-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QroivDUo+CvDgIAPlzyak4o/68ygzJ8n1EEctGNm1OBv2pRLMb+Nc/CoD3Enam4p M6HbKYPRs5hccKwN+VZUKw== 0000892569-94-000115.txt : 19940513 0000892569-94-000115.hdr.sgml : 19940513 ACCESSION NUMBER: 0000892569-94-000115 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19940131 FILED AS OF DATE: 19940502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KARCHER CARL ENTERPRISES INC CENTRAL INDEX KEY: 0000353718 STANDARD INDUSTRIAL CLASSIFICATION: 5812 IRS NUMBER: 952415578 STATE OF INCORPORATION: CA FISCAL YEAR END: 0129 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10316 FILM NUMBER: 94525554 BUSINESS ADDRESS: STREET 1: 1200 N HARBOR BLVD CITY: ANAHEIM STATE: CA ZIP: 92801 BUSINESS PHONE: 7147745796 MAIL ADDRESS: STREET 1: 1200 N. HARBOR BLVD CITY: ANAHEIM STATE: CA ZIP: 92801 10-K 1 FORM 10-K 1 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ------------------------ [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: JANUARY 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM N/A TO N/A COMMISSION FILE NUMBER: 0-10316 CARL KARCHER ENTERPRISES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ CALIFORNIA 95-2415578 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1200 NORTH HARBOR BOULEVARD ANAHEIM, CALIFORNIA 92801 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-5796 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: TITLE OF CLASS COMMON STOCK, NO PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 31, 1994 was $154,587,772. The number of shares outstanding of each of the registrant's common stock, as of March 31, 1994 was 18,757,246. DOCUMENTS INCORPORATED BY REFERENCE
PARTS IN WHICH REFERENCED -------------- Portions of the Company's Proxy Statement to be filed with the Commission III within 120 days of January 31, 1994, prepared in connection with the Annual Meeting of Shareholders to be held in 1994 The Exhibit Index is located on Page E-1.
- - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- 2 CARL KARCHER ENTERPRISES, INC. INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 31, 1994
PART I PAGE ---- Item 1. Business...................................................................... 1 Item 2. Properties.................................................................... 7 Item 3. Legal Proceedings............................................................. 8 Item 4. Submission of Matters to a Vote of Security Holders........................... 8 PART II Item 5. Market for the Company's Common Stock and Related Stockholder Matters......... 8 Item 6. Selected Financial Data....................................................... 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................... 9 Item 8. Financial Statements and Supplementary Data................................... 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................................... 17 PART III Item 10. Directors and Executive Officers of the Registrant............................ 18 Item 11. Executive Compensation........................................................ 19 Item 12. Security Ownership of Certain Beneficial Owners and Management................ 19 Item 13. Certain Relationships and Related Transactions................................ 19 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 20
3 PART I ITEM 1. BUSINESS Carl Karcher Enterprises, Inc. ("Enterprises" or the "Company"), is a California business begun in the mid-1950's that operates, franchises and licenses a quick-service restaurant chain under the name "Carl's Jr." Located primarily in the Western United States, the Carl's Jr. chain consisted of 648 restaurants as of January 31, 1994, of which 376 were operated by Enterprises, 255 were operated by its franchisees and 17 were operated by its international licensees. In January 1994, Enterprises acquired from Boston Chicken, Inc. ("BCI"), franchisors and operators of a fast-growing rotisserie-roasted chicken concept, the rights to develop, own and operate up to 300 Boston Chicken stores in Southern California and metropolitan Sacramento, the first of which is scheduled to open in the summer of 1994. In February 1994, Boston Pacific, Inc. ("Boston Pacific"), a California corporation, was formed by the Company to conduct these Boston Chicken operations. At the upcoming Annual Meeting, the shareholders of Enterprises will vote upon a proposed reincorporation transaction whereby Enterprises and Boston Pacific will become wholly-owned subsidiaries of CKE Restaurants, Inc. ("CKE Restaurants"), a Delaware holding company formed to provide overall strategic direction to both Enterprises and Boston Pacific. Since neither Boston Pacific nor CKE Restaurants were operating prior to January 31, 1994, the financial information in this report and the discussion and analysis herein relates solely to Enterprises, unless otherwise indicated. RECENT DEVELOPMENTS The Company believes that it has two significant opportunities for growth. First, the Company has implemented an aggressive strategic program designed to increase restaurant sales and improve the cost structure of its Carl's Jr. restaurant operations. This program includes marketing and pricing strategies designed to improve consumer perceptions of value while at the same time maintaining the Carl's Jr. reputation for superior food, service and cleanliness. Second, the Company, through Boston Pacific, anticipates an accelerated development of its Boston Chicken stores by initially converting a number of selected Carl's Jr. restaurants. STRATEGIC PROGRAM The Company recruited a new president and chief executive officer in December 1992. Recessionary economic conditions and a changing competitive environment had resulted in a decline in the frequency of visits by fast-food users at Carl's Jr. restaurants. With a team comprised of existing senior management and several new executives, the Company implemented a strategic program, which was based upon extensive analyses of Company operations and consumer research. The strategic program's three main elements are to increase restaurant sales by developing and implementing consumer-driven and research-based marketing programs, to aggressively improve the restaurant-level cost structure and to realign and invest in the organization and efficiency of its human resources. The program has yielded significant results to date. As part of its new marketing and advertising strategy, the Company has hired a new advertising agency to improve its advertising effectiveness and increased its spending on radio and television media. In addition, the Company has strengthened its consumer research and has recently introduced a simplified menu and a new pricing structure designed to promote consumer perceptions of quality and value. Through new labor-scheduling guidelines and enhanced technology, increased outsourcing and downsizing, and improved safety programs and incentives, the Company has also significantly reduced operating costs. As part of its organizational realignment, the management structure from the restaurant level through the regional vice president level has been streamlined, the headquarters organization has been restructured, and key personnel have been added to marketing and product development. 1 4 BOSTON CHICKEN AGREEMENT The Company's agreement with BCI is the largest area development agreement to date between BCI and a franchisee. Boston Pacific plans to open 60 Boston Chicken stores by the end of fiscal 1996 and at least 200 by January 1999. Boston Chicken stores specialize in complete meals featuring rotisserie-roasted chicken, fresh vegetables and other side dishes. Boston Chicken stores offer the convenience and value associated with fast food, and the quality and freshness associated with traditional home cooking. Management believes that the Boston Chicken store concept is well-suited to California consumer tastes. The agreement with BCI provides the Company with the opportunity to participate in one of the fastest-growing segments in the restaurant industry and to attract a consumer market segment that is distinct from Carl's Jr. restaurant customers. CARL'S JR. COMPANY OPERATIONS OVERVIEW The Company believes that it is one of the leaders in offering a wide variety of food in a quick-service restaurant with comfortable dining rooms and partial table service. The Company was among the first to offer self-service salad bars and all-you-can-drink beverage bars. The Carl's Jr. menu is relatively uniform throughout the chain and features several charbroiled hamburgers and chicken sandwiches, including the Famous Big Star, Western Bacon Cheeseburger(R) and Charbroiler Chicken Sandwiches(R). Other entrees include a fish sandwich, several baked potatoes and prepackaged salads. Side orders, such as french fries, onion rings and fried zucchini, are also offered. Most restaurants also have a breakfast menu including eggs, bacon, sausage, french toast dips, orange juice, the Sunrise Sandwich(R) and the Breakfast Burrito. The Company strives to maintain high standards in all materials used by its restaurants as well as the operations related to food preparation, service and cleanliness. Hamburgers and chicken sandwiches at Carl's Jr. restaurants are generally prepared or assembled after the customer has placed an order and served promptly. Hamburger patties and chicken breasts are charbroiled in a gas-fired double broiler that sears the meat on both sides. The meat is conveyed through the broiler automatically to maintain uniform heating and cooking time. Each Company-operated restaurant is operated by a manager who has received 13 to 17 weeks of management training. This training program involves a combination of classroom instruction and on-the-job training in specially designated training restaurants. Other restaurant employees are trained by the restaurant managers in accordance with Company guidelines. Restaurant managers are supervised by a district manager, responsible for eleven to fourteen restaurants. Approximately 30 district managers are under the supervision of four regional vice presidents, all of whom regularly inspect the operations in their respective districts and regions. COST-REDUCTION PROGRAM; ELIMINATION OF NON-ESSENTIAL OPERATIONS The Company's strategic program has focused on improving the restaurant-level cost structure in order to enhance margins and fund consumer-related investments, such as value pricing. Historically, the Company manufactured many of its food products as a means of insuring high quality standards. During fiscal year 1993, however, it was determined that overall food costs could be lowered by purchasing food products from third party suppliers without sacrificing these quality standards. Therefore, the Company initiated a program to lower food costs through the termination of its manufacturing operations. Sales of products to outside parties were also eliminated at this time. Through the elimination of non-essential operations and increased outsourcing to selected third parties, the Company reduced the cost of providing maintenance and repair services to its restaurants. In addition, the Company redefined its cash management activities and liquidated a substantial portion of its former investment portfolio, utilizing the proceeds to reduce overall bank debt. 2 5 MARKETING Advertising has become increasingly important to the Company. Management believes that in order to successfully compete in today's quick-service environment, the Company must complement its strong reputation for product quality with a consumer perception of price value. In an effort to promote the quality and value concept, the Company will allocate more of its advertising budget to media spending. In April 1994, the Company initiated a broad-based marketing campaign to promote the Carl's Jr. concept as the same great food at lower everyday prices. The Company completed a review of its advertising efforts in fiscal 1994 and retained a new advertising agency, whose compensation is a combination of base remuneration plus incentives based on increases in Carl's Jr. restaurant sales. The initial savings in advertising agency fees that will result from this new arrangement will be reallocated to its budget for media advertisements, such as radio and television commercials. Several steps have also been taken to improve the Company's media advertising effectiveness. For instance, recent Carl's Jr. television commercials feature more contemporary castings and settings designed to appeal more to younger audiences. It is the Company's intention to continue to target these customers because they are the highest frequency fast-food users. FRANCHISED AND LICENSED OPERATIONS The Company's franchise strategy is designed to further the development of the Carl's Jr. chain and reduce the total capital required of the Company for development of new restaurants. Franchise arrangements with franchisees, who operate in Arizona, California, Nevada, Oregon and Utah, generally provide for initial fees and continuing royalty payments to the Company based upon a percentage of sales. Additionally, franchisees may purchase food, paper and other supplies from the Company. Franchisees may also be obligated to remit lease payments for the use of Company-owned or leased restaurant facilities. Under the terms of these leases, they are 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. Generally, these notes bear interest at 12.5%, mature in five to 15 years and are secured by an interest in the restaurant equipment sold. The Company's franchising philosophy is such that only candidates with appropriate experience are considered for the program. Specific net worth and liquidity requirements must also be satisfied. Absentee ownership is not permitted and franchise owners are encouraged to live within a one-hour drive of their restaurants. Area development agreements generally require franchisees to open a specified number of Carl's Jr. restaurants in a designated geographic area. In order to stimulate development of restaurants in underpenetrated markets, the Company initiated a conversion program during fiscal 1991 under which Company-operated restaurants were sold to franchisees. During fiscal 1993, the Company sold 33 of its greater San Francisco Bay Area restaurants to franchisees, substantially completing the conversion of this region. Two additional such sales occurred during fiscal 1994. In total, since program inception the Company has completed 70 such sales. In an effort to expand the Carl's Jr. presence internationally, the Company has entered into nine exclusive licensing agreements that allow licensees the use of the Carl's Jr. name and trademarks and provide for initial fees and continuing royalties based upon a percent of sales. As of January 31, 1994, there were 11 licensed restaurants in operation in Mexico, 2 licensed restaurants in operation in Japan and 4 licensed restaurants in operation in Malaysia. None of the Company's licensing agreements generated material royalties in the year ended January 31, 1994. DISTRIBUTION CENTERS The Company operates a distribution center at its corporate headquarters in Anaheim, California and a smaller distribution facility in Manteca, California. Produce, frozen meat patties, dairy and other food and supply items, excluding bakery products, are distributed to Company-operated Carl's Jr. restaurants generally twice a week. Many of these products are sold to franchisees, and in some cases, to certain licensees. These 3 6 distribution centers are subject to frequent inspection by representatives of the United States Department of Agriculture. BOSTON CHICKEN In January 1994, the Company entered into a Development Agreement with BCI granting rights to the Company, as a franchisee of BCI, to develop and operate 200 Boston Chicken stores (with an option, at the Company's election, to develop 100 more stores, as discussed below) in three designated areas of California (the "Designated Markets"). The Designated Markets comprise a specified market area around Sacramento, the County of San Diego and nine counties in the Los Angeles area (including the counties of Los Angeles, Orange, Riverside, Santa Barbara and San Bernardino). Boston Pacific plans to achieve a rapid and cost- effective roll-out of Boston Chicken stores by first converting a number of Carl's Jr. restaurants. Of its first 50 Boston Chicken stores, Boston Pacific anticipates that between 10 and 15 will be converted Carl's Jr. restaurants. By converting these selected Carl's Jr. restaurants, management's strategy is designed to accelerate the development of Boston Chicken stores in the Designated Markets and to achieve a sales and profit shift to surrounding Carl's Jr. locations and eliminate certain underperforming Carl's Jr. restaurants. The Company does not currently anticipate converting any additional Carl's Jr. restaurants to Boston Chicken stores after the initial 10 to 15 conversions are completed. The Boston Chicken menu features rotisserie-roasted chicken, fresh-baked chicken pot pies, a variety of chicken sandwiches, chicken soup and fresh vegetables, salads and other side dishes, including mashed potatoes made from scratch, corn, stuffing and creamed spinach, as well as beverages and desserts. The signature menu item is chicken that is marinated and then slow-roasted in rotisserie ovens in full view of the customer. The Company believes that the Boston Chicken store formula has proven to be successful to date in other areas of the United States. The first Boston Chicken store was opened in Newton, Massachusetts in 1985. As of March 21, 1994, there were 257 Boston Chicken stores system-wide. By the end of 1994, BCI expects to have approximately 450 restaurants in operation system-wide. There can be no assurance that BCI or its area developers will be able to achieve this goal. The Company estimates that the initial investment for a Boston Chicken store currently is approximately $800,000. This estimate includes development and franchise fees, professional fees, deposits, leasehold improvements, furniture, fixtures, equipment, opening inventory and supplies, architectural and engineering fees, pre-opening costs, permit and impact fees, grand opening expenses, computer and software expenses, and initial working capital. This estimate does not include any land or additional costs which will depend on the location and the nature of the site. The actual cost depends on, among other factors, the size and location of the store, the type and quantity of equipment installed, the level of pre-opening expenditures, and the amount of improvements, less any applicable construction allowance. Costs of converting existing Carl's Jr. restaurants to Boston Chicken stores are estimated to be approximately $600,000 per restaurant. AREA DEVELOPMENT AGREEMENT Pursuant to the Development Agreement, Boston Pacific is obligated and intends to develop and operate 200 Boston Chicken stores by January 15, 1999. The Development Agreement requires Boston Pacific to open a number of Boston Chicken stores in each Designated Market according to a specified schedule as of January 15 and July 15 of each year, commencing on January 15, 1995 and ending on January 15, 1999. Boston Pacific is obligated to open an aggregate of 20 Boston Chicken stores in the three Designated Markets by January 15, 1995, 60 by January 15, 1996, 110 by January 15, 1997, 160 by January 15, 1998 and 200 by January 15, 1999. The Company anticipates that its first Boston Chicken store will open in the summer of 1994. In consideration of the rights granted to the Company by BCI under the Development Agreement, the Company paid Boston Chicken an initial fee of $1,000,000 ($5,000 per planned Boston Chicken store). The Company also paid to BCI a non-refundable deposit of $1,000,000, which will be applied as a credit of $5,000 towards the Company's obligation to pay $35,000 to BCI as an initial franchise fee upon the opening of each Boston Chicken store by the Company. Upon opening a Boston Chicken store, the Company is obligated to 4 7 enter into a franchise agreement with BCI and pay BCI an annual royalty fee of 5% of the gross sales of that store. The Development Agreement generally prohibits the Company, or any affiliate, from engaging or having any interest in any business that competes with Boston Chicken stores. The operation of Carl's Jr. restaurants is expressly deemed not to be a business that competes with Boston Chicken stores so long as such restaurants do not offer rotisserie chicken or other products prepared in accordance with BCI's recipes or specifications. The Development Agreement can be terminated by BCI upon the occurrence of certain events that include, among others: (1) Boston Pacific's failure to comply with its scheduled development of Boston Chicken stores in the Designated Markets; (2) the Company's engaging in misconduct that adversely affects the reputation of Boston Chicken stores or the goodwill associated with the BCI trademarks; (3) the Company's violation of the prohibition on engaging in competitive businesses, described above; (4) the failure by the Company to comply with other provisions of the Development Agreement; and (5) the insolvency of the Company. The Company has an option, exercisable at least 12 months prior to the expiration of the initial development term on January 15, 1999 (or, if earlier, the date by which Boston Pacific has opened the required number of Boston Chicken stores in each Designated Market), to develop an additional 100 Boston Chicken stores in the Designated Markets. If the Company exercises this option, the Company and BCI will, at that time, determine the appropriate allocation of the additional 100 Boston Chicken stores among the Designated Markets and the appropriate time schedule for developing those restaurants. After the expiration of the term of the Development Agreement, BCI, or any third party to whom it grants development rights, will be entitled to develop Boston Chicken stores in the Designated Markets, subject to certain negotiation rights the Company has during the first 12 months after the expiration of such term. FRANCHISE AGREEMENT The form of franchise agreement to be entered into between the Company and BCI upon the opening of each Boston Chicken store provides for a term of 15 years and also provides for payment of a $35,000 per store franchise fee (less the $5,000 deposit), a 5% royalty on gross sales (minus sales/service taxes, customer refunds and coupons, and the portion of employee meals not charged to the employee), a 2% national advertising fund contribution, 3.5% local advertising fund contribution, and a $10,000 grand opening expenditure. The agreement also permits, upon notice from BCI, an annual 0.25% increase in the local advertising fund requirement so long as the local advertising fund contribution does not exceed 5% of sales. The franchise agreement provides for an area of limited exclusivity surrounding each Boston Chicken store in which BCI may neither develop nor grant to others the right to develop additional Boston Chicken stores, except that BCI reserves the right to engage in special distribution arrangements and, in the event that the Company does not choose to develop them, to develop regional shopping mall sites and sites acquired by BCI from others and held for two years which meet the standards for a Boston Chicken store within the Company's designated territory. Specified territories in suburban locations are generally a one-mile radius surrounding the Boston Chicken store, while urban locations generally have a smaller (e.g., one-half mile) radius or a trade-area-specific designated territory. The franchise agreement requires that the stores be operated in accordance with the operating procedures and menu established by BCI. BCI will conduct regular inspections of the Company's Boston Chicken stores to determine whether the stores meet applicable quality, service and cleanliness standards, will work with Boston Pacific to improve substandard performance or any items of non-compliance revealed in the course of its inspection, and may terminate the franchise agreement if the Company does not comply with such standards. The Company has prepared the information herein concerning BCI from its own analyses and publicly available historical information regarding BCI. BCI has no responsibility for the Company's statements, estimates, projections, or disclosures concerning the Company's proposed Boston Chicken operations or the results or timing thereof. 5 8 SOURCES OF RAW MATERIALS The Company's ability to maintain consistent quality throughout the Carl's Jr. chain depends in part upon its ability to acquire and distribute food products, restaurant equipment, signs, fixtures and supplies from reliable sources in accordance with Company specifications. The Company, its franchisees and its licensees have not experienced any material shortages of these items which the Company purchases from numerous independent suppliers. Alternate sources of these items are generally available. TRADEMARKS AND PATENTS The Company has registered trademarks and service marks which are of material importance to the Company's business, including the "Carl's Jr." name, the "Star" logo and proprietary names for a number of the Carl's Jr. menu items. "Boston Chicken" and the Boston Chicken logo are registered trademarks of BCI which may be utilized by the Company in accordance with applicable provisions of the Development Agreement and franchise agreements thereunder. SEASONALITY The Company's Carl's Jr. business is moderately seasonal. Average restaurant sales are normally higher in the summer months than during the winter months. WORKING CAPITAL PRACTICES Historically, current assets included marketable securities and restaurant property costs to be sold and leased back. Subsequent to January 25, 1993, as part of its strategic initiatives, the Company began liquidating a significant portion of its former investment portfolio, using the proceeds to repay its borrowings under the Company's revolving credit line. The sale/leaseback program is no longer emphasized, and thus existing inventories of restaurant property costs to be sold and leased back have been significantly reduced. The Company does not carry significant amounts of inventory, experience material returns of merchandise, or generally provide extended payment terms to its franchisees or licensees. Cash from operations, along with cash, cash equivalents and marketable securities on hand, should enable the Company to meet its financing requirements. CUSTOMERS No material part of the Company's business is dependent upon a single customer or a few customers. BACKLOG Backlog orders are not material to the Company's business. GOVERNMENT CONTRACTS The Company has no material contracts with the United States government or any of its agencies. COMPETITION Major chains, which have substantially greater financial resources than the Company, dominate the quick-service restaurant industry. Certain of these major chains have increasingly offered selected food items and combination meals, temporarily or permanently at discounted prices. A change in the pricing or other marketing strategies of one or more of these competitors could have an adverse impact on the Company's Carl's Jr. sales and earnings in affected markets. The Company believes that its particular emphasis on higher quality foods that appeal to a broad consumer base, allows the Company to compete effectively with significantly larger quick-service restaurant chains. Careful attention to dining accommodations, including periodic upgrading of existing facilities, also plays an important role. RESEARCH AND DEVELOPMENT The Company maintains a test kitchen for its Carl's Jr. operations at its headquarters in which new products and production concepts are developed on an ongoing basis. While these efforts are critical to the Company, amounts expended for these activities are not considered material. There are no customer sponsored research and development activities. 6 9 ENVIRONMENTAL MATTERS Compliance with federal, state and local environmental provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment did not have a material effect on capital expenditures, earnings or the competitive position of the Company in fiscal 1994. The Company cannot predict the effect on its operations from possible future legislation or regulation. NUMBER OF EMPLOYEES The Company employs approximately 10,400 persons in its Carl's Jr. operations, of whom approximately 9,800 are hourly restaurant, distribution or clerical employees, and approximately 600 are managerial, salaried employees engaged in administrative and supervisory capacities. A majority of the hourly employees are employed on a part-time basis to provide service necessary during peak periods of restaurant operations. None of the Company's employees are currently covered by a collective bargaining agreement. The Company has never experienced a work stoppage attributable to labor disputes and believes its employee relations to be good. The Company is subject to the Fair Labor Standards Act, which governs such matters as minimum wage requirements, overtime and other working conditions. A large portion of the Company's food service personnel are paid at a minimum wage level and, accordingly, increases in the federal or state minimum wage affect the Company's labor costs. The California minimum wage is currently $4.25 and is equal to the established federal minimum wage. ITEM 2. PROPERTIES. Most Carl's Jr. restaurants are freestanding, ranging in size from 2,500 to 4,000 square feet, with a seating capacity of 65 to 115 persons. Some restaurants are located in shopping malls and other in-line facilities. Currently, several building plan types are in use system-wide, depending upon operational needs. Most restaurants are constructed with drive-thru facilities. A majority of Company-operated restaurants are leased from others. The following table sets forth the type of real estate interest that the Company had in its Carl's Jr. restaurants in operation at January 31, 1994:
TYPE OF INTEREST ---------------- Lease land and building................................ 338 Lease land only (building owned)....................... 23 Own land and building.................................. 15 --- 376 --- ---
The Company subleases certain sites to its franchisees and owns an additional 33 restaurant properties which are leased primarily to franchisees. The terms of the Company's leases or subleases generally range between three and 35 years and primarily expire through fiscal 2026. The expiration of these leases is not expected to have a material impact on the Company's operations in any particular year as the expiration dates are staggered over a number of years and many of the leases contain renewal options. Once a potential Carl's Jr. restaurant site is identified, the Company's real estate personnel either seek to negotiate with the owner to construct a restaurant to the Company's specifications and enter into a long-term lease of the premises, or the site is purchased. Spaces for restaurants in shopping malls and in-line buildings are typically leased and developed to the Company's specifications with the Company owning the leasehold improvements. The Company generally performs the construction management function while utilizing outside general contractors to construct its buildings. 7 10 The following table summarizes the California regions in which the Company's Carl's Jr. restaurants are located: Los Angeles and Orange County.......................... 264 Sacramento............................................. 40 San Diego.............................................. 39 Fresno................................................. 23 Bakersfield............................................ 9 San Francisco.......................................... 1 --- 376 --- ---
The Company's corporate headquarters and distribution center, located in Anaheim, California, are leased and occupy approximately 78,000 and 102,000 square feet, respectively. The Manteca, California distribution facility has 42,000 square feet and is owned by the Company. ITEM 3. LEGAL PROCEEDINGS. The Company is involved in various lawsuits incidental to its business. Management does not believe that the outcome of such litigation will have a material adverse effect upon the operations or financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. As of April 25, 1994, shares of the Company's Common Stock were traded on the New York Stock Exchange under the symbol "CKR." Prior to that date, the Company's Common Stock was regularly quoted on the NASDAQ National Market System under the symbol "CARL." At January 31, 1994, there were approximately 2,600 record holders of the Company's Common Stock. The high and low closing prices, during each quarter, for the last two fiscal years were as follows:
QUARTER 1ST 2ND 3RD 4TH ----------------------------------------------------- ---- --- ---- ---- Fiscal 1994 High............................................... $8 7/8 $8 5/8 $9 5/8 $14 1/4 Low................................................ 7 3/4 6 3/4 7 3/8 8 7/8 Fiscal 1993 High............................................... 10 1/4 8 3/8 10 7/8 11 Low................................................ 8 1/8 6 3/4 7 1/4 7 3/4
During fiscal 1994 and 1993, the Company paid four consecutive quarterly dividends of $.02 per share of Common Stock, for a total of $.08 per share per year. The Company recently changed its dividend policy to provide for semi-annual payments of dividends. 8 11 ITEM 6. SELECTED FINANCIAL DATA. The information set forth below should be read in conjunction with the financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED JANUARY 31, ------------------------------------------------------------ 1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- System-wide sales: Company-operated restaurants...... $381,733 $414,510 $466,198 $469,449 $468,329 Franchised restaurants............ 190,434 184,658 138,664 105,297 81,208 Internationally licensed restaurants.................... 18,780 17,451 9,535 4,082 903 -------- -------- -------- -------- -------- Total system-wide sales........ $590,947 $616,619 $614,397 $578,828 $550,440 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Revenues(1)......................... $460,368 $502,632 $540,370 $527,580 $515,809 Income (loss) before cumulative effect of changes in accounting principles........................ 4,433 (3,057) 13,038 13,036 5,551 Net income (loss)................... 3,665 (5,507) 13,038 13,036 5,551 Income (loss) per share before cumulative effect of changes in accounting principles............. .24 (.17) .72 .72 .30 Net income (loss) per share......... .20 (.31) .72 .72 .30 Cash dividends paid per common share............................. .08 .08 .08 .08 .08 Total assets(1)..................... 242,135 268,924 294,375 305,965 309,223 Long-term debt, including capital lease obligations................. 63,300 80,254 102,074 117,137 124,637 Shareholders' equity................ $ 92,076 $ 84,732 $ 89,679 $ 78,818 $ 66,632 Ratio of debt to equity(2).......... 0.9x 1.3x 1.5x 1.9x 2.3x Number of restaurants at year end: Company-operated.................. 376 379 414 424 454 Franchised........................ 255 244 196 149 86 Internationally licensed.......... 17 19 12 5 1 -------- -------- -------- -------- -------- Total system-wide restaurants.................. 648 642 622 578 541 -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
- - --------------- (1) Prior year amounts have been reclassified to conform with the fiscal 1994 presentation. (2) Debt, as defined in this computation, includes long-term debt, capital lease obligations and their related current portions. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the financial statements and related notes and "Selected Financial Data" included elsewhere in this Form 10-K. OVERVIEW Net income for fiscal 1994, a 53-week reporting period, was $3.7 million, or $.20 per share, compared with a net loss in fiscal 1993, a 52-week reporting period, of $5.5 million, or ($.31) per share. Fiscal 1994 included a nonrecurring, pre-tax charge of $3.0 million related to an arbitration settlement for an alleged breach of contract involving an investor group which had been negotiating for the purchase of several existing Carl's Jr. restaurants. Fiscal 1993 included an $11.1 million pre-tax, nonrecurring charge related to the 9 12 Company's strategic initiatives, workforce reductions and certain lease subsidies (see Results of Operations -- General and Administrative Expenses) as well as a $5.1 million pre-tax charge resulting from a Company-commissioned independent actuarial valuation of the Company's self-insured workers' compensation reserve during that year. Excluding the effects of all of these charges, operating income increased $4.5 million, or 50.5%, to $13.5 million in fiscal 1994 from fiscal 1993. The key components of the Company's strategic program, which was largely initiated in January 1993 and aggressively pursued throughout fiscal 1994, were as follows: - To develop and implement new marketing programs that rely upon extensive consumer research and are designed to improve consumers' price/value perceptions and, in turn, improve restaurant sales trends. This effort included better coordination of consumer research with the product development and pricing process and a more contemporary, compelling advertising approach; - To improve the Company's restaurant-level margin and cost structure by, among other things, increasing restaurant labor productivity and decreasing repair and maintenance and other costs; and - To streamline and consolidate the Company's workforce, eliminate non-essential business activities and increase the organizational effectiveness of the Company. The aim of two of the components of this strategic program, improving the restaurant-level cost structure and streamlining the Company's workforce and eliminating non-essential business activities, was to reduce operating costs, primarily salaries and wages, by approximately $10 million during fiscal 1994. Although the full benefits of the strategic program have yet to be realized, implementation of this program allowed the Company to achieve the $10 million cost reduction goal, returning it to profitability and significantly increasing its operating earnings in fiscal 1994. In addition, ongoing test-marketing activities and consumer research have led to the development of a new value-pricing program and simplified menu that is currently being introduced throughout the Carl's Jr. system. A new advertising agency selected in December 1993 has been assisting the Company in its repositioning of the Carl's Jr. chain. The most significant evidence of the Company's progress in fiscal 1994 was the substantial reduction in the costs associated with operating its Carl's Jr. restaurants. Although the Company operated 11 fewer restaurants on a weighted-average basis in fiscal 1994 and same-store sales fell 6.5% from fiscal 1993, restaurant operating profits increased 25.8% to $65.2 million in fiscal 1994. The Company-restaurant operating profit margin increased in fiscal 1994 to 17.1% from 12.5% in fiscal 1993. The following table summarizes the improvement in Company-restaurant operating profits for fiscal years 1994, 1993 and 1992:
FISCAL YEAR ENDED JANUARY 31, ------------------------------------------------------------- 1994 1993 1992 ----------------- ----------------- ----------------- AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) Sales by Company-operated restaurants........................ $381,733 100.0% $414,510 100.0% $466,198 100.0% -------- ----- -------- ----- -------- ----- Operating costs and expenses: Food and packaging................. 115,444 30.2 127,148 30.7 150,351 32.2 Payroll and other employee benefits........................ 118,774 31.1 141,870 34.2 146,759 31.5 Occupancy and other operating expenses........................ 82,321 21.6 93,651 22.6 100,949 21.7 -------- ----- -------- ----- -------- ----- Total operating costs and expenses...................... 316,539 82.9 362,669 87.5 398,059 85.4 -------- ----- -------- ----- -------- ----- Company-restaurant operating profit margin............................. $ 65,194 17.1% $ 51,841 12.5% $ 68,139 14.6% -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Major cost savings were achieved during fiscal 1994 in several areas. The Company reduced its direct labor costs in part through new labor-scheduling guidelines and enhanced restaurant-level technology, which were implemented during the second quarter of fiscal 1994. As a percentage of restaurant sales, these costs 10 13 decreased to 19.9% in the fourth quarter of fiscal 1994 from 22.4% in the same prior year period. In addition, workers' compensation costs (exclusive of the $5.1 million charge related to the independent actuarial valuation commissioned in fiscal 1993) were reduced an additional $2.8 million largely through new safety programs and other awareness and incentive programs. Total repair and maintenance costs were reduced by $5.2 million, or 27.6%, through outsourcing and down-sizing. Further cost savings were achieved through the elimination of the Company's manufacturing operations and the outsourcing of products to third party suppliers. The total system-wide number of Carl's Jr. restaurants in operation during each of the years in the three-year period ended January 31, 1994 were as follows:
COMPANY FRANCHISED LICENSED TOTAL ------- ---------- -------- ----- Balance at January 31, 1991................... 424 149 5 578 New restaurant openings..................... 19 18 7 44 Restaurants sold to franchisees............. (32) 32 -- -- Franchised restaurants returning to Company ownership................................ 3 (3) -- -- -- ------- --- ----- Balance at January 31, 1992................... 414 196 12 622 New restaurant openings..................... 7 14 12 33 Restaurants sold to franchisees............. (34) 34 -- -- Closures.................................... (8) -- (5) (13) -- ------- --- ----- Balance at January 31, 1993................... 379 244 19 642 New restaurant openings..................... 3 12 7 22 Restaurants sold to franchisees............. (2) 2 -- -- Closures.................................... (4) (3) (9) (16) -- ------- --- ----- Balance at January 31, 1994................... 376 255 17 648 -- -- ------- --- ----- ------- --- -----
In January 1994, the Company acquired the rights to develop and operate up to 300 Boston Chicken stores in Southern California and metropolitan Sacramento. Boston Pacific, Inc. ("Boston Pacific") was formed in February 1994 to develop, own and operate these Boston Chicken stores. A reincorporation transaction in which the Company and Boston Pacific will become wholly-owned subsidiaries of a new holding company, CKE Restaurants, Inc. ("CKE Restaurants"), and the shareholders of the Company will become stockholders of CKE Restaurants, will be submitted for approval at the Company's upcoming Annual Meeting of shareholders. CKE Restaurants, as a successor to the Company, will provide overall strategic direction to Enterprises, which will continue to operate and franchise Carl's Jr. restaurants, and Boston Pacific, which will operate Boston Chicken stores. The Company's first Boston Chicken store is scheduled to open in the summer of 1994. RESULTS OF OPERATIONS REVENUES The following table presents information regarding the components of the Company's revenues:
FISCAL YEAR ENDED JANUARY 31, ---------------------------------------------------------- 1994 1993 1992 ---------------- ---------------- ---------------- AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) Revenues: Sales by Company-operated restaurants........................ $381,733 82.9% $414,510 82.5% $466,198 86.3% Revenues from franchised and licensed restaurants........................ 78,635 17.1 75,262 15.0 60,025 11.1 Revenue from other outside parties.... -- -- 12,860 2.5 14,147 2.6 -------- ----- -------- ----- -------- ----- $460,368 100.0% $502,632 100.0% $540,370 100.0% -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
11 14 COMPANY-OPERATED RESTAURANTS Sales by Company-operated restaurants fell 7.9% in fiscal 1994 to $381.7 million and 11.1% in fiscal 1993 to $414.5 million due to lower average sales per restaurant and fewer restaurants in operation in both fiscal 1994 and 1993. On a same-store basis, these sales, which are calculated using only restaurants open for the full two years being compared, declined 6.5% in fiscal 1994 to $366.2 million, following a 5.6% decrease during fiscal 1993 to $376.0 million from $398.1 million in fiscal 1992. The Company's restaurant sales were adversely affected in both fiscal 1994 and fiscal 1993 by aggressive promotions and price reductions by the Company's principal competitors, and the continued weakness in the California economy. During 1993, the major quick-service restaurant chains intensified their promotions of value-priced meals and continued to discount prices of selected menu items. FRANCHISED AND LICENSED RESTAURANTS Revenues from franchised and licensed restaurants in both fiscal 1994 and fiscal 1993 were mainly comprised of sales of food and supplies to franchisees, initial franchise fees, annual franchise royalties and rents and other occupancy-related amounts collected from many of the Company's franchisees. Overall, these revenues increased 4.5% to $78.6 million in fiscal 1994, following a 25.4% increase to $75.3 million in fiscal 1993. These changes were largely due to 21 and 63 more franchised restaurants in operation on a weighted- average basis in fiscal 1994 and fiscal 1993, respectively. OTHER OUTSIDE PARTIES Revenues from other outside parties were eliminated in fiscal 1993 in connection with the Company's strategy to focus on its core business of operating and franchising Carl's Jr. restaurants, and to eliminate non-essential lines of business such as its manufacturing and outside sales operations. OPERATING COSTS AND EXPENSES COMPANY-OPERATED RESTAURANTS Company-operated restaurant costs decreased 12.7% to $316.5 million in fiscal 1994 due to several factors. First, the Company operated, on a weighted-average basis, 2.8% fewer restaurants in fiscal 1994. Second, Company initiatives led to a 3.1% reduction in payroll and other employee benefit expenses as a percentage of Company-operated restaurant sales and a 1.0% reduction in occupancy expenses as a percentage of these sales. These labor and payroll expense decreases were due in part to improved labor productivity related to the Company's strategic program. Also contributing to the improvement in Company-operated restaurant costs were decreases in food and packaging expenses of 9.2% and 15.4% in fiscal 1994 and fiscal 1993, respectively. Food and packaging costs as a percentage of Company-operated restaurant sales were 30.2%, 30.7% and 32.2% in fiscal years 1994, 1993 and 1992, respectively. The reductions in these costs from 1992 to 1993 were a result of the Company's outsourcing program initiated in fiscal 1993. The Company's decision to exit the manufacturing business was an initiative of the strategic program begun in fiscal 1993 and continued in fiscal 1994. As a percentage of sales by Company-operated restaurants, payroll and other employee benefits were 31.1%, 34.2% and 31.5% in fiscal years 1994, 1993 and 1992, respectively. Reductions in the direct labor component of payroll and other employee benefits over the past three years have been due to cost and productivity efficiencies, offset by an increase in workers' compensation costs in fiscal 1993. As a result of a study of claims and reserve levels by an independent actuary during fiscal 1993, the Company increased its workers' compensation reserve by $5.1 million in the fourth quarter of fiscal 1993. Management is encouraged by a drop in the incident rate of 41.2% in its workers' compensation claims during fiscal 1994. Occupancy and other operating expenses as a percentage of sales were 21.6%, 22.6% and 21.7% in fiscal years 1994, 1993 and 1992, respectively. With fewer restaurants in operation and reductions in repair and 12 15 maintenance costs, occupancy and other costs have decreased, more than offsetting selected rent and other increases. In fiscal year 1993, however, these generally fixed costs increased as a percentage of sales due to the drop in Company-operated restaurant sales. FRANCHISED AND LICENSED RESTAURANTS Franchised and licensed restaurant costs are closely tied to franchise revenues. These costs increased 8.8% in fiscal 1994 to $73.6 million, following a 28.9% increase in fiscal 1993 to $67.6 million due primarily to the increase in the number of franchised restaurants. The margins on sales of food and supplies to franchisees declined over the past three years, particularly in fiscal 1994, as a result of the lowering of prices of food and other products supplied to franchisees. These prices were significantly reduced in fiscal 1993 following the outsourcing of the Company's manufacturing business in late fiscal 1993. Also contributing to the increases in these costs in both fiscal 1993 and fiscal 1994 were increases in occupancy costs associated with the leasing or subleasing of restaurants to franchisees. OTHER OUTSIDE PARTIES Costs associated with the revenues from other outside parties were eliminated in fiscal 1993 with the termination of this line of business in that year. ADVERTISING EXPENSES As a percentage of Company-operated restaurant sales, advertising expenses were 5.0%, 4.6% and 4.3%, in fiscal years 1994, 1993 and 1992, respectively. Advertising expenditures have become increasingly important in the current competitive environment and have therefore grown as a percentage of Company- operated restaurant sales over the past three years. As discussed in the Overview section above, a key component of the Company's strategic program is the enhancement of consumer research activities and a revamping of the Company's overall marketing strategy, aimed at more effectively promoting its high-quality menu items at competitive prices. GENERAL AND ADMINISTRATIVE EXPENSES Fiscal 1994 general and administrative expenses included a $1.7 million charge representing the net present value of future retirement benefits granted to Carl N. Karcher in October 1993. Fiscal 1993 general and administrative expenses included an $11.1 million restructuring charge related primarily to the Company's strategic initiatives described in the Overview section above. Excluding the effects of these nonrecurring charges, general and administrative expenses amounted to $36.0 million, $36.6 million and $36.2 million in fiscal years 1994, 1993 and 1992, respectively, which represented 7.8%, 7.3% and 6.7% of total revenues in those years. These costs are not solely related to fluctuations in sales volumes as a substantial portion of these expenses are compensation and benefits for management and administrative personnel. The Company's strategic program generated a net savings in general and administrative expenses of approximately $2.4 million in fiscal 1994. These savings were largely offset by selected additions to management in the areas of strategic planning, information systems and marketing. There have been no material changes to the strategic measures and other restructuring activities contemplated by the fiscal 1993 restructuring charge or the costs associated with these measures. The components of this $11.1 million charge were as follows: Corporate Severance and Outplacement Costs -- Severance and outplacement costs related to the termination of 53 corporate employees in January 1993 amounted to $1.9 million, including an $843,000 noncash charge arising from the extension and remeasurement of stock options granted to former key management personnel. These terminated employees were identified and the termination plan was approved by the Company's Board of Directors on January 20, 1993. Substantially all of these required severance and outplacement payments were made in fiscal 1994. 13 16 Lease Subsidies -- In prior years, the Company initiated restructuring programs to dispose of or franchise its Arizona and Texas operations. As of January 31, 1994 and 1993, $11.5 million and $12.6 million was accrued for these reserves, respectively. These balances were mainly comprised of estimated losses on equipment and estimated lease subsidies. The lease subsidy component of the restructuring charges represents the net present value of the excess of future lease payments over estimated sublease income. The remaining unamortized discount to present value of these lease subsidies at January 31, 1994 was $9.5 million and will be amortized to operations over the remaining sublease terms, which range up to 22 years. The carrying value of the related equipment represents the net realizable value of these assets as of January 31, 1994 and 1993. The estimate of certain Arizona lease subsidies (to be paid over the remaining lease terms ranging from one to 17 years) was increased $4.9 million as part of the fiscal 1993 restructuring charge because the Company reduced its sublease rental income projections associated with these restaurants. These projections are based entirely upon the restaurant sales of the franchisees, which have been declining as a result of the continued softness in the Arizona economy. Store Closures -- A total of $2.3 million of estimated equipment losses and appropriate lease subsidies was recognized related to the closure of certain underperforming restaurants, which should be completed in fiscal 1995. The equipment cannot be used in the Company's operations any longer and provides no future utility to the Company. Elimination of Manufacturing Operations -- The elimination of the Company's manufacturing operations, which was largely completed during fiscal 1993, included losses on the disposition of the equipment previously used in that operation and severance costs related to the termination of 232 manufacturing employees, and required a $2.0 million charge in fiscal 1993. ARBITRATION SETTLEMENT As discussed in the Overview section above, in fiscal 1994 the Company incurred a $3.0 million charge in connection with the settlement of an arbitration proceeding. INTEREST EXPENSE Lower average debt levels throughout fiscal 1994 and fiscal 1993 resulted in a $3.2 million, or 23.8%, decrease in interest expense in fiscal 1994 and a $3.1 million, or 18.4% decrease in fiscal 1993. Declining interest rates in fiscal 1993 also contributed to the decrease in that year. OTHER INCOME, NET Other income, net, decreased 54.8% in fiscal 1994 to $6.1 million and 12.5% in fiscal 1993 to $13.6 million. The fiscal 1994 decrease was due largely to a decrease in investment income resulting from the redefining of the Company's cash management activities in connection with its strategic program (see Financial Condition -- Overview). The fiscal 1993 decrease was mainly due to fewer gains on sales of restaurants as compared with fiscal 1992. CHANGES IN ACCOUNTING PRINCIPLES Effective as of the beginning of fiscal 1994, the Company recognized a $768,000 cumulative effect charge, net of a $512,000 tax benefit, related to a change in the method used to discount the Company's estimated workers' compensation liability (see Note 9). Effective as of the beginning of fiscal 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The cumulative effect of this change in accounting principle resulted in a $2.4 million charge to operations and is described further in Note 16. 14 17 FINANCIAL CONDITION OVERVIEW The Company's current ratio was 1.0 and 1.1 as of January 31, 1994 and 1993, respectively, reflecting the cash-intensive nature of the quick-service restaurant industry. As of January 31, 1994, total cash available to the Company was $26.1 million, which included $13.6 million of idle cash invested in money market funds (a cash equivalent) and short-term marketable securities. As part of its strategic program, the Company redefined its cash management function and liquidated a substantial portion of its former investment portfolio during fiscal 1994. The securities on hand as of January 31, 1994 consisted primarily of holdings in investment-grade money market funds, government debt, preferred stock and mutual funds and were invested in accordance with the Company's new investment policy. This new policy is designed to maintain a diversified, highly liquid portfolio with minimal interest rate risk which will generally not include margined securities. Restaurant property costs to be sold and leased back were largely reclassified to property and equipment in fiscal 1994 as management no longer intends to actively pursue this means of financing new Company-operated restaurants. Prior to the refocusing of the Company's investing activities, the Company maintained a long-term investment portfolio, which was comprised of preferred stocks, debt and other securities valued individually at cost and written down when a decline in market value was deemed other than temporary. Long-term investments were reclassified to current marketable securities prior to the sale of such a security, which occurred primarily in connection with redemptions and tender offers made by the issuers of the securities or when the Company's long-term price objectives had been achieved. As of January 31, 1994, the other current assets caption in the accompanying balance sheets included $6.8 million of additional investment securities which were held in trust by the State of California as of that date in connection with the Company's self-insured workers' compensation program. Proceeds from the liquidation of the former investment portfolio were used to purchase these securities. The State requires the Company to secure its potential workers' compensation claims each year by providing a prescribed amount either through one or more standby letters of credit or an equivalent amount of cash or investment securities. The requirement for the upcoming period beginning May 1, 1994 was decreased to $12.1 million from $14.7 million and the Company recently obtained from its bank a standby letter of credit for this entire amount. Accordingly, the $6.8 million of investment securities on deposit with the State as of January 31, 1994 was returned to the Company in April 1994. The remaining proceeds from the liquidation of the former investment portfolio were largely used to repay the Company's $18.1 million revolving credit line borrowings and $2.4 million of obligations secured by marketable securities during fiscal 1994. This reduction of current liabilities was partially offset by a $3.9 million reclassification of bank debt in recognition of certain upcoming fiscal 1995 maturity dates. As of January 31, 1994, the Company was not in compliance with certain of the covenants governing its revolving credit line, the $6.4 million term loan maturing in December 1994, and both of the standby letters of credit expiring in April 1994 related to the Company's workers' compensation program. In March 1994, the Company negotiated with its bank to provide a $15.0 million credit line through June 1995 under which $12.1 million will be committed to a single standby letter of credit to satisfy the State's current requirement related to the Company's workers' compensation program. This renegotiation resulted in the elimination of one of the previously issued standby letters of credit, thereby curing any of its related covenant violations. In addition, a waiver of the requirements of the remaining covenant violations was received and more favorable covenants were negotiated in their place that will apply to future measurement periods. Long-term debt decreased $14.3 million in fiscal 1994 largely as a result of $11.5 million of principal payments ($1.7 million of which was from the proceeds from the liquidation of the former investment portfolio) and the $3.9 million reclassification of bank debt to current portion of long-term debt. Further prepayment of long-term debt is not anticipated as the Company's remaining debt agreements require sizable prepayment penalties. 15 18 LIQUIDITY AND CAPITAL RESOURCES The need for capital arises, principally, for the construction and remodeling of Carl's Jr. restaurants, the payment of lease obligations, the repayment of debt and, beginning in fiscal 1995, the development of Boston Chicken stores. During fiscal 1994, the Company's working capital needs and other capital requirements were financed primarily through internally generated funds. Cash flows from operating activities have generally consisted of net income or loss, adjusted for certain noncash revenues and expenses, including depreciation, amortization, restructuring charges, other nonrecurring charges and deferred taxes, as well as changes in certain current asset and liability accounts. Net cash provided by operating activities increased $3.5 million to $27.7 million in fiscal 1994, largely as a result of improved operating results for the year. Lower operating earnings in fiscal 1993 as compared with fiscal 1992 led to a $9.0 million decrease in net cash provided by operating earnings in that year. During fiscal 1994, $9.5 million of net cash was provided by investing activities, which consisted primarily of $30.2 million of proceeds from the liquidation of the Company's former investment portfolio and $4.8 million of notes receivable collections, offset by $13.9 million of purchases of property and equipment and the reinvestment of $12.7 million of idle cash in accordance with the Company's new investment policy. During fiscal 1993, $3.8 million of net cash was provided by investing activities, which was due to the Company's sale/leaseback program, which generated $4.7 million of net cash, collections of notes receivable totaling $3.6 million, the Company's former investment portfolio yielding $2.7 million of net cash and the sales of certain Company-operated restaurants, which generated $2.1 million of cash. Purchases of property and equipment totaling $9.3 million in fiscal 1993 partially offset these inflows. Net cash used in financing activities amounted to $31.7 million and $27.5 million in fiscal 1994 and fiscal 1993, respectively. The Company's net $18.1 million revolving credit line borrowings were repaid in fiscal 1994, and the repayment of long-term debt totaled $11.5 million in that year. Fiscal 1993 included $19.9 million of long-term debt repayments. Cash was also paid in both fiscal 1994 and fiscal 1993 principally for the repayment of obligations due brokers, which were paid in full in fiscal 1994, the repayment of capital lease obligations and dividends. New Carl's Jr. restaurant openings have been slowed while management focuses on improving the sales and operating profits of its existing restaurants. A total of six new Carl's Jr. restaurants are planned for the coming fiscal year. Under the terms of its development agreement with Boston Chicken, Inc., the Company is obligated to open an aggregate of 200 Boston Chicken Stores in designated markets by January 15, 1999. In order to comply with this development agreement, the Company will be required to develop 40 to 50 Boston Chicken stores per year over the next five years. The Company also has the option to develop 100 additional Boston Chicken stores in the markets designated in the development agreement, the appropriate time schedule for which will be determined upon exercise of this option. Of the first 50 Boston Chicken stores, the Company anticipates that it will convert approximately 10 to 15 Carl's Jr. restaurants to Boston Chicken stores. By converting these selected Carl's Jr. restaurants, management's strategy is designed to accelerate the development of Boston Chicken stores and achieve a sales and profit shift to surrounding Carl's Jr. locations and eliminate certain underperforming Carl's Jr. restaurants. The Company does not currently anticipate converting any additional Carl's Jr. restaurants to Boston Chicken stores after the initial 10 to 15 conversions are completed. The Company estimates that the initial costs associated with the opening of each new Boston Chicken store will be approximately $800,000. This estimate includes, among other things, leasehold improvements, equipment, opening inventory and supplies, and initial working capital. This estimate does not include any land or additional costs which may be necessary, depending on the location and the nature of each individual site. The costs of converting existing Carl's Jr. restaurants to Boston Chicken stores are estimated to be approximately $600,000 per conversion. 16 19 A shelf registration statement has been filed by CKE Restaurants (which assumes the reincorporation proposal described in the Overview section is completed) covering up to $75 million of debt, convertible debt or preferred stock. The Company is also currently negotiating with its bank to increase the amount available under its credit facility. The Company believes that the cash generated from its operations, along with the $26.1 million of cash, cash equivalents and short-term marketable securities on hand as of January 31, 1994, the $6.8 million of investment securities recently returned to the Company from the State, and a combination of proceeds from possible offerings under the shelf registration statement and additional borrowings from banks or other financial institutions will provide the Company the funds necessary to meet all of its obligations, including the payment of maturing indebtedness and the development of Carl's Jr. restaurants and Boston Chicken stores. IMPACT OF INFLATION Management recognizes that inflation has an impact on food, construction, labor and benefit costs, all of which can significantly affect Company operations. High interest rates can negatively affect lease payments for new restaurants, as well. Historically, the Company has been able to offset the effects of inflation through periodic price increases. However, given the competitive pressures within the quick-service restaurant industry and the recessionary environment, management has emphasized cost controls rather than price increases during fiscal 1994. NEW ACCOUNTING PRONOUNCEMENTS The adoption of Statements of Financial Accounting Standards Nos. 112 and 114, "Employers' Accounting for Postemployment Benefits" and "Accounting by Creditors for Impairment of a Loan," respectively, are not expected to have a material effect on the results of operations or financial condition of the Company. The Company is required to adopt Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity Securities," as of February 1, 1994. SFAS 115 requires the inclusion in income or shareholders' equity of unrealized gains and losses resulting from the fair value accounting of investments in debt and equity securities except for debt securities intended to be held to maturity. The adoption of SFAS 115 is not expected to have a material effect on the Company's financial statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the Index included at "Item 14. Exhibits, Financial Statement Schedules, and Reports of Form 8-K." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 17 20 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information appearing in the "Information Concerning Nominees" section of the Company's Proxy Statement prepared in connection with the Annual Meeting of Shareholders to be held in 1994, to be filed with the Commission within 120 days of January 31, 1994, is hereby incorporated by reference. The executive officers of the Company and Boston Pacific are listed below.
NAME AGE POSITION(S) - - ------------------- --- -------------------------------------------------------------- Donald E. Doyle 47 President and Chief Executive Officer of the Company Rory J. Murphy 46 Senior Vice President, Operations of the Company Loren C. Pannier 52 Senior Vice President, Chief Financial Officer of the Company Kerry W. Coin 46 Senior Vice President and General Manager of Boston Pacific Laurie A. Ball 35 Vice President, Controller of the Company Richard C. Celio 43 Vice President, General Counsel of the Company Karen B. Eadon 40 Vice President, Marketing of the Company James D. Mizes 38 Vice President, Operations of Boston Pacific Roger D. Shively 46 Vice President, Human Resources of the Company
Donald E. Doyle became a Director, President and Chief Executive Officer of the Company in December 1992. Prior to that time, he served as President and Chief Executive Officer of the Greater Louisville Economic Development Partnership. Mr. Doyle was employed by Kentucky Fried Chicken Corporation from 1973 until 1988 in several capacities, including, between 1984 and 1988, President of KFC-USA, the principal operating company for Kentucky Fried Chicken company-owned and franchised restaurants. Rory J. Murphy has been the Senior Vice President, Operations, of the Company for the past two years. He has been employed by the Company in various positions for 15 years. Loren C. Pannier has been the Senior Vice President and Chief Financial Officer of the Company for the past 13 years and has been employed by the Company for 22 years. Kerry W. Coin became Senior Vice President and General Manager of Boston Pacific in February 1994. Mr. Coin joined the Company as Vice President, Strategic Development in February 1993. Prior to joining the Company, he was a principal with A. T. Kearney Inc., a nationally recognized business consulting firm, for five years. While at A. T. Kearney, he was the project leader for two major consulting assignments at the Company. Laurie A. Ball became Vice President, Controller in January 1993, and has been employed by the Company in various positions for more than the past six years. Richard C. Celio joined the Company as Vice President, General Counsel in January 1989. Prior to joining the Company, he was an attorney at law and partner of the law firm of Holden, Fergus & Celio for seven years, a firm which provided various legal services, and acted as General Counsel for the Company. Karen B. Eadon joined the Company as Vice President, Marketing in April 1993. Prior to joining the Company, she was employed at Taco Bell Corporation for eight years, where she held various positions in advertising, product development and most recently as Vice President of Operations Services. James D. Mizes joined Boston Pacific as Vice President, Operations in March 1994. Prior to joining Boston Pacific, he was employed at Taco Bell Corporation for six years, where he held various positions in operations, and most recently was Vice President of Operations Services. Roger D. Shively joined the Company as Vice President, Human Resources in August 1991. Prior to joining the Company, Mr. Shively was employed by Denny's, Inc. for more than seven years in several capacities, including Vice President, Human Resources. 18 21 ITEM 11. EXECUTIVE COMPENSATION. The information appearing in the "Executive Compensation," "Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregate Option Exercises in Fiscal 1994 and Fiscal 1994 Year-End Option Values," "Employment Agreements," "Incentive Compensation Plan," "Transactions with Officers and Directors," "Key Employee Stock Option Plan" and "1993 Employee Stock Incentive Plan" sections of the Company's Proxy Statement prepared in connection with the Annual Meeting of Shareholders to be held in 1994, to be filed with the Commission within 120 days of January 31, 1994, is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information appearing in the "Ownership of the Company's Securities" section of the Company's Proxy Statement prepared in connection with the Annual Meeting of Shareholders to be held in 1994, to be filed with the Commission within 120 days of January 31, 1994, is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information appearing in the "Transactions with Officers and Directors" section of the Company's Proxy Statement prepared in connection with the Annual Meeting of Shareholders to be held in 1994, to be filed with the Commission within 120 days of January 31, 1994, is hereby incorporated by reference. 19 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
PAGE (A)(1) INDEX TO FINANCIAL STATEMENTS: NUMBER ------ Independent Auditors' Report............................................ F-1 Balance Sheets -- as of January 31, 1994 and 1993....................... F-2 Statements of Operations -- for the years ended January 31, 1994, 1993 and 1992................................................................ F-3 Statements of Shareholders' Equity -- for the years ended January 31, 1994, 1993 and 1992................................................................ F-4 Statements of Cash Flows -- for the years ended January 31, 1994, 1993 and 1992................................................................ F-5 Notes to Financial Statements........................................... F-6 (A)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES: Schedule I -- Marketable Securities..................................... S-1 Schedule II -- Amounts Receivable from Related Parties.................. S-2 Schedule V -- Property and Equipment.................................... S-3 Schedule VI -- Accumulated Depreciation and Amortization of Property and Equipment........................................................... S-4 Schedule IX -- Short-term Borrowings.................................... S-5 Schedule X -- Supplementary Income Statement Information................ S-6 All other 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 financial statements and notes hereto. (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: No reports on Form 8-K were filed during the quarter ended January 31, 1994.
20 23 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. CARL KARCHER ENTERPRISES, INC. By /s/ DONALD E. DOYLE Donald E. Doyle President and Chief Executive Officer Date April 29, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - - --------------------------------------------- -------------------------------- --------------- /s/ WILLIAM P. FOLEY II Chairman of the Board April 29, 1994 - - --------------------------------------------- William P. Foley II /s/ DONALD E. DOYLE President and Chief Executive April 29, 1994 - - --------------------------------------------- Officer and Director (Principal Donald E. Doyle Executive Officer) /s/ LOREN C. PANNIER Senior Vice President, April 29, 1994 - - --------------------------------------------- Chief Financial Officer Loren C. Pannier (Principal Financial Officer) /s/ LAURIE A. BALL Vice President, Controller April 29, 1994 - - --------------------------------------------- (Principal Accounting Officer) Laurie A. Ball /s/ PETER CHURM Director April 29, 1994 - - --------------------------------------------- Peter Churm /s/ DANIEL W. HOLDEN Director April 29, 1994 - - --------------------------------------------- Daniel W. Holden /s/ CARL L. KARCHER Director April 29, 1994 - - --------------------------------------------- Carl L. Karcher /s/ CARL N. KARCHER Director April 29, 1994 - - --------------------------------------------- Carl N. Karcher /s/ DANIEL D. (Ron) LANE Director April 29, 1994 - - --------------------------------------------- Daniel D. (Ron) Lane /s/ KENNETH O. OLSEN Director April 29, 1994 - - --------------------------------------------- Kenneth O. Olsen /s/ ELIZABETH A. SANDERS Director April 29, 1994 - - --------------------------------------------- Elizabeth A. Sanders
21 24 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Carl Karcher Enterprises, Inc. We have audited the accompanying financial statements of Carl Karcher Enterprises, Inc. as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules 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 financial statements referred to above present fairly, in all material respects, the financial position of Carl Karcher Enterprises, Inc. as of January 31, 1994 and 1993, and the results of its operations and its cash flows for each of the years in the three-year period ended January 31, 1994 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Note 9 to the financial statements, the Company changed the method used to discount its workers' compensation reserve in fiscal 1994. As discussed in Notes 1 and 16 to the financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in fiscal 1993. KPMG Peat Marwick Orange County, California March 21, 1994 F-1 25 CARL KARCHER ENTERPRISES, INC. BALANCE SHEETS ASSETS
JANUARY 31, --------------------- 1994 1993 -------- -------- (DOLLARS IN THOUSANDS) Current assets: Cash and cash equivalents............................................ $ 17,075 $ 11,505 Marketable securities................................................ 9,064 32,930 Accounts receivable.................................................. 8,956 12,855 Related party receivables............................................ 1,175 1,555 Inventories.......................................................... 7,485 6,383 Restaurant property costs to be reimbursed or sold and leased back... 262 7,427 Deferred tax asset, net.............................................. 15,310 13,690 Other current assets................................................. 10,077 4,217 -------- -------- Total current assets......................................... 69,404 90,562 Property and equipment, net............................................ 113,212 115,064 Property under capital leases, net..................................... 33,608 35,558 Notes receivable....................................................... 16,171 20,543 Related party notes receivable......................................... 1,976 2,514 Other assets........................................................... 7,764 4,683 -------- -------- $242,135 $268,924 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt.................................... $ 13,207 $ 28,467 Obligations secured by marketable securities......................... -- 2,422 Current portion of capital lease obligations......................... 3,354 3,158 Accounts payable..................................................... 13,161 14,531 Other current liabilities............................................ 36,831 36,419 -------- -------- Total current liabilities.................................... 66,553 84,997 -------- -------- Long-term debt......................................................... 17,414 31,742 Capital lease obligations.............................................. 45,886 48,512 Other long-term liabilities............................................ 20,206 18,941 Shareholders' equity: Preferred stock, no par value; authorized 2,000,000 shares; none issued or outstanding............................................. -- -- Common stock, no par value; authorized 22,500,000 shares; issued and outstanding 18,676,587 shares and 18,090,742 shares............... 33,928 28,793 Retained earnings.................................................... 58,148 55,939 -------- -------- Total shareholders' equity................................... 92,076 84,732 -------- -------- $242,135 $268,924 -------- -------- -------- --------
See accompanying notes to financial statements. F-2 26 CARL KARCHER ENTERPRISES, INC. STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 31, ---------------------------------- 1994 1993 1992 -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) Revenues: Sales by Company-operated restaurants.................... $381,733 $414,510 $466,198 Revenues from franchised and licensed restaurants........ 78,635 75,262 60,025 Revenues from other outside parties...................... -- 12,860 14,147 -------- -------- -------- Total revenues...................................... 460,368 502,632 540,370 -------- -------- -------- Operating costs and expenses: Company-operated restaurants: Food and packaging.................................... 115,444 127,148 150,351 Payroll and other employee benefits................... 118,774 141,870 146,759 Occupancy and other operating expenses................ 82,321 93,651 100,949 -------- -------- -------- 316,539 362,669 398,059 Franchised and licensed restaurants...................... 73,551 67,590 52,448 Other outside parties.................................... -- 12,690 13,669 Advertising expenses..................................... 19,104 19,200 19,963 General and administrative expenses...................... 37,666 47,749 36,218 Arbitration settlement................................... 3,000 -- -- -------- -------- -------- Total operating costs and expenses.................. 449,860 509,898 520,357 -------- -------- -------- Operating income (loss).................................... 10,508 (7,266) 20,013 Interest expense........................................... (10,387) (13,630) (16,703) Other income, net.......................................... 6,148 13,592 15,541 -------- -------- -------- Income (loss) before income taxes and cumulative effect of changes in accounting principles......................... 6,269 (7,304) 18,851 Income tax expense (benefit)............................... 1,836 (4,247) 5,813 -------- -------- -------- Income (loss) before cumulative effect of changes in accounting principles.................................... 4,433 (3,057) 13,038 Cumulative effect of changes in accounting principles (net of income tax benefit of $512 in 1994)................... (768) (2,450) -- -------- -------- -------- Net income (loss).......................................... $ 3,665 $ (5,507) $ 13,038 -------- -------- -------- -------- -------- -------- Net income (loss) per common share: Income (loss) before cumulative effect of changes in accounting principles................................. $ .24 $(.17) $.72 Cumulative effect of changes in accounting principles.... (.04) (.14) -- -------- -------- -------- Net income (loss)................................... $ .20 $(.31) $.72 -------- -------- -------- -------- -------- -------- Weighted average shares outstanding........................ 18,567 18,034 18,208 -------- -------- -------- -------- -------- --------
See accompanying notes to financial statements. F-3 27 CARL KARCHER ENTERPRISES, INC. STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK ------------------- TOTAL NUMBER OF RETAINED SHAREHOLDERS' SHARES AMOUNT EARNINGS EQUITY --------- ------- -------- ------------ (IN THOUSANDS EXCEPT PER SHARE DATA) Balance at January 31, 1991........................... 18,017 $27,532 $ 51,286 $ 78,818 Cash dividends ($.08 per share)..................... -- -- (1,433) (1,433) Exercise of stock options........................... 171 1,104 -- 1,104 Tax benefit associated with exercise of stock options.......................................... -- 170 -- 170 Repurchase and retirement of shares................. (270) (2,018) -- (2,018) Net income.......................................... -- -- 13,038 13,038 ------ ------- -------- -------- Balance at January 31, 1992........................... 17,918 26,788 62,891 89,679 Cash dividends ($.08 per share)..................... -- -- (1,445) (1,445) Exercise of stock options........................... 173 1,008 -- 1,008 Tax benefit associated with exercise of stock options.......................................... -- 154 -- 154 Remeasurement of stock options...................... -- 843 -- 843 Net income.......................................... -- -- (5,507) (5,507) ------ ------- -------- -------- Balance at January 31, 1993........................... 18,091 28,793 55,939 84,732 Cash dividends ($.08 per share)..................... -- -- (1,456) (1,456) Exercise of stock options........................... 646 4,366 -- 4,366 Tax benefit associated with exercise of stock options.......................................... -- 1,191 -- 1,191 Repurchase and retirement of shares................. (60) (422) -- (422) Net income.......................................... -- -- 3,665 3,665 ------ ------- -------- -------- Balance at January 31, 1994........................... 18,677 $33,928 $ 58,148 $ 92,076 ------ ------- -------- -------- ------ ------- -------- --------
See accompanying notes to financial statements. F-4 28 CARL KARCHER ENTERPRISES, INC. STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED JANUARY 31, ------------------------------------ 1994 1993 1992 -------- --------- --------- (IN THOUSANDS) Net cash flows from operating activities: Net income (loss)................................................ $ 3,665 $ (5,507) $ 13,038 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Noncash franchise revenue..................................... (151) (488) (605) Depreciation and amortization................................. 22,842 25,161 26,573 Restructuring charge.......................................... -- 11,124 -- Arbitration settlement........................................ 3,000 -- -- (Gain) loss on sale of property and equipment and capital leases....................................................... 613 (451) (4,059) Write-off of accounts and notes receivable.................... 406 -- -- Write-down of marketable securities........................... 213 452 681 Net noncash investment income................................. (63) (328) (1,151) Deferred income taxes......................................... (1,675) (8,226) (2,149) Post-employment benefits...................................... 1,668 -- -- Cumulative effect of changes in accounting principles......... 768 2,450 -- Net change in marketable securities reserve................... (479) 651 (31) Net change in receivables, inventories and other current assets....................................................... 4,257 1,498 1,386 Net change in other assets.................................... (2,699) 160 201 Net change in accounts payable and other current liabilities.................................................. (4,617) (2,285) (716) -------- --------- --------- Net cash provided by operating activities..................... 27,748 24,211 33,168 -------- --------- --------- Cash flows from investing activities: Construction of restaurant property to be reimbursed or sold and leased back............................................... -- (9,422) (12,795) Sale of or reimbursement on restaurant property to be sold and leased back............................................... 487 14,086 11,128 Purchases of: Marketable securities......................................... (12,722) (42,426) (36,772) Property and equipment........................................ (13,865) (9,329) (24,287) Long-term investments......................................... -- (3,054) (4,441) Proceeds from sale of: Marketable securities......................................... 30,177 46,831 44,023 Property and equipment........................................ 490 2,121 1,983 Long-term investments......................................... -- 1,352 8,863 Collections on leases receivable................................. 129 102 269 Collections on notes receivable and related party notes receivable.................................................... 4,824 3,562 5,377 -------- --------- --------- Net cash provided by (used in) investing activities........... 9,520 3,823 (6,652) -------- --------- --------- Cash flows from financing activities: Net change in bank overdraft..................................... 170 2,109 (2,018) Net change in obligations secured by marketable securities and long-term investments..................................... (2,422) (6,197) (1,305) Short-term borrowings............................................ 15,150 123,017 110,000 Repayments of short-term debt.................................... (33,250) (123,917) (109,200) Long-term borrowings............................................. -- 755 220 Repayments of long-term debt..................................... (11,488) (19,890) (9,627) Repayments of capital lease obligations.......................... (2,650) (2,365) (2,212) Net change in other long-term liabilities........................ (887) (682) (2,325) Repurchase and retirement of common stock........................ (422) -- (2,018) Payment of dividends............................................. (1,456) (1,445) (1,433) Exercise of stock options........................................ 4,366 1,008 1,104 Tax benefit associated with the exercise of stock options........ 1,191 154 170 -------- --------- --------- Net cash used in financing activities......................... (31,698) (27,453) (18,644) -------- --------- --------- Net increase in cash and cash equivalents........................ $ 5,570 $ 581 $ 7,872 -------- --------- --------- -------- --------- ---------
See accompanying notes to financial statements. F-5 29 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES A summary of certain significant accounting policies not disclosed elsewhere in the footnotes to the financial statements is set forth below. Fiscal Year -- The Company utilizes a 52-or 53-week accounting period which ends on the last Monday in January each year. The year ended January 31, 1994 was a 53-week year. The years ended January 25, 1993 and January 27, 1992 were 52-week years. For clarity of presentation, the Company has described all periods presented as if the fiscal year ended January 31. Cash Equivalents -- The Company considers short-term investments which have an original maturity of three months or less to be cash equivalents for purposes of reporting cash flows. Inventories -- Inventories are stated at the lower of cost (first-in, first-out) or market. Deferred Pre-opening Costs -- Deferred pre-opening costs consist of the direct and incremental costs associated with the opening of restaurants and are deferred and amortized over the first year a given restaurant is in operation. Such costs include uniforms and promotional costs related to the grand opening of a restaurant. Additionally, these costs include initial food, beverage, supply and direct labor costs associated with the testing of all equipment and recipes, and the simulation of other operational procedures shortly before a restaurant opens. Deferred pre-opening costs also include, if significant, the cost of required training classes for new managers, assistant managers and regional managers; airfare and lodging related to this training; and the salaries of these individuals during their training classes and prior to the opening of their respective Carl's Jr. restaurants or Boston Chicken stores. Such costs, including training, were not significant in the years presented. Since there is not an existing employee base from which to hire Boston Pacific store management and the training related to the opening of Boston Pacific stores is conducted outside of California, these costs are expected to be significant in future years. Investment in Joint Venture -- In fiscal 1994, the Company entered into a joint venture agreement with a Mexican company to operate a Carl's Jr. restaurant in Baja California. The Company owns a 50% interest in this joint venture, which is accounted for by the equity method and is not considered material to the Company's financial statements. Income Taxes -- The Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," effective as of the beginning of fiscal 1993. 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. Prior to fiscal 1993, deferred income taxes were recognized for income and expense items that were reported in different years for financial reporting purposes and income tax purposes using the deferral method. Earnings (Loss) per Share -- Earnings (loss) per share is computed based on the weighted average number of common shares outstanding during the year, after consideration of the dilutive effect of outstanding stock options. The outstanding stock options were not included in the per share computations for fiscal 1993 as the effect would have been antidilutive. For all years presented, primary earnings per share approximate fully diluted earnings per share. Reclassifications -- Certain prior year amounts in the accompanying financial statements have been reclassified to conform to the fiscal 1994 presentation. F-6 30 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2 -- BOSTON PACIFIC, INC. In January 1994, the Company acquired rights to develop, own and operate up to 300 Boston Chicken stores from Boston Chicken, Inc. In consideration for these rights, the Company paid an initial development fee of $1,000,000 and also paid a non-refundable deposit of $1,000,000, which will be applied as a credit ($5,000 per store) towards the Company's obligation to pay $35,000 as an initial franchise fee upon the opening of each Boston Chicken store by the Company. The development fee will be amortized over the five-year life of the development agreement and the franchise fees will be amortized over each individual 15-year franchise agreement. Both amounts were included in other assets as of January 31, 1994. Under the development agreement, the Company is obligated to open a number of Boston Chicken stores according to a specific schedule, commencing on January 15, 1995 and ending on January 15, 1999. The stores will be located in metropolitan Sacramento, the County of San Diego, and nine counties in the greater Los Angeles area. NOTE 3 -- MARKETABLE SECURITIES During fiscal 1994, as part of its strategic program, the Company began liquidating a significant portion of its marketable securities. As such, as of January 31, 1993, all long-term investments were classified as current marketable securities. Marketable securities are stated at the lower of aggregate cost or market value. Market values are based on quoted market prices where available. For marketable securities not actively traded, market values are estimated using values obtained from independent sources. At both January 31, 1994 and 1993, marketable securities were carried at aggregate cost. The aggregate market values as of January 31, 1994 and 1993 were $9,483,000 and $34,364,000, respectively. Gross unrealized gains and unrealized (losses) as of January 31, 1994 were $480,000 and $(61,000), respectively. Marketable securities consist primarily of holdings in investment-grade government debt securities, preferred stock and mutual funds which largely invest in securities issued or guaranteed by the U. S. government. These securities consisted of the following:
1994 1993 ------ ------- (IN THOUSANDS) Adjustable rate preferred stock........................... $ 583 $ 3,885 Fixed rate preferred stock................................ 2,937 13,051 Debt securities........................................... 2,635 9,630 Mutual funds and common stock............................. 2,909 6,364 ------ ------- $9,064 $32,930 ------ ------- ------ -------
Dividend income is recorded on the ex-dividend date and interest income is recorded as earned. Securities transactions are accounted for on the trade date, or the date the order to buy or sell is executed. Realized gains and losses from securities transactions are determined on a specific identification basis. The Company is required to adopt Statement of Financial Accounting Standards No. 115, ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity Securities," as of February 1, 1994. SFAS 115 requires the inclusion in income or shareholders' equity of unrealized gains and losses resulting from the fair value accounting of investments in debt and equity securities except for debt securities intended to be held to maturity. The adoption of SFAS 115 is not expected to have a material effect on the Company's financial statements. F-7 31 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 4 -- ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS Details of accounts receivable and other current assets were as follows:
1994 1993 ------- ------- (IN THOUSANDS) Accounts receivable: Trade receivables...................................... $ 4,885 $ 7,783 Income tax receivable.................................. 2,261 3,231 Notes receivable, current.............................. 1,607 1,665 Other.................................................. 203 176 ------- ------- $ 8,956 $12,855 ------- ------- ------- ------- Other current assets: Cash held in trust..................................... $ 6,776 -- Prepaid expenses and other............................. 3,301 $ 4,217 ------- ------- $10,077 $ 4,217 ------- ------- ------- -------
NOTE 5 -- PROPERTY AND EQUIPMENT Property and equipment is stated at cost less accumulated depreciation and amortization, and was comprised of the following:
ESTIMATED USEFUL LIFE 1994 1993 ----------- -------- -------- (IN THOUSANDS) Land............................................. $ 19,804 $ 14,571 Leasehold improvements........................... 4-25 years 81,875 79,266 Buildings and improvements....................... 7-30 years 27,082 23,566 Equipment, furniture and fixtures................ 3-10 years 116,299 115,713 -------- -------- 245,060 233,116 Less: Accumulated depreciation and amortization................................... 131,848 118,052 -------- -------- $113,212 $115,064 -------- -------- -------- --------
Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. Buildings and improvements and equipment, furniture and fixtures are depreciated on a straight-line basis over the estimated useful lives of these assets. NOTE 6 -- LEASES The Company occupies land and buildings under terms of numerous lease agreements expiring on various dates primarily through 2026. Many of these leases provide for future rent escalations and renewal options. In addition, contingent rentals, determined as a percentage of sales in excess of specified levels, is often stipulated. Most of these leases obligate the Company to pay the costs of maintenance, insurance and property taxes. Property under capital leases was comprised of the following:
1994 1993 ------- ------- (IN THOUSANDS) Buildings................................................ $66,587 $66,336 Less: Accumulated amortization........................... 32,979 30,778 ------- ------- $33,608 $35,558 ------- ------- ------- -------
F-8 32 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) Amortization is calculated on the straight-line method over the shorter of the lease term or estimated useful life of the asset. Minimum lease payments for all leases and the present value of net minimum lease payments for capital leases as of January 31, 1994 were as follows:
FISCAL YEAR CAPITAL OPERATING ----------- -------- --------- (IN THOUSANDS) 1995................................................ $ 8,704 $ 28,489 1996................................................ 8,616 27,744 1997................................................ 8,419 26,951 1998................................................ 8,096 26,023 1999................................................ 7,805 25,195 Thereafter............................................ 54,818 232,447 -------- --------- Total minimum lease payments..................... 96,458 $366,849 --------- --------- Less: Amount representing interest.................... 47,218 -------- Present value of minimum lease payments............... 49,240 Less: Current portion................................. 3,354 -------- Capital lease obligations, excluding current portion........................................ $ 45,886 -------- --------
Total minimum lease payments have not been reduced by minimum sublease rentals of $46,370,000 due in the future under certain operating subleases. The Company has leased and subleased land and buildings to others, primarily as a result of the franchising of certain restaurants. Many of these leases provide for fixed payments with contingent rent when sales exceed certain levels, while others provide for monthly rentals based on a percentage of sales. Lessees generally bear the cost of maintenance, insurance and property taxes. Components of the net investment in leases receivable, included in other assets, were as follows:
1994 1993 ------- ------- (IN THOUSANDS) Net minimum lease payments receivable.................... $11,497 $10,699 Less: Unearned income.................................... 6,433 6,044 ------- ------- Net investment................................. $ 5,064 $ 4,655 ------- ------- ------- -------
Minimum future rentals to be received as of January 31, 1994 were as follows:
CAPITAL OPERATING LEASES OR LESSOR FISCAL YEAR SUBLEASES LEASES ----------- --------- --------- (IN THOUSANDS) 1995............................................... $ 807 $ 235 1996............................................... 803 237 1997............................................... 803 237 1998............................................... 804 237 1999............................................... 809 238 Thereafter........................................... 7,471 2,171 --------- --------- Total minimum future rentals............... $11,497 $ 3,355 --------- --------- --------- ---------
Total minimum future rentals do not include contingent rentals which may be received under certain leases. F-9 33 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) The Company's investment in land under operating leases at January 31, 1994 and 1993 was $1,804,000 and $2,031,000, respectively. Aggregate rents under noncancelable operating leases were as follows:
1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Minimum rentals............................... $28,989 $28,139 $26,087 Contingent rentals............................ 1,583 2,323 2,675 Less: Sublease rentals........................ 4,812 4,688 4,770 ------- ------- ------- $25,760 $25,774 $23,992 ------- ------- ------- ------- ------- -------
NOTE 7 -- OTHER CURRENT LIABILITIES Other current liabilities were comprised of the following:
1994 1993 ------- ------- (IN THOUSANDS) Salaries, wages and other benefits....................... $ 7,754 $ 7,151 Self-insured workers' compensation reserve (see Note 9)..................................................... 7,650 8,673 Other self-insurance reserves............................ 2,638 2,827 Sales tax payable........................................ 2,770 5,729 Restructuring charges (see Note 9)....................... 2,119 4,604 Arbitration settlement and other litigation.............. 3,554 -- Other accrued liabilities................................ 10,346 7,435 ------- ------- $36,831 $36,419 ------- ------- ------- -------
In March 1994, the Company was found liable in a $3,000,000 binding arbitration judgment for alleged breach of contract involving an investor group which had been negotiating for the purchase of several existing Carl's Jr. restaurants. The settlement, payable during fiscal 1995, was accrued in other current liabilities as of January 31, 1994. F-10 34 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 8 -- LONG-TERM DEBT Long-term debt was comprised of the following:
1994 1993 ------- ------- (IN THOUSANDS) Revolving credit line with bank, unsecured............................... -- $18,100 Notes payable: Unsecured note payable to bank, principal payments in specified amounts monthly through 1994, interest at 9.26%............................. $ 6,417 13,417 Secured notes payable to bank, principal payments in specified amounts annually through 1999, interest at 12.95%........................... 6,099 7,597 Secured note payable, principal payments in specified amounts annually through 2000, interest at 13.5%..................................... 6,108 6,812 Secured notes payable to bank, principal payments in specified amounts monthly through 1995, interest based on the prime rate plus .25% beginning in fiscal 1995; interest based on the prime rate plus .25%, not to exceed 14.75% nor less than 10.25% for prior years..... 5,428 5,697 Industrial Revenue Bonds, payable in 1999, variable interest rate averaging 2.37% in fiscal 1994 and 2.66% in fiscal 1993............. 3,600 3,600 Other.................................................................. 2,969 4,986 ------- ------- 30,621 60,209 Less: Current portion.................................................. 13,207 28,467 ------- ------- $17,414 $31,742 ------- ------- ------- -------
Notes payable mature in fiscal years ending after January 31, 1994 as follows:
(IN THOUSANDS) -------------- Fiscal Year: 1995..................... $ 13,207 1996..................... 3,997 1997..................... 2,322 1998..................... 2,039 1999..................... 1,445 Thereafter................. 7,611 -------------- $ 30,621 -------------- --------------
As of January 31, 1994, the Company was not in compliance with certain of the covenants governing its revolving credit line, the $6,417,000 term loan maturing in December 1994, and both of the standby letters of credit expiring in April 1994 related to the Company's workers' compensation program. In March 1994, the Company negotiated with its bank to provide a $15,000,000 credit line through June 1995 under which $12,148,000 will be committed to a single standby letter of credit to satisfy the State's current requirement related to the Company's workers' compensation program. This renegotiation resulted in the elimination of one of the previously issued standby letters of credit, thereby curing any of its related covenant violations. In addition, a waiver of the requirements of the remaining covenant violations was received and more favorable covenants were negotiated in their place that will apply to future measurement periods. Interest on the revolving line will be calculated at the bank's prime rate, which was 6% as of January 31, 1994, or based on the bank's offshore rate, at the option of the Company. Secured notes payable are collateralized by certain restaurant property deeds of trust, with a carrying value at January 31, 1994 of $19,834,000. F-11 35 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 9 -- OTHER LONG-TERM LIABILITIES Other long-term liabilities were as follows:
1994 1993 -------- -------- (IN THOUSANDS) Self-insured workers' compensation reserve............. $ 8,460 $ 6,441 Restructuring charges.................................. 10,105 10,859 Other.................................................. 1,641 1,641 -------- -------- $ 20,206 $ 18,941 -------- -------- -------- --------
A total of $16,110,000 and $15,114,000 was accrued as of January 31, 1994 and 1993, respectively, representing the current and long-term portion of the net present value of an independent actuarial valuation of the Company's workers' compensation claims in both years. These amounts are net of a discount of $1,771,000 and $3,585,000 in fiscal years 1994 and 1993, respectively. The independent actuarial valuation in the fourth quarter of fiscal 1993 resulted in a $5,114,000 increase to the workers' compensation reserve in that year. In the fourth quarter of fiscal 1994, the method used by the Company to discount the actuarial projection of losses to be paid in connection with its existing workers' compensation claims was changed from its incremental borrowing rate to the Company's risk-free interest rate of 5%. The Company accounted for this change as a change in accounting principle, effective as of the beginning of fiscal 1994. The first quarter of fiscal 1994 has been restated, to reflect the cumulative effect of this adoption, which resulted in a decrease in net income of $786,000, which was net of an income tax benefit of $512,000. In prior years, the Company initiated restructuring programs to dispose of or franchise its Arizona and Texas operations. As of January 31, 1994 and 1993, $11,542,000 and $12,630,000, respectively, was accrued for these reserves, including the current portion. These balances were mainly comprised of estimated losses on equipment and estimated lease subsidies. The lease subsidy component of the restructuring charges represents the net present value of the excess of future lease payments over estimated sublease income. The remaining unamortized discount to present value of these lease subsidies at January 31, 1994 was $9,537,000 and will be amortized to operations over the remaining sublease terms, which range up to 22 years. The carrying value of the related equipment represents the net realizable value of these assets at January 31, 1994 and 1993. In fiscal 1993, the Company recognized an $11,124,000 charge related to its strategic initiatives, workforce reductions and certain lease subsidies. Components of this charge were as follows: - Severance and outplacement costs related to the termination of 53 corporate employees in January 1993 amounted to $1,918,000, including an $843,000 noncash charge arising from the extension and remeasurement of stock options to former key management personnel. These terminated employees were identified and the termination plan was approved by the Company's Board of Directors on January 20, 1993. Substantially all of these required severance and outplacements payments were made in fiscal 1994; - The estimate of certain Arizona lease subsidies (part of the restructuring program described above and paid over the remaining lease terms ranging from one to 17 years) was increased $4,855,000 because the Company reduced its sublease rental income projections associated with these restaurants. These projections are based entirely upon the restaurant sales of the franchisees, which have been declining as a result of the continued softness in the Arizona economy; - A total of $2,299,000 of estimated equipment losses and appropriate lease subsidies was recognized related to the closure of certain underperforming restaurants, which should be completed in fiscal 1995. F-12 36 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) The equipment cannot be used in the Company's operations any longer and provides no future utility to the Company. A total of $967,000 remained accrued as of January 31, 1994 related to these losses; and - The elimination of the Company's manufacturing operations, which was largely completed during fiscal 1993, included losses on the disposition of equipment previously used in that operation and severance costs related to the termination of 232 manufacturing employees, and required a $2,052,000 charge in that year. NOTE 10 -- COMMON STOCK In connection with his employment, the Company's President and Chief Executive Officer was awarded 12,121 shares of the Company's common stock valued at $100,000, at a market price of $8.25 per share, on January 6, 1993. These shares vest at a rate of 33 1/3% per year on each of the three anniversaries following the grant date, therefore $33,000 was included in compensation expense during the fiscal year ended January 31, 1994. During the second quarter of fiscal 1994, the Company purchased a total of 59,750 shares from the Carl N. and Margaret M. Karcher Trust for an aggregate purchase price of $422,000. All shares purchased were canceled and retired. NOTE 11 -- FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments have been determined by the Company using appropriate market information and valuation methodologies. Considerable judgment is required to develop the estimates of fair value, thus, the estimates provided herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The carrying values of cash, cash equivalents and financial instruments included in other current assets and other current liabilities approximated their fair values due to the short-term maturities of these instruments. The carrying amounts and fair values of the Company's other financial instruments were as follows:
1994 1993 ----------------- ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ------- ------- ------- ------- (IN THOUSANDS) Financial assets: Marketable securities......................... $ 9,064 $ 9,483 $32,930 $34,364 Notes receivable.............................. 20,000 21,029 25,001 26,998 Financial liabilities: Long-term debt................................ 28,084 27,487 57,646 56,557
The valuation methods and assumptions are summarized as follows: Marketable securities: The fair values of marketable securities were estimated using quoted market prices. Notes receivable: The fair values of notes receivable were estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. Long-term debt: The fair value of long-term debt was estimated using rates currently available to the Company for debt with similar terms and remaining maturities. F-13 37 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 12 -- RELATED PARTY TRANSACTIONS Certain members of the Karcher family are franchisees of the Company. A total of 26 restaurants have been sold to these individuals, none of which occurred during fiscal 1994 or fiscal 1993. As part of these transactions, the Company received cash and accepted $6,480,000 of interest-bearing notes. Additionally, these franchisees regularly purchase food and other products from the Company on the same terms and conditions as other franchisees. Details of amounts outstanding were as follows:
1994 1993 ------ ------ (IN THOUSANDS) 12.0% Secured notes........................................ $ 341 $ 387 12.5% Secured notes........................................ 1,881 2,406 ------ ------ 2,222 2,793 Less: Long-term portion.................................... 1,976 2,514 ------ ------ 246 279 Trade receivables.......................................... 929 1,276 ------ ------ $1,175 $1,555 ------ ------ ------ ------
In fiscal 1991, as part of its Arizona restructuring program, the Company leased six of its Arizona restaurants to a Karcher family member and former officer. The terms of the lease include an option to buy one of these restaurants and require the purchase of the remaining five restaurants, and are subject to ongoing negotiations. A total of $1,143,000 was included in the Arizona restructuring reserve (see Note 9) and remained accrued as of January 31, 1994 in anticipation of future losses to be realized as a result of this transaction. The Company leases various properties, including its corporate headquarters, distribution facility and three of its restaurants, from Carl N. Karcher. Included in capital lease obligations was $5,286,000 and $5,904,000, representing the present value of lease obligations related to these various properties at January 31, 1994 and 1993, respectively. Lease payments under these leases for fiscal 1994, 1993 and 1992 amounted to $1,515,000, $1,612,000, and $1,548,000, respectively. This was net of sublease rentals of $171,000, $64,000 and $63,000 in fiscal 1994, 1993 and 1992, respectively. In November 1993, the Company purchased two restaurants from Carl N. Karcher for an aggregate purchase price of $848,000. A third restaurant site is in escrow, for which the Company has paid a $250,000 deposit. In October 1993, Carl N. Karcher 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 $1,668,000 as of that date. This amount was computed using certain actuarial assumptions, including a discount rate of 7%. A total of $1,652,000 remained accrued in other current liabilities at January 31, 1994. The Company anticipates funding these obligations as they become due. As of January 31, 1993, the Company was a signatory with Carl N. Karcher on a promissory note agreement with an insurance company. The note was payable monthly through March 1993, at an interest rate of 9.25%, and was primarily secured by leased property under capital leases with a net book value of $2,295,000 at January 31, 1993. The agreement contained restrictions on working capital, incurrence of additional debt and leases, and payment of dividends. Carl N. Karcher paid the note on March 2, 1993, releasing the Company from any future obligation or signatory responsibilities. NOTE 13 -- FRANCHISED AND LICENSED OPERATIONS Franchise arrangements, with franchisees who operate in Arizona, California, Nevada, Oregon and Utah, generally provide for initial fees and continuing royalty payments to the Company based upon a percent of F-14 38 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) sales. The Company generally charges an initial franchisee fee for each new franchised restaurant that is added to its system, and in some cases, an area development fee, which grants exclusive rights to develop a specified number of Carl's Jr. restaurants in a designated geographic area. Similar fees are charged in connection with the Company's international licensing operations. These fees are recognized ratably when substantially all the services required of the Company are complete and the restaurants covered by these agreements commence operations. Franchisees may also purchase food, paper and other supplies from the Company. Additionally, franchisees may be obligated to remit lease payments for the use of restaurant facilities owned or leased by the Company, generally for a period of 20 years. Under the terms of these leases they are required to pay related occupancy costs which include maintenance, insurance and property taxes. The Company receives notes from franchisees in connection with the sales of Company-operated restaurants. Generally, these notes bear interest at 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 were comprised of the following:
1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Food service.......................................... $60,979 $57,503 $46,396 Rental income......................................... 10,575 9,601 6,761 Royalties............................................. 6,253 5,517 4,680 Initial fees.......................................... 297 1,095 969 Other................................................. 531 1,546 1,219 ------- ------- ------- $78,635 $75,262 $60,025 ------- ------- ------- ------- ------- -------
Operating costs and expenses for franchised and licensed restaurants were comprised of the following:
1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Food service.......................................... $60,827 $54,947 $43,931 Occupancy and other operating expenses................ 12,724 12,643 8,517 ------- ------- ------- $73,551 $67,590 $52,448 ------- ------- ------- ------- ------- -------
NOTE 14 -- INTEREST EXPENSE Interest expense was comprised of the following:
1994 1993 1992 -------- -------- -------- (IN THOUSANDS) Notes payable and revolving credit lines........... $ (3,472) $ (5,941) $ (7,889) Capital lease obligations.......................... (6,454) (6,809) (7,458) Obligations secured by marketable securities....... (60) (581) (984) Capitalized interest............................... 19 89 234 Other.............................................. (420) (388) (606) -------- -------- -------- $(10,387) $(13,630) $(16,703) -------- -------- -------- -------- -------- --------
F-15 39 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 15 -- OTHER INCOME, NET Other income, net was comprised of the following:
1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Net gains (losses) on sales of restaurants............ $ (162) $ 867 $ 4,767 Gains on sales of investments......................... 2,675 8,839 9,003 Losses on sales of investments........................ (1,325) (3,422) (5,548) Dividend income....................................... 559 2,513 3,388 Interest income....................................... 4,401 5,714 3,931 Other................................................. -- (919) -- ------- ------- ------- $ 6,148 $13,592 $15,541 ------- ------- ------- ------- ------- -------
NOTE 16 -- INCOME TAXES In the fourth quarter of fiscal 1993, the Company adopted SFAS 109. The cumulative effect of this change in accounting principle of $2,450,000 included a $500,000 valuation allowance. Had the Company implemented SFAS 109 in the first quarter of fiscal 1993, net income and earnings per share would have been reduced by $2,450,000 and $.14, respectively. The pro forma effects on net income (loss) by adopting SFAS 109, assuming the adoption was applied retroactively to 1990, would have been to reduce the net loss in fiscal 1993 by $2,450,000, or $.14 per share, and would have been immaterial in fiscal 1992 and fiscal 1991. Income tax expense (benefit) was comprised of the following:
1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Current: Federal............................................. $ 2,327 $ 2,996 $ 5,944 State............................................... 672 983 2,018 ------- ------- ------- 2,999 3,979 7,962 ------- ------- ------- Deferred: Federal............................................. (1,471) (7,422) (2,149) State............................................... (204) (804) -- ------- ------- ------- (1,675) (8,226) (2,149) ------- ------- ------- 1,324 (4,247) 5,813 Tax effect of cumulative effect of change in accounting principle................................ 512 -- -- ------- ------- ------- $ 1,836 $(4,247) $ 5,813 ------- ------- ------- ------- ------- -------
Significant components of the deferred income tax benefit were as follows:
1994 1993 ------- ------- (IN THOUSANDS) Deferred tax benefit (primarily related to the arbitration settlement in 1994 and restructuring charges and increases to the workers' compensation reserve in 1993)..................... $ (850) $(8,181) Increase in targeted jobs tax credit carryforward................ (1,025) (840) Increase in the valuation allowance for the net deferred tax asset.......................................................... 200 795 ------- ------- $(1,675) $(8,226) ------- ------- ------- -------
F-16 40 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) For the year ended January 31, 1992, deferred income taxes resulted from differences in the timing of recognition of revenue and expenses for financial reporting and tax purposes. The sources and tax effects of those timing differences are presented below:
(IN THOUSANDS) Depreciation........................................................... $ (828) Safe harbor leases..................................................... (268) Capital leases......................................................... (411) State income taxes..................................................... (134) Capital losses......................................................... 369 Restructuring accrual.................................................. 267 General liability insurance accrual.................................... (830) Other, net............................................................. (314) ------- $(2,149) ------- -------
A reconciliation of income tax expense (benefit) at the federal statutory rate of 34% to the Company's provision for taxes on income is as follows:
1994 1993 1992 ------ ------- ------ (IN THOUSANDS) Income taxes at statutory rate.......................... $2,131 $(2,483) $6,409 State income taxes, net of federal income tax benefit... 306 (950) 1,332 Dividend exclusion...................................... (161) (475) (667) Targeted jobs tax credits............................... (774) (1,033) (1,190) Remeasurement of stock options.......................... -- 287 -- Increase in the valuation allowance for the net deferred tax asset............................................. 200 795 -- Other, net.............................................. 134 (388) (71) ------ ------- ------ $1,836 $(4,247) $5,813 ------ ------- ------ ------ ------- ------
Temporary differences and carryforwards gave rise to a significant amount of deferred tax assets and liabilities as follows:
1994 1993 ------- ------- (IN THOUSANDS) Deferred tax asset: Restructuring charges.......................................... $ 4,997 $ 7,196 Capitalized leases............................................. 8,449 8,223 Workers' compensation reserve.................................. 6,976 6,544 Targeted jobs tax credit carryforward.......................... 2,137 1,112 Arbitration settlement and other litigation.................... 1,539 -- Other.......................................................... 5,612 5,579 ------- ------- 29,710 28,654 Less: Valuation allowance...................................... 1,495 1,295 ------- ------- Total deferred tax asset............................... 28,215 27,359 ------- ------- Deferred tax liability: Depreciation................................................... 10,210 10,676 Safe harbor leases............................................. 1,461 1,815 Other.......................................................... 1,234 1,178 ------- ------- Total deferred tax liability........................... 12,905 13,669 ------- ------- Net deferred tax asset........................................... $15,310 $13,690 ------- ------- ------- -------
F-17 41 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) Based on the Company's current and historical pre-tax earnings, management believes it is more likely than not that the Company will realize the majority of the benefit of the existing net deferred tax asset as of January 31, 1994. Taxable income generated in prior years is available to offset a portion of the net deferred asset. Recognition of the remaining balance will require generation of future taxable income over the next several years, none of which is concentrated in any given year. There can be no assurance that the Company will generate any earnings or any specific level of earnings in future years. Certain tax planning or other strategies could be implemented, if necessary, to supplement income from operations to fully realize recorded net tax benefits. The Company had targeted jobs tax credit carryforwards of $2,137,000 available at January 31, 1994 which expire in 2007, 2008 and 2009. NOTE 17 -- RETIREMENT PLANS The Company maintains a voluntary contributory profit sharing plan and a savings plan for all eligible employees other than operations hourly employees. The annual profit sharing contribution is determined at the discretion of the Company's Board of Directors and up to 4% of employee savings are matched by the Company. Total Company contributions to this plan for fiscal 1994, 1993 and 1992 were $813,000, $429,000 and $1,263,000, respectively. The Company also maintains a defined benefit pension plan covering substantially all operations employees qualified as to age and service. For fiscal years 1994, 1993 and 1992, pension contributions were $442,000, $348,000 and $228,000, respectively. Under the terms of the defined benefit plan, pension expense is computed based upon an independent actuarial valuation study. Company contributions under this plan are funded quarterly. As of the start of fiscal 1994, the accumulated benefit obligation related to the plan was $1,323,000. NOTE 18 -- STOCK OPTION PLANS The Company's 1993 stock incentive plan was approved by the shareholders in June 1993. Awards granted to employees under this plan are not restricted as to any specified form or structure, with such form, vesting and pricing provisions determined by the Compensation and Stock Option Committee of the Board of Directors. The 1993 plan also provides for the automatic award of stock options to non-employee Directors annually. These options generally have a term of five years, become exercisable at a rate of 33 1/3% per year following the grant date and are priced at an amount equal to or greater than the fair market value at the date of grant. A total of 1,750,000 shares are available for grants of options or other awards under this plan, of which 575,751 stock options were outstanding as of January 31, 1994. The exercise price of options outstanding under this plan ranges from $7.13 per share to $8.13 per share. The Company's 1982 stock option plan expired in September 1992. Under this plan, stock options were granted to key employees to purchase up to 3,000,000 shares of its common stock at a price equal to or greater than the fair market value at the date of grant. The options generally had a term of 10 years from the grant date and become exercisable at a rate of 25%, 35% and 40% per year following the grant date. The exercise price of the 796,883 options outstanding as of January 31, 1994 under this plan ranges from $5.21 per share to $13.38 per share. F-18 42 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) Transactions under both plans were as follows:
NUMBER OF SHARES 1994 1993 1992 -------------------------------------------------- --------- --------- --------- Outstanding at beginning of year.................. 1,554,766 1,840,440 2,103,796 Granted........................................... 579,812 134,230 4,000 Canceled.......................................... (116,349) (247,476) (96,454) Exercised......................................... (645,595) (172,428) (170,902) --------- --------- --------- Outstanding at end of year........................ 1,372,634 1,554,766 1,840,440 --------- --------- --------- --------- --------- --------- Exercisable at end of year........................ 745,310 1,332,136 1,376,685 --------- --------- --------- --------- --------- ---------
NOTE 19 -- SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes was as follows:
1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Interest (net of amount capitalized).................. $10,558 $13,860 $16,478 Income taxes.......................................... 1,675 5,584 7,300
Noncash investing and financing activities for each of the years in the three-year period ended January 31, 1994 were as follows:
1994 1993 1992 ------ ------- ------- (IN THOUSANDS) Noncash investing and financing activities: Transfers of marketable securities to long-term investments....................................... -- -- $ 4,567 Transfers of marketable securities to other current assets............................................ $6,776 -- -- Transfers of long-term investments to marketable securities........................................ -- $ 6,184 5,871 Other investing activities: Net change in marketable securities from noncash transactions.................................... (99) (474) (3,181) Net change in long-term investments from noncash transactions.................................... -- 5 2,036 Net change in dividends receivable................ 36 141 1,130 Net change in obligations secured by marketable securities and long-term investments............ -- -- (1,136) Leasing activities: Capital lessee additions............................. 505 1,048 1,075 Capital lessor activities............................ 538 628 -- Other leasing activities: Decrease in leases receivable..................... -- -- 1,819 Increase in property and equipment................ -- -- (1,924) Decrease in property under capital leases......... 169 671 4,512 Decrease in capital lease obligations............. (285) (1,561) (6,051) Franchising and other disposition activities: Sale of property and equipment....................... 344 7,304 6,893 Sale of inventory.................................... 11 139 183 Increase in notes receivable......................... (551) (7,203) (8,501) Net change in restructuring reserve and other current liabilities....................................... 45 4,698 2,464 Increase in other long-term liabilities.............. -- 4,855 -- Remeasurement of stock options....................... -- 843 -- Sale/leaseback activities: Transfer of restaurant property costs to property and equipment......................................... 6,750 1,553 2,159 Sale/leaseback transaction resulting in an increase to notes receivable............................... -- 1,300 --
F-19 43 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 20 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following table presents summarized quarterly results.
QUARTER 1ST 2ND 3RD 4TH ------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL 1994 Total revenues........................................ $139,915 $108,177 $106,436 $105,840 Operating income...................................... 1,412 4,449 3,519 1,128 Income (loss) before cumulative effect of change in accounting principle................................ 926 2,359 1,606 (458) Cumulative effect of change in accounting principle (net of income tax benefit of $512)................. (768) -- -- -- -------- -------- -------- -------- Net income (loss)........................... $ 158 $ 2,359 $ 1,606 $ (458) -------- -------- -------- -------- -------- -------- -------- -------- Earnings (loss) per common share: Income (loss) before cumulative effect of change in accounting principle............................. $ .05 $.13 $.09 $(.02) Cumulative effect of change in accounting principle........................................ (.04) -- -- -- ----- ---- ---- ----- Net income (loss)........................... $ .01 $.13 $.09 $(.02) ----- ---- ---- ----- ----- ---- ---- ----- FISCAL 1993 Total revenues........................................ $161,606 $119,931 $115,350 $105,745 Operating income (loss)............................... 4,220 3,141 1,950 (16,577) Income (loss) before cumulative effect of change in accounting principle................................ 3,226 3,228 1,253 (10,764) Cumulative effect of change in accounting principle... (2,450) -- -- -- -------- -------- -------- -------- Net income (loss)........................... $ 776 $ 3,228 $ 1,253 $(10,764) -------- -------- -------- -------- -------- -------- -------- -------- Earnings (loss) per common share: Income (loss) before cumulative effect of change in accounting principle............................. $.18 $.18 $.07 $(.60) Cumulative effect of change in accounting principle........................................ (.14) -- -- -- ----- ---- ---- ----- Net income (loss)........................... $.04 $.18 $.07 $(.60) ----- ---- ---- ----- ----- ---- ---- -----
Quarterly operating results are not necessarily representative of operations for a full year for various reasons, including the seasonal nature of the quick-service restaurant industry, unpredictable adverse weather conditions which may affect sales volume and food costs, and the fact that all quarters have 12-week accounting periods, except the first quarters of fiscal years 1994 and 1993, which had 16-week accounting periods, and the fourth quarter of fiscal 1994 which had 13 weeks. The first quarter of fiscal 1994 has been restated to reflect the cumulative effect of a change in accounting principle, related to a change in the method used to discount the workers' compensation reserve. The second and third quarters have been restated to reflect the impact of this adoption. See Note 9. Operating results for the fourth quarter of fiscal 1994 included a $3,000,000 charge in connection with the settlement of an arbitration proceeding (or $1,800,000 net of tax). See Note 7. The first quarter of fiscal 1993 was restated to reflect the adoption of SFAS 109. The impact of the adoption was not material in subsequent quarters. See Note 16. F-20 44 CARL KARCHER ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) Operating results for the fourth quarter of fiscal 1993 included a $9,192,000 charge for the Company's restructuring program and a $5,114,000 charge related to the Company's self-insured workers' compensation reserve (or $5,515,000 and $3,068,000, net of tax, respectively). See Note 9. NOTE 21 -- CONTINGENT LIABILITIES The Company presently self-insures for group insurance, workers' compensation and fire and comprehensive protection on most equipment and certain other assets. In the opinion of management, past experience plus the wide dispersion of restaurants indicates that the Company is assuming a minimal risk by self-insuring and, if any loss should occur, it would not have a material effect on the Company's financial position or results of operations. Subsequent to January 31, 1994, the Company obtained a $12,148,000 standby letter of credit related to its self-insured workers' compensation program, which will expire on June 30, 1995 (see Note 8). The State of California requires that the Company provide this letter of credit each year based on its existing claims experience, or set aside a comparable amount of cash or investment securities in a trust account. The Company's standby letter of credit agreements with various banks expire as follows:
(IN THOUSANDS) August 1994............................ $ 3,852 June 1995.............................. 12,148 April 2000............................. 275 -------- $ 16,275 -------- --------
F-21 45 CARL KARCHER ENTERPRISES, INC. SCHEDULE I -- MARKETABLE SECURITIES
NUMBER OF SHARES COST OF MARKET VALUE CARRYING VALUE OR UNITS EACH ISSUE OF EACH ISSUE OF EACH ISSUE --------- ---------- -------------- -------------- (IN THOUSANDS) January 31, 1994: Preferred stock............................ 174 $3,520 $3,813 $3,520 Debt securities............................ 14 610 836 610 Government debt securities................. 20 2,025 2,019 2,025 Mutual funds and common stock.............. 274 2,909 2,815 2,909 ---------- ------- ------- $9,064 $9,483 $9,064 ---------- ------- ------- ---------- ------- -------
- - ------------------ No individual issue exceeds 2% of assets. S-1 46 CARL KARCHER ENTERPRISES, INC. SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
BALANCE AT DEDUCTIONS BALANCE AT END OF YEAR BEGINNING ------------------------ ----------------------------- OF YEAR ADDITIONS PAYMENTS WRITTEN OFF CURRENT(1)(2) LONG-TERM(2) ---------- --------- -------- ----------- ------------- ------------ (IN THOUSANDS) January 31, 1994: Bernard W. Karcher...... $ 849 $ 3,562 $ (4,199) -- $ 212 $ -- Carl L. Karcher......... 902 6,753 (6,874) -- 404 377 Carl N. Karcher......... 19 115 (134) -- -- -- Franklin J. Karcher..... 1,581 2,581 (2,596) -- 273 1,293 Joseph C. Karcher....... 218 1,324 (1,358) -- 184 -- Gary L. Wiles........... 500 2,305 (2,397) -- 102 306 ------ ------- -------- -------- ------ ------ $4,069 $16,640 $(17,558) -- $1,175 $1,976 ------ ------- -------- -------- ------ ------ ------ ------- -------- -------- ------ ------ January 31, 1993: Bernard W. Karcher...... $ 872 $ 3,221 $ (3,244) -- $ 492 $ 357 Carl L. Karcher......... 911 7,832 (7,841) -- 494 408 Carl N. Karcher......... -- 127 (108) -- 19 -- Franklin J. Karcher..... 1,615 2,692 (2,726) -- 206 1,375 Joseph C. Karcher....... 361 1,199 (1,342) -- 218 -- Gary L. Wiles........... 622 2,368 (2,490) -- 126 374 ------ ------- -------- -------- ------ ------ $4,381 $17,439 $(17,751) -- $1,555 $2,514 ------ ------- -------- -------- ------ ------ ------ ------- -------- -------- ------ ------ January 31, 1992: Bernard W. Karcher...... $ 699 $ 3,123 $ (2,950) -- $ 470 $ 402 Carl L. Karcher......... 2,835 8,952 (10,876) -- 476 435 Franklin J. Karcher..... 1,639 3,060 (3,084) -- 227 1,388 Joseph C. Karcher....... 195 870 (704) -- 361 -- Gary L. Wiles........... 654 2,825 (2,857) -- 194 428 ------ ------- -------- -------- ------ ------ $6,022 $18,830 $(20,471) -- $1,728 $2,653 ------ ------- -------- -------- ------ ------ ------ ------- -------- -------- ------ ------
- - ------------------ (1) Includes accounts receivable, which consists primarily of amounts due from related party franchisees for sales of food and equipment. (2) Related party notes receivable arise primarily from the sales of restaurants to related party franchisees. The terms of these notes range from 60 to 180 months and are due on various dates through 2002. Interest on these notes range from 12.0% to 12.5%. These notes are typically collateralized by the property and equipment sold. S-2 47 CARL KARCHER ENTERPRISES, INC. SCHEDULE V -- PROPERTY AND EQUIPMENT
BALANCE AT BEGINNING ADDITIONS BALANCE AT OF YEAR AT COST RETIREMENTS END OF YEAR --------- --------- ------------ ------------ (DOLLARS IN THOUSANDS) Year Ended January 31, 1994: Land....................................... $ 14,571 $ 6,376 $ 1,143 $ 19,804 Leasehold improvements..................... 79,266 4,765 2,156 81,875 Buildings and improvements................. 23,566 3,567 51 27,082 Equipment, furniture and fixtures.......... 115,713 6,014 5,428 116,299 -------- ------- -------- -------- 233,116 20,722 8,778 245,060 Property under capital leases.............. 66,336 1,296 1,045 66,587 -------- ------- -------- -------- $299,452 $22,018 $ 9,823 $311,647 -------- ------- -------- -------- -------- ------- -------- -------- Year Ended January 31, 1993: Land....................................... $ 14,193 $ 1,228 $ 850 $ 14,571 Leasehold improvements..................... 84,943 1,444 7,121 79,266 Buildings and improvements................. 24,479 500 1,413 23,566 Equipment, furniture and fixtures.......... 126,835 7,076 18,198 115,713 -------- ------- -------- -------- 250,450 10,248 27,582 233,116 Property under capital leases.............. 65,695 2,653 2,012 66,336 -------- ------- -------- -------- $316,145 $12,901 $ 29,594 $299,452 -------- ------- -------- -------- -------- ------- -------- -------- Year Ended January 31, 1992: Land....................................... $ 14,299 $ 1,559 $ 1,665 $ 14,193 Leasehold improvements..................... 81,707 8,067 4,831 84,943 Buildings and improvements................. 19,386 6,197 1,104 24,479 Equipment, furniture and fixtures.......... 120,728 14,660 8,553 126,835 -------- ------- -------- -------- 236,120 30,483 16,153 250,450 Property under capital leases.............. 71,458 1,075 6,838 65,695 -------- ------- -------- -------- $307,578 $31,558 $ 22,991 $316,145 -------- ------- -------- -------- -------- ------- -------- --------
S-3 48 CARL KARCHER ENTERPRISES, INC. SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
BALANCE AT BEGINNING ADDITIONS BALANCE AT OF YEAR AT COST RETIREMENTS END OF YEAR -------- ------- ----------- ----------- (DOLLARS IN THOUSANDS) Year Ended January 31, 1994: Leasehold improvements...................... $ 38,512 $ 6,936 $ 1,469 $ 43,979 Buildings and improvements.................. 7,009 844 51 7,802 Equipment, furniture and fixtures........... 72,531 12,057 4,521 80,067 -------- ------- ----------- ----------- 118,052 19,837 6,041 131,848 Property under capital leases............... 30,778 3,005 804 32,979 -------- ------- ----------- ----------- $148,830 $22,842 $ 6,845 $ 164,827 -------- ------- ----------- ----------- -------- ------- ----------- ----------- Year Ended January 31, 1993: Leasehold improvements...................... $ 34,979 $ 6,889 $ 3,356 $ 38,512 Buildings and improvements.................. 5,784 1,310 85 7,009 Equipment, furniture and fixtures........... 71,349 13,860 12,678 72,531 -------- ------- ----------- ----------- 112,112 22,059 16,119 118,052 Property under capital leases............... 29,017 3,102 1,341 30,778 -------- ------- ----------- ----------- $141,129 $25,161 $17,460 $ 148,830 -------- ------- ----------- ----------- -------- ------- ----------- ----------- Year Ended January 31, 1992: Leasehold improvements...................... $ 28,209 $ 8,042 $ 1,272 $ 34,979 Buildings and improvements.................. 5,044 789 49 5,784 Equipment, furniture and fixtures........... 61,763 14,494 4,908 71,349 -------- ------- ----------- ----------- 95,016 23,325 6,229 112,112 Property under capital leases............... 28,061 3,248 2,292 29,017 -------- ------- ----------- ----------- $123,077 $26,573 $ 8,521 $ 141,129 -------- ------- ----------- ----------- -------- ------- ----------- -----------
S-4 49 CARL KARCHER ENTERPRISES, INC. SCHEDULE IX -- SHORT-TERM BORROWINGS
MAXIMUM AVERAGE WEIGHTED WEIGHTED AMOUNT AMOUNT AVERAGE BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST AT END INTEREST DURING THE DURING THE RATE DURING OF PERIOD(1) RATE PERIOD PERIOD(2) THE PERIOD(3) ------------ -------- ----------- ----------- ------------- (DOLLARS IN THOUSANDS) Year Ended January 31, 1994.............. $ -- --% $ 2,422 $ 296 5.3% ------ --- ------- ------- --- ------ --- ------- ------- --- Year Ended January 31, 1993.............. $2,422 5.6% $19,146 $13,441 4.5% ------ --- ------- ------- --- ------ --- ------- ------- --- Year Ended January 31, 1992.............. $8,619 5.9% $18,717 $12,275 7.3% ------ --- ------- ------- --- ------ --- ------- ------- ---
- - --------------- (1) Amount represents obligations secured by marketable securities and, prior to fiscal 1993, long-term investments. (2) The average amount outstanding during the period was computed by averaging the month-end balances outstanding during the year. (3) The weighted average interest rate during the period was computed by averaging the month-end rates in effect during the period the debt was outstanding. S-5 50 CARL KARCHER ENTERPRISES, INC. SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
CHARGED TO COSTS AND EXPENSES ---------------------------------------------------------- FISCAL YEAR ENDED ---------------------------------------------------------- JANUARY 31, 1994 JANUARY 31, 1993 JANUARY 31, 1992 ---------------- ---------------- ---------------- (DOLLARS IN THOUSANDS) Maintenance and repairs........................ $13,628 $18,816 $19,749
S-6 51 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- CARL KARCHER ENTERPRISES, INC. EXHIBIT INDEX FOR THE YEAR ENDED JANUARY 31, 1994 FORM 10-K EXHIBITS 3-2, 10-77 THROUGH 10-89, 10-91, 10-92, 11-1, 12-1, 23-1 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- 52 EXHIBITS 3-1 Articles of Incorporation of Carl Karcher Enterprises, Inc., and amendments thereto, filed as exhibit 3-1 to the Company's Registration Statement on Form S-1, file No. 2-73695, and is hereby incorporated by reference. 3-2 Bylaws of Carl Karcher Enterprises, Inc. as amended, and amendments thereto, filed as exhibit 3-2 to Amendment No. 3 to the Company's Registration Statement on Form S-1, file No. 2-73695.(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 Agreement of Sale, dated May 17, 1984, filed as exhibit 10-25 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1985, and is hereby incorporated by reference. 10-4 Agreement of Sale, dated May 17, 1984, filed as exhibit 10-26 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1985, and is hereby incorporated by reference. 10-5 Note Purchase Agreement, dated April 2, 1984, filed as exhibit 10-27 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1985, and is hereby incorporated by reference. 10-6 Note Purchase Agreement, dated April 2, 1984, filed as exhibit 10-28 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1985, and is hereby incorporated by reference. 10-7 Note Purchase Agreement, dated January 3, 1985, filed as exhibit 10-29 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1985, and is hereby incorporated by reference. 10-8 Change in Control Agreement by and between Carl Karcher Enterprises, Inc. and Loren C. Pannier, dated June 8, 1988, filed as exhibit 10-48 to the Company's Form 10-K Annual Report for fiscal year ended January 30, 1989, and is hereby incorporated by reference.(2) 10-9 Franchise Development Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-53 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-10 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (13010 Palm Drive), filed as exhibit 10-54 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-11 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (57222 29 Palms Highway), filed as exhibit 10-55 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-12 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (73-125 Highway 111), filed as exhibit 10-56 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference.
E-1 53 10-13 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (68980 Highway 111), filed as exhibit 10-57 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-14 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (81-770 Highway 111), filed as exhibit 10-58 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-15 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (2520 Palm Canyon Drive), filed as exhibit 10-59 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-16 Franchise Agreement dated May 17, 1985 by and between Carl Karcher enterprises, Inc. and Carl Leo Karcher (102 North Sunrise Way), filed as exhibit 10-60 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-17 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (72840 Highway 111), filed as exhibit 10-61 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-18 Sublease dated May 15, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 323/730), filed as exhibit 10-62 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-19 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by Amendment to Sublease dated December 18, 1990 (Unit 447/731), filed as exhibit 10-63 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-20 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 300/729), filed as exhibit 10-64 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-21 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 300/729), filed as exhibit 10-65 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-22 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment to Sublease dated December 18, 1990 (Unit 207/725), filed as exhibit 10-66 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-23 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended (Unit 206/724), filed as exhibit 10-67 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-24 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the First Amendment to Sublease dated April 24, 1987 (Unit 289/728), filed as exhibit 10-68 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference.
E-2 54 10-25 Franchise Agreement dated December 31, 1985 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 456/768), filed as exhibit 10-69 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-26 Land and Building Sublease Agreement dated December 31, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-71 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-27 Franchise Agreement dated January 25, 1986 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 188/769), filed as exhibit 10-72 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-28 Franchise Agreement dated January 25, 1986 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 382/771), filed as exhibit 10-73 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-29 Franchise Agreement dated January 25, 1986 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 342/770), filed as exhibit 10-74 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-30 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc. dated March 3, 1987 (1489 Adams Avenue), filed as exhibit 10-75 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-31 License Agreement dated January 27, 1987 by and between Carl Karcher Enterprises, Inc. and CLK, Inc., as amended by the Amendment to License Agreement dated October 10, 1990, filed as exhibit 10-76 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-32 Continuing Guaranty dated January 27, 1987 executed by Carl Leo Karcher, filed as exhibit 10-77 to, the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-33 Franchise Agreement dated March 3, 1987 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (1489 Adams Avenue), filed as exhibit 10-78 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-34 Franchise Agreement dated July 6, 1987 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Varner Road), filed as exhibit 10-79 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-35 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General Release and Continuing Guaranty each dated October 5, 1987, filed as exhibit 10-80 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-36 Lease Agreement dated September 25, 1987 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment to Lease dated October 19, 1990 (Brawley), filed as exhibit 10-81 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference.
E-3 55 10-37 Sublease Agreement dated September 25, 1987 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Bullhead City), filed as exhibit 10-82 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-38 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 772), filed as exhibit 10-83 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-39 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 482/794), filed as exhibit 10-84 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-40 Franchise Agreement dated October 27, 1987 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 722), filed as exhibit 10-85 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-41 Franchise Agreement dated October 27, 1987 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 794), filed as exhibit 10-86 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-42 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General Release and Continuing Guaranty each dated October 27, 1987 (Brawley), filed as exhibit 10-87 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-43 Franchise Agreement dated June 14, 1988 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Bermuda Dunes), filed as exhibit 10-88 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-44 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General Release and Continuing Guaranty each dated August 1, 1988, filed as exhibit 10-89 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-45 Franchise Agreement dated June 26, 1989 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (I-8 Business Loop), filed as exhibit 10-92 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-46 Assignment of Franchise Agreement and Sublease Agreement by Carl Leo Karcher to CLK, Inc. to CLK, Inc. and Continuing Guaranty each dated August 17, 1989 (Unit 730), filed as exhibit 10-93 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-47 Assignment of Franchise Agreement and Lease Agreement by Carl Leo Karcher to CLK, Inc. dated August 17, 1989 (Unit 726), filed as exhibit 10-94 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-48 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc. dated November 28, 1989 (Rivera, Arizona), filed as exhibit 10-95 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference.
E-4 56 10-49 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc. General Release and Continuing Guaranty each dated January 9, 1990 (I-8 Business Loop), filed as exhibit 10-96 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-50 Conditional Assignment of Lease dated November 7, 1990 between CLK, Inc. and Carl Karcher Enterprises, Inc. (Unit 770), filed as exhibit 10-97 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-51 Conditional Assignment of Lease dated November 7, 1990 between CLK, Inc. and Carl Karcher Enterprises, Inc. (Unit 771), filed as exhibit 10-98 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-52 Franchise Agreement dated November 12, 1990 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 873), filed as exhibit 10-99 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-53 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release and Continuing Guaranty each dated November 13, 1990 (Unit 873), filed as exhibit 10-100 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-54 Conditional Assignment of Lease dated December 18, 1990 by and between CLK, Inc. and Carl Karcher Enterprises, Inc. (Unit 726), filed as exhibit 10-101 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-55 Development Agreement dated March 22, 1991 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-102 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-56 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc. Release and Continuing Guaranty each dated April 5, 1991, filed as exhibit 10-103 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-57 Franchise Development Agreement dated December 15, 1991 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment to Franchise Development Agreement dated December 17, 1991, filed as exhibit 10-104 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-58 Assignment of Franchise Development Agreement by Carl Leo Karcher to CLK, Inc., Release and Continuing Guaranty each dated December 16, 1991, filed as exhibit 10-105 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-59 Franchise Agreement dated December 16, 1991 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 7013/433), filed as exhibit 10-107 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-60 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc. Release and Continuing Guaranty each dated December 16, 1991, filed as exhibit 10-108 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference.
E-5 57 10-61 Sublease Agreement dated December 16, 1991 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the First Amendment to Sublease dated December 24, 1991, filed as exhibit 10-109 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-62 Promissory Note executed by Carl Leo Karcher in favor of Carl Karcher Enterprises, Inc, filed as exhibit 10-110 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-63 Security Agreement dated December 16, 1991 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 7013/433), filed as exhibit 10-111 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-64 Franchise Agreement dated January 10, 1992 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Havasu), filed as exhibit 10-112 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-65 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release and Continuing Guaranty each dated January 10, 1992, filed as exhibit 10-113 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-66 Franchise Agreement dated January 20, 1992 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 7038), filed as exhibit 10-114 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-67 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release and Continuing Guaranty each dated January 20, 1992, filed as exhibit 10-115 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-68 Employment Agreement dated January 14, 1993 by and between Carl Karcher Enterprises, Inc. and Donald E. Doyle, filed as exhibit 10-116 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-69 Addendum to Employment Agreement dated January 14, 1993 by and between Carl Karcher Enterprises, Inc. and Donald E. Doyle, filed as exhibit 10-117 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-70 Employment Agreement dated January 15, 1993 by and between Carl Karcher Enterprises, Inc. and Loren C. Pannier, filed as exhibit 10-118 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-71 Employment Agreement dated January 15, 1993 by and between Carl Karcher Enterprises, Inc. and Rory J. Murphy, filed as exhibit 10-119 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-72 Employment Agreement dated January 15, 1993 by and between Carl Karcher Enterprises, Inc. and Richard C. Celio, filed as exhibit 10-120 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2)
E-6 58 10-73 Employment Agreement dated January 15, 1993 by and between Carl Karcher Enterprises, Inc. and Roger D. Shively, filed as exhibit 10-121 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-74 Employment Agreement dated February 1, 1993 by and between Carl Karcher Enterprises, Inc. and Kerry W. Coin, filed as exhibit 10-122 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-75 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) 10-76 Amendment to Employment Agreement dated May 4, 1993 by and between Carl Karcher Enterprises, Inc. and Donald E. Doyle, filed as exhibit 10-124 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-77 Amended and Restated Credit Agreement dated November 20, 1992, by and between Carl Karcher Enterprises, Inc. and Bank of America National Trust and Savings Association.(1) 10-78 Amendment No. 1 to Amended and Restated Credit Agreement dated April 28, 1993, by and between Carl Karcher Enterprises, Inc. and Bank of America National Trust and Savings Association.(1) 10-79 Amendment No. 2 to Amended and Restated Credit Agreement dated September 27, 1993, by and between Carl Karcher Enterprises, Inc. and Bank of America National Trust and Savings Association.(1) 10-80 Amendment No. 3 to Amended and Restated Credit Agreement dated December 15, 1993, by and between Carl Karcher Enterprises, Inc. and Bank of America National Trust and Savings Association.(1) 10-81 Amendment No. 4 to Amended and Restated Credit Agreement dated January 19, 1994, by and between Carl Karcher Enterprises, Inc. and Bank of America National Trust and Savings Association.(1) 10-82 Amendment No. 5 to Amended and Restated Credit Agreement dated March 15, 1994, by and between Carl Karcher Enterprises, Inc. and Bank of America National Trust and Savings Association.(1) 10-83 Purchase Agreement and Escrow Instructions dated February 8, 1993, by and between Carl Karcher Enterprises, Inc. and the Carl N. and Margaret M. Karcher Trust.(1) 10-84 First Amendment to Purchase Agreement dated November 1, 1993, by and between Carl Karcher Enterprises, Inc. and the Carl N. and Margaret M. Karcher Trust.(1) 10-85 Franchise Agreement dated April 7, 1993, between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 7085).(1) 10-86 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release and Continuing Guaranty, each dated April 7, 1993.(1) 10-87 Restricted Stock Agreement dated January 6, 1993, by and between Carl Karcher Enterprises, Inc. and Donald E. Doyle.(1)(2) 10-88 Employment Agreement dated April 27, 1993, by and between Carl Karcher Enterprises, Inc. and Karen B. Eadon.(1)(2) 10-89 Employment Agreement dated January 1, 1994, by and between Carl Karcher Enterprises, Inc. and Carl N. Karcher.(1)(2)
E-7 59 10-90 Form of Development and Franchise Agreement dated January 14, 1994, by and between Carl Karcher Enterprises, Inc. and Boston Chicken, Inc.(3) 10-91 Addendum No. 1 to Boston Chicken, Inc. Franchise Agreement, by and between Carl Karcher Enterprises, Inc. and Boston Chicken, Inc.(1) 10-92 Addendum No. 1 to Boston Chicken, Inc. Area Development Agreement dated January 14, 1994, by and between Carl Karcher Enterprises, Inc. and Boston Chicken, Inc.(1) 11-1 Computation of Earnings Per Share.(1) 12-1 Computation of Ratios.(1) 23-1 Consent of KPMG Peat Marwick.(1)
- - --------------- (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. (3) Incorporated by reference to Exhibit 99 to Boston Chicken, Inc.'s Registration Statement on Form S-1, file No. 33-69256, filed by Boston Chicken, Inc. on September 22, 1993. E-8 EX-3.2 2 BYLAWS OF CARL KARCHER ENTERPRISES, INC. 1 EXHIBIT 3-2 2 BYLAWS OF CARL KARCHER ENTERPRISES, INC. ARTICLE I OFFICES Section 1. PRINCIPAL OFFICE. The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside the State of California, and the corporation has one or more business offices in the State of California, the board of directors shall likewise fix and designate a principal business office in the State of California. Section 2. OTHER OFFICES. The corporation may also establish offices at such other places, both within and outside the State of California, as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. Section 2. ANNUAL MEETINGS. The annual meeting of shareholders shall be held on the 9th day of June in each year at ten o'clock a.m., or such other date or time as may be fixed by the board of directors; provided, however, that should said day fall upon a legal holiday, such annual meeting of shareholders shall be held at the same time on the next succeeding day which is a full business day. At such meeting, directors shall be elected and any other proper business may be transacted. Section 3. SPECIAL MEETINGS. A special meeting of the shareholders may be called at any time by the board of directors, the chairman of the board, the president, or one or more shareholders holding in the aggregate shares entitled to cast not less than 10% of the votes at any such meeting. If a special meeting is called by anyone other than the board of directors, the request shall be in writing, specifying the time of the meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving such request forthwith shall cause notice to be given to the shareholders entitled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. 1 3 Section 4. NOTICE OF MEETINGS. All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than ten (10) nor more than sixty (60) days before the date of the meeting being noticed. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, management intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the California Corporations Code (the "Code"), (ii) an amendment of the articles of incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall also state the general nature of such proposal. Section 5. MANNER OF GIVING NOTICE. Notice of any meeting of shareholders shall be given personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the shareholder's address appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corp[oration's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the country in which the principal executive office is located. Notice shall be deemed to have been given when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the Untied States Postal Service marked to indicate that the Service is unable to deliver the notice to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder upon written demand at the principal executive office of the corporation for a period of one year from the date of the giving of such notice or report to all other shareholders. An affidavit of the mailing or other means of giving any notice of any shareholders' meeting shall be executed by the secretary, assistant secretary or any transfer agent of the corporation, and shall be filed and maintained in the minute book of the corporation. Section 6. QUORUM. Unless otherwise provided in the articles of incorporation, the presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of shareholders shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 2 4 Section 7. ADJOURNMENT. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares represented at such meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at such meeting, except as provided in Section 6 of this Article II. When any meeting of shareholders, annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at a meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than forty-five (45) days from the date set for the original meeting, in which case the board of directors shall set a new record date. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 4 and 5 of this Article II. At any adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. Section 8. VOTING. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section II of this Article II, subject to the provisions of Sections 702 to 704, inclusive, of the Code (relating to voting shares held by a fiduciary, in the name of a corporation or in the names of two or more persons). The vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by a shareholder at the meeting and before the voting begins. Any shareholder entitled to vote on any matter (other than elections of directors) may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number of voting by classes is required by the Code or the articles of incorporation. At a shareholders' meeting involving the election of directors, no shareholder shall be entitled to cumulate votes on behalf of any candidate for director (i.e., each shareholder shall be entitled to cast for any one or more candidates no greater number of votes than the number of shares held by such shareholder) unless such candidate or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice prior to the voting of the shareholder's intention to cumulate votes. If any shareholder has given such notice, every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected. Section 9. WAIVER OF NOTICE: CONSENT. The transactions of any meeting of shareholders, annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice, or a consent to a holding of the meeting, or an approval of the minutes thereof. The waiver of notice or consent need not specify either the business to be transacted for the purpose of any 3 5 annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of the proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall also constitute a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meetings is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of such meeting if such objection is expressly made at the meeting. Section 10. ACTION WITHOUT MEETING. Unless otherwise provided in the articles of incorporation, any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. In the case of election of directors, such consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided, however, that a director may be elected at any time to fill a vacancy on the board of directors not filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holder, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary. Unless the consents of all shareholders entitled to vote have been solicited in writing, the secretary shall give prompt notice of any corporate action approved by the shareholders without a meeting by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. Such notice shall be given in the manner specified in Section 5 of this Article II. In the case of approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of agents of the corporation, pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, or (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, such notice shall be given at least ten (10) days before the consummation of the action authorized by any such approval. Section 11. RECORD DATE. For purposes of determining the shareholders entitled to notice of any meeting or to vote or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days prior to the date of the meeting nor more than sixty (60) days prior to the action without a meeting, and in such case only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the California General Corporation Law. 4 6 If the board of directors does not so fix a record date: (a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. Section 12. PROXIES. Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, prior to the vote pursuant thereto, by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of the proxy is received by the corporation before the vote pursuant thereto is counted; provided, however, that no such proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provision of Section 705(e) and (f) of the Code. Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders, the board of directors may appoint any persons (other than nominees for office) to act as inspectors of election at the meeting or any adjournments thereof. If inspectors of election are not so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to replace the one who so failed or refused. If there are three (3) inspectors of election, the decision, act or certificate of a majority of them is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. ARTICLE III DIRECTORS Section 1. POWERS. Subject to the provisions of the California General Corporation Law and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and 5 7 affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. Section 2. The authorized number of directors shall be seven (7) until changed by an amendment to the Articles of Incorporation or, if permitted by applicable law and the Articles of Incorporation, upon amendment to this ByLaw, duly adopted by the vote or written consent of a majority of directors of the corporation or by majority of the outstanding shares entitled to vote. Section 3. ELECTION AND TERM OF OFFICE. Directors shall be elected at each annual meeting of the shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. Section 4. REMOVAL. Any or all of the directors may be removed by order of court pursuant to Section 304 of the Code, or by the shareholders pursuant to the provisions of Section 303 of the Code. Section 5. VACANCIES. Vacancies in the board of directors may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of holders of a majority of the outstanding shares entitled to vote. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the board of directors shall be deemed to exist in the case of the death, resignation or removal of any director, or if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or who has been convicted of a felony, or if the authorized number of directors is increased, or if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be voted for at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective upon giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his or her term of office. Section 6. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular meetings of the board of directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board shall be held at any place within or outside the 6 8 State of California that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating can hear one another, and all such directors shall be deemed to be present in person at such meeting. Section 7. REGULAR MEETINGS. Immediately following each annual meeting of shareholders, the board of directors shall hold a regular meeting for the purpose of organization, any desired election of officers and the transaction of other business. Other regular meetings of the board of directors shall be held without call at such time as shall from time to time be fixed by the board of directors. Notice of regular meetings shall not be required. Section 8. SPECIAL MEETINGS. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board or the president or any vice president or the secretary or any two directors. Notice of the time and place of special meetings shall be delivered to each director personally or by telephone or sent by first-class mail or telegram, charges prepaid, addressed to each director at his or her address as it is shown on the records of the corporation. In case the notice is mailed, it shall be deposited in the Untied States mail at least four (4) days prior to the time of the holding of the meeting. In case such notice is delivered personally or by telephone or telegraph, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours prior to the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation. Section 9. QUORUM. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Code (approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (appointment of committees), and Section 317(e) of the code (indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the require quorum for such meeting. Section 10. WAIVER OF NOTICE: CONSENT. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes thereof. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to that director. 7 9 Section 11. ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of such time and place shall be given prior to the time of the adjourned meeting, in the manner specified in Section 8 of this Article III, to the directors who were not present at the time of the adjournment. Section 12. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the board of directors may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to such action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. The written consent or consents shall be filed with the minutes of the proceedings of the board. Section 13. FEES AND COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement of expenses, as may be fixed or determined by resolution of the board of directors. Nothing contained herein shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for such service. ARTICLE IV COMMITTEES Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the board, may have all the authority of the board, except with respect to: (a) the approval of any action which, under the California General Corporation Law, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the board of directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or on any committee; (d) the amendment or repeal of bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members thereof. Section 2. MEETINGS AND ACTION. Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these 8 10 bylaws, Sections 6 (place of meetings and meetings by telephone), 7 (regular meetings), 8 (special meetings), 9 (quorum), 10 (waiver of notice), 11 (adjournment) and 12 (action without meeting), with such changes in the context of those bylaws as are necessary to constitute the committee and its members for the board of directors and its members, except that the time of regular meetings of committees may be determined by resolution of the board of directors as well as the committee; special meetings of committees may also be called by resolution of the board of directors; and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. Any number of offices may be held by the same person. Section 2. ELECTION. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article V, shall be chosen by the board of directors, and each shall serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. Section 3. OTHER OFFICERS. The board of directors may appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the board of directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION. Subject to the rights, if any, of any officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any such resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Section 5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to him or her by the board of directors or prescribed by the bylaws. If there is no president, the chairman of the board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V. 9 11 Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and the officers of the corporation. He or she shall preside at all meetings of the shareholders and, in the absence of the chairman of the board, or if there be none, at all meetings of the board of directors. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or the bylaws. Section 8. VICE PRESIDENTS. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors, or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the bylaws and the president or the chairman of the board. Section 9. SECRETARY. The secretary shall keep, or cause to be kept, at the principal executive office or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' and committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholder and of the board of directors required by the bylaws or by law to be given, and he or she shall keep the seal of the corporation, if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by the bylaws. Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit, or cause to be deposited, all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He or she shall disburse, or cause to be disbursed, the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all financial transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or the bylaws. 10 12 ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS Section 1. INDEMNIFICATION. The corporation may, to the maximum extent permitted by the California General Corporation Law, indemnify each of its agents against expenses, judgements, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that any such person is or was an agent of the corporation. For purposes of this Article VI, an "agent" of the corporation includes any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. Section 2. ADVANCE OF EXPENSES. Expenses incurred in defending any proceeding may be advanced by this corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the agent to repay such amount unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article. Section 3. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article shall affect any right to indemnification to which persons other than directors and officers of this corporation or any subsidiary hereof may be entitled by contract or otherwise. Section 4. INSURANCE. Upon and in the event of a determination by the board of directors of this corporation to purchase such insurance, this corporation shall purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this corporation would have the power to indemnify the agent against such liability. ARTICLE VII RECORDS AND REPORTS Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation may (i) inspect and copy the records of shareholders' names and addresses and shareholdings during usual business hours upon five (5) days' prior written demand upon the corporation, or (ii) obtain from the transfer agent of the corporation, upon written demand and upon the tender of the transfer agent's usual charges for such list, a list of the shareholders' names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which such list has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available to that shareholder on or before the later of five (5) days after the demand is received or the date specified therein as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any time 11 13 during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section may be made in person or as an agent or attorney of the shareholder or holder of a voting trust certificate making such demand. Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall keep at its principal executive office, or if its principal executive office is not in the State of California,at its principal business office in that State, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in that State, the secretary shall, upon the written request of any shareholder, furnish to such shareholder a copy of the bylaws as amended to date. Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The Accounting books and records and minutes of proceedings of the shareholders and the board of directors and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors, or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. Such minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. The foregoing rights of inspection shall extend to the records of each subsidiary of the corporation. Section 4. INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect all books, records and documents of every kind and the physical properties of the corporation and each subsidiary corporation. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. Section 5. ANNUAL REPORTS. The Board of Directors of the corporation shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year, provided that such report shall in any event be sent to shareholders at least fifteen (15) (or, if sent by third-class mail, thirty-five (35) days prior to the annual meeting of shareholders to be held during the next fiscal year. Such report shall contain a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year and shall be accompanied by any report thereon of independent accountants. Such report shall also contain any additional matters required by Section 1501(b) of the General Corporation Law, the Securities Exchange Act of 1934 and other applicable laws. Section 6. FINANCIAL STATEMENTS. A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for twelve (12) months and each such statement shall be exhibited at all reasonable times to any shareholder demanding examination of any such statement or a copy shall be mailed to any such shareholder. 12 14 If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty (30) days prior to the date of the request, and a balance sheet of the corporation as of the end of such period, the chief financial officer shall cause such statement or statements to be prepared, if not already prepared, and shall deliver personally or mail such statement or statements to the person making the request within thirty (30) days after the receipt of such request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, this report shall likewise be delivered or mailed to such shareholder or shareholders within thirty (30) days after such request. The corporation also shall, upon the written request of any shareholder, mail to the shareholder a copy of the last annual, semi-annual or quarterly income statement which it has prepared and a balance sheet as of the end of such period. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report thereon, if any, of any independent accounts engaged by the corporation or the certificate of an authorized officer of the corporation that such financial statements were prepared without audit from the books and records of the corporation. ARTICLE VIII GENERAL MATTERS Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days prior to any such action, and in such case only shareholders of record on the date so fixed are entitled to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the California General Corporation Law. If the board of directors does not so fix a record date for determining shareholders for any such propose shall be at the close of business on the date on which the board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such action, whichever is later. Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors. Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of an on behalf of the corporation, and such authority may be general or confined to specific instances; and, unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for 13 15 any purpose or for any amount. Section 4. CERTIFICATES FOR SHARES. A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any such shares are fully paid and the board of directors may authorize the issuance of certificates or shares as partly paid provided that such certificates shall state the amount of the consideration to be paid therefor and the amount paid thereon. All certificates shall be signed in the name of the corporation by the chairman of the board or vice chairman of the board or the president or vice president and by the chief financial officer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. Section 5. LOST CERTIFICATES. Except as hereinafter in this Section provided, no new certificates for shares shall be issued in lieu of an old certificate unless the latter is surrendered to the corporation and cancelled. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions as the board may require, including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or lability, on account of the alleged loss, theft or destruction of such certificate or the issuance of replacement certificate. Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the board, the president, or any vice president, or any other person authorized by resolution of the board of directors or by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority granted to said officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corporations may be exercised by any such officer in person or by any person authorized to do so by proxy duly executed by said officer. Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the California General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of the foregoing, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. All references in these bylaws to the California General Corporation Law or to sections of the Code shall be deemed to be such Law or sections as they may be amended and in effect and, if renumbered, to such renumbered provisions at the time of any action taken under the bylaws. ARTICLE IX AMENDMENTS Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the 14 16 corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation. Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders to adopt, amend or repeal bylaws as provided in Section 1 of this Article IX, bylaws may be adopted, amended or repealed by the board of directors. 15 17 CERTIFICATE OF AMENDMENT OF BYLAWS OF CARL KARCHER ENTERPRISES, INC. a California corporation The undersigned, Daniel W. Holden, certifies as follows: 1. He is the duly elected and acting Secretary of Carl Karcher Enterprises, Inc., a California corporation (Corporation). 2. Article V, Section 1. of the ByLaws of the Corporation is hereby amended to read as follows: "Section 1. The officers of the Corporation shall be a Chairman of the Board, President, Chief Financial Officer, Executive Vice President, Group Vice President(s), Treasurer, Corporate Counsel and Secretary. Notwithstanding the above, any Vice-President who held a vice-presidential position existing prior to June 30, 1988, shall be an officer of the corporation until such Vice President vacates said vice-presidential position. 3. The foregoing amendment of the ByLaws has been duly approved by the Board of Directors of the Corporation. I declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of my own knowledge. Dated: September 28, 1990. /s/ DANIEL W. HOLDEN ___________________________ Daniel W. Holden, Secretary 18 CERTIFICATE OF AMENDMENT OF BYLAWS OF CARL KARCHER ENTERPRISES, INC. a California corporation The undersigned, Daniel W. Holden, certifies as follows: 1. He is the duly elected and acting Secretary of Carl Karcher Enterprises, Inc., a California corporation (Corporation). 2. Article V, Section 1. of the ByLaws of the Corporation is hereby amended to read as follows: "Section 1. The officers of the Corporation shall be the President and Chief Executive Officer, Chief Financial Officer, Senior Vice Presidents, General Counsel, Controller, Vice President Strategic Development, Vice President Human Resources, Vice President Marketing, and Secretary." 3. The foregoing amendment of the ByLaws has been duly approved by the Board of Directors of the Corporation. I declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of my own knowledge. Dated: April 7, 1993 /s/ DANIEL W. HOLDEN ___________________________ Daniel W. Holden, Secretary 19 CERTIFICATE OF AMENDMENT OF BYLAWS OF CARL KARCHER ENTERPRISES, INC. a California corporation The undersigned, Daniel W. Holden, certifies as follows: 1. He is the duly elected and acting Secretary of Carl Karcher Enterprises, Inc., a California corporation (Corporation). 2. Article V, Section 1. of the ByLaws of the Corporation is hereby amended to read as follows: "Section 1. The officers of the Corporation shall be the Chairman of the Board, President and Chief Executive Officer, Chief Financial Officer, Senior Vice Presidents, Vice President/General Counsel, Vice President/Controller, Vice President Systems & Technology, Vice President Human Resources, Vice President Marketing, and Secretary." 3. The foregoing amendment of the ByLaws has been duly approved by the Board of Directors of the Corporation. I declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of my own knowledge. Dated: May 7, 1993 /s/ DANIEL W. HOLDEN ___________________________ Daniel W. Holden, Secretary 20 CERTIFICATE OF AMENDMENT OF BYLAWS OF CARL KARCHER ENTERPRISES, INC. a California corporation The undersigned, Daniel W. Holden, certifies as follows: 1. He is the duly elected and acting Secretary of Carl Karcher Enterprises, Inc., a California corporation (Corporation). 2. Article V, Section 1. of the ByLaws of the Corporation is hereby amended to read as follows: "Section 1. The officers of the Corporation shall be the Chairman of the board, President and Chief Executive Officer, Chief Financial Officer, Senior Vice Presidents, General Counsel, Controller, Vice President Strategic Development, Vice President Human Resources, Vice President Marketing, and Secretary." 3. The foregoing amendment of the ByLaws has been duly approved by the Board of Directors of the Corporation. I declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of my own knowledge. Dated: July 28, 1993 /s/ DANIEL W. HOLDEN ___________________________ Daniel W. Holden, Secretary EX-10.77 3 AMENDED AND RESTATED CREDIT AGREEMENT-11/20/92 1 Exhibit 10-77 2 AMENDED AND RESTATED CREDIT AGREEMENT This Amended and Restated Credit Agreement dated as of 11/20, 1992, is between Bank of America National Trust and Savings Association (the "Bank") and Carl Karcher Enterprises, Inc. (the "Borrower"). Recitals Whereas, Bank and Borrower have entered into that certain Credit Agreement dated as of December 15, 1989, as amended (collectively, the Agreement"); and Whereas, Bank and Borrower desire to amend and restate in its entirety the terms and provisions of the Agreement as herein provided. Agreed Now, Therefore, in consideration of the foregoing recitals, Borrower and Bank mutually agree to amend and restate in its entirety the Agreement as follows: 1. LINE OF CREDIT AMOUNT 1.1 Line of Credit Amount. (a) During the availability period described below, the Bank will provide a line of credit to the Borrower. The initial amount of the line of credit (the "Commitment") is Thirty Million Dollars ($30,000,000); provided however, that on the first day of each calendar month following each fiscal quarter ("Commitment Reduction Date") set forth below the Commitment shall be reduced to the amount shown opposite such date.
Commitment Commitment Reduction Date Reduced to: -------------- ----------- February 1, 1993 $29,000,000 June 1, 1993 $28,000,000 September 1, 1993 $27,000,000 December 1, 1993 $26,000,000 February 1, 1994 $25,000,000 June 1, 1994 $24,000,000
(b) This is a revolving line of credit with a within line facility for letters of credit. During the availability period, the Borrower may repay principal amounts and reborrow them. (17110.02)wsd/10/29/92 1672.FIN - 1 - 3 (c) Each advance must be for at least One Hundred Thousand Dollars ($100,000), or for the amount of the remaining available line of credit, if less. (d) The Borrower agrees not to permit at any time the outstanding principal balance of the line of credit plus the outstanding amounts of any letters of credit, including amounts drawn on letters of credit and not yet reimbursed to exceed the Commitment. If such outstandings exceed the Commitment, the Borrower will immediately pay the excess to the Bank upon the Bank's demand. 1.2 Availability Period. The line of credit is available between the date of this Agreement and June 30, 1994 (the "Expiration Date") unless the Borrower is in default. 1.3 Interest Rate (a) Unless the Borrower elects an optional interest rate as described below, the interest rate is the Bank's Reference Rate plus .25 percentage points. (b) The Reference Rate is the rate of interest publicly announced from time to time by the Bank in San Francisco, California, as its Reference Rate. The Reference Rate is set by the Bank based on various factors, including the Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank man price loans to its customers at, above, or below the Reference Rate. Any change in the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank's Reference Rate. 1.4 Repayment Terms (a) The Borrower will pay interest on January 1, 1993, and then monthly thereafter until payment in full of any principal outstanding under this line of credit. (b) The Borrow will repay in full all principal and any unpaid interest or other charges outstanding under this line of credit no later than the Expiration Date. Any amount bearing interest at an optional interest (as described below) may be repaid at the end of the applicable interest period, which shall be no later than the Expiration Date. (17110.02)wsd/10/29/92 1672.FIN - 2 - 4 1.5 Optional Interest Rates. Instead of the interest rate based on the Bank's Reference Rate, the Borrower may elect to have all or portions of the line of credit (during the availability period) bear interest at the rate described below during an interest period agreed to by the Bank and the Borrower. Each interest rate is a rate per year. Interest will be paid on the first day of every month and on the last day of each interest period. At the end of any interest period, the interest rate will revert to the rate based on the Reference Rate, unless the Borrower has designated another optional interest rate for the portion. 1.6 Offshore Rate. The Borrower may elect to have all or portions of the principal balance of the line of credit bear interest at the greater of (i) Offshore Rate plus 1.50 percentage points and (ii) the sum of the Reference Rate plus .25 percentage points, minus .75 percentage points. Designation of an Offshore Rate portion is subject to the following requirements: (a) The interest period during which the Offshore Rate will be in effect will be no shorter than 30 days and no longer than six months. The last day of the interest period will be determined by the Bank using the practices of the offshore dollar inter-bank market. (b) Each Offshore Rate portion will be for an amount not less than Five Hundred Thousand Dollars ($500,000). (c) The "Offshore Rate" means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the calculation will be determined by the Bank as of the first day of the interest period.) Offshore Rate = Grand Cayman Rate (1.00 - Reserve Percentage) Where, (i) "Grand Cayman Rate" means the interest rate (rounded upward to the nearest 1/16th of one percent) at which the Bank's Grand Cayman Branch, Grand Cayman, British West Indies, would offer U.S. dollar deposits for the applicable interest period to other major banks in the offshore dollar inter-bank market. (ii) "Reserve Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined (17110.02)wsd/10/29/92 1672.FIN - 3 - 5 in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages. (d) The Borrower may not elect an Offshore Rate with respect to any portion of the principal balance of the line of credit which is scheduled to be repaid before the last day of the applicable interest period. (e) Any portion of the principal balance of the line of credit already bearing interest at the Offshore Rate will not be converted to a different rate during its interest period. (f) Each prepayment of an Offshore Rate portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid, and a prepayment fee equal to the amount (if any) by which (i) the additional interest which would have been payable on the amount prepaid had it not been paid until the last day of the interest period, exceeds (ii) the interest which would have been recoverable by the Bank by placing the amount prepaid on deposit in the offshore dollar market for a period starting on the date on which it was prepaid and ending on the last day of the interest period for such portion. (g) The Bank will have no obligation to accept an election for an Offshore Rate portion if any of the following described events has occurred and is continuing (i) Dollar deposits in the principal amount, and for periods equal to the interest period, of an Offshore Rate portion are not available in the offshore Dollar inter-bank market; or (ii) the Offshore Rate does not accurately reflect the cost of an Offshore Rate portion. 1.7 Letters of Credit. This line of credit may be used for financing standby letters of credit with a maximum maturity of 365 days but not to extend more than 180 days beyond the Expiration Date. The amount of letters of credit outstanding at any one time (including amounts drawn on letters of credit and not yet reimbursed) may not exceed Five Hundred Thousand Dollars ($500,000). (17110.02)wsd/10/29/92 1672.FIN - 4 - 6 The Borrower agrees: (a) any sum drawn under a letter of credit may, at the option of the Bank, be added to the principal amount outstanding under this Agreement. The amount will bear interest and be due as described elsewhere in this Agreement. (b) if there is a default under this Agreement, to immediately prepay and make the Bank whole for any outstanding letters of credit. (c) the issuance of any letter of credit and any amendment to a letter of credit is subject to the Bank's written approval and must be in form and content satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank. (d) to sign the Bank's form Application and Agreement for Standby Letter of Credit. (e) to pay any issuance and/or other fees that the Bank notifies the Borrower will be charged for issuing and processing letters of credit for the Borrower. (f) to allow the Bank to automatically charge its checking account for applicable fees, discounts, and other charges. (g) if the line of credit is terminated for any reason, Borrower will immediately deliver to the Bank as collateral, cash or cash equivalents acceptable to the Bank, in the amount of all outstanding letters of credit (including amounts drawn on letters of credit and not yet reimbursed), together with such security agreements as Bank may require. 2. FEES AND EXPENSES 2.1 Waiver Fee. If the Bank, at its discretion, agrees to waive or amend any terms of this Agreement, then the Borrower will pay the Bank a fee for each waiver or amendment. Nothing in this paragraph shall imply that the Bank is obligated to agree to any waiver or amendment requested by the Borrower. The Bank may impose additional requirements as a condition to any waiver or amendment. 2.2 Expenses. (a) The Borrower agrees to reimburse the Bank for any expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement. (17110.02)wsd/10/29/92 1672.FIN - 5 - 7 Expenses include, but are not limited to, reasonable attorneys' fees, including any allocated costs of the Bank's in-house counsel. 3. DISBURSEMENTS, PAYMENTS AND COSTS 3.1 Requests for Credit. Each request for an extension of credit will be made in writing in a manner acceptable to the Bank, or by another means acceptable to the Bank. 3.2 Disbursements and Payments. Each disbursement by the Bank and each payment by the Borrower will be: (a) made at the Bank's branch (or other location) selected by the Bank from time to time; (b) made for the account of the Bank's branch selected by the Bank from time to time; (c) made in immediately available funds, or such other type of funds selected by the Bank; (d) evidenced by records kept by the Bank. In addition, the Bank may, at its discretion, require the Borrower to sign one or more promissory notes. 3.3 Telephone Authorization (a) The Bank may honor telephone instructions for advances or repayments or for the designation of optional interest rates given by any one of the individual signer(s) of this Agreement or a person or persons authorized by any one of the signer(s) of this Agreement. (b) Advances will be deposited in and repayments will be withdrawn from the Borrower's account number 14585-20411, or such other accounts with the Bank as designated in writing by the Borrower. (c) The Borrower indemnifies and excuses the Bank (including its officers, employees, and agents) from all liability, loss, and costs in connection with any act resulting from telephone instructions it reasonably believes are made by a signer of this Agreement or a person authorized by a signer. This indemnity and excuse will survive this Agreement's termination. (17110.02)wsd/10/29/92 1672.FIN - 6 - 8 3.4 Direct Debit (Pre-Billing). (a) The Borrower agrees that the Bank will debit the Borrower's deposit account number 14585-20411 (the "Designated Account") on the date each payment of principal and interest from the Borrower becomes due (the "Due Date"). If the Due Date is not a banking day, the Designated Account will be debited on the next banking day. (b) Approximately 5 days prior to each Due Date, the Bank will mail to the Borrower a statement of the amounts of principal and interest that will be due on that Due Date (the "Billed Amount"). The calculation will be made on the assumption that no new extensions of credit or payments will be made between the date of the billing statement and the Due Date, and that there will be no changes in the applicable interest rate. (c) The Bank will debit the Designated Account for the Billed Amount, regardless of the actual amount of principal due and interest accrued (collectively, the "Accrued Amount"). If the Billed Amount debited to the Designated Account differs from the Accrued Amount, the discrepancy will be treated as follows: (i) If the Billed Amount is less than the Accrued Amount, the Billed Amount for the following Due Date will be increased by the amount of the discrepancy. The Borrower will not be in default by reason of any such discrepancy. (ii) If the Billed Amount is more than the Accrued Amount, the Billed Amount for the following Due Date will be decreased by the amount of the discrepancy. Regardless of any such discrepancy, interest will continue to accrue based on the actual amount of principal outstanding without compounding. The Bank will not pay the Borrower interest on any overpayment. (d) The Borrower will maintain sufficient funds in the Designated Account to cover each debit. If there are insufficient funds in the Designate Account on the date the Bank enters any debit authorized by this Agreement, the debit will be reversed. 3.5 Banking Days. Unless otherwise provided in this Agreement, a banking day is a day other than a Saturday or a Sunday on which the Bank is open for business in California. For amounts bearing interest at an offshore rate (if any), a banking day is a day other than a Saturday or a Sunday on which the Bank is open for (17110.02)wsd/10/29/92 1672.FIN - 7 - 9 business in California and dealing in offshore dollars. All payments and disbursements which would be due on a day which is not a banking day will be due on the next banking day. All payments received on a day which is not a banking day will be applied to the credit on the next banking day. 3.6 Additional Costs. The Borrower will pay the Bank, on demand, for the Bank's costs or losses arising from any statute or regulation, or any request or requirement of a regulatory agency which is applicable to all national banks or a class of all national banks. The costs and losses will be allocated to the loan in a manner determined by the Bank, using any reasonable method. The costs include the following: (a) any reserve or deposit requirements; and (b) any capital requirements relating to the Bank's assets and commitments for credit. 3.7 Interest Calculation. Except as otherwise stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed. This results in more interest or a higher fee than if a 365-day year is used. 3.8 Interest on Late Payments. At the Bank's sole option in each instance, any amount not paid when due under this Agreement (including interest) shall bear interest from the due date at the Bank's Reference Rate plus 2 percentage points. This may result in compounding of interest. 3.9 Default Rate. Upon the occurrence and during the continuation of any default under this Agreement, advances under this Agreement will at the option of the Bank bear interest at a rate per annum which is 2 percentage points higher than the rate of interest otherwise provided under this Agreement. This will not constitute a waiver of any default. 4. CONDITIONS The Bank must receive the following items, in form and content acceptable to the Bank, before it is required to extend any credit to the Borrower under this Agreement: 4.1 Authorizations. Evidence that the execution, delivery and performance by the Borrower of this Agreement and any instrument or agreement required under this Agreement have been duly authorized. (17110.02)wsd/10/29/92 1672.FIN - 8 - 10 4.2 Other Items. Any other items that the Bank reasonably requires. 5. REPRESENTATIONS AND WARRANTIES When the Borrower signs this Agreement, and until the Bank is repaid in full, the Borrower makes the following representations and warranties. Each request for an extension of credit constitutes a renewed representation: 5.1 Organization of Borrower. The Borrower is a corporation duly formed and existing under the laws of the state where organized. 5.2 Authorization. This Agreement, and any instrument or agreement required hereunder, are within the Borrower's powers, have been duly authorized, and do not conflict with any of its organizational papers. 5.3 Enforceable Agreement. This Agreement is a legal, valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, and any instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable. 5.4 Good Standing. In each state in which the borrower does business, it is properly licensed, in good standing, and, where required, in compliance with fictitious name statutes. 5.5 No Conflicts. This Agreement does not conflict with any law, agreement, or obligation by which the Borrower is bound. 5.6 Financial Information. All financial and other information that has been or will be supplied to the Bank, is: (a) sufficiently complete to give the Bank accurate knowledge of the Borrower's financial condition. (b) in form and content required by the Bank. (c) in compliance with all government regulations that apply. 5.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or threatened against the Borrower which, if lost, would impair the Borrower's financial condition or ability to repay the loan, except as have been disclosed in writing to the Bank. 5.8 Permits, Franchises. The Borrower possesses all permits, memberships, franchises, contracts and licenses required (17110.02)wsd/10/29/92 1672.FIN - 9 - 11 and all trademark rights, trade name rights, patent rights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged. 5.9 Other Obligations. The Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation, except as have been disclosed in writing to the Bank. 5.10 Income Tax Returns. The Borrower has no knowledge of any pending assessments or adjustments of its income tax for any year, except as have been disclosed in writing to the Bank. 5.11 No Event of Default. There is no event which is, or with notice or lapse of time or both would be, a default under this Agreement. 5.12 ERISA Plans. (a) The Borrower has fulfilled its obligations, if any, under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and has not incurred any liability with respect to any Plan under Title IV of ERISA. (b) No reportable event has occurred under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. (c) No action by the Borrower to terminate or withdraw from any Plan has been taken and no notice of intent to terminate a Plan has been filed under Section 4041 of ERISA. (d) No proceeding has been commenced with respect to a Plan under Section 4042 of ERISA, and no event has occurred or condition exists which might constitute grounds for the commencement of such a proceeding. (e) The following terms have the meanings indicated for purposes of this Agreement: (i) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (ii) "ERISA" means the Employee Retirement Income Act of 1974, as amended from time to time. (iii) "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. (17110.02)wsd/10/29/92 1672.FIN - 10 - 12 (iv) "Plan" means any employee pension benefit plan maintained or contributed to by the Borrower and insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA. 6. COVENANTS The Borrower agrees, so long as credit is available under this Agreement and until the Bank is repaid in full: 6.1 Use of Proceeds. To use the proceeds of the initial advance only for the repayment of term note #00-00-0035-6 and term note #00-00- 0036-4 in favor of Bank, and use all other proceeds of the credit for working capital, restaurant development costs and for other general corporate purposes. 6.2 Financial Information. To provide the following financial information and statements and such additional information as requested by the Bank from time to time: (a) Within 100 days of the Borrower's fiscal year end, the Borrower's annual financial statements. These financial statements must be audited (with an unqualified opinion) by a Certified Public Accountant ("CPA") acceptable to the Bank. (b) Within 50 days of each fiscal quarter end, the Borrower's quarterly financial statements. These financial statements may be Borrower prepared. (c) Within 30 days after the end of each four (4) week operating period, a copy of Borrower's prepared summary operating statement describing variances from the business plan required under Paragraph 6.2(f) the causes of such variances, and their projected impact on Borrower's operations. (d) Copies of the Borrower's Form 10-K Annual Report within 100 days of Borrower's fiscal year end, Form 10-Q Quarterly Report within 50 days of the end of each fiscal quarter, and Form 8-K Current Report within 15 days after the date of filing with the Securities and Exchange Commission. (e) Within 30 days of each period's end, the Borrower's property and/or building for sale or leaseback report in form acceptable to Bank. (f) Within 10 days of each fiscal year end, Borrower's financial forecast by fiscal quarter for the next fiscal year, and on a fiscal year end basis for the following (17110.02)wsd/10/29/92 1672.FIN - 11 - 13 four fiscal years. Financial forecast to include balance sheet, operating statement (including components of other income), operating cash flow statement, and a schedule showing compliance with all financial covenants; and for the immediately succeeding fiscal year, a detailed capital budget report. (g) Within 50 days of the end of each fiscal quarter, a report listing all of Borrower's marketable securities and other investments, such report to be in form acceptable to Bank. (h) Within 50 days of the end of each fiscal quarter, a report listing all of the Borrower's notes receivable including debtor's name, terms, due date, balance owing, such report to be in form acceptable to Bank. 6.3 Current Ratio. To maintain a ratio of current assets to current liabilities of at least .80:1.0. 6.4 Tangible Net Worth. As of each date indicated below, achieve and maintain a Tangible Net Worth that is greater than the Tangible Net Worth as of the last day of the immediately prior fiscal year as indicated below, by at least the amount set opposite such date:
Minimum Semi-Annual increase in Tangible Net Worth over Date Prior Fiscal Year End --------------- ---------------------------- August 09, 1993 $6,500,000 August 15, 1994 $6,500,000
Minimum Annual increase in Tangible Net Worth Over Date Prior Fiscal Year End ---------------- -------------------------- January 25, 1993 $ 9,000,000 January 31, 1994 $11,000,000
For the purposes of this Agreement, "Tangible Net Worth" means the gross book value of the Borrower's assets (excluding goodwill, patents, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and expense, deferred research and development costs, deferred marketing expenses, and other like intangibles, and monies due from affiliates, officers, directors or shareholders of the Borrower) less total liabilities, including but not limited to accrued and deferred income taxes, and any reserves against assets. (17110.02)wsd/10/29/92 1672.FIN - 12 - 14 6.5 Debt to Tangible Net Worth. To maintain a ratio of total liabilities to Tangible Net Worth not exceeding the amounts indicated for each period specified below: Period Ratio ------ ----- August 10, 1992 2.25:1.0 through January 24, 1993 January 25, 1993 2.00:1.0 through January 30, 1994 January 31, 1994 and 1.75:1.0 thereafter "Total liabilities" means the sum of current liabilities plus long term liabilities. 6.6 Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio at least equal to 1.00 to 1.00. For purposes of this Agreement, 'Fixed Charge Coverage Ratio' means the following calculation, expressed as a ratio for any fiscal period: (a) the difference between EBITDA and the net gain realized on sales of fixed assets (or the sum of EBITDA and the net loss incurred on sales of fixed assets) divided by (b) the sum of (i) interest and tax expense, (ii) dividends paid, (iii) current portion of long-germ debt, (iv) current portion of capital leases, and (v) the difference between (A) the total price of fixed assets purchased and (B) the total principal amount of loans incurred to finance such purchases and the total amount of cash proceeds realized from any sales of fixed assets; 'EBITDA' means earnings before interest and tax expense, depreciation, amortization, and other non-cash charges. This ratio shall be calculated quarterly using the results of the fiscal quarter then most recently ended and the immediately preceding three (3) quarters together with the full current portion of long-term debt and current portion of capital leases. 6.7 Liquidity. Maintain marketable securities and other long term investments, valued at the lower of cost or market value, that are unencumbered except for security interests in favor of brokers security margin loans, that have a total market value, net of such brokers' loans, at least equal to 70% of the sum of the outstanding principal balance of all term debt owing by Borrower to Bank and the amount of the Commitment hereunder through fiscal year end 1993, and, at least equal to 75% of the sum of the outstanding principal balance of all term debt owing by Borrower to Bank and the amount of the Commitment hereunder at all times thereafter. 6.8 Notes Receivable. Not permit the aggregate amount of all notes receivable (including notes receivable from (17110.02)wsd/10/29/92 1672.FIN - 13 - 15 affiliates, officers, directors and shareholders of Borrower) to exceed Thirty Million Dollars ($30,000,000). 6.9 Restaurant Property Costs. Not permit the aggregate amount of Restaurant Property costs to exceed Fifteen Million Dollars ($15,000,000) in any fiscal period. For the purposes of this Agreement, "Restaurant Property Costs" means the current asset item shown as "Restaurant Property Costs to be Reimbursed or Sold and Leased Back" on Borrower's financial statements. 6.10 Other Debts. Not to have outstanding or incur any direct or contingent debts (other than those to the Bank), or become liable for the debts of others without the Bank's written consent. This does not prohibit: (a) Acquiring goods, supplies, or merchandise on normal trade credit. (b) Endorsing negotiable instruments received in the usual course of business. (c) Obtaining surety bonds in the usual course of business. (d) Debt and lines of credit having a maturity of one year or less which do not exceed a total amount of Five Hundred Thousand Dollars ($500,000) outstanding at any one time. (e) Additional debts for the acquisition or refinancing of real property and/or equipment securing such indebtedness. (f) Debts and contingent liabilities and leases in existence on the date of this Agreement and disclosed in writing to the Bank. (g) Borrower's obligations owing to the CIT Group/Equipment Financing, Inc. under that certain Program Agreement dated as of March 9, 1992 as such agreement is in effect on the date hereof; provided, however: (i) the total amount of all such obligations incurred in any fiscal year of Borrower may not exceed Five Million Dollars ($5,000,000); and (ii) the total amount of all such obligations may not exceed Ten Million Dollars ($10,000,000). (17110.02)wsd/10/29/92 1672.FIN - 14 - 16 (h) Contingent debts not to exceed $16,000,000 in the aggregate, including obligations under Paragraphs 6.10(f) and 6.10(g). 6.11 Other Liens. Not to create, assume, or allow any security interest or lien (including judicial liens) on any property relating to Restaurant Property Costs and on any other property the Borrower now or later owns, except: (a) Deeds of trust and security agreements in favor of the Bank. (b) Liens for taxes not yet due. (c) Liens outstanding on the date of this Agreement disclosed in writing to the Bank. (d) Additional purchase money security interests in personal or real property acquired after the date of this Agreement. (e) Lines relating to the refinancing of real property or equipment held as long term assets. (f) Liens on marketable securities or long term investments securing brokers margin loans. 6.12 Capital Leases. Not to permit the aggregate payments due in any fiscal year under all capital leases incurred as a result of sale/leaseback transactions to exceed Two Million Dollars ($2,000,000). 6.12 Stock Redemption. Nor to expend funds for the redemption of capital stock of the Borrow in excess of Two Million Dollars ($2,000,000) in any fiscal year, provided, however, that Borrower shall not redeem any of such stock unless (a) after giving effect to any such redemption Borrower will be in compliance with all financial covenants under this Agreement; (b) in any fiscal quarter in which Borrower redeems its stock, Borrower agrees to sell so many of its marketable securities such that the total sales price thereof equals or exceeds the price of the stock redeemed; and (c) in the fiscal quarter immediately preceding any such redemption Borrower's net after-tax income less any gains resulting from the sale of assets is not less than the following amounts for the periods indicated: (17110.02)wsd/10/29/92 1672.FIN - 15 - 17 Fiscal Quarter Ending Amount --------------------- ------
August 10, 1992 $4,500,000 November 2, 1992 2,000,000 January 25, 1993 2,000,000 May 17, 1993 3,500,000 August 9, 1993 2,000,000 November 1, 1993 3,500,000 January 31, 1994 2,000,000
6.14 Operating Profit. Maintain an Operating Profit for each fiscal quarter. For the purposes of this Agreement "Operating Profit" means, income before interest expense and taxes, restructuring reserves, other income, and gains on sales of assets. 6.15 Change of Ownership. Not to cause, permit, or suffer any change, direct or indirect, in the Borrower's capital ownership in excess of 50%. 6.16 Notices to Bank. To promptly notify the Bank in writing of: (a) any lawsuit over Five Hundred Thousand Dollars ($500,000) against the Borrower. (b) any substantial dispute between the Borrower and any governmental authority. (c) any failure to comply with this Agreement. (d) any material adverse change in the Borrower's financial condition or operations. (e) any change in the Borrower's name, legal structure, place of business, or chief executive office. 6.17 Books and Records. To maintain adequate books and records. 6.18 Audits. To allow the Bank and its agents to inspect the Borrower's properties and examine, audit and make copies of books and records at any reasonable time. If any of the Borrower's properties, books or records are in the possession of a third party, the Borrower authorizes that third party to permit the Bank or its agents to have access to perform inspections or audits and to respond to the Bank's requests for information concerning such properties, books and records. (17110.02)wsd/10/29/92 1672.FIN - 16 - 18 6.19 Compliance with Laws. To comply with the laws (including any fictitious name statute), regulations, and orders of any government body with authority over the Borrower's business. 6.20 Preservation of Rights. To maintain and preserve all rights, privileges, and franchises the Borrower now has. 6.21 Maintenance of Properties. To make any repairs, renewals, or replacements to keep the Borrower's properties in good working condition. 6.22 Cooperation. To take any action requested by the Bank to carry out the intent of this Agreement. 6.23 Insurance. To maintain insurance as is usual for the business it is in. 6.24 Additional Negative Covenants. Not to, without the Bank's written consent: (a) engage in any business activities substantially different from the Borrower's present business. (b) liquidate or dissolve the Borrower's business. (c) enter into any consolidation, merger, pool, joint venture, syndicate, or other combination. (d) lease, or dispose of all or a substantial part of the Borrower's business or the Borrower's assets except in the ordinary course of the Borrower's business. (e) acquire or purchase a business or its assets. (f) sell or otherwise dispose of any assets for less than fair market value or enter into any sale and leaseback agreement covering any of its fixed or capital assets other than property relating to Restaurant Property Costs. 6.25 Owned Restaurants. Maintain at least 365 company owned restaurants and a ratio of total company owned restaurants of not less than 45% of total restaurants on a system wide basis. 6.26 ERISA Plans. To give prompt written notice to the Bank of: (a) The occurrence of any reportable event under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. (17110.02)wsd/10/29/92 1672.FIN - 17 - 19 (b) Any action by the Borrower to terminate or withdraw from a Plan or the filing of any notice of intent to terminate under Section 4041 of ERISA. (c) any notice of noncompliance made with respect to a Plan under Section 4041(b) of ERISA. (d) The commencement of any proceeding with respect to a Plan under Section 4042 of ERISA. 7. HAZARDOUS WASTE INDEMNIFICATION The Borrower will indemnify and hold harmless the Bank from any loss or liability directly or indirectly arising out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a hazardous substance. This indemnity will apply whether the hazardous substance is on, under or about the Borrower's property or operations or property leased to the Borrower. The indemnity includes but is not limited to attorneys' fees (including the reasonable estimate of the allocated cost of in-house counsel and staff). The indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys and assigns. For these purposes, the term "hazardous substances" means any substance which is or becomes designated as "hazardous" or "toxic" under any federal, state or local law. This indemnity will survive repayment of the Borrower's obligations to the Bank. 8. DEFAULT If any of the following events occur, the Bank may do one or more of the following: declare the Borrower in default, stop making any additional credit available to the Borrower, and require the Borrower to repay its entire debt immediately and without prior notice. If a bankruptcy petition is filed with respect to the Borrower, the entire debt outstanding under this Agreement will automatically be due immediately. 8.1 Failure to Pay. The Borrower fails to make a payment under this Agreement within 5 days after the date when due. 8.2 False Information. The Borrower has given the Bank false or misleading information or representations. 8.3 Bankruptcy. The Borrower files a bankruptcy petition, a bankruptcy petition is filed against the Borrower or the Borrower makes a general assignment for the benefit of creditors. The default will be deemed cured if any bankruptcy (17110.02)wsd/10/29/92 1672.FIN - 18 - 20 petition filed against the Borrower is dismissed within a period of 45 days after the filing; provided, however, that the Bank will not be obligated to extend any additional credit to the Borrower during that period. 8.4 Receivers. A receiver or similar official is appointed for the Borrower's business, or the business is terminated. 8.5. Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or more trade creditors against the Borrower in an aggregate amount of One Million Dollars ($1,000,000) or more in excess of any insurance coverage. 8.6 Judgments. Any judgments or arbitration awards are entered against the Borrower, or the Borrower enters into any settlement agreements with respect to any litigation or arbitration, in an aggregate amount of Three Million dollars ($3,000,000) or more in excess of any insurance coverage. 8.7 Government Action. Any government authority takes action that the Bank believes materially adversely affects the Borrower's financial condition or ability to repay. 8.8 Material Adverse Change. A material adverse change occurs in the Borrower's financial condition, properties or prospects, or ability to repay the loan. 8.9 Cross-default. Any default occurs under any agreement in connection with any credit the Borrower has obtained from anyone else or which the Borrower has guaranteed. 8.10 Other Bank Agreements. The Borrower fails to meet the conditions of, or fails to perform any obligation under any other agreement the Borrower has with the Bank or any affiliate of the Bank. 8.11 ERISA Plans. The occurrence of any one or more of the following events with respect to the Borrower, provided such event or events could reasonably be expected, in the judgment of the Bank, to subject the Borrower to any tax, penalty or liability (or any combination of the foregoing) which, in the aggregate, could have a material adverse effect on the financial condition of the Borrower with respect to a Plan: (a) A reportable event shall occur with respect to a Plan which is, in the reasonable judgment of the Bank likely to result in the termination of such Plan for purposes of Title IV of ERISA. (17110.02)wsd/10/29/92 1672.FIN - 19 - 21 (b) Any Plan termination (or commencement of proceedings to terminate a Plan) or the Borrower's full or partial withdrawal from a Plan. 8.12 Other Breach Under Agreement. The Borrower fails to meet the conditions of, or fails to perform any obligation under, any term of this Agreement not specifically referred to in this Article. If, in the Bank's opinion, the breach is capable of being remedied, the breach will not be considered an event of default under this Agreement for a period of fifteen (15) days after the date on which the Bank gives written notice of the breach to the Borrower; provided, however, that the Bank will not be obligated to extend any additional credit to the Borrower during that period. 9. ENFORCING THIS AGREEMENT; MISCELLANEOUS 9.1 GAAP. Except as otherwise stated in this Agreement, all financial information provided to the Bank and all financial covenants will be made under generally accepted accounting principles, consistently applied. 9.2 California Law. This Agreement is governed by California law. 9.3 Successors and Assigns. This Agreement is binding on the Borrower's and the Bank's successors and assignees. The Borrower agrees that it may not assign this Agreement without the Bank's prior consent. The Bank may sell parcitipations in or assign this loan, and may exchange financial information about the Borrower with actual or potential participants or assignees. If a participation is sold or the loan is assigned, the purchaser will have the right of set-off against the Borrower. 9.4 Arbitration. (a) This paragraph concerns the resolution of any controversies or claims between the Borrower and the Bank, including but not limited to those that arise from: (i) This Agreement (including any renewals, extensions or modifications of this Agreement); (ii) Any document, agreement or procedure related to or delivered in connection with this Agreement; (iii) Any violation of this Agreement; or (17110.02)wsd/10/29/92 1672.FIN - 20 - 22 (iv) Any claims for damages resulting from any business conducted between the Borrower and the Bank, including claims for injury to persons, property or business interests (torts). (b) At the request of the Borrower or the Bank, any such controversies or claims will be settled by arbitration in accordance with the United States Arbitration Act. The United States Arbitration Act will apply even though this Agreement provides that it is governed by California law. (c) Arbitration proceedings will be administered by the American Arbitration Association and will be subject to its commercial rules of arbitration. (d) For purposes of the application of the statute of limitations, the filing of an arbitration pursuant to this paragraph is the equivalent of the filing of a lawsuit, and any claim or controversy which may be arbitrated under this paragraph is subject to any applicable statute of limitations. The arbitrators will have the authority to decide whether any such claim or controversy is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. (e) If there is a dispute as to whether an issue is arbitrable, the arbitrators will have the authority to resolve any such dispute. (f) The decision that results from an arbitration proceeding may be submitted to any authorized court of law to be confirmed and enforced. (g) The procedure described above will not apply if the controversy or claim, at the time of the proposed submission to arbitration, arises from or relates to an obligation to the Bank secured by real property located in California. In this case, both the Borrower and the Bank must consent to submission of the claim or controversy to arbitration. If both parties do not consent to arbitration, the controversy or claim will be settled as follows: (i) The Borrower and the Bank will designate a referee (or a panel of referees) selected under the auspices of the American Arbitration Association in the same manner as arbitrators are selected in Association-sponsored proceedings; (ii) The designated referee (or the panel of referees) will be appointed by a court as provided in (17110.02)wsd/10/29/92 1672.FIN - 21 - 23 California Code of Civil Procedure Section 638 and the following related sections: (iii) The referee (or the presiding referee of the panel) will be an active attorney or a retired judge; and (iv) The award that results from the decision of the referee (or the panel) will be entered as a judgment in the court that appointed the referee, in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645. (h) This provision does not limit the right of the Borrower or the Bank to: (i) exercise self-help remedies such as setoff; (ii) foreclose against or sell any real or personal property collateral; or (iii) act in a court of law, before, during or after the arbitration proceeding to obtain: (A) an interim remedy; and/or (B) additional or supplementary remedies. (i) The pursuit of or a successful action for interim, additional or supplementary remedies, or the filing of a court action, does not constitute a waiver of the right of the Borrower or the Bank, including the suing party, to submit the controversy or claim to arbitration if the other party contests the lawsuit. However, if the controversy or claim arises from or relates to an obligation to the Bank which is secured by real property located in California at the time of the proposed submission to arbitration, this right is limited according to the provision above requiring the consent of both the Borrower and the Bank to seek resolution through arbitration. (j) If the Bank forecloses against any real property securing this Agreement, the Bank has the option to exercise the power of sale under the deed of trust or mortgage, or to proceed by judicial foreclosure. 9.5 Severability; Waivers. If any part of this Agreement is not enforceable, the rest of the Agreement may be enforced. The Bank retains all rights, even if it makes a loan after default. If (17110.02)wsd/10/29/92 1672.FIN - 22 - 24 the Bank waives a default, it may enforce a later default. Any consent or waiver under this Agreement must be in writing. 9.6 Costs. If the Bank incurs any expenses in connection with administering or enforcing this Agreement, or if the Bank takes collection action under this Agreement, it is entitled to costs and reasonable attorneys' fees, including any allocated costs of in-house counsel. 9.7 Attorneys' Fees. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys' fees (including any allocated costs of in-house counsel) incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. 9.8 One Agreement. This Agreement and any related security or other agreements required by this Agreement, collectively: (a) represent the sum of the understandings and agreements between the Bank and the Borrower concerning this credit; (b) replace any prior oral or written agreements between the Bank and the Borrower concerning this credit; and (c) are intended by the Bank and the Borrower as the final, complete and exclusive statement of the terms agreed to by them. In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. 9.9 Notices. All notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, to the addresses on the signature page of this Agreement, or to such other addresses as the Bank and the Borrower may specify from time to time in writing. 9.10 Headings. Article and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Agreement. 9.11 Counterparts. This Agreement may be executed in as many counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement. 9.12 Amendment to Note. The Borrower hereby amends that certain Note: Principal in Installments with Interest Added (17110.02)wsd/10/29/92 1672.FIN - 23 - 25 executed by Borrower in favor of Bank on November 14, 1989, as amended, in the original principal sum of $35,000,000 ("Fixed Rate Note"), to read as follows: "The Fixed Rate Note is subject to the terms and conditions of the Amended and Restated Credit Agreement dated as of 11/20, 1992, as it may be amended from to time; provided, further that if said Amended and Restated Credit Agreement is terminated prior to the maturity of this Fixed Rate Note, this Fixed Rate Note shall be subject to the terms and conditions of the Amended and Restated Credit Agreement in effect on the date of its termination." This Agreement is executed as of the date stated at the top of the first page. Bank of America National Carl Karcher Enterprises, Trust and Savings Association Inc. By /s/ Deborah Miller By /s/ Loren Pannier Title Vice President Title Group VP-Finance Admin. By _______________________ By /s/ Elaine Falbe Title ____________________ Title VP-Treasurer Address where notices to Address where notices to the Bank are to be sent: the Borrower are to be sent: 3233 Park Center Dr., 5th Fl. 1200 North Harbor Blvd. Costa Mesa, California 92626 Anaheim, California 92803 (17110.02)wsd/10/29/92 1672.FIN - 24 - EX-10.78 4 AMENDMENT #1 TO AMENDED AND RESTATED CREDIT AGMT 1 Exhibit 10-78 2 AMENDMENT NO. ONE AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT this Amendment No. One and Waiver to Amended and Restated Credit Agreement (the "Agreement") dated as of April 28, 1993, is between Bank of America National Trust and Savings Association (the "Bank") and Carl Karcher Enterprises, Inc. (the "Borrower"). RECITALS A. The Bank and the Borrower entered into a certain Amended and Restated Credit Agreement dated as of November 20, 1992 (the "Agreement"). B. The Borrower is in default of certain terms and conditions of the Agreement and has requested the Bank to waive such defaults. C. The Borrower has requested the Bank to amend the Agreement to allow the Borrower to purchase shares of the common stock of the Borrower from the Carl N. and Margaret M. Karcher Trust for an amount not to exceed $10,000,000 and to amend the Agreement in other respects. D. The Bank has agreed to waive the defaults and to amend the Agreement but on the terms and conditions herein contained. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 Paragraph 1.1(a) of the Agreement is of the Agreement is hereby amended in full to read as follows: "(a) During the availability period described below, the Bank will provide a line of credit to the Borrower. The amount of the line of credit (the "Commitment") is Fifteen Million Dollars ($15,000,000)." 2.2 Paragraph 1.2 of the Agreement is amended by substituting the date March 31, 1994" for the date "June 30, 1994" appearing therein. (25072)dwq4/27/93 1670.FIN - 1 - 3 2.3 The lead in to Paragraph 1.7 is hereby amended in full to read as follows: "1.7 Letters of Credit. This line of credit may be used for financing standby letters of credit with a maximum maturity of 365 days but not to extend beyond the Expiration Date. The amount of letters of credit outstanding at any one time (including amounts drawn on letters of credit and not yet reimbursed) may not exceed Four Million Dollars ($4,000,000)." 2.4 Paragraph 6.2 (e) of the Agreement is amended by substituting the phrase "50 days of each of Borrower's fiscal quarter's end" for the phrase "30 days of each period's end" appearing therein. 2.5 Paragraph 6.2 (f) of the Agreement is hereby amended in full to read as follows: "(f) Within 100 days of each fiscal year end, Borrower's financial forecast by fiscal quarter for the next fiscal year. Financial forecast to include balance sheet, operating statement (including components of other income), operating cash flow statement, and a schedule showing compliance with all financial covenants; and for the immediately succeeding fiscal year, a detailed capital budget report." 2.6 Paragraph 6.2 (g) of the Agreement is hereby amended in full to read as follows: "(g) Intentionally Left Blank". 2.7 The following Paragraph 6.2(i) is hereby added to the Agreement: "(i) With the financial statements required in Paragraph 6.2(a) and 6.2(b) herein a compliance certificate in form and substance satisfactory to Bank executed by the Borrower's chief financial officer." 2.8 Paragraph 6.4 of the Agreement is hereby amended in full to read as follows: "6.4 Retained Earnings. As of each date indicated below, increase Retained Earnings by an amount that is greater than the Retained Earnings as of the last day of the immediately prior fiscal year as indicated below, by at least the amount set opposite such date (such calculation of Retained Earnings not to take into account the effect of the consummation of the (25072)dwq4/27/93 1670.FIN - 2 - 4 transaction contemplated by the Stock Purchase Agreement to in Section 6.13)." Minimum Semi-Annual increase in Retained Earnings over Prior Fiscal Year End Retained Date Earnings ---- -------- August 09, 1993 $2,500,000 August 15, 1994 $5,000,000 Minimum Annual increase in Retained Earnings Over Prior Fiscal Year End Retained Date Earnings ---- -------- January 31, 1994 $7,600,000 For the purposes of this Agreement, "Retained Earnings" means cumulative earnings shown on the Borrower's balance sheet and in accordance with generally accepted accounting principles consistently applied. 2.9 Paragraph 6.5 is hereby amended in full to read as follows: "6.5 Debt to Tangible Net Worth. To maintain a ratio of Total Liabilities to Tangible Net Worth not exceeding the ratio indicated at the end of each fiscal quarter as specified below:
Period End Ratio ---------- ---- May 17, 1993 2.50:1.0 August 9, 1993 2.25:1.00 November 1, 1993 2.25:1.0 January 31, 1994 2.00:1.00 May 23, 1994 and 1.75:1.0 thereafter
For purposes of this Agreement, 'Total liabilities' means the sum of current liabilities plus long term liabilities, and 'Tangible Net Worth' means the gross book value of the Borrower's assets (excluding goodwill, patents, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and expense, deferred research and development costs, deferred marketing expenses, and other like intangibles, and monies due from affiliates, officers, directors or shareholders of the Borrower) less total liabilities, including but not limited to accrued and deferred income taxes, and any reserves against assets." (25072)dwq4/27/93 1670.FIN - 3 - 5 2.10 Paragraph 6.6 of the Agreement is hereby amended in full to read as follows: "6.6 Fixed Charge Coverage Ratio. To maintain a Fixed Charge Coverage Ratio not less than the ratio indicated at the end of each fiscal period as specified below:
Period End Ratio ---------- ----- For quarter ending May 17, 1993 only 1.00:1.0 Year to date for quarter ending August 9, 1993 1.00:1.00 Year to date for quarter ending November 1, 1993 1.00:1.00 At the end of each fiscal quarter thereafter, calculated on a Four Quarter Rolling Basis 1.00:1.00
For purposes of this Agreement, 'Fixed Charge Coverage Ratio' means the following calculation, expressed as a ratio for any fiscal period: (a) EBITDA less the net loss incurred on sales of fixed assets (or the EBITDA less the net loss incurred on sales of fixed assets) divided by (b) the sum of (i) interest and tax expense, (ii) dividends paid, (iii) current portion of long-term debt, (iv) current portion of capital leases, and (v) the difference between (A) the total price of fixed assets purchased and (B) the total principal amount of loans and capital leases incurred to finance such purchases and the total amount of cash proceeds realized from any sales of fixed assets; 'EBITDA' means earnings before interest and tax expense, depreciation, amortization, and other non-cash charges. This ratio shall be calculated quarterly using a year to date cumulative basis until fiscal year end 1994, and as of fiscal year end 1994 and thereafter using a Four Quarter Rolling Basis. 'Four Quarter Rolling Basis' shall mean the four quarters calculated using the results of the fiscal quarter then most recently ended and the immediately preceding three (3) quarters." 2.11 Paragraph 6.7 is hereby amended in full to read as follows; "6.7 Intentionally Left Blank". 2.12 Paragraph 6.8 is hereby amended by substituting the figure "28,000,000" for the figure "30,000,000" appearing therein. (25072)dwq4/27/93 1670.FIN - 4 - 6 2.13 Paragraph 6.9 is hereby amended by substituting the phrase "$10,000,000 as at the end of any fiscal quarter" for the phrase "$15,000,000 in any fiscal period" appearing therein. 2.14 Paragraph 6.13 is hereby amended to read in full as follows: "6.13 Stock Redemption. Nor to expend funds for the redemption of capital stock of the Borrower other than an aggregate amount not to exceed Ten Million Dollars ($10,000,000) for the purchase of shares of the common stock, without par value, of the Borrower from the Carl N. and Margaret M. Karcher Trust U/D/T dated August 17, 1970 as amended (the "Trust") pursuant to a stock purchase agreement by and among the Borrower, the Trust and Carl and Margaret M. Karcher, provided that such redemption can only take place if all the following occur: (i) the Bank receives an opinion of counsel satisfactory to Bank that the stock repurchase complies with all federal and state securities laws and regulations and any other related laws or regulations, (ii) the Bank has received and approved an executed copy of the stock purchase agreement referred to above, (iii) such repurchase does not, and will not cause the Borrower to be in default of any of the terms and conditions of this Agreement, and (iv) such repurchase must be completed by August 9, 1993. The Borrower agrees, in furtherance and not in limitation of the indemnities set forth in any other provision of this Agreement, to indemnify and hold the Bank harmless from any and all claims, damages, losses, liabilities, costs or expenses resulting from or in any way connected with the stock purchase agreement referred to above, or any similar agreement. Such indemnity shall survive repayment of the Borrower's obligations to the Bank. 2.15 The following Paragraph is hereby added to paragraph 6.11 of the Agreement at the end of that paragraph: "Notwithstanding the exceptions contained in this Section 6.11 the Borrower may only create security interests in real property." 2.16 Paragraph 6.14 is hereby amended to read in full as follows: "6.14 Operating Profit. Maintain an Operating Profit for each fiscal quarter. For the (25072)dwq4/27/93 1670.FIN - 5 - 7 purposes of this Agreement "Operating Profit" means, income before interest expense and taxers, other income, and gains on sales of assets." 2.17 The Following Paragraph 6.27 is hereby added to the Agreement: "6.27 Minimum Net Income. Earn net income before taxes of at least the amounts indicated at the end of each fiscal period as specified below:
Period End Amount ---------- ------ For the first fiscal quarter of 1994 only $1,417,000 Year to date at the end of the second fiscal quarter of 1994 $4,850,000 Year to date at the end of the third fiscal quarter of 1994 $8,500,000 Year to date at the end of fiscal year 1994. $13,278,000"
2.18 The Following Paragraph 6.28 is hereby added to the Agreement: "6.28 Out-Of-Debt-Requirement. To repay all advances outstanding under the Commitment and not draw any new advances for a period of at least thirty (30) consecutive calendar days during the first two and last two fiscal semi- annual periods." 2.19 The Following Paragraph 6.29 is hereby added to the Agreement: "6.29 Not to enter into any agreement for funded or contingent debt which contains any covenants which in the opinion of the Bank, are more restrictive than the covenants contained this Agreement, or amend any covenants in any such agreement so they are more restrictive than the covenants contained in this Agreement." 3. Defaults. The Borrower hereby acknowledges it breached the following terms and conditions of the Agreement for the 1993 year end period: (25072)dwq4/27/93 1670.FIN - 6 - 8 3.1 Paragraph 6.4 in that the Tangible Net Worth decreased by the amount of $4,947,000 rather than an increase of $9,000,000 as required. 3.2 Paragraph 6.5 in that the Total Liabilities to Tangible Net Worth ratio was 2.15:1.00 rather than 2.00:1.00 as required. 3.3 Paragraph 6.6 in that the Fixed Charge Coverage Ratio was .98:1.00 rather than 1.00:1.00 as required. 3.4 Paragraph 6.14 in that the Borrower did not maintain an operating profit for the fiscal quarter ending January 25, 1993. 4. Waiver. The Bank hereby waives compliance with the above covenants for the 1993 fiscal year end only. 5. Representations and Warranties. When the Borrower signs this Amendment, the Borrower represents and warrants to the Bank that: (a) other than the defaults listed above there is no event which is, or with notice of, or lapse of time, or both would be, a default under the Agreement and (b) the representations and warranties in the Agreement are true as of the date of the Amendment as if made on the date of this Amendment, (c) this Amendment is within the Borrower's powers, has been duly authorized, and does not conflict with any of the Borrower's organizational papers, and (d) this Amendment does not conflict with any law, agreement, or obligations by which the Borrower is bound. 6. Conditions. This Amendment will be effective when the Bank receives the following items, in form and content acceptable to the Bank: 6.1 This Amendment executed by the Borrower. 6.2 A fee of $25,000. 7. Effect of Amendment and Waivers. The above waivers shall be limited precisely as written and relate solely to the sections of the Agreement and for the time referred to above. Nothing in the above consents shall be deemed to (a) constitute a waiver of compliance by the Borrower with respect to any other term, provision or condition of the Agreement or any other instrument or agreement referred to therein or (b) prejudice any right or remedy that the Bank may now have or may have in the future under applicable law or instrument or agreement referred to therein. Except as expressly set forth herein, the terms, provisions, and conditions of the Agreement and the other documents issued pursuant thereto shall remain in full force and effect and in all other respects are hereby ratified and confirmed. (25072)dwq4/27/93 1670.FIN - 7 - 9 This Amendment is executed as of the date stated at the top of the first page. BANK OF AMERICA NATIONAL TRUST CARL KARCHER ENTERPRISES AND SAVINGS ASSOCIATION INC. By /s/ Deborah Miller By /s/ Donald E. Doyle Title Vice President Title President and C.E.O. By ______________________ By ________________________ Title ___________________ Title _____________________ (25072)dwq4/27/93 1670.FIN - 8 - EX-10.79 5 AMENDMENT #2 TO AMENDED AND RESTATED CREDIT AGMT 1 Exhibit 10-79 2 AMENDMENT NO. TWO AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT This Amendment No. Two and Waiver to Amended and Restated Credit Agreement (the "Amendment") dated as of 9/27, 1993, is between Bank of America National Trust and Savings Association (the "Bank") and Carl Karcher Enterprises, Inc. (the "Borrower"). RECITALS A. The Bank and the Borrower entered into a certain Amended and Restated Credit Agreement dated as of November 20, 1992, as amended by Amendment No. One dated as of April 28, 1993 (the "Agreement"). B. The Borrower is in default of certain terms and conditions of the Agreement and has requested the Bank to waive such defaults. C. The Borrow has requested the Bank to amend the Agreement in certain respects. D. The Bank has agreed to waive the defaults and to amend the Agreement but on the terms and conditions herein contained. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 Paragraph 6.4 of the Agreement is hereby amended in full to read as follows: "6.4 Retained Earnings. As of each date indicated below, increase Retained Earnings by an amount that is greater than the Retained Earnings as of the last day of the immediately prior fiscal year as indicated below, by at least the amount set opposite such date. Minimum Semi-Annual increase in Retained Earnings over Prior Fiscal Year End Retained Date Earnings August 15, 1994 $5,000,000 (4018262)dc9/24/93 1671.FIN - 1 - 3 Minimum Annual increase in Retained Earnings Over Prior Fiscal Year End Retained Date Earnings January 31, 1994 $5,000,000 For the purposes of this Agreement, "Retained Earnings" means cumulative earnings shown on the Borrower's balance sheet and in accordance with generally accepted accounting principles consistently applied." 2.2 Paragraph 6.13 is hereby amended to read in full as follows: "6.13 Stock Redemption. Not to expend funds for the redemption of capitalstock of the Borrower." 2.3 Paragraph 6.27 is hereby amended to read in full as follows: "6.27 Minimum Net Income. Earn net income before taxes of at least the amounts indicated at the end of each fiscal period as specified below: Period End Amount Year to date at the end of the third fiscal quarter of 1994 $5,400,000 Year to date at the end of fiscal year 1994. $8,700,000" 2.4 The following Paragraph 8.13 is hereby added to the Agreement: "8.13 Board of Directors. Two (2) or more members of the Borrower's Board of Directors, as currently composed, change for any reason. 3. Defaults. The Borrower hereby acknowledges that it breached the following terms and conditions of the Agreement for the fiscal period ending August 9, 1993: 3.1 Paragraph 6.4 in that Retained Earnings were $2,345,000 and not $2,500,000 as required. 3.2 Paragraph 6.13 in that the Borrower redeemed 59,752 shares of its capital stock in violation of the conditions set forth in said paragraph. 3.3 Paragraph 6.27 in that net income before taxes was $3,849,000 and not $4,850,000 as required. (4018262)dc9/24/93 1671.FIN - 2 - 4 4. Waiver. The Bank hereby waives compliance with the above covenants for the fiscal period ending August 9, 1993. 5. Representations and Warranties. When the Borrower signs this Amendment, the Borrower represents and warrants to the Bank that: (a) other than the defaults listed above there is no event which is, or with notice of, or lapse of time, or both would be, a default under the Agreement and (b) the representations and warranties in the Agreement are true as of the date of the Amendment as if made on the date of this Amendment, (c) this Amendment is within the Borrower's powers, has been duly authorized, and does not conflict with any of the Borrower's organizational papers, and (d) this Amendment does not conflict with any law, agreement, or obligations by which the Borrower is bound. 6. Conditions. This Amendment will be effective when the Bank receives the following items, in form and content acceptable to the Bank: 6.1 This Amendment executed by the Borrower. 6.2 A fee of $15,000. 7. Effect of Amendment and Waivers. The above waivers shall be limited precisely as written and relate solely to the sections of the Agreement and for the time referred to above. Nothing in the above consents shall be deemed to (a) constitute a waiver of compliance by the Borrower with respect to any other term, provision or condition os the Agreement or any other instrument or agreement referred to therein or (b) prejudice any right or remedy that the Bank may now have or may have in the future under applicable law or instrument or agreement referred to therein. Except as expressly set forth herein, the terms, provisions, and conditions of the Agreement and the other documents issued pursuant thereto shall remain in full force and effect and in all other respects are hereby ratified and confirmed. This Amendment is executed as of the date stated at the top of the first page. BANK OF AMERICA NATIONAL TRUST CARL KARCHER ENTERPRISES INC. AND SAVINGS ASSOCIATION. By /s/ Deborah Miller By /s/ Donald E.Doyle Title Vice President Title President, CEO By __________________________ By /s/ Loren C. Pannier Title _______________________ Title Sr. Vice President, CFO (4018262)dc9/24/93 1671.FIN - 3 - EX-10.80 6 AMENDMENT #3 TO AMENDED AND RESTATED CREDIT AGMT 1 Exhibit 10-80 2 AMENDMENT NO. THREE AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT This Amendment No. Three and Waiver to Amended and Restated Credit Agreement (the "Amendment") dated as of DECEMBER 15, 1993, is between Bank of America National Trust and Savings Association (the "Bank") and Carl Karcher Enterprises, Inc. (the "Borrower"). RECITALS A. The Bank and the Borrower entered into a certain amended and Restated Credit Agreement dated as of November 20, 1992, as amended by Amendment No. One dated as of April 28, 1993, and by Amendment No. Two and Waiver dated as of September 27, 1993 (the "Agreement"). B. The Borrower is in default of a certain covenant of the Agreement and has requested the Bank to waive such default. C. The Borrower has requested the Bank to amend the Agreement in certain respects. D. The Bank has agreed to waive the default and to amend the Agreement but on the terms and conditions herein contained. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 Paragraph 6.6 of the Agreement is hereby amended in full to read as follows: "6.6 Fixed Charge Coverage Ration. To maintain a Fixed Charge Coverage Ratio not less than the ratio indicated at the end of each fiscal period as specified below:
Period End Ratio For quarter ending January 31, 1994, calculated on a Four Quarter Rolling Basis .94:1.00
(4018262.02)sg12/10/93 1675.FIN - 1 - 3 At the end of each fiscal quarter thereafter, calculated on a Four Quarter Rolling Basis 1.00:1.00
For purposes of this Agreement, 'Fixed Charge Coverage Ratio' means the following calculation, expressed as a ratio for any fiscal period: (a) EBITDA less the net gain realized on sales of fixed assets (or the EBITDA less the net loss incurred on sales of fixed assets) divided by (b) the sum of (i) interest and tax expense, (ii) dividends paid, (iii) current portion of long-term debt, (iv) current portion of capital leases, and (v) the difference between (A) the total price of fixed assets purchased and (B) the total principal amount of loans and capital leases incurred to finance such purchases and the total amount of cash proceeds realized from any sales of fixed assets; 'EBITDA' means earnings before interest and tax expense, depreciation, amortization, and other non-cash charges. This ratio shall be calculated quarterly using a Four Quarter Rolling Basis. 'Four Quarter Rolling Basis' shall mean the four quarters calculated using the results of the fiscal quarter then most recently ended and the immediately preceding three (3) quarters." 3. Defaults. The Borrower hereby acknowledges that it breached the following covenant of the Agreement for the fiscal period ending November 1, 1993: 3.1 Paragraph 6.6 in that the Fixed Charge Coverage Ratio was .94:1.00 and not 1.00:1.00 as required. 4. Waiver. The Bank hereby waives compliance with the above covenant for the fiscal period ending November 1, 1993. 5. Representations and Warranties. When the Borrower signs this Amendment, the Borrower represents and warrants to the Bank that: (a) other than the defaults listed above there is no event which is, or with notice of, or lapse of time, or both would be, a default under the Agreement and (b) the representations and warranties in the Agreement are true as of the date of the Amendment as if made on the date of this Amendment, (c) this Amendment is within the Borrower's powers, has been duly authorized, and does not conflict with any of the Borrower's organizational papers, and (d) this Amendment does not conflict with any law, agreement, or obligations by which the Borrower is bound. 6. Conditions. This Amendment will be effective when the Bank receives the following items, in form and content acceptable to the Bank: 6.1 This amendment executed by the Borrower. (4018262.02)sg12/10/93 1675.FIN - 2 - 4 7. Effect of Amendment and Waivers. The above waivers shall be limited precisely as written and relate solely to the sections of the Agreement and for the time referred to above. Nothing in the above consents shall be deemed to (a) constitute a waiver of compliance by the Borrower with respect to any other term, provision or condition of the Agreement or any other instrument or agreement referred to therein or (b) prejudice any right or remedy that the Bank may now have or may have in the future under applicable law or instrument or agreement referred to therein. Except as expressly set forth herein, the terms, provisions, and conditions of the Agreement and the other documents issued pursuant thereto shall remain in full force and effect and in all other respects are hereby ratified and confirmed. This Amendment is executed as of the date stated at the top of the first page. BANK OF AMERICA NATIONAL TRUST CARL KARCHER ENTERPRISES, AND SAVINGS ASSOCIATION INC. By /s/ Deborah Miller By /s/ Richard C. Celio Title Vice President Title Vice President, General Counsel By _______________________ By /s/ Loren Pannier Title ____________________ Title Sr. Vice President Chief Financial Officer (4018262.02)sg12/10/93 1675.FIN - 3 - EX-10.81 7 AMENDMENT #4 TO AMENDED AND RESTATED CREDIT AGMT 1 Exhibit 10-81 2 AMENDMENT NO. FOUR TO AMENDED AND RESTATED CREDIT AGREEMENT This Amendment No. Four to Amended and Restated Credit Agreement (the "Amendment") dated as of January 19, 1994, is between Bank of America National Trust and Savings Association (the "Bank") and Carl Karcher Enterprises, Inc. (the "Borrower"). RECITALS A. The Bank and the Borrower entered into a certain Amended and Restated Credit Agreement dated as of November 20, 1992, as amended by Amendment No. One dated as of April 28, 1993, by Amendment No. Two and Waiver dated as of September 27, 1993, and by Amendment No. Three and Waiver dated as of December 15, 1993 (the "Agreement"). B. The Borrower has requested the Bank to amend the Agreement in certain respects. C. The Bank has agreed to amend the Agreement on the terms and conditions herein contained. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 Paragraph 1.2 of the Agreement is amended by substituting the date "June 30, 1994" for the date "March 31, 1994" appearing therein. 3. Representations and Warranties. When the Borrower signs this Amendment, the Borrower represents and warrants to the Bank that: (a) other than the defaults listed above there is no event which is, or with notice of, or lapse of time, or both would be, a default under the Agreement and (b) the representations and warranties in the Agreement are true as of the date of the Amendment as if made on the date of this Amendment, (c) this Amendment is within the Borrower's powers, has been duly authorized, and does not conflict with any of the Borrower's organizational papers, and (d) this Amendment does not conflict with any law, agreement, or obligations by which the Borrower is bound. 4. Conditions. This Amendment will be affective when the Bank receives the following items, in form and content acceptable to the Bank: 4.1 This Amendment executed by the Borrower. 1665.FIN - 1 - 3 5. Effect of Amendment. Except as expressly set forth herein, the terms, provisions, and conditions of the Agreement and the other documents issued pursuant thereto shall remain in full force and effect and in all other respects are hereby ratified and confirmed. This Amendment is executed as of the date stated at the top of the first page. BANK OF AMERICA NATIONAL TRUST CARL KARCHER ENTERPRISES, AND SAVINGS ASSOCIATION INC. By /s/ DEBORAH MILLER By /s/ LOREN C. PANNIER ________________________ _________________________ Deborah Miller Loren C. Pannier Title Vice President Title Senior Vice President, CFO By ________________________ By /s/ RICHARD C. CELIO _________________________ Richaed C. Celio Title _____________________ Title Vice President/Generl - 2 - EX-10.82 8 AMENDMENT #5 TO AMENDED AND RESTATED CREDIT AGMT 1 Exhibit 10-82 2 AMENDMENT NO. FIVE, WAIVER AND CONSENT TO AMENDED AND RESTATED CREDIT AGREEMENT This Amendment No. Five, Waiver and Consent to Amended and Restated Credit Agreement (the "Amendment") dated as of March 15, 1994, is between Bank of America National Trust and Savings Association (the "Bank") and Carl Karcher Enterprises, Inc. (the "Borrower"). RECITALS A. The Bank and the Borrower entered into a certain Amended and Restated Credit Agreement dated as of November 20, 1992, as amended by Amendment No. One dated as of April 28, 1993, by Amendment No. Two and Waiver dated as of September 27, 1993, by Amendment No. Three and Waiver dated as of December 15, 1993, and by Amendment No. Four dated as of January 19, 1994. B. The Borrower is in default of certain covenants of the Agreement and has requested that Bank to waive such defaults. C. Borrower has submitted to Bank a copy of the Form S-4 Registration Statement of CKE Restaurants, Inc., a Delaware corporation ("Holding Company") filed with the Securities and Exchange Commission on March 7, 1994 ("Registration Statement"). D. Attached as Appendix A to the Registration Agreement is a proposed Plan of Reorganization and Agreement of Merger ("Merger Agreement"), between Borrower, Holding Company and CKE Food Services, Inc. a wholly-owned subsidiary of Holding Company ("CKE Subsidiary"), pursuant to which Borrower will merge with CKE Subsidiary and, as a result thereof, Borrower will become the surviving company and a subsidiary of Holding Company (the "Merger"). E. Borrower has requested that the Bank consent to the Merger and waive compliance by Borrower with certain covenants in the Agreement that would otherwise prohibit the Merger. F. The Borrower has requested the Bank to amend the Agreement in certain respects. G. The Bank has agreed to waive the defaults, consent to the Merger, waive certain covenants and amend the Agreement but on the terms and conditions herein contained. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: -1- 3 2.1 Paragraph 1.2 of the Agreement is amended by substituting the date "June 30, 1995" for the date "June 30, 1994" appearing therein. 2.2 Subparagraph (a) of Paragraph 1.3 of the Agreement is amended in full to read: "(a) Unless the Borrower elects an optional interest rate as described below, the interest rate is the Bank's Reference Rate." 2.3 The first sentence of Paragraph 1.6 is amended in full to read: "The Borrower may elect to have all or portions of the principal balance of the line of credit bear interest at the Offshore Rate plus 1.50 percentage points." 2.4 The lead in to Paragraph 1.7 of the Agreement is hereby amended in full to read: "1.7 Letters of Credit. This line of credit may be used for financing standby letters of credit with a maximum maturity not to extend beyond the Expiration Date. The amount of letters of credit outstanding at any one time (including amounts drawn on letters of credit and not yet reimbursed) may not exceed Thirteen Million Dollars ($13,000,000)." 2.5 Upon the Effective Date (as defined in the Merger Agreement) of the Merger, Paragraph 6.2(a) of the Agreement is amended in full to read: "(a) Within one hundred (100) days of Holding Company's fiscal year end, Holding Company's annual consolidated financial statements. These financial statements must be audited (with an unqualified opinion) by a Certified Public Accountant ("CPA") acceptable to the Bank. These statements shall be prepared on a consolidating and consolidated basis for Holding Company and its subsidiaries, and also on an unconsolidated basis for the Borrower. Holding Company's consolidating statement and the unconsolidated statement of the Borrower may be company prepared." 2.6 Upon the Effective Date (as defined in the Merger Agreement) of the Merger, Paragraph 6.2(b) of the Agreement is amended in full to read: "(b) Within fifty (50) days of each fiscal quarter end, quarterly financial statements of Holding Company prepared on a consolidating and -2- 4 consolidated basis, These financial statements may be prepared by Holding Company." 2.7 Upon the Effective Date (as defined in the Merger Agreement) of the Merger, Paragraph 6.2(d) of the Agreement is amended by substituting "Holding Company's" for "Borrower's" in each place it appears therein. 2.8 Paragraph 6.3 of the Agreement is amended in full to read: "6.3 Current Ratio. To maintain a ratio of current assets to current liabilities of at least .90:1.0 from the date hereof through January 29, 1995, and .95:1.0 from January 30, 1995, and thereafter." 2.9 The table shown at the bottom of Paragraph 6.4 of the Agreement is amended to read:
Minimum Annual Increase in Retained Earnings Over Prior Fiscal Year End Date Retained Earnings ---- ------------------------ January 30, 1995 $4,500,000
2.10 The table shown in Paragraph 6.5 of the Agreement is amended to read:
Period End Ratio ---------- ----- May 23, 1994 1.75:1.0 August 15, 1994 1.75:1.0 November 7, 1994 1.75:1.0 January 30, 1995 and thereafter 1.50:1.0
2.11 The table shown in Paragraph 6.6 of the Agreement is amended to read:
Period End Ratio ---------- ----- For the quarter ending May 23, 1994 .60:1.0 For the quarter ending August 15, 1994 .80:1.0 For the quarter ending November 17, 1994 1.00:1.0 At the end of each fiscal quarter thereafter, calculated on a Four Quarter Rolling Basis 1.00:1.0
- 3 - 5 2.2 Subparagraph (h) of Paragraph 6.10 of the Agreement is deleted in its entirety. 2.13 Paragraph 6.12 of the Agreement is deleted in its entirety. 2.14 Paragraph 6.25 of the Agreement is amended in full to read: "6.25 Owned Restaurants. Maintain a ratio of total company owned restaurants of not less than forty-five percent (45%) of total restaurants on a system wide basis." 2.15 Paragraph 6.27 of the Agreement is amended in its entirety to read as follows: "6.27 Tangible Net Worth. Maintain tangible net worth equal to at least the sum of: (a) Eighty Four Million Four Hundred Thousand Dollars ($84,000,000); plus (b) the sum of fifty percent (50%) of net income after income taxes (without subtracting losses) earned in each quarterly accounting period commencing with the first quarter of fiscal year 1995." "Tangible Net Worth" means the gross book value of the Borrower's assets (excluding goodwill, patents, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and expense, deferred research and development costs, deferred marketing expenses, and other like intangibles and monies due from affiliates, officers, directors or shareholders of Borrower plus any investments in affiliates less total liabilities, including but not limited to accrued and deferred income taxes, and any results against assets." 2.16 The Agreement is hereby amended to add a new Paragraph 6.30 to read as follows: "6.30 Loans. Not to make any loans, advances or other extensions of credit to any of Borrower's executives, officers, directors, shareholders or affiliates (or any relatives of the foregoing) in excess of Five Million Dollars ($5,000,000) outstanding at any time, excluding affiliates notes receivable shown in the balance sheet at fiscal year end 1994." - 4 - 6 2.17 Paragraph 8.3 of the Agreement is amended in full to read: "8.3 Bankruptcy. The Borrower or any grantor files a bankruptcy petition, a bankruptcy petition is filed against the Borrower or any guarantor or the Borrower or any guarantor makes a general assignment for the benefit of creditors. The default will be deemed cured if any bankruptcy petition filed against the Borrower or any guarantor is dismissed within a period of forty-five (45) days after the filing; provided, however, that the Bank will not be obligated to extend any additional credit to the Borrower during that period." 2.18 Paragraph 8.4 of the Agreement is amended by adding the words "or any guarantor's" immediately following the work "Borrower's". 2.19 Paragraph 8.6 of the Agreement is amended by adding the words "or any guarantor" immediately following the word "Borrower" in each place where such word appears. 2.20 Paragraph 8.7 of the Agreement is amended by adding the words "or any guarantor's" immediately following the word "Borrower's". 2.21 Paragraph 8.8 of the Agreement is amended by adding the words "or any guarantor's" immediately following the word "Borrower's". 2.22 paragraph 8.9 of the Agreement is amended by adding the words "or any guarantor" immediately following the word "Borrower" in each place where such word appears. 2.23 Paragraph 8.10 of the Agreement is amended by adding the words "or any guarantor" immediately following the word "Borrower" in each place where such word appears. 2.24 Paragraph 8.13 of the Agreement is deleted in its entirety and replaced by a new Paragraph 8.13 to read as follows: "8.13 Default Under Related Document. Any guaranty, subordination agreement, security agreement or other document required by this Agreement is violated or no longer in effect." 3. Defaults. The borrower hereby acknowledges that it breached the following covenants of the Agreement for the fiscal period ending January 31, 1994: - 5 - 7 3.1 Paragraph 6.4 in that Retained Earnings were Two Million Two Hundred Nine Dollars ($2,209,000) and not Five Million Dollars ($5,000,000) as required. 3.2 Paragraph 6.6 in that the Fixed Charge Coverage Ratio was .86:1.0 and not .94:1.0 as required. 3.3 Paragraph 6.27 in that net income was Five Million Five Hundred Thousand One Dollars ($5,501,000) and not at least Eight Million Seven Hundred Thousand Dollars ($8,700,00) as required. 4. Waiver. The Bank hereby waives compliance with the above covenants for the fiscal period ending January 31, 1994. 5. Consent and Waiver. The Bank hereby consents to the Merger described in Recital C above, and waives any violation of Paragraphs 6.15 and 6.24(c) that would otherwise result after giving effect to the Merger. 6. Representations and Warranties. When the Borrower signs this Amendment, the Borrower represents and warrants to the Bank that: (a) other than the defaults listed above there is no event which is, or with notice of, or lapse of time, or both would be, a default under the Agreement and (b) the representations and warranties in the Agreement are true as of the date of the Amendment as if made on the date of this Amendment, (c) this Amendment is within the Borrower's powers, has been duly authorized, and does not conflict with any of the Borrower's organizational papers, and (d) this Amendment does not conflict with any law, agreement, or obligations by which the Borrower is bound. 7. Conditions Precedent. This Amendment will be effective when the Bank receives the following items, in form and content acceptable to the Bank: 7.1 This Amendment executed by the Borrower. 7.2 Evidence that the execution, delivery and performance by the Borrower of this Amendment and any instrument or agreement required under this Amendment have been duly authorized. 8. Conditions Subsequent. Within thirty (30) days of the Effective Date (as defined in the Merger Agreement) of the Merger, Borrower shall cause to be delivered to the Bank the following items in form and substance acceptable to Bank. 8.1 A guaranty duly executed by Holding Company in the amount of Twenty Million Dollars ($20,000,000). 8.2 Evidence that the execution, delivery and performance by Holding Company of the guaranty has been - 6 - 8 duly authorized. 9. Effect of Amendment and Waivers. The above waivers shall be limited precisely as written and relate solely to the sections of the Agreement and for the time referred to above. Nothing in the above consents shall be deemed to (a) constitute a waiver of compliance by the Borrower with respect to any other term, provision or condition of the Agreement or any other instrument or agreement referred to therein or (b) prejudice any right or remedy that the Bank may now have or may have in the future under applicable law or instrument or agreement referred to therein. Except as expressly set forth herein, the terms, provisions, and conditions of the Agreement and the other documents issued pursuant thereto shall remain in full force and effect and in all other respects are hereby ratified and confirmed. This Amendment is executed as of the date stated at the top of the first page.
BANK OF AMERICA NATIONAL TRUST CARL KARCHER ENTERPRISES, AND SAVINGS ASSOCIATION INC. By /s/ Deborah L. Miller By /s/ Loren C. Pannier ---------------------------- ------------------------- Title Vice President Title Sr.Vice President, CFO ------------------------- ---------------------- By ___________________________ By /s/ Richard C. Celio ------------------------- Title ________________________ Title Vice President, ---------------------- Corporate Counsel ----------------------
- 7 - EX-10.83 9 PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS 1 Exhibit 10-83 2 PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS (All Cash Purchase) THIS AGREEMENT ("Agreement") is entered as of February 8, 1993, by and between CARL N. KARCHER AND MARGARET M. KARCHER TRUST, under a Declaration of Trust dated August 17, 1970, as amended ("Seller"), and CARL KARCHER ENTERPRISES, INC., a California corporation ("Buyer"). RECITALS A. Seller is the fee owner of that certain parcel of land situated in the County of Orange, State of California, as more particularly described on EXHIBIT A as Parcel 1 ("Parcel 1"), which Exhibit is attached hereto and by this reference incorporated herein. Seller is the Lessee under those certain Ground Leases for parcels of land situated in the County of Orange, State of California, as more particularly described on EXHIBIT A as Parcels 2 and 3 (respectively "Parcel 2" and "Parcel 3") (Parcels 1, 2 and 3, as more particularly described, and collectively referred to as "Land"). B. The Land is currently subject to those certain Land and Building Leases as described on EXHIBIT B attached hereto and by this reference incorporated herein, as amended from time to time prior to the date hereof (the "Land and Building Leases"), between Seller, as Lessor, and Buyer as Lessee. C. Buyer desires to purchase Seller's fee interest in the Land, building and improvements with regard to Parcel 1, and Seller's leasehold interest in the Land and such building and improvements constructed thereon, with regard to Parcels 2 and 3, and Seller has agreed to sell and convey Seller's respective interests in the Land, building and improvements to Buyer, on the terms and conditions set forth below. NOW, THEREFORE, the parties hereby agree as follows: 1. PURCHASE AND SALE. Upon all of the terms and conditions contained herein, Buyer hereby agrees to purchase Seller's respective fee and leasehold interests in the Land from Seller and Seller agrees to sell the Seller's said interests in the Land to Buyer. Page 1 3 2. ESCROW. Promptly after this Agreement has been signed and delivered by and between the parties hereto, Seller shall open an escrow ("Escrow") with Fidelity National Title Insurance Company, 2100 Southeast Main Street, Suite 400, Irvine, California ("Escrow Holder"), by delivering a fully executed copy of this Agreement to Escrow Holder. The parties agree to be bound by the standard escrow General Provisions attached hereto as EXHIBIT C, and shall execute and deliver to Escrow Holder such other reasonable supplemental escrow instructions or other instruments as may be required by Escrow Holder or the parties hereto in order to consummate the sale described herein. The attached EXHIBIT C and/or the printed portions of any such instructions shall not amend or supersede any provision of this Agreement. 3. CLOSING OF ESCROW. Subject to the satisfaction of all conditions precedent set forth herein, the closing ("Closing") of the purchase and sale of the interests in the Land shall take place through Escrow on or before March 15, 1993, or such other date as the parties may mutually agree in writing (the "Closing Date"). The sale of the interest in each Parcel shall close as an individual transaction and is not dependent on closing of the other sites. 4. PURCHASE PRICE. The purchase price for the Land (the "Purchase Price") shall be set out as follows: Parcel 1: One Million Sixty Three Thousand Four Hundred Thirty Four Dollars ($1,063,434.00). Parcel 2: Three Hundred Forty Six Thousand Seven Hundred Sixty Eight Dollars ($346,768.00). Parcel 3: Four Hundred Ninety Eight Thousand Three Hundred Forty One Dollars ($498,341.00). The Purchase Price shall be payable through Escrow as follows: (a) DEPOSIT. Concurrently with Buyer's execution and delivery of this Agreement, Buyer shall deliver to Escrow Holder, for immediate release to Seller, the sum of SEVEN HUNDRED THOUSAND AND 00/100 Dollars ($700,000.00), TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) shall be applicable to Parcel 1, ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000.00) shall be applicable to Parcel 2, and THREE HUNDRED THOUSAND DOLLARS ($300,000.00) shall be applicable to Parcel 3, which sum shall be held by Seller and applied towards the Purchase Price upon Closing, subject, however, to being disbursed to Seller as liquidated damages as provided in Section 9(b) below or returned to Buyer as provided in Section 9(a) or 17 below. No interest shall accrue or be paid to Buyer with Page 2 4 respect to said deposit. (b) CASH AT CLOSING. The balance of the Purchase Price, together with any additional amounts and costs chargeable to Buyer as provided below, shall be deposited by Buyer into Escrow not less than twenty-four (24) hours prior to the Closing Date of each escrow, and shall be disbursed by Escrow Holder to Seller upon the Closing, less the costs and prorations chargeable to Seller under Section 5 below. 5. COSTS AND PRORATIONS. (a) CLOSING COSTS. Buyer and Seller shall each pay one-half (1/2) of the fees and charges of Escrow Holder. Seller shall bear the cost of all documentary transfer taxes, and the premium for the title Policies. Buyer shall pay the entire cost of, and shall be responsible for obtaining, any extended coverage, ALTA owner's or Lender's or other title policy or endorsements in excess of the standard coverage owner's title policy to be provided by Seller, together with any land surveys required in connection therewith. Buyer and Seller shall each bear their own respective legal, accounting and other consultant fees, charges and costs, if any, incurred in connection with this transaction. All recording costs or fees and all other costs or expenses not otherwise provided for in this Agreement shall be apportioned or allocated by Escrow Holder between Buyer and Seller in the manner customary in Orange County. (b) TAXES AND ASSESSMENTS. Escrow Holder shall calculate the proration of all current real property taxes and all general and special bonds and assessments on the Land between Buyer and Seller as of the Closing Date. Except for such taxes, bonds and assessments for that portion of Parcel 1 not under a Land and Building Lease to Buyer, Escrow Holder shall not be concerned with charging the parties for such prorations of any such taxes and assessments through Escrow since the Lessee under the Land and Building Lease, who is the same as, or is affiliated or under common control with Buyer, is required to pay all such taxes under the terms of the Ground Lease. Any real property taxes levied under the Supplemental Tax Roll as a result of this sale, whether prior to the normal assessment date or otherwise, shall be paid solely by Buyer. Escrow Holder shall prorate and charge Buyer for all rental, common area maintenance charges, if any, and other sums due and unpaid to Seller under the Land and Building Leases of Buyer as of the Closing Date, and Seller shall provide such information as Escrow Holder may request to enable Escrow Holder to calculate such proration. Escrow Holder shall additionally prorate and charge Seller for all rental, common area maintenance charges, Page 3 5 if any, and other sums paid to Seller in advance under that certain Land and Building Lease for that portion of Parcel 1 not occupied by Buyer. The parties agree that if any rental sum under the Land and Building Lease is calculated based on a percentage of sales, revenue or income from the leased premises and if such rental sum cannot readily be determined for the then - current reporting period as of the Closing Date, then such sum shall be deemed unchanged from the last prior reporting period under the Land and Building Lease and Seller shall instruct Escrow Holder as to the amount thereof. 6. CONDITIONS TO CLOSING. The respective obligations of Buyer and Seller to complete the purchase and sale of the Land are subject to satisfaction of the conditions precedent set forth below for their respective benefit at or prior to Closing. (a) TRANSFER AND POSSESSION. Seller shall deliver through Escrow an executed and recordable Grant Deed in the form attached hereto as EXHIBIT D (the "Grant Deed"), an executed and recordable Termination of Land and Building Lease in the form attached hereto as EXHIBIT E (the "Termination") for such Lease as may exist between Buyer and Seller herein, and an executed and recordable Assignment of Land and Building Lease in the form attached hereto as EXHIBIT F (the "Assignment") for such additional lease as may exist, sufficient to convey insurable title to Buyer for Parcel 1 subject only to the matters described in Section 6(c). Seller shall deliver through Escrow executed and recordable Terminations of Land and Building Lease in the form attached hereto as EXHIBIT E (the "Termination") for the Land and Building Leases currently existing between Buyer as Lessee and Seller as Lessor,executed and recordable Assignments of Ground Lease in the form attached hereto as EXHIBIT F (the "Assignment"), and consent from the Ground Lessor to any such Assignment as may be required under the Ground Leases, which shall be sufficient to convey insurable title to Buyer for parcels 2 and 3 subject only to the matters described in Section 6(c). (b) TITLE APPROVAL. Buyer shall obtain from Escrow Holder preliminary title reports covering the respective interest in the Land (the "Title Reports"). Buyer shall take title to the Land pursuant to this Agreement subject to matters described in Section 6(c), and to all other matters of record shown on said Title Report or listed as exceptions to coverage therein except such matters as Buyer shall expressly disapprove by giving written notice to Seller on or before ten business (10) days following Buyer's receipt of the respective Title Report and underlying documents, (the "Approval Date"), which notice shall specify reasonable grounds for each such matter so disapproved. Seller shall have ten business Page 4 6 (10) days from its receipt of such notice of disapproval within which to notify Buyer in writing as to whether it shall cause the removal of such disapproved exception to coverage under the respective Title Policy on or before the Closing Date. Seller shall have no obligation to remove any such exception except, if applicable, the lien of the Existing Deed of Trust (as defined in Section 6(e) below) which shall be removed by Seller concurrently with the Closing. The failure by Seller to give Buyer written notice of its intention to remove any exception to coverage under the respective Title Policy disapproved by Buyer in the manner herein provided shall be deemed an election by Seller not to remove such exception. In the event that Seller does not so notify Buyer of its election to cause the removal of such disapproved exception. In the event that Seller does not so notify Buyer of its election to cause the removal of such disapproved exception, Buyer may terminate this Agreement, pursuant to Section 9(a) below, by written notice to Seller and Escrow Holder within ten (10) days after the end of the period for Seller to respond; otherwise, Buyer shall be deemed to have waived its disapproval of such exception to coverage under the respective Title Policy and approved same. Should Buyer fail to disapprove any matter affecting the condition of title or constituting an exception to coverage under the respective Title Policy by the Approval Date as set forth above, such matter and/or exception shall be deemed approved by Buyer. (c) TITLE CONDITION AT CLOSING. Seller shall cause Escrow Holder to deliver or commit to deliver to Buyer a standard coverage CLTA Owner's Policy of Title Insurance for each Parcel (the "Title Policy") dated as of the Closing, insuring Buyer in an amount equal to the portion of the Purchase Price allocated in Section 4 to such Parcel, and showing title to the Land vested in Buyer subject only to: (i) Real Property taxes and all unpaid general and special bonds or assessments; (ii) As to Parcel 1, all matters set forth in the Grant Deed; (iii) As to Parcels 2 and 3, the respective master leases; (iv) The printed exceptions contained in the Title Policy; (v) All recorded covenants, conditions and restrictions and other matters shown on the Title Report that are set forth above or that have been Page 5 7 approved or deemed approved by Buyer; (vi) All other matters affecting title to the Land approved in writing or deemed approved by Buyer, which approval shall not unreasonably be withheld, delayed or conditioned. (d) ESTOPPEL CERTIFICATE. Seller shall, without charge or expense to Buyer, execute, acknowledge, and deliver a statement in writing (i) certifying that the respective Ground Leases, as amended, are unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that the Lease, as so modified, is in full force and effect) and the date to which the Rental and other charges are paid in advance, if any, and (ii) acknowledging that there are not any uncured defaults of which the acknowledging party has knowledge, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by Buyer and any prospective assignee, sublessee or encumbrancer of the Premises. (e) EXISTING DEEDS OF TRUST. As to Parcel 1: The Land described as Parcel 1 may currently be encumbered by a deed of trust to Commonwealth Land Title Company, as Trustee, for the benefit of The Mitsubishi Bank of California, a California corporation, which deed of trust was recorded December 30, 1986, as Instrument No. 86-651152 in the Official Records of Orange County, California (the "Existing Deed of Trust"). If so, Escrow Holder is hereby instructed to cause the Existing Deed of Trust to be reconveyed as to the Land at the expense of Seller and concurrently with the Closing. As to Parcel 2: That Land described as Parcel 2 may currently be encumbered by a Deed of Trust to United California Bank, a California corporation, which Deed of Trust was recorded August 21, 1980 as Instrument No. 25490 in the official records of Orange County, California (the "Existing Deed fo Trust"). Escrow Holder is hereby instructed to cause the Existing Deed of Trust to be reconveyed as to the Seller's respective interest in the Land at the expense of Seller and concurrently with the Closing. As to Parcel 3: That Land described as Parcel 3 may currently be encumbered by a Deed of Trust to Heritage Bank, a California corporation as Page 6 8 Trustee, for the benefit of Heritage Bank, a California corporation, which Deed of Trust was recorded April 30, 1976 as Instrument No. 34379 in the official records of Orange County, California (the "Existing Deed of Trust"). Escrow Holder is hereby instructed to cause the Existing Deed of Trust to be reconveyed as to the Seller's respective interest in the Land at the expense of Seller and concurrently with the Closing. 7. NO ASSIGNMENT BY BUYER PERMITTED. Buyer may not assign its interest under this Agreement without the express prior written consent of Seller, which consent may be given or withheld by Seller in its sole discretion, and any such attempted assignment made in violation of this provision shall be null and void. Notwithstanding the foregoing, Seller agrees not to unreasonably withhold its consent to an assignment by Buyer of its rights hereunder to an entity owned or controlled by or under common control with Buyer. Promptly after any such assignment, Seller shall be furnished with copies of the final executed assignment documents. 8. TIME OF THE ESSENCE AND ESCROW CANCELLATION. Time is of the essence of every provision of this Agreement in which time is an element. Failure by any party to perform any obligation within the time and on the terms and conditions required hereunder shall discharge the other party's duties and obligations to perform hereunder upon written notice or demand from the other party. However, if Escrow is not in condition to close by the agreed Closing Date, Escrow Holder shall continue to comply with the instructions contained herein until a written demand has been made by a party entitled to do so for the cancellation of Escrow. Escrow Holder shall notify all other parties to this Agreement of any such demand, and shall immediately cancel Escrow without any further instructions from any party. 9. TERMINATION RIGHTS. The parties shall have the right to terminate this Agreement as follows: (a) BUYER'S RIGHT. If Seller fails to perform any covenant when due hereunder, or if Seller is not in a position by the Closing Date to convey title to the respective fee and leasehold interest in the Land subject only to the matters described in Section 6(c) above, and Buyer is unwilling to accept such title to the respective interest in the Land as Seller may be able to convey, then Buyer may terminate this Agreement and the Escrow by giving written notice thereof to Seller and Escrow Holder, or Buyer may waive disapproval and acquire respective interest in the Land in accordance with the terms hereof. In the event of any such termination, or if Buyer duly terminates this Agreement pursuant to Page 7 9 Section 6(b) above, Seller and/or Escrow Holder shall promptly return to Buyer all sums theretofore delivered by Buyer pursuant to Section 4 above and held by either of them. Additionally, Escrow Holder shall return all instruments to the parties who deposited same, and all title and escrow cancellation charges shall be divided equally between the parties (except that Seller, or Buyer, as the case may be, shall pay all of such cancellation charges if the termination is due to said party's default). (b) SELLER'S RIGHT/LIQUIDATED DAMAGES. If Buyer fails to deposit any required sums by the prescribed time or in the prescribed manner, or to perform any other covenant when due hereunder, or if Buyer commits any other breach of this Agreement, the Seller, at its option, may terminate this Agreement and Escrow by giving written demand to Buyer and Escrow Holder. Thereupon Escrow shall be cancelled, all instruments shall be returned to the respective parties who deposited same, and Buyer shall pay all title and escrow cancellation charges and fees. IN ADDITION, THE PARTIES AGREE THAT SELLER SHALL HAVE SUSTAINED DAMAGES RESULTING FROM BUYER'S FAILURE TO PERFORM WHICH DAMAGES ARE DIFFICULT AND IMPRACTICABLE TO ASCERTAIN. ACCORDINGLY, SELLER SHALL BE ENTITLED TO RETAIN A PORTION OF THE DEPOSIT SPECIFIED IN SECTION 4(A) ABOVE, AS SUCH PORTION OF SUCH DEPOSIT IS ALLOCATED FOR EACH SUCH PARCEL HEREIN, AS A LIQUIDATED AND REASONABLE ESTIMATE OF SUCH DAMAGES FOR BUYER'S BREACH OR FAILURE TO COMPLETE THE PURCHASE OF THE LAND AS PROVIDED HEREINABOVE, PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671 AND 1677; PARCEL 1, $2,000; PARCEL 2, $2,000; PARCEL 3, $2000. ________________________ ______________________ Buyers Initials Seller's Initials 10. FURTHER DOCUMENTS AND ACTS. Each of the parties hereto agrees to cooperate in good faith with each other, and to execute and deliver such further documents and perform such other acts as may be reasonably necessary or appropriate to consummate and carry into effect the transactions contemplated under this Agreement. 11. BUYER'S ACKNOWLEDGMENTS. Buyer hereby acknowledges and agrees to each of the following provisions: (a) RECEIPT OF DOCUMENTS. Buyer has received and read, understands and agrees to be bound by the terms and conditions of the Ground Leases as they apply to Parcels 2 and 3, and the Land and Building Lease as it applies to a portion of parcel 1. Page 8 10 (b) PRIOR INVESTIGATIONS. Buyer agrees that it has fully inspected the Land and the improvements constructed thereon, is familiar with the terms and conditions of the Ground Leases as they apply to Parcels 2 and 3 and the Land and Building Lease as it applies to a portion of Parcel 1, and the condition of the improvements, and that it is purchasing the Land on an "as is" basis. Notwithstanding the foregoing, Buyer, its authorized agents and representatives shall have the right to enter onto Parcel 1 and make any and such inspections, appraisals and studies, at Seller's sole cost and expense, to determine the existence of contaminants in the soils or structures as follows: (i) A soils investigation performed by a licensed soil engineer, including but not limited to Phase I testing, and Phase II testing if required, certifying that the Premises are not in violation of EPA standards or regulations or such standards or regulations promulgated by any other governmental entity having authority therefor, and that the Parcel is otherwise free from subsurface soils contamination, including hydrocarbon contaminants, hazardous waste and/or toxic pollutants. (ii) Buyer shall, within fifteen (15) days from the execution date hereof, cause to have such testing of the existing office structure on Parcel 1 completed to determine the extent, if any, of contamination present in the structure. Should any contamination be present, Seller, at Seller's sole cost and expense, shall remove said contaminated materials as soon as reasonably possible, prior to the close of escrow on Parcel 1. If Seller should determine, in Seller's reasonable judgment, that the cost of removal of such contamination in cost prohibitive to Seller, Seller shall have the option of terminating this Agreement as it applies to Parcel 1, and refunding to Buyer the deposit allocated to such Parcel. 12. NON-FOREIGN STATUS OF SELLER. In accordance with Section 1445 of the Internal Revenue Code, Seller hereby represents, warrants and certifies to Buyer, under penalty of perjury, that Seller is not now, and at the Closing will not be, a "foreign person) (that is, a foreign corporation, foreign partnership, foreign trust or foreign estate, as those terms are defined in the Internal Revenue Code and regulations promulgated thereunder); that Seller's tax identification number is 13-3177751; and that Buyer need not withhold tax at the Closing as a result of this transfer. 13. FIRST RIGHT OF REFUSAL. It is expressly agreed that Buyer shall have the right to sell each of the Parcels herein, or any Page 9 11 portion thereof; however, Seller shall have the right of first refusal to purchase each of the Parcels, or any portion thereof, on the same terms and conditions as that established as a bona fide selling price between Buyer and a third party. Before Buyer sells the Parcel or any portion thereof to a third party, Buyer shall first give a written fifteen (15) day notice to Seller of Buyer's intention to do so. Said notice shall specify the terms and conditions upon which it is intended to make such sale and shall contain an offer to sell to Seller upon said terms. Seller shall have fifteen (15) days after receipt of said notice in which to accept or reject said offer. Buyer shall not sell the Parcel to a third party at a lower price or on terms more favorable than those specified to Seller. Any sale not in conformity with this paragraph shall be null and void. If Seller shall not give Buyer written notice of acceptance of the offer within said fifteen (15) days, Buyer shall have the right to sell to a third party at the price and on the terms and conditions of said offer. 14. SURVIVABILITY OF COVENANTS. All covenants of Buyer or Seller which are expressly intended hereunder to be performed in whole or in part after the Closing, and all representations, warranties and indemnities by either party to the other, shall survive the Closing and be binding upon and inure to the benefit of the respective parties hereto and their respective heirs, successors and permitted assignees. Any agreements, understandings, warranties or representations not expressly contained herein shall in no way bind either Seller or Buyer. Seller and Buyer each expressly waives any right of rescission and all claims for damages by reason of any statement, representation, warranty, promise and/or agreement, if any, not contained in or attached to this Agreement. 15. BROKERS' COMMISSIONS. Each of the parties represents to the other that no brokerage commission, finder's fee or other similar compensation of any kind is due or owing to any person or entity in connection with the transactions covered by this Agreement. Each party agrees to and does hereby indemnify and hold the other harmless from and against any and all costs, liabilities, losses, damages, claims, causes of action or proceedings which may result from any broker, agent, finder, or similar person, licensed or otherwise, claiming through, under or by reason of the conduct of the indemnifying party in connection with the transactions covered by this Agreement. 16. WAIVER, CONSENT AN REMEDIES. Each provision of this Agreement to be performed by Buyer and/or Seller shall be deemed both a covenant and a condition and shall be a material consideration for the other party's performance hereunder, and any breach thereof by Page 10 12 either party shall be deemed a material default hereunder by such patty. Either party may specifically and expressly waive in writing any portion of this Agreement or any breach thereof, but no such waiver shall constitute a further or continuing waiver of any preceding or succeeding breach of the same or any other provision. A waiving party may at any time thereafter require further compliance by the other party with any breach or provision so wived. The consent by one party to any act by the other for which such consent was required shall not be deemed to imply consent or waiver of the necessity of obtaining such consent for the same or any similar acts in the future. No waiver or consent shall be implied from silence or any failure of a party to act, except as otherwise specified in this Agreement. All rights, remedies, undertakings, obligations, options, covenants, conditions and agreements contained in this Agreement shall be cumulative and no one of them shall be exclusive of any other. Except as otherwise specified herein, either party may pursue any one or more of its rights, options or remedies hereunder or may seek damages or specific performance in the event of the other party's breach hereunder, or may pursue any other remedy at law or equity, whether or not stated in this Agreement. 17. ATTORNEYS' FEES. In the event of any declaratory or other legal or equitable action instituted between Seller, Buyer and/or Escrow Holder in connection with this Agreement, then as between Buyer and Seller the prevailing party shall be entitled to recover from the losing party all of its costs and expenses, including court costs and reasonable attorneys' fees. 18. CONDEMNATION. If at any time prior to the Closing, legal proceedings are commenced under the power of eminent domain with respect to allow any Parcel or portion thereof, either Seller or Buyer may terminate this Agreement and cancel Escrow as to such Parcel by giving written notice to Escrow Holder and the other party. Thereupon, all conveyance instruments relating to such Parcel shall be returned to the respective parties who deposited same, Buyer and Seller shall each pay one-half (1/2) of all title and Escrow cancellation charges, all other funds then deposited by Buyer in Escrow and any funds paid outside of Escrow by Buyer shall be returned to Buyer, and each party shall be excused from any further obligations hereunder or liability to the other party. In the event of such termination, Buyer shall have no right to participate in the receipt of any condemnation proceeds from the taking; provided, however, that the rights of Seller and the Lessee under the Lease applicable to the affected Parcel in the event of condemnation shall continue in full force and effect. Should neither party elect to terminate this Agreement as aforesaid, there shall be no price adjustment as a result of the taking, and Seller Page 11 13 shall not be entitled to any condemnation award as may be attributable to such Parcel. 19. DAMAGE OR DESTRUCTION. In the event any of the improvements on any Parcel are damaged or destroyed prior to the Closing, Buyer agrees that it shall bear the risk of such loss and shall have no right to terminate this transaction; provided, however, that as of the Closing Date, Buyer shall be entitled to all sums, if any, payable to the Lessor under the respective Lease as the result of such damage. 20. AUTHORITY TO BIND. Each of the individuals signing this Agreement on behalf of any entity thereby specifically represents and warrants that such signatories, either collectively or individually, have the authority to bind that entity to all provisions of this Agreement. 21. NOTICES. Any notice, request, demand, consent, approval or other communication required or permitted hereunder or by law shall be validly given or made only if in writing and delivered in person or by independent courier service to the other party at the address(es) below, or deposited in the United States mail, duly certified or registered (return receipt requested), postage prepaid, and addressed to the party for whom intended, as follows: If to Seller: CARL N. KARCHER and MARGARET M. KARCHER TRUST P. O. Box 61021 Anaheim, CA 92803 copy to: LEWIS, D'AMATO, BRISBOIS & BISGAARD 650 Town Center Drive, Suite 1400 Costa Mesa, CA 92626 Attn: Bruce M. Boyd, Esq. If to Buyer: Carl Karcher Enterprises, Inc. P. O. Box 4349 Anaheim, CA 92803 Attn: Leasing/Escrow Department Any party may from time to time, by written notice to the other, designate a different address which shall be substituted for that specified above. If any notice or other document is sent by mail as aforesaid, the same shall be deemed fully delivered and received forty-eight (48) hours after mailing as provided above. Page 12 14 22. GENDER AND NUMBER. In this Agreement (unless the context requires otherwise), the masculine, feminine and neuter genders and the singular and the plural shall be deemed to include one another, as appropriate. 23. ENTIRE AGREEMENT. This Agreement and its exhibits constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and the final, complete and exclusive expression of the terms and conditions thereof. Prior agreements, representations, negotiations and understandings of the parties hereto, oral or written, express or implied, are hereby superseded and merged herein. 24. CAPTIONS. The captions used herein are for convenience only and are not a part of this Agreement and do not in any way limit or amplify the terms and provisions hereof. 25. GOVERNING LAW. This Agreement and the exhibits attached hereto have been negotiated and executed in the State of California and shall be governed by and construed under the laws of the State of California. 26. INVALIDITY OF PROVISIONS. If any provision of this Agreement as applied to either party or to any circumstance shall be adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the same shall in no way affect (to the maximum extent permissible by law) any other provision of this Agreement, the application of any such provision under circumstances different from those adjudicated by the court, or the validity or enforceability of the Agreement as a whole. 27. AMENDMENTS. No addition to or modification of any provision contained in this Agreement shall be effective unless fully set forth in writing and signed by both Buyer and Seller. 28. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. 29. NO RECORDATION. Neither Buyer nor Seller shall, without the consent of the other, record this Agreement, or a short form or memorandum thereof, or take any other action which would materially Page 13 15 and adversely affect the marketability of Seller's title to the Land. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. SELLER: BUYER: - - ------- ------ CARL AND MARGARET M KARCHER CARL KARCHER ENTERPRISES, INC. TRUST, under a Declaration of a California corporation Trust dated August 17, 1970, as amended /s/ CARL N. KARCHER /s/ RICHARD C. CELIO BY: _______________________ BY: _______________________ Richard C. Celio Vice President/ Corporate Counsel /s/ LOREN PANNIER BY: _______________________ BY: _______________________ Loren Pannier Group Vice President Finance/Administration
Page 14 16 EXHIBIT "A" Legal Description Parcel 1: Lots 1, 2, 3, 4, 5, and 6 in Block 1 of Tract No. 856, in the City of Garden Grove, as shown on a map thereof recorded in book 26, page 8, Miscellaneous Maps, records of said Orange County. Parcel 2: The South 100.00 feet of the North 335.00 feet of the West 150.00 feet of the East 200.00 feet of the Northeast Quarter of the Northeast Quarter of Section 29, Township 4 South, Range 10 West, partly in the Rancho Los Coyotes and partly in the Rancho Las Bolsas, in the City of Garden Grove, County of Orange, State of California, as per map recorded in Book 51, Page 10 of Miscellaneous Maps, in the Office of the County Recorder of said County. Parcel 3: All that certain land situated in the State of California, County of Orange, described as follows: That portion of allotments in decree of partition of the Rancho Canon de Santa Ana in the County of Orange, State of California, recorded in Case No. 1978 of the 17th Judicial District Court of California, a certified copy of which was recorded February 8, 1974 in book 28, page 158 of Deed in the office of the County Recorder of Los Angeles County, California described as follows: Parcel No. 3, as shown on a Map filed in book 56, page 2 of Parcel Maps in the office of the County Recorder of Orange County, California. Page 1 17 EXHIBIT "B" A. Parcel 1: That certain fee property identified as Parcel 1 on Exhibit "A" herein, and a portion of which may also be referred to as CKE Unit #5, which parcel 1 is subject to: (i) a Land and Building Lease dated December 1, 1978 by and between Carl N. Karcher, Trustee, "Lessor", and Carl Karcher Enterprises, Inc., "Lessee" ("Land and Building Lease") as such Land and Building Lease was amended by that certain First Amendment to Lease dated June 12, 1979, and that Second Amendment to Lease dated March 26, 1990; (ii) a Land and Building Lease dated June 1, 1986, by and between Carl N. Karcher and Margaret M. Karcher Trust, "Lessor", and Dental Finance Company, "Lessee" (Land and Building Lease"). B. Parcel 2: That certain leasehold property identified as Parcel 2 on Exhibit "A" herein, and which may also be referred to as CKE Unit #6, which Parcel 2 is subject to: (i) that certain Ground Lease dated August 10, 1979, by and between John C. Quantannens, Trustee, "Lessor", and Carl N. Karcher, Trustee under trust dated August 17, 1970, "Lessee", ("Ground Lease") as such Ground Lease was amended by that certain First Amendment to Ground Lease dated August 12, 1970; (ii) that certain Land and Building Lease dated February 15, 1980, by and between Carl N. Karcher, Trustee, under the Trust dated August 17, 1970, "Lessor", and Carl Karcher Enterprises, Inc., a California corporation, "Lessee", ("Land and Building Lease") as such Land and Building Lease was amended by that certain Rental Commencement Memorandum executed September 4, 1980, that certain First Amendment to Lease dated March 2, 1981 and that certain Second Amendment to Lease executed March 26, 1990. C. Parcel 3: That certain leasehold property identified as Parcel 3 on Exhibit "A" herein, and which may also be referred to as CKE Unit #140, which Parcel 3 is subject to: (i) that certain Ground Lease dated September 3, 1974, by and between Raymond G. Spehar and Estelle K. Spehar and Marcia Ann Halligan, "Lessor", and Carl Karcher Enterprises, Inc., a California corporation, "Lessee" ("Ground Lease") as such Ground Lease was amended by that certain First Amendment to Lease dated August 5, 1975, and that certain Assignment of Lease dated April 20, 1976 wherein the Ground Lease was assigned by Carl Karcher Enterprises, Inc. to Carl N. Karcher, Trustee under a trust dated August 17, 1970 and as such Lease was further amended by that certain Amended and Restated Ground Lease dated November 3, 1980, and that certain Second Amendment of Ground Lease executed November 6, 1986; Page 2 18 EXHIBIT "B" (page 2) (ii) that certain Land and Building Lease dated April 21, 1976 by and between Carl N. Karcher, Trustee under the Trust dated August 17, 1970, "Lessor", and Carl Karcher Enterprises, Inc., a California corporation, "Lessee", ("Land and Building Lease") as such Land and Building Lease was amended by that certain Amendment to Lease dated January 28, 1983, that certain Second Amendment of Land and Building Lease dated November 6, 1986, and that Third Amendment to Land and Building Lease executed on March 26, 1990. Page 3 19 EXHIBIT "C" FIDELITY NATIONAL TITLE Escrow Instructions (continued) GENERAL PROVISIONS 1. DEPOSIT OF FUNDS Section 12413.1, California Insurance Code, commonly known as Assembly Bill 512, became effective January 1, 1990. This legislation deals with the disbursement of funds deposited with any title entity acting in an escrow or sub escrow capacity. The law requires that all funds be deposited and collected by the title entity's escrow and/or sub escrow account prior to disbursement of any funds. Some methods of funding may subject funds to a holding period which must expire before any funds may be disbursed. In order to avoid any such delays, all funding should be done through wire transfer, certified check, cashier's check or teller's check. All funds received in this escrow shall be deposited with other escrow funds in a general escrow account or accounts of FIDELITY NATIONAL TITLE, with any state or national bank, and may be transferred to any other such general escrow account or accounts. Said funds will not earn interest unless otherwise specifically stated herein. All disbursements shall be made by check of FIDELITY NATIONAL TITLE. If for any reason funds are retained or remain in escrow, you are to deduct therefrom a reasonable monthly charge as custodian thereof of not less than $10.00 per month. 2. PRORATIONS AND ADJUSTMENTS All prorations and/or adjustments called for in this escrow are to be made on the basis of a thirty (30) day month unless otherwise instructed in writing. Re-prorations, if necessitated by subsequent changes, will be made direct and outside escrow. The phrase "close of escrow" (COE or CE) as used in this escrow means the date on which documents are recorded and relates only in proration and/or adjustments unless otherwise specified. You are to use information contained on last available tax statement, rental statement as provided by the Seller, beneficiary's statement and fire insurance policies delivered into escrow for the prorates provided for herein. Tax bills issued after close of escrow shall be handled directly between buyer and seller. 3. SUPPLEMENTAL TAXES The within described property will be subject to supplemental real property taxes due to the change of ownership taking place through this escrow. Any supplemental real property taxes arising as a result of the transfer of the property to Buyer shall be the sole responsibility of Buyer and any supplemental real property taxes arising prior to the closing date shall be the sole responsibility of the Seller. TAX BILLS ISSUED AFTER CLOSE OF ESCROW SHALL BE HANDLED DIRECTLY BETWEEN BUYER AND SELLER. 4. UTILITIES/POSSESSION Transfer of utilities and possession of the premises are to be settled by the parties direct and outside of escrow. 5. RECORDATION OF INSTRUMENTS Recordation of any instruments delivered through this escrow, if necessary or proper for the issuance of the policy of title insurance called for, is authorized. 6. AUTHORIZATION TO FURNISH COPIES You are authorized to furnish copies of these instructions, supplements, amendments, or notices of cancellation and closing statements in this escrow, to the Real Estate Broker(s) and Lender(s) named in this escrow. 7. AUTHORIZATION TO EXECUTE ASSIGNMENT OF HAZARD INSURANCE POLICIES Either Buyer, Seller and/or Lender will hand you the insurance agent's name and insurance policy information, and you are to execute, on behalf of the principals hereto, form assignments of interest in any insurance policy (other than title insurance) called for in this escrow, forward assignment and policy to the insurance agent, requesting that insurer consent to such transfer and/or attach a loss payable clause and/or such other endorsements as may be required, and forward such policy(s) to the principals entitled thereto. It is not your responsibility to verify the information handed you or the assignability of said insurance. Your sole duty is to forward said request to insurance agent as close of escrow. Further, there shall be no responsibility upon the part of the escrow company to renew hazard insurance upon expiration or otherwise keep it in force either during the interim and/or subsequent to the close of escrow. Cancellation of any existing hazard insurance policies are to be handled direct and outside of escrow. 8. PERSONAL PROPERTY No examination or insurance as to the amount or payment of personal property taxes is required unless specifically requested. By the signing below, the parties to the above referenced escrow hereby acknowledge that they are indemnifying the Escrow Agent of any and all matters regarding any "Bulk Sales" requirements, if applicable, and instruct Escrow Agent to proceed with the closing of escrow without any matter of any nature whatsoever regarding "Bulk Sales" being handled through escrow. 9. RIGHT OF RESIGNATION Escrow Agent has the right to resign upon written ten (10) day notice. If such right is exercised, all funds and documents shall be returned to the party who deposited them and Escrow Agent shall have no liability hereunder. 10. RIGHT OF CANCELLATION Any principal instructing you to cancel this escrow shall file notice of cancellation in your office in writing. You shall, within two (2) working days thereafter, mail, by certified mail, one copy of such notice to each of the other principals at the addresses stated in this escrow. UNLESS WRITTEN OBJECTION TO CANCELLATION IS FILED IN YOUR OFFICE BY A PRINCIPAL WITHIN TEN (10) DAYS AFTER DATE OF SUCH MAILING, YOU ARE AUTHORIZED TO COMPLY WITH SUCH NOTICE AND DEMAND PAYMENT OF YOUR CANCELLATION CHARGES. If written objection is filed, you are authorized to hold all money and instruments in this escrow and take no further action until otherwise directed, either by the principals' mutual written instructions, or final order of a court of competent jurisdiction. 11. ACTION IN INTERPLEADER The principals hereto expressly agree that you, as escrow holder, have the absolute right at your election to file an action in interpleader requiring the principals to answer and litigate their several claims and rights among themselves and you are authorized to deposit with the clerk of the court all documents and funds held in this escrow. In the event such action is filed, the principals jointly and severally agree to pay your cancellation charges and costs, expenses and reasonable attorney's fees which you are required to expend or incur in such interpleader action, the amount thereof to be fixed and judgment therefor to be rendered by the court. Upon the filing of such action, you shall thereupon be fully released and discharged from all obligations to further perform any duties or obligations otherwise imposed by the terms of this escrow. ______________________________________________________________________ Signature ______________________________________________________________________ 12. TERMINATION OF AGENCY OBLIGATION If there is no action taken on this escrow within six (6) months after the "time limit date" as set forth in the escrow instructions or written extension thereof, your agency obligation shall terminate at your option and all documents, monies or other items held by you shall be returned to the parties depositing same. In the event of cancellation of this escrow, whether it be at the request of any of the principals or otherwise, the fees and charges due FIDELITY NATIONAL TITLE, including expenditures incurred and/or authorized shall be borne equally by the parties hereto (unless otherwise agreed to specifically). 13. CONFLICTING INSTRUCTIONS Upon receipt of any conflicting instructions, you are no longer obligated to take any further action in connection with this escrow until further consistent instructions are received from the principals to this escrow. 14. REIMBURSEMENT ATTORNEY FEES/ESCROW HOLDER In the event that a suit is brought by any party or parties to these escrow instructions to which the escrow holder is named as a party which results in a judgment in favor of the escrow holder and against a principal or principals herein, the principal or principals' agent agree to pay said escrow holder all costs, expenses and reasonable attorney's fees which it may expend or incur in said suit, the amount thereof to be fixed and judgment therefore to be rendered by the court in said suit. 15. DELIVERY/RECEIPT Delivery to Buyer and/or Seller as used in these instructions is to be by regular mail, and receipt is determined to be 72 hours after such mailing unless otherwise stated herein. All documents, balances and statements due to the undersigned are to be mailed to the address shown herein. 16. STATE/FEDERAL CODE NOTIFICATIONS According to Section 1521 of The Tax Reform Act of 1986, the Seller, when applicable, will be required to complete a sales activity report that will be utilized to generate a 1099 to the Internal Revenue Service. Pursuant to Section 480.3 of Revenue and Taxation Code of the State of California prior to the close of escrow, Buyer will provide Escrow Holder with a Preliminary Change of Ownership Report. In the event said report is not handed to Escrow Holder for submission to the County in which subject property is located, upon recording of the Grant Deed, Buyers acknowledge that the applicable fee will be assessed by said County and Escrow Holder shall debit the account of Buyer for same at close of escrow. Further, Buyers acknowledge that this lack of submission may impact certain provisions under the Owners Policy of Title Insurance issued at close of this escrow. Pursuant to Foreign Investors in Real Property Tax Act, the Internal Revenue Code, Sections 1445 and 6039 C, and any applicable state codes affecting the same, Buyer and Seller herein represent and warrant that they will seek and obtain independent legal advice and counsel relative to their obligations and will take all steps in order to comply with such requirements 20 and agree to hold you harmless relative to their compliance therewith. (SALE ONLY) 17. ENCUMBRANCES Escrow agent is to act upon any statements furnished by a lienholder or his agent without liability or responsibility for the accuracy of such statements. Any adjustment necessary because of a discrepancy between the information furnished Escrow Agent and an amount later determined to be correct shall be settled between the parties direct and outside of escrow. You are authorized to pay all encumbrances necessary to place title in condition called for herein, including but not limited to prepayment penalties, without further approval of the undersigned. 18. ENVIRONMENTAL ISSUES FIDELITY NATIONAL TITLE has made no investigation concerning said property as to environmental/toxic waste issues. Any due diligence required or needed to determine environmental impact as to forms of toxification, if applicable, will be done direct and outside of escrow. FIDELITY NATIONAL TITLE is released of any responsibility and/or liability in connection therewith. 19. USURY You are not to be concerned with any questions of usury in any loan or encumbrance involved in the processing of this escrow, and you are hereby released of any responsibility or liability therefore. 20. DISCLOSURE Your knowledge of matters affecting the property, provided such facts do not prevent your compliance with these instructions, does not create any liability or duty in addition to your responsibility under these instructions. 21. CLARIFICATION OF DUTIES FIDELITY NATIONAL TITLE serves as an Escrow Agent ONLY in connection with these instructions and cannot give legal advice to any party hereto. THIS AGREEMENT IN ALL PARTS APPLIES TO, INSURES TO THE BENEFIT OF, AND BINDS ALL PARTIES HERETO, THEIR HEIRS, LEGATEES, DEVISEES, ADMINISTRATORS, EXECUTORS, SUCCESSORS AND ASSIGNS, AND WHENEVER THE CONTEXT SO REQUIRES THE MASCULINE GENDER INCLUDES THE FEMININE AND NEUTER, AND THE SINGULAR NUMBER INCLUDES THE PLURAL. THESE INSTRUCTIONS AND ANY OTHER AMENDMENTS MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, EACH OF WHICH SHALL BE CONSIDERED AS AN ORIGINAL AND BE EFFECTIVE AS SUCH. MY SIGNATURE HERETO CONSTITUTES INSTRUCTION TO ESCROW HOLDER OF ALL TERMS AND CONDITIONS CONTAINED IN THIS AND ALL PRECEDING PAGES AND FURTHER SIGNIFIES THAT I HAVE READ AND UNDERSTAND THESE GENERAL PROVISIONS. _______________________________________________________________________________ Signature _______________________________________________________________________________ 21 EXHIBIT "D" RECORDING REQUESTED BY MAIL TAX STATEMENT TO Carl Karcher Enterprises 1200 N. Harbor Blvd. Anaheim, CA 92803 WHEN RECORDED MAIL TO Carl Karcher Enterprises, Inc. 1200 N. Harbor Blvd. Anaheim, CA 92803 Attn: Leasing/Escrow Dept. ________________________________ SPACE ABOVE RECORDER'S USE ONLY________________ ORDER NO. ESCROW NO. GRANT DEED (INDIVIDUAL) ________________________________________________________________________________ The undersigned grantor(s) declare(s): Documentary transfer tax is $____________________. ( ) Computed on full value of property conveyed, or ( ) Computed on full value less value of liens and encumbrances remaining at time of sale. ( ) Unincorporated area ( ) City of ____________________________________ Tax Parcel No. ____________________________ FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, CARL N. KARCHER, Trustee of CARL N. KARCHER AND MARGARET M. KARCHER TRUST, hereby GRANT(S) to CARL KARCHER ENTERPRISES, INC., a California corporation, the following described real property in the County of Orange, State of California: Lots, 4, 5 and 6 in Block 1 in Tract No. 856, as per map thereof recorded in Book 16, Page 8 of Miscellaneous Maps, Records of Orange County, California. SUBJECT TO: Covenants, conditions, rights, easements and encumbrances of record. _____________________________________ Dated______________________________ _____________________________________ _____________________________________ _____________________________________ STATE OF CALIFORNIA S.S. County of _________________________ On ___________________________________ before me, ___________________________________________, Notary Public, personally appeared _______________________________________________, 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, Signature ______________________________________________________ (Seal) EX-10.84 10 FIRST AMENDMENT TO PURCHASE AGREEMENT 1 Exhibit 10-84 2 FIRST AMENDMENT TO PURCHASE AGREEMENT THIS FIRST AMENDMENT TO PURCHASE AGREEMENT (this "Amendment") is made as of this 1st day of November, 1993, by and between CARL N. KARCHER IN HIS RESPECTIVE CAPACITY AS TRUSTEE OF THE CARL N. KARCHER AND MARGARET M. KARCHER TRUST, under a Declaration of Trust dated August 17, 1970 (collectively, "Seller"), and CARL KARCHER ENTERPRISES, INC., a California corporation ("Buyer"). RECITALS A. Seller and Buyer have entered into a written Purchase Agreement dated February 8, 1993 (the "Agreement") whereby Seller agreed to sell to Buyer the "Land." (Capitalized terms not otherwise defined herein shall have the meanings given them in the Agreement.) B. The testing of Parcel 1 performed by Buyer as provided in Section 11(b) of the Agreement has not produced results satisfactory to Buyer. C. The time provided for Closing in the Agreement has not been met and Buyer has heretofore terminated the Agreement. D. Seller and Buyer now desire to revive the Agreement so that it will be in full force and effect and to amend the Agreement in the following particulars. NOW THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. The Agreement, as amended hereby, shall be revived and shall be deemed to be, and is, in full force and effect, as amended hereby, as of the date hereof. 2. Section 3 of the Agreement is hereby deleted in its entirety and the following is substituted in lieu therefor as if set forth in full in the Agreement: Subject to the satisfaction or waiver by Buyer of all conditions precedent set forth herein, the closing ("Closing") of the purchase and sale of the interests in portions of the Land shall take place through Escrow as follows: (a) For Parcel 1, within 30 days of the date of Buyer's acceptance or waiver of each and all the conditions precedent set forth herein with respect to Parcel 1, including but not limited to approval by Buyer of the condition of the soils on Parcel 1 as provided in Section 11(b), but in no event later than November 1, 1994. (b) For Parcels 2 and 3, on or before November 15, 1993, or such other date as the parties may mutually agree on in writing (the "Closing Date"). The Closing of the sale of Parcel 1 shall not be dependent upon, or affected by, nor shall the parties' obligations with respect thereto be affected by, the Closing of the sale of Parcel 2 or Parcel 3. The Closing of the sale of Parcel 2 shall occur simultaneously with the Closing of the sale of Parcel 3. The Closing of the sale of Parcel 2 and Parcel 3 shall not be dependent upon, or affected by, the Closing of the sale of Parcel 1. 3. Section 4(b) of the Agreement is hereby deleted in its entirety and replaced with the following: 3 (b) CASH AT CLOSING. The balance of the Purchase Price with respect to any Parcel, together with any additional amounts and costs chargeable to Buyer as provided below with respect to such Parcel, shall be deposited by Buyer into Escrow not less than twenty-four (24) hours prior to the Closing Date of the escrow with respect to such parcel, and, except as provided in Section 4(a) above, shall be disbursed by Escrow Holder to Seller upon the Closing with respect to such Parcel, less the costs and prorations chargeable to Seller under Section 5 below with respect to such Parcel. 4. Section 5(b) is hereby modified by adding thereto at the end thereof the following: Buyer and Seller hereby agree that all accrued and unpaid rents under the leases between Buyer and Seller with respect to parcel 2 and Parcel 3 shall be due and payable upon the earlier to occur of the Close of Escrow with respect to Parcel 2 and Parcel 3 or the termination of this Agreement with respect to Parcel 2 and Parcel 3 (with the exception that the aggregate sum of $30,460.64 previously unpaid by Buyer with respect to the months of July and August, 1993 shall be due and payable upon the execution of this Agreement, along with any quarterly dividend payments which have been offset against the $700,000 deposit, provided, however, nothing contained herein shall constitute a consent or an acknowledgement by Seller as to the legality or permissibility of any such dividend offset or a waiver of any rights Seller may have against Buyer with respect to the legality of such offset); provided, however, that in the event that the Close of Escrow with respect to Parcel 2 and Parcel 3 does not occur on the Closing Date other than due to a default hereunder by Seller, rents accruing under the leases between Buyer and Seller with respect to Parcel 2 and Parcel 3 from and after such Closing Date shall be due and payable pursuant to the terms of the leases. Notwithstanding the foregoing, all percentage rents shall be determined as and when required by the leases and Buyer shall promptly thereafter pay such rents to Seller. Buyer's obligations under this Section 5(b) shall survive the Closing without limitation. 5. Section 11(b) of the Agreement is hereby modified by deleting of the last paragraph thereof and substituting the following in lieu therefor as if set forth in full therein: Buyer has found and given notice to Seller that contamination (including without limitation asbestos) is present on Parcel 1 and the improvements thereon, and that Parcel 1 and the improvements thereon are unacceptable to Buyer in their present condition. Buyer and Seller agree that Buyer and Seller shall promptly make good faith efforts to cause the third party or third parties responsible for such contamination to remediate such contamination on Parcel 1 and the improvements thereon to an extent acceptable to the Responsible Lead Agency having jurisdiction over such remedial efforts (the "RLA"). On November 1, 1994 (or such later date to which Buyer and Seller may agree in writing), if Buyer and Seller have not received "Acceptable Plans and Indemnities," then if Buyer so elects in writing, this Agreement shall thereupon terminate, and the deposit allocated to Parcel 1 shall be returned to Buyer. "Acceptable Plans and Indemnities" shall mean written remediation plans for Parcel 1 and the improvements thereon acceptable to the RLA, and with regard to the asbestos, a written remediation plan acceptable to Buyer, and written agreements acceptable to Buyer in its reasonable judgment, to be executed prior to close of escrow with respect to Parcel 1 by the third party or third parties responsible for such contamination, indemnifying the present and future owners and occupants of the property against any and all costs or causes of action resulting from the contamination. Should the Buyer determine in Buyer's reasonable judgment that the "Acceptable Plans and Indemnities" will result in interference with the conduct of the businesses 2 4 on Parcel 1 (including, without limitation, customer parking and access), or that there is significant uncertainty based on available data that the proposed remediation will succeed in meeting clean-up standards acceptable to the RLA without resulting in such interference, Buyer may terminate the Agreement as it applies to Parcel 1, and the deposit allocated to Parcel 1 shall be returned to Buyer, but in no event shall any such termination occur prior to November 1, 1994. The provisions of this paragraph shall survive the closing of the sale of Parcel 2 and Parcel 3 without limitation. Nothing in this paragraph shall be deemed an admission of any party with respect to responsibility for the contamination of Parcel 1 or a waiver of any rights, if any exist, any party may claim against the other party hereto with respect to such contamination. 6. Buyer and Seller have previously established escrows (collectively, the "Escrows") at Fidelity National Title Company to consummate the purchase and sale of each of the Parcels. Prior to the date of this Amendment, the Escrows were terminated. Buyer and Seller hereby agree promptly to take all actions as may be reasonably necessary or desirable to revive or re-establish the Escrows, and to deliver to the Escrows such documents or instruments as may be necessary to consummate the transactions contemplated hereby. 7. This Amendment and the Agreement constitute the entire agreement, and supersede all prior and contemporaneous agreements and understandings, of Seller and Buyer with respect to the purchase and the sale of the Land. 8. Seller and Buyer each agree to execute and deliver such documents and to perform such other acts, promptly upon request, as are necessary or appropriate to effectuate the purposes of this Amendment and the Agreement. 9. This Amendment shall be governed by and interpreted in accordance with the laws of the State of California applicable to contracts executed and to be performed in that state. 10. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns. 11. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original as against the party whose signature appears thereon and all of which together shall constitute but one and the same document. 12. This Amendment may be amended only by a writing executed by Seller and Buyer which expressly refers to this Amendment and the Agreement and the intent of the parties to amend its provisions. 13. If any action or proceeding is brought to enforce this Amendment, declare the meaning of its terms, or as a result of any breach or default hereunder, the prevailing party in such action or proceeding 3 5 shall be entitled to recover from the non-prevailing party, and the non-prevailing party shall pay to the prevailing party, its attorneys' fees and costs of suit. IN WITNESS WHEREOF, the parties have set their hands as of the day and date first written above. SELLER: BUYER: /s/ CARL N. KARCHER - - ------------------------------- CARL KARCHER ENTERPRISES, INC., Carl N. Karcher, as trustee of a California corporation the Carl N. Karcher and Margaret M. Karcher Trust, under a By: /s/ RICHARD C. CELIO Declaration of Trust dated ------------------------------ August 17, 1970 Richard C. Celio Vice President/General Counsel DATE: November 2, 1993 4 EX-10.85 11 FRANCHISE AGREEMENT DATED APRIL 7, 1993 1 Exhibit 10-85 2 CARL'S JR. RESTAURANT FRANCHISE AGREEMENT THIS FRANCHISE AGREEMENT ("Agreement") is made and entered into April 7, 1993, between CARL KARCHER ENTERPRISES, INC., a California corporation ("CKE"), and CARL LEO KARCHER ("Franchisee"). WHEREAS, CKE, as the result of the expenditure of time, skill, effort, and money, has developed and owns a unique and distinctive system ("System") relating to the establishment and operation of fast service restaurants; WHEREAS, the distinguishing characteristics of the System include, without limitation, distinctive exterior and interior design and layout, including specially designed decor and furnishings; a highly refined and efficient kitchen layout featuring an automatic charbroiling cooking process; special recipes and menu items; procedures and techniques for food and beverage preparation and service; automated management information and control systems for inventory controls, cash controls, and sales analysis; technical assistance and training through course instruction and manuals; and advertising and promotional programs; all of which may be changed, improved, and further developed by CKE from time to time; WHEREAS, CKE identifies the System by means of certain trade names, service marks, trademarks, logos, emblems, and indicia of origin, including but not limited to the mark "CARL'S JR.", and such other trade names, service marks, and trademarks as are now designated, and may hereafter be designated by CKE in writing, for use in connection with the System ("Proprietary Marks"); WHEREAS, CKE continues to develop, use, and control the use of such Proprietary Marks in order to identify for the public the source of services and products marketed thereunder and under the System, and to represent the System's high standards of quality, appearance, and service; WHEREAS, Franchisee desires to enter into the business of operating a Carl's Jr. restaurant under CKE's System and wishes to obtain a franchise from CKE for that purpose, as well as to receive the training and other assistance provided by CKE in connection therewith; 1 3 WHEREAS, Franchisee understands and acknowledges the importance of CKE's high standards of quality, cleanliness, appearance, and service and the necessity of operating the business franchised hereunder in conformity with CKE's standards and specifications; NOW, THEREFORE, the parties, in consideration of the undertakings and commitments of each party to the other party set forth herein, hereby agree as follows: I. GRANT A. CKE hereby grants to Franchisee, upon the terms and conditions herein contained, the right and franchise, and Franchisee undertakes the obligation, to operate a Carl's Jr. restaurant ("Restaurant" or "franchised business") and to use solely in connection therewith the Proprietary Marks and the System, as it may be changed, improved, and further developed from time to time, only at the approved location described in Section I.B. B. The street address of the location approved hereunder shall be set forth in Attachment A hereto. Franchisee shall not relocate the franchised business without the express prior written consent of CKE. C. Franchisee expressly acknowledges that the rights conferred do not include any marketing exclusivity therein. Franchisee expressly acknowledges and understands that all Carl's Jr. Restaurants (whether Company-owned, Franchised or otherwise) may solicit and service customers regardless of the customer's geographic location. D. Franchisee acknowledges that this franchise is non-exclusive and is granted subject to the terms of Section VI.C. 6 hereof. II. TERM AND RENEWAL A. Except as otherwise provided herein, the term of this Agreement shall commence upon its execution by the parties and shall expire twenty (20) years from the date on which the Restaurant is opened for business; provided, however, that if Franchisee's approved location is leased, this Agreement shall expire at the earlier of twenty (20) years from the date of opening for business or upon expiration or termination of the initial term of the lease. B. Franchisee may, at its option, renew this Agreement for one (1) additional consecutive term of ten (10) years, provided that prior to the end of the initial term: 2 4 1. Franchisee has given CKE written notice of its election to renew not less than twenty-four (24) months nor more than thirty-six (36) months prior to the end of the initial term; 2. Franchisee has made or has provided for, in a manner satisfactory to CKE, renovation and modernization of the Restaurant premises as CKE may reasonably require, including, without limitation, renovation of signs, furnishings, fixtures, and decor, to reflect the then-current standards and image of the System as designated in the Confidential Operating Manual ("OPM"); 3. Franchisee is not in default of any provision of this Agreement, any amendment hereof or successor hereto, or any other agreement between Franchisee and CKE or its subsidiaries and affiliates, and has complied with all the terms and conditions of such agreements during the terms thereof; 4. Franchisee has satisfied all monetary obligations owed by Franchisee to CKE and its subsidiaries and affiliates and has timely met those obligations throughout the term of this Agreement; 5. Franchisee shall present satisfactory evidence that Franchisee has the right to remain in possession of the approved location for the renewal term; 6. Franchisee shall have executed CKE's then-current form of renewal franchise agreement, which agreement shall supersede this Agreement in all respects, and the terms of which may differ from the terms of this Agreement, including, without limitation, a higher percentage royalty fee and advertising contribution; provided, however, that Franchisee shall pay, in lieu of an initial franchise fee, a renewal fee not to exceed seventy-five percent (75%) of the then-current initial franchise fee; 7. Franchisee shall execute a full and general release, in a form prescribed by CKE, of any and all claims against CKE and its subsidiaries and affiliates, and their respective officers, directors, agents, and employees; and 8. Franchisee shall comply with CKE's then-current qualification and training requirements. III. DUTIES OF CKE A. CKE shall provide an initial training program for Franchisee, Franchisee's Restaurant Manager and any other employees of Franchisee who are to be trained in 3 5 accordance with Section V.C. hereof and shall make available such other training programs as it deems appropriate. All training provided by CKE shall be subject to the terms set forth in Section V.D. of this Agreement. B. CKE may provide Franchisee, in its OPM, Franchise Development Guide ("Guide") or otherwise, with standard plans and specifications for the construction of the Restaurant and for the exterior and interior design, layout, fixtures, furnishings and signs. Franchisee shall, at his sole expense, employ architects, designers, engineers or others as may be necessary to complete, adapt, modify or substitute the sample plans and specifications for the Restaurant. Franchisee shall submit to CKE a complete set of final plans and specifications prior to commencing construction of the Restaurant. CKE shall review such plans and specifications promptly and approve or provide comments on the plans and specification to Franchisee. Franchisee shall not commence construction of the Restaurant until CKE has approved in writing the final plans and specifications to be used in constructing the Restaurant. CKE shall consult with Franchisee, to the extent CKE deems necessary, on the construction and equipping of the Restaurant, but it is, shall be and shall remain the sole responsibility of Franchisee to diligently design, construct, equip and otherwise ready and open the Restaurant. C. Upon Franchisee's request or in CKE's discretion, CKE shall provide such on-site opening assistance as CKE deems advisable, subject (as to timing) to the availability of personnel. CKE shall provide such continuing advisory assistance to Franchisee in the operation of the franchised business as CKE deems advisable. D. CKE shall make available, from time to time, advice and assistance in local advertising and, at Franchisee's expense, promotional materials for local advertising by Franchisee. CKE shall have the right to review and approve or disapprove all advertising and promotional materials which Franchisee proposes to use, pursuant to Section X.D. hereof. E. CKE shall provide Franchisee, on loan, one or more copies of the OPM, as more fully described in Section VII. hereof. CKE shall also provide to Franchisee, from time to time as CKE deems appropriate, advice and written materials concerning techniques of managing the franchised business. F. CKE shall seek to maintain the high standards of quality, appearance, and service of the System, and to that end shall conduct, as it deems advisable, inspections of the 4 6 Restaurant franchised hereunder, and evaluations of the products sold and services rendered therein. IV. FEES A. Franchisee shall pay to CKE an initial franchise fee of Twenty-Five Thousand Dollars ($25,000), payable as follows: (1) Ten Thousand Dollars ($10,000) within twenty (20) days of notification of CKE's approval of the Franchisee's proposed site and (2) Fifteen Thousand Dollars ($15,000) within ten (10) days of commencement of construction of the Restaurant. Upon payment of each portion of the initial franchise fee, that portion shall be deemed fully earned and nonrefundable in consideration for administrative and other expenses incurred by CKE in granting this franchise and for CKE's lost or deferred opportunity to franchise others. B. During the term of this Agreement, Franchisee shall pay to CKE a continuing weekly royalty fee in an amount not to exceed four percent (4%) of the gross sales of the Restaurant, as defined in Section IV.E. hereof, as set forth in Exhibit 2. C. Franchisee shall also expend and/or contribute, on a weekly basis, a percentage of the gross sales of the Restaurant, said percentage to be at least four percent (4%) but no greater than six percent (6%) of the gross sales of the Restaurant, allocated as provided in Section X. hereof, for advertising and promotion. D. All weekly payments required by this Section IV. shall be paid to CKE by the fifth (5th) business day immediately following the fiscal week, as designated by CKE, during which the sales were made and shall be submitted to CKE together with any reports or statements required under Section IX.B. hereof. Any payment or report not actually received by CKE on or before such date shall be deemed overdue. If any payment is overdue, Franchisee shall pay CKE, in addition to the overdue amount, interest on such amount from the date it was due until paid at the equivalent of eighteen percent (18%) per annum calculated on a daily basis, or the maximum rate permitted by law, whichever is less. Entitlement to such interest shall be in addition to any other remedies CKE may have. E. As used in this Agreement, "gross sales" shall include all revenue from the sale of all services and products and all other income of every kind and nature related to the 5 7 franchised business, whether for cash or credit and regardless of collection in the case of credit; provided, however, that "gross sales" shall not include any sales taxes or other taxes collected from customers by Franchisee for transmittal to the appropriate taxing authority. F. On execution of this Agreement, Franchisee shall deposit with CKE N/A Dollars ($N/A) as a security deposit for the performance by Franchisee of the provisions of this Agreement, any lease or sublease between Franchisee and CKE, any promissory note in favor of CKE or any other obligation to CKE such as but not limited to payment for food, goods and products sold by CKE, or any of its affiliates. If Franchisee is in default of any such payment of obligation, CKE can use the security deposit, or any portion of it, to cure the default or to compensate CKE for all damage sustained by CKE resulting from Franchisee's default. Franchisee shall immediately on demand pay to CKE a sum equal to the portion of the security deposit expended or applied by CKE as provided in this Section so as to maintain the security in the sum initially deposited with CKE. If Franchisee is not in default at the expiration or termination of this Agreement, CKE shall return the security deposit to Franchisee. CKE's obligations with respect to the security deposit are those of a debtor and not a trustee. CKE shall not be required to segregate the security deposit from other funds or to pay Franchisee interest on the security deposit. V. DUTIES OF FRANCHISEE A. Franchisee understands and acknowledges that every detail of the franchised business is important to Franchisee, CKE, and other franchisees in order to develop and maintain high operating standards, to increase the demand for the services and products sold by all franchisees, and to protect CKE's reputation and goodwill. B. Promptly following CKE's written approval of the proposed site, for the Restaurant, Franchisee shall proceed to complete the acquisition of the site. Unless Franchisee is leasing or subleasing the premises from CKE, Franchisee shall lease directly or purchase, as the case may be, the Restaurant site. CKE shall have no liability under any such direct lease. Such direct lease shall be subject to CKE's written approval. Franchisee shall include in any such direct lease the following terms and conditions prior to the execution of such direct Lease: 1. As long as the lessee, or lessee's successor or assign, is a Carl's Jr. franchisee, the premises must be used only for the operation of a CARL'S JR. 6 8 Restaurant, or a restaurant under another trade name adopted by CKE and permitted by this Franchise Agreement. 2. The lessor consents to the Franchisee's use of such Proprietary Marks and signage as CKE may prescribe for the franchised business. 3. The Lessor agrees to furnish to CKE, copies of any and all letters and notices sent to the Franchisee pertaining to the lease and the premises, at the same time that such letters and notices are sent to the Franchisee. 4. The Franchisee may not sublease or assign all or any part of its occupancy rights or extend the term of or renew the lease without CKE's prior written consent. 5. Lessor agrees that CKE has the right to enter the Premises to make any modification necessary to protect CKE's Proprietary Marks or to cure any default under the lease or under this Franchise Agreement. 6. Lessor agrees that CKE has the right to cure any monetary default under the lease. 7. Lessor agrees that CKE has the option to assume the Franchisee's occupancy rights, and the right to sublease, for all or any part of its terms, upon the Franchisee's default or termination under such lease or this Franchise Agreement. 8. The lease is conditioned upon the prior approval of CKE, to insure inclusion of the above described terms and compliance with this Franchise Agreement. The Franchisee shall furnish CKE with a copy of the executed lease with all exhibits attached thereto within ten (10) days after execution of such lease. In the event Franchisee acquires the Restaurant Premises by purchase, Franchisee hereby agrees that concurrently with recordation of the deed conveying the Premises, or, if Franchisee already owns the Premises within ten (10) days after execution hereof, Franchisee shall record a written agreement between CKE and Franchisee, providing CKE the option to purchase the Premises, at its market value at time of exercise, upon termination hereof on account of expiration of the term or Franchisee's breach hereof. Such agreement shall be acceptable to CKE in form and substance. C. Franchisee shall use a licensed general contractor reasonably satisfactory to CKE to perform construction work at the Restaurant. If CKE shall request, Franchisee shall 7 9 immediately furnish to CKE prior to the commencement of construction and/or remodeling and/or refurnishing of Restaurant, and from time to time thereafter upon request, the names and addresses of any sub-contractor and/or vendor to be involved in such construction, furnishing or design activity; copies of all permits, licenses, contractors' liability insurance certificates or other items required for the lawful construction, equipping and operation of the Restaurant; and, copies of all construction contracts, and documents, and construction time-line for construction of the Restaurant and originals of all lien waivers as CKE may require. CKE shall not be responsible for delays in the construction, equipping or decoration of the Restaurant, or for any loss resulting from the Restaurant design or construction. CKE must approve in writing any and all changes to the Restaurant plans furnished by Franchisee prior to construction of the Restaurant or the implementation of such changes. CKE shall have access to the Restaurant while work is in progress and may require such reasonable alterations or modifications of the construction of the Restaurant as it deems necessary. Franchisee's failure to promptly commence the design, construction, equipping and opening of the Restaurant with due diligence shall be grounds for the termination of this Agreement. CKE shall be permitted, at its option, to conduct a final inspection of the completed Restaurant and may require such corrections and modifications as it deems necessary to bring the Restaurant into compliance with approved plans and specifications. The Restaurant will not be allowed to open if it does not conform to the plans and specifications approved by CKE, including changes thereof approved by CKE. Failure to promptly correct any unauthorized variance from the approved plans and specifications may result in the termination of the Agreement. D. The typical fixtures, furniture and equipment specifications which may be furnished to Franchisee by CKE do not limit the obligation of Franchisee to provide all required fixtures, furniture and equipment for the Restaurant at Franchisee's sole expense. If CKE suggests certain manufacturers or suppliers, it does so only as an accommodation to Franchisee. Franchisee shall have the right to substitute manufacturers and suppliers and shall have the right to purchase the required fixtures, furniture and equipment from any source, provided that the items to be purchased are in strict accordance with the specifications of CKE. The prior written consent of CKE must be obtained before making any 8 10 such substitutions. Any changes in the design, construction, utilities, or installations necessitated by such substitutions shall be made at the sole expense of Franchisee. 1. Franchisee is strictly responsible for the acts or omissions of his contractors regarding compliance with Item V of this Agreement and CKE shall have no responsibility for such acts or omissions. CKE shall not be liable for any loss or damage arising from the design or plan of the Restaurant by reason of its approval of plans and specifications, or otherwise. Franchisee shall indemnify CKE for any loss, cost or expense, including attorneys' and experts' fees, that may be sustained by CKE because of the acts or omissions of Franchisee's contractors arising out of or related to the design or construction of the Restaurant. 2. All signs to be used in connection with the Restaurant, both exterior and interior, must conform to CKE sign criteria as to type, logo usage, format, color, size, design and location. All signs must be approved in writing by CKE prior to installation and display. 3. Prior to the commencement of operation of the Restaurant, Franchisee agrees to procure and install such data processing equipment computer hardware, required dedicated telephone and power lines, modem(s), printer(s), and other computer-related accessory or peripheral equipment as CKE specifies in its OPM (as same may be amended from time to time) or otherwise. Franchisee is further required to provide any assistance required by CKE to bring such computer system "on-line" with CKE's computers at CKE headquarters at the earliest possible time and Franchisee expressly affirms and agrees that CKE shall thereafter have the free and unfettered right to retrieve such data and information from Franchisee's computer(s) as CKE, in its sole and exclusive discretion, deems necessary, desirable and appropriate, with the telephonic cost of such retrieval to be borne by CKE including electronically polling the daily sales, menu mix and other data of the Restaurant. All of the foregoing items specified to be installed or purchased, or activities specified to be accomplished by Franchisee, and the delivery costs of all hardware and software, shall be accomplished/borne at Franchisee's sole expense. Further, Franchisee shall utilize CKE's proprietary Carl's Jr. software program, system documentation manuals and other proprietary materials heretofore and hereafter developed by CKE in connection with the operation of the Restaurant; shall, upon request by CKE execute CKE's standard form Software License Agreement and shall input and maintain in Franchisee's computer(s) such data and information as CKE prescribes, in its OPM (as same 9 11 may be amended from time to time) its software programs and otherwise. CKE shall initially furnish to Franchisee such programs, manuals and materials at CKE's expense. Franchisee shall purchase from CKE such new or upgraded proprietary software programs, manuals, and/or computer-related materials whenever CKE determines to adopt such new or upgraded programs, manuals and/or materials systemwide, at such prices and on such terms as CKE in its sole and exclusive discretion, shall establish. Franchisee understands that computer systems are designed to accommodate a certain maximum amount of data and terminals, and that, as such limits are achieved, and/or as technology and/or software is developed in the future, CKE at it sole discretion may mandate that Franchisee add memory, ports and other accessories and/or peripheral equipment and/or additional, new or substitute software to the original computer system purchased by Franchisee. Franchisee further understands that at a certain point in time it may become necessary for Franchisee to replace or upgrade the entire computer system with a larger system capable of assuming and discharging all of those computer-related tasks and functions as are specified by CKE. Franchisee further understands and agrees that computer designs and functions change periodically and that CKE may be required to make substantial modifications to its computer specifications, or to require installation of entirely different systems, during the term of this Agreement, or upon renewal thereof. To ensure full operational efficiency and communication capability between CKE's computers and those of all franchised Restaurants, Franchisee agrees, at his expense, to keep his computer system in good maintenance and repair, and, at his expense, and following CKE's testing and determination that same will prove economically or systemically beneficial to Franchisee and CKE, to install such additions, changes, modifications, substitutions and/or replacements to his computer hardware, software, telephone and power lines and other computer-related facilities as CKE directs, and on those dates and within those times specified by CKE in its sole and exclusive discretion, in its OPM (same may be amended from time to time) or otherwise. Upon termination or expiration of this Agreement, all computer software, disks, tapes and other magnetic storage media shall be returned to CKE in good condition (allowing for normal wear and tear). E. Franchisee agrees that it is important to the operation of the System and the Restaurant franchised hereunder that a competent management team be in place to supervise and conduct the franchised business and to that end agrees as follows: 10 12 There shall be at all times a minimum of two individuals, of whom Franchisee may be one, who have completed CKE's initial training program and who are fully qualified to operate the Restaurant. 1. Franchisee shall designate an individual to serve as the "Restaurant Manager" of the franchised business. The Restaurant Manager shall meet the following qualifications: a. The Restaurant Manager shall be a full-time employee of Franchisee, shall work in the Restaurant and shall devote full time and best efforts to the supervision and conduct of the business franchised hereunder. b. The Restaurant Manager shall be a person acceptable to both Franchisee and CKE and shall have successfully completed to CKE's satisfaction, CKE's initial training program. 2. Franchisee, or, if more than one individual has executed this Agreement, one of the signed franchisees, shall be designated to serve as the "Owner/Operator" of the franchised business. The Owner/Operator shall meet the following qualifications: a. The Owner/Operator shall devote full time and best efforts to the supervision and conduct of the business franchised hereunder and any other businesses that Franchisee may franchise from CKE. b. The Owner/Operator shall have successfully completed to CKE's satisfaction CKE's initial training program or an abbreviated training program as set forth in Section V.D.3. 3. In the event that the Owner/Operator should elect not to attend CKE's initial training program, the Owner/Operator shall attend an abbreviated training program and Franchisee shall designate an individual to serve as "Operations Supervisor" of the franchised business. The Operations Supervisor shall meet the following qualifications: a. The Operations Supervisor shall be a full-time employee of the Franchisee and shall devote full time and best efforts to the supervision and conduct of the business franchised hereunder and any other businesses that Franchisee may franchise from CKE. b. The Operations Supervisor shall be a person acceptable to both Franchisee and CKE and shall have successfully completed to CKE's satisfaction CKE's initial training program. 11 13 4. If, at any time or for any reason, the designated Restaurant Manager or supervisory individual no longer qualifies to act as such, Franchisee shall promptly designate another individual subject to the applicable qualifications listed above. E. Franchisee agrees that it is important to the operation of the System and the Restaurant franchised hereunder that Franchisee and Franchisee's employees receive such training as CKE may require, and to that end agrees as follows: 1. Prior to the opening of the Restaurant, the Owner/Operator or the Operations Supervisor, if one has been designated, and the Restaurant Manager shall attend and complete, to CKE's satisfaction, the initial training program offered by CKE. Provided however, should an Operations Supervisor be designated, the Owner/Operator can elect to attend and complete, to CKE's satisfaction, an abbreviated initial training program. At Franchisee's expense, the Owner/Operator, the Operations Supervisor and Franchisee's employees shall also attend such courses, seminars, and other training programs as CKE may require from time to time. CKE shall provide instructors and training materials for all required training programs; and Franchisee or its employees shall be responsible for any and all other expenses incurred by them in connection with any training programs, including, without limitation, the cost of transportation, lodging, meals, and wages. Any person subsequently employed by Franchisee in the position of Restaurant Manager and each subsequent Owner/Operator and Operations Supervisor, if any, shall attend and complete, to CKE's satisfaction, such initial training program as CKE may require prior to managing or supervising the franchised business. Franchisee shall pay to CKE a training fee at the then-current rate being charged by CKE to franchisees for such training. The training fee shall be in addition to any other training costs and expenses to be borne by Franchisee as provided herein. 2. The Owner/Operator and Franchisee's employees may also attend such optional training programs and seminars as CKE may offer from time to time. Franchisee shall pay to CKE, for each person attending such programs, the training fee, if any, then charged by CKE. If any such training fee is imposed by CKE, the training fee shall be in addition to any other expenses incurred by the persons attending training as provided in Section V.E.1 hereof. F. Franchisee shall use the Restaurant premises solely for the operation of the business franchised hereunder; shall keep the business open and in normal operation for such 12 14 hours and days as CKE may from time to time specify in the OPM or as CKE may otherwise approve in writing; and shall refrain from using or permitting the use of the premises for any other purpose or activity at any time without first obtaining the written consent of CKE. G. Franchisee agrees to maintain a competent, conscientious, trained staff and to take such steps as are necessary to ensure that its employees preserve good customer relations and comply with such dress code as CKE may prescribe. H. Franchisee shall meet and maintain the highest health standards and ratings applicable to the operation of the Restaurant. I. To insure that the highest degree of quality and service is maintained, Franchisee shall operate the Restaurant in strict conformity with such methods, standards, and specifications as CKE may from time to time prescribe in the OPM or otherwise in writing. Franchisee agrees: 1. To maintain in sufficient supply, and to use and/or sell at all times, only such menu items, ingredients, products, materials, supplies, and paper goods as conform with CKE's standards and specifications, and to refrain from deviating therefrom by the use or offer of non-conforming items, without CKE's prior written consent. 2. To sell or offer for sale only such menu items, products, and services as have been expressly approved for sale in writing by CKE; to sell or offer for sale all types of menu items, products, and services specified by CKE; to refrain from any deviation from CKE's standards and specifications without CKE's prior written consent; and to discontinue selling and offering for sale any menu items, products, or services which CKE may, in its discretion, disapprove in writing at any time. With respect to the offer and sale of all menu items, products, and services, Franchisee shall have sole discretion as to the prices to be charged to customers. 3. To permit CKE or its agents, at any reasonable time, to remove samples of food or non-food items from Franchisee's inventory, or from the Restaurant, without payment therefor, in amounts reasonably necessary for testing by CKE or an independent laboratory to determine whether said samples meet CKE's then-current standards and specifications. In addition to any other remedies it may have under this Agreement, CKE may require Franchisee to bear the cost of such testing if the supplier of the item has not previously been approved by CKE or if the sample fails to conform with CKE's specifications. 13 15 4. To purchase and install, at Franchisee's expense, all fixtures, furnishings, equipment, playground equipment, decor, and signs meeting the standards and specifications of CKE, as CKE may direct from time to time in the OPM or otherwise in writing; and to refrain from installing or permitting to be installed on or about the Restaurant premises, without CKE's prior written consent, any fixtures, furnishings, equipment, playground, decor, signs, games, vending machines, or other items not previously approved as meeting CKE's standards and specifications. J. Franchisee shall purchase all food items, ingredients, supplies, materials, and other products used or offered for sale at the Restaurant solely from suppliers (including manufacturers, distributors and other sources) who demonstrate, to the continuing reasonable satisfaction of CKE, the ability to meet CKE's then-current standards and specifications for such items; who possess adequate quality controls and capacity to supply Franchisee's needs promptly and reliably; and who have been approved in writing by CKE and not thereafter disapproved. If Franchisee desires to purchase any products from an unapproved supplier, Franchisee shall submit to CKE a written request for such approval, or shall request the supplier itself to do so. CKE shall have the right to require that its representatives be permitted to inspect the supplier's facilities, and that samples from the supplier be delivered, either to CKE or to an independent laboratory designated by CKE for testing. A charge not to exceed the reasonable cost of the inspection and the actual cost of the test shall be paid by Franchisee or the supplier. CKE reserves the right, at its option, to re-inspect the facilities and products of any such approved supplier and to revoke its approval upon the supplier's failure to continue to meet any of CKE's then-current criteria. Nothing in the foregoing shall require CKE to approve any supplier. K. Franchisee acknowledges and agrees that certain products of CKE, among which is the product known as "special sauce", are highly confidential secret recipes and are trade secrets of CKE. Because of the importance of quality and uniformity of production and the significance of such products in the System it is to the mutual benefit of the parties that CKE closely control the production and distribution of such products. Similar considerations may also apply to other trade secret items which CKE may develop in the future. Accordingly, Franchisee agrees to use only CKE's secret recipe products and to purchase from CKE or from a source designated by CKE all of Franchisee's requirements of CKE's current and future secret recipe products. 14 16 L. Franchisee shall require all advertising and promotional materials, signs, decorations, paper goods (including disposable food containers, napkins, menus, and all forms and stationery used in the franchised business), and other items which may be designated by CKE to bear the Proprietary Marks in the form, color, location, and manner prescribed by CKE. M. Franchisee shall maintain the Restaurant in a high degree of sanitation, repair, and condition, and in connection therewith shall make such additions, alterations, repairs, and replacements thereto (but no others without CKE's prior written consent) as may be required for that purpose, including, without limitation, such periodic repainting or replacement of obsolete signs, furnishings, equipment, and decor as CKE may direct and installation of charbroiler emission regulators as may be required by federal, state, or local agencies. N. At CKE's request, but not more often than twice during the initial term of this Agreement, and in any case not before at least twenty-five percent (25%) of System restaurants owned by CKE have made such improvements, Franchisee shall make all improvements and alterations as may be determined by CKE to be necessary to have the Restaurant conform with the System image as it may be prescribed by CKE at that time. Franchisee shall undertake and complete such improvements and alterations within reasonable times specified by CKE. O. Franchisee shall grant CKE and its agents the right to enter upon the Restaurant premises at any time for the purpose of conducting inspections; shall cooperate with CKE's representatives in such inspections by rendering such assistance as they may reasonably request; and, upon notice from CKE or its agents and without limiting CKE's other rights under this Agreement, shall take such steps as may be necessary to correct immediately any deficiencies detected during any such inspection. Should Franchisee, for any reason, fail to correct such deficiencies within a reasonable time as determined by CKE, CKE shall have the right and authority (without, however, any obligation to do so), to correct such deficiencies and to charge Franchisee a reasonable fee for CKE's expenses in so acting, payable by Franchisee immediately upon demand. P. Franchisee shall comply with all other requirements set forth in this Agreement. 15 17 VI. PROPRIETARY MARKS A. CKE represents with respect to the Proprietary Marks that: 1. CKE is the owner of all right, title, and interest in and to the Proprietary Marks. 2. CKE has taken and will take all steps reasonably necessary to preserve and protect the ownership and validity in and of the Proprietary Marks. 3. CKE will permit Franchisee and other franchisees to use the Proprietary Marks only in accordance with the System and the standards and specifications attendant thereto which underlie the goodwill associated with and symbolized by the Proprietary Marks. B. With respect to Franchisee's licensed use of the Proprietary Marks pursuant to this Agreement, Franchisee agrees that: 1. Franchisee shall use only the Proprietary Marks designated by CKE, and shall use them only in the manner authorized and permitted by CKE. 2. Franchisee shall use the Proprietary Marks only for the operation of the business franchised hereunder and only at the location authorized hereunder, or in advertising for the business conducted at or from that location. 3. Unless otherwise authorized or required by CKE, Franchisee shall operate and advertise the franchised business only under the name "Carl's Jr. Restaurant" without prefix or suffix. 4. During the term of this Agreement and any renewal hereof, Franchisee shall identify itself as a Franchisee of CKE and operator of the franchised business in conjunction with any use of the Proprietary Marks, including, but not limited to, uses on stationery, business cards, invoices, order forms, receipts, and contracts, as well as the display of a notice in such content and form and at such conspicuous locations on the premises of the franchised business as CKE may designate in writing. 5. Franchisee's right to use the Proprietary Marks is limited to such uses as are authorized under this Agreement, and any unauthorized use thereof shall constitute an infringement of CKE's rights. 6. Franchisee shall not use the Proprietary Marks to incur any obligation or indebtedness on behalf of CKE. 7. Franchisee shall not use the Proprietary Marks as part of its corporate or other legal name. 16 18 8. Franchisee shall comply with CKE's instructions in filing and maintaining the requisite trade name or fictitious name registrations, and shall execute any documents deemed necessary by CKE or its counsel to obtain protection for the Proprietary Marks or to maintain their continued validity and enforceability. 9. In the event that litigation involving the Proprietary Marks is instituted or threatened against Franchisee, Franchisee shall promptly notify CKE and shall cooperate fully in defending or settling such litigation. C. Franchisee expressly understands and acknowledges that: 1. CKE is the owner of all right, title and interest in and to the Proprietary Marks and the goodwill associated with and symbolized by them. 2. The Proprietary Marks are valid and serve to identify the System and those who are authorized to operate under the System. 3. Franchisee shall not directly or indirectly contest the validity or CKE's ownership of the Proprietary Marks. 4. Franchisee's use of the Proprietary Marks pursuant to this Agreement does not give Franchisee any ownership interest or other interest in or to the Proprietary Marks, except the license granted by this Agreement. 5. Any and all goodwill arising from Franchisee's use of the Proprietary Marks in its franchised operation under the System shall inure solely and exclusively to CKE's benefit, and upon expiration or termination of this Agreement and the license herein granted, no monetary amount shall be assigned as attributable to any goodwill associated with Franchisee's use of the System or the Proprietary Marks. 6. The right and license of the Proprietary Marks granted hereunder to Franchisee is non-exclusive, and CKE thus has and retains the rights, among others: a. To use the Proprietary Marks itself in connection with selling products and services; b. To grant other licenses for the Proprietary Marks, in addition to those licenses already granted to existing franchisees; c. To develop and establish other systems using the same or similar Proprietary Marks, or any other proprietary marks, and to grant licenses or franchises thereto without providing any rights therein to Franchisee. 17 19 7. CKE reserves the right to substitute different Proprietary Marks for use in identifying the System and the businesses operating thereunder if CKE's currently owned Proprietary Marks no longer can be used. VII. CONFIDENTIAL OPERATIONS PROCEDURES MANUAL ("OPM") A. In order to protect the reputation and goodwill of CKE and to maintain high standards of operation under CKE's Proprietary Marks, Franchisee shall conduct its business in accordance with CKE's OPM. CKE shall loan to Franchisee and certain employees of Franchisee as many copies of the OPM as CKE deems necessary for Franchisee to conduct the business franchised hereunder. B. Franchisee shall at all times treat the OPM, any other manuals created for or approved for use in the operation of the franchised business, and the information contained therein, as confidential, and shall use all reasonable efforts to maintain such information as secret and confidential. Franchisee shall not at any time copy, duplicate, record, or otherwise reproduce the foregoing materials, in whole or in part, nor otherwise make the same available to any unauthorized person. C. The OPM shall at all times remain the sole property of CKE. D. CKE may from time to time revise the contents of the OPM, and Franchisee expressly agrees to comply with each new or changed standard. E. Franchisee shall at all times maintain the OPM at the Restaurant in a secure place and shall insure that the OPM is kept current and up to date; and, in the event of any dispute as to the contents of the OPM, the terms of the master copy of the OPM maintained by CKE at CKE's home office shall be controlling. VIII. CONFIDENTIAL INFORMATION A. Franchisee shall not, during the term of this Agreement or thereafter, communicate, divulge, or use for the benefit of any other person, persons, partnership, association, or corporation any confidential information, knowledge, or know-how concerning the methods of operation of the business franchised hereunder which may be communicated to Franchisee or of which Franchisee may be apprised by virtue of Franchisee's operation under the terms of this Agreement. Franchisee shall divulge such confidential information only to such of its employees as must have access to it in order to operate the franchised business. 18 20 Any and all information, knowledge, know-how, and techniques which CKE designates as confidential shall be deemed confidential for purposes of this Agreement, except information which Franchisee can demonstrate came to its attention prior to disclosure thereof by CKE; or which, at the time of disclosure by CKE to Franchisee, had become a part of the public domain, through publication or communication by others; or which, after disclosure to Franchisee by CKE, becomes a part of the public domain, through publication or communication by others. B. Franchisee acknowledges that any failure to comply with the requirements of this Section VIII. will cause CKE irreparable injury, and Franchisee agrees to pay all court costs and reasonable attorney's fees incurred by CKE in obtaining specific performance of, or an injunction against violation of, the requirements of this Section VIII. IX. ACCOUNTING AND RECORDS A. Franchisee shall maintain during the term of this Agreement, and shall preserve for at least five years from the dates of their preparation, full, complete, and accurate books, records, and accounts in accordance with generally accepted accounting principles and in the form and manner prescribed by CKE from time to time in the OPM or otherwise in writing. B. Franchisee shall submit to CKE, no later than the fifth (5th) business day immediately following the fiscal week, as designated by CKE, during which the sales were made, a remittance report, in the form prescribed by CKE, accurately reflecting all gross sales made during the preceding fiscal week and such other data or information as CKE may require. C. Franchisee shall, at Franchisee's expense, submit to CKE, in the form prescribed by CKE, a periodic profit and loss statement (which may be unaudited) within twenty (20) days after the end of each period for the first twelve periods of each fiscal year of the franchised business during the term hereof. A period shall be defined as every four-week interval, beginning on the day immediately following the end of CKE's fiscal year. Franchisee shall, at Franchisee's expense, also submit to CKE, in the form prescribed by CKE, a quarterly balance sheet (which may be unaudited) within thirty (30) days after the end of each of the first three quarters of each fiscal year of the franchised business during the term 19 21 hereof. Each such statement shall be signed by Franchisee or by Franchisee's treasurer or chief financial officer attesting that it is true and correct. D. Franchisee shall, at its expense, provide to CKE an unaudited compilation of profit and loss statement and balance sheet within sixty (60) days after the end of each fiscal year of the franchised business during the term hereof, with reports from said year's operations audited by an independent certified public accountant in respect to gross sales and amounts spent on royalty and advertising fees, all to be signed by Franchisee or by Franchisee's treasurer or chief financial officer attesting that the financial statements present fairly the financial position of Franchisee and the results of operations of the franchised business during the period covered. CKE shall have the right, in its reasonable discretion, to require that Franchisee submit audited statements for any fiscal year or any period or periods of a fiscal year of Franchisee during the term of this Agreement. E. Franchisee shall also submit to CKE, for review or auditing, such other forms, reports, records, information, and data as CKE may reasonably designate, in the form and at the times and places reasonably required by CKE, upon request and as specified from time to time in the OPM or otherwise in writing. F. CKE or its designated agents shall have the right at all reasonable times to examine and copy, at CKE's expense, the books, records, and tax returns of Franchisee. CKE shall also have the right, at any time, to have an independent audit made of the books of Franchisee. If an inspection should reveal that any payments have been understated in any report to CKE, then Franchisee shall immediately pay to CKE the amount understated upon demand, in addition to interest from the date such amount was due until paid, at eighteen percent (18%) per annum calculated on a daily basis, or the maximum rate permitted by law, whichever is less. If an inspection discloses an understatement in any report of two percent (2%) or more, Franchisee shall, in addition, reimburse CKE for any and all costs and expenses connected with the inspection, including, without limitation, reasonable accounting and attorneys' fees. The foregoing remedies shall be in addition to any other remedies CKE may have. 20 22 X. ADVERTISING Recognizing the value of advertising and the importance of the standardization of advertising programs to the furtherance of the goodwill and public image of the System, the parties agree as follows: A. During the term of this Agreement, Franchisee shall have a weekly advertising and promotion obligation ("APO") in an amount to be determined by CKE, said amount to be at least four percent (4%) but not to exceed six percent (6%) of the Restaurant's gross sales and Franchisee shall satisfy that obligation as prescribed in this Section X. The amount of the APO and its allocation among the various advertising activities described in this Section X may be modified by CKE from time to time, subject to the limitations set forth below; until so modified, the APO shall be met as stated in Exhibit 1, attached hereto and incorporated herein by reference. 1. If CKE elects to require Franchisee to engage in local store marketing ("LSM"), Franchisee shall allocate and spend such portion of the APO as CKE may direct for such LSM, as more fully described in Section X.B. 2. Franchisee shall pay weekly such portion of the APO as CKE may direct, but not more than one percent (1%) of gross sales, to the advertising fund described in Section X.C. ("Fund"), for general administrative advertising expenditures. 3. The remainder of the APO, if any, shall be paid by Franchisee weekly as follows: a. The remainder shall be paid to the Fund and spent by the Fund for advertising in Franchisee's region. b. If a cooperative, approved by CKE, for Franchisee's region is in existence or is established at any later time during the term of this Agreement pursuant to Section X.D., then the remainder shall be paid to the Cooperative rather than to the Fund. 4. The APO shall at no time exceed six percent (6%) of gross sales, and CKE may not increase the APO by more than one-half percent (1/2%) of gross sales in a particular fiscal year (as defined by CKE). 5. Throughout the term of this Agreement, Franchisee is encouraged and will be permitted to conduct additional local advertising, at Franchisee's expense, subject to the terms and conditions contained in Section X.E. hereof. 21 23 6. Franchisee understands that some franchisees of Carl's Jr. Restaurants operate under different forms of franchise agreements and that the APO amounts paid by franchisees may vary. B. If so directed by CKE Franchisee shall spend the portion of the APO designated as the LSM allocation, for local store marketing and advertising programs as approved from time to time by CKE in the local trade area of the Restaurant. 1. Franchisee shall spend the LSM allocation pursuant to a schedule determined by Franchisee with CKE's assistance and subject to CKE's approval. 2. Within thirty (30) days of the end of each fiscal quarter in which the requirement for LSM is in effect, Franchisee shall provide to CKE evidence of LSM expenditure by submitting tear sheets of the advertising and marketing accompanied by invoices as requested by CKE. 3. Should Franchisee fail to timely submit proof of expenditure for LSM, CKE, at its option, may require the LSM allocation to be paid to the advertising Fund as described in Section X.C. below. 4. CKE reserves the right, subject to the provisions of this Section X, to change or eliminate the LSM allocation. C. The remainder of Franchisee's APO not otherwise allocated shall be allocated to the Fund and shall be used for both general administration and regional advertising expenditures as described below. 1. Unless and until modified by CKE, Franchisee's required contribution for the general administrative advertising expenses of the Fund described in Section X.C.3b hereof is as set forth in Exhibit 1. CKE undertakes no obligation in administering these general monies to make expenditures for Franchisee which are equivalent or proportionate to Franchisee's contribution, or to ensure that any particular franchisee benefits directly or pro rata from the advertising or promotion conducted under these monies. 2. Unless and until modified by CKE, Franchisee's required contribution for regional advertising expenditures of the Fund is as set forth in Exhibit 1. CKE agrees to cause the Fund to make these regional expenditures for advertising within the Area of Dominant Influence in which the Restaurant is located as set forth on Exhibit 1 ("ADI") as established periodically by Arbitron, Inc., or any other similar type of designation used to 22 24 identify regional advertising market areas. CKE reserves the right to change the ADI designation for the Restaurant. 3. Franchisee agrees to make contributions to the Fund as required under Section X.A. hereof, and further agrees that the Fund shall be maintained and administered by CKE or its designee, as follows: a. CKE shall oversee all advertising and promotional programs with sole discretion to approve or disapprove the creative concepts, materials and media used in such programs, and the placement and allocation thereof. b. The Fund, all contributions thereto, and any earnings thereon, shall be used exclusively to meet any and all costs of maintaining, administering, directing, and preparing advertising and/or promotional activities (including, without limitation, the cost of preparing and conducting television, radio, magazine, and newspaper advertising campaigns; marketing surveys and other public relations activities; employing advertising agencies to assist therein; and providing promotional brochures and other marketing materials to the restaurants operated under the System). All sums paid by Franchisee to the Fund shall be maintained in an account separate from the other monies of CKE and shall not be used to defray any of CKE's expenses, except for such reasonable administrative costs and overhead, if any, as CKE may incur in activities reasonably related to the administration or direction of the Fund and advertising programs for franchisees and the System. The Fund and its earnings shall not otherwise inure to the benefit of CKE. CKE or its designee shall maintain separate bookkeeping accounts for the Fund. c. Franchisee shall contribute to the Fund by separate check made payable to the Fund. d. CKE will contribute to the Fund a percentage of the annual gross sales of the Carl's Jr. restaurants operated by CKE in the continental United States. Said percentage shall be equivalent to the average percentage contributed to the Fund for regional expenditures by all franchise restaurants in the System. e. It is anticipated that all contributions to and earnings of the Fund shall be expended for advertising and/or promotional purposes during the taxable year within which the contributions and earnings are received. If, however, excess amounts remain in the Fund at the end of such taxable year, all expenditures in the following taxable year(s) shall be 23 25 made first out of accumulated earnings from previous years, next out of earnings in the current year, and finally from contributions. f. The Fund shall not be an asset of CKE or its designee. A statement of the operations of the Fund as shown on the books of CKE or its designee shall be prepared annually by an independent certified public accountant selected by CKE at CKE's cost and shall be made available to Franchisee. g. Although the Fund is intended to be of perpetual duration, CKE maintains the right to terminate the Fund. The Fund shall not be terminated, however, until all monies in the Fund have been expended for advertising and/or promotional purposes. D. Franchisee agrees that CKE shall have the right, in its discretion, to designate any geographical area as a region for purposes of establishing an advertising cooperative ("Cooperative"). If a Cooperative has been established for Franchisee's region at the time Franchisee commences business hereunder, Franchisee shall immediately become a member of such Cooperative. If a Cooperative for Franchisee's region is established at any later time during the term of this Agreement, Franchisee shall become a member of such Cooperative no later than thirty (30) days after the date on which the Cooperative commences operation as provided below: 1. Each Cooperative shall be organized and governed in a form and manner, and shall commence operation on a date approved in advance by CKE in writing. a. Each Cooperative shall be organized for the exclusive purposes of administering regional advertising programs and developing, subject to CKE's approval, standardized promotional materials for use by the members in local advertising. b. Each Cooperative shall be CKE's designee for maintaining and administering advertising and promotional programs in each region, and all contributions to and expenditures of each Cooperative shall be subject to provisions applicable to the Fund set forth herein in Section X.C.3. c. No advertising or promotional plans or materials may be used by a Cooperative or furnished to its members without the prior approval of CKE. All such plans and materials shall be submitted to CKE in accordance with the procedure set forth in Section X.E. hereof. d. Each member franchisee shall submit to the Cooperative, no later than the fifth (5th) business day immediately following the fiscal week (as designated by CKE) during 24 26 which the sales were made, its contribution for the preceding fiscal week as provided in Section X.A. hereof, together with such other statements or reports as may be required by CKE or by the Cooperative with CKE's prior written approval. 2. CKE, in its sole discretion, may grant to any franchisee an exemption for any length of time from the requirement of membership in a Cooperative, upon written request of such franchisee stating reasons supporting such exemption. CKE may require as a condition of granting such exemption that the franchisee expend on local advertising, in a manner approved in advance by CKE, and supported by such proof of expenditures as CKE may require, at least the amount that the franchisee would have contributed to a Cooperative. CKE's decision concerning such request for exemption shall be final. E. All local advertising and promotion by Franchisee in any medium shall conform to the standards and requirements of CKE as set forth in the OPM or otherwise. Franchisee shall obtain CKE's prior approval of all advertising and promotional plans and materials that Franchisee desires to use and that have not been prepared or previously approved by CKE within one (1) year. Franchisee shall submit such unapproved plans and materials to CKE, by personal delivery or through the mail, return receipt requested, and CKE shall approve or disapprove such plans and materials within thirty (30) days from the date of receipt thereof by CKE. Franchisee shall use no such plans or materials until they have been approved by CKE and shall promptly discontinue use of any advertising or promotional plans or materials upon notice from CKE. F. Franchisee shall have the right to advertise and sell its products and offer its services at any prices Franchisee may determine, and shall in no way be bound by any price which may be recommended or suggested by CKE. XI. INSURANCE A. Franchisee shall procure, prior to the commencement of any operations under this Agreement, and shall maintain in full force and effect at all times during the term of this Agreement at Franchisee's expense, an insurance policy or policies protecting Franchisee and CKE, and their officers, directors, partners, agents, and employees, as well as CKE's subsidiaries, affiliates, and applicable landlords and mortgagees against any loss, liability, personal injury, death, property damage, or expense whatsoever arising or occurring upon or in connection with the franchised business. 25 27 B. Such insurance required must be written through companies holding a general policy holder's rating of at least A+ as set forth in the most current issue of "Best Insurance Guide". During the term of each policy, should an insurance carrier providing required insurance coverage change or decrease its financial rating, CKE can require the Franchisee to change insurance carriers to meet the necessary A+ rating. Any requests to correct inadequacies in the required insurance program will be completed at the sole cost of Franchisee. The minimum coverage and policy limits (except for additional coverages and higher policy limits that may reasonably be specified by the CKE from time to time) are as follows: 1. Comprehensive General Liability Insurance, including bodily injury, personal injury, products liability, blanket contractual liability, broad form property damage, non-owned auto, completed operations, and property damage coverage in the greater amount of One Million Dollars ($1,000,000.00) per occurrence or that required by CKE's or Franchisee's lease for the Restaurant premises. 2. Property Insurance written on an "All Risks" policy for fire and related peril (including Earthquake and Flood where applicable), for the full replacement cost of the Restaurant premises, equipment, stock, leasehold improvements and all other property in which the CKE may have interests. 3. Business Interruption and Extra Expense coverage to include rental payment continuation for a minimum of twelve (12) months, loss of profits and other extra expenses experienced during the recovery from property loss. 4. Plate Glass coverage for replacement of glass from breakage. 5. Employer's Liability coverage in the amount of Five Hundred Thousand Dollars ($500,000). 6. Workers' Compensation and such other insurance as may be required by statute or rule of the state or locality in which the franchised business is located and operated. The Franchisee may, with the prior written consent of CKE, elect to have reasonable deductibles in connection with the coverage described in Sections XI B.1 and 2, above, provided, however, in no event shall such insurance have a deductible or self-insured retention in excess of Five Thousand Dollars ($5,000.00). 26 28 C. In connection with any construction, renovation, refurbishment, or remodeling of the Restaurant, Franchisee shall maintain Builder's All Risks insurance and performance and completion bonds in forms and amounts, and written by a carrier or carriers, reasonably satisfactory to CKE. D. Franchisee's obligation to obtain and maintain the foregoing policy or policies in the amounts specified shall not be limited in any way by reason of any insurance which may be maintained by CKE, nor shall Franchisee's performance of that obligation relieve it of liability under the indemnity provisions set forth in Section XVIII of this Agreement. E. All policies required to be maintained by Franchisee hereunder shall be written as primary policies and not contributing with or in excess of any coverage which CKE may carry, and shall cover and insure CKE and other Indemnities identified in Section XVIII as an additional insured. All public liability and property damage policies shall contain a provision that CKE, although named as an insured, shall nevertheless be entitled to recover under said policies on any loss occasioned to it, its servants, agents and employees by reason of the negligence of Franchisee, its servants, agents and employees. F. Franchisee shall deliver to CKE at least thirty (30) days prior to the time any insurance is first required to be carried by Franchisee, and thereafter at least thirty (30) days prior to the expiration of any such policy, Certificates of Insurance evidencing the proper coverage with limits not less than those specified herein. Such Certificates, with the exception of Workers' Compensation, shall name CKE, and each of its partners, subsidiaries, affiliates, directors, agents and employees as additional insureds, and shall expressly provide that any interest of same therein shall not be affected by any breach by Franchisee of any policy provisions for which such Certificates evidence coverage. Further, all Certificates shall expressly provide that no less than thirty (30) days' prior written notice shall be given CKE in the event of material alteration to or cancellation of the coverages evidenced by such Certificates. G. Should Franchisee, for any reason, fail to procure or maintain the insurance required by this Agreement, as such requirements may be revised from time to time by CKE in the OPM or otherwise in writing, CKE shall have the right and authority, but not obligation, immediately to procure such insurance and to charge same to Franchisee, which charges, together with a reasonable fee for CKE's expenses in so acting, shall be payable by 27 29 Franchisee immediately upon notice. The foregoing remedies shall be in addition to any other remedies CKE may have. H. The minimum limits of insurance coverage required to be procured by Franchisee may be modified from time to time by CKE in its sole and exclusive discretion, by written notice transmitted by CKE to Franchisee. Upon delivery (or attempted delivery) of such written notice, Franchisee shall be obligated to immediately purchase insurance conforming to the newly-established standards and limits prescribed by CKE. Franchisor suggests, but does not require, that Franchisee purchase and maintain the following categories of insurance coverage for Franchisee, the franchised Business and his staff of employees: 1. All Risk Office Contents Insurance other than the coverages required above; 2. Major Medical Insurance for Franchisee's staff employees; 3. Valuable Papers and Records Insurance; and, 4. Plate Glass Insurance (if applicable). I. Franchisee shall notify CKE of any and all claims or demands against Franchisee, the business franchised Restaurant and/or CKE within three (3) days of Franchisee receiving actual notice of any such claim or demand. Franchisee agrees to respond to all claims within the time required by law, rule or regulation. Franchisee shall cooperate with CKE (or its designee) in every fashion possible to defend CKE and Franchisee against any and all claims made by employees, customers or third parties. Franchisee shall, when necessary, make appearance at administrative or other hearings to present or reinforce such defenses. Failure by Franchisee to purchase or maintain any insurance required by this Agreement, or failure to reimburse Franchisor for its purchase of such insurance on behalf of Franchisee, shall constitute a material and incurable breach of this Agreement which, unless waived by Franchisor, shall entitle Franchisor to terminate this Agreement unilaterally and immediately upon notice to Franchisee, and this Agreement shall thereafter be null, void and of no effect (except for those post-termination and post-expiration provisions which by their nature shall survive). 28 30 XII. TRANSFER OF INTEREST A. Transfer by CKE CKE shall have the right to transfer or assign all or any part of its rights or obligations herein to any person or legal entity. B. Transfer by Franchisee 1. Franchisee understands and acknowledges that the rights and duties set forth in this Agreement are personal to Franchisee, and that CKE has granted this franchise in reliance on Franchisee's business skill, financial capacity, and personal character. Accordingly, neither Franchisee nor any immediate or remote successor to any part of Franchisee's interest in this franchise, nor any individual, partnership, corporation, or other legal entity which directly or indirectly owns any interest in this franchise or in Franchisee shall sell, assign, transfer, convey, give away, pledge, mortgage, or otherwise encumber any direct or indirect interest in this franchise or in any legal entity which owns this franchise without the prior written consent of CKE; provided, however, that CKE's prior written consent shall not be required for a transfer of less than a two percent (2%) interest in a publicly-held corporation. A publicly-held corporation is a corporation registered under the Securities Exchange Act of 1934. Any purported assignment or transfer, by operation of law or otherwise, not having the written consent of CKE required by this Section XII.B.1 shall be null and void and shall constitute a material breach of this Agreement, for which CKE may then terminate without opportunity to cure pursuant to Section XIII.B. of this Agreement. 2. CKE shall not unreasonably withhold its consent to a transfer of any interest in Franchisee or in this franchise; provided, however, that if a transfer, alone or together with other previous, simultaneous, or proposed transfers, would have the effect of transferring a controlling interest in the franchised business, CKE may, in its sole discretion, require any or all of the following as conditions of its approval: a. All of Franchisee's accrued monetary obligations and all other outstanding obligations to CKE shall have been satisfied; b. Franchisee is not in default of any provision of this Agreement, any amendment hereof or successor hereto, or any other agreement between Franchisee and CKE, or its subsidiaries and affiliates; 29 31 c. The transferor shall have executed a full and general release, in a form satisfactory to CKE, of any and all claims against CKE and its officers, directors, shareholders, and employees, in their corporate and individual capacities, including, without limitation, claims arising under federal, state, and local laws, rules, and ordinances; d. The transferee shall enter into a written assignment, in a form satisfactory to CKE, assuming and agreeing to discharge all of Franchisee's obligations under this Agreement; and, if the obligations of Franchisee were guaranteed by the transferor, the transferee shall guarantee the performance of all such obligations in writing in a form satisfactory to CKE; e. The transferee shall demonstrate to CKE's satisfaction that it meets CKE's educational, managerial, and business standards; possesses a good business reputation, and credit rating; has the aptitude and ability to conduct the business franchised herein (as may be evidenced by prior related business experience or otherwise); and has adequate financial resources and capital to operate the business; f. At CKE's option, the transferee shall execute, and/or, upon CKE's request, shall cause all interested parties to execute, for a term ending on the expiration date of this Agreement and with such renewal term as may be provided by this Agreement, the standard form franchise agreement then being offered to new System franchisees and other ancillary agreements as CKE may require for the franchised business, which agreements shall supersede this Agreement in all respects and the terms of which agreements may differ from the terms of this Agreement, including, without limitation, a higher percentage royalty rate and advertising contribution; provided, however, that the transferee shall not be required to pay any initial franchise fee; g. The transferee, at its expense, shall upgrade the Restaurant to conform to the then-current standards and specifications of System restaurants, and shall complete the upgrading and other requirements within the time specified by CKE; h. Franchisee shall remain liable for all of the obligations to CKE in connection with the franchised business prior to the effective date of the transfer and shall execute any and all instruments reasonably requested by CKE to evidence such liability; i. At the transferee's expense, the transferee, the transferee's manager and the transferee's Owner/Operator shall complete any training programs then in effect for franchisees upon such terms and conditions as CKE may reasonably require; 30 32 j. Except in the case of a transfer to a corporation formed for the convenience of ownership, Franchisee shall pay a transfer fee not to exceed CKE's reasonable costs and expenses, including legal and accounting expenses, in connection with CKE's review of the application to transfer. 3. Franchisee shall grant no security interest in the franchised business or in any of its assets unless the secured party agrees that in the event of any default by Franchisee under any documents related to the security interest, CKE shall have the right and option to purchase the rights of the secured party upon payment of all sums then due to such secured party. 4. Franchisee acknowledges and agrees that each condition which must be met by the transferee is necessary to assure such transferee's full performance of the obligations hereunder. C. Partnership and Corporate Franchisees In the event Franchisee is a partnership the following requirements shall also apply to Franchisee: 1. Franchisee shall be newly organized and its Agreement of Partnership shall at all times provide that its activities are confined exclusively to operating the business franchised herein. 2. Copies of Franchisee's Agreement of Partnership and other governing documents, and any amendments thereto shall be promptly furnished to CKE. 3. The Agreement of Partnership shall provide that assignment or transfer of any partnership interest is subject to, all restrictions imposed upon assignments by this Agreement. 4. Franchisee shall maintain a current list of all limited partners and shall furnish the list to CKE upon request. 5. All general partners of Franchisee shall jointly and severally guarantee Franchisee's performance hereunder and shall bind themselves to the terms of this Agreement. 6. In the event that a general partner of Franchisee is a corporation, all shareholders of the corporation shall jointly and severally guarantee Franchisee's performance hereunder and shall bind themselves to the terms of this Agreement. 31 33 In the event Franchisee is a corporation, the following requirements shall also apply to Franchisee: 1. Franchisee shall be newly organized and its articles of incorporation or charter shall at all times provide that its activities are confined exclusively to operating the business franchised herein. 2. Copies of Franchisee's Articles of Incorporation or Charter, Bylaws, and other governing documents, and any amendments thereto, including the resolution of the Board of Directors authorizing entry into this Agreement shall be promptly furnished to CKE. 3. Franchisee shall maintain stop-transfer instructions against the transfer on its records of any equity securities; and each stock certificate of Franchisee shall have conspicuously endorsed upon its face a statement in a form satisfactory to CKE that it is held subject to, and that further assignment or transfer thereof is subject to, all restrictions imposed upon assignments by this Agreement; provided, however, that the requirements of this Section XII.C.3 shall not apply to a publicly-held corporation. 4. Franchisee shall maintain a current list of all owners of record and all beneficial owners of any class of voting stock of Franchisee and shall furnish the list to CKE upon request. 5. All shareholders of Franchisee shall jointly and severally guarantee Franchisee's performance hereunder and shall bind themselves to the terms of this Agreement; provided, however, that the requirements of this Section XII.C.5 shall not apply to a publicly-held corporation. D. Right of First Refusal 1. Any party holding any direct or indirect interest in Franchisee or in this franchise and who desires to accept any bona fide offer from a third party to purchase such interest shall notify CKE in writing of each such offer, and CKE shall have the right and option, exercisable within forty five (45) days after receipt of such written notification, to send written notice to the seller that CKE intends to purchase the Seller's interest, on the same terms and conditions offered by the third party. In the event that CKE elects to purchase the Seller's interest, closing on such purchase must occur within ninety (90) days from the date of notice to the seller of the election to purchase by CKE. Any material change in the terms of any offer prior to closing shall constitute a new offer subject to the same rights of first refusal by CKE as in the case of an initial offer. Failure of CKE to 32 34 exercise the option afforded by this Section XII.D. shall not constitute a waiver of any other provision of this Agreement, including all of the requirements of this Section XII., with respect to a proposed transfer. 2. In the event the consideration, terms, and/or conditions offered by a third party are such that CKE may not reasonably be required to furnish the same consideration, terms, and/or conditions, then CKE may purchase the interest in the franchised business proposed to be sold for the reasonable equivalent in cash. If the parties cannot agree within a reasonable time on the reasonable equivalent in cash of the consideration, terms, and/or conditions offered by the third party, an independent appraiser shall be designated by CKE, and his determination shall be binding. E. Transfer Upon Death or Mental Incapacity Upon the death or mental incapacity of any person with a direct or indirect interest in the franchise or in Franchisee, the executor, administrator, conservator or personal representative of such person shall transfer his interest to a third party approved by CKE within six (6) months after such death or mental incapacity. Mental incapacity shall be evidenced by court order appointing a conservator on such grounds or signed certificates describing such incapacity from two licensed physicians. Such transfers, including, without limitation, transfers by devise or inheritance, shall be subject to the same conditions as any inter vivos transfer. However, in the case of transfer by devise or inheritance, if the heirs or beneficiaries of any such person are unable to meet the conditions in this Section XII., the personal representative of the deceased Franchisee shall have a reasonable time to dispose of the deceased's interest in the franchise, which disposition shall be subject to all the terms and conditions for transfers contained in this Agreement. If the interest is not disposed of within a reasonable time, CKE may terminate this Agreement. F. Non-Waiver of Claims CKE's consent to a transfer of any interest in the franchise granted herein shall not constitute a waiver of any claims it may have against the transferring party, nor shall it be deemed a waiver of CKE's right to demand exact compliance with any of the terms of this Agreement by the transferee. G. Offerings by Franchisee Securities or partnership interests in Franchisee may be offered to the public, by private offering or otherwise, only with the prior written consent of CKE, whether or not 33 35 CKE's consent is required under Section XII.B. hereof, which consent shall not be unreasonably withheld. All materials required for such offering by federal or state law shall be submitted to CKE for review prior to their use or filing with any government agency; and any materials to be used in any offering exempt from federal or state securities laws shall be submitted to CKE for review prior to their use. No offering by Franchisee shall imply (by use of the Proprietary Marks or otherwise) that CKE is participating in underwriting, issuing, or offering securities of Franchisee or CKE; and CKE's review of any offering shall be limited solely to the subject of the relationship between Franchisee and CKE. Franchisee and the other participants in the offering must fully indemnify CKE in connection with the offering. For each proposed offering, Franchisee shall pay to CKE a non-refundable fee not to exceed CKE's reasonable costs and expenses associated with reviewing the proposed offering, including, without limitation, legal and accounting fees. Franchisee shall give CKE written notice at least thirty (30) days prior to the date of commencement of any offering or other transaction covered by this Section XII.G. XIII. DEFAULT AND TERMINATION A. Franchisee shall be deemed to be in default under this Agreement, and all rights granted herein shall automatically terminate without notice to Franchisee, if Franchisee shall become insolvent or makes a general assignment for the benefit of creditors; or if a petition in bankruptcy is filed by Franchisee or such a petition is filed against and not opposed by Franchisee; or if Franchisee is adjudicated a bankrupt or insolvent; or if a bill in equity or other proceeding for the appointment of a receiver of Franchisee or other custodian for Franchisee's business or assets is filed and consented to by Franchisee; or if a receiver or other custodian (permanent or temporary) of Franchisee's assets or property, or any part thereof, is appointed by any court of competent jurisdiction; or if proceedings for a composition with creditors under any state or federal law should be instituted by or against Franchisee; or if a final judgment in a total amount of at least $25,000 remains unsatisfied or of record for thirty (30) days or longer (unless supersedeas bond is filed); or if Franchisee is dissolved; or if execution is levied against Franchisee's business or property; or if suit to foreclose any lien or mortgage against the premises or equipment is instituted against Franchisee and not dismissed within thirty (30) days; or if the real or personal property of 34 36 Franchisee's Restaurant shall be sold after levy thereupon by any sheriff, marshal, or constable. B. Franchisee shall be deemed to be in default and CKE may, at its option, terminate this Agreement and all rights granted hereunder, without affording Franchisee any opportunity to cure the default, effective immediately upon receipt of notice by Franchisee, upon the occurrence of any of the following events: 1. If Franchisee fails to construct and open the franchised business within the time limits as provided in Section V.B.; 2. If Franchisee at any time ceases to operate or otherwise abandons the franchised business, or loses the right to possession of the premises, or otherwise forfeits the right to do or transact business in the jurisdiction where the Restaurant is located; provided, however, that if, through no fault of Franchisee, the premises are damaged or destroyed by an event such that they cannot, in CKE's judgment, be repaired or restored within a reasonable time, then Franchisee shall have thirty (30) days after such event in which to apply for CKE's approval to relocate and/or reconstruct the premises, which approval shall not be unreasonably withheld, but which may be conditioned upon the payment of an agreed minimum royalty to CKE during the period in which the Restaurant is not in operation; 3. If Franchisee is convicted of a felony, a crime involving moral turpitude, or any other crime or offense that is reasonably likely, in the sole opinion of CKE, to adversely affect the System, the Proprietary Marks, the goodwill associated therewith, or CKE's interest therein; 4. If Franchisee fails to designate a qualified Owner/Operator within a reasonable time, as required under Section V.C. hereof; 5. If Franchisee or any partner or shareholder in Franchisee purports to transfer any rights or obligations under this Agreement or any interest in Franchisee to any third party without CKE's prior written consent, contrary to the terms of Section XII. of this Agreement; 6. If Franchisee fails to comply with the in-term covenants in Section XV.B. hereof or fails to obtain execution of the covenants required under in Section XV.I. hereof; 7. If, contrary to the terms of Sections VII. or VIII. hereof, Franchisee discloses or divulges the contents of the OPM or other confidential information provided to Franchisee by CKE; 35 37 8. If an approved transfer is not effected within a reasonable time, as required by Section XII.E. hereof, following Franchisee's death or mental incapacity; 9. If Franchisee knowingly maintains false books or records, or submits any false reports to CKE; 10. If Franchisee, after curing a default pursuant to Section XIII.C. hereof, commits the same default again, whether or not cured after notice; or 11. If Franchisee repeatedly is in default under Section XIII.C. hereof, for failure substantially to comply with any of the requirements imposed by this Agreement, whether or not cured after notice. C. Except as provided in Sections XIII.A. and XIII.B. of this Agreement, Franchisee shall have thirty (30) days after its receipt from CKE of a written Notice of Termination within which to remedy any default hereunder and provide evidence thereof to CKE. If any such default is not cured within that time, or such longer period as applicable law may require, the Agreement shall terminate without further notice to Franchisee effective immediately upon the expiration of the thirty (30) day period or such longer period as applicable law may require. Franchisee shall be in default hereunder for any failure to comply with any of the requirements imposed by this Agreement, as it may from time to time reasonably be supplemented by the OPM, or to carry out the terms of this Agreement in good faith. Such defaults shall include, for example, without limitation, the occurrence of any of the following events: 1. If Franchisee fails, refuses, or neglects promptly to pay any monies owing to CKE or its subsidiaries or affiliates when due, or to submit the financial or other information required by CKE under this Agreement or is in default of any promissory note, security agreement, lease or sublease with CKE. 2. If Franchisee fails to maintain or observe any of the standards or procedures prescribed by CKE in this Agreement, the OPM, or otherwise in writing. 3. Except as provided in Section XIII.B.5 hereof, if Franchisee fails, refuses, or neglects to obtain CKE's prior written approval or consent as required by this Agreement. 4. If Franchisee misuses or makes any unauthorized use of the Proprietary Marks or otherwise materially impairs the goodwill associated therewith or CKE's rights therein. 5. If Franchisee engages in any business or markets any service or product under a name or mark which, in CKE's opinion, is confusingly similar to the Proprietary Marks. 36 38 Franchisee shall be in default hereunder for any defaults in monetary obligations owed by Franchisee to CKE, including but not limited to, distribution or commissary purchases or amounts due under any promissory note to CKE. XIV. OBLIGATIONS UPON TERMINATION OR EXPIRATION Upon termination or expiration of this Agreement, all rights granted hereunder to Franchisee shall forthwith terminate, and: A. Franchisee shall immediately cease to operate the business franchised under this Agreement, and shall not thereafter, directly or indirectly, represent to the public or hold itself out as a present or former franchisee of CKE. B. Franchisee shall immediately and permanently cease to use, in any manner whatsoever, any confidential methods, procedures and techniques associated with the System; the Proprietary Mark "CARL'S JR."; and all other Proprietary Marks and distinctive forms, slogans, signs, symbols, and devices associated with the System. In particular, Franchisee shall cease to use, without limitation, all signs, advertising materials, displays, stationery, forms, and any other articles which display the Proprietary Marks. C. Franchisee shall take such action as may be necessary to cancel any assumed name or equivalent registration which contains the mark "CARL'S JR." or any other service mark or trademark of CKE, and Franchisee shall furnish CKE with evidence satisfactory to CKE of compliance with this obligation within thirty (30) days after termination or expiration of this Agreement. D. Franchisee shall, at CKE's option, assign to CKE any interest which Franchisee has in any lease or sublease for the Restaurant premises. In the event CKE does not elect to exercise its option to acquire the lease or sublease for the Restaurant premises, Franchisee shall make such modifications or alterations to such premises (including, without limitation, the changing of the telephone number) immediately upon termination or expiration of this Agreement as may be necessary to distinguish the appearance of such premises from that of other restaurants under the System, and shall make such specified additional changes thereto as CKE may reasonably request for that purpose. In the event Franchisee fails or refuses to comply with the requirements of this Section XIV., CKE shall have the right to enter upon the Restaurant premises without being guilty of trespass or any other tort, for the 37 39 purpose of making or causing to be made such changes as may be required at the expense of Franchisee, which expense Franchisee agrees to pay upon demand. E. Franchisee agrees, in the event it continues to operate or subsequently begins to operate any other business, not to use any reproduction, copy, or colorable imitation of the Proprietary Marks, either in connection with such other business or the promotion thereof, which is likely to cause confusion, mistake, or deception, or which is likely to dilute CKE's rights in and to the Proprietary Marks, and further agrees not to utilize any designation of origin or description or representation which falsely suggests or represents an association or connection with CKE constituting unfair competition. F. Franchisee shall promptly pay all sums owing to CKE and its subsidiaries and affiliates. In the event of termination for any default of Franchisee, such sums shall include all damages, costs, and expenses, including reasonable attorneys' fees, incurred by CKE as a result of the default, which obligation shall give rise to and remain, until paid in full, a lien in favor of CKE against any and all of the personal property, furnishings, equipment, signs, fixtures, and inventory owned by Franchisee and on the premises operated hereunder at the time of default. G. Franchisee shall pay to CKE all damages, costs, and expenses, including reasonable attorneys' fees, incurred by CKE subsequent to the termination or expiration of this Agreement in obtaining injunctive or other relief for the enforcement of any provisions of this Section XIV. H. Franchisee shall immediately deliver to CKE all manuals, including the OPM, records, files, instructions, correspondence, all materials related to operating the franchised business, including, without limitation, brochures, agreements, invoices, and any and all other materials relating to the operation of the franchised business in Franchisee's possession, and all copies thereof (all of which are acknowledged to be CKE's property), and shall retain no copy or record of any of the foregoing, except Franchisee's copy of this Agreement and of any correspondence between the parties and any other documents which Franchisee reasonably needs for compliance with any provision of law. I. Within ten (10) days after the date of termination or expiration, Franchisee and CKE shall arrange for an inventory to be made, at CKE's expense, of all the furnishings, equipment, signs, fixtures, and inventory of Franchisee related to the operation of the franchised business except for personalized items of no value to CKE. CKE shall then 38 40 purchase from Franchisee any or all of those items at Franchisee's fair market value. If the parties cannot agree on a fair market value within a reasonable time, an independent appraiser shall be designated by CKE, and his determination shall be binding. CKE shall have the right to set off all amounts due from Franchisee, and the cost of the appraisal, if any, against any payment therefor. J. Franchisee shall comply with the covenants contained in Section XV.C. of this Agreement. XV. COVENANTS A. Franchisee covenants that during the term of this Agreement except as otherwise approved in writing by CKE, the Owner/Operator or the Operations Supervisor, as the case may be, shall devote full time, energy, and best efforts to the management and operation of the business franchised hereunder. B. Franchisee specifically acknowledges that, pursuant to this Agreement, Franchisee will receive valuable specialized training and confidential information, including, without limitation, information regarding the operational, sales, promotional and marketing methods and techniques of CKE and the System. Franchisee covenants that during the term of this Agreement, except as otherwise approved in writing by CKE, Franchisee shall not, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with any person, persons, partnership, or corporation: 1. Divert or attempt to divert any business or customer of the business franchised hereunder to any competitor, by direct or indirect inducement or otherwise, or do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with CKE's Proprietary Marks and the System. 2. Employ or seek to employ any person who is at that time employed by CKE or by any other franchisee or developer of CKE, or otherwise directly or indirectly induce such person to leave his or her employment. 3. Own, maintain, engage in, or have any interest in: a. Any restaurant business, selling (i) hamburgers or (ii) any other product which constitutes ten percent (10%) of CKE's average System-wide entree sales, which is located in any of the counties of California or elsewhere; or 39 41 b. Any fast service restaurant business which is substantially similar to the franchised business and which is located at or within a radius of fifteen (15) miles of the location approved hereunder or the location of any other restaurant under the System which is in existence at any time during the term of this Agreement. C. Franchisee covenants that, except as otherwise approved in writing by CKE, Franchisee shall not, for a continuous uninterrupted period commencing upon the expiration or termination of this Agreement, regardless of the cause for termination, and continuing for two (2) years thereafter, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with any person, persons, partnership, or corporation, own, maintain, engage in, or have any interest in any restaurant business, selling (i) hamburgers or (ii) any other products which constitute ten percent (10%) of CKE's average System-wide entree sales, and which is located within a radius of fifteen (15) miles of the location approved hereunder or the location of any restaurant under the System which is in existence on the date of expiration or termination of this Agreement. D. Sections XV.B.3 and XV.C. shall not apply to ownership by Franchisee of less than two percent (2%) beneficial interest in the outstanding equity securities of any publicly-held corporation. E. The parties agree that each of the foregoing covenants shall be construed as independent of any other covenant or provision of this Agreement. If all or any portion of a covenant in this Section XV. is held unreasonable or unenforceable by a court or agency having valid jurisdiction in an unappealed final decision to which CKE is a party, Franchisee expressly agrees to be bound by any lesser covenant subsumed within the terms of such covenant that imposes the maximum duty permitted by law, as if the resulting covenant were separately stated in and made a part of this Section XV. F. Franchisee understands and acknowledges that CKE shall have the right, in its sole discretion, to reduce the scope of any covenant set forth in Sections XV.B and XV.C. in this Agreement, or any portion thereof, without Franchisee's consent, effective immediately upon receipt by Franchisee of written notice thereof; and Franchisee agrees that it shall comply forthwith with any covenant as so modified, which shall be fully enforceable notwithstanding the provisions of Section XX. hereof. G. Franchisee expressly agrees that the existence of any claims it may have against CKE, whether or not arising from this Agreement, shall not constitute a defense to the 40 42 enforcement by CKE of the covenants in this Section XV. Franchisee agrees to pay all costs and expenses, including reasonable attorneys' fees, incurred by CKE in connection with the enforcement of this Section XV. H. Franchisee acknowledges that Franchisee's violation of the terms of this Section XV. would result in irreparable injury to CKE for which no adequate remedy at law may be available, and Franchisee accordingly consents to the issuance of an injunction prohibiting any conduct by Franchisee in violation of the terms of this Section XV. Franchisee expressly agrees that it may be conclusively presumed that any violation of the terms of said covenants not to compete was accomplished by and through Franchisee's utilization of CKE's confidential information, know-how, methods and procedures. I. At CKE's request, Franchisee shall require and obtain execution of covenants similar to those set forth in this Section XV. (including covenants applicable upon the termination of a person's relationship with Franchisee) from any or all of the following persons: 1. All managers of Franchisee and any other personnel employed by Franchisee who have received training from CKE; 2. All officers, directors, and holders of a beneficial interest of two percent (2%) or more of the securities of Franchisee, and of any corporation directly or indirectly controlling Franchisee, if Franchisee is a corporation; and 3. The general partners and any limited partners (including any corporation, and the officers, directors, and holders of a beneficial interest of two percent (2%) or more of the securities of any corporation which controls, directly or indirectly any general or limited partner), if Franchisee is a partnership. Every covenant required by this Section XV.I. shall be in a form satisfactory to CKE, including, without limitation, specific identification of CKE as a third party beneficiary of such covenants with the independent right to enforce them. Failure by Franchisee to obtain execution of a covenant required by this Section XV.I. shall constitute a default under Section XIII.B.6 hereof. XVI. TAXES, PERMITS, AND INDEBTEDNESS A. Franchisee shall promptly pay when due all taxes levied or assessed, including, without limitation, unemployment and sales taxes, and all accounts and other indebtedness of every kind incurred by Franchisee in the conduct of the business franchised under this 41 43 Agreement. Franchisee shall pay to CKE an amount equal to any sales tax, or similar tax imposed on CKE with respect to any payments to CKE required under this Agreement, unless the tax is credited against income tax otherwise payable by CKE. B. In the event of any bona fide dispute as to Franchisee's liability for taxes assessed or other indebtedness, Franchisee may contest the validity or the amount of the tax or indebtedness in accordance with procedures of the taxing authority or applicable law; however, in no event shall Franchisee permit a tax sale or seizure by levy of execution or similar writ or warrant, or attachment by a creditor, to occur against the premises of the franchised business, or any improvements thereon. C. Franchisee shall comply with all federal, state, and local laws, rules, and regulations, and shall timely obtain any and all permits, certificates, or licenses necessary for the full and proper conduct of the business franchised under this Agreement, including, without limitation, licenses to do business, fictitious name registrations, sales tax permits, and fire clearances. D. Franchisee shall notify CKE in writing within ten (10) days of the commencement of any action, suit, or proceeding, and of the issuance of any order, writ, injunction, award, or decree of any court, agency, or other governmental instrumentality, which may adversely affect the operation or financial condition of the franchised business. XVII. INDEPENDENT CONTRACTOR A. It is understood and agreed by the parties hereto that this Agreement does not create a fiduciary relationship between them, that Franchisee shall be an independent contractor, and that nothing in this Agreement is intended to constitute either party an agent, legal representative, subsidiary, joint venturer, partner, employee, or servant of the other for any purpose whatsoever. B. Franchisee shall conspicuously identify himself and his Restaurant and in all dealings with his clients, contractors, suppliers, public officials and others, as an independent Franchisee of CKE, and shall place such notice of independent ownership on all forms, business cards, stationery, advertising, signs and other materials and in such fashion as CKE may, in its sole and exclusive discretion, specify and require from time to time, in its OPM (as same may be amended from time to time) or otherwise. 42 44 Except as otherwise expressly authorized by this Agreement, neither party hereto will make any express or implied agreements, warranties, guarantees or representations or incur any debt in the name of or on behalf of the other party, or represent that the relationship between CKE and Franchisee is other than that of Franchisor and Franchisee. CKE does not assume any liability, and will not be deemed liable, for any agreements, representations, or warranties made by Franchisee which are not expressly authorized under this Agreement, nor will Franchisor be obligated for any damages to any person or property which directly or indirectly arise from or relate to the operation of the Restaurant. C. It is understood and agreed that nothing in this Agreement authorizes Franchisee to make any contract, agreement, warranty, or representation on CKE's behalf, or to incur any debt or other obligation in CKE's name, and that CKE shall in no event assume liability for, or be deemed liable hereunder as a result of, any such action, or by reason of any act or omission of Franchisee in its conduct of the franchised business or any claim or judgment arising therefrom against CKE. Franchisee shall indemnify and hold CKE, and CKE's officers, directors, and employees harmless against any and all claims arising directly or indirectly from, as a result of, or in connection with Franchisee's operation of the franchised business, as well as the costs, including attorneys' fees, of defending against them. XVIII. INDEMNIFICATION Franchisee agrees at all times to defend at his own cost, and to indemnify and hold harmless to the fullest extent permitted by law, CKE, its corporate parent, the corporate subsidiaries, affiliates, successors, assigns and designees of either entity, and the respective directors, officers, employees, agents, shareholders, designees, and representatives of each (CKE and all other hereinafter referred to collectively as "Indemnitees") from all losses and expenses (as hereinafter defined) incurred in connection with any action, suit, proceeding, claim, demand, investigation, or formal or informal inquiry (regardless of whether same is reduced to judgment) or any settlement thereof which arises out of or is based upon any of the following Franchisee's alleged infringement or any other violation or any other alleged violation of any patent, mark or copyright or other proprietary right owned or controlled by third parties; Franchisee's alleged violation or breach of any contract, federal, state or local law, regulation, ruling, standard or directive or of any industry standard; libel, slander or any other form of defamation by Franchisee; Franchisee's alleged violation or breach of any 43 45 warranty, representation, agreement or obligation in this Agreement; any acts, errors or omissions of Franchisee or any of its agents, servants, employees, contractors, partners, proprietors, affiliates or representatives; latent or other defects in the Restaurant whether or not discoverable by CKE or Franchisee; the inaccuracy, lack of authenticity or Restaurant; any service provided by Franchisee at, from or related to the operation at the franchised business or the action by any customer of the franchised business or visitor to the Restaurant; and, any damage to the property of Franchise or CKE, their agents or employees, or any third person, firm or corporation, whether or not such losses, claims, costs, expenses, damages or liabilities were actually or allegedly caused in part through the active or passive negligence of CKE or any of its agents or employees, or resulted from any strict liability imposed on CKE or any of its agents or employees. For the purpose of this Section XVIII, the term "losses and expenses" shall be deemed to include all losses, compensatory, exemplary or punitive damages, fines, charges, costs, expenses, lost profits, attorneys' fees, experts' fees, court costs, settlement amounts, judgments, compensation for damages to CKE's reputation and goodwill, costs of or resulting from delays, financing, costs of advertising material and media time/space, and costs of changing, substituting or replacing same, and any and all expenses of recall, refunds, compensation, public notices and other such amounts incurred in connection with the matters described. Franchisee agrees to give CKE notice of any such action, suit, proceeding, claim, demand, inquiry or investigation. At the expense and risk of Franchisee, CKE may elect to assume (but under no circumstance is obligated to undertake) the defense and/or settlement of any such action, suit, proceeding, claim, demand, inquiry or investigation, provided that CKE will seek the advice and counsel of Franchisee, and shall keep Franchisee informed, with regard to any such proposed or contemplated settlement(s). Such an undertaking by CKE shall in no manner or form diminish Franchisee's obligation to indemnify CKE and to hold it harmless. In order to protect persons or property, or its reputation or goodwill, or the reputation or goodwill of others, CKE may, at any time and without notice as it in its judgment deems appropriate, offer, order, consent or agree to settlements or take such other remedial or corrective actions as it deems expedient with respect to the action, suit, proceeding, claim, 44 46 demand, inquiry or investigation if, in CKE's sole judgment, there are reasonable grounds to believe that: 1. any of the acts or circumstances enumerated in this Section XVIII have occurred, or 2. any act, error, or omission of Franchisee may result directly or indirectly in damage, injury or harm to any person or any property. All losses and expenses incurred under this Section XVIII shall be chargeable to and paid by Franchisee pursuant to his obligations of indemnity under this Section, regardless of any actions, activity or defense undertaken by CKE or the subsequent success or failure of such actions, activity or defense. Indemnitees do not assume any liability whatsoever for acts, errors, or omission of those with whom Franchisee may contract, regardless of the purpose. Franchisee shall hold harmless and indemnify Indemnitees for all losses and expenses which may arise out of any acts, errors or omissions of these third parties. Under no circumstances shall Indemnitees be required or obligated to seek recovery from third parties or otherwise mitigate their losses in order to maintain a claim against Franchisee. Franchisee agrees that the failure to pursue such recovery or mitigate loss will in no way reduce the amounts recoverable by Indemnitees from Franchisee. XIX. APPROVALS AND WAIVERS A. Whenever this Agreement requires the prior approval or consent of CKE, Franchisee shall make a timely written request to CKE therefore, and such approval or consent shall be obtained in writing. B. In no event shall Franchisee be entitled to make, nor shall Franchisee make, any claim, and Franchisee hereby waives any claim for money damages, nor shall Franchisee claim any money damages by way of set-off, counterclaim or defense, based upon any claim or assertion by Franchisee that CKE has unreasonably withheld or unreasonably delayed any consent or approval to a proposed act by Franchisee under any of the terms of this Franchise Agreement. Franchisee's sole remedy for any such claim shall be an action or proceeding to enforce any such provisions, or for specific performance, or declaratory judgment. C. No delay, waiver, omission, or forbearance on the part of CKE to exercise any right, option, duty, or power arising out of any breach or default by Franchisee under any 45 47 of the terms, provisions, covenants, or conditions hereof, shall constitute a waiver by CKE to enforce any such right, option, duty, or power as against Franchisee, or as to subsequent breach or default by Franchisee. Subsequent acceptance by CKE of any payments due to it hereunder shall not be deemed to be a waiver by CKE of any preceding breach by Franchisee of any terms, provisions, covenants, or conditions of this Agreement. XX. NOTICES Any and all notices required or permitted under this Agreement shall be in writing and shall be personally delivered or mailed by certified or registered mail, return receipt requested, to the respective parties at the following addresses unless and until a different address has been designated by written notice to the other party: Notices to CKE: Carl Karcher Enterprises, Inc. Attn: Franchise Department P. O. Box 4349 Anaheim, California 92803 Notices to Franchisee: Carl Leo Karcher CLK, Inc. 73-101 Highway 111, Suite #1 Palm Desert, CA 92260-3956 Any notice by certified or registered mail shall be deemed to have been given at the date and time of receipt. XXI. ENTIRE AGREEMENT This Agreement, the documents referred to herein, and the Attachment(s) hereto constitute the entire, full, and complete Agreement between CKE and Franchisee concerning the subject matter hereof, and supersede all prior agreements, no other representations having induced Franchisee to execute this Agreement. No amendment, change, or variance from this Agreement shall be binding on the parties unless mutually agreed to by the parties and executed by their authorized officers or agents in writing. 46 48 XXII. SEVERABILITY AND CONSTRUCTION A. Except as expressly provided to the contrary herein, each portion, section, part, term, and/or provision of this Agreement shall be considered severable; and if, for any reason, any section, part, term, and/or provision herein is determined to be invalid and contrary to, or in conflict with, any existing or future law or regulation by a court or agency having valid jurisdiction, such shall not impair the operation of, or have any other effect upon, such other portions, sections, parts, terms, and/or provisions of this Agreement as may remain otherwise intelligible; and the latter shall continue to be given full force and effect and bind the parties hereto; and said invalid portions, sections, parts, terms and/or provisions shall be deemed not to be a part of this Agreement. B. Except as expressly provided to the contrary herein, nothing in this Agreement is intended, nor shall be deemed, to confer upon any person or legal entity other than Franchisee, CKE, CKE's officers, directors, and employees, and such of Franchisee's and CKE's respective successors and assigns as may be contemplated by Section XII. hereof, any rights or remedies under or by reason of this Agreement. C. Franchisee expressly agrees to be bound by any promise or covenant imposing the maximum duty permitted by law which is subsumed within the terms of any provision hereof, as though it were separately articulated in and made a part of this Agreement, that may result from striking from any of the provisions hereof any portion or portions which a court may hold to be unreasonable and unenforceable in a final decision to which CKE is a party, or from reducing the scope of any promise or covenant to the extent required to comply with such a court order. D. All captions in this Agreement are intended solely for the convenience of the parties, and none shall be deemed to affect the meaning or construction of any provision hereof. E. All references herein to the masculine, neuter, or singular shall be construed to include the masculine, feminine, neuter, or plural, where applicable, and all acknowledgments, promises, covenants, agreements, and obligations herein made or undertaken by Franchisee shall be deemed jointly and severally undertaken by all those executing this Agreement on behalf of Franchisee. F. This Agreement may be executed in triplicate, and each copy so executed shall be deemed an original. 47 49 XXIII. APPLICABLE LAW A. This Agreement takes effect upon its acceptance and execution by CKE in California, and shall be interpreted and construed under the laws thereof, which laws shall prevail in the event of any conflict of law; provided, however, that the provisions of Section XV. Covenants, shall be interpreted and construed under the laws of the jurisdiction within which the franchised business is located. B. The parties agree that any action brought by either party against the other in any court, whether federal or state, shall be brought within the State of California in the judicial district in which CKE has its principal place of business and do hereby waive all questions of personal jurisdiction or venue for the purpose of carrying out this provision. C. No right or remedy conferred upon or reserved to CKE or Franchisee by this Agreement is intended to be, nor shall be deemed, exclusive of any other right or remedy herein or by law or equity provided or permitted, but each shall be cumulative of every other right or remedy. D. Nothing herein contained shall bar CKE's right to obtain injunctive relief against threatened conduct that will cause it loss or damages, under the usual equity rules, including the applicable rules for obtaining restraining orders and preliminary injunctions. XXIV. DEFINITION OF FRANCHISEE The term "Franchisee" as used in this Agreement shall refer to each person executing this Agreement as Franchisee whether such person is one of the spouses, partners, proprietors, shareholders, trustees, trustors or beneficiaries or persons named as included in Franchisee, and shall apply to each such persons as if he/she were the only named Franchisee in this Agreement. If Franchisee is a married couple, both husband and wife executing this Agreement shall be liable for all obligations and duties of Franchisee hereunder as if such spouse were the sole Franchisee hereunder. If Franchisee is a partnership or proprietorship, or if more than one person executes this Agreement as Franchisee, each partner, proprietor or person executing this Agreement shall be liable for all obligations and duties of Franchisee hereunder. If Franchisee is a trust, each trustee, grantor and beneficiary signing this Agreement shall be liable for all of the obligations and duties of Franchisee hereunder. If Franchisee is a corporation, all shareholders executing this Agreement shall be liable for all obligations and duties of Franchisee hereunder as if each such shareholder were the sole 48 50 Franchisee hereunder. If Franchisee is an entity, each of his principals and/or owners shall, concurrently with the execution of this Agreement execute Franchisor's Standard Form Guarantee (annexed hereto as Exhibit "3"), pursuant to which all obligations and duties of Franchisee are guaranteed by such individuals. Should Franchisee be in breach or default under this Agreement, CKE may proceed directly against each such spouse, partner, proprietor, signatory to this Agreement, shareholder, trustee, trustor, owner, principal or beneficiary without first proceeding against Franchisee and without proceeding against or naming in such suit any other Franchisee, partner, proprietor, signatory to this Agreement, shareholder, trustee, trustor or beneficiary. The obligations of Franchisee and each such spouse, partner, proprietor, person executing this Agreement, shareholder, trustee, trustor and beneficiary shall be joint and several. Notice to or demand upon one spouse, partner, proprietor, person signing this Agreement, shareholder, trustee, trustor, owner, principal or beneficiary shall be deemed notice to or demand upon Franchisee and all such spouses, partners, proprietors, persons signing this Agreement, shareholders, trustees, trustors, owners, principal and beneficiaries, and no notice or demand need be made to or upon all such Franchisees, spouses, partners, proprietors, persons executing this Agreement, shareholders, trustees, trustors, owners, principals or beneficiaries. The cessation of or release from liability of Franchisee or any such spouse, partner, proprietor, person executing this Agreement, shareholder, trustee, trustor, owners, principals or beneficiary shall not relieve any other Franchisee, spouse, partner, proprietor, person executing this Agreement, shareholder, trustee, trustor, owner, principal or beneficiary from liability hereunder, except to the extent that the breach or default has been remedied or monies owed have been paid. XXV. ACKNOWLEDGEMENTS A. Franchisee acknowledges that it has conducted an independent investigation of the business franchised hereunder, and recognizes that the business venture contemplated by this Agreement involves business risks and that its success will be largely dependent upon the ability of Franchisee as an independent businessman. CKE expressly disclaims the making of, and Franchisee acknowledges that it has not received, any warranty or guarantee, express or implied, as to the potential volume, profits, or success of the business venture contemplated by this Agreement. 49 51 B. Franchisee acknowledges that it received a copy of the complete Carl's Jr. Restaurant Franchise Agreement, the Attachments thereto, and agreements relating thereto, if any, at least five (5) business days prior to the date on which this Agreement was executed. Franchisee further acknowledges that it received the disclosure document required by the Trade Regulation Rule of the Federal Trade Commission entitled "Franchise Offering Circular of Carl Karcher Enterprises, Inc. for Prospective Franchisees" at least ten (10) business days prior to the date on which this Agreement was executed. C. Franchisee acknowledges that it has read and understood this Agreement, the Attachments hereto, and agreements relating thereto, if any, and that CKE has afforded Franchisee ample time and opportunity and has encouraged Franchisee to consult with advisors of Franchisee's own choosing about the potential benefits and risks of entering into this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed, sealed, and delivered this Agreement in triplicate on the day and year first above written. CKE FRANCHISEE CARL KARCHER ENTERPRISES, INC. a California corporation /s/ Carl L. Karcher By: /s/ Richard C. Celio - - --------------------------------------- ------------------------------------- Carl Leo Karcher Richard C. Celio Title: Vice President/General Counsel OWNER/OPERATOR /s/ Carl L. Karcher - - --------------------------------------- Carl Leo Karcher By: /s/ Rory J. Murphy ---------------------------------- Rory J. Murphy Title: Senior Vice President Operations 50 52 ATTACHMENT A APPROVED LOCATION UNDER CARL'S JR. RESTAURANT FRANCHISE AGREEMENT The location approved by CKE for the Restaurant franchised under the attached Franchise Agreement shall be: #7085 Highway 111 and Washington La Quinta, CA (Refer to Section I.B. of Franchise Agreement) 51 53 EXHIBIT 1 FRANCHISEE'S ADVERTISING AND PROMOTION OBLIGATION Franchisee's weekly advertising and promotion obligation (hereinafter "APO") under Section X of the Franchise Agreement shall be as set forth below unless and until modified by CKE as provided in Section X: 1. LSM allocation: .5% of gross sales (Section X.B.) 2. Fund allocation, for .5% of gross sales general administrative (not more than 1%) advertising expenditures: (Section X.C.1) 3. Fund allocation, for 3.0% of gross sales regional advertising expenditures:* (Section X.C.2) 4. Cooperative allocation: N/A% of gross sales (Section X.D) TOTAL APO: 4.0% of gross sales (not more than 6%)
* The ADI in which the Restaurant is located: Palm Springs, CA Note: a) CKE has the right to eliminate the LSM allocation b) At no time will a percentage appear in both Number 3 and Number 4 simultaneously. 52 54 EXHIBIT 2 WEEKLY ROYALTY FEE The weekly royalty fee as provided for in Section IV of the Franchise Agreement is as follows:
Year of Operation of the Restaurant Percentage of Gross Sales ----------------------------------- ------------------------- One through initial term 4%
Should Franchisee open the Restaurant pursuant to the terms of a Carl's Jr. Restaurant Development Agreement and the Restaurant opens ahead of the required Development Schedule, the following reductions shall apply:
Royalty Number of Full Months Ahead of Schedule Fee Reduction --------------------------------------- ------------- 13+ 2% 1 - 12 1%
CKE also allows a temporary reduction in royalty fees for Restaurants which are developed by a Franchisee with a valid Development Agreement, in the Assigned Area, in excess of the number required by the development schedule and which are opened prior to the last scheduled opening date. The reduction schedule is as follows:
Year of Operation Fee Reduction ----------------- ------------- First 2% Second 1% Third and following None
53 55 EXHIBIT 3 PERSONAL GUARANTY The undersigned ****, jointly and severally ("Guarantors") each hereby unconditionally guarantee the full performance of each and all of the terms, covenants, and conditions of those certain Carl's Jr. Restaurant Agreement dated ____________________________, 1993, between CARL KARCHER ENTERPRISES, INC. ("CKE") and **, (a California Limited Partnership) (a ___________________ corporation), as franchisee ("Franchisee"), for restaurants #__________ Located at ___________________________________________. The undersigned further agree as follows: 1. Guarantors also, jointly and severally, unconditionally guarantee the performance of all agreements, leases, subleases and promissory notes between Franchisee and CKE. 2. This Guaranty will continue unchanged by any bankruptcy, reorganization or insolvency of Franchisee or by and disaffirmance or abandonment by a trustee of Franchisee. 3. The agreements and obligations herein of Guarantors shall continue in favor of CKE notwithstanding any extension, modification, or alteration of such Franchise Agreement entered into by and between the parties thereto, or their successors or assigns, and no extension, modification, alteration or assignment of such agreement shall in any manner release or discharge the undersigned and it does hereby consent thereto. 4. The obligations hereunder are joint and several, and independent of the obligations of Franchisee and a separate action or actions may be brought and prosecuted against Guarantors whether action is brought against Franchisee or whether Franchisee be joined in any such action or actions. Guarantors waive the benefit or any statute of limitation affecting their liability hereunder or the enforcement thereof. 5. Guarantors shall pay CKE's reasonable attorneys' fees and all costs and other expenses incurred in any collection or attempted collection or in any negotiations relative to the obligations hereby guaranteed or enforcing this Guaranty against the undersigned, individually and jointly. 6. Guarantors waive any right to require CKE to: a. proceed against Franchisee; b. proceed against or exhaust any security held by Franchisee; or c. pursue any other remedy in CKE's power whatsoever. Guarantors waive any defense arising by reason of any disability or other defense of Franchisee or by reason of the cessation from any cause whatsoever of the liability of Franchisee. Guarantors waive all presentments, demands for performance, notices of nonperformance, protests, notices of protests, notices of dishonor, and notices of acceptance of this Guaranty. 54 56 The use of the singular herein shall include the plural. The obligation of two or more parties shall be joint and several. The terms and provisions of this Guaranty shall be binding upon and inure to the benefit of the respective successors and assigns of the parties herein named. IN WITNESS WHEREOF, the undersigned executed this Guaranty on _________________________, 1993. GUARANTORS: _____________________________________ _____________________________________ 55 57 CARL'S JR. RESTAURANT FRANCHISE AGREEMENT TABLE OF CONTENTS
ITEM PAGE ---- ---- RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 I. GRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 II. TERM AND RENEWAL . . . . . . . . . . . . . . . . . . . . . . . 2 III. DUTIES OF CKE . . . . . . . . . . . . . . . . . . . . . . . . . 3 IV. FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 V. DUTIES OF FRANCHISEE . . . . . . . . . . . . . . . . . . . . . 6 VI. PROPRIETARY MARKS . . . . . . . . . . . . . . . . . . . . . . . 16 VII. CONFIDENTIAL OPERATIONS PROCEDURES MANUAL ("OPM") . . . . . . . 18 VIII. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . 18 IX. ACCOUNTING AND RECORDS . . . . . . . . . . . . . . . . . . . . 19 X. ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . . . 21 XI. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 XII. TRANSFER OF INTEREST . . . . . . . . . . . . . . . . . . . . . 29 XIII. DEFAULT AND TERMINATION . . . . . . . . . . . . . . . . . . . . 34 XIV. OBLIGATIONS UPON TERMINATION OR EXPIRATION . . . . . . . . . . 37 XV. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 XVI. TAXES, PERMITS, AND INDEBTEDNESS . . . . . . . . . . . . . . . 41 XVII. INDEPENDENT CONTRACTOR . . . . . . . . . . . . . . . . . . . . 42 XVIII. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 43 XIX. APPROVALS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . 45 XX. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
56 58 XXI. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 46 XXII. SEVERABILITY AND CONSTRUCTION . . . . . . . . . . . . . . . . . 47 XXIII. APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . 48 XXIV. DEFINITION OF FRANCHISEE . . . . . . . . . . . . . . . . . . . 48 XXV. ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . 49 ATTACHMENT A APPROVED LOCATION EXHIBIT 1 FRANCHISEE'S ADVERTISING AND PROMOTION OBLIGATION EXHIBIT 2 WEEKLY ROYALTY FEE EXHIBIT 3 FRANCHISOR'S STANDARD FORM GUARANTEE
57 EX-10.86 12 ASSIGNMENT OF FRANCHISE AGREEMENT 1 Exhibit 10-86 2 ASSIGNMENT OF CARL'S JR. RESTAURANT FRANCHISE AGREEMENT ASSIGNMENT For value received, Carl Leo Karcher ("Franchisee"), hereby assigns all right, title and interest under the certain CARL'S JR. RESTAURANT FRANCHISE AGREEMENT (Agreement) for restaurant located at Hwy. 111 and Washington, La Quinta, California, between Franchisee and CARL KARCHER ENTERPRISES, INC. (CKE), to CLK, Inc. (Assignee). Dated: April 7 , 1993 ------------- /s/ Carl L. Karcher - - ------------------------ Carl Leo Karcher ACCEPTANCE CLK, Inc., Assignee under the foregoing assignment of Franchisee's interest hereby accepts the foregoing assignment of Franchisee's interest and hereby assumes all obligations and liabilities of Franchisee and agrees to perform under the terms and conditions of said Agreement. Dated: April 7 , 1993 ------------- CLK, Inc. /s/ Carl L. Karcher - - ------------------------ By Carl Leo Karcher President CONSENT TO ASSIGNMENT CKE, as Franchisor in the foregoing Agreement, without releasing Franchisee named in said Agreement, hereby consents to such assignment, without, however, waiving the restrictions, if any, contained in said Agreement with respect to future assignments thereunder. Dated: April 27 , 1993 -------------- CARL KARCHER ENTERPRISES, INC. a California corporation /s/ Rory J. Murphy /s/ Richard C. Celio - - ------------------------ ------------------------- By Rory J. Murphy, By Richard C. Celio, Vice President Senior Vice President Operations General Counsel 3 RELEASE In consideration of the Franchisor's approval of the assignment of the CARL'S JR. RESTAURANT FRANCHISE AGREEMENT dated April 7 , 1993, (Agreement) for Carl's Jr. Restaurant #7085 located at Hwy. 111 and Washington, La Quinta, CA, between CARL KARCHER ENTERPRISES, (CKE) and Carl Leo Karcher (Franchisee), to CLK, Inc., undersigned for himself, his heirs, executors, administrators and assigns does hereby fully release CKE and its subsidiaries and affiliates, and their respective officers, directors, agents, shareholders and employees in their individual and corporate capacities, of any and all claims arising under federal, state and local laws, rules and ordinances, excluding only such claims as Franchisee may have that have arisen under the California Franchise Investment Law or the California Franchise Relations Act. Each of the undersigned represents, warrants and certifies that, in signing this Release, each does so with full knowledge of any and all rights which each may have, and does not rely and has not relied upon any representations or statements of CKE or anyone else, except his own attorney, and each hereby assumes the risk of any mistake of fact in connection with the true facts which may be unknown. Each of the undersigned further represents, warrants and certifies that each has consulted with and secured independent legal advice and consultation in connection with this Release and any rights which each may be relinquishing. It is expressly agreed that any and all rights granted under Section 1542 of the California Civil Code area hereby expressly waived. Such statute reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." Each of the undersigned has read and understands the foregoing. Executed on April 7 , 1993, at Palm Desert . ------------ ----------------- /s/ Carl L. Karcher - - ------------------------ Carl Leo Karcher 4 CONTINUING GUARANTY That Carl Leo Karcher, (Franchisee) entered into a CARL'S JR. RESTAURANT FRANCHISE AGREEMENT (Agreement) for a restaurant located at Hwy. 111 and Washington, La Quinta, California with CARL KARCHER ENTERPRISES, INC. (CKE). RECITALS A. Each of the undersigned Franchisees has executed an Agreement under which the Franchisees have acquired the right to operate one restaurant as a Carl's Jr. Restaurant. B. Each of the Franchisees has requested written consent from CKE to assign its right under the Agreement to CLK, Inc. (Assignee). THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged, the undersigned (Guarantors) agree as follows: 1. Guarantors, jointly and severally, unconditionally guarantee the performance by Assignee of all obligations, including any payments of fees as required pursuant to the terms of the Agreement. Guarantors also, jointly and severally, unconditionally guarantee the performance of all related agreements and leases assigned or subleased by CKE to Assignee. 2. Guarantors shall pay any costs and expenses incurred, including reasonable attorneys fees, incurred by CKE in the enforcement of this Guaranty. 3. The obligations hereunder are joint and several, and independent of the obligations of Assignee, and a separate action or actions may be brought and prosecuted against Guarantors whether action is brought against Assignee or whether Assignee be joined in any such action or actions; and Guarantors waive the benefit of any Statute of Limitation affecting their liability hereunder or the enforcement thereof. 4. Guarantors waive any right to require CKE to: (a) proceed against Assignee; (b) proceed against or exhaust any security held by Assignee; or (c) pursue any other remedy in CKE's power whatsoever. Guarantors waive any defense arising by reason of any disability or other defense of Assignee or by reason of the cessation from any cause whatsoever of the liability of Assignee. Guarantors waive all presentments, demands for performance, notices of nonperformance, protests, notices of protests, notices of dishonor, and notices of acceptance of this Guaranty. 5 5. This shall be a continuing guaranty, and shall by subject to all the terms and conditions of the Agreement executed by Guarantors and CKE. IN WITNESS WHEREOF, the undersigned Guarantors have executed this Guaranty on April 7 , 1993. ------------- /s/ Carl L. Karcher - - ----------------------- Carl Leo Karcher EX-10.87 13 RESTRICTED STOCK AGREEMENT DATED JANUARY 6, 1993 1 Exhibit 10-87 2 RESTRICTED STOCK AGREEMENT This Restricted Stock Agreement ("Agreement") is made and entered into as of the Date of Award indicated below by and between Carl Karcher Enterprises, Inc., a California corporation (the "Company"), and Donald E. Doyle ("Executive"). WHEREAS, Executive is the President and Chief Executive Officer of the Company; and WHEREAS, in connection with the retention of Executive in such capacities, the Board of Directors of the Company has approved the award to Executive of the right to receive shares of the common stock of the Company (the "Common Stock"), on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set forth herein, the parties hereto hereby agree as follows: 1. Award; Certain Terms and Conditions. The Company hereby awards to Executive, and Executive hereby accepts, as of the Date of Award, the right to receive the number of shares of Common Stock indicated below (the "Restricted Shares"). The Restricted Shares shall be subject to all of the terms and conditions set forth in this Agreement, including the restrictions imposed pursuant to Section 3 hereof; provided, however, that on each anniversary of the Date of Award, such restrictions shall terminate with respect to that number of Restricted Shares (rounded to the nearest whole share) equal to the total number of Restricted Shares multiplied by the Annual Vesting Rate indicated below (the termination of such restrictions with respect to any Restricted Share, for any reason, shall be referred to herein as the "vesting" of such share). Date of Award: January 6, 1993 Number of shares purchasable: 12,121 Annual Vesting Rate: 33-1/3% Vesting Dates: January 6, 1994 January 6, 1995 January 6, 1996 2. Consideration for Shares. The consideration for the issuance and sale of Restricted Shares contemplated hereby consists of past services to the Company and/or one or more of its subsidiaries. 3. Restrictions. Until a Restricted Share vests, it may not be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner. 1 3 4. Acceleration of Vesting. (a) Notwithstanding anything to the contrary in this Agreement, in the event that Executive shall cease to be an employee of the Company or any of its subsidiaries for any reason, or for no reason, within one year after a Change of Control (as hereinafter defined), all then unvested Restricted Shares shall vest upon the date of such event. (b) "Change of Control" shall mean the first to occur of the following events: (i) any date upon which the directors of the Company who were nominated by the Board of Directors (the "Board") for election as directors cease to constitute a majority of the directors of the Company; (ii) the date of the first public announcement that any person or entity, together with all Affiliates and Associates (as such capitalized terms are defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such person or entity, shall have become the Beneficial Owner (as defined in Rule 13d-3 promulgated under the Exchange Act) of voting securities of the Company representing 50% or more of the voting power of the Company (a "50% Stockholder"); provided, however, that the terms "person" and "entity," as used in this clause (ii), shall not include (A) the Company or any of its subsidiaries, (B) any employee benefit plan of the Company or any of its subsidiaries, (C) any entity holding voting securities of the Company for or pursuant to the terms of any such plan or (D) any person or entity if the transaction that resulted in such person or entity becoming a 50% Stockholder was approved in advance by the Board; or (iii) a reorganization, merger or consolidation of the Company (other than a reorganization, merger or consolidation the sole purpose of which is to change the Company's domicile solely within the United States) the consummation of which results in the outstanding securities of any class then comprising the Restricted Shares being exchanged for or converted into cash, property and/or a different kind of securities. (c) In addition, the Board of Directors, in its sole discretion, may accelerate the vesting of any or all of the Restricted Shares at any time. 5. Termination of Award. Notwithstanding anything to the contrary in this Agreement, if Executive shall cease to be an employee of the Company or any of its subsidiaries for any reason, or for no reason, then, unless the Board of 2 4 Directors shall determine otherwise, the then unvested portion of award of Restricted Shares shall terminate and be of no further force and affect. 6. Payment of Withholding Taxes. If the Company becomes obligated to withhold an amount on account of any federal, state or local tax imposed as a result of the sale of the Restricted Shares to Executive pursuant to this Agreement or the termination of the restrictions imposed upon the Restricted Shares hereunder, including, without limitation, any federal, state or other income tax, or any F.I.C.A., state disability insurance tax or other employment tax (the date upon which the Company becomes so obligated shall be referred to herein as the "Withholding Date"), then Executive shall pay such amount (the "Withholding Liability") to the Company on the Withholding Date in cash or by check payable to the Company. 7. Escrow. (a) Until a Restricted Share vests, (i) the record address of the holder of record of such Restricted Share shall be c/o the Secretary of the Company at the address of the Company's principal executive office, (ii) the stock certificate representing such Restricted Share (together with any dividends, cash, property and/or securities comprising all or any part of such Restricted Share as provided in Section 9 hereof) shall be held in escrow in the custody of the Secretary of the Company, duly endorsed in blank or accompanied by a duly executed stock powers, and (iii) such stock certificate shall contain the following legend: "The transfer and registration of transfer of the securities represented by this certificate are subject to certain restrictions as provided in a Restricted Stock Agreement dated as of January 6, 1993 by and between the Corporation and Donald E. Doyle." (b) From and after the date upon which a Restricted Share vests, the holder of record of such Restricted Share shall be entitled (provided that Executive shall have paid the Withholding Liability to the Company pursuant to Section 6 hereof) to receive the stock certificate representing such Restricted Share (together with any cash, property and/or securities comprising all or any part of such Restricted Share as provided in Section 8 hereof), which stock certificate shall not contain the legend set forth in subsection (a)(iii) above. 9. Voting; Dividends; Certain Corporate Transactions. Except upon the vesting of each installment of Restricted Shares, Executive shall not be entitled to exercise any voting rights with respect to such Restricted Shares or to receive any cash dividends paid with respect thereto. In the event that the outstanding securities of any class then comprising the Restricted Shares (whether vested or unvested) are increased, decreased or exchanged for or converted into cash, property and/or a different number or kind of securities, or cash, property and/or securities are distributed in respect of such outstanding securities, in either case as a result of a 3 5 reorganization, merger, consolidation, recapitalization, reclassification, dividend (other than a regular, quarterly cash dividend) or other distribution, stock split, reverse stock split or the like, then, unless the Board of Directors shall determine otherwise, the term "Restricted Shares" shall, from and after the date of such event, include such cash, property and/or securities so distributed in respect of the Restricted Shares, or into or for which the Restricted Shares are so increased, decreased, exchanged or converted. 10. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California without reference to choice or conflict of law principles. IN WITNESS WHEREOF, the Company and Executive have duly executed this Agreement as of the Date of Award. CARL KARCHER ENTERPRISES, INC. By: /s/ PETER CHURM --------------------------------------- Title: Peter Churm Board of Directors Executive /s/ DONALD E. DOYLE --------------------------------------- Signature _________________________________ Street Address _________________________________ City, State and Zip Code _________________________________ Social Security Number 4 EX-10.88 14 EMPLOYMENT AGREEMENT DATED 4/27/93-KAREN B. EADON 1 Exhibit 10-88 2 EMPLOYMENT AGREEMENT CARL KARCHER ENTERPRISES, INC. AGREEMENT, dated as of April 27, 1993 by and between CARL KARCHER ENTERPRISES, INC. (the "Company") Karen B. Eadon (the "Executive") presently residing at 28311 Gitano, Mission Viejo, CA 92692. WITNESSETH; WHEREAS, the Company desires to employ the Executive and the Executive desires to be employed to provide his services to the Company, all on the terms and subject to the conditions, as hereinafter set forth: NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the parties agree as follows: 1. Employment. The Company agrees to employ the Executive during the Employment Term (as defined in Section 3) and the Executive hereby accepts such employment and agrees to serve the Company subject to the general supervision, advice and direction of the President and CEO and upon the terms and conditions set forth in this Agreement. 2. Duties. During the Employment Term, the Executive shall perform such services and duties as the President and CEO may from time to time designate. The Executive shall devote the Executive's full time and best efforts to the business affairs of the Company; however, with the approval of the Board of Directors, the Executive may devote reasonable time and attention to: (i) serving as a director or member of a committee of any non-for-profit organization or engaging in other charitable or community activities; (ii) Upon approval of the Board of Directors, serving as a director of a corporation or as a member of a committee of an organization; (iii) managing her personal investments; Provided, that the Executive agrees to be bound by the conflict of interests policy of the Company and may not accept employment or any engagement with any other individual or other entity, or engage in any other venture which is in conflict with the business of the Company. 1 3 3. Employment Term. The Executive shall be employed under this Agreement for a term of three (3) years from date of execution of this Agreement, (the "Executive Term") commencing on the date hereof and terminating on the close of business on January 15, 1996, unless sooner terminated as provided in Sections 6, 7, 8, 9, 10 or 11 or unless extended as provided in Section 20. 4. Compensation. 4.a. Base Compensation. During the Employment Term, the Company will pay the Executive an annual base salary as compensation for his services hereunder of (the "Base Salary"), payable in equal installments not less often than once in each calendar month. The Base Salary shall be reviewed from time to time and may be increased in the Company's discretion. 4.b. Bonus. The Board of Directors of the Company shall develop an incentive compensation plan that will provide for the establishment of a cash bonus pool from which cash bonuses shall be paid to the Executive and other executes and management of the Company provided certain performance targets are met. The Executive shall be entitled to participate in the management incentive compensation plan and, assuming the prescribed performance targets are achieved, to receive an annual cash bonus from the bonus pool in an amount as determined under the terms of the bonus plan. 4.c. Stock Option. The Board of Directors of the Company shall develop a stock option plan that will provide for the establishment of a pool of the Company's stock from which stock option awards may from time to time be awarded. The Executive shall be entitled to participate in the stock option plan and receive awards as determined under the terms of the plan. 4.d. Vacation. During each calendar year of the Employment Term, the Executive shall be entitled to take paid vacation time for such length of time as determined by the Board of Directors. 4.e. Benefits. During the Employment Term, the Executive shall be entitled to participate in all pension, profit sharing and other retirement plans, all incentive compensation plans and all group health, hospitalization and disability insurance plans and other employee welfare benefits plans in which other executives of the Company participate. 4.f. Medical Examination. Executive agrees to submit, at any time requested by the Company, to a medical physical examination by a physician selected by the Company. The cost of said examination shall be borne by the Company. 2 4 5. Reimbursement of Expenses Incurred in Performance of Employment. In addition to the compensation provided for under Section 4 hereof, upon submission of proper vouchers, the Company shall pay or reimburse the Executive for all normal and reasonable expenses, including travel expenses, incurred by the Executive prior to the termination of the Employment Term in connection with the Executive's responsibilities to the Company. 6. Termination for Cause. The Company may dismiss Executive for good and valid cause and shall then and thereafter be relieved of its obligations hereunder. In such event, Executive shall not receive any Severance Pay or pro-rata portion of any bonus compensation otherwise payable pursuant to paragraph 3 hereof. As used herein, "good and valid cause" shall mean a willful breach of duty by Executive in the course of his employment, the habitual neglect of his duties, or the commission by Executive of any act of a fraudulent or criminal nature in connection with his duties pursuant to this Agreement. 7. Termination Without Cause by the Company. If Executive is terminated for reasons other than cause as defined in Section 6 hereof, the Company will pay Executive, not later than 30 days after such termination, in a lump sum, the balance due under this Agreement or for one (1) year, whichever is longer, together with all accrued but unpaid compensation pursuant to Section 4 hereof, through the date of the Executive's termination. Executive shall receive outplacement assistance as arranged by the Company through an outplacement firm at the choice and expense of the Company. The date of termination of employment by the Company under paragraphs 6 and 7 shall be the date specified in a written notice of termination by the Board of Directors to Executive. If no date is specified, termination date will be the date Executive is given notice by the Board. 8. Resignation. In the event, at anytime during the term of this agreement, Executive resigns for reasons other than those specified in section 9 and 10 herein, Company shall then and thereafter be relieved from its obligations hereunder. 9. In the event, at any time during the term of this Agreement, the Company is acquired by or merged with another corporation or entity (or subsidiary thereof), such that the direction or control of the Company is acquired, or all or substantially all of the assets of the Company are acquired in a transaction or series of transactions, by an individual or entity that had no such direction or control prior to such acquisition or merger, then Executive shall have the election, but not the obligation, to terminate this Agreement by giving to Employer sixty (60) days written notice; provided, however, such notice must be 3 5 given by Executive to Employer, if at all, within six (6) months of the occurrence of such an event. If the Executive elects to terminate this Agreement pursuant to the provisions of this paragraph 9, Executive shall be entitled to receive all amounts provided for by paragraph 4.a., above, for a period of one (1) year from the date of termination; or, for the balance of term of this Agreement, whichever is longer. 10. In the event, at any time during the term of this Agreement, the Company is acquired by or merged with another corporation or entity (or a subsidiary thereof) such that the direction or control of the Company is acquired, or all or substantially all of the assets of the Company are acquired in a transaction or series of transactions, by an individual or entity that had no such direction or control prior to such acquisition or merger and thereafter the Executive is terminated for other than cause, then the Executive shall be entitled to receive all amounts provided for by paragraph 4.a., above, for a period of one (1) year from the date of termination; or, for the balance of the term of this Agreement, whichever is longer. 11.a. Disability of the Executive. If Executive for any reason whatsoever becomes permanently disabled so that the Executive is unable to perform the duties described in paragraph 2 herein, the Company agrees to pay Executive fifty percent (50%) of executive's annual salary payable in the same manner as provided for the payment of salary herein for the remainder of the Employment Term provided for herein or for two (2) years whichever is longer. "Permanent disability" shall mean the Executive is unable to perform the duties contemplated by this agreement by reason of a physical or mental disability or infirmity which has continued for more than 90 consecutive calendar days. Executive agrees to submit such medical evidence regarding such disability or infirmity as may be requested by the Company. 11.b. Death of Executive. Upon the death of the executive for any reason whatsoever, the Company shall then and thereafter be released from its obligations hereunder. 12. Protected Information/ Prohibited Solicitation. 12.a. The Executive hereby recognizes and acknowledges that during the course of this employment by the Company, the Company has disclosed and will furnish, disclose or make available to the Executive confidential or proprietary information related to the Company's business, including, without limitation, customer lists, ideas, processes, inventions and devices, that such confidential or proprietary information has been developed and will be developed through the expenditure by the company of substantial time and money and that all such confidential information 4 6 shall constitute trade secrets, and further agrees to use such confidential proprietary information only for the purpose of carrying out his duties with the Company and not otherwise to disclose such information. No information otherwise in the public domain shall be considered confidential. 12.b. The Executive hereby agrees, in consideration of his employment hereunder and in view of the confidential position to be held by the Executive hereunder, that during the Employment Term and for the period ending on the date which is one (1) year after the later of (A) the termination of the Employment Term and (B) the date on which the Company is no longer required to provide the payments and benefits described in Section 4, the Executive shall not, without the written consent of the Company, knowingly solicit, entice or persuade any other employees of the Company or any affiliate of the Company to leave the services of the Company or such affiliate for any reason. 12.c. So long as the Executive is employed by the Company and so long as the restrictions of this Section 9 apply, prior to accepting any engagement to act as an employee, officer, director, trustee, principal, agent or representative of any type of business or service (other than as an employee of the Company), the Executive shall (A) disclose such engagement in writing to the Company, and (B) disclose to the other entity to which he has agreed to act as an employee, officer director, trustee, agent or representative, or to other principals together with whom he proposed to act as a principal in such business or service, the existence of the covenants set forth in this Section 8 and the provisions of Section 9 hereof. 12.d. The restrictions of this Section 9 shall survive the termination of this Agreement and shall be in addition to any restrictions imposed upon the Executive by statute or at common law. 13. Injunctive Relief. The Executive hereby expressly acknowledges that any breach or threatened breach by the Executive of any of the terms set forth in Section 8 and 9 of this Agreement may result in significant and continuing injury to the Company, the monetary value of which would be impossible to establish. Therefore, the Executive agrees that the Company shall be entitled to apply for injunctive relief in a court of appropriate jurisdiction. The provisions of this Section 9 shall survive the Employment Term. 14. Parties Benefitted; Assignments. This Agreement shall be binding upon the Executive, the heirs and personal representative or representatives of the Executive and upon the Company and its successors and assigns. Neither this Agreement nor any rights or obligations hereunder may be assigned by the Executive. 5 7 The Company will not consolidate with, merge into, or sell all or substantially all of its assets to another corporation, partnership, or other entity unless such corporation, partnership, or entity shall assume this agreement, and upon such assumption Executive and remaining corporation, partnership or other entity, shall become obligated to perform all of the terms and conditions set forth herein. 15. Notices. Any notice required or permitted by this Agreement shall be in writing, sent by personal delivery or by registered or certified mail, return receipt requested, addressed to the CEO and the Company at its then principal office, or to the Executive at the address set forth in the preamble, as the case may be, or to such other address or addresses as any party hereto may from time to time specify in writing for the purpose of a notice given to the other parties in compliance with this Section 12. Notice shall be deemed given received. 16. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California without regard to conflict of law principles. 17. Indemnification and Insurance; Legal Expenses. The Company will indemnify the Executive to the fullest extent permitted by the laws of the State of California, as in effect at the time of the subject act or omission, and the Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers insuring against all costs, charges and expenses whatsoever incurred or sustained by the Executive in connection with any action, suit or proceedings to which the Executive may be made a part by reason of being or having been an officer or employee of the Company or any of its subsidiaries or serving or having served any other enterprises at the request of the Company (other than any dispute, claim or controversy described in Section 9 of this Agreement except, that the Executive shall be entitled to reimbursement of reasonable attorneys' fees and expenses if the Executive is the prevailing party). 18. Arbitration. The parties agree that any controversy or claim arising out of, or in any way related to, this Agreement or to a breach or alleged breach of this Agreement shall be settled by arbitration in accordance with the Rules of the American Arbitration Association (the "Association"). The parties further agree that judgment upon any award rendered by the arbitrator may be entered in any court of competent jurisdiction. Should either party hereto institute any action or proceeding to enforce any provision hereof, or for damages by reason of any alleged breach of any provision of this Agreement, or for a declaration of such party's rights or obligations hereunder, or for any other judicial remedy, the prevailing party shall be 6 8 incurred thereby, including, without limitation, reasonable attorneys' fees and expenses, pre-arbitration, arbitration and appellate costs, incurred in ascertaining or enforcing such party's rights under this Agreement, and any additional relief to which such party may be entitled. The decision of the arbitrator within the scope of the submission shall be final and binding on all parties, and, accordingly, the parties agree that any right to judicial action on any matter subject to arbitration hereunder is hereby waived (unless otherwise provided by applicable law), except the right to judicial action to compel arbitration or to enforce the arbitration award, or except in the event arbitration is unavailable to the parties for any reason. 19. The terms of this contract shall renew annually on the anniversary date hereof unless notice otherwise is provided prior to the anniversary date of this agreement. It is the intent of this agreement that it will always be in effect for three (3) years. 20. Source of Payments. All payments provided under this agreement, shall be paid in cash from the general funds of the Company and no special or separate fund shall be established and not other segregation of assets made to assure payment. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company. 21. Miscellaneous. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement supersedes any prior written or oral agreements or understandings between the parties relating to the subject matter hereto. No modification or amendment of this Agreement shall be valid unless in writing and signed by or on behalf of the parties hereto. A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provision of this Agreement, or the application thereof to any person or circumstance, shall for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforcibility shall not affect the remaining provisions hereof and the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. The compensation provided to the Executive pursuant to this Agreement shall be subject to any withholdings and deductions required by any applicable tax laws. Any amounts payable to the Executive hereunder after the death of the Executive shall be paid to the Executive's estate or legal representative. 7 9 The headings in this Agreement are inserted for convenience of reference only and shall not be part of or control or affect the meaning of any provision hereof. IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written. CARL KARCHER ENTERPRISES, INC. By: /s/ DONALD E. DOYLE ---------------------------------------- President and CEO /s/ KAREN B. EADON ---------------------------------------- Employee 8 EX-10.89 15 EMPLOYMENT AGREEMENT DATED 1/1/94-CARL N. KARCHER 1 Exhibit 10-89 2 EMPLOYMENT AGREEMENT CARL KARCHER ENTERPRISES, INC. AGREEMENT, dated as of January 1, 1994, by and between CARL KARCHER ENTERPRISES, INC. (the "Company") and Carl N. Karcher (the "Founder"). WITNESSETH: WHEREAS, Founder founded the Company and has served as Chairman of the Board for 52 years; WHEREAS, the Company desires to employ the Founder and the Founder desires to be employed to provide services to the Company, all on the terms and subject to the conditions, as hereinafter set forth: NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the parties agree as follows: 1. EMPLOYMENT. The Company agrees to employ the Founder during the Employment Term (as defined in Section 3) and the Founder hereby accepts such employment, and agrees to serve the Company subject to the supervision, advice and direction of the Board of Directors of the Company (the "Board"), and upon the terms and conditions set forth in this Agreement. 2. DUTIES. The Company and Founder acknowledge that Founder is the founder of the Company and agree that Founder will be employed as the Chairman Emeritus of the Board. The Chairman Emeritus of the Board shall be a non-executive officer of the Company reporting to the President and Chief Executive Officer. In such capacity, Founder shall perform such services and acts as may be assigned to him from time to time by the Board, the Chairman thereof, or the Executive Committee thereof and the President and CEO, subject always to the policies set by the Board. These services and acts include, but shall not be limited to, visits to stores, attending Company sponsored events and other public appearances as the Company's Founder and promoter of its products, corporate culture and strategic direction and 3 attending mutually acceptable charitable events and social gatherings. At such events, Founder shall positively and enthusiastically promote the Company and its products. The parties understand that Founder is a member of the Company's Board of Directors and will be an emeritus member of the Board's Executive Committee, and as such the Company recognizes that in Board Meetings and private conversations with other Board members, Founder, in the exercise of his responsibilities as a director will, and will be encouraged to, speak frankly and honestly concerning the affairs of the Company, its strategic direction and performance and will, and will be encouraged to, vote as his conscience tells him. As part of his duties as Chairman Emeritus, however, Founder shall not publicly criticize (i) decisions made by the Board, (ii) the Company's strategic direction, or (iii) management, all except as required by applicable law or the Company's Bylaws. For purposes of the preceding sentence, (i) "publicly" shall mean persons other than (a) the Company's Directors, (b) the Company's President and CEO, (c) Founder's immediate family and (d) Founder's professional advisors, and (ii) "criticize" shall mean to make a comment (in writing, verbally or by any other means) other than a comment indicating no comment or approval. This limitation shall not apply to any comments made or action taken prior to the execution date of this Agreement. In no event shall the Board, the Chairman thereof, the Executive Committee nor management (i) publicly criticize Founder, except as required by applicable law or the Company's Bylaws, or (ii) absent Founder's consent, assign to Founder any duty, not specifically enumerated herein, which is not a type customarily performed by the Chairman Emeritus of a comparable company. The Founder shall devote such time as may be necessary to fulfill his duties hereunder (which the parties contemplate shall be his full time or substantially his full time) and devote his best efforts to the business affairs of the Company; however, the Founder may devote reasonable time and attention to: (i) serving as a director or member of a committee of any not-for-profit charitable or community activities: (ii) managing personal investments; and (iii) with the prior written approval of the Board of Directors, serving as a director of a corporation or as a member of a committee of an organization. 2 4 The Founder agrees that he will not, either directly or indirectly, render any personal service as a director, employee, independent contractor, consultant, or otherwise to any retail quick service restaurant business or venture which is in conflict with the business of the Company during the term of this Agreement. Founder also agrees not to have any ownership direct or otherwise in any such private or publicly traded restaurant company or venture which is in conflict with the business of the Company. However, this shall not be construed to prevent Founder from owning, as an investment, up to 5% of a class of publicly traded equity securities issued by any such organization or retaining any equity security of an entity resulting from a recapitalization, reorganization, reclassification or spinoff involving the Company. 3. EMPLOYMENT TERM. The Founder shall be employed under this Agreement for a term of five (5) 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, 1998, unless sooner terminated as provided in this Section 7. 4. COMPENSATION. 4.a. Base Compensation. During the employment Term, the Company will pay the founder an annual base salary (the "Base Salary") of $400,000 as compensation for his services hereunder, payable in accordance with the Company's standard payroll practices. 4.b. Bonus. The Founder will be paid a special one time bonus not to exceed $50,000 payable on May 15, 1994, the payment and amount of such bonus to be based upon the recommendation of the President and CEO of the Company, and upon approval by the Compensation Committee of the Board based upon the performance of his duties hereunder. An annual bonus thereafter shall be paid only in the sole and absolute discretion of the Chairman of the Board and the Compensation Committee of the Board as to whether there is any bonus at all and, if so, the amount thereof. 4.c. Stock Options. The Founder shall be entitled to participate in the stock option plan of the Company and receive awards under the terms of the plan as determined appropriate by the Board of Directors with an initial grant of options for 100,000 shares with a per share option exercise 3 5 price equal to the fair market value of the Company's common stock at the time of the grant. 4.d. Vacation. During each calendar year of the Employment Term, the founder shall be entitled to take paid vacation time for such length of time as determined by the Board of Directors but not less than 45 days per year. 4.e. Benefits. During the Employment Term, the Founder will be entitled to participate in all Company sponsored retirement, health and welfare benefits provided to other executives or employees of the Company provided that such participation is in conformance with the provisions and applicable regulations governing such plans with the exception of the Company's Long Term Disability program. 4.f. Car Allowance. During the employment Term, the Company will pay the Founder a car allowance. During the first year of the Employment Term, the car allowance will be 830.00 per month. The car allowance may be reviewed from time to time and reset according to competitive practices. 5. Reimbursement of Expenses Incurred in Performance of Employment. the Company shall pay or reimburse the Founder for all normal and reasonable expenses, including travel expenses, incurred by the Founder prior to the termination of the Employment Term in connection with the Founder's duties as described in Section 2. Such amounts will be based on proper submission of receipts in conformance with the Company's standard business expense reimbursement policy. Any questions concerning eligibility of an expense shall be resolved by the Chairman of the Board. 6. Additional Benefits. 6.a. Budget. In the performance of his duties as specified in Section 2, Founder shall have an annual discretionary budget for charitable contributions and other public appearance fees approved by the Company of $30,000. 6.b. Driver and Assistant. To assist Founder in the performance of his duties hereunder, the Company shall provide a Driver and Scheduling Assistant for Founder whose status as an employee of the Company or an independent contractor and his professional qualifications shall be within the sole 4 6 discretion of the Company. The number of hours per week and the times at which said Driver shall be employed shall be determined by the Company based upon the duties from time to time being performed by Founder as set forth in Section 2 above. The continuing need for said Driver and his hours and times of employment shall be reevaluated by the Company on an ongoing basis and be subject to adjustment based upon the nature and scope of the duties then being performed by Founder hereunder. 6.c. Office Space. During the employment Term, Founder shall receive office and administrative support (including an assistant) in his current office space at the Company headquarters and continued office space and administrative support for one employee of the Carl N. and Margaret M. karcher Trust. 7. Termination. 7.a. Termination for Cause. The Company may terminate the Founder's employment for "cause" at any time, which shall include: (I) termination because of breach of fiduciary duty involving personal profit, (ii) violation of Section 8 of this Agreement, (iii) willful and continued failure to perform stated duties or abide by the Company's policies, (iv) conviction of felony, (v) commitment of an act that would disqualify the Company or any subsidiary of the Company from maintaining or obtaining a license, permit or other governmental approval material to the operations of the Company or any subsidiary, or, (vi) material breach of any provision of this Agreement following notice and a ten (10) day opportunity to cure said breach. 5 7 On termination for cause all of the Founder's rights to compensation as spelled out in Section 4 will terminate immediately on the date of termination to the extent provided for by the individual plans and as provided for by applicable law. Any compensation, reimbursement or other amount due the Founder for services rendered prior to the date of termination for cause will be paid to the Founder concurrent with the date of termination. Effective upon the date of termination, Founder shall become the retired Chairman Emeritus, and shall be entitled to the lifetime retirement benefits as set forth on the Retirement Benefits Schedule attached hereto and hereinafter referred to as the "Retirement Benefits." 7.b. Termination Without Cause by the Company. If the Founder is terminated for reasons other than specified in Section 7a, c, d, e, and Section 8, the Company shall pay the Founder all compensation and benefits pursuant to Sections 4, and 6(c) when and as they become due for the balance of the Employment Term, and thereafter, Founder shall receive the Retirement Benefits. Termination without cause by the Company under this Section 7.b will include termination for "Good Reason" following a change in control of the Company. For purposes of this Agreement, a "change in control of the Company" shall mean a change in control of a nature that would be required to be reported in response to item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange act of 1934, as amended ("Exchange act"), provided that, without limitation, such a change in control shall be deemed to have occurred if (a) any "person" (as such term is used in Sections 13(D) and f14(d)(2) of the Exchange Act) becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (apart from rights accruing under special circumstances) having the right to vote at elections of directors (excluding "persons" who have 20% or more of the combined voting power on the date this Agreement is originally executed) or (b) the persons who were directors of the Company immediately prior to any merger, consolidation, sale of assets or contested election, or any combination of the foregoing, shall as a result thereof cease to constitute a majority of the Board of Directors of the Company. For purposes of this Agreement, termination for "Good Reason" shall mean the occurrence of any one or more of the 6 8 following: (a) without Founder's express written consent, the assignment to Founder of duties inconsistent with Founder's position, duties, responsibilities and status with the Company immediately prior to the change in control or a change in Founder's duties, reporting level, titles, offices or business location as in effect immediately prior to the change in control, or any removal of Founder from or any failure to reelect Founder to any of such positions, except in connection with the termination of Founder's employment by the Company for Cause, Disability, Death, Retirement, or by Founder other than for cause or Good Reason (b) reduction by the Company in Founder's Base Salary as in effect on the date of change in control (c) the taking of any action by the Company (including the elimination of benefits plans without providing substitutes thereof or the reduction of Founder's benefits thereunder) that would substantially diminish the aggregate value of Founder's incentive awards and other fringe benefits from the levels in effect prior to a change in control, unless such actions are taken generally as to all employees (d) a failure of the Company to obtain from any successor, before the succession takes place, an agreement to assume and perform this Agreement as provided for herein. 7.c. Resignation. In the event, at any time during the term of this Agreement, Founder resigns, all of the Founder's rights to compensation as spelled out in Sections 4.a, 4.b, 4.f and 6 will terminate immediately on the date of resignation. Founder's rights to all other benefits after resignation will be governed by the individual plans and as provided for by applicable law. Any compensation due the Founder for services rendered prior to the date of resignation will be paid to the Founder within 10 days of resignation, and commencing on the date of resignation, Founder shall commence receiving the Retirement Benefits. 7.d. Disability of the Founder. If the Founder for any reason whatsoever becomes permanently disabled so that the Founder is unable to perform the duties described in Section 2 for a period of 180 days, the Company agrees to pay the Founder, the Retirement Benefits. "Permanent disability" shall mean the Founder is unable to perform the duties contemplated by this Agreement by reason of a physical or mental disability or infirmity which has continued for more than 180 consecutive days. Founder agrees 7 9 to submit such medical evidence regarding such disability or infirmity as may be reasonably requested by the Company. 7.e. Death. Upon the death of the Founder, any compensation due the Founder for services rendered prior to the date of termination for death will be paid to the Founder's estate within ten (10) days of termination, and thereafter, Margaret Karcher shall receive the Retirement Benefits for the balance of her life, plus an additional $100,000 per year for the balance of the Employment Term. 8. Protected Information; Prohibited Solicitation. 8.a. Protected Information. The Founder hereby recognizes and acknowledges that during the course of this Agreement, the Company may disclose and Founder may become privy to confidential and proprietary information related to the Company's business, including, without limitation supplier lists, ideas, processes, inventions and devices, that such confidential and proprietary information has been developed and will be developed through the expenditure by the Company of substantial time and money, and that all such confidential proprietary information shall be used only for the purpose of carrying out his duties with the Company and shall not otherwise be disclosed to anyone (except as required by applicable law) other than to Founder's wife, attorney, accountant or other appropriate advisors who may assist him in understanding or acting upon such information (each an "appropriate party"), it being understood that such appropriate parties will be informed by Founder of the confidential nature of such information and will be directed by Founder to treat such information confidentially, and will be advised by Founder that by receiving such information they are agreeing to be bound by the terms of this Section. No information otherwise in the public domain shall be considered confidential. 8.b. Prohibited Solicitation. The Founder hereby agrees, in consideration of his employment hereunder and in view of the confidential position to be held by the Founder hereunder, that during the Employment Term and for the period ending on the date which is one (1) year after the later of (a) the termination of the employment Term and (b) the date on which the Company is no longer required to provide the payments and benefits described in Section 4, the Founder shall not, without the written consent of the Company, knowingly solicit, entice or persuade any other employee of 8 10 the Company or any affiliate of the Company to leave the services of the Company or such affiliate for any reason. 8.c. Other. So long as the Founder is employed by the Company, and so long as the restrictions of this Section apply, prior to accepting any engagement to act as an employee, officer, director, trustee, principal, agent, or representative of any type of business or service the Founder shall (a) disclose such engagement in writing to the Company, and (b) disclose to the other entity to which he has agreed to act as an employee, officer, director, trustee, agent or representative, or to other principals together with whom he proposes to act as a principal in such business or service, the existence of the covenants set forth in this Section and the provision thereof. The restrictions of this Section shall survive the termination of this Agreement and shall be in addition to any restrictions imposed upon the Founder by statute or at common law. 9. Injunctive Relief. The Founder hereby expressly acknowledges that any breach or threatened breach by the Founder of any of the terms set forth in Section 8 of this Agreement may result in significant and continuing injury to the Company, the monetary value of which would be impossible to establish. Therefore, the Founder agrees that the Company shall be entitled to apply for injunctive relief in a court of appropriate jurisdiction. The provisions of this Section shall survive the Employment Term. 10. Parties Benefited; Assignments. This Agreement shall be binding upon the Founder, the heirs and personal representative or representatives of the Founder, and upon the Company and its successors and assigns. Neither this Agreement nor any rights or obligations hereunder may be assigned by the Founder. 11. Notices. Any notice required or permitted by this Agreement shall be in writing, sent by personal delivery or by registered or certified mail, return receipt requested, addressed to the Chairman of The Board for the Company at its then principal office, or to the Founder at the address maintained in the Company records, as the case may be, or to such other address or addresses as any party hereto may from time to time specify in writing for the purpose of a notice 9 11 given to the other parties in compliance with Section 11. Notice shall be deemed given when received. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California without regard to conflict of law principles. 13. Indemnification and Insurance; Legal Expenses. The Company will indemnify the Founder to the fullest extent permitted by the laws of the State of California, as in effect at the time of the subject act or omission, and the Founder shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers insuring against all costs, charges and expenses whatsoever incurred or sustained by the Founder in connection with any action, suit or proceedings to which the Founder may be made a party by reason of being or having been an officer or employee of the Company or any of its subsidiaries or serving or having served any other enterprises at the request of the Company (other than any dispute, claim or controversy described in Section 7.a. of this Agreement, except that the Founder shall be entitled to reimbursement of reasonable attorneys' fees and expenses if the Founder is the prevailing party). 14. Arbitration. The parties agree that any controversy or claim arising out of, or in any way related to, this Agreement or to a breach or alleged breach of this Agreement shall be settled by arbitration in accordance with the Rules of the American Arbitration Association (the "Association"). The parties further agree that judgment upon any award rendered by the arbitrator may be entered in any court of competent jurisdiction. Should either party hereto institute any action or proceeding to enforce any provision hereof, or for damages by reason of any alleged breach of any provision of this Agreement, or for a declaration of such party's rights or obligations hereunder, or for any other judicial remedy, the prevailing party shall be entitled to reimbursement of all fees and costs incurred thereby, including, without limitation, reasonable attorneys' fees and expenses, pre-arbitration, arbitration and appellate costs, incurred in ascertaining or enforcing such party's rights under this Agreement, and any additional relief to which such party may be entitled. 10 12 The decision of the arbitrator within the scope of the submission shall be final and binding on all parties, and, accordingly, the parties agree that any right to judicial action on any matter subject to arbitration hereunder is hereby waived (unless otherwise provided by applicable law), except the right to judicial action to compel arbitration or to enforce the arbitration award, or except in the event arbitration is unavailable to the parties for any reason. 15. Source of Payments. Except as may be provided in a separate benefit plan, all payments provided under this Agreement shall be paid in cash from the general funds of the Company and no special or separate fund shall be established, and no other segregation of assets made to assure payment. Other than Founder and except for Margaret M. Karcher, to the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor to the Company. 16. Miscellaneous. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement supersedes any prior written or oral agreements or understandings between the parties relating to the subject matter hereof. No modification or amendment of this Agreement shall be valid unless in writing and signed by or on behalf of the parties hereto. A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provision of this Agreement, or the application thereof to any person or circumstances, shall for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforceability shall not affect the remaining provisions hereof, and the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. The compensation provided to the Founder pursuant to the Agreement shall be subject to any withholdings and deductions required by any applicable tax laws. Any amounts payable to the Founder hereunder after the death of the Founder shall be paid to the Founder's estate or legal representative. The headings in this Agreement are inserted for convenience of reference only and shall not be part of or control or affect the meaning of any provisions hereof. 11 13 IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written. CARL KARCHER ENTERPRISES, INC. BY: /s/ CARL N. KARCHER ------------------------------------- FOUNDER /s/ WILLIAM P. FOLEY ------------------------------------- William P. Foley Chairman /s/ DONALD E. DOYLE ------------------------------------- Donald E. Doyle President and Chief Executive Officer 12 14 RETIREMENT BENEFIT SCHEDULE 1. Base Benefit The base retirement benefit shall be $210,000 per year for life. The amount consists of $200,000 retirement benefit and a $1,000 car allowance. The amount will be paid according to the normal payroll procedures of the Company. Should Carl N. Karcher predecease Margaret Karcher, the base retirement benefit will be reduced to $100,000, which amount would then be paid to Margaret Karcher for the rest of her life. Should Carl N. Karcher survive Margaret Karcher, the base amount would cease in total upon the death of Carl N. Karcher. 2. Medical Carl N. Karcher and Margaret Karcher will be eligible to enroll in a Medicare supplemental program through Health Net, presently called Flex Net Plan 98. Should they decide to enroll in that plan, the Company will pay the premium. The premiums must be shown as income to Carl and Margaret for reporting purposes. The executive medical benefit program of $5,000 will remain and may be used for reimbursement of any out-of-pocket expenses up to a $5,000 per year limit. 3. Dental/Vision Carl and Margaret will remain eligible to participate in the Company's self-funded dental and vision care plans. The calculated premium for the coverage will be reported as income for reporting purposes. 4. Life Insurance None. 5. Long-Term Disability Coverage None. 6. Automobile Insurance None. EX-10.91 16 ADDENDUM #1 TO BOSTON CHICKEN FRANCHISE AGREEMENT 1 EXHIBIT 10-91 2 ADDENDUM NO. 1 TO BOSTON CHICKEN, INC. FRANCHISE AGREEMENT THIS ADDENDUM No. 1 is to the Boston Chicken, Inc. Franchise Agreement (the "Agreement"), dated _____________, 1994 by and between Boston Chicken, Inc. ("Company"), which has its principal office at 1804 Centre Point Drive, Naperville, IL 60563, and Carl Karcher Enterprises, Inc., which has its principal office at 1200 North Harbor Boulevard, P.O. Box 4349, Anaheim, California 92803-4349 (hereinafter referred to as ("FRANCHISE OWNER"). The following shall amend and be incorporated into the Agreement. In the event of any conflict between the terms of the Agreement and the terms of this Addendum, then the terms of this addendum shall control. All capitalized terms not defined in this Addendum shall have the respective meanings set forth in the Agreement. 1. Section 1.B is hereby amended by deleting the definition of Catering Area in its entirety and restating it to read as follows: "CATERING AREA" - The geographic area in which COMPANY, in its sole discretion, authorizes FRANCHISE OWNER to provide Catering Service pursuant to a Catering Rider, which area may be the same as, smaller than, larger than or different from the Territory (defined below) of a BOSTON CHICKEN Unit. COMPANY may, at any time and in its sole discretion, with or without cause and regardless of the investment made by FRANCHISE OWNER in establishing or conducting Catering Service: (1) reduce, modify or expand the Catering Area from time to time (provided, that any reduction or modification which amounts to a termination or substantially all of FRANCHISE OWNER's rights to provide such services shall be governed by clause (2), below) or (2) upon written notice to FRANCHISE OWNER in accordance with Section 3.D suspend or terminate FRANCHISE OWNER's right to offer Catering Service. 2. Section 1.B is hereby further amended by inserting at the end of the definition of "Competitive Business" the following: COMPANY acknowledges Carl's Jr. restaurants constitute a Permitted Competitive Business within the meaning of this Agreement and Exhibit C hereto, provided that such Carl's Jr. restaurants do not offer CKEADD.FIN 3 (1) rotisserie chicken, or (2) any other products prepared in accordance with COMPANY's recipes or specifications unless such products are developed by FRANCHISE OWNER and sold in Carl's Jr. restaurants prior to the development of such products by COMPANY, provided, further, that no Confidential Information is used in connection with Carl's Jr. restaurants providing any services or products. 3. Section 1.B is hereby further amended by deleting the definition of "Computer System" in its entirety and relating it to read as follows: "COMPUTER SYSTEM" - Those brands, types, makes and/or models of communications and computer systems or hardware specified or required by COMPANY for use by, between, or among BOSTON CHICKEN Units and COMPANY, including, but not limited to back office and point of sale systems, data, audio, video and voice storage, retrieval, and transmission systems for use at the UNIT, between or among BOSTON CHICKEN Units, and between UNIT and/or FRANCHISE OWNER and COMPANY, security systems, printers, and archival and back-up systems. 4. Section 1.B is hereby further amended by deleting the definition of "Delivery Area" in its entirety and restating it to read as follows: "DELIVERY AREA" - The geographic area in which COMPANY, in its sole discretion, authorizes FRANCHISE OWNER to provide Delivery Service pursuant to a Delivery Rider, which area may be the same as, smaller than, larger than or different from the Territory (defined below) of a BOSTON CHICKEN Unit. COMPANY may at any time and in its sole discretion with or without cause and regardless of the investment made by FRANCHISE OWNER in establishing and conducting Delivery Service or the length of time FRANCHISE OWNER has offered Delivery Service: (1) reduce, modify or expand the Delivery Area from time to time (provided, that any reduction or modification which amounts to a termination of substantially all of FRANCHISE OWNER's rights to provide such services shall be governed by clause (2), below) or (2) upon written notice to FRANCHISE OWNER in accordance with Section 3.C, suspend or terminate FRANCHISE OWNER's (or Authorized Entity's) right to offer Delivery Service. CKEADD.FIN 2 4 5. Section 1.B is hereby further amended by deleting the definition of "Licensed Program" in its entirety and restating it to read as follows: "LICENSED PROGRAM" - The computer software programs developed by or for COMPANY and designated by COMPANY from time to time as specified or required in connection with utilization of the Computer Systems, which may include, without limitation, COMPANY's required point-of-sale, bookkeeping, inventory, training, marketing, employee selection, operations and financial information, collection and retrieval systems (including COMPANY's required general ledger system utilizing the standard chart of accounts prescribed by COMPANY from time to time) for use in connection with the operation of BOSTON CHICKEN Units or franchise owners' and developers' business, including any updates, supplements, modifications or enhancements thereto made from time to time, all related documentation, the tangible media upon which such program is recorded, and database file structure thereof, but excluding any data or databases owned or compiled by COMPANY or its Affiliates for use with the Licensed Program or otherwise or any data generated by the use of the Licensed program. 6. Section 1.B is hereby further amended by deleting the definition of "Market Area" in its entirety and restating it to read as follows: "MARKET AREA" - The Sub-Area (as defined in the Development Agreement) in which the UNIT is located. 7. Section 1.B is hereby further amended by adding the following immediately before the definition of "Territory": "SPECIFIED SOFTWARE" - Such software, programming, and services other than the Licensed Program, which COMPANY from time to time specifies or requires in connection with utilization of the Computer System CKEADD.FIN 3 5 8. Section 2.A is hereby further amended by adding the following at the end thereof: Notwithstanding the foregoing, FRANCHISE OWNER shall not be required to cause the execution and delivery of the Guaranties referred to in this Section 2.A, unless FRANCHISE OWNER is an "Authorized Entity" as defined in the Development Agreement. 9. Section 2.E is hereby amended by deleting the phrase "one (1) year" in the last paragraph and replacing it with the phrase "two (2) years." 10. Section 3.A is deleted in its entirety and restated to read as follows: FRANCHISE OWNER acknowledges and agrees that: (1) FRANCHISE OWNER is not granted any rights within or outside the Territory to offer, perform, or participate in the development or operation of Special Distribution Arrangements ("SDA"), other than as expressly provided in this Paragraph A, and (2) COMPANY reserves all such rights to offer, perform, or participate in the development or operation of SDA, within the Territory. Notwithstanding anything to the contrary contained in this Paragraph A, if COMPANY, during the Agreement Term, determines to itself develop and operate, or grant to others the right to develop and operate an SDA in the Territory, then COMPANY shall notify FRANCHISE OWNER of such intention by providing to FRANCHISE OWNER COMPANY's proposed plan for such SDA and the form of an initial Special Distribution Agreement which COMPANY proposes to FRANCHISE OWNER to execute and deliver with regard to such SDA ("COMPANY's SDA Plan Notice"). Company shall notify FRANCHISE OWNER in writing as to whether COMPANY, in its sole discretion, elects to have FRANCHISE OWNER (i) perform the development or operation of the SDA, or (ii) participate in the COMPANY cash flow, if any, solely from the development and performance of such SDA ("Net Cash Flow") in the event a Cannibalization Impact is established, as defined below. Notwithstanding anything to the contrary, including any such election by COMPANY, FRANCHISE OWNER CKEADD.FIN 4 6 acknowledges that COMPANY need not permit FRANCHISE OWNER to perform the development or operation of such SDA and COMPANY shall have no obligation to enter into any Special Distribution Agreement with FRANCHISE OWNER with respect to such SDA unless FRANCHISE OWNER demonstrates, to COMPANY's reasonable satisfaction, that it has or will acquire the appropriate resources (financial and otherwise) to take full advantage of the SDA and to discharge all of its obligations under the Special Distribution Agreement. If COMPANY elects for FRANCHISE OWNER to develop and operate such SDA pursuant to (i), above, then, COMPANY and FRANCHISE OWNER will promptly commence negotiations in good faith toward the execution of a revised Special Distribution Agreement in accordance with COMPANY's SDA Plan Notice. If COMPANY and FRANCHISE OWNER are unable to agree, in good faith, on the terms of and execute the revised Special Distribution Agreement within sixty (60) days after COMPANY's delivery to the FRANCHISE OWNER of the COMPANY's SDA Plan notice and FRANCHISE OWNER does not execute and deliver the initial Special Distribution Agreement, or in the event COMPANY determines FRANCHISE OWNER does not have and cannot acquire appropriate resources to take full advantage of the SDA and to discharge all of its obligations under the Special Distribution Agreement, then COMPANY will have no further obligation to negotiate with the FRANCHISE OWNER pursuant hereto for such SDA other than to permit FRANCHISE OWNER to participate in Net Cash Flow, if any, pursuant to (ii), above, and COMPANY may develop or operate, or pursue negotiations with and offer to third parties the right to develop and operate, such SDA. If COMPANY elects (ii), above, the COMPANY shall have the right to develop and operate or grant the right to others to develop and operate such SDA within the Territory and, if such SDA is so developed or operated within the Territory during the Agreement Term, FRANCHISE OWNER may, by written notice to COMPANY at any time within one year after commencement of such SDA, require COMPANY to engage a reputable, unaffiliated third-party market survey company at COMPANY's expense which shall, within sixty (60) days of engagement render a report to the CKEADD.FIN 5 7 COMPANY as to whether such SDA has caused more than a 5% permanent cannibalization ("Cannibalization Impact") of the gross sales of the UNIT. If such Cannibalization Impact is so reported, then the market survey company shall determine if the projected annualized after tax cash flow of such UNIT for the next four (4) years will yield to FRANCHISE OWNER an annualized average cash return on the book value of such UNIT (which book value shall never be deemed to exceed invested capital to date in such UNIT) equal to or exceeding 25%. If such return equals or exceeds 25%, then no portion of the Net Cash Flow shall be paid to FRANCHISE OWNER. If such return is less than 25%, then, COMPANY shall pay to FRANCHISE OWNER a reasonable portion of the Net Cash Flow, if any, as earned from time to time (less any net cash losses for prior periods) as determined by the COMPANY from time to time in good faith, taking into account all relevant factors, including, but not limited to, the scope of DEVELOPER's activities, the amount of the reported Cannibalization Impact of the SDA on DEVELOPER, whether such impact is mitigated by positive factors. If FRANCHISE OWNER fails to comply with any of its material obligations under this Agreement, COMPANY shall have no obligation to negotiate with FRANCHISE OWNER pursuant hereto for such SDA rights pursuant to (i), above and COMPANY may develop and operate or pursue negotiations with and offer to third parties the right to develop and operate such SDA within such Sub-Area without any obligation of payment which would have otherwise been owed to FRANCHISE OWNER in the event of a proper election pursuant to (ii), above. Notwithstanding anything else to the contrary herein, FRANCHISE OWNER's rights to enter into a Special Distribution Agreement pursuant to (i) or receive payments pursuant to (ii) for the Territory shall terminate without further action or notice by COMPANY if: (a) FRANCHISE OWNER fails to meet its development obligations hereunder with regard to the UNIT Sub-Area, including without limitation, the timely opening of any UNIT pursuant to Schedule C attached to the Development Agreement; or CKEADD.FIN 6 8 (b) This Agreement is terminated prior to its applicable expiration date. If FRANCHISE OWNER has executed a Special Distribution Agreement, COMPANY reserves the right, at any time and in its sole discretion with or without cause and regardless of the investment made by FRANCHISE OWNER in establishing or operating the Special Distribution Arrangement or the length of time the Special Distribution Arrangement has been in effect, to suspend or terminate FRANCHISE OWNER's right to operate the Special Distribution Arrangement upon one hundred eighty (180) days prior written notice to FRANCHISE OWNER; provided, however, that notwithstanding such termination, FRANCHISE OWNER shall be entitled during such one hundred eighty (180) day period to fulfill any contractual obligations it had incurred prior to receipt of such notice, but may not incur or undertake any new obligations or commitments. Provided, however, such one hundred eighty (180) day period may be extended by an additional period not to exceed the lesser of (a) the period required to amortize (in accordance with generally accepted accounting principles) the balance of FRANCHISE OWNER's investment in the SDA or (b) eighteen months. Notwithstanding the foregoing one hundred eighty (180) day notice period, COMPANY may terminate FRANCHISE OWNER's right to operate the SDA upon such shorter notice (pursuant to procedures promulgated by COMPANY and applied to a majority of the BOSTON CHICKEN Units then in operation) as COMPANY determines in its sole discretion if the reasonfor such termination is FRANCHISE OWNER's failure to meet COMPANY's operational standards with respect to such special Distribution Arrangement. Notwithstanding any other provision of this Section 4.A, COMPANY shall not have the right to propose a Special Distribution Arrangement to FRANCHISE OWNER pursuant hereto during the first three years of the Agreement Term of the Development Agreement, unless such Special Distribution Arrangement is being conducted, or COMPANY has committed to conduct it, in Areas of Dominant Influence whose population is equal to 25% or more of the CKEADD.FIN 7 9 aggregate population of all the Areas of Dominant Influence in which Boston Chicken Units are open or under development. Further, during the term of the Agreement, COMPANY shall consult with FRANCHISE OWNER prior to finalizing any material (with regard to any particular Unit) SDA within the Territory. Such consultation shall be for advice only and COMPANY shall not be bound by any advice or recommendations of FRANCHISE OWNER. 11. Section 3.B is hereby deleted. 12. Section 3.C is hereby amended by deleting the phrase "; or (ii)" from the end of the last sentence thereof and inserting the phrase "(provided, that any reduction or modification which amounts to a termination of substantially all of FRANCHISE OWNER's rights to provide such services shall be governed by clause (2), below); or (2) upon one hundred eighty (180) days prior written notice from COMPANY to FRANCHISE OWNER," and by inserting the following at the end thereof: Provided, however, such one hundred eighty (180) day period may be extended by an additional period not to exceed the lesser of (a) the period required to amortize (in accordance with generally accepted accounting principles) the balance of DEVELOPER's investment in delivery vehicles and facilities or (b) eighteen (18) months. Notwithstanding the foregoing one hundred eighty (180) day notice period, COMPANY may terminate or suspend FRANCHISE OWNER's right to operate the Delivery Service upon such shorter notice (pursuant to procedures promulgated by COMPANY and applied to a majority of the BOSTON CHICKEN Units then in operation) as COMPANY determines in its sole discretion if the reason for such termination or suspension is FRANCHISE OWNER's failure to meet COMPANY's operational standards with respect to such Delivery Service. 13. Section 3.D is hereby amended by deleting the phrase "; or (ii)" from the end of the last sentence thereof and inserting the phrase "(provided, that any reduction or modification which amounts to a termination of substantially all of FRANCHISE OWNER's rights to provide such services shall be governed by clause (2), below); or (2) upon one hundred eight (180) days prior written notice from COMPANY to FRANCHISE OWNER," and by inserting the following at the end thereof: CKEADD.FIN 8 10 Provided, however, such one hundred eighty (180) day period may be extended by an additional period not to exceed the lesser of (a) the period required to amortize (in accordance with generally accepted accounting principles) the balance of FRANCHISE OWNER's investment in its catering facilities or (b) eighteen (18) months. After receipt of notice terminating FRANCHISE OWNER's Catering Service or reducing FRANCHISE OWNER's Catering Area. FRANCHISE OWNER will not accept any new orders for catering or, as applicable, will not accept any new orders for catering from the portion of the Catering Area which has been terminated; provided, however, FRANCHISE OWNER shall have the right to compete any catering orders during such one hundred eighty (180) day period, but which were received prior to receipt of such notice of termination of Catering Service or reduction of Catering Area. Notwithstanding the foregoing one hundred eighty (180) day notice period, COMPANY may terminate or suspend FRANCHISE OWNER right to operate the Catering Service upon such shorter notice (pursuant to procedures promulgated by COMPANY and applied to a majority of the BOSTON CHICKEN Units then in operation) as COMPANY determines in its sole discretion if the reason for such termination or suspension is FRANCHISE OWNER's failure to meet COMPANY's operational standards with respect to such Catering Service. 14. Section 4.A is hereby amended to delete the requirement that FRANCHISE OWNER use its best efforts to use the Form Unit Lease. The parties acknowledge that FRANCHISE OWNER may use DEVELOPER's standard form lease, provided that FRANCHISE OWNER shall incorporate the Standard Required Site Agreement Terms for CKE units (including collateral assignment of site agreement to Company or its designee) in the lease for the UNIT. Provided, however, FRANCHISE OWNER shall only be obligated to use its best efforts to have the Standard Required Site Agreement Terms included in a Site Agreement for Approved Sites that are operating as a Carl's Jr. and which are leased from independent third party landlords. 15. Section 4.C is hereby amended by: (a) deleting the phrase "one hundred eighty (180) days" in the first sentence and replacing it with the phrase "one (1) year" and (b) deleting the phrase "one hundred twenty (120) days" in the last sentence. CKEADD.FIN 9 11 16. Section 4.E is hereby amended by adding the following at the end thereof: FRANCHISE OWNER shall pay to COMPANY a one-time License Fee for the Licensed Program when it becomes available for use by FRANCHISE OWNER. The License Fee shall be the lesser of (a) $15,000, or (b) the amount charged as a License Fee to other franchise owners that are similarly situated to DEVELOPER. FRANCHISE OWNER shall pay a Subscription Fee to COMPANY (payable with the Royalty Fee) for support and maintenance of the Licensed Program. The Subscription Fee shall be $400 per four week period. Notwithstanding the foregoing, COMPANY may increase the Subscription Fee from time to time, provided that it may not be increased by more than ten percent (10%) (or such lesser percentage as may be applied to FRANCHISE OWNERS similarly situated to DEVELOPER) in any calendar year. 17. Section 4.E is hereby amended by deleting the first paragraph thereof in its entirety and restating it to read as follows: 4.E COMMUNICATION AND INFORMATION SYSTEMS. FRANCHISE OWNER agrees to use in the development and operation of the UNIT only those brands, types, makes, and/or models of communications and computer systems or hardware which COMPANY has from time to time specified or required for the Computer System. FRANCHISE OWNER also agrees to use in the development and operation of the UNIT only the Specified Software and the Licensed Program, as comprised from time to time in accordance with the specifications and requirements of COMPANY. FRANCHISE OWNER acknowledges that COMPANY and its Affiliates and designees are in the process of completing the development of the Licensed Program and COMPANY is in the process of completing the development of specifications for certain components of the Licensed Program and Computer System and may modify such specifications and the components of the Licensed Program and the Computer System from time to time. During the term hereof, COMPANY may require FRANCHISE OWNER to obtain specified computer hardware and/or software, including, without limitation, the Computer System, the CKEADD.FIN 10 12 Specified Software, and a license to use the Licensed Program from COMPANY or its designee under a separate agreement after COMPANY notifies FRANCHISE OWNER to commence use thereof. COMPANY's development and/or modification of such specifications for the components of the Computer System, the Specified Software, and the Licensed Program may require FRANCHISE OWNER to incur costs to purchase, lease and/or license new or modified computer hardware and/or software and to obtain service and support for the Computer System, the Specified Software, and the Licensed Program during the term of this Agreement. FRANCHISE OWNER acknowledges that COMPANY cannot estimate the costs of future additions, enhancements and modifications to the Computer System, the Specified Software, and the Licensed Program and that the cost to FRANCHISE OWNER of obtaining the additions, enhancements and modifications to the Computer System (the Specified Software, and the Licensed Program) may not be fully amortizable over the remaining term of this Agreement. Nonetheless, FRANCHISE OWNER agrees to incur such costs in connection with obtaining the Computer System, the Specified Software, and the Licensed Program and any additions, enhancements or modifications thereto, provided that the Computer System, the Specified Software, and the Licensed Program that COMPANY specifies for same Computer system, the Specified Software, and the Licensed Program that COMPANY specifies for use by FRANCHISE OWNER is substantially the same computer system, the specified software, and the license program which COMPANY is then currently specifying for use in COMPANY-owned BOSTON CHICKEN Units. Within one hundred twenty (120) days after FRANCHISE OWNER receives notice from COMPANY, FRANCHISE OWNER shall obtain the components of the Computer System, the Specified Software, and the Licensed Program which COMPANY designates and requires. Such portion of the Computer System Specified Software, and Licensed Program as is purchased from COMPANY or its agents or affiliate may involve one-time and periodic fees or payments to COMPANY. FRANCHISE OWNER further acknowledges and agrees that COMPANY has the right to require FRANCHISE OWNER to pay to COMPANY or its designee a reasonable periodic systems fee for modifications and enhancements made to the Licensed Program and reasonable periodic fees for other maintenance CKEADD.FIN 11 13 and support services provided to FRANCHISE OWNER related to the Specified Software and the Computer System. 18. Section 4.F is hereby amended by deleting the phrase "one hundred and eighty (180)" and replacing it with the phrase "one (1) year." 19. Section 4.G is amended hereby by deleting the second and third sentences thereof. 20. Section 4.H is amended as follows: The words "Company and" are deleted in the fourth line and the following is added after the end of the first sentence: Notwithstanding the foregoing, FRANCHISE OWNER may not relocate the UNIT for a reason other than damage, condemnation or other event rendering it unusable unless (a) FRANCHISE OWNER is then in full compliance with this Agreement and (b) the proposed new site for the UNIT has been approved by the COMPANY pursuant to COMPANY's standard site criteria and site approval procedures. 21. Section 4.H is further amended to provide that, in the event that the UNIT is relocated pursuant to Section 4.H as amended hereby because the UNIT has been rendered unusable due to damage, condemnation or other cause, FRANCHISE OWNER shall have up to two hundred and seventy (270) days to re-open the UNIT at the new location. 22. Section 4.I is hereby amended by deleting it in its entirety. 23. Section 5.A is hereby amended by deleting the term "three (3)" wherever it appears and replacing it with the term "ten (10)." 24. Clauses (5) and (6) of Section 5.B are hereby amended by adding the following before the semicolon at the end of each of them: if the UNIT is one of the first three (3) BOSTON CHICKEN Units developed under the Development Agreement; and 24A. Notwithstanding the first line of Section 5.B, COMPANY shall be obligated to provide the guidance referred to CKEADD.FIN 12 14 in clauses (5) and (6) of Section 5.B., as those clauses are amended hereby. 25. The first sentence of Section 5.C is hereby amended by inserting the following immediately before the parenthetical definition of the "Manuals": , whether by way of supplements, replacement pages, Franchise Bulletin or Partner Bulletin disclosures, or other officials pronouncements or means. 26. Notwithstanding Section 9.A hereof: (a) FRANCHISE OWNER shall not be required to obtain COMPANY's prior written consent with respect to information described in clauses (i) and (ii) thereof; and (b) the restrictions on FRANCHISE OWNER's disclosure and use of the Confidential Information shall not apply to knowledge of the food service business which FRANCHISE OWNER already possesses and which has not been obtained in contravention of any obligation of confidentiality owed to COMPANY. 27. The first paragraph of Section 9.B is hereby amended by inserting the following immediately before the "." at the end of subclause (2) thereof: ; or (3) divert or attempt to divert any business or any customers of any BOSTON CHICKEN Unit to any other food service business. 28. Notwithstanding Section 11.A (5) (a), FRANCHISE OWNER shall not be required to make the changes referred to therein unless COMPANY has required such changes with respect to at least 25% of all BOSTON CHICKEN Units then open and in operation and provided further that FRANCHISE OWNER shall be required to make such changes on the same timetable that COMPANY has established for effecting such changes at BOSTON CHICKEN Units owned by COMPANY. 29. Section 11.B is hereby amended to provide that, notwithsatnding the first sentence of the second paragraph thereof, DEVELOPER may designate the evaluation service to conduct the "mystery shopper" program. 30. Section 11.C is amended by adding the following after the end thereof: The parties acknowledge that Carl Karcher Enterprises, Inc. operates a food distribution division ("CKE Distribution") and that FRANCHISE OWNER may from time to time seek COMPANY's approval of CKE Distribution as an CKEADD.FIN 13 15 approved supplier pursuant hereto. In the event that FRANCHISE OWNER applies for such approval, COMPANY shall diligently pursue the supplier approval procedures of this Section 11.C. 31. Section 11.C is further amended to change the term "one hundred and twenty (120) days" wherever it appears to "ninety (90) days." 32. Section 11.F is hereby amended to delete the last sentence of the first paragraph thereof and to replace it with the following: FRANCHISE OWNER shall provide the Unit Manager with a compensation program reasonably acceptable to COMPANY designed to provide an incentive to the Unit Manager to use diligent efforts to cause the UNIT to be operated profitably. 33. FRANCHISE OWNER acknowledges that there are two hundred (200) BOSTON CHICKEN Units open and operating and, therefore, FRANCHISE OWNER's required contribution to the Marketing Fund is two percent (2%) of the UNIT's Royalty Base revenue. 34. Notwithstanding anything in Section 12.B hereof, the Local Ad Fund may propose to COMPANY annual advertising and marketing plans for this Sub-Area in which the UNIT is located ("Advertising Plans"). If the Local Advertising Fund proposes and Advertising Plan for such Sub-Area, it shall be submitted to COMPANY for its approval, which shall not be unreasonably withheld; provided that an Advertising Plan shall not be used without COMPANY's approval and provided that the Local Ad Fund will support at the local level substantially all of COMPANY's national marketing campaigns. The foregoing provisions concerning Advertising Plans shall not apply if the UNIT is located in the Sub-Area (as defined in the Development Agreement) which includes the City of Sacramento, California. Further, so long as DEVELOPER owns and operates all Boston Chicken UNITS contributing to the Local Ad Fund, the contributions to such Local Ad Fund shall be made to and held in a segregated account established and maintained by DEVELOPER and all expenditures pursuant to this Section 12.B shall be made from such account. An accounting with regard to such Local Ad Fund shall be rendered by DEVELOPER to COMPANY from time to time at COMPANY's request. 35. The second paragraph of Section 12.B is hereby amended by adding the following after the end of the first sentence thereof: CKEADD.FIN 14 16 Notwithstanding the foregoing, FRANCHISE OWNER acknowledges and agrees that it may be required from time to time to contribute to the Local Ad Fund an amount greater than that provided for herein to enable FRANCHISE OWNER to commence and continue Required Television Advertising (as defined in the Development Agreement) as required pursuant to the Development Agreement. 36. Section 12.C is hereby amended by deleting the term "Accounting Period" whenever it appears in the first sentence thereof and replacing it with the term "quarter." 37. Notwithstanding the first sentence of the second paragraph of Section 13 hereof, FRANCHISE OWNER shall not be required to adopt a fiscal year which coincides with COMPANY's fiscal year. FRANCHISE OWNER shall not be required to submit the reports contemplated by clause (1) of Section 13 for periods for which COMPANY collects from the UNIT via the Computer System the date which would otherwise be included in such reports. 38. Notwithstanding the last paragraph of Section 13, FRANCHISE OWNER needs only furnish tax returns to COMPANY that relate solely to FRANCHISE OWNER's Boston Chicken business. 38A. Section 15.A is amended by adding the following at the end thereof: ; provided that COMPANY shall remain liable for its obligations hereunder for the balance of the term of this Agreement after the date of any transfer or assignment of this Agreement. 39. Section 15.B is amended by adding the following after the end thereof: Notwithstanding the foregoing, the restrictions in this Section 15.B shall not apply to transfers of ownership interests in Carl Karcher Enterprises, Inc. or to changes in the members of its Board of Directors. 40. Section 15.C is hereby amended by inserting the following after "(c)" in subparagraph (13) thereof: divert or attempt to divert any business or any customers of any BOSTON CHICKEN Unit to any other food service business; or (d) CKEADD.FIN 15 17 41. Section 15.F is hereby amended by deleting in its entirety and replacing it with the following: FRANCHISE OWNER may make public or private offerings of securities, provided that FRANCHISE OWNER shall not, unless otherwise required by law and any relevant governmental agency, include in any published financial statements, in any prospectus or other offering document, or in any publicly filed or disseminated report (including any Form 10-K, 10-Q, or 8-K or any Proxy Statement or Annual Report to Stockholders) or in any Management Discussion Analysis or in any footnotes accompanying any of the foregoing, any category, line-item, breakdown, or type of information concerning its operation of Boston Chicken Units that COMPANY does not utilize in its published financial statements, prospectuses or offering documents, or publicly filed or disseminated reports. Additionally, DEVELOPER and CKE shall not disclose information regarding its Boston Chicken business during 1994 by segment although, DEVELOPER and CKE shall have the right, during 1994, to discuss, using general statements in the Management Discussion and Analysis section of any of the documents referred to in this paragraph, its Boston Chicken business, provided, however neither DEVELOPER nor CKE shall make a disclosure of same store sales comparisons or average store revenue for its Boston Chicken Units unless otherwise required by applicable law and any relevant governmental agency. 42. Section 16.A. is amended hereby to provide that: (a) FRANCHISE OWNER shall have the right, on the conditions set forth in Section 16.A. to obtain a second Successor Franchise, and (b) that the fee for each Successor Franchise shall be one-third of the initial franchise fee set forth in the Franchise Agreement. 43. Section 18.F is hereby amended by deleting the last sentence of the first paragraph thereof. 44. Clause 19.A. is amended by deleting the first paragraph thereof in its entirety and by deleting the word "other" from the first sentence of the second paragraph. CKEADD.FIN 16 18 45. Section 19.B. is hereby amended by deleting the phrase "of ten (10) days' prior written notice" at the end of the second paragraph and by replacing it with the following: of forty-five (45) days' prior written notice, unless COMPANY determines, in its reasonable discretion, that a shorter notice period is necessary. 46. Section 19.E is hereby amended by deleting it in its entirety. 47. Section 19.H is amended by deleting it in its entirety. In witness whereof, the parties hereto, intending to be legally bound hereby, have duly executed this Addendum in duplicate as of the date written below. DATE:__________________, 1994 DATE:__________________, 1994 COMPANY: FRANCHISE OWNER: BOSTON CHICKEN, INC. CARL KARCHER ENTERPRISES, INC. By:___________________________ By:__________________________ Its: Vice President Its:______________________ CKEADD.FIN 17 EX-10.92 17 ADDENDUM #1-BOSTON CHICKEN AREA DEVELOPMENT AGMT 1 EXHIBIT 10-92 2 ADDENDUM NO. 1 TO BOSTON CHICKEN, INC. AREA DEVELOPMENT AGREEMENT THIS ADDENDUM No. 1 is to the BOSTON CHICKEN, Inc. Area Development Agreement (the "Agreement"), dated as of January __, 1994 by and between BOSTON CHICKEN, Inc., ("COMPANY"), which has its principal office at 1804 Centre Point Drive, Naperville, IL 60563, and Carl Karcher Enterprises, Inc., which has its principal office at 1200 North Harbor Boulevard, P.O. Box 4349, Anaheim, California 92803-4349 (hereinafter referred to as "DEVELOPER"). The following shall amend and be incorporated into the Agreement. In the event of any conflict between the terms of the Agreement and the terms of this Addendum, then the terms of this addendum shall control. All capitalized terms not defined in this Addendum shall have the respective meanings set forth in the Agreement. 1. Section 2 is hereby amended by deleting the definition of "Catering Area" in its entirety and restating it to read as follows: "CATERING AREA" - The geographic area in which COMPANY in its sole discretion, authorizes the owner of a Franchise to provide Catering Service pursuant to a Catering Rider, which area may be the same as, smaller than, larger than or different from the Territory (defined in the Franchise Agreement) of a BOSTON CHICKEN Unit. COMPANY may, at any time in its sole discretion, with or without cause and regardless of the investment made by DEVELOPER in establishing or conducting Catering Service: (1) reduce, modify, or expand the Catering Area from time to time (provided, that any reduction or modification which amounts to a termination of substantially all of DEVELOPER's rights to provide such services shall be governed by clause (2), below) or (2) upon written notice to DEVELOPER in accordance with Section 4.D, suspend or terminate DEVELOPER's right to offer Catering Services. 2. Section 2 is hereby further amended by inserting at the end of the definition of "Competitive Business" the following: COMPANY acknowledges Carl's Jr. restaurants constitute Permitted Competitive Business within the meaning of this Agreement and Exhibit E hereto, provided that such Carl's Jr. restaurants do not offer (1) rotisserie chicken, or (2) any other products prepared in accordance with COMPANY's recipes or specifications unless such products are developed by DEVELOPER and sold in Carl's Jr. restaurants prior to the CKEADD.FIN 3 development of such products by COMPANY, provided, further, that no Confidential Information is used in connection with Carl's Jr. restaurants providing any services or products. 3. Section 2 is hereby further amended by deleting the definition of "Computer System" in its entirety and restating it to read as follows: "COMPUTER SYSTEM" - Those brands, types, makes, and/or models of communications and computer systems or hardware specified or required by COMPANY for use by, between, or among UNITS and/or DEVELOPER, including, but not limited to, back office and point of sale systems, data, audio, video and voice storage, retrieval, and transmission systems for use at UNITs and/or DEVELOPER between or among UNITs and/or DEVELOPER, and between UNITs and/or DEVELOPER and COMPANY, security systems, printers, and archival and back-up systems. 4. Section 2 is hereby further amended by deleting the definition of "Delivery Area" in its entirety and restating it to read as follows: "DELIVERY AREA" - The geographic area in which COMPANY, in its sole discretion, authorizes a franchise owner to provide Delivery Service pursuant to a Delivery Rider, which area may be the same as, smaller than, larger than or different from the Territory (defined in the Franchise Agreement) of a BOSTON CHICKEN Unit. COMPANY may, at any time and its sole discretion, with or without cause and regardless of the investment made by DEVELOPER in establishing and conducting Delivery Service or the length of time DEVELOPER has offered Delivery Service: (1) reduce, modify, or expand the Delivery Area from time to time (provided, that any reduction or modification which amounts to a termination of substantially all of DEVELOPER's rights to provide such services shall be governed by clause (2), below) or (2) upon written notice to DEVELOPER in accordance with Section 4.C suspend or terminate DEVELOPER's (or Authorized Entity's) right to offer Delivery Service. 5. Section 2 is hereby further amended by adding the following immediately before the definition of Rotisserie Unit": "REQUIRED TELEVISION ADVERTISING" - Television advertising in the Area of Dominant Influence (as determined by the Arbitron Ratings Company or suitable replacement therefor if Arbitron Ratings are not available from time to time) in which the Development Area is located at a minimum level of 200 gross ratings points, at least forty percent (40%) of which gross ratings points must be in prime television viewing time. CKEADD.FIN 2 4 6. Section 2 is hereby further amended by adding the following immediately before the definition of "Sub-Areas": "SPECIFIED SOFTWARE" - Such software, programming, and services other than the Licensed Program, which COMPANY from time to time specifies or requires in connection with utilization of the Computer System. 7. Section 3.A is hereby amended by adding the following at the end of the second paragraph thereof: Notwithstanding the foregoing, DEVELOPER shall not be required to cause the execution and delivery of the Guaranties referred to in this paragraph. 8. Section 3.B is hereby amended by adding the following between the second and third paragraphs thereof: Notwithstanding any other provisions of this Agreement, DEVELOPER shall have the option, exercisable in DEVELOPER's sole option by written notice to COMPANY at least 12 months prior to the expiration of the Development Term, to develop up to one hundred (100) additional UNITs in the Development Area. In the event that DEVELOPER exercises this option, the additional UNITs shall be subject to all the terms and provisions of this agreement. DEVELOPER and COMPANY agree to negotiate in good faith as to how many of such UNITs shall be developed in each Sub-Area and an appropriate development schedule for each Sub-Area. The Development Term and other appropriate provisions of this Agreement shall be modified to reflect the addition of such additional UNITs and the development schedule for such additional UNITs. 9. Right of First Negotiation for Additional UNITs. Section 3.B is further amended by adding the following at the end thereof: (1) Notwithstanding anything to the contrary contained in this section 3.B, for a period of twelve (12) months after the expiration of the Sub-Area Term for any Sub-Area (the "Post Development Period"), COMPANY or its Affiliates determines to itself develop and operate, or grant to others the right to develop and operate (whether such rights are granted pursuant to area development agreements or individual franchise agreements), additional BOSTON CHICKEN Units in such Sub-Area (such BOSTON CHICKEN Units are hereafter collectively referred to as "Post-Development UNITs"), then COMPANY shall notify DEVELOPER of such intention during the Post Development Period or at any time within the twelve (12) month period preceding the anticipated end of such Sub-Area Term by providing to DEVELOPER COMPANY's proposed development plan and CKEADD.FIN 3 5 schedule for such Post-Development UNITs ("COMPANY's Development Plan Notice"). Notwithstanding anything to the contrary, in the event the proposed development plan is for more than 100 additional Post-Development UNITs, any excess over 100 shall be proposed in the form of an option exercisable by DEVELOPER in its sole discretion once the first 100 Post-Development UNITs are developed in accordance with the development schedule. (2) If, during the Post Development Period or at any time within the twelve (12) month period preceding the anticipated end of such Sub-Area Term, DEVELOPER desires that COMPANY grant to DEVELOPER rights to develop and operate additional BOSTON CHICKEN Units after the expiration of such Sub-Area Term and COMPANY has not previously delivered COMPANY's Development Plan Notice to DEVELOPER, then DEVELOPER shall notify COMPANY of such desire during the Post Development Period or at any tie within the twelve (12) month period preceding the anticipated end of such Sub-Area Term by providing to Company DEVELOPER's proposed development plan and schedule for such Post-Development Units ("DEVELOPER's Development Plan Notice"). Within thirty (30) days after COMPANY's receipt of DEVELOPER's Development Plan Notice, COMPANY shall review, consider, and respond to DEVELOPER's Development Plan Notice by providing to DEVELOPER COMPANY's Development Plan Notice which may modify DEVELOPER's Development Plan Notice in some or all respects (subject to the last sentence of sub-paragraph (1) above). Notwithstanding the above, DEVELOPER's rights pursuant to this Subparagraph (2) shall terminate without further action or notice by COMPANY if COMPANY delivers COMPANY's Development Plan Notice to DEVELOPER pursuant to Subparagraph (1) above and DEVELOPER fails to timely deliver its Negotiation Notice (defined below) pursuant hereto and thereafter COMPANY will have no further obligation to negotiate with DEVELOPER and its Affiliates pursuant hereto for such development right and COMPANY may develop or operate, or pursue negotiations with and offer to third parties the right to develop and operate, BOSTON CHICKEN Units and/or Rotisserie Units in the particular Sub-Area. (3) If, within thirty (30) days after DEVELOPER's receipt of COMPANY's Development Plan Notice, DEVELOPER notifies COMPANY, in writing that DEVELOPER desires to negotiate with COMPANY for the right to develop and operate such Post-Development UNITs (the "Negotiation Notice"), then COMPANY and DEVELOPER will promptly commence negotiations in good faith toward the execution of a new Development Agreement (the "Post-Development Agreement") in accordance with COMPANY's CKEADD.FIN 4 6 Development Plan Notice and the terms of COMPANY's then current Development Agreement for BOSTON CHICKEN Units (which may contain different terms and provide for new and/or higher fees from this Agreement and which will require the execution of COMPANY's then current form of franchise agreement which similarly may contain different terms and provide for new and/or higher fees than the Franchise Agreement used hereunder) for the right to develop and operate the Post-Development UNITs in accordance with COMPANY's Development Plan Notice. If DEVELOPER fails to timely deliver the Negotiation Notice, COMPANY shall have no obligation to negotiate with DEVELOPER pursuant hereto for such development rights and COMPANY and its Affiliates may develop and operate, or pursue negotiations with and offer to third parties the right to develop and operate, BOSTON CHICKEN Units in the Sub-Area. If COMPANY and DEVELOPER are unable to agree on the terms of and execute the Post-Development Agreement within ninety (90) days after COMPANY's receipt of the Negotiation Notice, then COMPANY will have no further obligation to negotiate with DEVELOPER pursuant hereto for such development rights and COMPANY may develop or operate, or pursue negotiations with and offer to third parties the right to develop and operate, BOSTON CHICKEN Units in such Sub-Area. (4) If COMPANY and DEVELOPER timely agree on the terms of and execute the Post-Development Agreement within the period specified in Subparagraph (3), then DEVELOPER shall be required to pay all fees due thereunder concurrently with the execution of the Post-Development Agreement. If DEVELOPER fails to timely execute the Post-Development Agreement and pay all fees due under the Post-Development Agreement, DEVELOPER's rights to develop Post-Development UNITs will terminate without further action or notice by COMPANY and thereafter COMPANY will have no further obligation to negotiate with DEVELOPER pursuant hereto for such development rights and COMPANY may develop or operate, or pursue negotiations with and offer to third parties the right to develop and operate, BOSTON CHICKEN Units in such Sub-Area. (5) Notwithstanding the above, DEVELOPER's rights to develop Post-Development Units shall terminate without further action or notice by COMPANY if: (a) DEVELOPER fails to meet its development obligations with regard to such Sub-Area hereunder (in which event DEVELOPER's rights to develop Post-Development UNITs in such Sub-Area only shall terminate), including without limitation, the timely opening of any UNIT pursuant to Schedule C attached CKEADD.FIN 5 7 hereto (taking into account Section 3.C of the Agreement as amended by paragraph 10 hereof) or; (b) This Agreement is terminated prior to its applicable expiration date. 10. The second sentence of 3.C is hereby amended by adding the following provision at the end thereof: In the event that DEVELOPER has, to COMPANY's reasonable belief, made good faith and diligent efforts to comply with the applicable required opening date for any BOSTON CHICKEN Unit, but fails to open such BOSTON CHICKEN Unit by the required opening date specified in Exhibit C hereto because of fire, flood, earthquake, war, insurrection, water or sewer moratoriums or other similar force majeure (which shall not include general or local business or economic conditions) not within control of DEVELOPER, then such BOSTON CHICKEN Unit shall be deemed opened on a timely basis under this Agreement if it actually opens for regular and continueous business within six months of the required opening date set forth on Exhibit C hereto, provided further, however, that the foregoing proviso shall not apply unless at least 75% (which number shall be rounded up to the next whole number) of the BOSTON CHICKEN Units required to be open from time to time by DEVELOPER or its Authorized Entities as specified on Exhibit C hereto have been opened by the dates actually specified on Exhibit C hereto. Additionally, in the event that DEVELOPER fails to open a BOSTON CHICKEN Unit within a Sub-Area by the required opening date (without extension pursuant to the immediately preceding sentence in this paragraph) specified in Exhibit C hereto, then such BOSTON CHICKEN Unit shall be deemed opened on a timely basis under this Agreement if it actually opens for regular and continuous business within six months of the required opening date specified in Exhibit C hereto, provided, however, the foregoing proviso shall not apply unless the number of BOSTON CHICKEN Units that are open and continuously operating at such required opening date in the aggregate in all Sub-Areas is equal to or greater than 100% of the BOSTON CHICKEN Units required to be open, in the aggregate, for all Sub-Areas as of such required opening date. 10A. The third sentence of Section 3.C is hereby amended by deleting the reference to "five (5) days" and substituting therefor "one-hundred eighty (180) days." 11. Section 3.E is amended by adding the following at the end thereof: CKEADD.FIN 6 8 If, during the applicable Sub-Area Term for a particular Sub-Area, COMPANY notifies DEVELOPER of a Target Site in a Sub-Area pursuant to this Section 3.E, and DEVELOPER gives written notice to COMPANY during the ten (10) business day period referred to in the first paragraph of this Section 3.E that it declines to lease or purchase (as applicable) one or more of such Target Sites, DEVELOPER shall have the option, exercisable by written notice to COMPANY within such ten (10) business day period, to count each such Target Site toward the Sub-Area Quota for such Sub-Area. Notwithstanding any other provision of this Section 3.E, COMPANY shall have the right to designate Target Sites for a particular Sub-Area hereunder only to the extent that the number of Target Sites designated by COMPANY in any Sub-Area does not exceed 25% of the total number of BOSTON CHICKEN Units that DEVELOPER is required to develop in such Sub-Area. 12. Section 3.F is hereby amended by deleting the word "DEVELOPER's" in the second paragraph thereof and replacing it with the word "COMPANY's", and by deleting the word "Target" in the last line of the third paragraph thereof and replacing it with the word "Conversion." 12A. Section 3.f. is further amended by adding the following at the end thereof: If during the applicable Sub-Area Term for a particular Sub-Area, COMPANY offers one or more Conversion Sites to DEVELOPER in a Sub-Area pursuant to this Section 3.F and DEVELOPER gives written notice to COMPANY during the thirty (30) day period referred to in the first paragraph of this Section 3.E that it declines to purchase one or more of such Conversion Sites, DEVELOPER shall have the option, exercisable by written notice to COMPANY within such thirty (30) day period, to written notice to COMPANY within such thirty (30) day period, to count each such Conversion Site that is actually converted to a BOSTON CHICKEN Unit toward the Sub-Area Quota for such Sub-Area. 13. Section 4.A is hereby deleted in its entirety and restated to read as follows: DEVELOPER acknowledges and agrees that: (1) DEVELOPER is not granted any rights within or outside the Development Area to offer, perform, or participate in the development or operation of Special Distribution Arrangements ("SDA"), other than as expressly provided in this Paragraph A, and (2) COMPANY reserves all such rights to offer, perform, or participate in the development or operation of SDA, within any Sub-Area within the Development Area in which DEVELOPER (or any Authorized Entity) operates a BOSTON CHICKEN Unit or has unexpired and unterminated rights to develop one or more BOSTON CHICKEN Units. Notwithstanding anything to the contrary contained in this Paragraph A, if COMPANY, during the Agreement Term, determines to itself develop CKEADD.FIN 7 9 and operate, or grant to others the right to develop and operate, SDA, then COMPANY shall notify DEVELOPER of such intention by providing to DEVELOPER COMPANY's proposed plan for such SDA and the form of an initial Special Distribution Agreement which COMPANY proposes to DEVELOPER to execute and deliver with regard to such SDA ("COMPANY's SDA Plan Notice"). Company shall notify DEVELOPER in writing as to whether COMPANY, in its sole discretion, elects to have DEVELOPER (i) perform the development or operation of the SDA, or (ii) participate in the net cash flow, if any, derived by COMPANY solely from the development and performance of such SDA ("Net Cash Flow") in the event a Cannibalization Impact is established, as defined below. Notwithstanding anything to the contrary, including any such election by COMPANY, DEVELOPER acknowledges that COMPANY need not permit DEVELOPER to perform the development or operation of such SDA and COMPANY shall have no obligation to enter into any Special Distribution Agreement with DEVELOPER with respect to such SDA unless DEVELOPER demonstrates, to COMPANY's reasonable satisfaction, that it has or will acquire the appropriate resources (financial and otherwise) to take full advantage of the SDA and to discharge all of its obligations under the Special Distribution Agreement. If COMPANY elects for DEVELOPER to develop and operate such SDA pursuant to (i), above, then, COMPANY and DEVELOPER will promptly commence negotiations in good faith toward the execution of a revised Special Distribution Agreement in accordance with COMPANY's SDA Plan Notice. If COMPANY and DEVELOPER are unable to agree, in good faith, on the terms of and execute the revised Special Distribution Agreement within sixty (60) days after COMPANY's delivery to the DEVELOPER of the COMPANY's SDA Plan Notice and DEVELOPER does not execute and deliver the initial Special Distribution Agreement, or in the event COMPANY determines DEVELOPER does not have and cannot acquire appropriate resources to take full advantage of the SDA and to discharge all of its obligations under the Special Distribution Agreement, then COMPANY will have no further obligation to negotiate with the DEVELOPER pursuant hereto for such SDA other than to permit DEVELOPER to participate in Net Cash Flow, if any, pursuant to (ii), above, and COMPANY may develop or operate, or pursue negotiations with and offer to third parties the right to develop and operate, such SDA. If COMPANY elects (ii), above, the COMPANY shall have the right to develop and operate or grant the right to others to develop and operate such SDA within such Sub-Area and, if such SDA is so developed or operated within such Sub-Area during the Agreement Term, DEVELOPER may, by written notice to COMPANY at any time within one CKEADD.FIN 8 10 year after commencement of such SDA, require COMPANY to engage a reputable unaffiliated third-party market survey company, at COMPANY's expense, which shall, within sixty (60) days or engagement render a report to the COMPANY as to whether such SDA has caused more than a 5% permanent cannibalization ("Cannibalization Impact") of the gross sales of the BOSTON CHICKEN Unit within whose Territory (as defined in the Franchise Agreement for such Unit) the SDA is located or, if not within the Designated Territory of any UNIT or DEVELOPER, of the BOSTON CHICKEN Unit of such DEVELOPER closest to the location where such SDA is operated. If such Cannibalization Impact is so reported, then the market survey company shall determine if the projected annualized cash flow of such UNIT for the next four (4) years will yield to DEVELOPER an annualized after-tax average cash return on the book value of such UNIT (which book value shall never be deemed to exceed invested capital to date in such UNIT) equal to or exceeding 25%. If such return equals or exceeds 25%, then no portion of the Net Cash Flow shall be paid to DEVELOPER. If such return is less than 25%, then, COMPANY shall pay to DEVELOPER a reasonable portion of the Net Cash Flow, if any, as it is earned from time to time (less any net cash losses for prior periods), as determined by the COMPANY from time to time in good faith, taking into account all relevant factors, including but not limited to, the scope of DEVELOPER's activities, the amount of the reported Cannibalization Impact of the SDA on DEVELOPER, whether such impact is mitigated by positive factors. If DEVELOPER fails to comply with any of its material obligations under this Agreement, COMPANY shall have no obligation to negotiate with DEVELOPER pursuant hereto for such SDA rights pursuant to (i), above and COMPANY may develop and operate or pursue negotiations with and offer to third parties the right to develop and operate such SDA within such Sub-Area without any obligation of payment which would have otherwise been owed to DEVELOPER in the event of a proper election pursuant to (ii), above. Notwithstanding anything else to the contrary herein, DEVELOPER'S rights to enter into a Special Distribution Agreement pursuant to (i) or receive payments pursuant to (ii) for such Sub-Area shall terminate without further action or notice by COMPANY if: (a) DEVELOPER fails to meet its development obligations hereunder with regard to such Sub-Area, including without limitation, the timely opening of any UNIT pursuant to Schedule C (taking into account Section 3C of the Agreement as amended by paragraph 10 hereof) attached hereto; or CKEADD.FIN 9 11 (b) This Agreement is terminated prior to its applicable expiration date; or If DEVELOPER (or such Authorized Entity) has executed a Special Distribution Agreement, COMPANY reserves the right, at any time and in its sole discretion with or without cause and regardless of the investment made by DEVELOPER (or such Authorized Entity) in establishing or operating the Special Distribution Arrangement or the length of time the Special Distribution Arrangement has been in effect, to suspend or terminate DEVELOPER's (or such Authorized Entity's) right to operate the Special Distribution Arrangement upon one hundred eighty (180) days prior written notice to DEVELOPER; provided, however, that notwithstanding such termination, DEVELOPER shall be entitled during such one hundred eighty (180) day period to fulfill any contractual obligations it had incurred prior to receipt of such notice, but may not incur or undertake any new obligations or commitments. Provided, however, such one hundred eighty (180) day period may be extended by an additional period not to exceed the lesser of (a) the period required to amortize (in accordance with generally accepted accounting principles) the balance of DEVELOPER's investment in the SDA, or (b) eighteen months. Notwithstanding the foregoing one hundred eighty (180) day notice period, COMPANY may terminate DEVELOPER's right to operate the SDA upon such shorter notice (pursuant to procedures promulgated by COMPANY and applied to a majority of the BOSTON CHICKEN Units in the system) as COMPANY determines in its sole discretion if the reason for such termination is DEVELOPER's failure to meet COMPANY's operational standards with respect to such special Distribution Arrangement. Notwithstanding any other provision of this Section 4.A., COMPANY shall not have the right to propose a Special Distribution Arrangement to DEVELOPER pursuant hereto during the first three years of the Agreement Term, unless such Special Distribution Arrangement is being conducted, or COMPANY has committed to conduct it, in Areas of Dominant Influence whose population is equal to 25% or more of the aggregate population of all the Areas of Dominant Influence in which BOSTON CHICKEN Units are open or under development. Further, during the Agreement Term, COMPANY shall consult with DEVELOPER prior to finalizing any material (with regard to any particular Unit) SDA within the Development Area. Such consultation shall be for advice only and COMPANY shall not be bound by any advice or recommendation of DEVELOPER. CKEADD.FIN 10 12 14. Section 4.B is hereby deleted. 15. Section 4.C is hereby amended by inserting the parenthetical "(provided, that any reduction or modification which amounts to a termination of substantially all of DEVELOPER's rights to provide such services shall be governed by clause (2), below)" immediately before the phrase, or (2)" in the last sentence thereof, by inserting the phrase "upon one hundred eighty (180) days prior written notice from COMPANY to DEVELOPER," after the phrase, ", or (2)" located in the last sentence thereof, and by inserting the following at the end thereof: Provided, however, such one hundred eighty (180) day period may be extended by an additional period not to exceed the lesser of (a) the period required to amortize (in accordance with generally accepted accounting principles) the balance of DEVELOPER's investment in delivery vehicles and facilities or (b) eighteen months. Notwithstanding the foregoing one hundred eighty (180) day notice period, COMPANY may terminate DEVELOPER's right to operate the Delivery Service upon such shorter notice (pursuant to procedures promulgated by COMPANY and applied to a majority of the BOSTON CHICKEN Units in the system) as COMPANY determines in its sole discretion if the reason for such termination is DEVELOPER's failure to meet COMPANY's operational standards with respect to such Delivery Service. 15A. Section 4.C is further amended by adding the following at the end thereof: COMPANY and DEVELOPER agree that DEVELOPER may undertake a test of Delivery Service in the Development Area for a period to be agreed upon by COMPANY and DEVELOPER and in a manner consistent with COMPANY's standards and procedures for such tests. Upon completion of the test, COMPANY and DEVELOPER will review and evaluate together the results of such test and, after good faith consultation with each other, determine whether DEVELOPER will have the right to offer Delivery Service in some or all of the Sub-Areas. 16. Section 4.D is hereby amended by deleting the second sentence thereof and inserting the following in lieu thereof: Notwithstanding the foregoing, if COMPANY, at any time and in its sole discretion, determines to offer Catering Service in the designated Catering Area, COMPANY will offer DEVELOPER (or the appropriate Authorized Entity) the right to offer CKEADD.FIN 11 13 Catering Service by delivering the DEVELOPER (or such Authorized Entity) a Catering Rider to the appropriate Franchise Agreement(s) authorizing DEVELOPER (or such Authorized Entity) to offer Catering Service from a Catering Facility within the designated Catering Area. 16A. Section 4.D is hereby further amended by inserting the parenthetical "(provided that any reduction or modification which amounts to a termination of substantially all of DEVELOPER's rights to provide such services shall be governed by clause (2), below)" immediately before the phrase "; or (2)" in the last sentence thereof, by inserting the phrase "upon one hundred eighty (180) days prior written notice from COMPANY to DEVELOPER," after the phrase "; or (2)" in the last sentence thereof, and by inserting the following at the end of Section 4.D; Provided, however, such one hundred eighty (180) day period may be extended by an additional period not to exceed the lesser of (a) the period required to amortize (in accordance with generally accepted accounting principles) the balance of DEVELOPER's investment in its catering facilities or (b) eighteen (18) months. After receipt of notice terminating DEVELOPER's Catering Service or reducing DEVELOPER's Catering Area, DEVELOPER will not accept any new orders for catering or, as applicable, will not accept any new orders for catering from the portion of the Catering Area which has been terminated which orders are to be delivered or provided after the effective date of termination; provided, however, DEVELOPER shall have the right to complete any catering orders during such one hundred eighty (180) day period, but which were received prior to receipt of such notice of termination of Catering Service or reduction of Catering Area. Notwithstanding the foregoing one hundred eighty (180) day notice period, COMPANY may terminate DEVELOPER's right to operate the Catering Service upon such shorter notice (pursuant to procedures promulgated by COMPANY and applied to a majority of the BOSTON CHICKEN Units in the system) as COMPANY determines in its sole discretion if the reason for such termination is DEVELOPER's failure to meet COMPANY's operational standards with respect to such Catering Service. CKEADD.FIN 12 14 17. Section 5.A is hereby amended by adding the following paragraph after the second paragraph: Notwithstanding anything to the contrary, DEVELOPER shall not be obligated to purchase the Demographic Detail Report, maps or any other demographic services from COMPANY so long as it provides such reports, maps or other necessary demographic information through its own in-house services or other third party service providers. 18. Section 5.B is hereby amended by deleting the first paragraph thereof and substituting the following instead: DEVELOPER shall cause the lessor of each Approved Site to include in the lease, sublease or assignment of lease (referred to herein as the "Site Agreement"), as applicable, for such Approved Site, the standard terms which COMPANY requires from time to time in its sole discretion, and such other terms as COMPANY may specifically approve in writing. A copy of COMPANY's current Standards Required Site Agreement Terms, which COMPANY requires be inserted in Site Agreements, is attached hereto as Exhibit G. Among other provisions contained in the Standards Required Site Agreement Terms is a requirement that DEVELOPER collateral assign such Site Agreement to COMPANY or its designee. Provided, however, DEVELOPER shall only be obligated to use its best efforts to have the Standard Required Site Agreement for Approved sites that are operating as a Carl's Jr. and which are leased from independent third party landlords. 19. Section 5.C is hereby amended by adding the following after the end of the first sentence: DEVELOPER and its Authorized Entities shall be deemed to be in full compliance with this Agreement and their Franchise Agreements so long as there are no defaults under this Agreement or any of the Franchise Agreements with respect to which COMPANY has delivered written notice and which are uncured (taking into account all applicable cure periods). 20. Section 5.C is further hereby amended deleting the third sentence thereof, in its entirety and inserting in lieu thereof the following: CKEADD.FIN 13 15 In addition, DEVELOPER must guaranty all obligations of an Authorized Entity under any Franchise Agreement issued to such an Authorized Entity. 21. Section 5.D is amended to add the following at the end thereof: ; and (3) the required advertising and marketing expenditures shall not exceed those required pursuant to Section 12 of the form of Franchise Agreement attached hereto as Exhibit I as of the date of execution hereof; and (4) the form of franchise agreement used for the grant of each Franchise will contain a "reasonableness" provision substantially similar to Section 16.M hereof; and (5) the fees and charges set forth or required by Section 4.E of the Franchise Agreement shall not exceed those set forth or required by Section 4.E (as amended) of the form of Franchise Agreement attached hereto as Exhibit I. 22. Section 5 is hereby further amended by adding the new subsection 5.E at the end thereof to read as follows: 5.E ADVERTISING EXPENDITURES DEVELOPER shall cause each UNIT it owns, and shall cause each Authorized Entity which owns one or more UNITs to cause each UNIT it owns, to contribute to the Local Ad Fund (as defined in the Franchise Agreement) for such UNIT an amount equal to the greater of: (1) the standard Local Ad Fund contribution required pursuant to the applicable Franchise Agreement; or (2) an amount which, when aggregated with the Local Ad Fund contributions of the other UNITs, will be sufficient to enable DEVELOPER, through the Local Ad Fund, to commence Required Televisions Advertising commencing with the second anniversary (the third anniversary in the case of the Los Angeles Area of Dominant Influence) of the execution of this Agreement and to continue Required Television Advertising thereafter for 12 out of 16 weeks during 4 consecutive Retail periods for either the San Diego or the Los Angeles Area of Dominant Influence. CKEADD.FIN 14 16 23. Section 9.E is amended by adding the following after the end thereof: COMPANY represents and warrants that, to the actual knowledge of its current officers, COMPANY's use of the market "BOSTON CHICKEN" or its use of its current logo with the words "BOSTON CHICKEN ROTISSERIE" on such logo do not infringe on the rights of any party in the Development Area. 24. Section 11.A is amended by adding the following at the end thereof: The parties intend that the titles used in Sections 11.B., 11.C., 11.D., and 11.E. be only descriptive of functions and DEVELOPER may use different titles for the persons who perform those functions. 25. Section 11.B is amended by deleting the third sentence thereof and replacing it with the following: The Chief Operating Officer shall have appropriate multi-unit food service experience and be an Owner holding a significant (as to such officer), direct equity interest, or the right to obtain a significant (as to such officer) equity interest, in Carl Karcher Enterprises, Inc. or Developer, at all times during the Agreement Term. 26. Sections 11.D and 11.E are hereby amended to delete the words "acceptable to COMPANY" in the first sentence of each of those sections. 27. Section 11.I is hereby amended by deleting the first sentence thereof in its entirety and restating it to read as follows: DEVELOPER shall install, use and transmit information to, or allow the electronic collection of information by, COMPANY through the Computer System, in such form as is specified by COMPANY from time to time. Such portion of the Computer System Specified Software, and Licensed Program as is purchased may involve one-time and periodic fees or payments to COMPANY. CKEADD.FIN 15 17 28. The first sentence of Section 11.J is hereby amended by adding the following immediately before the parenthetical definition of "Development Manual": whether by way of supplements, replacements pages, Franchise Bulletin or Partner Bulletin disclosure, or other official pronouncements or means. 29. Section 11 is further amended by adding the following at the end thereof: 11.L COMMUNICATION AND INFORMATION SYSTEMS DEVELOPER agrees to install at its head office and use in performing its obligations under this Agreement those brands, types, makes, and/or models of communications and computer systems or hardware which COMPANY has from time to time specified or required for the Computer System and the Specified Software and the Licensed Program, as comprised from time to time in accordance with the specifications and requirements of COMPANY. DEVELOPER acknowledges that COMPANY and its Affiliates and designees are in the process of completing the development of the Licensed Program and COMPANY is in the process of completing the development of specifications for certain components of the Computer System and may modify such specifications and the components of the Licensed Program and the Computer System from time to time. During the term hereof, COMPANY may require DEVELOPER to obtain specified computer hardware and/or software, including, without limitation, the Computer System, the Specified Software, and a license to use the Licensed Program from COMPANY or its designee under a separate agreement after COMPANY notifies DEVELOPER to commence use thereof. COMPANY's development and/or modification of such specifications for the components of the Computer System, the Specified Software, and the Licensed Program may require DEVELOPER to incur costs to purchase, lease and/or licensee new or modified computer hardware and/or software and to obtain service and support for the Computer System, the Specified Software, and the Licensed Program during the term of this Agreement. DEVELOPER acknowledges that COMPANY cannot estimate the cost of future additions, enhancements and modifications of the Computer System, the Specified Software, and the Licensed Program and that the cost to DEVELOPER of obtaining the additions, enhancements and modifications thereto may not fully amortizable over the remaining CKEADD.FIN 16 18 term of this Agreement. Nevertheless, DEVELOPER agrees to incur such costs provided that the Computer System, the Specified Software, and the Licensed Program that COMPANY specifies for use by DEVELOPER is substantially the same Computer System, Specified Software and Licensed Program which COMPANY is then currently specifying for use in COMPANY-owned BOSTON CHICKEN Units. Within one hundred twenty (120) days after DEVELOPER receives notice from COMPANY, DEVELOPER shall obtain the components of the Computer System, the Specified Software, and the Licensed Program which COMPANY designates and requires. DEVELOPER further acknowledges and agrees that COMPANY has the right to require DEVELOPER to pay to COMPANY or its designee a reasonable periodic systems fee for modifications and enhancements made to the Licensed Program and a reasonable periodic fee for other maintenance and support services provided to DEVELOPER related to the Licensed Program, Specified Software, and the Computer System. Notwithstanding anything to the contrary contained in this Agreement, COMPANY hereby acknowledges and agrees that (i) the aggregate software license fees to be paid by DEVELOPER or FRANCHISE OWNER directly to COMPANY (unless COMPANY is simply acting as a collection agent for third party developed software) with regard to each BOSTON CHICKEN Unit in connection with the use of the Licensed Program at such UNIT shall not exceed the lesser of (a) $15,000.00 or (b) amounts charged to other Boston Chicken area developers of similar size, and (ii) the periodic systems fee for each BOSTON CHICKEN Unit (the "Subscription Fee") for any software subscription service for the Licensed Program which COMPANY provides directly to such BOSTON CHICKEN Unit (which service shall consist of software error corrections, remote diagnostic support services which COMPANY determines in its sole discretion are advisable to cause the Licensed Program to perform in accordance with the standards for the Licensed Program as specified by the COMPANY, and the provision of upgrades, modifications, improvements, enhancements, extensions and other changes to the Licensed Program developed or adopted by COMPANY for the Licensed Program which are usable in connection with the Computer System and which are made available generally to all franchisees) shall not exceed the sum of Four Hundred Dollars ($400.00) per four (4) week period, provided that such maximum may be increased by COMPANY from time to time, at its CKEADD.FIN 17 19 sole option, upon written notice to DEVELOPER, provided that the increase in any one calendar year shall not exceed 10% (or such lesser percentage that may be applied on a permanent basis to other Boston Chicken area developers of similar size) of the last effective maximum in the immediately preceding calendar year. It is understood and agreed by COMPANY and DEVELOPER that nothing in this paragraph shall limit any amounts payable by DEVELOPER to COMPANY or any third party in connection with the procurement of computer hardware by DEVELOPER from COMPANY or any third party and the use and maintenance of such hardware, whether or not part of the Computer System, or any amounts payable in connection with maintenance, support, procurement, enhancement, or upgrade of any Specified Software. 30. Section 12.A is amended by adding the following at the end thereof: ; provided that COMPANY shall remain liable for its obligations hereunder for the balance of the term of this Agreement after the date of any transfer or assignment of this Agreement. 31. Section 12.B is amended by adding the following after the end thereof: Notwithstanding the foregoing, the restrictions in this Section 12.B shall not apply to transfers of ownership interests in Carl Karcher Enterprises, Inc. or to changes in the members of its Board of Directors. 32. Section 12.E is hereby amended by deleting in its entirety and replacing it with the following: DEVELOPER and Carl Karcher Enterprises, Inc. ("CKE") may make public or private offerings of securities, provided that DEVELOPER shall not, unless otherwise required by law and any relevant governmental agency, include in any published financial statements, in any prospectus or other offering document, or in any publicly filed or disseminated report (including any Form 10-K, 10-Q, or 8-K or any Proxy Statement or Annual Report to Stockholders) or in any Management Discussion and Analysis or in any footnotes accompanying any of the foregoing any category, line-item, breakdown, or type of information concerning its operation of BOSTON CHICKEN Units that COMPANY does not utilize in its published financial CKEADD.FIN 18 20 statements, prospectuses or offering documents, or publicly filed or disseminated reports. Additionally, DEVELOPER and CKE shall not disclose information regarding its Boston Chicken business during 1994 by segment although, DEVELOPER and CKE shall have the right, during 1994, to discuss, using general statements in the Management Discussion and Analysis section of any of the documents referred to in this paragraph, its Boston Chicken business. Provided, however, neither DEVELOPER nor CKE shall make a disclosure of same store sales comparisons or average store revenue for its Boston Chicken Units unless otherwise required by applicable law and any relevant governmental agency. 33. Section 13.B is hereby amended as follows: (a) Clause (3) is hereby amended by deleting it in its entirety and replacing it with the following: DEVELOPER is convicted by a trial court of or pleads guilty or no contest to a felony, or to any other crime or offense that may adversely affect the reputation of BOSTON CHICKEN Units or the goodwill associated with the Marks, or engages in any misconduct which may adversely affect the reputation of BOSTON CHICKEN Units or the goodwill associated with the Marks, or has made any material misrepresentation or omission in its application for this Agreement or in connection with any transfer hereunder. (b) Clause (4) of Section 13.B is hereby amended by adding the following after the phrase "Development Manual" or the "Copyrighted Works" in the first sentence thereof: (unless the foregoing prohibited act is inadvertent and does not have, or threaten to have, an adverse effect upon COMPANY, its business concept, its business operations, the business of any UNIT, any Mark, the Confidential Information, the Development Manual, or the Copyrighted Works, and DEVELOPER ceases and desists any such prohibited act promptly upon notice and reimburses COMPANY for all damages, losses, costs, and expenses incurred by COMPANY in connection with such prohibited acts). (c) Clause (5) is hereby amended by adding the following after the parenthetical clause: CKEADD.FIN 19 21 ; provided, that a violation of a confidentiality covenant under a Confidentiality and Non-Competition Agreement shall not be grounds for termination if such violation is inadvertent and does not have, or threaten to have, an adverse effect upon COMPANY, its business concept, its business operations, the business of any UNIT, any Mark, the Confidential Information, the Development Manual or the Copyrighted Works, and DEVELOPER ceases and desists any such violation promptly upon notice and reimburses COMPANY for all damages, losses, costs and expenses incurred by COMPANY in connection with such violation. (d) Clause (6) is deleted. (e) Clause (7) is amended by deleting the text which follows clause (d) and by replacing it with the following: in accordance with COMPANY's standards, specifications and procedures therefor, and (a) does not correct such failure within thirty (30) days after DEVELOPER's receipt of COMPANY's written notice of such failure; or (b) if such failure cannot reasonably be corrected within the aforesaid thirty (30) day period, but can be corrected within a reasonably short time (note to exceed an additional thirty (30) days), undertake within ten (10) days after DEVELOPER's receipt of COMPANY's written notice, and continue until completion, best efforts to correct such failure within such reasonably short time (not to exceed an additional thirty (30) days) and furnish proof acceptable to COMPANY, upon its request, of such efforts and the date full compliance will be achieved. (f) Clause (9) is hereby amended by deleting the term "twenty-four (24)" and replacing it with the term "eighteen (18)." (g) Clause (10) is deleted and replaced with the following: COMPANY has delivered a notice of termination of five (5) or more Franchise Agreements executed pursuant to this Agreement in accordance with its terms and conditions or DEVELOPER (or any Authorized Entity) has terminated a Franchise Agreement with COMPANY without cause. 34. Section 13.C is hereby amended by adding the following provision at the end of clause (2) thereof: CKEADD.FIN 20 22 provided, however, COMPANY shall not have the right to terminate the territorial rights granted pursuant to Paragraph 3.A for a Sub-Area based solely on the fact that DEVELOPER has failed to open a UNIT in another Sub-Area on its required opening date as set forth on Exhibit C. 35. Clause 16.A is amended by deleting the first paragraph thereof in its entirety and by deleting the word "other" from the first sentence of the second paragraph. 36. Section 16.B is hereby amended by deleting the phrase "of ten (10) days' prior written notice" at the end of the second paragraph and by replacing it with the following: of forty-five (45) days' prior written notice, unless COMPANY determines, in its reasonable discretion, that a shorter notice period is necessary. 37. Sections 16.E and 16.H are hereby deleted. 38. Notwithstanding Section 7 of the Agreement: (a) DEVELOPER shall not be required to obtain written consent with respect to information described in clauses (i) and (ii) thereof; and (b) The restrictions on DEVELOPER's disclosure and use of the Confidential Information shall not apply to knowledge of the food service business which DEVELOPER already possesses and which has not been obtained in contravention of any obligation of confidentiality owed to COMPANY. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have duly executed this Addendum in duplicate as of the date written below: DATE: January 14, 1994 DATE: January 14, 1994 COMPANY: DEVELOPER: BOSTON CHICKEN, INC. CARL KARCHER ENTERPRISES, INC. /s/ SAAD J. NADHIR /s/ DONALD E. DOYLE By: _______________________________ By:________________________________ Its: Vice Chairman Its: President 21 EX-11.1 18 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11-1 2 EXHIBIT 11-1 CARL KARCHER ENTERPRISES, INC. COMPUTATION OF EARNINGS PER SHARE*
FISCAL YEAR ENDED JANUARY 31, --------------------------------------------------- 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) PRIMARY EARNINGS PER SHARE: Net income (loss)............................ $ 3,665 $(5,507) $13,038 $13,036 $ 5,551 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Weighted average shares outstanding: Common stock outstanding from beginning of year....................... 18,091 17,918 18,017 17,917 17,754 Pro-rata shares: Exercise of stock options............... 124 116 90 21 121 Repurchase and retirement of shares..... (28) -- (208) -- -- Dilutive effect of outstanding stock options................................. 66 294(1) 293 229 906 ------- ------- ------- ------- ------- 18,253 18,328 18,192 18,167 18,781 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Primary earnings (loss) per share............ $.20 $(.30)(1) $.72 $.72 $.30 ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
FISCAL YEAR ENDED JANUARY 31, ------------------------------------------------------ 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) FULLY DILUTED EARNINGS PER SHARE: Net income (loss)......................... $ 3,665 $(5,507) $13,038 $13,036 $ 5,551 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Weighted average shares outstanding: Common stock outstanding from beginning of year.............................. 18,091 17,918 18,017 17,917 17,754 Pro-rata shares: Exercise of stock options............ 124 116 90 21 121 Repurchase and retirement of shares............................. (28) -- (208) -- -- Dilutive effect of outstanding stock options.............................. 380 334(1) 309 229 933 ------- ------- ------- ------- ------- 18,567 18,368 18,208 18,167 18,808 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Fully diluted earnings (loss) per share................................ $.20 $(.30)(1) $.72 $.72 $.30 ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
- - ------------------ * Per share data have been adjusted for a two-for-one stock split effective July 14, 1989. (1) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary to paragraph 40 of Accounting Principles Board Opinion No. 15 because it produces an antidilutive effect. EX-12.1 19 COMPUTATION OF RATIOS 1 EXHBIT 12-1 2 EXHIBIT 12-1 CARL KARCHER ENTERPRISES, INC. COMPUTATION OF RATIO OF DEBT TO EQUITY
FISCAL YEAR ENDED JANUARY 31, ------------------------------------------------------------ 1994 1993 1992 1991 1990 -------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) Debt: Current portion of long-term debt.......................... $ 13,207 $ 28,467 $ 29,759 $ 30,554 $ 27,892 Current portion of capital lease obligations................... 3,354 3,158 2,959 2,251 1,914 -------- --------- --------- --------- --------- 16,561 31,625 32,718 32,805 29,806 -------- --------- --------- --------- --------- Long-term debt................... 17,414 31,742 50,485 58,297 67,652 Capital lease obligations........ 45,886 48,512 51,589 58,840 56,985 -------- --------- --------- --------- --------- 63,300 80,254 102,074 117,137 124,637 -------- --------- --------- --------- --------- $ 79,861 $ 111,879 $ 134,782 $ 149,942 $ 154,443 -------- --------- --------- --------- --------- -------- --------- --------- --------- --------- Shareholders' equity: Common stock..................... $ 33,928 $ 28,793 $ 26,788 $ 27,532 $ 26,948 Retained earnings................ 58,148 55,939 62,891 51,286 39,684 -------- --------- --------- --------- --------- $ 92,076 $ 84,732 $ 89,679 $ 78,818 $ 66,632 -------- --------- --------- --------- --------- -------- --------- --------- --------- --------- Ratio of debt to equity............ 0.9x 1.3x 1.5x 1.9x 2.3x -------- --------- --------- --------- --------- -------- --------- --------- --------- ---------
EX-23.1 20 CONSENT OF KPMG PEAT MARWICK 1 EXHIBIT 23-1 2 EXHIBIT 23-1 CARL KARCHER ENTERPRISES, INC. CONSENT OF INDEPENDENT AUDITORS The Board of Directors Carl Karcher Enterprises, Inc. We consent to incorporation by reference in the Registration Statement (No. 2-86142) on Form S-8 of Carl Karcher Enterprises, Inc. of our reports dated March 21, 1994, relating to the balance sheets of Carl Karcher Enterprises, Inc. as of January 31, 1994 and 1993 and the related statements of operations, shareholders' equity and cash flows and related financial statement schedules for each of the years in the three-year period ended January 31, 1994, which reports appear in the January 31, 1994 Annual Report on Form 10-K of Carl Karcher Enterprises, Inc. Our reports on the financial statements refer to a change in the method used to discount the workers' compensation reserve in fiscal 1994 and the adoption of a new method of accounting for income taxes in fiscal 1993. KPMG Peat Marwick Orange County, California April 29, 1994 -----END PRIVACY-ENHANCED MESSAGE-----