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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 26, 1998
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)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-5796
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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(TITLE OF EACH CLASS) NAME OF EACH EXCHANGE ON WHICH REGISTERED:
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 31, 1998 was $1,394,174,828.
The number of shares outstanding of the registrant's common stock was
46,587,830 as of March 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of the registrant's Proxy
Statement for the 1998 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission within 120 days after January 26, 1998,
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 26, 1998
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 15
Item 6. Selected Financial and Operating Data....................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 18
Item 8. Financial Statements and Supplementary Data................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 26
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 26
Item 11. Executive Compensation...................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 26
Item 13. Certain Relationships and Related Transactions.............. 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 28
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PART I
ITEM 1. BUSINESS
OVERVIEW
CKE Restaurants, Inc., a Delaware corporation ("CKE" or the "Company"), is
a leading nationwide owner, operator and franchisor of quick-service restaurants
with 3,981 branded restaurant units operating as of January 26, 1998, primarily
under the Carl's Jr. and Hardee's brand names. Based on domestic system-wide
sales, the Company's Hardee's and Carl's Jr. chains are the fourth and seventh
largest quick-service hamburger restaurant chains in the United States,
respectively. The Company also owns and operates quick-service Mexican
restaurants under the Taco Bueno brand name.
O Carl's Jr.(R) -- Carl's Jr. was founded in 1956 and is located primarily
in the Western United States, with a leading market presence in
California. The Carl's Jr. menu features several charbroiled hamburgers,
chicken sandwiches, steak sandwiches and other signature items, including
the Famous Star, Western Bacon Cheeseburger(R), Super Star(R),
Charbroiler Chicken Sandwiches(R), Crispy Chicken Sandwiches(R) and the
Charbroiled Sirloin Steak Sandwich. The Company believes that Carl's Jr.
maintains a strong price-value image with its customers because its menu
items are generally made-to-order, meet exacting quality standards, are
offered in generous portions and have a strong reputation for quality and
taste. As of January 26, 1998, the Carl's Jr. system included 708
restaurants, of which 443 were operated by the Company and 265 were
operated by the Company's franchisees and licensees.
O Hardee's(R) -- Hardee's, which was acquired by the Company in July 1997,
was founded in 1961 and has a leading market presence in the Southeastern
and Midwestern United States. Hardee's strength is its breakfast menu,
generating approximately 30% of its overall revenues, which is one of the
highest percentages in the quick-service hamburger restaurant industry.
Hardee's breakfast menu features made-from-scratch biscuits, biscuit
breakfast sandwiches and other items such as hash rounds and breakfast
platters. The current Hardee's lunch and dinner menu includes hamburgers
and fried chicken. Since its acquisition of Hardee's, the Company's
management has implemented certain improvements to the Hardee's menu by
streamlining its product offerings and is in the process of adding in
selected markets certain Carl's Jr. lunch and dinner menu items to
complement Hardee's strong breakfast menu. As of January 26, 1998, the
Hardee's system included 3,038 restaurants, of which 863 were operated by
the Company and 2,175 were operated by the Company's franchisees and
licensees. As a result of the acquisition of Flagstar Enterprises, Inc.
("FEI"), 1,420 of the 3,038 Hardee's restaurants operated as of January
26, 1998 are presently operated by the Company and 1,618 are operated by
the Company's franchises and licensees. (See "Recent Developments").
O Taco Bueno(R) -- The Company owns and operates 109 Taco Bueno
quick-service Mexican restaurants located in Texas and Oklahoma. Taco
Bueno seeks to differentiate itself from its principal competitors by
offering a diverse menu featuring generous portions of freshly prepared,
high quality food items. In addition to typical quick-service Mexican
offerings, such as burritos, tacos, tostadas and combination meals, Taco
Bueno features a number of signature menu items, such as its MexiDips &
Chips and Bueno Chilada Platter.
BUSINESS STRATEGY
The Company's strategy is to increase the profitability and sales of its
existing and newly acquired restaurants by applying its customer-focused,
disciplined operating strategy. The Company believes that its ability to deliver
high quality food to customers with superior service in a clean and friendly
environment is central to its operating success. The Company has developed food,
labor and customer service management practices that allow management to
effectively monitor restaurant-level operations, benchmark restaurant
performance statistics and communicate system-wide best practices across its
restaurant concepts. In addition, the Company aggressively promotes and enhances
brand awareness through innovative advertising and is committed to controlling
costs at each level of operations. A key element to the Company's strategy is to
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acquire underperforming restaurants and increase the profitability and sales of
the acquired restaurants by applying its successful operating strategy.
In October 1994, the Company's new management team began implementing a
variety of operating initiatives designed to revitalize the Carl's Jr. brand and
improve its financial results. These initiatives included, among others, a
renewed focus on offering superior products, the elimination of most
lower-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. Since then, the Company has experienced significant increases
in revenues, restaurant-level margins and net income. From fiscal 1994 to fiscal
1998, Company-operated Carl's Jr. restaurant-level margins increased from 17.8%
to 24.2% and average unit sales increased from $992,000 to $1,157,000. In
addition, for the past 11 quarters, Carl's Jr. has reported increases in
Company-operated Carl's Jr. restaurant revenues and restaurant-level margins as
compared to the same periods in prior years. Based upon publicly available data,
Company-operated Carl's Jr. restaurants generate restaurant-level margins and
average unit sales which the Company believes are among the highest of the major
quick-service hamburger restaurant chains. The Company believes these results
are directly related to the implementation of its operating initiatives,
management practices and disciplined operating strategy.
In July 1997, the Company acquired Hardee's, which allowed it to
significantly expand the scope of its operations and become one of the leading
nationwide operators of quick-service hamburger restaurants. Despite Hardee's
poor recent historical performance, the Company believes there is significant
value in Hardee's and Carl's Jr.'s complementary geographic markets and relative
menu strengths, Hardee's established brand name and Hardee's significant market
presence in many of its existing markets. The Company has begun implementing a
plan to meaningfully improve the profitability and sales of Hardee's in an
effort to improve Hardee's poor recent historical performance. The Company's
plan includes many of the strategic and operating initiatives which it used to
improve the operations of its Carl's Jr. restaurants including implementing
CKE's management practices, improving the quality of food, enhancing the quality
of service, updating restaurant facilities and managing costs more effectively.
The Company is in the early stages of its plan to improve Hardee's
operations and has focused its efforts initially on managing costs more
effectively and realizing purchasing synergies. Hardee's Company-operated
restaurant-level margins in the fourth quarter of fiscal 1998 increased to 12.8%
compared with 1.5% for the comparable period in the prior year for restaurants
open and operating as of December 31, 1996. The Company has accomplished this
initial margin improvement by streamlining the Hardee's menu, introducing the
Carl's Jr. labor matrix to refine labor usage, focusing on safety and accident
prevention as a way to reduce workers' compensation costs, reducing food waste
and theft tolerance levels, decreasing food and paper costs through the
realization of certain purchasing synergies and conforming Hardee's depreciation
policies with those of the Company.
RECENT DEVELOPMENTS
On April 1, 1998, the Company acquired FEI from Advantica Restaurant Group,
Inc. ("Advantica") for a purchase price of $380.8 million plus the assumption of
$45.6 million in capital lease obligations, subject to adjustment ("the FEI
Acquisition"). FEI was the largest franchisee of the Hardee's system, previously
operating 557 Hardee's restaurants, located primarily in the Southeastern United
States.
The Company believes that the FEI Acquisition provides it with an
opportunity to continue to expand the scope of its operations and to exercise
further control over its Hardee's restaurant system. As a result of the FEI
Acquisition, 1,420 of the 3,038 Hardee's restaurants operated as of January 26,
1998 are presently operated by the Company, representing 46.7% of the Hardee's
system, and giving the Company control of 48 of Hardee's 98 broadcast
cooperative advertising markets. The Company believes it can meaningfully
improve the same-store sales trends and profitability levels at FEI's Hardee's
restaurants by implementing the strategies which it has used to improve the
operations of its Carl's Jr. restaurants and is beginning to implement at its
Company-operated Hardee's restaurants. In addition, with a greater percentage of
Company-operated restaurants, the Company believes it will be better positioned
to promote a consistent
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Hardee's brand image as it attempts to revamp the menu offerings, cooking
methods and overall customer satisfaction at Hardee's.
GROWTH STRATEGY
The Company is currently pursuing a strategy of growth and expansion
through increasing profitability and sales at its existing and newly-acquired
underperforming restaurants. The key elements of the Company's growth strategy
are as follows:
Drive Hardee's Sales. The Company is in the early stages of its plan to
revitalize the Hardee's brand and has focused its efforts initially on
increasing restaurant margins by managing costs more effectively and realizing
purchasing synergies. The Company believes it can improve Hardee's sales by
further implementing its plan which includes introducing Carl's Jr.'s
charbroiling cooking methods, accelerating the remodeling of Company-operated
restaurants, and launching an advertising campaign through its recently selected
advertising firm, Angotti, Thomas, Hedge, Inc., which targets the frequent
fast-food user (males, age 16-34) as well as Hardee's existing customer base
which consists equally of males and females.
Leverage Carl's Jr. and Hardee's Strengths. Carl's Jr. and Hardee's have
complementary geographic markets and menu strengths. Carl's Jr.'s strength is
its lunch and dinner menu, which features charbroiled hamburgers and chicken
sandwiches that have a strong reputation for quality and taste. Hardee's
strength is its breakfast menu, which has historically generated approximately
30% of its overall revenues. The Company is in the process of adding in selected
markets Carl's Jr. lunch and dinner menu items, including the introduction of
the Carl's Jr. brand name, to complement Hardee's strong breakfast menu. The
Company will evaluate the potential for dual-branding the Carl's Jr. and
Hardee's brands in a focused fashion on a market-by-market basis.
Continue to Grow Successful Carl's Jr. Chain. The Company intends to
continue its Carl's Jr. expansion program by opening new restaurants, continuing
its innovative advertising campaign and making selected opportunistic
conversions of existing Hardee's restaurants. For fiscal 1999, the Company
currently anticipates that it will open up to 30, and its franchisees will open
up to 30, new Carl's Jr. restaurants. In addition, the Company plans to continue
its successful dual-branding of its Carl's Jr. restaurants with The Green
Burrito. The Company plans to convert at least 60 restaurants per year to
dual-brand locations in each of the next three years.
Opportunistically Pursue Strategic Acquisitions. While the Company is not
currently contemplating any significant additional acquisitions or investments,
it will continue to evaluate opportunities to expand its operations by making
strategic acquisitions of, or investments in, underperforming restaurant
companies. Since the Company's acquisition of Hardee's, it has purchased an
additional 85 Hardee's restaurants from its franchisees in fiscal 1998,
primarily in the St. Louis, Missouri and Green Bay, Wisconsin areas. The Company
will continue to consider opportunities to acquire additional Hardee's
restaurants, if appropriately priced, in areas the Company believes may
strengthen Hardee's position in the market.
RESTAURANT OPERATIONS
CARL'S JR.
Concept. The Company believes that its Carl's Jr. restaurants' superior
food quality, diverse menu and attentive customer service differentiate the
Company from its competitors and are critical to its success. Unlike many
quick-service restaurants which emphasize lower prices, Carl's Jr. restaurants
focus on offering customers a higher quality dining experience at a reasonable
price. Carl's Jr. charbroiled hamburgers, chicken sandwiches and signature items
are generally made-to-order, meet exacting quality standards and are offered in
generous portions. Carl's Jr.'s menu features freshly prepared food items that
appeal to a broad audience. By providing partial table service, unlimited drink
refills and an attractive restaurant decor, Carl's Jr. restaurants offer a
pleasant, customer-friendly environment. The Company believes that its focus on
customers and customer service, superior food quality and generous portions
enables the Carl's Jr. restaurants to maintain a strong price-value image with
its customers.
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Menu and Restaurant Design. Carl's Jr. restaurants offer a variety of
products that have a strong reputation for quality and taste. The Carl's Jr.
menu is relatively uniform throughout the chain and features several charbroiled
hamburgers and chicken sandwiches, including the Famous Star, Western Bacon
Cheeseburger, Super Star, Charbroiler Chicken Sandwiches, Crispy Chicken
Sandwiches and the Charbroiled Sirloin Steak Sandwich. Other entrees include a
fish sandwich, baked potatoes and prepackaged salads. Side orders, such as
french fries, onion rings and fried zucchini, are also offered. Most restaurants
also have a breakfast menu including eggs, bacon, sausage, French Toast Dips(R),
the Sunrise Sandwich(R) and a breakfast burrito. In addition, the restaurants
sell a variety of promotional products on a limited basis. The Company was also
among the first to offer self-service salad bars and all-you-can-drink beverage
bars.
Most Carl's Jr. restaurants are freestanding, ranging in size from 2,500 to
4,000 square feet, with a seating capacity of 65 to 115 persons and drive-thru
facilities. Some restaurants are located in shopping malls and other in-line
facilities. Currently, several building designs and floor plans are in use
system-wide, depending upon operational needs, local zoning requirements and
real estate availability.
The Company has completed remodeling substantially all of its Carl's Jr.
restaurants to provide them with a fresh, contemporary look. Exterior
improvements include brighter colors, red awnings and a large, tilted Happy
Star(R) logo. The new interiors feature the same bright colors, food murals,
display cases for salads and desserts and accent lighting throughout the dining
area. The Company believes that its new restaurant design will further increase
the consumers' awareness of the Carl's Jr. brand.
Operations. The Company strives to maintain high standards in all materials
used by its restaurants, as well as the operations related to food preparation,
service and cleanliness. Hamburgers and chicken and steak sandwiches at Carl's
Jr. restaurants are generally prepared or assembled after the customer has
placed an order and are served promptly. Hamburger patties, chicken breasts and
sirloin steaks are charbroiled in a gas-fired double broiler that sears the meat
on both sides. The meat is conveyed through the broiler automatically to
maintain uniform heating and cooking time.
Each Company-operated Carl's Jr. restaurant is operated by a manager who
has received nine to 13 weeks of management training. This training program
involves a combination of classroom instruction and on-the-job training in
specially designated training restaurants. Other restaurant employees are
trained by the restaurant manager in accordance with Company guidelines.
Restaurant managers are supervised by district managers, each of whom is
responsible for 11 to 14 restaurants. Approximately 35 district managers are
under the supervision of four regional vice presidents, all of whom regularly
inspect the operations in their respective districts and regions.
Green Burrito Dual-Branding. Dual-branding allows a single restaurant to
offer consumers two distinct brand menus. In May 1995, the Company entered into
a five-year agreement with GB Foods Corporation ("GB Foods"), the operator and
franchisor of The Green Burrito quick-service Mexican food concept, to offer The
Green Burrito menu at selected Carl's Jr. locations. The Company believes that
The Green Burrito's position in the popular Mexican food segment and its dinner
menu orientation complement the Carl's Jr. menu. Customers of the Carl's
Jr./Green Burrito dual-brand restaurants are able to order items from both the
Carl's Jr. menu board and The Green Burrito menu board from the same counter and
both menus are available to customers utilizing the drive-thru. The Green
Burrito menu offered at the dual-brand restaurants features a broad range of
traditional Mexican food items, including burritos, tostadas, enchiladas,
taquitos 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.
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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 at least 60 restaurants per year to dual-brand locations
for each of the next three years. The Company is required to pay an initial
franchise fee for each restaurant opened and remit royalties on The Green
Burrito food sales to GB Foods. At the end of fiscal 1996, the Company elected
to sub-franchise, and shortly thereafter began offering, the Carl's Jr./Green
Burrito dual-brand to its franchise community. As of January 26, 1998, 12
franchised Carl's Jr. restaurants have been converted to the Carl's Jr./Green
Burrito concept. The Company receives 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, Colorado, 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.
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 26, 1998, 265 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 12 franchisees owning seven or more
restaurants. The Company presently anticipates that its franchisees and
licensees will open up to 30 new Carl's Jr. restaurants during fiscal 1999.
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 percentage of sales. As of January 26, 1998, there were
22 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 1998, 1997 or 1996.
HARDEE'S
Concept. The Hardee's restaurant chain offers a variety of menu items
targeted at a broad audience in a quick-service, uniform format. Hardee's
restaurants emphasize hometown values by providing generous portions at
reasonable prices in a friendly environment. Hardee's restaurant promotions
often include "two-for-two" campaigns, which offer two menu items for two
dollars. Unlike many quick-service hamburger restaurants, Hardee's strength has
been in the breakfast menu, which features made-from-scratch biscuits. Hardee's
breakfast menu generates approximately 30% of its overall operating revenue, one
of the highest in the quick-service hamburger industry. The Company has begun
implementing certain improvements to its Hardee's restaurants to offer higher
quality food and service in a clean and pleasant environment. These improvements
include introducing partial table service, unlimited drink refills and
charbroiling cooking methods. Hardee's has a leading market presence in the
Southeastern and Midwestern United States.
Menu and Restaurant Design. The restaurants currently offer hamburgers,
chicken, roast beef and fish sandwiches, hot dogs and low-fat yogurt for lunch
and dinner. Hardee's breakfast menu features made-from-scratch biscuits, biscuit
breakfast sandwiches and other items such as hash rounds and breakfast platters.
Since its acquisition of Hardee's, the Company's management has implemented
certain improvements to the Hardee's menu by streamlining its product offerings
to improve guest service and food quality. The Company
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also is in the process of adding certain Carl's Jr. lunch and dinner menu items
to Hardee's strong breakfast menu.
Substantially all of Hardee's restaurants have drive-thru facilities and
selected restaurants are open 24 hours a day, primarily on weekends. Most
Hardee's restaurants are freestanding, ranging in size from 3,000 to 3,500
square feet, with a seating capacity of 75 to 100 persons. Currently, several
building designs and floor plans are in use system-wide, depending upon
operational needs, local zoning requirements and real estate availability.
The Company is currently in the process of remodeling certain of its
Hardee's restaurants to provide them with a fresh appearance. Improvements
include new menu boards, kitchen upgrades, new roofs, paint, trim and wallpaper,
as well as minor landscaping and parking lot repairs. The Company plans to
remodel all of Hardee's Company-operated restaurants over the next three to five
years.
Operations. The Company strives to maintain high standards in all materials
used by its Hardee's restaurants, as well as the operations related to food
preparation, service and cleanliness. As part of its plan to implement its
Carl's Jr. operating strategy at Hardee's, the Company is in the process of
installing gas-fired double charbroilers in each existing Company-owned Hardee's
restaurant. In addition, the Company is also in the process of implementing its
Carl's Jr. management practices, including its extensive management training
program, at Hardee's.
Franchised and Licensed Operations. Franchise agreements with Hardee's
franchisees, who operate in the Southeastern and Midwestern United States,
generally provide for initial fees and continuing royalty payments to the
Company based upon a percentage of sales. Most franchisees are required to
purchase certain inventory and supplies from approved suppliers and are required
to spend a minimum percentage of sales each month on advertising. In addition,
most franchisees are required to purchase and install all fixtures, furnishings,
signs and equipment specified in the approved site layout and plan. Prior to the
opening of each franchised restaurant, the general manager of each franchise is
required to attend and complete a training program sponsored by the Company.
Franchisees may also be required to remit lease payments for the use of
Company-owned or leased restaurant facilities and to pay related occupancy
costs.
As of January 26, 1998, 1,618 Hardee's restaurants were operated by the
Company's franchisees and licensees (other than FEI, which was acquired by the
Company on April 1, 1998). The majority of the Company's franchisees own more
than one restaurant, with 35 franchisees owning 10 or more restaurants. Prior to
the FEI Acquisition, FEI was the largest franchisee of Hardee's restaurants,
operating 557 restaurants located primarily in the Southeastern United States.
The Company presently anticipates that its franchisees and licensees will open
up to 30 new Hardee's restaurants during fiscal 1999.
TACO BUENO
The Company owns and operates 109 Taco Bueno quick-service Mexican
restaurants located in Texas and Oklahoma. The Taco Bueno restaurants were
acquired by the Company in October 1996 in connection with the acquisition of
Casa Bonita Incorporated. Taco Bueno seeks to differentiate itself from its
principal competitors by offering a diverse menu featuring generous portions of
freshly prepared, high quality food items. In addition to typical quick-service
Mexican offerings, such as burritos, tacos, tostadas and combination meals, Taco
Bueno features a number of signature menu items such as its MexiDips & Chips and
Bueno Chilada Platter. Taco Bueno's Mexican platters include taco and burrito
platters, beef and chicken taco salads and nacho platters, each of which are
accompanied by rice, beans, freshly prepared guacamole and chips. The
restaurants also feature a salsa bar which includes sliced jalapenos, diced
onions, pico de gallo, and hot sauce.
Taco Bueno restaurants generally feature a "Santa Fe/Pueblo" architecture
and exterior decor, which is designed to increase visibility and consumer
recognition, and generally range in size from 2,400 square feet to 3,200 square
feet. Restaurant interiors include wooden tables and chairs, booth seating,
stucco walls, warm colors and a southwestern theme, all of which are intended to
create a distinctive atmosphere. The Company is also in the process of enhancing
the Taco Bueno brand image with new signage and menu boards and is considering a
more extensive remodeling program.
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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 anticipates it will open up to five Taco Bueno restaurants
in its existing markets during fiscal 1999.
INVESTMENTS IN OTHER RESTAURANT CONCEPTS
The Company has selectively acquired or invested in other restaurant
concepts as follows:
GB Foods and JB's Restaurants. The Company owns, operates and franchises
the JB's Restaurant family dining restaurant concept and owns and operates six
Galaxy Diner "50's-style" casual theme restaurants. As of January 26, 1998, the
JB's Restaurant system consisted of 94 restaurants, of which 74 were owned and
operated by the Company. The JB's Restaurant system and the Galaxy Diner
restaurants were purchased by the Company in connection with its acquisition of
Summit Family Restaurants Inc. ("Summit") during fiscal 1997. In February 1998,
the Company sold 12 Company-operated JB's Restaurants to Star Buffet, Inc.
("Star Buffet"). As a result of such sale, the Company received approximately
$4.8 million in cash. In addition, the Company has recently announced two
additional transactions which will result in the disposition of the entire JB's
Restaurant system and Galaxy Diner restaurants. First, the Company has agreed to
sell 14 Company-operated JB's Restaurants and two Galaxy Diner restaurants to
Timber Lodge Steakhouse, Inc. ("Timber Lodge") in connection with the proposed
merger of Timber Lodge and GB Foods. Second, the Company has agreed to sell 48
Company-operated JB's Restaurants and the JB's Restaurant franchise system,
together with four Galaxy Diner restaurants, to GB Foods. If the above
transactions are completed, the Company expects to receive approximately 1.6
million shares of GB Foods, which would represent approximately 10% of GB Foods'
outstanding shares after giving effect to such transactions. There can be no
assurance that these transactions will be completed. The foregoing transactions,
together with the Company's reorganization and the initial public offering of
Star Buffet will complete the Company's previously announced plans to sell or
otherwise dispose of all or a portion of the restaurant businesses of Summit.
Rally's and Checkers. Rally's Hamburgers, Inc. ("Rally's") operates and
franchises the Rally's Hamburgers double drive-thru quick-service hamburger
restaurant concept. As of January 9, 1998, there were 473 Rally's restaurants
operating in 18 states, primarily in the Midwest and the Sunbelt, of which 26
were operated by the Company in California and Arizona. The Company and Rally's
entered into an operating agreement, effective in July 1996, pursuant to which
Rally's retains ownership of the assets of such restaurants and receives a
percentage of the restaurants' sales.
The Company has invested $21.3 million in Rally's for a 27% interest in
Rally's outstanding shares, and has the right to acquire an additional 4%
interest. Rally's owns a 27% interest in Checkers Drive-In Restaurants, Inc.
("Checkers").
Checkers operates and franchises the Checkers Drive-In Restaurants double
drive-through quick-service hamburger restaurant concept. As of January 9, 1998,
there were 473 Checkers restaurants operating in 23 states. The Company has the
right to acquire shares of common stock representing 10% of Checkers'
outstanding shares. The Company also holds $7.6 million aggregate principal
amount of Checkers' senior secured debt, net of related discount.
Star Buffet. Star Buffet is an operator of 33 buffet-style restaurants and
11 franchised, family-style JB's Restaurants. The Company formed Star Buffet in
connection with a reorganization of its buffet-style restaurant operations and
with Star Buffet's initial public offering in September 1997, and continues to
hold a 37% interest in Star Buffet.
Boston Market. The Company continues to hold a minority 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 Market
stores in designated markets in California under an area development agreement
7
<PAGE> 10
with Boston Chicken, Inc., the franchisor of the Boston Market restaurant
concept. As of January 26, 1998, Boston West operated 98 Boston Market stores
located in Southern California.
The Company intends to continuously review its investments in other
restaurant concepts. Although the Company has no present intention to dispose of
or acquire additional interests in other restaurant concepts, the Company may do
so in the future. When deciding to dispose of or acquire additional interests,
the Company may take into consideration various factors, including, but not
limited to, business prospects of the restaurant concept, alternative business
opportunities available to the Company and general economic conditions.
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 supplies from the Company. The Company's
Carl's Jr. restaurant chain 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 currently purchases substantially all of the food products and
cleaning products sold or used in its Hardee's restaurants from Fast Food
Merchandisers, Inc. ("FFM"), certain of which are manufactured by FFM for the
Company according to the Company's food product formulations. FFM currently
distributes such products, together with most food and other products sold or
used by Hardee's restaurants, to restaurants operated by the Company, excluding
those acquired in the FEI Acquisition, and to many of the Hardee's restaurants
operated by the Company's franchisees. Pursuant to the terms of product supply
and distribution agreements entered into between the Company and FFM in
connection with the Company's acquisition of Hardee's in July 1997, the Company
is obligated to purchase substantially all of its requirements for certain
specified products from FFM for a five-year term, and FFM will provide exclusive
distribution services to Company-operated Hardee's restaurants, excluding those
acquired in the FEI Acquisition, with respect to such products, as well as
products purchased from other vendors, for a seven-year term. The prices to be
paid by the Company for FFM products, and delivery fees to be paid by the
Company to FFM for distribution services, will be subject to adjustment in
certain circumstances, which may include increases resulting from changes in
FFM's cost structure. Although the Company believes the prices anticipated to be
paid to FFM will remain competitive, there can be no assurance that the prices
and fees paid by the Company to FFM will not increase, perhaps substantially,
which could have a material adverse effect on the Company.
FEI has benefited from participating in Advantica's centralized purchasing
program. Advantica's size provided it with significant purchasing power, which
often enabled it to obtain products at more favorable prices from several
nationally recognized manufacturers. Food and packaging for FEI's Hardee's
restaurants are purchased from independent suppliers approved by Hardee's. After
the FEI Acquisition, FEI will continue to operate under existing arrangements
with its suppliers. The Company obtained from FFM a waiver of the exclusivity
provisions of its supply agreements with FFM to permit the continuation of FEI's
existing arrangements with suppliers. A substantial portion of products for
FEI's Hardee's restaurants is obtained from MBM Corporation ("MBM"), an
independent supplier and distributor of food and other products. In connection
with Advantica's sale of its distribution subsidiary to MBM in 1995, FEI entered
into a ten year distribution agreement under which MBM distributes and supplies
certain products and supplies to FEI. There are no volume requirements relative
to this agreement; however, the products named therein must be purchased through
MBM unless they are unable to make delivery within a reasonable period.
The Company believes its mature procurement process allows it to
effectively manage food costs, provide adequate quantities of food and supplies
at competitive prices, and generate revenues from franchisees by adding a
nominal mark-up to cover direct costs and provide better overall service to its
restaurants. The Company seeks competitive bids from suppliers on many of its
food products, approves suppliers of those products and requires them to adhere
to product specifications established by the Company. Whenever
8
<PAGE> 11
possible, the Company negotiates sole source contracts for particular products
which tend to produce deeper discounts.
COMPETITION
The food service industry is intensely competitive with respect to the
quality and value of food products offered, concept, service, pace, dining
experience and location. The Company primarily competes with major restaurant
chains, some of which dominate the quick-service restaurant industry, and also
competes with a variety of other take-out food service companies and fast-food
restaurants. The Company's competitors also include a variety of mid-price,
full-service casual dining restaurants, health and nutrition-oriented
restaurants, delicatessens and prepared food stores, as well as supermarkets and
convenience stores. Many of the Company's competitors have substantially greater
financial, marketing and other resources than the Company, which may give them
certain competitive advantages. Certain of the major quick-service restaurant
chains have increasingly offered selected food items and combination meals at
discounted prices. In recent years, the Company's restaurant sales were
adversely affected by aggressive promotions and price reductions by its
competitors. Future changes in the pricing or other marketing strategies of one
or more of the Company's competitors could have a material adverse effect on the
Company's financial condition and results of operations. As the Company's
competitors expand operations, competition can be expected to intensify. Such
increased competition could have a material adverse effect on the Company's
financial condition and results of operations. The Company also faces
competition from other quick-service operators, retail chains, other companies
and developers for desirable site locations, which may adversely affect the
cost, implementation and timing of the Company's expansion plans.
TRADEMARKS AND SERVICE MARKS
The Company owns numerous trademarks and service marks. The Company has
registered many of those marks, including Carl's Jr., the Happy Star logo,
Hardee's and proprietary names for a number of the Carl's Jr., Hardee's 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. The Green Burrito(R) is a
registered trademark of GB Foods.
SEASONALITY
The Company's business is moderately seasonal. Average restaurant sales are
normally higher in the summer months than during the winter months for each of
the Company's restaurant concepts. Seasons have a greater impact on average
restaurant sales at Hardee's restaurants in comparison with the Company's other
restaurant concepts.
GOVERNMENT REGULATIONS
Each Company-operated and franchised restaurant must comply with
regulations adopted by federal agencies and with licensing and other regulations
enforced by state and local health, sanitation, safety, fire and other
departments. In addition, these restaurants also must comply with federal and
state environmental regulations, but those regulations have not had a material
effect on the restaurants' operations. More stringent and varied requirements of
local governmental bodies with respect to zoning, land use and environmental
factors can delay and sometimes prevent development of new restaurants and
remodeling of existing restaurants in particular locations.
The Company is also subject to federal laws and a substantial number of
state laws regulating the offer and sale of franchises. Such laws impose
registration and disclosure requirements on franchisors in the offer and sale of
franchises and may also apply substantive standards to the relationship between
franchisor and franchisee, including limitations on the ability of franchisors
to terminate franchisees and alter franchise arrangements. The Company believes
it is operating in substantial compliance with applicable laws and regulations
governing its operations.
9
<PAGE> 12
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.
EMPLOYEES
As of January 26, 1998, the Company employed approximately 46,500 persons,
of whom approximately 42,700 were hourly restaurant, distribution or clerical
employees and the remainder were managerial, salaried employees engaged in
administrative and supervisory capacities. A majority of the hourly employees
are employed on a part-time basis to provide service necessary during peak
periods of restaurant operations. As of December 31, 1997, FEI employed
approximately 19,400 persons, approximately 17,600 of which were employed at the
restaurant level. None of the Company's employees is currently covered by a
collective bargaining agreement. The Company has never experienced a work
stoppage attributable to labor disputes and believes its employee relations are
good.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The Company wishes to caution readers that the information contained and
incorporated by reference herein contains forward-looking statements that
involve a number of risks and uncertainties. A number of factors could cause 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.
These factors include, but are not limited to, the competitive environment in
the quick-service restaurant industry in general and in the Company's specific
market areas, changes in prevailing interest rates and the availability of
financing, inflation, changes in costs of goods and services, economic
conditions in general and in the Company's specific market areas, and
uncertainties related to the acquisition of Hardee's and FEI. In addition, such
forward-looking statements are necessarily dependent upon assumptions, estimates
and data that may be incorrect or imprecise. Accordingly, any forward-looking
statements included or incorporated by reference herein do not purport to be
predictions of future events or circumstances and may not be realized.
Forward-looking statements can be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks" or "anticipates," or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategies, plans or
intentions. The accompanying information contained in this Form 10-K, including
without limitation the information set forth under "Item 1. Business," and "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations," identifies important factors that could cause such differences.
The acquisition of Hardee's significantly increased the size of the
Company. Managing the Company and integrating the acquired business operations
of Hardee's will continue to present a significant challenge to the Company's
management. Historically, Hardee's has been a well-established but
underperforming brand which has recently experienced declining system-wide
same-store sales and a declining market share in the quick-service hamburger
restaurant industry. The Company continues to evaluate the restaurant operations
of Hardee's and various short- and long-term strategic considerations in the
process of assessing the extent to which Hardee's restaurant operations will be
integrated, restructured or otherwise modified by the Company. One of the
objectives of the Company's turnaround strategies for Hardee's is to stem the
recent negative operating trends experienced by Hardee's. However, there can be
no assurance that these strategies will be successful. If the Company is unable
to achieve anticipated improvements in restaurant-level operating margins or
reductions in corporate overhead costs in its Hardee's operations on a timely
basis, cash flows generated from Hardee's operations may not be adequate to
support the Company's turnaround strategies for Hardee's, some of which require
significant capital expenditures. The Company's success will also depend, in
part, on its Hardee's franchisees. Hardee's franchisees are not required to
participate in implementing the Company's strategies and there can be no
assurance that Hardee's franchisees will participate. Lack of participation by
Hardee's franchisees in implementing the Company's strategies could delay or
limit the
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<PAGE> 13
success of the Company's strategies. Restructuring and integrating the
restaurant operations of Hardee's will require the dedication of significant
capital and management resources, which may cause an interruption of, or a loss
of momentum in, the activities of the Company. The difficulties of such
restructuring and integration may be increased by the necessity of coordinating
geographically separate organizations and selectively introducing the Carl's Jr.
brand into markets in which Carl's Jr. restaurants have never operated, all of
which, together with other factors beyond the Company's control, may adversely
affect the cost, implementation, execution and timing of the Company's
turnaround strategies for Hardee's. Failure to effectively accomplish the
integration of the Company's operations or to improve Hardee's results of
operations could have a material adverse effect on the Company's financial
condition and results of operations.
The FEI Acquisition results in another significant increase in the size of
the Company. Integrating the acquired business operations of FEI also presents a
significant challenge to the Company's management, and may affect the
implementation and timing of the Company's turnaround strategies for Hardee's.
The Company believes that the FEI Acquisition will help the Company achieve a
greater degree of control over the entire Hardee's system as well as its
advertising and marketing strategies; however, no assurances can be given that
the Company will realize the benefits it anticipates from the FEI Acquisition,
or that the FEI Acquisition will not adversely affect the Company's financial
condition or results of operations.
In order to finance the Hardee's acquisition and to make borrowings
available to the Company for working capital and other corporate purposes, in
July 1997, the Company entered into a term loan facility of $75.0 million (the
"Term Loan Facility") and a $225.0 million revolving credit facility (the
"Revolving Credit Facility" and, collectively with the Term Loan Facility, the
"Senior Credit Facility"). As of January 26, 1998, borrowings of $67.5 million
remained outstanding under the Term Loan Facility and borrowings of $71.0
million remained outstanding under the Revolving Credit Facility. On April 1,
1998, the Company amended the Senior Credit Facility to increase the aggregate
principal amounts of the lenders' commitments under the Term Loan Facility to
$250.0 million and under the Revolving Credit Facility to $250.0 million. The
Company incurred borrowings of $213.2 million thereunder to finance a portion of
the purchase price of the FEI Acquisition. In connection with the completion of
the Company's convertible subordinated notes ("the Notes") on March 13, 1998,
the Company incurred $197.2 million in additional indebtedness which, when
combined with the amount the Company has outstanding under its Senior Credit
Facility, will increase the ratio of its long-term debt to its total
capitalization from 28.2% at January 26, 1998 to 56.5%, as adjusted to give pro
forma effect to the FEI Acquisition and the sale of the Notes. (See Note 9 of
Notes to Consolidated Financial Statements.) The Company's increased degree of
leverage could have important consequences to investors, including the
following: (i) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions and general corporate purposes may
be decreased in the future; (ii) an increased portion of the Company's cash flow
from operations will be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) most of the Company's borrowings are and will continue to be at
variable rates of interest (including borrowings under the Senior Credit
Facility), which exposes the Company to the risk of increased interest rates;
(iv) the Company may be substantially more leveraged than certain of its
competitors, which may place the Company at a competitive disadvantage; and (v)
the Company's substantial degree of leverage may limit its flexibility to adjust
to changing market conditions, reduce its ability to withstand competitive
pressures and make it more vulnerable to a downturn in general economic
conditions or its businesses. The Company's ability to make scheduled payments
or to refinance its obligations with respect to its indebtedness, and to comply
with the financial covenants and other obligations under its debt instruments,
will depend on its financial and operating performance, which in turn will be
subject to economic conditions and to financial, business and other factors
beyond its control. There can be no assurance that the Company's operating
results, cash flow and capital resources will be sufficient for payment of its
indebtedness in the future.
The Company's growth strategy includes, among other things, opening
additional Company-operated and franchised restaurants, dual-branding its
restaurant concepts and remodeling its restaurants. The success of the Company's
growth strategy will depend on numerous factors, many of which are beyond the
control of the Company and its franchisees, including the hiring, training and
retention of qualified management and other restaurant personnel, the ability to
obtain necessary governmental permits and approvals, the availability of
11
<PAGE> 14
appropriate financing and general economic conditions. The Company and its
franchisees face competition from other restaurant operators, retail chains,
companies and developers for desirable site locations, which may adversely
affect the cost, implementation and timing of the Company's expansion plans. To
manage its planned expansion, the Company must ensure the continuing adequacy of
its existing systems and procedures, including its supply and distribution
arrangements, restaurant management, financial controls and information systems.
The Company's growth will also depend in part on its ability to increase
sales at existing restaurants. In addition to its turnaround strategies for
Hardee's, the Company expects to continue remodeling and upgrading equipment at
its Hardee's restaurants. The Company has substantially completed its remodeling
program for its Company-operated Carl's Jr. restaurants and plans to convert at
least 60 of its Carl's Jr. restaurants to Carl's Jr./Green Burrito dual-brand
restaurants in each of the next three years. The Company will incur significant
capital expenditures in remodeling and converting restaurants and will
experience a loss of revenues during the brief periods of time that restaurants
are closed for remodeling or conversion. There can be no assurance that such
remodels and conversions will increase the revenues generated by these
restaurants or, even if revenues are increased, that such increases will be
sustainable. In addition, although the sales results experienced by the
Company-operated Carl's Jr. restaurants that have been remodeled or converted to
dual-brand restaurants have generally been favorable to date, there can be no
assurance that such favorable sales results are sustainable or that they are
indicative of sales results that will be achieved by restaurants to be remodeled
or converted in the future. There can also be no assurance that the Company will
be able to achieve same-store sales increases in its Company-operated
restaurants.
Although the Company is not currently contemplating any significant
additional acquisitions of other restaurant companies, it will continue to
evaluate investment opportunities in other restaurant companies. Acquisitions
involve a number of risks that could adversely affect the Company's operating
results, including the diversion of management's attention, the assimilation of
the operations and personnel of the acquired companies, the amortization of
acquired intangible assets and the potential loss of key employees. No assurance
can be given that any acquisition or investment by the Company will not
materially and adversely affect the Company or that any such acquisition or
investment will enhance the Company's business. If the Company determines to
make any significant acquisitions of, or investments in, other businesses, the
Company may be required to sell additional equity or debt securities or obtain
additional credit facilities. The sales, if any, of additional equity or
convertible debt securities could result in additional dilution to the Company's
stockholders.
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.................. 53 Chairman of the Board, Chief Executive Officer
C. Thomas Thompson................... 48 President and Chief Operating Officer
Rory J. Murphy....................... 50 President, Hardee's Food Systems, Inc.
Carl A. Strunk....................... 60 Executive Vice President, Chief Financial
Officer
Andrew F. Puzder..................... 47 Executive Vice President, General Counsel and
Secretary
Robert E. Wheaton.................... 45 Executive Vice President
Robert W. Wisely..................... 52 Executive Vice President, Marketing
Loren C. Pannier..................... 56 Senior Vice President, Investor Relations
Edward J. Dewey...................... 52 Senior Vice President, Chief of Staff, Office of
the Chairman
</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 also serves
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<PAGE> 15
as the Chairman of the Board of Star Buffet, GB Foods and Checkers and as a
member of the Boards of Directors of Rally's, DataWorks Corporation and Micro
General Corporation.
C. Thomas Thompson was appointed President and Chief Operating Officer in
October 1994. Mr. Thompson has been a franchisee of the Company since 1984, and
currently operates 15 Carl's Jr. restaurants in the San Francisco Bay Area. Mr.
Thompson also currently serves as Vice Chairman of the Board of Checkers and as
a member of the Board of Directors of Rally's and Star Buffet. Mr. Thompson has
more than 25 years of experience in the restaurant industry. He previously held
various positions with Jack-in-the-Box.
Rory J. Murphy was appointed President of Hardee's immediately following
the Company's acquisition of Hardee's in July 1997. Mr. Murphy served as
Executive Vice President, Restaurant Operations of the Company from June 1996
until July 1997, and served as Senior Vice President, Restaurant Operations of
the Company from February 1993 until June 1996. Mr. Murphy has been employed by
the Company in various positions for 19 years.
Carl A. Strunk was appointed Executive Vice President and Chief Financial
Officer in February 1997. Mr. Strunk also serves as Executive Vice
President/Finance for Fidelity and GB Foods and has been with Fidelity since
1992 and GB Foods since December 1997. Mr. Strunk previously served as President
of Land Resources Corporation from 1986 to 1991. Mr. Strunk is a Certified
Public Accountant and is also a member of the Board of Directors of Micro
General Corporation.
Andrew F. Puzder became Executive Vice President, General Counsel and
Secretary in February 1997. Mr. Puzder also serves as Chief Executive Officer of
GB Foods and Executive Vice President of Fidelity, where he has been 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. Mr. Puzder has been Chief Executive Officer and a
Director of GB Foods since August 1997 and is a member of the Board of Directors
of Javelin Systems, Inc. and Rally's.
Robert E. Wheaton became Executive Vice President of the Company in January
1996. Mr. Wheaton also serves as the President and Chief Executive Officer, and
is a member of the Board of Directors, of Star Buffet. Mr. Wheaton served as
Vice President and Chief Financial Officer of Denny's Inc., a subsidiary of
Advantica, 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.
Robert W. Wisely was appointed Executive Vice President, Marketing in
August 1997. Prior to that, he served as Senior Vice President, Marketing from
January 1995. Mr. Wisely has been a franchisee of the Company since 1990. Prior
to 1990, Mr. Wisely served as Senior Vice President, Marketing from 1985 to 1990
and as Group Vice President, Marketing from 1974 to 1979.
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 over 25 years.
Edward J. Dewey became Senior Vice President, Chief of Staff, Office of the
Chairman in December 1997. Mr. Dewey has been Senior Vice President, Chief of
Staff, Office of the Chairman for Fidelity since December 1997. Prior to that,
from May 1993 to November 1997, he was a Vice President with Fidelity National
Title Insurance Company. From 1967 through 1993, Mr. Dewey was in the U.S. Army,
leaving the service with the rank of Colonel.
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<PAGE> 16
ITEM 2. PROPERTIES
The following table sets forth information regarding the Company's
restaurant properties at January 26, 1998, including the FEI restaurant
properties acquired on April 1, 1998:
<TABLE>
<CAPTION>
LAND LAND
AND LAND LEASED AND
BUILDING AND BUILDING BUILDING
OWNED OWNED LEASED TOTAL
-------- ------------ -------- -----
<S> <C> <C> <C> <C>
Carl's Jr.:
Company-operated........................... 45 50 348 443
Franchisee-operated(1)..................... 12 8 -- 20
Third party-operated/vacant(1)............. 7 2 -- 9
--- --- --- -----
Subtotal................................ 64 60 348 472
--- --- --- -----
Hardee's:
Company-operated........................... 355 167 341 863
Franchisee-operated(1)..................... 42 36 -- 78
Third party-operated/vacant(1)............. 45 16 -- 61
--- --- --- -----
Subtotal................................ 442 219 341 1,002
--- --- --- -----
Taco Bueno:
Company-operated........................... 72 10 27 109
--- --- --- -----
Subtotal................................ 578 289 716 1,583
FEI:
Company-operated........................... 283 95 179 557
--- --- --- -----
Total.............................. 861 384 895 2,140
=== === === =====
</TABLE>
- ---------------
(1) "Franchisee-operated" properties are those which are owned by the Company
and subleased to franchisee operators. "Third party-operated/vacant" are
properties owned by the Company that are either operated by unaffiliated
entities or are currently vacant.
The terms of the Company's leases or subleases vary in length expiring on
various dates through 2023. 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 Company owns its
Hardee's corporate facility in Rocky Mount, North Carolina.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time the subject of complaints or litigation
from customers alleging illness, injury or other food quality, health or
operational concerns. Adverse publicity resulting from such allegations may
materially adversely affect the Company and its restaurants, regardless of
whether such allegations are valid or whether the Company is liable. The Company
also is the subject of complaints or allegations from employees and franchisees
from time to time. The Company believes that the lawsuits, claims and other
legal matters to which it has become subject in the course of its business are
not material to the Company's financial condition or results of operations, but
an existing or future lawsuit or claim could result in an adverse decision
against the Company that could have a material adverse effect on the Company's
financial condition and results of operations.
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<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of stockholders of the Company was held on December 9,
1997 for the purpose of voting on a proposal to amend the Company's certificate
of incorporation to increase the authorized number of shares of common stock
from 50,000,000 to 100,000,000. The proposal was duly passed with 38,079,710
shares voting for the proposal, 857,420 shares voting against the proposal,
81,514 shares abstaining from the vote and no broker non-votes. There were
39,018,644 shares represented and entitled to vote of the 41,988,018 shares
outstanding as of the November 7, 1997 record date.
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, 1998, 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 1997
First Quarter............................................. $14.62 $ 9.02
Second Quarter............................................ 16.97 12.42
Third Quarter............................................. 20.76 14.02
Fourth Quarter............................................ 21.82 17.35
FISCAL 1998
First Quarter............................................. $23.18 $16.70
Second Quarter............................................ 32.95 20.34
Third Quarter............................................. 40.85 28.64
Fourth Quarter............................................ 42.19 31.25
</TABLE>
The foregoing prices have been adjusted to give retroactive effect to a
three-for-two stock split effected as a stock dividend in January 1997 and a 10%
stock dividend in February 1998.
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 and stock dividend), during fiscal 1996 and fiscal 1997. During
fiscal 1998, the Company increased the annual rate to $0.07 per share (adjusted
to give retroactive effect to the stock dividend). On March 31, 1998, 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 30, 1998
to holders of record on April 15, 1998. 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 Senior Credit
Facility imposes limitations on the amount of dividends or other distributions
on its common stock that the Company may make.
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<PAGE> 18
ITEM 6. SELECTED FINANCIAL AND OPERATING 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 and stock dividends since the Company's inception.
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS, RESTAURANT COUNT, AND PERCENTAGES)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OR AS OF JANUARY 31, (1)
------------------------------------------------------
1998(2) 1997(3) 1996 1995 1994(4)
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Total revenues........................... $1,149,659 $613,380 $464,667 $442,942 $462,708
Operating income......................... 86,191 44,139 27,000 9,741 11,110
Interest expense......................... 16,914 9,877 10,004 9,202 10,387
Net income............................... 46,757 22,302 10,952 1,264 3,665
Net income per common and common
equivalent share -- diluted(5)........ $ 1.07 $ 0.67 $ 0.36 $ 0.04 $ 0.12
Common and common equivalent shares used
in computing per share
amounts -- diluted.................... 43,747 33,276 30,555 30,882 30,118
Cash dividends paid per common share..... $ 0.07 $ 0.05 $ 0.05 $ 0.05 $ 0.05
Ratio of earnings to fixed charges(6).... 5.5x 4.7x 2.8x 1.3x 1.6x
CONSOLIDATED BALANCE SHEET DATA:
Total assets............................. $ 957,368 $410,367 $248,009 $244,361 $242,135
Total debt, including current portion.... 216,905 86,993 82,423 81,618 79,861
Stockholders' equity..................... $ 498,512 $214,804 $101,189 $ 88,474 $ 92,076
</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 1998 includes operating results of Hardee's from and after July 15,
1997. Share and per share data were also affected during fiscal 1998 by a
public offering of 9,171,250 shares of common stock, completed in July 1997.
(3) Fiscal 1997 includes $94.3 million of revenues generated from other
restaurant concepts acquired by the Company during fiscal 1997. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Share and per share data were also affected during fiscal 1997
by a public offering of 4,743,750 shares of common stock, completed in
November 1996.
(4) Fiscal 1994 includes 53 weeks.
(5) Fiscal 1994 includes the cumulative effect of a change in accounting
principle of $(0.03) per share. In the fourth quarter of fiscal 1998, the
Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS
128"), "Earnings per Share." Prior year amounts have been restated in
accordance with SFAS 128.
(6) For purposes of calculating the ratio of earnings to fixed charges (i)
earnings represent income before income taxes and fixed charges and (ii)
fixed charges consist of interest on all indebtedness, interest related to
capital lease obligations and amortization of debt issuance costs.
16
<PAGE> 19
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, (1)
--------------------------------------------------------------
1998 1997 1996 1995 1994(2)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CARL'S JR. RESTAURANT OPERATING
DATA:
System-wide restaurant revenues:
Company-operated
restaurants................ $ 488,495 $ 443,304 $ 389,214 $ 364,278 $ 384,859
Franchised and licensed
restaurants................ 214,534 204,700 193,984 201,170 209,214
---------- ---------- ---------- ---------- ----------
Total system-wide
revenues.............. $ 703,029 $ 648,004 $ 583,198 $ 565,448 $ 594,073
========== ========== ========== ========== ==========
Restaurants open (at end of
fiscal year):
Company-operated............. 443 415 394 383 376
Franchised and licensed...... 265 258 273 277 272
---------- ---------- ---------- ---------- ----------
Total................... 708 673 667 660 648
========== ========== ========== ========== ==========
Average annual sales per
Company-operated
restaurant(3)................ $ 1,157 $ 1,114 $ 1,006 $ 966 $ 992
Percentage increase (decrease)
in comparable
Company-operated restaurant
sales(4)..................... 4.8% 10.7% 4.4% (3.8)% (6.5)%
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM FISCAL YEAR ENDED DECEMBER 31, (7)
7/16/97 TO 1/1/97 TO ------------------------------------
1/31/98(5) 7/15/97(6) 1996 1995 1994
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
HARDEE'S RESTAURANT OPERATING
DATA:
System-wide restaurant revenues:
Company-operated
restaurants................ $ 339,942 $ 346,481 $ 645,409 $ 596,593 $ 593,391
Franchised and licensed
restaurants................ 1,123,034 1,152,442 2,350,733 2,582,514 2,760,588
---------- ---------- ---------- ---------- ----------
Total system-wide
revenues.............. $1,462,976 $1,498,923 $2,996,142 $3,179,107 $3,353,979
========== ========== ========== ========== ==========
Restaurants open (at end of
fiscal year):
Company-operated............. 863 782 808 733 692
Franchised and licensed...... 2,175 2,329 2,417 2,600 2,711
---------- ---------- ---------- ---------- ----------
Total................... 3,038 3,111 3,225 3,333 3,403
========== ========== ========== ========== ==========
Average annual sales per
Company-operated
restaurant(3)................ $ 803 $ 831 $ 848 $ 888 $ 968
Percentage decrease in
comparable Company-operated
restaurant sales(4).......... (7.2)% (0.4)% (4.4)% (6.8)% (3.5)%
</TABLE>
- ---------------
(1) The Company's fiscal year is 52 or 53 weeks, ending the last Monday in
January. For clarity of presentation, all years are presented as if the
fiscal year ended January 31.
(2) Fiscal 1994 includes 53 weeks.
(3) Calculated on a 52- or 53-week trailing basis for all years presented.
(4) Includes only restaurants open throughout the full years being compared.
(5) Includes results of operations for Hardee's from and after July 15, 1997,
the date of acquisition.
(6) Hardee's restaurant operating data for the period from January 1, 1997 to
July 15, 1997 excludes the results of Hardee's restaurants sold or closed
prior to July 15, 1997.
(7) Hardee's restaurant operating data for the three fiscal years ending
December 31, 1996 excludes the results of Hardee's restaurants sold or
closed prior to December 31, 1996.
17
<PAGE> 20
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 and
Operating Data" included elsewhere in this Form 10-K.
OVERVIEW
The Company is a leading nationwide owner, operator and franchisor of
quick-service restaurants, operating principally under the Carl's Jr. and
Hardee's brand names. Based on domestic system-wide sales, the Company's
Hardee's and Carl's Jr. chains are the fourth and seventh largest quick-service
hamburger restaurant chains in the United States, respectively. As of January
26, 1998, the Carl's Jr. system included 708 restaurants, of which 443 were
operated by the Company and 265 were operated by its franchisees and licensees.
Carl's Jr. restaurants are located in the Western United States, predominantly
in California. In July 1997, the Company completed its acquisition of Hardee's,
and as of January 26, 1998, the Hardee's system consisted of 3,038 restaurants,
of which 863 were operated by the Company and 2,175 were operated by the
Company's franchisees and licensees. Hardee's restaurants are located throughout
the Eastern and Midwestern United States, predominantly in the Southeast. As of
January 26, 1998, the Company also operated a total of 235 other restaurants,
including 109 Taco Bueno quick-service Mexican food restaurants located in Texas
and Oklahoma.
The first Carl's Jr. restaurant was opened in 1956 by Carl N. Karcher, 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. At that time, 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
lower-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, 1997 and 1998. The Company substantially completed its
remodeling program in January 1998 and is continuing to implement its
dual-branding conversions and focus on reducing expenses. The Company believes
it will continue to benefit from such activities in the future.
The Company believes that its acquisition of Hardee's in July 1997 allowed
it to significantly expand the scope of its operations and to become one of the
leading nationwide operators of quick-service hamburger restaurants. The Company
has begun implementing a plan to meaningfully improve the profitability and
sales of Hardee's in an effort to improve Hardee's poor recent historical
performance. The Company's plan includes many of the operating initiatives which
it used to improve the operations of its Carl's Jr. restaurants, including
implementing CKE's management practices, improving the quality of food,
enhancing the quality of service, updating restaurant facilities and managing
costs more effectively.
The Company believes that the FEI Acquisition will enable it to continue to
expand the scope of its operations and to exercise further control over its
Hardee's restaurant system. As a result of the FEI Acquisition, 1,420 of the
3,038 Hardee's restaurants operated as of January 26, 1998 are presently
operated by the Company, representing 46.7% of the Hardee's system, and giving
the Company control of 48 of Hardee's 98 broadcast cooperative advertising
markets. The Company believes it can meaningfully improve the same-store sales
trends and profitability levels at FEI's Hardee's restaurants by implementing
the strategies that it has used to improve the operations of its Carl's Jr.
restaurants and is beginning to implement at its other Company-operated Hardee's
restaurants.
The Company's revenues are derived primarily from sales by Company-operated
restaurants and revenues from franchisees, including franchise and royalty fees,
sales to Carl's Jr. franchisees and licensees of food and packaging products,
rentals under real property leases and revenues from the sale of equipment.
18
<PAGE> 21
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
Carl's Jr.'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.
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,
------------------------------
1998(1) 1997(2) 1996
-------- -------- ------
<S> <C> <C> <C>
Revenues:
Company-operated restaurants............................ 88.9% 87.5% 84.7%
Franchised and licensed restaurants and other........... 11.1 12.5 15.3
----- ----- -----
Total revenues....................................... 100.0% 100.0% 100.0%
===== ===== =====
Operating costs and expenses:
Restaurant operations(3):
Food and packaging................................... 30.7% 30.6% 30.1%
Payroll and other employee benefits.................. 30.5 27.9 27.9
Occupancy and other operating expenses............... 20.2 20.6 20.8
----- ----- -----
81.4 79.1 78.8
Franchised and licensed restaurants and other(4)........ 73.7 94.9 97.3
Advertising expenses(3)................................. 5.7 5.9 5.8
General and administrative expenses..................... 6.9 6.5 7.6
Operating income.......................................... 7.5 7.2 5.8
Interest expense.......................................... (1.5) (1.6) (2.1)
Other income, net......................................... 0.7 0.4 0.2
----- ----- -----
Income before income taxes................................ 6.7 6.0 3.9
Income tax expense........................................ 2.6 2.4 1.5
----- ----- -----
Net income................................................ 4.1% 3.6% 2.4%
===== ===== =====
</TABLE>
- ---------------
(1) Fiscal 1998 includes operating results of Hardee's from and after July 15,
1997.
(2) Fiscal 1997 includes $94.3 million of revenues generated from other
restaurant concepts acquired by the Company during fiscal 1997.
(3) As a percentage of revenues from Company-operated restaurants.
(4) As a percentage of revenues from franchised and licensed restaurants and
other.
REVENUES
Company-operated Restaurants. Revenues from Company-operated restaurants
increased $485.6 million or 90.5% to $1.022 billion in fiscal 1998 as compared
with fiscal 1997. Carl's Jr. Company-operated revenues for the year accounted
for sales increases of $45.2 million. Additionally, the Company's Hardee's and
Taco Bueno restaurants contributed $339.9 million and $51.8 million,
respectively, to the increase. Offsetting these increases is the loss of
revenues from the Company's HomeTown Buffet and Casa Bonita restaurants that
were disposed of in connection with the initial public offering of Star Buffet
in September 1997. On a same-store sales basis, the Company's Carl's Jr. sales,
which are calculated using only restaurants in operation
19
<PAGE> 22
for the full years being compared, increased 4.8%, marking the third consecutive
annual increase in same-store sales for the Carl's Jr. chain. Same-store sales
for the Company-operated Taco Bueno restaurants increased 6.2%, while same-store
sales from Company-operated Hardee's restaurants decreased 7.2% since the date
of acquisition. The decrease in same-store sales for Hardee's can be attributed
to several factors, including the paring down of Hardee's oversized menu and the
discontinuation of monthly new product introductions. The increase in revenues
from Company-operated Carl's Jr. restaurants is primarily the result of
continued momentum in the Company's various sales enhancement programs,
including the continuation of conversion of its existing Carl's Jr. locations
into Carl's Jr./Green Burrito dual-brand restaurants, the continued focus on
promoting great-tasting new and existing food products through increased
innovative advertising, and the image enhancement of its restaurants through a
chain-wide remodeling program. Also contributing to the increase in sales at the
Carl's Jr. restaurants was the introduction of the Charbroiled Sirloin Steak
Sandwich in the fourth quarter of fiscal 1998 which has recorded the highest
sales levels for a new product offering in the past 11 years. Average unit
volumes in Company-operated Carl's Jr. restaurants continue to rise and reached
$1,157,000 for the trailing 52-week period while average unit volumes at
Company-operated Hardee's and Taco Bueno restaurants ended the fiscal year at
$803,000 and $685,000 for the trailing 52-week period, respectively.
The Company's revenues from Company-operated restaurants increased $143.3
million or 36.4% to $536.8 million in fiscal 1997 compared with $393.5 million
in fiscal 1996. Company-operated Carl's Jr. restaurants accounted for $54.1
million of the increase, while the Company's other restaurant concepts acquired
in fiscal 1997 contributed an additional $93.5 million to revenues, with the
Company's Taco Bueno restaurants accounting for $22.1 million of the additional
revenues. Fiscal 1996 revenues included approximately $4.3 million from the
Company's Boston Market operations. The increase in revenues from Company-
operated Carl's Jr. restaurants was largely due to the continued effect of the
various sales enhancement programs that were implemented in fiscal 1996. The
10.7% same-store sales increase in fiscal 1997 was the second consecutive annual
same-store sales increase and the highest same-store sales increase reported by
the Company's Carl's Jr. chain in nearly a decade. 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.
Franchised and Licensed Restaurants and Other. The Company's revenues from
franchised and licensed restaurants for fiscal 1998 increased $50.6 million or
66.1% to $127.2 million over fiscal 1997. This increase is principally due to
the royalties earned by Hardee's franchise system, equipment sales to Hardee's
franchisees and to increased royalties from, and food purchases by, franchisees
and licensees of Carl's Jr. as a result of higher sales volume at franchised and
licensed Carl's Jr. restaurants. Fiscal 1997 revenues from franchised and
licensed restaurants increased $5.4 million, or 7.6%, to $76.6 million over
fiscal 1996. The fiscal 1997 increase was primarily due to increased royalties
from, and food purchases by, franchisees as they experienced increased sales
trends similar to those the Company experienced in its Company-operated
restaurants. This increase in sales was offset by a decrease in the number of
franchised and licensed Carl's Jr. restaurants in operation during fiscal 1997
as compared with fiscal 1996.
OPERATING COSTS AND EXPENSES
Restaurant Operations. Restaurant-level margins of the Company's
consolidated restaurant operations decreased in fiscal 1998 by 2.3% as compared
with fiscal 1997, primarily reflecting the impact of typically higher operating
costs at the Company's family-style restaurant concepts, which were acquired in
the second quarter of fiscal 1997 and at Hardee's quick-service hamburger
restaurants, which were acquired in the second quarter of fiscal 1998. The
family-style segment of the restaurant industry typically has lower margins than
the quick-service segment of the industry, mainly due to increased labor and
food costs. Although Hardee's restaurant-level margins are substantially lower
than the Company's other quick-service restaurant concepts, the Company has
increased Hardee's Company-operated restaurant-level margins in the fourth
quarter of fiscal 1998 to 12.8% compared with 1.5% for the comparable period of
the prior year for restaurants open and operating as of December 31, 1996. The
Company has accomplished this reduction of costs through many of the same
cost-saving measures it implemented at its Carl's Jr. restaurants over the past
three to four years,
20
<PAGE> 23
including: the introduction of the Carl's Jr. labor matrix to refine labor
usage; a focus on safety and accident prevention as a method of lowering
workers' compensation costs; the reduction of food waste and theft tolerance
levels; and the use of substantial purchasing synergies to lower food and paper
costs. Also contributing to the increase in restaurant-level margins since
acquisition is the simplification of the Hardee's menu and conforming Hardee's
depreciation policies with those of the Company.
While the Company's consolidated restaurant-level margins decreased in
fiscal 1998, continued cost-saving strategies at the Company's Carl's Jr.
restaurants have caused restaurant-level margins for the Carl's Jr. restaurant
chain to continue to increase. These margins, as a percentage of revenues from
Company-operated Carl's Jr. restaurants, were 24.2%, 23.1% and 21.3% in fiscal
1998, 1997, and 1996, respectively. These improved results in the Company's
Carl's Jr. restaurant-level operating margins reflect the Company's continued
commitment to improve the cost structure of its Carl's Jr. restaurants,
particularly in the areas of increased purchasing synergies for food and paper,
improved labor productivity and reduced workers' compensation costs.
The Company's Carl's Jr. food and packaging costs have remained relatively
consistent at 29.9%, 30.2% and 30.0% of revenues from Company-operated Carl's
Jr. restaurants for fiscal 1998, 1997 and 1996, respectively. During fiscal
1998, food costs decreased marginally due to the purchasing economies the Carl's
Jr. chain has achieved as a result of the consolidated buying power directly
resulting from the addition of its other restaurant concepts. Partially
offsetting these purchasing economies realized in fiscal 1998, and contributing
to the slight increase in food costs in fiscal 1997, was increased pressure from
commodity prices and a change in the product mix as a result of the promotion of
larger, more expensive sandwiches such as the Charbroiled Sirloin Steak
Sandwich, which was introduced in the fourth quarter of fiscal 1998, and the
Crispy Chicken Sandwiches, which were introduced in the third quarter of fiscal
1996.
Payroll and other employee benefits for the Company's Carl's Jr. restaurant
chain as a percentage of revenues from Company-operated Carl's Jr. restaurants
decreased 0.8% in fiscal 1998 to 25.7% and decreased 1.4% in fiscal 1997 to
26.5%. These reductions in payroll and employee benefits were achieved despite
the October 1996 and September 1997 increases in the federal minimum wage and
the additional March 1997 increase in California minimum wage levels. 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. Further, the new safety and other programs added by the Company
during fiscal 1994, in conjunction with changes in state regulations, have
resulted in a decrease in work-related injuries and reduced the Company's
workers' compensation claims and losses during fiscal 1998 and 1997.
Many of the Company's employees are paid hourly rates related to the
federal and state minimum wage laws. Legislation increasing the minimum wage in
October 1996 and September 1997 has resulted in higher labor costs to the
Company and its franchisees. Moreover, as a result of recent legislation in
California, the California state minimum wage was increased effective March
1997. The Company anticipates that any future 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.
Carl's Jr. occupancy and other operating expenses, as a percentage of
revenues from Company-operated Carl's Jr. restaurants, were 20.2%, 20.2% and
20.8% in fiscal 1998, 1997 and 1996, respectively. A portion of occupancy and
other operating expenses are fixed in nature, and thus as a percentage of
Company-operated revenues, they fall as revenues rise. These costs increased in
fiscal 1998 as compared with fiscal 1997 primarily due to increased equipment
costs as the Company implements updated data technology at its restaurants and
increased utility and depreciation expenses in connection with the image
enhancement of the Company's Carl's Jr. restaurants. The decrease as a
percentage of Company-operated restaurants in fiscal 1997 as compared with
fiscal 1996 is largely due to the Company's efforts to maintain costs at the
prior fiscal year levels in conjunction with the fixed nature of the expenses
and the increase in revenues in fiscal 1997.
Franchised and Licensed Restaurants and Other. Franchised and licensed
restaurant costs increased 29.0% in fiscal 1998 to $93.8 million as compared
with fiscal 1997. This increase is primarily due to the additional costs
associated with the Hardee's franchise operations in addition to increased food
purchases by
21
<PAGE> 24
Carl's Jr. franchisees and licensees. As a percentage of revenues from
franchised and licensed restaurants, these costs decreased 21.2% in fiscal 1998
over fiscal 1997. This decrease is mainly due to the nature of the Hardee's
franchise revenues, which principally arise from royalties paid by its
franchisees, in contrast with the revenues from Carl's Jr. franchisees and
licensees, which are primarily derived from both royalties paid and food
purchases by franchisees. As a result, the cost structure associated with
Hardee's revenue from franchised and licensed restaurants is substantially lower
than that associated with the Carl's Jr. franchise operations. Franchised and
licensed restaurant costs in fiscal 1997 increased 5.0% to $72.7 million. These
costs followed a similar trend to the revenues from franchise and licensed
restaurants, with the overall increase in fiscal 1997 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.
Advertising Expenses. Advertising expenses increased $26.6 million in
fiscal 1998 over fiscal 1997, and $8.8 million in fiscal 1997 as compared with
fiscal 1996, while remaining relatively consistent as a percentage of revenues
from Company-operated restaurants. The increase in advertising expenses in
fiscal 1998 is principally due to the additional advertising support for the
newly acquired concepts. In fiscal 1997, as compared with fiscal 1996, the
Company spent more on advertising production and increased the number of weeks
on electronic media. The Company has experienced positive same-store sales
growth in its Carl's Jr. restaurants in 11 consecutive quarters since the
Company hired a new advertising agency and began its innovative advertising
campaign in May 1995, which focuses on Carl's Jr. superior quality products.
General and Administrative Expenses. General and administrative expenses
increased $38.9 million and $4.7 million in fiscal 1998 and 1997 to $78.9
million and $40.0 million, respectively. As a percentage of total revenues,
general and administrative expenses were 6.9%, 6.5% and 7.6% in fiscal 1998,
1997 and 1996, respectively. The increase in fiscal 1998 is primarily the result
of adding the expenses associated with the support of the Hardee's restaurant
operations. Hardee's general and administrative expenses as a percentage of
total revenues were approximately 7.6% for fiscal 1998 as compared with 10.7% of
Hardee's total revenues at the end of calendar year 1996 under previous
ownership. General and administrative expenses have also increased in both
fiscal 1998 and fiscal 1997 due to recording incentive compensation accruals for
regional restaurant management and selected corporate employees as a result of
improved operating performance. Also contributing to the increase in fiscal 1997
were increased amortization expenses and various corporate legal expenses. The
decrease in general and administrative expenses as a percentage of total
revenues in fiscal 1997 over fiscal 1996 was primarily attributable to the
economies of scale the Company achieved by collapsing certain costs from
acquired businesses into the Company's existing infrastructure.
INTEREST EXPENSE
Interest expense for fiscal 1998 increased $7.0 million to $16.9 million as
compared with fiscal 1997 primarily as a result of additional borrowings
required to complete the Hardee's acquisition and the write-off of certain loan
fees associated with the termination or repayment of the Company's previous
credit agreements, partially offset by a reduction in interest rates. Interest
expense in fiscal 1997 decreased 1.3% to $9.9 million as compared with fiscal
1996 as a result of lower levels of borrowings outstanding during fiscal 1997,
the prepayment of certain indebtedness early in fiscal 1997 and lower interest
rates.
OTHER INCOME, NET
Other income, net, is mainly comprised of interest income, lease income,
dividend income, gains and losses on sales of restaurants, income and loss on
long-term investments, property management expenses and other non-recurring
income and expenses. Other income, net, increased $4.9 million and $1.5 million
in fiscal 1998 and fiscal 1997, respectively, as compared with the prior years.
This increase in fiscal 1998 generally resulted from interest income earned on
the Company's note receivable from Checkers and amortization of the related
discount along with lease and dividend income recorded from the Company's
long-term investment in Boston West. The fiscal 1997 increase was primarily due
to increased property management expenses and a gain on the sale of restaurants
in fiscal 1997 as compared with a loss in the prior year. Moreover, included in
fiscal 1996 was a $1.9 million decrease in the Company's Boston Market
investment which resulted from the
22
<PAGE> 25
Company recording its pro-rata share of the losses from Boston West. (See Note 6
of Notes to Consolidated Financial Statements.)
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $15.9 million to $30.4 million in
fiscal 1998. Total cash provided by operating activities increased $17.3 million
to $74.3 million, which was primarily due to increased revenues from the
Company's newly acquired concepts and increased revenues and improved operating
margins from the Company's Carl's Jr. operations.
Investing activities required the Company to use $428.5 million in cash to
fund capital additions of $89.2 million, to fund the Company's investment in
Checkers of $14.1 million, to complete the acquisition of Hardee's for $320.6
million (net of cash acquired) and to complete the acquisitions of certain
Hardee's franchised restaurants. The cash required for these investing
activities was partially funded by cash proceeds of $16.3 million (net of cash
surrendered) from the sale of shares by the Company and the disposition of its
HomeTown Buffet and Casa Bonita restaurants in connection with the initial
public offering of Star Buffet and $11.9 million from the sale of 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 $338.2 million, primarily
through cash proceeds of $222.3 million from the Company's common stock
offering. (See Note 11 of Notes to Consolidated Financial Statements.) The
increase in total borrowings of $151.5 million, together with cash flows from
operations and cash proceeds from the common stock offering were used primarily
to complete the acquisition of Hardee's, to repay existing indebtedness, to fund
the Company's capital expenditures for the conversion of certain of its Hardee's
restaurants to dual-brand Carl's Jr./Hardee's restaurants in selected markets,
to repurchase certain Hardee's franchised restaurants, to make $7.5 million in
required principal repayments under the term loan portion of the Company's
credit facility and to repay $5.0 million under its revolving credit facility.
Additionally, the Company generated cash from the exercise of stock options of
approximately $3.8 million and used cash to repay capital lease obligations of
$5.0 million and pay dividends of $3.0 million.
Effective July 15, 1997, the Company entered into a new Senior Credit
Facility which replaced an unsecured bank credit facility arranged for the
Company in July 1996. On July 15, 1997, the Company incurred $75.0 million of
borrowings under the Term Loan Facility and $58.9 million of borrowings under
the Revolving Credit Facility to fund a portion of the consideration needed to
acquire Hardee's. As of January 26, 1998, $67.5 million of borrowings remained
outstanding under the Term Loan Facility and $71.0 million of borrowings
remained outstanding under the Revolving Credit Facility.
On April 1, 1998, the Company amended the Senior Credit Facility to
increase the aggregate principal amounts of the lenders' commitments under the
Term Loan Facility to $250.0 million and under the Revolving Credit Facility to
$250.0 million, which includes a $65.0 million letter of credit subfacility, and
to extend the final maturity to April 2003. On April 1, 1998, the Company
incurred borrowings of $213.2 million under the Senior Credit Facility to
finance a portion of the purchase price of the FEI Acquisition. Principal
repayments under the Term Loan Facility are due in quarterly installments
commencing in June 1998 and continuing thereafter until the final maturity of
the Senior Credit Facility in April 2003, resulting in annual reductions of
$20.0 million in the first year of the Term Loan Facility and annual reductions
thereafter ranging from $40.0 million to $70.0 million. Additional borrowings
under the Revolving Credit Facility may be used for working capital and other
general corporate purposes, including permitted investments and acquisitions,
and any outstanding amounts thereunder will become due in April 2003. The
Company will be required to repay borrowings under the Senior Credit Facility
with the proceeds from certain asset sales (unless the net proceeds of such
sales are reinvested in the Company's business), from the issuance of certain
equity securities or from the issuance of additional indebtedness. Of the
various options the Company has regarding interest rates, it has selected LIBOR
plus a margin, with future margin adjustments dependent on certain financial
ratios from time to time.
23
<PAGE> 26
Borrowings and other obligations of the Company under the Senior Credit
Facility are general unsubordinated obligations of the Company and secured by a
pledge of the capital stock of certain of the Company's present and future
subsidiaries, which subsidiaries guarantee such borrowings and other
obligations, and are secured by certain franchise rights, accounts receivable,
contract rights, general intangibles (including trademarks) and other assets of
the Company and such subsidiaries. The Senior Credit Facility contains a number
of significant covenants that, among other things, (i) restrict the ability of
the Company and its subsidiaries to incur additional indebtedness and incur
liens on their assets, in each case subject to specified exceptions, (ii) impose
specified financial tests as a precondition to the Company's and its
subsidiaries' acquisition of other businesses and (iii) limit the Company and
its subsidiaries from making capital expenditures and certain restricted
payments (including dividends and repurchases of stock), subject in certain
circumstances to specified financial tests. In addition, the Company is required
to comply with specified financial ratios and tests, including minimum EBITDA
requirements, minimum interest coverage and fixed charge coverage ratios,
minimum consolidated tangible net worth requirements and maximum leverage
ratios.
On March 13, 1998, the Company completed a private placement of $197.2
million aggregate principal amount of convertible subordinated notes, in which
the Company received net proceeds of approximately $192.3 million, of which
$24.1 million was used to repay indebtedness under the Term Loan Facility. The
Notes, which represent unsecured general obligations of the Company subordinate
in right of payment to certain other obligations, are due in 2004, are
convertible into the Company's common stock at an initial conversion price of
$48.204 and carry a 4.25% coupon. The remaining net proceeds from the Notes,
together with borrowings under the Senior Credit Facility were used to fund the
acquisition of FEI on April 1, 1998.
The Company's primary source of liquidity is its revenues from
Company-operated restaurants, which are generated in cash. Future capital needs
will arise primarily for the construction of new restaurants, the remodeling of
existing restaurants, the repurchase of certain Hardee's restaurants from
franchisees, the conversion of certain restaurants to the Carl's Jr./Green
Burrito and Carl's Jr./serving Hardee's breakfast dual-brand concepts and
capital expenditures to be incurred in connection with the Company's integration
of Hardee's and FEI. During fiscal 1999, the Company expects to incur
approximately $160.0 million in capital expenditures. In addition, the Company
and Imasco Holdings continue to discuss certain post-closing purchase price
adjustments arising from the Hardee's acquisition. The Company believes that any
payments required as a result of such purchase price adjustments will not
materially affect the Company's financial condition.
The Company typically maintains current liabilities in excess of current
assets, because the quick-service restaurant business generally receives
immediate payment for sales, while inventories and other current liabilities
normally carry longer payment terms (usually 15 to 30 days).
The Company believes that cash generated from its various restaurant
operations, along with cash and cash equivalents on hand as of January 26, 1998,
and amounts available under the Senior Credit Facility will provide the Company
with the funds necessary to meet all of its capital spending and working capital
requirements for the foreseeable future. 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 acquisition
of or investments in other businesses, the Company may be required to sell
additional equity or debt securities or obtain additional credit facilities. In
addition, substantially all of the real properties owned by the Company and used
for its restaurant operations are unencumbered and could be used by the Company
as collateral for additional debt financing; however, there can be no assurance
that real estate financing or other financing can be obtained on terms
acceptable to the Company. Sales, if any, of additional equity or debt
securities could result in additional dilution to the Company's stockholders.
YEAR 2000
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of data-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year.
24
<PAGE> 27
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculations or system failures. Based on preliminary information, costs
of addressing potential problems are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows in future periods. However, the inability of the Company or its
suppliers or distributors and other vendors to resolve such processing issues in
a timely manner could have a material adverse impact on the Company.
Accordingly, the Company plans to devote the necessary resources to resolve all
significant year 2000 issues in a timely manner.
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 1998
and fiscal 1997, however, management has emphasized cost controls rather than
price increases, given the competitive pressure within the quick-service
restaurant industry.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS 130
requires all items that are required to be recognized under accounting standards
as components of comprehensive income to be reported in a financial statement
that is displayed with the same prominence as other financial statements. SFAS
130 does not require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive income for
the period covered by that financial statement. SFAS 130 requires an enterprise
to (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. Management has
determined that SFAS 130 will not have a material impact on the Company's
reporting of its consolidated financial position or results of operations and
requires only additional disclosure.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 requires, among other items, that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets, information about the revenues derived from the enterprise's
products or services, and major customers. SFAS 131 also requires that the
enterprise report descriptive information about the way that the operating
segments were determined and the products and services provided by the operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. SFAS 131 need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application. Management has not determined whether the adoption of SFAS 131
will have a material impact on the Company's segment reporting.
25
<PAGE> 28
In December 1997, the American Institute of Certified Public Accountants
approved for issuance the Statement of Position ("SOP"), Reporting on the Costs
of Start-Up Activities. The SOP requires that costs incurred during a start-up
activity (including organization costs) be expensed as incurred. The SOP is
effective for fiscal years beginning after December 15, 1998. The Company
currently amortizes pre-opening costs over one year from the time they are
incurred. Management does not believe the impact of the adoption of this SOP on
the Company's consolidated financial position or results of operations will be
material.
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 1998 Annual Meeting of Stockholders,
to be filed with the Commission within 120 days of January 26, 1998. 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 1998 Annual Meeting of Stockholders, to be filed with the Commission
within 120 days of January 26, 1998.
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 1998 Annual Meeting of
Stockholders, to be filed with the Commission within 120 days of January 26,
1998.
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 1998 Annual Meeting of
Stockholders, to be filed with the Commission within 120 days of January 26,
1998.
26
<PAGE> 29
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 22, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ WILLIAM P. FOLEY II Chairman of the Board and Chief Executive April 22, 1998
- ------------------------------------ Officer (Principal Executive Office)
William P. Foley II
/s/ CARL A. STRUNK Executive Vice President, Chief Financial April 22, 1998
- ------------------------------------ Officer (Principal Financial and
Carl A. Strunk Accounting Officer)
/s/ BYRON ALLUMBAUGH Director April 22, 1998
- ------------------------------------
Byron Allumbaugh
/s/ PETER CHURM Director April 22, 1998
- ------------------------------------
Peter Churm
/s/ CARL L. KARCHER Director April 22, 1998
- ------------------------------------
Carl L. Karcher
/s/ CARL N. KARCHER Director April 22, 1998
- ------------------------------------
Carl N. Karcher
/s/ DANIEL D. LANE Vice Chairman of the Board April 22, 1998
- ------------------------------------
Daniel D. Lane
/s/ W. HOWARD LESTER Director April 22, 1998
- ------------------------------------
W. Howard Lester
/s/ FRANK P. WILLEY Director April 22, 1998
- ------------------------------------
Frank P. Willey
</TABLE>
27
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
(A)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets -- as of January 31, 1998 and F-2
1997........................................................
Consolidated Statements of Income -- for the years ended F-3
January 31, 1998, 1997 and 1996.............................
Consolidated Statements of Stockholders' Equity -- for the F-4
years ended January 31, 1998, 1997 and 1996.................
Consolidated Statements of Cash Flows -- for the years ended F-5
January 31, 1998, 1997 and 1996.............................
Notes to Consolidated Financial Statements.................. F-6
(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.
</TABLE>
28
<PAGE> 31
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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 31, 1998 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Orange County, California
March 17, 1998, except for Note 9 and
Note 22, relating to the amendment to the
Company's Senior Credit Facility and acquisition
of Flagstar Enterprises, Inc., which are as of
April 1, 1998.
F-1
<PAGE> 32
CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 30,382 $ 46,330
Accounts receivable....................................... 27,317 7,942
Related party receivables................................. 1,171 2,088
Inventories............................................... 17,024 9,223
Deferred income taxes, net................................ -- 7,214
Prepaid expenses.......................................... 13,045 6,232
Other current assets...................................... 3,217 1,168
-------- --------
Total current assets.............................. 92,156 80,197
Property and equipment, net................................. 627,026 208,099
Property under capital leases, net.......................... 47,528 37,115
Long-term investments....................................... 48,089 33,268
Notes receivable............................................ 11,162 6,210
Related party receivables................................... 7,626 9,325
Costs in excess of net assets acquired, net................. 95,744 25,560
Other assets................................................ 28,037 10,593
-------- --------
$957,368 $410,367
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 15,812 $ 735
Current portion of capital lease obligations.............. 5,499 4,347
Accounts payable.......................................... 60,303 41,515
Deferred income taxes, net................................ 5,675 --
Other current liabilities................................. 89,195 36,527
-------- --------
Total current liabilities......................... 176,484 83,124
-------- --------
Long-term debt.............................................. 138,793 33,770
Capital lease obligations................................... 56,801 48,141
Other long-term liabilities................................. 86,778 30,528
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000
shares; none issued or outstanding..................... -- --
Common stock, $.01 par value; authorized 100,000,000
shares; issued and outstanding 46,523,179 shares and
36,540,626 shares...................................... 465 365
Additional paid-in capital................................ 366,110 126,246
Retained earnings......................................... 131,937 88,193
-------- --------
Total stockholders' equity........................ 498,512 214,804
-------- --------
$957,368 $410,367
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 33
CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
----------------------------------------
1998 1997 1996
------------ ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Company-operated restaurants:
Carl's Jr............................................ $ 488,495 $443,304 $389,214
Hardee's............................................. 339,942 -- --
Taco Bueno........................................... 73,982 22,146 --
JB's Restaurants..................................... 64,820 33,517 --
HomeTown Buffet...................................... 27,496 20,590 --
Other................................................ 27,718 17,251 4,272
---------- -------- --------
1,022,453 536,808 393,486
---------- -------- --------
Franchised and licensed restaurants and other:
Carl's Jr............................................ 80,730 75,785 71,181
Hardee's............................................. 45,295 -- --
Other................................................ 1,181 787 --
---------- -------- --------
127,206 76,572 71,181
---------- -------- --------
Total revenues.................................. 1,149,659 613,380 464,667
---------- -------- --------
Operating costs and expenses:
Restaurant operations:
Food and packaging................................... 314,412 164,120 118,244
Payroll and other employee benefits.................. 311,612 149,846 109,943
Occupancy and other operating expenses............... 206,436 110,828 82,004
---------- -------- --------
832,460 424,794 310,191
Franchised and licensed restaurants and other........... 93,773 72,696 69,263
Advertising expenses.................................... 58,383 31,795 22,975
General and administrative expenses..................... 78,852 39,956 35,238
---------- -------- --------
Total operating costs and expenses.............. 1,063,468 569,241 437,667
---------- -------- --------
Operating income.......................................... 86,191 44,139 27,000
Interest expense.......................................... (16,914) (9,877) (10,004)
Other income, net......................................... 7,363 2,448 957
---------- -------- --------
Income before income taxes................................ 76,640 36,710 17,953
Income tax expense........................................ 29,883 14,408 7,001
---------- -------- --------
Net income................................................ $ 46,757 $ 22,302 $ 10,952
========== ======== ========
Net income per share -- basic............................. $ 1.10 $ 0.69 $ 0.36
========== ======== ========
Weighted average shares outstanding -- basic.............. 42,394 32,399 30,211
========== ======== ========
Net income per common and common equivalent
share -- diluted........................................ $ 1.07 $ 0.67 $ 0.36
========== ======== ========
Common and common equivalent shares used in computing per
share amounts -- diluted................................ 43,747 33,276 30,555
========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 34
CKE RESTAURANTS, INC. AND SUBSIDIARIES
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, 1995.... 31,094 $311 974 $(4,558) $ 34,996 $ 57,725 $ 88,474
Cash dividends
($.05 per share).......... -- -- -- -- -- (1,460) (1,460)
Exercise of stock options.... 586 6 -- -- 2,744 -- 2,750
Purchase of treasury stock... -- -- 132 (551) -- -- (551)
Tax benefit associated with
exercise of stock
options................... -- -- -- -- 848 -- 848
Net unrealized gain on
investment securities..... -- -- -- -- -- 176 176
Net income................... -- -- -- -- -- 10,952 10,952
------ ---- ------ ------- -------- -------- --------
BALANCE AT JANUARY 31, 1996.... 31,680 317 1,106 (5,109) 38,588 67,393 101,189
Cash dividends
($.05 per share).......... -- -- -- -- -- (1,514) (1,514)
Exercise of stock options.... 396 4 -- -- 2,226 -- 2,230
Purchase of Summit........... 827 8 -- -- 11,403 -- 11,411
Common stock offering, net... 4,744 47 -- -- 77,568 -- 77,615
Retirement of treasury
stock..................... (1,106) (11) (1,106) 5,109 (5,098) -- --
Tax benefit associated with
exercise of stock
options................... -- -- -- -- 1,559 -- 1,559
Net unrealized gain on
investment securities..... -- -- -- -- -- 12 12
Net income................... -- -- -- -- -- 22,302 22,302
------ ---- ------ ------- -------- -------- --------
BALANCE AT JANUARY 31, 1997.... 36,541 365 -- -- 126,246 88,193 214,804
Cash dividends
($.07 per share).......... -- -- -- -- -- (3,013) (3,013)
Exercise of stock options.... 540 5 -- -- 3,787 -- 3,792
Purchase of Hardee's Green
Bay, Inc.................. 271 3 -- -- 9,402 -- 9,405
Common stock offering, net... 9,171 92 -- -- 222,252 -- 222,344
Tax benefit associated with
exercise of stock
options................... -- -- -- -- 4,423 -- 4,423
Net income................... -- -- -- -- -- 46,757 46,757
------ ---- ------ ------- -------- -------- --------
BALANCE AT JANUARY 31, 1998.... 46,523 $465 -- $ -- $366,110 $131,937 $498,512
====== ==== ====== ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 35
CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
--------------------------------
1998 1997 1996
--------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income................................................ $ 46,757 $ 22,302 $ 10,952
Adjustments to reconcile net income to net cash provided
by operating activities, excluding the effect of
acquisitions and dispositions:
Depreciation and amortization.......................... 46,402 27,002 21,372
Provision for losses on accounts and notes
receivable........................................... 2,729 300 313
Loss on sale of property and equipment and capital
leases............................................... 4,657 1,520 1,850
Net non-cash investment and dividend income............ (3,029) (1,257) 1,047
Deferred income taxes.................................. 12,889 7,637 2,197
(Gain) loss on non-current asset and liability
transactions......................................... (5,632) 151 209
Write-down of long-lived assets........................ -- 1,250 --
Net change in receivables, inventories and other
current assets....................................... (13,682) (6,178) (288)
Net change in accounts payable and other current
liabilities.......................................... (16,754) 4,261 (4,781)
--------- --------- --------
Net cash provided by operating activities......... 74,337 56,988 32,871
--------- --------- --------
Cash flows from investing activities:
Purchases of:
Marketable securities.................................. (393) (760) (921)
Property and equipment................................. (89,210) (49,223) (27,234)
Long-term investments.................................. (14,294) (7,905) (1,670)
Proceeds from sale of:
Marketable securities and long-term investments........ 393 5,418 1,972
Property and equipment................................. 5,952 7,816 905
Increases in notes receivable and related party
receivables............................................ (200) (14,020) (2,640)
Collections on and sale of notes receivable, related party
receivables and leases receivable...................... 5,946 3,842 9,901
Net change in other assets................................ (1,674) (6,109) (189)
Acquisitions, net of cash acquired........................ (351,294) (52,123) --
Dispositions, net of cash surrendered..................... 16,286 -- --
--------- --------- --------
Net cash used in investing activities............. (428,488) (113,064) (19,876)
--------- --------- --------
Cash flows from financing activities:
Net proceeds from common stock offering................... 222,344 77,615 --
Net change in bank overdraft.............................. 4,325 12,690 (9,909)
Short-term borrowings..................................... 20,000 1,200 57,060
Repayments of short-term debt............................. (12,500) (1,200) (57,060)
Long-term borrowings...................................... 131,489 78,000 14,573
Repayments of long-term debt.............................. (20,570) (86,274) (11,151)
Repayments of capital lease obligations................... (4,956) (3,363) (3,129)
Deferred financing costs.................................. (4,426) (657) (141)
Net change in other long-term liabilities................. (2,705) (1,943) 3,384
Purchase of treasury stock................................ -- -- (551)
Payment of dividends...................................... (3,013) (1,514) (1,460)
Exercise of stock options................................. 3,792 2,230 2,750
Tax benefit associated with the exercise of stock
options................................................ 4,423 1,559 848
--------- --------- --------
Net cash provided by (used in) financing
activities...................................... 338,203 78,343 (4,786)
--------- --------- --------
Net increase (decrease) in cash and cash equivalents...... $ (15,948) $ 22,267 $ 8,209
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 36
CKE RESTAURANTS, INC. AND SUBSIDIARIES
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" or the "Company") owns, operates, franchises
and licenses the Carl's Jr., and Hardee's quick-service restaurant concepts. As
of January 31, 1998, the Carl's Jr. system included 708 restaurants, of which
443 were operated by the Company and 265 were operated by the Company's
franchisees and licensees. Carl's Jr. restaurants are located in the Western
United States, predominantly in California. As of January 31, 1998, the
Company's Hardee's system included 3,038 restaurants, of which 863 were operated
by the Company and 2,175 were operated by the Company's franchises and licenses.
Hardee's restaurants are located throughout the Eastern and Midwestern United
States, predominantly in the Southeast. As of January 31, 1998, the Company also
operated a total of 235 other restaurants, including 109 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 Taco
Bueno Restaurants, Inc. ("Taco Bueno") was acquired in October 1996 (see Note
2).
In July 1997, the Company acquired Hardee's Food Systems, Inc. ("Hardee's")
(see Note 2). In September 1997, the Company transferred Summit's JB's
Restaurants and Galaxy Diner assets to a newly formed subsidiary, JB's Family
Restaurants, Inc. ("JB's"). The Company then contributed its remaining interest
in Summit and transferred its two Casa Bonita Mexican-themed restaurants to Star
Buffet, Inc. ("Star Buffet"). The Company subsequently participated in the
initial public offering of Star Buffet, leaving it with an approximate 37%
interest in Star Buffet (see Note 6). Hardee's, Taco Bueno and JB's remain
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 1998, 1997 and 1996 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.
F-6
<PAGE> 37
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Deferred Lease Costs
Deferred lease costs arising from an acquisition represent the excess of
actual rent payments on an operating lease over the current market rate on the
date of the acquisition. Deferred lease costs are amortized over the remaining
lives of the related leases.
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 under 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 has also
added a dining room to one of these restaurants and is now operating it as a
Carl's Jr. restaurant. The Company's results of operations include the revenue
and expenses of these 26 Rally's 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 40 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 non-cash pretax charge, equivalent to $0.02 per share,
to adjust the carrying value of those assets identified as impaired.
The costs in excess of net assets acquired are amortized on a straight-line
basis, principally over 40 years. The Company periodically reviews the costs in
excess of net assets acquired in accordance with SFAS 121. Accumulated
amortization of costs in excess of net assets acquired was $4.7 million and $2.6
million at January 31, 1998 and 1997, respectively.
F-7
<PAGE> 38
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Advertising
Production costs of commercials and programming are charged to operations
in the fiscal year first aired. The costs of other advertising, promotion and
marketing programs are charged to operations in the fiscal year incurred.
Income Taxes
The Company 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 January 6, 1998, the Company declared a 10% stock dividend to
stockholders of record on January 20, 1998, distributed on February 4, 1998. On
December 19, 1996, the Company declared a three-for-two stock split, payable in
the form of a stock dividend, to stockholders 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 dividend and stock split.
Earnings per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128") in fiscal 1998. SFAS 128 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 effect of all common stock equivalents is also required.
Reclassifications
Certain prior year amounts in the accompanying consolidated financial
statements have been reclassified to conform with the fiscal 1998 presentation.
In addition, as a result of the acquisition of Hardee's, reclassifications of
certain operating costs and expenses were made to conform with financial
classification policies of acquired entities.
F-8
<PAGE> 39
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- ACQUISITIONS
On July 15, 1997, the Company acquired Hardee's, the operator and
franchisor of the Hardee's(R) quick-service hamburger restaurant concept. In
connection with the acquisition, which was accounted for as a purchase, the
Company acquired all of the issued and outstanding shares of Hardee's for cash
consideration of $327.0 million. The purchase price remains subject to
adjustment to an amount to be agreed upon by the Company and Imasco Holdings,
Inc., which represents the net asset value of Hardee's as of July 15, 1997. The
Company used the net proceeds from the sale of 9,171,250 shares of the Company's
common stock to the public for net proceeds of $222.3 million (see Note 11) in
conjunction with borrowings of $133.9 million under the Company's Senior Credit
Facility (see Note 9) to finance the acquisition.
On July 15, 1996, the Company acquired Summit, which was accounted for as a
purchase. In connection with the acquisition, each of the 4,809,446 outstanding
shares of Summit common stock was converted into the right to receive 0.172095
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 827,290. 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 Taco Bueno, which was accounted
for as a purchase. The acquisition was completed by CBI Restaurants, Inc.
("CBI"), a newly-formed corporation in which the Company originally held an 80%
equity interest. CBI paid $42.0 million in cash, which was financed by short-
term loans of $9.0 million from the Company, $8.0 million from Fidelity National
Financial, Inc. ("Fidelity"), and $5.0 million from Giant Group, Ltd. ("Giant").
The balance of the purchase price, $20.0 million, was financed through the
Company's investment of $16.0 million in cash for an 80% equity interest in CBI
and Fidelity's investment of $4.0 million in cash for the remaining 20% equity
interest in CBI. The Company's investment in CBI was funded out of borrowings
under the Company's then existing revolving acquisition facility. On December 3,
1996, the Company purchased Fidelity's 20% equity interest in CBI for $4.5
million, giving the Company 100% ownership of CBI and Taco Bueno. 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 were provided by the net proceeds of the Company's common stock
offering (see Note 11).
When the Company acquired Summit, it was the operator of three restaurant
concepts: JB's Restaurants, a family dining chain; HomeTown Buffet restaurants,
which were operated by Summit as a franchisee; and Galaxy Diner, a "50's-style"
casual theme restaurant. Taco Bueno, when acquired by the Company, was an
operator of three restaurant concepts: Taco Bueno, a quick-service Mexican
restaurant chain; Casa Bonita, a Mexican-themed restaurant; and Crystal's, a
pizzeria. The three Crystal's were closed by the Company in the first quarter of
fiscal 1998.
After the acquisition of Summit, the Company determined that its principal
focus was on the quick-service segment of the restaurant industry as opposed to
the family-dining segment. As such, in September 1997, the Company transferred
Summit's JB's Restaurants and Galaxy Diner assets to a newly formed subsidiary,
JB's. The Company then contributed its remaining interest in Summit, which
consisted of 16 HomeTown Buffet restaurants, and its two Casa Bonita restaurants
to Star Buffet. The Company subsequently participated in the initial public
offering of Star Buffet, leaving it with an approximate 37% interest in Star
Buffet (see Note 6). Taco Bueno (formerly Casa Bonita) and JB's remain wholly
owned subsidiaries of the Company.
F-9
<PAGE> 40
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The assets acquired, including the costs in excess of net assets acquired,
and liabilities assumed in the acquisitions of Hardee's, Summit and Taco Bueno
are as follows:
<TABLE>
<CAPTION>
HARDEE'S SUMMIT TACO BUENO
--------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tangible assets acquired at fair value........... $ 424,739 $ 59,772 $40,672
Costs in excess of net assets acquired........... 57,339 -- 9,860
Liabilities assumed at fair value................ (155,078) (30,716) (8,532)
--------- -------- -------
Total purchase price................... $ 327,000 $ 29,056 $42,000
========= ======== =======
</TABLE>
Selected unaudited pro forma combined results of operations for the years
ended January 31, 1998 and 1997, assuming the Hardee's acquisition occurred on
February 1, 1997 and 1996 and assuming the Summit and Taco Bueno acquisitions
occurred on February 1, 1996, using actual restaurant-level margins and general
and administrative expenses prior to the acquisition of each entity, are
presented as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Total revenues.............................................. $1,494,069 $1,552,930
Net income (loss)........................................... $ 51,583 $ (7,742)
Net income (loss) per share -- basic........................ $ 1.12 $ ( 0.18)
Net income (loss) per share -- diluted...................... $ 1.09 $ (0.18)
</TABLE>
NOTE 3 -- ACCOUNTS RECEIVABLE
Details of accounts receivables are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Trade receivables, net...................................... $19,595 $5,982
Notes receivable, current................................... 3,572 1,022
Income tax receivable....................................... 964 714
Other....................................................... 3,186 224
------- ------
$27,317 $7,942
======= ======
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1998 1997
----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Land.............................................. $180,961 $ 50,487
Leasehold improvements............................ 4-25 years 129,910 91,227
Buildings and improvements........................ 7-40 years 230,637 70,023
Equipment, furniture and fixtures................. 3-10 years 255,714 147,488
-------- --------
797,222 359,225
Less: Accumulated depreciation and amortization... 170,196 151,126
-------- --------
$627,026 $208,099
======== ========
</TABLE>
F-10
<PAGE> 41
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- LEASES
The Company occupies land and buildings under terms of numerous lease
agreements expiring on various dates through 2023. 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>
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Building.................................................... $84,718 $74,667
Less: Accumulated amortization.............................. 37,190 37,552
------- -------
$47,528 $37,115
======= =======
</TABLE>
Amortization is calculated on a 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, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
-------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fiscal Year:
1999...................................................... $12,473 $ 70,999
2000...................................................... 11,920 65,658
2001...................................................... 11,531 60,078
2002...................................................... 10,997 55,347
2003...................................................... 10,316 50,244
Thereafter................................................ 57,896 249,660
------- --------
Total minimum lease payments...................... 115,133 $551,986
========
Less: Amount representing interest.......................... 52,833
-------
Present value of minimum lease payments..................... 62,300
Less: Current portion....................................... 5,499
-------
Capital lease obligations, excluding current portion........ $56,801
=======
</TABLE>
Total minimum lease payments have not been reduced by minimum sublease
rentals of $84.5 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 current
assets and other assets, are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net minimum lease payments receivable....................... $4,891 $6,680
Less: Unearned income....................................... 2,028 2,721
------ ------
Net investment.............................................. $2,863 $3,959
====== ======
</TABLE>
F-11
<PAGE> 42
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum future rentals to be received as of January 31, 1998 are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES OR LESSOR
SUBLEASES LEASES
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fiscal Year:
1999...................................................... $ 568 $ 2,767
2000...................................................... 567 2,805
2001...................................................... 560 2,873
2002...................................................... 565 2,867
2003...................................................... 540 2,745
Thereafter................................................ 2,091 12,526
------ -------
Total minimum future rentals...................... $4,891 $26,583
====== =======
</TABLE>
Total minimum future rentals do not include contingent rentals which may be
received under certain leases.
Aggregate rents under noncancelable operating leases during fiscal 1998,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals....................................... $49,984 $33,597 $29,225
Contingent rentals.................................... 4,002 1,937 1,384
Less: Sublease rentals................................ 6,025 5,644 5,058
------- ------- -------
$47,961 $29,890 $25,551
======= ======= =======
</TABLE>
NOTE 6 -- LONG-TERM INVESTMENTS
GB Foods Corporation and JB's Restaurants
The Company owns, operates and franchises the JB's Restaurant family dining
restaurant concept and owns and operates six Galaxy Diner "50's-style" casual
theme restaurants. As of January 31, 1998, the JB's Restaurant system consisted
of 94 restaurants, of which 74 were owned and operated by the Company. The JB's
Restaurant system and the Galaxy Diner restaurants were purchased by the Company
in connection with its acquisition of Summit during fiscal 1997 (see Note 2). In
February 1998, the Company sold 12 Company-operated JB's Restaurants to Star
Buffet. As a result of such sale the Company received approximately $4.8 million
in cash. In addition, the Company has recently announced two additional
transactions which will result in the disposition of the entire JB's Restaurant
system and Galaxy Diner restaurants. First, the Company has agreed to sell 14
Company-operated JB's Restaurants and two Galaxy Diner restaurants to Timber
Lodge Steakhouse, Inc. ("Timber Lodge") in connection with the proposed merger
of Timber Lodge and GB Foods Corporation ("GB Foods"). Second, the Company has
agreed to sell JB's, which consists of the remaining 48 Company-operated JB's
Restaurants and the JB's Restaurant franchise system, together with four Galaxy
Diner restaurants, to GB Foods. If the above transactions are completed, the
Company expects to receive approximately 1.6 million shares of common stock of
GB Foods, which would represent approximately 10% of GB Foods' outstanding
shares after giving effect to such transactions. There can be no assurance that
these transactions will be completed. The foregoing transactions, together with
the Company's reorganization and the initial public offering of Star Buffet,
will complete the Company's previously announced plans to sell or otherwise
dispose of all or a portion of the restaurant businesses of Summit.
F-12
<PAGE> 43
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Star Buffet, Inc.
Star Buffet is an operator of 33 buffet-style restaurants and 11
franchised, family-style JB's Restaurants. On September 30, 1997, the Company
participated in an initial public offering of its buffet-style restaurant
operations. Prior to the offering, the Company formed Star Buffet to continue to
operate its 16 HomeTown Buffet franchised restaurants and two Casa Bonita theme
restaurants. Star Buffet then completed an initial public offering of 3,450,000
shares of its common stock, of which 600,000 shares were sold by the Company as
a selling shareholder. The Company received net proceeds of $6.7 million in
connection with such sale, and retained an approximate 37% interest in Star
Buffet which the Company accounts for under the equity method of accounting. The
Company also received dividend income of $9.3 million in the transaction, and
sold the net assets of two Casa Bonita restaurants to Star Buffet for their net
book value of $1.1 million. The Company continues to own and operate the JB's
Restaurants and Galaxy Diner restaurant concepts in its new subsidiary, JB's.
Operating results for fiscal 1998 include 35 weeks of operations for the 16
HomeTown Buffet franchised restaurants and two Casa Bonita restaurants.
Rally's Hamburgers, Inc.
On April 20, 1996, the Company purchased from Giant, in settlement of
certain litigation, 2,350,432 shares of Rally's common stock for $4.1 million,
representing approximately 15% of Rally's outstanding shares. In connection with
this settlement, the Company also received options to purchase Rally's common
stock from Giant over the next two years.
Effective August 31, 1996, the Company participated in Rally's rights
offering, pursuant to which the Company received one right for each of the
2,350,432 shares of Rally's common stock the Company already owned. In
accordance with the terms of the rights offering, holders of rights were
entitled to purchase one unit for each 3.25 rights surrendered for a cash
payment of $2.25 per unit. Each unit consists of one share of Rally's common
stock and one warrant to purchase an additional share of Rally's common stock
upon payment of a $2.25 exercise price. The Company contributed approximately
$1.7 million in cash and acquired 775,488 shares of Rally's common stock in
connection with the rights offering, with warrants to acquire another 775,488
shares.
Additionally, on November 29, 1996, the Company elected to exercise options
to purchase 626,607 shares of 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 exercisable after
December 20, 1997.
On December 18, 1997, the Company and certain other investors exchanged
their shares of Checkers Drive-In Restaurants, Inc. ("Checkers") common stock
for newly issued shares of Rally's common stock and Rally's Series A preferred
stock. In exchange for the Company's 12,754,885 shares of Checkers' common
stock, the Company received 2,798,080 shares of Rally's common stock and 28,619
shares of Rally's Series A preferred stock. The shares of Series A preferred
stock acquired by the Company are convertible into an aggregate of 2,861,900
additional shares of common stock; provided, however, that such conversion is
subject to the approval of Rally's stockholders at its next annual meeting.
Primarily as a result of the above transactions, as of January 31, 1998, the
Company's investment in Rally's was $21.3 million, representing an approximate
27% ownership interest of Rally's, which the Company accounts for under the
equity method of accounting. Assuming full exercise of all the warrants and the
conversion of the Series A preferred stock into Rally's common stock, the
Company would beneficially own approximately 31% of Rally's outstanding shares.
Further, as a result of this transaction, Rally's owns approximately 27% of
Checkers' outstanding shares.
F-13
<PAGE> 44
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Checkers Drive-In Restaurants, Inc.
On November 14, 1996, the Company, together with a group of investors,
purchased $35.8 million aggregate principal amount of 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 and certain affiliated individual investors. The
Company paid $12.9 million in cash for $13.2 million, or a 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. As of January 31, 1998, the Company's note receivable from Checkers, net
of the related discount, was $7.6 million and is included in related party
receivables.
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. During fiscal
1998, the shares of Series A preferred stock acquired by the Company were
converted into 6,592,586 additional shares of Checkers' common stock.
On December 18, 1997, as discussed above, the Company exchanged 12,754,885
shares of Checkers' common stock for 2,798,080 shares of Rally's common stock
and 28,619 shares of Rally's Series A preferred stock. The Company continues to
hold the Checkers Warrants, which, if exercised, would represent approximately
10% of Checkers' outstanding shares.
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
F-14
<PAGE> 45
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Boston West into its financial statements and commenced realizing a pro-rata
share of the losses of Boston West.
On September 12, 1995, Boston West formally agreed to repurchase one half
of the Company's outstanding common equity units in Boston West, at a purchase
price of $10.00 per unit, or $310,000. As of this date, the Company began
accounting for its interest in Boston West under the cost method of accounting
for investments.
The Company is entitled to receive dividends on its preferred units at
rates ranging from 8.6% to 9.0%. The dividends earned through June 1997 will be
paid in cash upon conversion of the Company's preferred units into common equity
units. In addition, this transaction provided for the leasing of approximately
$12.0 million of equipment and real property retained by the Company to Boston
West at current market rates. An affiliate of BCI has an option to purchase all
the equipment and real property leased by the Company to Boston West. In fiscal
1997, the Company received $2.5 million in cash and $2.5 million in additional
preferred units in exchange for real property that the Company was leasing to
Boston West. In addition, pursuant to this agreement, the Company has an option
to co-fund, along with BCI loan proceeds, the capital requirements of Boston
West up to a maximum of $15.0 million, of which the Company funded approximately
$1.7 million in fiscal 1996 through the purchase of additional preferred units.
In March 1996, the Company's Board of Directors elected to cease participation
in the option to co-fund the capital requirements of Boston West. With the
amounts co-funded to date, the Company's interest in Boston West may be
increased to up to approximately 26% upon conversion of the preferred units.
As of January 31, 1998 and 1997, the Company's total long-term investment
in Boston West was $22.3 million, which approximates fair value. The Company's
estimate of fair value of its long-term investment was based on a number of
factors including the discounted estimated future cash flows of Boston West and
the present value of expected future preferred dividend distributions. A total
of 98 Boston Market stores were opened under the area development agreement with
BCI as of the end of fiscal 1998.
NOTE 7 -- OTHER ASSETS
Other assets are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred lease costs........................................ $12,931 $ 1,761
Deferred financing costs.................................... 4,093 1,443
Leases receivable........................................... 2,623 3,735
Other assets................................................ 8,390 3,654
------- -------
$28,037 $10,593
======= =======
</TABLE>
NOTE 8 -- OTHER CURRENT LIABILITIES
Other current liabilities are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Salaries, wages and other benefits.......................... $33,258 $15,899
State sales taxes........................................... 11,350 7,685
Other self-insurance reserves............................... 12,457 3,103
Self-insured workers' compensation reserve.................. 5,436 4,781
Other accrued liabilities................................... 26,694 5,059
------- -------
$89,195 $36,527
======= =======
</TABLE>
F-15
<PAGE> 46
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Secured notes payable, principal payments in specified
amounts quarterly through July 2002, interest based on
LIBOR plus 0.50%.......................................... $138,500 $ --
Secured note payable, principal payments in specified
amounts monthly through 2001, interest at 8.17%........... 4,851 5,111
Industrial Revenue Bonds, payable in 1999, variable interest
rate averaging 3.52% in fiscal 1998....................... 3,600 3,600
Secured notes payable, principal payments in varying amounts
monthly through July 2017, interest based on LIBOR plus
2.75%..................................................... -- 20,000
Other....................................................... 7,654 5,794
-------- -------
154,605 34,505
Less: Current portion....................................... 15,812 735
-------- -------
$138,793 $33,770
======== =======
</TABLE>
Effective July 15, 1997, the Company entered into a new credit facility
(the "Senior Credit Facility") with a group of financial institutions, which
replaced an unsecured bank credit facility arranged for the Company in July
1996. The Senior Credit Facility, which matures in July 2002, consists of a
$75.0 million term loan facility (the "Term Loan Facility") and a $225.0 million
revolving credit facility (the "Revolving Credit Facility") which includes a
$55.0 million letter of credit subfacility. On July 15, 1997, the Company
incurred $75.0 million of borrowings under the Term Loan Facility and $58.9
million of borrowings under the Revolving Credit Facility to fund a portion of
the consideration needed to acquire Hardee's and to repay $20.0 million in
existing indebtedness. The Company also borrowed an additional $17.1 million
under the Revolving Credit Facility during the year primarily to fund capital
expenditures in connection with the conversion of certain of the Hardee's
restaurants to Carl's Jr./Hardee's dual-brand restaurants in certain test
markets and to repurchase certain Hardee's franchised restaurants. As of January
31, 1998, $67.5 million of borrowings remained outstanding under the Term Loan
Facility and $71.0 million remained outstanding under the Revolving Credit
Facility.
On April 1, 1998, the Company amended the Senior Credit Facility to
increase the aggregate principal amounts of the lenders' commitments under the
Term Loan Facility to $250.0 million and under the Revolving Credit Facility to
$250.0 million, which includes a $65.0 million letter of credit subfacility, and
to extend the final maturity. The Company incurred borrowings of $213.2 million
thereunder to finance a portion of the purchase price of the Flagstar
Enterprises, Inc. ("FEI") acquisition (see Note 22). Principal repayments under
the Term Loan Facility are due in quarterly installments commencing in June 1998
and continuing thereafter until the final maturity of the Senior Credit Facility
in April 2003, resulting in annual reductions of $20.0 million in the first year
of the Term Loan Facility and annual reductions thereafter ranging from $40.0
million to $70.0 million. Additional borrowings under the Revolving Credit
Facility may be used for working capital and other general corporate purposes,
including permitted investments and acquisitions, and any outstanding amounts
thereunder will become due in April 2003. The Company will be required to repay
borrowings under the Senior Credit Facility with the proceeds from certain asset
sales (unless the net proceeds of such sales are reinvested in the Company's
business), from the issuance of certain equity securities or from the issuance
of additional indebtedness. Of the various options the Company has regarding
interest rates, it has selected LIBOR plus a margin, with future margin
adjustments dependent on certain financial ratios from time to time.
Borrowings and other obligations of the Company under the Senior Credit
Facility are general unsubordinated obligations of the Company and secured by a
pledge of the capital stock of certain of the
F-16
<PAGE> 47
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company's present and future subsidiaries, which subsidiaries guarantee such
borrowings and other obligations, and are secured by certain franchise rights,
accounts receivable, contract rights, general intangibles (including trademarks)
and other assets of the Company and such subsidiaries. The Senior Credit
Facility contains a number of significant covenants that, among other things,
(i) restrict the ability of the Company and its subsidiaries to incur additional
indebtedness and incur liens on their assets, in each case subject to specified
exceptions, (ii) impose specified financial tests as a precondition to the
Company's and its subsidiaries' acquisition of other businesses and (iii) limit
the Company and its subsidiaries from making capital expenditures and certain
restricted payments (including dividends and repurchases of stock), subject in
certain circumstances to specified financial tests. In addition, the Company is
required to comply with specified financial ratios and tests, including minimum
EBITDA requirements, minimum interest coverage and fixed charge coverage ratios,
minimum consolidated tangible net worth requirements and maximum leverage
ratios. As of fiscal year end, the Company was in compliance with all of its
covenants governing its Senior Credit Facility.
On March 13, 1998, the Company completed a private placement of $197.2
million aggregate principal amount of convertible subordinated notes (the
"Notes"), in which the Company received net proceeds of approximately $192.3
million, of which $24.1 million was used to repay indebtedness under the Term
Loan Facility. The Notes, which represent unsecured general obligations of the
Company subordinate in right of payment to certain other obligations are due in
2004, are convertible into the Company's common stock at an initial conversion
price of $48.204 and carry a 4.25% coupon. The remaining net proceeds from the
Notes, together with borrowings under the Senior Credit Facility, were used to
fund the acquisition of FEI on April 1, 1998 (see Note 22).
Secured notes payable are collateralized by certain restaurant property
deeds of trust, with a carrying value of $10.4 million as of January 31, 1998.
Long-term debt (excluding $410.4 million principal amount of indebtedness
incurred subsequent to January 31, 1998) matures in fiscal years ending after
January 31, 1998 as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Fiscal Year:
1999.................................................... $ 15,812
2000.................................................... 19,328
2001.................................................... 20,561
2002.................................................... 15,735
2003.................................................... 78,836
Thereafter.............................................. 4,333
--------
$154,605
========
</TABLE>
NOTE 10 -- OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Self-insured workers' compensation reserve.................. $18,049 $ 9,283
Closure reserves............................................ 32,448 5,263
Other....................................................... 36,281 15,982
------- -------
$86,778 $30,528
======= =======
</TABLE>
F-17
<PAGE> 48
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $23.5 million and $14.1 million was accrued as of
January 31, 1998 and 1997, respectively, representing the current and long-term
portions of the net present value of an independent actuarial valuation of the
Company's workers' compensation claims. These amounts are net of a discount of
$4.0 million and $2.0 million in fiscal 1998 and 1997, respectively.
The closure reserves primarily consist of amounts provided for in the
acquisition of Hardee's for the closure of certain restaurants and corporate
facilities. In prior years, the Company initiated programs to dispose of or
franchise its Arizona and Texas operations. As of January 31, 1998 and 1997,
$5.5 million and $6.0 million, respectively, were accrued for these costs,
including the current portion. These balances are mainly comprised of estimated
lease subsidies which 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, 1998 was $4.2
million and will be amortized to operations over the remaining sublease terms,
which range up to 17 years.
NOTE 11 -- STOCKHOLDERS' EQUITY
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 1,105,995 shares
of stock were repurchased to date, which includes the purchase of 103,125 shares
in fiscal 1995 from the Chairman Emeritus at the then market price of $5.53 per
share. The balance of these shares was purchased in a series of open market
transactions, at an average price of approximately $4.53 per share, for an
aggregate purchase price of approximately $4.5 million. On October 28, 1996, the
Board of Directors of the Company retired 1,105,995 shares of the Company's
common stock which were previously held as treasury stock.
During the fourth quarter of fiscal 1997, the Company issued 4,743,750
shares of its common stock at a public offering price of $17.35 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).
During the second quarter of fiscal 1998, the Company issued 9,171,250
shares of its common stock at a public offering price of $25.45 per share.
Proceeds from the offering, net of underwriting discounts and commissions and
other related expenses, were $222.3 million. The net proceeds were primarily
used to finance the acquisition of Hardee's (see Note 2).
A special meeting of stockholders of the Company was held on December 9,
1997 for the primary purpose of voting on a proposal to amend the Company's
certificate of incorporation to increase the authorized number of shares of
common stock from 50,000,000 to 100,000,000. The proposal was approved by the
Company's stockholders.
F-18
<PAGE> 49
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents information on the Company's financial
instruments:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ------------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents............... $ 30,382 $ 30,382 $46,330 $46,330
Notes receivable........................ 22,707 22,611 17,761 18,344
Financial liabilities:
Long-term debt, including current
portion.............................. 154,605 154,948 34,505 34,310
</TABLE>
The fair value of cash and cash equivalents approximates their carrying
amount due to their short maturity. The estimated fair values of 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.
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, 1998 and 1997,
$116,000 and $220,000, respectively, remained outstanding. The entire amount is
scheduled to be repaid by December 1998.
In fiscal 1994, the Chairman Emeritus was granted future retirement
benefits for past services consisting principally of payments of $200,000 per
year for life and supplemental health benefits, which had a net present value of
$1.7 million as of that date. This amount was computed using certain actuarial
assumptions, including a discount rate of 7%. A total of $1.2 million remained
accrued in other long-term liabilities as of January 31, 1998. The Company
anticipates funding these obligations as they become due.
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 $3.6
million and $4.0 million, representing the present value of lease obligations
related to these various properties at January 31, 1998 and 1997, respectively.
Lease payments under these leases for fiscal 1998, 1997 and 1996 amounted to
$1.3, $1.3, and $1.4 million, respectively. This was net of sublease rentals of
$157,000 in fiscal 1998 and $148,000 in fiscal 1997 and 1996. 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 various states,
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 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
F-19
<PAGE> 50
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
services required of the Company are complete and the restaurants covered by
these agreements commence operations.
Certain franchisees may also purchase food, paper, supplies and equipment
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 Carl's Jr. 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>
1998 1997 1996
-------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Food service........................................ $ 63,890 $60,035 $ 56,015
Royalties........................................... 42,929 7,006 5,704
Equipment sales..................................... 9,989 -- --
Rental income....................................... 9,854 9,226 9,346
Initial fees........................................ 544 305 116
-------- ------- --------
$127,206 $76,572 $ 71,181
======== ======= ========
</TABLE>
Operating costs and expenses for franchised and licensed restaurants
consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Food service........................................ $ 62,801 $59,606 $ 56,590
Occupancy and other operating expenses.............. 21,067 13,090 12,673
Equipment purchases................................. 9,905 -- --
-------- ------- --------
$ 93,773 $72,696 $ 69,263
======== ======= ========
</TABLE>
NOTE 15 -- INTEREST EXPENSE
Interest expense consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and revolving credit facility......... $ (9,689) $(3,059) $ (3,585)
Capital lease obligations........................... (6,578) (6,083) (5,898)
Other............................................... (647) (735) (521)
-------- ------- --------
$(16,914) $(9,877) $(10,004)
======== ======= ========
</TABLE>
F-20
<PAGE> 51
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 -- OTHER INCOME, NET
Other income, net consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income....................................... $ 4,955 $ 2,393 $ 2,494
Lease income.......................................... 1,819 1,153 1,291
Dividend income....................................... 1,800 853 854
Net gain (loss) on sale of restaurants................ (141) 491 (374)
Income (loss) from long-term investments.............. (366) 140 (1,898)
Property management................................... (1,167) (1,286) (409)
Net gain (loss) on sale of investments................ -- 121 (144)
Other................................................. 463 (1,417) (857)
------- ------- -------
$ 7,363 $ 2,448 $ 957
======= ======= =======
</TABLE>
NOTE 17 -- INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $19,031 $ 5,963 $ 2,018
State............................................... 5,160 2,065 772
------- ------- -------
24,191 8,028 2,790
------- ------- -------
Deferred:
Federal............................................. 3,468 5,529 3,878
State............................................... 2,224 851 333
------- ------- -------
5,692 6,380 4,211
------- ------- -------
$29,883 $14,408 $ 7,001
======= ======= =======
</TABLE>
A reconciliation of income tax expense at the federal statutory rate to the
Company's provision for taxes on income is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income taxes at statutory rate........................ $26,824 $12,849 $ 6,104
State income taxes, net of federal income tax
benefit............................................. 4,153 2,822 738
Targeted jobs tax credits............................. (1,508) (1,528) (243)
Increase (decrease) in valuation allowance............ (515) (76) 152
Alternative minimum tax credit........................ -- (19) --
Other, net............................................ 929 360 250
------- ------- -------
$29,883 $14,408 $ 7,001
======= ======= =======
</TABLE>
F-21
<PAGE> 52
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Temporary differences and carryforwards gave rise to a significant amount
of deferred tax assets and liabilities as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Capitalized leases........................................ $10,923 $ 6,801
Workers' compensation reserve............................. 6,768 5,908
Closure reserves.......................................... 3,968 4,135
Insurance reserves........................................ 2,644 1,076
Accrued payroll........................................... 1,430 1,055
State taxes............................................... 1,967 --
Targeted jobs tax credit carry forward.................... -- 3,654
Alternative minimum tax credits........................... -- 1,647
Other..................................................... 4,364 5,668
------- -------
32,064 29,944
Less: Valuation allowance................................... 1,356 4,917
------- -------
Total deferred tax assets................................... 30,708 25,027
======= =======
Deferred tax liabilities:
Depreciation.............................................. 20,798 7,088
Long-term investments..................................... 12,747 8,271
Other..................................................... 2,838 2,454
------- -------
Total deferred tax liabilities.............................. 36,383 17,813
------- -------
Net deferred tax assets (liabilities)....................... $(5,675) $ 7,214
======= =======
</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 deferred tax assets at January 31, 1998, based on the Company's
current, historical and future pre-tax earnings.
NOTE 18 -- EMPLOYEE BENEFIT AND RETIREMENT PLANS
Profit Sharing and Savings Plan
The Company maintains a voluntary contributory profit sharing and savings
investment plan for all eligible employees other than operations hourly
employees. Annual contributions under the profit sharing portion of the plan are
determined at the discretion of the Company's Board of Directors. Under the
savings investment portion of the plan, participants may elect to contribute up
to 15% of their annual salaries to the plan.
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 $500,000
F-22
<PAGE> 53
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and $1.3 million in pension plan expense in fiscal 1998 and 1997, respectively,
which was based upon an independent actuarial valuation study. During fiscal
1996, pension contributions were $512,000.
Post Retirement Benefits Other Than Pensions
The Company provides an unfunded retiree medical benefit plan for
substantially all Hardee's employees (except restaurant hourly employees) who
retire on or after age 55 with at least five years of service. The retiree pays
the actual costs of the plan with a Company subsidy provided for retirees with
10 or more years of credited service. The dollar amount of this subsidy will be
capped in 2003. Such benefits provided by the Company are immaterial and do not
require any additional accrual.
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 825,000 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 salaries.
The Company contributes varying amounts as specified in the ESPP. During fiscal
1998, 1997 and 1996, 54,053, 46,679 and 42,540 shares, respectively, were
purchased and allocated to employees, based upon their contributions, at an
average price of $31.02, $15.98 and $7.70 per share, respectively. The Company
contributed $296,000 or an equivalent of 10,086 shares for the year ended
January 31, 1998, $116,000 or an equivalent of 6,785 shares for the year ended
January 31, 1997 and $8,000 or an equivalent of 759 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 10 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 5,775,000
shares are available for grants of options or other awards under this plan, of
which 4,045,033 stock options were outstanding as of January 31, 1998 with
exercise prices ranging from $4.09 per share to $39.09 per share.
The Company's 1993 stock incentive plan was superseded by the 1994 plan, as
discussed above. As of January 31, 1998, 388,216 stock options, with exercise
prices ranging from $4.39 per share to $8.11 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 4,950,000
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 112,466 stock options
outstanding as of January 31, 1998 under this plan range from $3.64 per share to
$8.11 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
F-23
<PAGE> 54
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 10 years. Under these plans, there were 21,983 stock options
outstanding at January 31, 1998 with exercise prices ranging from $12.10 to
$23.83 per share. No further shares may be granted under these plans.
Transactions under all plans are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE EXERCISABLE
--------- -------------- -----------
<S> <C> <C> <C>
Balance, January 31, 1995....................... 1,960,238 $ 5.42
Granted....................................... 1,479,069 6.96
Canceled...................................... (194,115) 5.53
Exercised..................................... (585,738) 4.69
---------
Balance, January 31, 1996....................... 2,659,454 $ 6.43 1,028,126
Options assumed in Summit acquisition......... 84,832 17.18
Granted....................................... 1,243,919 16.36
Canceled...................................... (23,993) 8.80
Exercised..................................... (395,574) 5.64
---------
Balance, January 31, 1997....................... 3,568,638 $10.22 1,359,068
Granted....................................... 1,762,750 26.51
Canceled...................................... (223,325) 22.59
Exercised..................................... (540,365) 6.95
---------
Balance, January 31, 1998....................... 4,567,698 $16.29 1,874,704
=========
</TABLE>
The following table summarizes information related to stock options
outstanding and exercisable at January 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
RANGE OF SHARES AVERAGE REMAINING SHARES AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
- --------------- ----------- -------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.64 to $ 5.45 675,054 $ 4.46 6.26 537,004 $ 4.53
5.61 8.11 295,823 7.55 5.36 288,948 7.60
8.94 13.24 1,058,535 9.51 7.60 622,465 9.19
13.62 20.45 1,015,428 18.02 8.52 333,428 17.84
20.81 29.43 1,494,258 26.57 9.19 92,859 25.61
37.78 39.09 28,600 37.83 9.68 0 0.00
--------- ---------
$ 3.64 $39.09 4,567,698 $16.29 7.99 1,874,704 $ 9.96
========= =========
</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
1998, 1997 and 1996: annual dividends consistent with the Company's current
dividend policy, which resulted in payments of $0.07 per share in fiscal 1998
and $0.05 per share in fiscal 1997 and 1996; expected volatility of 25% in
fiscal 1998 and 1997 and 29% in fiscal 1996; risk-free interest rates of 5.51%
in fiscal 1998, 6.25% in fiscal 1997 and 5.25% in fiscal 1996; and an expected
life of 5.50 years in fiscal 1998 and 5.45 years for fiscal 1997 and 1996. The
weighted average fair value of each option granted during fiscal 1998, 1997 and
1996 was $9.13, $6.80 and $2.51, respectively. Had compensation expense been
recognized for fiscal 1998, 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
F-24
<PAGE> 55
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
per share of $39.9 million, or $0.94 per basic share and $0.91 per diluted share
in fiscal 1998; $20.5 million, or $0.63 per basic share and $0.62 per diluted
share in fiscal 1997; and $10.7 million, or $0.35 per basic and diluted 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>
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest and income taxes are as follows:
Interest (net of amount capitalized).................... $14,448 $ 9,549 $10,198
Income taxes............................................ 18,938 2,778 2,156
Non-cash investing and financing activities are as
follows:
Sale of property and equipment.......................... $ -- $ 2,469 $ --
Increase in long-term investments....................... -- (2,469) --
Transfer of inventory, current assets and property and
equipment to long-term investments................... -- -- 20,352
Common stock issued in connection with Summit
acquisition.......................................... -- 11,411 --
Common stock issued in connection with Hardee's Green
Bay, Inc. acquisition................................ 9,405 -- --
</TABLE>
NOTE 20 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly results:
<TABLE>
<CAPTION>
QUARTER
-------------------------------------------------
1ST 2ND 3RD 4TH
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
FISCAL 1998
Total revenues................................ $235,356 $242,102 $347,455 $324,746
Operating income.............................. 18,406 18,954 25,121 23,710
Net income.................................... 10,586 10,545 13,102 12,524
Net income per share -- basic................. $ 0.29 $ 0.26 $ 0.28 $ 0.27
======== ======== ======== ========
Net income per share -- diluted............... $ 0.28 $ 0.25 $ 0.27 $ 0.26
======== ======== ======== ========
FISCAL 1997
Total revenues................................ $152,737 $127,925 $162,093 $170,625
Operating income.............................. 11,242 10,140 11,530 11,227
Net income.................................... 5,333 5,192 5,588 6,189
Net income per share -- basic................. $ 0.17 $ 0.17 $ 0.18 $ 0.17
======== ======== ======== ========
Net income per share -- diluted............... $ 0.17 $ 0.16 $ 0.17 $ 0.17
======== ======== ======== ========
</TABLE>
F-25
<PAGE> 56
CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
1998 and 1997, which have 16-week accounting periods.
NOTE 21 -- COMMITMENTS AND CONTINGENT LIABILITIES
In conjunction with the Senior Credit Facility established during fiscal
1998, a letter of credit subfacility in the amount of $55.0 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
Company is required to 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. 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>
July 1998................................................. $37,881
October 1998.............................................. 883
November 1998............................................. 345
January 1999.............................................. 3,852
April 2000................................................ 275
-------
$43,236
=======
</TABLE>
In fiscal 1996, the Company sold certain of its Carl's Jr. 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 Carl's
Jr. franchisees and an additional limited term guarantee in fiscal 1998 with an
independent third party on behalf of its Hardee's franchisees. The Company is
contingently liable for an aggregate of approximately $4.5 million under these
guarantees as of January 31, 1998.
NOTE 22 -- SUBSEQUENT EVENTS
On April 1, 1998, the Company acquired FEI from Advantica Restaurant Group,
Inc. for a purchase price of $380.8 million plus the assumption of $45.6 million
in capital lease obligations, subject to adjustment ("the FEI Acquisition"). FEI
was the largest franchisee of the Hardee's system, previously operating 557
Hardee's restaurants, located primarily in the Southeastern United States. As a
result of the FEI Acquisition, 1,420 of the 3,038 Hardee's restaurants operated
as of January 31, 1998 are presently operated by the Company, representing 46.7%
of the Hardee's system.
The Company used the majority of the net proceeds from a private placement
of $197.2 million aggregate principal amount of convertible subordinated notes
for which the Company received net cash proceeds of $192.3 million together with
borrowings of $213.2 million under the Company's Senior Credit Facility to
finance the FEI Acquisition, which was accounted for as a purchase (see Note 9).
F-26
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
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 Certificate of Amendment of Certificate of Incorporation, as
filed with the Delaware Secretary of State on December 9,
1997.(1)
3-3 Bylaws of the Registrant, incorporated herein by reference
to exhibit 3-2 to the Registrant's Form S-4 Registration
Statement Number 333-05305.
4-1 Indenture, dated as of March 13, 1998 for 4.25% Convertible
Subordinated Notes due 2004 by and between CKE Restaurants,
Inc. and Chase Manhattan Bank and Trust Company, National
Association, as Trustee.(1)
4-2 Form of Note (included in Exhibit 4.1).
4-3 Registration Rights Agreement dated as of March 13, 1998
between the Company and Morgan Stanley & Co. Incorporated,
BT Alex Brown Incorporated, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Schroder & Co. Inc.(1)
10-1 Carl Karcher Enterprises, Inc. Profit Sharing Plan, as
amended, filed as exhibit 10-21 to the Company's
Registration Statement on Form S-1, file No. 2-73695, and is
hereby incorporated by reference.(2)
10-2 Carl Karcher Enterprises, Inc. Key Employee Stock Option
Plan, filed as exhibit 10-24 to the Company's Registration
Statement on Form S-1, file No. 2-80283, and is hereby
incorporated by reference.(2)
10-3 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)
10-4 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)
10-5 CKE Restaurants, Inc. 1994 Employee Stock Purchase Plan, as
amended.(2)
10-6 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)
10-7 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)
10-8 First Amendment to Employment Agreement dated November 1,
1997, by and between Carl N. Karcher and Carl Karcher
Enterprises, Inc.(1)(2)
10-9 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)
10-10 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)
10-11 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)
</TABLE>
E-1
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
10-12 First Amendment to Employment Agreement dated September 30,
1997, by and between CKE Restaurants, Inc. and Robert E.
Wheaton.(1)(2)
10-13 Employment Agreement dated July 15, 1997, by and between
Hardee's Food Systems, Inc. and Rory J. Murphy, filed as
exhibit 10-46 to the Company's Form 10-Q Quarterly Report
for the quarterly period ended August 11, 1997, and is
hereby incorporated by reference.(2)
10-14 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.
10-15 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.*
10-16 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.
10-17 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.
10-18 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.
10-19 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.
10-20 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.
10-21 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.
10-22 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.
10-23 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.
10-24 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.
10-25 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.
10-26 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.
</TABLE>
E-2
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
10-27 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.
10-28 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.
10-29 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.*
10-30 Stock Purchase Agreement, dated as of April 27, 1997, by and
among CKE Restaurants Inc., Imasco Holdings, Inc. and
Hardee's Food Systems, Inc., filed as exhibit 10.1 to the
Company's Current Report on Form 8-K dated April 27, 1997,
and is hereby incorporated by reference.*
10-31 Supply Agreement, dated as of July 14, 1997, by and between
Hardee's Food Systems, Inc. and Fast Food Merchandisers,
Inc. (Forest City Division), filed as exhibit 99.3 to the
Company's Current Report on Form 8-K dated April 27, 1997,
and is hereby incorporated by reference.*
10-32 Supply Agreement, dated as of July 14, 1997, by and between
Hardee's Food Systems, Inc. and Fast Food Merchandisers,
Inc. (Monterey Division), filed as exhibit 99.4 to the
Company's Current Report on Form 8-K dated April 27, 1997,
and is hereby incorporated by reference.*
10-33 Supply Agreement, dated as of July 14, 1997, by and between
Hardee's Food Systems, Inc. and QVS, Inc., filed as exhibit
99.5 to the Company's Current Report on Form 8-K dated April
27, 1997, and is hereby incorporated by reference.*
10-34 Distribution Agreement, dated as of July 14, 1997, by and
among the Company, Hardee's Food Systems, Inc. and Fast Food
Merchandisers, Inc., filed as exhibit 99.6 to the Company's
Current Report on Form 8-K dated April 27, 1997, as is
hereby incorporated by reference.*
10-35 Exchange Agreement, dated as of December 8, 1997, by and
between Rally's Hamburgers, Inc., CKE Restaurants, Inc.,
Fidelity National Financial, Inc., Giant Group, LTD and
others.*(1)
10-36 Stock Purchase Agreement dated February 18, 1998, among CKE
Restaurants, Inc., Advantica Restaurant Group, Inc., Spartan
Holdings, Inc. and Flagstar Enterprises, Inc., filed as
exhibit 99.2 to the Company's Current Report on Form 8-K
dated February 19, 1998, and is hereby incorporated by
reference.*
10-37 Amended and Restated Credit Agreement, dated as of April 1,
1998, by and between the CKE Restaurants, Inc. and Banque
Paribas, as agent.*(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).
27-2 Financial Data Schedule restated for fiscal year 1997
(included only with electronic filing).
27-3 Financial Data Schedule restated for fiscal year 1996
(included only with electronic filing).
</TABLE>
- ---------------
* 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.
E-3
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CKE RESTAURANTS, INC.
DECEMBER 9, 1997
Pursuant to the provisions of Section 242 of the Delaware General
Corporation Law, CKE Restaurants, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Company"), hereby certifies as
follows:
1. That the following amendment to the Certificate of Incorporation of
the Company was approved by unanimous written consent of the Board of
Directors and by majority vote of the stockholders of the Company:
Article V, Section 1 of the Certificate of Incorporation of the Company is
amended to read in its entirety as follows:
"ARTICLE V: Authorized Capital Stock
SECTION 1. Number of Authorized Shares. The Corporation shall be authorized
to issue two classes of shares of stock to be designated, respectively, "Common
Stock" and "Preferred Stock;" the total number of shares of all classes of stock
that the Corporation shall have authority to issue is One Hundred Five Million
(105,000,000) shares, consisting of One Hundred Million (100,000,000) shares of
Common Stock, par value $.01 per share, and Five Million (5,000,000) shares of
Preferred Stock, par value $.01 per share."
2. That the above amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment of
Certificate of Incorporation to be duly executed by the Company's authorized
officer as shown below and attested to by its Secretary.
<PAGE> 2
Dated: December 9, 1997 CKE RESTAURANTS, INC.
/s/ C. THOMAS THOMPSON
----------------------------------------
By: C. Thomas Thompson, President
Attest:
/s/ SHARON CALAHAN
- -------------------------------------
Assistant Secretary
NOTARIAL ACKNOWLEDGEMENT
STATE OF CALIFORNIA)
)
COUNTY OF ORANGE )
On December 9, 1997, before me, the undersigned Notary Public,
personally appeared C. Thomas Thompson, personally known to me [or proved to
me on the basis of satisfactory evidence] to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ SHARON CALAHAN
----------------------------------
<PAGE> 1
EXHIBIT 4.1
================================================================================
CKE RESTAURANTS, INC.
TO
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
TRUSTEE
------------
INDENTURE
DATED AS OF MARCH 13, 1998
------------
4 1/4% CONVERTIBLE SUBORDINATED NOTES DUE 2004
================================================================================
<PAGE> 2
CKE RESTAURANTS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 601(B)(4)(IV) OF REGULATION S-K
<TABLE>
<CAPTION>
SECTION OF THE
TRUST INDENTURE ACT OF 1939 INDENTURE LOCATION AND CAPTION
- --------------------------- ------------------------------
<S> <C>
310(a)...................................... Section 8.9 (Eligibility of Trustee)
310(b)...................................... Section 8.8 (Conflicting Interest of
Trustee); Section 8.10 (Resignation or
Removal of Trustee)
311(a) and (b).............................. Section 8.13 (Limitation on Rights of Trustee
as Creditor)
311(c)...................................... Not Applicable
312(a), (b) and (c)......................... Section 6.1 (Noteholders' Lists); Section 6.2
(Preservation and Disclosure of Lists)
3.13(a), (b), (c) and (d)................... Section 6.3 (Reports by Trustee)
3.14(a)..................................... Section 6.4 (Reports by Company)
3.14(b)..................................... Not Applicable
3.14(c)..................................... Section 5.10 (Compliance Certificate);
Section 8.2 (Reliance on
Documents, Opinions, Etc.);
Section 8.7 (Officers'
Certificate and Opinion of
Counsel as Evidence); Section
13.1 (Discharge of Indenture);
Section 16.5 (Evidence of
Compliance with Conditions
Precedent; Certificates)
3.14(d)..................................... Not Applicable
3.14(e)..................................... Section 16.6 (Statements Required in
Certificate or Opinion)
3.14(f)..................................... Section 8.7 (Officers' Certificate and
Opinion of Counsel as Evidence)
3.15(a)..................................... Section 8.1 (Duties and Responsibilities of
Trustee); Section 8.7 (Officers' Certificate
and Opinion of Counsel)
3.15(b)..................................... Section 7.8 (Notice of Defaults)
3.15(c) and (d)............................. Section 8.1 (Duties and Responsibilities of
Trustee)
3.15(e)..................................... Section 7.9 (Undertaking to Pay Costs)
3.16(a)..................................... Section 7.1 (Events of Default); Section 7.7
(Direction of Proceedings and Waiver of
Defaults by Majority of Noteholders)
3.16(b)..................................... Section 5.1 (Payment of Principal, Premium
and Interest); Section 7.7 (Direction of
Proceedings and Waiver of Defaults by
Majority of Noteholders)
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
SECTION OF THE
TRUST INDENTURE ACT OF 1939 INDENTURE LOCATION AND CAPTION
- --------------------------- ------------------------------
<S> <C>
3.16(c)..................................... Section 9.1 (Action by Noteholders)
3.17(a)..................................... Section 7.2 (Payment of Notes on Default;
Suit Therefor); Section 7.5 (Proceedings by
Trustee)
317(b)...................................... Section 5.4 (Provisions as to Paying Agent);
Section 13.3 (Paying Agent to Repay Monies
Held)
318(a)...................................... Section 6.2 (Preservation and Disclosure of
Lists); Section 6.3 (Reports by Trustee);
Section 6.4 (Reports by Company); Section 8.1
(Duties and Responsibilities of Trustee);
Section 8.8 (Conflicting Interests of
Trustee); Section 8.9 (Eligibility of
Trustee); Section 8.13 (Limitations on Rights
of Trustee as Creditor)
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 Definitions.............................................................. 2
Affiliate.......................................... 2
Applicable Price................................... 2
Board of Directors................................. 2
Business Day....................................... 2
Closing Price...................................... 3
Commission......................................... 3
Common Stock....................................... 3
Company............................................ 3
Company Notice..................................... 3
Conversion Price................................... 3
Corporate Trust Office............................. 3
Credit Agreement................................... 3
Custodian.......................................... 4
default............................................ 4
Defaulted Interest................................. 4
Depositary......................................... 4
Designated Senior Indebtedness..................... 4
Event of Default................................... 5
Exchange Act....................................... 5
Fundamental Change................................. 5
Indebtedness....................................... 5
Indenture.......................................... 6
Initial Purchasers................................. 6
Liquidated Damages................................. 6
Note or Notes...................................... 6
Noteholder or holder.................................6
Officers' Certificate.............................. 6
Opinion of Counsel................................. 6
outstanding........................................ 6
Person............................................. 7
PORTAL Market...................................... 7
Predecessor Note................................... 7
QIB................................................ 7
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Reference Market Price............................. 7
Register........................................... 7
Registration Rights Agreement...................... 8
Regulation S....................................... 8
Representative..................................... 8
Responsible Officer................................ 8
Restricted Securities.............................. 8
Rule 144A.......................................... 8
Securities Act..................................... 8
Senior Indebtedness................................ 8
Subsidiary......................................... 9
Trading Day........................................ 9
Trigger Event........................................9
Trust Indenture Act................................ 9
Trustee............................................ 9
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES
Section 2.1 Designation Amount and Issue of Notes.................................... 10
Section 2.2 Form of Notes............................................................ 10
Section 2.3 Date and Denomination of Notes; Payments of Interest..................... 11
Section 2.4 Execution of Notes....................................................... 12
Section 2.5 Exchange and Registration of Transfer of Notes: Restrictions on
Transfer; Depositary..................................................... 13
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes............................... 21
Section 2.7 Temporary Notes.......................................................... 22
Section 2.8 Cancellation of Notes Paid, Etc.......................................... 22
ARTICLE III
REDEMPTION OF NOTES
Section 3.1 Redemption Prices........................................................ 22
Section 3.2 Notice of Redemption; Selection of Notes................................. 23
Section 3.3 Payment of Notes Called for Redemption................................... 24
Section 3.4 Conversion Arrangement on Call for Redemption............................ 25
</TABLE>
ii
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 3.5 Redemption at Option of Holders.......................................... 26
Section 3.6 Covenant to Comply with Securities Laws upon Purchase of Notes........... 28
Section 3.7 No Sinking Fund.......................................................... 28
ARTICLE IV
SUBORDINATION OF NOTES
Section 4.1 Agreement of Subordination............................................... 28
Section 4.2 Payments to Noteholders.................................................. 29
Section 4.3 Subrogation of Notes..................................................... 32
Section 4.4 Authorization by Noteholders............................................. 33
Section 4.5 Notice to Trustee........................................................ 33
Section 4.6 Trustee's Relation to Senior Indebtedness................................ 34
Section 4.7 No Impairment of Subordination........................................... 34
Section 4.8 Certain Conversions Deemed Payment....................................... 34
Section 4.9 Article Applicable to Paying Agents...................................... 35
Section 4.10 Senior Indebtedness Entitled to Rely..................................... 35
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
Section 5.1 Payment of Principal, Premium and Interest............................... 35
Section 5.2 Offices for Notices and Payments......................................... 36
Section 5.3 Appointments to Fill Vacancies in Trustee's Office....................... 36
Section 5.4 Provisions as to Paying Agent............................................ 37
Section 5.5 Corporate Existence...................................................... 38
Section 5.6 Maintenance of Properties................................................ 38
Section 5.7 Payment of Taxes and Other Claims........................................ 38
Section 5.8 Rule 144A Information Requirement........................................ 38
Section 5.9 Stay, Extension and Usury Laws........................................... 39
Section 5.10 Compliance Certificate................................................... 39
ARTICLE VI
NOTEHOLDERS' LISTS AND REPORTS BY
THE COMPANY AND THE TRUSTEE
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Section 6.1 Noteholders' Lists....................................................... 39
Section 6.2 Preservation and Disclosure of Lists..................................... 40
Section 6.3 Reports by Trustee....................................................... 40
Section 6.4 Reports by Company....................................................... 40
ARTICLE VII
REMEDIES OF THE TRUSTEE AND NOTEHOLDERS
IN THE EVENT OF DEFAULT
Section 7.1 Events of Default........................................................ 41
Section 7.2 Payment of Notes on Default; Suit Therefor............................... 43
Section 7.3 Application of Monies Collected by Trustee............................... 45
Section 7.4 Proceedings by Noteholder................................................ 46
Section 7.5 Proceedings by Trustee................................................... 47
Section 7.6 Remedies Cumulative and Continuing....................................... 47
Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority of
Noteholders.............................................................. 47
Section 7.8 Notice of Defaults....................................................... 48
Section 7.9 Undertaking to Pay Costs................................................. 48
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.1 Duties and Responsibilities of Trustee................................... 48
Section 8.2 Reliance on Documents, Opinions, Etc..................................... 50
Section 8.3 No Responsibility for Recitals, Etc...................................... 51
Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar May Own
Notes.................................................................... 51
Section 8.5 Monies to Be Held in Trust............................................... 51
Section 8.6 Compensation and Expenses of Trustee..................................... 52
Section 8.7 Officers' Certificate and Opinion of Counsel as Evidence................. 52
Section 8.8 Conflicting Interests of Trustee......................................... 53
Section 8.9 Eligibility of Trustee................................................... 53
Section 8.10 Resignation or Removal of Trustee........................................ 53
Section 8.11 Acceptance by Successor Trustee.......................................... 54
Section 8.12 Succession by Merger, Etc................................................ 55
Section 8.13 Limitation on Rights of Trustee as Creditor.............................. 55
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ARTICLE IX
CONCERNING THE NOTEHOLDERS
Section 9.1 Action by Noteholders.................................................... 56
Section 9.2 Proof of Execution by Noteholders........................................ 56
Section 9.3 Who Are Deemed Absolute Owners........................................... 56
Section 9.4 Company-Owned Notes Disregarded.......................................... 57
Section 9.5 Revocation of Consents; Future Holders Bound............................. 57
ARTICLE X
NOTEHOLDERS' MEETINGS
Section 10.1 Purposes of Meetings..................................................... 58
Section 10.2 Call of Meetings by Trustee.............................................. 58
Section 10.3 Call of Meetings by Company or Noteholders............................... 58
Section 10.4 Qualifications for Voting................................................ 59
Section 10.5 Regulations.............................................................. 59
Section 10.6 Voting................................................................... 59
Section 10.7 No Delay of Rights by Meeting............................................ 60
ARTICLE XI
SUPPLEMENTAL INDENTURES
Section 11.1 Supplemental Indentures Without Consent of Noteholders................... 60
Section 11.2 Supplemental Indentures with Consent of Noteholders...................... 61
Section 11.3 Effect of Supplemental Indenture......................................... 62
Section 11.4 Notation on Notes........................................................ 63
Section 11.5 Evidence of Compliance of Supplemental Indenture to Be Furnished
Trustee.................................................................. 63
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ARTICLE XII
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 12.1 Company May Consolidate Etc. on Certain Terms............................ 63
Section 12.2 Successor Corporation to Be Substituted.................................. 64
Section 12.3 Opinion of Counsel to Be Given Trustee................................... 64
ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE
Section 13.1 Discharge of Indenture................................................... 65
Section 13.2 Deposited Monies to Be Held in Trust by Trustee.......................... 65
Section 13.3 Paying Agent to Repay Monies Held........................................ 65
Section 13.4 Return of Unclaimed Monies............................................... 66
Section 13.5. Reinstatement............................................................ 66
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 14.1 Indenture and Notes Solely Corporate Obligations......................... 66
ARTICLE XV
CONVERSION OF NOTES
Section 15.1 Right to Convert......................................................... 67
Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion; No Adjustment for Interest or Dividends...................... 67
Section 15.3 Payments in Lieu of Fractional Shares.................................... 69
Section 15.4 Conversion Price......................................................... 69
Section 15.5 Adjustment of Conversion Price........................................... 69
Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale................ 80
Section 15.7 Taxes on Shares Issued................................................... 81
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Section 15.8 Reservation of Shares; Shares to Be Fully Paid; Compliance with
Governmental Requirements; Listing of Common Stock....................... 81
Section 15.9 Responsibility of Trustee................................................ 82
Section 15.10 Notice to Holders Prior to Certain Actions............................... 83
ARTICLE XVI
MISCELLANEOUS PROVISIONS
Section 16.1 Provisions Binding on Company's Successors............................... 84
Section 16.2 Official Acts by Successor Corporation................................... 84
Section 16.3 Addresses for Notices, Etc............................................... 84
Section 16.4 Governing Law............................................................ 84
Section 16.5 Evidence of Compliance with Conditions Precedent; Certificates to
Trustee.................................................................. 84
Section 16.6 Statements Required in Certificate or Opinion............................ 84
Section 16.7 Legal Holidays........................................................... 85
Section 16.8 No Security Interest Created............................................. 85
Section 16.9 Benefits of Indenture.................................................... 85
Section 16.10 Table of Contents, Headings, Etc......................................... 85
Section 16.11 Authenticating Agent..................................................... 86
Section 16.12 Execution in Counterparts................................................ 87
EXHIBIT A -- Form of Note
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<PAGE> 11
INDENTURE dated as of March 13, 1998, between CKE RESTAURANTS,
INC., a Delaware corporation (hereinafter sometimes called the "Company", as
more fully set forth in Section 1.1), and CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION, duly organized and existing under the laws of the
United States of America, as trustee hereunder (hereinafter sometimes called the
"Trustee", as more fully set forth in Section 1.1).
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue of its 4 1/4% Convertible Subordinated Notes due 2004
(hereinafter sometimes called the "Notes"), in an aggregate principal amount not
to exceed $197,225,000 and, to provide the terms and conditions upon which the
Notes are to be authenticated, issued and delivered, the Company has duly
authorized the execution and delivery of this Indenture; and
WHEREAS, the Notes, the certificate of authentication to be borne
by the Notes, a form of assignment, a form of option to elect repayment upon a
Fundamental Change (as defined herein), a form of conversion notice and a
certificate of transfer to be borne by the Notes are to be substantially in the
forms hereinafter provided for; and
WHEREAS, all acts and things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee or a duly
authorized authenticating agent, as provided in this Indenture, the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Notes have in all
respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the
Notes are, and are to be, authenticated, issued and delivered, and in
consideration of the premises and of the purchase and acceptance of the Notes by
the holders thereof, the Company covenants and agrees with the Trustee for the
equal and proportionate benefit of the respective holders from time to time of
the Notes (except as otherwise provided below), as follows:
<PAGE> 12
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The terms defined in this Section 1.1
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section 1.1. All
other terms used in this Indenture that are defined in the Trust Indenture Act
or which are by reference therein defined in the Securities Act (except as
herein otherwise expressly provided or unless the context otherwise requires)
shall have the meanings assigned to such terms in said Trust Indenture Act and
in said Securities Act as in force at the date of the execution of this
Indenture. The words "herein," "hereof," "hereunder," and words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other Subdivision. The terms defined in this Article include the
plural as well as the singular.
Affiliate: The term "Affiliate" of any specified Person shall
mean any other Person directly or indirectly controlling or controlled
by or under direct or indirect common control with such specified
Person. For the purposes of this definition, "control," when used with
respect to any specified Person means the power to direct or cause the
direction of the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling' and "controlled" have
meanings correlative to the foregoing.
Applicable Price: The term "Applicable Price" means (i) in the
event of a Fundamental Change in which the holders of the Common Stock
receive only cash, the amount of cash received by the holder of one
share of Common Stock and (ii) in the event of any other Fundamental
Change, the arithmetic average of the Closing Price for the Common Stock
(determined as set forth in Section 15.5(i)) during the ten Trading Days
immediately prior to (A) the record date for the determination of the
holders of Common Stock entitled to receive cash, securities, property
or other assets in connection with such Fundamental Change, or, (B) if
there is no such record date, the date upon which the holders of the
Common Stock shall have the right to receive cash, securities, property
or other assets in connection with the Fundamental Change.
Board of Directors: The term "Board of Directors" shall mean the
Board of Directors of the Company or a committee of such Board duly
authorized to act for it hereunder.
Business Day: The term "Business Day" means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking
institutions in
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<PAGE> 13
The City of New York or the City of San Francisco are authorized or
obligated by law or executive order to close or be closed.
Closing Price: The term "Closing Price" shall have the meaning
specified in Section 15.5(i)(1).
Commission: The term "Commission" shall mean the Securities and
Exchange Commission.
Common Stock: The term "Common Stock" shall mean any stock of any
class of the Company which has no preference in respect of dividends or
of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company and which is not
subject to redemption by the Company. Subject to the provisions of
Section 15.6, however, shares issuable on conversion of Notes shall
include only shares of the class designated as common stock of the
Company at the date of this Indenture or shares of any class or classes
resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable
in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company and which are not subject to redemption by the
Company; provided that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion to which the total number of shares of
such class resulting from all such reclassifications bears to the total
number of shares of all such classes resulting from all such
reclassifications.
Company: The term "Company" shall mean CKE Restaurants, Inc., a
Delaware corporation, and subject to the provisions of Article XII,
shall include its successors and assigns.
Company Notice: The term "Company Notice" shall have the meaning
specified in Section 3.5(b).
Conversion Price: The term "Conversion Price" shall have the
meaning specified in Section 15.4.
Corporate Trust Office: The term "Corporate Trust Office", or
other similar term, shall mean the principal office of the Trustee at
which at any particular time its corporate trust business shall be
administered, which office is, at the date as of which this Indenture is
dated, located at 101 California Street, Suite 2725, San Francisco,
California 94111.
Credit Agreement: The term "Credit Agreement" shall mean that
certain Credit Agreement dated as of July 15, 1997 among the Company,
the Lenders named therein and Banque Paribas, as agent, together with
all other agreements, instruments and
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<PAGE> 14
documents executed or delivered pursuant thereto or in connection
therewith, in each case as such Credit Agreement, agreements,
instruments or documents (or such agents or lenders) has been prior to
the date hereof and hereafter may be amended, restated, supplemented,
extended, renewed, replaced, substituted or otherwise modified from time
to time, including, without limitation, replacement or substitution in
its entirety with one or more agreements, agents or syndicates of
financial institutions; provided, that with respect to any one or more
loan agreements providing for the refinancing of Indebtedness under the
Credit Agreement, such loan agreement or loan agreements shall be the
Credit Agreement under this Indenture only if a notice to that effect
has been delivered by the Company to the Trustee.
Custodian: The term "Custodian" shall mean Chase Manhattan Bank
and Trust Company, National Association, as custodian with respect to
the Notes in global form, or any successor entity thereto.
default: The term "default" shall mean any event that is, or
after notice or passage of time, or both, would be, an Event of Default.
Defaulted Interest: The term "Defaulted Interest" has the meaning
ascribed to it in Section 2.3.
Depositary: The term "Depositary" means, with respect to the
Notes issuable or issued in whole or in part in global form, the Person
specified in Section 2.5(d) as the Depositary with respect to the Notes,
until a successor shall have been appointed and become such pursuant to
the applicable provisions of this Indenture, and thereafter,
"Depositary" shall mean or include such successor.
Designated Senior Indebtedness: The term "Designated Senior
Indebtedness" shall mean Senior Indebtedness under the Credit Agreement
or any other particular Senior Indebtedness in which the instrument
creating or evidencing the same or the assumption or guarantee thereof
(or related agreements or documents to which the Company is a party)
expressly provides that such Senior Indebtedness shall be "Designated
Senior Indebtedness" for purposes of this Indenture (provided that such
instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the
rights of Designated Senior Indebtedness). If any payment made to any
holder of any Designated Senior Indebtedness or its Representative with
respect to such Designated Senior Indebtedness is rescinded or must
otherwise be returned by such holder or Representative upon the
insolvency, bankruptcy, reorganization, receivership, dissolution,
winding-up or liquidation of the Company or any similar proceeding, the
reinstated Indebtedness of the Company arising as a result of such
rescission or return shall constitute Designated Senior Indebtedness
effective as of the date of such rescission or return.
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<PAGE> 15
Event of Default: The term "Event of Default" shall mean any
event specified in Section 7.1(a), (b), (c), (d), (e), (f) or (g).
Exchange Act: The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, as in effect from time to time.
Fundamental Change: The term "Fundamental Change" means the
occurrence of any transaction or event in connection with which all or
substantially all Common Stock shall be exchanged for, be converted
into, be acquired for or constitute the right to receive consideration
(whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization
or otherwise) which is not all or substantially all common stock listed
(or, upon consummation of or immediately following such transaction or
event which will be listed) on a United States national securities
exchange or approved for quotation on the Nasdaq National Market or any
similar system of automated dissemination of quotations of securities
prices.
Indebtedness: The term "Indebtedness" shall mean, with respect to
any Person, and without duplication, (a) all indebtedness, obligations
and other liabilities (contingent or otherwise) of such Person for
borrowed money (including obligations of the Company in respect of
overdrafts, foreign exchange contracts, currency exchange agreements,
interest rate protection agreements, and any loans or advances from
banks, whether or not evidenced by notes or similar instruments) or
evidenced by bonds, debentures, notes or similar instruments (whether or
not the recourse of the lender is to the whole of the assets of such
Person or to only a portion thereof), other than any account payable or
other accrued current liability or obligation incurred in the ordinary
course of business in connection with the obtaining of materials or
services; (b) all reimbursement obligations and other liabilities
(contingent or otherwise) of such Person with respect to letters of
credit, bank guarantees or bankers' acceptances; (c) all obligations and
liabilities (contingent or otherwise) in respect of leases of such
Person required, in conformity with generally accepted accounting
principles, to be accounted for as capitalized lease obligations on the
balance sheet of such Person and all obligations and other liabilities
(contingent or otherwise) under any lease or related document (including
a purchase agreement) in connection with the lease of real property
which provides that such Person is contractually obligated to purchase
or cause a third party to purchase the leased property and thereby
guarantee a minimum residual value of the leased property to the lessor
and the obligations of such Person under such lease or related document
to purchase or to cause a third party to purchase such leased property;
(d) all obligations of such Person (contingent or otherwise) with
respect to an interest rate or other swap, cap or collar agreement or
other similar instrument or agreement or foreign currency hedge,
exchange, purchase or similar instrument or agreement; (e) all direct or
indirect guaranties or similar agreements by
5
<PAGE> 16
such Person in respect of, and obligations or liabilities (contingent or
otherwise) of such Person to purchase or otherwise acquire or otherwise
assure a creditor against loss in respect of, indebtedness, obligations
or liabilities of another Person of the kind described in clauses (a)
through (d); (f) any indebtedness or other obligations described in
clauses (a) through (d) secured by any mortgage, pledge, lien or other
encumbrance existing on property which is owned or held by such Person,
regardless of whether the indebtedness or other obligation secured
thereby shall have been assumed by such Person; and (g) any and all
deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any indebtedness, obligation or
liability of the kind described in clauses (a) through (f).
Indenture: The term "Indenture" shall mean this instrument as
originally executed or, if amended or supplemented as herein provided,
as so amended or supplemented.
Initial Purchasers: The term "Initial Purchasers" means Morgan
Stanley & Co. Incorporated, BT Alex. Brown Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Schroder & Co. Inc.
Liquidated Damages: The term "Liquidated Damages" shall have the
meaning specified in Section 2(e) of the Registration Rights Agreement.
Note or Notes: The terms "Note" or "Notes" shall mean any Note or
Notes, as the case may be, authenticated and delivered under this
Indenture, including the Global Note.
Noteholder or holder: The terms "Noteholder" or "holder" as
applied to any Note, or other similar terms (but excluding the term
"beneficial holder"), shall mean any Person in whose name at the time a
particular Note is registered on the Note registrar's books.
Officers' Certificate: The term "Officers' Certificate," when
used with respect to the Company, shall mean a certificate signed by
both (a) the President, the Chief Executive Officer or the Chief
Financial Officer and (b) by the Treasurer or the Secretary of the
Company.
Opinion of Counsel: The term "Opinion of Counsel" shall mean an
opinion in writing signed by legal counsel, who may be an employee of or
counsel to the Company, or other counsel acceptable to the Trustee.
outstanding: The term "outstanding," (except as otherwise
provided in Section 8.10) when used with reference to Notes, shall,
subject to the provisions of Section 9.4,
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<PAGE> 17
mean, as of any particular time, all Notes authenticated and delivered
by the Trustee under this Indenture, except
(a) Notes theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Notes, or portions thereof, (i) for the redemption
of which monies in the necessary amount shall have been deposited
in trust with the Trustee or with any paying agent (other than
the Company) or (ii) which shall have been otherwise defeased in
accordance with Article XIII;
(c) Notes in lieu of which, or in substitution for
which, other Notes shall have been authenticated and delivered
pursuant to the terms of Section 2.6; and
(d) Notes converted into Common Stock pursuant to
Article XV and Notes deemed not outstanding pursuant to Article
III.
Person: The term "Person" shall mean a corporation, an
association, a partnership, an individual, a joint venture, a joint
stock company, a trust, an unincorporated organization or a government
or an agency or a political subdivision thereof.
PORTAL Market: The term "PORTAL Market" shall mean the Private
Offerings, Resales and Trading through Automated Linkages Market
operated by the National Association of Securities Dealers, Inc. or any
successor thereto.
Predecessor Note: The term "Predecessor Note" of any particular
Note shall mean every previous Note evidencing all or a portion of the
same debt as that evidenced by such particular Note; and, for the
purposes of this definition, any Note authenticated and delivered under
Section 2.6 in lieu of a lost, destroyed or stolen Note shall be deemed
to evidence the same debt as the lost, destroyed or stolen Note that it
replaces.
QIB: The term "QIB" shall mean a "qualified institutional buyer"
as defined in Rule 144A.
Reference Market Price: The term "Reference Market Price" shall
initially mean $25.92 and, in the event of any adjustment to the
Conversion Price pursuant to Sections 15.5(a), (b), (c), (d), (e), (f)
or (g), the Reference Market Price shall also be adjusted so that the
ratio of the Reference Market Price to the Conversion Price after giving
effect to any such adjustment shall always be the same as the ratio of
$25.92 to the initial Conversion Price specified in the form of Note
attached hereto (without regard to any adjustment thereto).
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<PAGE> 18
Register: The term "Register" shall have the meaning specified
in Section 2.5(a).
Registration Rights Agreement: The term "Registration Rights
Agreement" means that certain Registration Rights Agreement, dated as of
March 13, 1998, between the Company and the Initial Purchasers.
Regulation S: The term "Regulation S" shall mean Regulation S
promulgated under the Securities Act.
Representative: The term "Representative" shall mean the (a)
indenture trustee or other trustee, agent or representative for any
Senior Indebtedness or (b) with respect to any Senior Indebtedness that
does not have any such trustee, agent or other representative, (i) in
the case of such Senior Indebtedness issued pursuant to an agreement
providing for voting arrangements as among the holders or owners of such
Senior Indebtedness, any holder or owner of such Senior Indebtedness
acting with the consent of the required persons necessary to bind such
holders or owners of such Senior Indebtedness and (ii) in the case of
all other such Senior Indebtedness, the holder or owner of such Senior
Indebtedness.
Responsible Officer: The term "Responsible Officer," when used
with respect to the Trustee, shall mean any officer of the Trustee in
the Corporate Trust Office assigned and duly authorized by the Trustee
to administer its corporate trust matters hereunder.
Restricted Securities: The term "Restricted Securities" has the
meaning specified in Section 2.5(d).
Rule 144A: The term "Rule 144A" shall mean Rule 144A promulgated
under the Securities Act.
Securities Act: The term "Securities Act" shall mean the
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
Senior Indebtedness: The term "Senior Indebtedness" shall mean
the principal of, premium, if any, interest (including all interest
accruing subsequent to the commencement of any bankruptcy or similar
proceeding, whether or not a claim for post-petition interest is
allowable as a claim in any such proceeding) and rent payable on or in
connection with, and all fees, costs, expenses and other amounts accrued
or due on or in connection with, Indebtedness of the Company, whether
outstanding on the date of this Indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Company
(including all deferrals, renewals, extensions, refinancings or
refundings of, or amendments, restatements, modifications or supplements
to, the
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<PAGE> 19
foregoing), unless in the case of any particular Indebtedness the
instrument creating or evidencing the same or the assumption or
guarantee thereof expressly provides that such Indebtedness shall not be
senior in right of payment to the Notes or expressly provides that such
Indebtedness is "pari passu" or "junior" to the Notes. Notwithstanding
the foregoing, the term Senior Indebtedness shall not include any
Indebtedness of the Company to any subsidiary of the Company, a majority
of the voting stock of which is owned, directly or indirectly, by the
Company. If any payment made to any holder of any Senior Indebtedness or
its Representative with respect to such Senior Indebtedness is rescinded
or must otherwise be returned by such holder or Representative upon the
insolvency, bankruptcy, reorganization, receivership, dissolution,
winding-up or liquidation of the Company or similar proceeding, the
reinstated Indebtedness of the Company arising as a result of such
rescission or return shall constitute Senior Indebtedness effective as
of the date of such rescission or return.
Subsidiary: The term "Subsidiary" means, with respect to any
Person, (i) any corporation, association or other business entity of
which more than 50% of the total voting power of shares of capital stock
entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by such Person or one
or more of the other subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or
managing general partner of which is such Person or a subsidiary of such
Person or (b) the only general partners of which are such Person or of
one or more subsidiaries of such Person (or any combination thereof).
Trading Day: The term "Trading Day" shall have the meaning
specified in Section 15.5(i)(5).
Trigger Event: The term "Trigger Event" shall have the meaning
specified in Section 15.5(d).
Trust Indenture Act: The term "Trust Indenture Act" shall mean
the Trust Indenture Act of 1939, as amended, as it was in force at the
date of execution of this Indenture, except as provided in Sections 11.3
and 15.6; provided, however, that in the event the Trust Indenture Act
of 1939 is amended after the date hereof, the term "Trust Indenture Act"
shall mean, to the extent required by such amendment, the Trust
Indenture Act of 1939 as so amended.
Trustee: The term "Trustee" shall mean Chase Manhattan Bank and
Trust Company, National Association, and its successors and any
corporation resulting from or surviving any consolidation or merger to
which it or its successors may be a party and any successor trustee at
the time serving as successor trustee hereunder.
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The definitions of certain other terms are as specified in
Section 2.5 and 3.5 and Article XV.
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES
Section 2.1 Designation Amount and Issue of Notes. The Notes
shall be designated as "4 1/4% Convertible Subordinated Notes due 2004." Notes
not to exceed the aggregate principal amount of $197,225,000 (except pursuant to
Sections 2.5, 2.6, 3.3, 3.5 and 15.2 hereof) upon the execution of this
Indenture, or from time to time thereafter, may be executed by the Company and
delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver said Notes to or upon the Trustee's receipt of the
written order of the Company, signed by its (a) President, Chief Executive
Officer or Chief Financial Officer and (b) Treasurer or Secretary, and the other
documents required pursuant to Sections 16.5 and 16.6 hereof, without any
further action of the Company hereunder.
Section 2.2 Form of Notes. The Notes and the Trustee's
certificate of authentication to be borne by such Notes shall be substantially
in the form set forth in Exhibit A, which is incorporated in and made part of
this Indenture.
Any of the Notes may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Notes may be
listed, or to conform to usage. Neither the Company nor the Trustee shall have
any responsibility for any defect in the CUSIP number that appears on any bond,
debenture, coupon, note, check, advice of payment or redemption notice, and any
such document may contain a statement to the effect that CUSIP numbers have been
assigned by an independent service for convenience of reference and that neither
the Company nor the Trustee shall be liable for any inaccuracy in such numbers.
Any Note in global form shall represent such of the outstanding
Notes as shall be specified therein and shall provide that it shall represent
the aggregate amount of outstanding Notes from time to time endorsed thereon and
that the aggregate amount of outstanding Notes represented thereby may from time
to time be increased or reduced to reflect transfers or exchanges permitted
hereby. Any endorsement of a Note in global form to reflect the amount of any
increase or decrease in the amount of outstanding Notes represented thereby
shall be made by the Trustee or the Custodian, at the direction of the Trustee,
in such manner
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and upon instructions given by the holder of such Notes in accordance with this
Indenture. Payment of principal of and interest (including Liquidated Damages,
if any) and premium, if any, on any Note in global form shall be made to the
holder of such Note.
The terms and provisions contained in the form of Note attached
as Exhibit A hereto shall constitute, and are hereby expressly made, a part of
this Indenture and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Section 2.3 Date and Denomination of Notes; Payments of Interest.
The Notes shall be issuable in registered form without coupons in denominations
of $1,000 principal amount and integral multiples thereof. Every Note shall be
dated the date of its authentication and shall bear interest from the applicable
date in each case as specified on the face of the form of Note attached as
Exhibit A hereto. Interest on the Notes shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
The Person in whose name any Note (or its Predecessor Note) is
registered at the close of business on any record date with respect to any
interest payment date, except (i) that the interest payable upon redemption
(unless the date of redemption is an interest payment date) will be payable to
the person to whom principal is payable and (ii) as set forth in the next
succeeding sentence. In the case of any Note (or portion thereof) which is
converted into Common Stock of the Company during the period from (but
excluding) a record date to (but excluding) the next succeeding interest payment
date either (i) if such Note (or portion thereof) has been called for redemption
on a redemption date which occurs during such period, or is to be redeemed in
connection with a Fundamental Change on a Repurchase Date (as defined in Section
3.5) which occurs during such period, the Company shall not be required to pay
interest on such interest payment date in respect of any such Note (or portion
thereof) except to the extent required to be paid upon redemption of such Note
or portion thereof pursuant to Section 3.3 or 3.5 hereof or (ii) if otherwise,
any Note (or portion thereof) submitted for conversion during such period shall
be accompanied by funds equal to the interest payable on such succeeding
interest payment date on the principal amount so converted. Interest may, as the
Company shall specify to the paying agent in writing by each record date, be
paid either (i) by check mailed to the address of the person entitled thereto as
it appears in the Note register or (ii) by transfer to an account maintained by
such person located in the United States; provided, however, that payments to
the Depositary will be made by wire transfer of immediately available funds to
the account of the Depositary or its nominee. The term "record date" with
respect to any interest payment date shall mean the March 1 or September 1
preceding said March 15 or September 15, respectively.
Any interest (including Liquidated Damages, if any) on any Note
which is payable, but is not punctually paid or duly provided for, on any said
March 15 or September 15 (herein called "Defaulted Interest") shall forthwith
cease to be payable to the Noteholder on the relevant record date by virtue of
his having been such Noteholder; and such
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Defaulted Interest shall be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below;
(1) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the Notes (or their
respective Predecessor Notes) are registered at the close of business on
a special record date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest to be paid on
each Note and the date of the payment (which shall be not less than
twenty-five (25) days after the receipt by the Trustee of such notice,
unless the Trustee shall consent to an earlier date), and at the same
time the Company shall deposit with the Trustee an amount of money equal
to the aggregate amount to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to
be held in trust for the benefit of the Persons entitled to such
Defaulted Interest as provided in this clause. Thereupon the Trustee
shall fix a special record date for the payment of such Defaulted
Interest which shall be not more than fifteen (15) days and not less
than ten (10) days prior to the date of the proposed payment and not
less than ten (10) days after the receipt by the Trustee of the notice
of the proposed payment. The Trustee shall promptly notify the Company
of such special record date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the special record date therefor to be mailed, first-class
postage prepaid to each Noteholder at his address as it appears on the
Register, not less than ten (10) days prior to such special record date.
Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Notes (or their
respective Predecessor Notes) were registered at the close of business
on such special record date and shall no longer be payable pursuant to
the following clause (2) of this Section 2.3.
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange or automated quotation system on
which the Notes may be listed or designated for issuance, and upon such
notice as may be required by such exchange or automated quotation
system, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of payment shall
be deemed practicable by the Trustee.
Section 2.4 Execution of Notes. The Notes shall be signed in the
name and on behalf of the Company by the facsimile signature of its Chief
Executive Officer or President, and attested by the facsimile signature of its
Chief Financial Officer, Treasurer or Secretary (which may be printed, engraved
or otherwise reproduced thereon, by facsimile or otherwise). Only such Notes as
shall bear thereon a certificate of authentication substantially in the form set
forth on the form of Note attached as Exhibit A hereto, manually executed by
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<PAGE> 23
the Trustee (or an authenticating agent appointed by the Trustee as provided by
Section 16.11), shall be entitled to the benefits of this Indenture or be valid
or obligatory for any purpose. Such certificate by the Trustee (or such an
authenticating agent) upon any Note executed by the Company shall be conclusive
evidence that the Note so authenticated has been duly authenticated and
delivered hereunder and that the holder is entitled to the benefits of this
Indenture.
In case any officer of the Company who shall have signed any of
the Notes shall cease to be such officer before the Notes so signed shall have
been authenticated and delivered by the Trustee, or disposed of by the Company,
such Notes nevertheless may be authenticated and delivered or disposed of as
though the person who signed such Notes had not ceased to be such officer of the
Company; and any Note may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Note, shall be the proper officers
of the Company, although at the date of the execution of this Indenture any such
person was not such an officer.
Section 2.5 Exchange and Registration of Transfer of Notes:
Restrictions on Transfer; Depositary.
(a) The Company shall cause to be kept at the Corporate Trust
Office a register (the register maintained in such office and in any other
office or agency of the Company designated pursuant to Section 5.2 being herein
sometimes collectively referred to as the "Register") in which, subject to such
reasonable regulations as it may prescribe, be registered and the transfer of
Notes shall be registered as provided in this Article II. Such Register shall be
in written form or in any other form capable of being converted into written
form within a reasonable time. At all reasonable times such Register shall be
open for inspection by the Trustee. Upon due presentment for registration of
transfer of any Note at any office or agency maintained by the Company pursuant
to Section 5.2, the Company shall execute and register and the Trustee shall
authenticate and deliver in the name of the transferee or transferees a new Note
or Notes for an equal aggregate principal amount. The Trustee is hereby
appointed "Note registrar" for the purpose of registering Notes and transfers of
Notes as provided herein. The Company may appoint one or more co-registrars in
accordance with Section 5.2.
Upon due presentment for registration of transfer of any Note to
the Trustee and satisfaction of the requirements for such transfer set forth in
this Section 2.5, the Company shall execute, and the Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Notes of any authorized denominations and of a like aggregate principal
amount and bearing such restrictive legends as may be required by this
Indenture, without charge except for any tax or other governmental charge
imposed in connection herewith.
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<PAGE> 24
Notes may be exchanged for a like aggregate principal amount of
Notes of other authorized denominations. Notes to be exchanged shall be
surrendered at any office or agency to be maintained by the Company pursuant to
Section 5.2 and the Company shall execute and register and the Trustee shall
authenticate and deliver in exchange therefor the Note or Notes which the
Noteholder making the exchange shall be entitled to receive, bearing
registration numbers not contemporaneously outstanding.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
All Notes presented or surrendered for registration of transfer
or for exchange, redemption or conversion shall (if so required by the Company
or the Note registrar) be duly endorsed, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company, and
the Notes shall be duly executed by the Noteholder thereof or his attorney duly
authorized in writing.
No service charge shall be made for any registration of transfer
or exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax, assessment or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
Neither the Company nor the Trustee shall be required to exchange
or register a transfer of (i) any Notes for a period of fifteen (15) days next
preceding any selection of Notes to be redeemed or (ii) any Notes or portions
thereof called for redemption pursuant to Section 3.2 or (iii) any Notes or
portion thereof surrendered for conversion pursuant to Article XV or (iv) any
Notes or portions thereof tendered for redemption pursuant to Section 3.5.
(b) So long as the Notes are eligible for book-entry
settlement with the Depositary, or unless otherwise required by law, all Notes
that are so eligible may be represented by one or more Notes in global form
registered in the name of the Depositary or the nominee of the Depositary (each,
a Global Note), except as otherwise specified below. The transfer and exchange
of beneficial interests in any such Note in any such Global Note shall be
effected through the Depositary in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor. The Trustee shall make appropriate endorsements to reflect increases
or decreases in the principal amounts of such global Notes as set forth in the
face of the Note ("Principal Amount") to reflect any such transfers.
Except as provided below, beneficial owners of a Note in global
form shall not be entitled to have certificates registered in their names, will
not receive or be entitled to
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<PAGE> 25
receive physical delivery of certificates in definitive form and will not be
considered holders of such Notes in global form.
(c) So long as the Notes are Restricted Securities and are
eligible for book-entry settlement, or unless otherwise required by law, as set
forth in an Officers' Certificate delivered to the Trustee, upon receipt by the
Trustee of any definitive Note or Notes for registration of transfer, together
with the form of assignment duly completed with an indication that such transfer
is being made pursuant to Rule 144A or Regulation S, the Trustee shall make an
endorsement on the Global Note to reflect an increase in the aggregate Principal
Amount represented by such Global Note equal to the principal amount of the
definitive Note or Notes being so transferred, and the Trustee shall cancel such
definitive Note or Notes, in accordance with the standing instructions and
procedures of the Depositary. Notwithstanding the foregoing, (i) no definitive
Note, or portion thereof, as to which the Trustee was notified in writing by the
Company that the Company or any Affiliate of the Company held any beneficial
interest therein, shall be included in such Global Note and (ii) the Trustee
shall issue Notes in definitive form upon registration of transfer of any
beneficial interest in a Note in global form to the Company or any Affiliate of
the Company.
Any Note in global form may be endorsed with or have incorporated
in the text thereof such legends or recitals or changes not inconsistent with
the provisions of this Indenture as may be required by the Custodian, the
Depositary or by the National Association of Securities Dealers, Inc. in order
for the Notes to be tradeable on the PORTAL Market or as may be required for the
Notes to be tradeable on any other market developed for trading of securities
pursuant to Rule 144A or required to comply with any applicable law or any
regulation thereunder or with the rules and regulations of any securities
exchange or automated quotation system upon which the Notes may be listed or
traded or to conform with any usage with respect thereto, or to indicate any
special limitations or restrictions to which any particular Notes are subject.
(d) Every Note that bears or is required under this Section
2.5(d) to bear the legend set forth in this Section 2.5(d) (together with any
Common Stock issued upon conversion of the Notes and required to bear the legend
set forth in Section 2.5(e), collectively, the "Restricted Securities") shall be
subject to the restrictions on transfer set forth in this Section 2.5(d)
(including those set forth in the legend set forth below) unless such
restrictions on transfer shall be waived by written consent of the Company, and
the holder of each such Restricted Note, by such Noteholder's acceptance
thereof, agrees to be bound by all such restrictions on transfer. As used in
Sections 2.5(d) and 2.5(e), the term "transfer" encompasses any sale, pledge,
transfer or other disposition whatsoever of any Restricted Security.
Until written notification by the Company to the Trustee of the
expiration of the holding period applicable to sales thereof under Rule 144(k)
under the Securities Act (or any successor provision), every certificate
evidencing a Note (and all securities issued in exchange
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<PAGE> 26
therefor or substitution thereof, other than Common Stock, if any, issued upon
conversion thereof, which shall bear the legend set forth in Section 2.5(e), if
applicable) shall bear a legend in substantially the following form, unless the
Note registrar is notified by the Company in writing that such Note has been
sold pursuant to a registration statement that has been declared effective under
the Securities Act (and which continues to be effective at the time of such
transfer), or unless otherwise agreed by the Company (with written notice
thereof by the Company to the Trustee and the Note registrar):
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT)
("INSTITUTIONAL ACCREDITED INVESTOR"); (2) AGREES THAT IT WILL
NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO
SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER
THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR
OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO CKE
RESTAURANTS, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR
TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS
APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED
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EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) AGREES THAT PRIOR TO
SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F)
ABOVE), IT WILL FURNISH TO CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR
TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND (4) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH
ANY TRANSFER OF THE NOTE EVIDENCED HEREBY PRIOR TO THE EXPIRATION
OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE NOTE EVIDENCED
HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY
SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX
SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS CERTIFICATE TO CHASE MANHATTAN BANK AND
TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR
TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A
U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, AS
TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS
LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE
NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR UPON ANY
TRANSFER OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR PROVISION), AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON"
HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
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Any Note (or security issued in exchange or substitution
therefor) as to which such restrictions on transfer shall have expired in
accordance with their terms or as to the conditions for removal of the foregoing
legend set forth therein have been satisfied may, upon surrender of such Note
for exchange to the Note registrar in accordance with the provisions of this
Section 2.5, be exchanged for a new Note or Notes, of like tenor and aggregate
principal amount, which shall not bear the restrictive legend required by this
Section 2.5(d).
Notwithstanding any other provisions of this Indenture (other
than the provisions set forth in the second paragraph of Section 2.5(b) and in
this Section 2.5(d)), a Note in global form may not be transferred as a whole or
in part except by the Depositary to a nominee of the Depositary or by a nominee
of the Depositary to the Depositary or another nominee of the Depositary or by
the Depositary or any such nominee to a successor Depositary or a nominee of
such successor Depositary.
The Depositary shall be a clearing agency registered under the
Exchange Act. The Company initially appoints The Depository Trust Company to act
as Depositary with respect to the Notes in global form. Initially, the Global
Note shall be issued to the Depositary, registered in the name of Cede & Co., as
the nominee of the Depositary, and deposited with the Custodian for Cede & Co.
If at any time the Depositary for a Note in global form notifies
the Company that it is unwilling or unable to continue as Depositary for such
Note, the Company may appoint a successor Depositary with respect to such Note.
If a successor Depositary is not appointed by the Company within ninety (90)
days after the Company receives such notice, the Company will execute, and the
Trustee, upon receipt of an Officers' Certificate for the authentication and
delivery of Notes, will authenticate and deliver, Notes in certificated form, in
aggregate principal amount equal to the principal amount of such Note in global
form, in exchange for such Note in global form.
If a Note in certificated form is issued in exchange for any
portion of a Note in global form after the close of business at the office or
agency where such exchange occurs on any record date and before the opening of
business at such office or agency on the next succeeding interest payment date,
interest will not be payable on such interest payment date in respect of such
Note, but will be payable on such interest payment date, subject to the
provisions of Section 2.3, only to the Person to whom interest in respect of
such portion of such Note in global form is payable in accordance with the
provisions of this Indenture.
Notes in certificated form issued in exchange for all or a part
of a Note in global form pursuant to this Section 2.5 shall be registered in
such names and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. Upon execution and authentication, the Trustee shall
deliver such Notes in certificated form to the Persons in whose names such Notes
in certificated form are so registered.
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<PAGE> 29
At such time as all interests in a Note in global form have been
redeemed, converted, canceled or exchanged for Notes in certificated form, or
transferred to a transferee who receives Notes in certificated form thereof,
such Note in global form shall, upon receipt thereof, be canceled by the Trustee
in accordance with standing procedures and instructions existing between the
Depositary and the Custodian. At any time prior to such cancellation, if any
interest in a global Note is exchanged for Notes in certificated form, redeemed,
converted, repaid or canceled, or transferred to a transferee who receives Notes
in certificated form therefor or any Note in certificated form is exchanged or
transferred for part of a Note in global form, the principal amount of such Note
in global form shall, in accordance with the standing procedures and
instructions existing between the Depositary and the Custodian, be appropriately
reduced or increased, as the case may be, and an endorsement shall be made on
such Note in global form, by the Trustee or the Custodian, at the direction of
the Trustee, to reflect such reduction or increase.
(e) Until written notification by the Company to the Trustee
of the expiration of the holding period applicable to sales thereof under Rule
144(k) under the Securities Act (or any successor provision), any stock
certificate representing Common Stock issued upon conversion of such Note shall
bear a legend in substantially the following form, unless such Common Stock has
been sold pursuant to a registration statement that has been declared effective
under the Securities Act (and which continues to be effective at the time of
such transfer) or such Common Stock has been issued upon conversion of Notes
that have been transferred pursuant to a registration statement that has been
declared effective under the Securities Act, or unless otherwise agreed by the
Company (with written notice thereof by the Company to the Trustee and the Note
registrar):
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES
THAT UNTIL THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO
SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER
THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), (1) IT WILL NOT
RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY
EXCEPT (A) TO CKE RESTAURANTS, INC. OR ANY SUBSIDIARY THEREOF,
(B) INSIDE THE UNITED STATES TO A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE
WITH RULE 144A, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
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AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE),
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED
HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH
TRANSFER AGENT OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), (D)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR
(F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO SUCH
TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE),
IT WILL FURNISH TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS
TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE),
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK
EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT
TO CLAUSE 1(F) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE
TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE
1(F) ABOVE OR UPON ANY TRANSFER OF THE COMMON STOCK EVIDENCED
HEREBY AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO
SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER
THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN,
THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Any such Common Stock as to which such restrictions on transfer
shall have expired in accordance with their terms or as to which the conditions
for removal of the foregoing legend set forth therein have been satisfied may,
upon surrender of the certificates representing such shares of Common Stock for
exchange in accordance with the procedures of the transfer agent for the Common
Stock, be exchanged for a new certificate or certificates for a like number of
shares of Common Stock, which shall not bear the restrictive legend required by
this Section 2.5(e).
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<PAGE> 31
(f) Any Note or Common Stock issued upon the conversion or
exchange of a Note that, prior to the expiration of the holding period
applicable to sales thereof under Rule 144(k) under the Securities Act (or any
successor provision), is purchased or owned by the Company or any Affiliate
thereof may not be resold by the Company or such Affiliate unless registered
under the Securities Act or resold pursuant to an exemption from the
registration requirements of the Securities Act in a transaction which results
in such Notes or Common Stock, as the case may be, no longer being "restricted
securities" (as defined under Rule 144).
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case
any Note shall become mutilated or be destroyed, lost or stolen, the Company in
its discretion may execute, and upon its request the Trustee or an
authenticating agent appointed by the Trustee shall authenticate and deliver, a
new Note, bearing a number not contemporaneously outstanding, in exchange and
substitution for the mutilated Note, or in lieu of and in substitution for the
Note so destroyed, lost or stolen. In every case the applicant for a substituted
Note shall furnish to the Company, to the Trustee and, if applicable, to such
authenticating agent such security or indemnity as may be required by them to
hold each of them harmless for any loss, liability, cost or expense caused by or
connected with such substitution, and, in every case of destruction, loss or
theft, the applicant shall also furnish to the Company, to the Trustee and, if
applicable, to such authenticating agent evidence to their satisfaction of the
destruction, loss or theft of such Note and of the ownership thereof.
Following receipt by the Trustee or such authenticating agent, as
the case may be, of satisfactory security or indemnity and evidence, as
described in the preceding paragraph, the Trustee or such authenticating agent
may authenticate any such substituted Note and deliver such Note. Upon the
issuance of any substituted Note, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses connected therewith. In case any Note
which has matured or is about to mature or has been called for redemption or is
about to be converted into Common Stock shall become mutilated or be destroyed,
lost or stolen, the Company may, instead of issuing a substitute Note, pay or
authorize the payment of or convert or authorize the conversion of the same
(without surrender thereof except in the case of a mutilated Note), as the case
may be, if the applicant for such payment or conversion shall furnish to the
Company, to the Trustee and, if applicable, to such authenticating agent such
security or indemnity as may be required by them to save each of them harmless
for any loss, liability, cost or expense caused by or connected with such
substitution, and, in case of destruction, loss or theft, evidence satisfactory
to the Company, the Trustee and, if applicable, any paying agent or conversion
agent of the destruction, loss or theft of such Note and of the ownership
thereof.
Every substitute Note issued pursuant to the provisions of this
Section 2.6 by virtue of the fact that any Note is destroyed, lost or stolen
shall constitute an additional contractual obligation of the Company, whether or
not the apparently destroyed, lost or stolen Note shall be found at any time,
and shall be entitled to all the benefits of (but shall be subject to all the
limitations set forth in) this Indenture equally and proportionately with any
and all
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other Notes duly issued hereunder. To the extent permitted by law, all Notes
shall be held and owned upon the express condition that the foregoing provisions
are exclusive with respect to the replacement or payment or conversion of
mutilated, destroyed, lost or stolen Notes and shall preclude any and all other
rights or remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement or payment or conversion
of negotiable instruments or other securities without their surrender.
Section 2.7 Temporary Notes. Pending the preparation of Notes in
certificated form, the Company may execute and the Trustee or an authenticating
agent appointed by the Trustee shall, upon the request of the Company,
authenticate and deliver temporary Notes (printed or lithographed). Temporary
Notes shall be issuable in any authorized denomination, and substantially in the
form of the Notes in certificated form, but with such omissions, insertions and
variations as may be appropriate for temporary Notes, all as may be determined
by the Company. Every such temporary Note shall be executed by the Company and
authenticated by the Trustee or such authenticating agent upon the same
conditions and in substantially the same manner, and with the same effect, as
the Notes in certificated form. Without unreasonable delay the Company will
execute and deliver to the Trustee or such authenticating agent Notes in
certificated form (other than in the case of Notes in global form) and thereupon
any or all temporary Notes (other than any such Note in global form) may be
surrendered in exchange therefor, at each office or agency maintained by the
Company pursuant to Section 5.2 and the Trustee or such authenticating agent
shall authenticate and deliver in exchange for such temporary Notes an equal
aggregate principal amount of Notes in certificated form. Such exchange shall be
made by the Company at its own expense and without any charge therefor. Until so
exchanged, the temporary Notes shall in all respects be entitled to the same
benefits and subject to the same limitations under this Indenture as Notes in
certificated form authenticated and delivered hereunder.
Section 2.8 Cancellation of Notes Paid, Etc. All Notes
surrendered for the purpose of payment, redemption, conversion, exchange or
registration of transfer, shall, if surrendered to the Company or any paying
agent or any Note registrar or any conversion agent, be surrendered to the
Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be
promptly canceled by it, and no Notes shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. The Trustee
shall destroy canceled Notes (unless the Company directs it to do otherwise)
and, after such destruction, shall deliver a certificate of such destruction to
the Company. If the Company shall acquire any of the Notes, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Notes unless and until the same are delivered to the Trustee
for cancellation.
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ARTICLE III
REDEMPTION OF NOTES
Section 3.1 Redemption Prices. The Notes will not be redeemable
at the option of the Company prior to March 20, 2001. At any time on or after
March 20, 2001 and prior to maturity, the Notes may (unless theretofore repaid
or converted) be redeemed at the option of the Company as a whole, or from time
to time in part, upon notice as set forth in Section 3.2, and at the following
redemption prices (expressed as percentages of the principal amount), together
in each case with accrued interest to, but excluding, the date fixed for
redemption: if redeemed during the period beginning March 20, 2001 and ending on
March 14, 2002 at a redemption price of 102.125%, if redeemed during the
12-month period beginning March 15, 2002 at a redemption price of 101.417%, if
redeemed during the 12-month period beginning March 15, 2003 at a redemption
price of 100.708% and 100% at March 15, 2004; provided that if the date fixed
for redemption is on March 15 or September 15, then the interest payable on such
date shall be paid to the holder of record on the next preceding March 1 or
September 1, respectively.
Section 3.2 Notice of Redemption; Selection of Notes. In case the
Company shall desire to exercise the right to redeem all or, as the case may be,
any part of the Notes pursuant to Section 3.1, it shall fix a date for
redemption and it or, at its written request received by the Trustee not fewer
than forty-five (45) days prior (or such shorter period of time as may be
acceptable to the Trustee) to the date fixed for redemption, the Trustee in the
name of the and at the expense of the Company, shall mail or cause to be mailed
a notice of such redemption at least 30 days prior to the date fixed for
redemption to the holders of Notes so to be redeemed as a whole or in part at
their last addresses as the same appear on the Note register (provided that if
the Company shall give such notice, it shall also give written notice, and
written notice of the Notes to be redeemed, to the Trustee). Such mailing shall
be by first class mail. The notice if mailed in the manner herein provided shall
be conclusively presumed to have been duly given, whether or not the holder
receives such notice. In any case, failure to give such notice by mail or any
defect in the notice to the holder of any note designated for redemption as a
whole or in part shall not affect the validity of the proceedings for the
redemption of any other Note.
Each such notice of redemption shall specify the aggregate
principal amount of Notes to be redeemed, the date fixed for redemption which
shall be a Business Day, the redemption price at which Notes are to be redeemed,
the place or places of payment, that payment will be made upon presentation and
surrender of such Notes, that interest accrued to, but excluding, the date fixed
for redemption will be paid as specified in said notice, and that on and after
said date interest thereon or on the portions thereof to be redeemed will cease
to accrue. Such notice shall also state the current Conversion Price and the
date on which the right to convert such Notes or portions thereof into Common
Stock will expire. If fewer than all the Notes are to be redeemed, the notice of
redemption shall identify the Notes to be
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redeemed. In case any Note is to be redeemed in part only, the notice of
redemption shall state the portion of the principal amount thereof to be
redeemed and shall state that on and after the date fixed for redemption, upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion thereof will be issued.
On or before the date fixed for redemption specified in the
notice of redemption given as provided in this Section 3.2, subject to the
provisions of Article IV hereof, the Company will deposit with the Trustee or
with one or more paying agents (or, if the Company is acting as its own paying
agent, set aside, segregate and hold in trust as provided in Section 5.4) an
amount of money sufficient to redeem on the date fixed for redemption all the
Notes (or portions thereof) so called for redemption (other than those
theretofore surrendered for conversion into Common Stock) at the appropriate
redemption price, together with accrued interest to, but excluding, the date
fixed for redemption; provided that if such payment is made on the date fixed
for redemption it must be received by the Trustee or paying agent, as the case
may be, by 11:00 a.m. New York City time, on such date. If any Note called for
redemption is converted pursuant hereto, any money deposited with the Trustee or
any paying agent or so segregated and held in trust for the redemption of such
Note shall be paid to the Company upon its request, or, if then held by the
Company shall be discharged from such trust. Whenever any Notes are to be
redeemed, the Company will give the Trustee written notice in the form of an
Officers' Certificate not fewer than forty-five (45) days (or such shorter
period of time as may be acceptable to the Trustee) prior to the redemption date
as to the aggregate principal amount of Notes to be redeemed.
If less than all of the outstanding Notes are to be redeemed, the
Trustee shall select the Notes to be redeemed in principal amounts of $1,000 or
multiples thereof in compliance with the requirements, as certified to the
Trustee by the Company in the form of an Officers' Certificate of the principal
national securities exchange on which the Notes are listed, or if the Notes are
not so listed, by lot, pro rata or by another method the Trustee considers fair
and appropriate. If a portion of a holder's Notes is selected for partial
redemption and such holder converts a portion of such Notes, such converted
portion shall be deemed (so far as may be) to be the portion selected for
redemption. The Notes (or portions thereof) so selected shall be deemed duly
selected for redemption for all purposes hereof, notwithstanding that any such
Note is converted as a whole or in part before the mailing of the notice of
redemption.
Upon any redemption of less than all Notes, the Company and the
Trustee may (but need not) treat as outstanding any Notes surrendered for
conversion during the period of fifteen (15) days next preceding the mailing of
a notice of redemption and may (but need not) treat as outstanding any Note
authenticated and delivered during such period in exchange for the unconverted
portion of any Note converted in part during such period.
Section 3.3 Payment of Notes Called for Redemption. If notice of
redemption has been given as above provided, the Notes or portions of Notes with
respect to
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which such notice has been given shall, unless theretofore converted into Common
Stock pursuant to the terms hereof, become due and payable on the date fixed for
redemption and at the place or places stated in such notice at the applicable
redemption price, together with interest accrued to, but excluding, the date
fixed for redemption, and on and after said date (unless the Company shall
default in the payment of such Notes at the redemption price, together with
interest accrued to said date) interest on the Notes or portion of Notes so
called for redemption shall cease to accrue and such Notes shall cease after the
close of business on the Business Day immediately preceding the date fixed for
redemption to be convertible into Common Stock and, except as provided in
Sections 8.5 and 13.4, to be entitled to any benefit or security under this
Indenture, and the holders thereof shall have no right in respect of such Notes
except the right to receive the redemption price thereof and unpaid interest to,
but excluding, the date fixed for redemption. On presentation and surrender of
such Notes at a place of payment in said notice specified, the said Notes or the
specified portions thereof shall be paid and redeemed by the Company at the
applicable redemption price, together with interest accrued thereon to, but
excluding, the date fixed for redemption; provided that, if the applicable date
fixed for redemption is an interest payment date, the semi-annual payment of
interest becoming due on such date shall be payable to the holders of such Notes
registered as such on the relevant record date instead of the holders
surrendering such Notes for redemption on such date.
Upon presentation of any Note redeemed in part only, the Company
shall execute and the Trustee shall authenticate and deliver to the holder
thereof, at the expense of the Company, a new Note or Notes, of authorized
denominations, in principal amount equal to the unredeemed portion of the Note
so presented.
Notwithstanding the foregoing, the Trustee shall not redeem any
Notes or mail any notice of optional redemption during the continuance of a
default in payment of interest or premium on the Notes or of any Event of
Default. If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and premium, if any, shall, until paid or
duly provided for, bear interest from the date fixed for redemption at the rate
borne by the Note and such Note shall remain convertible into Common Stock until
the principal and premium, if any, shall have been paid or duly provided for.
Section 3.4 Conversion Arrangement on Call for Redemption. In
connection with any redemption of Notes, the Company may arrange for the
purchase and conversion of any Notes by an agreement with one or more investment
bankers or other purchasers to purchase such Notes by paying to the Trustee in
trust for the Noteholders, on or before the date fixed for redemption, an amount
not less than the applicable redemption price, together with interest accrued
to, but excluding, the date fixed for redemption, of such Notes. Notwithstanding
anything to the contrary contained in this Article III, the obligation of the
Company to pay the redemption price of such Notes, together with interest
accrued to, but excluding, the date fixed for redemption, shall be deemed to be
satisfied and discharged to the extent such amount is so paid by such
purchasers. If such an agreement is entered into, a copy
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of which will be filed with the Trustee prior to the date fixed for redemption,
any Notes not duly surrendered for conversion by the holders thereof may, at the
option of the Company, be deemed, to the fullest extent permitted by law,
acquired by such purchasers from such holders and (notwithstanding anything to
the contrary contained in Article XV) surrendered by such purchasers for
conversion, all as of immediately prior to the close of business on the date
fixed for redemption (and the right to convert any such Notes shall be extended
through such time), subject to payment of the above amount as aforesaid. At the
direction of the Company, the Trustee shall hold and dispose of any such amount
paid to it in the same manner as it would monies deposited with it by the
Company for the redemption of Notes. Without the Trustee's prior written
consent, no arrangement between the Company and such purchasers for the purchase
and conversion of any Notes shall increase or otherwise affect any of the
powers, duties, responsibilities or obligations of the Trustee as set forth in
this Indenture.
Section 3.5 Redemption at Option of Holders.
(a) If a Fundamental Change occurs at any time while Notes are
outstanding, each holder of Notes shall have the right, at such holder's option,
to require the Company to redeem all of such holder's Notes, or any portion
thereof that is an integral multiple of $1,000 principal amount on the date (the
"Repurchase Date") that is 30 days (or if such 30th day is not a Business Day,
the next succeeding Business Day) after the date of the Company Notice of such
Fundamental Change.
The Company shall redeem such Notes at a price equal to 100% of
the principal amount thereof; provided in each case that if the Applicable Price
is less than the Reference Market Price, the Company shall redeem such Notes at
a price equal to the foregoing redemption price multiplied by the fraction
obtained by dividing the Applicable Price by the Reference Market Price;
provided that if such repayment date is March 15 or September 15, then the
interest payable on such date shall be paid to the holder of record of the Note
on the next preceding March 1 or September 1. In each case, the Company shall
also pay to such holders accrued interest to, but excluding, the Repurchase Date
on the redeemed Notes.
Upon presentation of any Note redeemed in part only, the Company
shall execute, and, upon the Company's written direction to the Trustee, the
Trustee shall authenticate and deliver to the holder thereof, at the expense of
the Company, a new Note or Notes, of authorized denominations, in principal
amount equal to the unredeemed portion of the Notes so presented.
(b) On or before the tenth day after the occurrence of a
Fundamental Change, the Company, or, at its written request (which must be
received by the Trustee at least five Business Days prior to the date the
Trustee is requested to give notice as described below), the Trustee in the name
of and at the expense of the Company, shall mail or cause to be mailed to all
holders of record on the date of the Fundamental Change a notice (the "Company
Notice") of the occurrence of such Fundamental Change and of the redemption
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right at the option of the holders arising as a result thereof. Such notice
shall be mailed in the manner and with the effect set forth in the first
paragraph of Section 3.2. The Company shall also use its best efforts to have a
notice published at least once in each of Bloomberg Business News, Dow Jones
News (DJN) and Reuter Financial Report in The City of New York on or before the
tenth day after the occurrence of a Fundamental Change. The Company shall
promptly deliver a copy of each of the published notices and Company Notice to
the Trustee.
Each published notice and Company Notice shall specify the
circumstances constituting the Fundamental Change, the Repurchase Date, the
price at which the Company shall be obligated to repay Notes, the latest time on
the Repurchase Date by which the holder must exercise the redemption right (the
"Fundamental Change Expiration Time"), that the holder shall have the right to
withdraw any Notes surrendered prior to the Fundamental Change Expiration Time,
a description of the procedure which a Noteholder must follow to exercise such
redemption right and to withdraw any surrendered Notes, the place or places
where the holder is to surrender such holder's Notes, and the amount of interest
accrued on each Note to, but excluding, the Repurchase Date.
No failure of the Company to give the foregoing notices and no
defect therein shall limit the Noteholders' repayment rights or affect the
validity of the proceedings for the repayment of the Notes pursuant to this
Section 3.5.
(c) For a Note to be so repaid at the option of the holder,
the Company must receive at the office or agency of the Company maintained for
that purpose or, at the option of such holder, the Corporate Trust Office, such
Note with the form entitled "Option to Elect Repayment Upon A Fundamental
Change" on the reverse thereof duly completed, together with such Notes duly
endorsed for transfer, on or before the Fundamental Change Expiration Time. In
order to exercise the repayment option with respect to any interest in a Note in
global form, the beneficial holder must comply with the applicable procedures of
the Depositary, furnish appropriate endorsements and documentation if required
by the Company or the Trustee or paying agent and such notice shall not have
been withdrawn.
All questions as to the validity, eligibility (including time of
receipt) and acceptance of any Note for repayment shall be determined by the
Company, whose determination shall be final and binding absent manifest error.
(d) On or before the Repurchase Date, subject to the
provisions of Article IV hereof, the Company will deposit with the Trustee or
with one or more paying agents (or, if the Company is acting as its own paying
agent, set aside, segregate and hold in trust as provided in Section 5.4) an
amount of money sufficient to repay on the Repurchase Date all the Notes which
are to be repaid on such date at the appropriate redemption price, together with
accrued interest to, but excluding, the Repurchase Date; provided that if such
payment is made on the Repurchase Date it must be received by the Trustee or
paying agent, as the case may be, by 11:00 a.m. New York City time, on such
date. Payment for Notes
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surrendered for redemption (and not withdrawn) prior to the Fundamental Change
Expiration Time will be made promptly (but in no event more than five Business
Days) following the Repurchase Date by mailing checks for the amount payable to
the holders of such Notes entitled thereto as they shall appear on the Register;
provided, however, that payments to the Depositary will be made by wire transfer
of immediately available funds to the account of the Depositary or its nominee.
(e) In the case of a consolidation, merger, conveyance,
transfer or lease to which Section 15.6 applies, in which the Common Stock of
the Company is changed or exchanged as a result into the right to receive
securities, cash or other property which includes shares of Common Stock of the
Company or another Person that are, or upon issuance will be, traded on a United
States national securities exchange or approved for trading on an established
automated over-the-counter trading market in the United States and such shares
constitute at the time such change or exchange becomes effective in excess of
50% of the aggregate fair market value of such securities, cash and other
property (as determined by the Company, which determination shall be conclusive
and binding), then the Person formed by such consolidation or resulting from
such merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture (accompanied by an Opinion of
Counsel that such supplemental indenture complies with the Trust Indenture Act
as in force at the date of execution of such supplemental indenture) modifying
the provisions of this Indenture relating to the right of holders of the Notes
to cause the Company to repay the Notes following a Fundamental Change,
including without limitation the applicable provisions of this Section 3.5 and
the definitions of the Applicable Price, Common Stock, Fundamental Change and
Reference Market Price, as appropriate, as determined in good faith by the
Company (which determination shall be conclusive and binding), to make such
provisions apply to the common stock and the issuer thereof if different from
the Company and Common Stock of the Company (in lieu of the Company and the
Common Stock of the Company).
Section 3.6 Covenant to Comply with Securities Laws upon Purchase
of Notes. In connection with any offer to purchase or redemption of Notes under
Section 3.4 or 3.5 hereof, the Company shall (i) comply with Rule 13e-4 (which
term, as used herein, includes any successor provision thereto) under the
Exchange Act, if applicable, (ii) file the related Schedule 13E-4 (or any
successor schedule, form or report) under the Exchange Act, if applicable, and
(iii) otherwise comply with all Federal and state securities laws so as to
permit the rights and obligations under Section 3.5 to be exercised in the time
and in the manner specified in Section 3.5.
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Section 3.7 No Sinking Fund. The Notes shall not be entitled to
the benefit of any sinking fund.
ARTICLE IV
SUBORDINATION OF NOTES
Section 4.1 Agreement of Subordination. The Company covenants and
agrees, and each holder of Notes issued hereunder by such holder's acceptance
thereof likewise covenants and agrees, that all Notes shall be issued subject to
the provisions of this Article IV; and each Person holding any Note, whether
upon original issue or upon transfer or assignment thereof, accepts and agrees
to be bound by such provisions.
The payment of the principal of, premium, if any, and interest
(including Liquidated Damages, if any) on all Notes (including, but not limited
to, the redemption price with respect to the Notes called for redemption in
accordance with Section 3.2 or submitted for redemption in accordance with
Section 3.5, as the case may be, as provided in the Indenture) issued hereunder
shall, to the extent and in the manner hereinafter set forth, be subordinated
and subject in right of payment to the prior payment in full of all Senior
Indebtedness, whether outstanding at the date of this Indenture or thereafter
incurred.
No provision of this Article IV shall prevent the occurrence of
any default or Event of Default hereunder.
Section 4.2 Payments to Noteholders. No payment shall be made and
no funds shall be set aside for payment with respect to the principal of,
premium, if any, or interest (including Liquidated Damages, if any) on the Notes
(including, but not limited to, the redemption price with respect to the Notes
to be called for redemption in accordance with Section 3.2 or submitted for
redemption in accordance with Section 3.5, as the case may be, as provided in
this Indenture), except payments and distributions made by the Trustee as
permitted by the first or second paragraph of Section 4.5, if:
(i) a default in the payment when due, whether at maturity or
a date fixed for prepayment, or by declaration of acceleration or
otherwise, of principal, premium, if any, interest, rent or other
obligations in respect of Senior Indebtedness occurs and is continuing
(or, in the case of Senior Indebtedness for which there is a period of
grace, in the event of such a default that continues beyond the period
of grace, if any, specified in the instrument or lease evidencing such
Senior Indebtedness) (a "Payment Default"), unless and until such
Payment Default shall have been cured or waived or shall have ceased to
exist; or
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(ii) a default, other than a Payment Default, on any Designated
Senior Indebtedness occurs and is continuing that then permits holders
of such Designated Senior Indebtedness to accelerate its maturity and
the Trustee receives a notice of the default (a "Payment Blockage
Notice") from a holder of Designated Senior Indebtedness, a
Representative of Designated Senior Indebtedness or the Company (a
"Non-Payment Default").
If the Trustee receives any Payment Blockage Notice pursuant to
clause (ii) above, no subsequent Payment Blockage Notice shall be effective for
purposes of this Section 4.2 unless and until at least 365 days shall have
elapsed since the initial effectiveness of the immediately prior Payment
Blockage Notice. No Non-Payment Default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions in
respect of the Notes upon the earlier of:
(1) in the case of a Payment Default, the date upon which any
such Payment Default is cured or waived or ceases to exist, or
(2) in the case of a Non-Payment Default, the earlier of (a)
the date upon which such default is cured or waived or ceases to exist
or (b) 179 days after the date on which the applicable Payment Blockage
Notice is received if the maturity of such Designated Senior
Indebtedness has not been accelerated,
unless this Article IV otherwise prohibits the payment or distribution at the
time of such payment or distribution.
Upon any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding up or liquidation or reorganization of
the Company or any similar proceeding, or any assignment by the Company for the
benefit of its creditors or any other marshalling of the assets of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due or to become due upon all Senior Indebtedness
shall first be paid in full in cash or other payment satisfactory to the holders
of such Senior Indebtedness, or payment thereof in accordance with its terms
provided for in cash or other payment satisfactory to the holders of such Senior
Indebtedness before any payment is made on account of the principal of, premium,
if any, or interest (including Liquidated Damages, if any) on the Notes (except
payments made pursuant to Article XIII from monies deposited with the Trustee
pursuant thereto prior to commencement of proceedings for such dissolution,
winding up, liquidation or reorganization); and upon any such dissolution or
winding up or liquidation or reorganization of the Company or bankruptcy,
insolvency, receivership or other proceeding, any payment by the Company, or
distribution of assets of the
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Company of any kind or character, whether in cash, property or securities, to
which the holders of the Notes or the Trustee would be entitled, except for the
provision of this Article IV, shall (except as aforesaid) be paid by the Company
or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution, or by the holders of the Notes or by
the Trustee under this Indenture if received by them or it, directly to the
holders of Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders, or as otherwise
required by law or a court order) or their representative or representatives, or
to the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all Senior Indebtedness in
full, in cash or other payment satisfactory to the holders of such Senior
Indebtedness, after giving effect to any concurrent payment or distribution to
or for the holders of Senior Indebtedness, before any payment or distribution is
made to the holders of the Notes or to the Trustee.
For purposes of this Article IV, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article IV with respect
to the Notes to the payment of all Senior Indebtedness which may at the time be
outstanding; provided that (i) the Senior Indebtedness is assumed by the new
corporation, if any, resulting from any reorganization or readjustment, and (ii)
the rights of the holders of Senior Indebtedness (other than leases which are
not assumed by the Company or the new corporation, as the case may be) are not,
without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the merger of the
Company into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided for in Article XII shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 4.2
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article XII.
In the event of the acceleration of the Notes because of an Event
of Default, no payment or distribution shall be made to the Trustee or any
holder of Notes in respect of the principal of, premium, if any, or interest
(including Liquidated Damages, if any) on the Notes (including, but not limited
to, the redemption price with respect to the Notes called for redemption in
accordance with Section 3.2 or submitted for redemption in accordance with
Section 3.5, as the case may be, as provided in the Indenture), except payments
and distributions made by the Trustee as permitted by the first or second
paragraph of Section 4.5, until all Senior Indebtedness has been paid in full in
cash or other payment satisfactory to the holders of Senior Indebtedness or such
acceleration is rescinded in accordance with the terms of this Indenture. If
payment of the Notes is accelerated because of an Event of Default, the Company
shall promptly notify holders of Senior Indebtedness of the acceleration.
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In the event that, notwithstanding the foregoing provisions, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (including, without limitation, by way
of setoff or otherwise), prohibited by the foregoing provisions in this Section
4.2, shall be received by the Trustee or the holders of the Notes before all
Senior Indebtedness is paid in full in cash or other payment satisfactory to the
holders of such Senior Indebtedness, or provision is made for such payment
thereof in accordance with its terms in cash or other payment satisfactory to
the holders of such Senior Indebtedness, such payment or distribution shall be
held in trust for the benefit of and shall be paid over or delivered to the
holders of Senior Indebtedness or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, as calculated by the Company, for application to the
payment of any Senior Indebtedness remaining unpaid to the extent necessary to
pay all Senior Indebtedness in full in cash or other payment satisfactory to the
holders of such Senior Indebtedness, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness.
Nothing in this Section 4.2 shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 8.6. This Section 4.2 shall be
subject to the further provisions of Section 4.5.
Section 4.3 Subrogation of Notes. Subject to the payment in full
of all Senior Indebtedness, the rights of the holders of the Notes shall be
subrogated to the extent of the payments or distributions made to the holders of
such Senior Indebtedness pursuant to the provisions of this Article IV (equally
and ratably with the holders of all indebtedness of the Company which by its
express terms is subordinated to other indebtedness of the Company to
substantially the same extent as the Notes are subordinated and is entitled to
like rights of subrogation) to the rights of the holders of Senior Indebtedness
to receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Indebtedness until the principal of, premium,
if any, and interest (including Liquidated Damages, if any) on the Notes shall
be paid in full; and, for the purposes of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the holders of the Notes or the Trustee would be entitled
except for the provisions of this Article IV, and no payment over pursuant to
the provisions of this Article IV, to or for the benefit of the holders of
Senior Indebtedness by holders of the Notes or the Trustee, shall, as between
the Company, its creditors other than holders of Senior Indebtedness, and the
holders of the Notes, be deemed to be a payment by the Company to or on account
of the Senior Indebtedness; and no payments or distributions of cash, property
or securities to or for the benefit of the holders of the Notes pursuant to the
subrogation provisions of this Article IV, which would otherwise have been paid
to the holders of Senior Indebtedness, shall be deemed to be a payment by the
Company to or for the account of the Notes. It is understood that the provisions
of this Article IV are and are intended solely for the
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purpose of defining the relative rights of the holders of the Notes, on the one
hand, and the holders of the Senior Indebtedness, on the other hand.
Nothing contained in this Article IV or elsewhere in this
Indenture or in the Notes is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
holders of the Notes, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Notes the principal of, premium, if
any, and interest (including Liquidated Damages, if any) on the Notes as and
when the same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the holders of the Notes and
creditors of the Company other than the holders of the Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or the holder of any Note
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article IV of
the holders of Senior Indebtedness in respect of cash, property or securities of
the Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company
referred to in this Article IV, the Trustee, subject to the provisions of
Section 8.1, and the holders of the Notes shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
bankruptcy, dissolution, winding-up, liquidation, insolvency, receivership or
reorganization proceedings or any similar proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other Person making such payment or distribution, delivered to the Trustee or
to the holders of the Notes, for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article IV.
Section 4.4 Authorization by Noteholders. Each holder of a Note
by its acceptance thereof authorizes and directs the Trustee in such holder's
behalf to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article IV and appoints the Trustee to act as
such holder's attorney-in-fact for any and all such purposes. If the Trustee
does not file a proper proof of claim or proof of debt in the form required in
any proceeding referred to in the third paragraph of Section 7.2 hereof at least
thirty (30) days before the expiration of the time to file such claim, the
holders of any Senior Indebtedness or their representatives are hereby
authorized to file an appropriate claim for and on behalf of the holders of the
Notes.
Section 4.5 Notice to Trustee. The Company shall give prompt
written notice in the form of an Officers' Certificate to a Responsible Officer
of the Trustee and to any paying agent of any fact known to the Company which
would prohibit the making of any payment of monies to or by the Trustee or any
paying agent in respect of the Notes pursuant to the provisions of this Article
IV. Notwithstanding the provisions of this Article IV or any
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other provision of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any facts which would prohibit the making of any
payment of monies to or by the Trustee in respect of the Notes pursuant to the
provisions of this Article IV, unless and until a Responsible Officer of the
Trustee shall have received written notice thereof at the Corporate Trust Office
from the Company (in the form of an Officers' Certificate) or a Representative
or a holder or holders of Senior Indebtedness or from any trustee therefor; and
before the receipt of any such written notice, the Trustee, subject to the
provisions of Section 8.1, shall be entitled in all respects to assume that no
such facts exist; provided that if on a date not fewer than two Business Days
prior to the date upon which by the terms hereof any such monies may become
payable for any purpose (including, without limitation, the payment of the
principal of, premium, if any, or interest (including Liquidated Damages, if
any) on any Note) the Trustee shall not have received, with respect to such
monies, the notice provided for in this Section 4.5, then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such monies and to apply the same to the purpose for which
they were received, and shall not be affected by any notice to the contrary
which may be received by it on or after such prior date.
Notwithstanding anything in this Article IV to the contrary,
nothing shall prevent any payment by the Trustee to the Noteholders of monies
deposited with it pursuant to Section 13.1, and any such payment shall not be
subject to the provisions of Section 4.1 or 4.2.
The Trustee, subject to the provisions of Section 8.1, shall be
entitled to rely on the delivery to it of a written notice by a Representative
or a Person representing himself to be a holder of Senior Indebtedness (or a
trustee on behalf of such holder) to establish that such notice has been given
by a Representative or a holder of Senior Indebtedness or a trustee on behalf of
any such holder or holders. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article IV, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article IV, and if such
evidence is not furnished the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 4.6 Trustee's Relation to Senior Indebtedness. The
Trustee in its individual capacity shall be entitled to all the rights set forth
in this Article IV in respect of any Senior Indebtedness at any time held by it,
to the same extent as any other holder of Senior Indebtedness, and nothing in
Section 8.13 or elsewhere in this Indenture shall deprive the Trustee of any of
its rights as such holder.
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With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article IV, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Section 8.1, the Trustee shall not be liable to any holder of
Senior Indebtedness (i) for any failure to make any payments or distributions to
such holder or (ii) if it shall pay over or deliver to holders of Notes, the
Company or any other Person money or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article IV or otherwise.
Section 4.7 No Impairment of Subordination. No right of any
present or future holder of any Senior Indebtedness to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
Section 4.8 Certain Conversions Deemed Payment. For the purposes
of this Article IV only, (1) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article XV shall not be deemed to
constitute a payment or distribution on account of the principal of, or premium,
if any, or interest (including Liquidated Damages, if any) on Notes or on
account of the purchase or other acquisition of Notes, and (2) the payment,
issuance or delivery of cash (except in satisfaction of fractional shares
pursuant to Section 15.2), property or securities (other than junior securities)
upon conversion of a Note shall be deemed to constitute payment on account of
the principal of, premium, if any, or interest (including Liquidated Damages, if
any) on such Note. For the purposes of this Section 4.8, the term "junior
securities" means (a) shares of any stock of any class of the Company, or (b)
securities of the Company which are subordinated in right of payment to all
Senior Indebtedness which may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
than, the Notes are so subordinated as provided in this Article. Nothing
contained in this Article IV or elsewhere in this Indenture or in the Notes is
intended to or shall impair, as among the Company, its creditors (other than
holders of Senior Indebtedness) and the Noteholders, the right, which is
absolute and unconditional, of the holder of any Note to convert such Note in
accordance with Article XV.
Section 4.9 Article Applicable to Paying Agents. If at any time
any paying agent other than the Trustee shall have been appointed by the Company
and be then acting hereunder, the term "Trustee" as used in this Article shall
(unless the context otherwise requires) be construed as extending to and
including such paying agent within its meaning as fully for all intents and
purposes as if such paying agent were named in this Article in addition to or in
place of the Trustee; provided, however, that the first paragraph of Section 4.5
shall
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not apply to the Company or any Affiliate of the Company if it or such Affiliate
acts as paying agent.
The Trustee shall not be responsible for the actions or inactions
of any other paying agents (including the Company if acting as its own paying
agent) and shall have no control of any funds held by such other paying agents.
Section 4.10 Senior Indebtedness Entitled to Rely. The holders of
Senior Indebtedness (including, without limitation, Designated Senior
Indebtedness) shall have the right to rely upon this Article IV, and no
amendment or modification of the provisions contained herein shall diminish the
rights of such holders unless such holders shall have agreed in writing thereto.
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
Section 5.1 Payment of Principal, Premium and Interest. The
Company covenants and agrees that it will duly and punctually pay or cause to be
paid the principal of and premium, if any, and interest (including Liquidated
Damages, if any) on each of the Notes at the places, at the respective times and
in the manner provided herein and in the Notes. Each installment of interest on
the Notes due on any semi-annual interest payment date may be paid either (i) by
check mailed to the address of the Person entitled thereto as it appears on the
Register or (ii) by wire transfer for immediately available funds to an account
maintained by such Person located in the United States; provided, however, that
payments to the Depositary will be made by wire transfer of immediately
available funds to the account of the Depositary or its nominee.
Section 5.2 Offices for Notices and Payments. So long as any of
the Notes remain outstanding, the Company will maintain in New York, New York,
an office or agency where the Notes may be presented for payment, and an office
or agency where the Notes may be presented for registration of transfer and for
exchange and conversion as provided for in this Indenture and an office or
agency where notices and demands to or upon the Company in respect of the Notes
or of this Indenture may be served. The Company will give to the Trustee written
notice of the location of each such office or agency and of any change in the
location thereof. If the Company shall fail to maintain any such office or
agency or shall fail to give such notice of the location or of any change in the
location thereof, presentations and demands may be made and notices may be
served at the Corporate Trust Office and office of the Trustee at 55 Water
Street, New York, New York 10041.
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The Company may also from time to time designate co-registrars
and one or more other offices or agencies where the Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations. The Company will give prompt written notice of any such
designation or rescission and of any change in the location of any such other
office or agency.
The Company hereby initially designates the Trustee as paying
agent, Note registrar, Custodian and conversion agent, and the Corporate Trust
Office and the office of the Trustee at 55 Water Street, New York, New York
10041 as the offices of the Company for each of the aforesaid purposes.
So long as the Trustee is the Note registrar, the Trustee agrees
to mail, or cause to be mailed, the notices set forth in Section 8.10(a) and the
third paragraph of Section 8.11. If co-registrars have been appointed in
accordance with this Section, the Trustee shall only mail such notices to the
Company and the holders of Notes it can identify from its records.
Section 5.3 Appointments to Fill Vacancies in Trustee's Office.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 8.10, a Trustee, so
that there shall at all times be a Trustee hereunder.
Section 5.4 Provisions as to Paying Agent.
(a) If the Company shall appoint a paying agent other than the
Trustee, it will cause such paying agent to execute and deliver to the Trustee
an instrument in which such agent shall agree with the Trustee, subject to the
provisions of this Section 5.4:
(1) that it will hold all sums held by it as such agent
for the payment of the principal of and premium, if any, or
interest (including Liquidated Damages, if any) on the Notes
(whether such sums have been paid to it by the Company or by any
other obligor on the Notes) in trust for the benefit of the
holders of the Notes;
(2) that it will give the Trustee notice of any failure
by the Company (or by any other obligor on the Notes) to make any
payment of the principal of and premium, if any, or interest
(including Liquidated Damages, if any) on the Notes when the same
shall be due and payable; and
(3) that at any time during the continuance of an Event
of Default, upon request of the Trustee, it will forthwith pay to
the Trustee all sums so held in trust.
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The Company shall, on or before each due date of the principal
of, premium, if any, or interest (including Liquidated Damages, if any)
on the Notes, deposit with the paying agent a sum sufficient to pay such
principal, premium, if any, or interest, and (unless such paying agent
is the Trustee) the Company will promptly notify the Trustee of any
failure to take such action.
(b) If the Company shall act as its own paying agent, it will,
on or before each due date of the principal of, premium, if any, or interest
(including Liquidated Damages, if any) on the Notes, set aside, segregate and
hold in trust for the benefit of the holders of the Notes a sum sufficient to
pay such principal, premium, if any, or interest (including Liquidated Damages,
if any) so becoming due and will notify the Trustee of any failure to take such
action and of any failure by the Company (or by any other obligor under the
Notes) to make any payment of the principal of, premium, if any, or interest
(including Liquidated Damages, if any) on the Notes when the same shall become
due and payable.
(c) Anything in this Section 5.4 to the contrary
notwithstanding, the Company may, at any time, for the purpose of obtaining a
satisfaction and discharge of this Indenture, or for any other reason, pay or
cause to be paid to the Trustee all sums held in trust by the Company or any
paying agent hereunder as required by this Section 5.4, such sums to be held by
the Trustee upon the trusts herein contained and upon such payment by the
Company or any paying agent to the Trustee, the Company or such paying agent
shall be released from all further liability with respect to such money.
Section 5.5 Corporate Existence. Subject to Article XII, the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence.
Section 5.6 Maintenance of Properties. The Company will cause all
properties used or useful in the conduct of its business or the business of any
of its subsidiaries to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company from discontinuing the operation or maintenance of any of
such properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any of its
subsidiaries and not disadvantageous in any material respect to the holders.
Section 5.7 Payment of Taxes and Other Claims. The Company will
pay or discharge, or cause to be paid or discharged, before the same may become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon the Company or any of its subsidiaries or upon the income, profits
or property of the Company or any of its
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subsidiaries, (ii) all claims for labor, materials and supplies which, if
unpaid, might by law become a lien or charge upon the property of the Company or
any of its subsidiaries and (iii) all stamps and other duties, if any, which may
be imposed by the United States or any political subdivision thereof or therein
in connection with the issuance, transfer, exchange or conversion of any Notes
or with respect to this Indenture; provided, however, that, in the case of
clauses (i) and (ii), the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim (A) if
the failure to do so will not, in the aggregate, have a material adverse impact
on the Company, or (B) if the amount, applicability or validity is being
contested in good faith by appropriate proceedings.
Section 5.8 Rule 144A Information Requirement. Within the period
prior to the expiration of the holding period applicable to sales thereof under
Rule 144(k) under the Securities Act (or any successor provision), the Company
covenants and agrees that it shall, during any period in which it is not subject
to Section 13 or 15(d) under the Exchange Act, make available to any holder or
beneficial holder of Notes or any Common Stock issued upon conversion thereof
which continue to be Restricted Securities in connection with any sale thereof
and any prospective purchaser of Notes or such Common Stock from such holder or
beneficial holder, the information required pursuant to Rule 144A(d)(4) under
the Securities Act upon the request of any holder or beneficial holder of the
Notes or such Common Stock and it will take such further action as any holder or
beneficial holder of such Notes or such Common Stock may reasonably request, all
to the extent required from time to time to enable such holder or beneficial
holder to sell its Notes or Common Stock without registration under the
Securities Act within the limitation of the exemption provided by Rule 144A, as
such Rule may be amended from time to time. Upon the request of any holder or
any beneficial holder of the Notes or such Common Stock, the Company will
deliver to such holder a written statement as to whether it has complied with
such requirements.
Section 5.9 Stay, Extension and Usury Laws. The Company covenants
(to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest (including Liquidated Damages, if any) on the Notes as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law has been enacted.
Section 5.10 Compliance Certificate. The Company shall deliver to
the Trustee, within one hundred twenty (120) days after the end of each fiscal
year of the Company, a certificate signed by either the principal executive
officer, principal financial officer or principal accounting officer of the
Company, stating whether or not to the best
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knowledge of the signer thereof the Company is in default in the performance and
observance of any of the terms, provisions and conditions of this Indenture
(without regard to any period of grace or requirement of notice provided
hereunder) and, if the Company shall be in default, specifying all such defaults
and the nature and status thereof of which the signer may have knowledge.
The Company will deliver to the Trustee, forthwith upon becoming
aware of any default in the performance or observance of any covenant, agreement
or condition contained in this Indenture, or any Event of Default, an Officers'
Certificate specifying with particularity such default or Event of Default and
further stating what action the Company has taken, is taking or proposes to take
with respect thereto.
Any notice required to be given under this Section 5.10 shall be
delivered to the Trustee at its Corporate Trust Office.
ARTICLE VI
NOTEHOLDERS' LISTS AND REPORTS BY
THE COMPANY AND THE TRUSTEE
Section 6.1 Noteholders' Lists. The Company covenants and agrees
that it will furnish or cause to be furnished to the Trustee, semiannually, not
more than fifteen (15) days after each March 15 and September 15 in each year
beginning with October 1, 1998, and at such other times as the Trustee may
request in writing, within thirty (30) days after receipt by the Company of any
such request, a list in such form as the Trustee may reasonably require of the
names and addresses of the holders of Notes as of a date not more than fifteen
days prior to the time such information is furnished, except that no such list
need be furnished so long as the Trustee is acting as Note registrar.
Section 6.2 Preservation and Disclosure of Lists.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of Notes contained in the most recent list furnished to it as provided
in Section 6.1 or maintained by the Trustee in its capacity as Note registrar in
respect of the Notes, if so acting. The Trustee may destroy any list furnished
to it as provided in Section 6.1 upon receipt of a new list so furnished.
(b) The rights of Noteholders to communicate with other
holders of Notes with respect to their rights under this Indenture or under the
Notes, and the corresponding rights and duties of the Trustee, shall be as
provided by the Trust Indenture Act.
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(c) If the Trustee shall be required by law to disclose any
information contained in any list of Noteholders maintained by it, then each and
every holder of the Notes by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company nor the Trustee nor any paying
agent nor the Note registrar shall be held accountable by reason of any
disclosure of information as to names and addresses of holders of Notes made
pursuant to the Trust Indenture Act.
Section 6.3 Reports by Trustee.
(a) Within 60 days after May 31 of each year commencing with
the year 1998, the Trustee shall transmit to holders of Notes such reports dated
as of May 31 of the year in which such reports are made concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto.
(b) A copy of such report shall, at the time of such
transmission to holders of Notes, be filed by the Trustee with each stock
exchange and automated quotation system upon which the Notes are listed and with
the Company. The Company will notify the Trustee in writing within a reasonable
time when the Notes are listed on any stock exchange or automated quotation
system.
Section 6.4 Reports by Company. The Company shall file with the
Trustee (and the Commission if at any time after the Indenture becomes qualified
under the Trust Indenture Act), and transmit to holders of Notes, such
information, documents and other reports and such summaries thereof, as may be
required pursuant to the Trust Indenture Act at the times and in the manner
provided pursuant to such Act, whether or not the Notes are governed by such
Act; provided that any such information, documents or reports required to be
filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
shall be filed with the Trustee within 15 days after the same is so required to
be filed with the Commission.
ARTICLE VII
REMEDIES OF THE TRUSTEE AND NOTEHOLDERS
IN THE EVENT OF DEFAULT
Section 7.1 Events of Default. In case one or more of the
following Events of Default (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) shall have occurred and
be continuing:
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(a) default in the payment of the principal of or premium, if
any (upon redemption or otherwise), on the Notes, whether or not such
payment is permitted under Article IV hereof; or
(b) default in the payment of any installment of interest
(including Liquidated Damages, if any), on the Notes as and when the
same shall become due and payable, and continuance of such default for a
period of thirty (30) days, whether or not such payment is permitted
under Article IV hereof; or
(c) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the
Company in the Notes or in this Indenture (other than a covenant or
agreement a default in whose performance or whose breach is elsewhere in
this Section 7.1 specifically dealt with) continued for a period of
sixty (60) days after the date on which written notice of such failure,
requiring the Company to remedy the same, shall have been given to the
Company by the Trustee, or to the Company and the Trustee by the holders
of at least 25% in aggregate principal amount of the Notes at the time
outstanding determined in accordance with Section 9.4; or
(d) the Company or any of its subsidiaries shall have
commenced a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian, or other similar official of it or any substantial part of
its property, or shall have consented to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or shall make
a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due; or
(e) an involuntary case or other proceeding shall be commenced
against the Company or any of its subsidiaries seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property,
and such involuntary case or other proceeding shall remain undismissed
and unstayed for a period of ninety (90) consecutive days; or
(f) failure by the Company to make any payment at maturity,
including any applicable grace period, in respect of Indebtedness in an
outstanding principal amount in excess of $25.0 million in the aggregate
for all such issues and continuance of such failure for a period of 45
days after written notice thereof to the Company by the Trustee, or to
the Company and the Trustee by the holders of not less than 25% in
principal amount of the Notes then outstanding; or
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(g) default with respect to any Indebtedness of the Company or
any of its subsidiaries, which default results in the acceleration of
Indebtedness in an amount in excess of $25.0 million in the aggregate
for all such issues of all such Persons without such Indebtedness having
been discharged or such acceleration having been cured, waived,
rescinded or annulled for a period of 45 days after written notice
thereof to the Company by the Trustee, or to the Company and the Trustee
by the holders of not less than 25% in principal amount of the Notes;
then and in each and every such case (other than an Event of Default specified
in Section 7.1(d) or (e)), unless the principal of all of the Notes shall have
already become due and payable, either the Trustee or the holders of not less
than 25 percent in aggregate principal amount of the Notes then outstanding
hereunder determined in accordance with Section 9.4, by notice in writing to the
Company (and to the Trustee if given by Noteholders), may declare the principal
of, and premium, if any, on, all the Notes and the interest (including
Liquidated Damages, if any) accrued thereon to be due and payable immediately,
and upon any such declaration the same shall become and shall be immediately due
and payable, anything in this Indenture or in the Notes contained to the
contrary notwithstanding. If an Event of Default specified in Section 7.1(d) or
(e) occurs, the principal of all the Notes and the interest accrued thereon
(including Liquidated Damages, if any) shall be immediately and automatically
due and payable without necessity of further action. This provision, however, is
subject to the condition that if, at any time after the principal of the Notes
shall have been so declared due and payable, and before any judgment or decree
for the payment of the monies due shall have been obtained or entered as
hereinafter provided, subject to the provisions of Article IV hereof, the
Company shall pay or shall deposit with the Trustee a sum sufficient to pay all
matured installments of interest (including Liquidated Damages, if any) upon all
the Notes and the principal of and premium, if any, on any and all Notes which
shall have become due otherwise than by acceleration (with interest on overdue
installments of interest (including Liquidated Damages, if any) (to the extent
that payment of such interest is enforceable under applicable law) and on such
principal and premium, if any, at the rate borne by the Notes, to the date of
such payment or deposit) and amounts due to the Trustee pursuant to Section 8.6,
and if any and all defaults under this Indenture, other than the nonpayment of
principal of and premium, if any, and accrued interest (including Liquidated
Damages, if any) on Notes which shall have become due by acceleration, shall
have been cured or waived pursuant to Section 7.7 -- then and in every such case
the holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Company and to the Trustee, may waive all
defaults or Events of Default and rescind and annul such declaration and its
consequences; but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent default or Event of Default, or shall impair any
right consequent thereon. The Trustee shall not be charged with knowledge and
shall not be deemed to have notice of any default or Event of Default, except an
Event of Default under Section 7.1(a) or (b) in cases where the Trustee is
acting as paying agent, unless written notice thereof stating that such notice
is a "Notice of Default" shall have been given to a Responsible Officer by the
Company or a Noteholder or
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any agent of a Noteholder; and, in the absence of such written notice, the
Trustee may conclusively assume that there is no default or Event of Default.
In case the Trustee shall have proceeded to enforce any right
under this Indenture and such proceedings shall have been discontinued or
abandoned because of such waiver or rescission and annulment or for any other
reason or shall have been determined adversely to the Trustee, then and in every
such case the Company, the holders of Notes, and the Trustee shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the holders of Notes, and the Trustee shall
continue as though no such proceeding had been taken.
Section 7.2 Payment of Notes on Default; Suit Therefor. The
Company covenants that (a) in case default shall be made in the payment of any
installment of interest (including Liquidated Damages, if any) upon any of the
Notes as and when the same shall become due and payable, and such default shall
have continued for a period of thirty (30) days, or (b) in case default shall be
made in the payment of the principal of or premium, if any, on any of the Notes
as and when the same shall have become due and payable, whether at maturity of
the Notes, or in connection with any redemption, by declaration or otherwise --
then, upon demand of the Trustee, subject to the provisions of Article IV
hereof, the Company will pay to the Trustee, for the benefit of the holders of
the Notes, the whole amount that then shall have become due and payable on all
such Notes for principal and premium, if any, or interest (including Liquidated
Damages, if any), or both, as the case may be, with interest upon the overdue
principal and premium, if any, and (to the extent that payment of such interest
is enforceable under applicable law) upon the overdue installments of interest
(including Liquidated Damages, if any) at the rate borne by the Notes; and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including a reasonable compensation to the Trustee,
its agents, attorneys and counsel, and any expenses or liabilities incurred by
the Trustee hereunder other than through its negligence or bad faith. Until such
demand by the Trustee, the Company may pay the principal of and premium, if any,
and interest (including Liquidated Damages, if any) on the Notes to the
registered holders, whether or not the Notes are overdue.
In case the Company shall fail forthwith to pay such amounts upon
such demand, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any actions or proceedings at law
or in equity for the collection of the sums so due and unpaid, and may prosecute
any such action or proceeding to judgment or final decree, and may enforce any
such judgment or final decree against the Company or any other obligor on the
Notes and collect in the manner provided by law out of the property of the
Company or any other obligor on the Notes wherever situated the monies adjudged
or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the Notes under
Title 11 of the United
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States Code, or any other applicable law, or in case a receiver, assignee or
trustee in bankruptcy or reorganization, liquidator, sequestrator or similar
official shall have been appointed for or taken possession of the Company or
such other obligor, the property of the Company or such other obligor, or in the
case of any other similar judicial proceedings relative to the Company or such
other obligor upon the Notes, or to the creditors or property of the Company or
such other obligor, the Trustee, irrespective of whether the principal of the
Notes shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand
pursuant to the provisions of this Section 7.2, shall be entitled and empowered,
by intervention in such proceedings or otherwise, to file and prove a claim or
claims for the whole amount of principal, premium, if any, and interest
(including Liquidated Damages, if any) owing and unpaid in respect of the Notes,
and, in case of any judicial proceedings, to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee and of the Noteholders allowed in such judicial proceedings
relative to the Company or any other obligor on the Notes, its or their
creditors, or its or their property, and to collect and receive any monies or
other property payable or deliverable on any such claims, and to distribute the
same after the deduction of any amounts due the Trustee under Section 8.6; and
any receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
custodian or similar official is hereby authorized by each of the Noteholders to
make such payments to the Trustee, and, in the event that the Trustee shall
consent to the making of such payments directly to the Noteholders, to pay to
the Trustee any amount due it for compensation, expenses, advances and
disbursements including counsel fees incurred by it up to the date of such
distribution. To the extent that such payment of reasonable compensation,
expenses, advances and disbursements out of the estate in any such proceedings
shall be denied for any reason, payment of the same shall be secured by a lien
on, and shall be paid out of, any and all distributions, dividends, monies,
securities and other property which the holders of the Notes may be entitled to
receive in such proceedings, whether in liquidation or under any plan of
reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or adopt on behalf of any Noteholder any plan of
reorganization or arrangement, affecting the Notes or the rights of any
Noteholder, or to authorize the Trustee to vote in respect of the claim of any
Noteholder in any such proceeding.
All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Trustee without the
possession of any of the Notes, or the production thereof for any trial or other
proceeding relative thereto, and any such suit or proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the holders of the Notes.
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In any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Notes, and it shall not be necessary to make any holders of the Notes
parties to any such proceedings.
Section 7.3 Application of Monies Collected by Trustee. Any
monies collected by the Trustee pursuant to this Article VII shall be applied in
the order following, at the date or dates fixed by the Trustee for the
distribution of such monies, upon presentation of the several Notes, and
stamping thereon the payment, if only partially paid, and upon surrender thereof
if fully paid:
First: To the payment of all amounts due the Trustee under
Section 8.6;
Second: Subject to the provisions of Article IV, in case
the principal of the outstanding Notes shall not have become due and be
unpaid, to the payment of interest (including Liquidated Damages, if
any) on the Notes then owing and unpaid in the order of the maturity of
the installments of such interest, with interest (to the extent that
such interest has been collected by the Trustee) upon the overdue
installments of interest (including Liquidated Damages, if any) at the
rate borne by the Notes, such payments to be made ratably to the Persons
entitled thereto;
Third: Subject to the provisions of Article IV, in case
the principal of the outstanding Notes shall have become due, by
declaration or otherwise, and be unpaid to the payment of the whole
amount then owing and unpaid upon the Notes for principal and premium,
if any, and interest (including Liquidated Damages, if any), with
interest on the overdue principal and premium, if any, and (to the
extent that such interest has been collected by the Trustee) upon
overdue installments of interest (including Liquidated Damages, if any)
at the rate borne by the Notes; and in case such monies shall be
insufficient to pay in full the whole amounts so due and unpaid upon the
Notes, then to the payment of such principal and premium, if any, and
interest (including Liquidated Damages, if any) without preference or
priority of principal and premium, if any, over interest (including
Liquidated Damages, if any), or of interest (including Liquidated
Damages, if any) over principal and premium, if any, or of any
installment of interest over any other installment of interest, or of
any Note over any other Note, ratably to the aggregate of such principal
and premium, if any, and accrued and unpaid interest (including
Liquidated Damages, if any); and
Fourth: Subject to the provisions of Article IV, to the
payment of the remainder, if any, to the Company or any other Person
lawfully entitled thereto.
Section 7.4 Proceedings by Noteholder. No holder of any Note
shall have any right by virtue of or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture, or for
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the appointment of a receiver, trustee, liquidator, custodian or other similar
official, or for any other remedy hereunder, unless such holder previously shall
have given to the Trustee written notice of an Event of Default and of the
continuance thereof, as hereinbefore provided, and unless also the holders of
not less than 25 percent in aggregate principal amount of the Notes then
outstanding hereunder determined in accordance with Section 9.4 shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for sixty (60)
days after its receipt of such notice, request and offer of indemnity, shall
have neglected or refused to institute any such action, suit or proceeding and
no direction inconsistent with such written request shall have been given to the
Trustee pursuant to Section 7.7; it being understood and intended, and being
expressly covenanted by the taker and holder of every Note with every other
taker and holder and the Trustee, that no one or more holders of Notes shall
have any right in any manner whatsoever by virtue of or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of any
other holder of Notes, or to obtain or seek to obtain priority over or
preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Notes (except as otherwise provided herein).
For the protection and enforcement of this Section 7.4, each and every
Noteholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
Notwithstanding any other provisions of this Indenture and any
provision of any Note, the right of any holder of any Note to receive payment of
the principal of and premium, if any, and interest (including Liquidated
Damages, if any) on such Note, on or after the respective due dates expressed in
such Note, or to institute suit for the enforcement of any such payment on or
after such respective dates against the Company shall not be impaired or
affected without the consent of such holder.
Anything in this Indenture or the Notes to the contrary
notwithstanding, the holder of any Note, without the consent of either the
Trustee or the holder of any other Note, in his own behalf and for his own
benefit, may enforce, and may institute and maintain any proceeding suitable to
enforce, his rights of conversion as provided herein.
Section 7.5 Proceedings by Trustee. In case of an Event of
Default hereunder the Trustee may in its discretion proceed to protect and
enforce the rights vested in it by this Indenture by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
of such rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
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Section 7.6 Remedies Cumulative and Continuing. Except as
provided in Section 2.6, all powers and remedies given by this Article VII to
the Trustee or to the Noteholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of any thereof or of any other powers and
remedies available to the Trustee or the holders of the Notes, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture, and no delay or omission
of the Trustee or of any holder of any of the Notes to exercise any right or
power accruing upon any default or Event of Default occurring and continuing as
aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or an acquiescence therein; and, subject to the
provisions of Section 7.4, every power and remedy given by this Article VII or
by law to the Trustee or to the Noteholders may be exercised from time to time,
and as often as shall be deemed expedient, by the Trustee or by the Noteholders.
Section 7.7 Direction of Proceedings and Waiver of Defaults by
Majority of Noteholders. The holders of a majority in aggregate principal amount
of the Notes at the time outstanding determined in accordance with Section 9.4
shall have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided, however, that (subject to the
provisions of Section 8.1) (a) such direction shall not be in conflict with any
rule of law or with this Indenture, (b) the Trustee may take any other action
deemed proper by the Trustee which is not inconsistent with such direction and
(c) the Trustee may decline to take any action that would benefit some
Noteholder to the detriment of other Noteholders. The holders of a majority in
aggregate principal amount of the Notes at the time outstanding determined in
accordance with Section 9.4 may on behalf of the holders of all of the Notes
waive any past default or Event of Default hereunder and its consequences except
(i) a default in the payment when due of interest or premium, if any, on, or the
principal of, the Notes, (ii) a failure by the Company to convert any Notes into
Common Stock, (iii) a default in the payment of redemption price pursuant to
Article III or (iv) a default in respect of a covenant or provision hereof which
under Article XI cannot be modified or amended without the consent of the
holders of all Notes then outstanding. Upon any such waiver the Company, the
Trustee and the holders of the Notes shall be restored to their former positions
and rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon. Whenever any default or Event of Default hereunder shall have been
waived as permitted by this Section 7.7, said default or Event of Default shall
for all purposes of the Notes and this Indenture be deemed to have been cured
and to be not continuing; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
Section 7.8 Notice of Defaults. The Trustee shall, within sixty
(60) days after the occurrence of a default, mail to all Noteholders, as the
names and addresses of such holders appear upon the Register, notice of all
defaults actually known to a Responsible Officer of the Trustee, unless such
defaults shall have been cured or waived before the giving of such notice (the
term "defaults" for the purpose of this Section 7.8 being hereby defined to be
the
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events specified in clauses (a), (b), (c), (d), (e), (f) and (g) of Section 7.1,
not including periods of grace, if any, or the giving of any notice, or both
provided for therein); and provided that, except in the case of default in the
payment when due of the principal of or premium, if any, or interest (including
Liquidated Damages, if any) on any of the Notes, the Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee, or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interests of the Noteholders.
Section 7.9 Undertaking to Pay Costs. All parties to this
Indenture agree, and each holder of any Note by his acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken or omitted by it as Trustee, the filing
by any party litigant in such suit of an undertaking to pay the costs of such
suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; provided, that the provisions of this Section 7.9 shall not
apply to any suit instituted by the Trustee, to any suit instituted by any
Noteholder, or group of Noteholders, holding in the aggregate more than ten
percent in principal amount of the Notes at the time outstanding determined in
accordance with Section 9.4, or to any suit instituted by any Noteholder for the
enforcement of the payment of the principal of or premium, if any, or interest
on any Note on or after the due date expressed in such Note or to any suit for
the enforcement of the right to convert any Note in accordance with the
provisions of Article XV.
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.1 Duties and Responsibilities of Trustee. The Trustee,
prior to the occurrence of an Event of Default and after the curing of all
Events of Default which may have occurred, undertakes to perform such duties and
only such duties as are specifically set forth in this Indenture. In case an
Event of Default has occurred (which has not been cured or waived) the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
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(a) prior to the occurrence of an Event of Default and
after the curing or waiving of all Events of Default which may have
occurred:
(1) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Indenture and
the Trust Indenture Act, and the Trustee shall not be liable
except for the performance of such duties and obligations as are
specifically set forth in this Indenture and no implied covenants
or obligations shall be read into this Indenture and the Trust
Indenture Act against the Trustee; and
(2) in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture;
but, in the case of any such certificates or opinions which by
any provisions hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the requirements
of this Indenture;
(b) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or Officers of the
Trustee, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(c) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of the holders of not less than a majority in
principal amount of the Notes at the time outstanding determined as
provided in Section 9.4 relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture; and
(d) whether or not therein provided, every provision of
this Indenture relating to the conduct or affecting the liability of, or
affording protection to, the Trustee shall be subject to the provisions
of this Section.
None of the provisions contained in this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers.
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Section 8.2 Reliance on Documents, Opinions, Etc. Except as
otherwise provided in Section 8.1,
(a) the Trustee may rely and shall be protected in
acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, bond, debenture, coupon or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the
Company mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof certified by the
Secretary or the Treasurer of the Company;
(c) the Trustee may consult with counsel and any advice
or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or omitted by it hereunder in
good faith and in accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Indenture at
the request, order or direction of any of the Noteholders pursuant to
the provisions of this Indenture, unless such Noteholders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or
thereby;
(e) the Trustee shall not be liable for any action
taken or omitted by it in good faith and believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Indenture;
(f) prior to the occurrence of an Event of Default
hereunder and after the curing or waiving of all Events of Default, the
Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond,
debenture, coupon or other paper or document unless requested in writing
to do so by the holders of not less than a majority in principal amount
of the Notes then outstanding, provided that the Trustee may, in its
discretion, make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation it shall be entitled, during
regular business hours and after two days prior written notice to
examine the books, records and premises of the Company personally or by
agent or attorney; provided, however, that if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of any investigation pursuant
to this clause (f) is, in the opinion of the Trustee, not reasonably
assured to the
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Trustee by the security afforded to it by the terms of this Indenture,
the Trustee may require reasonable indemnity against such expense or
liability as a condition to so proceeding; the reasonable expenses of
every such examination shall be paid by the Company or, if paid by the
Trustee or any predecessor Trustee, shall be repaid by the Company upon
demand;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible for
any misconduct or negligence on the part of any agent or attorney
appointed by it with due care hereunder;
(h) the permissive rights of the Trustee to do things
enumerated in this Indenture shall not be construed as a duty unless so
specified herein;
(i) before the Trustee acts or refrains from acting, it
may require an Officer's Certificate or an Opinion of Counsel or both
and the Trustee shall not be liable for any action it takes or omits to
take in good faith in reliance on such certificate or Opinion of
Counsel; and
(j) except as otherwise expressly provided herein, the
Trustee shall not be bound to ascertain or inquire as to the performance
of observance of any of the terms, conditions, covenants or agreements
herein or of any of the documents executed in connection with the Notes
or as to the existence of an Event of Default thereunder.
Section 8.3 No Responsibility for Recitals, Etc. The recitals
contained herein and in the Notes (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity, sufficiency or priority of this Indenture or
of the Notes. The Trustee shall not be accountable for the use or application by
the Company of any Notes or the proceeds of any Notes authenticated and
delivered by the Trustee in conformity with the provisions of this Indenture.
Section 8.4 Trustee, Paying Agents, Conversion Agents or
Registrar May Own Notes. The Trustee, any paying agent, any conversion agent or
Note registrar, in its individual or any other capacity, may become the owner or
pledgee of Notes with the same rights it would have if it were not Trustee,
paying agent, conversion agent or Note registrar.
Section 8.5 Monies to Be Held in Trust. Subject to the provisions
of Section 13.4 and Section 4.2, all monies received by the Trustee shall, until
used or applied as herein provided, be held in trust for the purposes for which
they were received. Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder.
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Section 8.6 Compensation and Expenses of Trustee. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation for all services rendered by it
hereunder in any capacity (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust), and the Company
will pay or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Indenture (including the reasonable compensation
and the expenses and disbursements of its counsel, its agents and of all Persons
not regularly in its employ) except any such expense, disbursement or advance as
may arise from its negligence or bad faith. The Company also covenants to
indemnify the Trustee for, and to hold it harmless against, any loss, liability
or expense (including attorneys' fees and expenses) incurred without negligence
or bad faith on the part of the Trustee and arising out of or in connection with
the acceptance or administration of this trust, including the costs and expenses
of enforcing the Indenture against the Company (including this Section 8.6) and
defending itself against or investigating any claim (whether asserted by the
Company, any holder or other Person). The obligations of the Company under this
Section 8.6 to compensate or indemnify the Trustee and to pay or reimburse the
Trustee for expenses, disbursements and advances shall be secured by a lien
prior to that of the Notes upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the holders of
particular Notes. The obligation of the Company under this Section 8.6 and the
liens created hereunder shall survive the resignation or removal of the Trustee,
the satisfaction and discharge of this Indenture and the termination of this
Indenture. All indemnifications and releases from liability granted herein to
the Trustee shall extend to the directors, officers, employees and agents of the
Trustee and to the Paying Agent and Note registrar.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 7.1(d) or (e) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any bankruptcy law.
Section 8.7 Officers' Certificate and Opinion of Counsel as
Evidence. Whenever in the administration of the provisions of this Indenture the
Trustee shall deem it necessary or desirable that a matter be proved or
established prior to taking or omitting any action hereunder, such matter
(unless additional evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence or bad faith on the part of the
Trustee, be deemed to be conclusively proved and established by an Officers'
Certificate or an Opinion of Counsel or both delivered to the Trustee, such
certificate or opinion, in the absence of negligence or bad faith on the part of
the Trustee, shall be full warrant to the Trustee for any action taken or
omitted by it under the provisions of this Indenture upon the faith thereof.
Section 8.8 Conflicting Interests of Trustee. If the Trustee has
or shall acquire a conflicting interest within the meaning of the Trust
Indenture Act, the Trustee shall
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either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the Trust Indenture Act and this
Indenture.
Section 8.9 Eligibility of Trustee. There shall at all times be a
Trustee hereunder which shall be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has (or, in the case of a corporation included
in a bank holding company system, the related bank holding company shall have) a
combined capital and surplus of at least $50,000,000. If such Person or bank
holding company publishes reports of condition at least annually, pursuant to
law or to the requirements of any supervising or examining authority (or bank
holding company), then for the purposes of this Section, the combined capital
and surplus of such Person shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
Section 8.10 Resignation or Removal of Trustee.
(a) The Trustee may at any time resign by giving written
notice of such resignation to the Company and by mailing notice
thereof to the holders of Notes at their addresses as they shall
appear on the Register. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor
trustee by written instrument, in duplicate, executed by order of
the Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor
trustee. If no successor trustee shall have been so appointed and
have accepted appointment within sixty (60) days after the
mailing of such notice of resignation to the Noteholders, the
resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee, or any
Noteholder who has been a bona fide holder of a Note or Notes for
at least six months may, subject to the provisions of Section
7.9, on behalf of himself and all others similarly situated,
petition any such court for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as
it may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall
occur:
(1) the Trustee shall fail to comply with Section
8.8 after written request therefor by the Company or by any
Noteholder who has been a bona fide holder of a Note or Notes for
at least six months; or
(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.9 and shall fail to
resign after written request therefor by the Company or by any
such Noteholder, or
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(3) the Trustee shall become incapable of acting,
or shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee, or, subject to the
provisions of Section 7.9, any Noteholder who has been a bona fide holder of a
Note or Notes for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of
the Notes at the time outstanding may at any time remove the Trustee and
nominate a successor trustee which shall be deemed appointed as successor
trustee unless within ten (10) days after notice to the Company of such
nomination the Company objects thereto, in which case the Trustee so removed or
any Noteholder, upon the terms and conditions and otherwise as in Section
8.10(a) provided, may petition any court of competent jurisdiction for an
appointment of a successor trustee.
(d) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this Section 8.10
shall become effective upon acceptance of appointment by the successor trustee
as provided in Section 8.11.
Section 8.11 Acceptance by Successor Trustee. Any successor
trustee appointed as provided in Section 8.10 shall execute, acknowledge and
deliver to the Company and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amounts then due it pursuant to the provisions of Section
8.6, execute and deliver an instrument transferring to such successor trustee
all the rights and powers of the trustee so ceasing to act. Upon request of any
such successor trustee, the Company shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such successor
trustee all such rights and powers. Any trustee ceasing to act shall,
nevertheless, retain a lien upon all property or funds held or collected by such
trustee as such trustee to secure any amounts then due it pursuant to the
provisions of Section 8.6.
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No successor trustee shall accept appointment as provided in this
Section 8.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.
Upon acceptance of appointment by a successor trustee as provided
in this Section 8.11, the Company (or the former trustee) shall mail or cause to
be mailed notice of the succession of such trustee hereunder to the holders of
Notes at their addresses as they shall appear on the Register. If the Company
fails to mail such notice within ten (10) days after acceptance of appointment
by the successor trustee, the successor trustee shall cause such notice to be
mailed at the expense of the Company.
Section 8.12 Succession by Merger, Etc. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the trust business of the Trustee
(including any trust created by this Indenture), shall be the successor to the
Trustee hereunder without the execution or filing of any paper or any further
act on the part of any of the parties hereto, provided that in the case of any
corporation succeeding to all or substantially all of the trust business of the
Trustee such corporation shall be qualified under the provisions of Section 8.8
and eligible under the provisions of Section 8.9.
In case at the time such successor to the Trustee shall succeed
to the trusts created by this Indenture any of the Notes shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee or authenticating agent
appointed by such predecessor trustee, and deliver such Notes so authenticated;
and in case at that time any of the Notes shall not have been authenticated, any
successor to the Trustee or an authenticating agent appointed by such successor
trustee may authenticate such Notes either in the name of any predecessor
trustee hereunder or in the name of the successor trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
Section 8.13 Limitation on Rights of Trustee as Creditor. If and
when the Trustee shall be or become a creditor of the Company (or any other
obligor upon the Notes), the Trustee shall be subject to the provisions of the
Trust Indenture Act regarding the collection of the claims against the Company
(or any such other obligor).
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ARTICLE IX
CONCERNING THE NOTEHOLDERS
Section 9.1 Action by Noteholders. Whenever in this Indenture it
is provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by Noteholders
in person or by agent or proxy appointed in writing, or (b) by the record of the
holders of Notes voting in favor thereof at any meeting of Noteholders duly
called and held in accordance with the provisions of Article X, or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of Noteholders. Whenever the Company or the Trustee solicits the taking
of any action by the holders of the Notes, the Company or the Trustee may fix in
advance of such solicitation, a date as the record date for determining holders
entitled to take such action. The record date shall be not more than fifteen
(15) days prior to the date of commencement of solicitation of such action.
Section 9.2 Proof of Execution by Noteholders. Subject to the
provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any
instrument by a Noteholder or his agent or proxy shall be sufficient if made in
accordance with such reasonable rules and regulations as may be prescribed by
the Trustee or in such manner as shall be satisfactory to the Trustee. The
holding of Notes shall be proved by the registry of such Notes or by a
certificate of the Note registrar.
The record of any Noteholders' meeting shall be proved in the
manner provided in Section 10.6.
Section 9.3 Who Are Deemed Absolute Owners. The Company, the
Trustee, any authentication agent, any paying agent, any conversion agent and
any Note registrar may deem the Person in whose name such Note shall be
registered upon the Register to be, and may treat him as, the absolute owner of
such Note (whether or not such Note shall be overdue and notwithstanding any
notation of ownership or other writing thereon made by anyone other than the
Company or any Note registrar) for the purpose of receiving payment of or on
account of the principal of and premium, if any, and interest on such Note, for
conversion of such Note and for all other purposes; and neither the Company nor
the Trustee nor any other authenticating agent nor any paying agent nor any
conversion agent nor any Note registrar shall be affected by any notice to the
contrary. All such payments so made to any holder for the time being, or upon
his order, shall be valid, and, to the extent of the sum or sums so paid,
effectual to satisfy and discharge the liability for monies payable upon any
such Note.
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Section 9.4 Company-Owned Notes Disregarded. In determining
whether the holders of the requisite aggregate principal amount of Notes have
concurred in any direction, consent, waiver or other action under this
Indenture, Notes which are owned by the Company or any other obligor on the
Notes or any Affiliate of the Company or any other obligor on the Notes shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; provided that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, consent, waiver or other
action only Notes which a Responsible Officer knows are so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as outstanding for the purposes of this Section 9.4 if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right to vote
such Notes and that the pledgee is not the Company, any other obligor on the
Notes or any Affiliate of the Company or any such other obligor. In the case of
a dispute as to such right, any decision by the Trustee taken upon the advice of
counsel shall be full protection to the Trustee. Upon request of the Trustee,
the Company shall furnish to the Trustee promptly an Officers' Certificate
listing and identifying all Notes, if any, known by the Company to be owned or
held by or for the account of any of the above described persons; and, subject
to Section 8.1, the Trustee shall be entitled to accept such Officers'
Certificate as conclusive evidence of the facts therein set forth and of the
fact that all Notes not listed therein are outstanding for the purpose of any
such determinations.
Section 9.5 Revocation of Consents; Future Holders Bound. At any
time prior to (but not after) the evidencing to the Trustee, as provided in
Section 9.1, of the taking of any action by the holders of the percentage in
aggregate principal amount of the Notes specified in this Indenture in
connection with such action, any holder of a Note which is shown by the evidence
to be included in the Notes the holders of which have consented to such action
may, by filing written notice with the Trustee at the Corporate Trust Office and
upon proof of holding as provided in Section 9.2, revoke such action so far as
concerns such Note. Except as aforesaid, any such action taken by the holder of
any Note shall be conclusive and binding upon such holder and upon all future
holders and owners of such Note and of any Notes issued in exchange or
substitution therefor, irrespective of whether any notation in regard thereto is
made upon such Note or any Note issued in exchange or substitution therefor.
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ARTICLE X
NOTEHOLDERS' MEETINGS
Section 10.1 Purposes of Meetings. A meeting of Noteholders may
be called at any time and from time to time pursuant to the provisions of this
Article X for any of the following purposes:
(1) to give any notice to the Company or to the Trustee or to
give any directions to the Trustee, or to consent to the waiving of any
default hereunder and its consequences, or to take any other action
authorized to be taken by Noteholders pursuant to any of the provisions
of Article VII;
(2) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article VIII;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 11.2; or
(4) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of the
Notes under any other provision of this Indenture or under applicable
law.
Section 10.2 Call of Meetings by Trustee. The Trustee may at any
time call a meeting of Noteholders to take any action specified in Section 10.1,
to be held at such time and at such place as the Trustee shall determine. Notice
of every meeting of the Noteholders, setting forth the time and the place of
such meeting and in general terms the action proposed to be taken at such
meeting and the establishment of any record date pursuant to Section 9.1, shall
be mailed to holders of Notes at their addresses as they shall appear on the
Register. Such notice shall also be mailed to the Company. Such notices shall be
mailed not less than twenty (20) nor more than ninety (90) days prior to the
date fixed for the meeting.
Any meeting of Noteholders shall be valid without notice if the
holders of all Notes then outstanding are present in person or by proxy or if
notice is waived before or after the meeting by the holders of all Notes
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice.
Section 10.3 Call of Meetings by Company or Noteholders. In case
at any time the Company, pursuant to a resolution of its Board of Directors, or
the holders of at least ten percent in aggregate principal amount of the Notes
then outstanding, shall have requested the Trustee to call a meeting of
Noteholders, by written request setting forth in reasonable detail the action
proposed to be taken at the meeting, and the Trustee shall not have mailed the
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notice of such meeting within twenty (20) days after receipt of such request,
then the Company or such Noteholders may determine the time and the place for
such meeting and may call such meeting to take any action authorized in Section
10.1, by mailing notice thereof as provided in Section 10.2.
Section 10.4 Qualifications for Voting. To be entitled to vote at
any meeting of Noteholders a Person shall (a) be a holder of one or more Notes
or (b) be a Person appointed by an instrument in writing as proxy by a holder of
one or more Notes. The only Persons who shall be entitled to be present or to
speak at any meeting of Noteholders shall be the Persons entitled to vote at
such meeting and their counsel and any representatives of the Trustee and its
counsel and any representatives of the Company and its counsel.
Section 10.5 Regulations. Notwithstanding any other provisions of
this Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Noteholders, in regard to proof of the holding of
Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Company or by Noteholders as provided in Section 10.3, in which case the
Company or the Noteholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the holders of a majority
in principal amount of the Notes represented at the meeting and entitled to vote
at the meeting.
Subject to the provisions of Section 9.4, at any meeting each
Noteholder or proxyholder shall be entitled to one vote for each $1,000
principal amount of Notes held or represented by him; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Note challenged
as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of Notes held by him or instruments in writing as aforesaid duly
designating him as the person to vote on behalf of other Noteholders. Any
meeting of Noteholders duly called pursuant to the provisions of Section 10.2 or
10.3 may be adjourned from time to time by a majority of those present, whether
or not constituting a quorum, and the meeting may be held as so adjourned
without further notice.
Section 10.6 Voting. The vote upon any resolution submitted to
any meeting of Noteholders shall be by written ballot on which shall be
subscribed the signatures of the holders of Notes or of their representatives by
proxy and the principal amount of the Notes held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in
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duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Noteholders shall be prepared by the secretary of
the meeting and there shall be attached to said record the original reports of
the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 10.2. The record shall show the principal amount of the Notes voting in
favor of or against any resolution. The record shall be signed and verified by
the affidavits of the permanent chairman and secretary of the meeting and one of
the duplicates shall be delivered to the Company and the other to the Trustee to
be preserved by the Trustee, the latter to have attached thereto the ballots
voted at the meeting.
Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
Section 10.7 No Delay of Rights by Meeting. Nothing in this
Article X contained shall be deemed or construed to authorize or permit, by
reason of any call of a meeting of Noteholders or any rights expressly or
impliedly conferred hereunder to make such call, any hindrance or delay in the
exercise of any right or rights conferred upon or reserved to the Trustee or to
the Noteholders under any of the provisions of this Indenture or of the Notes.
ARTICLE XI
SUPPLEMENTAL INDENTURES
Section 11.1 Supplemental Indentures Without Consent of
Noteholders. The Company, when authorized by the resolutions of the Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for one or more of the following
purposes:
(a) to make provision with respect to the conversion
rights of the holders of Notes pursuant to the requirements of Section
15.6 and the redemption obligations of the Company pursuant to the
requirements of Section 3.5(e);
(b) subject to Article IV, to convey, transfer, assign,
mortgage or pledge to the Trustee as security for the Notes, any
property or assets;
(c) to evidence the succession of another corporation
to the Company, or successive successions, and the assumption by the
successor corporation of the covenants, agreements and obligations of
the Company pursuant to Article XII;
(d) to add to the covenants of the Company such further
covenants, restrictions or conditions as the Board of Directors and the
Trustee shall consider to be
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for the benefit of the holders of Notes, and to make the occurrence,
or the occurrence and continuance, of a default in any such additional
covenants, restrictions or conditions a default or an Event of Default
permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, however, that
in respect of any such additional covenant, restriction or condition
such supplemental indenture may provide for a particular period of grace
after default (which period may be shorter or longer than that allowed
in the case of other defaults) or may provide for an immediate
enforcement upon such default or may limit the remedies available to the
Trustee upon such default;
(e) to provide for the issuance under this Indenture of
Notes in coupon form (including Notes registrable as to principal only)
and to provide for exchangeability of such Notes with the Notes issued
hereunder in fully registered form and to make all appropriate changes
for such purpose;
(f) to cure any ambiguity or to correct or supplement
any provision contained herein or in any supplemental indenture which
may be defective or inconsistent with any other provision contained
herein or in any supplemental indenture, or to make such other
provisions in regard to matters or questions arising under this
Indenture which shall not adversely affect the interests of the holders
of the Notes in any material respect;
(g) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the Notes;
or
(h) to modify, eliminate or add to the provisions of
this Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the Trust Indenture Act, or under
any similar federal statute hereafter enacted.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer and assignment of any property thereunder, but the Trustee
shall not be obligated to, but may in its discretion, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this
Section 11.1 may be executed by the Company and the Trustee without the consent
of the holders of any of the Notes at the time outstanding, notwithstanding any
of the provisions of Section 11.2.
Section 11.2 Supplemental Indentures with Consent of Noteholders.
With the consent (evidenced as provided in Article IX) of the holders of not
less than a majority in aggregate principal amount of the Notes at the time
outstanding, the Company, when
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authorized by the resolutions of the Board of Directors, and the Trustee may
from time to time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or of modifying in any manner the rights of the holders
of the Notes; provided, however, that no such supplemental indenture shall (i)
extend the fixed maturity of any Note, or reduce the rate or extend the time of
payment of interest thereon, or reduce the principal amount thereof or premium,
if any, thereon, or reduce any amount payable on redemption thereof, or impair
or affect the right of any Noteholder to institute suit for the payment thereof,
or make the principal thereof or interest (including Liquidated Damages, if any)
or premium, if any, thereon payable in any coin or currency other than that
provided in the Notes, or modify the provisions of this Indenture with respect
to the subordination of the Notes in a manner adverse to the Noteholders, or
change the obligation of the Company to redeem any Note upon the happening of a
Fundamental Change in a manner adverse to the holder of Notes, or impair the
right to convert the Notes into Common Stock subject to the terms set forth
herein, including Section 15.6, without the consent of the holder of each Note
so affected, or (ii) reduce the aforesaid percentage of Notes, the holders of
which are required to consent to any such supplemental indenture, without the
consent of the holders of all Notes then outstanding.
Upon the request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Treasurer
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Noteholders as aforesaid,
the Trustee shall join with the Company in the execution of such supplemental
indenture unless such supplemental indenture affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise, in which case the
Trustee may in its discretion, but shall not be obligated to, enter into such
supplemental indenture.
It shall not be necessary for the consent of the Noteholders
under this Section 11.2 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall approve
the substance thereof.
Section 11.3 Effect of Supplemental Indenture. Any supplemental
indenture executed pursuant to the provisions of this Article XI shall comply
with the Trust Indenture Act, as then in effect; provided that this Section 11.3
shall not require such supplemental indenture or the Trustee to be qualified
under the Trust Indenture Act prior to the time such qualification is in fact
required under the terms of the Trust Indenture Act or the Indenture has been
qualified under the Trust Indenture Act, nor shall it constitute any admission
or acknowledgment by any party to such supplemental indenture that any such
qualification is required prior to the time such qualification is in fact
required under the terms of the Trust Indenture Act or the Indenture has been
qualified under the Trust Indenture Act. Upon the execution of any supplemental
indenture pursuant to the provisions of this Article XI, this Indenture shall be
and be deemed to be modified and amended in accordance therewith and the
respective rights, limitation of rights, obligations, duties and immunities
under this Indenture
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of the Trustee, the Company and the holders of Notes shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
Section 11.4 Notation on Notes. Notes authenticated and delivered
after the execution of any supplemental indenture pursuant to the provisions of
this Article XI may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company or the
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may be prepared and executed by the
Company, authenticated by the Trustee (or an authenticating agent duly appointed
by the Trustee pursuant to Section 16.11) and delivered in exchange for the
Notes then outstanding, upon surrender of such Notes then outstanding.
Section 11.5 Evidence of Compliance of Supplemental Indenture to
Be Furnished Trustee. The Trustee, subject to the provisions of Sections 8.1 and
8.2, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article XI.
ARTICLE XII
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 12.1 Company May Consolidate Etc. on Certain Terms.
Subject to the provisions of Section 12.2, nothing contained in this Indenture
or in any of the Notes shall prevent any consolidation or merger of the Company
with or into any other corporation or corporations (whether or not affiliated
with the Company), or successive consolidations or mergers in which the Company
or its successor or successors shall be a party or parties, or shall prevent any
sale, conveyance or lease (or successive sales, conveyances or leases) of all or
substantially all of the property of the Company, to any other corporation
(whether or not affiliated with the Company) authorized to acquire and operate
the same and which shall be organized under the laws of a State of the United
States or the District of Columbia; provided, however, and the Company hereby
covenants and agrees, that upon any such consolidation, merger, sale, conveyance
or lease, the due and punctual payment of the principal of and premium, if any,
and interest (including Liquidated Damages, if any) on all of the Notes,
according to their tenor, and the due and punctual performance and observance of
all of the covenants and conditions of this Indenture to be performed by the
Company, shall be expressly assumed, by supplemental indenture satisfactory in
form to the Trustee, executed and delivered to the Trustee by the corporation
(if other than the Company) formed by such consolidation, or into which the
Company shall have been merged, or by the corporation which shall have
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acquired or leased such property, and such supplemental indenture shall provide
for the applicable conversion rights set forth in Section 15.6.
Section 12.2 Successor Corporation to Be Substituted. In case of
any such consolidation, merger, sale, conveyance or lease and upon the
assumption by the successor corporation, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the due and
punctual payment of the principal of and premium, if any, and interest
(including Liquidated Damages, if any) on all of the Notes and the due and
punctual performance of all of the covenants and conditions of this Indenture to
be performed by the Company, such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it had been named herein
as the party of the first part. Such successor corporation thereupon may cause
to be signed, and may issue either in its own name or in the name of CKE
Restaurants, Inc. any or all of the Notes issuable hereunder which theretofore
shall not have been signed by the Company and delivered to the Trustee; and,
upon the order of such successor corporation instead of the Company and subject
to all the terms, conditions and limitations in this Indenture prescribed, the
Trustee shall authenticate and shall deliver, or cause to be authenticated and
delivered, any Notes which previously shall have been signed and delivered by
the officers of the Company to the Trustee for authentication, and any Notes
which such successor corporation thereafter shall cause to be signed and
delivered to the Trustee for that purpose. All the Notes so issued shall in all
respects have the same legal rank and benefit under this Indenture as the Notes
theretofore or thereafter issued in accordance with the terms of this Indenture
as though all of such Notes had been issued at the date of the execution hereof.
In the event of any such consolidation, merger, sale, conveyance or lease, the
Person named as the "Company" in the first paragraph of this Indenture or any
successor which shall thereafter have become such in the manner prescribed in
this Article XII may be dissolved, wound up and liquidated at any time
thereafter and such Person shall be released from its liabilities as obligor and
maker of the Notes and from its obligations under this Indenture.
In case of any such consolidation, merger, sale, conveyance or
lease, such changes in phraseology and form (but not in substance) may be made
in the Notes thereafter to be issued as may be appropriate.
Section 12.3 Opinion of Counsel to Be Given Trustee. The Trustee
shall receive an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that any such consolidation, merger, sale, conveyance or lease and any
such assumption complies with the provisions of this Article XII.
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ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE
Section 13.1 Discharge of Indenture. When (a) the Company shall
deliver to the Trustee for cancellation all Notes theretofore authenticated
(other than any Notes which shall have been destroyed, lost or stolen and in
lieu of or in substitution for which other Notes shall have been authenticated
and delivered) and not theretofore canceled, or (b) all the Notes not
theretofore canceled or delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company shall deposit with the Trustee, in trust, funds sufficient to pay at
maturity or upon redemption of all of the Notes (other than any Notes which
shall have been mutilated, destroyed, lost or stolen and in lieu of or in
substitution for which other Notes shall have been authenticated and delivered)
not theretofore canceled or delivered to the Trustee for cancellation, including
principal and premium, if any, and interest (including Liquidated Damages, if
any) due or to become due to such date of maturity or date fixed for redemption,
as the case may be, and if in either case the Company shall also pay or cause to
be paid all other sums payable hereunder by the Company, then this Indenture
shall cease to be of further effect (except as to (i) remaining rights of
registration of transfer, substitution and exchange and conversion of Notes,
(ii) rights hereunder of Noteholders to receive payments of principal of and
premium, if any, and interest (including Liquidated Damages, if any) on, the
Notes and the other rights, duties and obligations of Noteholders, as
beneficiaries hereof with respect to the amounts, if any, so deposited with the
Trustee and (iii) the rights, obligations and immunities of the Trustee
hereunder), and the Trustee, on demand of the Company accompanied by an
Officers' Certificate and an Opinion of Counsel as required by Section 16.5 and
at the cost and expense of the Company, shall execute proper instruments
acknowledging satisfaction of and discharging this Indenture; the Company,
however, hereby agreeing to reimburse the Trustee for any costs or expenses
thereafter reasonably and properly incurred by the Trustee and to compensate the
Trustee for any services thereafter reasonably and properly rendered by the
Trustee in connection with this Indenture or the Notes.
Section 13.2 Deposited Monies to Be Held in Trust by Trustee.
Subject to Section 13.4, all monies deposited with the Trustee pursuant to
Section 13.1, shall be held in trust and applied by it to the payment, either
directly or through any paying agent (including the Company if acting as its own
paying agent), to the holders of the particular Notes for the payment or
redemption of which such monies have been deposited with the Trustee, of all
sums due and to become due thereon for principal and interest (including
Liquidated Damages, if any) and premium, if any.
Section 13.3 Paying Agent to Repay Monies Held. Upon the
satisfaction and discharge of this Indenture, all monies then held by any paying
agent of the Notes (other than the Trustee) shall, upon demand of the Company,
be repaid to it or paid to the Trustee, and
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thereupon such paying agent shall be released from all further liability with
respect to such monies.
Section 13.4 Return of Unclaimed Monies. Anything contained
herein to the contrary notwithstanding, any monies deposited with or paid to the
Trustee for payment of the principal of, premium, if any, or interest on Notes
and not applied but remaining unclaimed by the holders of Notes for two years
after the date upon which the principal of, premium, if any, or interest on such
Notes, as the case may be, shall have become due and payable, shall be repaid to
the Company by the Trustee within 60 days of such date and all liability of the
Trustee shall thereupon cease with respect to such monies; and the holder of any
of the Notes shall thereafter look only to the Company for any payment which
such holder may be entitled to collect. The Trustee shall not be liable to the
Company or any Noteholder for interest on funds held by it for the payment and
discharge of the interest, or premium (if any) on or principal of any of the
Notes to any holder. The Company shall not be liable for any interest on the
sums paid to it pursuant to this paragraph and shall not be regarded as a
trustee of such money.
Section 13.5. Reinstatement. If the Trustee or the paying agent
is unable to apply any money in accordance with Section 13.2 by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 13.1 until such time as the Trustee or the paying
agent is permitted to apply all such money in accordance with Section 13.2;
provided, however, that if the Company makes any payment of interest on or
principal of any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the holders of such Notes to
receive such payment from the money held by the Trustee or paying agent.
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 14.1 Indenture and Notes Solely Corporate Obligations. No
recourse for the payment of the principal of or premium, if any, or interest
(including Liquidated Damages, if any) on any Note, or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in this Indenture or in any
supplemental indenture, or in any Note, or because of the creation of any
indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company or of any successor corporation, either directly or through the Company
or any successor corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty or
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otherwise; it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as a consideration for, the
execution of this Indenture and the issue of the Notes.
ARTICLE XV
CONVERSION OF NOTES
Section 15.1 Right to Convert. Subject to and upon compliance
with the provisions of this Indenture, including, without limitation, Article
IV, the holder of any Note shall have the right, at such holder's option, at any
time after ninety (90) days following the latest date of original issuance
thereof and prior to the close of business on March 15, 2004 (except that, with
respect to any Note or portion of a Note which shall be called for redemption
such right shall terminate, except as provided in Section 15.2 or Section 3.4,
at the close of business on the Business Day next preceding the date fixed for
redemption of such Note or portion of a Note unless the Company shall default in
payment due upon redemption thereof) to convert the principal amount of any such
Note, or any portion of such principal amount which is $1,000 or a multiple
thereof, into that number of fully paid and non-assessable shares of Common
Stock (as such shares shall then be constituted) at the date of conversion
obtained, by dividing the principal amount of the Note or portion thereof
surrendered for conversion by the Conversion Price in effect at such time, by
surrender of the Note so to be converted in whole or in part in the manner
provided, together with any required funds, in Section 15.2. A Note in respect
of which a holder is exercising the option to require redemption upon a
Fundamental Change pursuant to Section 3.5 may be converted only if such holder
withdraws its election to exercise in accordance with Section 3.5 hereof. A
holder of Notes is not entitled to any rights of a holder of Common Stock until
such holder has converted his Notes to Common Stock, and only to the extent such
Notes are deemed to have been converted to Common Stock under this Article XV.
Section 15.2 Exercise of Conversion Privilege; Issuance of Common
Stock on Conversion; No Adjustment for Interest or Dividends. In order to
exercise the conversion privilege with respect to any Note in certificated form,
the holder of any such Note to be converted in whole or in part shall surrender
such Note, duly endorsed, at an office or agency maintained by the Company
pursuant to Section 5.2, accompanied by the funds, if any, required by the
penultimate paragraph of this Section 15.2, and shall give written notice of
conversion in the form provided on the Notes (or such other notice which is
acceptable to the Company) to the Company at such office or agency that the
holder elects to convert such Note or the portion thereof specified in said
notice. Such notice shall also state the name or names (with address or
addresses) in which the certificate or certificates for shares of Common Stock
which shall be issuable on such conversion shall be issued, and shall be
accompanied by transfer taxes, if required pursuant to Section 15.7. Each such
Note surrendered for conversion shall, unless the shares issuable on conversion
are to be issued in the same name as
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the registration of such Note, be duly endorsed by, or be accompanied by
instruments of transfer in form satisfactory to the Company duly executed by,
the holder or its duly authorized attorney.
In order to exercise the conversion privilege with respect to any
interest in a Note in global form, the beneficial holder must complete the
appropriate instruction form for conversion pursuant to the Depositary's
book-entry conversion program, deliver by book-entry delivery an interest in
such Note in global form, furnish appropriate endorsements and transfer
documents if required by the Company or the Trustee or conversion agent, and pay
the funds, if any, required by this Section 15.2 and any transfer taxes if
required pursuant to Section 15.7.
As promptly as practicable after satisfaction of the requirements
for conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other than
that of the Noteholder (as if such transfer were a transfer of the Note or Notes
(or portion thereof) so converted), the Company shall issue and shall deliver at
such office or agency to such holder, or on its written order, a certificate or
certificates for the number of full shares of Common Stock issuable upon the
conversion of such Note or portion thereof in accordance with the provisions of
this Article and a check in payment of any fractional interest in respect of a
share of Common Stock arising upon such conversion, as provided in Section 15.3.
In case any Note of a denomination greater than $1,000 shall be surrendered for
partial conversion, and subject to Section 2.3, the Company shall execute and
the Trustee shall authenticate and deliver to or upon the written order of the
holder of the Note so surrendered, without charge to such holder, a new Note or
Notes in authorized denominations in an aggregate principal amount equal to the
unconverted portion of the surrendered Note.
Each conversion shall be deemed to have been effected as to any
such Note (or portion thereof) on the date on which the requirements set forth
above in this Section 15.2 have been satisfied as to such Note (or portion
thereof), and the Person in whose name any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become on said date the holder of record of the shares represented thereby;
provided, however, that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the Person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
such Note shall have been surrendered.
Any Note or portion thereof surrendered for conversion during the
period from the close of business on the record date for any interest payment
date to the close of business on the Business Day next preceding the following
interest payment date shall (unless such Note or portion thereof being converted
shall have been called for redemption on a date fixed for redemption which
occurs during the period from the close of business on such record date to
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the close of business on the Business Day next preceding the following interest
payment date) be accompanied by payment, in New York Clearing House funds or
other funds acceptable to the Company, of an amount equal to the interest
otherwise payable on such interest payment date on the principal amount being
converted; provided, however, that no such payment need be made if there shall
exist at the time of conversion a default in the payment of interest on the
Notes. An amount equal to such payment shall be paid by the Company on such
interest payment date to the holder of such Note at the close of business on
such record date; provided, however, that if the Company shall default in the
payment of interest on such interest payment date, such amount shall be paid to
the Person who made such required payment. Except as provided above in this
Section 15.2, no payment or other adjustment shall be made for interest accrued
on any Note converted or for dividends on any shares issued upon the conversion
of such Note as provided in this Article.
Upon the conversion of an interest in a Note in global form, the
Trustee (or other conversion agent appointed by the Company), or the Custodian
at the direction of the Trustee (or other conversion agent appointed by the
Company), shall make a notation on such Note in global form as to the reduction
in the principal amount represented thereby. The Company shall notify the
Trustee in writing of any conversions of Notes effected through any conversion
agent other than the Trustee.
Section 15.3 Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional shares shall be issued
upon conversion of Notes. If more than one Note shall be surrendered for
conversion at one time by the same holder, the number of full shares which shall
be issuable upon conversion shall be computed on the basis of the aggregate
principal amount of the Notes (or specified portions thereof to the extent
permitted hereby) so surrendered. If any fractional share of stock would be
issuable upon the conversion of any Note or Notes, the Company shall make an
adjustment therefor in cash at the current market value thereof to the holder of
Notes. For these purposes, the current market value of a share of Common Stock
shall be the Closing Price on the first Business Day immediately preceding the
day on which the Notes (or specified portions thereof) are deemed to have been
converted.
Section 15.4 Conversion Price. The conversion price shall be as
specified in the form of Note (herein called the "Conversion Price") attached as
Exhibit A hereto, subject to adjustment as provided in this Article XV.
Section 15.5 Adjustment of Conversion Price. The Conversion Price
shall be adjusted from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend
or make a distribution to all holders of the outstanding Common Stock in
shares of Common Stock, the Conversion Price in effect at the opening of
business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or
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other distribution shall be reduced by multiplying such Conversion Price
by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for
such determination and the denominator shall be the sum of such number
of shares and the total number of shares constituting such dividend or
other distribution, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the
Company. If any dividend or distribution of the type described in this
Section 15.5(a) is declared but not so paid or made, the Conversion
Price shall again be adjusted to the Conversion Price which would then
be in effect if such dividend or distribution had not been declared.
(b) In case the Company shall issue rights or warrants
to all holders of its Common Stock entitling them (for a period expiring
within 45 days after the record date mentioned below) to subscribe for
or purchase Common Stock at a price per share less than the Current
Market Price (as defined below) on the date fixed for the determination
of stockholders entitled to receive such rights or warrants, the
Conversion Price in effect immediately prior thereto shall be adjusted
so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date fixed for
determination of stockholders entitled to receive such rights or
warrants by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding on the date fixed for determination
of stockholders entitled to receive such rights or warrants plus the
number of shares which the aggregate offering price of the total number
of shares so offered would purchase at such Current Market Price, and of
which the denominator shall be the number of shares of Common Stock
outstanding on the date fixed for determination of stockholders entitled
to receive such rights or warrants plus the number of additional shares
of Common Stock offered for subscription or purchase. Such adjustment
shall be made successively whenever any such rights or warrants are
issued, and shall become effective immediately after the opening of
business on the day following the date fixed for determination of
stockholders entitled to receive such rights or warrants. In determining
whether any rights or warrants entitle the holders to subscribe for or
purchase shares of Common Stock at less than such Current Market Price,
and in determining the aggregate offering price of such shares of Common
Stock, there shall be taken into account any consideration received by
the Company for such rights or warrants, the value of such
consideration, if other than cash, to be determined by the Board of
Directors. To the extent that shares of Common Stock are not delivered
after the expiration of such rights or warrants, the Conversion Price
shall be readjusted to the Conversion Price which would then be in
effect had the adjustments made upon the issuance of such rights or
warrants been made on the basis of delivery of only the number of shares
of Common Stock actually delivered. To the extent that no shares of
Common Stock are so delivered after the expiration of such rights or
warrants, the Conversion Price shall be readjusted to the Conversion
Price which would then be in
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effect if such date fixed for the determination of stockholders entitled
to receive such rights or warrants had not been fixed.
(c) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall be
proportionately reduced, and conversely, in case outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common
Stock, the Conversion Price in effect at the opening of business on the
day following the day upon which such combination becomes effective
shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of
business on the day following the day upon which such subdivision or
combination becomes effective.
(d) In case the Company shall, by dividend or
otherwise, distribute to all holders of its Common Stock shares of any
class of capital stock of the Company (other than any dividends or
distributions to which Section 15.5(a) applies) or evidences of its
indebtedness or assets (including securities, but excluding any rights
or warrants referred to in Section 15.5(b), and excluding any dividend
or distribution (x) paid exclusively in cash or (y) referred to in
Section 15.5(a) (any of the foregoing hereinafter in this Section
15.5(d) called the "Securities")), then, in each such case (unless the
Company elects to reserve such Securities for distribution to the
Noteholders upon the conversion of the Notes so that any such holder
converting Notes will receive upon such conversion, in addition to the
shares of Common Stock to which such holder is entitled, the amount and
kind of such Securities which such holder would have received if such
holder had converted its Notes into Common Stock immediately prior to
the Record Date (as defined in Section 15.5(i) for such distribution of
the Securities)), the Conversion Price shall be reduced so that the same
shall be equal to the price determined by multiplying the Conversion
Price in effect on the Record Date with respect to such distribution by
a fraction of which the numerator shall be the Current Market Price per
share of the Common Stock on such Record Date less the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive, and described in a resolution of the Board of Directors) on
the Record Date of the portion of the Securities so distributed
applicable to one share of Common Stock and the denominator shall be the
Current Market Price per share of the Common Stock, such reduction to
become effective immediately prior to the opening of business on the day
following such Record Date; provided, however, that in the event the
fair market value (as so determined) of the portion of the Securities so
distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price of the Common Stock on the Record
Date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each Noteholder shall have the right to receive upon
conversion the amount of Securities such holder would have received had
such holder converted each Note on the Record Date. In the event that
such dividend or distribution
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is not so paid or made, the Conversion Price shall again be adjusted to
be the Conversion Price which would then be in effect if such dividend
or distribution had not been declared. If the Board of Directors
determines the fair market value of any distribution for purposes of
this Section 15.5(d) by reference to the actual or when issued trading
market for any securities, it must in doing so consider the prices in
such market over the same period used in computing the Current Market
Price of the Common Stock.
Rights or warrants distributed by the Company to all
holders of Common Stock entitling the holders thereof to subscribe for
or purchase shares of the Company's capital stock (either initially or
under certain circumstances), which rights or warrants, until the
occurrence of a specified event or events ("Trigger Event"): (i) are
deemed to be transferred with such shares of Common Stock; (ii) are not
exercisable; and (iii) are also issued in respect of future issuances of
Common Stock, shall be deemed not to have been distributed for purposes
of this Section 15.5 (and no adjustment to the Conversion Price under
this Section 15.5 will be required) until the occurrence of the earliest
Trigger Event, whereupon such rights and warrants shall be deemed to
have been distributed and an appropriate adjustment (if any is required)
to the Conversion Price shall be made under this Section 15.5(d). If any
such right or warrant, including any such existing rights or warrants
distributed prior to the date of this Indenture, are subject to events,
upon the occurrence of which such rights or warrants become exercisable
to purchase different securities, evidences of indebtedness or other
assets, then the date of the occurrence of any and each such event shall
be deemed to be the date of distribution and record date with respect to
new rights or warrants with such rights (and a termination or expiration
of the existing rights or warrants without exercise by any of the
holders thereof). In addition, in the event of any distribution (or
deemed distribution) of rights or warrants, or any Trigger Event or
other event (of the type described in the preceding sentence) with
respect thereto that was counted for purposes of calculating a
distribution amount for which an adjustment to the Conversion Price
under this Section 15.5 was made, (1) in the case of any such rights or
warrants which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Price shall be
readjusted upon such final redemption or repurchase to give effect to
such distribution or Trigger Event, as the case may be, as though it
were a cash distribution, equal to the per share redemption or
repurchase price received by a holder or holders of Common Stock with
respect to such rights or warrants (assuming such holder had retained
such rights or warrants), made to all holders of Common Stock as of the
date of such redemption or repurchase, and (2) in the case of such
rights or warrants which shall have expired or been terminated without
exercise by any holders thereof, the Conversion Price shall be
readjusted as if such rights and warrants had not been issued.
Notwithstanding the foregoing, in the event that the
Company shall distribute rights or warrants to subscribe for additional
shares of the Common Stock
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(other than rights or warrants described in Section 15.5(b)), pro rata
to holders of Common Stock, and in the case of the rights issued
pursuant to the Company's stockholder rights agreement in existence as
of the date hereof, the Company may, in lieu of making any adjustment
pursuant to this Section 15.5(d), make proper provision (in the case of
the Company's stockholder rights agreement in existence as of the date
thereof, to the extent it does not make proper provision) so that each
holder of a Note who converts such Note (or any portion thereof) after
the record date for such distribution shall be entitled to receive upon
such conversion, in addition to the shares of Common Stock issuable upon
such conversion (the "Conversion Shares"), a number of rights or
warrants to be determined as follows: (i) if such conversion occurs on
or prior to the date for the distribution to the holders of such rights
or warrants of separate certificates evidencing such rights or warrants
(the "Distribution Date"), the same number of rights or warrants to
which a holder of a number of shares of Common Stock equal to the number
of Conversion Shares is entitled at the time of such conversion in
accordance with the terms and provisions of and applicable to such
rights or warrants; and (ii) if such conversion occurs after the
Distribution Date, the same number of rights or warrants to which a
holder of the number of shares of Common Stock into which the principal
amount of the Note so converted was convertible immediately prior to the
Distribution Date would have been entitled on the Distribution Date in
accordance with the terms and provisions of, and applicable to such
rights or warrants.
For purposes of this Section 15.5(d) and Sections 15.5(a)
and (b), any dividend or distribution to which this Section 15.5(d) is
applicable that also includes shares of Common Stock, or rights or
warrants to subscribe for or purchase shares of Common Stock (or both),
shall be deemed instead to be (1) a dividend or distribution of the
evidences of indebtedness, assets or shares of capital stock other than
such shares of Common Stock or rights or warrants (and any Conversion
Price reduction required by this Section 15.5(d) with respect to such
dividend or distribution shall then be made) immediately followed by (2)
a dividend or distribution of such shares of Common Stock or such rights
or warrants (and any further Conversion Price reduction required by
Sections 15.5(a) and (b) with respect to such dividend or distribution
shall then be made), except (A) the Record Date of such dividend or
distribution shall be substituted as "the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution" and "the date fixed for such determination" within the
meaning of Sections 15.5(a) and (b) and (B) any shares of Common Stock
included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such
determination" within the meaning of Section 15.5(a).
(e) In case the Company shall, by dividend or
otherwise, distribute to all holders of its Common Stock cash (excluding
(x) any quarterly cash dividend on the Common Stock to the extent the
aggregate cash dividend per share of Common Stock in any fiscal quarter
does not exceed the greater of (A) the amount per share of Common
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Stock of the next preceding quarterly cash dividend on the Common Stock
to the extent such preceding quarterly dividend did not require any
adjustment of the Conversion Price pursuant to this subsection (e) (as
adjusted to reflect subdivisions or combinations of the Common Stock),
and (B) 3.75% of the average of the Closing Price (determined as set
forth in Section 15.5(i)) during the ten Trading Days (as defined in
Section 15.5(i)) next preceding the date of declaration of such dividend
and (y) any dividend or distribution in connection with the liquidation,
dissolution or winding up of the Company, whether voluntary or
involuntary), then, in such case, the Conversion Price shall be reduced
so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business on
such Record Date by a fraction of which the numerator shall be the
Current Market Price of the Common Stock on the Record Date less the
amount of cash so distributed (and not excluded as provided above)
applicable to one share of Common Stock and the denominator shall be
such Current Market Price of the Common Stock, such reduction to be
effective immediately prior to the opening of business on the day
following the Record Date; provided, however, that in the event the
portion of the cash so distributed applicable to one share of Common
Stock is equal to or greater than the Current Market Price of the Common
Stock on the Record Date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each Noteholder shall have the right to
receive upon conversion the amount of cash such holder would have
received had such holder converted each Note on the Record Date. In the
event that such dividend or distribution is not so paid or made, the
Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such dividend or distribution had not
been declared. If any adjustment is required to be made as set forth in
this subsection (e) as a result of a distribution that is a quarterly
dividend, such adjustment shall be based upon the amount by which such
distribution exceeds the amount of the quarterly cash dividend permitted
to be excluded pursuant hereto. If an adjustment is required to be made
as set forth in this subsection (e) above as a result of a distribution
that is not a quarterly dividend, such adjustment shall be based upon
the full amount of the distribution.
(f) In case a tender or exchange offer made by the Company
or any subsidiary of the Company for all or any portion of the Common
Stock shall expire and such tender or exchange offer (as amended upon
the expiration thereof) shall require the payment by the Company or such
subsidiary to stockholders of consideration per share of Common Stock
having a fair market value (as determined by the Board of Directors, or
to the extent permitted by applicable law, a duly authorized committee
thereof, whose determination shall be conclusive, and described in a
resolution of the Board of Directors or such duly authorized committee
thereof), as the case may be, at the last time (the "Expiration Time")
tenders or exchanges may be made pursuant to such tender or exchange
offer (as it shall have been amended) that exceeds the Current Market
Price of the Common Stock on the Trading Day next succeeding the
Expiration Time, the Conversion Price shall be reduced so that the same
shall equal the price
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determined by multiplying the Conversion Price in effect immediately
prior to the Expiration Time by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding (including any
tendered or exchanged shares) on the Expiration Time multiplied by the
Current Market Price of the Common Stock on the Trading Day next
succeeding the Expiration Time and the denominator shall be the sum of
(x) the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to any
maximum specified in the terms of the tender or exchange offer) of all
shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted up to any such maximum,
being referred to as the "Purchased Shares") and (y) the product of the
number of shares of Common Stock outstanding (less any Purchased Shares)
on the Expiration Time and the Current Market Price of the Common Stock
on the Trading Day next succeeding the Expiration Time, such reduction
to become effective immediately prior to the opening of business on the
day following the Expiration Time. In the event that the Company is
obligated to purchase shares pursuant to any such tender or exchange
offer, but the Company is permanently prevented by applicable law from
effecting any such purchases or all such purchases are rescinded, the
Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such tender or exchange offer had not
been made.
(g) In case of a tender or exchange offer made by a
Person other than the Company or any of its subsidiaries for an amount
which increases the offeror's ownership of Common Stock to more than 35%
of the Common Stock outstanding and shall involve the payment by such
Person of consideration per share of Common Stock having a fair market
value (as determined by the Board of Directors, or to the extent
permitted by applicable law, a duly authorized committee thereof, whose
determination shall be conclusive, and described in a resolution of the
Board of Directors) at the last time (the "Offer Expiration Time")
tenders or exchanges may be made pursuant to such tender or exchange
offer (as it shall have been amended) that exceeds the Current Market
Price of the Common Stock on the Trading Day next succeeding the Offer
Expiration Time, and in which, as of the Offer Expiration Time the Board
of Directors is not recommending rejection of the offer, the Conversion
Price shall be reduced so that the same shall equal the price determined
by multiplying the Conversion Price in effect immediately prior to the
Offer Expiration Time by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding (including any tendered or
exchanged shares) on the Offer Expiration Time multiplied by the Current
Market Price of the Common Stock on the Trading Day next succeeding the
Offer Expiration Time and the denominator shall be the sum of (x) the
fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to any
maximum specified in the terms of the tender or exchange offer) of all
shares validly tendered or exchanged and not withdrawn as of the Offer
Expiration Time (the shares deemed so accepted, up to any such maximum,
being referred to as the "Accepted Purchased Shares") and (y) the
product of the number of
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shares of Common Stock outstanding (less any Accepted Purchased Shares)
on the Offer Expiration Time and the Current Market Price of the Common
Stock on the Trading Day next succeeding the Offer Expiration Time, such
reduction to become effective immediately prior to the opening of
business on the day following the Offer Expiration Time. In the event
that such Person is obligated to purchase shares pursuant to any such
tender or exchange offer, but such Person is permanently prevented by
applicable law from effecting any such purchases or all such purchases
are rescinded, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such tender or
exchange offer had not been made. Notwithstanding the foregoing, the
adjustment described in this subsection (g) shall not be made if, as of
the Offer Expiration Time, the offering documents with respect to such
offer disclose a plan or intention to cause the Company to engage in any
transaction described in Article XII.
(h) In case the Company shall issue Common Stock or
securities convertible into, or exchangeable for, Common Stock at a
price per share (or having a conversion or exchange price per share)
that is less than the then Current Market Price of the Common Stock (but
excluding, among other things, issuances: (a) pursuant to any bona fide
plan for the benefit of employees, directors, consultants or other
individuals in connection with employee incentive plans of the Company
now or hereafter in effect; (b) to acquire all or any portion of a
business in an arm's-length transaction between the Company and an
unaffiliated third party including, if applicable, issuances upon
exercise of options or warrants assumed in connection with such an
acquisition; (c) in a bona fide public offering pursuant to a firm
commitment underwriting (or a similar type of offering made pursuant to
Rule 144A and/or Regulation S under the Securities Act) or sales at the
market pursuant to a continuous offering stock program; (d) pursuant to
the exercise of warrants, rights (including, without limitation, earnout
rights) or options, or upon the conversion of convertible securities,
which are issued and outstanding on the date hereof, or which may be
issued in the future at fair value and with an exercise price or
conversion price at least equal to the Current Market Price of the
Common Stock at the time of issuance of such warrant, right, option or
convertible security; and (e) pursuant to a dividend reinvestment plan
or other plan hereafter adopted for the reinvestment of dividends or
interest provided that such Common Stock is issued at a price at least
equal to 95% of the market price of the Common Stock at the time of such
issuance), the Conversion Price shall be adjusted so that the holder of
each Note shall be entitled to receive, upon the conversion thereof, the
number of shares of Common Stock determined by multiplying (i) the
Conversion Price on the day immediately prior to such date of issuance
by (ii) a fraction, the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding on such date and (2) the
number of shares of Common Stock which the aggregate consideration
receivable by the Company for the total number of shares of Common Stock
so issued (or into which the convertible securities may convert) would
purchase at such Conversion Price on such date, and the denominator of
which shall be
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the sum of (A) the number of shares of Common Stock outstanding on such
date and (B) the number of additional shares of Common Stock issued (or
into which the convertible securities may convert). An adjustment made
pursuant to this subsection (g) shall be made on the next Business Day
following the date on which any such issuance is made and shall be
effective retroactively immediately after the close of business on such
date. For purposes of this subsection (g), the aggregate consideration
receivable by the Company in connection with the issuance of shares of
Common Stock or of securities convertible into shares of Common Stock
shall be deemed to be equal to the sum of the aggregate offering price
(before deduction of underwriting discounts or commissions and expenses
payable to third parties) of all such securities plus the minimum
aggregate amount, if any, payable upon conversion of any such
convertible securities into shares of Common Stock.
(i) For purposes of this Section 15.5, the following
terms shall have the meaning indicated:
(1) "Closing Price" with respect to any securities
on any day shall mean the closing sale price regular way on such
day or, in case no such sale takes place on such day, the average
of the reported closing bid and asked prices, regular way, in
each case on the New York Stock Exchange, or, if such security is
not listed or admitted to trading on such Exchange, on the
principal national security exchange or quotation system on which
such security is quoted or listed or admitted to trading, or, if
not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the average of the
closing bid and asked prices of such security on the
over-the-counter market on the day in question as reported by the
National Quotation Bureau Incorporated, or a similar generally
accepted reporting service, or if not so available, in such
manner as furnished by any New York Stock Exchange member firm
selected from time to time by the Board of Directors for that
purpose, or a price determined in good faith by the Board of
Directors or, to the extent permitted by applicable law, a duly
authorized committee thereof, whose determination shall be
conclusive.
(2) "Current Market Price" shall mean the average
of the daily Closing Prices per share of Common Stock for the ten
consecutive Trading Days immediately prior to the date in
question; provided, however, that (1) if the "ex" date (as
hereinafter defined) for any event (other than the issuance or
distribution or Fundamental Change requiring such computation)
that requires an adjustment to the Conversion Price pursuant to
Section 15.5(a), (b), (c), (d), (e), (f), (g) or (h) occurs
during such ten consecutive Trading Days, the Closing Price for
each Trading Day prior to the "ex" date for such other event
shall be adjusted by multiplying such Closing Price by the same
fraction by which the Conversion Price is so required to be
adjusted as a result of such other event,
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(2) if the "ex" date for any event (other than the issuance,
distribution or Fundamental Change requiring such computation)
that requires an adjustment to the Conversion Price pursuant to
Section 15.5(a), (b), (c), (d), (e), (f), (g) or (h) occurs on or
after the "ex" date for the issuance or distribution requiring
such computation and prior to the day in question, the Closing
Price for each Trading Day on and after the "ex" date for such
other event shall be adjusted by multiplying such Closing Price
by the reciprocal of the fraction by which the Conversion Price
is so required to be adjusted as a result of such other event,
and (3) if the "ex" date for the issuance, distribution or
Fundamental Change requiring such computation is prior to the day
in question, after taking into account any adjustment required
pursuant to clause (1) or (2) of this proviso, the Closing Price
for each Trading Day on or after such "ex" date shall be adjusted
by adding thereto the amount of any cash and the fair market
value (as determined by the Board of Directors or, to the extent
permitted by applicable law, a duly authorized committee thereof
in a manner consistent with any determination of such value for
purposes of Section 15.5(d), (f) or (g), whose determination
shall be conclusive and described in a resolution of the Board of
Directors or such duly authorized committee thereof, as the case
may be) of the evidences of indebtedness, shares of capital stock
or assets being distributed applicable to one share of Common
Stock as of the close of business on the day before such "ex"
date. For purposes of any computation under Section 15.5(f) or
(g), the Current Market Price of the Common Stock on any date
shall be deemed to be the average of the daily Closing Prices per
share of Common Stock for such day and the next two succeeding
Trading Days; provided, however, that if the "ex" date for any
event (other than the tender or exchange offer requiring such
computation) that requires an adjustment to the Conversion Price
pursuant to Section 15.5(a), (b), (c), (d), (e), (f), (g) or (h)
occurs on or after the Expiration Time or Offer Expiration Time,
as the case may be, for the tender or exchange offer requiring
such computation and prior to the day in question, the Closing
Price for each Trading Day on and after the "ex" date for such
other event shall be adjusted by multiplying such Closing Price
by the reciprocal of the fraction by which the Conversion Price
is so required to be adjusted as a result of such other event.
For purposes of this paragraph, the term "ex" date, (1) when used
with respect to any issuance or distribution, means the first
date on which the Common Stock trades regular way on the relevant
exchange or in the relevant market from which the Closing Price
was obtained without the right to receive such issuance or
distribution, (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on
which the Common Stock trades regular way on such exchange or in
such market after the time at which such subdivision or
combination becomes effective, and (3) when used with respect to
any tender or exchange offer means the first date on which the
Common Stock trades regular way on
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such exchange or in such market after the Expiration Time or
Offer Expiration Time, as the case may be, of such offer.
(3) "fair market value" shall mean the amount which
a willing buyer would pay a willing seller in an arm's length
transaction.
(4) "Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which the
holders of Common Stock have the right to receive any cash,
securities or other property or in which the Common Stock (or
other applicable security) is exchanged for or converted into any
combination of cash, securities or other property, the date fixed
for determination of stockholders entitled to receive such cash,
securities or other property (whether such date is fixed by the
Board of Directors or by statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the applicable
security is listed or admitted for trading on the New York Stock
Exchange or another national security exchange, a day on which
the New York Stock Exchange or another national security exchange
is open for business or (y) if the applicable security is quoted
on the Nasdaq National Market, a day on which trades may be made
on thereon or (z) if the applicable security is not so listed,
admitted for trading or quoted, any day other than a Saturday or
Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to
close.
(j) The Company may make such reductions in the
Conversion Price, in addition to those required by Sections 15.5 (a),
(b), (c), (d), (e), (f), (g) or (h) as the Board of Directors considers
to be advisable to avoid or diminish any income tax to holders of Common
Stock or rights to purchase Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes.
To the extent permitted by applicable law, the Company
from time to time may reduce the Conversion Price by any amount for any
period of time if the period is at least twenty (20) days, the reduction
is irrevocable during the period and the Board of Directors shall have
made a determination that such reduction would be in the best interests
of the Company, which determination shall be conclusive. Whenever the
Conversion Price is reduced pursuant to the preceding sentence, the
Company shall mail to holders of Notes at his address appearing on the
Register a notice of the reduction at least fifteen (15) days prior to
the date the reduced Conversion Price takes effect, and such notice
shall state the reduced Conversion Price and the period during which it
will be in effect.
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(k) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of
at least 1% in such price; provided, however, that any adjustments which
by reason of this subsection (k) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Article XV shall be made by the Company and
shall be made to the nearest cent or to the nearest one hundredth of a
share, as the case may be. No adjustment need be made for rights to
purchase Common Stock pursuant to a Company plan for reinvestment of
dividends or interest. To the extent the Notes become convertible into
cash, assets, property or securities (other than capital stock of the
Company), no adjustment need be made thereafter as to the cash, assets,
property or such securities. Interest will not accrue on the cash.
(l) Whenever the Conversion Price is adjusted, as
herein provided, the Company shall promptly file with the Trustee and
any conversion agent other than the Trustee an Officers' Certificate
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Promptly
after delivery of such certificate, the Company shall prepare a notice
of such adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which each adjustment becomes effective
and shall mail such notice of such adjustment of the Conversion Price to
the holder of each Note at his last address appearing on the Register
provided for in Section 2.5 of this Indenture, within 20 days after
execution thereof. Failure to deliver such notice shall not affect the
legality or validity of any such adjustment.
(m) In any case in which this Section 15.5 provides
that an adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence of such
event (i) issuing to the holder of any Note converted after such record
date and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment and (ii) paying
to such holder any amount in lieu of any fraction pursuant to Section
15.3.
(n) For purposes of this Section 15.5, the number of
shares of Common Stock at any time outstanding shall not include shares
held in the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of
Common Stock. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the
Company.
Section 15.6 Effect of Reclassification, Consolidation, Merger or
Sale. If any of the following events occur, namely (i) any reclassification or
change of the outstanding shares of Common Stock (other than a subdivision or
combination to which Section 15.5(c)
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applies), (ii) any consolidation, merger or combination of the Company with
another corporation as a result of which holders of Common Stock shall be
entitled to receive stock, securities or other property or assets (including
cash) with respect to or in exchange for such Common Stock, or (iii) any sale or
conveyance of the properties and assets of the Company as, or substantially as,
an entirety to any other corporation as a result of which holders of Common
Stock shall be entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common Stock, then the
Company or the successor or purchasing corporation, as the case may be, shall
execute with the Trustee a supplemental indenture (which shall comply with the
Trust Indenture Act as in force at the date of execution of such supplemental
indenture) providing that such Note shall be convertible into the kind and
amount of shares of stock and other securities or property or assets (including
cash) receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance by a holder of a number of shares of Common
Stock issuable upon conversion of such Notes (assuming, for such purposes, a
sufficient number of authorized shares of Common Stock available to convert all
such Notes) immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance assuming such holder of Common Stock did
not exercise his rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance (provided that, if the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance is not the same for each share of Common
Stock in respect of which such rights of election shall not have been exercised
("nonelecting share")), then for the purposes of this Section 15.6 the kind and
amount of securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance for each non-electing share shall
be deemed to be the kind and amount so receivable per share by a plurality of
the non-electing shares. Such supplemental indenture shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article.
The Company shall cause notice of the execution of such
supplemental indenture to be mailed to each holder of Notes, at his address
appearing on the Register provided for in Section 2.5 of this Indenture within
twenty (20) days after execution thereof. Failure to deliver such notice shall
not affect the legality or validity of such supplemental indenture.
The above provisions of this Section 15.6 shall similarly apply
to successive reclassifications, consolidations, mergers, combinations, and
sales.
If this Section 15.6 applies to any event or occurrence, Section
15.5 shall not apply.
Section 15.7 Taxes on Shares Issued. The issue of stock
certificates on conversions of Notes shall be made without charge to the
converting Noteholder for any U.S. tax in respect of the issue thereof. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of stock
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in any name other than that of the holder of any Note converted, and the Company
shall not be required to issue or deliver any such stock certificate unless and
until the Person or Persons requesting the issue thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
Section 15.8 Reservation of Shares; Shares to Be Fully Paid;
Compliance with Governmental Requirements; Listing of Common Stock. The Company
shall provide, free from preemptive rights, out of its authorized but unissued
shares, sufficient shares of Common Stock to provide for the conversion of the
Notes from time to time as such Notes are presented for conversion.
Before taking any action which would cause an adjustment reducing
the Conversion Price below the then par value, if any, of the shares of Common
Stock issuable upon conversion of the Notes, the Company will take all corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may
be issued upon conversion of Notes will upon issue be fully paid and
non-assessable by the Company and free from all taxes, liens and charges with
respect to the issue thereof.
The Company covenants that if any shares of Common Stock to be
provided for the purpose of conversion of Notes hereunder require registration
with or approval of any governmental authority under any Federal or State law
before such shares may be validly issued upon conversion, the Company will in
good faith and as expeditiously as possible endeavor to secure such registration
or approval, as the case may be.
The Company further covenants that if at any time the Common
Stock shall be listed on the New York Stock Exchange or any other national
securities exchange or automated quotation system the Company will, if permitted
by the rules of such exchange, list and keep listed so long as the Common Stock
shall be so listed on such exchange or automated quotation system, all Common
Stock issuable upon conversion of the Notes; provided, however, that if rules of
such exchange or automated quotation system permit the Company to defer the
listing of such Common Stock until the first conversion of the Notes into Common
Stock in accordance with the provisions of this Indenture, the Company covenants
to list such Common Stock issuable upon conversion of the Notes in accordance
with the requirements of such exchange or automated quotation system at such
time.
Section 15.9 Responsibility of Trustee. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Notes to determine the Conversion Price or whether any facts exist
which may require any adjustment of the Conversion Price, or with respect to the
nature or extent or calculation of any such adjustment when made, or with
respect to the method employed, or herein or in any
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supplemental indenture provided to be employed, in making the same. The Trustee
and any other conversion agent shall not be accountable with respect to the
validity or value (or the kind or amount) of any shares of Common Stock, or of
any securities or property, which may at any time be issued or delivered upon
the conversion of any Note; and the Trustee and any other conversion agent make
no representations with respect thereto. Subject to the provisions of Section
8.1, neither the Trustee nor any conversion agent shall be responsible for any
failure of the Company to issue, transfer or deliver any shares of Common Stock
or stock certificates or other securities or property or cash upon the surrender
of any Note for the purpose of conversion or to comply with any of the duties,
responsibilities or covenants of the Company contained in this Article. Without
limiting the generality of the foregoing, neither the Trustee nor any conversion
agent shall be under any responsibility to determine the correctness of any
provisions contained in any supplemental indenture entered into pursuant to
Section 15.6 relating either to the kind or amount of shares of stock or
securities or property (including cash) receivable by Noteholders upon the
conversion of their Notes after any event referred to in such Section 15.6 or to
any adjustment to be made with respect thereto, but, subject to the provisions
of Section 8.1, may accept as conclusive evidence of the correctness of any such
provisions, and shall be protected in relying upon, the Officers' Certificate
(which the Company shall be obligated to file with the Trustee prior to the
execution of any such supplemental indenture) with respect thereto.
Section 15.10 Notice to Holders Prior to Certain Actions. In
case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require an adjustment in
the Conversion Price pursuant to Section 15.5; or
(b) the Company shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or
purchase any share of any class or any other rights or warrants; or
(c) of any reclassification or reorganization of the
Common Stock of the Company (other than a subdivision or combination of
its outstanding Common Stock, or a change in par value, or from par
value to no par value, or from no par value to par value), or of any
consolidation or merger to which the Company is a party and for which
approval of any shareholders of the Company is required, or of the sale
or transfer of all or substantially all of the assets of the Company or
any Subsidiary; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company or any Subsidiary;
the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at his address appearing on the Register, provided for in
Section 2.5 of this Indenture, as promptly as possible but in any event at least
fifteen (15) days prior to the applicable date
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hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution or rights or warrants, or,
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution or rights are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective or occur, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of such dividend, distribution, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
Section 16.1 Provisions Binding on Company's Successors. All the
covenants, stipulations, promises and agreements in this Indenture contained by
the Company shall bind its successors and assigns whether so expressed or not.
Section 16.2 Official Acts by Successor Corporation. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
Section 16.3 Addresses for Notices, Etc. Any notice or demand
which by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Notes on the Company may be given or
served by being deposited postage prepaid by registered or certified mail in a
post office letter box addressed (until another address is filed by the Company
with the Trustee) to CKE Restaurants, Inc., 3916 State Street, Suite 300, Santa
Barbara, California 93105, Attention: Chief Financial Officer. Any notice,
direction, request or demand hereunder to or upon the Trustee shall be deemed to
have been sufficiently given or made, for all purposes, if given or made in
writing at the Corporate Trust Office, which office is, at the date as of which
this Indenture is dated, located at 101 California Street, Suite 2725, San
Francisco, California 94111.
Section 16.4 Governing Law. This Indenture and each Note shall be
deemed to be a contract made under the laws of New York, and for all purposes
shall be construed in accordance with the laws of New York.
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Section 16.5 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating that,
in the opinion of such counsel, all such conditions precedent have been complied
with.
Section 16.6 Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture (other than a certificate provided pursuant to
Trust Indenture Act Section 314(a)(4)) shall comply with the provisions of Trust
Indenture Act Section 314(e) and shall include:
(a) a statement that the Person making such certificate
or opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he
or she has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of
such Person such condition or covenant has been satisfied.
Section 16.7 Legal Holidays. In any case where the date of
maturity of interest on or principal of the Notes or the date fixed for
redemption of any Note will be a legal holiday or a day on which banking
institutions in New York, New York or San Francisco, California are authorized
by law or executive order to close ("Legal Holidays"), then payment of such
interest on or principal of the Notes need not be made on such date but may be
made on the next succeeding day not a Legal Holiday with the same force and
effect as if made on the date of maturity or the date fixed for redemption and
no interest shall accrue for the period from and after such date.
Section 16.8 No Security Interest Created. Nothing in this
Indenture or in the Notes, expressed or implied, shall be construed to
constitute a security interest under the Uniform Commercial Code or similar
legislation, as now or hereafter enacted and in effect, in any jurisdiction
where property of the Company or its subsidiaries is located.
Section 16.9 Benefits of Indenture. Nothing in this Indenture or
in the Notes, expressed or implied, shall give to any Person, other than the
parties hereto, any paying agent,
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any authenticating agent, any Note registrar and their successors hereunder, the
holders of Notes and the holders of Senior Indebtedness, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
Section 16.10 Table of Contents, Headings, Etc. The table of
contents and the titles and headings of the articles and sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.
Section 16.11 Authenticating Agent. The Trustee may appoint an
authenticating agent which shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder,
including under Sections 2.4, 2.5, 2.6, 2.7, 3.3 and 3.5, as fully to all
intents and purposes as though the authenticating agent had been expressly
authorized by this Indenture and those Sections to authenticate and deliver
Notes. For all purposes of this Indenture, the authentication and delivery of
Notes by the authenticating agent shall be deemed to be authentication and
delivery of such Notes "by the Trustee" and a certificate of authentication
executed on behalf of the Trustee by an authenticating agent shall be deemed to
satisfy any requirement hereunder or in the Notes for the Trustee's certificate
of authentication. Such authenticating agent shall at all times be a Person
eligible to serve as trustee hereunder pursuant to Section 8.9.
Any corporation into which any authenticating agent may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticating agent
shall be a party, or any corporation succeeding to the corporate trust business
of any authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor corporation is otherwise eligible under this
Section 16.12, without the execution or filing of any paper or any further act
on the part of the parties hereto or the authenticating agent or such successor
corporation.
Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any authenticating agent by giving written notice
of termination to such authenticating agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any authenticating agent shall cease to be eligible under this Section, the
Trustee shall either promptly appoint a successor authenticating agent or itself
assume the duties and obligations of the former authenticating agent under this
Indenture, and upon such appointment of a successor authenticating agent, if
made, shall give written notice of such appointment of a successor
authenticating agent to the Company and shall mail notice of such appointment of
a successor authenticating agent to all holders of Notes as the names and
addresses of such holders appear on the Register.
87
<PAGE> 98
The Trustee agrees to pay to the authenticating agent from time
to time reasonable compensation for its services (to the extent pre-approved by
the Company in writing), and the Trustee shall be entitled to be reimbursed for
such pre-approved payments, subject to Section 8.6.
The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section
16.11 shall be applicable to any authenticating agent.
Section 16.12 Execution in Counterparts. This Indenture may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
Chase Manhattan Bank and Trust Company, National Association,
hereby accepts the trusts in this Indenture declared and provided, upon the
terms and conditions hereinabove set forth.
[Signature page follows]
88
<PAGE> 99
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of March 13, 1998.
CKE RESTAURANTS, INC.
By /s/ CARL A. STRUNK
-------------------------------------
Name: Carl A. Strunk
Title: EVP
[CORPORATE SEAL]
Attest:
By
--------------------------------
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By /s/ CECIL D. BOBEY
-------------------------------------
Name: Cecil D. Bobey
Title: AVP
89
<PAGE> 100
EXHIBIT A
[FORM OF REVERSE OF NOTE]
[For global Note only:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE
"DEPOSITARY," WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES)
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITARY AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. (OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
[For Restricted Securities only:
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH
IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT)
("INSTITUTIONAL ACCREDITED INVESTOR"); (2) AGREES THAT IT WILL NOT, PRIOR TO
EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED
HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION),
RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO CKE RESTAURANTS, INC. OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL
ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
<PAGE> 101
THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE),
(D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES
TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) AGREES THAT PRIOR TO SUCH
TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), IT WILL FURNISH
TO CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR
A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (4) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THE NOTE EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD
APPLICABLE TO SALES OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS CERTIFICATE TO CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO
IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO CHASE
MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A
SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED
UPON THE EARLIER OF THE TRANSFER OF THE NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE
2(F) ABOVE OR UPON ANY TRANSFER OF THE NOTES EVIDENCED HEREBY UNDER RULE 144(K)
UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.]
2
<PAGE> 102
CKE RESTAURANTS, INC.
4 1/4% CONVERTIBLE SUBORDINATED NOTE DUE 2004
CUSIP
No. $
CKE Restaurants, Inc., a corporation duly organized and validly
existing under the laws of the State of Delaware (herein called the "Company"),
which term includes any successor corporation under the Indenture referred to on
the reverse hereof, for value received hereby promises to pay to
____________________ or registered assigns, the principal sum of ____________
($________ ) DOLLARS on March 15, 2004, at the office or agency of the Company
maintained for that purpose in accordance with the terms of the Indenture, or,
at the option of the holder of this Note, at the Corporate Trust Office, in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts, and to pay
interest, semi-annually on March 15 and September 15 of each year, commencing
September 15, 1998, on said principal sum at said office or agency, in like coin
or currency, at the rate per annum of 4 1/4%, from March 15 or September 15, as
the case may be, next preceding the date of this Note to which interest has been
paid or duly provided for, unless the date hereof is a date to which interest
has been paid or duly provided for, in which case from the date of this Note, or
unless no interest has been paid or duly provided for on the Notes, in which
case from March 13, 1998, until payment of said principal sum has been made or
duly provided for. Notwithstanding the foregoing, if the date hereof is after
any March 1 or September 1, as the case may be, and before the following March
15 or September 15, this Note shall bear interest from such March 15 or
September 15; provided, however, that if the Company shall default in the
payment of interest due on such March 15 or September 15, then this Note shall
bear interest from the next preceding March 15 or September 15 to which interest
has been paid or duly provided for or, if no interest has been paid or duly
provided for on such Note, from March 13, 1998. The interest payable on the Note
pursuant to the Indenture on any March 15 or September 15 will be paid to the
person entitled thereto as it appears on the Register at the close of business
on the record date, which shall be the March 1 or September 1 (whether or not a
Business Day) next preceding such March 15 or September 15, as provided in the
Indenture; provided that any such interest not punctually paid or duly provided
for shall be payable as provided in the Indenture. Interest may, at the option
of the Company, be paid either (i) by check mailed to the registered address of
such person or (ii) by transfer to an account maintained by such person located
in the United States.
3
<PAGE> 103
Interest on the Notes shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, including, without limitation, provisions
subordinating the payment of principal of and premium, if any, and interest on
the Notes to the prior payment in full of all Senior Indebtedness, as defined in
the Indenture, and provisions giving the holder of this Note the right to
convert this Note into Common Stock of the Company on the terms and subject to
the limitations referred to on the reverse hereof and as more fully specified in
the Indenture. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
This Note shall be deemed to be a contract made under the laws of
the State of New York, and for all purposes shall be construed in accordance
with and governed by the laws of said State.
This Note shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been manually signed
by the Trustee or a duly authorized authenticating agent under the Indenture.
4
<PAGE> 104
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed under its corporate seal.
Dated: CKE RESTAURANTS, INC.
By: _____________________________________
Name:
Title:
Attest: _________________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the
within-named Indenture.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION, as Trustee
By:___________________________________________________
Authorized Officer
By:___________________________________________________
As Authenticating Agent (if different from Trustee)
5
<PAGE> 105
[FORM OF REVERSE OF NOTE]
CKE RESTAURANTS, INC.
4 1/4% CONVERTIBLE SUBORDINATED NOTE DUE 2004
This Note is one of a duly authorized issue of Notes of the
Company, designated as its 4 1/4% Convertible Subordinated Notes due 2004
(herein called the "Notes"), limited to the aggregate principal amount of
$197,225,000 all issued or to be issued under and pursuant to an indenture dated
as of March 13, 1998 (herein called the "Indenture"), between the Company and
Chase Manhattan Bank and Trust Company, National Association, as trustee (herein
called the "Trustee"), to which the Indenture and all indentures supplemental
thereto reference is hereby made for a description of the rights, limitations of
rights, obligations, duties and immunities thereunder of the Trustee, the
Company and the holders of the Notes. Capitalized terms used in this Note and
not defined herein have the meaning ascribed thereto in the Indenture.
Chase Manhattan Bank and Trust Company, National Association,
the Trustee under the Indenture, has been appointed by the Company as paying
agent, conversion agent, Note registrar and Custodian with regard to the Notes.
In case an Event of Default shall have occurred and be
continuing, the principal of and accrued interest (including Liquidated Damages,
if any) on all Notes may be declared, and upon said declaration shall become,
due and payable, in the manner, with the effect and subject to the conditions
provided in the Indenture.
With the consent of the holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding, the Company,
when authorized by resolutions of the Board of Directors, and the Trustee from
time to time and at any time may enter into an indenture or indentures
supplemental to the Indenture for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of any supplemental indenture or modifying in any manner the rights of the
holders of the Notes; provided, however, that no such supplemental indenture
shall (i) extend the fixed maturity of any Note, or reduce the rate or extend
the time of payment of interest thereon, or reduce the principal amount thereof
or premium, if any, thereon, or reduce any amount payable on redemption or on
repayment thereof, or impair or affect the right of any Noteholder to institute
suit for the payment thereof, or make the principal thereof or interest
(including Liquidated Damages, if any) or premium, if any, thereon payable in
any coin or currency other than that provided in the Notes, or modify the
provisions of the Indenture with respect to the subordination of the Notes in a
manner adverse to the Noteholders, or change the obligation of the Company to
make repayment of any Note on a Repurchase Date in a manner adverse to the
holder of the Notes, or impair the right to convert the Notes into Common Stock
subject to the
<PAGE> 106
terms set forth in the Indenture, including Section 15.6 thereof, without the
consent of the holder of each Note so affected or (ii) reduce the aforesaid
percentage of Notes, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all Notes then
outstanding. If any Event of Default shall have occurred and be continuing, the
Trustee or the holders of not less than 25 percent in aggregate principal amount
of the Notes then outstanding, by notice in writing to the Company (and to the
Trustee if given by Noteholders), may declare the principal of, and premium, if
any, on all the Notes and the interest (including Liquidated Damages, if any)
accrued thereon to be due and payable immediately, and upon any such declaration
the same shall become and shall be immediately due and payable, anything in the
Indenture or in this Note contained to the contrary notwithstanding. It is also
provided in the Indenture that, prior to any declaration accelerating the
maturity of the Notes, the holders of a majority in aggregate principal amount
of the Notes at the time outstanding may on behalf of the holders of all of the
Notes waive any past default or Event of Default under the Indenture and its
consequences except a default in the payment when due of principal of and
premium, if any, and accrued interest (including Liquidated Damages, if any) on
Notes, a default in the payment of redemption price pursuant to Article III
thereof, a failure by the Company to convert any Notes into Common Stock or a
default in respect of a covenant or provision in the Indenture which under
Article XI thereof cannot be modified or amended without the consent of holders
of all Notes outstanding. The holders of a majority in aggregate principal
amount of the Notes then outstanding shall have the right to direct the time,
method of conducting any proceedings for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee subject to certain
limitations specified in the Indenture. Any such consent or waiver by the holder
of this Note (unless revoked as provided in the Indenture) shall be conclusive
and binding upon such holder and upon all future holders and owners of this Note
and any Notes which may be issued in exchange or substitute hereof, irrespective
of whether or not any notation thereof is made upon this Note or such other
Notes.
The indebtedness evidenced by the Notes is, to the extent and in
the manner provided in the Indenture, expressly subordinate and subject in right
of payment to the prior payment in full of all Senior Indebtedness of the
Company, as defined in the Indenture, whether outstanding at the date of the
Indenture or thereafter incurred, and this Note is issued subject to the
provisions of the Indenture with respect to such subordination. Each holder of
this Note, by accepting the same, agrees to and shall be bound by such
provisions and authorizes the Trustee on its behalf to take such action as may
be necessary or appropriate to effectuate the subordination so provided and
appoints the Trustee its attorney-in-fact for such purpose.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of and premium, if
any, and interest (including Liquidated Damages, if any) on this Note at the
place, at the respective times, at the rate and in the coin or currency herein
prescribed.
2
<PAGE> 107
The Notes are issuable in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. At the office or
agency of the Company referred to on the face hereof, and in the manner and
subject to the limitations provided in the Indenture, without payment of any
service charge but with payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration or
exchange of Notes, Notes may be exchanged for a like aggregate principal amount
of Notes of other authorized denominations.
The Notes will not be redeemable at the option of the Company
prior to March 20, 2001. At any time on or after March 20, 2001 and prior to
maturity, subject to the terms of the Indenture, the Notes may (unless
theretofore repaid or converted) be redeemed at the option of the Company as a
whole, or from time to time in part, upon mailing of a notice of such redemption
not less than 30 days before the date fixed for redemption to the holders of
Notes at their last registered addresses, all as provided in the Indenture, at
the following redemption prices (expressed as percentages of the principal
amount), together in each case with accrued interest to, but excluding, the date
fixed for redemption: if redeemed during the period beginning March 20, 2001 and
ending on March 14, 2002 at a redemption price of 102.125%, if redeemed during
the 12-month period beginning March 15, 2002 at a redemption price of 101.417%,
if redeemed during the 12- month period beginning March 15, 2003 at a redemption
price of 100.708% and 100% at March 15, 2004; provided that if the date fixed
for redemption is on March 15 or September 15, then the interest payable on such
date shall be paid to the holder of record on the next preceding March 1 or
September 1, respectively.
The Notes are not subject to redemption through the operation of
any sinking fund.
If a Fundamental Change occurs at any time while Notes are
outstanding, each holder of Notes shall have the right, at such holder's option,
subject to the terms of the Indenture, to require the Company to redeem all of
such holder's Notes on the date that is 30 days (or, if such 30th day is not a
Business Day, the next succeeding Business Day) after the Company Notice (as
defined below) of such Fundamental Change. The Company shall redeem such Notes
at a price equal to 100% of the principal amount thereof; provided in each case
that if the Applicable Price is less than the Reference Market Price, the
Company shall redeem such Notes at a price equal to the foregoing repayment
price multiplied by the fraction obtained by dividing the Applicable Price by
the Reference Market Price; provided that if such repayment date is March 15 or
September 15, then the interest payable on such date shall be paid to the holder
of record of the Note on the next preceding March 1 or September 1. In each
case, the Company shall also pay to such holder accrued interest to, but
excluding, the Repurchase Date on the redeemed Notes. On or before the tenth day
after the occurrence of a Fundamental Change, the Company, or, at its written
request, the Trustee in the name of and at the expense of the Company, shall
mail or cause to be mailed to all holders of record on the date of the
Fundamental Change a notice (the "Company Notice") of the occurrence of such
Fundamental Change and of the redemption right at the option of the holders
arising as a result thereof. The
3
<PAGE> 108
Company shall also use its best efforts to have a notice published at least once
in each of Bloomberg Business News, Dow Jones News (DJN) and Reuter Financial
Report in The City of New York on or before the tenth day after the occurrence
of a Fundamental Change. The Company shall promptly deliver a copy of each of
the published notices and Company Notice to the Trustee. No failure of the
Company to give the foregoing notices and no defect therein shall limit the
Noteholders' redemption rights or affect the validity of the proceedings for the
redemption of the Notes.
For a Note to be repaid at the option of the holder resulting
from a Fundamental Change, the Company must receive at the office or agency of
the Company maintained for that purpose in accordance with the terms of the
Indenture, or at the option of such holder, the Corporate Trust Office, such
Note with a form entitled "Option to Elect Repayment Upon a Fundamental Change"
on the reverse thereof duly completed together with such Note, duly endorsed at
any time on or before the 30th day after the Company Notice (or if such 30th day
is not a Business Day, the immediately preceding Business Day). In order to
exercise the repayment option with respect to any interest in a Note in global
form, the beneficial holder must comply with the applicable procedures of the
Depositary, furnish appropriate endorsements and documentation if required by
the Company or the Trustee or paying agent and such notice shall not have been
withdrawn.
Subject to and upon compliance with the provisions of the
Indenture, the holder hereof shall have the right, at its option, at any time
after 90 days following the latest date of original issuance of the Notes and
prior to the close of business on March 15, 2004, or, as to all or any portion
hereof called for redemption, prior to the close of business on the Business Day
immediately preceding the date fixed for redemption (unless the Company shall
default in payment due upon redemption thereof), to convert the principal hereof
or any portion of such principal which is $1,000 or an integral multiple hereof,
into that number of shares of Common Stock (as said shares shall then be
constituted) at the date of conversion, obtained by dividing the principal
amount of this Note or portion hereof surrendered for by $48.204 (the
"Conversion Price") or such Conversion Price as adjusted from time to time as
provided in the Indenture, upon surrender of this Note, together with a
conversion notice as provided in the Indenture, to the Company at the office or
agency of the Company maintained for that purpose in accordance with the terms
of the Indenture, or at the option of such holder, the Corporate Trust Office,
and, unless the shares issuable on conversion are to be issued in the same name
as this Note, duly endorsed by, or accompanied by instruments of transfer in
form satisfactory to the Company duly executed by, the holder or by its duly
authorized attorney. No adjustment in respect of interest or dividends will be
made upon any conversion; provided, however, that if this Note shall be
surrendered for conversion during the period from the close of business on any
record date for the payment of interest to the close of business on the Business
Day next preceding the interest payment date, this Note (unless it or the
portion being converted shall have been called for redemption on a date fixed
for redemption which occurs during the period from the close of business on any
record date for the payment of interest to the close of business on the Business
Day next preceding the interest payment date) must be accompanied
4
<PAGE> 109
by an amount, in New York Clearing House funds or other funds acceptable to the
Company, equal to the interest payable on such interest payment date on the
principal amount being converted. No fractional shares will be issued upon any
conversion, but an adjustment in cash will be made, as provided in the
Indenture, in respect of any fraction of a share which would otherwise be
issuable upon the surrender of any Note or Notes for conversion.
Any Notes called for redemption, unless surrendered for
conversion on or before the close of business on the date fixed for redemption,
may be deemed to be purchased from the holder of such Notes at an amount equal
to the applicable redemption price, together with accrued interest (including
Liquidated Damages, if any) to (but excluding) the date fixed for redemption, by
one or more investment bankers or other purchasers who may agree with the
Company to purchase such Notes from the holders thereof and convert them into
Common Stock of the Company and to make payment for such Notes as aforesaid to
the Trustee in trust for such holders.
Upon due presentment for registration of transfer of this Note at
the office or agency of the Company maintained for that purpose in accordance
with the terms of the Indenture, or at the option of the holder of this Note, at
the Corporate Trust Office, a new Note or Notes of authorized denominations for
an equal aggregate principal amount will be issued to the transferee in exchange
thereof; subject to the limitations provided in the Indenture, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying
agent, any conversion agent and any Note registrar may deem the Person in whose
name this Note shall be registered upon the Register to be, and treat him as the
absolute owner of this Note (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon made by anyone
other than the Company or any Note registrar), for the purpose of receiving
payment hereof, or on account of the principal of and premium, if any, and
interest (including Liquidated Damages, if any) on this Note, for the conversion
hereof and for all other purposes, and neither the Company nor the Trustee nor
any other authenticating agent nor any paying agent nor any other conversion
agent nor any Note registrar shall be affected by any notice to the contrary.
All payments made to or upon the order of such registered holder shall be valid,
and, to the extent of the sum or sums paid, effectual to satisfy and discharge
liability for monies payable on this Note.
No recourse for the payment of the principal of or premium, if
any, or interest (including Liquidated Damages, if any) on this Note, or for any
claim based hereon or otherwise in respect hereof, and no recourse under or upon
any obligation, covenant or agreement of the Company in the Indenture or any
indenture supplemental thereto or in any Note, or because of the creation of any
indebtedness represented thereby, shall be had against any incorporator,
stockholder, employee, agent, officer or director or subsidiary, as such, past,
present or future, of the Company or of any successor corporation, either
directly or
5
<PAGE> 110
through the Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the consideration for the issue hereof, expressly waived and released.
6
<PAGE> 111
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of
this Note, shall be construed as though they were written out in full according
to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -- ___________ Custodian of __________
TEN ENT - as tenants by the (Cust) (Minor)
entireties Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with
right of survivorship ______________________________________________
and not as tenants in (State)
common
</TABLE>
Additional abbreviations may also be used
though not in the above list.
7
<PAGE> 112
CONVERSION NOTICE
To: CKE RESTAURANTS, INC.
The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which is
$1,000 or an integral multiple thereof) below designated, into shares of Common
Stock of CKE Restaurants, Inc. in accordance with the terms of the Indenture
referred to in this Note, and directs that the shares issuable and deliverable
upon such conversion, together with any check in payment for fractional shares
and any Notes representing any unconverted principal amount hereof, be issued
and delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Note not converted are to be
issued in the name of a person other than the undersigned, the undersigned will
complete the appropriate section below and pay all transfer taxes payable with
respect thereto. Any amount required to be paid to the undersigned on account of
interest accompanies this Note.
Dated:____________________
---------------------------------
---------------------------------
Signature(s)
Signature(s) must be guaranteed by an
eligible guarantor institution (banks, stock
brokers, savings and loan associations and
credit unions with membership in an approved
signature guarantee medallion program)
pursuant to SEC Rule 17Ad-15 if shares of
Common Stock are to be issued, or Notes to
be delivered, other than to and in the name
of the registered holder.
---------------------------------
Signature Guarantee
8
<PAGE> 113
Fill in for registration of shares of Common Stock if to be issued, and Notes if
to be delivered, other than to and in the name of the registered holder:
- -----------------------------
(Name)
- -----------------------------
(Street Address)
- -----------------------------
(City, State and Zip Code)
Please print name and address
Principal amount to be converted
(if less than all): $___________
---------------------------------
Social Security or Other Taxpayer
Identification Number
9
<PAGE> 114
OPTION TO ELECT REPAYMENT
UPON A FUNDAMENTAL CHANGE
To: CKE RESTAURANTS, INC.
The undersigned registered owner of this Note hereby irrevocably
acknowledges receipt of a notice from CKE Restaurants, Inc. (the "Company") as
to the occurrence of a Fundamental Change with respect to the Company and
requests and instructs the Company to repay the entire principal amount of this
Note below designated, in accordance with the terms of the Indenture referred to
in this Note at the repayment price, together with accrued interest to, but
excluding, such date, to the registered holder hereof.
Dated: ______________________ _____________________________________
_____________________________________
Signature(s)
NOTICE: The above signatures of the
holder(s) hereof must correspond with the
name as written upon the face of the Note in
every particular without alteration or
enlargement or any change whatever.
Principal amount to be repaid (not less than
all for Notes in certificated form): $______
______________________________________
Social Security or Other Taxpayer
Identification Number
10
<PAGE> 115
ASSIGNMENT
For value received ________________________ hereby sell(s), assign(s) and
transfer(s) unto _____________________ (Please insert social security or other
Taxpayer Identification Number of assignee) the within Note, and hereby
irrevocably constitutes and appoints ________________ attorney to transfer the
said Note on the books of CKE Restaurants, Inc. with full power of substitution
in the premises.
[For Restricted Securities only:
In connection with any transfer of the Note within the period prior to
the expiration of the holding period applicable to sales thereof under Rule
144(k) under the Securities Act of 1933, as amended (or any successor
provision), the undersigned confirms that such Note is being transferred:
[ ] To CKE Restaurants, Inc. or a subsidiary thereof; or
[ ] Pursuant to and in compliance with Rule 144A under the Securities
Act of 1933, as amended; or
[ ] Pursuant to and in compliance with Regulation S under the
Securities Act of 1933, as amended; or
[ ] Pursuant to and in compliance with Rule 144 under the Securities
Act of 1933, as amended;
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of CKE Restaurants, Inc. as defined in
Rule 144 under the Securities Act of 1933, as amended (an "Affiliate").
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<PAGE> 116
[ ] The transferee is an Affiliate of CKE Restaurants, Inc.]
Dated:____________________
_________________________________
_________________________________
Signature(s)
Signature(s) must be guaranteed by an
eligible guarantor institution (banks, stock
brokers, savings and loan associations and
credit unions with membership in an approved
signature guarantee medallion program)
pursuant to SEC Rule 17Ad-15 if shares of
Common Stock are to be issued, or Notes to
be delivered, other than to and in the name
of the registered holder.
_________________________________
Signature Guarantee
12
<PAGE> 1
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of March 13, 1998, by and among CKE Restaurants, Inc., a
Delaware corporation (the "Company"), and Morgan Stanley & Co. Incorporated, BT
Alex. Brown Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Schroder & Co. Inc. (collectively, the "Initial Purchasers") pursuant to the
Purchase Agreement, dated as of March 9, 1998 (the "Purchase Agreement"),
between the Company and the Initial Purchasers. In order to induce the Initial
Purchasers to enter into the Purchase Agreement the Company has agreed to
provide the registration rights set forth in this Agreement. The execution of
this Agreement is a condition to the closing under the Purchase Agreement.
The Company agrees with the Initial Purchasers, (i) for their
benefit as Initial Purchasers and (ii) for the benefit of the holders (including
the Initial Purchasers) from time to time of the Notes (as defined herein) and
the holders from time to time of the Common Stock (as defined herein) issued
upon conversion of the Notes (each of the foregoing a "Holder" and together the
"Holders"), as follows:
1. Definitions. Capitalized terms used herein without
definition shall have their respective meanings set forth in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
"Affiliate" shall mean, with respect to any specified person, (i)
any other person directly or indirectly controlling or controlled by, or
under direct or indirect common control with, such specified person or
(ii) any officer or director of such other person. For purposes of this
definition, the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") of a person means the
possession, direct or indirect, of the power (whether or not exercised)
to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract,
or otherwise.
"Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday that is not a day on which banking institutions in
The City of New York are authorized or obligated by law or executive
order to close.
"Common Stock" shall mean the shares of common stock, $.01 par
value per share, of the Company and any other shares of common stock as
may constitute "Common Stock" for purposes of the Indenture, in each
case, as issuable or issued upon conversion of the Notes.
"Damages Accrual Period" shall have the meaning specified in
Section 2(e) hereof.
<PAGE> 2
"Damages Payment Date" shall mean each of the semi-annual
interest payment dates specified in the Indenture.
"Deferral Period" shall have the meaning specified in Section
2(d) hereof.
"Effectiveness Period" shall mean the period commencing on the
date hereof and ending on the date that all Registrable Securities have
ceased to be Registrable Securities in accordance with the terms hereof.
"Event" shall have the meaning specified in Section 2(e) hereof.
"Event Date" shall have the meaning specified in Section 2(e)
hereof.
"Exchange Act" the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Filing Date" shall have the meaning specified in Section 2(a)
hereof.
"Holder" shall have the meaning specified in the second paragraph
of this Agreement.
"Indenture" shall mean the Indenture, dated as of March 13, 1998,
between the Company and Chase Manhattan Bank and Trust Company, National
Association, pursuant to which the Notes are being issued, as amended,
modified or supplemented from time to time in accordance with the terms
hereof.
"Initial Purchasers" shall mean Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated, Merrill Lynch, Pierce, Fenner
& Smith Incorporated and Schroder & Co. Inc.
"Initial Shelf Registration" shall have the meaning specified in
Section 2(a) hereof.
"Liquidated Damages" shall have the meaning specified in Section
2(e) hereof.
"Losses" shall have the meaning specified in Section 6 hereof.
"Managing Underwriters" shall mean the investment banking firm
that shall manage or co-manage an Underwritten Offering.
"Notes" shall mean the 4 1/4% Convertible Subordinated Notes due
2004 of the Company being issued and sold pursuant to the Purchase
Agreement and the Indenture.
2
<PAGE> 3
"Notice Holder" shall have the meaning specified in Section
2(d)(i) hereof.
"Prospectus" shall mean the prospectus included in any
Registration Statement (including, without limitation, a prospectus that
discloses information previously omitted from a prospectus filed as part
of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
amendment or prospectus supplement, including post-effective amendments,
and all material incorporated by reference or deemed to be incorporated
by reference in such Prospectus.
"Purchase Agreement" shall have the meaning specified in the
first paragraph of this Agreement.
"Questionnaire" shall mean a written notice delivered to the
Company containing substantially the information called for by the form
of notice and questionnaire attached as Annex A to the Offering
Memorandum of the Company dated March 9, 1998 relating to the Notes.
"Record Holder" shall mean (i) with respect to any Damages
Payment Date relating to any Note as to which any such Liquidated
Damages have accrued, the registered holder of such Note on the record
date with respect to the interest payment date under the Indenture on
which such Damages Payment Date shall occur and (ii) with respect to any
Damages Payment Date relating to any Common Stock as to which any such
Liquidated Damages have accrued, the registered holder of such Common
Stock on the date that is 15 days prior to the next succeeding Damages
Payment Date.
"Registrable Securities" shall mean (A) the Common Stock into
which the Notes are convertible or converted, whether or not such Notes
have been converted, and at all times subsequent thereto, and any Common
Stock issued with respect thereto upon any stock dividend, split or
similar event until, in the case of any such Common Stock, (i) it is
effectively registered under the Securities Act and disposed of in
accordance with the Registration Statement covering it, (ii) it is
saleable by the holder thereof pursuant to Rule 144(k) or (iii) it is
sold to the public pursuant to Rule 144, and, as a result of the event
or circumstance described in any of the foregoing clauses (i) through
(iii), the legends with respect to transfer restrictions required under
the Indenture (other than any such legends required solely as the
consequence of the fact that such Common Stock (or the Notes, upon the
conversion of which, such Common Stock was issued or is issuable) is
owned by, or was previously owned by, the Company or an Affiliate of the
Company) are removed or removable in accordance with the terms of the
Indenture; (B) the Notes, until, in the case of each such Note, (i) it
is converted into shares of Common Stock in accordance with the terms of
the Indenture, (ii) it is effectively registered under the Securities
Act and disposed of in accordance with the Registration
3
<PAGE> 4
Statement covering it, (iii) it is saleable by the holder thereof
pursuant to Rule 144(k) or (iv) it is sold to the public pursuant to
Rule 144, and, as a result of the event or circumstance described in any
of the foregoing clauses (ii) through (iv), the legends with respect to
transfer restrictions required under the Indenture (other than any such
legends required solely as the consequence of the fact that such Note is
owned by, or was previously owned by, the Company or an Affiliate of the
Company) are removed or removable in accordance with the terms of the
Indenture.
"Registration Expenses" shall have the meaning specified in
Section 5 hereof.
"Registration Statement" shall mean any registration statement of
the Company which covers any of the Registrable Securities pursuant to
the provisions of this Agreement, including the Prospectus, amendments
and supplements to such registration statement, including post-effective
amendments, all exhibits, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.
"Rule 144" shall mean Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
"Rule 144A" shall mean Rule 144A under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated by the SEC
thereunder.
"Shelf Registration" shall have the meaning specified in Section
2(a) hereof.
"Special Counsel" shall mean Shearman & Sterling or such
successor counsel as shall be specified by the Holders of a majority of
the Registrable Securities, the fees and expenses of which will be paid
by the Company pursuant to Section 5 hereof.
"Subsequent Shelf Registration" shall mean the meaning specified
in Section 2(b) hereof.
"TIA" shall mean the Trust Indenture Act of 1939, as amended.
"Trustee" shall mean the Trustee under the Indenture.
4
<PAGE> 5
"Underwritten Registration or Underwritten Offering shall mean a
registration in which securities of the Company are sold to an
underwriter for reoffering to the public.
2. Shelf Registration.
(a) The Company shall prepare and file with the SEC, as soon
as practicable but in any event on or prior to the date ninety (90) days
following the latest date of original issuance of the Notes (the "Filing Date"),
a Registration Statement for an offering to be made on a continuous basis
pursuant to Rule 415 under the Securities Act (a "Shelf Registration")
registering the resale from time to time by Holders thereof of all of the
Registrable Securities (the "Initial Shelf Registration"). The Initial Shelf
Registration shall be on Form S-3 or another appropriate form permitting
registration of such Registrable Securities for resale by the Holders in the
manner or manners designated by them. The manner of sale may include, without
limitation, one or more Underwritten Offerings or a sale to a dealer acting as
principal for resale to the public. The Company shall use its best efforts to
cause the Initial Shelf Registration to be declared effective under the
Securities Act as soon as practicable and to keep the Initial Shelf Registration
continuously effective under the Securities Act until the earlier of the
expiration of the Effectiveness Period or the date a Subsequent Shelf
Registration covering all of the Registrable Securities has been declared
effective under the Securities Act.
(b) If the Initial Shelf Registration or any Subsequent Shelf
Registration ceases to be effective for any reason as a result of the issuance
of a stop order by the SEC at any time during the Effectiveness Period, the
Company shall use its best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof, and in any event shall within thirty (30)
days of such cessation of effectiveness amend the Shelf Registration in a manner
reasonably expected to obtain the withdrawal of the order suspending the
effectiveness thereof, or file an additional Shelf Registration covering all of
the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent
Shelf Registration is filed, the Company shall use its best efforts to cause the
Subsequent Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Registration Statement continuously effective
until the end of the Effectiveness Period.
(c) The Company shall supplement and amend the Shelf
Registration if required by the rules, regulations or instructions applicable to
the registration form used by the Company for such Shelf Registration, if
required by the Securities Act, or if reasonably requested by the Initial
Purchasers or by the Trustee on behalf of a majority of the Holders of the
Registrable Securities covered by such Registration Statement or by any Managing
Underwriter of such Registrable Securities in the event of an Underwritten
Offering of the Registerable Securities.
(d) Each Holder of Registrable Securities agrees that if such
Holder wishes to sell its Registrable Securities pursuant to a Shelf
Registration and related Prospectus, it will
5
<PAGE> 6
do so only in accordance with this Section 2(d). Each Holder of Registrable
Securities wishing to sell Registrable Securities agrees to deliver a Notice and
Questionnaire to the Company at least three Business Days prior to any intended
distribution of Registrable Securities under the Shelf Registration. In the
event the Holder fails to provide the Questionnaire, the Company will promptly
request such Holder to provide such Questionnaire. As soon as practicable after
the date such Questionnaire is provided, and in any event within five Business
Days after such date, the Company shall either:
(i) (A) If necessary, prepare and file with the Commission
a post-effective amendment to the Shelf Registration or a supplement to
the related Prospectus or a supplement or amendment to any document
incorporated therein by reference or file any other required document in
order that such Registration Statement will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and in order that, as thereafter delivered to purchasers of
the Registrable Securities being sold thereunder, such Prospectus will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; (B) provide each Notice Holder copies of any
documents filed pursuant to Section 2(d)(i)(A); and (C) inform each
Notice Holder that the Company has complied with its obligations in
Section 2(d)(i)(A) (or that, if the Company has filed a post-effective
amendment to the Shelf Registration which has not yet been declared
effective, the Company will notify the Notice Holder to that effect,
will use its best efforts to secure the effectiveness of such
post-effective amendment and will immediately notify the Notice Holder
when the amendment has become effective).
(ii) in the event (A) of the happening of any event of
the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), or
3(c)(vi) hereof or (B) that, in the judgment of the Company, it is
advisable to suspend use of the Prospectus for a discrete period of time
due to pending material corporate developments or similar material
events that have not yet been publicly disclosed and as to which the
Company believes public disclosure will be prejudicial to the Company,
the Company shall deliver a certificate in writing, signed by an
authorized executive officer of the Company, to the Notice Holders, the
Special Counsel and the Managing Underwriters, if any, to the effect of
the foregoing and, upon receipt of such certificate, each such Notice
Holder shall not sell any Registerable Securities and shall not use the
Prospectus until such Notice Holder's receipt of copies of the
supplemented or amended Prospectus provided for in Section 2(d)(i)(A)
hereof, or until it is advised in writing by the Company that the
Prospectus may be used and such Notice Holder has received copies of any
additional or supplemental filings that are incorporated or deemed
incorporated by reference in such Prospectus. The Company will use its
best efforts to ensure that the use of the Prospectus may be resumed,
and sales of Registerable Securities may commence, as soon as
practicable and, in the case of a pending development or event
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<PAGE> 7
referred to in Section 2(d)(ii)(B) hereof, as soon as the earlier of (x)
public disclosure of such pending material corporate development or
similar material event or (y) in the judgment of the Company, public
disclosure of such material corporate development or similar material
event would not be prejudicial to the Company. Notwithstanding any other
provision in this Agreement, the Company shall not under any
circumstances be entitled to exercise its right under this Section
2(d)(ii) to defer sales of Registerable Securities except as follows:
the Company may defer sales of Registerable Securities in accordance
with this Section 2(d)(ii) for a period not to exceed 30 days in any
three-month period, or not to exceed an aggregate of 60 days in any
12-month period, and the period in which sales of Registerable
Securities are suspended shall not exceed fifteen (15) days unless the
Company shall deliver to such Notice Holders a second notice to the
effect set forth above, which shall have the effect of extending the
period during which sales of Registerable Securities are deferred by up
to an additional fifteen (15) days, or such shorter period of time as is
specified in such second notice. In no event shall the Company be
permitted to extend the period during which sales of Registerable
Securities are deferred (a "Deferral Period") beyond such thirty (30)
day period from and after the date a Notice Holder provides a
Questionnaire to the Company in accordance with this Section 2(d).
(e) The parties hereto agree that the Holders of Registrable
Securities will suffer damages, and that it would not be feasible to ascertain
the extent of such damages with precision, if (i) the Initial Shelf Registration
has not been filed with the SEC on or prior to the Filing Date, (ii) prior to
the end of the Effectiveness Period, the SEC shall have issued a stop order
suspending the effectiveness of the Shelf Registration or proceedings have been
initiated with respect to the Shelf Registration pursuant to Section 8(d) or
8(e) of the Securities Act, (iii) the aggregate number of days in any one
Deferral Period exceeds the number permitted pursuant to Section 2(d)(ii) hereof
or (iv) the number of Deferral Periods exceeds the number permitted pursuant to
Section 2(d)(ii) hereof (each of the events of a type described in any of the
foregoing clauses (i) through (iv) are individually referred to herein as an
"Event," and the Filing Date in the case of clause (i), the date on which the
effectiveness of the Shelf Registration has been suspended or proceedings with
respect to the Shelf Registration pursuant to Section 8(d) or 8(e) of the
Securities Act have been commenced in the case of clause (ii), the date on which
the duration of a Deferral Period exceeds the number permitted by Section
2(d)(ii) hereof in the case of clause (iii), and the date of the commencement of
a Deferral Period that causes the limit on the number of Deferral Periods under
Section 2(d)(ii) hereof to be exceeded in the case of clause (iv), being
referred to herein as an "Event Date"). Events shall be deemed to continue until
the date of the termination of such Event, which shall be the following dates
with respect to the respective types of Events: the date the Initial
Registration Statement is filed in the case of an Event of the type described in
clause (i), the date that all stop orders suspending effectiveness of the Shelf
Registration have been removed and the proceedings initiated with respect to the
Shelf Registration pursuant to Section 8(d) or 8(e) of the Securities Act have
terminated, as the case may be, in the case of Events of the types described in
clause (ii), termination of the Deferral Period which caused the aggregate
number
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<PAGE> 8
of days in any one Deferral Period to exceed the number permitted by Section
2(d)(ii) to be exceeded in the case of Events of the type described in clause
(iii), and termination of the Deferral Period the commencement of which caused
the number of Deferral Periods permitted by Section 2(d)(ii) to be exceeded in
the case of Events of the type described in clause (iv).
Accordingly, upon the occurrence of any Event and until such time
as there are no Events which have occurred and are continuing (a "Damages
Accrual Period"), commencing on the Event Date on which such Damages Accrual
Period began, the Company agrees to pay, as liquidated damages, and not as a
penalty, an additional amount (the "Liquidated Damages"): (A)(i) to each holder
of a Note that is a Notice Holder, accruing at a rate equal to one-half of one
percent per annum (50 basis points) on the aggregate principal amount of Notes
held by such Notice Holder and (ii) to each holder of Common Stock that is a
Notice Holder, accruing at a rate equal to one-half of one percent per annum (50
basis points) calculated on an amount equal to the product of (x) the
then-applicable Conversion Price (as defined in the Indenture), multiplied by
(y) the number of shares of Common Stock held by such holder; and (B) if the
Damages Accrual Period continues for a period in excess of thirty (30) days from
the Event Date, from and after the end of such thirty (30) days until such time
as there are no Events which have occurred and are continuing, (i) to each
holder of a Note (whether or not a Notice Holder), accruing at a rate equal to
one-half of one percent per annum (50 basis points) on the aggregate principal
amount of Notes held by such holder and (ii) to each holder of Common Stock
(whether or not a Notice Holder), accruing at a rate equal to one-half of one
percent per annum (50 basis points) calculated on an amount equal to the product
of (x) the then applicable Conversion Price (as defined in the Indenture),
multiplied by (y) the number of shares of Common Stock held by such holder.
Notwithstanding the foregoing, no Liquidated Damages shall accrue under clause
(A) of the preceding sentence during any period for which Liquidated Damages
accrue under clause (B) of the preceding sentence or as to any Registrable
Securities from and after the expiration of the Effectiveness Period. The rate
of accrual of the Liquidated Damages with respect to any period shall not exceed
the rate provided for in this paragraph notwithstanding the occurrence of
multiple concurrent Events.
The Company shall pay the Liquidated Damages due on any Notes or
Common Stock by depositing with the Trustee under the Indenture, in trust, for
the benefit of the holders of Notes or Common Stock or Notice Holders, as the
case may be, entitled thereto, at least one Business Day prior to the applicable
Damages Payment Date, sums sufficient to pay the Liquidated Damages accrued or
accruing since the last preceding Damages Payment Date through such next
applicable Damages Payment Date. The Liquidated Damages shall be paid by the
Company to the Record Holders on each Damages Payment Date by wire transfer of
immediately available funds to the accounts specified by them or by mailing
checks to their registered addresses as they appear in the Note Register (as
defined in the Indenture), in the case of the Notes, and in the register of the
Company for the Common Stock, in the case of the Common Stock, if no such
accounts have been specified on or before the Damage Payment Date; provided,
however, that any Liquidated Damages accrued with respect to any Note or
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<PAGE> 9
portion thereof called for redemption on a redemption date, redeemed or
repurchased in connection with a Fundamental Change (as defined in the
Indenture) on a redemption date, repurchase date, or converted into Common Stock
on a conversion date prior to the Damages Payment Date, shall, in any such
event, be paid instead to the Holder who submitted such Note or portion thereof
for redemption, repurchase or conversion on the applicable redemption date,
repurchase date or conversion date, as the case may be, on such date (or
promptly following the conversion date, in the case of conversion of a Note).
The Trustee shall be entitled, on behalf of the holders of Notes, holders of
Common Stock and Notice Holders, to seek any available remedy for the
enforcement of this Agreement, including for the payment of such Liquidated
Damages. Notwithstanding the foregoing, the parties agree that the sole damages
payable for a violation of the terms of this Agreement with respect to which
Liquidated Damages are expressly provided shall be such Liquidated Damages.
Nothing shall preclude a Notice Holder or Holder of Registrable Securities from
pursuing or obtaining specific performance or other equitable relief with
respect to this Agreement, in addition to the payment of Liquidated Damages.
All of the Company's obligations set forth in this Section 2(e)
which are outstanding with respect to any Registrable Securities at the time
such security ceases to be a Registrable Security shall survive until such time
as all such obligations with respect to such security have been satisfied in
full (notwithstanding termination of the Agreement pursuant to Section 8(o)).
The parties hereto agree that the Liquidated Damages provided for
in this Section 2(e) constitute a reasonable estimate of the damages that may be
incurred by Holders of Registrable Securities (other than the Initial
Purchasers) by reason of the failure of the Shelf Registration to be filed,
declared effective or otherwise available (absolutely or as a practical matter)
for effecting resales of Registrable Securities, as the case may be, in
accordance with the provisions hereof.
3. Registration Procedures. In connection with the Company's
registration obligations under Section 2 hereof, the Company shall effect such
registrations to permit the sale of the Registrable Securities in accordance
with the intended method or methods of disposition thereof, and pursuant thereto
the Company shall as expeditiously as possible:
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the Holders thereof in
accordance with the intended method or methods of distribution thereof, and use
its best efforts to cause each such Registration Statement to become effective
and remain effective as provided herein; provided, that before filing any such
Registration Statement or Prospectus or any amendments or supplements thereto
(other than documents that would be incorporated or deemed to be incorporated
therein by reference and that the Company is required by applicable securities
laws or securities exchange requirements to file) the Company shall furnish to
the Initial Purchasers, the Special
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<PAGE> 10
Counsel and the Managing Underwriters of such offering, if any, copies of all
such documents proposed to be filed, which documents will be subject to the
review of the Initial Purchasers, the Special Counsel and such Managing
Underwriters, and the Company shall not file any such Registration Statement or
amendment thereto or any Prospectus or any supplement thereto (other than such
documents which, upon filing, would be incorporated or deemed to be incorporated
by reference therein and that the Company is required by applicable securities
laws or securities exchange requirements to file) to which the Holders of a
majority of the Registrable Securities covered by such Registration Statement,
the Initial Purchasers, the Special Counsel or the Managing Underwriters, if
any, shall reasonably object in writing within two full Business Days.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
period specified in Section 2; cause the related Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement and Prospectus during the applicable period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
Registration Statement as so amended or such Prospectus as so supplemented.
(c) Notify the Notice Holders, the Initial Purchasers, the
Special Counsel and the Managing Underwriters, if any, promptly, and (if
requested by any such person) confirm such notice in writing, (i) when a
Prospectus, any Prospectus supplement, a Registration Statement or a
post-effective amendment to a Registration Statement has been filed with the
SEC, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC or
any other federal or state governmental authority for amendments or supplements
to a Registration Statement or related Prospectus or for additional information,
(iii) of the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of a Registration
Statement or the initiation or threatening of any proceedings for that purpose,
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (v) of the existence of any fact
or happening of any event which makes any statement of a material fact in such
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue or which would require the
making of any changes in the Registration Statement or Prospectus in order that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the Prospectus, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not
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<PAGE> 11
misleading, and (vi) of the Company's determination that a post-effective
amendment to a Registration Statement would be appropriate. Notice of the filing
and effectiveness of the Initial Registration Statement and any Subsequent
Registration Statement shall be made by the Company by release made to Reuters
Economic Services and Bloomberg Business News.
(d) Use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest possible
moment.
(e) If reasonably requested by the Initial Purchasers or the
Managing Underwriters, if any, or the Holders of a majority of the Registrable
Securities being sold, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to a Registration Statement such information as the
Initial Purchasers, the Special Counsel, the Managing Underwriters, if any, or
such Holders, in connection with any offering of Registrable Securities, agree
should be included therein as required by applicable law, and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment; provided, that the Company shall not be required to take any actions
under this Section 3(e) that are not, in the reasonable opinion of counsel for
the Company, in compliance with applicable law.
(f) Furnish to each Notice Holder, the Special Counsel, the
Initial Purchasers and each Managing Underwriter, if any, without charge, at
least one conformed copy of the Registration Statement or Statements and any
amendment thereto, including financial statements but excluding schedules, all
documents incorporated or deemed to be incorporated therein by reference and all
exhibits (unless requested in writing by such Notice Holder, counsel, the
Initial Purchasers or underwriters).
(g) Deliver to each Notice Holder, the Special Counsel, the
Initial Purchasers and each Managing Underwriter, if any, in connection with any
offering of Registrable Securities, without charge, as many copies of the
Prospectus or Prospectuses relating to such Registrable Securities (including
each preliminary prospectus) and any amendment or supplement thereto as such
persons may reasonably request; and the Company hereby consents to the use of
such Prospectus or each amendment or supplement thereto by each of the Notice
Holders of Registrable Securities and the underwriters, if any, in connection
with any offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto.
(h) Prior to any offering of Registrable Securities, to
register or qualify or cooperate with the Notice Holders, the Managing
Underwriters, if any, and the Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
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<PAGE> 12
securities or Blue Sky laws of such jurisdictions within the United States as
any Notice Holder or Managing Underwriter reasonably requests in writing; keep
each such registration or qualification (or exemption therefrom) effective
during the period such Registration Statement is required to be kept effective
and do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by the
applicable Registration Statement; provided, that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it is
not then so qualified or (ii) take any action that would subject it to general
service of process in suits or to taxation in any such jurisdiction where it is
not then so subject.
(i) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of such Notice Holder, in which
case the Company will cooperate in all reasonable respects with the filing of
such Registration Statement and the granting of such approvals, as may be
necessary to enable the Notice Holder or Holders thereof or the Managing
Underwriters, if any, to consummate the disposition of such Registrable
Securities.
(j) Other than during a Deferral Period, immediately upon the
existence of any fact or the occurrence of any event as a result of which a
Registration Statement shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or a Prospectus shall contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, promptly
prepare and file (subject to the proviso in Section 3(a)) a post-effective
amendment to each Registration Statement or a supplement to the related
Prospectus or any document incorporated therein by reference or file any other
required document (such as a Current Report on Form 8-K) that would be
incorporated by reference into the Registration Statement in order that the
Registration Statement shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and in order that the Prospectus
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, as thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder, and, in the case of a post-effective amendment
to a Registration Statement, use its best efforts to cause such post-effective
amendment to become effective as soon as practicable.
(k) Enter into such agreements (including, in the event of an
Underwritten Offering, an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including, in the event of an Underwritten Offering, those
reasonably requested by the Managing Underwriters, if any, or the Holders of a
majority of the Registrable Securities being sold) in
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<PAGE> 13
order to expedite or facilitate the disposition of such Registrable Securities
and in such connection, whether or not an underwriting agreement is entered
into, and if the registration is an underwritten registration, (i) make such
representations and warranties, subject to the Company's ability to do so, to
the Holders of such Registrable Securities and the underwriters with respect to
the business of the Company and its subsidiaries, the Registration Statement,
Prospectus and documents incorporated by reference or deemed incorporated by
reference, if any, in each case, in form, substance and scope as are customarily
made by issuers to underwriters in underwritten offerings (provided that the
scope and substance shall not be materially different than those contained in
the Purchase Agreement) and confirm the same if and when requested; (ii) use its
best efforts to obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the Managing Underwriters, if any, Special Counsel and the
Holders of a majority of the Registrable Securities being sold) addressed to
each of the underwriters covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such Special Counsel and Managing Underwriters; (iii) use its best
efforts to obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other certified public accountants of any business acquired or to be acquired by
the Company for which financial statements and financial data are, or are
required to be, included in the Registration Statement), addressed to each of
the Managing Underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings; and (iv) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, the Special Counsel and the Managing
Underwriters, if any, to evidence the continued validity of the representations
and warranties of the Company and its subsidiaries made pursuant to clause (i)
above and to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company. The above
shall be done at each closing under such underwriting or similar agreement as
and to the extent required thereunder. Notwithstanding anything herein to the
contrary, no disposition of Registrable Securities hereunder shall take the form
of an Underwritten Offering without the prior agreement of the Company.
(l) If requested in connection with a disposition of
Registrable Securities pursuant to a Registration Statement, make available for
inspection by a representative of the Holders of Registrable Securities being
sold, any Managing Underwriter participating in any disposition of Registrable
Securities, if any, and any attorney or accountant retained by such Notice
Holders or underwriter, financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
executive officers, directors and employees of the Company and its subsidiaries,
to supply all information reasonably requested by any such representative,
Managing Underwriter, attorney or accountant in connection with such
disposition; subject to reasonable assurances by each such person that such
information will only be used in connection with matters relating to such
Registration Statement; provided, however, that such persons shall first agree
in writing with the Company that any information
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<PAGE> 14
that is reasonably and in good faith designated by the Company in writing as
confidential at the time of delivery of such information shall be kept
confidential by such persons and shall be used solely for the purposes of
exercising rights under this Agreement, unless (i) disclosure of such
information is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities, (ii) disclosure of such
information is required by law (including any disclosure requirements pursuant
to federal securities laws in connection with the filing of any Registration
Statement or the use of any prospectus referred to in this Agreement), (iii)
such information becomes generally available to the public other than as a
result of a disclosure or failure to safeguard by any such person or (iv) such
information becomes available to any such person from a source other than the
Company and such source is not bound by a confidentiality agreement.
(m) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earning statements
(which need not be audited) satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule promulgated under
the Securities Act) no later than 45 days after the end of any 12-month period
(or 90 days after the end of any 12-month period if such period is a fiscal
year) (i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
commencing after the effective date of a Registration Statement, which
statements shall cover said 12-month periods.
(n) Cooperate with the selling Holders of Registrable
Securities to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any restrictive
legends; and enable such Registrable Securities to be in such denominations and
registered in such names as such Holders may request.
(o) Provide the Trustee under the Indenture and the transfer
agent for the Common Stock with printed certificates for the Registrable
Securities which are in a form eligible for deposit with The Depository Trust
Company.
(p) Cause the Common Stock covered by the Registration
Statement to be listed on each securities exchange or quoted on each automated
quotation system on which any of the Company's "Common Stock," as that term is
defined in the Indenture, is then listed or quoted) no later than the date the
Registration Statement is declared effective and, in connection therewith, to
the extent applicable, to make such filings under the Exchange Act (e.g., the
filing of a Registration Statement on Form 8-A) and to have such filings
declared effective thereunder.
(q) Cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc.
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<PAGE> 15
4. Holder's Obligations. Each Holder agrees, by acquisition
of the Notes and Registrable Securities, that no Holder of Registrable
Securities shall be entitled to sell any of such Registrable Securities pursuant
to a Registration Statement or to receive a Prospectus relating thereto, unless
such Holder has furnished the Company with the Questionnaire required pursuant
to Section 2(d) hereof and such other information regarding such Holder and the
distribution of such Registrable Securities as may be required to be included in
the Registration Statement or the Prospectus or as the Company may from time to
time reasonably request in writing. The Company may exclude from such
registration the Registrable Securities of any Holder who does not furnish such
information provided above for so long as such information is not so furnished.
Each Holder of Registrable Securities as to which any Registration Statement is
being effected agrees promptly to furnish to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not misleading. Any sale of any Registrable
Securities by any Holder shall constitute a representation and warranty by such
Holder that the information relating to such Holder and its plan of distribution
is as set forth in the Prospectus delivered by such Holder in connection with
such disposition, that such Prospectus does not as of the time of such sale
contain any untrue statement of a material fact relating to such Holder or its
plan of distribution and that such Prospectus does not as of the time of such
sale omit to state any material fact relating to such Holder or its plan of
distribution necessary to make the statements in such Prospectus, in light of
the circumstances under which they were made, not misleading.
5. Registration Expenses. All fees and expenses incident to
the Company's performance of or compliance with this Agreement shall be borne by
the Company whether or not any of Registration Statement becomes effective. Such
fees and expenses shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (x) with respect
to filings required to be made with the SEC or the National Association of
Securities Dealers, Inc. and (y) relating to compliance with federal or state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of Special Counsel in connection with Blue Sky qualifications of
the Registrable Securities under the laws of such jurisdictions as the Managing
Underwriters, if any, or Holders of a majority of the Registrable Securities
being sold may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities in a
form eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the Special Counsel
or the Holders of a majority of the Registrable Securities included in any
Registration Statement), (iii) the reasonable fees and disbursements of the
Trustee and its counsel and of the registrar and transfer agent for the Common
Stock, (iv) messenger, telephone and delivery expenses relating to the
performance of the Company's obligations hereunder, (v) reasonable fees and
disbursements of counsel for the Company and the Special Counsel in connection
with the Shelf Registration (provided that the Company shall not be liable for
the fees and expenses of more than one separate firm, in addition to counsel for
the Company, for all parties participating in any transaction hereunder), (vi)
fees and disbursements of all independent certified public accountants referred
to in Section 3(k)(iii) hereof (including the expenses of any special audit and
"cold comfort" letters
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<PAGE> 16
required by or incident to such performance and (vii) Securities Act liability
insurance, to the extent obtained by the Company in its sole discretion. In
addition, the Company shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties and auditors' fees), the expense of any annual audit,
the fees and expenses incurred in connection with the listing of the securities
to be registered on any securities exchange on which similar securities issued
by the Company are then listed and the fees and expenses of any person,
including special experts, retained by the Company. Notwithstanding the
provisions of this Section 5, each seller of Registrable Securities shall pay
all underwriting discounts, selling commissions and stock transfer taxes
applicable to the Registerable Securities, all selling expenses and all
registration expenses to the extent that the Company is prohibited by applicable
Blue Sky laws from paying for or on behalf of such seller of Registrable
Securities.
6. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless the Initial Purchasers, each Holder and each person,
if any, who controls any Initial Purchaser or any Holder (within the meaning of
either Section 15 of the Securities Act or Section 20(a) of the Exchange Act),
from and against any and all losses, claims, liabilities, damages and expenses
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim)
(collectively, "Losses"), arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
Losses arise out of or are based upon the information relating to the Initial
Purchasers or any Holder furnished to the Company in writing by the Initial
Purchasers or such Holder expressly for use therein (including, without
limitation, any information relating to the plan of distribution of Registerable
Securities furnished by such person); provided, that the Company shall not be
liable to any Holder of Registrable Securities (or any person controlling such
Holder) to the extent that any such Losses arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if either (A)(i) such Holder failed to send
or deliver a copy of the Prospectus with or prior to the delivery of written
confirmation of the sale by such Holder to the person asserting the claims from
which such Losses arise and (ii) the Prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged omission, or
(B)(x) such untrue statement or alleged untrue statement, omission or alleged
omission is corrected in an amendment or supplement to the Prospectus and (y)
having previously been furnished by or on behalf of the Company with copies of
the Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, with or prior to the
delivery of written confirmation of the sale of a Registrable Security to the
person asserting the claim from which such Losses arise. The Company shall also
indemnify each
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underwriter and each person who controls such person (within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act) to the
same extent and with the same limitations as provided above with respect to the
indemnification of the Initial Purchasers or the Holders of Registrable
Securities.
(b) Indemnification by Holder of Registrable Securities. Each
Holder agrees, and such agreement shall be evidenced by the Holder delivering a
Questionnaire, severally and not jointly, to indemnify and hold harmless the
Initial Purchasers, the other Holders, the Company, its directors, its officers
who sign a Registration Statement, and each person, if any, who controls the
Company, the Initial Purchasers and any other Holder (within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act), from
and against all Losses arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or arising out of or based upon
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information relating to such Holder so furnished in writing by
such Holder to the Company expressly for use in such Registration Statement or
Prospectus. In no event shall the liability of any Holder of Registrable
Securities hereunder be greater in amount than the dollar amount of the proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the fees and expenses of more than one separate firm (in
addition to any local counsel) for the Initial Purchasers and all persons, if
any, who control the Initial Purchasers within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all
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Holders and all persons, if any, who control any Holder within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act, and
(c) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Company, its directors, its officers who sign a
Registration Statement and each person, if any, who controls the Company within
the meaning of either such Section, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the Company, such
firm shall be designated in writing by the Company. In such case involving the
Initial Purchasers and persons who control the Initial Purchasers, such firm
shall be designated in writing by Morgan Stanley & Co. Incorporated. In such
case involving the Holders and such persons who control Holders, such firm shall
be designated in writing by the Holders of the majority of Registrable
Securities sold pursuant to the Registration Statement. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party, shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
or claims that are the subject matter of such proceeding.
(d) Contribution. If the indemnification provided for in this
Section 6 is unavailable to an indemnified party under Section 6(a) or 6(b)
hereof in respect of any Losses or is insufficient to hold such indemnified
party harmless, then each applicable indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses, (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand or (ii) if the allocation provided by clause 6(d)(i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 6(d)(i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such Losses, as well as any other relevant
equitable considerations. Benefits received by the Company shall be deemed to be
equal to the total net proceeds from the initial placement (before deducting
expenses) of the Notes pursuant to the Purchase Agreement. Benefits
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<PAGE> 19
received by the Initial Purchasers shall be deemed to be equal to the total
purchase discounts and commissions received by it pursuant to the Purchase
Agreement and benefits received by any other Holders shall be deemed to be equal
to the value of receiving Notes registered under the Securities Act. Benefits
received by any underwriter shall be deemed to be equal to the total
underwriting discounts and commissions, as set forth on the cover page of the
Prospectus forming a part of the Registration Statement which resulted in such
Losses. The relative fault of the Holders on the one hand and the Company on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Holders
or by the Company and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Holders' respective obligations to contribute pursuant to this paragraph are
several in proportion to the respective number of Registrable Securities they
have sold pursuant to a Registration Statement, and not joint.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method or allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the Losses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding this Section 6(d), an
indemnifying party that is a selling Holder of Registrable Securities shall not
be required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities sold by such indemnifying party and
distributed to the public were offered to the public exceeds the amount of any
damages which such indemnifying party has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations
of the Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder, under the Purchase Agreement or otherwise. The
provisions of this Section 6 shall survive so long as Registrable Securities
remain outstanding, notwithstanding any transfer of the Registrable Securities
by any Holder or any termination of this Agreement.
The indemnity and contribution provisions contained in this
Section 6 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of the Initial Purchasers, any Holder or any person controlling any Holder, or
the Company, its officers or directors or any person controlling the Company and
(iii) the sale of any Registrable Securities by any Holder.
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7. Information Requirements.
(a) The Company shall file the reports required to be filed by
it under the Securities Act and the Exchange Act, and if at any time the Company
is not required to file such reports, it will, upon the request of any Holder of
Registrable Securities, make publicly available other information so long as
necessary to permit sales pursuant to Rule 144 and Rule 144A under the
Securities Act. The Company further covenants that it will cooperate with any
Holder of Registrable Securities and take such further reasonable action as any
Holder of Registrable Securities may reasonably request (including, without
limitation making such reasonable representations as any such Holder may
reasonably request), all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144 and Rule 144A
under the Securities Act. Upon the request of any Holder of Registrable
Securities, the Company shall deliver to such Holder a written statement as to
whether it has complied with such filing requirements. Notwithstanding the
foregoing, nothing in this Section 7 shall be deemed to require the Company to
register any of its securities under any section of the Exchange Act.
(b) The Company shall file the reports required to be filed
by it under the Exchange Act and shall comply with all other requirements set
forth in the instructions to Form S-3 in order to allow the Company to be
eligible to file registration statements on Form S-3.
8. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, each Holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement; provided that the sole damages payable for a violation of
the terms of this Agreement for which Liquidated Damages are expressly provided
pursuant to Section 2(e) hereof shall be such Liquidated Damages. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of any of the provisions of this Agreement
and hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate.
(b) No Conflicting Agreements. The Company has not, as of the
date hereof and shall not, on or after the date of this Agreement, enter into
any agreement with respect to its securities which conflicts with the rights
granted to the Holders of Registrable Securities in this Agreement. The Company
represents and warrants that the rights granted to the Holders of Registrable
Securities hereunder do not in any way conflict with the rights granted to the
holders of the Company's securities under any other agreements.
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(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this Section 8(c), may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of a majority of the then outstanding Common Stock constituting Registrable
Securities (with Holders of Notes deemed to be the Holders, for purposes of this
Section, of the number of outstanding shares of Common Stock into which such
Notes are convertible); provided, however, that a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holders of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect the rights of other Holders of Registrable Securities may be given by
Holders of at least a majority of the Registrable Securities being sold by such
Holders; provided, further, however, that no amendment, modification,
supplement, waiver or consent to any departure from the provisions of Section 6
hereof shall be effective as against any Holder of Registrable Securities unless
consented to in writing by such Holder.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing and shall be deemed given (i)
when made, if made by hand delivery, (ii) upon confirmation, if made by
telecopier or (iii) one business day after being deposited with a reputable
next-day courier, postage prepaid, to the parties as follows:
(x) if to a Holder of Registrable Securities, at the
most current address given by such Holder to the Company in a Notice and
Questionnaire.
(y) if to the Company, to:
CKE Restaurants, Inc.
3916 State Street
Suite 300
Santa Barbara, California 93105
Attention: Chief Financial Officer
Telephone: (805) 563-1566
Telecopy No.: (805) 898-7148
with a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Attention: Michael E. Flynn
Telephone: (714) 725-4000
Telecopy No.: (714) 725-4100
21
<PAGE> 22
and
(z) if to the Special Counsel to:
Shearman & Sterling
555 California Street
San Francisco, California 94104-1522
Attention: William H. Hinman, Jr.
Telephone: (415) 616-1221
Telecopy No: (415) 616-1199
or to such other address as such person may have furnished to the other persons
identified in this Section 8(d) in writing in accordance herewith.
(e) Owner of Registrable Securities. The Company will
maintain, or will cause its registrar and transfer agent to maintain, a register
with respect to the Registrable Securities in which all transfers of Registrable
Securities of which the Company has received a Questionnaire will be recorded.
The Company may deem and treat the person in whose name Registrable Securities
are registered in such register of the Company as the owner thereof for all
purposes, including without limitation, the giving of notices under this
Agreement.
(f) Approval of Holders. Whenever the consent or approval of
Holders of a specified percentage of Registrable Securities is required
hereunder, (i) Holders of Notes shall be deemed to be Holders, for such
purposes, of the number of outstanding shares of Common Stock into which such
Notes are convertible (as of the record date for such consent or approval) and
(ii) Registrable Securities held by the Company or its affiliates (as such term
is defined in Rule 405 under the Securities Act) (other than the Initial
Purchasers or subsequent Holders of Registrable Securities if such subsequent
Holders are deemed to be such affiliates solely by reason of their holdings of
such Registrable Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
(g) Successors and Assigns. Any person who purchases any
Registrable Securities from an Initial Purchaser shall be deemed, for purposes
of this Agreement, to be an assignee of such Initial Purchaser. This Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties and shall inure to the benefit of and be binding upon each
Holder of any Registrable Securities.
(h) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be original and all of which taken
together shall constitute one and the same agreement.
22
<PAGE> 23
(i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
(k) Severability. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated thereby, and the parties hereto
shall use their best efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, illegal, void or unenforceable.
(l) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and the
registration rights granted by the Company with respect to the Registrable
Securities. Except as provided in the Purchase Agreement and the Indenture,
there are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein, with respect to the registration rights
granted by the Company with respect to the Registrable Securities. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to such registration rights.
(m) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by the court,
shall be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
(n) Further Assurances. Each of the parties hereto shall use
all best efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the transactions
contemplated hereby.
(o) Termination. This Agreement and the obligations of the
parties hereunder shall terminate upon the end of the Effectiveness Period,
except for any liabilities or
23
<PAGE> 24
obligations under Sections 4, 5 or 6 hereof and the obligations to make payments
of and provide for Liquidated Damages under Section 2(e) hereof to the extent
such damages accrue prior to the end of the Effectiveness Period, each of which
shall remain in effect in accordance with their terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
CKE RESTAURANTS, INC.
By: /s/ CARL A. STRUNK
-------------------------------------
Name: Carl A. Strunk
Title: EVP
Accepted as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
BT ALEX. BROWN INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SCHRODER & CO. INC.
By: Morgan Stanley & Co. Incorporated
By: /s/ C. DANIEL EWELL
-----------------------------------
Name: C. Daniel Ewell
Title: Managing Director
24
<PAGE> 1
EXHIBIT 10.8
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
CARL KARCHER ENTERPRISES, INC.
This First Amendment (the "Amendment") to Employment Agreement dated
January 1, 1994, between Carl Karcher Enterprises, Inc. (the "Company") and Carl
N. Karcher ("Founder"), is made effective as of November 1, 1997 (the "Effective
Date"), by and between the Company and Founder.
R E C I T A L S
A. The Company and Founder entered into an Employment Agreement (the
"Agreement") on January 1, 1994 whereby the Company agreed to employ the Founder
for a term of five (5) years from the date of the Agreement.
B. The Company and Founder now desire to amend the Agreement to extend the
employment term and to modify other provisions thereof as set forth herein.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and agreements set forth herein, the parties hereby agree as follows:
1. Employment Term. Section 3 of the Agreement shall be amended in its
entirety to read as follows:
"3. Employment Term. Founder shall be employed under this
Agreement for a term of ten (10) years from the date of execution of
this Agreement (the "Employment Term"), commencing on the date hereof
and terminating on the close of business on December 31, 2003, unless
sooner terminated as provided in Section 7."
2. Management Bonus Pool. Commencing on the Effective Date and continuing
through the Employment Term, Founder shall become eligible to participate in any
management incentive compensation bonus pool plans, which at inception shall be
the EPIC Bonus Pool, including cash or stock option bonus pool plans, approved
by the Company's Board of Directors, such participation to be on terms
comparable to those afforded to other executive management employees. Except for
payments pursuant to predetermined formula bonus plans, the payment and amount
of any bonus shall be based upon the recommendation of the Chief Executive
Officer of the Company, and upon approval by the Compensation Committee of the
Board of Directors based upon the performance of his duties under the Agreement,
as amended.
<PAGE> 2
3. Stock Options. In addition to Founder's rights to participate in the
Company's option plan as set forth in Section 4.c. of the Agreement, on the
expiration of the original term of the Agreement, January 1, 1999, the Founder
shall receive a grant of fully vested options to purchase 100,000 shares of
common stock of CKE Restaurants, Inc., a Delaware corporation and the parent of
the Company ("CKE"), at a per share option exercise price equal to the fair
market value of CKE's common stock at the time of the grant.
4. Termination Upon Death. Section 7.e. of the Agreement shall be amended
in its entirety to read in full as follows:
"7.e. Death. Upon the death of Founder, any compensation due to
Founder for services rendered prior to the date of termination as a
result of his death will be paid to Founder's estate within ten (10)
days of termination, and thereafter, Margaret Karcher shall receive
payment of Founder's salary for one full year following Founder's
death and, thereafter, the Retirement Benefits for the balance of her
life."
5. Additional Benefits. A new section, "Section 6.d. Prayer and Opening
Remarks at Meetings of Shareholders." shall be added to the Agreement and shall
read in full as follows:
"6.d. Prayer and Opening Remarks at Meetings of Shareholders.
Founder shall be entitled, at each meeting of shareholders of CKE, to
say an opening prayer and to present a brief, positive opening
statement. This Section 6.d. shall survive termination of this
Agreement and shall continue to be in full force and effect for the
duration of Founder's life."
6. Definitions. Terms used but not defined in this Amendment shall have
the respective meanings assigned to them in the Agreement.
7. Counterparts. This amendment may be executed in multiple counterparts,
each of which shall be deemed an original, and all of which shall constitute one
Amendment.
8. Terms and Conditions of Agreement. Except as specifically amended by
this Amendment, all terms and conditions of the Agreement shall remain in full
force and effect.
-2-
<PAGE> 3
IN WITNESS WHEREOF, this Amendment is executed by the undersigned as of the
date first written above.
/s/ CARL N. KARCHER
----------------------------------------
Carl N. Karcher
CARL KARCHER ENTERPRISES, INC.
By: /s/ WILLIAM P. FOLEY
------------------------------------
William P. Foley, Chief Executive
Officer
-3-
<PAGE> 1
EXHIBIT 10.12
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, effective as of September
30, 1997, is entered into by and between CKE RESTAURANTS, INC., a Delaware
corporation (the "Company") and ROBERT E. WHEATON ("the Employee") and amends
the current Employment Agreement between the Company and Employee, which current
Employment Agreement was dated January 24, 1996.
WHEREAS, the Company and Employee are parties to an Employment Agreement
("Agreement"), and
WHEREAS, the Company and Employee wish to amend such Agreement as set
forth below,
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties agree as follows:
1. Section 2 of the Agreement, entitled "Duties" is amended to add
subsection (iv) which reads as follows:
"(iv) serving as President, Chief Executive Officer and Director
of Star Buffet, Inc.,"
2. Section 4 of the Agreement, entitled "Compensation" is amended to
delete the current subsection 4.a and replace it with the following:
"4.a BASE COMPENSATION. The Company will pay Employee an annual
base salary of $63,000 per annum, it being understood that Star Buffet, Inc.
will pay Employee an annual base salary of $187,000."
<PAGE> 2
Page 2-2-2-2
Employment Agreement
Except as herein amended, all provisions of the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Employment Agreement as of the date set forth herein above.
CKE RESTAURANTS, INC.
/s/ ANDREW F. PUZDER
------------------------------------
By: Andrew F. Puzder
-------------------------------
Its: Executive Vice President
-------------------------------
ROBERT E. WHEATON
/s/ ROBERT. E. WHEATON
------------------------------------
<PAGE> 1
EXHIBIT 10.35
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (the "Agreement"), dated as of December 8, 1997, is
made by and between RALLY'S HAMBURGERS, INC., a Delaware corporation (the
"Company" or "Rally's"), on the one hand, and CKE RESTAURANTS, INC., a Delaware
corporation ("CKE"), FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation
("FNF"), GIANT GROUP, LTD., a Delaware corporation ("GIANT") and the other
parties set forth on Exhibit A attached hereto (referred to collectively herein
as the "Sellers," and individually as a "Seller"), on the other hand, with
reference to the following facts:
A. Sellers are the owners of record, as of September 19, 1997, of an
aggregate of 19,100,960 shares of Common Stock, par value $0.001 per share (the
"Checkers Common Stock"), of Checkers Drive-In Restaurants, Inc., a Delaware
corporation ("Checkers").
B. Each Seller desires to sell, and the Company desires to buy, the shares
of Checkers Common Stock owned by such Seller as set forth on Exhibit A hereto
on the terms and conditions set forth herein.
C. As consideration for the shares of Checkers Common Stock acquired by the
Company pursuant hereto, the Company will issue an aggregate of up to 3,909,336
shares of the Company's common stock, par value $0.10 per share (the "Rally's
Common Stock"), and will authorize and issue an aggregate of up to 45,667 shares
of the Company's Series A Preferred Stock, $0.10 par value per share (the
"Series A Stock"), on the terms set forth in the form of Certificate of
Designation attached hereto as Exhibit B (the "Certificate of Designation").
D. The number of shares of Rally's Common Stock and Series A Stock issued
in exchange for the Checkers Common Stock bought and sold pursuant to this
Agreement will be based on the ratio of 0.44375 shares of Rally's Common Stock
for each share of Checkers Common Stock.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1. Purchase and Sale. Subject to the provisions of this Agreement, on the
Closing Date (as defined herein), the Sellers will sell and transfer to the
Company, and the Company will purchase from the Sellers, the number of shares of
Checkers Common Stock set forth opposite the respective Seller's name on Exhibit
A hereto (collectively, the "Checkers Shares").
1.2. Consideration; Exchange of Stock. In exchange for the Checkers Shares
transferred by each of the Sellers, the Company will issue and cause to be
delivered to each Seller
<PAGE> 2
the number of shares of Rally's Common Stock and Series A Stock set forth
opposite the respective Seller's name on Exhibit A hereto (collectively, the
"Rally's Shares").
1.3. Closing; Closing Date. The purchase and sale of the Checkers Shares
pursuant to Section 1.1 (the "Closing") shall take place at the offices of
Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP, 2121 Avenue of
the Stars, 18th Floor, Los Angeles, California 90067, or at such other place as
may be agreed upon by the Company and Sellers, at 10:00 a.m. local time on the
third business day after the later of termination or expiration of all waiting
periods required for consummation of this Agreement under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HSR"), or receipt of the
fairness opinion referred to in Section 5.1 hereof, or at such other time as may
be mutually agreed upon by the Company and the Sellers (the "Closing Date").
1.4. Transactions at Closing. At the Closing,
(a) The Company shall deliver to each Seller or such Seller's
representative:
(i) A duly executed Compliance Certificate, substantially in the
form of Exhibit C hereto;
(ii) A duly executed Certificate of Designation, stamped to show
that it has been filed with the Secretary of State of the State of Delaware;
(iii) Certificates registered in the names of the Seller
representing the number of Rally's Shares to be issued to such Seller pursuant
to Section 1.2 hereof;
(iv) A copy of the Notification of Listing of Additional Shares
to be delivered to the NASDAQ National Market with respect to the Rally's
Shares; and
(v) Such other documents and instruments as the Sellers and their
counsel may reasonably request relating to the consummation of this Agreement.
(b) Each Seller shall deliver to the Company:
(i) A duly executed Compliance Certificate, substantially in the
form of Exhibit D hereto;
(ii) Certificate(s) representing the Checkers Shares being
delivered by such Seller pursuant to Section 1.1 hereof, duly endorsed for
transfer or together with a stock power duly executed in blank, together with
any opinions of counsel required by the transfer agent for the Checkers Common
Stock in connection with the transfer of the Checkers Shares to the Company; and
2
<PAGE> 3
(iii) Such other documents and instruments as the Company may
reasonably request relating to the consummation of this Agreement.
(c) The conditions set forth in Articles 5 and 6 hereof shall have
been satisfied or waived as provided therein.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants that:
2.1. Organization, Standing and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to own, lease and
operate its property and assets and to conduct its business as presently and
proposed to be conducted by it. The Company is in good standing under the laws
of all jurisdictions in which the Company is required to qualify to do business,
except where the failure to so qualify would not result in a Company Material
Adverse Effect (as hereinafter defined).
2.2. Capitalization.
(a) Authorized Capital Stock. Immediately prior to the Closing, the
authorized capital stock of the Company will consist of:
(i) Common Stock. 50,000,000 shares of Common Stock, par value
$0.10 per share (the "Common Stock"), of which (A) 20,649,454 shares are issued
and outstanding as of the date of this Agreement; and (B) 10,989,282 shares are
initially reserved for issuance upon exercise of the warrants and options listed
in Schedule 2.2(a)(i) hereto. The Company has reserved a sufficient number of
shares of unissued Common Stock to enable it to issue the Common Stock being
issued pursuant to this Agreement, both at Closing and upon conversion of the
Series A Stock into Common Stock.
(ii) Preferred Stock. 5,000,000 shares of Preferred Stock, $0.10
par value per share, of which 45,632 shares have been designated as Series A
Stock pursuant to the Certificate of Designation and none of which will be
issued and outstanding prior to the Closing Date.
(b) Warrants, Options and Other Subscription Rights. Except as set
forth in Schedule 2.2(a)(i) hereto and as contemplated herein, there are (i) no
outstanding warrants, options, convertible securities or rights to subscribe for
or purchase any capital stock or other securities from the Company, (ii) to the
best knowledge of the Company, no voting trusts or voting agreements among, or
irrevocable proxies executed by, stockholders of the Company, (iii) no existing
rights of stockholders to require the Company to register any securities of the
Company or to participate with the Company in any registration by the Company of
its securities,
3
<PAGE> 4
(iv) to the best knowledge of the Company, no agreements among stockholders
providing for the purchase or sale of the Company's capital stock and (v) no
obligations (contingent or otherwise) of the Company to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof.
(c) Validity of Securities. Subject only to approval by the Company's
stockholders of the matters set forth in Section 2 of the Certificate of
Designation, the Rally's Shares, when issued, sold and delivered in accordance
with the terms of this Agreement, and the Rally's Common Stock issuable upon
conversion of the Series A Stock, when issued and delivered in accordance with
the Certificate of Designation, will be duly authorized, validly issued, fully
paid and non-assessable. When the Rally's Shares are sold in accordance with
this Agreement, each Seller will have good title to the Rally's Shares sold to
such Seller, free and clear of any liens, pledges, claims, options, restrictions
or other encumbrances or rights of third parties ("Liens"), other than Liens
resulting from the actions of Sellers and restrictions on transfer imposed by
the Securities Act of 1933, as amended (the "Securities Act"), applicable state
securities laws or this Agreement. The Series A Stock, when issued, sold and
delivered in accordance with the terms of this Agreement, will have the rights,
preferences and privileges specified in the Certificate of Designation. Holders
of shares of the Company's capital stock have no preemptive rights.
2.3. Investment Representations.
(a) The Company is acquiring the Checkers Shares for its own account,
for investment purposes and not with a view to, or for sale in connection with,
any distribution of the Checkers Shares in violation of the Securities Act or
any applicable state securities law.
(b) The Company acknowledges that the certificates representing
Checkers Shares to be issued to the Company will bear Checker's standard
restrictive legend for unregistered sales of securities.
2.4. Authorization; Enforceability. The Company has all requisite corporate
power and authority to enter into and perform its obligations under this
Agreement and to carry out the transactions contemplated by this Agreement. All
corporate action on the part of the Company necessary for the authorization,
execution, delivery and performance of all of its obligations under this
Agreement, including the approval and authorization of this Agreement by a
committee of Rally's Board of Directors comprised of persons unaffiliated with
any of the Sellers (the "Independent Committee"), has been taken; provided, that
the approval of the Independent Committee is subject to receipt of a written
opinion of L.H. Friend, Weinress, Frankson & Presson, Inc. ("L.H. Friend")
provided for in Section 5.1 hereof. This Agreement had been duly executed and
delivered by the Company and constitutes the valid and legally binding
obligation of the Company, except as the enforcement hereof may be limited by
bankruptcy, insolvency or other laws affecting the enforcement of creditors'
rights generally.
4
<PAGE> 5
2.5. Filing of SEC Reports. The Company has filed with the Securities and
Exchange Commission (the "Commission") all reports and registration statements
(the "Company SEC Reports") required under the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, except to the extent that the failure to
file any Company SEC Report will not have a Company Material Adverse Effect (as
hereinafter defined). As of their respective dates, the Company SEC Reports did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein not misleading.
2.6. No Material Adverse Effects. Except as disclosed in a Company SEC
Report or other publicly released announcement, no events have occurred since
the end of the Company's last fiscal year that, singly or in the aggregate,
would reasonably be expected to result in a material adverse change in the
condition (financial or otherwise), net assets, business or prospects of the
Company and its subsidiaries taken as a whole (a "Company Material Adverse
Effect").
2.7. Consents and Approvals. Except as set forth on Schedule 2.7 hereto,
the execution and delivery by the Company of this Agreement and any related
documents and instruments, the offer, issuance and delivery of the Rally's
Shares, and the performance by the Company of its obligations under this
Agreement and any related documents and instruments do not require the consent
of any person or entity under any material agreement to which the Company is a
party or otherwise binding on the Company.
2.8. No Conflict with Documents and Instruments. The execution and delivery
by the Company of this Agreement and any related documents and instruments do
not, and the performance by the Company of its obligations hereunder and
thereunder will not, contravene or constitute a default under (a) the charter or
by-laws of the Company, (b) any applicable law or regulation or (c) any
agreement, judgment, injunction, order, decree or other instrument to which the
Company is a party or by which the Company and its assets are otherwise bound,
which in the case of (b) or (c) would constitute a Company Material Adverse
Effect.
2.9. Full Disclosure. Neither this Agreement, nor any certificates
delivered in connection herewith by the Company contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements herein or therein not misleading, in view of the circumstances in
which they were made.
2.10. Brokers and Finders. No person or entity has or will have any valid
claim against the Seller as a result of the transactions contemplated herein for
any commission, fee or other compensation as a broker or finder or in any
similar capacity arising out of any act of the Company.
5
<PAGE> 6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS.
Each Seller represents and warrants as to such Seller that:
3.1. Organization, Standing and Qualification.
(a) If a corporation or other entity, such Seller is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and is in good standing under the laws of all jurisdictions in
which such Seller is required to qualify to do business, except where the
failure to so qualify would not result in a Seller Material Adverse Effect (as
hereinafter defined).
(b) To Seller's knowledge, Checkers is duly organized, validly
existing and in good standing under the laws of the State of Delaware and is in
good standing under the laws of all jurisdictions in which Checkers is required
to qualify to do business, except where the failure to so qualify would not
result in a Checkers Material Adverse Effect (as hereinafter defined).
3.2. Validity of Checkers Shares. The Checkers Shares held by Seller are
duly authorized and validly issued in accordance with applicable law, fully paid
and nonassessable and, when sold in accordance with this Agreement, the Company
will have good title to the Checkers Shares, free and clear of any Liens, other
than Liens resulting from the actions of the Company and restrictions on
transfer imposed by the Securities Act, applicable state securities laws or this
Agreement.
3.3. Investment Representations.
(a) Seller is acquiring the Rally's Shares for Seller's own account,
for investment purposes and not with a view to, or for sale in connection with,
any distribution of the Rally's Shares in violation of the Securities Act or any
applicable state securities law.
(b) Seller acknowledges that the Rally's Shares, including the shares
of Rally's Common Stock issuable upon conversion of the Series A Stock, will
bear the Company's standard restrictive legend for unregistered sales of
securities.
3.4. Authorization; Enforceability. If a corporation or other entity, such
Seller has all requisite power and authority to enter into and perform its
obligations under this Agreement and to carry out the transactions contemplated
by this Agreement. If an individual, such Seller has full legal capacity to
enter into this Agreement and to perform his or her obligations under this
Agreement. All action on the part of Seller necessary for the authorization,
execution, delivery and performance of all of its, his or her obligations under
this Agreement has been taken. This Agreement has been duly executed and
delivered by Seller and constitutes the valid and legally
6
<PAGE> 7
binding obligation of Seller, except as the enforcement hereof may be limited by
bankruptcy, insolvency or other laws affecting the enforcement of creditors'
rights generally.
3.5. Filing of SEC Reports. To Seller's knowledge, Checkers has filed with
the Commision all reports and registration statements (the "Checkers SEC
Reports") required under the Securities Act and the Exchange Act and the rules
and regulations promulgated thereunder, except to the extent that the failure to
file any Checkers SEC Report will not have a Checkers Material Adverse Effect
(as hereinafter defined). To Seller's knowledge, as of their respective dates,
the Checkers SEC Reports did not contain any untrue statement of a material fact
or omit to state a fact required to be stated therein or necessary to make the
statements made therein not misleading.
3.6. No Material Adverse Effects. To Seller's knowledge, except as
disclosed in a Company SEC Report or other publicly released announcement, no
events have occurred since the end of Checkers' last fiscal year that, singly or
in the aggregate, would reasonably be expected to result in a material adverse
change in the condition (financial or otherwise), net assets, business or
prospects of Checkers and its subsidiaries taken as a whole (a "Checkers
Material Adverse Effect") or a material adverse effect on the ability of the
Sellers to perform their obligations under this Agreement (a "Seller Material
Adverse Effect").
3.7. Consents and Approvals. Except as set forth on Schedule 3.7 hereto,
the execution and delivery by the Seller of this Agreement and any related
documents and instruments, the sale and delivery of the Checkers Shares, and the
performance by the Seller of Seller's obligations under this Agreement and any
related documents and instruments do not require the consent of any person or
entity under any material agreement to which such Seller is a party or which is
otherwise binding on such Seller.
3.8. No Conflict with Documents and Instruments. The execution and delivery
by the Seller of this Agreement and any related documents and instruments do
not, and the performance by the Seller of Seller's obligations hereunder and
thereunder will not, contravene or constitute a default under (a) the charter or
by-laws of the Seller, if any, or, to the knowledge of Seller, of Checkers, (b)
any applicable law or regulation or (c) any agreement, judgment, injunction,
order, decree or other instrument to which the Seller or, to the knowledge of
Seller, Checkers is a party or by which the Seller and its assets or, to the
knowledge of Seller, Checkers and its assets are otherwise bound, which in the
case of (b) or (c) would constitute a Checkers Material Adverse Effect or a
Seller Material Adverse Effect.
3.9. Full Disclosure. Neither this Agreement, nor any certificates
delivered in connection herewith by the Seller contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements herein or therein not misleading, in view of the circumstances in
which they were made, as to such Seller.
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3.10. Brokers and Finders. No person or entity has or will have any valid
claim against the Company as a result of the transactions contemplated herein
for any commission, fee or other compensation as a broker or finder or in any
similar capacity arising out of any act of the Seller.
ARTICLE 4
PRE-CLOSING COVENANTS.
4.1. Mutual Covenants. Each of the parties hereby covenants and agrees that
such party will (a) proceed forthwith, but no later than five business days from
the date hereof, to file, to the extent not already filed, all notices and
documents required under HSR to consummate this Agreement, and (b) take all
action reasonably within its power and authority to duly and timely carry out
all of its, his or her obligations hereunder, to perform and comply with all of
its, his or her covenants, agreements, representations and warranties hereunder
and to cause all conditions to the obligations of the other parties to complete
the transactions provided for herein to be satisfied as promptly as possible.
4.2. Covenants of Sellers.
(a) Each Seller hereby undertakes and agrees that, between the
effective date of this Agreement and the Closing Date, each will use its, his or
her commercially reasonable best efforts to cause Checkers to:
(i) do nothing to materially and adversely affect the prospects
or continued viability of Checker's business;
(ii) pay no extraordinary compensation to any of Checker's
officers, directors or stockholders and not incur any additional debt other than
in the ordinary course of business;
(iii) except in order to satisfy outstanding options and/or
warrants and/or other commitments, not issue or sell any of its securities or
any securities of any of its subsidiaries, or any rights to acquire such
securities;
(iv) not pay any dividends, redeem any securities or otherwise
cause any asset to be distributed to its stockholders in their capacities as
such;
(v) promptly inform the Company of any offer or proposal,
directly or indirectly, with respect to the sale or transfer of all or any
material part of Checker's stock or assets, and shall furnish such information
with respect thereto as the Company may request; provided that nothing herein
shall preclude Checkers or its Board of Directors from acting in good faith to
comply with the Board's fiduciary obligations under applicable law;
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<PAGE> 9
(vi) use its best efforts to preserve intact Checker's business
organization, its goodwill and its customers, suppliers, and others having
business relations with it; and
(vii) file, to the extent not already filed, all notices and
documents required under HSR to consummate this Agreement.
(b) Each Seller hereby undertakes and agrees to vote its shares of
Rally's Common Stock in favor of the conversion provision contained in Section 9
of the Certificate of Designation.
4.3. Covenants of the Company. The Company undertakes and agrees that,
between the effective date of this Agreement and the Closing Date, it will:
(a) do nothing to materially and adversely affect the prospects or
continued viability of the Company's business;
(b) pay no extraordinary compensation to any of its officers,
directors or stockholders and shall not incur any additional debt other than in
the ordinary course of business;
(c) except in order to satisfy outstanding options and/or warrants
and/or other commitments, not issue or sell any of its securities or any
securities of any of its subsidiaries, or any rights to acquire such securities;
(d) not pay any dividends, redeem any securities or otherwise cause
any asset to be distributed to its stockholders in their capacities as such;
(e) promptly inform Sellers of any offer or proposal, directly or
indirectly, with respect to the sale or transfer of all or any material part of
the Company's stock or assets, and shall furnish such information with respect
thereto as any Seller may request; provided that nothing herein shall preclude
the Company or its Board of Directors from acting in good faith to comply with
the Board's fiduciary obligations under applicable law; and
(f) use its best efforts to preserve intact the Company's business
organization, its goodwill and its customers, suppliers, and others having
business relations with it.
ARTICLE 5
CONDITIONS TO CLOSING OF SELLERS.
The obligation of Sellers on the Closing Date to purchase the Rally's
Shares under this Agreement shall be subject to each of the following conditions
precedent, any one or more of which may be waived by each Seller as to itself,
himself or herself:
5.1 Fairness Opinion. The Independent Committee shall have received from
L.H. Friend a written opinion, satisfactory in form and substance to the
Independent Committee, to the
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effect that the transactions provided for herein and the terms and conditions of
this Agreement are fair the Company and to the stockholders of the Company
(other than the Sellers), from a financial point of view (the "Fairness
Opinion").
5.2 Representations and Warranties. The representations and warranties made
by the Company herein shall be true and accurate on and as of the Closing Date
as if made on such Closing Date.
5.3 Performance. The Company shall have performed and complied with all
agreements and conditions contained herein or in other ancillary documents
incident to the transactions contemplated by this Agreement required to be
performed or complied with by it prior to or at the Closing.
5.4 Consents.
(a) The Company and Sellers shall have secured all permits, consents
and authorizations that shall be necessary to consummate this Agreement.
(b) Any applicable waiting period under HSR, and the rules and
regulations promulgated thereunder, shall have expired or been terminated.
(c) The Certificate of Designation shall have been duly filed with the
Secretary of State of the State of Delaware.
5.5 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to Sellers and their respective counsel, and
Sellers and their counsel shall have received all such counterpart originals or
certified or other copies of such documents as any Seller or its counsel may
reasonably request.
ARTICLE 6
CONDITIONS TO CLOSING OF COMPANY.
The obligation of the Company on the Closing Date to issue and sell the
Rally's Shares to be purchased under this Agreement shall be subject each of the
following conditions precedent, any one or more of which may be waived by the
Company:
6.1. Fairness Opinion. The Independent Committee shall have received the
Fairness Opinion.
6.2 Representations and Warranties. The representations and warranties made
by each Seller herein shall be true and accurate as to such Seller on and as of
the Closing Date as if made on such Closing Date.
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6.3 Performance. Each Seller shall have performed and complied with all
agreements and conditions contained herein or in other ancillary documents
incident to the transactions contemplated by this Agreement required to be
performed or complied with by such Seller prior to or at the Closing.
6.4 Consents.
(a) The Company and Sellers shall have secured all permits, consents
and authorizations that shall be necessary to consummate this Agreement.
(b) Any applicable waiting period under HSR, and the rules and
regulations promulgated thereunder, shall have expired or been terminated.
(c) The Certificate of Designation shall have been duly filed with the
Secretary of State of the State of Delaware.
6.5 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Company and its counsel, and the
Company and its counsel shall have received all such counterpart originals or
certified or other copies of such documents as the Company or its counsel may
reasonably request.
6.6 Minimum Sale. The aggregate amount of Checkers Shares delivered at the
Closing pursuant to Sections 1.1 and 1.4(b)(ii) of this Agreement shall be no
less than 15,500,000 shares.
ARTICLE 7
POST CLOSING COVENANTS.
7.1. Proxy Statement. At the next annual or special meeting of the
Company's stockholders or other action of its stockholders, the Company shall
include a proposal in its proxy statement or consent solicitation statement, as
the case may be, to approve conversion of the Series A Stock to Common Stock in
accordance with the terms of the Certificate of Designation and a recommendation
for the approval thereof. The date of the stockholder approval of such proposal
is referred to as the "Approval Date." Notwithstanding the foregoing, the
Company shall not submit such proposal to its stockholders until the expiration
of 90 days after the Closing Date.
7.2. Reservation of Rally's Common Stock. From and after the effective date
of this Agreement, the Company shall continuously maintain in reserve a number
of shares of Common Stock equal to the Common Stock issuable upon the Closing of
the Agreement and upon conversion of the Series A Stock.
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ARTICLE 8
REGISTRATION OF RALLY'S SHARES
The following provisions govern the registration of the Rally's Common
Stock to be issued at the Closing and Common Stock issuable upon conversion of
the Series A Stock to be issued at the Closing:
8.1. Definitions. As used in this Article, the following terms have the
following meanings:
Form S-3: The form so designated, promulgated by the Commission for
registration of securities under the Securities Act, and any forms
succeeding to the functions of such form, whether or not bearing the
same designation.
Holder: A holder of Registrable Securities, provided that anyone who
acquires any Registrable Securities in a distribution pursuant to a
registration statement filed by the Company under the Securities Act
or in a transaction under Rule 144 under the Securities Act shall not
thereby be deemed to be a "Holder."
Register, registered and registration: A registration effected by
filing a registration statement in compliance with the Securities Act
and the declaration or ordering by the Commission of effectiveness of
such registration statement.
Registrable Securities: All shares of Rally's Common Stock sold
hereunder or issuable upon conversion of, or payment of any dividends
in shares of Common Stock on, the Series A Stock and held by the
Sellers upon consummation of the transactions contemplated herein.
8.2. Shelf Registration.
(a) Filing; Effectiveness.
(i) As soon as practicable, but in no event more than 45 days
after the date of this Agreement, the Company shall prepare and file with the
Commission a "shelf" registration statement (the "Shelf Registration Statement")
on the appropriate form for an offering by Sellers to be made on a continuous or
extended basis pursuant to Rule 415 under the Securities Act, or such successor
rule or similar provision then in effect ("Rule 415"), covering all of the
Registrable Securities issuable at the Closing Date.
(ii) As soon as practicable, but in no event more than 45 days
after the Approval Date or the date of a Dividend paid in Common Stock, the
Company shall prepare and file with the Commission a shelf registration
statement (a "Subsequent Shelf Registration Statement" and, together with the
Shelf Registration Statement, the "Registration
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Statements") on the appropriate form for an offering by the Sellers to be made
on a continuous or extended basis pursuant to Rule 415 covering all of the
Registrable Securities issued upon conversion of the Series A Stock or payment
of such Dividend, as the case may be.
(iii) The Company shall use its commercially reasonable best
efforts to have the Registration Statements declared effective within 90 days
after their respective filings are made and to keep such Registration Statements
continuously effective for the period beginning on such date and ending on the
earlier of (A) the date on which the Holders no longer hold any Registrable
Securities and (ii) the date that is two years after the effective date of the
respective Registration Statement.
(b) Effective Registration. A registration will not be deemed to have
been effective unless the Registration Statement with respect thereto has been
declared effective by the Commission and the Company has complied in all
material respects with its obligations under this Agreement with respect
thereto; provided, however, that if after it has been declared effective, the
offering of Registrable Securities pursuant to a Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the Commission or any other governmental agency or court, such Registration
Statement will be deemed not to have become effective during the period of such
interference until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume. If a registration made pursuant to
this Section 8.2 is deemed not to have been effected, then the Company shall
continue to be obligated to effect a registration pursuant to this Section 8.2.
(c) Form Used for Registration. In the event that Form S-3 is not
available for use by the Company for a Registration Statement pursuant to this
Section 8.2, the Company shall prepare and file a registration statement on such
form as shall be available for use by the Company at the time the Company is
obliged to prepare and file a registration statement hereunder. In the event
that Form S-3 thereafter becomes available for use by the Company, the Company
may prepare and file such Form S-3 in order to comply with its obligations
hereunder.
8.3. Demand Registration.
(a) Request for Registration. Subject to Section 8.7 hereof, from time
to time after the Shelf Registration Statement or the Subsequent Shelf
Registration Statement, as the case may be, ceases to be effective, one or more
of the Holders may make written demand that the Company file a registration
statement (a "Demand Registration Statement") under the Securities Act with the
Commission to register shares of Registrable Securities formerly covered by the
Shelf Registration Statement or the Subsequent Shelf Registration Statement,
with an aggregate market value of at least $1,000,000, which demand shall
specify the number of Registrable Securities intended to be disposed of by each
such Holder and the intended method of distribution thereof. Within 10 days
after receipt of such request, the Company shall give written notice of such
registration request to all other Holders. Any Holder electing to participate in
such Demand Registration Statement shall deliver a written request, which
request shall specify the number of Registrable Securities intended
to be disposed of by such Holder and the intended
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<PAGE> 14
method of distribution thereof, within 15 days after the receipt by the
applicable Holders of the notice from the Company of a request for Demand
Registration Statement. Thereupon, the Company shall prepare and file such
Demand Registration Statement and shall include therein all Registrable
Securities with respect to which the Company has received written demand or
request for registration. The Company shall use commercially reasonable efforts
to have the Demand Registration Statement declared effective on or before the
date which is 120 days after receipt by the Company of the applicable request
for filing of a Demand Registration Statement (a "Demand Registration Filing
Date").
(b) Effective Registration. The Company's obligations with respect to
a Demand Registration Statement will not be deemed to have been satisfied unless
the applicable Demand Registration Statement has been declared effective by the
Commission and the Company has complied in all material respects with its
obligations under this Agreement with respect thereto; provided, however, that
if after it has been declared effective, the offering of Registrable Securities
pursuant to a Demand Registration Statement is interfered with by any stop
order, injunction or other order or requirement of the Commission or any other
governmental agency or court, such Demand Registration Statement will be deemed
not to have become effective during the period of such interference until the
offering of Registrable Securities pursuant to such Demand Registration
Statement may legally resume. If a registration requested pursuant to this
Section 8.3 is deemed not to have been effected, then the Company shall continue
to be obligated to effect a registration pursuant to this Section 8.3.
(c) Selection of Underwriter. If the Holders elect to conduct an
offering pursuant to a Demand Registration Statement in the form of an
underwritten offering, a majority in interest of the requesting the Holders
participating in such Demand Registration Statement shall have the right to
designate and to select one or more nationally recognized firms of investment
bankers reasonably acceptable to the Company to act as the book-running managing
underwriter or underwriters in connection with such offering and shall select
any additional investment bankers and managers reasonably acceptable to the
Company to be used in connection with the offering.
8.4. Piggy-Back Registration.
(a) Request for Registration. At any time from and after the
termination of effectiveness of the Registration Statements, each time the
Company proposes to file a registration statement under the Securities Act with
respect to an offering by the Company for its own account or for the account of
its security holders of any class of equity security (other than a registration
statement (A) on Form S-4 or S-8 (or any substitute form that is adopted by the
Commission), (B) filed in connection with an exchange offer or offering of
securities solely to the Company's existing security holders) or (C) filed in
connection with an acquisition, merger or similar transaction, the Company shall
give written notice of such proposed filing to the Holders of Registrable
Securities as soon as practicable (but in no event less than ten business days
before the anticipated filing date), and such notice shall offer such Holders
the opportunity to register such number of shares of Registrable Securities as
each such Holder may request (which request shall specify the Registrable
Securities intended to be disposed of by such Holder and the intended
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<PAGE> 15
method of distribution thereof) (a "Piggy-Back Registration"). The Company shall
use commercially reasonable best efforts to cause the managing underwriter or
underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
on the same terms and conditions as any other similar securities of the Company
or any other security holder included therein and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. Any Holder shall have the right to withdraw its
request for inclusion of its Registrable Securities in any registration
statement pursuant to this Section 8.4(a) by giving written notice to the
Company of such withdrawal. The Company, in its sole discretion, may withdraw a
Piggy-Back Registration at any time prior to the time it becomes effective,
provided that the Company shall give immediate notice of such withdrawal to the
Holders of Registrable Securities requested to be included in such Piggy-Back
Registration.
(b) Reduction of Offering. In connection with an underwritten offering
where Piggy-Back Registration has been requested as provided in Section 9.4(a),
the Company shall use commercially reasonable efforts to cause all Registrable
Securities requested to be included in such Piggy-Back Registration to be
included as provided in Section 9.4(a). If the managing underwriter or
underwriters of any such underwritten offering have given written notice to the
Holders of Registrable Securities requesting inclusion in such offering that it
is their opinion that the total number of shares which the Company, Holders of
Registrable Securities and any other persons participating in such registration
intend to include in such offering is such as to materially and adversely affect
the success of such offering, then (i) the number of shares to be offered for
the account of all other persons (other than the Company and the Holders)
participating in such registration other than pursuant to demand registration
rights shall be reduced or limited (to zero if necessary) pro rata in proportion
to the respective number of shares requested to be registered by such persons to
the extent necessary to reduce the total number of shares requested to be
included in such offering to the number of shares, if any, recommended by the
managing underwriter or underwriters and (ii) if such managing underwriter or
underwriters recommend a further reduction in the number of shares in the
offering, then the number of shares to be offered for the account of the Holders
shall be reduced or limited (to zero if necessary) pro rata in proportion to the
respective number of shares requested to be registered by such Holders to the
extent necessary to reduce the total number of shares requested to be include in
such offering to the number of shares, if any, recommended by such managing
underwriter or underwriters.
(c) In the case of any registration initiated by the Company, the
Company shall have the right to designate the managing underwriter in any
underwritten offering.
8.5. Registration Procedures. In connection with the obligations of
the Company to effect or cause the registration of any Registrable
Securities pursuant to the terms and conditions of this Agreement, the
Company shall use its commercially reasonable best efforts to effect the
registration and sale of such Registrable Securities in accordance with the
intended method of distribution, and in connection therewith, the Company
will:
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(i) prepare and file with the Commission a registration statement
with respect to such shares and use commercially reasonable efforts to cause
such registration statement to become and remain effective as provided herein;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
current and to comply with the provisions of the Securities Act with respect to
the disposition of all shares covered by such registration statement, including
such amendments and supplements as may be necessary to reflect the intended
method of disposition from time to time of the prospective seller or sellers of
such shares;
(iii) furnish to each prospective seller such number of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such seller or
the managing underwriter may reasonably request in order to facilitate the
public sale or other disposition of the shares owned by such seller;
(iv) use commercially reasonable best efforts to register or
qualify the shares covered by such registration statement under such other
securities or blue sky or other applicable laws of such jurisdiction within the
United States as each prospective seller shall reasonably request, to enable
such seller to consummate the public sale or other disposition in such
jurisdictions of the shares owned by such seller; provided, however, that in no
event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not at the time so qualified or to take any action
which would subject it to service of process in suits other than those arising
out of the offer or sale of the Registrable Securities covered by such
registration statement in any jurisdiction where it is not at the time so
subject;
(v) furnish to each prospective seller a signed counterpart,
addressed to the prospective sellers, of an opinion of counsel for the Company,
dated the effective date of the registration statement, covering substantially
the same matters with respect to the registration statement (and the prospectus
included therein) as are customarily covered (at the time of such registration)
in opinions of issuer's counsel delivered to the underwriters in underwritten
public offerings of securities;
(vi) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering; each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(vii) notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included
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in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing;
(viii) apply for listing and use its commercially reasonable best
efforts to list the Registrable Securities being registered on any national
securities exchange on which a class of the Company's equity securities are
listed or, if the Company does not have a class of equity securities listed on a
national securities exchange, apply for qualification and use its commercially
reasonable best efforts to qualify the Registrable Securities being registered
for inclusion on the automated quotation system of the National Association of
Securities Dealers, Inc. or on a national securities exchange; and
(ix) Provide a transfer agent and registrar for all Registrable
Securities registered hereunder and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration.
8.6. Information by Holder
(a) Each Holder of Registrable Securities and each underwriter
designated by a majority in interest of the requesting Holders, will furnish to
the Company such information as the Company may reasonably require from such
seller or underwriter in connection with the registration statement (and the
prospectus included therein).
(b) Failure of a prospective seller of Registrable Securities to
furnish the information and agreements described in this Section 8.6 shall not
affect the obligations of the Company under this Article 8 to Holders who
furnish such information and agreements, unless such failure impairs or may
impair the viability of the offering or the legality of the registration
statement or the underlying offering.
8.7. Limitations on Required Registrations
(a) The Company shall not be required to effect more than one
registration in any twelve-month period, or more than an aggregate of three
registrations, pursuant to Section 8.3 hereof for all Holders on a combined
basis.
(b) If at the time of any demand to register Registrable Securities
pursuant to Section 8.3 hereof, the Company is engaged, or has fixed plans to
engage within 90 days of the time of the request, in a registered public
offering as to which the Holders may include such Stock pursuant to Section 8.4
hereof or is engaged in any other activity that, in the good faith determination
of the Company's Board of Directors, would be adversely affected by the demanded
registration to the material detriment of the Company, then the Company may at
its option direct that such demand be delayed for a period not in excess of six
months from the effective date of such offering, or the date or commencement of
such other material activity, as the case may be,
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such right to delay a demand to be exercised by the Company not more than once
in each 12 month period while the rights set forth in Section 8.3 are in effect.
(c) Notwithstanding anything to the contrary in this Agreement, the
obligation of the Company pursuant to Section 8.3 hereof shall expire on the
seventh anniversary of the Closing.
8.8. Expenses of Registration. All expenses incurred in effecting any
registration pursuant to Sections 8.2, 8.3 and 8.4 including, without
limitation, all registration and filing fees, printing expenses, expenses of
compliance with blue sky laws, fees and disbursements of counsel for the
Company, and expenses of any audits incidental to or required by any such
registration, shall be borne by the Company, except:
(a) all expenses, fees and disbursements of any counsel retained by
the Holders, and all underwriting discounts and commissions shall be borne by
the Holders of the securities registered pursuant to such registration, pro rata
according to the quantity of their securities so registered;
(b) the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 8.3 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered pursuant thereto (in which case all
participating Holders shall bear such expenses); and
(c) a Holder who withdraws from an underwritten registration pursuant
to Section 8.3 shall be required to pay the percentage of the expenses of such
registration which is equal to the percentage that the number of shares such
Holder requested to be registered bears to the total number of shares to be
registered.
8.9. Indemnification
(a) Indemnification by Company. To the extent permitted by law, the
Company will indemnify each Holder requesting or joining in a registration, each
agent, officer and director of such Holder, each person controlling such Holder
and each underwriter and selling broker of the securities so registered (each,
an "Indemnitee" and collectively, "Indemnitees") against all claims, losses,
damages and liabilities, or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering, circular or other document incident to
any registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act, the Exchange Act, or state securities laws or any rule or
regulation promulgated under the Securities Act, the Exchange Act or a state
securities law, in each case applicable to the Company, and will reimburse each
Indemnitee for any legal and any other fees and expenses reasonably incurred in
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connection with investigating or defending any such claim, loss, damage,
liability or action, provided however, that the Company will not be liable to
any Indemnitee in any such case to the extent that any such claim, loss, damage
or liability is caused by any untrue statement or omission based upon written
information furnished to the Company by an instrument duly executed by such
Indemnitee for use therein and except that the foregoing indemnity agreement is
subject to the condition that, insofar as it relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged omission) made
in the preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration statement
becomes effective or in the amended prospectus filed with the Commission
pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall
not inure to the benefit of any underwriter or any Indemnitee if there is no
underwriter, if a copy of the Final Prospectus was not furnished by such
underwriter of Indemnitee to the person or entity asserting the loss, liability,
claim or damage at or prior to the time such furnishing is required by the
Securities Act and such underwriter or Indemnitee was required under the
Securities Act to furnish such Final Prospectus; provided further, that this
indemnity shall not be deemed to relieve any underwriter of any of its due
diligence obligations; provided, further, that the indemnity agreement contained
in this Section 8.9(a) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if such settlement is effected without
the consent of the Company, which consent shall not be unreasonably withheld.
(b) Indemnification by Holders. To the extent permitted by law, each
Holder (severally and not jointly) requesting or joining in a registration and
each underwriter and selling broker of the securities so registered will
indemnify the Company and its officers and directors and each person, if any,
who controls any thereof within the meaning of Section 15 of the Securities Act,
and their respective successors against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other documents incident to any
registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be so stated therein or necessary to
make the statements therein not misleading and will reimburse the Company and
each other person indemnified pursuant to this paragraph (b) for any legal and
any other fees and expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, provided,
however, that this paragraph (b) shall apply only if (and only to the extent
that) such statement or omission was made in reliance upon and in strict
conformity with written information (including, without limitation, written
negative responses to inquiries) furnished to the Company by an instrument duly
executed by such Holder, underwriter or selling broker and stated to be
specifically for use in such prospectus, offering circular or other document (or
related registration statement, notification or the like) or any amendment or
supplement thereto; provided, that the indemnity agreement contained in this
Section 8.9(b) shall not apply to amounts paid in settlement or any such claim,
loss, damage, liability or action if such settlement is effected without the
consent of the Holder or underwriter, as the case may be, which consent shall
not be unreasonably withheld and provided, further, that the obligation of any
such Holder shall be limited to an amount equal to the net proceeds received by
such Holder from the sale of the Registered Securities in such offering
-19-
<PAGE> 20
contemplated herein, unless such claim, loss, damage, liability or action
resulted from such Holder's fraudulent misconduct.
(c) Each party entitled to indemnification hereunder (the "Indemnified
Party") shall give notice to the party required to provide the indemnification
(the "Indemnifying Party") promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party (at its expense) to assume the defense of any claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, shall conduct the defense of such claim or litigation, shall be
reasonably satisfactory to he Indemnified Party and the Indemnified Party may
participate in such defense at such party's expense, and provided further that
the omission by any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this Section 8.9
except to the extent that the omission results in a failure of actual notice to
the Indemnifying Party and such Indemnifying Party is damaged solely as a result
of the failure to give notice. The Indemnified Party may retain separate
counsel; provided that the fees and expenses of such separate counsel shall be
paid by the Indemnifying Party only if the Indemnified Party reasonably
concludes that there may be defenses available to it, him or her which are
different from or additional to those available to the Indemnifying Party and
the Indemnifying Party approves such conclusion, which approval shall not be
unreasonably withheld. No Indemnifying Party, in the defense of any such claim
or litigation, shall consent, except with the consent of each Indemnified Party,
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) If the indemnification provided for in this Section 8.9 is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expenses in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations. This
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution in the underwriting agreement entered into
in connection with the underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
-20-
<PAGE> 21
(f) The reimbursement required by this Section 8.9 shall be made by
periodic payments during the course of the investigation or defense, as and when
bills are received or expenses incurred.
(g) The obligations of the Company under this Section 8.9 shall
survive the conversion, if any, of the Series A Stock, the completion of any
offering of Registrable Securities in a registration statement under this
Section 8, or otherwise.
8.10. Transfer of Registration Rights. The registration rights granted to
Holders under this Article 8 may be transferred but only to (i) a transferee who
shall acquire not less than the greater of 6,000 shares of Registrable
Securities or 50% of the Registrable Securities held by any Holder and (ii)
affiliates of any Holder. Any such transfer shall become effective only after
receipt by the Company of (i) a written notice of the transfer, including the
name, address and tax payer identification number of the transferee and the
number of Registrable Securities transferred, and (ii) an agreement executed by
the transferee to be bound by the terms of this Agreement.
8.11. "Stand Off" Agreement. In consideration for the Company performing
its obligations under this Section 8, Holders agree that for a period of time
(not to exceed 120 days) from the effective date of any registration of an
underwritten public offering of securities of the Company (upon request of the
Company or of the underwriters managing such underwritten offering), Holder
shall not sell, make any short sale of, loan, grant any option for the purchase
of, or otherwise dispose of any Registrable Securities or any other stock of the
Company held by Holder, other than shares of Registrable Securities included in
the registration without the prior written consent of the Company or such
underwriters, as the case may be.
8.12. Delay of Registration. A Holder shall have no right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Article.
8.13. Reports Under the Securities Act and the Exchange Act. With a view to
making available to the Holders the benefits of any rule or regulation of the
Commission that may at any time permit a Holder to sell securities of the
Company to the public pursuant to a registration on Form S-3, the Company agrees
to file with the Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act.
8.14. Affiliate Status of Holder. At any time after the second anniversary
of the issuance of any Registrable Securities, if a Holder is not, and has not
been for at least the prior three months, an affiliate of the Company for
purposes of Rule 144 under the Securities Act and delivers to the Company an
opinion to that effect from counsel reasonably acceptable to the Company, such
Holder may request the Company to remove any related restrictive legend on such
Holder's certificates representing shares of Rally's Common Stock, which request
the Company agrees to honor promptly in the normal course of business. After
such removal, the owner of any
-21-
<PAGE> 22
such shares no longer shall be a Holder and such shares no longer shall be
Registrable Securities subject to this Article 8.
ARTICLE 9
MISCELLANEOUS
9.1. Expenses. Each party to this Agreement shall bear its own expenses
relating to the preparation, execution, delivery and performance of this
Agreement and all transactions contemplated thereby.
9.2. Survival of Agreements. All agreements, presentations and warranties
and covenants contained herein or made in writing by or on behalf of any party
in connection with the transactions contemplated hereby shall survive the
execution and delivery of this Agreement (despite any investigation at any time
made by any other party or on its behalf). All statements contained in any
certificate or other instrument executed and delivered by any party or its duly
authorized officers or representatives pursuant hereto in connection with the
transactions contemplated hereby shall be deemed representations by the that
party hereunder.
9.3. Sellers' Obligations Several. Each Seller's obligations under this
Agreement are several, and no Seller is jointly obligated hereunder to render
the performance of any other Seller, nor excused from performance hereunder by
reason of any other Seller's nonperformance.
9.4. Notices. All notices, requests, consents and other communications
herein shall be in writing and shall be deemed to be delivered (i) on the date
delivered, if personally delivered or transmitted via facsimile with return
confirmation of such transmission; (ii) on the business day after the date sent,
if sent by recognized overnight courier service and (iii) on the fifth day after
the date sent, if mailed by first-class certified mail, postage prepaid and
return receipt requested, as follows:
If to the Company: Rally's Hamburgers, Inc.
10002 Shelbyville Road, Suite 150
Louisville, Kentucky 40223
Attention: James J. Gillespie
Facsimile No: (502) 245-3619
Telephone No: (502) 245-8900
with copies to: Greenebaum Doll & McDonald, PLLC
3300 First National Tower
Louisville, Kentucky 40202
Attention: Patrick Welsh, Esq.
Facsimile No.: (502) 587-3695
Telephone No.: (502) 589-4200
-22-
<PAGE> 23
Christensen, Miller, Fink, Jacobs, Glaser,
Weil & Shapiro, LLP
2121 Avenue of the Stars, Eighteenth Floor
Los Angeles, California 90067
Attention: Janet S. McCloud, Esq.
Facsimile No: (310) 556-2920
Telephone No.: (310) 553-3000
If to Sellers: To the parties at such addresses as are
listed on Exhibit A attached hereto
or other such addresses as each of the parties hereto may provide from time to
time in writing to the other parties.
9.5. Modifications; Waiver. Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally or in writing, except
that any provision of this Agreement may be amended and the observance of any
such provision may be waived (either generally or in a particular instance and
either retroactively or prospectively) with (but only with) the written consent
of the Company and each of the Sellers.
9.6 Entire Agreement. This Agreement, together with the schedules and
exhibits attached hereto and made a part hereof, contains the entire agreement
between the parties with respect to the transactions contemplated hereby, and
supersedes all negations, agreements, representations, warranties, commitments,
whether in writing or oral, prior to the date hereof.
9.7 Successors and Assigns. Except as otherwise expressly provided in this
Agreement, all of the terms of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and transferees
of the parties hereto.
9.8 Enforcement.
(a) Remedies at Law or in Equity. If any party hereto shall default in
any of its obligations under this Agreement or if any representation or warranty
made by or on behalf of it in this Agreement or in any certificate, report or
other instrument delivered by it under or pursuant to any term hereof shall be
untrue or misleading in any material respect as of the date of this Agreement or
as of the Closing Date or as of the date it was made, furnished or delivered,
any other party may proceed to protect and enforce its rights by suit in equity
or action at law, whether for the specific performance of any term contained in
this Agreement, injunction against the breach of any such term or in furtherance
of the exercise of any power granted in this Agreement, or to enforce any other
legal or equitable right of such party or to take any one of more of such
actions. In the event any party brings such an action against another, the
prevailing party in such dispute, as determined by a final non-appealable order,
shall be entitled to recover from the losing party all fees, costs and expenses
enforcing any right of such prevailing party under or with respect to
-23-
<PAGE> 24
this Agreement, including without limitation such reasonable fees and expenses
of attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
(b) Remedies Cumulative; Waiver. No remedy referred to herein is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available at law or in equity. No
express or implied waiver by any party of any default shall be a waiver of any
future or subsequent default. The failure or delay of any party in exercising
any rights granted hereunder shall not constitute a waiver of any such right and
any single or partial exercise of any particular right by any party shall not
exhaust the same or constitute a waiver of any other right provided herein.
9.9 Execution and Counterparts; Facsimile Execution. This Agreement may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed an original, and all such counterparts together shall
constitute one instrument. In addition, to the extent that receipt is confirmed,
this Agreement may be executed and sent by telecopy with the original to follow
by a nationally recognized overnight delivery service.
9.10 Governing Law; Jurisdiction; and Severability. This Agreement shall be
governed by the internal laws of the State of Delaware, without regard to
principles of conflicts of law. Each party hereto consents to the jurisdiction
of any federal court located in the State of California, County of Los Angeles
for the purpose of any action, suit or proceeding arising out of or based on
this Agreement or any provision hereof. In the event any provision of this
agreement of the application of any such provision to any party shall be held by
a court of competent jurisdiction to be contrary to law, the remaining
provisions of this agreement shall remain in full force and effect.
9.11 Headings. The descriptive headings of the Sections hereof and the
Schedules and Exhibits hereto are inserted only and do not constitute a part of
this Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
-24-
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date first written above.
THE COMPANY:
RALLY'S HAMBURGERS, INC.
By: /s/ JAMES J. GILLESPIE
-------------------------------------
Name: James J. Gillespie
-------------------------------------
Title: Chief Executive Officer
-------------------------------------
SELLERS:
CKE RESTAURANTS, INC.
By: /s/ C. THOMAS THOMPSON
-------------------------------------
Name: C. Thomas Thompson
-------------------------------------
Title: President and Chief Operating Officer
-------------------------------------
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ M'LISS JONES KANE
-------------------------------------
Name: M'Liss Jones Kane
-------------------------------------
Title: Senior Vice President, General
Counsel and Secretary
-------------------------------------
GIANT GROUP, LTD.
By: /s/ BURT SUGARMAN
-------------------------------------
Name: Burt Sugarman
-------------------------------------
Title: CEO
-------------------------------------
/s/ DAVID GOTTERER
---------------------------------
DAVID GOTTERER
/s/ BURT SUGARMAN
---------------------------------
BURT SUGARMAN
-25-
<PAGE> 26
/s/ MARY HART SUGARMAN
--------------------------------
MARY HART SUGARMAN
AJ SUGARMAN
By: /s/ A.J. SUGARMAN
-------------------------------------
Name: A.J. Sugarman
-------------------------------------
Title: Chief Executive Officer
-------------------------------------
/s/ DAVID MALCOLM
---------------------------------
DAVID MALCOLM
/s/ TERRY CHRISTENSEN
---------------------------------
TERRY CHRISTENSEN
/s/ TERRY CHRISTENSEN
---------------------------------
TERRY CHRISTENSEN, AS
TRUSTEE FOR THE RETIRE-
MENT PLAN FOR THE EMPLOY-
EES OF TERRY CHRISTENSEN, A
PROF. CORP.
/s/ AL SUGARMAN
---------------------------------
AL SUGARMAN
THE TRAVELERS INDEMNITY COMPANY
By: /s/ EMIL MOLINARO
-------------------------------------
Name: Emil Molinaro
-------------------------------------
Title:
-------------------------------------
-26-
<PAGE> 27
/s/ WILLIAM P. FOLEY II
--------------------------------
WILLIAM P. FOLEY II
/s/ FRANK WILLEY
--------------------------------
FRANK WILLEY
/s/ CARL STRUNK
--------------------------------
CARL STRUNK
/s/ ANDREW PUZDER
---------------------------------
ANDREW PUZDER
WEDBUSH MORGAN, AS CUSTODIAN
FOR THE PATRICK F. STONE IRA,
ACCOUNT # 78785255
By: /s/ R. MARKS
-------------------------------------
Name: Richard Marks
-------------------------------------
Title: Supervisor
-------------------------------------
/s/ WILLIAM IMPARATO
---------------------------------
WILLIAM IMPARATO
/s/ DANIEL D. LANE
----------------------------------
DANIEL D. LANE
/s/ DANNY LANE
----------------------------------
DANNY LANE
-27-
<PAGE> 28
/s/ CARY H. THOMPSON
----------------------------------
CARY H. THOMPSON
/s/ STEPHEN C. MAHOOD
----------------------------------
STEPHEN C. MAHOOD
/s/ CARL L. KARCHER
----------------------------------
CARL L. KARCHER
/s/ CARL N. KARCHER
----------------------------------
CARL N. KARCHER
/s/ W. HOWARD LESTER
---------------------------------
W. HOWARD LESTER
/s/ C. THOMAS THOMPSON
---------------------------------
C. THOMAS THOMPSON
BYRON E. AND SHARON K. ALLUMBAUGH,
TRUSTEES OF THE BYRON AND SHARON
ALLUMBAUGH REVOCABLE TRUST
DTD 1/2/91
By: /s/ BYRON E. ALLUMBAUGH
-------------------------------------
Name: B&S Allumbaugh Trust
-------------------------------------
Title: Trustee
-------------------------------------
-28-
<PAGE> 29
MERRILL LYNCH, AS TRUSTEE FOR
THE ERNIE SMITH IRA, ACCOUNT
# 223-86756
By: /s/ MARY KAUANUI
-------------------------------------
Name: Mary Kauanui
-------------------------------------
Title: Administrative Manager
-------------------------------------
/s/ RON MAUDSLEY
----------------------------------
RON MAUDSLEY
MERRILL LYNCH, AS TRUSTEE FOR THE
PAUL DEFALCO IRA, ACCOUNT #223-8301
By: /s/ MARY KAUANUI
-------------------------------------
Name: Mary Kauanui
-------------------------------------
Title: Administrative Manager
-------------------------------------
-29-
<PAGE> 30
CKE Restaurants
1200 N. Harbor Boulevard
Anaheim, CA 92803
Fidelity National Financial, Inc.
17911 Von Karman Avenue
Suite 300
Irvine, CA 92614
GIANT GROUP, LTD.
9000 Sunset Boulevard
16th Floor
Los Angeles, CA 90069
David Gotterer
425 E. 58th Street
New York, NY 10022
Burt Sugarman
c/o GIANT GROUP, LTD.
9000 Sunset Boulevard
16th Floor
Los Angeles, CA 90069
Mary Hart Sugarman
c/o GIANT GROUP, LTD.
9000 Sunset Boulevard
16th Floor
Los Angeles, CA 90069
A J Sugarman
c/o GIANT GROUP, LTD.
9000 Sunset Boulevard
16th Floor
Los Angeles, CA 90069
David Malcolm
509 Beacon Place
Chula Vista, CA 91910
Terry N. Christensen
A-1
<PAGE> 31
2121 Avenue of the Stars, 1800
Los Angeles, CA 90067
Terry N. Christensen, as Trustee for the
Retirement Plan for the Employees of
Terry Christensen, a Prof. Corp.
2121 Avenue of the Stars, 1800
Los Angeles, CA 90067
Al Sugarman
c/o GIANT GROUP, LTD.
9000 Sunset Boulevard
16th Floor
Los Angeles, CA 90069
The Travelers Indemnity Company
388 Greenwich Street
36th Floor
New York, NY 10013
William P. Foley II
3916 State Street
Suite 300
Santa Barbara, CA 93105
Frank P. Willey
3916 State Street
Suite 300
Santa Barbara, CA 93105
Carl A. Strunk
3916 State Street
Suite 300
Santa Barbara, CA 93105
Andrew F. Puzder
3916 State Street
Suite 300
Santa Barbara, CA 93105
Wedbush Morgan, as Custodian for the
Patrick F. Stone IRA, Account # 78785255
A-2
<PAGE> 32
3916 State Street
Suite 300
Santa Barbara, CA 93105
William A. Imparato
1515 East Missouri
Building A
Phoenix, AZ 85015
Daniel D. Lane
14 Corporate Plaza
Newport Beach, CA 92660
Danny Lane
14 Corporate Plaza
Newport Beach, cA 92660
Cary H. Thompson
c/o Aames Financial
350 So. Grand
52nd Floor
Los Angeles, CA 90070
Stephen C. Mahood
500 Crescent Court
Suite 270
Dallas, TX 75201
Carl L. Karcher
72-875 Fred Waring Drive
Suite C
Palm Desert, CA 92660
Carl Nicholas Karcher
1200 N. Harbor Blvd.
Anaheim, CA 92803
C. Howard Lester
3250 Van Ness
San Francisco, CA 94109
A-3
<PAGE> 33
C. Thomas Thompson
1200 N. Harbor Blvd.
Anaheim, CA 92803
Byron E. and Sharon K. Allumbaugh, Trustees of the
Byron and Sharon Allumbaugh Revocable Trust DTD 1/2/91
33 Ridgeline Drive
Newport Beach, CA 92660
Merrill Lynch, as Trustee for the Ernie Smith IRA, Account #223-86756
3916 State Street
Suite 300
Santa Barbara, CA 93105
Ron Maudsley
3916 State Street
Suite 300
Santa Barbara, CA 93105
Merrill Lynch, as Trustee for the Paul De Falco IRA, Account #223-83014
3916 State Street
Suite 300
Santa Barbara, CA 93105
A-4
<PAGE> 34
EXHIBIT A
<TABLE>
<CAPTION>
Rally's
Common --------------------------
Shares Common Preferred
to be Shares Shares
Converted Issued Issued
---------- --------- ------
<S> <C> <C> <C>
CKE Restaurants, Inc. 12,754,885 2,798,080 28,619
Fidelity National Financial, Inc. 1,680,616 368,673 3,771
GIANT GROUP, LTD. 200,045 43,869 449
David Gotterer 113,438 24,838 255
Burt Sugarman 113,438 24,838 255
Mary Hart Sugarman 272,230 59,702 611
A J Sugarman 27,168 5,955 61
David Malcolm 272,230 59,702 611
Terry Christensen 55,353 12,162 124
Al Sugarman 45,353 9,925 102
Travelers 1,270,769 -- 5,639
William P. Foley II 453,754 99,553 1,018
Frank Willey 226,877 49,776 509
Carl Strunk 64,353 14,156 144
Andrew Puzder 45,353 9,925 102
Pat Stone 45,353 9,925 102
William Imparato 226,877 49,776 509
Daniel D. Lane 181,522 39,850 407
Danny Lane 45,353 9,925 102
Cary H. Thompson 45,353 9,925 102
Stephen C. Mahood 90,707 19,851 204
Carl L. Karcher 226,877 49,776 509
Carl N. Karcher 90,707 19,851 204
C. Howard Lester 272,230 59,702 611
C. Thomas Thompson 45,353 9,925 102
Byron Allumbaugh 90,707 19,851 204
Ernie Smith 45,353 9,925 102
Ron Maudsley 45,353 9,925 102
Paul De Falco 53,353 9,975 137
---------- --------- ------
Total 19,100,960 3,909,336 45,667
========== ========= ======
</TABLE>
<PAGE> 1
EXHIBIT 10.37
- --------------------------------------------------------------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
among
CKE RESTAURANTS, INC.,
THE LENDERS NAMED HEREIN
and
BANQUE PARIBAS
As Agent
DATED AS OF APRIL 1, 1998
$500,000,000
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS................................................................... 1
Section 1.1 Definitions. ................................................ 1
SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITIES.........................................24
Section 2.1 Term Loans. .................................................24
Section 2.2 Revolving Loans...............................................25
Section 2.3 Notice of Borrowing. ........................................26
Section 2.4 Disbursement of Funds. ......................................26
Section 2.5 Notes.........................................................27
Section 2.6 Interest. ...................................................27
Section 2.7 Interest Periods. ...........................................29
Section 2.8 Minimum Amount of Eurodollar Loans. .........................30
Section 2.9 Conversion or Continuation. .................................30
Section 2.10 Voluntary Reduction of Commitments. ........................30
Section 2.11 Voluntary Prepayments. .....................................31
Section 2.12 Mandatory Prepayments. .....................................31
Section 2.13 Application of Prepayments. ................................33
Section 2.14 Method and Place of Payment. ...............................33
Section 2.15 Fees. ......................................................34
Section 2.16 Interest Rate Unascertainable, Increased Costs, Illegality...34
Section 2.17 Funding Losses. ............................................36
Section 2.18 Increased Capital. .........................................36
Section 2.19 Taxes. .....................................................37
Section 2.20 Use of Proceeds. ...........................................38
Section 2.21 Collateral Security..........................................38
Section 2.22 Replacement of Certain Lenders...............................40
SECTION 3. LETTERS OF CREDIT.............................................................41
Section 3.1 Issuance of Letters of Credit, etc............................41
Section 3.2 Letter of Credit Fees.........................................42
Section 3.3 Obligation of Borrower Absolute, etc..........................43
SECTION 4. CONDITIONS PRECEDENT..........................................................45
Section 4.1 Conditions Precedent to Initial Loans. ......................45
Section 4.2 Conditions Precedent to All Loans.............................52
SECTION 5. REPRESENTATIONS AND WARRANTIES. ..............................................53
Section 5.1 Corporate Status. ...........................................53
Section 5.2 Corporate Power and Authority. ...............................54
</TABLE>
<PAGE> 3
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of April 1, 1998, among
CKE Restaurants, Inc., a Delaware corporation (the "Borrower"), the Lenders (as
hereinafter defined) and Banque Paribas, acting in its capacity as agent for the
Lenders.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 5.3 No Violation. ..............................................54
Section 5.4 Litigation. ................................................54
Section 5.5 Financial Statements; Financial Condition; etc. ............54
Section 5.6 Solvency. ..................................................54
Section 5.7 Projections. ...............................................54
Section 5.8 Material Adverse Change. ...................................55
Section 5.9 Use of Proceeds; Margin Regulations. .......................55
Section 5.10 Governmental and Other Approvals. ..........................55
Section 5.11 Security Interests and Liens. ...............................55
Section 5.12 Tax Returns and Payments. ..................................56
Section 5.13 ERISA........................................................56
Section 5.14 Investment Company Act; Public Utility Holding Company Act...56
Section 5.15 Closing Date Transactions. .................................57
Section 5.16 Representations and Warranties in Transaction Documents......57
Section 5.17 True and Complete Disclosure. ..............................57
Section 5.18 Corporate Structure; Capitalization..........................57
Section 5.19 Environmental Matters. .....................................58
Section 5.20 Intellectual Property. .....................................59
Section 5.21 Ownership of Property; Restaurants. ........................59
Section 5.22 No Default. ................................................59
Section 5.23 Licenses, etc. .............................................59
Section 5.24 Compliance with Law. .......................................59
Section 5.25 No Burdensome Restrictions. ................................59
Section 5.26 Brokers' Fees. .............................................60
Section 5.27 Labor Matters. .............................................60
Section 5.28 Indebtedness of the Borrower and Its Subsidiaries............60
Section 5.29 Other Agreements.............................................60
Section 5.30 Immaterial Subsidiaries......................................60
Section 5.31 Franchise Agreements and Franchisees.........................60
SECTION 6. AFFIRMATIVE COVENANTS.........................................................60
Section 6.1 Information Covenants. ......................................61
Section 6.2 Books, Records and Inspections. ............................65
Section 6.3 Maintenance of Insurance. ..................................65
Section 6.4 Taxes. .....................................................65
Section 6.5 Corporate Franchises. ......................................66
Section 6.6 Compliance with Law. .......................................66
Section 6.7 Performance of Obligations. ................................66
Section 6.8 Maintenance of Properties. .................................66
Section 6.9 Compliance with Terms of Leaseholds. .......................66
Section 6.10 Compliance with Environmental Laws. ........................66
Section 6.11 Subsidiary Guarantors. .....................................67
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6.12 Immaterial Subsidiaries......................................67
Section 6.13 Environmental Reports........................................67
Section 6.14 Year 2000....................................................68
Section 6.15 FEI Financial Statements.....................................68
SECTION 7. NEGATIVE COVENANTS............................................................68
Section 7.1 Financial Covenants...........................................68
Section 7.2 Indebtedness. ...............................................71
Section 7.3 Liens. ......................................................72
Section 7.4 Restriction on Fundamental Changes............................74
Section 7.5 Sale of Assets. .............................................75
Section 7.6 Contingent Obligations........................................75
Section 7.7 Dividends.....................................................76
Section 7.8 Advances, Investments and Loans. .............................77
Section 7.9 Transactions with Affiliates. ................................82
Section 7.10 Limitation on Voluntary Payments and Modifications of
Certain Documents. ...........................................82
Section 7.11 Changes in Business. .........................................83
Section 7.12 Certain Restrictions. ........................................83
Section 7.13 Lease Obligations.............................................84
Section 7.14 Hedging Agreements. .........................................84
Section 7.15 Plans. .......................................................84
Section 7.16 Fiscal Year; Fiscal Quarter. .................................84
SECTION 8. EVENTS OF DEFAULT.............................................................85
Section 8.1 Events of Default. ...........................................85
Section 8.2 Rights and Remedies. .........................................88
SECTION 9. THE AGENT.....................................................................89
Section 9.1 Appointment. .................................................89
Section 9.2 Delegation of Duties..........................................89
Section 9.3 Exculpatory Provisions. .....................................90
Section 9.4 Reliance by Agent.............................................90
Section 9.5 Notice of Default. ..........................................90
Section 9.6 Non-Reliance on Agent and Other Lenders. ....................91
Section 9.7 Indemnification. ............................................91
Section 9.8 Agent in its Individual Capacity..............................92
Section 9.9 Successor Agent. ............................................92
SECTION 10. MISCELLANEOUS ...............................................................92
Section 10.1 Payment of Expenses, Indemnity, etc. ........................92
Section 10.2 Right of Setoff. ............................................93
Section 10.3 Notices. .. ..................................................94
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 10.4 Successors and Assigns; Participation; Assignments. .........94
Section 10.5 Amendments and Waivers. .....................................96
Section 10.6 No Waiver; Remedies Cumulative. ..............................98
Section 10.7 Sharing of Payments. .......................................98
Section 10.8 Application of Collateral Proceeds. ..........................99
Section 10.9 Governing Law; Submission to Jurisdiction. .................100
Section 10.10 Counterparts. .............................................100
Section 10.11 Effectiveness. ............................................100
Section 10.12 Amendment and Restatement. ................................101
Section 10.13 Reallocation of Loans.......................................101
Section 10.14 Headings Descriptive. .....................................102
Section 10.15 Marshalling; Recapture. ...................................102
Section 10.16 Severability. .............................................102
Section 10.17 Independence of Covenants...................................103
Section 10.18 Survival. .................................................103
Section 10.19 Domicile of Loans. ........................................103
Section 10.20 Limitation of Liability. ..................................103
Section 10.21 Calculations; Computations. ...............................103
Section 10.22 WAIVER OF TRIAL BY JURY. ..................................103
</TABLE>
Schedule 1.1 -- Lenders and Commitments
Schedule 5.10 -- Governmental and Other Approvals
Schedule 5.11 -- Security Interests and Liens
Schedule 5.13 -- ERISA Plans
Schedule 5.18 -- Subsidiaries; Capital Stock
Schedule 5.19 -- Environmental Matters
Schedule 5.21 -- Owned and Leased Properties; Owned or Operated Restaurants
Schedule 5.26 -- Brokers' Fees
Schedule 5.27 -- Labor Matters
Schedule 5.28 -- Indebtedness of the Borrower and Its Subsidiaries Being Repaid
Schedule 5.29 -- Other Agreements
Schedule 5.30 -- Immaterial Subsidiaries
Schedule 5.31 -- Franchisees and Licensees
Schedule 7.2 -- Existing Indebtedness
Schedule 7.3 -- Existing Liens
Schedule 7.6 -- Existing Contingent Obligations
Schedule 7.8 -- Investments
Schedule 7.17 -- Permitted Partnerships
Annex 1 -- Domestic and Eurodollar Lending Offices
Exhibit A -- Form of Term Note
<PAGE> 6
Exhibit B -- Form of Revolving Note
Exhibit C -- Form of Borrower Pledge Agreement
Exhibit D -- Form of Borrower Security Agreement
Exhibit E -- Form of Guaranty
Exhibit F -- Form of Subsidiary Pledge Agreement
Exhibit G -- Form of Subsidiary Security Agreement
Exhibit H -- Form of Opinion of Stradling, Yocca, Carlson & Rauth, counsel
to the Loan Parties
Exhibit I -- Form of Assignment Agreement
<PAGE> 7
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of April 1, 1998,
among CKE Restaurants, Inc., a Delaware corporation (the "Borrower"), the
Lenders (as hereinafter defined) and Banque Paribas, acting in its capacity as
agent for the Lenders.
SECTION 1. DEFINITIONS.
Section 1.1 Definitions. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural number the singular.
"Acquisition" means any transaction, or any series of related
transactions, consummated after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (i) acquires any going business or assets
of any Person or division thereof (other than assets acquired by the Borrower or
any of its Subsidiaries in the ordinary course of its business), whether through
purchase of assets, merger or otherwise or (ii) directly or indirectly acquires
(in one transaction or as the most recent transaction in a series of related
transactions) at least a majority (in number of votes) of the securities of a
corporation which have ordinary voting power for the election of directors or a
majority (by percentage or voting power) of the outstanding partnership
interests of a partnership or of the outstanding equity interests of a limited
liability company.
"Adjusted Consolidated EBITDA" shall mean, with respect to the
Borrower for any period, Consolidated EBITDA of the Borrower for such period, as
adjusted to give effect to (i) the Consolidated EBITDA for such period
attributable to any business or Person acquired by the Borrower or any
Subsidiary during such period pursuant to a Permitted Acquisition with respect
to which the conditions set forth in Section 7.8(f) have been satisfied as if
such business or Person had been so acquired on the first day of such period and
(ii) the Consolidated EBITDA for such period attributable to any business or
Person disposed of by the Borrower or any Subsidiary during such period as if
such business or Person had been so disposed of on the first day of such period;
provided that the adjustments described in the foregoing clauses (i) and (ii)
shall be made only in such amounts as are agreed to by the Agent and the
Borrower and only if the Lenders have received audited financial statements for
such business or Person being acquired or disposed of for such period or for the
most recent fiscal year of such business or Person which financial statements
are audited by independent certified public accountants acceptable to the Agent
prior to such adjustment.
"Adjusted Leverage Ratio" shall mean the ratio of (a)(i)
Consolidated Total Debt plus (ii) the product of seven multiplied by
Consolidated Rentals to (b) Consolidated EBITDAR.
"Advantica" shall mean Advantica Restaurant Group, Inc., a
Delaware corporation.
<PAGE> 8
"Affected Lender" shall have the meaning provided in Section
2.22.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to control
another Person if such Person possesses, directly or indirectly, the power to
(i) vote 10% or more of the Voting Stock of such other Person or (ii) direct or
cause the direction of the management and policies of such other Person, whether
through the ownership of voting securities, by contract or otherwise. No Lender
shall be deemed to be an Affiliate of the Borrower as a result of its being a
party to this Agreement.
"Agent" shall mean Banque Paribas acting in its capacity as agent
for the Lenders and any successor agent appointed in accordance with Section
9.9.
"Agent's Office" shall mean the office of the Agent located at
Chicago, Illinois, or such other office as the Agent may hereafter designate in
writing as such to the other parties hereto.
"Agreement" shall mean this Amended and Restated Credit Agreement
as the same may from time to time hereafter be modified, restated, supplemented
or amended.
"Applicable Margin" means, with respect to the Commitment Fee and
each Eurodollar Loan, the rate of interest per annum shown below for the range
of Leverage Ratio specified below:
<TABLE>
<CAPTION>
Leverage Ratio Eurodollar Loans Commitment Fee
- -------------- ---------------- --------------
<S> <C> <C>
less than 1.5 to 1.0 0.50% 0.20%
1.5 to 1.0 or greater, but
less than 2.0 to 1.0 .750% 0.25%
2.0 to 1.0 or greater, but
less than 2.5 to 1.0 1.125% 0.25%
2.5 to 1.0 or greater, but 1.375% 0.375%
less than 3.0 to 1.0
3.0 to 1.0 or greater 1.50% 0.375%
</TABLE>
For the period commencing on the Closing Date and ending on the date which
occurs on the later of (a) three (3) Business Days after the Agent receives the
financial statements and the related Compliance Certificate required to be
delivered pursuant to Section 6.1(a) and Section 6.1(e) with respect to the
fiscal quarter of the Borrower ending August 10, 1998, and (b)
2
<PAGE> 9
October 1, 1998, for purposes of determining the Applicable Margin, the Leverage
Ratio shall be deemed to be greater than or equal to 2.50 to 1.0 but less than
3.00 at all times during such period. Thereafter, the Leverage Ratio shall be
calculated as of the end of each fiscal quarter, commencing with the fiscal
quarter ending August 10, 1998, and shall be reported to the Agent pursuant to a
Compliance Certificate delivered by the Borrower in accordance with Section
6.1(e) hereof. Not later than two (2) Business Days after receipt by the Agent
of each Compliance Certificate delivered by the Borrower in accordance with
Section 6.1(e) for each fiscal quarter or fiscal year, as applicable, the Agent
shall determine the Leverage Ratio for the applicable period and shall promptly
notify the Borrower and the Lenders of such determination and of any change in
each Applicable Margin resulting therefrom. Each Applicable Margin shall be
adjusted (upwards or downwards, as appropriate), if necessary, based on the
Leverage Ratio as of the end of the fiscal quarter immediately preceding the
date of determination. The adjustment, if any, to the Applicable Margin shall be
effective as to all Eurodollar Loans and Commitment Fees commencing on the third
(3rd) Business Day after the receipt by the Agent of such quarterly or annual
financial statements delivered in accordance with Sections 6.1(a) and 6.1(b) and
such related Compliance Certificate of the Borrower delivered in accordance with
Section 6.1(e) and shall be effective from and including the third (3rd)
Business Day after the date the Agent receives such Compliance Certificate to
but excluding the third (3rd) Business Day after the date on which the next
Compliance Certificate is required to be delivered pursuant to Section 6.1(e);
provided, however, that, in the event that the Borrower shall fail at any time
to furnish to the Lenders such financial statements and any such Compliance
Certificate required to be delivered pursuant to Sections 6.1(a), 6.1(b) and
6.1(e), for purposes of determining the Applicable Margin, the Leverage Ratio
shall be deemed to be greater than or equal to 3.00 to 1.0 at all times until
the third (3rd) Business Day after such time as all such financial statements
and each such Compliance Certificate are so received by the Agent and the
Lenders. Each determination of the Leverage Ratio and each Applicable Margin by
the Agent in accordance with this definition shall be conclusive and binding on
the Borrower and the Lenders absent manifest error.
"Asset Disposition" shall mean any conveyance, sale, lease,
license, transfer or other disposition by the Borrower or any of its
Subsidiaries subsequent to the date hereof of any asset (including by way of (i)
a sale and leaseback transaction, (ii) the sale or other transfer of any of the
capital stock of any Subsidiary of the Borrower or any of its Subsidiaries and
(iii) any total or partial loss, destruction or condemnation of any asset), but
excluding (A) sales of inventory in the ordinary course of business, (B)
licenses to franchisees in the ordinary course of business, (C) the sale or
other disposition of assets with a fair market value not in excess of $1,000,000
in respect of any transaction or series of related transactions, but only to the
extent that the aggregate fair market value of all assets subject to Asset
Dispositions of the Borrower and its Subsidiaries in any fiscal year does not
exceed $2,000,000 and (D) leases and subleases of real and personal property of
the Borrower or any of its Subsidiaries to any of their respective franchisees
in the ordinary course of business and consistent with past practices.
"Assignee" shall have the meaning provided in Section 10.4(c).
3
<PAGE> 10
"Assignment Agreement" shall have the meaning provided in Section
10.4(d).
"Authorized Officer" of any Person shall mean any of the
President, the Chief Executive Officer, the Chief Operating Officer, the Chief
Financial Officer, any Senior Vice President, any Executive Vice President, any
Vice President, the Controller, the Treasurer or Assistant Treasurer of such
Person, acting singly.
"Bankruptcy Code" shall mean Title 11 of the United States Code
entitled "Bankruptcy", as amended from time to time, and any successor statute
or statutes.
"Base Rate" shall mean, at any particular date, the highest of
(i) the rate of interest publicly announced by Morgan Guaranty Trust Company of
New York in New York, New York from time to time as its "base rate" changing as
and when such base rate changes and (ii) the Federal Funds Rate plus 0.50%. The
base rate is not intended to be the lowest rate of interest charged by Morgan
Guaranty Trust Company of New York in connection with extensions of credit to
debtors.
"Base Rate Loans" shall mean Loans made and/or being maintained
at a rate of interest based upon the Base Rate.
"Borrower" shall have the meaning provided in the first paragraph
of this Agreement.
"Borrower Pledge Agreement" shall mean a pledge agreement duly
executed and delivered by the Borrower to the Agent substantially in the form
set forth as Exhibit C hereto as the same may be amended, restated, modified or
supplemented from time to time.
"Borrower Security Agreement" shall mean a security agreement
substantially in the form of the Borrower Security Agreement set forth as
Exhibit D hereto executed and delivered to the Agent by the Borrower, as the
same may be amended, restated, modified or supplemented from time to time.
"Borrowing" shall mean the incurrence of one Type of Loan of one
Facility from all the Lenders on a given date (or resulting from conversions or
continuations on a given date) having, in the case of Eurodollar Loans, the same
Interest Period.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any day
which shall be in Chicago, Los Angeles or New York City a legal holiday or a day
on which banking institutions are authorized or required by law or other
government actions to close and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Loans, any day which is a Business Day described in clause (i) and
which is also a day for
4
<PAGE> 11
trading by and between banks for U.S. dollar deposits in the relevant London
interbank Eurodollar market.
"Capital Expenditures" shall mean, for any period, all
expenditures (whether paid in cash or accrued as a liability, including the
portion of Capitalized Leases of the Borrower and its Subsidiaries originally
incurred during such period that is capitalized on the consolidated balance
sheet of the Borrower and its Subsidiaries) by the Borrower and its Subsidiaries
during such period that, in conformity with GAAP, are included in "capital
expenditures", "additions to property, plant or equipment" or comparable items
in the consolidated financial statements of the Borrower and its Subsidiaries
(excluding any expenditures for assets that would be included in "capital
expenditures," "additions to property, plant or equipment" or in comparable
items in the consolidated financial statements of the Borrower and its
Subsidiaries in conformity with GAAP which assets are acquired in a Permitted
Acquisition).
"Capital Stock" shall mean any and all shares of, or interests or
participations in, corporate stock (or other instruments or securities
evidencing ownership).
"Capitalized Lease" shall mean with respect to any Person, (i)
any lease of property, real or personal, the obligations under which are
capitalized on the consolidated balance sheet of such Person, and (ii) any other
such lease of such Person to the extent that the then present value of the
minimum rental commitment thereunder should, in accordance with GAAP, be
capitalized on a balance sheet of the lessee.
"Capitalized Lease Obligations" with respect to any Person, shall
mean at any time of determination all obligations of such Person under or in
respect of Capitalized Leases of such Person.
"Cash Collateralize" shall mean the pledge and deposit with or
delivery to the Agent, for the benefit of the Agent, the Issuing Bank and the
Lenders, cash or deposit account balances pursuant to documentation in form and
substance reasonably satisfactory to the Agent and the Issuing Bank; such
documentation shall irrevocably authorize the Agent to apply such cash
collateral to reimbursement of the Issuing Bank for draws under Letters of
Credit as and when occurring, and in all cases to payment of other Obligations
as and when due. Cash collateral shall be maintained in blocked deposit accounts
at the Agent or a Lender.
"Cash Equivalents" shall mean (i) securities issued or directly
and fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than 360 days from the date of acquisition, (ii) time deposits and certificates
of deposit of any Lender or any domestic commercial bank of recognized standing
having capital and surplus in excess of $100,000,000 with maturities of
not more than 180 days from the date of acquisition, (iii) fully secured
repurchase obligations
5
<PAGE> 12
with a term of not more than 7 days for underlying securities of the types
described in clause (i) entered into with any bank meeting the qualifications
specified in clause (ii) above, and (iv) commercial paper issued by the parent
corporation of any Lender or any domestic commercial bank of recognized standing
having capital and surplus in excess of $500,000,000 and commercial paper rated
at least A-1 or the equivalent thereof by Standard & Poor's Ratings Group or at
least P-1 or the equivalent thereof by Moody's Investor Services, Inc. and in
each case maturing within 180 days after the date of acquisition.
"Closing Date" shall mean the date on which the initial Loans are
advanced hereunder.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute.
"Collateral" shall mean all property and interests in property
now owned or hereafter acquired in or upon which a Lien has been or is purported
or intended to have been granted to the Agent or any Lender under any of the
Security Documents.
"Commitment" shall mean, for each Lender at any given time, the
sum of such Lender's Term Loan Commitment and its Revolving Loan Commitment.
"Commitment Fees" shall have the meaning provided in Section
2.15(b).
"Company" shall mean Flagstar Enterprises, Inc., an Alabama
corporation.
"Compliance Certificate" shall have the meaning provided in
Section 6.1(e).
"Consents" shall have the meaning provided in Section 4.1(v).
"Consolidated Cash Interest Expense" shall mean, for any period,
Consolidated Interest Expense for such period minus the amount of such
Consolidated Interest Expense for such period not paid or payable in cash.
"Consolidated EBITDA" shall mean, for any Person during any
period, the sum of (i) Consolidated Net Income for such period plus (ii) to the
extent deducted in the calcula tion of Consolidated Net Income for such period,
Consolidated Interest Expense for such period plus (iii) to the extent deducted
in the calculation of Consolidated Net Income for such period, federal and state
income taxes for such period, plus (iv) to the extent deducted in the
calculation of Consolidated Net Income for such period, depreciation and
amortization expense for such period, all determined on a consolidated basis for
such Person and its Subsidiaries in accordance with GAAP.
"Consolidated EBITDAR" shall mean, during any period (i) Adjusted
Consoli-
6
<PAGE> 13
dated EBITDA for the Borrower and its Subsidiaries for such period plus (ii) to
the extent deducted in the calculation of Consolidated Net Income of the
Borrower and its Subsidiaries for such period, Consolidated Rentals for such
period.
"Consolidated Interest Expense" shall mean, for any Person and
for any period, the total interest expense (including, without limitation,
interest expense attributable to Capitalized Leases in accordance with GAAP) of
such Person and its Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" shall mean for any Person and for any
period the net income (or loss) of such Person and its Subsidiaries on a
consolidated basis for such period (taken as a single accounting period)
determined in accordance with GAAP.
"Consolidated Rentals" shall mean, for the Borrower and its
Subsidiaries for any period, the aggregate rent expense for the Borrower and its
Subsidiaries for such period, as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean, at any time, the
excess of (i) the total assets of the Borrower and its Subsidiaries determined
on a consolidated basis in accordance with GAAP minus goodwill and any other
items that are classified as intangibles in accordance with GAAP, minus (ii) all
liabilities of the Borrower and its Subsidiaries determined on a consolidated
basis in accordance with GAAP.
"Consolidated Total Debt" shall mean, at any time, all
Indebtedness of the Borrower and its Subsidiaries (other than undrawn amounts
under letters of credit issued for the account of the Borrower or any of its
Subsidiaries) as determined on a consolidated basis.
"Contingent Obligation" as to any Person shall mean any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of any such primary obligation or
(y) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum
7
<PAGE> 14
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Controlling Stockholders" shall mean (i) William P. Foley II,
(ii) Cannae Limited Partnership, a Nevada Limited Partnership, (iii) Fidelity
National Financial, Inc., a Delaware corporation and (iv) any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with any of the foregoing. For purposes of this definition, the term "control"
(including the terms "controlled by" and "under common control with") of a
Person means the possession, directly or indirect, of (A) the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of Voting Stock, by contract or otherwise or (B) the power
to vote 51% or more of the Voting Stock of such Person. No Lender shall be
deemed to be a Controlling Stockholder as a result of its being a party to this
Agreement.
"Conversion" shall have the meaning provided in Section 2.21(b).
"Credit Exposure" shall have the meaning provided in Section
10.4(b).
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Default Rate" shall have the meaning provided in Section 2.6(c).
"Dividends" shall have the meaning provided in Section 7.7.
"Domestic Lending Office" shall mean, as to any Lender, the
office of such Lender designated as such on Annex I, or such other office
designated by such Lender from time to time by written notice to the Agent and
the Borrower.
"Environmental Affiliate" shall mean, with respect to any Person,
any other Person whose liability for any Environmental Claim such Person has or
may have retained, assumed or otherwise become liable for (contingently or
otherwise), either contractually or by operation of law.
"Environmental Approvals" shall mean any permit, license,
approval, ruling, variance, exemption or other authorization required under
applicable Environmental Laws.
"Environmental Claim" shall mean, with respect to any Person, any
notice, claim, demand or similar communication (written or oral) by any other
Person alleging potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, fines or penalties arising out of, based on or resulting from
(i) the presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned by such Person or
(ii) circum-
8
<PAGE> 15
stances forming the basis of any violation, or alleged violation, of any
Environmental Law.
"Environmental Laws" shall mean all federal, state, local and
foreign laws and regulations relating to pollution or protection of human
health, safety or the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), including
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of Materials of Environmental Concern, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environmental Concern.
"Equity Interests" shall mean Capital Stock and warrants, options
or other rights to acquire Capital Stock.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time. Section references to ERISA are to ERISA, as
in effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Controlled Group" means a group consisting of any ERISA
Person and all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control with such Person
that, together with such Person, are treated as a single employer under
regulations of the PBGC.
"ERISA Person" shall have the meaning set forth in Section 3(9)
of ERISA for the term "person."
"ERISA Plan" means (i) any Plan that (x) is not a Multiemployer
Plan and (y) has Unfunded Benefit Liabilities in excess of $2,000,000 and (ii)
any Plan that is a Multiemployer Plan.
"Eurocurrency Reserve Requirements" shall mean, with respect to
each day during an Interest Period for Eurodollar Loans, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Federal Reserve Board or other governmental authority or agency having
jurisdiction with respect thereto for determining the maximum reserves
(including, without limitation, basic, supplemental, marginal and emergency
reserves) for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate" shall mean, with respect to each day
during an Interest Period for Eurodollar Loans, the rate per annum (rounded
upwards to the nearest whole multiple of one-sixteenth of one percent) equal to
the rate per annum at which deposits in U.S. dollars are offered by the
principal office of each of the Reference Banks in London, England to prime
banks in the London interbank market at 11:00 A.M. (London time) two Business
9
<PAGE> 16
Days before the first day of such Interest Period in an amount substantially
equal to such Reference Bank's Eurodollar Loan comprising part of such Borrowing
to be outstanding during such Interest Period and for a period equal to such
Interest Period. The Eurodollar Base Rate for any Interest Period for each
Eurodollar Loan comprising part of the same Borrowing shall be determined by the
Agent on the basis of applicable rates furnished to and received by the Agent
from the Reference Banks two Business Days before the first day of such Interest
Period, subject, however, to the provisions of Section 2.7.
"Eurodollar Lending Office" shall mean, as to any Lender, the
office of such Lender designated as such on Annex I, or such other office
designated by such Lender from time to time by written notice to the Agent and
the Borrower.
"Eurodollar Loans" shall mean Loans made and/or being maintained
at a rate of interest provided in Section 2.6(b).
"Eurodollar Rate" shall mean with respect to each day during an
Interest Period for Eurodollar Loans, a rate per annum determined for such day
in accordance with the following formula (rounded upwards to the nearest whole
multiple of 1/100th of one percent):
Eurodollar Base Rate
-----------------------------------------
1.00 -- Eurocurrency Reserve Requirements
"Event of Default" shall have the meaning provided in Section 8.
"Excluded Resales" shall mean any sale by the Borrower or any of
its Subsidiaries of a Restaurant of the Borrower or such Subsidiary so long as
(i) such Restaurant was acquired by the Borrower or such Subsidiary from a
franchisee with the intent of reselling such Restaurant and (ii) such sale
occurs within twelve (12) months of the acquisition of such Restaurant by the
Borrower or such Subsidiary.
"Existing Debt" shall have the meaning provided in Section
4.1(r)(ii).
"Existing Letter of Credit" shall mean the Letter of Credit No.
LASB-221686 issued by Bank of America National Trust and Savings Association for
the account of Carl Karcher Enterprises, Inc., as the same may be amended,
supplemented, modified, renewed or extended subject to Section 3.1(g) of this
Agreement.
"Existing Reimbursement Agreement" shall mean the Reimbursement
Agreement, dated as of September 23, 1994 between Carl Karcher Enterprises, Inc.
and Bank of America National Trust and Savings Association, as amended by
Amendment No. One dated as of July 15, 1997, Amendment No. Two dated as of
December 19, 1997, and Amendment No. Three dated as of April 1, 1998, and as the
same may be amended, restated or otherwise modified from time to time; provided,
however, that no such amendment, restatement or
10
<PAGE> 17
modification shall, without the prior written consent of the Required Lenders,
(i) result in an increase of the maximum principal amount of the Existing Letter
of Credit or (ii) modify any provision thereof relating to the fees payable
thereunder.
"Facility" shall mean either the Term Loans or the Revolving
Loans.
"Federal Funds Rate" shall mean, for any day, an interest rate
per annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three (3)
Federal funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System as constituted from time to time.
"Fee Letter" shall mean that certain fee letter entered into
between the Borrower and the Agent dated as of April 1, 1998, as amended, from
time to time.
"Fees" shall mean all amounts payable pursuant to Section 2.15.
"FEI Acquisition" shall mean the acquisition of the Company and
its Subsidiaries and the other transactions contemplated by the FEI Acquisition
Documents.
"FEI Acquisition Documents" shall mean the Letter of Intent dated
January 14, 1998 between Advantica and the Borrower and the FEI Purchase
Agreement and all agreements and instruments executed and delivered in
connection therewith.
"FEI Guaranties" shall mean guaranties of obligations of the
Company that the Borrower incurs pursuant to Section 6.12(a) of the FEI Purchase
Agreement.
"FEI Purchase Agreement" shall mean the Stock Purchase Agreement
among Advantica, Spartan Holdings, Inc., a New York corporation, the Company and
the Borrower, dated as of February 18, 1998, together with all schedules and
exhibits referred to therein, each in the form delivered to the Agent and the
Lenders on the Closing Date, without giving effect to any amendment,
modification or waiver of any material term thereof effected without the written
consent of the Required Lenders.
"Final Maturity Date" shall mean the later of the Revolving Loan
Maturity Date or the Term Loan Maturity Date.
"Fixed Charges" shall mean, without duplication, with respect to
the Borrower
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<PAGE> 18
and its Subsidiaries for any period, (i) all Consolidated Cash Interest Expense
(excluding in respect of Capitalized Leases of the Borrower and its
Subsidiaries) for such period, plus (ii) scheduled payments due in such period
for principal of the Term Loans and other permitted Indebtedness, plus (iii) all
federal and state income taxes paid in cash by the Borrower or any of its
Subsidiaries for such period, plus (iv) all scheduled amortization during such
period (including principal and interest) of Capitalized Leases under which the
Borrower or any of its Subsidiaries is the lessee, all determined on a
consolidated basis for the Borrower and its Subsidiaries for such period.
"Franchise Agreements" shall mean any and all agreements that
create a franchise or license to which the Borrower, the Company or any of their
respective Subsidiaries is a party (as franchisee, licensee, franchisor or
licensor) relating to the operation or development of any Restaurant or
Restaurants, including such franchise and/or license agreements to which any of
Borrower, the Company or any of their respective Subsidiaries is a party as of
the Closing Date and such franchise and/or license agreements entered into from
time to time after the Closing Date by the Borrower, the Company or any of their
respective Subsidiaries and shall include all other rights under such agreements
regardless of their nature.
"GAAP" shall mean (i) for purposes of determining compliance with
the covenants set forth in Sections 7.1 and 7.2 hereof, United States generally
accepted accounting principles as in effect on the date hereof and consistent
with those utilized in the preparation of the financial statements referred to
in Section 5.5 and (ii) for all other purposes, United States generally accepted
accounting principles as in effect as of the date of determination.
"Guarantor" shall mean each Subsidiary of the Borrower that shall
be required by the terms of this Agreement to enter into a Guaranty from time to
time.
"Guaranty" shall mean a guaranty substantially in the form of the
Guaranty set forth as Exhibit E hereto executed and delivered to the Agent for
itself and the Lenders by each Subsidiary of the Borrower (other than Immaterial
Subsidiaries), as the same may be amended, restated, modified or supplemented
from time to time.
"Hardee's" shall mean Hardee's Food Systems, Inc., a North
Carolina corporation.
"Hardee's Acquisition" shall mean the consummation of the
acquisition of Hardee's and its Subsidiaries and the other transactions
contemplated by the Hardee's Acquisition Documents.
"Hardee's Acquisition Documents" shall mean the Hardee's Purchase
Agreement and all agreements and instruments executed and delivered in
connection therewith including, without limitation, the Seller Agreements.
"Hardee's Purchase Agreement" shall mean the Stock Purchase
Agreement
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<PAGE> 19
among Imasco, Hardee's and the Borrower, dated April 27, 1997, together with all
schedules and exhibits referred to therein, each in the form delivered to the
Agent and the Lenders on the Closing Date, without giving effect to any
amendment, modification or waiver of any material term thereof effected without
the written consent of the Required Lenders.
"Hardee's Subsidiaries" shall mean each Subsidiary which is at
any time on or after July 15, 1997, a Subsidiary of Hardee's.
"Hart-Scott-Rodino Act" shall mean the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended.
"Hedging Agreements" shall mean any interest rate protection
agreements (including, without limitation, any interest rate swaps, caps,
floors, collars, options, futures and similar agreements), swaps (including,
without limitation, any caps, floors, collars, options, futures and similar
agreements) relating to currencies, commodities or securities, and similar
agreements.
"Imasco" shall mean IMASCO Holdings, Inc., a Delaware
corporation.
"Immaterial Investments"shall mean any Investment owned by the
Borrower or any Subsidiary consisting of Capital Stock of any Person which, when
added to all other Investments held by the Borrower and/or its Subsidiaries
consisting of Capital Stock of such Person does not exceed $1,000,000 at any one
time outstanding.
"Immaterial Subsidiaries" shall mean any Subsidiary of the
Borrower with assets of less than $1,500,000 (as determined in accordance with
GAAP), which is designated by the Borrower as an Immaterial Subsidiary on
Schedule 5.30 or pursuant to Section 6.12; provided that the aggregate amount of
assets of all Subsidiaries designated as Immaterial Subsidiaries shall not at
any time exceed $10,000,000 (as determined in accordance with GAAP).
"Indebtedness" of any Person shall mean, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than trade payables on terms of 90 days or
less incurred in the ordinary course of business of such Person), (ii) all
indebtedness of such Person evidenced by a note, bond, debenture, acceptance or
similar instrument, (iii) the principal component of all Capitalized Lease
Obligations of such Person, (iv) the face amount of all letters of credit issued
for the account of such Person and, without duplication, all unreimbursed
amounts drawn thereunder, and all obligations of such Person, contingent or
otherwise, under acceptances or similar facilities, (v) all indebtedness of any
other Person secured by any Lien on any property owned by such Person, whether
or not such indebtedness has been assumed in an amount equal to the lesser of
the fair market value at such date of such property subject to such Lien
securing such Indebtedness and the amount of the Indebtedness secured by such
Lien, (vi) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement
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<PAGE> 20
with respect to property acquired by such Person (even if 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), (vii) all Contingent
Obligations of such Person, (viii) all payment obligations, whether absolute or
contingent, matured or unmatured, present or future, due or to become due, now
existing or hereafter arising, of such Person under any Hedging Agreements, (ix)
all Redeemable Stock and (x) all indebtedness and other obligations of the types
specified in clauses (i) through (ix) above of any joint venture or partnership
for which such Person is liable.
"Indemnitee" shall have the meaning provided in Section 10.1(c).
"Initial Debt/Equity Issuance" shall have the meaning provided in
Section 4.1(q).
"INS" shall mean the United States Immigration and Naturalization
Service or any governmental body succeeding to its functions.
"Interest Period" shall have the meaning provided in Section 2.7.
"Interest Rate Agreements" shall mean any and all interest rate
protection agreements, including, without limitation, any interest rate swaps,
caps, collars, floors and similar agreements.
"Interest Rate Hedge Providers" shall mean any Lender that
provides an Interest Rate Agreement to the Borrower as permitted pursuant to
Section 7.14(a) and that executes and delivers an agency agreement, in form and
substance satisfactory to the Agent.
"Investment" of a Person shall mean any loan, advance, extension
of credit or commitment to make any such loan, advance or extension of credit
(other than accounts receivable arising in the ordinary course of business),
deposit account or contribution of capital by such Person to any other Person or
any investment in, or purchase or other acquisition (whether by purchase,
merger, consolidation or otherwise) of, the stock, partnership interests,
notes, bonds, debentures or other securities, including options and warrants,
of, or other ownership interests in, any other Person made by such Person
(whether for cash, property, services, securities or otherwise).
"Issue" shall mean, with respect to any Letter of Credit, to
issue or to extend the expiry of, or to renew or increase the amount of, such
Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have
corresponding meanings.
"Issuing Bank" shall mean Banque Paribas, in its capacity as
issuer of one or more Letters of Credit hereunder.
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<PAGE> 21
"JB" shall mean shall mean JB's Family Restaurants, Inc., a
Delaware corporation and wholly-owned Subsidiary of the Borrower which
Subsidiary shall not own any assets other than assets relating to and used in
the operations of the JB's Restaurants and related franchise system and Galaxy
Diner Restaurants
"JB Newco" shall mean a wholly-owned Subsidiary of the Borrower,
which Subsidiary shall not own any assets other than (i) capital stock of JB and
certain JB's Restaurants and Galaxy Diner Restaurants to be sold to Timber
Lodge Steakhouse, Inc. and (ii) capital stock of Timber Lodge Steakhouse, Inc.
and GB Foods Corporation received by JB Newco in exchange for the sales of JB's
Restaurants and Galaxy Diner Restaurants and the sale of all of the capital
stock of JB, respectively.
"L/C Amendment Application" shall mean an application form for
amendment of outstanding Letters of Credit as shall at any time be in use at the
Issuing Bank, as the Issuing Bank shall request.
"L/C Application" shall mean an application form for issuance of
Standby Letters of Credit or Trade Letters of Credit, as appropriate, as shall
at any time be in use at the Issuing Bank, as the Issuing Bank shall request.
"L/C Commitment" shall mean the commitment of the Issuing Bank to
Issue, and the commitment of the Lenders severally to participate in, Letters of
Credit from time to time Issued or outstanding under Section 3, in an aggregate
amount not to exceed on any date the amount of $65,000,000, provided, that the
L/C Commitment is part of the combined Revolving Loan Commitments, rather than a
separate, independent commitment.
"L/C Obligations" shall mean at any time the sum of (a) the
aggregate undrawn amount of all Letters of Credit then outstanding, plus (b) the
amount of all unreimbursed drawings under all Letters of Credit.
"L/C Related Documents" shall mean the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document relating to
any Letter of Credit, including any of the Issuing Bank's standard form
documents for standby or commercial letter of credit issuances, as appropriate.
"Lenders" shall mean the persons listed on Schedule 1.1 hereto
and the persons which from time to time become a party hereto in accordance with
Section 10.4(d).
"Letters of Credit" shall mean any letters of credit Issued by
the Issuing Bank pursuant to Section 3.
"Leverage Ratio" shall mean, with respect to the Borrower on a
consolidated basis with its Subsidiaries, at any date, the ratio of (a)
Consolidated Total Debt of the Borrower and its Subsidiaries to (b) Adjusted
Consolidated EBITDA of the Borrower and its
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<PAGE> 22
Subsidiaries for the period of four (4) consecutive fiscal quarters most
recently ended on or prior to such date.
"Lien" shall mean any mortgage, deed of trust, pledge, charge,
security interest, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or other), or preference, priority or other security agreement
of any kind or nature whatsoever, whether or not filed, recorded or otherwise
perfected under applicable law, including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same effect as any of the foregoing and the filing of any
financing statement or similar instrument under the Uniform Commercial Code or
comparable law of any jurisdiction, domestic or foreign.
"Liquidating Distribution" shall mean any extraordinary,
liquidating or other distribution in return of capital with respect to any
Equity Interest of any Person owned by a Loan Party which Equity Interest is
pledged pursuant to any of the Security Documents.
"Loan Documents" shall mean this Agreement, the Notes, the
Guaranty, each Letter of Credit, each L/C Related Document, the Fee Letter, the
Security Documents, each Interest Rate Agreement permitted to be entered into
pursuant to Section 7.14(a) and all other documents, instruments and agreements
executed and/or delivered in connection herewith or therewith or required or
contemplated hereunder or thereunder, as the same may be amended, restated,
modified or supplemented and in effect from time to time.
"Loan Party" shall mean and include the Borrower and each
Guarantor.
"Loans" shall mean and include the Term Loans and the Revolving
Loans.
"Margin Stock" shall have the meaning provided such term in
Regulation U of the Federal Reserve Board.
"Material Adverse Effect" shall mean a material adverse effect
upon (i) the business, operations, properties, assets, performance, prospects or
condition (financial or otherwise) of the Borrower and its Subsidiaries (after
giving effect to the FEI Acquisition), taken as a whole, or (ii) the ability of
any Loan Party to perform, or of the Agent or any of the Lenders to enforce, any
of such Loan Party's material Obligations under any Loan Document to which it is
or is to be a party.
"Material Leases" shall have the meaning provided in Section 6.9.
"Materials of Environmental Concern" shall mean and include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products, asbestos and radioactive materials.
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<PAGE> 23
"Multiemployer Plan" shall mean a Plan which is a "multiemployer
plan" as defined in Section 4001(a)(3) of ERISA.
"Net Debt Proceeds" means all cash proceeds received by the
Borrower or any of its Subsidiaries from the incurrence of, or the issuance of
any instruments relating to, any Indebtedness (other than (i) Indebtedness
borrowed by the Borrower under this Agreement, (ii) Indebtedness permitted to be
incurred pursuant to Section 7.2(g), and (iii) Indebtedness permitted to be
incurred pursuant to Section 7.2(i), in each case net of reasonable and
customary underwriting fees and discounts, brokerage commissions and other
similar reasonable and customary costs and expenses directly attributable to
such issuance or incurrence.
"Net Equity Proceeds" shall mean all cash proceeds received by
the Borrower or any of its Subsidiaries from any capital contribution or the
issuance of any Equity Interests or other equity securities of the Borrower or
any of its Subsidiaries (other than the issuance of common stock (A) of the
Borrower issued to employees, consultants or directors of the Borrower or any of
its Subsidiaries pursuant to an employee stock option or purchase plan approved
by the Board of Directors of the Borrower or (B) of any Subsidiary of the
Borrower to the Borrower or any wholly-owned Subsidiary of the Borrower or (C)
as part of the Initial Debt/Equity Issuance), net of any reasonable and
customary brokerage commissions, underwriting fees and discounts and any other
similar reasonable and customary costs or expenses directly attributable to such
issuance.
"Net Sale Proceeds" shall mean, with respect to (a) any Asset
Disposition, all cash proceeds received by the Borrower or any of its
Subsidiaries from or in respect of such Asset Disposition (including any cash
proceeds received as income or other proceeds of any noncash proceeds of such
Asset Disposition and including any insurance payment or condemnation award in
respect of any assets of the Borrower or any of its Subsidiaries) and (b) any
Liquidating Distribution, all cash proceeds received by the Borrower or any of
its Subsidiaries from or in respect of any Liquidating Distribution, in the case
of the foregoing clauses (a) and (b), net of (i) reasonable and customary
expenses incurred or reasonably expected to be incurred in connection with such
Asset Disposition or Liquidating Distribution, (ii) any income, franchise,
transfer or other tax payable by the Borrower or such Subsidiary in connection
with such Asset Disposition or Liquidating Distribution and (iii) any
Indebtedness secured by a Lien on such property or assets and required to be
repaid as a result of such Asset Disposition, in each case with respect to the
foregoing clause (i) to the extent, but only to the extent, that the amounts so
deducted are, at the time of receipt of such cash, actually paid to a Person
that is not an Affiliate and are properly attributable to such transaction or to
the asset that is the subject thereof; provided, however, that Net Sale Proceeds
shall not include any such proceeds from Excluded Resales.
"Notes" shall mean and include each Revolving Note and each Term
Note.
"Notice of Borrowing" shall have the meaning provided in Section
2.3(a).
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<PAGE> 24
"Notice of Conversion or Continuation" shall have the meaning
provided in Section 2.9(b).
"Obligations" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description of the Borrower and the other
Loan Parties from time to time owing to the Agent or any Lender or any
Indemnitee under or in connection with this Agreement or any other Loan
Document, whether direct or indirect, primary or secondary, joint or several,
absolute or contingent, due or to become due, now existing or hereafter arising
and however acquired and shall include, without limitation, all principal and
interest on the Loans and, to the extent chargeable under any Loan Document, all
charges, expenses, fees and attorney's fees.
"Original Credit Facility" shall mean that certain Credit
Agreement dated as of July 15, 1997 among the Borrower, the lenders party
thereto and Banque Paribas, as Agent, as amended prior to the date hereof.
"Participant" shall have the meaning provided in Section 10.4(b).
"Payment Date" shall mean the fifteenth day of each January,
April, July and October of each year.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established under ERISA, or any successor thereto.
"Permitted Acquisition" shall mean any Acquisition by the
Borrower or any of its Subsidiaries that has been approved by the board of
directors (or other governing body, if applicable) of the Person which is the
subject of such Acquisition so long as the Person acquired in connection
therewith is engaged primarily in, or the assets or business acquired in
connection therewith relate primarily to, the food service business.
"Permitted Restaurant Acquisition" shall mean a Permitted
Acquisition of a Carl's Jr. or a Hardee's Restaurant by the Borrower or any of
its Subsidiaries from a franchisee.
"Permitted Subordinated Debt" shall mean Indebtedness of the
Borrower or any Subsidiary of the Borrower incurred after July 15, 1997, (A)
with respect to which no principal payments are due prior to the date which is
one year and one day after the Final Maturity Date and (B) which is subordinated
as to exercise of remedies and in right of payment to the Borrower's Obligations
under the Loan Documents on, and is otherwise subject to, terms and conditions
(including, without limitation, terms in respect of maturities, covenants,
defaults and remedies and interest rates) approved in writing by the Agent and
in any event shall not include Indebtedness issued pursuant to the Subordinated
Notes.
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<PAGE> 25
"Person" shall mean and include any individual, partnership,
joint venture, firm, corporation, limited liability company, association, trust
or other enterprise or any government or political subdivision or agency,
department or instrumentality thereof.
"Plan" means any employee benefit plan covered by Title IV of
ERISA, the funding requirements of which:
(i) were the responsibility of the Borrower or a
member of its ERISA Controlled Group at any time within the six
years immediately preceding the date hereof,
(ii) are currently the responsibility of the
Borrower or a member of its ERISA Controlled Group, or
(iii) hereafter become the responsibility of the
Borrower or a member of its ERISA Controlled Group,
including any such plans as may have been, or may hereafter be, terminated for
whatever reason.
"Prepayment" shall have the meaning provided in Section 7.10.
"Pro Rata Share" as to any Lender shall mean:
(i) with respect to all payments, computations and
determinations relating to the Term Loan Commitment or the Term
Loan of any Lender, the percentage obtained by dividing (A) the
outstanding principal balance of such Lender's Term Loan (or the
amount of such Lender's Term Loan Commitment, if the Term Loan
has not been made) by (B) the aggregate outstanding principal
balance of the Term Loan (or the Total Term Loan Commitment, if
the Term Loan has not been made);
(ii) with respect to all payments, computations
and determinations relating to the Revolving Loan Commitment or
the Revolving Loans of any Lender, or such Lender's interest in
Letters of Credit (including without limitation determinations of
the commitment fee under Section 2.15(b) and Letter of Credit
fees under Section 3.2), the percentage obtained by divid ing (A)
such Lender's Revolving Loan Commitment (or the aggregate
outstand ing principal balance of such Lender's Revolving Loans
and all L/C Obligations in which such Lender has an interest, if
the Revolving Loan Commitments have been terminated pursuant to
the terms of this Agreement) by (B) the Total Revolving Loan
Commitment (or the aggregate outstanding principal balance of the
Revolving Loans and all L/C Obligations, if the Revolving Loan
Commit-
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<PAGE> 26
ments have been terminated pursuant to the terms of this
Agreement); and
(iii) for all other purposes with respect to each
Lender, the percentage obtained by dividing (A) the sum of (1)
the outstanding principal balance of such Lender's Term Loan (or
such Lender's Term Loan Commit ment if the Term Loan has not been
made) and (2) such Lender's Revolving Loan Commitment (or the
aggregate outstanding principal balance of such Lender's
Revolving Loans and all L/C Obligations in which such Lender has
an interest, if the Revolving Loan Commitments have been
terminated pursuant to the terms of this Agreement) by (B) the
sum of (1) the aggregate outstanding principal balance of the
Term Loan (or the Total Term Loan Commitment if the Term Loan has
not been made) and (2) the Total Revolving Loan Commitment (or
the aggregate outstanding principal balance of the Revolving
Loans and all L/C Obligations, if the Revolving Loan Commitments
have been terminated pursuant to the terms of this Agreement).
"Purchasing Lenders" shall have the meaning provided in Section
10.4(d).
"Rate Hedging Obligations" shall mean any and all obligations of
any Loan Party to any Interest Rate Hedge Provider under Interest Rate
Agreements permitted pursuant to Section 7.14(a).
"Redeemable Stock" means any Equity Interest which, by its terms,
or upon the happening of any event matures, is mandatorily redeemable or
repurchaseable (other than for Capital Stock not constituting Redeemable Stock),
in whole or in part, prior to one year and one day after the Final Maturity
Date, or is, by its terms or upon the happening of any event, required to be
redeemed or repurchased, redeemable or repurchaseable at the option of the
holder thereof, in whole or in part, at any time prior to one year and one day
after the Final Maturity Date.
"Reference Banks" shall mean Banque Paribas, The Sakura Bank,
Limited, Los Angeles Agency and Bank of Montreal.
"Regulation D" shall mean Regulation D of the Federal Reserve
Board as from time to time in effect and any successor to all or any portion
thereof.
"Related Businesses" shall mean any Persons (other than
individuals) engaged primarily in, or the assets or business of which relate
primarily to, the food service business.
"Replacement Lender" shall have the meaning provided in Section
2.22.
"Reportable Event" has the meaning set forth in Section 4043(b)
of ERISA (other than a Reportable Event as to which the provision of 30 days
notice to the PBGC is
20
<PAGE> 27
waived under applicable regulations), or is the occurrence of any of the events
described in Section 4068(f) or 4063(a) of ERISA.
"Required Holders" shall mean William P. Foley II and C. Thomas
Thompson.
"Required Lenders" shall mean all Lenders whose Pro Rata Shares,
in the aggregate, are greater than 50%.
"Restaurant" shall mean any quick service restaurant.
"Revolving Loan Commitment" shall mean at any time, for any
Lender, the amount set forth opposite such Lender's name on Schedule 1.1 hereto
under the heading "Revolving Loan Commitment," as such amount may be reduced
from time to time pursuant to the terms of this Agreement.
"Revolving Loan Maturity Date" shall mean April 15, 2003.
"Revolving Loans" shall have the meaning provided in Section
2.2(a).
"Revolving Note" shall have the meaning provided in Section
2.5(a).
"Secured Parties" shall have the meaning provided in the Borrower
Security Agreement and the Subsidiary Security Agreement.
"Security Documents" shall mean and include the Borrower Security
Agreement, the Subsidiary Security Agreement, the Guaranty, the Borrower Pledge
Agreement, the Subsidiary Pledge Agreements and all other security agreements,
pledge agreements, assign ments and similar agreements executed in connection
with the Loan Documents.
"Seller Agreements" shall mean (i) that certain agreement dated
as of April 27, 1997 between Imasco and the Borrower and (ii) that certain
Indemnification Agreement dated as of July 14, 1997 between Imasco and the
Borrower, each as amended, in accordance with Section 7.10(b)(i).
"Solvent" as to any Person shall mean that (i) the sum of the
assets of such Person, both at a fair valuation and at present fair salable
value, will exceed its liabilities, including contingent liabilities, (ii) such
Person will have sufficient capital with which to conduct its business as
presently conducted and as proposed to be conducted and (iii) such Person has
not incurred debts, and does not intend to incur debts, beyond its ability to
pay such debts as they mature. For purposes of this definition, "debt" means any
liability on a claim, and "claim" means (x) a right to payment, whether or not
such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured, or (y) a right to an equitable remedy for breach
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<PAGE> 28
of performance if such breach gives rise to a payment, whether or not such right
to an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, or unsecured. With respect to any such
contingent liabilities, such liabilities shall be computed at the amount which,
in light of all the facts and circumstances existing at the time, represents the
amount which can reasonably be expected to become an actual or matured
liability.
"Standby Letter of Credit" shall mean any standby letter of
credit issued by the Issuing Bank pursuant to Section 3 and which is not a Trade
Letter of Credit.
"Subordinated Debt Documents" shall mean the Subordinated Notes
and the Subordinated Note Indenture.
"Subordinated Note Indenture" shall mean that certain Indenture
between the Borrower and Chase Manhattan Bank and Trust Company, N.A., as
trustee, dated as of March 13, 1998, as the same may be amended, restated,
supplemented or otherwise modified in accordance with the terms of this
Agreement.
"Subordinated Notes" shall mean the Convertible Subordinated
Notes issued by the Borrower pursuant to the Subordinated Note Indenture, in a
maximum principal amount not to exceed $200,000,000 in the aggregate, as the
same may be amended, restated, supple mented or otherwise modified in accordance
with the terms of this Agreement; provided that such Subordinated Notes shall at
all times be subordinated in respect of the Obligations on subordination terms
contained in the Subordinated Note Indenture.
"Subsidiary" of any Person shall mean and include (i) any
corporation 50% or more of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person directly
or indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person, directly or indirectly through
Subsidiaries, is either a general partner or has a 50% or more equity interest
at the time.
"Subsidiary Pledge Agreement" shall mean each pledge agreement
substantially in the form of the Subsidiary Pledge Agreement set forth as
Exhibit F hereto executed and delivered to the Agent by each Subsidiary of the
Borrower which owns any equity interest of any Person, as the same may be
amended, restated, modified or supplemented from time to time.
"Subsidiary Security Agreement" shall mean a security agreement
substantially in the form of the Subsidiary Security Agreement set forth as
Exhibit G hereto executed and delivered to the Agent by each Subsidiary of the
Borrower (other than Immaterial Subsidiaries), as the same may be amended,
restated, modified or supplemented from time to time.
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"Surviving Debt" shall have the meaning provided in Section
4.1(r).
"Term Loan" shall have the meaning provided in Section 2.1.
"Term Loan Commitment" shall mean at any time, for any Lender,
the amount set forth opposite such Lender's name in Schedule 1.1 hereto under
the heading "Term Loan Commitment", as the same may be reduced from time to time
pursuant to the terms of this Agreement.
"Term Loan Maturity Date" shall mean April 15, 2003.
"Term Note" shall have the meaning provided in Section 2.5(a).
"Termination Event" shall mean (i) a Reportable Event, or (ii)
the initiation of any action by the Borrower, any member of the Borrower's ERISA
Controlled Group or any ERISA Plan fiduciary to terminate an ERISA Plan or the
treatment of an amendment to an ERISA Plan as a termination under ERISA, or
(iii) the institution of proceedings by the PBGC under Section 4042 of ERISA to
terminate an ERISA Plan or to appoint a trustee to administer any ERISA Plan.
"Total Revolving Loan Commitment" shall have the meaning set
forth in Section 2.2(a).
"Total Term Loan Commitment" shall have the meaning set forth in
Section 2.1.
"Trade Letter of Credit" shall mean any Letter of Credit that is
issued pursuant to Section 3 for the benefit of a supplier of inventory to the
Borrower or any of its Subsidiaries to effect payment for such inventory.
"Transaction Costs" shall mean all costs and expenses paid or
payable by any Loan Party relating to the Transactions including, without
limitation, investment banking fees, financing fees, advisory fees, appraisal
fees, legal fees and accounting fees.
"Transaction Documents" shall mean the Loan Documents, the
Subordinated Debt Documents and the FEI Acquisition Documents.
"Transactions" shall mean the Initial Debt/Equity Issuance and
each of the transactions contemplated by the Transaction Documents.
"Transferee" shall have the meaning provided in Section 10.4(e).
"Type" shall mean any type of Loan determined with respect to the
interest
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<PAGE> 30
option applicable thereto, i.e., a Base Rate Loan or a Eurodollar Loan.
"Unfunded Benefit Liabilities" means with respect to any Plan at
any time, the amount (if any) by which (i) the present value of all benefit
liabilities under such Plan as defined in Section 4001(a)(16) of ERISA, exceeds
(ii) the fair market value of all Plan assets allocable to such benefits, all
determined as of the then most recent valuation date for such Plan (on the basis
of assumptions prescribed by the PBGC for the purpose of Section 4044 of ERISA).
"Unused Portion" shall mean at any time with respect to the
Revolving Loans, the amount by which the Total Revolving Loan Commitment in
effect at such time exceeds the sum of (i) the aggregate principal amount
outstanding of the Revolving Loans outstanding at such time and (ii) the
aggregate amount of L/C Obligations outstanding at such time.
"Voting Stock" shall mean capital stock issued by a corporation,
or equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the election
of directors (or persons performing similar functions) of such Person, even
though the right so to vote has been suspended by the happening of such a
contingency.
SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITIES.
Section 2.1 Term Loans. Subject to and upon the terms and
conditions herein set forth, each Lender severally and not jointly agrees to
make a single loan to the Borrower on the Closing Date of a sum not to exceed
the Term Loan Commitment of such Lender (each such loan, a "Term Loan"). The
aggregate principal amount of the Term Loan Commitments (the "Total Term Loan
Commitment") shall not exceed $250,000,000. All unutilized Term Loan Commitments
shall expire simultaneously with the making of the Term Loans on the Closing
Date. The Term Loan of each Lender made on the Closing Date shall be initially
made as a Base Rate Loan or a Eurodollar Loan (subject to the other terms of
this Agreement, including without limitation, Section 2.3 and Section 2.17) and
may thereafter be maintained at the option of the Borrower as a Base Rate Loan
or a Eurodollar Loan, in accordance with the provisions hereof. Once repaid,
Term Loans may not be reborrowed. The Term Loans shall mature on the Term Loan
Maturity Date and shall be repaid, without premium or penalty, by the Borrower,
in twenty (20) consecutive quarterly installments. The installments shall be
payable on the respective Payment Dates in the aggregate amounts set forth
below:
<TABLE>
<CAPTION>
Payment Date Installment Amount
- ------------ ------------------
<S> <C>
July 15, 1998 $5,000,000
October 15, 1998 $5,000,000
January 15, 1999 $5,000,000
April 15, 1999 $5,000,000
</TABLE>
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<PAGE> 31
<TABLE>
<CAPTION>
Payment Date Installment Amount
- ------------ ------------------
<S> <C>
July 15, 1999 $10,000,000
October 15, 1999 $10,000,000
January 15, 2000 $10,000,000
April 15, 2000 $10,000,000
July 15, 2000 $13,750,000
October 15, 2000 $13,750,000
January 15, 2001 $13,750,000
April 15, 2001 $13,750,000
July 15, 2001 $16,250,000
October 15, 2001 $16,250,000
January 15, 2002 $16,250,000
April 15, 2002 $16,250,000
July 15, 2002 $17,500,000
October 15, 2002 $17,500,000
January 15, 2003 $17,500,000
April 15, 2003 $17,500,000
</TABLE>
Notwithstanding the foregoing, the last such installment due on the Term Loan
Maturity Date shall be in the amount necessary to repay in full the aggregate
unpaid principal balance of the Term Loans.
Section 2.2 Revolving Loans. (a) Subject to and upon the terms
and condi tions herein set forth, each Lender severally and not jointly agrees,
at any time and from time to time on and after the Closing Date and prior to the
Revolving Loan Maturity Date, to make revolving loans (collectively, "Revolving
Loans") to the Borrower, which Revolving Loans shall not exceed in aggregate
principal amount at any time outstanding (i) the Revolving Loan Commitment of
such Lender at such time minus (ii) such Lender's Pro Rata Share of the L/C
Obligations at such time; provided that at no time shall the aggregate
outstanding principal amount of the Revolving Loans of all of the Lenders plus
the L/C Obligations of all of the Lenders exceed the Total Revolving Loan
Commitment. The sum of the Revolving Loan Commitments of all of the Lenders (the
"Total Revolving Loan Commitment") on the Closing Date shall be $250,000,000.
The Revolving Loans of each Lender made on the Closing Date shall be initially
made as a Base Rate Loan or a Eurodollar Loan (subject to the other terms of
this Agreement, including without limitation, Section 2.3 and Section 2.17) and
may thereafter be maintained at the option of the Borrower as a Base Rate Loan
or a Eurodollar Loan, in accordance with the provisions hereof.
(b) Revolving Loans may be voluntarily prepaid
pursuant to Section 2.11, and, subject to the other provisions of this
Agreement, any amounts so prepaid may be reborrowed. Each Lender's Revolving
Loan Commitment shall expire (provided the Revolv ing Loan Commitments have not
already expired pursuant to Section 2.2(a) hereof), and each Revolving Loan
shall mature on, the Revolving Loan Maturity Date, without further action on the
part of the Lenders or the Agent.
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<PAGE> 32
(c) Each Borrowing of Revolving Loans shall be in
the aggregate minimum amount of $1,000,000 or any integral multiple of $500,000
in excess thereof.
Section 2.3 Notice of Borrowing. (a) Whenever the Borrower
desires to borrow Revolving Loans or Term Loans hereunder, it shall give the
Agent at the Agent's Office prior to 12:00 Noon, Chicago time, on the Business
Day of such borrowing by telex, facsimile or telephonic notice (promptly
confirmed in writing) of each Base Rate Loan, and at least three Business Days'
prior telex, facsimile or telephonic notice (promptly confirmed in writing) of
each Eurodollar Loan to be made hereunder. Each such notice (a "Notice of
Borrowing") shall be irrevocable and shall specify (i) the aggregate principal
amount of the requested Loans, (ii) whether such Loans shall be Term Loans or
Revolving Loans, (iii) the date of Borrowing (which shall be a Business Day),
and (iv) whether such Loans shall consist of Base Rate Loans or Eurodollar Loans
and, if Eurodollar Loans, the initial Interest Period to be applicable thereto
(provided, that no Eurodollar Loans may be requested or made when any Default or
Event of Default has occurred and is continuing).
(b) Promptly after receipt of a Notice of
Borrowing, the Agent shall provide each Lender with a copy thereof and inform
each Lender as to its Pro Rata Share of the Loans requested thereunder.
Section 2.4 Disbursement of Funds. (a) No later than 2:00 P.M.,
Chicago time, on the date specified in each Notice of Borrowing, each Lender
will make available its Pro Rata Share of the Loans requested to be made on such
date, in U.S. dollars and immediately available funds, at the Agent's Office.
After the Agent's receipt of the proceeds of such Loans, the Agent will make
available to the Borrower by depositing in the Borrower's account at the Agent's
Office the aggregate of the amounts so made available in the type of funds
actually received.
(b) Unless the Agent shall have been notified by
any Lender prior to the date of a Borrowing that such Lender does not intend to
make available to the Agent its portion of the Loans to be made on such date,
the Agent may assume that such Lender has made such amount available to the
Agent on such date and the Agent in its sole discretion may, in reliance upon
such assumption, make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Agent by such Lender
and the Agent has made such amount available to the Borrower, the Agent shall be
entitled to recover such corresponding amount on demand from such Lender. If
such Lender does not pay such corresponding amount forthwith upon the Agent's
demand therefor, the Agent shall promptly notify the Borrower and the Borrower
shall immediately repay such corresponding amount to the Agent. The Agent shall
also be entitled to recover from such Lender or the Borrower, as the case may
be, interest on such corresponding amount in respect of each day from the date
such corresponding amount was made available by the Agent to the Borrower to the
date such corresponding amount is recovered by the Agent, at a rate per annum
equal to the then applicable rate of interest, calculated in accordance with
Section 2.6, for the respective Loans.
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<PAGE> 33
Nothing herein shall be deemed to relieve any Lender from its obligation to
fulfill its commitments hereunder or to prejudice any rights which the Borrower
may have against any Lender as a result of any default by such Lender hereunder.
Notwith standing anything contained herein or in any other Loan Document to the
contrary, the Agent may apply all funds and proceeds of Collateral available for
the payment of any Obligations first to repay any amount owing by any Lender to
the Agent as a result of such Lender's failure to fund its Loans hereunder.
Section 2.5 Notes. (a) The Borrower's obligation to pay the
principal of, and interest on, each Lender's Loans shall be evidenced by (i) in
the case of such Lender's Term Loans, a promissory note (as the same may be
amended, restated, supplemented or otherwise modified from time to time, a "Term
Note") duly executed and delivered by the Borrower substantially in the form of
Exhibit A hereto in a principal amount equal to such Lender's Term Loan with
blanks appropriately completed in conformity herewith and (ii) in the case of
such Lender's Revolving Loans, a promissory note (as the same may be amended,
restated, supplemented or otherwise modified from time to time, a "Revolving
Note") duly executed and delivered by the Borrower substantially in the form of
Exhibit B hereto in a principal amount equal to such Lender's Revolving Loan
Commitment, with blanks appropriately completed in conformity herewith. Each
Note issued to a Lender shall (x) be payable to the order of such Lender, (y) be
dated the Closing Date or the date such Note was issued, and (z) mature on the
Term Loan Maturity Date or the Revolving Loan Maturity Date, as the case may be.
(b) Each Lender is hereby authorized, at its
option, either (i) to endorse on the schedule attached to its Revolving Note (or
on a continuation of such schedule attached to such Note and made a part
thereof) an appropriate notation evidencing the date and amount of each
Revolving Loan evidenced thereby and the date and amount of each principal and
interest payment in respect thereof, or (ii) to record such Revolving Loans and
such payments in its books and records. Such schedule or such books and records,
as the case may be, shall constitute prima facie evidence of the accuracy of the
information contained therein.
Section 2.6 Interest. (a) The Borrower agrees to pay interest in
respect of the unpaid principal amount of each Base Rate Loan from the date of
the making of such Loan until such Loan shall be paid in full at a rate per
annum which shall be equal to the Base Rate in effect from time to time, such
rate to change as and when the Base Rate changes, such
interest to be computed on the basis of a 365 or 366-day year, as the case may
be, and paid for the actual number of days elapsed.
(b) The Borrower agrees to pay interest in respect
of the unpaid principal amount of each Eurodollar Loan from the date of the
making of such Loan until such Loan shall be paid in full at a rate per annum
which shall be equal to the sum of (i) the Applicable Margin plus (ii) the
relevant Eurodollar Rate, such interest to be computed on the basis of a 360-day
year and paid for the actual number of days elapsed.
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<PAGE> 34
(c) In the event that, and for so long as, any
Event of Default shall have occurred and be continuing, the outstanding
principal amount of all Loans and, to the extent permitted by law, overdue
interest in respect of all Loans, shall bear interest at a rate per annum (the
"Default Rate") equal to the sum of two percent (2%) plus the Base Rate in
effect from time to time, and shall be payable on demand.
(d) Interest on each Loan shall accrue from and
including the date of the Borrowing thereof to but excluding the date of any
repayment thereof (provided that any Loan borrowed and repaid on the same day
shall accrue one day's interest) and shall be payable (i) in respect of each
Base Rate Loan, quarterly in arrears on each Payment Date, commencing on April
15, 1998, (ii) in respect of each Eurodollar Loan, on the last day of each
Interest Period applicable to such Loan and, in the case of an Interest Period
of six months, on the date occurring three months from the first day of such
Interest Period and on the last day of such Interest Period, and (iii) in the
case of all Loans, on any prepayment or conversion (on the amount prepaid or
converted), at maturity (whether by acceleration or otherwise) and, after such
maturity, on demand. Each determination by the Agent of an interest rate
hereunder shall, except for manifest error, be final, conclusive and binding for
all purposes.
(e) Each Reference Bank agrees to furnish to the
Agent timely information for the purpose of determining each Eurodollar Base
Rate. If any one or more of the Reference Banks shall not furnish such timely
information to the Agent for the purpose of determining any such interest rate,
the Agent shall determine such interest rate on the basis of timely information
furnished by the remaining Reference Banks. The Agent shall give prompt notice
to the Borrower and the Lenders of the applicable interest rate determined by
the Agent for purposes of Section 2.6(b), and the rate, if any, furnished by
each Reference Bank for the purpose of determining the interest rate under
Section 2.6(b).
(f) If fewer than two Reference Banks furnish
timely information to the Agent for determining the Eurodollar Base Rate for any
Eurodollar Loan,
(i) the Agent shall forthwith
notify the Borrower and the Lenders that the interest rate cannot be determined
for such Eurodollar Loan,
(ii) each such Eurodollar Loan will
automatically, on the last day of the then existing Interest Period therefor,
convert into a Base Rate Loan (or if such Loan is then a Base Rate Loan, will
continue as a Base Rate Loan), and
(iii) the obligation of the Lenders
to make, or to convert Loans into, Eurodollar Loans shall be suspended until the
Agent shall notify the Borrower and the Lenders that the circumstances causing
suspension no longer exist.
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<PAGE> 35
Section 2.7 Interest Periods. (a) The Borrower shall, in each
Notice of Borrowing or Notice of Conversion or Continuation in respect of the
making of, conversion into or continuation of a Eurodollar Loan, select the
interest period (each an "Interest Period") applicable to such Eurodollar Loan,
which Interest Period shall, at the option of the Borrower, be either a
one-month, two-month, three-month or six-month period, provided that:
(i) the initial Interest Period for
any Eurodollar Loan shall commence on the date of the making of such Loan
(including the date of any conversion from a Base Rate Loan) and each Interest
Period occurring thereafter in respect of such Loan shall commence on the date
on which the next preceding Interest Period expires;
(ii) if any Interest Period would
otherwise expire on a day which is not a Business Day, such Interest Period
shall expire on the next succeeding Business Day, provided, however, that if any
Interest Period would otherwise expire on a day which is not a Business Day but
is a day of the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day;
(iii) if any Interest Period begins
on a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period, such Interest Period shall end on the
last Business Day of such calendar month;
(iv) no Interest Period in respect
of any Revolving Loan or Term Loan shall extend beyond the Revolving Maturity
Date or the Term Loan Maturity Date, as the case may be; and
(v) no Interest Period in respect
of a Term Loan shall extend beyond any date upon which a repayment of the Term
Loans is required to be made pursuant to Section 2.1 unless the aggregate
principal amount of Term Loans which are Base Rate Loans or which have Interest
Periods which will expire on or before such date is equal to or in excess of the
amount of the Term Loan repayment required to be made on such date.
(b) If upon the expiration of any Interest Period,
the Borrower has failed to elect a new Interest Period to be applicable to the
respective Eurodollar Loan as provided above, the Borrower shall be deemed to
have elected to convert such Eurodollar Loans into Base Rate Loans effective as
of the expiration date of such current Interest Period.
Section 2.8 Minimum Amount of Eurodollar Loans. All borrowings,
conversions, continuations, payments, prepayments and selection of Interest
Periods hereunder shall be made or selected so that, after giving effect
thereto, (i) the aggregate principal amount of
29
<PAGE> 36
any Borrowing comprised of Eurodollar Loans shall not be less than $1,500,000 or
an integral multiple of $500,000 in excess thereof, and (ii) there shall be no
more than twelve (12) Borrowings comprised of Eurodollar Loans outstanding at
any time.
Section 2.9 Conversion or Continuation. (a) Subject to the other
provisions hereof, the Borrower shall have the option (i) to convert at any time
all or any part of outstanding Base Rate Loans which comprise part of the same
Borrowing to Eurodollar Loans, (ii) to convert all or any part of outstanding
Eurodollar Loans which comprise part of the same Borrowing to Base Rate Loans,
on the expiration date of the Interest Period applicable thereto, or (iii) to
continue all or any part of outstanding Eurodollar Loans which comprise part of
the same Borrowing as Eurodollar Loans for an additional Interest Period, on the
expiration of the Interest Period applicable thereto; provided that no Loan may
be continued as, or converted into, a Eurodollar Loan when any Default or Event
of Default has occurred and is continuing.
(b) In order to elect to convert or continue a
Loan under this Section 2.9, the Borrower shall deliver an irrevocable notice
thereof (a "Notice of Conversion or Continuation") to the Agent no later than
12:00 Noon, Chicago time, (i) on the Business Day of the proposed conversion
date in the case of a conversion to a Base Rate Loan and (ii) at least three
Business Days in advance of the proposed conversion or continuation date in the
case of a conversion to, or a continuation of, a Eurodollar Loan. A Notice of
Conversion or Continuation shall specify (w) the requested conversion or
continuation date (which shall be a Business Day), (x) the amount and Facility
of the Loan to be converted or continued, (y) whether a conversion or
continuation is requested, and (z) in the case of a conversion to, or a
continuation of, a Eurodollar Loan, the requested Interest Period. Promptly
after receipt of a Notice of Conversion or Continuation under this Section
2.9(b), the Agent shall provide each Lender with a copy thereof.
Section 2.10 Voluntary Reduction of Commitments. Upon at least
three Business Day's prior irrevocable written notice (or telephonic notice
promptly confirmed in writing) to the Agent (which notice the Agent shall
promptly transmit to each of the Lenders), the Borrower shall have the right,
without premium or penalty, to permanently reduce each Lender's Pro Rata Share
of all or part of the Total Revolving Loan Commitment, provided that any such
partial reduction shall be in the minimum aggregate amount of $1,000,000 or any
integral multiple of $500,000 in excess thereof.
Section 2.11 Voluntary Prepayments. The Borrower shall have the
right to prepay the Loans in whole or in part from time to time on the following
terms and conditions: (i) the Borrower shall give the Agent written notice (or
telephonic notice promptly confirmed in writing), which notice shall be
irrevocable, of its intent to prepay the Loans, at least three Business Days
prior to a prepayment of Eurodollar Loans and on the Business Day of a
prepayment of Base Rate Loans, which notice shall specify the amount of such
prepayment and what Types of Loans and which Facilities are to be prepaid and,
in the case of Eurodollar Loans, the specific Borrowing(s) pursuant to which
made, and which notice the Agent shall
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<PAGE> 37
promptly transmit to each of the Lenders, (ii) each prepayment shall be in an
aggregate principal amount of $1,000,000 or any integral multiple of $500,000 in
excess thereof and (iii) partial prepayments of the Term Loans shall be applied
to the scheduled installments of principal thereof in the inverse order of
maturity; provided that if any prepayment of Eurodollar Loans is made pursuant
to this Section 2.11 on a day which is not the last day of the Interest Period
applicable thereto, the Borrower shall pay to each Lender all amounts due in
connection with such prepayment pursuant to Section 2.17.
Section 2.12 Mandatory Prepayments. (a) Upon the consummation of
any Asset Disposition after July 15, 1997, or upon receipt by any Loan Party of
any Liquidating Distribution after July 15, 1997, in each case within three
hundred sixty (360) days after the Borrower or any of its Subsidiaries receives
any Net Sale Proceeds, the Borrower shall prepay the outstanding Loans in an
amount equal to 100% of the amount of such Net Sale Proceeds, in accordance with
the provisions of Section 2.13; provided, however, that such Net Sale Proceeds
which the Borrower or such Subsidiary shall, within three hundred sixty (360)
days after the receipt thereof, use to reinvest in the business of the Borrower
or its Subsidiaries, shall not be included in determining the aggregate Net Sale
Proceeds for such period; provided further that, if an Event of Default shall
have occurred and be continuing on the date such Net Sale Proceeds are received
by the Borrower or any of its Subsidiaries or at any time during such applicable
three hundred sixty day period, then the Borrower shall prepay the outstanding
Loans in an amount equal to 100% of such Net Sale Proceeds (or, if any portion
of such proceeds shall have been reinvested prior to the occurrence of such
Event of Default, 100% of such remaining amount of Net Sale Proceeds not so
reinvested) on the later of the date such Net Sale Proceeds are received by the
Borrower or any of its Subsidiaries or the date of the occurrence of such Event
of Default.
(b) On each date after July 15, 1997, on which the
Borrower or any of its Subsidiaries receives any Net Equity Proceeds, the
Borrower shall prepay the outstanding Loans in an amount equal to (i) 50% of
such Net Equity Proceeds if both (A) the Leverage Ratio as of the end of the
fiscal quarter immediately preceding such date as to which financial statements
are required to have been delivered pursuant to Section 6.1(a) and 6.1(b), as
applicable, on a pro forma basis after giving effect to any prepayment made by
the Borrower pursuant to clause (ii)(A) of this Section 2.12(b), is less than
2.0 to 1.0 and (B) no Default or Event of Default has occurred or is continuing
as a result of the Borrower's failure to deliver any financial statement or
Compliance Certificate as and when required pursuant to Section 6.1(a), 6.1(b)
or 6.1(e), as applicable and (ii) 75% of such Net Equity Proceeds if either (A)
the Leverage Ratio as of the end of the fiscal quarter immediately preceding
such date as to which financial statements are required to have been delivered
pursuant to Section 6.1(a) or 6.1(b), as applicable, is greater than or equal to
2.0 to 1.0 (but only until the Leverage Ratio is less than 2.0 to 1.0, at which
time clause (i) of this Section 2.12(b) shall apply (unless clause (ii)(B) of
this Section 2.12(b) shall then be applicable)) or (B) any Default or Event of
Default has occurred and is continuing as a result of the Borrower's failure to
deliver any financial statement or Compliance Certificate as and when required
pursuant to Section 6.1(a), 6.1(b) or
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<PAGE> 38
6.1(e), as applicable, in each case in accordance with the provisions of Section
2.13.
(c) On each date after July 15, 1997, on which the
Borrower or any of its Subsidiaries receives any Net Debt Proceeds, becomes or
remains liable with respect to Indebtedness with respect to Capitalized Leases
in excess of $130,000,000 in the aggregate at any one time outstanding for the
Borrower and its Subsidiaries, or assumes any Indebtedness in connection with a
Permitted Acquisition pursuant to Section 7.2(l), the Borrower shall prepay the
outstanding Loans in an amount equal to 100% of such Net Debt Proceeds, 100% of
the amount by which the aggregate amount of Indebtedness of the Borrower and its
Subsidiaries with respect to Capitalized Leases exceeds $130,000,000 on such
date or 100% of the aggregate principal amount of any such Indebtedness assumed
in connection with a Permitted Acquisition, respectively, in accordance with the
provisions of Section 2.13.
(d) On each day on which the Total Revolving Loan
Commitment is reduced pursuant to Section 2.10, the Borrower shall prepay the
Revolving Loans to the extent, if any, that the outstanding principal amount of
the Revolving Loans exceeds such reduced Total Revolving Loan Commitment.
(e) If at any time and for any reason the
aggregate principal amount of Revolving Loans plus the L/C Obligations then
outstanding are greater than the Total Revolving Loan Commitment, the Borrower
shall immediately prepay the Revolving Loans in an amount equal to such excess.
In addition, to the extent at any time and for any reason, the Total Revolving
Loan Commitment minus the aggregate principal amount of Revolving Loans then
outstanding, is less than the amount of L/C Obligations outstanding at such
time, the Borrower shall Cash Collateralize the L/C Obligations in an amount
equal to the amount by which such L/C Obligations exceed the amount equal to the
difference between the Total Revolving Loan Commitment and such aggregate
principal amount of Revolving Loans.
(f) Nothing in this Section 2.12 shall be
construed to constitute the Lenders' consent to any transactions referred to in
Sections 2.12(a), 2.12(b) or 2.12(c) above which transaction is not expressly
permitted by the terms of this Agreement.
Section 2.13 Application of Prepayments. All prepayments of the
Loans required by clauses (a) through (c) of Section 2.12 shall be applied
first, to prepay the Term Loans until such Term Loans shall have been repaid in
full, together with accrued and unpaid interest thereon, second, to prepay the
Revolving Loans until such Revolving Loans shall have been repaid in full,
together with accrued and unpaid interest thereon, and third, to Cash
Collateralize the then outstanding Letters of Credit and, fourth, to all other
outstanding Obligations. If (i) at the time of any prepayment of the principal
amount of the Revolving Loans pursuant to the preceding sentence, either (A) the
Leverage Ratio as of the end of the fiscal quarter immediately preceding such
date as to which financial statements are required to have been delivered
pursuant to Section 6.1(a) or 6.1(b), as applicable, is greater than or equal to
2.0 or (B) any Default has occurred and is continuing as a result of the
Borrower's failure to
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<PAGE> 39
deliver any financial statement or Compliance Certificate as and when required
pursuant to Section 6.1(a), 6.1(b) or 6.1(e), as applicable, then simultaneously
with any prepayment of the principal amount of the Revolving Loans pursuant to
the preceding sentence, each Lender's Revolving Loan Commitment shall be
permanently reduced by such Lender's Pro Rata Share of such prepayment and (ii)
at the time of any prepayment of the principal amount of the Revolving Loans
pursuant to the preceding sentence, both (A) the Leverage Ratio as of the end of
the fiscal quarter immediately preceding such date as to which financial
statements are required to have been delivered pursuant to Section 6.1(a) and
6.1(b), as applicable, is less than 2.0 and (B) no Default has occurred or is
continuing as a result of the Borrower's failure to deliver any financial
statement or Compliance Certificate as and when required pursuant to Section
6.1(a), 6.1(b) or 6.1(e), as applicable, then, any Revolving Loans repaid
pursuant to the preceding sentence may be reborrowed, subject to the other terms
of this Agreement. All prepayments of the Term Loans required by clauses (a)
through (c) of Section 2.12 shall be applied pro rata to the scheduled
installments of principal thereof.
Section 2.14 Method and Place of Payment. (a) Except as otherwise
specifically provided herein, all payments and prepayments under this Agreement
and the Notes shall be made to the Agent for the account of the Lenders entitled
thereto not later than 2:00 P.M., Chicago time, on the date when due and shall
be made in lawful money of the United States of America in immediately available
funds at the Agent's Office, and any funds received by the Agent after such time
shall, for all purposes hereof (including the following sentence), be deemed to
have been paid on the next succeeding Business Day. Except as otherwise
specifically provided herein, the Agent shall thereafter cause to be distributed
on the date of receipt thereof to each Lender in like funds its Pro Rata Share
of payments so received.
(b) Whenever any payment to be made hereunder or
under any Note shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day and,
with respect to payments of principal, interest shall be payable at the
applicable rate during such extension.
(c) All payments made by the Borrower hereunder
and under the other Loan Documents shall be made irrespective of, and without
any reduction for, any setoff or counterclaims.
Section 2.15 Fees. (a) The Borrower agrees to pay the fees in the
amounts and on the dates specified in the Fee Letter.
(b) The Borrower agrees to pay to the Agent for
the account of each Lender a commitment fee (the "Commitment Fee") for each day
computed at the per annum rate equal to the Applicable Margin (determined for
the Commitment Fee in accordance with the definition of Applicable Margin)
multiplied by each such Lender's Pro Rata Share of the average daily Unused
Portion, from and including the date of this Agreement to the Revolving Loan
Maturity Date. The Commitment Fee shall accrue from and including the date of
this
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Agreement to but excluding the Revolving Loan Maturity Date. Accrued fees under
this Section 2.15 shall be payable on the Closing Date and payable quarterly in
arrears on each Payment Date, commencing April 15, 1998, and on the Revolving
Loan Maturity Date or such earlier date, if any, on which the Revolving Loan
Commitment shall terminate in accordance with the terms hereof. The Commitment
Fee and all other fees due under the Loan Documents (collectively the "Fees")
shall be calculated on the basis of a 360-day year for the actual number of days
elapsed.
Section 2.16 Interest Rate Unascertainable, Increased Costs,
Illegality. (a) In the event that the Agent, in the case of clause (i) below, or
any Lender, in the case of clauses (ii) and (iii) below, shall have determined
(which determination shall, absent manifest error, be final and conclusive and
binding upon all parties hereto):
(i) on any date for determining the
Eurodollar Rate for any Interest Period, that by reason of any changes arising
after the date of this Agreement affecting the interbank Eurodollar market,
adequate and fair means do not exist for ascertaining the applicable interest
rate on the basis provided for in the definition of the Eurodollar Rate; or
(ii) at any time, that the relevant
Eurodollar Rate applica ble to any of its Loans shall not represent the
effective pricing to such Lender for funding or maintaining a Eurodollar Loan,
or such Lender shall incur increased costs or reductions in the amounts received
or receivable hereunder in respect of any Eurodollar Loan, in any such case
because of (x) any change since the date of this Agreement in any applicable law
or governmental rule, regulation, guideline or order or any interpretation
thereof and including the introduction of any new law or governmental rule,
regulation, guideline or order (such as for example but not limited to a change
in official reserve requirements, but, in all events, excluding reserves
required under Regulation D of the Federal Reserve Board to the extent included
in the computation of the Eurodollar Rate), whether or not having the force of
law and whether or not failure to comply therewith would be unlawful, and/or (y)
other circumstances affecting such Lender or the interbank Eurodollar market or
the position of such Lender in such market; or
(iii) at any time, that the making
or continuance by it of any Eurodollar Loan has become unlawful by compliance by
such Lender in good faith with any law or governmental rule, regulation,
guideline or order (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) or has become impracticable as a
result of a contingency occurring after the date of this Agreement which
materially and adversely affects the interbank Eurodollar market;
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then, and in any such event, the Agent or such Lender shall, promptly after
making such determination, give notice (by telephone promptly confirmed in
writing) to the Borrower and (if applicable) the Agent of such determination
(which notice the Agent shall promptly transmit to each of the other Lenders).
Thereafter (x) in the case of clause (i) above, the Borrower's right to request
Eurodollar Loans shall be suspended, and any Notice of Borrowing or Notice of
Conversion or Continuation given by the Borrower with respect to any Borrowing
of Eurodollar Loans which has not yet been made shall be deemed cancelled and
rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower
shall pay to such Lender, upon such Lender's delivery of a written demand
therefor to the Borrower with a copy to the Agent, such additional amounts (in
the form of an increased rate of interest, or a different method of calculating
interest, or otherwise, as such Lender in its sole discretion shall determine)
as shall be required to compensate such Lender for such increased costs or
reduction in amounts received or receivable hereunder and (z) in the case of
clause (iii) above, the Borrower shall take one of the actions specified in
clause (b) below as promptly as possible and, in any event, within the time
period required by law. The written demand provided for in clause (y) shall
demonstrate in reasonable detail the calculation of the amounts demanded and
shall, absent manifest error, be final and conclusive and binding upon all of
the parties hereto.
(b) In the case of any Eurodollar Loan or
requested Eurodollar Loan affected by the circumstances described in clause
(a)(ii) above, the Borrower may, and in the case of any Eurodollar Loan affected
by the circumstances described in clause (a)(iii) above the Borrower shall,
either (i) if any such Eurodollar Loan has not yet been made but is then the
subject of a Notice of Borrowing or a Notice of Conversion or Continuation, be
deemed to have cancelled and rescinded such notice, or (ii) if any such
Eurodollar Loan is then outstanding, require the affected Lender to convert
each such Eurodollar Loan into a Base Rate Loan at the end of the applicable
Interest Period or such earlier time as may be required by law, in each case by
giving the Agent notice (by telephone promptly confirmed in writing) thereof on
the Business Day that the Borrower was notified by the Lender pursuant to clause
(a) above; provided, however, that all Lenders whose Eurodollar Loans are
affected by the circumstances described in clause (a) above shall be treated in
the same manner under this clause (b).
(c) In the event that the Agent determines at any
time following its giving of notice based on the conditions described in clause
(a)(i) above that none of such conditions exist, the Agent shall promptly give
notice thereof to the Borrower and the Lenders, whereupon the Borrower's right
to request Eurodollar Loans from the Lenders and the Lenders' obligation to make
Eurodollar Loans shall be restored.
(d) In the event that a Lender determines at any
time following its giving of a notice based on the conditions described in
clause (a)(iii) above that none of such conditions exist, such Lender shall
promptly give notice thereof to the Borrower and the Agent, whereupon the
Borrower's right to request Eurodollar Loans from such Lender and such Lender's
obligation to make Eurodollar Loans shall be restored.
Section 2.17 Funding Losses. The Borrower shall compensate each
Lender,
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upon such Lender's delivery of a written demand therefor to the Borrower, with a
copy to the Agent (which demand shall set forth the basis for requesting such
amounts and shall, absent manifest error, be final and conclusive and binding
upon all of the parties hereto), for all reasonable losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by such Lender in connection with the liquidation or reemployment of
deposits or funds required by it to make or carry its Eurodollar Loans), that
such Lender sustains: (i) if for any reason (other than a default by such
Lender) a Borrowing of, or conversion from or into, or a continuation of,
Eurodollar Loans does not occur on a date specified therefor in a Notice of
Borrowing or Notice of Conversion or Continuation (whether or not rescinded,
cancelled or withdrawn or deemed rescinded, cancelled or withdrawn, pursuant to
Section 2.16(a) or 2.16(b) or otherwise), (ii) if any prepayment or repayment
(including, without limitation, payment after acceleration) or conversion of any
of its Eurodollar Loans occurs on a date which is not the last day of the
Interest Period applicable thereto, (iii) if any prepayment of any of its
Eurodollar Loans is not made on any date specified in a notice of prepayment
given by the Borrower, or (iv) as a consequence of any default by the Borrower
in repaying its Eurodollar Loans or any other amounts owing hereunder in respect
of its Eurodollar Loans when required by the terms of this Agreement.
Calculation of all amounts payable to a Lender under this Section 2.17 shall be
made on the assumption that such Lender has funded its relevant Eurodollar Loan
through the purchase of a Eurodollar deposit bearing interest at the Eurodollar
Rate in an amount equal to the amount of such Eurodollar Loan with a maturity
equivalent to the Interest Period applicable to such Eurodollar Loan, and
through the transfer of such Eurodollar deposit from an offshore office of such
Lender to a domestic office of such Lender in the United States of America,
provided that each Lender may fund its Eurodollar Loans in any manner that it in
its sole discretion chooses and the foregoing assumption shall only be made in
order to calculate amounts payable under this Section 2.17.
Section 2.18 Increased Capital. If any Lender shall have
determined that compliance with any applicable law, rule, regulation, guideline,
request or directive (whether or not having the force of law) of any
governmental authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the capital or assets of such Lender or
any Person controlling such Lender as a consequence of its commitments or
obligations hereunder, then from time to time, upon such Lender's delivering a
written demand therefor to the Agent and the Borrower (with a copy to the
Agent), the Borrower shall pay to such Lender such additional amount or amounts
as will compensate such Lender or Person for such reduction.
Section 2.19 Taxes. (a) All payments made by the Borrower under
this Agreement shall be made free and clear of, and without reduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
governmental authority excluding, in the case of the Agent and each Lender, net
income and franchise taxes imposed on the Agent or such Lender by the
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jurisdiction under the laws of which the Agent or such Lender is organized or
any political subdivision or taxing authority thereof or therein, or by any
jurisdiction in which such Lender's Domestic Lending Office or Eurodollar
Lending Office, as the case may be, is located or any political subdivision or
taxing authority thereof or therein (all such non-excluded taxes, levies,
imposts, deductions, charges or withholdings being hereinafter called "Taxes").
If any Taxes are required to be withheld from any amounts payable to the Agent
or any Lender hereunder or under the Notes, the amounts so payable to the Agent
or such Lender shall be increased to the extent necessary to yield to the Agent
or such Lender (after payment of all Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this Agreement and
the Notes. Whenever any Taxes are payable by the Borrower, as promptly as
possible thereafter, the Borrower shall send to the Agent for its own account or
for the account of such Lender, as the case may be, a certified copy of an
original official receipt received by the Borrower showing payment thereof. If
the Borrower fails to pay any Taxes when due to the appropriate taxing authority
or fails to remit to the Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the Agent and the Lenders for
any incremental taxes, interest or penalties that may become payable by the
Agent or any Lender as a result of any such failure. The agreements in this
Section 2.19 shall survive the termination of this Agreement and the payment of
the Notes and all other Obligations.
(b) Each Lender that is not incorporated under the
laws of the United States of America or a state thereof (including each
Purchasing Lender that becomes a party to this Agreement pursuant to Section
10.4) agrees that, prior to the first date on which any payment is due to it
hereunder, it will deliver to the Borrower and the Agent (i) two duly completed
copies of United States Internal Revenue Service Form 1001 or 4224 or successor
applicable form, as the case may be, certifying in each case that such Lender is
entitled to receive payments under this Agreement and the Notes payable to it,
without deduction or withholding of any United States federal income taxes, and
(ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form,
as the case may be, to establish an exemption from United States backup
withholding tax. Each Lender which delivers to the Borrower and the Agent a Form
1001 or 4224 and Form W-8 or W-9 pursuant to the preceding sentence further
undertakes to deliver to the Borrower and the Agent two further copies of the
said letter and Form 1001 or 4224 and Form W-8 or W-9, or successor applicable
forms, or other manner of certification, as the case may be, on or before the
date that any such letter or form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent letter and form
previously delivered by it to the Borrower, and such extensions or renewals
thereof as may reasonably be requested by the Borrower, certifying in the case
of a Form 1001 or 4224 that such Lender is entitled to receive payments under
this Agreement without deduction or withholding of any United States federal
income taxes, unless in any such case an event (including, without limitation,
any change in treaty, law or regulation) has occurred prior to the date on which
any such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly completing and
delivering any such letter or form with respect to it and such Lender advises
the Borrower
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that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax, and in the case of a Form W-8
or W-9, establishing an exemption from United States backup withholding tax.
Section 2.20 Use of Proceeds. The proceeds of the Revolving Loans
shall be used to partially finance the FEI Acquisition, to refinance
Indebtedness under the Original Credit Facility, and for the Borrower's working
capital and general corporate purposes which shall include, but not be limited
to, Restaurant renovations and Permitted Acquisitions. The proceeds of the Term
Loans shall be used to partially finance the FEI Acquisition and to refinance
Indebtedness under the Original Credit Facility.
Section 2.21 Collateral Security.
(a) As security for the payment of the
Obligations, the Borrower shall cause to be granted to the Agent, for the
ratable benefit of the Lenders, a first priority perfected Lien on and security
interest in all of the following, whether now or hereafter existing or acquired
subject only to the Liens permitted to be incurred pursuant to Section 7.3
hereof: (i) all of the shares of capital stock of each Subsidiary of the
Borrower now or hereafter directly or indirectly owned by the Borrower and all
proceeds thereof, all as more specifically described in the Borrower Pledge
Agreement and the Subsidiary Pledge Agreements; (ii) certain of the assets of
the Borrower and all proceeds thereof, all as more specifi cally described in
the Borrower Security Agreement; and (iii) certain of the assets of each
Subsidiary now or hereafter directly or indirectly owned by the Borrower and all
proceeds thereof, all as more specifically described in the Subsidiary Security
Agreement. To the extent the Agent for the benefit of the Lenders does not have
a first priority perfected security interest in any assets of the Borrower or
any other Loan Party required to be pledged as described above which is of the
type described in the Borrower Security Agreement or the Subsidiary Security
Agreement, the Borrower will grant, and cause each other Loan Party to grant, to
the Agent for itself and the benefit of the Lenders a first priority perfected
security interest in such assets subject only to the Liens permitted pursuant to
Section 7.3 hereof. In connection with any sales of assets permitted hereunder,
the Agent will release and terminate the liens and security interests granted
under the Security Documents with respect to such assets and no further consent
of the Lenders will be required with respect to any such release.
(b) Concurrently with the consummation of any
Permitted Acquisition or any other acquisition of any asset which is of the type
described in the Borrower Security Agreement, the Subsidiary Security Agreement,
the Borrower Pledge Agreement or the Subsidiary Pledge Agreement by the Borrower
or any Subsidiary of the Borrower (other than a Subsidiary which, after giving
effect to any such acquisition, is an Immaterial Subsidiary) or the formation of
any new Subsidiary (other than a Subsidiary which, after giving effect to any
such acquisition, is an Immaterial Subsidiary) of the Borrower or upon an
Immaterial Subsidiary ceasing to qualify or be designated as an Immaterial
Subsidiary (conversion from the status of an Immaterial Subsidiary to a
Subsidiary which is not an Immaterial Subsidiary is
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hereinafter referred to as a "Conversion"), the Borrower shall
(i) in the case of a Permitted Acquisition of
stock or any other acquisition of stock by the Borrower or any
such Subsidiary of the Borrower or the formation of such a new
Subsidiary or a Conversion: (A) deliver or cause to be delivered
to the Agent all of the certificates representing the capital
stock of such new Subsidiary which is being acquired or formed or
converted, beneficially owned by the Borrower or such Subsidiary,
as additional collateral for the Obligations, to be held by the
Agent in accordance with the terms of the Borrower Pledge
Agreement or a Subsidiary Pledge Agreement, as the case may be;
and (B) cause such new Subsidiary which is being acquired or
formed or converted to deliver to the Agent (1) duly executed
counterpart signature pages to each of the Guaranty, and the
Subsidiary Security Agreement, in the forms attached respectively
thereto as Annex I, together with the authorization to the Agent
and the Lenders to attach such signature pages to the Guaranty
and the Subsidiary Security Agreement, respectively, the effect
of which shall be that as of the date set forth on such signature
pages such new or converted Subsidiary shall become a party to
each such agreement and be bound by the terms thereof and any
revisions to the schedules to the Subsidiary Security Agreement
necessary in connection therewith, (2) if such new or converted
Subsidiary owns any capital stock of any other Subsidiary, a
Subsidiary Pledge Agreement, or if such new or converted
Subsidiary owns any copyrights, trademarks, patents or other
intellectual property, such additional Security Documents as
requested by the Agent and, (3) such Uniform Commercial Code
financing statements as shall be required to perfect the security
interest of the Agent and the Lenders in the Collateral being
pledged by such new Subsidiary pursuant to the Subsidiary
Security Agreement;
(ii) in the case of a Permitted Acquisition of
assets or any other acquisition of assets by the Borrower or any
such Subsidiary which is of the type described in the Borrower
Security Agreement or the Subsidiary Security Agreement, deliver
or cause to be delivered by the Borrower or such Subsidiary
acquiring such assets, (A) such Uniform Commercial Code financing
statements as shall be required to perfect the security interest
of the Agent and the Lenders in the assets being so acquired, (B)
if such assets include copyrights, trademarks, patents or other
intellectual property, such additional Security Documents as
requested by the Agent, and (C) any additional instruments or
documents evidencing the security interest of the Agent
reasonably required by the Agent; and
(iii) in any case, provide such other
documentation, including, without limitation, one or more
opinions of counsel reasonably satisfactory to the Agent,
articles of incorporation, by-laws and resolutions,
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which in the reasonable opinion of the Agent is necessary or
advisable in connection with such Permitted Acquisition or
formation of such new Subsidiary or other acquisition or
Conversion.
Section 2.22 Replacement of Certain Lenders. If a Lender
("Affected Lender") shall have requested compensation from the Borrower under
Sections 2.16, 2.18 or 2.19 to recover Taxes or other additional costs incurred
by such Lender which are not being incurred generally by the other Lenders, or
delivered a notice pursuant to Section 2.16(a)(iii) claiming that such Lender is
unable to extend Eurodollar Loans to the Borrower for reasons not generally
applicable to the other Lenders, then, in any such case, so long as no Default
or Event of Default exists, the Borrower may make written demand on such
Affected Lender (with a copy to the Agent) for the Affected Lender to assign,
and such Affected Lender shall assign pursuant to one or more duly executed
assignment and acceptance agreements in substantially the form of Exhibit I
thirty (30) Business Days after the date of such demand, to one or more
financial institutions that comply with the provisions of Section 10.4(c) and
10.4(d) (and that are reasonably acceptable to the Agent) which the Borrower
shall have engaged for such purpose ("Replacement Lender"), all of such Affected
Lender's rights and obligations under this Agreement and the other Loan
Documents (including its Revolving Loan Commitment, all Loans owing to it, all
of its participation interests in outstanding Letters of Credit, and its
obligation to participate in additional Letters of Credit hereunder) in
accordance with Section 10.4(c) and 10.4(d). Further, with respect to any such
assignment, the Affected Lender shall have concurrently received, in cash, all
amounts due and owing to such Affected Lender hereunder or under any other Loan
Document, including the aggregate outstanding principal amount of the Loans owed
to such Lender, together with accrued interest thereon through the date of such
assignment from the Replacement Lender, amounts payable under Sections 2.16,
2.18 and 2.19 with respect to such Affected Lender and compensation payable
under Section 2.15; provided that upon such Affected Lender's replacement, such
Affected Lender shall cease to be a party hereto but shall continue to be
entitled to the benefits of Sections 2.16, 2.17, 2.18, 2.19 and 10.1 accruing
with respect to such Affected Lender prior to the date such Affected Lender is
replaced, as well as to any fees accrued for its account hereunder prior to
being replaced and not yet paid, and shall continue to be obligated under
Section 9.7.
SECTION 3. LETTERS OF CREDIT.
Section 3.1 Issuance of Letters of Credit, etc. (a) Subject to
the terms and conditions hereof, at any time and from time to time from the
Closing Date through the day prior to the Revolving Loan Maturity Date, the
Issuing Bank shall issue such Letters of Credit for the account of the Borrower
or any Subsidiary of the Borrower which is a party to the Guaranty as Borrower
may request by an L/C Application; provided that, giving effect to such Letter
of Credit, (x) the sum of the L/C Obligations then outstanding plus the then
outstanding aggregate principal amount of the Revolving Loans shall not exceed
the Total Revolving Loan Commitment and (y) the aggregate L/C Obligations then
outstanding shall not exceed the L/C
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Commitment. Unless all the Lenders and the Issuing Bank otherwise consent in
writing, the term of any Letter of Credit shall not exceed 12 months. No Letter
of Credit shall expire by its terms after the Revolving Loan Maturity Date. No
Letter of Credit shall be issued except in the ordinary course of business of
the Borrower or any of its Subsidiaries or in connection with Permitted
Acquisitions with respect to which the conditions set forth in Section 7.8(f)
have been satisfied, each Letter of Credit shall be used solely (a) to support
obligations of the Borrower and its Subsidiaries not prohibited hereunder, other
than Indebtedness for borrowed money (except that Letters of Credit may support
the obligations of the Borrower and its Subsidiaries in respect of the
industrial revenue bond identified on Schedule 7.2), and (b) for the purposes
described in the definition of "Trade Letter of Credit".
(b) The Borrower shall submit the L/C Application
for the Issuance of any Letter of Credit to the Issuing Bank at least five
Business Days prior to the date when required. Upon Issuance of a Letter of
Credit, the Issuing Bank shall promptly notify the Lenders of the amount and
terms thereof.
(c) Upon the Issuance of a Letter of Credit, each
Lender that has made a Revolving Loan Commitment shall be deemed to have
purchased a pro rata participation, from the Issuing Bank in an amount equal to
that Lender's Pro Rata Share, in the Letter of Credit. Without limiting the
scope and nature of each Lender's participation in any Letter of Credit, to the
extent that the Issuing Bank has not been reimbursed by Borrower for any payment
to a beneficiary of a Letter of Credit in respect of a drawing under such Letter
of Credit made by the Issuing Bank under any Letter of Credit, each Lender
shall, pro rata according to its Pro Rata Share, reimburse the Issuing Bank
promptly upon demand for the amount of such payment. The obligation of each
Lender to so reimburse the Issuing Bank shall be absolute and unconditional and
shall not be affected by the occurrence of a Default, Event of Default or any
other occurrence or event. Any such reimbursement shall not relieve or otherwise
impair the obligation of Borrower to reimburse the Issuing Bank for the amount
of any payment made by the Issuing Bank under any Letter of Credit together with
interest as hereinafter provided.
(d) Upon the making of any payment with respect to
any Letter of Credit by the Issuing Bank, Borrower shall be deemed to have
submitted a Notice of Borrow ing for a Revolving Loan consisting of a Base Rate
Loan in the amount of such payment, and the Agent shall without notice to or the
consent of Borrower cause Revolving Loans to be made by the Lenders in an
aggregate amount equal to the amount paid by the Issuing Bank on that Letter of
Credit, but not exceeding the Total Revolving Loan Commitment minus the then
outstanding principal amount of Revolving Loans and minus all other then
outstanding L/C Obligations, and for this purpose, the conditions precedent set
forth in Section 4 hereof shall not apply. The proceeds of such Revolving Loans
shall be paid to the Issuing Bank to reimburse it for the payment made by it
under the Letter of Credit. Promptly following any Revolving Loans made under
this Section 3.1(d), the Agent shall notify Borrower thereof.
(e) To the extent that any Loans made pursuant to
Section 3.1(d) are insufficient to reimburse the Issuing Bank in full, Borrower
agrees to pay to the Issuing Bank
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with respect to each Letter of Credit, within one Business Day after demand
therefor, a principal amount equal to any payment made by the Issuing Bank under
that Letter of Credit, together with interest on such amount from the date of
any payment made by the Issuing Bank through the date of payment by Borrower at
the Default Rate. The principal amount of any such payment made by Borrower to
the Issuing Bank shall be used to reimburse the Issuing Bank for the payment
made by it under the Letter of Credit. Each Lender that has reimbursed the
Issuing Bank pursuant to Section 3.1(d) for its Pro Rata Share of any payment
made by the Issuing Bank under a Letter of Credit shall thereupon acquire a pro
rata participation, to the extent of such reimbursement, in the claim of the
Issuing Bank against Borrower under this Section 3.1(e).
(f) The Issuance of any supplement, modification,
amendment, renewal or extension to or of any Letter of Credit shall be treated
in all respects the same as the Issuance of a new Letter of Credit.
(g) Notwithstanding anything to the contrary
contained in the Original Credit Facility, as of the Closing Date, the Existing
Letter of Credit shall not be deemed to be a Letter of Credit under and as
defined in this Agreement.
Section 3.2 Letter of Credit Fees. Borrower shall pay (i) a
letter of credit fee to the Agent equal to a per annum rate equal to the then
effective Applicable Margin for Eurodollar Loans times the stated amount of each
Standby Letter of Credit for the term of each such Letter of Credit for the
account of the Lenders who have made Revolving Loan Commitments, according to
their respective Pro Rata Shares, in each case payable quarterly in arrears on
each Payment Date, commencing on April 15, 1998, and (ii) a letter of credit fee
to the Agent equal to 0.50% of the stated amount of each Trade Letter of Credit
as of the date of Issuance thereof, payable for the account of the Lenders who
have made Revolving Loan Commitments, according to their respective Pro Rata
Shares, in each case payable quarterly in arrears on each Payment Date,
commencing on April 15, 1998. Upon (A) the issuance of each Letter of Credit,
Borrower shall also pay to the Agent for the account of the Issuing Bank an
amount equal to the greater of (i) $500 or (ii) 0.125% of the stated amount of
such Letter of Credit as an issuance fee; (B) the amendment of each Letter of
Credit, Borrower shall pay to the Agent for the account of the Issuing Bank the
amendment fees, in each case, as the Issuing Bank normally charges in connection
with a Letter of Credit and activity pursuant thereto, in either case which fees
shall be solely for the account of the Issuing Bank; and (C) the incurrence of
any reasonable out-of-pocket costs and expenses in connection with the
maintenance of any Letter of Credit, Borrower shall pay to the Agent for the
account of the Issuing Bank the amount of such out-of-pocket costs and expenses
so incurred.
Section 3.3 Obligation of Borrower Absolute, etc. (a) The
obligation of Borrower to pay to the Issuing Bank the amount of any payment made
by the Issuing Bank under any Letter of Credit shall be absolute, unconditional
and irrevocable. Without limiting the foregoing, such obligation of Borrower
shall not be affected by any of the following
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circumstances:
(1) any lack of validity or enforceability of the
Letter of Credit, this Agreement or any other agreement or
instrument relating thereto;
(2) any amendment or waiver of or any consent to
departure from the Letter of Credit, this Agreement or any other
agreement or instrument relating thereto;
(3) the existence of any claim, setoff, defense or
other rights which the Borrower or any Subsidiary of the Borrower
may have at any time against the Issuing Bank, any Lender, the
Agent, any beneficiary of the Letter of Credit (or any Persons
for whom any such beneficiary may be acting) or any other Person,
whether in connection with the Letter of Credit, this Agreement
or any other agreement or instrument relating thereto, or any
unrelated transactions;
(4) any demand, statement or any other document
presented under the Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect
whatsoever so long as any such document appeared to comply with
the terms of the Letter of Credit;
(5) payment by the Issuing Bank in good faith
under the Letter of Credit against presentation of a draft or any
accompanying document which does not strictly comply with the
terms of the Letter of Credit;
(6) the existence, character, quality, quantity,
condition, packing, value or delivery of any property purported
to be represented by documents presented in connection with any
Letter of Credit or for any difference between any such property
and the character, quality, quantity, condition or value of such
property as described in such documents;
(7) the time, place, manner, order or contents of
shipments or deliveries of property as described in documents
presented in connection with any Letter of Credit or the
existence, nature and extent of any insurance relative thereto;
(8) the solvency or financial responsibility of
any party issuing any documents in connection with a Letter of
Credit;
(9) any failure or delay in notice of shipments or
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arrival of any property; and
(10) any other circumstances whatsoever.
(b) As among the Borrower, the Lenders, the
Issuing Bank and the Agent, the Borrower assumes all risks of the acts and
omissions of, or misuse of such Letter of Credit by, the beneficiary of any
Letter of Credit. In furtherance and not in limitation of the foregoing, subject
to the provisions of the Letter of Credit applications and Letter of Credit
reimbursement agreements executed by the Borrower at the time it requests any
Letter of Credit, the Agent, the Issuing Bank and the Lenders shall not be
responsible;
(i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any
party in connection with the application for and issuance of the
Letters of Credit, even if it should in fact prove to be in any
or all respects invalid, insufficient, inaccurate, fraudulent or
forged;
(ii) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or
assign a Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason;
(iii) for the failure of the beneficiary of a
Letter of Credit to comply duly with conditions required in order
to draw upon such Letter of Credit;
(iv) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex, or other similar form of
teletransmission or otherwise;
(v) for errors in interpretation of technical
trade terms;
(vi) for any loss or delay in the transmission or
otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof;
(vii) for the misapplication by the beneficiary of
a Letter of Credit of the proceeds of any drawing under such
Letter of Credit; and
(viii) for any consequences arising from causes
beyond the control of the Agent, the Issuing Bank and the Lenders
including, without limitation, any act or omission, whether
rightful or wrongful, of any present or future de jure or de
facto government or governmental authority.
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None of the above shall affect, impair, or prevent the vesting of any of the
Issuing Bank's rights or powers hereunder.
(c) In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth, any action taken or
omitted by the Issuing Bank under or in connection with Letters of Credit issued
by it or any related certificates shall not, in the absence of gross negligence
or willful misconduct, put the Issuing Bank under any resulting liability to the
Borrower or relieve the Borrower of any of its obligations hereunder to any such
Person.
(d) The Issuing Bank shall be entitled to the
protection accorded to the Agent pursuant to Section 9, mutatis mutandis.
SECTION 4. CONDITIONS PRECEDENT.
Section 4.1 Conditions Precedent to Initial Loans. The obligation
of each Lender to make its initial Loans and of the Issuing Bank to Issue any
Letter of Credit on the Closing Date is subject to the satisfaction on the
Closing Date of the following conditions precedent:
(a) Loan Documents.
(i) Credit Agreement. The Borrower shall have
executed and delivered this Agreement to the Agent.
(ii) Notes. The Borrower shall have executed
and delivered to each of the Lenders the appropriate Notes in the
amount, maturity and as otherwise provided herein.
(iii) Borrower Security Agreement. The
Borrower shall have executed and delivered to the Agent the
Borrower Security Agreement, together with an Officer's
Certificate supplementing each of the schedules as of the Closing
Date, and each of such supplemented schedules.
(iv) Subsidiary Security Agreement. Each
Subsidiary of the Borrower (other than any such Subsidiary which
is an Immaterial Subsidiary) shall have duly executed and
delivered to the Agent the Subsidiary Security Agreement and
that certain Amendment No. 1 to Subsidiary Security Agreement
dated as of the date hereof in form and substance satisfactory to
the Agent and the Lenders.
(v) Borrower Pledge Agreement. The Borrower
shall
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have executed and delivered to the Agent the Borrower Pledge
Agreement, together with an Officer's Certificate supplementing
each of the schedules as the Closing Date, and each of such
supplemented schedules.
(vi) Subsidiary Pledge Agreements.
Each Subsidiary of the Borrower (other than JB Newco) that owns
any Equity Interest in any Person as of the Closing Date (other
than an equity interest in Boston West, L.L.C.) shall have duly
executed and delivered to the Agent a Subsidiary Pledge
Agreement.
(vii) Guaranty. Each Subsidiary of
the Borrower (other than JB, JB Newco and any other Subsidiary
which is an Immaterial Subsidiary) shall have executed and
delivered to the Agent the Guaranty or a Joinder to Guaranty in
form and substance satisfactory to the Agent and the Lenders.
(b) Opinions of Counsel. The Agent shall have
received (A) a legal opinion, dated the Closing Date, from Stradling Yocca
Carlson & Rauth, counsel to the Loan Parties, substantially in the form set
forth as Exhibit H hereto, (B) legal opinions from Locke Purnell Rain Harrell,
special Texas counsel to the Loan Parties, Kilpatrick Stockton LLP, special
North Carolina and Georgia counsel to the Loan Parties, and Burr & Forman LLP,
special Alabama counsel to the Loan Parties, and (C) such other legal opinions,
each dated the Closing Date, from local counsel to the Loan Parties as requested
by the Agent with respect to such matters as requested by the Agent and in form
and substance satisfactory to the Agent.
(c) Corporate Documents. The Agent shall have
received the Certifi cate of Incorporation, partnership agreement or other
similar organizational document of each of the Loan Parties as amended, modified
or supplemented to the Closing Date, (other than in the case of a general
partnership) certified to be true, correct and complete by the appropriate
Secretary of State as of a date not more than ten Business Days prior to the
Closing Date, together with a good standing certificate from such Secretary of
State and a good standing certificate from the Secretaries of State (or the
equivalent thereof) of each other State in which each of them is required to be
qualified to transact business, each to be dated a date not more than ten
Business Days prior to the Closing Date and a bring-down good standing
certificate or telephonic confirmation from the appropriate Secretary of State
in each jurisdiction of incorporation of each Loan Party dated the Closing Date.
(d) Certified Resolutions, etc. The Agent shall
have received a certificate of the Secretary or Assistant Secretary of each of
the Loan Parties or of a general partner in the case of each Loan Party which is
a partnership and dated the Closing Date certifying (i) the names and true
signatures of the incumbent officers of such Person authorized to sign the
applicable Loan Documents, (ii) the By-Laws of such Person as in effect on the
Closing Date, (iii) the resolutions of such Person's Board of Directors
approving and authoriz ing the execution, delivery and performance of all
Transaction Documents executed by such
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Person, and (iv) that there have been no changes in the Certificate of
Incorporation of such Person since the date of the most recent certification
thereof by the appropriate Secretary of State or, in the case of a partnership
or other similar entity, the partnership agreement or other similar
organizational document.
(e) Transaction Documents. The Agent shall have
received copies of the Transaction Documents (other than the Loan Documents) and
any amendments, waivers or supplements thereto, certified as of the Closing Date
by the President or Vice President, of the Borrower to be true, correct and
complete copies of such documents, which documents shall be in form and
substance satisfactory to the Agent. The Agent shall have received copies of all
documents relating to existing Indebtedness for borrowed money or evidenced by a
note, bond, debenture, acceptance or similar instrument of the Borrower and its
Subsidiaries that shall be outstanding in each case in a principal amount in
excess of $2,000,000 on and after the Closing Date, including, without
limitation, terms of amortization, interest, premiums, fees, expenses, maturity,
amendments, covenants, events of default and remedies, certified as of the
Closing Date as such by the President or Vice President of the Borrower.
(f) Process Agent. Each Loan Party shall have
appointed an agent satisfactory to the Agent for service of process in
connection with any action or proceeding arising under or relating to the Loan
Documents, and such agent shall have accepted such appointment in writing.
(g) Officer's Certificate. The Agent and the
Lenders shall have received a certificate of the President or Vice President of
the Borrower, dated the Closing Date, certifying that (i) the Transaction
Documents (other than the Loan Documents) are in full force and effect and no
material term or condition thereof has been amended from the form thereof
delivered to the Agent, or waived, except as disclosed to the Agent or its
counsel prior to the execution of this Agreement, (ii) each of the Loan Parties
and, to the best of his or her knowledge, the other parties to the Transaction
Documents, have performed or complied in all material respects with all
agreements and conditions contained in such Transaction Documents and any
agreements or documents referred to therein required to be performed or complied
with by each of them on or before the Closing Date and no material condition to
closing by the Borrower or any of its Subsidiaries and set forth therein has
been waived, (iii) subject to the foregoing, neither any Loan Party nor, to the
best of his or her knowledge, any such other party is in default in the
performance or compliance with any of the material terms or provisions thereof,
except to the extent that performance thereof or compliance therewith or default
has been waived with the prior written consent of the Lenders, (iv) all of the
represen tations and warranties of the Borrower and each other Loan Party
contained in the Transaction Documents are true and correct, (v) after giving
effect to the execution and delivery of the Transaction Documents by each of the
Loan Parties and consummation of the Transactions thereunder, no Default or
Event of Default shall have occurred and be continuing and (vi) since December
31, 1996, no event or change has occurred that has caused or evidences a
Material Adverse Effect.
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(h) Solvency Certificate. The Agent shall have
received a certificate signed by the Chief Financial Officer of the Borrower
containing conclusions that the Borrower and its Subsidiaries are Solvent before
and after giving effect to the Transactions and the incurrence of all other
Indebtedness of the Borrower and its Subsidiaries in connection with the FEI
Acquisition.
(i) Insurance. The Agent shall have received a
certificate of insurance demonstrating insurance coverage in respect of each of
the Loan Parties of types, in amounts, with insurers and with other terms
reasonably satisfactory to the Agent.
(j) Lien Search Reports. The Agent shall have
received satisfactory reports of UCC, tax lien, judgment and litigation searches
with respect to the Borrower and each of the other Loan Parties in each of the
locations requested by the Agent.
(k) UCC-1 Financing Statements. The Agent shall
have received originals of each UCC-1 financing statement (i) duly executed by
an Authorized Officer of the Borrower as debtor naming the Agent as secured
party and filed in the jurisdictions set forth in Schedule I to the Borrower
Security Agreement and (ii) duly executed by an Authorized Officer of each other
Loan Party as debtor naming the Agent as secured party and filed in the
appropriate jurisdictions set forth in Schedule I to the Subsidiary Security
Agreement.
(l) Pro Forma Balance Sheet. The Agent shall have
received a pro forma consolidated balance sheet of the Borrower and its
Subsidiaries, dated as of January 26, 1998, giving effect to the Transactions
and the payment or accrual of all Transaction Costs, certified by the chief
financial officer of the Borrower and a pro forma calculation of the Leverage
Ratio specified in Section 4.1(m) certified by the chief financial officer of
the Borrower.
(m) Pro forma Leverage Ratio. For the twelve-month
period ended January 26, 1998, the Leverage Ratio (on a pro forma consolidated
basis after giving effect to the Transactions and the Hardee's Acquisition) is
less than or equal to 3.0 to 1.0.
(n) Pledged Stock. The Agent shall have received
the original stock certificates evidencing the stock pledged pursuant to the
Borrower Pledge Agreement and each Subsidiary Pledge Agreement, together with
undated stock powers duly executed in blank in connection therewith.
(o) Corporate Structure. The corporate structure
of the Loan Parties after giving effect to the FEI Acquisition shall be
satisfactory to the Lenders and the Agent shall have received a corporate
structure chart with respect to the Borrower and all of its Subsidiaries
(certified by an Authorized Officer of the Borrower) after giving effect to the
FEI Acquisition.
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(p) Financial Statements. The Agent shall have
received the audited financial statements of the Company for the fiscal year
ended December 31, 1996 and the unaudited financial statements of the Company
for the fiscal period from January 1, 1997, through October 1,1997.
(q) Funded Debt and Capitalization. The aggregate
amount of the Loans borrowed under this Agreement on the Closing Date shall not
exceed $425,000,000, and the Total Revolving Loan Commitment minus the aggregate
principal amount of the Revolving Loans outstanding on the Closing Date after
the Borrowings of the initial Loans hereunder minus the amount of any L/C
Obligations then outstanding including any Letters of Credit to be issued on the
Closing Date shall equal at least $25,000,000. The Agent shall have received
evidence satisfactory to it that the Borrower shall have received cash proceeds
from the issuance of the Subordinated Notes, in an aggregate amount not less
than $192,294,375 net of all brokerage commissions, underwriting fees and
discounts (the "Initial Debt/Equity Issuance") and that at least $115,000,000 of
such funds have been applied to the consumma tion of the FEI Acquisition and the
payment of the Transaction Costs.
(r) Existing Indebtedness. The Agent shall have
received evidence satisfactory to the Agent and the Lenders that, after giving
effect to the consummation of the Transactions, (i) the Borrower and its
Subsidiaries shall not be liable for or have outstanding any Indebtedness which
is of the type of Indebtedness which would appear as a liability on (or would be
required to appear as a liability on) the consolidated balance sheet of the
Borrower (and not of the type required solely to be included in the footnotes
thereto) and which Indebtedness shall include, without limitation, Indebtedness
for borrowed money and Capital ized Lease Obligations, other than (A) the Loans
outstanding hereunder as contemplated by Section 4.1(q) and (B) Indebtedness
permitted under Section 7.2 (but excluding Indebtedness described in Section
7.2(a)) (collectively, the "Surviving Debt"), the aggregate outstanding
principal amount of which shall not exceed $350,000,000 as of the Closing Date,
and (ii) the Borrower, the Company and each of their respective Subsidiaries
shall have paid in full all other Indebtedness of the Borrower, the Company and
their respective Subsidiaries existing prior to the making of the initial Loans
hereunder (all of the foregoing Indebtedness described in the foregoing clause
(i) and (ii) referred to collectively as "Existing Debt"). The Agent shall be
satisfied that the execution and delivery of, and the performance by each of the
Borrower, the Company and their respective Subsidiaries of its respective
obligations under, each Transaction Document to which it is a party and
consummation of the Transactions does not violate, conflict with or cause a
default under any document or instrument evidencing Existing Debt, other than
Existing Debt being repaid on the Closing Date. The Agent shall have received
(i) payoff and lien termination and release agreements, in form and substance
satisfactory to the Agent, from each creditor of the Borrower, the Company and
their respective Subsidiaries with respect to Existing Debt other than Surviving
Debt, and (ii) such Form UCC-3 (or its equivalent), intellectual property lien
releases in recordable form in all applicable jurisdictions, and other lien and
mortgage release and termination agreements,
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evidence of release of federal and state tax liens, all in form and substance
satisfactory to the Agent, as the Agent shall request, duly executed by the
appropriate Person in favor of which such Liens were granted.
(s) Environmental Matters. The Agent shall (i) be
satisfied that neither the Borrower, the Company, any of their respective
Subsidiaries nor any other Loan Party is subject to any present or contingent
liability deemed material by the Agent in its reasonable judgment in connection
with any past or present treatment, storage, recycling, disposal or release or
threatened release, at any property location regardless of whether owned or
operated by the Borrower, the Company or any of their respective Subsidiaries or
any other Loan Party, of any Materials of Environmental Concern or in connection
with any Environmental Law or other health or safety laws or regulations, and
that their operations taken as a whole comply in all material respects (in the
Agent's reasonable judgment) with all Environmental Laws or other health or
safety laws or regulations, (ii) be satisfied that neither the Borrower, the
Company, any of their respective Subsidiaries, nor any other Loan Party nor any
property owned or operated by any such Person is the subject of any federal or
state investigation evaluating whether any remedial action, involving a material
expenditure (in the opinion of the Agent) is needed to respond to any release or
other presence of Materials of Environmental Concern and (iii) have received a
list of all of the properties operated, owned or leased by the Borrower, the
Company and each of their respective Subsidiaries as to which Phase I
environmental audit reports have been completed within ten (10) years prior to
the Closing Date and have received copies of those Phase I audit reports which
identify, or which recommend a subsequent Phase II investigation as to, any
material environmental health or safety violations, hazards or potential
liabilities relating to the properties and business of the Borrower, the
Company, each of their respective Subsidiaries, the other Loan Parties (if
applicable) and each of their Environmental Affiliates of which the Borrower,
the Company, or any of their respective Subsidiaries have knowledge.
(t) Funds Flow Instructions. The Agent and the
Lenders shall have received detailed instructions satisfactory to them
describing the funds flow in connection with the Transactions on the Closing
Date.
(u) Fees and Expenses. The Agent shall have
received, for its account and for the account of each Lender, as applicable, all
Fees and other fees and expenses due and payable hereunder and under the other
Loan Documents on or before the Closing Date, including, without limitation, the
reasonable fees and expenses accrued through the Closing Date, of Skadden, Arps,
Slate, Meagher & Flom (Illinois) and any other counsel retained by the Agent.
(v) Consents, Licenses, Approvals; Compliance with
Laws. All consents, licenses, orders, permits, authorizations, validations,
certificates, filings and approvals (collectively, "Consents"), if any, required
in connection with the execution, delivery and performance by Advantica, the
Borrower, the Company or any of their respective
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Subsidiaries, and the validity and enforceability of the Transaction Documents,
or in connection with any of the Transactions, including, without limitation,
all shareholder Consents and all Consents required by any federal, state, local
regulatory or governmental authority including, without limitation, all Consents
required pursuant to the Hart-Scott-Rodino Act, shall have been obtained or made
and shall be in full force and effect and copies thereof shall in each case have
been delivered to the Agent. The waiting period with respect to the FEI
Acquisition under the Hart-Scott-Rodino Act has been terminated or expired. The
Borrower shall have delivered to the Agent such evidence as the Agent shall have
requested, evidencing compliance by the Borrower, the Company and the other Loan
Parties with all applicable laws, rules and regulations before and after giving
effect to the Transactions (including, without limitation, all applicable
corporate and securities laws and all ERISA, environmental and health and safety
laws, rules and regulations).
(w) Management Contracts. The Borrower shall
deliver to the Agent and each Lender copies of each written agreement that it,
the Company or any of their respective Subsidiaries has or contemplates entering
into with its officers or other members of management as requested by the Agent
certified by an officer of the Borrower, and each such contract shall be
satisfactory in form and substance to the Agent.
(x) Franchise Agreements. The Borrower shall
deliver to the Agent copies of representative forms of Franchise Agreements,
which represent the various forms of all Franchise Agreements to which the
Borrower, the Company or any of their respective Subsidiaries as of the Closing
Date is the franchisor or licensor in each case certified by the general counsel
of the Borrower.
(y) No Material Adverse Change. No event, act or
condition shall have occurred after December 31, 1996 that has had a Material
Adverse Effect.
(z) Consummation of FEI Acquisition. The FEI
Acquisition shall have been consummated in accordance with the terms of the FEI
Acquisition Documents.
(aa) Projections. The Agent shall have received
projections prepared by the Borrower demonstrating the projected consolidated
financial condition and results of operations of the Borrower and its
Subsidiaries after giving effect to the Transactions, for the period commencing
on the Closing Date and ending on the Final Maturity Date, which projections
shall be accompanied by a written statement of the assumptions underlying the
projections, and all of the foregoing shall be satisfactory to the Lenders.
(bb) Litigation. The Agent shall have received a
list of all material actions, suits, governmental investigations, arbitrations
and proceedings pending against the Borrower, the Company or any of their
respective Subsidiaries and the loss analyses with respect thereto.
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(cc) Additional Matters. The Agent shall have
received such other certificates, opinions, documents and instruments relating
to the Transactions as may have been reasonably requested by the Agent or any
Lender, and all corporate and other proceedings and all other documents
(including, without limitation, all documents referred to herein and not
appearing as exhibits hereto) and all legal matters in connection with the
Transactions shall be satisfactory in form and substance to the Lenders.
Section 4.2 Conditions Precedent to All Loans. The obligation of
each Lender to make any Loan (including the initial Loans made on the Closing
Date) and of the Issuing Bank to issue any Letter of Credit is subject to the
satisfaction on the date such Loan is made or such Letter of Credit is Issued of
the following conditions precedent:
(a) Representations and Warranties. The
representations and warranties contained herein and in the other Loan Documents
(other than representations and warranties which expressly speak only as of a
different date) shall be true and correct in all material respects on such date
both before and after giving effect to the making of such Loans or the Issuance
of such Letter of Credit.
(b) No Default or Event of Default. No Default or
Event of Default shall have occurred and be continuing on such date either
before or after giving effect to the making of such Loans or the Issuance of
such Letter of Credit.
(c) No Injunction. No law or regulation shall have
been adopted, no order, judgment or decree of any governmental authority shall
have been issued, and no litigation shall be pending or threatened, which in the
reasonable judgment of the Lenders would enjoin, prohibit or restrain, or impose
or result in the imposition of any material adverse condition upon, the making
or repayment of the Loans, the Issuance of such Letter of Credit or the
reimbursement of any amounts with respect thereto or the consummation of the
Transactions.
(d) No Material Adverse Change. No event, act or
condition shall have occurred after December 31, 1996 which, in the judgment of
the Required Lenders, has had or could have a Material Adverse Effect.
(e) Notice of Borrowing or Issuance. The Agent or
the Issuing Bank shall have received a fully executed Notice of Borrowing or L/C
Application, as appropriate, in respect of the Loans to be made or Letters of
Credit to be Issued, respectively, on such date.
The acceptance of the proceeds of each Loan and of the Issuance
of each Letter of Credit shall constitute a representation and warranty by the
Borrower to the Agent and each of the Lenders that all of the conditions
required to be satisfied under this Section 4 in connection with the making of
such Loan or the Issuance of such Letter of Credit have been satisfied.
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All of the Notes, certificates, agreements, legal opinions and
other documents and papers referred to in this Section 4, unless otherwise
specified, shall be delivered to the Agent for the account of each of the
Lenders and, except for the Notes, in sufficient counterparts for each of the
Lenders, and shall be satisfactory in form and substance to the Agent and each
Lender in its sole discretion.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lenders to enter into this Agreement and
to make the Loans and to induce the Issuing Bank to issue Letters of Credit, the
Borrower makes the following representations and warranties, which shall survive
the execution and delivery of this Agreement and the Notes and the making of the
Loans and the Issuance of the Letters of Credit:
Section 5.1 Corporate Status. Each Loan Party (i) is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction of its incorporation, (ii) has the corporate power and
authority to own its property and assets and to transact the business in which
it is engaged or presently proposes to engage and (iii) has duly qualified and
is authorized to do business and is in good standing as a foreign corporation in
every jurisdiction in which it owns or leases real property or in which the
nature of its business requires it to be so qualified, except in the case of
clause (iii), where the failure to so qualify, individually or in the aggregate,
could not have a Material Adverse Effect.
Section 5.2 Corporate Power and Authority. Each Loan Party has
the corporate power and authority to execute, deliver and carry out the terms
and provisions of each of the Transaction Documents to which it is a party and
has taken all necessary corporate action to authorize the execution, delivery
and performance by it of such Transaction Documents. Each Loan Party has duly
executed and delivered each such Transaction Document, and each such Transaction
Document constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms.
Section 5.3 No Violation. Neither the execution, delivery or
performance by any Loan Party of the Transaction Documents to which it is a
party, nor compliance by it with the terms and provisions thereof nor the
consummation of the Transactions, (i) will contravene any applicable provision
of any law, statute, rule, regulation, order, writ, injunction or decree of any
court or governmental instrumentality or (ii) will conflict or be inconsistent
with or result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien (except pursuant
to the Security Documents) upon any of the property or assets of any Loan Party
pursuant to the terms of any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which such Loan Party is a party or by which it
or any of its property or assets is bound or to which it may be subject, or
(iii) will violate any provision of the
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Certificate of Incorporation or By-Laws (or other relevant formation documents)
of any Loan Party.
Section 5.4 Litigation. There are no actions, suits, governmental
investigations, arbitrations or proceedings pending or threatened (i) with
respect to any of the Transactions or the Transaction Documents, or the
Hardee's Acquisition Documents, or (ii) that could, individually or in the
aggregate, result in a Material Adverse Effect.
Section 5.5 Financial Statements; Financial Condition; etc. Each
of the financial statements delivered pursuant to Sections 4.1(l) and 4.1(p)
were prepared in accordance with GAAP consistently applied and fairly present
the financial condition and the results of operations of the entities covered
thereby on the dates and for the periods covered thereby, except as disclosed in
the notes thereto and, with respect to interim financial statements, subject to
normally recurring year-end adjustments. No Loan Party has any material
liability (contingent or otherwise) not reflected in such financial statements
or in the notes thereto.
Section 5.6 Solvency. On the Closing Date and at all times after
the Closing Date, after giving effect to the Transactions, each Loan Party is
and will be Solvent.
Section 5.7 Projections. The projections delivered pursuant to
Section 4.1(aa) have been prepared on the basis of the assumptions accompanying
them, and such projections and assumptions, as of the date of preparation
thereof and as of the Closing Date, are reasonable and represent the Borrower's
good faith estimate of its future financial performance, it being understood
that nothing contained in this Section shall constitute a representation or
warranty that such future financial performance or results of operations will in
fact be achieved.
Section 5.8 Material Adverse Change. Since December 31, 1996,
there has occurred no event, act, condition or liability which has had, or could
have, a Material Adverse Effect.
Section 5.9 Use of Proceeds; Margin Regulations. All proceeds of
each Loan, and each Letter of Credit, will be used by the Borrower only in
accordance with the provisions of Section 2.20. No part of the proceeds of any
Loan, or any Letter of Credit, will be used by the Borrower to purchase or carry
any Margin Stock or to extend credit to others for the purpose of purchasing or
carrying any Margin Stock. Neither the making of any Loan, nor the Issuance of
any Letter of Credit, nor the use of the proceeds thereof will violate or be
inconsistent with the provisions of Regulations G, T, U or X of the Federal
Reserve Board. Following the application of the proceeds of each Loan, less than
25% of the value (as determined by any reasonable method) of the assets of the
Borrower and its Subsidiaries (on a consolidated and an unconsolidated basis)
have been and will continue to be, represented by Margin Stock.
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Section 5.10 Governmental and Other Approvals. No order, consent,
approval, license, authorization, or validation of, or filing, recording or
registration with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, or any other Person, is required to
authorize, or is required in connection with (i) the execution, delivery and
performance of any Transaction Document or the consummation of any of the
Transactions or the Hardee's Acquisition or (ii) the legality, validity, binding
effect or enforceability of any Transaction Document or Hardee's Acquisition
Document or the exercise by the Agent or any Lender of any of its rights under
any Loan Document, except those listed on Schedule 5.10 that have already been
duly made or obtained and remain in full force and effect and except for the
filing of financing statements pursuant to the Security Documents. All
applicable waiting periods including, without limitation, those under the
Hart-Scott-Rodino Act in connection with each Permitted Acquisition and the
other transactions contemplated thereby have expired without any action having
been taken by any competent authority restraining, preventing or imposing
materially adverse conditions upon the rights of the Loan Parties or their
Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien
on, any properties now owned or hereafter acquired by any of them.
Section 5.11 Security Interests and Liens. The Security Documents
create, as security for the Obligations, valid and enforceable security
interests in and Liens on all of the Collateral, in favor of the Agent for the
ratable benefit of the Lenders, and subject to no other Liens (other than Liens
expressly permitted by Section 7.3 hereof). Upon the satisfaction of the
conditions precedent described in Sections 4.1(k) and 4.1(n), such security
interests in and Liens on the Collateral shall be superior to and prior to the
rights of all third parties (except as disclosed on Schedule 5.11), and no
further recordings or filings are or will be required in connection with the
creation, perfection or enforcement of such security interests and Liens, other
than the filing of continuation statements in accordance with applicable law.
Section 5.12 Tax Returns and Payments. Each Loan Party has filed
all tax returns required to be filed by it and has paid all taxes and
assessments payable by it which have become due, other than (i) those not yet
delinquent or those that are reserved against in accordance with GAAP which are
being diligently contested in good faith by appropriate proceedings or (ii)
where the failure to so pay has not resulted and could not reasonably be
expected to result in liability in excess of $1,000,000 in the aggregate for all
of the Loan Parties.
Section 5.13 ERISA. Neither the Borrower nor any of its
Subsidiaries have any Plans other than those listed on Schedule 5.13. No
accumulated funding deficiency (as defined in Section 412 of the Code or Section
302 of ERISA) or Reportable Event has occurred with respect to any Plan. There
are no Unfunded Benefit Liabilities under any Plan. The Borrower and each member
of its ERISA Controlled Group have complied with the requirements of Section 515
of ERISA with respect to each Multiemployer Plan and is not in "default" (as
defined in Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan. The aggregate potential total withdrawal liability, and the
aggregate
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potential annual withdrawal liability payments of the Borrower and the members
of its ERISA Controlled Group as determined in accordance with Title IV of ERISA
as if the Borrower and the members of its ERISA Controlled Group had completely
withdrawn from all Multiemployer Plans is not greater than $2,000,000. To the
best knowledge of the Borrower and each member of its ERISA Controlled Group, no
Multiemployer Plan is or is likely to be in reorganization (as defined in
Section 4241 of ERISA or Section 418 of the Code) or is insolvent (as defined in
Section 4245 of ERISA). No material liability to the PBGC (other than required
premium payments), the Internal Revenue Service, any Plan or any trust
established under Title IV of ERISA has been, or is expected by the Borrower or
any member of its ERISA Controlled Group to be, incurred by the Borrower or any
member of its ERISA Controlled Group. Neither the Borrower nor any member of its
ERISA Controlled Group has any contingent liability with respect to any
post-retirement benefit under any "welfare plan" (as defined in Section 3(1) of
ERISA), other than liability for continuation coverage under Part 6 of Title I
of ERISA and other than contingent liabilities under Hardee's Retiree Medical
Insurance Plan, and the aggregate present value of all post-retirement benefit
liabilities of the Borrower and its Subsidiaries under Hardee's Retiree Medical
Insurance Plan as of the Closing Date does not exceed $4,800,000. No lien under
Section 412(n) of the Code or 302(f) of ERISA or requirement to provide security
under Section 401(a)(29) of the Code or Section 307 of ERISA has been or is
reasonably expected by the Borrower or any member of its ERISA Controlled Group
to be imposed on the assets of the Borrower or any member of its ERISA
Controlled Group.
Section 5.14 Investment Company Act; Public Utility Holding
Company Act. No Loan Party is (x) an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended, (y) a "holding company" or a "subsidiary
company" of a "holding company" or an "affiliate" of either a "holding company"
or a "subsidiary company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or (z) subject to any other federal or state
law or regulation which purports to restrict or regulate its ability to borrow
money.
Section 5.15 Closing Date Transactions. On the Closing Date and
immediately prior to the making of the initial Loans hereunder, the Transactions
(other than the making of the Loans) intended to be consummated on the Closing
Date will have been consummated in accordance with the terms of the relevant
Transaction Documents and in accordance with all applicable laws. All consents
and approvals of, and filings and registrations with, and all other actions by,
any Person required in order to make or consummate such Transactions have been
obtained, given, filed or taken and are or will be in full force and effect.
Section 5.16 Representations and Warranties in Transaction
Documents. All representations and warranties made by any Loan Party in the
Transaction Documents (other than the Loan Documents), and, to the best of the
Borrower's knowledge, all representations made by each other Person in such
Transaction Documents, are true and correct in all material respects. None of
such representations and warranties is inconsistent in any material respect
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with the representations and warranties of any Loan Party made herein or in any
other Loan Document.
Section 5.17 True and Complete Disclosure. All factual
information (taken as a whole) furnished by or on behalf of any Loan Party in
writing to the Agent or any Lender on or prior to the Closing Date, for purposes
of or in connection with this Agreement or any of the Transactions or the
Hardee's Acquisition is, and all other such factual information (taken as a
whole) hereafter furnished by or on behalf of any Loan Party in writing to the
Agent or any Lender will be, true and accurate in all material respects on the
date as of which such information is dated or furnished and not incomplete by
omitting to state any material fact necessary to make such information (taken as
a whole) not misleading at such time. As of the Closing Date, there are no
facts, events or conditions known to any Loan Party which, individually or in
the aggregate, have or could be expected to have a Material Adverse Effect.
Section 5.18 Corporate Structure; Capitalization. Schedule 5.18
hereto sets forth as of the Closing Date, both before and after giving effect to
the Transactions to be consummated on the Closing Date, the jurisdiction of
incorporation of the Company, each of its Subsidiaries, each other Loan Party
and each Subsidiary of such Loan Party, the number of authorized and issued
shares of capital stock of the Company and each of its Subsidiaries and of each
other Loan Party and each Subsidiary of such Loan Party, the par value thereof
and the registered owner(s) thereof. All of such stock has been duly and validly
issued and is fully paid and non-assessable and is owned by such Loan Party free
and clear of all Liens. Except for the Subordinated Notes or as disclosed in
Schedule 5.18, neither any Loan Party nor any such Subsidiary has outstanding
any securities convertible into or exchangeable for its capital stock nor does
any Loan Party or any such Subsidiary have outstanding any rights to subscribe
for or to purchase, or any options for the purchase of, warrants or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, its capital stock.
Section 5.19 Environmental Matters. (a) Except as set forth in
Schedule 5.19, (i) each of the Loan Parties and their Environmental Affiliates
are in compliance with all applicable Environmental Laws except where
noncompliance, individually or in the aggregate, could not have a Material
Adverse Effect, (ii) each of the Loan Parties and their Environmen tal
Affiliates have all Environmental Approvals required to operate their businesses
as presently conducted or as reasonably anticipated to be conducted except where
the failure to obtain any such Environmental Approval, individually or in the
aggregate, could not have a Material Adverse Effect, (iii) none of the Loan
Parties nor any of their Environmental Affiliates has received any communication
(written or oral), whether from a governmental authority, citizens group,
employee or otherwise, that alleges that such Loan Party or Environmental
Affiliate is not in full compliance with all Environmental Laws and where such
noncompliance, individually or in the aggregate, could have a Material Adverse
Effect, and (iv) to the Borrower's best knowledge after due inquiry, there are
no circumstances that may prevent or interfere with such full compliance in the
future except where such noncompliance,
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individually or in the aggregate, could not have a Material Adverse Effect.
(b) Except as set forth in Schedule 5.19, there is
no Environmental Claim pending or threatened against any Loan Party or its
Environmental Affiliate, which, individually or in the aggregate, could have a
Material Adverse Effect.
(c) Except as set forth in Schedule 5.19, there
are no past or present actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, emission, discharge or
disposal of any Material of Environmental Concern, that could form the basis of
any Environmental Claims against any of the Loan Parties or any of their
Environmental Affiliates, which Environmental Claims, individually or in the
aggregate, could have a Material Adverse Effect.
(d) Schedule 5.19 sets forth a list of all of the
properties operated, owned or leased by the Borrower, the Company and each of
their respective Subsidiaries as to which Phase I environmental audit reports
have been completed as of the Closing Date and the Borrower has delivered copies
of those Phase I audit reports which identify, or which recommend a subsequent
Phase II investigation as to, any material environmental, health or safety
violations, hazards or potential liabilities relating to the properties and
business of the Borrower, the Company, each of their respective Subsidiaries,
the other Loan Parties (if applicable) and each of their Environmental
Affiliates of which the Borrower, the Company, or any of their respective
Subsidiaries have knowledge.
Section 5.20 Intellectual Property. Each of the Loan Parties owns
or has the valid right to use all patents, trademarks, service marks, trade
names, copyrights, trade secrets and other intangible rights, free and clear of
all Liens, which are used in or necessary for the operation of its business, and
Schedule V to the Borrower Security Agreement and Schedule V to the Subsidiary
Security Agreement together set forth a complete and accurate list thereof with
respect to each Loan Party as of the Closing Date, including all applications
and registrations thereof and all license agreements to or from third parties
relating thereto (the "Intellectual Property"). Each Loan Party is the record
owner of all registrations and applications which it owns and all registrations
for Intellectual Property are valid and enforceable. To the best of each Loan
Party's knowledge, no service, product, process, method, substance, part or
other material presently offered, sold or employed by any Loan Party infringes
upon or dilutes any patent, trademark, service mark, trade name, copyright,
license or other right of any other Person, and no such claims have been made by
any other Person against any Loan Party. There is no pending or, to the best of
each Loan Party's knowledge, threatened claim or litigation against or affecting
any Loan Party contesting its rights to own or use any Intellectual Property or
the validity or enforceability thereof.
Section 5.21 Ownership of Property; Restaurants. Schedule 5.21
sets forth all the real property owned or leased by the Loan Parties as of the
Closing Date and identifies the street address, the current owner (and current
record owner, if different) and whether such
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property is leased or owned. The Loan Parties have good and marketable fee
simple title to or valid leasehold interests in all of such real property and
good title to all of their personal property subject to no Lien of any kind
except Liens permitted hereby. Schedule 5.21 also sets forth a list of each
Restaurant and the street address thereof which is owned or operated as of the
Closing Date by any Loan Party or any of its Subsidiaries. The Loan Parties
enjoy peaceful and undisturbed possession under all of their respective leases.
Section 5.22 No Default. No Loan Party is in default under or
with respect to any Transaction Document or any other agreement, instrument or
undertaking to which it is a party or by which it or any of its property is
bound in any respect which could result in a Material Adverse Effect. No Default
or Event of Default exists.
Section 5.23 Licenses, etc. The Loan Parties have obtained and
hold in full force and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, accreditations, easements, rights of way and
other rights, consents and approvals which are necessary for the operation of
their respective businesses as presently conducted.
Section 5.24 Compliance with Law. Each Loan Party is in
compliance with all laws, rules, regulations, orders, judgments, writs and
decrees except where such non-compliance, individually or in the aggregate,
could not have a Material Adverse Effect.
Section 5.25 No Burdensome Restrictions. No Loan Party is a party
to any agreement or instrument or subject to any other obligation or any charter
or corporate restriction or any provision of any applicable law, rule or
regulation which, individually or in the aggregate, could have a Material
Adverse Effect.
Section 5.26 Brokers' Fees. Except as set forth on Schedule 5.26,
none of the Loan Parties has any obligation to any Person in respect of any
finder's, brokers, investment banking or other similar fee in connection with
any of the Transactions.
Section 5.27 Labor Matters. Except as set forth on Schedule 5.27,
there are no collective bargaining agreements or Multiemployer Plans covering
the employees of the Company, any of its Subsidiaries or any of the other Loan
Parties, and none of such Persons has suffered any strikes, walkouts, work
stoppages or other material labor difficulty within the last five years. No
proceedings are pending against the Borrower or any of its Subsidiaries before
the INS which could reasonably be expected to have a Material Adverse Effect.
Section 5.28 Indebtedness of the Borrower and Its Subsidiaries.
Set forth on Schedule 5.28 hereto is a complete and accurate list of all
Indebtedness of the Borrower, the Company and each of their respective
Subsidiaries existing as of the Closing Date (other than Surviving Debt),
showing the principal amount outstanding thereunder as of the Closing Date.
Section 5.29 Other Agreements. Schedule 5.29 sets forth a
complete and
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accurate list as of the Closing Date of (i) all joint venture and partnership
agreements to which the Borrower, the Company or any of their Subsidiaries is a
party, and (ii) all covenants not to compete restricting the Borrower, the
Company or any of their Subsidiaries to which the Borrower, the Company or any
of their Subsidiaries is a party or by which the Borrower, the Company or any of
their Subsidiaries is bound.
Section 5.30 Immaterial Subsidiaries. The Subsidiaries of the
Borrower designated as Immaterial Subsidiaries on the Closing Date are set forth
on Schedule 5.30. The assets of each Subsidiary of the Borrower designated as an
Immaterial Subsidiary by the Borrower do not exceed $1,500,000 and the assets of
all of the Subsidiaries of the Borrower designated as Immaterial Subsidiaries by
the Borrower do not in the aggregate exceed $10,000,000, in each case as
determined in accordance with GAAP.
Section 5.31 Franchise Agreements and Franchisees. None of the
Franchise Agreements to which the Borrower or any of its Subsidiaries is a party
as a franchisor or a licensor prohibit or restrict in any manner the assignment
of such Franchise Agreement to the Agent for the benefit of the Secured Parties
or require any consent of any Person in connection with any such assignment.
Schedule 5.31 sets forth a complete and accurate list of each Person who is a
franchisee or licensee of the Borrower, the Company or any of their respec tive
Subsidiaries as of the Closing Date.
SECTION 6. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that until all of the
Commitments of each of the Lenders have terminated, each of the Letters of
Credit has expired or been terminated, and the Obligations are paid in full:
Section 6.1 Information Covenants. The Borrower will furnish to
the Agent, with sufficient copies for each Lender:
(a) Quarterly Financial Statements. Within 45 days
after the close of each of the first three (3) quarterly accounting periods in
each fiscal year of the Borrower, the consolidated balance sheet of the Borrower
and its Subsidiaries as at the end of such quarterly period and the related
consolidated statements of income and cash flow for such quarterly period and
for the elapsed portion of the fiscal year ended with the last day of such
quarterly period, and in each case setting forth comparative figures for the
related periods in the prior fiscal year.
(b) Annual Financial Statements. Within 90 days
after the close of each fiscal year of the Borrower, the consolidated balance
sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and
the related consolidated statements of income and cash flow for such fiscal
year, setting forth comparative figures for the preceding fiscal year and, with
respect to such consolidated financial statements, certified without
qualification by KPMG
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Peat Marwick LLP or other independent certified public accountants of recognized
national standing reasonably acceptable to the Agent and the Required Lenders
and indicating that its audit of the consolidated financial statements of the
Borrower was conducted in accordance with generally accepted auditing standards.
(c) Management Letters. Promptly after the
Borrower's receipt thereof, a copy of any "management letter" or other material
report received by the Borrower from its certified public accountants.
(d) Budgets. Within 60 days after the first day of
each fiscal year of the Borrower, a budget and financial forecast of results of
operations and sources and uses of cash (in form reasonably satisfactory to the
Agent) prepared by the Borrower for such fiscal year, accompanied by a written
statement of the assumptions used in connection therewith, together with a
certificate of the chief financial officer of the Borrower to the effect that
such budget and financial forecast and, to the best of his knowledge,
assumptions, are reasonable and represent the Borrower's good faith estimate of
its future financial requirements and performance. The financial statements
required to be delivered pursuant to clauses (a) and (b) above shall be
accompanied by a comparison of the actual financial results set forth in such
financial statements to those contained in the forecasts delivered pursuant to
this clause (d) together with an explanation of any material variations from the
results anticipated in such forecasts.
(e) Officer's Certificates. At the time of the
delivery of the financial statements under clauses (a) and (b) above, a
certificate of the chief financial officer of the Borrower which certifies (x)
that such financial statements fairly present the financial condition and the
results of operations of the Borrower and its Subsidiaries on the dates and for
the periods indicated, subject, in the case of interim financial statements, to
normally recurring year-end adjustments, and that such financial statements were
prepared in accordance with GAAP and (y) that such officer has reviewed the
terms of the Loan Documents and has made, or caused to be made under his or her
supervision, a review in reasonable detail of the business and condition of the
Borrower and its Subsidiaries during the accounting period covered by such
financial statements, and that as a result of such review such officer has
concluded that no Default or Event of Default has occurred during the period
commencing at the beginning of the accounting period covered by the financial
statements accompanied by such certificate and ending on the date of such
certificate or, if any Default or Event of Default has occurred, specifying the
nature and extent thereof and, if continuing, the action the Borrower proposes
to take in respect thereof (the "Compliance Certificate"). Such certificate
shall set forth the calculations required to establish whether the Borrower was
in compliance with the provisions of Sections 6.11, 6.12, 7.1, 7.2, 7.3, 7.7,
7.8 and 7.18 during and as at the end of the accounting period covered by the
financial statements accompanied by such certificate.
(f) Notice of Default. Promptly and in any event
within one Business Day after any Loan Party obtains knowledge thereof, notice
(i) of the occurrence of any Default or Event of Default together with a
certificate of an Authorized Officer of the
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Borrower specifying the nature and period of existence thereof and the
Borrower's proposed response thereto and (ii) that any holder of Indebtedness of
the Borrower or any Subsidiary of the Borrower having an outstanding principal
balance exceeding $5,000,000 has given any written notice to the Borrower or any
Subsidiary of the Borrower or taken any other action with respect to a claimed
default or event or condition of the type referred to in Section 8.1(d)
specifying (A) the nature and period of existence of any such claimed default,
condition or event, (B) the notice given or action taken by such Person in
connection therewith, and (C) the Borrower's proposed response thereto.
(g) Notice of Litigation. Promptly after (i) the
occurrence thereof, notice of the institution of, or any material development
in, any action, suit, litigation, proceeding, investigation or arbitration,
before any court or arbitrator or any governmental or administrative body,
agency or official, against the Borrower, any of its Subsidiaries or any
material property of any thereof which, individually or in the aggregate, could
have a Material Adverse Effect, or (ii) actual knowledge thereof, notice of the
threat of any such action, suit, proceeding, investigation or arbitration.
(h) ERISA.
(i) As soon as possible and in any
event within 10 days after the Borrower or any member of its
ERISA Controlled Group knows, or has reason to know, that:
(A) any Termination
Event with respect to a Plan has occurred or will occur, or
(B) any condition
exists with respect to a Plan which presents a material risk of
termination of the Plan or imposition of an excise tax or other
liability on the Borrower or any member of its ERISA Controlled
Group, or
(C) the Borrower or
any member of its ERISA Controlled Group has applied for a waiver
of the minimum funding standard under Section 412 of the Code or
Section 302 of ERISA, or
(D) the Borrower or
any member of its ERISA Controlled Group has engaged in a
"prohibited transaction," as defined in Section 4975 of the Code
or as de scribed in Section 406 of ERISA, that is not exempt
under Sec tion 4975 of the Code and Section 408 of ERISA, or
(E) the aggregate
present value of the Unfunded Benefit Liabilities under all Plans
has in any year
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increased by $500,000 or to an amount in excess of $2,000,000, or
(F) any condition
exists with respect to a Multiemployer Plan which presents a
material risk of a partial or complete withdrawal (as described
in Section 4203 or 4205 of ERISA) by the Borrower or any member
of its ERISA Controlled Group from a Multiemployer Plan, or
(G) the Borrower or
any member of its ERISA Controlled Group is in "default" (as
defined in Section 4219(c)(5) of ERISA) with respect to payments
to a Multiemployer Plan, or
(H) a Multiemployer
Plan is in "reorganization" (as defined in Section 418 of the
Code or Section 4241 of ERISA) or is "insolvent" (as defined in
Section 4245 of ERISA), or
(I) the potential
withdrawal liability (as determined in accordance with Title IV
of ERISA) of the Borrower and the members of its ERISA Controlled
Group with respect to all Multiemployer Plans has in any year
increased by $500,000 or to an amount in excess of $2,000,000, or
(J) there is an
action brought against the Borrower or any member of its ERISA
Controlled Group under Section 502 of ERISA with respect to its
failure to comply with Section 515 of ERISA,
a certificate of the president or chief financial officer of the Borrower
setting forth the details of each of the events described in clauses (A) through
(J) above as applicable and the action which the Borrower or the applicable
member of its ERISA Controlled Group proposes to take with respect thereto,
together with a copy of any notice or filing from the PBGC or which may be
required by the PBGC or other agency of the United States government with
respect to each of the events described in clauses (A) through (J) above, as
applicable.
(ii) As soon as possible and in any event within
two Business Days after the receipt by the Borrower or any member
of its ERISA Controlled Group of a demand letter from the PBGC
notifying the Borrower or such member of its ERISA Controlled
Group of its final decision finding liability and the date by
which such liability must be paid, a copy of such
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letter, together with a certificate of the president or chief
financial officer of the Borrower setting forth the action which
the Borrower or such member of its ERISA Controlled Group pro
poses to take with respect thereto.
(i) SEC Filings. Promptly upon transmission
thereof, copies of all regular and periodic financial information, proxy
materials and other information, regular, periodic and special reports and
registration statements, if any, which any Loan Party shall file with the
Securities and Exchange Commission or any governmental agencies substituted
therefore or which any Loan Party shall send to its stockholders.
(j) Environmental. Promptly and in any event
within two Business Days after the existence of any of the following conditions,
a certificate of an Authorized Officer of the Borrower specifying in detail the
nature of such condition and the applicable Loan Party's or Environmental
Affiliate's proposed response thereto: (i) the receipt by any Loan Party or any
of its Environmental Affiliates of any communication (written or oral), whether
from a governmental authority, citizens group, employee or otherwise, that
alleges that such Loan Party or Environmental Affiliate is not in compliance
with applicable Environmental Laws and such noncompliance, individually or in
the aggregate, could have a Material Adverse Effect, (ii) any Loan Party or any
of its Environmental Affiliates shall obtain actual knowledge that there exists
any Environmental Claim pending or threatened against such Loan Party or such
Environmental Affiliate, which, individually or in the aggregate, could have a
Material Adverse Effect, or (iii) any release, emission, discharge or disposal
of any Material of Environmental Concern that could form the basis of any
Environmental Claim against any Loan Party or any of their Environmental
Affiliates, which Environmental Claim, individually or in the aggregate could
have a Material Adverse Effect.
(k) Creditor Reports. Promptly after the
furnishing thereof, copies of any statement or report furnished to any other
holder of the securities of any Loan Party or of any of its Subsidiaries
pursuant to the terms of any indenture, loan or credit or similar agreement and
not otherwise required to be furnished to the Lenders pursuant to any other
clause of this Section 6.1.
(l) Other Information. From time to time, such
other information or documents (financial or otherwise) as any Lender may
reasonably request.
Section 6.2 Books, Records and Inspections. The Borrower shall,
and shall cause each of its Subsidiaries to, keep proper books of record and
account in which full, true and correct entries in conformity with GAAP and all
requirements of law shall be made of all dealings and transactions in relation
to its business and activities. The Borrower shall, and shall cause each of its
Subsidiaries to, permit officers and designated representatives of any Lender to
visit and inspect any of the properties of the Borrower or any of its
Subsidiaries, and to examine the books of record and account of the Borrower or
any of its Subsidiaries, and
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discuss the affairs, finances and accounts of the Borrower or any of its
Subsidiaries with, and be advised as to the same by, its and their officers and
independent accountants, all upon reasonable notice and at such reasonable times
as such Lender may desire; provided that no such prior notice shall be required
if an Event of Default has occurred and is continuing.
Section 6.3 Maintenance of Insurance. The Borrower shall, and
shall cause each of its Subsidiaries to, (a) maintain with financially sound and
reputable insurance companies insurance on itself and its properties in at least
such amounts and against at least such risks as are customarily insured against
in the same general area by companies engaged in the same or a similar business
similarly situated, which insurance shall in any event not provide for
materially less coverage than the insurance in effect on the Closing Date and
(b) furnish to each Lender from time to time, upon written request, the policies
under which such insurance is issued, certificates of insurance and such other
information relating to such insurance as such Lender may request.
Section 6.4 Taxes. (a) The Borrower shall pay or cause to be
paid, and shall cause each of its Subsidiaries to pay or cause to be paid, when
due, all taxes, charges and assessments and all other lawful claims required to
be paid by the Borrower or such Subsidiaries, except as contested in good faith
and by appropriate proceedings diligently conducted, if adequate reserves have
been established with respect thereto in accordance with GAAP.
(b) The Borrower shall not, and shall not permit
any of its Subsidiaries to, file or consent to the filing of any consolidated
tax return with any Person (other than the Borrower and its Subsidiaries).
Section 6.5 Corporate Franchises. Except as permitted by Section
7.4 below, the Borrower shall, and shall cause each of its Subsidiaries to, do
or cause to be done, all things necessary to preserve and keep in full force and
effect its existence and its patents, trademarks, servicemarks, tradenames,
copyrights, franchises, licenses, permits, certificates, authorizations,
qualifications, accreditations, easements, rights of way and other rights,
consents and approvals except where the failure to so preserve any of the
foregoing (other than existence) could not, individually or in the aggregate,
result in a Material Adverse Effect.
Section 6.6 Compliance with Law. The Borrower shall, and shall
cause each of its Subsidiaries to, comply in all material respects with all
applicable laws, rules, statutes, regulations, decrees and orders of, and all
applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of their business and the ownership of their
property, including, without limitation, ERISA and all Environmental Laws.
Section 6.7 Performance of Obligations. The Borrower shall, and
shall cause each of its Subsidiaries to, perform all of its obligations under
the terms of each mortgage, indenture, security agreement, debt instrument,
lease, undertaking and contract by which it or any of its properties is bound or
to which it is a party, except where the failure to perform such
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obligations individually or in the aggregate could not reasonably be expected to
have a Material Adverse Effect.
Section 6.8 Maintenance of Properties. The Borrower shall, and
shall cause each of its Subsidiaries to, ensure that its respective properties
useful in its respective business are kept in good repair, working order and
condition, normal wear and tear excepted.
Section 6.9 Compliance with Terms of Leaseholds. The Borrower
shall and shall cause each of its Subsidiaries to (a) make all payments and
otherwise perform all obligations in respect of all leases of the Borrower and
each of its Subsidiaries of real property, (b) keep all such leases that are
useful or material in the conduct of the business of the Borrower and its
Subsidiaries (such useful or material leases are hereinafter referred to as the
"Material Leases") in full force and effect, (c) not allow such Material Leases
to lapse or be terminated or any rights to renew such leases to be forfeited or
cancelled, and (d) notify the Agent of any default by any party with respect to
such Material Leases and cooperate with the Agent in all respects to cure any
such default.
Section 6.10 Compliance with Environmental Laws. The Borrower
shall, and shall cause each of its Subsidiaries and all lessees and other
Persons occupying its properties to (a) comply in all material respects, with
all Environmental Laws and Environmental Approvals applicable to its respective
operations and properties; (b) obtain and renew all Environmental Approvals
necessary for its respective operations and properties; and (c) conduct any
investigation, study, sampling and testing, and undertake any cleanup, removal,
remedial or other action necessary to remove and clean up all Materials of
Environmental Concern from any of its respective properties, in accordance with
the requirements of all Environmental Laws; provided, however, that neither the
Borrower nor any of its Subsidiaries shall be required to undertake any such
cleanup, removal, remedial or other action to the extent that its obligation to
do so is being contested in good faith and by proper proceedings and appropriate
reserves are being maintained with respect to such circumstances, unless the
Borrower or any of its Subsidiaries is subject to an order issued by any
governmental authority requiring the Borrower or such Subsidiary to undertake
any such cleanup, removal, remedial or other action, in which case this proviso
shall not apply.
Section 6.11 Subsidiary Guarantors. The Borrower shall cause each
of its Subsidiaries now or hereafter existing, formed or acquired (other than
JB, JB Newco and any Immaterial Subsidiaries) to at all times be and remain a
party to the Guaranty, the Subsidiary Security Agreement and, if any such
Subsidiary owns any Equity Interests in any Person (other than in Boston West,
L.L.C. and other than in an Immaterial Subsidiary), a Subsidiary Pledge
Agreement.
Section 6.12 Immaterial Subsidiaries. If (i) the assets of any
Subsidiary of the Borrower then designated as an Immaterial Subsidiary shall at
any time exceed $1,500,000, then the Borrower shall immediately provide notice
to the Agent thereof, and such Subsidiary
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shall immediately be deemed automatically to no longer be an Immaterial
Subsidiary or (ii) the aggregate amount of assets of all Subsidiaries of the
Borrower so designated as Immaterial Subsidiaries shall at any time exceed
$10,000,000, then the Borrower shall immediately provide notice to the Agent
thereof and notice of which of such previously designated Immaterial
Subsidiaries shall no longer be deemed to be Immaterial Subsidiaries so that the
aggregate amount of assets of all such Subsidiaries so designated as Immaterial
Subsidiaries does not exceed $10,000,000; provided that the Borrower may from
time to time designate additional Subsidiaries of the Borrower as Immaterial
Subsidiaries so long as the assets of any such Subsidiary do not exceed
$1,500,000 and so long as the aggregate amount of assets of all such
Subsidiaries so designated as Immaterial Subsidiaries does not exceed
$10,000,000 (in each case as determined in accordance with GAAP). At such time
as any Subsidiary that was an Immaterial Subsidiary is no longer an Immaterial
Subsidiary, the Borrower shall thereafter comply with the terms of this
Agreement relating to or affecting Subsidiaries that are not Immaterial
Subsidiaries (in addition to those terms relating to or affecting the Borrower's
Subsidiaries generally), including, without limitation, the requirements of
Section 6.11 hereof;
Section 6.13 Environmental Reports. The Borrower shall cause to
be completed, by April 15, 1998, Phase I audit reports with respect to each
property owned, operated or leased by the Borrower or any of its Subsidiaries,
upon which a business or operation other than a Restaurant has been conducted at
any time during the five (5) years immediately preceding the Closing Date and
with respect to which a Phase I audit report has not been completed in the ten
(10) year period immediately preceding the Closing Date. The Borrower shall
deliver all such Phase I audit reports to the Agent which are obtained pursuant
to the preceding sentence which identify, or which recommend a subsequent Phase
II investigation as to, any material environmental, health or safety violations,
hazards or potential liabilities relating to the properties and business of any
Loan Party or any of their Environmental Affiliates.
Section 6.14 Year 2000. The Borrower will use its reasonable best
efforts to insure that any computer systems and/or software used in the
operation of the Borrower's or any of its Subsidiaries' businesses is modified
or replaced to the extent necessary to prevent or avoid any Material Adverse
Effect as a result of the commencement of the year "2000."
Section 6.15 FEI Financial Statements. The Borrower will deliver
to the Agent within ninety (90) days after the Closing Date the consolidated
balance sheet of the Company and its Subsidiaries as at the end of its fiscal
year 1997, and the related consolidated statements of income and cash flow for
such fiscal year, setting forth comparative figures for the preceding fiscal
year and, with respect to such consolidated financial statements, certified
without qualification by Deloitte & Touche LLP or other independent certified
public accountants of recognized national standing reasonably acceptable to the
Agent and indicating that its audit of the consolidated financial statements of
FEI was conducted in accordance with generally accepted auditing standards.
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SECTION 7. NEGATIVE COVENANTS.
The Borrower covenants and agrees that until all of the
Commitments of each Lender have terminated, each of the Letters of Credit has
expired or been terminated, and the Obligations are paid in full:
Section 7.1 Financial Covenants.
(a) Leverage Ratio. The Borrower shall not permit
the Leverage Ratio at any time during each of the fiscal quarters of the
Borrower ending during each of the periods listed below to exceed the ratio set
forth opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 15, 1997 through Jan. 25, 1999 3.25 to 1.00
Jan. 26, 1999 through Jan. 31, 2000 3.00 to 1.00
Feb. 1, 2000 through Jan. 29, 2001 2.75 to 1.00
Each fiscal year of the Borrower thereafter 2.50 to 1.00
</TABLE>
(b) Interest Coverage Ratio. The Borrower shall
not permit the ratio of Adjusted Consolidated EBITDA of the Borrower to
Consolidated Interest Expense of the Borrower for each period of four
consecutive fiscal quarters of the Borrower (taken as one accounting period) as
determined on the last day of each fiscal quarter of the Borrower ending during
each period set forth below (including Consolidated EBITDA and Consolidated
Interest Expense of the Company and its Subsidiaries for such period), to be
less than the ratio set forth opposite such period; provided that for the period
ending on May 18, 1998, Consolidated Interest Expense will be the product of (A)
actual Consolidated Interest Expense for the period from the first day of the
third fiscal quarter of the Borrower ending November 3, 1997 to the last day of
the first fiscal quarter of the Borrower ending May 18, 1998 multiplied by (B)
52/40:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Oct. 1, 1997 through Jan. 25, 1999 4.00 to 1.00
Jan. 26, 1999 through Jan. 31, 2000 4.50 to 1.00
Each fiscal year of the Borrower thereafter 5.00 to 1.00
</TABLE>
(c) Fixed Charge Coverage Ratio. The Borrower
shall not permit the ratio of Adjusted Consolidated EBITDA of the Borrower to
Fixed Charges of the Borrower for the period of four consecutive fiscal quarters
of the Borrower (taken as one accounting period) as determined on the last day
of each fiscal quarter of the Borrower (including Consolidated EBITDA and Fixed
Charges of the Company and its Subsidiaries for such period), to be less than
1.75 to 1.00; provided that for the period ending on May 18, 1998, Fixed Charges
will be
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the product of (A) actual Fixed Charges for the period from the first day of the
third fiscal quarter of the Borrower ending November 3, 1997 to the last day of
the first fiscal quarter of the Borrower ending May 18, 1998 multiplied by (B)
52/40.
(d) Minimum Consolidated EBITDA. The Borrower
shall not permit Adjusted Consolidated EBITDA of the Borrower for the period of
four consecutive fiscal quarters of the Borrower (taken as one accounting
period) as determined on the last day of each fiscal quarter of the Borrower
ending during each period set forth below (including Consolidated EBITDA of the
Company and its Subsidiaries for such period) to be less than the amount set
forth opposite such period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
July 15, 1997 through Jan. 25, 1999 $200,000,000
Jan. 26, 1999 through Jan. 31, 2000 $220,000,000
Feb. 1, 2000 through Jan. 29, 2001 $240,000,000
Each fiscal year of the Borrower thereafter $260,000,000
</TABLE>
(e) Adjusted Leverage Ratio. The Borrower shall
not permit the ratio of (i) Consolidated Total Debt (measured as of the end of
each period set forth below) plus the product of seven multiplied by
Consolidated Rentals for the period of four consecutive fiscal quarters of the
Borrower (taken as one accounting period) as determined on the last day of each
fiscal quarter of the Borrower ending during each period set forth below to (ii)
Consoli dated EBITDAR for the period of four consecutive fiscal quarters of the
Borrower (taken as one accounting period) as determined on the last day of each
fiscal quarter of the Borrower ending during each period set forth below
(including Consolidated Total Debt, Consolidated Rentals and Consolidated
EBITDAR of the Company and its Subsidiaries for such period) to exceed at any
time during each fiscal quarter of the Borrower ending during any period listed
below, the ratio set forth opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 15, 1997 through Jan. 25, 1999 4.50 to 1.00
Jan. 26, 1999 through Jan. 31, 2000 4.25 to 1.00
Feb. 1, 2000 through Jan. 29, 2001 4.00 to 1.00
Each fiscal year of the Borrower thereafter 3.75 to 1.00
</TABLE>
(f) Capital Expenditures. The Borrower shall not
make or incur and shall not permit any of its Subsidiaries to make or incur any
Capital Expenditures, except Capital Expenditures of the Borrower and its
Subsidiaries in any of the periods set forth below in an aggregate amount not in
excess of the maximum amount set forth below opposite such period:
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<PAGE> 76
<TABLE>
<CAPTION>
Period Maximum Amount
------ --------------
<S> <C>
Fiscal year ended Jan. 25, 1999 $200,000,000
Each fiscal year of the Borrower thereafter $150,000,000
</TABLE>
provided that if the maximum amount set forth above for any period exceeds the
aggregate amount of Capital Expenditures made or incurred during such period,
then the maximum amount set forth above for the following period (but not any
subsequent periods) shall be increased by the amount of such excess.
(g) Consolidated Tangible Net Worth. The Borrower
shall not permit its Consolidated Tangible Net Worth at any time to be less than
the sum of (i) $275,000,000, plus (ii) 50% of cumulative Consolidated Net Income
of the Borrower and its Subsidiaries for all fiscal quarters of the Borrower
ended after January 31, 1998 in which Consolidated Net Income is positive (and
without any deduction for any fiscal quarter in which Consolidated Net Income is
negative), plus (iii) 100% of the Net Equity Proceeds of any equity offering by
the Borrower.
Section 7.2 Indebtedness. The Borrower shall not, and shall not
permit any of its Subsidiaries to, create, incur, assume, suffer to exist or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness other than:
(a) Indebtedness hereunder and under the other
Loan Documents;
(b) Indebtedness outstanding on the Closing Date
and set forth on Schedule 7.2 hereto;
(c) Indebtedness permitted under Sections 7.6(a),
7.6(b) and 7.6(d);
(d) Indebtedness of the Borrower of the type
described in clause (vii) of the definition of Indebtedness to the extent
permitted under Section 7.14;
(e) Indebtedness with respect to (i) purchase
money Indebtedness incurred solely to finance Capital Expenditures permitted
under Section 7.1(f) and any extensions, renewals, refundings or refinancings
thereof, not in excess of $5,000,000 in the aggregate at any one time
outstanding for all such purchase money Indebtedness and all extensions,
renewals, refundings and refinancings thereof and (ii) Capitalized Leases
permitted under Section 7.13 and any extensions, renewals, refundings or
refinancings thereof so long as the terms of any such Indebtedness with respect
to Capitalized Leases is permitted under Section 7.13; provided that (A) any
such Indebtedness incurred pursuant to this clause (e) and any such extensions,
renewals, refundings or refinancings thereof shall not exceed 85% of the lesser
of the purchase price or the fair market value of the asset so financed, (B) at
the time of
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such incurrence, no Default or Event of Default has occurred and is continuing
or would result from such incurrence, and (C) such Indebtedness has a scheduled
maturity and is not due on demand;
(f) any extensions, renewals, refundings and
refinancings of the Indebtedness described in clause (b) above, so long as the
terms of any such extension, renewal, refunding or refinancing Indebtedness, and
of any agreement entered into and of any instrument issued in connection
therewith, are otherwise permitted by the Loan Documents; provided further that
the principal amount of such Indebtedness shall not be increased above the
principal amount thereof outstanding immediately prior to such extension,
renewal, refunding or refinancing, and the direct and contingent obligors
therefor shall not be changed, as a result of or in connection with such
extension, renewal, refunding or refinancing;
(g) Indebtedness of any wholly-owned Subsidiary of
the Borrower owed to the Borrower or to any wholly-owned Subsidiary of the
Borrower;
(h) (i) unsecured Permitted Subordinated Debt
provided that the aggregate principal amount of such Indebtedness shall not
exceed $25,000,000 minus the amount of any Indebtedness incurred by the Borrower
or any of its Subsidiaries pursuant to Section 7.2(h)(ii) at any one time
outstanding and (ii) other Permitted Subordinated Debt in an aggregate principal
amount not to exceed $5,000,000 at any one time outstanding incurred in
connection with a Permitted Acquisition with respect to which all of the
conditions set forth in Section 7.8(f) have been satisfied and incurred to pay
all or part of the purchase price thereof which Permitted Subordinated Debt, if
secured, is secured only by Liens permitted pursuant to Section 7.3(i);
(i) Indebtedness of the Borrower incurred pursuant
to the Subordinated Notes in an aggregate principal amount not to exceed
$200,000,000 at any time outstanding;
(j) unsecured Indebtedness of the Borrower or any
of its Subsidiaries consisting of guarantees of not more than 20% of the
principal amount of Indebtedness of a franchisee incurred to finance a
remodeling, construction or purchase of a retail unit of such franchisee or
capital expenditures of such franchisee; provided that the amount of the obliga
tions of the Borrower and its Subsidiaries under or with respect to such
guarantees shall not exceed $40,000,000 in the aggregate outstanding at any
time;
(k) unsecured Indebtedness of the Borrower or any
of its Subsidiaries owing to former franchisees and representing the deferred
purchase price (or a deferred portion of such purchase price) payable by the
Borrower or such Subsidiary to such former franchisee in connection with the
purchase by the Borrower or such Subsidiary of one or more retail outlets from
such former franchisee in an aggregate principal amount for all such
Indebtedness not to exceed $5,000,000 at any one time outstanding; and
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(l) Indebtedness of any entity acquired pursuant
to a Permitted Acquisition with respect to which all of the conditions set
forth in Section 7.8(f) have been satisfied, which Indebtedness (i) is existing
prior to such Permitted Acquisition, (ii) is assumed by the Borrower or any
Subsidiary of the Borrower in connection with any such Permitted Acquisition
and (iii) is not incurred in contemplation of such Permitted Acquisition;
provided that the aggregate principal amount of all such Indebtedness shall not
exceed $20,000,000 at any time outstanding.
Section 7.3 Liens. The Borrower shall not, and shall not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist, directly
or indirectly, any Lien on any of its property now owned or hereafter acquired,
other than:
(a) Liens existing on the Closing Date and set
forth on Schedule 7.3 hereto;
(b) Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings diligently conducted and with
respect to which adequate reserves are being maintained in accordance with GAAP;
(c) Statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other Liens imposed by Law
(other than any Lien imposed by ERISA or pursuant to any Environmental Law)
created in the ordinary course of business for amounts not yet due or which are
being contested in good faith by appropriate proceedings diligently conducted
and with respect to which adequate bonds have been posted;
(d) Liens (other than any Lien imposed by ERISA or
pursuant to any Environmental Law) incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(e) Easements, rights-of-way, zoning and similar
restrictions and other similar charges or encumbrances not interfering with the
ordinary conduct of the business of the Borrower or any of its Subsidiaries and
which do not detract materially from the value of the property to which they
attach or impair materially the use thereof by the Borrower or any of its
Subsidiaries or materially adversely affect the security interests of the Agent
or the Lenders therein;
(f) Liens granted to the Agent for the benefit of
the Lenders pursuant to the Security Documents securing the Obligations;
(g) Liens created pursuant to Capitalized Leases
and to secure other
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purchase-money Indebtedness permitted pursuant to Section 7.2(e), provided that
such Liens are only in respect of the property or assets subject to, and secure
only, the respective Capitalized Lease or other purchase-money Indebtedness;
(h) Liens arising out of the replacement,
extension or renewal of any Lien permitted by clause (a) above upon or in the
same property theretofore subject thereto in connection with the refunding,
refinancing, extension or renewal (without increase in the amount or change in
any direct or contingent obligor) of the Indebtedness secured thereby permitted
pursuant to Section 7.2(f);
(i) Liens securing Permitted Subordinated Debt
permitted pursuant to Section 7.2(h)(ii) provided that (i) such Liens are only
in respect of the assets acquired in the applicable Permitted Acquisition, (ii)
the Obligations are secured by valid first priority perfected Liens on such
assets and the Liens permitted pursuant to this Section 7.3(i) are second in
priority to the Liens on such assets securing the Obligations and (iii) the
rights and remedies of any holder of such Liens are subordinated to the rights
and remedies of the Agent and the Lenders on terms approved in writing by the
Agent;
(j) Liens securing Indebtedness (other than
Permitted Subordinated Debt) of the Borrower and its Subsidiaries in an
aggregate principal amount not to exceed $25,000,000; and
(k) Liens only in respect of specific property
subject to operating leases entered into by the Borrower or any of its
Subsidiaries as a lessee in the ordinary course of business.
Section 7.4 Restriction on Fundamental Changes.
(a) The Borrower shall not, and shall not permit
any of its Subsidiaries to, enter into any merger or consolidation, or
liquidate, wind-up or dissolve (or suffer any liquidation or dissolution),
discontinue its business or convey, lease, sell, transfer or otherwise dispose
of, in one transaction or series of transactions, all or any substantial part of
its business or property, whether now or hereafter acquired, except (i) as
otherwise permitted under Section 7.5, (ii) any wholly-owned Subsidiary of the
Borrower other than Hardee's and any of the Hardee's Subsidiaries may merge into
or convey, sell, lease or transfer all or substantially all of its assets to,
the Borrower or any other wholly-owned Subsidiary of the Borrower, provided,
that in any such merger involving the Borrower, the Borrower shall be the
surviving corporation and any such Subsidiary merging into the Borrower shall be
Solvent, (iii) any Solvent Person acquired by the Borrower or a Subsidiary of
the Borrower in a Permitted Acquisition permitted hereunder may merge with the
Borrower or any wholly-owned Subsidiary of the Borrower other than Hardee's and
any of the Hardee's Subsidiaries, provided, that in any such merger, the
Borrower or such wholly-owned Subsidiary shall be the surviving corporation,
(iv) the Company and its Subsidiaries may merge into or convey, sell,
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lease or transfer all or substantially all of its assets to Hardee's or any of
the Hardee's Subsidiary, (v) with the prior written consent of the Agent and the
Required Lenders, Hardee's and any of the Hardee's Subsidiaries may merge into
or convey, sell, lease or transfer all or substantially all of its assets to,
the Borrower or any other wholly-owned Subsidiary of the Borrower, provided,
that no consent of the Agent or the Required Lenders is required for any such
transaction solely between of the Hardee's Subsidiaries and, provided further,
that in any such merger involving the Borrower, the Borrower shall be the
surviving corporation and any such Subsidiary merging into the Borrower shall be
Solvent; provided, that in each case, (A) any such wholly-owned Subsidiary of
the Borrower which is the surviving corporation of any such merger or to which
any business or property is so transferred shall be a party to the Guaranty and
the Subsidiary Security Agreement and (B) no Default or Event of Default shall
have occurred or be continuing or would occur after giving effect thereto or as
a result thereof.
(b) Borrower shall not and shall not permit any of
its Subsidiaries to, amend its certificate of incorporation or by-laws (or other
relevant formation document) in any manner adverse to the interests of the Agent
or the Lenders.
Section 7.5 Sale of Assets. The Borrower shall not, and shall not
permit any of its Subsidiaries to, make, consummate or effect any Asset
Disposition (or agree to do so at any future time) with respect to all or any
part of its property or assets, except:
(a) the sale of any asset by the Borrower or any
of its Subsidiaries (other than a bulk sale of inventory and a sale of
receivables (other than delinquent accounts for collection purposes only) and
other than a sale of any capital stock of Carl Karcher Enterprises, Inc.,
Hardee's or the Company) so long as (i) the purchase price paid to the Borrower
or such Subsidiary for such asset shall be no less than the fair market value of
such asset at the time of such sale, (ii) the purchase price for such asset
shall be paid to the Borrower or such Subsidiary solely in cash (except for
non-cash consideration in the form of promissory notes maturing not later than 3
years after the date of issuance and in an aggregate principal amount for all
such promissory notes not to exceed $10,000,000 at any one time outstanding) and
Cash Equivalents, (iii) the aggregate fair market value of such asset and all
other assets sold by the Borrower and its Subsidiaries during the same fiscal
year of the Borrower pursuant to this clause (a) shall not exceed 15% of the
total assets of the Borrower and its Subsidiaries determined on a consolidated
basis in accordance with GAAP provided, that Excluded Resales shall not be
included in the calculation of such percentage, (iv) the Borrower shall prepay
the Loans pursuant to, and in accordance with, Section 2.12 in an aggregate
principal amount equal to the Net Sale Proceeds received by the Borrower or such
Subsidiary from the sale, transfer or other disposition of such asset and (v) no
Default or Event of Default has occurred and is continuing or would result from
such asset sale; and
(b) so long as no Default or Event of Default
shall occur and be continuing, the grant of any option or other right to
purchase any asset in a transaction which would be permitted under the
provisions of the preceding clause (a) ; and
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(c) sales of assets used in the JB's Restaurants
or Galaxy Diners by JB and JB Newco and sales of capital stock of JB and JB
Newco; and
(d) sale of the capital stock or assets of Boston
Pacific, Inc. and Boston West, L.L.C. so long as (i) the purchase price paid in
connection therewith shall be at least the fair market value thereof at the time
of such sale and (ii) any and all consideration received by the Borrower in
connection therewith that constitutes Collateral is pledged to the Agent for the
benefit of the Lenders pursuant to a validly executed Security Document.
Section 7.6 Contingent Obligations. The Borrower shall not, and
shall not permit any of its Subsidiaries to, create or become or be liable with
respect to any Contingent Obligation, except:
(a) pursuant to the Guaranty or the Security
Documents;
(b) Contingent Obligations which are in existence
on the Closing Date and which are set forth on Schedule 7.6
(c) Contingent Obligations permitted pursuant to
Section 7.2(j); and
(d) pursuant to the FEI Guaranties.
Section 7.7 Dividends. The Borrower shall not, and shall not
permit any of its Subsidiaries to, declare or pay any dividends, or return any
capital to, its stockholders or authorize or make any other distribution,
payment or delivery of property or cash to its stockholders as such, or redeem,
retire, purchase, defease or otherwise acquire, directly or indirectly, any
shares of any class of its Capital Stock now or hereafter outstanding (or any
options, rights or warrants issued with respect to its Capital Stock), or set
aside any funds for any of the foregoing purposes (all the foregoing
"Dividends"), except that:
(a) Dividends may be made to the Borrower or any
of its wholly-owned Subsidiaries by any of its wholly-owned Subsidiaries; and
(b) So long as no Default or Event of Default
shall have occurred and be continuing or would result therefrom, the Borrower
may:
(i) declare and deliver dividends
and distributions payable only in common stock of the Borrower;
and
(ii) declare and pay cash dividends
to its stockholders and purchase, redeem, retire or otherwise
acquire shares of its own outstanding capital stock for cash
during any fiscal year of the Borrower if after giving
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effect thereto the aggregate amount of such dividends, purchases,
redemptions, retirements and acquisitions paid or made during
such fiscal year would be less than the amount of (A)
$15,000,000, plus (B) 30% of Consolidated Net Income of the
Borrower for each fiscal year of the Borrower (commencing with
the fiscal year ending January 26, 1998) up to and including the
fiscal year immediately preceding the year in which such
dividend, purchase, redemption, retirement or acquisition is paid
or made, less (C) the aggregate amount of any sinking fund
payments, payments, prepayments, redemptions, defeasances, and
purchases or acquisitions for value paid pursuant to Section
7.10(d) during such fiscal year, less (D) the aggregate amount of
all such dividends, purchases, redemptions, retirements and
acquisitions paid and made by the Borrower after January 26, 1998
through and including the end of such immediately preceding
fiscal year; and
(c) So long as no Default or Event of Default
shall have occurred and be continuing, any Subsidiary of the Borrower that is
not a wholly-owned Subsidiary of the Borrower may declare and pay cash dividends
to the extent, and only to the extent, of any cumulative positive net income
(after deducting any negative net income) of such Subsidiary arising after the
date such Subsidiary became a Subsidiary of the Borrower so long as such
dividends are payable to all of its equity holders on a ratable basis.
Section 7.8 Advances, Investments and Loans. The Borrower shall
not, and shall not permit any of its Subsidiaries to, make or suffer to exist,
directly or indirectly any Investments (including, without limitation, loans and
advances to the Borrower or any of its Subsidiaries, and other Investments in
Subsidiaries of the Borrower), or commitments therefor, or to create any
Subsidiary or to become or remain a partner in any partnership or joint venture,
or make any Acquisition of any interest in any Person, except that the following
shall be permitted:
(a) Investments set forth on Schedule 7.8;
(b) Investments by the Borrower and its
Subsidiaries in Subsidiaries of the Borrower outstanding on the date hereof,
additional Investments by the Borrower or any Subsidiary of the Borrower in any
Subsidiary of the Borrower which Subsidiary is Solvent and is a party to the
Guaranty, and additional Investments by the Borrower or any wholly-owned
Subsidiary of the Borrower consisting of loans and advances to wholly-owned
Subsidiaries of the Borrower to the extent permitted by Section 7.2(g);
(c) loans and advances by the Borrower and its
Subsidiaries to their employees in the ordinary course of its business not
exceeding $2,000,000 in the aggregate at any one time outstanding;
(d) the Borrower and its Subsidiaries may acquire
and hold Cash
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Equivalents;
(e) Investments consisting of promissory notes
permitted to be received as consideration in connection with Asset Dispositions
permitted under Section 7.5(a);
(f) Permitted Acquisitions, provided that, in the
case of each Permitted Acquisition, the conditions referred to in clauses (i)
through (viii) below are satisfied on or prior to the date of such Permitted
Acquisition (it being understood that, for purposes of clause (ii) below, the
phrase "the Borrower and its Subsidiaries" and the phrase "Consolidated" shall
be deemed to include the Person (and its Subsidiaries, if any, to be acquired)
or assets to be acquired as though such Person (and its Subsidiaries, if any, to
be acquired) or assets were a Subsidiary of the Borrower):
(i) the Person or assets to be
acquired satisfy the criteria set forth in either the definition
of "Permitted Acquisition" or the definition of "Permitted
Restaurant Acquisitions" contained in Section 1;
(ii) in the case of Permitted
Acquisitions other than Permitted Restaurant Acquisitions, the
Borrower shall have delivered to the Agent a certificate of the
chief financial officer of the Borrower, in form and substance
satisfactory to the Agent, demonstrating:
(1) compliance by
the Borrower and its Subsidiar ies with the covenants set forth
in Section 7.1, on a pro forma basis after giving effect to such
Acquisition, for a period of four consecutive fiscal quarters
after the date of such Acquisition, and
(2) on a pro forma
basis after giving effect to such Acquisition, as at the last day
of the fiscal quarter ended immediately preceding the date of
consummation of such Acquisition for which financial statements
have been delivered to the Lenders pursuant to Section 6.1(a),
for the period of four consecutive fiscal quarters of the
Borrower (taken as one accounting period) then ended, that:
(A) the
Leverage Ratio shall be less than 2.5 to 1.0,
(B) the
Adjusted Leverage Ratio shall be less than 3.75 to
1.0, and
(C) the
Consolidated EBITDA of the Person and any of its
Subsidiaries, if any, to be acquired, for the
twelve-month period most recently ended shall be a
positive number;
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(iii) in the case of Permitted
Acquisitions that are Permitted Restaurant Acquisitions, the
Borrower shall have delivered to the Agent a certificate of the
chief financial officer of the Borrower, in form and substance
satisfactory to the Agent, demonstrating:
(1) compliance by
the Borrower and its Subsidiar ies with the covenants set forth
in Section 7.1, on a pro forma basis after giving effect to such
Acquisition, for a period of four consecutive fiscal quarters
after the date of such Acquisition, and
(2) on a pro forma
basis after giving effect to such Acquisition, as at the last day
of the fiscal quarter ended immediately preceding the date of
consummation of such Acquisition for which financial statements
have been delivered to the Lenders pursuant to Section 6.1(a),
for the period of four consecutive fiscal quarters of the
Borrower (taken as one accounting period) then ended, that:
(A) if the
aggregate amount of cash consideration paid and
Indebtedness incurred or assumed in connection
with all Permitted Restaurant Acquisitions
occurring after the Closing Date after giving
effect to such Acquisition is less than or equal
to $75,000,000, the Leverage Ratio shall be less
than 3.0 to 1.0,
(B) if the
aggregate amount of cash consideration paid and
Indebtedness incurred or assumed in connection
with all Permitted Restaurant Acquisitions
occurring after the Closing Date after giving
effect to such Acquisition is greater than
$75,000,000, the Leverage Ratio shall be less than
2.5 to 1.0,
(C) if the
aggregate amount of cash consideration paid and
Indebtedness incurred or assumed in connection
with all Permitted Restaurant Acquisitions
occurring after the Closing Date after giving
effect to such Acquisition is less than or equal
to $75,000,000, the Adjusted Leverage Ratio shall
be less than 4.25 to 1.0,
(D) if the
aggregate amount of cash consideration paid and
Indebtedness incurred or assumed in connection
with all Permitted Restaurant Acquisitions
occurring after the Closing Date after giving
effect to such Acquisition is
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greater than $75,000,000, the Adjusted Leverage
Ratio shall be less than 3.75 to 1.0, and
(E) the
Consolidated EBITDA of the Person and any of its
Subsidiaries, if any, to be acquired, for the
twelve-month period most recently ended shall be a
positive number;
(iv) the representations and
warranties contained in each Loan Document are correct in all
material respects on and as of the date of such Acquisition,
after giving effect to such Acquisition, as though made on and as
of such date, other than any such representations and warranties
that by their terms are specifically made as of a date other than
such date;
(v) no event has occurred and is
continuing on the date of such Acquisition, or would result from
such Acquisition, that constitutes a Default or an Event of
Default;
(vi) the Total Revolving Loan
Commitment minus the aggregate principal amount of the Revolving
Loans outstanding on the date of such Permitted Acquisition,
minus the amount of any L/C Obligations outstand ing on the date
of such Permitted Acquisition shall equal at least $10,000,000;
(vii) all Consents and waiting
periods described in clause (viii)(3)(D) below shall have been
obtained or expired; and
(viii) the Borrower or such
Subsidiary of the Borrower making such Acquisition shall furnish
or cause to be furnished to the Agent and the Lenders the
following:
(1) Certified copies
of the resolutions of the Board of Directors of the Borrower and,
if any Subsidiary of the Borrower will participate in the
applicable Acquisition, of such Subsidiary (in each case, to the
extent resolutions of the Board of Directors of the Borrower or
such Subsidiary are required or advisable pursuant to applicable
law or the Borrower's or such Subsidiary's charter documents) and
of all documents evidencing other necessary corporate action or
other Consents, if any, with respect to such Acquisition;
(2) Such other
financial, business and other information regarding the Person or
assets to be acquired, as the case may be, as the Agent or the
Required Lenders through the Agent shall have reasonably
requested, including, without limitation, actual and pro forma
financial state-
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ments and projections relating to such Person or assets;
(3) In the case of
each Permitted Acquisition, to the extent that such Acquisition
consists of the acquisition by the Borrower or any of its
Subsidiaries of stock, partnership or other Equity Interests of
any Person (or assets in the case of clause (A) below):
(A) All
documents required to be delivered pursuant to
Section 2.21 and Section 6.11;
(B) A copy of
the charter or other organizational document of
such Person and each amendment thereto, if any,
certified by the Secretary of State of its
jurisdiction of organization, as of a date
reasonably near the date of such Borrowing, as
being a true and correct copy thereof;
(C) An
officer's certificate signed on behalf of such
Person by an appropriate officer of such Person,
certifying as to (i) the absence of any amendment
to the charter or other organizational document of
such Person since the date of the Secretary of
State's certificate referred to in clause (B)
above, (ii) a true and correct copy of the by-laws
or similar organizational document of such Person,
(iii) a true and correct copy of the resolutions
adopted by the Board of Directors or equivalent
body of such Person approving the documents or
instruments to be delivered under this Section
7.8(f) to which such Person is a party and the
matters contemplated thereby, (iv) the incumbency
and specimen signatures of the officers of such
Person executing the documents and instruments to
be delivered under this Section 7.8(f) to which
such Person is a party, and (v) the due
organization and good standing of such Person as a
Person organized under the laws of its
jurisdiction of organiza tion; and
(D) Evidence
satisfactory to the Agent and the Lenders that the
Borrower, its Subsidiaries and the Person being
acquired has made and obtained all necessary
governmental and other Consents required in order
to consum mate such Acquisition and that all
applicable waiting periods with respect to such
Acquisition including, without limitation, those
under the Hart-Scott-Rodino Act have expired
without any action having been taken by any
competent authority restraining, preventing or
imposing materially adverse conditions upon the
rights
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of the Loan Parties or their Subsidiaries freely
to transfer or otherwise dispose of, or to create
any Lien on, any properties now owned or hereafter
acquired by any of them; and
(g) Investments in Related Businesses not to
exceed $80,000,000 in the aggregate at any time outstanding;
(h) Investments received as consideration in
connection with Asset Dispositions permitted under paragraphs (c) and (d) of
Section 7.5; and
(i) Investments in Capital Stock of Checkers
Drive-In Restaurants, Inc. and Rally's Hamburgers, Inc., in an aggregate amount
not to exceed $11,000,000, which Capital Stock was acquired through the
exercise of warrants, options and similar rights owned by the Borrower.
(j) In the event that the shares of preferred
stock of Rally's Hamburgers Inc. ("Rally's") listed on Schedule 7.8 (the
"Rally's Preferred Stock") is converted into common stock of Rally's, the Agent
hereby agrees to deliver to the Borrower, subject to terms and conditions
reasonably acceptable to the Agent, the certificates representing the Rally's
Preferred Stock which shall be subject to such conversion, solely for the
purpose of permitting the Borrower to exchange such Rally's Preferred Stock for
the applicable number of shares of common stock of Rally's and the Borrower
hereby agrees to promptly deliver any and all such shares of common stock
received by the Borrower (along with undated stock powers executed in blank in
connection therewith) to the Agent and to pledge such shares pursuant to the
terms of the Borrower Pledge Agreement.
Section 7.9 Transactions with Affiliates. The Borrower shall not,
and shall not permit any of its Subsidiaries to, enter into any transaction or
series of related transactions, whether or not in the ordinary course of
business, with any Affiliate, other than on terms and conditions substantially
as favorable to the Borrower or such Subsidiary as would be obtain able at the
time in a comparable arm's-length transaction with a Person other than an
Affiliate.
Section 7.10 Limitation on Voluntary Payments and Modifications
of Certain Documents. The Borrower shall not, and shall not permit any of its
Subsidiaries to (a) make any sinking fund payment or voluntary or optional
payment or prepayment on or redemption, defeasance, purchase or acquisition for
value of (including, without limitation, by way of depositing with the trustee
with respect thereto money or securities before due for the purpose of paying
when due) or exchange of any Indebtedness (other than Indebtedness permitted to
be incurred pursuant to Section 7.2(i)) other than (i) the Indebtedness
hereunder and under the other Loan Documents and (ii) regularly scheduled or
required repayments of Indebtedness permitted pursuant to Section 7.2; provided
that the Borrower may, and may permit any of its Subsidiaries to, prepay,
redeem, defease, purchase or acquire or exchange any (collectively, a
"Prepayment") Surviving Debt (other than Indebtedness permitted to be incurred
pursuant to
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Section 7.2(i)) or Indebtedness assumed in connection with a Permitted
Acquisition which Indebtedness is permitted pursuant to Section 7.2(l)) in each
case only if on the date of such Prepayment (x) no event or condition has
occurred and is continuing, or would result from such Prepayment, that
constitutes a Default or an Event of Default, and (y) after giving effect to
such Prepayment, the Total Revolving Loan Commitment minus the aggregate
principal amount of the Revolving Loans outstanding on the date of such
Prepayment minus the amount of any L/C Obligations outstanding on the date of
such Prepayment shall equal at least $10,000,000, or (b) amend, modify or waive,
or permit the amendment, modification or waiver of (i) (A) any provision of
either of the Seller Agreements or any material provision of any other
Transaction Document (other than the Loan Documents and other than the Subordi-
nated Debt Documents) or other Hardee's Acquisition Document or (B) any
provision of the Existing Letter of Credit or the Existing Reimbursement
Agreement in any manner the effect of which is to increase the maximum principal
amount of the Existing Letter of Credit or to change any provision of the
Existing Letter of Credit or the Existing Reimbursement Agreement relating to
the letter of credit fees payable thereunder, respectively, or (ii) any term or
provision of (A) the Surviving Debt in any way that would be materially adverse
to the Lenders or (B) the Permitted Subordinated Debt, or the Subordinated Debt
Documents, or (c) make any payment in violation of any subordination terms of
any Indebtedness of the Borrower or any of its Subsidiaries; or (d) make or
offer to make any sinking fund payment, payment, prepayment, redemption,
defeasance, purchase or acquisition for value (including, without limitation, by
way of depositing with the trustee with respect thereto money or securities
before due for the purpose of paying when due) or otherwise segregate funds with
respect to the Subordinated Notes (other than regularly scheduled semi-annual
interest payments required to be made in cash and other than conversions of the
Subordinated Notes into common stock of the Borrower) to the extent that the
aggregate amount of all such sinking fund payments, payments, prepayments,
redemptions, defeasances, and purchases or acquisitions for value would exceed
the sum of (A) $15,000,000, plus (B) 30% of the Consolidated Net Income of the
Borrower for each fiscal year of the Borrower (commencing with the fiscal year
ending January 26, 1998 up to and including the fiscal year immediately
preceding the year in which sinking fund payment, payment, prepayments
redemption, defeasances, purchase or acquisition is made, less (C), together
with the aggregate amount of all dividends, purchases, redemptions, retirements
and acquisitions paid or made pursuant to Section 7.7(b)(ii), less (D) the
aggregate amount of all such sinking fund payments, payments, prepayments,
redemptions, defeasances, and purchases or acquisitions for value paid and made
by the Borrower after January 26, 1998 through and including the end of such
immediately preceding fiscal year.
Section 7.11 Changes in Business. The Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into any business which is
substantially different from that conducted by the Borrower or such Loan Party,
as the case may be, on the Closing Date after giving effect to the Transactions.
Section 7.12 Certain Restrictions. The Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into or permit to exist any
agreement, instrument or other
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document which directly or indirectly restricts the ability of the Borrower or
any of its Subsidiaries to (a) enter into amendments, modifications or waivers
of the Loan Documents, (b) sell, transfer or otherwise dispose of its assets,
(c) create, incur, assume or suffer to exist any Lien upon any of its property,
(d) create, incur, assume, suffer to exist or otherwise become liable with
respect to any Indebtedness, (e) make loans or advances to the Borrower, or (f)
pay any Dividend or repay any Indebtedness owed to the Borrower or any of its
Subsidiaries; provided that Capitalized Leases or agreements governing purchase
money Indebtedness which contain restrictions of the types referred to in
clauses (b) or (c) with respect to the property covered thereby shall be
permitted; provided further that the foregoing shall not apply to restrictions
in effect on the date of this Agreement contained in agreements governing
Surviving Debt (other than Indebtedness arising under the Subordinated Notes)
and, if such Indebtedness is renewed, extended or refinanced, restrictions in
the agreements governing the renewed, extended or refinanced Indebtedness (as
successive renewals, extensions and refinancings thereof) if such restrictions
are no more restrictive in any material respect than those contained in the
agreements governing the Indebtedness being renewed, extended or refinanced and
if such renewals, extensions and refinancings are permitted pursuant to Section
7.2(f).
Section 7.13 Lease Obligations. The Borrower shall not, and shall
not permit any of its Subsidiaries to, create, incur, assume or suffer to exist
any obligations as lessee (i) for the rental or hire of real or personal
property in connection with any sale and leaseback transaction or (ii) for the
rental or hire of other real or personal property of any kind under leases or
agreements to lease including Capitalized Leases except in the case of this
clause (ii) for leases (including Capitalized Leases) entered into for fair
market value in the ordinary course of business of the Borrower and its
Subsidiaries.
Section 7.14 Hedging Agreements. The Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into or remain liable under
any Hedging Agreement, except (a) Interest Rate Agreements with one or more of
the Lenders pursuant to which the Borrower and its Subsidiaries have hedged
their reasonably estimated interest rate exposure and (b) Hedging Agreements
relating to commodities pursuant to which the Borrower and its Subsidiaries have
hedged their reasonably estimated commodity price exposure.
Section 7.15 Plans. The Borrower shall not, nor shall it permit
any member of its ERISA Controlled Group to, take any action which would
increase the aggregate present value of the Unfunded Benefit Liabilities under
all Plans to an amount in excess of $2,000,000.
Section 7.16 Fiscal Year; Fiscal Quarter. The Borrower shall not,
and shall not permit any of its Subsidiaries to, change its fiscal year or any
of its fiscal quarters (other than, with respect to the Company and its
Subsidiaries, any such changes necessary to conform fiscal periods of the
Company and its Subsidiaries to fiscal periods of the Borrower).
Section 7.17 Partnerships. The Borrower shall not, and shall not
permit any of
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its Subsidiaries to, become or remain a general partner in any general or
limited partnership, or permit any of its Subsidiaries to do so, except for any
Subsidiary which is a corporation and the sole assets of which consist of its
interest in such partnership and except with respect to the partnerships
described on Schedule 7.17.
Section 7.18 Excluded Resales. The Borrower shall not, and shall
not permit any of its Subsidiaries to, acquire, purchase, hold or own any
Restaurants which the Borrower or any such Subsidiaries acquire from a
franchisee with the intent of reselling to the extent the aggregate amount of
Restaurants owned or held by the Borrower and its Subsidiaries would exceed
$20,000,000 at any one time outstanding, such amount to be measured by the
purchase price paid by the Borrower or any such Subsidiaries for such
Restaurants.
Section 7.19 Designated Senior Indebtedness. The Borrower shall
not designate, create or permit to exist any Designated Senior Indebtedness (as
defined in the Subordinated Note Indenture) other than obligations arising under
the Loan Documents.
SECTION 8. EVENTS OF DEFAULT
Section 8.1 Events of Default. Each of the following events,
acts, occurrences or conditions shall constitute an Event of Default under this
Agreement, regardless of whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation of law or pursuant to or
as a result of compliance by any Person with any judgment, decree, order, rule
or regulation of any court or administrative or governmental body:
(a) Failure to Make Payments. The Borrower shall
(i) default in the payment when due of any principal of the Loans or (ii)
default, and such default shall continue unremedied for two (2) or more Business
Days, in the payment when due of any interest on the Loans or in the payment
when due of any Fees or any other amounts owing hereunder.
(b) Breach of Representation or Warranty. Any
representation or warranty made by any Loan Party herein or in any other Loan
Document or in any certificate or statement delivered pursuant hereto or thereto
shall prove to be false or misleading in any material respect on the date as of
which made or deemed made.
(c) Breach of Covenants.
(i) The Borrower shall fail to
perform or observe any agreement, covenant or obligation arising
under Section 6.1(f) or Section 7.
(ii) The Borrower shall fail to
perform or observe any agreement, covenant or obligation arising
under this Agreement (except those described in subsections (a),
(b) and (c)(i) above), and such failure shall con tinue for
thirty (30) days.
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(iii) Any Loan Party shall fail to
perform or observe any agreement, covenant or obligation arising
under any provision of the Loan Documents other than this
Agreement, which failure shall continue after the end of the
applicable grace period, if any, provided therein.
(d) Default Under Other Agreements. Any Loan Party
or any of its Subsidiaries shall default in the payment when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) of
any amount owing in respect of any Indebtedness of such Loan Party or any of its
Subsidiaries (other than the Obligations) in the aggregate principal amount of
$5,000,000 or more; or any Loan Party or any of its Subsidiaries shall default
in the performance or observance of any obligation or condition with respect to
any such Indebtedness or any other event shall occur or condition shall exist,
if the effect of such default, event or condition is to accelerate the maturity
or cause a mandatory redemption of any such Indebtedness or to permit the holder
or holders thereof, or any trustee or agent for such holders, to accelerate the
maturity or require a redemption or other repurchase thereof of any such
Indebtedness, or any such Indebtedness shall become or be declared to be due and
payable prior to its stated maturity other than as a result of a regularly
scheduled payment; or any such Indebtedness shall be declared to be due and
payable, or shall be required to be prepaid, redeemed, purchased or defeased, or
an offer to prepay, redeem, purchase or defease such Indebtedness shall be
required to be made, in each case prior to its stated maturity other than as a
result of a regularly scheduled payment.
(e) Bankruptcy, etc. (i) Any Loan Party or any of
its Subsidiaries shall commence a voluntary case concerning itself under the
Bankruptcy Code; or (ii) an involun tary case is commenced against any Loan
Party or any of its Subsidiaries and the petition is not controverted within 10
days, or is not dismissed within 60 days, after commencement of the case; or
(iii) a custodian (as defined in the Bankruptcy Code) is appointed for, or takes
charge of, all or substantially all of the property of any Loan Party or any of
its Subsidiaries or any Loan Party or any of its Subsidiaries commences any
other proceedings under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to any Loan Party or
any of its Subsidiaries or there is commenced against any Loan Party or any of
its Subsidiaries any such proceeding which remains undismissed for a period of
60 days; or (iv) any order of relief or other order approving any such case or
proceeding is entered; or (v) any Loan Party or any of its Subsidiaries is
adjudicated insolvent or bankrupt; or (vi) any Loan Party or any of its
Subsidiaries suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 60 days; or (vii) any Loan Party or any of its Subsidiaries makes a
general assignment for the benefit of creditors; or (viii) any Loan Party or any
of its Subsidiaries shall fail to pay, or shall state that it is unable to pay,
or shall be unable to pay, its debts generally as they become due; or (ix) any
Loan Party or any of its Subsidiaries shall call a meeting of its creditors with
a view to arranging a composition or adjustment of its debts; or (x) any Loan
Party or any of its
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Subsidiaries shall by any act or failure to act consent to, approve of or
acquiesce in any of the foregoing; or (xi) any corporate action is taken by any
Loan Party or any of its Subsidiaries for the purpose of effecting any of the
foregoing.
(f) ERISA. (i) Any Termination Event shall occur,
or (ii) any Plan shall incur an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived, or
(iii) the Borrower or a member of its ERISA Controlled Group shall have engaged
in a transaction which is prohibited under Section 4975 of the Code or Section
406 of ERISA which could result in the imposition of liability in excess of
$2,000,000 on the Borrower or any member of its ERISA Controlled Group, or (iv)
the Borrower or any member of its ERISA Controlled Group shall fail to pay when
due an amount which it shall have become liable to pay to the PBGC, any Plan or
a trust established under Title IV of ERISA, or (v) a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree adjudicating that
an ERISA Plan must be terminated or have a trustee appointed to administer any
ERISA Plan, or (vi) the Borrower or a member of its ERISA Controlled Group
suffers a partial or complete withdrawal from a Multiemployer Plan or is in
"default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments
to a Multiemployer Plan, or (vii) a proceeding shall be instituted against the
Borrower or any member of its ERISA Controlled Group to enforce Section 515 of
ERISA and such proceeding shall remain undismissed for 180 days, or (viii) any
other event or condition shall occur or exist with respect to any Plan which
could subject the Borrower or any member of its ERISA Controlled Group to any
tax, penalty or other liability in excess of $2,000,000 or (ix) the aggregate
present value of all post-retirement benefit liabilities of the Borrower and its
Subsidiaries under any "welfare plan" (as defined in Section 3(1) of ERISA),
including, without limitation, Hardee's Retiree Medical Insurance Plan, exceeds
$20,000,000.
(g) Security Documents. Any of the Security
Documents shall for any reason cease to be in full force and effect, or shall
cease to give the Agent for the benefit of the Lenders the Liens, rights, powers
and privileges purported to be created thereby including, without limitation, a
perfected first priority security interest in, and Lien on, any material part of
the Collateral in accordance with the terms thereof or the Borrower or any of
the Bor rower's Subsidiaries party to any Security Document seeks to repudiate
its respective obliga tions thereunder and the Liens created thereby are
rendered, or the Borrower or any such Subsidiary of the Borrower seeks to render
such Liens, invalid and unperfected.
(h) Guaranty. The Guaranty or any provision
thereof shall cease to be in full force and effect, or any Guarantor or any
Person acting by or on behalf of a Guarantor shall deny or disaffirm all or any
portion of such Guarantor's obligations under such Guaranty.
(i) Change of Control. (i) Any Person or two or
more Persons acting in concert other than the Controlling Stockholders shall
have acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934),
directly or indirectly, of Voting Stock of the Borrower (or
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other securities convertible into such Voting Stock) representing 20% or more of
the combined voting power of all Voting Stock of the Borrower; or (ii) during
any period of up to 24 consecutive months, commencing after the date of this
Agreement, individuals who at the beginning of such 24-month period were
directors of the Borrower shall cease for any reason to constitute a majority of
the board of directors of the Borrower; or (iii) any Person or two or more
Persons acting in concert other than the Controlling Stockholders shall have
acquired by contract or otherwise, or shall have entered into a contract or
arrangement that, upon consum mation, will result in its or their acquisition
of, the power to exercise control over Voting Stock of the Borrower (or other
securities convertible into such securities representing 20% or more of the
combined voting power of all Voting Stock of the Borrower) or (iv) at any time
from and after July 15, 1997, until July 15, 1999, the Required Holders shall
fail to own and control at least 1,000,000 shares of Voting Stock (as adjusted
for stock splits, dividends or reclassifications); provided that the number of
shares of Voting Stock of the Borrower deemed owned and controlled by William P.
Foley II ("Mr. Foley") shall, for purposes of the preceding clause (iv), include
(A) the number of shares of Voting Stock (as adjusted for stock splits,
dividends or reclassifications) owned and controlled by Cannae Limited
Partnership, a Nevada Limited Partnership, but only to the extent of Mr. Foley's
pro rata interest (based on Mr. Foley's interest in such partnership) in such
Voting Stock owned and controlled by such partnership and (B) the number of
shares of Voting Stock of the Borrower issuable upon the exercise of options
then owned and controlled and exercisable by Mr. Foley.
(j) Judgments. One or more judgments or decrees or
awards in an aggregate amount of $5,000,000 or more shall be entered by a court
or courts of competent jurisdiction or in any arbitration proceeding against any
Loan Party or any of its Subsidiaries and (i) any such judgments or decrees or
awards shall not be stayed, discharged, paid, bonded or vacated within 30 days
or (ii) enforcement proceedings shall be commenced by any creditor on any such
judgment or decree or award.
(k) Environmental Matters. (i) Any Environmental
Claim shall have been asserted against any Loan Party or any Environmental
Affiliate thereof which, if determined adversely, could have a Material Adverse
Effect, (ii) any release, emission, discharge or disposal of any Material of
Environmental Concern shall have occurred, and such event could form the basis
of an Environmental Claim against any Loan Party or any Environ mental Affiliate
thereof which, if determined adversely, could have a Material Adverse Effect, or
(iii) any Loan Party or its Environmental Affiliate shall have failed to obtain
any Environmental Approval necessary for the management, use, control,
ownership, or operation of its business, property or assets or any such
Environmental Approval shall be revoked, terminated, or otherwise cease to be in
full force and effect, in each case, if the existence of such condition could
have a Material Adverse Effect.
(l) Ownership of Certain Subsidiaries. The
Borrower shall cease for any reason to own 100% of the Capital Stock of Carl
Karcher Enterprises, Inc., the Borrower shall cease for any reason to own 100%
of the Capital Stock of the Hardee's, or the Borrower
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shall cease for any reason to own, directly or indirectly, 100% of the Capital
Stock of the Company.
Section 8.2 Rights and Remedies. Upon the occurrence of any Event
of Default described in Section 8.1(e), the Commitments shall automatically and
immediately terminate and the unpaid principal amount of and any and all accrued
interest on the Loans and any and all accrued Fees and other Obligations shall
automatically become immediately due and payable, with all additional interest
from time to time accrued thereon and without presentation, demand, or protest
or other requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and notice of acceleration), all of which are hereby expressly waived by
Borrower, and the obligation of each Lender to make any Loan hereunder shall
thereupon terminate; and upon the occurrence and during the continuance of any
other Event of Default, the Agent shall at the request, or may with the consent,
of the Required Lenders, by written notice to Borrower, (i) declare that the
Commitments are terminated, whereupon the Commitments and the obligation of each
Lender to make any Loan hereunder shall immediately terminate, (ii) require the
Borrower to Cash Collateralize the L/C Obligations in an amount equal to the
maximum aggregate amount that is, or at any time thereafter may become,
available for drawing under any outstanding Letters of Credit (whether or not
any beneficiary shall have presented, or shall be entitled at such time to
present, the drafts or other documents required to draw under such Letters of
Credit), and (iii) declare the unpaid principal amount of and any and all
accrued and unpaid interest on the Loans and any and all accrued Fees and other
Obligations to be, and the same shall thereupon be, immediately due and payable
with all additional interest from time to time accrued thereon and without
presentation, demand, or protest or other requirements of any kind (including,
without limitation, valuation and appraisement, diligence, presentment, notice
of intent to demand or accelerate and notice of acceleration), all of which are
hereby expressly waived by Borrower.
SECTION 9. THE AGENT
Section 9.1 Appointment. Each Lender hereby irrevocably
designates and appoints Banque Paribas as the Agent of such Lender under this
Agreement and each other Loan Document, and each such Lender irrevocably
authorizes Banque Paribas as the Agent for such Lender, to take such action on
its behalf under the provisions of this Agreement and each other Loan Document
and to exercise such powers and perform such duties as are expressly delegated
to the Agent by the terms of this Agreement and each other Loan Document,
together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Agent shall not have any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities on
the part of the Agent shall be read into this Agreement or otherwise exist
against the Agent. The provisions of this Section 9 are solely for the benefit
of the Agent and the Lenders and no Loan Party shall have any rights as a third
party beneficiary or otherwise under any of the
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provisions hereof. In performing its functions and duties hereunder and under
the other Loan Documents, the Agent shall act solely as the agent of the Lenders
and does not assume nor shall be deemed to have assumed any obligation or
relationship of trust or agency with or for any Loan Party or any of their
respective successors and assigns. It is agreed that, for purposes of the Seller
Agreements, the role of the Agent hereunder shall subsume the role of
"Administrative Agent" as referred to in the Seller Agreements.
Section 9.2 Delegation of Duties. The Agent may execute any of
its duties under this Agreement or the other Loan Documents by or through agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
Section 9.3 Exculpatory Provisions. The Agent shall not be (i)
liable for any action lawfully taken or omitted to be taken by it or any Person
described in Section 9.2 under or in connection with this Agreement or any other
Loan Document (except for its or such Person's own gross negligence or willful
misconduct), or (ii) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by any Loan Party
contained in this Agreement or any other Loan Document or in any certificate,
report, statement or other document referred to or provided for in, or received
under or in connection with, this Agreement or any other Loan Document or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of this Agreement, or any other Loan Document or for any failure of any Loan
Party to perform their obligations hereunder or thereunder. The Agent shall not
be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of any Loan Party. This Section is intended solely to govern
the relationship between the Agent, on the one hand, and the Lenders, on the
other.
Section 9.4 Reliance by Agent. The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any Note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to any Loan
Party), independent accountants and other experts selected by the Agent. The
Agent may deem and treat the payee of any Note as the owner thereof for all
purposes unless the Agent shall have received an executed Assignment Agreement
in respect thereof. The Agent shall be fully justified in failing or refusing to
take any action under this Agreement or any other Loan Document unless it shall
first receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under
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this Agreement and the other Loan Documents in accordance with a request of the
Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Notes.
Section 9.5 Notice of Default. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
unless the Agent has received notice from a Lender or the Borrower referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Agent receives such
a notice, the Agent shall promptly give notice thereof to the Lenders. Subject
to the provisions of Section 10.5, the Agent shall take such action with respect
to such Default or Event of Default as shall be directed by the Required
Lenders; provided that unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as the Agent shall deem advisable and in the best interests of the
Lenders.
Section 9.6 Non-Reliance on Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Agent, nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent hereafter
taken, including, without limitation, any review of the affairs of any Loan
Party, shall be deemed to constitute any representation or warranty by the
Agent. Each Lender represents and warrants to the Agent that it has,
independently and without reliance upon the Agent or any other Lender and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
prospects, financial and other conditions and creditworthiness of the Loan
Parties and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement, and to make such investigation as it deems necessary to
inform itself as to the business, operations, property, prospects, financial and
other condition and creditworthiness of the Loan Parties. Except for notices,
reports and other documents expressly required under the Loan Documents to be
furnished to the Lenders by the Agent, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, prospects, financial and other
condition or creditworthiness of the Loan Parties which may come into the
possession of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
Section 9.7 Indemnification. The Lenders agree to indemnify the
Agent and its officers, directors, employees, representatives and agents (to the
extent not reimbursed by the Loan Parties and without limiting the obligation of
the Loan Parties to do so), ratably according to their Pro Rata Shares, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
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nature whatsoever (including, without limitation, the fees and disbursements of
counsel for the Agent or such Person in connection with any investigative,
administrative or judicial proceed ing commenced or threatened, whether or not
the Agent or such Person shall be designated a party thereto) that may at any
time (including, without limitation, at any time following the payment of the
Obligations) be imposed on, incurred by or asserted against the Agent or such
Person as a result of, or arising out of, or in any way related to or by reason
of, any of the Transactions or the Hardee's Acquisition or the execution,
delivery or performance of any Loan Document or any other Transaction Document
or any Hardee's Acquisition Document (but excluding any such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from the gross negligence or willful
misconduct of the Agent or such Person as finally determined by a court of
competent jurisdiction); provided that to the extent indemnification payments
made by the Lenders pursuant to this Section 9.7 are subsequently recovered from
or for the account of the Borrower, the Agent shall promptly refund such
previously paid indemnification payments to the Lenders.
Section 9.8 Agent in its Individual Capacity. The Agent and its
affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Loan Parties as though the Agent were not the Agent
hereunder. With respect to Loans made or renewed by it and any Note issued to
it, the Agent shall have the same rights and powers under this Agreement as any
Lender and may exercise the same as though it were not the Agent, and the terms
"Lender" and "Lenders" shall include the Agent in its individual capacity.
Section 9.9 Successor Agent. The Agent may resign as Agent upon
30 days' notice to the Borrower and the Lenders. If the Agent shall resign as
Agent under this Agreement, then the Required Lenders during such 30-day period
shall appoint from among the Lenders a successor agent, whereupon such successor
agent shall succeed to the rights, powers and duties of the Agent and the term
"Agent" shall mean such successor agent, effective upon its appointment, and the
former Agent's rights, powers and duties as Agent shall be terminated, without
any other or further act or deed on the part of such former Agent or any of the
parties to this Agreement or any holders of the Notes. Notwithstanding anything
herein to the contrary, so long as no Event of Default has occurred and is
continuing, each such successor agent shall be subject to approval by the
Borrower, which approval shall not be unreasonably withheld or delayed. After
any retiring Agent's resignation hereunder as Agent, the provisions of this
Section 9 and Section 10.1 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under this Agreement.
SECTION 10. MISCELLANEOUS
Section 10.1 Payment of Expenses, Indemnity, etc. The Borrower
shall:
(a) whether or not the transactions hereby
contemplated are consum-
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mated, pay all reasonable out-of-pocket costs and expenses of the Agent in
connection with the negotiation, preparation, execution and delivery of the Loan
Documents, the commitment letter related thereto and the Fee Letter, the
syndication of the Loans and the closing of the Transactions and the documents
and instruments referred to therein, the creation, perfection or protection of
the Agent's Liens in the Collateral (including, without limitation, fees and
expenses for lien searches and filing and recording fees), and any amendment,
waiver or consent relating to any of the Loan Documents (including, without
limitation, as to each of the foregoing, the reasonable fees and disbursements
of Skadden, Arps, Slate, Meagher & Flom (Illinois), special counsel to the Agent
and any other attorneys and legal assistants retained by the Agent and allocated
costs of internal counsel and legal assistants) and of the Agent and each Lender
in connection with the preservation of rights under, and enforcement of, the
Loan Documents and the documents and instruments referred to therein or in
connection with any restructuring or rescheduling of the Obligations (including,
without limitation, the reasonable fees and disbursements of counsel for the
Agent and for each of the Lenders);
(b) pay, and hold the Agent and each of the
Lenders harmless from and against, any and all present and future stamp, excise
and other similar taxes with respect to the foregoing matters and hold the Agent
and each Lender harmless from and against any and all liabilities with respect
to or resulting from any delay or omission (other than to the extent
attributable to such Lender) to pay such taxes; and
(c) indemnify the Agent and each Lender, and each
of their Affiliates and their officers, directors, employees, representatives,
attorneys and agents (each an "Indemnitee") from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judgments, suits, costs or disburse ments of
any kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for such Indemnitee) that may at any time
(including, without limitation, at any time following the payment of the
Obligations) be imposed on, asserted against or incurred by any Indemnitee as a
result of, or arising out of, or in any way related to or by reason of, or in
connection with the preparation for a defense of, any investigation, litigation
or proceeding arising out of, related to or in connection with (i) any of the
Transac tions or the Hardee's Acquisition or the execution, delivery or
performance of any Loan Document or any other Transaction Document or any
Hardee's Acquisition Document (including, without limitation, any actual or
proposed use by the Borrower or any Subsidiary of the Borrower of the proceeds
of any Loan or Letter of Credit), (ii) any violation by any Loan Party or its
Environmental Affiliate of any applicable Environmental Law, (iii) any
Environmental Claim arising out of the management, use, control, ownership or
operation of property or assets by any of the Loan Parties or any of their
Environmental Affiliates, including, without limitation, all on-site and
off-site activities involving Materials of Environ mental Concern, (iv) the
breach of any environmental representation or warranty set forth in Section
5.19, (v) the grant to the Agent and the Lenders of any Lien in any property or
assets of any of the Loan Parties or any stock or other equity interest in any
of the Loan Parties, and (vi) the exercise by the Agent and the Lenders of their
rights and remedies (including, without
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limitation, foreclosure) under any agreements creating any such Lien (but
excluding, as to any Indemnitee, any such losses, liabilities, claims, damages,
expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements incurred solely by reason of the gross negligence or willful
misconduct of such Indemnitee as finally determined by a court of competent
jurisdiction). The Borrower's obligations under this Section shall survive the
termination of this Agreement and the payment of the Obligations.
Section 10.2 Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
any Event of Default, each Lender is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to any
Loan Party or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and apply any and all deposits (general or
special, time or demand, provisional or final) and any other indebtedness at any
time held or owing by such Lender (including, without limitation, by branches
and agencies of such Lender wherever located) to or for the credit or the
account of any Loan Party against and on account of the Obligations of the Loan
Parties to such Lender under this Agreement or under any of the other Loan
Documents, including, without limitation, all interests in Obligations purchased
by such Lender pursuant to Section 9.7, and all other claims of any nature or
description arising out of or connected with this Agreement or any other Loan
Document, irrespective of whether or not such Lender shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured.
Section 10.3 Notices. Except as otherwise expressly provided
herein, all notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (including by telecopy, telex, or
cable communication), and shall be deemed to have been duly given or made when
delivered by hand, or five days after being deposited in the United States mail,
postage prepaid, or, in the case of telex notice, when sent, answerback
received, or, in the case of telecopy notice, when sent, or, in the case of a
nationally recognized overnight courier service, one Business Day after
delivery to such courier service, addressed, in the case of each party hereto,
at its address specified opposite its signature below or on the appropriate
Assignment Agreement, or to such other address as may be designated by any party
in a written notice to the other parties hereto, provided that notices and
communi cations to the Agent shall not be effective until received by the Agent.
Section 10.4 Successors and Assigns; Participation; Assignments.
(a) Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the Borrower, the Lenders, the
Agent, all future holders of the Notes and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of each
Lender. No Lender may participate, assign or sell any of its Credit Exposure (as
defined in clause (b) below) except as required by operation of law, in
connection with the
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merger, consolidation or dissolution of any Lender or as provided in this
Section 10.4.
(b) Participation. Any Lender may at any time sell
to one or more Persons (each a "Participant") participating interests in any
Loan owing to such Lender, any Note held by such Lender, any Commitment of such
Lender and or any other interest of such Lender hereunder (in respect of any
such Lender, its "Credit Exposure"). Notwithstanding any such sale by a Lender
of participating interests to a Participant, such Lender's rights and
obligations under this Agreement shall remain unchanged, such Lender shall
remain solely responsible for the performance thereof, such Lender shall remain
the holder of any such Note for all purposes under this Agreement (except as
expressly provided below), and the Borrower and the Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. The Borrower agrees that if any Obligations
are due and unpaid, or shall have been declared or shall have become due and
payable upon the occurrence and during the continuance of an Event of Default,
each Participant shall be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement and any Note to the
same extent as if the amount of its participating interest were owing directly
to it as a Lender under this Agreement or any Note, provided that such right of
setoff shall be subject to the obligations of such Participant to share with the
Lenders, and the Lenders agree to share with such Participant, as provided in
Section 10.7. The Borrower also agrees that each Participant shall be entitled
to the benefits of Sections 2.16, 2.17 and 2.18, provided that no Participant
shall be entitled to receive any greater amount pursuant to such sections than
the transferor Lender would have been entitled to receive in respect of the
amount of the participating interest transferred by such transferor Lender to
such Participant had no such transfer occurred. Each Lender agrees that any
agreement between such Lender and any such Participant in respect of such
participating interest shall not restrict such Lender's right to agree to any
amendment, supplement, waiver or modification to this Agreement or any other
Loan Document, except where the result of any of the foregoing would be to
extend the final maturity of any Obligation or any regularly scheduled
installment thereof or reduce the rate or extend the time of payment of interest
thereon or reduce the principal amount thereof or release all or substantially
all of the Collateral (except as expressly provided in the Loan Documents).
(c) Assignments. Any Lender may, in accordance
with applicable law, at any time assign to any Lender or any affiliate thereof
or, with the consent of the Agent, which consent shall not be unreasonably
withheld, to any other Person (each an "Assignee") all or any part of its Credit
Exposure; provided, that in the case of any such assignment to a Person that is
not another Lender or an affiliate of the assigning Lender, each such assignment
shall be (i) for a Credit Exposure not less than $5,000,000 and (ii) to an
Assignee approved in writing by the Agent, which approval shall not be
unreasonably withheld. Such consent of the Agent shall be substantially in the
form attached as Schedule II to Exhibit I hereto. The Borrower, the Agent and
the Lenders agree that to the extent of any assignment the Assignee shall be
deemed to have the same rights and benefits under the Loan Documents and the
same rights of setoff and obligation to share pursuant to Section 10.7 as it
would have had if it were
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a Lender hereunder; provided that the Borrower and the Agent shall be entitled
to continue to deal solely and directly with the assignor Lender in connection
with the interests so assigned to the Assignee unless and until such Assignee
becomes a Purchasing Lender pursuant to clause (d) below.
(d) Assignments to Purchasing Lenders. Any Lender
may at any time and from time to time assign to one or more Persons ("Purchasing
Lenders") all or any part of its Credit Exposure pursuant to a supplement to
this Agreement, substantially in the form of Exhibit I hereto (an "Assignment
Agreement"), executed by such Purchasing Lender, such transferor Lender and the
Agent. Upon (i) such execution of such Assignment Agreement, (ii) delivery to
the Agent of a notice of assignment substantially in the form of Schedule I to
Exhibit I hereto (a "Notice of Assignment") with a copy to the Borrower,
together with any consent required pursuant to Section 10.4(c) above, (iii)
payment by such Purchasing Lender to such transferor Lender of an amount equal
to the purchase price agreed between such transferor Lender and such Purchasing
Lender and (iv) payment of a $4,000 fee to the Agent for processing of such
assignment, such assignment shall become effective on the effective date
specified in such Assignment Agreement, which effective date shall be at least
five (5) Business Days after delivery of such Notice of Assignment to the Agent,
such transferor Lender shall be released from its obligations hereunder to the
extent of such assignment and such Purchasing Lender shall for all purposes be a
Lender party to this Agreement and shall have all the rights and obligations of
a Lender under this Agreement to the same extent as if it were an original party
hereto, and no further consent or action by the Borrower, the Lenders or the
Agent shall be required. Such Assignment Agreement shall be deemed to amend this
Agreement to the extent, and only to the extent, necessary to reflect the
addition of such Purchasing Lender as a Lender and the resulting adjustment of
the Commitments, if any, arising from the purchase by such Purchasing Lender of
all or a portion of the Credit Exposure of such transferor Lender.
(e) Disclosure of Information. The Borrower
authorizes each Lender to disclose to any Participant, Assignee or Purchasing
Lender (each, a "Transferee") and any prospective Transferee any and all
financial and other information in such Lender's possession concerning the
Borrower which has been delivered to such Lender by the Borrower pursuant to
this Agreement or which has been delivered to such Lender by the Borrower in
connection with such Lender's credit evaluation of the Borrower prior to
entering into this Agreement.
(f) Regulation A. Notwithstanding any other
provision set forth in this Agreement, any Lender may at any time assign and
pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank
as collateral security pursuant to Regulation A and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release the
assigning Lender from its obligations hereunder.
(g) Transfer and Exchange of Notes. Promptly after
the consumma tion of any transfer to a Purchasing Lender pursuant hereto, the
transferor Lender, the Agent
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and the Borrower shall make appropriate arrangements so that any Notes held by
such transferor Lender shall be surrendered to the Borrower for cancellation,
one or more replacement Notes in exchange therefor shall be issued to such
transferor Lender, and one or more new Notes shall be issued to such Purchasing
Lender, in each case in notional amounts reflecting such transfer. Each such new
Note shall be payable to the Purchasing Lender and shall be substantially in the
form of Exhibit A or Exhibit B, as applicable.
Section 10.5 Amendments and Waivers.
(a) Neither this Agreement, any Note, any other
Loan Document to which the Borrower is a party nor any terms hereof or thereof
may be amended, supple mented, modified or waived except in accordance with the
provisions of this Section. The Required Lenders and the Borrower may, from time
to time, enter into written amendments, supplements, modifications or waivers
for the purpose of adding, deleting, changing or waiving any provisions to this
Agreement, the Notes, or the other Loan Documents to which the Borrower is a
party, provided, that no such amendment, supplement, modification or waiver
shall (i) extend either the Revolving Loan Maturity Date or the Term Loan
Maturity Date or extend the time for payment of any installment, fee or required
prepayment of any Obligations or reduce the rate or extend the time of payment
of interest on any Obligations, or reduce the principal amount of any
Obligations or reduce any fee payable to the Lenders hereunder, or release all
or substantially all of the Collateral (except as expressly contemplated by the
Loan Documents) or change the amount of any Commitment of any Lender, or amend,
modify or waive any provision of this Section 10.5 or the definition of Required
Lenders, or consent to or permit the assignment or transfer by the Borrower of
any of its rights and obligations under this Agreement or any other Loan
Document, or modify any provision hereof providing for the pro rata sharing of
payments, in each case without the written consent of all the Lenders, (ii)
release (A) Carl Karcher Enterprises, Inc., the Company or any Subsidiary of the
Company, Hardee's or any Subsidiary of Hardee's (other than any such Subsidiary
which is an Immaterial Subsidiary), from the Guaranty and the other applicable
Security Documents (including the release of such Loan Party's stock
certificates from the Borrower Pledge Agreement or the Subsidiary Pledge
Agreement, as applicable), in each case without the written consent of all of
the Lenders or (B) any other Subsidiary of the Borrower from the Guaranty and
the other applicable Security Documents (including the release of such Loan
Party's stock certificates from the Borrower Pledge Agreement or the Subsidiary
Pledge Agreement, as applicable) in each case without the written consent of
those Lenders whose Pro Rata Shares, in the aggregate, are greater than 66-2/3%;
provided that the release from the Guaranty and the other applicable Security
Documents (including the release of such Loan Party's stock certificates from
the Borrower Pledge Agreement or the Subsidiary Pledge Agreement, as applicable)
of (1) Boston Pacific Inc., JB, JB Newco and CBI Restaurants, Inc. and each
Subsidiary of CBI Restaurants, Inc. in existence on or after July 15, 1997, and
(2) any Subsidiary of the Borrower (other than a Subsidiary of Hardee's or of
the Company) with assets of less than $10,000,000 (as determined in accordance
with GAAP) shall not require the consent of any of the Lenders in any of the
foregoing circumstances if (x) such Subsidiary (a "Sold Guarantor") is being
released from the Guaranty because all or a portion of the assets of
96
<PAGE> 103
such Sold Guarantor are being sold or otherwise disposed of in an Asset
Disposition or the Equity Interests of such Sold Guarantor are being sold or
otherwise disposed of or an issuance of Equity Interests of such Sold Guarantor
is commenced, and immediately after giving effect to such sale, other
disposition or issuance of Equity Interests and as a result of such sale, other
disposition or issuance of Equity Interests, such Sold Guarantor is no longer a
Subsidiary of the Borrower and (y) any such Asset Disposition or sale, other
disposition or issuance of Equity Interests is otherwise permitted and commenced
in accordance with the terms of this Agreement (and the Agent is hereby
authorized by the Lenders to execute and deliver to the Borrower all such
documents evidencing any such release) or (iii) amend, modify or waive any
provision of Section 9 or any other provision of any Loan Document if the effect
thereof is to affect the rights or duties of the Agent, without the written
consent of the then Agent. Any such amendment, supplement, modification or
waiver shall apply to each of the Lenders equally and shall be binding upon the
Borrower, the Lenders, the Agent and all future holders of the Notes. In the
case of any waiver, the Borrower, the Lenders and the Agent shall be restored to
their former position and rights hereunder and under the outstanding Notes, and
any Default or Event of Default waived shall be deemed to be cured and not
continuing, but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
(b) Each of the Lenders agrees that in the event
that such Lender is requested to consent to any amendment, supplement,
modification or waiver of any term or condition of or with respect to this
Agreement or any other Loan Document, the effectiveness of which requires the
consent of all of the Lenders pursuant to the first proviso of Section 10.5(a)
hereof, and such Lender shall fail or refuse to give such consent, such Lender
(the "Affected Lender") shall be obliged, at the request of the Borrower and
with the consent of the Agent, to assign all of its rights and obligations
hereunder to (i) another Lender or (ii) another qualified financial institution
nominated by the Agent and reasonably acceptable to the Borrower (the
"Replacement Lender"), and willing to participate in this Agreement through the
Final Maturity Date in the place of such Affected Lender; provided that the
Affected Lender receives payment in full, pursuant to an Assignment Agreement,
of an amount equal to such Lender's Pro Rata Share of all unpaid principal and
interest owing to the Lenders and all accrued but unpaid fees and other costs
and expenses payable with respect to its Pro Rata Share. The Agent shall give
written notice to the Borrower of any such assignment.
Section 10.6 No Waiver; Remedies Cumulative. No failure or delay
on the part of the Agent or any Lender or any holder of a Note in exercising any
right, power or privilege hereunder or under any other Loan Document and no
course of dealing between any Loan Party and the Agent or any Lender or the
holder of any Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or under any other
Loan Document preclude any other or further exercise thereof of the exercise of
any other right, power or privilege hereunder or thereunder. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which the Agent or any Lender or the holder of any Note would
otherwise have. No notice to or demand
97
<PAGE> 104
on any Loan Party in any case shall entitle any Loan Party to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Agent, the Lenders or the holder of any Note to any
other or further action in any circum stances without notice or demand.
Section 10.7 Sharing of Payments. Each of the Lenders agrees that
if it should receive any amount hereunder (whether by voluntary payment, by
realization upon security, by the exercise of the right of setoff or banker's
lien, by counterclaim or cross action, by the enforcement of any right under the
Loan Documents, or otherwise) which is applicable to the payment of any
Obligations, of a sum which with respect to the related sum or sums received by
other Lenders is in a greater proportion than the total of such Obligation then
owed and due to such Lender bears to the total of such Obligation then owed and
due to all of the Lenders immediately prior to such receipt, then such Lender
receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in such Obligations owing to such
Lenders in such amount as shall result in a proportional participation by all of
the Lenders in such amount; provided that if all or any portion of such excess
amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
Section 10.8 Application of Collateral Proceeds. The Agent shall,
unless otherwise specified at the direction of the Required Lenders which
direction shall be consistent with the last sentence of this Section 10.8, apply
all proceeds of Collateral in the following order:
(A) first, to pay Obligations in respect of any
fees, expense reimbursements or indemnities then due to the
Agent;
(B) second, to pay Obligations in respect of any
fees, expenses, reimbursements or indemnities then due to the
Lenders and the Issuer;
(C) third, to pay interest due in respect of the
Loans and L/C Obligations;
(D) fourth, to the ratable payment of principal
outstanding on the Loans, Obligations for unreimbursed drawings
under all Letters of Credit and net termi nation amounts payable
in respect of Rate Hedging Obligations (with the order of
application to the installments of any particular Loan,
Obligation for any unreimbursed drawing under any Letter of
Credit or net termination amount payable in respect of Rate
Hedging Obligation to be determined by the Agent in its sole
98
<PAGE> 105
discretion);
(E) fifth, to provide required cash collateral if
any pursuant to Section 8.2; and
(F) sixth, to the ratable payment of all other
Obligations.
The order of priority set forth in this Section 10.8 and the related provisions
of this Agreement are set forth solely to determine the rights and priorities of
the Agent and the Lenders as among themselves. The order of priority set forth
in clauses (B) through (F) of this Section 10.8 may at any time and from time to
time be changed with the consent of 100% of the Lenders without necessity of
notice to or consent of or approval by the Borrower, or any other Person. The
order of priority set forth in clause (A) of this Section 10.8 may be changed
only with the prior written consent of the Agent.
Section 10.9 Governing Law; Submission to Jurisdiction. (a) THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO THE
PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW).
(b) Any legal action or proceeding with respect to
this Agreement or any other Loan Document and any action for enforcement of any
judgment in respect thereof may be brought in the courts of the State of
Illinois or of the United States of America for the Northern District of
Illinois, and, by execution and delivery of this Agreement, the Borrower hereby
accepts for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid courts and
appellate courts. The Borrower irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, the
Borrower at its address set forth opposite its signature below. The Borrower
hereby irrevocably waives any objection which it may now or hereafter have to
the laying of venue of any of the aforesaid actions or proceedings arising out
of or in connection with this Agreement or any other Loan Document brought in
the courts referred to above and hereby further irrevocably waives and agrees
not to plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum. Nothing
herein shall affect the right of the Agent, any Lender or any holder of a Note
to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Borrower in any other jurisdiction.
Section 10.10 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute
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<PAGE> 106
one and the same instrument.
Section 10.11 Effectiveness. This Agreement shall become
effective on the date on which all of the parties hereto shall have signed a
counterpart hereof and shall have delivered the same to the Agent which
delivery, in the case of the Lenders, may be given to the Agent by telecopy
(with the originals delivered promptly to the Agent via overnight courier
service).
Section 10.12 Amendment and Restatement. This Agreement amends
and restates in its entirety the Original Credit Facility. Upon the
effectiveness of this Agreement, the terms and provisions of the Original Credit
Facility shall, subject to this Section 10.12, be superseded hereby.
Notwithstanding the amendment and restatement of the Original Credit Facility by
this Agreement, the Borrower shall continue to be liable to the Lenders party to
the Original Credit Facility and the Agent with respect to agreements on the
part of the Borrower under the Original Credit Facility to indemnify any of such
Lenders or the Agent in connection with events or conditions arising or existing
prior to the effective date of this Agreement, including, but not limited to,
those events and conditions set forth in Section 10 thereof. This Agreement is
given in substitution for the Original Credit Facility. Upon the effectiveness
of this Agreement, each reference to the Original Credit Facility in any other
document, instrument or agreement executed and/or delivered in connection
therewith shall mean and be a reference to this Agreement. This Agreement
amends, restates and supersedes only the Original Credit Facility. This
Agreement is not a novation. Nothing contained herein or in any of the other
Loan Documents, unless expressly herein or therein stated to the contrary, is
intended to amend, modify or otherwise affect any other instrument, document or
agreement executed and/or delivered in connection with the Original Credit
Facility.
Section 10.13 Reallocation of Loans.
(a) As of the Closing Date,
(i) the Pro Rata Share of each
Lender shall be immedi ately adjusted based upon the application
of the definition of "Pro Rata Share" with respect to each
Lender's new Term Loan Commitment and Revolving Loan Commitment
as of the Closing Date after giving effect to this Agreement;
(ii) each Lender listed on the
signatures pages of this Agreement that was not a party to the
Original Credit Facility shall become a party to this Agreement;
and
(iii) each Lender that was a party
to the Original Credit Facility whose Pro Rata Share becomes 0%
after giving effect to this Agreement shall, upon the occurrence
thereof and the reallocation of Loans in accordance with the
terms of Section 10.13(b), cease to be a Lender party to this
Agreement, and all accrued fees and other amounts payable under
the Original
100
<PAGE> 107
Credit Facility for the account of such Lender shall be due and
payable on such date; provided, however, that the provisions of
Sections 2.16, 2.17, 2.18, 2.19, 9.7 and 10.1 shall continue to
inure to the benefit of such Lender.
(b) As of the Closing Date,
(i) each Lender that, as a result
of the adjustment of its Pro Rata Share, is to have a greater
principal amount of Loans outstanding than such Lender had
outstanding immediately prior to giving effect to this Agreement
shall, if requested by the Agent, deliver to the Agent
immediately avail able funds to cover such Loans (and the Agent
shall, to the extent of the funds so received and the funds
received from any Lenders that are not parties to the Original
Credit Facility, disburse funds to each Lender that, as a result
of such adjustment of the Pro Rata Shares, is to have a lesser
principal amount outstand ing than such Lender had outstanding
under the Original Credit Agreement); and
(ii) immediately prior to giving
effect to this Agreement, each Lender that is not a party to the
Original Credit Facility shall deliver to the Agent immediately
available funds to cover its Loans that will equal such Bank's
Pro Rata Share of the aggregate amount of Obligations outstanding
under this Agreement immediately after giving effect to this
Agreement.
(c) The principal amounts of Loans outstanding
under the Original Credit Facility immediately prior to giving effect to this
Agreement to each Lender that is a party thereto shall be deemed to be Loans
made by that Lender hereunder (as reallocated pursuant to this Section
10.13(b)). Each Letter of Credit issued under the Original Credit Facility
(other than the Existing Letter of Credit) and outstanding immediately prior to
giving effect to this Agreement shall be deemed to be a Letter of Credit
hereunder.
Section 10.14 Headings Descriptive. The headings of the several
Sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
Section 10.15 Marshalling; Recapture. Neither the Agent nor any
Lender shall be under any obligation to marshall any assets in favor of any Loan
Party or any other party or against or in payment of any or all of the
Obligations. To the extent any Lender receives any payment by or on behalf of
any Loan Party, which payment or any part thereof is subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
such Loan Party or its estate, trustee, receiver, custodian or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such payment or repayment, the obligation or part thereof
which has been paid, reduced or satisfied by the amount so repaid shall be
reinstated by the amount so repaid and shall be included within the
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<PAGE> 108
liabilities of such Loan Party to such Lender as of the date such initial
payment, reduction or satisfaction occurred.
Section 10.16 Severability. In case any provision in or
obligation under this Agreement or the Notes or the other Loan Documents shall
be invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
Section 10.17 Independence of Covenants. All covenants hereunder
shall be given independent effect so that if a particular action or condition is
not permitted by any of such covenants, the fact that it would be permitted by
an exception to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default or Event of Default if such action
is taken or condition exists.
Section 10.18 Survival. All indemnities set forth herein
including, without limitation, in Sections 2.16, 2.17, 2.18, 2.19, 9.7 and 10.1
shall survive the execution and delivery of this Agreement and the Notes and the
making and repayment of the Loans hereunder.
Section 10.19 Domicile of Loans. Each Lender may transfer and
carry its Loans at, to or for the account of any branch office, subsidiary or
affiliate of such Lender.
Section 10.20 Limitation of Liability. No claim may be made by
any Loan Party or any other Person against the Agent or any Lender or the
Affiliates, directors, officers, employees, attorneys or agent of any of them
for any special, indirect, consequential or punitive damages in respect of any
claim for breach of contract or any other theory of liability arising out of or
related to the transactions contemplated by this Agreement or any other
Transactions or the Hardee's Acquisition, or any act, omission or event
occurring in connection therewith; and each Loan Party hereby waives, releases
and agrees not to sue upon any claim for any such damages, whether or not
accrued and whether or not known or suspected to exist in its favor.
Section 10.21 Calculations; Computations. The financial
statements to be furnished to the Agent and the Lenders pursuant hereto shall be
made and prepared in accordance with GAAP consistently applied throughout the
periods involved and consistent with GAAP as used in the preparation of the
financial statements referred to in Section 5.5, and, except as otherwise
specifically provided herein, all computations determining compliance with
Section 7.1 hereof shall utilize GAAP.
Section 10.22 WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED
BY APPLICABLE LAW, EACH OF THE BORROWER, THE AGENT AND THE LENDERS HEREBY
IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN
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<PAGE> 109
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING HEREUNDER OR
THEREUNDER.
103
<PAGE> 110
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
CKE RESTAURANTS, INC.
By: /s/ CARL A. STRUNK
------------------------------------
Print Name: Carl A. Strunk
----------------------------
Title: EVP
---------------------------------
Address: 1200 N. Harbor Blvd.
Anaheim, CA 92801
Attn: General Counsel
Telephone: (714) 774-5796
Telecopy: (714) 520-4485
<PAGE> 111
BANQUE PARIBAS, as Agent and as a Lender
By: /s/ CLARK C. KING, III
------------------------------------
Print Name: Clark C. King, III
Title: Vice President
By: /s/ CLARK C. KING, III
------------------------------------
Print Name: Clark King
----------------------------
Title: Vice President
---------------------------------
Address: 227 W. Monroe Street
Suite 3300
Chicago, IL 60606
Attn:
Telephone: (312) 853-6000
Telecopy: (312) 853-6020
with a copy to:
Maureen B. Keating
Banque Paribas
787 Seventh Avenue
New York, NY 10019-6016
Telephone: (212) 841-2286
Telecopy: (212) 841-2275
<PAGE> 112
Schedule 1.1 to
Credit Agreement
Lenders and Commitments
<TABLE>
<CAPTION>
Name of Lender Revolving Commitment Term Loan Commitment
- -------------- -------------------- --------------------
<S> <C> <C>
Banque Paribas $250,000,000 $250,000,000
</TABLE>
<PAGE> 113
Annex I
Domestic Lending Office Eurodollar Lending Office
Banque Paribas Banque Paribas
Address: Address:
---------------------------- -------------------------------
----------------------------------------
----------------------------------------
Telephone: Telephone:
--------------------------- -----------------------------
Telecopy: Telecopy:
---------------------------- ------------------------------
CKE Restaurants, Inc. CKE Restaurants, Inc.
Address: Address:
Address: Address:
---------------------------- -------------------------------
----------------------------------------
----------------------------------------
Telephone: Telephone:
--------------------------- -----------------------------
Telecopy: Telecopy:
---------------------------- ------------------------------
<PAGE> 1
EXHIBIT 11.1
CKE RESTAURANTS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income................................... $46,757 $22,302 $10,952 $ 1,264 $ 3,665
======= ======= ======= ======= =======
Weighted average number of common shares
outstanding during the year................ 42,394 32,399 30,330 30,985 30,055
Repurchase and retirement of shares..... -- -- -- -- (46)
Purchase of treasury shares............. -- -- (119) (238) --
------- ------- ------- ------- -------
42,394 32,399 30,211 30,747 30,009
======= ======= ======= ======= =======
Basic earnings per share..................... $ 1.10 $ 0.69 $ 0.36 $ 0.04 $ 0.12
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
DILUTED EARNINGS PER SHARE:
Net income................................... $46,757 $22,302 $10,952 $ 1,264 $ 3,665
======= ======= ======= ======= =======
Weighted average number of common shares
outstanding during the year................ 42,394 32,399 30,330 30,985 30,055
Incremental common shares attributable
to exercise of stock options.......... 1,353 877 344 135 109
Repurchase and retirement of shares..... -- -- -- -- (46)
Purchase of treasury shares............. -- -- (119) (238) --
------- ------- ------- ------- -------
43,747 33,276 30,555 30,882 30,118
======= ======= ======= ======= =======
Diluted earnings per share................... $ 1.07 $ 0.67 $ 0.36 $ 0.04 $ 0.12
======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 12.1
CKE RESTAURANTS, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Earnings before fixed charges:
Income before income taxes................. $76,640 $36,710 $17,953 $ 2,398 $ 6,269
Fixed charges.............................. 16,914 9,877 10,004 9,202 10,387
------- ------- ------- ------- -------
$93,554 $46,587 $27,957 $11,600 $16,656
======= ======= ======= ======= =======
Fixed charges................................ $16,914 $ 9,877 $10,004 $ 9,202 $10,387
======= ======= ======= ======= =======
Ratio of earnings to fixed charges........... 5.5x 4.7x 2.8x 1.3x 1.6x
======= ======= ======= ======= =======
</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
26, 1998:
<TABLE>
<CAPTION>
CONTROL BY
JURISDICTION OF -----------------------
NAME OF SUBSIDIARY ORGANIZATION REGISTRANT SUBSIDIARY
------------------ --------------- ---------- ----------
<S> <C> <C> <C>
Carl Karcher Enterprises, Inc.......... California 100%
Boston Pacific, Inc.................... California 100%
CBI Restaurants, Inc................... Delaware 100%
Taco Bueno Restaurants, Inc............ Texas 100%
Taco Bueno Equipment Company........... Texas 100%
Taco Bueno West, Inc................... Delaware 100%
Taco Bueno Texas, L.P.................. Texas 100%
JB's Family Restaurants, Inc........... Delaware 100%
Hardee's Food Systems, Inc............. North Carolina 100%
Fast Food Restaurants, Inc............. Pennsylvania 100%
HFS Ventures, Inc...................... North Carolina 100%
FFM Marine Corporation................. North Carolina 100%
Hardee's of Green Bay, Inc............. Delaware 100%
HED, Inc............................... North Carolina 100%
HFS Georgia, Inc....................... Georgia 100%
Central Iowa Food Systems, Inc......... Iowa 100%
Hardee's of Ames, Inc.................. Iowa 100%
Hardee's at Onslow Mall, Inc........... North Carolina 100%
Burger Chef Systems, Inc............... North Carolina 100%
Rix Systems, Inc....................... Indiana 100%
Burger Chef Distributing Corporation... Delaware 100%
1233 Corporation....................... Ohio 100%
Sandy's Franchise, Inc................. Illinois 100%
Hardee's Capital USA, Inc.............. Delaware 100%
Hardee's Venture Properties, Inc....... Delaware 100%
Hardee's of Sam Houston................ 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
33-12401) on Forms S-8 of CKE Restaurants, Inc. and Subsidiaries of our report
dated March 17, 1998, relating to the consolidated balance sheets of CKE
Restaurants, Inc. and Subsidiaries as of January 31, 1998 and 1997 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, 1998, which
report appears in the January 31, 1998 Annual Report on Form 10-K of CKE
Restaurants, Inc. and Subsidiaries.
KPMG Peat Marwick LLP
Orange County, California
April 23, 1998
<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 26, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED JANUARY 26, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-26-1998
<PERIOD-START> JAN-28-1997
<PERIOD-END> JAN-26-1998
<CASH> 30,382
<SECURITIES> 0
<RECEIVABLES> 47,276
<ALLOWANCES> 0
<INVENTORY> 17,024
<CURRENT-ASSETS> 92,156
<PP&E> 797,222
<DEPRECIATION> 170,196
<TOTAL-ASSETS> 957,368
<CURRENT-LIABILITIES> 176,484
<BONDS> 0
0
0
<COMMON> 465
<OTHER-SE> 498,047
<TOTAL-LIABILITY-AND-EQUITY> 957,368
<SALES> 1,022,453
<TOTAL-REVENUES> 1,149,659
<CGS> 832,460
<TOTAL-COSTS> 1,063,468
<OTHER-EXPENSES> (7,363)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,914
<INCOME-PRETAX> 76,640
<INCOME-TAX> 29,883
<INCOME-CONTINUING> 46,757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,757
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.07
</TABLE>
<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>
<RESTATED>
<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> 46,330
<SECURITIES> 0
<RECEIVABLES> 25,565
<ALLOWANCES> 0
<INVENTORY> 9,223
<CURRENT-ASSETS> 80,197
<PP&E> 359,225
<DEPRECIATION> 151,126
<TOTAL-ASSETS> 410,367
<CURRENT-LIABILITIES> 83,124
<BONDS> 0
0
0
<COMMON> 365
<OTHER-SE> 214,439
<TOTAL-LIABILITY-AND-EQUITY> 410,367
<SALES> 536,808
<TOTAL-REVENUES> 613,380
<CGS> 424,794
<TOTAL-COSTS> 569,241
<OTHER-EXPENSES> (2,448)
<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> .69
<EPS-DILUTED> .67
</TABLE>
<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 29, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED JANUARY 29, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-1996
<PERIOD-START> JAN-31-1995
<PERIOD-END> JAN-29-1996
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0
0
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<EPS-PRIMARY> .36
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</TABLE>
