5. REPRESENTATIONS AND WARRANTIES OF FFCA. The representations and
warranties of FFCA contained in this Section are being made to induce Debtor to
enter into this Agreement and consummate the transactions contemplated herein,
and Debtor has relied, and will continue to rely, upon such representations and
warranties from and after the execution of this Agreement and the Closing. FFCA
represents and warrants to Debtor as follows:
A. Organization of FFCA. FFCA has been duly formed,
is validly existing and has taken all necessary action to authorize the
execution, delivery and performance by FFCA of this Agreement.
B. Authority of FFCA. The person who has executed this
Agreement on behalf of FFCA is duly authorized so to do.
C. Enforceability. Upon execution by FFCA, this
Agreement shall constitute the legal, valid and binding obligation of
FFCA, enforceable against FFCA in accordance with its terms.
All representations and warranties of FFCA made in this Agreement shall
be and will remain true and complete as of the Closing Date as if made and
restated in full as of such date, and shall survive the Closing.
6. REPRESENTATIONS AND WARRANTIES OF DEBTOR. The representations
and warranties of Debtor contained in this Section are being made to induce FFCA
to enter into this Agreement and consummate the transactions contemplated
herein, and FFCA has relied, and will continue to rely, upon such
representations and warranties from and after the execution of this Agreement
and the Closing. Debtor represents and warrants to FFCA as follows:
A. Information and Financial Statements. Debtor has
delivered to FFCA financial statements (either audited financial
statements or, if Debtor does not have audited financial statements,
certified financial statements) and certain other information
concerning themselves and Guarantor, which financial statements and
other information are true, correct and complete in all material
respects; and no material adverse change has occurred with respect to
any such financial statements and other information provided to FFCA
since the date such financial statements and other information were
prepared or delivered to FFCA. Debtor understands that FFCA is relying
upon such financial statements and information. All such financial
statements were prepared in accordance with generally
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accepted accounting principles consistently applied and accurately
reflect as of the date of such financial statements the financial
condition of each individual or entity to which they pertain.
B. Organization and Authority of Debtor. (1) CBI and
Casa are duly organized, validly existing and in good standing under
the laws of Delaware and Texas, respectively, and qualified as foreign
corporations to do business in any jurisdiction where such
qualification is required, except where the failure to be qualified
will not have a material adverse effect on Debtor or the Premises. All
necessary corporate, partnership or limited liability company action
has been taken to authorize the execution, delivery and performance of
this Agreement and of the other documents, instruments and agreements
provided for herein.
(2) The persons who have executed this Agreement
on behalf of CBI and Casa are duly authorized so to do.
C. Enforceability of Documents. Upon execution and
delivery by CBI and Casa or Guarantor, respectively, this Agreement and
the other Loan Documents shall constitute the legal, valid and binding
obligations of CBI, Casa and Guarantor, respectively, enforceable
against the applicable parties in accordance with their respective
terms.
D. Litigation. There are no suits, actions,
proceedings or investigations pending or threatened against or
involving CBI, Casa, Guarantor or the Premises before any court,
arbitrator, or administrative or governmental body which could
reasonably result in any material adverse change in the contemplated
business, condition, worth or operations of CBI, Casa, Guarantor or the
Premises.
E. Absence of Breaches or Defaults. CBI, Casa and
Guarantor are not, and the authorization, execution, delivery and
performance of this Agreement and the Loan Documents will not result,
in any breach or default under any other material document, instrument
or agreement to which CBI, Casa or Guarantor is a party or by which
CBI, Casa, Guarantor, the Premises or any of the property of CBI, Casa
or Guarantor is subject or bound. The authorization, execution,
delivery and performance of this Agreement and the other Loan Documents
will not violate any applicable law, statute, regulation, rule,
ordinance, code, rule or order.
F. Utilities. At the Closing Date, the Premises will
be served by ample public utilities to permit full utilization of the
Premises for their intended purpose and all utility connection fees and
use charges which are then due and payable will have been paid in full.
G. Intended Use and Zoning; Compliance With Laws. Debtor
intends to use
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the Premises solely for the operation of Taco Bueno and/or, upon prior
written notice to FFCA, any other nationally or regionally recognized
chain concept restaurants, and related ingress, egress and parking, and
for no other purposes. Debtor is the owner of the trademark and the
tradename for the Taco Bueno restaurant concept. Such intended use does
not violate any zoning or other governmental requirement applicable to
the Premises. Debtor has not received notice from any applicable
governmental authority that the Premises do not comply nor does Debtor
have any reason to believe that Premises do not comply in all material
respects with all applicable statutes, regulations, rules, ordinances,
codes, licenses, permits, orders and approvals of any governmental
agencies, departments, commissions, bureaus, boards or
instrumentalities of the United States, the states in which the
Premises are located and all political subdivisions thereof, including,
without limitation, all health, building, fire, safety and other codes,
ordinances and requirements, all applicable standards of the National
Board of Fire Underwriters and the Americans With Disabilities Act of
1990, except for violations or noncompliance which would not have a
material adverse effect on Debtor or any of the Premises.
H. Area Development; Wetlands. No condemnation or
eminent domain proceedings affecting the Premises have been commenced
or, to the best of Debtor's knowledge, are contemplated. To the best of
Debtor's knowledge, the areas where the Premises are located have not
been declared blighted by any governmental authority. The Premises and
the real property bordering the Premises are not designated by any
applicable federal, state and/or local governmental authority as
wetlands.
I. Licenses and Permits; Access. Prior to the Closing
Date, Debtor shall have all required licenses and permits, both
governmental and private, to use and operate the Premises in the
intended manner, except for such licenses and permits which the failure
to have would not have material adverse effect on the Debtor or any of
the Premises. There are adequate rights of access to public roads and
ways available to the Premises to permit full utilization of the
Premises for their intended purposes and all such public roads and ways
have been completed and dedicated to public use.
J. Condition of Premises. As of the Closing Date, the
Premises, including the equipment located thereon, will be of good
workmanship and materials, fully equipped and operational, in good
condition and repair and free from structural defects.
K. Environmental. Debtor is fully familiar with the
present use of the Premises, and, after due inquiry, Debtor has become
generally familiar with the prior uses of the Premises. To the best of
Debtor's knowledge, without independent investigation other than a
review of the Environmental Reports, and except as described in the
Environmental Reports, no Hazardous Materials have been used, handled,
manufactured, generated, produced, stored, treated, processed,
transferred or disposed of at or on the Premises, except in compliance
with all applicable Environmental Laws, and no Release or Threatened
Release has occurred at or on the Premises except in substantial
compliance with all applicable Environmental Laws. To the best of
Debtor's knowledge, without
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independent investigation other than a review of the Environmental
Reports, and except as described in the Environmental Reports, the
activities, operations and business undertaken on, at or about the
Premises, including, but not limited to, any past or ongoing
alterations or improvements at the Premises, are and have been at all
times, in compliance in all material respects with all Environmental
Laws. No further action is required to remedy any Environmental
Condition or violation of, or to be in full compliance in all material
respects with, any Environmental Laws, and no lien has been imposed on
the Premises in any federal, state or local governmental or
quasi-governmental entity in connection with any Environmental
Condition, the violation or threatened violation of any Environmental
Laws or the presence of any Hazardous Materials on or off the Premises.
There is no pending or threatened litigation or proceeding
before any court, administrative agency or governmental body in which
any person or entity alleges the violation or threatened violation of
any Environmental Laws or the presence, Release, Threatened Release or
placement on or at the Premises of any Hazardous Materials, or of any
facts which would give rise to any such action, nor has Debtor (a)
received any notice (and Debtor has no actual or constructive
knowledge) that any governmental or quasi-governmental authority or any
employee or agent thereof has determined, threatens to determine or
requires an investigation to determine that there has been a violation
of any Environmental Laws at, on or in connection with the Premises or
that there exists a Release, Threatened Release or placement of any
Hazardous Materials on or at the Premises, or the use, handling,
manufacturing, generation, production, storage, treatment, processing,
transportation or disposal of any Hazardous Materials at or on the
Premises except in substantial compliance with all applicable
Environmental Laws; (b) received any notice under the citizen suit
provision of any Environmental Law in connection with the Premises or
any facilities, operations or activities conducted thereon, or any
business conducted in connection therewith; or (c) received any request
for inspection, request for information, notice, demand, administrative
inquiry or any formal or informal complaint or claim with respect to or
in connection with the violation or threatened violation of any
Environmental Laws or existence of Hazardous Materials relating to the
Premises or any facilities, operations or activities conducted thereon
or any business conducted in connection therewith.
L. Title to Personal Property; First Priority Lien. Upon
Closing, title to the Personal Property (as defined in the Deeds of
Trust) will be vested in Casa, free and clear of all liens,
encumbrances, charges and security interests of any nature whatsoever,
except the Permitted Exceptions. Upon Closing, FFCA shall have a first
priority lien on the Personal Property pursuant to the Deeds of Trust
and the UCC-1 Financing Statements.
M. No Other Agreements and Options. Neither CBI, Casa,
Guarantor nor the Premises are subject to any commitment, obligation,
or agreement, including, without limitation, any right of first
refusal, option to purchase or lease granted to a third party, which
could or would prevent or hinder FFCA in making the Loans or prevent or
hinder Debtor or Guarantor, as the case may be from fulfilling their
respective obligations under
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this Agreement or the other Loan Documents.
N. No Mechanics' Liens. There are no outstanding
accounts payable, mechanics' liens, or rights to claim a mechanics'
lien in favor of any materialman, laborer, or any other person or
entity in connection with labor or materials furnished to or performed
on any portion of the Premises; no work has been performed or is in
progress nor have materials been supplied to the Premises or agreements
entered into for work to be performed or materials to be supplied to
the Premises prior to the date hereof, which will not have been fully
paid for on or before the Closing Date or which might provide the basis
for the filing of such liens against the Premises or any portion
thereof.
O. No Reliance. Debtor acknowledges that FFCA did not
prepare or assist in the preparation of any of the projected financial
information used by Debtor in analyzing the economic viability and
feasibility of the transaction contemplated by this Agreement.
Furthermore, CBI and Casa acknowledge that they have not relied upon,
nor may they hereafter rely upon, the analysis undertaken by FFCA in
determining the amount of the Loans, and such analysis will not be made
available to CBI or Casa.
All representations and warranties of Casa and CBI made in this
Agreement shall be and will remain true and complete as of and subsequent to the
Closing Date as if made and restated in full as of such time and shall survive
the Closing.
7. COVENANTS. Debtor covenants to FFCA from and after the Closing
Date as follows:
A. Inspections. Debtor shall, at all reasonable times,
(i) provide FFCA and FFCA's officers, employees, agents, advisors,
attorneys, accountants, architects, and engineers with reasonable
access to the Premises, all drawings, plans, and specifications for the
Premises in possession of Debtor, all engineering reports relating to
the Premises in the possession of Debtor, the files and correspondence
relating to the Premises, and the financial books and records,
including lists of delinquencies, relating to the ownership, operation,
and maintenance of the Premises, and (ii) allow such persons to make
such inspections, tests, copies, and verifications as FFCA considers
necessary.
B. Fixed Charge Coverage Ratio. Until such time as all
of Debtor's obligations under the Notes and the other Loan Documents
are paid, satisfied and discharged in full, Debtor shall maintain an
aggregate Fixed Charge Coverage Ratio at all of the Premises of at
least 1.50:1. For purposes of this Section, the term "Fixed Charge
Coverage Ratio" shall mean with respect to the twelve month period of
time immediately preceding the date of determination, the ratio
calculated for such period of time of (a) the sum of Net Income,
Depreciation and Amortization, Interest Expense and Operating Lease
Expense, less a corporate overhead allocation in an amount equal to 5%
of Gross Sales, to (b) the sum of the FFCA Payments and the Equipment
Payment Amount.
For purposes of this Section, the following terms shall be defined as
set forth below:
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"Capital Lease" shall mean any lease of any property
(whether real, personal or mixed) by Debtor with respect to
one or more of the Premises which lease would, in conformity
with generally accepted accounting principles consistently
applied, be required to be accounted for as a capital lease on
the balance sheet of Debtor. The term "Capital Lease" shall
not include any operating lease.
"Debt" shall mean with respect to all of the Premises
and the period of determination (i) indebtedness for borrowed
money, (ii) obligations evidenced by bonds, indentures, notes
or similar instruments, (iii) obligations to pay the deferred
purchase price of property or services, (iv) obligations under
leases which should be, in accordance with generally accepted
accounting principles consistently applied, recorded as
Capital Leases, and (v) obligations under direct or indirect
guarantees in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to
assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (i)
through (iv) above.
"Depreciation and Amortization" shall mean with
respect to all of the Premises the depreciation and
amortization accruing during any period of determination with
respect to Debtor as determined in accordance with generally
accepted accounting principles consistently applied.
"Equipment Payment Amount" shall mean for any period
of determination the sum of all amounts payable during such
period of determination under all (i) leases for equipment
located at one or more of the Premises and (ii) all loans
secured by equipment located at one or more of the Premises
(other than the Loans).
"FFCA Payments" shall mean with respect to period of
determination, the sum of all amounts payable under the Notes.
"Gross Sales" shall mean the sales or other income
arising from all business conducted at all of the Premises by
Debtor during the period of determination, less sales tax and
any amounts received from not-for-profit sales of all non-food
items approved for use in connection with promotional
campaigns.
"Interest Expense" shall mean for any period of
determination, the sum of all interest accrued or which should
be accrued in respect of all Debt of Debtor allocable to one
or more of the Premises and all business operations thereon
during such period (including interest attributable to Capital
Leases), as determined in accordance with generally accepted
accounting principles consistently applied.
"Net Income" shall mean with respect to the period of
determination, the net income or net loss of Debtor allocable
to all of the Premises. In determining the amount of Net
Income, (i) adjustments shall be made for nonrecurring gains
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and losses allocable to the period of determination, (ii)
deductions shall be made for, among other things, Depreciation
and Amortization, Interest Expense and Operating Lease Expense
allocable to the period of determination, and (iii) no
deductions shall be made for (x) income taxes or charges
equivalent to income taxes allocable to the period of
determination, as determined in accordance with generally
accepted accounting principles consistently applied, or (y)
corporate overhead expense allocable to the period of
determination.
"Operating Lease Expense" shall mean the expenses
incurred by Debtor under any operating leases with respect to
one or more of the Premises and the business operations
thereon during the period of determination, as determined in
accordance with generally accepted accounting principles
consistently applied.
C. Net Worth. At all times while the Obligations (as
defined in Section 7.D of this Agreement) of Debtor and Guarantor to
FFCA pursuant to the Loan Documents are outstanding, Guarantor and
Debtor, taken as a whole with their respective consolidated
subsidiaries, shall maintain a consolidated net worth of at least
$50,000,000, as determined in accordance with GAAP (as defined in
Section 7.D of this Agreement).
D. Consolidated Funded Debt to Consolidated Total
Capitalization Ratio. At all times while the Obligations of Debtor to
FFCA pursuant to the Loan Documents are outstanding, Debtor shall cause
Guarantor to maintain a ratio of Consolidated Funded Debt to
Consolidated Total Capitalization of not more than 1.0 to 1.0. For
purposes of this Section and Section 7.C of this Agreement, the
following terms shall be defined as set forth below:
"Consolidated" refers to the consolidation of accounts in
accordance with GAAP.
"Consolidated Funded Debt" means, as of any time
determination, all Funded Debt of Guarantor and its Consolidated
subsidiaries at such time determined on a Consolidated basis.
"Consolidated Tangible Net Worth" means the excess of (i) the
total assets of Guarantor and its Consolidated subsidiaries determined
on a Consolidated basis in accordance with GAAP MINUS good will and any
other items that are classified as intangible in accordance with GAAP,
over (ii) all liabilities of Guarantor and its Consolidated
subsidiaries determined on a Consolidated basis in accordance with
GAAP.
"Consolidated Total Capitalization" means, at any time of
determination, the sum of (i) Consolidated Funded Debt, and (ii)
Consolidated Tangible Net Worth, in each case, as of such time.
"Currency Hedging Agreements" means currency swap agreements,
currency future or option contracts and other similar agreements.
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"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all Obligations of
such Person for the deferred purchase price of property or services
(other than trade payables not overdue by more than 60 days incurred in
the ordinary course of such Person's business), (c) all Obligations of
such Person evidenced by notes, bonds, debentures or other similar
instruments, (d) all Obligations of such Person created or arising
under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
Obligations of such Person as lessee under leases that have been or
should be, in accordance with GAAP, recorded as capital leases, (f) all
Obligations, contingent or otherwise, of such Person under acceptance,
letter of credit or similar facilities, (g) all Obligations of such
Person to purchase, redeem, retire, defease or otherwise make any
payment in respect of any capital stock or other ownership or profit
interest or any warrants, rights or options to acquire such capital
stock, (h) all Obligations of such Person in respect of Hedge
Agreements, (i) all Debt of others referred to in clauses (a) through
(h) above guaranteed directly or indirectly in any manner by such
Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Debt or to advance or
supply funds for the payment or purchase of such Debt, (ii) to
purchase, sell or lease (as lessee or lessor) property, or to purchase
or sell services, primarily for the purpose of enabling the debtor to
make payment of such Debt or to assure the holder of such Debt against
loss, (iii) to supply funds to or in any other manner invest in the
debtor (including any agreement to pay for property or services
irrespective of whether such property is received or such services are
rendered) or (iv) otherwise to assure a creditor against loss, and (j)
all Debt referred to in clauses (a) through (h) above secured by (or
for which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any lien on property (including, without
limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of
such Debt (it being understood that for purposes for this clause (j)
the principal amount of such Debt attributed to such Person shall be
the fair market value of such property).
"Funded Debt" of any Person means Debt in respect of all
Advances (as defined in that certain Credit Agreement, dated as of
August 1, 1996, by and among Guarantor, the financial institutions
named therein as lenders, and NationsBank Texas, N.A., as agent), in
the case of Guarantor, and all other Debt of such Person that by its
terms matures more than one year after the date of determination or
matures within one year from such date but is renewable or extendible,
at the option of such Person, to a date more than one year after such
date or arises under a revolving credit or similar agreement that
obligates the lender or lenders to extend credit during a period of
more than one year after such date, including, without limitation, all
amounts of Funded Debt of such Person required to be paid or prepaid
within one year after the date of determination.
"GAAP" means generally accepted accounting principles
consistently applied.
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"Hedge Agreements" means Interest Rate Contracts and Currency
Hedging Agreements.
"Insolvency Proceeding" means any dissolution, winding up,
liquidation, arrangement, reorganization, adjustment, protection,
relief or composition of any Person or its debts, whether voluntary or
involuntary, in any bankruptcy, insolvency, arrangement,
reorganization, receivership, relief or similar case or proceeding
under any Federal or State bankruptcy or similar law or upon an
assignment for the benefit of creditors or any other marshalling of the
assets and liabilities of any Person or otherwise.
"Interest Rate Contracts" means interest rate swap, cap or
collar agreements, interest rate future or option contracts and other
similar agreements.
"Obligations" means, with respect to any Person, any
obligations of such Person of any kind, including, without limitation,
any liability of such Person on any claim, whether or not the right of
any creditor to payment in respect of such claim is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured,
disputed, undisputed, legal, equitable, secured or unsecured, and
whether or not such claim is discharged, stayed or otherwise affected
by any Insolvency Proceeding. Without limiting the generality of the
foregoing, the Obligations of Debtor under the Loan Documents include
(a) the obligation to pay principal, interest, charges, expenses, fees,
attorneys' fees and disbursements, indemnities, taxes, insurance
premiums, impounds, late charges, default interest, damages and all
other amounts payable by Debtor under any Loan Document and (b) the
obligation to reimburse any amount in respect of any of the foregoing
that FFCA, in its sole discretion, may elect to pay or advance on
behalf of Debtor.
"Person" means an individual, partnership, limited liability
company, limited liability partnership, corporation (including a
business trust), joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any
political subdivision or agency thereof.
E. Mechanics' Liens. Debtor shall be responsible for any
and all claims for mechanics' liens and accounts payable that have
arisen or may subsequently arise due to agreements entered into for
and/or any work performed on, or materials supplied to the Premises
prior to the Closing Date; and Debtor shall and does hereby agree to
defend, indemnify and forever hold FFCA and FFCA's designees harmless
from and against any and all such mechanics' lien claims, accounts
payable or other commitments relating to the Premises.
F. Taco Bueno Intellectual Property. In the event that
Casa transfers any intellectual property rights with respect to the
Taco Bueno restaurant concept, including, without limitation, franchise
rights, licenses, trademarks or tradenames, Debtor shall provide FFCA
with a collateral assignment of such intellectual property rights
associated
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with the Premises, in form and substance reasonably requested by FFCA.
8. TRANSACTION CHARACTERIZATION. This Agreement is a contract to
extend a financial accommodation (as such term is used in the Code) for the
benefit of Debtor. It is the intent of the parties hereto that the business
relationship created by this Agreement, the Notes, the Deeds of Trust and the
other Loan Documents is solely that of creditor and debtor and has been entered
into by both parties in reliance upon the economic and legal bargains contained
in the Loan Documents. None of the agreements contained in the Loan Documents is
intended, nor shall the same be deemed or construed, to create a partnership
between Debtor and FFCA, to make them joint venturers, to make Debtor an agent,
legal representative, partner, subsidiary or employee of FFCA, nor to make FFCA
in any way responsible for the debts, obligations or losses of Debtor.
9. CONDITIONS OF CLOSING. The obligation of FFCA to consummate
the transaction contemplated by this Agreement is subject to the fulfillment or
waiver of each of the following conditions:
A. Title. Title to the Premises shall be vested in Casa,
free of all liens, encumbrances, restrictions, encroachments and
easements, except as otherwise specifically provided herein or agreed
to in writing by FFCA ("Permitted Exceptions"), and the liens created
by the Deeds of Trust and the UCC-1 Financing Statements. Upon Closing,
FFCA will obtain a valid and perfected first priority lien upon and
security interest in the Premises.
B. Condition of Premises. FFCA shall have inspected and
approved the Premises, the Premises and the equipment located thereon
shall be in good condition and repair and of good workmanship and
materials, and the Premises shall be fully equipped and operational,
clean, orderly, sanitary, safe, well-lit, landscaped, decorated,
attractive and with a suitable layout, physical plant, traffic pattern
and location, all as determined by FFCA in its sole discretion.
C. Evidence of Title. FFCA shall have received for each
of the Premises a preliminary title report and irrevocable commitment
to insure title by means of a mortgagee's, ALTA extended coverage
policy of title insurance (or its equivalent, in the event such form is
not issued in the jurisdiction where the Premises is located) issued by
Title Company showing good and indefeasible title in the Premises in
Debtor, committing to insure FFCA's first priority lien upon and
security interest in the Premises subject only to Permitted Exceptions
and containing such endorsements as FFCA may require (to the extent
available under applicable law).
D. Survey. FFCA shall have received a current ALTA
survey of each of the Premises, the form and substance of which shall
be satisfactory to FFCA in its sole discretion. Debtor shall have
provided FFCA with evidence satisfactory to FFCA that the location of
the Premises is not within the 100-year flood plain or identified as a
special flood hazard area as defined by the Federal Insurance
Administration.
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E. Environmental. FFCA shall have received a Phase I
environmental report (and a Phase II environmental report, if
necessary, as determined by FFCA in its sole discretion) for each of
the Premises, the form, substance and conclusions of which shall be
satisfactory to FFCA in its sole discretion.
F. Compliance With Representations, Warranties and
Covenants. All obligations of Debtor under this Agreement shall have
been fully performed and complied with, and no event shall have
occurred or condition shall exist which would, upon the Closing Date,
or, upon the giving of notice and/or passage of time, constitute a
breach or default hereunder or under the Loan Documents, or any other
agreement between or among FFCA or Debtor pertaining to the subject
matter hereof, and no event shall have occurred or condition shall
exist or information shall have been disclosed by Debtor or discovered
by FFCA which has had or would have a material adverse effect on the
Premises, Debtor, Guarantor or FFCA's willingness to consummate the
transaction contemplated by this Agreement, as determined by FFCA in
its sole and absolute discretion.
G. Proof of Insurance. Debtor shall have delivered to
FFCA copies of insurance policies, showing that all insurance required
by the Loan Documents and providing coverage and limits satisfactory to
FFCA are in full force and effect.
H. Opinion of Counsel to Debtor and Guarantor. Debtor
and Guarantor shall have caused Counsel to prepare and deliver an
opinion substantially in the form attached as Exhibit E.
I. Guaranty. Debtor shall cause to be delivered to FFCA
a Guaranty executed by the Guarantor for each of the Premises.
J. Availability of Funds. FFCA presently has sufficient
funds to discharge its obligations under this Agreement. In the event
that the transaction contemplated by this Agreement does not close on
or before the Closing Date, FFCA does not warrant that it will
thereafter have sufficient funds to consummate the transaction
contemplated by this Agreement.
K. Title Matters Agreement. Debtor shall have executed
and delivered to FFCA the Title Matters Agreement.
L. Closing Documents. At or prior to the Closing Date,
FFCA, Guarantor and/or Debtor, as may be appropriate, shall execute and
deliver or cause to be executed and delivered to Title Company or FFCA,
as may be appropriate, all documents required to be delivered by this
Agreement, and such other documents, payments, instruments and
certificates, as FFCA may reasonably require in form acceptable to
FFCA.
10. DEFAULT AND REMEDIES. A. Each of the following shall be
deemed an event of default by Debtor (an "Event of Default"):
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(1) If any representation or warranty of Casa or CBI is
false in any material respect when made or becomes false in any
material respect prior to the Closing Date, or, in the event any such
representation or warranty is continuing after the Closing, if any such
representation or warranty becomes false in any material respect at any
time, or if Casa, CBI or Guarantor renders any false statement of a
material fact or account;
(2) If any principal, interest or other monetary sum due
under the Notes, the Deeds of Trust or any other Loan Document is not
paid within five days after the date when due;
(3) If Casa, CBI or Guarantor fails to observe or perform
any of the other covenants, conditions, or obligations of this
Agreement or any other Loan Document within the applicable grace or
cure period;
(4) If Casa, CBI or Guarantor becomes insolvent within
the meaning of the Code, files or notifies FFCA that it intends to file
a petition under the Code, initiates a proceeding under any similar law
or statute relating to bankruptcy, insolvency, reorganization, winding
up or adjustment of debts (collectively, an "Action"), becomes the
subject of either a petition under the Code or an Action, or is not
generally paying its debts as the same become due;
(5) If there is an event of default under the Casa Loan
Agreement or a material breach or default under any other agreement or
instrument, including, without limitation, promissory notes and
guaranties, between, among or by (a) Casa, CBI, Guarantor, or any
Affiliate of CBI, Casa or Guarantor and, or for the benefit of, (b)
FFCA or any Affiliate of FFCA; or
(6) If any event occurs or condition exists which does or
would upon the Closing Date constitute a material breach or default
under any of the Loan Documents.
B. If any Event of Default occurs pursuant to subsection
A(2) above, FFCA shall not be entitled to exercise its remedies set
forth in subsection E below unless and until FFCA shall have given
Debtor notice thereof and a period of five days from the delivery of
such notice shall have elapsed without such Event of Default being
cured.
C. FFCA shall not be entitled to exercise its remedies
set forth in subsection E below due to a default under subsection A(3)
as a result of a breach of the Fixed Charge Coverage Ratio set forth in
Section 7.B, unless and until FFCA shall have given Debtor notice
thereof and Debtor shall have failed within a period of 30 days from
the delivery of such notice to either (i) pay to FFCA the FCCR Amount
(without premium or penalty) with respect to each of those Premises for
which the Fixed Charge Coverage Ratio (with the definitions in Section
7.B modified as applicable to provide for a calculation of the Fixed
Charge Coverage Ratio for each of the Premises) is below 1.50:1 (each,
a "Subject
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Premises"), or (ii) prepay the Note or Notes corresponding to the
Subject Premises in whole but not in part (without premium or penalty).
For purposes of this subsection, "FCCR Amount" means that sum of money
which, when subtracted from the outstanding principal amount of each
Note corresponding to a Subject Premises, and assuming the resulting
principal balance is reamortized over the remaining term of such Note,
will result in an adjusted Fixed Charge Coverage Ratio for such Subject
Premises of at least 1.50:1 based on the prior year's operations.
Promptly after Debtor's payment of the FCCR Amount, Debtor and FFCA
agree to execute an amendment to each such Note in form and substance
reasonably acceptable to FFCA reducing the principal amount payable to
FFCA under such Note and reamortizing the principal amount of such Note
over the then remaining term of such Note.
D. If any event occurs pursuant to subsection A(3)
subsequent to the Closing and does not involve a breach of the Fixed
Charge Coverage Ratio and does not involve the payment of any monetary
sum, is not willful or intentional, does not place any rights or
property of FFCA in immediate jeopardy, and is within the reasonable
power of Debtor to promptly cure after receipt of notice thereof, all
as determined by FFCA in its reasonable discretion, then such event
shall not constitute an Event of Default hereunder, unless otherwise
expressly provided herein, unless and until FFCA shall have given
Debtor notice thereof and a period of 30 days shall have elapsed,
during which period Debtor may correct or cure such event, upon failure
of which an Event of Default shall be deemed to have occurred hereunder
without further notice or demand of any kind. If such nonmonetary event
cannot reasonably be cured within such 30-day period, as determined by
FFCA in its reasonable discretion, and Debtor is diligently pursuing a
cure of such event, then Debtor shall have a reasonable period to cure
such event, which shall not exceed 90 days after receiving notice of
the event from FFCA. If Debtor shall fail to correct or cure such event
within such 90-day period, an Event of Default shall be deemed to have
occurred hereunder without further notice or demand of any kind.
E. Upon and during the continuance of an Event of
Default, FFCA may declare all obligations of Debtor under the Notes,
this Agreement and any other Loan Document to be due and payable, and
the same shall thereupon become due and payable without any
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or any other type of notice except as otherwise provided
herein, and Debtor hereby waives notice of intent to accelerate the
obligations secured by the Deeds of Trust. Thereafter, FFCA may
exercise, at its option, concurrently, successively or in any
combination, all remedies available at law or in equity, including
without limitation any one or more of the remedies available under the
Notes, the Deeds of Trust or any other Loan Document.
Upon and during the continuance of an Event of Default, FFCA
shall be entitled to enforce payment and performance of any obligations
under the Loan Documents and to exercise all rights and powers under
the Notes, this Agreement or under any other Loan Documents or other
agreement reasonably required by FFCA any applicable laws now or
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hereafter in force, notwithstanding that some or all of such
obligations may now or hereafter be otherwise secured, whether by
mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither
the acceptance of this Agreement nor its enforcement shall prejudice or
in any manner affect FFCA's right to realize upon or enforce any other
security now or hereafter held by FFCA, it being agreed that FFCA shall
be entitled to enforce this Agreement and any other security now or
hereafter held by FFCA in such order and manner as it may in its
absolute discretion determine. No remedy herein conferred upon or
reserved to FFCA is intended to be exclusive of any other remedy given
hereunder or now or hereafter existing at law or in equity or by
statute. Every power or remedy given by any of the Loan Documents to
FFCA, or to which FFCA may be otherwise entitled, may be exercised,
concurrently or independently, from time to time and as often as may be
deemed expedient by FFCA.
11. ASSIGNMENTS. A. FFCA may assign in whole or in part its rights
under this Agreement, including, without limitation, any Transfer, Participation
and/or Securitization (all as defined in Section 13.P). In the event of any
unconditional assignment of FFCA's entire right and interest hereunder, FFCA
shall automatically be relieved, from and after the date of such assignment, of
liability for the performance of any obligation of FFCA contained herein.
B. Debtor shall not, without the prior written consent of FFCA
sell, assign, transfer, mortgage, convey, encumber or grant any easements or
other rights or interests of any kind in the Premises, any of Debtor's rights
under this Agreement or any interest in Debtor, whether voluntarily,
involuntarily or by operation of law or otherwise, including, without
limitation, by merger, consolidation, dissolution or otherwise, except as
expressly permitted by the Deeds of Trust.
12. INDEMNITY. Debtor agrees to indemnify, hold harmless and defend
FFCA and its directors, officers, shareholders, employees, successors, assigns,
agents, as applicable (collectively, the "Indemnified Parties"), from and
against any and all losses, costs, claims, liabilities, damages and expenses,
including, without limitation, reasonable attorneys' fees, and/or a breach of
any of the representations, warranties, covenants, agreements or obligations of
Debtor set forth in this Agreement. Without limiting the generality of the
foregoing, such indemnity shall include, without limitation, any engineering,
governmental inspection and reasonable attorneys' fees and expenses that the
Indemnified Parties may incur by reason of any representation set forth in this
Agreement being false in any material respect, or by reason of any investigation
or claim of any governmental agency in connection therewith.
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<PAGE> 22
13. MISCELLANEOUS PROVISIONS.
A. Notices. All notices, consents, approvals or other
instruments required or permitted to be given by either party pursuant
to this Agreement shall be in writing and given by (i) hand delivery,
(ii) facsimile, (iii) express overnight delivery service or (iv)
certified or registered mail, return receipt requested, and shall be
deemed to have been delivered upon (a) receipt, if hand delivered, (b)
transmission, if delivered by facsimile, (c) the next business day, if
delivered by express overnight delivery service, or (d) the third
business day following the day of deposit of such notice with the
United States Postal Service, if sent by certified or registered mail,
return receipt requested. Notices shall be provided to the parties and
addresses (or facsimile numbers, as applicable) specified below:
If to CBI: Joseph N. Stein
Chief Financial Officer
CBI Restaurants, Inc.
1200 North Harbor Boulevard
Anaheim, California 92803-4349
Telephone: (714) 490-3631
Telecopy: (714) 490-3695
with a copy to: Robert A. Wilson, Esq.
Vice President and General Counsel
CBI Restaurants, Inc.
1200 North Harbor Boulevard
Anaheim, California 92803-4349
Telephone: (714) 490-3661
Telecopy: (714) 520-4485
If to Casa: Joseph N. Stein
Chief Financial Officer
Casa Bonita Incorporated
1200 North Harbor Boulevard
Anaheim, California 92803-4349
Telephone: (714) 490-3631
Telecopy: (714) 490-3695
with a copy to: Robert A. Wilson, Esq.
Vice President and General Counsel
Casa Bonita Incorporated
1200 North Harbor Boulevard
Anaheim, California 92803-4349
Telephone: 490-3661
Telecopy: (714) 520-4485
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<PAGE> 23
If to FFCA: Dennis L. Ruben, Esq.
Senior Vice President and General Counsel
FFCA Mortgage Corporation
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
B. Broker's Commission. FFCA and Debtor represent and
warrant to each other that they have dealt with no real estate or
mortgage broker, agent, finder or other intermediary in connection with
the transactions contemplated by this Agreement. FFCA and Debtor shall
indemnify and hold each other harmless from and against any costs,
claims or expenses, including attorneys' fees, arising out of the
breach of their respective representations and warranties contained
within this Section.
C. Waiver and Amendment. No provisions of this Agreement
shall be deemed waived or amended except by a written instrument
unambiguously setting forth the matter waived or amended and signed by
the party against which enforcement of such waiver or amendment is
sought. Waiver of any matter shall not be deemed a waiver of the same
or any other matter on any future occasion.
D. Captions. Captions are used throughout this Agreement
for convenience of reference only and shall not be considered in any
manner in the construction or interpretation hereof.
E. FFCA's Liability. Notwithstanding anything to the
contrary provided in this Agreement, it is specifically understood and
agreed, such agreement being a primary consideration for the execution
of this Agreement by FFCA, that (i) there shall be absolutely no
personal liability on the part of any shareholder, director, officer or
employee of FFCA, with respect to any of the terms, covenants and
conditions of this Agreement or the other Loan Documents, (ii) Debtor
waives all claims, demands and causes of action against FFCA's
officers, directors, employees and agents in the event of any breach by
FFCA of any of the terms, covenants and conditions of this Agreement or
the other Loan Documents to be performed by FFCA and (iii) Debtor shall
look solely to the assets of FFCA for the satisfaction of each and
every remedy of Debtor in the event of any breach by FFCA of any of the
terms, covenants and conditions of this Agreement or the other Loan
Documents to be performed by FFCA, such exculpation of liability to be
absolute and without any exception whatsoever.
F. Severability. The provisions of this Agreement shall
be deemed severable. If any part of this Agreement shall be held
unenforceable, the remainder shall remain in full force and effect, and
such unenforceable provision shall be reformed by such court so as to
give maximum legal effect to the intention of the parties as expressed
therein.
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<PAGE> 24
G. Construction Generally. This is an agreement between
parties who are experienced in sophisticated and complex matters
similar to the transaction contemplated by this Agreement and is
entered into by both parties in reliance upon the economic and legal
bargains contained herein and shall be interpreted and construed in a
fair and impartial manner without regard to such factors as the party
which prepared the instrument, the relative bargaining powers of the
parties or the domicile of any party. Debtor and FFCA were each
represented by legal counsel competent in advising them of their
obligations and liabilities hereunder.
H. Other Documents. Each of the parties agrees to sign
such other and further documents as may be appropriate to carry out the
intentions expressed in this Agreement.
I. Attorneys' Fees. In the event of any judicial or
other adversarial proceeding between the parties concerning this
Agreement, the prevailing party shall be entitled to recover its
attorneys' fees and other costs in addition to any other relief to
which it may be entitled. References in this Agreement to the
attorneys' fees and/or costs of FFCA shall mean both the fees and costs
of independent outside counsel retained by FFCA with respect to this
transaction.
J. Entire Agreement. This Agreement and the other Loan
Documents, together with any other certificates, instruments or
agreements to be delivered in connection therewith, constitute the
entire agreement between the parties with respect to the subject matter
hereof, and there are no other representations, warranties or
agreements, written or oral, between Debtor and FFCA with respect to
the subject matter of this Agreement. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
K. Forum Selection; Jurisdiction; Venue; Choice of Law.
Debtor acknowledges that this Agreement was substantially negotiated in
the State of Arizona, the Agreement was signed by FFCA in the State of
Arizona and delivered by Debtor in the State of Arizona, all payments
under the Notes will be delivered in the State of Arizona and there are
substantial contacts between the parties and the transactions
contemplated herein and the State of Arizona. For purposes of any
action or proceeding arising out of this Agreement, the parties hereto
hereby expressly submit to the jurisdiction of all federal and state
courts located in the State of Arizona and Debtor consents that it may
be served with any process or paper by registered mail or by personal
service within or without the State of Arizona in accordance with
applicable law. Furthermore, Debtor waives and agrees not to assert in
any such action, suit or proceeding that it is not personally subject
to the jurisdiction of such courts, that the action, suit or proceeding
is brought in an inconvenient forum or that venue of the action, suit
or proceeding is improper. It is the intent of the parties hereto that
all
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<PAGE> 25
provisions of this Agreement shall be governed by and construed under
the laws of the State of Arizona and applicable laws of the United
States. To the extent that a court of competent jurisdiction finds
Arizona law inapplicable with respect to any provisions hereof, then,
as to those provisions only, the laws of the states where the Premises
are located shall be deemed to apply. Nothing in this Section shall
limit or restrict the right of FFCA to commence any proceeding in the
federal or state courts located in the states in which the Premises are
located to the extent FFCA deems such proceeding necessary or advisable
to exercise remedies available under this Agreement or the other Loan
Documents.
L. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original.
M. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of Debtor and FFCA and their respective
successors and permitted assigns, including, without limitation, any
United States trustee, any debtor in possession or any trustee
appointed from a private panel.
N. Survival. Except for the conditions of Closing set
forth in Sections 2 and 9, which shall be satisfied or waived as of the
Closing Date, all representations, warranties, agreements, obligations
and indemnities of Debtor and FFCA set forth in this Agreement shall
survive the Closing.
O. Waiver of Jury Trial and Punitive, Consequential,
Special and Indirect Damages. DEBTOR AND FFCA HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A
TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY
ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE
PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY
MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY
DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE
PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN
NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE,
DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT
IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT
DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY
ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST
FFCA OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR
RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK
PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN
NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR
BARGAIN.
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<PAGE> 26
P. Transfers, Participations and Securitization. A
material inducement to FFCA's willingness to complete the transactions
contemplated by the Loan Documents is Debtor's agreement that FFCA may,
at any time, sell, transfer or assign the Notes, Deeds of Trust and the
other Loan Documents, and any or all servicing rights with respect
thereto (each, a "Transfer"), or grant participations therein (each, a
"Participation"), or complete asset securitization vehicles selected by
FFCA prior to Debtor's exercise of the Conversion Option and, if
applicable, subsequent to the Debtor's exercise of the Conversion
Option, in accordance with all requirements which may be imposed by the
investors or the rating agencies involved in such securitized financing
transaction, as selected by FFCA, or which may be imposed by applicable
securities, tax or other laws or regulations, including, without
limitation, laws relating to FFCA's status as a real estate investment
trust (each, a "Securitization").
Debtor agrees to cooperate in good faith with FFCA in
connection with any Transfer, Participation and/or Securitization,
including, without limitation, (i) providing such documents, financial
and other data, other information and materials, and the results of
third-party inspections and analysis of the Premises (the
"Disclosures") which would typically be required with respect to Debtor
and Guarantor by a purchaser, transferee, assignee, servicer,
participant, investor or rating agency involved with respect to such
Transfer, Participation and/or the Securitization, as applicable;
provided, however, Debtor shall not be required to make Disclosures of
any confidential information or any information which has not
previously been made public unless required by applicable federal or
state securities laws; and (ii) amending the terms of the transactions
evidenced by the Loan Documents to the extent necessary so as to
satisfy the requirements of purchasers, transferees, assignees,
servicers, participants, investors or selected rating agencies involved
in any such Transfers, Participations or Securitization, so long as
such amendments would not have a material adverse effect upon Debtor or
the transactions contemplated hereunder.
Debtor consents to FFCA providing the Disclosures, as well as
any other information which FFCA may now have or hereafter acquire with
respect to the Premises or the financial condition of Debtor and
Guarantor, to each purchaser, transferee, assignee, servicer,
participant, investor or rating agency involved with respect to each
Transfer, Participation and/or Securitization, as applicable. FFCA and
Debtor shall each pay their own attorneys fees and other out-of-pocket
expenses incurred in connection with the performance of their
respective obligations under this Section.
Notwithstanding the foregoing, the parties acknowledge and
agree that FFCA shall have the right to divide the Notes (and the
corresponding Loan Documents) into no more than three groups or pools
in connection with one or more Securitizations. If and to the extent
that the Notes are divided into more than one such group or pool,
Debtor shall maintain an aggregate Fixed Charge Coverage Ratio of at
least 1.50:1 for all of the Premises corresponding to the Notes in each
such group or pool in addition to maintaining an aggregate Fixed Charge
Coverage Ratio for all of the Premises as required by Section
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<PAGE> 27
7.B.
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<PAGE> 28
IN WITNESS WHEREOF, Debtor and FFCA have entered into this Agreement as
of the date first above written.
FFCA:
FFCA MORTGAGE CORPORATION,
a Delaware corporation
By /s/ Dennis L. Ruben
-----------------------------------------------
Printed Name
-------------------------------------
Its Senior Vice President - General Counsel
----------------------------------------------
DEBTOR:
CBI RESTAURANTS, INC., a Delaware corporation
By /s/ Joseph N. Stein
-----------------------------------------------
Printed Name
-------------------------------------
Its Chief Financial Officer
----------------------------------------------
CASA BONITA TEXAS, L.P., a Texas
limited partnership
By CASA BONITA INCORPORATED, a Texas corporation,
----------------------------------------------
Its General Partner
----------------------------------------------
By /s/ Joseph N. Stein
-----------------------------------------------
Printed Name
-------------------------------------
Its Chief Financial Officer
----------------------------------------------
<PAGE> 1
EXHIBIT 10.49
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of December 18, 1996,
by and among FFCA MORTGAGE CORPORATION, a Delaware corporation ("FFCA"), whose
address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, CBI
RESTAURANTS, INC., a Delaware corporation ("CBI"), whose address is 1200 North
Harbor Boulevard, Anaheim, California 92803-4349 and CASA BONITA INCORPORATED, a
Texas corporation ("Casa"), whose address is 1200 North Harbor Boulevard,
Anaheim, California 92803-4349.
PRELIMINARY STATEMENT:
Unless otherwise expressly provided herein, all defined terms used in
this Agreement shall have the meanings set forth in Section 1. Debtor has
requested from FFCA, and applied for, the Loans to provide long-term financing
for the Premises, and for no other purpose whatsoever. Each Loan will be
evidenced by a Note and secured by a first priority security interest in the
corresponding Premises pursuant to a Deed of Trust. FFCA has committed to make
the Loans pursuant to the terms and conditions of the Commitment, this Agreement
and the other Loan Documents.
AGREEMENT:
In consideration of the mutual covenants and provisions of this
Agreement, the parties agree as follows:
1. DEFINITIONS. The following terms shall have the following
meanings for all purposes of this Agreement:
"Affiliate" means any Entity controlling, controlled by or under common
control with any other Entity.
"Casa Loan Agreement" means that certain Loan Agreement dated as of the
date hereof among FFCA, CBI and Casa Bonita Texas, L.P., a Texas limited
partnership
"Closing" shall have the meaning set forth in Section 4.
"Closing Date" means the date specified as the closing date in
Section 4.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et
seq., as amended.
"Counsel" means legal counsel to Debtor and Guarantor, licensed in the
state(s) in which (i) the Premises are located, (ii) Debtor and/or Guarantor are
incorporated or formed and (iii) Debtor and/or Guarantor maintain principal
places of business, as selected by Debtor and Guarantor, as the case may be, and
approved by FFCA.
<PAGE> 2
"Debtor" means, collectively, Casa and CBI.
"Deed of Trust" means the deed of trust or mortgage, assignment of
rents and leases, security agreement and fixture filing to be executed by Casa
for the benefit of FFCA substantially in the form of Exhibit C attached to this
Agreement. A Deed of Trust will be executed for each Premises.
"De Minimis Amounts" means with respect to any given level of hazardous
substance or solid waste, that level or quantity of hazardous substance or solid
waste in any form or combination of forms which does not constitute a violation
of any Environmental Laws and is customarily employed in, or associated with,
similar businesses located in the applicable county in which the Premises is
located.
"Entity" shall mean any corporation, trust, limited liability company,
unincorporated organization, governmental authority or any other form of entity.
"Environmental Condition" means any condition with respect to soil,
surface waters, groundwaters, land, stream sediments, surface or subsurface
strata, ambient air and any environmental medium comprising or surrounding the
Premises, whether or not yet discovered, which could reasonably be expected to
result in any damage, loss, cost, expense, claim, demand, order or liability to
or against Debtor or FFCA by any third party (including, without limitation, any
government entity) arising under any Environmental Laws, including, without
limitation, any condition resulting from the operation of Debtor's business
and/or the operation of the business of any other property owner or operator in
the vicinity of the Premises and/or any activity or operation formerly conducted
by any person or entity on or off the Premises.
"Environmental Indemnity Agreement" means the environmental indemnity
agreement to be executed by Debtor for the benefit of FFCA substantially in the
form of Exhibit F attached to this Agreement. An Environmental Indemnity
Agreement will be executed for each Premises.
"Environmental Laws" means any present and future federal, state and
local laws, statutes, ordinances, rules, regulations and the like, as well as
common law relating to Hazardous Materials, relating to liability for or costs
of Remediation or prevention of Releases or relating to liability for or costs
of other actual or threatened danger from any Environmental Condition.
"Environmental Laws" includes, but is not limited to, the following statutes, as
amended, any successor thereto, and any regulations promulgated pursuant
thereto, and any state or local statutes, ordinances, rules, regulations and the
like addressing similar issues: the Comprehensive Environmental Response,
Compensation and Liability Act; the Emergency Planning and Community
Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource
Conservation and Recovery Act (including but not limited to Subtitle I relating
to underground storage tanks); the Solid Waste Disposal Act; the Clean Water
Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking
Water Act; the Occupational Safety and Health Act; the Federal Water Pollution
Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the
Endangered Species Act; the National
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<PAGE> 3
Environmental Policy Act; and the River and Harbors Appropriation Act.
"Environmental Laws" also includes, but is not limited to, any present and
future federal, state and local laws, statutes, ordinances, rules, regulations
and the like, as well as common law: conditioning transfer of property upon a
negative declaration or other approval of a governmental authority of the
environmental condition of the property and requiring notification or disclosure
of Releases or other environmental condition of the Premises to any governmental
authority or other person or entity, whether or not in connection with transfer
of title to or interest in property.
"Environmental Reports" means the environmental reports provided to
FFCA by Debtor with respect to each of the Premises pursuant to Section 9.E.
"Event of Default" has the meaning set forth in Section 10.
"Fee" means an underwriting, site assessment, valuation, processing and
commitment fee equal to $60,348.00.
"Guarantor" means CKE Restaurants, Inc., a Delaware corporation.
"Guaranty" means a guaranty of payment and performance substantially in
the form of Exhibit D attached to this Agreement to be executed by Guarantor for
the benefit of FFCA. A Guaranty shall be executed for each Premises.
"Hazardous Materials" means (a) any toxic substance or hazardous waste,
substance or related material, or any pollutant or contaminant; (b) radon gas,
asbestos in any form which is or could become friable, urea formaldehyde foam
insulation, transformers or other equipment which contains dielectric fluid
containing levels of polychlorinated biphenyls in excess of federal, state or
local safety guidelines, whichever are more stringent, or any petroleum product;
(c) any substance, gas, material or chemical which is or may be defined as or
included in the definition of "hazardous substances," "toxic substances,"
"hazardous materials," hazardous wastes" or words of similar import under any
Environmental Laws; and (d) any other chemical, material, gas or substance the
exposure to or release of which is or may be prohibited, limited or regulated by
any governmental or quasi-governmental entity or authority that asserts or may
assert jurisdiction over the Premises or the operations or activity at the
Premises, or any chemical, material, gas or substance that does or may pose a
hazard to the health and/or safety of the occupants of the Premises or the
owners and/or occupants of property adjacent to or surrounding the Premises.
"Loan" means the loan for each Premises described in Section 2 and in
the amount set forth in Exhibit A. Each Loan will be evidenced by a Note and
secured by a Deed of Trust.
"Loan Amount" means, with respect to each Premises, the amount set
forth in Section 2.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Deeds of Trust, the Environmental Indemnity Agreements, the UCC-1 Financing
Statements, the Guaranties, the Title Matters Agreement and all other documents
executed in connection therewith or contemplated
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<PAGE> 4
thereby.
"Note" means the promissory note substantially in the form of Exhibit B
attached to this Agreement to be executed by Debtor in favor of FFCA. A Note in
the corresponding Loan Amount will be executed for each Premises.
"Permitted Exceptions" means those exceptions to title approved in
writing by FFCA pursuant to Section 9 of this Agreement.
"Premises" means the parcels of real estate described in Exhibit A
attached hereto, all rights, privileges and appurtenances associated therewith,
and all buildings, fixtures and other improvements now or hereafter located
thereon (whether or not affixed to such real estate).
"Release" means any presence, release, deposit, discharge, emission,
leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying,
escaping, dumping, disposing or other movement of Hazardous Materials.
"Remediation" means any response, remedial, removal, or corrective
action, any activity to cleanup, detoxify, decontaminate, contain or otherwise
remediate any Hazardous Material, any actions to prevent, cure or mitigate any
Release, any action to comply with any Environmental Laws or with any permits
issued pursuant thereto, any inspection, investigation, study, monitoring,
assessment, audit, sampling and testing, laboratory or other analysis, or any
evaluation relating to any Hazardous Materials.
"Threatened Release" means a substantial likelihood of a Release which
requires action to prevent or mitigate damage to the soil, surface waters,
groundwaters, land, stream sediments, surface or subsurface strata, ambient air
or any other environmental medium comprising or surrounding the Premises which
may result from such Release.
"Title Company" means the title insurance company described in
Section 4.
"Title Matters Agreement" means that certain agreement dated as of the
date of this Agreement among Debtor, Guarantor and FFCA with respect to certain
title matters described therein.
"UCC-1 Financing Statements" means such UCC-1 Financing Statements as
FFCA shall require to be executed and delivered by Debtor with respect to the
Premises.
2. TRANSACTION. (a) On the terms and subject to the conditions set
forth in the Loan Documents, FFCA shall make the Loans. The Loans will be
evidenced by the Notes and secured by the Deeds of Trust. The Guarantor will
provide further security for the Loans by executing and delivering a Guaranty
with respect to each Loan. Debtor shall repay the outstanding principal amount
of the Loans together with interest thereon in the manner and in accordance with
the terms and conditions of the Notes and the other Loan Documents. The
aggregate Loan Amount shall not
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<PAGE> 5
exceed $6,751,000.00, allocated among the Premises as set forth on the attached
Exhibit A. The Loans shall be advanced at the Closing in cash or its equivalent
subject to any prorations and adjustments required by this Agreement.
(b) Debtor shall have the option (the "Conversion Option") from
and after the Closing Date, subject to the conditions hereinafter set forth, to
convert the interest rate accruing under any Note from the Adjustable Rate (as
defined in the Note) to a fixed rate of interest (the "Base Interest Rate") by
providing FFCA written notice of Debtor's election ("Debtor's Notice") to
exercise the Conversion Option not less than thirty (30) days prior to such
conversion becoming effective (the "Notice Period"). The conversion shall be
effective on the first calendar day of the first month which follows the month
in which the last day of the Notice Period occurs (the "Conversion Date").
Debtor shall have the right to exercise the Conversion Option upon satisfaction
of the following conditions:
(i) Debtor shall have provided FFCA with financial statements
(either audited financial statements or, if Debtor does not
have audited financial statements, certified financial
statements) and such other information concerning itself which
FFCA requires to assess Debtor's then financial condition,
and, FFCA's investment committee shall have approved such
financial condition in its sole discretion;
(ii) There shall be no event of default under this Agreement, the
Note, the Deed of Trust or any of the other Loan Documents or
any other document further securing the Note;
(iii) Debtor shall have delivered to FFCA an amendment and
restatement of the Note in a form acceptable to FFCA to
reflect Debtor's exercise of the Conversion Option;
(iv) Debtor shall have delivered to FFCA a confirmation of the
Deed of Trust in a form acceptable to FFCA;
(v) Debtor shall have caused Title Company to deliver to FFCA an
endorsement to the Title Policy, dated as of the Conversion
Date, insuring title to the Premises in FFCA, free and clear
of all defects and encumbrances except those approved in
writing by FFCA and its counsel, with all standard exceptions
deleted to the extent permitted by law and containing:
(a) full coverage against liens of
mechanics, materialmen, laborers and any other
parties who might claim statutory or common law liens
in the Loan Amount, as updated from time to time;
(b) no survey exceptions other than
those previously approved by FFCA and FFCA's counsel
in writing;
(c) such other endorsements or
agreements which provide
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<PAGE> 6
equivalent protection in the event that the foregoing
described endorsements are not available, as FFCA and
its counsel may reasonably request; and
(d) such other endorsements as FFCA
deems appropriate or necessary.
Debtor agrees to deliver or cause to be delivered such affidavits,
indemnities, notices and/or other agreements as Title Company may
require in order to provide the title insurance coverage required
pursuant to this and all other agreements between FFCA and Title
Company with respect to the subject matter of this Agreement. Title
Company shall not agree to delete from the Title Policy any exceptions
without FFCA's prior consent.
The Base Interest Rate shall be determined as of the Conversion Date
and shall be a rate of interest established by FFCA's investment committee in
its sole discretion based on the then financial condition of Debtor and such
investment committee's customary underwriting criteria then in effect.
From and after the Conversion Date, fixed equal monthly payments, based
on the amortization of the outstanding principal amount of the Note as of the
Conversion Date (including any accrued interest at the Adjustable Rate) over the
period from and after the Conversion Date until the Maturity Date (as such term
is defined in the Note) at the Base Interest Rate shall be due and payable
commencing on the first day of the calendar month following the month in which
the Conversion Date occurs and continuing on the first day of each month
thereafter until the Maturity Date, at which time the outstanding principal
balance of the Note and unpaid interest accrued at the Base Interest Rate shall
be due and payable. From and after the Conversion Date, Debtor shall have the
right to pre-pay the Note, as amended and restated, in accordance with the terms
thereof; provided, however, the foregoing is not intended to restrict Debtor's
rights of prepayment pursuant to the terms and conditions of any Note at any
time prior to the Conversion Date.
Debtor shall be responsible for the payment of all reasonable costs and
expenses incurred by Debtor and FFCA as a result of Debtor's exercise of the
Conversion Option, including, without limitation, attorneys' fees and expenses,
title insurance endorsements and charges, survey costs and the cost of
assessments and inspections of the Premises, as applicable.
3. UNDERWRITING, SITE ASSESSMENT, VALUATION, PROCESSING AND
COMMITMENT FEE. Debtor paid FFCA a portion of the Fee in the amount of
$33,755.00 pursuant to the Commitment, and such portion was deemed nonrefundable
and fully earned when received. The remainder of the Fee shall be paid at the
Closing and shall be deemed nonrefundable and fully earned upon the Closing. The
Fee constitutes FFCA's underwriting, site assessment, valuation, processing and
commitment fee. If the Closing does not occur for any reason other than a breach
or default by FFCA or the failure of FFCA to satisfy all conditions precedent
imposed upon it prior to the consummation of the transactions described in the
Commitment, FFCA shall retain the Fee (without affecting or limiting FFCA's
remedies set forth in this Agreement or in the Commitment).
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<PAGE> 7
4. CLOSING. (a) The Loan shall be closed (the "Closing") within 30
days following the satisfaction of all of the terms and conditions contained in
this Agreement, but in no event shall the date of the Closing be extended beyond
December 31, 1996 (the "Closing Date"), unless such extension shall be approved
by FFCA in its sole discretion.
(b) FFCA has ordered a title insurance commitment for each Premises
from Fidelity National Title Insurance Company ("Title Company"). Prior to the
Closing Date, the parties hereto shall deposit with Title Company all documents
and moneys necessary to comply with their obligations under this Agreement.
Title Company shall not cause the transaction to close unless and until it has
received written instructions from FFCA to do so. All costs of such transaction
shall be borne by Debtor, including, without limitation, the cost of title
insurance premiums and endorsements, the attorneys' fees and expenses of Debtor,
the attorneys' fees and expenses of FFCA, the Phase I environmental reports to
be delivered pursuant to 9.E of this Agreement, FFCA's in-house inspection costs
and fees, the cost of the surveys, stamp taxes, transfer fees, escrow and
recording fees and site inspection fees for the Premises. All real and personal
property and other applicable taxes and assessments and other charges relating
to the Premises which are due and payable on or prior to the Closing Date as
well as taxes and assessments due and payable subsequent to the Closing Date but
which Title Company requires to be paid at Closing as a condition to the
issuance of the title insurance policies described in Section 9.C, shall be paid
by Debtor at or prior to the Closing, and all other taxes and assessments shall
be paid by Debtor. The closing documents shall be dated as of the Closing Date.
Debtor and FFCA hereby employ Title Company to act as escrow agent in
connection with this transaction. Debtor and FFCA will deliver to Title Company
all documents, pay to Title Company all sums and do or cause to be done all
other things necessary or required by this Agreement, in the reasonable judgment
of Title Company, to enable Title Company to comply herewith and to enable any
title insurance policies provided for herein to be issued. Title Company is
authorized to pay, from any funds held by it for FFCA's or Debtor's respective
credit all amounts necessary to procure the delivery of such documents and to
pay, on behalf of FFCA and Debtor, all charges and obligations payable by them,
respectively. Debtor will pay all charges payable by it to Title Company. Title
Company is authorized, in the event any conflicting demand is made upon it
concerning these instructions or the escrow, at its election, to hold any
documents and/or funds deposited hereunder until an action shall be brought in a
court of competent jurisdiction to determine the rights of Debtor and FFCA or to
interplead such documents and/or funds in an action brought in any such court.
Deposit by Title Company of such documents and funds, after deducting therefrom
its charges and its expenses and attorneys' fees incurred in connection with any
such court action, shall relieve Title Company of all further liability and
responsibility for such documents and funds. Title Company's receipt of this
Agreement and opening of an escrow pursuant to this Agreement shall be deemed to
constitute conclusive evidence of Title Company's agreement to be bound by the
terms and conditions of this Agreement pertaining to Title Company. Disbursement
of any funds shall be made by, certified check or wire transfer, as directed by
FFCA and Debtor. Title Company shall be under no obligation to disburse any
funds represented by check or draft, and no check or draft shall be payment to
Title Company in compliance with any of the requirements hereof, until it is
advised by the bank in which such
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check or draft is deposited that such check or draft has been honored. Title
Company is authorized to act upon any statement furnished by the holder or
payee, or a collection agent for the holder or payee, of any lien on or charge
or assessment in connection with the Premises, concerning the amount of such
charge or assessment or the amount secured by such lien, without liability or
responsibility for the accuracy of such statement. The employment of Title
Company as escrow agent shall not affect any rights of subrogation under the
terms of any title insurance policy issued pursuant to the provisions thereof.
5. REPRESENTATIONS AND WARRANTIES OF FFCA. The representations
and warranties of FFCA contained in this Section are being made to induce Debtor
to enter into this Agreement and consummate the transactions contemplated
herein, and Debtor has relied, and will continue to rely, upon such
representations and warranties from and after the execution of this Agreement
and the Closing. FFCA represents and warrants to Debtor as follows:
A. Organization of FFCA. FFCA has been duly formed, is
validly existing and has taken all necessary action to authorize the
execution, delivery and performance by FFCA of this Agreement.
B. Authority of FFCA. The person who has executed this
Agreement on behalf of FFCA is duly authorized so to do.
C. Enforceability. Upon execution by FFCA, this
Agreement shall constitute the legal, valid and binding obligation of
FFCA, enforceable against FFCA in accordance with its terms.
All representations and warranties of FFCA made in this Agreement shall
be and will remain true and complete as of the Closing Date as if made and
restated in full as of such date, and shall survive the Closing.
6. REPRESENTATIONS AND WARRANTIES OF DEBTOR. The representations
and warranties of Debtor contained in this Section are being made to induce FFCA
to enter into this Agreement and consummate the transactions contemplated
herein, and FFCA has relied, and will continue to rely, upon such
representations and warranties from and after the execution of this Agreement
and the Closing. Debtor represents and warrants to FFCA as follows:
A. Information and Financial Statements. Debtor has
delivered to FFCA financial statements (either audited financial
statements or, if Debtor does not have audited financial statements,
certified financial statements) and certain other information
concerning themselves and Guarantor, which financial statements and
other information are true, correct and complete in all material
respects; and no material adverse change has occurred with respect to
any such financial statements and other information provided to FFCA
since the date such financial statements and other information were
prepared or delivered to FFCA. Debtor understands that FFCA is relying
upon such financial statements and information. All such financial
statements were prepared in accordance with generally
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accepted accounting principles consistently applied and accurately
reflect as of the date of such financial statements the financial
condition of each individual or entity to which they pertain.
B. Organization and Authority of Debtor. (1) CBI and
Casa are duly organized, validly existing and in good standing under
the laws of Delaware and Texas, respectively, and qualified as foreign
corporations to do business in any jurisdiction where such
qualification is required, except where the failure to be qualified
will not have a material adverse effect on Debtor or the Premises. All
necessary corporate, partnership or limited liability company action
has been taken to authorize the execution, delivery and performance of
this Agreement and of the other documents, instruments and agreements
provided for herein.
(2) The persons who have executed this Agreement on
behalf of CBI and Casa are duly authorized so to do.
C. Enforceability of Documents. Upon execution and
delivery by CBI and Casa or Guarantor, respectively, this Agreement and
the other Loan Documents shall constitute the legal, valid and binding
obligations of CBI, Casa and Guarantor, respectively, enforceable
against the applicable parties in accordance with their respective
terms.
D. Litigation. There are no suits, actions,
proceedings or investigations pending or threatened against or
involving CBI, Casa, Guarantor or the Premises before any court,
arbitrator, or administrative or governmental body which could
reasonably result in any material adverse change in the contemplated
business, condition, worth or operations of CBI, Casa, Guarantor or the
Premises.
E. Absence of Breaches or Defaults. CBI, Casa and
Guarantor are not, and the authorization, execution, delivery and
performance of this Agreement and the Loan Documents will not result,
in any breach or default under any other material document, instrument
or agreement to which CBI, Casa or Guarantor is a party or by which
CBI, Casa, Guarantor, the Premises or any of the property of CBI, Casa
or Guarantor is subject or bound. The authorization, execution,
delivery and performance of this Agreement and the other Loan Documents
will not violate any applicable law, statute, regulation, rule,
ordinance, code, rule or order.
F. Utilities. At the Closing Date, the Premises will
be served by ample public utilities to permit full utilization of the
Premises for their intended purpose and all utility connection fees and
use charges which are then due and payable will have been paid in full.
G. Intended Use and Zoning; Compliance With Laws. Debtor
intends to use the Premises solely for the operation of Taco Bueno
and/or, upon prior written notice to FFCA, any other nationally or
regionally recognized chain concept restaurants, and related ingress,
egress and parking, and for no other purposes. Debtor is the owner of
the
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trademark and the tradename for the Taco Bueno restaurant concept. Such
intended use does not violate any zoning or other governmental
requirement applicable to the Premises. Debtor has not received notice
from any applicable governmental authority that the Premises do not
comply nor does Debtor have any reason to believe that Premises do not
comply in all material respects with all applicable statutes,
regulations, rules, ordinances, codes, licenses, permits, orders and
approvals of any governmental agencies, departments, commissions,
bureaus, boards or instrumentalities of the United States, the states
in which the Premises are located and all political subdivisions
thereof, including, without limitation, all health, building, fire,
safety and other codes, ordinances and requirements, all applicable
standards of the National Board of Fire Underwriters and the Americans
With Disabilities Act of 1990, except for violations or noncompliance
which would not have a material adverse effect on Debtor or any of the
Premises.
H. Area Development; Wetlands. No condemnation or
eminent domain proceedings affecting the Premises have been commenced
or, to the best of Debtor's knowledge, are contemplated. To the best of
Debtor's knowledge, the areas where the Premises are located have not
been declared blighted by any governmental authority. The Premises and
the real property bordering the Premises are not designated by any
applicable federal, state and/or local governmental authority as
wetlands.
I. Licenses and Permits; Access. Prior to the Closing
Date, Debtor shall have all required licenses and permits, both
governmental and private, to use and operate the Premises in the
intended manner, except for such licenses and permits which the failure
to have would not have material adverse effect on the Debtor or any of
the Premises. There are adequate rights of access to public roads and
ways available to the Premises to permit full utilization of the
Premises for their intended purposes and all such public roads and ways
have been completed and dedicated to public use.
J. Condition of Premises. As of the Closing Date, the
Premises, including the equipment located thereon, will be of good
workmanship and materials, fully equipped and operational, in good
condition and repair and free from structural defects.
K. Environmental. Debtor is fully familiar with the
present use of the Premises, and, after due inquiry, Debtor has become
generally familiar with the prior uses of the Premises. To the best of
Debtor's knowledge, without independent investigation other than a
review of the Environmental Reports, and except as described in the
Environmental Reports, no Hazardous Materials have been used, handled,
manufactured, generated, produced, stored, treated, processed,
transferred or disposed of at or on the Premises, except in compliance
with all applicable Environmental Laws, and no Release or Threatened
Release has occurred at or on the Premises except in substantial
compliance with all applicable Environmental Laws. To the best of
Debtor's knowledge, without independent investigation other than a
review of the Environmental Reports, and except as described in the
Environmental Reports, the activities, operations and business
undertaken on, at or about the Premises, including, but not limited to,
any past or ongoing alterations
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or improvements at the Premises, are and have been at all times, in
compliance in all material respects with all Environmental Laws. No
further action is required to remedy any Environmental Condition or
violation of, or to be in full compliance in all material respects
with, any Environmental Laws, and no lien has been imposed on the
Premises in any federal, state or local governmental or
quasi-governmental entity in connection with any Environmental
Condition, the violation or threatened violation of any Environmental
Laws or the presence of any Hazardous Materials on or off the Premises.
There is no pending or threatened litigation or proceeding
before any court, administrative agency or governmental body in which
any person or entity alleges the violation or threatened violation of
any Environmental Laws or the presence, Release, Threatened Release or
placement on or at the Premises of any Hazardous Materials, or of any
facts which would give rise to any such action, nor has Debtor (a)
received any notice (and Debtor has no actual or constructive
knowledge) that any governmental or quasi-governmental authority or any
employee or agent thereof has determined, threatens to determine or
requires an investigation to determine that there has been a violation
of any Environmental Laws at, on or in connection with the Premises or
that there exists a Release, Threatened Release or placement of any
Hazardous Materials on or at the Premises, or the use, handling,
manufacturing, generation, production, storage, treatment, processing,
transportation or disposal of any Hazardous Materials at or on the
Premises except in substantial compliance with all applicable
Environmental Laws; (b) received any notice under the citizen suit
provision of any Environmental Law in connection with the Premises or
any facilities, operations or activities conducted thereon, or any
business conducted in connection therewith; or (c) received any request
for inspection, request for information, notice, demand, administrative
inquiry or any formal or informal complaint or claim with respect to or
in connection with the violation or threatened violation of any
Environmental Laws or existence of Hazardous Materials relating to the
Premises or any facilities, operations or activities conducted thereon
or any business conducted in connection therewith.
L. Title to Personal Property; First Priority Lien. Upon
Closing, title to the Personal Property (as defined in the Deeds of
Trust) will be vested in Casa, free and clear of all liens,
encumbrances, charges and security interests of any nature whatsoever,
except the Permitted Exceptions. Upon Closing, FFCA shall have a first
priority lien on the Personal Property pursuant to the Deeds of Trust
and the UCC-1 Financing Statements.
M. No Other Agreements and Options. Neither CBI, Casa,
Guarantor nor the Premises are subject to any commitment, obligation,
or agreement, including, without limitation, any right of first
refusal, option to purchase or lease granted to a third party, which
could or would prevent or hinder FFCA in making the Loans or prevent or
hinder Debtor or Guarantor, as the case may be from fulfilling their
respective obligations under this Agreement or the other Loan
Documents.
N. No Mechanics' Liens. There are no outstanding
accounts payable,
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mechanics' liens, or rights to claim a mechanics' lien in favor of any
materialman, laborer, or any other person or entity in connection with
labor or materials furnished to or performed on any portion of the
Premises; no work has been performed or is in progress nor have
materials been supplied to the Premises or agreements entered into for
work to be performed or materials to be supplied to the Premises prior
to the date hereof, which will not have been fully paid for on or
before the Closing Date or which might provide the basis for the filing
of such liens against the Premises or any portion thereof.
O. No Reliance. Debtor acknowledges that FFCA did not
prepare or assist in the preparation of any of the projected financial
information used by Debtor in analyzing the economic viability and
feasibility of the transaction contemplated by this Agreement.
Furthermore, CBI and Casa acknowledge that they have not relied upon,
nor may they hereafter rely upon, the analysis undertaken by FFCA in
determining the amount of the Loans, and such analysis will not be made
available to CBI or Casa.
All representations and warranties of Casa and CBI made in this
Agreement shall be and will remain true and complete as of and subsequent to the
Closing Date as if made and restated in full as of such time and shall survive
the Closing.
7. COVENANTS. Debtor covenants to FFCA from and after the
Closing Date as follows:
A. Inspections. Debtor shall, at all reasonable
times, (i) provide FFCA and FFCA's officers, employees, agents,
advisors, attorneys, accountants, architects, and engineers with
reasonable access to the Premises, all drawings, plans, and
specifications for the Premises in possession of Debtor, all
engineering reports relating to the Premises in the possession of
Debtor, the files and correspondence relating to the Premises, and the
financial books and records, including lists of delinquencies, relating
to the ownership, operation, and maintenance of the Premises, and (ii)
allow such persons to make such inspections, tests, copies, and
verifications as FFCA considers necessary.
B. Fixed Charge Coverage Ratio. Until such time as all
of Debtor's obligations under the Notes and the other Loan Documents
are paid, satisfied and discharged in full, Debtor shall maintain an
aggregate Fixed Charge Coverage Ratio at all of the Premises of at
least 1.50:1. For purposes of this Section, the term "Fixed Charge
Coverage Ratio" shall mean with respect to the twelve month period of
time immediately preceding the date of determination, the ratio
calculated for such period of time of (a) the sum of Net Income,
Depreciation and Amortization, Interest Expense and Operating Lease
Expense, less a corporate overhead allocation in an amount equal to 5%
of Gross Sales, to (b) the sum of the FFCA Payments and the Equipment
Payment Amount.
For purposes of this Section, the following terms shall be defined as
set forth below:
"Capital Lease" shall mean any lease of any property
(whether real, personal or mixed) by Debtor with respect to
one or more of the Premises which
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lease would, in conformity with generally accepted accounting
principles consistently applied, be required to be accounted
for as a capital lease on the balance sheet of Debtor. The
term "Capital Lease" shall not include any operating lease.
"Debt" shall mean with respect to all of the Premises
and the period of determination (i) indebtedness for borrowed
money, (ii) obligations evidenced by bonds, indentures, notes
or similar instruments, (iii) obligations to pay the deferred
purchase price of property or services, (iv) obligations under
leases which should be, in accordance with generally accepted
accounting principles consistently applied, recorded as
Capital Leases, and (v) obligations under direct or indirect
guarantees in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to
assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (i)
through (iv) above.
"Depreciation and Amortization" shall mean with
respect to all of the Premises the depreciation and
amortization accruing during any period of determination with
respect to Debtor as determined in accordance with generally
accepted accounting principles consistently applied.
"Equipment Payment Amount" shall mean for any period
of determination the sum of all amounts payable during such
period of determination under all (i) leases for equipment
located at one or more of the Premises and (ii) all loans
secured by equipment located at one or more of the Premises
(other than the Loans).
"FFCA Payments" shall mean with respect to period of
determination, the sum of all amounts payable under the Notes.
"Gross Sales" shall mean the sales or other income
arising from all business conducted at all of the Premises by
Debtor during the period of determination, less sales tax and
any amounts received from not-for-profit sales of all non-food
items approved for use in connection with promotional
campaigns.
"Interest Expense" shall mean for any period of
determination, the sum of all interest accrued or which should
be accrued in respect of all Debt of Debtor allocable to one
or more of the Premises and all business operations thereon
during such period (including interest attributable to Capital
Leases), as determined in accordance with generally accepted
accounting principles consistently applied.
"Net Income" shall mean with respect to the period of
determination, the net income or net loss of Debtor allocable
to all of the Premises. In determining the amount of Net
Income, (i) adjustments shall be made for nonrecurring gains
and losses allocable to the period of determination, (ii)
deductions shall be made for, among other things, Depreciation
and Amortization, Interest Expense and Operating Lease Expense
allocable to the period of determination, and (iii) no
deductions shall
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be made for (x) income taxes or charges equivalent to income
taxes allocable to the period of determination, as determined
in accordance with generally accepted accounting principles
consistently applied, or (y) corporate overhead expense
allocable to the period of determination.
"Operating Lease Expense" shall mean the expenses
incurred by Debtor under any operating leases with respect to
one or more of the Premises and the business operations
thereon during the period of determination, as determined in
accordance with generally accepted accounting principles
consistently applied.
C. Net Worth. At all times while the Obligations (as
defined in Section 7.D of this Agreement) of Debtor and Guarantor to
FFCA pursuant to the Loan Documents are outstanding, Guarantor and
Debtor, taken as a whole with their respective consolidated
subsidiaries, shall maintain a consolidated net worth of at least
$50,000,000, as determined in accordance with GAAP (as defined in
Section 7.D of this Agreement).
D. Consolidated Funded Debt to Consolidated Total
Capitalization Ratio. At all times while the Obligations of Debtor to
FFCA pursuant to the Loan Documents are outstanding, Debtor shall cause
Guarantor to maintain a ratio of Consolidated Funded Debt to
Consolidated Total Capitalization of not more than 1.0 to 1.0. For
purposes of this Section and Section 7.C of this Agreement, the
following terms shall be defined as set forth below:
"Consolidated" refers to the consolidation of accounts in
accordance with GAAP.
"Consolidated Funded Debt" means, as of any time
determination, all Funded Debt of Guarantor and its Consolidated
subsidiaries at such time determined on a Consolidated basis.
"Consolidated Tangible Net Worth" means the excess of (i) the
total assets of Guarantor and its Consolidated subsidiaries determined
on a Consolidated basis in accordance with GAAP MINUS good will and any
other items that are classified as intangible in accordance with GAAP,
over (ii) all liabilities of Guarantor and its Consolidated
subsidiaries determined on a Consolidated basis in accordance with
GAAP.
"Consolidated Total Capitalization" means, at any time of
determination, the sum of (i) Consolidated Funded Debt, and (ii)
Consolidated Tangible Net Worth, in each case, as of such time.
"Currency Hedging Agreements" means currency swap agreements,
currency future or option contracts and other similar agreements.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all Obligations of
such Person for the deferred purchase
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price of property or services (other than trade payables not overdue by
more than 60 days incurred in the ordinary course of such Person's
business), (c) all Obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all Obligations of
such Person created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender
under such agreement in the event of default are limited to
repossession or sale of such property), (e) all Obligations of such
Person as lessee under leases that have been or should be, in
accordance with GAAP, recorded as capital leases, (f) all Obligations,
contingent or otherwise, of such Person under acceptance, letter of
credit or similar facilities, (g) all Obligations of such Person to
purchase, redeem, retire, defease or otherwise make any payment in
respect of any capital stock or other ownership or profit interest or
any warrants, rights or options to acquire such capital stock, (h) all
Obligations of such Person in respect of Hedge Agreements, (i) all Debt
of others referred to in clauses (a) through (h) above guaranteed
directly or indirectly in any manner by such Person, or in effect
guaranteed directly or indirectly by such Person through an agreement
(i) to pay or purchase such Debt or to advance or supply funds for the
payment or purchase of such Debt, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily
for the purpose of enabling the debtor to make payment of such Debt or
to assure the holder of such Debt against loss, (iii) to supply funds
to or in any other manner invest in the debtor (including any agreement
to pay for property or services irrespective of whether such property
is received or such services are rendered) or (iv) otherwise to assure
a creditor against loss, and (j) all Debt referred to in clauses (a)
through (h) above secured by (or for which the holder of such Debt has
an existing right, contingent or otherwise, to be secured by) any lien
on property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Debt (it being understood that
for purposes for this clause (j) the principal amount of such Debt
attributed to such Person shall be the fair market value of such
property).
"Funded Debt" of any Person means Debt in respect of all
Advances (as defined in that certain Credit Agreement, dated as of
August 1, 1996, by and among Guarantor, the financial institutions
named therein as lenders, and NationsBank Texas, N.A., as agent), in
the case of Guarantor, and all other Debt of such Person that by its
terms matures more than one year after the date of determination or
matures within one year from such date but is renewable or extendible,
at the option of such Person, to a date more than one year after such
date or arises under a revolving credit or similar agreement that
obligates the lender or lenders to extend credit during a period of
more than one year after such date, including, without limitation, all
amounts of Funded Debt of such Person required to be paid or prepaid
within one year after the date of determination.
"GAAP" means generally accepted accounting principles
consistently applied.
"Hedge Agreements" means Interest Rate Contracts and Currency
Hedging Agreements.
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"Insolvency Proceeding" means any dissolution, winding up,
liquidation, arrangement, reorganization, adjustment, protection,
relief or composition of any Person or its debts, whether voluntary or
involuntary, in any bankruptcy, insolvency, arrangement,
reorganization, receivership, relief or similar case or proceeding
under any Federal or State bankruptcy or similar law or upon an
assignment for the benefit of creditors or any other marshalling of the
assets and liabilities of any Person or otherwise.
"Interest Rate Contracts" means interest rate swap, cap or
collar agreements, interest rate future or option contracts and other
similar agreements.
"Obligations" means, with respect to any Person, any
obligations of such Person of any kind, including, without limitation,
any liability of such Person on any claim, whether or not the right of
any creditor to payment in respect of such claim is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured,
disputed, undisputed, legal, equitable, secured or unsecured, and
whether or not such claim is discharged, stayed or otherwise affected
by any Insolvency Proceeding. Without limiting the generality of the
foregoing, the Obligations of Debtor under the Loan Documents include
(a) the obligation to pay principal, interest, charges, expenses, fees,
attorneys' fees and disbursements, indemnities, taxes, insurance
premiums, impounds, late charges, default interest, damages and all
other amounts payable by Debtor under any Loan Document and (b) the
obligation to reimburse any amount in respect of any of the foregoing
that FFCA, in its sole discretion, may elect to pay or advance on
behalf of Debtor.
"Person" means an individual, partnership, limited liability
company, limited liability partnership, corporation (including a
business trust), joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any
political subdivision or agency thereof.
E. Mechanics' Liens. Debtor shall be responsible for
any and all claims for mechanics' liens and accounts payable that have
arisen or may subsequently arise due to agreements entered into for
and/or any work performed on, or materials supplied to the Premises
prior to the Closing Date; and Debtor shall and does hereby agree to
defend, indemnify and forever hold FFCA and FFCA's designees harmless
from and against any and all such mechanics' lien claims, accounts
payable or other commitments relating to the Premises.
F. Taco Bueno Intellectual Property. In the event that
Casa transfers any intellectual property rights with respect to the
Taco Bueno restaurant concept, including, without limitation, franchise
rights, licenses, trademarks or tradenames, Debtor shall provide FFCA
with a collateral assignment of such intellectual property rights
associated with the Premises, in form and substance reasonably
requested by FFCA.
8. TRANSACTION CHARACTERIZATION. This Agreement is a contract to
extend a financial
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accommodation (as such term is used in the Code) for the benefit of Debtor. It
is the intent of the parties hereto that the business relationship created by
this Agreement, the Notes, the Deeds of Trust and the other Loan Documents is
solely that of creditor and debtor and has been entered into by both parties in
reliance upon the economic and legal bargains contained in the Loan Documents.
None of the agreements contained in the Loan Documents is intended, nor shall
the same be deemed or construed, to create a partnership between Debtor and
FFCA, to make them joint venturers, to make Debtor an agent, legal
representative, partner, subsidiary or employee of FFCA, nor to make FFCA in any
way responsible for the debts, obligations or losses of Debtor.
9. CONDITIONS OF CLOSING. The obligation of FFCA to consummate
the transaction contemplated by this Agreement is subject to the fulfillment or
waiver of each of the following conditions:
A. Title. Title to the Premises shall be vested in Casa,
free of all liens, encumbrances, restrictions, encroachments and
easements, except as otherwise specifically provided herein or agreed
to in writing by FFCA ("Permitted Exceptions"), and the liens created
by the Deeds of Trust and the UCC-1 Financing Statements. Upon Closing,
FFCA will obtain a valid and perfected first priority lien upon and
security interest in the Premises.
B. Condition of Premises. FFCA shall have inspected and
approved the Premises, the Premises and the equipment located thereon
shall be in good condition and repair and of good workmanship and
materials, and the Premises shall be fully equipped and operational,
clean, orderly, sanitary, safe, well-lit, landscaped, decorated,
attractive and with a suitable layout, physical plant, traffic pattern
and location, all as determined by FFCA in its sole discretion.
C. Evidence of Title. FFCA shall have received for each
of the Premises a preliminary title report and irrevocable commitment
to insure title by means of a mortgagee's, ALTA extended coverage
policy of title insurance (or its equivalent, in the event such form is
not issued in the jurisdiction where the Premises is located) issued by
Title Company showing good and indefeasible title in the Premises in
Debtor, committing to insure FFCA's first priority lien upon and
security interest in the Premises subject only to Permitted Exceptions
and containing such endorsements as FFCA may require (to the extent
available under applicable law).
D. Survey. FFCA shall have received a current ALTA
survey of each of the Premises, the form and substance of which shall
be satisfactory to FFCA in its sole discretion. Debtor shall have
provided FFCA with evidence satisfactory to FFCA that the location of
the Premises is not within the 100-year flood plain or identified as a
special flood hazard area as defined by the Federal Insurance
Administration.
E. Environmental. FFCA shall have received a Phase I
environmental report (and a Phase II environmental report, if
necessary, as determined by FFCA in its sole discretion) for each of
the Premises, the form, substance and conclusions of which shall be
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satisfactory to FFCA in its sole discretion.
F. Compliance With Representations, Warranties and
Covenants. All obligations of Debtor under this Agreement shall have
been fully performed and complied with, and no event shall have
occurred or condition shall exist which would, upon the Closing Date,
or, upon the giving of notice and/or passage of time, constitute a
breach or default hereunder or under the Loan Documents, or any other
agreement between or among FFCA or Debtor pertaining to the subject
matter hereof, and no event shall have occurred or condition shall
exist or information shall have been disclosed by Debtor or discovered
by FFCA which has had or would have a material adverse effect on the
Premises, Debtor, Guarantor or FFCA's willingness to consummate the
transaction contemplated by this Agreement, as determined by FFCA in
its sole and absolute discretion.
G. Proof of Insurance. Debtor shall have delivered to
FFCA copies of insurance policies, showing that all insurance required
by the Loan Documents and providing coverage and limits satisfactory to
FFCA are in full force and effect.
H. Opinion of Counsel to Debtor and Guarantor. Debtor
and Guarantor shall have caused Counsel to prepare and deliver an
opinion substantially in the form attached as Exhibit E.
I. Guaranty. Debtor shall cause to be delivered to FFCA
a Guaranty executed by the Guarantor for each of the Premises.
J. Availability of Funds. FFCA presently has sufficient
funds to discharge its obligations under this Agreement. In the event
that the transaction contemplated by this Agreement does not close on
or before the Closing Date, FFCA does not warrant that it will
thereafter have sufficient funds to consummate the transaction
contemplated by this Agreement.
K. Title Matters Agreement. Debtor shall have executed
and delivered to FFCA the Title Matters Agreement.
L. Closing Documents. At or prior to the Closing Date,
FFCA, Guarantor and/or Debtor, as may be appropriate, shall execute and
deliver or cause to be executed and delivered to Title Company or FFCA,
as may be appropriate, all documents required to be delivered by this
Agreement, and such other documents, payments, instruments and
certificates, as FFCA may reasonably require in form acceptable to
FFCA.
10. DEFAULT AND REMEDIES. A. Each of the following shall be
deemed an event of default by Debtor (an "Event of Default"):
(1) If any representation or warranty of Casa or CBI is
false in any material respect when made or becomes false in any
material respect prior to the Closing Date, or,
18
<PAGE> 19
in the event any such representation or warranty is continuing after
the Closing, if any such representation or warranty becomes false in
any material respect at any time, or if Casa, CBI or Guarantor renders
any false statement of a material fact or account;
(2) If any principal, interest or other monetary sum due
under the Notes, the Deeds of Trust or any other Loan Document is not
paid within five days after the date when due;
(3) If Casa, CBI or Guarantor fails to observe or perform
any of the other covenants, conditions, or obligations of this
Agreement or any other Loan Document within the applicable grace or
cure period;
(4) If Casa, CBI or Guarantor becomes insolvent within
the meaning of the Code, files or notifies FFCA that it intends to file
a petition under the Code, initiates a proceeding under any similar law
or statute relating to bankruptcy, insolvency, reorganization, winding
up or adjustment of debts (collectively, an "Action"), becomes the
subject of either a petition under the Code or an Action, or is not
generally paying its debts as the same become due;
(5) If there is an event of default under the Casa Loan
Agreement or a material breach or default under any other agreement or
instrument, including, without limitation, promissory notes and
guaranties, between, among or by (a) Casa, CBI, Guarantor, or any
Affiliate of CBI, Casa or Guarantor and, or for the benefit of, (b)
FFCA or any Affiliate of FFCA; or
(6) If any event occurs or condition exists which does or
would upon the Closing Date constitute a material breach or default
under any of the Loan Documents.
B. If any Event of Default occurs pursuant to subsection
A(2) above, FFCA shall not be entitled to exercise its remedies set
forth in subsection E below unless and until FFCA shall have given
Debtor notice thereof and a period of five days from the delivery of
such notice shall have elapsed without such Event of Default being
cured.
C. FFCA shall not be entitled to exercise its remedies
set forth in subsection E below due to a default under subsection A(3)
as a result of a breach of the Fixed Charge Coverage Ratio set forth in
Section 7.B, unless and until FFCA shall have given Debtor notice
thereof and Debtor shall have failed within a period of 30 days from
the delivery of such notice to either (i) pay to FFCA the FCCR Amount
(without premium or penalty) with respect to each of those Premises for
which the Fixed Charge Coverage Ratio (with the definitions in Section
7.B modified as applicable to provide for a calculation of the Fixed
Charge Coverage Ratio for each of the Premises) is below 1.50:1 (each,
a "Subject Premises"), or (ii) prepay the Note or Notes corresponding
to the Subject Premises in whole but not in part (without premium or
penalty). For purposes of this subsection, "FCCR Amount" means that sum
of money which, when subtracted from the outstanding principal
19
<PAGE> 20
amount of each Note corresponding to a Subject Premises, and assuming
the resulting principal balance is reamortized over the remaining term
of such Note, will result in an adjusted Fixed Charge Coverage Ratio
for such Subject Premises of at least 1.50:1 based on the prior year's
operations. Promptly after Debtor's payment of the FCCR Amount, Debtor
and FFCA agree to execute an amendment to each such Note in form and
substance reasonably acceptable to FFCA reducing the principal amount
payable to FFCA under such Note and reamortizing the principal amount
of such Note over the then remaining term of such Note.
D. If any event occurs pursuant to subsection A(3)
subsequent to the Closing and does not involve a breach of the Fixed
Charge Coverage Ratio and does not involve the payment of any monetary
sum, is not willful or intentional, does not place any rights or
property of FFCA in immediate jeopardy, and is within the reasonable
power of Debtor to promptly cure after receipt of notice thereof, all
as determined by FFCA in its reasonable discretion, then such event
shall not constitute an Event of Default hereunder, unless otherwise
expressly provided herein, unless and until FFCA shall have given
Debtor notice thereof and a period of 30 days shall have elapsed,
during which period Debtor may correct or cure such event, upon failure
of which an Event of Default shall be deemed to have occurred hereunder
without further notice or demand of any kind. If such nonmonetary event
cannot reasonably be cured within such 30-day period, as determined by
FFCA in its reasonable discretion, and Debtor is diligently pursuing a
cure of such event, then Debtor shall have a reasonable period to cure
such event, which shall not exceed 90 days after receiving notice of
the event from FFCA. If Debtor shall fail to correct or cure such event
within such 90-day period, an Event of Default shall be deemed to have
occurred hereunder without further notice or demand of any kind.
E. Upon and during the continuance of an Event of
Default, FFCA may declare all obligations of Debtor under the Notes,
this Agreement and any other Loan Document to be due and payable, and
the same shall thereupon become due and payable without any
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or any other type of notice except as otherwise provided
herein, and Debtor hereby waives notice of intent to accelerate the
obligations secured by the Deeds of Trust. Thereafter, FFCA may
exercise, at its option, concurrently, successively or in any
combination, all remedies available at law or in equity, including
without limitation any one or more of the remedies available under the
Notes, the Deeds of Trust or any other Loan Document.
Upon and during the continuance of an Event of Default, FFCA
shall be entitled to enforce payment and performance of any obligations
under the Loan Documents and to exercise all rights and powers under
the Notes, this Agreement or under any other Loan Documents or other
agreement reasonably required by FFCA any applicable laws now or
hereafter in force, notwithstanding that some or all of such
obligations may now or hereafter be otherwise secured, whether by
mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither
the acceptance of this Agreement nor its enforcement
20
<PAGE> 21
shall prejudice or in any manner affect FFCA's right to realize upon or
enforce any other security now or hereafter held by FFCA, it being
agreed that FFCA shall be entitled to enforce this Agreement and any
other security now or hereafter held by FFCA in such order and manner
as it may in its absolute discretion determine. No remedy herein
conferred upon or reserved to FFCA is intended to be exclusive of any
other remedy given hereunder or now or hereafter existing at law or in
equity or by statute. Every power or remedy given by any of the Loan
Documents to FFCA, or to which FFCA may be otherwise entitled, may be
exercised, concurrently or independently, from time to time and as
often as may be deemed expedient by FFCA.
11. ASSIGNMENTS. A. FFCA may assign in whole or in part its rights
under this Agreement, including, without limitation, any Transfer, Participation
and/or Securitization (all as defined in Section 13.P). In the event of any
unconditional assignment of FFCA's entire right and interest hereunder, FFCA
shall automatically be relieved, from and after the date of such assignment, of
liability for the performance of any obligation of FFCA contained herein.
B. Debtor shall not, without the prior written consent of FFCA
sell, assign, transfer, mortgage, convey, encumber or grant any easements or
other rights or interests of any kind in the Premises, any of Debtor's rights
under this Agreement or any interest in Debtor, whether voluntarily,
involuntarily or by operation of law or otherwise, including, without
limitation, by merger, consolidation, dissolution or otherwise, except as
expressly permitted by the Deeds of Trust.
12. INDEMNITY. Debtor agrees to indemnify, hold harmless and defend
FFCA and its directors, officers, shareholders, employees, successors, assigns,
agents, as applicable (collectively, the "Indemnified Parties"), from and
against any and all losses, costs, claims, liabilities, damages and expenses,
including, without limitation, reasonable attorneys' fees, and/or a breach of
any of the representations, warranties, covenants, agreements or obligations of
Debtor set forth in this Agreement. Without limiting the generality of the
foregoing, such indemnity shall include, without limitation, any engineering,
governmental inspection and reasonable attorneys' fees and expenses that the
Indemnified Parties may incur by reason of any representation set forth in this
Agreement being false in any material respect, or by reason of any investigation
or claim of any governmental agency in connection therewith.
13. MISCELLANEOUS PROVISIONS.
A. Notices. All notices, consents, approvals or other
instruments required or permitted to be given by either party pursuant
to this Agreement shall be in writing and given by (i) hand delivery,
(ii) facsimile, (iii) express overnight delivery service or (iv)
certified or registered mail, return receipt requested, and shall be
deemed to have been delivered upon (a) receipt, if hand delivered, (b)
transmission, if delivered by facsimile, (c) the next business day, if
delivered by express overnight delivery service, or (d) the third
business day following the day of deposit of such notice with the
United States Postal Service, if sent by certified or registered mail,
return receipt requested. Notices shall be
21
<PAGE> 22
provided to the parties and addresses (or facsimile numbers, as applicable)
specified below:
If to CBI: Joseph N. Stein
Chief Financial Officer
CBI Restaurants, Inc.
1200 North Harbor Boulevard
Anaheim, California 92803-4349
Telephone: (714) 490-3631
Telecopy: (714) 490-3695
with a copy to: Robert A. Wilson, Esq.
Vice President and General Counsel
CBI Restaurants, Inc.
1200 North Harbor Boulevard
Anaheim, California 92803-4349
Telephone: (714) 490-3661
Telecopy: (714) 520-4485
If to Casa: Joseph N. Stein
Chief Financial Officer
Casa Bonita Incorporated
1200 North Harbor Boulevard
Anaheim, California 92803-4349
Telephone: (714) 490-3631
Telecopy: (714) 490-3695
with a copy to: Robert A. Wilson, Esq.
Vice President and General Counsel
Casa Bonita Incorporated
1200 North Harbor Boulevard
Anaheim, California 92803-4349
Telephone: 490-3661
Telecopy: (714) 520-4485
If to FFCA: Dennis L. Ruben, Esq.
Senior Vice President and General Counsel
FFCA Mortgage Corporation
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
B. Broker's Commission. FFCA and Debtor represent and
warrant to each other that they have dealt with no real estate or
mortgage broker, agent, finder or other
22
<PAGE> 23
intermediary in connection with the transactions contemplated by this
Agreement. FFCA and Debtor shall indemnify and hold each other harmless
from and against any costs, claims or expenses, including attorneys'
fees, arising out of the breach of their respective representations and
warranties contained within this Section.
C. Waiver and Amendment. No provisions of this Agreement
shall be deemed waived or amended except by a written instrument
unambiguously setting forth the matter waived or amended and signed by
the party against which enforcement of such waiver or amendment is
sought. Waiver of any matter shall not be deemed a waiver of the same
or any other matter on any future occasion.
D. Captions. Captions are used throughout this
Agreement for convenience of reference only and shall not be considered
in any manner in the construction or interpretation hereof.
E. FFCA's Liability. Notwithstanding anything to the
contrary provided in this Agreement, it is specifically understood and
agreed, such agreement being a primary consideration for the execution
of this Agreement by FFCA, that (i) there shall be absolutely no
personal liability on the part of any shareholder, director, officer or
employee of FFCA, with respect to any of the terms, covenants and
conditions of this Agreement or the other Loan Documents, (ii) Debtor
waives all claims, demands and causes of action against FFCA's
officers, directors, employees and agents in the event of any breach by
FFCA of any of the terms, covenants and conditions of this Agreement or
the other Loan Documents to be performed by FFCA and (iii) Debtor shall
look solely to the assets of FFCA for the satisfaction of each and
every remedy of Debtor in the event of any breach by FFCA of any of the
terms, covenants and conditions of this Agreement or the other Loan
Documents to be performed by FFCA, such exculpation of liability to be
absolute and without any exception whatsoever.
F. Severability. The provisions of this Agreement
shall be deemed severable. If any part of this Agreement shall be held
unenforceable, the remainder shall remain in full force and effect, and
such unenforceable provision shall be reformed by such court so as to
give maximum legal effect to the intention of the parties as expressed
therein.
G. Construction Generally. This is an agreement between
parties who are experienced in sophisticated and complex matters
similar to the transaction contemplated by this Agreement and is
entered into by both parties in reliance upon the economic and legal
bargains contained herein and shall be interpreted and construed in a
fair and impartial manner without regard to such factors as the party
which prepared the instrument, the relative bargaining powers of the
parties or the domicile of any party. Debtor and FFCA were each
represented by legal counsel competent in advising them of their
obligations and liabilities hereunder.
H. Other Documents. Each of the parties agrees to
sign such other and further
23
<PAGE> 24
documents as may be appropriate to carry out the intentions expressed
in this Agreement.
I. Attorneys' Fees. In the event of any judicial or
other adversarial proceeding between the parties concerning this
Agreement, the prevailing party shall be entitled to recover its
attorneys' fees and other costs in addition to any other relief to
which it may be entitled. References in this Agreement to the
attorneys' fees and/or costs of FFCA shall mean both the fees and costs
of independent outside counsel retained by FFCA with respect to this
transaction.
J. Entire Agreement. This Agreement and the other Loan
Documents, together with any other certificates, instruments or
agreements to be delivered in connection therewith, constitute the
entire agreement between the parties with respect to the subject matter
hereof, and there are no other representations, warranties or
agreements, written or oral, between Debtor and FFCA with respect to
the subject matter of this Agreement. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
K. Forum Selection; Jurisdiction; Venue; Choice of Law.
Debtor acknowledges that this Agreement was substantially negotiated in
the State of Arizona, the Agreement was signed by FFCA in the State of
Arizona and delivered by Debtor in the State of Arizona, all payments
under the Notes will be delivered in the State of Arizona and there are
substantial contacts between the parties and the transactions
contemplated herein and the State of Arizona. For purposes of any
action or proceeding arising out of this Agreement, the parties hereto
hereby expressly submit to the jurisdiction of all federal and state
courts located in the State of Arizona and Debtor consents that it may
be served with any process or paper by registered mail or by personal
service within or without the State of Arizona in accordance with
applicable law. Furthermore, Debtor waives and agrees not to assert in
any such action, suit or proceeding that it is not personally subject
to the jurisdiction of such courts, that the action, suit or proceeding
is brought in an inconvenient forum or that venue of the action, suit
or proceeding is improper. It is the intent of the parties hereto that
all provisions of this Agreement shall be governed by and construed
under the laws of the State of Arizona and applicable laws of the
United States. To the extent that a court of competent jurisdiction
finds Arizona law inapplicable with respect to any provisions hereof,
then, as to those provisions only, the laws of the states where the
Premises are located shall be deemed to apply. Nothing in this Section
shall limit or restrict the right of FFCA to commence any proceeding in
the federal or state courts located in the states in which the Premises
are located to the extent FFCA deems such proceeding necessary or
advisable to exercise remedies available under this Agreement or the
other Loan Documents.
L. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original.
24
<PAGE> 25
M. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of Debtor and FFCA and their respective
successors and permitted assigns, including, without limitation, any
United States trustee, any debtor in possession or any trustee
appointed from a private panel.
N. Survival. Except for the conditions of Closing set
forth in Sections 2 and 9, which shall be satisfied or waived as of the
Closing Date, all representations, warranties, agreements, obligations
and indemnities of Debtor and FFCA set forth in this Agreement shall
survive the Closing.
O. Waiver of Jury Trial and Punitive, Consequential,
Special and Indirect Damages. DEBTOR AND FFCA HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A
TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY
ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE
PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY
MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY
DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE
PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN
NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE,
DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT
IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT
DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY
ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST
FFCA OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR
RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK
PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN
NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR
BARGAIN.
P. Transfers, Participations and Securitization. A
material inducement to FFCA's willingness to complete the transactions
contemplated by the Loan Documents is Debtor's agreement that FFCA may,
at any time, sell, transfer or assign the Notes, Deeds of Trust and the
other Loan Documents, and any or all servicing rights with respect
thereto (each, a "Transfer"), or grant participations therein (each, a
"Participation"), or complete asset securitization vehicles selected by
FFCA prior to Debtor's exercise of the Conversion Option and, if
applicable, subsequent to the Debtor's exercise of the Conversion
Option, in accordance with all requirements which may be imposed by the
investors or the rating agencies involved in such securitized financing
transaction, as selected by FFCA, or which may be imposed by applicable
25
<PAGE> 26
securities, tax or other laws or regulations, including, without
limitation, laws relating to FFCA's status as a real estate investment
trust (each, a "Securitization").
Debtor agrees to cooperate in good faith with FFCA in
connection with any Transfer, Participation and/or Securitization,
including, without limitation, (i) providing such documents, financial
and other data, other information and materials, and the results of
third-party inspections and analysis of the Premises (the
"Disclosures") which would typically be required with respect to Debtor
and Guarantor by a purchaser, transferee, assignee, servicer,
participant, investor or rating agency involved with respect to such
Transfer, Participation and/or the Securitization, as applicable;
provided, however, Debtor shall not be required to make Disclosures of
any confidential information or any information which has not
previously been made public unless required by applicable federal or
state securities laws; and (ii) amending the terms of the transactions
evidenced by the Loan Documents to the extent necessary so as to
satisfy the requirements of purchasers, transferees, assignees,
servicers, participants, investors or selected rating agencies involved
in any such Transfers, Participations or Securitization, so long as
such amendments would not have a material adverse effect upon Debtor or
the transactions contemplated hereunder.
Debtor consents to FFCA providing the Disclosures, as well as
any other information which FFCA may now have or hereafter acquire with
respect to the Premises or the financial condition of Debtor and
Guarantor, to each purchaser, transferee, assignee, servicer,
participant, investor or rating agency involved with respect to each
Transfer, Participation and/or Securitization, as applicable. FFCA and
Debtor shall each pay their own attorneys fees and other out-of-pocket
expenses incurred in connection with the performance of their
respective obligations under this Section.
Notwithstanding the foregoing, the parties acknowledge and
agree that FFCA shall have the right to divide the Notes (and the
corresponding Loan Documents) into no more than three groups or pools
in connection with one or more Securitizations. If and to the extent
that the Notes are divided into more than one such group or pool,
Debtor shall maintain an aggregate Fixed Charge Coverage Ratio of at
least 1.50:1 for all of the Premises corresponding to the Notes in each
such group or pool in addition to maintaining an aggregate Fixed Charge
Coverage Ratio for all of the Premises as required by Section 7.B.
26
<PAGE> 27
IN WITNESS WHEREOF, Debtor and FFCA have entered into this Agreement as
of the date first above written.
FFCA:
FFCA MORTGAGE CORPORATION,
a Delaware corporation
By /s/Dennis L. Ruben
--------------------------------------------
Printed Name
----------------------------------
Its Senior Vice President - General Counsel
-------------------------------------------
DEBTOR:
CBI RESTAURANTS, INC., a Delaware corporation
By /s/Joseph N. Stein
--------------------------------------------
Printed Name
----------------------------------
Its Chief Financial Officer
-------------------------------------------
CASA BONITA INCORPORATED, a Texas corporation
By /s/ Joseph N. Stein
--------------------------------------------
Printed Name
----------------------------------
Its Chief Financial Officer
-------------------------------------------
<PAGE> 1
EXHIBIT 11-1
CKE RESTAURANTS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
---------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net income (loss) . . . . . . . . . . . . . . . . . . . . $22,302 $10,952 $ 1,264 $ 3,665 $ (5,507)
======== ======== ======== ======== ========
Weighted average number of common shares
outstanding during the year . . . . . . . . . . . . . . 29,454 27,573 28,169 27,323 27,051
Incremental common shares attributable to
exercise of stock options . . . . . . . . . . . . . 796 312 123 99 441 (1)
Repurchase and retirement of shares . . . . . . . . . -- -- -- (42) --
Purchase of treasury shares . . . . . . . . . . . . . -- (108) (216) -- --
-------- -------- -------- -------- --------
30,250 27,777 28,076 27,380 27,492
======== ======== ======== ======== ========
Primary earnings (loss) per share . . . . . . . . . . . . $ .74 $ .39 $ .05 $ .13 $ (.20)(1)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
---------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(Amounts in thousands, except per share data )
<S> <C> <C> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE:
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 22,302 $ 10,952 $ 1,264 $ 3,665 $ (5,507)
======== ======== ======== ======== ========
Weighted average number of common shares
outstanding during the year . . . . . . . . . . . . . . 29,454 27,573 28,169 27,323 27,051
Incremental common shares attributable to
exercise of stock options . . . . . . . . . . . . . 960 554 123 570 501
Repurchase and retirement of shares . . . . . . . . . -- -- -- (42) --
Purchase of treasury shares . . . . . . . . . . . . . -- (108) (216) -- --
-------- -------- -------- -------- --------
30,414 28,019 28,076 27,851 27,552
======== ======== ======== ======== ========
Fully diluted earnings (loss) per share . . . . . . . . . $ .73 $ .39 $ .05 $ .13 $ (.20)(1)
======== ======== ======== ======== ========
</TABLE>
__________________
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of Accounting
Principles Board Opinion No. 15 because it produces an antidilutive
effect.
<PAGE> 1
EXHIBIT 12-1
CKE RESTAURANTS, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF DEBT TO EQUITY
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
---------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Debt:
Current portion of long-term debt . . . . . . . . . . . . $ 735 $ 8,575 $ 8,168 $ 13,207 $ 28,467
Current portion of capital lease obligations . . . . . . 4,766 3,745 3,581 3,354 3,158
-------- -------- -------- -------- --------
5,501 12,320 11,749 16,561 31,625
-------- -------- -------- -------- --------
Long-term debt . . . . . . . . . . . . . . . . . . . . . 33,770 30,321 27,178 17,414 31,742
Capital lease obligations . . . . . . . . . . . . . . . . 48,141 40,233 42,691 45,886 48,512
-------- -------- -------- -------- --------
81,911 70,554 69,869 63,300 80,254
-------- -------- -------- -------- --------
$ 87,412 $ 82,874 $ 81,618 $ 79,861 $111,879
======== ======== ======== ======== ========
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . $ 332 $ 288 $ 283 $ 280 $ 272
Additional paid-in capital . . . . . . . . . . . . . . . 126,279 38,617 35,024 33,648 28,521
Retained earnings . . . . . . . . . . . . . . . . . . . . 88,193 67,393 57,725 58,148 55,939
Treasury stock . . . . . . . . . . . . . . . . . . . . . -- (5,109) (4,558) -- --
-------- -------- -------- -------- --------
$214,804 $101,189 $ 88,474 $ 92,076 $ 84,732
======== ======== ======== ======== ========
Ratio of debt to equity . . . . . . . . . . . . . . . . . 0.4x 0.8x 0.9x 0.9x 1.3x
======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21-1
CKE RESTAURANTS, INC.
LIST OF SUBSIDIARIES
Set forth below is a list of the Registrant's subsidiaries as of January 27,
1997:
<TABLE>
<CAPTION>
Jurisdiction of Control by
----------------------------
Name of Subsidiary Organization Registrant Subsidiary
- ---------------------------- ------------------ ------------- -------------
<S> <C> <C> <C>
Carl Karcher Enterprises, Inc. California 100%
Boston Pacific, Inc. California 100%
Summit Family Restaurants Inc. Delaware 100%
HTB Restaurants, Inc. Delaware 100%
CBI Restaurants, Inc. Delaware 100%
Casa Bonita Incorporated Texas 100%
Casa Bonita Equipment Texas 100%
Casa Bonita West Delaware 100%
Casa Bonita Texas, L.P. Texas 100%
</TABLE>
<PAGE> 1
EXHIBIT 23-1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
CKE Restaurants, Inc. and Subsidiaries:
We consent to incorporation by reference in the Registration Statements
(Nos. 33-56313, 33-55337, 333-12399, 33-53089-01, 2-86142-01, 33-31190-01 and
333-12401) on Forms S-8 of CKE Restaurants, Inc. and Subsidiaries of our report
dated March 17, 1997, relating to the consolidated balance sheets of CKE
Restaurants, Inc. and Subsidiaries as of January 31, 1997 and 1996 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended January 31, 1997, which
report appears in the January 31, 1997 Annual Report on Form 10-K of CKE
Restaurants, Inc. and Subsidiaries.
KPMG Peat Marwick LLP
Orange County, California
April 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CKE
RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
INCOME AS OF AND FOR THE YEAR ENDED JANUARY 27, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED JANUARY 27, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-27-1997
<PERIOD-START> JAN-30-1996
<PERIOD-END> JAN-27-1997
<CASH> 39,782
<SECURITIES> 0
<RECEIVABLES> 25,565
<ALLOWANCES> 0
<INVENTORY> 9,223
<CURRENT-ASSETS> 72,857
<PP&E> 451,576
<DEPRECIATION> 245,771
<TOTAL-ASSETS> 401,217
<CURRENT-LIABILITIES> 83,894
<BONDS> 0
0
0
<COMMON> 332
<OTHER-SE> 214,472
<TOTAL-LIABILITY-AND-EQUITY> 401,217
<SALES> 536,808
<TOTAL-REVENUES> 614,080
<CGS> 430,160
<TOTAL-COSTS> 572,080
<OTHER-EXPENSES> (4,587)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,877
<INCOME-PRETAX> 36,710
<INCOME-TAX> 14,408
<INCOME-CONTINUING> 22,302
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,302
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
