-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TDScFmOgTb6NPJ4Dhfp/6kcqEfIsqlQ8z9+t7fwUdVMdUAp+iW6t0oPpDkvMc/ln slFaRKLqj5tnT+7JSYj1Ag== 0000950149-95-000917.txt : 19951222 0000950149-95-000917.hdr.sgml : 19951222 ACCESSION NUMBER: 0000950149-95-000917 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19950925 FILED AS OF DATE: 19951221 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT FAMILY RESTAURANTS INC CENTRAL INDEX KEY: 0000053281 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 870264039 STATE OF INCORPORATION: DE FISCAL YEAR END: 0925 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-06054 FILM NUMBER: 95603399 BUSINESS ADDRESS: STREET 1: 440 LAWNDALE DRIVE CITY: SALT LAKE CITY STATE: UT ZIP: 84115 BUSINESS PHONE: 8015327840 MAIL ADDRESS: STREET 1: 440 LAWNDALE DRIVE CITY: SALT LAKE CITY STATE: UT ZIP: 84115 FORMER COMPANY: FORMER CONFORMED NAME: JBS RESTAURANTS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: JBS BIG BOY FAMILY RESTAURANTS INC DATE OF NAME CHANGE: 19810830 10-K405 1 FORM 10K FOR SUMMIT FAMILY RESTAURANTS 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 25, 1995 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to ------- ------- Commission file number 0-6054 ---------------- SUMMIT FAMILY RESTAURANTS INC. --------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 87-0264039 ------------------------------ ------------------- State or other jurisdiction of (IRS Employer incorporation or organization Identification No.) 440 LAWNDALE DRIVE, SALT LAKE CITY, UTAH 84115 --------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (801) 463-5500 -------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: COMMON STOCK, PAR VALUE $0.10 PER SHARE -------------------------------------------------- (Title of class) 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, computed by reference to the last price at which the stock was traded on December 15, 1995, was $5.563. As of December 19, 1995, there were 4,801,102 shares of Common Stock, $0.10 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Exhibit Index is on pages 32 through 35 of this report. This report contains 60 pages. 2 PART I ITEM 1. BUSINESS DESCRIPTION AND GENERAL DEVELOPMENT Summit Family Restaurants Inc. (the "Company") is a Delaware corporation organized in l985 as the successor to a California corporation which was organized in l963. Effective April 4, 1995, the Company changed its corporate name to Summit Family Restaurants Inc. from JB's Restaurants, Inc. The name change was made to reflect the Company's diverse family restaurant concepts. On November 30, 1995, an Agreement and Plan of Merger and Reorganization (the "Merger Agreement") was executed between the Company and CKE Restaurants, Inc., a Delaware corporation ("CKE"), pursuant to which a wholly-owned subsidiary of CKE will merge with the Company, and CKE's wholly-owned subsidiary will be the surviving entity. Consideration for the merger to be paid to the Company's shareholders for each share of common stock and for each share of preferred stock will consist of $3.00 in cash and .20513 shares of CKE common stock, provided that the average CKE common stock price is between $12.25 per share and $17.00 per share at the closing. If the average CKE common stock price is higher than $17.00 or lower than $12.25 at the closing, the exchange ratio may be adjusted accordingly. The transaction is conditioned upon the Company's shareholders approving the transaction and the usual and customary conditions to closing, including, without limitation, accuracy of the parties' representations and warranties, performance of the parties' covenants and obligations under the Merger Agreement and obtaining proper consents of third parties as necessary. Certain conditions under the Merger Agreement have not been met and CKE and the Company are holding discussions with regard to the alternatives available. As of September 25, 1995, the Company operated 80 JB's Restaurants: forty in Arizona, seven in Idaho, five in Montana, eight in New Mexico, fifteen in Utah, one in Washington and four in Wyoming, and franchised twenty-four JB's Restaurants: five in Arizona, three in Idaho, two in Montana, one in New Mexico, two in South Dakota, five in Utah, two in Washington and four in Wyoming. The Company also operated six Galaxy Diners: one in Arizona, one in Idaho and four in Utah, and sixteen franchised HomeTown Buffet restaurants: eight in Arizona, two in Colorado, two in New Mexico, three in Utah and one in Wyoming. A summary of the number of Company operated restaurants in operation in each of the last three fiscal years follows:
NUMBER NUMBER OF NUMBER OF OF JB'S NET JB'S COMPANY NUMBER OF RESTAURANTS RESTAURANTS OPERATED RESTAURANTS CONVERTED TRANSFERRED RESTAURANTS FISCAL NUMBER OF RESTAURANTS SOLD TO GALAXY TO AT END OF YEAR OPENED OR ACQUIRED OR CLOSED DINERS FRANCHISEES FISCAL YEAR - ------ --------------------------------- ----------- ----------- ------------ ----------- GALAXY JB'S DINER SBARRO HOMETOWN ---- ------ ------ -------- 1993 - - 1 2 8(1) - 7 113 1994 - 1 - 8 14(2) 1 3 104 1995 - 5 - 2 1 5 3 102
(1) - Included 3 Sbarro restaurants and 5 JB's Restaurants (2) - Included 10 Sbarro restaurants and 4 JB's Restaurants In November 1991, the Company invested $3.8 million with Americana Entertainment Group, Inc., the predecessor of HomeTown Buffet, Inc. for capital stock and options. In July 1993, the Company sold shares of preferred stock in HomeTown Buffet, Inc. ("HTBB") for $2.5 million. In the fourth quarter of fiscal 1993, HTBB concluded an initial public offering ("IPO") of its common stock. In the third quarter of fiscal 1994, the Company sold shares of HTBB common stock for $16.8 million resulting in a pre-tax gain of $14.7 1 3 million. On September 25, 1995, the estimated fair value of the Company's ownership of HTBB common stock was $13.25 per share or $7.0 million. Since September 25, 1995, the Company has sold shares of HTBB common stock for $4.8 million resulting in a pre-tax gain of $4.0 million. As of December 15, 1995, the Company owns 130,000 shares of HTBB common stock. JB'S RESTAURANTS MENU AND FORMAT. JB's Restaurants are family style restaurants offering a variety of breakfast, lunch and dinner selections at moderate prices. The breakfast menu, in the majority of JB's Restaurants, features an "All-You-Can-Eat" breakfast buffet, four new "Fast Break Breakfasts" currently priced at $1.98 to $2.29 along with skillets and other traditional breakfast fare. The lunch and dinner menu consists of a variety of sandwiches including JB's popular new hoagie sandwiches as well as steak, chicken, pasta and seafood entrees and features a soup and salad bar add-on for a modest upcharge. The restaurants' soup and salad bar features homestyle soups, salads, fresh fruits and vegetables. The restaurants also feature the JB's Bakery with a full line of freshly baked products including cookies, muffins, pecan sticky buns and gourmet double-crust and cream-filled pies. The Company's JB's Restaurants range in size from 3,600 square feet to 7,600 square feet with an average of 4,875 square feet. Seating capacity for the Company's JB's Restaurants ranges from approximately 95 to 240. The JB's Restaurants decor is designed to provide an appealing and relaxed atmosphere. The Company's JB's Restaurants are typically open l8 hours a day, seven days a week. With the exception of the breakfast buffet and the soup and salad bar, all entrees are cooked to order and served by waiters and waitresses with an average check of approximately $5.00. The Company seeks to locate its JB's Restaurants in commercial districts adjacent to middle and upper income residential areas. The restaurant buildings are typically free standing and located on the corner of main arteries. REMODELING PROGRAM. Remodeling is an integral part of the Company's strategic plan. The JB's Restaurants typically have been remodeled every five to seven years with 16 of the current 104 JB's Restaurants having been remodeled to the current remodeling scheme. The Company's present remodeling program is designed to improve the image of the Company's existing JB's Restaurants to a much warmer and more charming look featuring new custom designed carpets and specialty fabrics for the upholstery, both with a variety of pleasing patterns and colors, and extensive decorative artifacts and wall hangings, giving the restaurant a more appealing "country charm" look. OPERATIONS. The Company's JB's Restaurant concept is organized into two divisions, each supervised by a Division Vice President who reports to the Senior Vice President, Family Restaurant Operations, who reports to the Company's President. Within each division are five or six District Managers who are each responsible for the operations of approximately six to nine restaurants. Each JB's Restaurant has a general manager who directs the restaurant's daily operations and two assistant managers. To become a general manager, an employee generally must complete the Company's management training program and, unless previously experienced as a full service restaurant general manager, serve as an assistant manager for approximately one year. General managers are responsible for hiring, providing ongoing staff training, and for the overall operation of the restaurant. General and assistant managers participate in a performance based incentive program in addition to a competitive base salary. ADVERTISING AND PROMOTIONS. As part of the Company's strategy to focus on improving its core markets and increasing revenues from existing stores, the Company executes a marketing program focusing on television and newspaper advertising. Advertising spending was approximately 4.0% of JB's Restaurant revenues in fiscal 1995 and the Company expects to continue this level of advertising spending in the future. 2 4 FRANCHISING. The Company is presently concentrating on franchise development of new JB's Restaurants in small towns in states where JB's Restaurants already operate and in states contiguous to current markets. In addition, the Company continues to franchise current Company operated JB's Restaurants in small isolated cities and other strategically advantageous situations. The Company's franchise agreement presently requires the payment of an initial franchise fee of $35,000 per restaurant and requires the payment of continuing royalty fees of 4% of gross revenues. Under the Company's "Employee Ownership Program", which is designed to offer management employees the opportunity to become franchisees, individuals receive a credit against the initial franchise fee for one franchised restaurant based on the number of years of service with the Company. A credit of $12,500 is given for 10-14 years of service, $18,750 for 15-19 years of service and $25,000 for over 20 years of service. The Company has the right to audit and receive annual financial statements from franchisees. Franchise agreements generally have an initial term of 20 years with no renewal options. The Company also retains the right to terminate a franchise agreement for a variety of reasons, including insolvency or bankruptcy, failure to operate the restaurant according to standards or failure to pay fees. During the six fiscal years ended September 25, 1995, the Company transferred a total of fifteen operating JB's Restaurants to franchisees. At the end of fiscal 1995, the Company had twenty-four franchised restaurants: five in Arizona, three in Idaho, two in Montana, one in New Mexico, two in South Dakota, five in Utah, two in Washington and four in Wyoming. Since September 25, 1995, the Company has transferred one additional operating JB's Restaurant located in Wyoming to a franchisee. GALAXY DINERS GENERAL. In fiscal year 1994, the Company developed the Galaxy Diner concept intended to be used initially as a conversion vehicle for underperforming JB's Restaurants. Longer-term, subject to available financing, the Company expects to open new Company operated Galaxy Diners as well as potentially franchise the concept. The Company converted its first underperforming JB's Restaurant to a Galaxy Diner in June, 1994 and five additional conversions were completed in fiscal year 1995. MENU AND FORMAT. The Galaxy Diner is designed to bring back memories of '57 Chevy's, Elvis, the Jitterbug and great home-cooked food. The Galaxy Diner offers a high energy, fun atmosphere, and offers outstanding food. The interior of each Galaxy Diner features two distinct dining areas - one centered around a full 1950's soda fountain with black, white and red tile, stainless steel, faux marble and mirrors, while the other dining area is more family oriented and casual, with star-patterned carpeting and mahogany colored tables and chairs. Other decor features include nostalgic signs, black and white photographs of 1950's film and music celebrities, and an entire wall dedicated to photos and memorabilia depicting local hometown sports and celebrity personalities of the era. In the front lobby a Wurlitzer juke box plays all the favorite golden oldies while neon blue stars on the ceiling welcome guests to this "blast from the past". Even the employee uniforms reflect the 50's period with red and white bowling shirts on the servers, poodle skirts on the hostesses, and checkered pants and paper hats on the soda jerks. Many of the popular uniform pieces, along with other trendy signature apparel is on display and available for sale at the Galaxy Diner. The award winning menu covers all dayparts - breakfast, lunch and dinner, plus special menus have been devised for the soda fountain and a full kids menu on a separate activity sheet. Included in the eight page main menu are entrees such as "Monster Mash" Hash, "Blueberry Hill" Flapjacks, the "best burgers in the Galaxy", "Ty Cobb" Salad, "Route 66" Pileup appetizer, "Bring My Baby Back" Ribs, and selections from the "Mama's and the Pastas". The soda fountain brings back many of the traditional favorites, including flavored cokes, malts and shakes, and ice cream sodas. One of the house fountain specialties is the Hollywood Boulevard Brownie Sundae built with fudge brownies cut in the shape of stars. 3 5 The Galaxy Diners have an average check of approximately $6.00. OPERATIONS. The Galaxy Diners are supervised by a District Manager, who reports to the Senior Vice President, Family Restaurant Operations, who reports to the Company's President. Each Galaxy Diner has a general manager who directs the restaurant's daily operations and three managers or assistant managers. Managers are required to attend formal training sessions in management and operations of the restaurant. In addition, each restaurant manager is required to comply with an extensive operations manual to assure uniformity of operations and consistent high quality products. The Company has a performance based incentive program covering all its restaurant managers in addition to a competitive base salary. HOMETOWN BUFFET RESTAURANTS GENERAL. The Company has a franchise and exclusive area development agreement with HomeTown Buffet, Inc., under which, as amended, the Company has the exclusive rights to develop and operate HomeTown Buffet restaurants, as a franchisee, in Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming. Under the terms of the agreement, the Company is required to open a minimum of 17 HomeTown Buffet restaurants in these states prior to June 30, 1996. As of December 15, 1995, the Company operated 16 HomeTown Buffet restaurants. Under the terms of the development agreement, the Company pays an initial fee of $25,000 for each location. After the third location opened, the Company paid a development fee of $100,000 and an additional $50,000 was paid at the time the eleventh location was opened. The development fee is being applied against the $25,000 initial fee in increments of $10,000 per location for each of the next 15 locations. In addition, the Company had two one year options to extend the exclusive area development agreement which requires the Company to open 5 additional locations in each option period. The Company has exercised the first option. A $50,000 fee is due upon the execution of the franchise agreement for the 18th location which will be applied against the $25,000 initial fee in increments of $10,000 per location for each of the next 5 locations. The second option expires December 31, 1997. For each location, the Company enters into a franchise agreement which requires among other items, the payment of a continuing royalty fee. The royalty fee is based on the aggregate gross sales of all the Company's HomeTown Buffet restaurants at the following rates:
ANNUAL GROSS SALES RATE ------------------ ---- $0 to $1,000,000 4% $1,000,001 to $2,000,000 3% $2,000,001 and over 2%
CONCEPT AND MENU. HomeTown Buffet restaurants are located both in shopping "strip centers" and as free standing restaurants. The restaurants occupy between 8,000 - 13,000 square feet, seat 265 - 460 people and employ 75 - 100 people. HomeTown Buffet restaurants are generally open seven days per week, 12 hours per day serving lunch, dinner and dessert items with a special brunch offering on Sundays. HomeTown Buffet restaurants feature a "scatter bar" buffet system with eight separate food islands in an "all-you-can-eat" format, offering a wide variety of fresh "made in the kitchen" menu items including soups, salads, hot entrees, vegetables, non-alcoholic beverages, and a dessert bar. It also features a display bakery where customers can see the desserts and baked goods prepared fresh throughout the day. Customers pay upon entry to the restaurant and select the items and portions of their choice. This system allows customers to serve themselves from the food island of their choice without standing in long lines. The concept has an average check of approximately $5.50. OPERATIONS. The franchised HomeTown Buffet restaurants are operated through a 100% wholly-owned subsidiary of the Company, HTB Restaurants, Inc., and are operated and supervised separately from the JB's Restaurant and Galaxy Diner operations. The HomeTown Buffet restaurants are supervised directly by two 4 6 district managers who report to the Senior Vice President, HomeTown Buffet Operations, who reports to the Company's President. Each HomeTown Buffet restaurant has a general manager and at least three co-managers or assistant managers. Managers are required to attend formal training sessions in management and operations of the restaurant. In addition, each restaurant manager is required to comply with an extensive operations manual to assure uniformity of operations and consistent high quality of products. The Company has a performance based incentive program covering its general and assistant managers in addition to a competitive base salary. PURCHASING Purchasing for all of the Company's restaurants is supervised by the Senior Vice President, Food Services. Two national food service distributors distribute substantially all non-perishable items to the restaurants twice per week. Perishable items are generally purchased locally. The Company believes that there are other distributors who are able to service the Company's needs and that alternative sources of supply are generally available for all items regularly used in the restaurants. INFORMATION AND REPORTING SYSTEMS Through the use of management information systems including a computerized point of sale system in each unit, the Company maintains centralized financial and accounting controls for all of its restaurants. Weekly reports of individual restaurant sales, labor costs, food costs and other expenses together with comparisons to preceding weeks, give management current indications of its operations on a per-unit basis as well as on a Company-wide basis. LICENSES, TRADEMARKS AND SERVICE MARKS Under franchise agreements with HomeTown Buffet, Inc., the Company has exclusive rights to operate and develop HomeTown Buffet restaurants in Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming. The term of the franchise right, including the use of trademarks and service marks, for each restaurant is the shorter of 20 years or the lease term with a right to renew for additional 10-year periods. The Company's franchise rights are subject to termination if the Company fails to comply with the provisions of the franchise agreements, including the payment of franchise fees. The Company believes that its rights in its trademarks and service marks are important to its marketing efforts and a valuable part of its business. The Company owns a number of trademarks and service marks that have been registered, or for which applications are pending, with the United States Patent and Trademark Office including, but not limited to, JB's(R), JB's Restaurants(R), JB's Bakery(R), JB's is family(R), fast break breakfast,SM fast break,SM and Galaxy Diner(R). It is the Company's policy to pursue registration of its marks whenever possible and to vigorously oppose any infringement of its marks. SEASONALITY The Company's business is seasonal in nature with the spring and summer quarters being the highest volume periods. The Company's lowest volume periods typically occur during the fall and winter fiscal quarters. COMPETITION The restaurant business is highly competitive with respect to price, service, restaurant location and food quality and is often affected by changes in consumer tastes, economic conditions, population and traffic patterns. The Company competes within each market with locally-owned restaurants as well as with national and regional restaurant chains, many of which operate more restaurants and have greater financial resources and longer operating histories than the Company. There is also active competition for management and hourly personnel, as well as for attractive commercial real estate sites suitable for restaurants. 5 7 GOVERNMENTAL REGULATION The Company's business is subject to and affected by various federal, state and local laws. Each restaurant must comply with state, county and municipal licensing and regulation requirements relating to health, safety, sanitation, building construction and fire prevention. Difficulties in obtaining or failure to obtain required licenses or approvals could delay or prevent the development of additional restaurants. The Company is subject to Federal Trade Commission ("FTC") regulation and various state laws that regulate the offer and sale of franchises. The FTC requires the Company to provide prospective franchisees with a franchise offering circular containing prescribed information about the Company and its franchise operations. Some states in which the Company has existing franchisees and a number of states in which the Company might consider franchising regulate the sale of franchises; several states require the registration of franchise offering circulars. Beyond state registration requirements, several states regulate the substance of the franchisor-franchisee relationship and, from time to time, bills are introduced in Congress aimed at imposing federal registration on franchisors. Many of the state franchise laws limit, among other things, the duration and scope of noncompetition and termination provisions of franchise agreements. The Company's restaurants are subject to federal and state laws governing wages, working conditions, citizenship requirements and overtime. From time to time legislative proposals are considered by governmental authorities that could, if enacted, have a material effect on the Company's business. Examples of recently considered legislation include mandatory health insurance for the Company's employees and increased state or federal minimum wages. These types of proposals could materially increase the Company's operating costs. There is no assurance that the Company would be able to pass such increased costs on to its guests or that, if it was able to do so, it could do so in a short period of time. EMPLOYEES As of December 15, l995 the Company employed approximately 4,500 persons, of whom approximately 57 were corporate personnel. All other employees are involved directly in the operation of the Company's restaurants. The Company considers its employee relations to be good and believes that its employee turnover rate is consistent with the industry average. Most employees, other than restaurant management and corporate personnel, are paid on an hourly basis. The Company believes that it provides working conditions and wages that are comparable with those of its competition. The Company's employees are not covered by a collective bargaining agreement. 6 8 ITEM 2. PROPERTIES The Company's home offices are located at 440 Lawndale Drive in Salt Lake City, Utah, which the Company leases. The following is a summary of the Company's restaurant properties as of September 25, 1995:
JB'S HOMETOWN GALAXY DINER TOTAL ---- -------- ------------ ----- COMPANY OPERATED RESTAURANTS Owned 14 -- -- 14 Leased 66 16 6 88 --- --- --- --- 80 16 6 102 === === === === FRANCHISED RESTAURANTS Owned 3 -- -- 3 --- --- --- --- Subleased 14 -- -- 14 --- --- --- --- 17 -- -- 17* === === === === NON-OPERATING PROPERTIES Owned -- -- -- -- Leased 9 -- -- 9 --- --- --- --- 9 -- -- 9 ** === === === === TOTAL Owned 17 -- -- 17 Leased 89 16 6 111 --- --- --- --- 106 16 6 128 === === === ===
*At September 25, 1995, the Company had 24 franchised restaurants of which it is sublessor for the 17 properties noted. **Of the 9 non-operating properties; 8 are subleased. The ninth non-operating property was subleased in fiscal year 1996. Lease terms range from 10 to 25 years with most leases providing for 20-year terms with options to renew for an additional 5 to 20 years. In most instances, the Company has acquired lease or sublease rights to leases whose remaining initial terms are from five to twenty years. The amount of rent paid and the method of computing rent vary; most leases provide for a fixed rental to be applied against a percentage of gross sales, usually 2.5% to 7% for a JB's Restaurant or Galaxy Diner and 3% to 5% for a HomeTown Buffet restaurant. Typically, the Company is responsible for maintenance and repair of the leased premises and the payment of real estate taxes and insurance related to the restaurant. Management believes that the properties are adequate for their intended purposes. 7 9 The following is a geographic summary of the Company and franchised restaurant locations as of September 25, 1995:
COMPANY FRANCHISED TOTAL ------- ---------- ----- JB'S RESTAURANT Arizona 40 5 45 Idaho 7 3 10 Montana 5 2 7 New Mexico 8 1 9 South Dakota -- 2 2 Utah 15 5 20 Washington 1 2 3 Wyoming 4 4 8 --- --- --- TOTAL JB'S RESTAURANTS 80 24 104 === === === GALAXY DINER Arizona 1 -- 1 Idaho 1 -- 1 Utah 4 -- 4 --- --- --- TOTAL GALAXY DINERS 6 -- 6 === === === HOMETOWN BUFFET Arizona 8 -- 8 Colorado 2 -- 2 New Mexico 2 -- 2 Utah 3 -- 3 Wyoming 1 -- 1 --- --- --- TOTAL HOMETOWN BUFFETS 16 -- 16 --- --- --- TOTAL RESTAURANTS 102 24 126 === === ===
ITEM 3. LEGAL PROCEEDINGS During the fourth quarter of fiscal year 1995, the plaintiff in the matter of Robbins v. HomeTown Buffet, Inc. et al., dismissed with prejudice the action which had been filed in U.S. District Court for the Southern District of California on October 27, 1994, and alleged violations of federal securities laws. The action had named the Company and two of its officers among the 21 defendants. No consideration was paid by the Company or any other defendant in connection with the dismissal. In addition, the Company is engaged in ordinary and routine litigation incidental to its business. Management does not anticipate that any amount which it may be required to pay by reason thereof will have a material effect on the Company's consolidated statements of operations or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 8 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded in the over-the-counter market on the NASDAQ National Market System under the symbol SMFR. The following table sets forth, for the quarters indicated, the high and low closing sales prices per share as reported on the National Market System.
FISCAL YEAR 1995 1994 ------------------------- ----------------------- HIGH LOW HIGH LOW ------- ------- ------ ------ First Quarter $6.00 $3-5/8 $7-3/4 $5-5/8 Second Quarter 5-5/8 4.00 8-1/4 5-7/8 Third Quarter 5-3/4 3-5/8 8-1/4 4-1/2 Fourth Quarter 5-1/2 3-5/8 6-1/8 3-7/8
As of December 18, 1995, there were 521 holders of record of the Company's common stock. The Company has not declared a cash dividend in the last three fiscal years. The Company currently reinvests its financial resources into the growth of the business and consequently does not expect to pay cash dividends in the foreseeable future. The Company's Series A Convertible Preferred Stock, issued in October 1993, contains a restriction on the payment of dividends until August 18, 1996. 9 11 ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data presented below, except store data, has been derived from the historical consolidated financial statements of the Company. The selected consolidated financial data for the years ended September 30, 1991, September 28, 1992, September 27, 1993, September 26, 1994, and September 25, 1995 have been derived from financial statements which were audited by KPMG Peat Marwick LLP, independent public accountants. The selected financial information and other data presented below should be read in conjunction with the "Consolidated Financial Statements", and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K.
YEAR ENDED ----------------------------------------------------------------------------------------- SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30, 1995 1994 1993 1992 1991 ------------- ------------- ------------- ------------- ------------- OPERATING STATEMENT DATA: Total Revenues $ 121,099,000 $ 115,367,000 $ 114,768,000 $ 124,045,000 $ 127,294,000 Income (loss) from operations (5,052,000) (5,641,000)(1) (4,651,000)(2) 911,000 (3) (245,000)(4) Income (loss) before income taxes (6,097,000) 6,826,000 (5) (3,797,000)(6) (1,307,000)(3) (1,686,000)(4) Net Income (loss) (5,044,000) 3,756,000 (7) (2,314,000) (771,000)(8) (991,000) ----------------------------------------------------------------------------------------- PER SHARE: Net income (loss) $ (1.05) $ 0.66 $ (0.49) $ (0.17) $ (0.22) Dividends $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 Weighted avg. shares outstanding 4,794,000(9) 5,723,000(10) 4,693,000 4,585,000 4,534,000 ----------------------------------------------------------------------------------------- BALANCE SHEET DATA : Total assets $ 70,884,000 $ 76,608,000 $ 67,716,000 $ 73,745,000 $ 74,768,000 Tangible assets 69,735,000 75,209,000 66,276,000 71,780,000 72,150,000 Stockholders' equity 40,127,000 44,336,000 32,598,000 34,156,000 34,830,000 Long-term debt 10,150,000 13,093,000 19,243,000 22,259,000 22,824,000 ----------------------------------------------------------------------------------------- Debt to capital 20% 23% 37% 39% 40% ----------------------------------------------------------------------------------------- PER SHARE: Stockholders' equity $ 6.99 $ 7.73 $ 6.85 $ 7.43 $ 7.61 Tangible book value $ 6.79 $ 7.49 $ 6.55 $ 7.00 $ 7.04 Shares outstanding 5,744,816(10) 5,735,473(10) 4,755,759 4,597,388 4,577,486 ----------------------------------------------------------------------------------------- OTHER DATA: Operating Units JB's Restaurants-Company 80 89 97 109 136 JB's Restaurants-Franchised 24 19 14 5 3 HomeTown Buffet restaurants 16 14 6 4 -- Galaxy Diner restaurants 6 1 -- -- -- Sbarro restaurants -- -- 10 12 4 ----------------------------------------------------------------------------------------- TOTAL 126 123 127 130 143 -----------------------------------------------------------------------------------------
(1) Fiscal 1994 is net of a charge for property dispositions of $2.0 million. (2) Fiscal 1993 is net of a charge for property dispositions of $4.3 million. (3) Fiscal 1992 is net of a charge for property dispositions of $3.2 million. (4) Fiscal 1991 is net of a charge for property dispositions of $3.1 million and a deferred compensation revaluation of $0.4 million. (5) Fiscal 1994 is net of a charge for property dispositions of $2.0 million, a loss on the disposition of a note receivable of $1.6 million and a gain on the sale of HomeTown Buffet, Inc. common stock of $14.7 million. (6) Fiscal 1993 is net of a charge for property dispositions of $4.3 million, and a gain on the sale of HomeTown Buffet, Inc. preferred stock of $1.7 million. (7) Fiscal 1994 is net of an extraordinary loss of $350,000 (net of tax benefit) resulting from extinguishment of debt. (8) Fiscal 1992 is net of the cumulative effect of a change in accounting principle of $214,000. (9) Excludes 946,714 shares of Series A Convertible Preferred Stock as they are anti-dilutive. (10) Includes 946,714 shares of Series A Convertible Preferred Stock. 10 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUES AND SELECTED OPERATING DATA. The following table sets forth for the periods indicated, certain information regarding the Company's revenues and selected operating data for the last three fiscal years. All references herein to years, i.e., "1995," "1994" or "1993," are to fiscal years.
- ------------------------------------------------------------------------------------------ FISCAL YEAR 1995 1994 1993 - ------------------------------------------------------------------------------------------ (dollars in thousands) Total revenues $121,099 $115,367 $114,768 Percentage change from prior year 5.0 0.5 (7.5) - ------------------------------------------------------------------------------------------ JB'S RESTAURANTS - ------------------------------------------------------------------------------------------ Company owned units at end of year 80 89 97 Franchised units at end of year 24 19 14 Company Restaurants transferred to franchisees, net 3 3 7 Company Restaurants converted to Galaxy Diner 5 1 - Company Restaurants closed 1 4 5 Company average annual sales per unit $ 940 $ 953 $ 938 Percentage change from prior year (1.4) 1.5 3.0 Same store sales percentage change from prior year (3.6) (3.2) (1.3) - ------------------------------------------------------------------------------------------ GALAXY DINERS - ------------------------------------------------------------------------------------------ Company owned units at end of year (1) 6 1 - - ------------------------------------------------------------------------------------------ HOMETOWN BUFFETS - ------------------------------------------------------------------------------------------ Units operated as a franchisee at end of year 16 14 6 Average annual sales per unit $ 2,503 $ 2,674 (1) Percentage change from prior year (6.4) (1) (1) - ------------------------------------------------------------------------------------------ SBARRO - ------------------------------------------------------------------------------------------ Units operated as a franchisee at end of year - - 10 - ------------------------------------------------------------------------------------------
(1) Average annual sales per unit, percentage change from prior year and same store sales percentage change from prior year data is either not available or is not presented due to the relatively small number of units open for a full year. 11 13 In 1995, as compared with 1994, total revenues increased 5.0% primarily due to an increase in the number of HomeTown Buffet restaurants and Galaxy Diners in operation which more than offset the decline in revenues resulting from the decrease in the number of JB's Restaurants and the 3.6% decline in JB's Restaurants same store sales. The average annual sales decrease per JB's Restaurant of 1.4% reflected a decrease in average guest counts of 1.7% partially offset by a 0.3% increase in the average guest purchase. In 1994, as compared with 1993, total revenues increased 0.5%, primarily due to the opening of eight new HomeTown Buffet restaurants in 1994 partially offset by the closure of four underperforming JB's Restaurants, the franchising of three JB's Restaurants, the disposition of all Sbarro restaurants and a 3.2% decline in JB's Restaurants same store sales. The average annual sales increase per JB's Restaurant of 1.5% reflected an increase in the average guest purchase of 3.7% partially offset by a decrease in average guest counts of 2.2%. COSTS AND EXPENSES; STATEMENT OF OPERATIONS DATA. The following table sets forth costs as a percentage of revenues during the last three fiscal years as well as statement of operations data:
- -------------------------------------------------------------------------------- FISCAL YEAR 1995 1994 1993 - -------------------------------------------------------------------------------- Total revenues 100.0% 100.0% 100.0% - -------------------------------------------------------------------------------- Costs and expenses Food costs 33.0 32.6 31.9 Labor costs 35.0 34.9 33.3 Occupancy and other expenses 23.8 23.3 22.8 General and administrative expenses 6.9 7.1 6.5 Depreciation and amortization 5.5 5.3 5.8 Charge for property dispositions -- 1.7 3.7 - -------------------------------------------------------------------------------- Total costs and expenses 104.2 104.9 104.0 - -------------------------------------------------------------------------------- Loss from operations (4.2) (4.9) (4.0) Interest expense (1.3) (1.7) (2.2) Interest income 0.4 0.6 0.4 Gain on sale of HomeTown Buffet, Inc. stock -- 12.7 1.5 Gains on sales of restaurants to franchisees and other 0.1 0.6 1.0 Loss on disposition of note receivable -- (1.4) -- - -------------------------------------------------------------------------------- Income (loss) before income taxes and extraordinary item (5.0) 5.9 (3.3) Income taxes (benefit) (0.8) 2.3 (1.3) - -------------------------------------------------------------------------------- Income (loss) before extraordinary item (4.2) 3.6 (2.0) Extraordinary loss resulting from extinguishment of debt-net of tax -- 0.3 -- - -------------------------------------------------------------------------------- Net income (loss) (4.2)% 3.3% (2.0)% - --------------------------------------------------------------------------------
FOOD COSTS. The increase in food costs as a percentage of total revenues in 1995, as compared with 1994, was primarily the result of an increase in the number of HomeTown Buffet restaurants, which operate at a higher food cost percentage than the Company's JB's Restaurants and Galaxy Diners, and higher produce prices in all restaurant concepts during the third quarter of 1995 due to the inclement weather in California. The increase in food costs as a percentage of total revenues in 1994, as compared with 1993, was primarily the result of an increase in the number of HomeTown Buffet restaurants which operate at a higher food cost percentage than the Company's JB's Restaurants. 12 14 LABOR COSTS. The increase in labor costs as a percentage of total revenues in 1995, as compared to 1994, was primarily due to the decline in same store sales in the JB's Restaurants along with an increase in manager salaries (0.5 percentage points) offset by lower workers compensation costs (-0.4 percentage points). The increase in labor costs as a percentage of total revenues in 1994, as compared to 1993, was primarily due to costs incurred in training and increased scheduling designed to improve customer service in the JB's Restaurants along with a decrease in same store sales. OCCUPANCY AND OTHER EXPENSES. The increase in occupancy and other expenses as a percentage of total revenues in 1995, as compared to 1994, primarily reflected higher pre-opening costs along with the decline in JB's Restaurants same store sales. The increase in occupancy and other expenses as a percentage of total revenues in 1994, as compared to 1993, primarily reflected higher equipment rent as the Company leased most equipment in its new HomeTown Buffet restaurants (0.5 percentage points), higher smallware and supply costs (0.4 percentage points), higher pre-opening costs resulting from the increased number of HomeTown Buffet restaurant openings (0.2 percentage points) along with the decline in JB's Restaurants same store sales partially offset by a decrease in marketing expenditures (-0.6 percentage points). GENERAL AND ADMINISTRATIVE EXPENSES. The decrease in general and administrative expenses as a percentage of total revenues in 1995, as compared to 1994, was primarily due to reduced employee relocation costs along with the 5.0% increase in total revenues. The increase in general and administrative expenses as a percentage of total revenues in 1994, as compared with 1993, was primarily the result of an increase in salaries (0.6 percentage points) and relocation costs (0.2 percentage points) resulting from upgrading the Company's administrative staff support and an increase in legal expenses (0.2 percentage points). Additionally, in 1993 the Company incurred one-time executive search costs and wrote-off financing costs that were not incurred in 1994 (-0.4 percentage points). DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization as a percentage of total revenues in 1995, as compared with 1994, primarily reflected depreciation associated with remodeled JB's Restaurants and Galaxy Diner conversions and the decrease in same store JB's Restaurants sales partially offset by the increase in the number of HomeTown Buffet restaurants which operate with lower depreciation and amortization as a percent of revenues. The decrease in depreciation and amortization as a percentage of total revenues in 1994, as compared with 1993, primarily reflected higher per store revenue resulting from the disposition of underperforming restaurants and the increase in the number of HomeTown Buffet restaurants which operate with lower depreciation and amortization as a percent of revenues. CHARGE FOR PROPERTY DISPOSITIONS. The charge of $1,982,000 for 1994 was primarily related to the disposition of JB's Restaurants. The charge of $4,264,000 for 1993, was primarily related to the disposition of certain JB's Restaurants, Sbarro restaurants, non-operating properties and the termination of exclusive area development rights with Sbarro, Inc. INTEREST EXPENSE. The decrease in interest expense as a percentage of total revenues in 1995, as compared with 1994, reflected lower outstanding debt balances along with the 5.0% increase in total revenues. The decrease in interest expense as a percentage of total revenues in 1994, as compared to 1993, reflected lower outstanding debt partially resulting from the prepayment, in April 1994, of $4.6 million of outstanding 11.1% interest bearing debt payable to financial institutions. INTEREST INCOME. The decrease in interest income as a percentage of total revenues in 1995, as compared with 1994, was primarily a result of lower cash and short term investment balances. The increase in interest income as a percentage of total revenues in 1994, as compared to 1993 primarily resulted from an increase in invested cash balances and an increase in notes receivable resulting from the sale of restaurants to franchisees. GAIN ON SALE OF HOMETOWN BUFFET, INC. STOCK. The $14.7 million gain in 1994 reflected the sale of 1,056,780 shares of HomeTown Buffet, Inc. ("HTBB") common stock. The $1.7 million gain in 1993 reflected the sale of 250,000 shares of HTBB preferred stock. 13 15 LOSS ON DISPOSITION OF NOTE RECEIVABLE. The charge of $1,564,000 in 1994 reflected the Company's acceptance of $2.5 million as full repayment of a note receivable related to the sale of a combined restaurant and motel. INCOME TAXES. The Company's effective income tax rate was 17.3%, 39.8% and 39.1% in 1995, 1994 and 1993, respectively. The effective tax rate in all three years reflected federal and state income tax rates offset (benefited) by targeted jobs tax credits. The 1995 tax rate is further impacted by a $1,535,000 reserve against net deferred tax assets that may not be realized in the future. EXTRAORDINARY LOSS RESULTING FROM EXTINGUISHMENT OF DEBT. The charge of $350,000 (net of tax) in 1994 reflected the prepayment premium and the write-off of unamortized loan acquisition costs associated with the Company's prepayment of $4.6 million of outstanding 11.1% interest bearing debt payable to financial institutions. LIQUIDITY & CAPITAL RESOURCES The Company's primary sources of working capital have been cash flow from operations, borrowings and sale of assets. The Company requires capital principally for the acquisition and construction of new restaurants, remodeling and conversion of existing restaurants, and renewals of equipment and leasehold improvements. During 1996, the Company anticipates its capital requirements will be primarily for renewals of equipment and leasehold improvements and expects to fund these capital requirements through cash on hand at the end of the year, internally generated funds and the sale of all, or a portion of, the Company's investment in HTBB common stock. During the fiscal year ended September 25, 1995, cash and cash equivalents were provided by the following sources:
- ----------------------------------------------------------------------------------------------------------------- IN MILLIONS - ----------------------------------------------------------------------------------------------------------------- Net cash provided by operations $ 4.0 Proceeds from the sale of assets 3.0 Proceeds from the sale of short term investments 2.0 Payments received on notes receivable .1 - ----------------------------------------------------------------------------------------------------------------- Total provided $ 9.1 - ----------------------------------------------------------------------------------------------------------------- During the same period, cash and cash equivalents were applied for the following uses: - ----------------------------------------------------------------------------------------------------------------- IN MILLIONS - ----------------------------------------------------------------------------------------------------------------- Other capital expenditures $ 6.9 Capital expenditures for new stores 3.7 Principal payments on long-term debt and capital leases 1.8 Other .1 - ----------------------------------------------------------------------------------------------------------------- Total used $ 12.5 - -----------------------------------------------------------------------------------------------------------------
During 1995, cash used exceeded cash provided by $3.4 million due primarily to capital expenditures associated with the conversion of five underperforming JB's Restaurants to Galaxy Diners, the remodeling of four JB's Restaurants and the construction of two HomeTown Buffet restaurants. The current ratio at the end of 1995 was 0.3:1.0 compared to 0.8:1.0 at the end of 1994. Management does not consider the fact that the current ratio is less than one to be, itself, an indication of a liquidity problem as the restaurant business has practically no receivables and minimum inventories that typically turn faster than accounts payable to suppliers. 14 16 At the end of 1995, the Company had $2.0 million in letters of credit and $2.2 million in bank loans which were secured by the Company's 528,220 shares of HTBB common stock and by certain properties owned by the Company. During the third quarter of 1995, the Company terminated its $3.0 million line of credit in exchange for the release of the lien on an office/warehouse property which the Company sold generating net proceeds of approximately $1.5 million. The Company was not in compliance with certain covenants in its lending agreements at the end of the year. The Company obtained a waiver from the bank with respect to these covenants. As of September 25, 1995, the Company held 528,220 shares of HTBB common stock. Between September 25, 1995, and December 11, 1995, the Company sold 398,220 shares of HTBB common stock generating net proceeds of $4.8 million resulting in a pre-tax gain of $4.0 million. $2.1 million of these proceeds were used to repay the Company's bank loans in full, $700,000 remains in escrow as partial security against the $2.0 million in letters of credit with the remaining $2.0 million retained by the Company. The letters of credit are secured by certain properties owned by the Company, by the remaining 130,000 shares of HTBB common stock and by the escrow account noted above. In August 1994, the Company entered into a master lease agreement (the "Agreement") to finance equipment for new HomeTown Buffet restaurants. The Agreement, among other things, required the Company to maintain a minimum tangible net worth of at least $40 million. Operating results during fiscal 1995 reduced the Company's net worth to less than $40 million as of September 25, 1995. On December 7, 1995, the lessor notified the Company it was in default under the terms of the Agreement and demanded a default payment in the amount of $1,493,938 which represents all remaining rent and other payments due to the lessor. Upon receipt of the default payment, the lessor is obligated to transfer to the Company all rights of ownership to the leased assets. Management is contesting the default and seeks a resolution with the lessor that would allow the Company to continue periodic rent payments as stipulated under the Agreement. While the final outcome of this matter cannot be determined at this time, management, in consultation with legal counsel, believes that such a resolution can be reached. The Company opened two new HomeTown Buffet restaurants during 1995, bringing the total number of HomeTown Buffet restaurants in operation to 16. The Company's exclusive area development agreement with HomeTown Buffet, Inc. was amended during the third quarter of 1995 to extend the Company's requirement to open a minimum of 17 HomeTown Buffet restaurants to June 30, 1996 from December 31, 1995. In addition, in order to maintain its exclusive area development agreement with HomeTown Buffet, Inc., the Company is required to open an additional 5 HomeTown Buffet restaurants by December 31, 1996. Should the Company not open the required number of HomeTown Buffet restaurants, the Company would lose its exclusive area rights. During 1995, the Company remodeled four of its higher performing JB's Restaurants bringing to 11 the total number of Company operated JB's Restaurants remodeled to the latest remodeling scheme. The Company currently has no plans to remodel any further JB's Restaurants in 1996. The Company continues to routinely repair and maintain the Company's restaurants. In addition, the Company, in 1995, converted an additional five of its lower performing JB's Restaurants to Galaxy Diners bringing the number of Galaxy Diners to six at the end of 1995. Future Galaxy Diner conversions, JB's Restaurants remodels and new HomeTown Buffet restaurants will be dependent upon the Company improving internal cash flow and/or finding additional sources of capital including the potential sale of assets. To the extent that these assets secure certain letters of credit, the Company expects that it will maintain cash collateral for the letters of credit when the assets are sold in accordance with the Company's agreement with the bank noted above. If the Company's earnings do not improve or other sources of financing are not obtained, the Company would not have the available financing for capital spending beyond maintenance level capital additions. Pursuant to certain change of control agreements, the Company may be obligated to pay benefits to the President and seven Senior Vice Presidents in the event of a significant change in ownership of the Company. 15 17 The Merger Agreement described in Item 1 titled "Business" triggered a provision in the change of control agreements that requires the Company to place in escrow accounts approximately $1.7 million. Payment of benefits is made upon involuntary termination of those individuals noted above between the signing of the Merger Agreement and one year after consummation of the merger or upon the voluntary termination of employment during the second 90 days following consummation of the merger. The Company has not yet funded the escrow accounts. SEASONALITY The Company's business is seasonal in nature with the spring and summer quarters being the highest volume periods. The Company's lowest volume periods typically occur during the fall and winter fiscal quarters. IMPACT OF INFLATION Many of the Company's employees are paid hourly rates related to the federal and state minimum wage laws. Accordingly, increases in the minimum wage could materially increase the Company's labor costs. Currently, there are no further scheduled increases in the federal minimum wage. In addition, the cost of food commodities utilized by the Company are subject to market supply and demand pressures as is evidenced by the recent increase in produce prices (lettuce in particular) resulting from the unusual weather conditions in the western U.S. growing regions. Shifts in these costs may have a significant impact on the Company's food costs. The Company anticipates that increases in these costs can be offset through pricing and other cost control efforts; however, there is no assurance that the Company would be able to pass such costs on to its guests or if it were able to do so, it could do so in a short period of time. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED In December 1991, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 107 "Disclosures about Fair Value of Financial Instruments". SFAS No. 107 extends existing fair value disclosure practices by requiring all entities to disclose, where practicable, the fair value of financial instruments, both assets and liabilities, recognized and not recognized, in the statement of financial position. SFAS No. 107 is effective for the Company's fiscal year 1996. Management has not yet determined for which of its financial instruments it is practicable to determine fair value. It is management's intent to implement SFAS No. 107 in fiscal year 1996. In May 1993, the FASB issued SFAS No. 114 "Accounting by Creditors for Impairment of a Loan". SFAS No. 114 addresses the accounting by creditors for impairment of certain loans and requires impaired loans to be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical alternative, at the loan's observable market price or the fair value of the collateral if the loan is collateralized. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the terms of the loan agreement. SFAS No. 114 is effective for the Company's fiscal year 1996. Management believes that, if implemented currently, SFAS No. 114 would not have a material effect on its financial position as of September 25, 1995. It is management's intent to adopt SFAS No. 114 in fiscal year 1996. In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires the assessment of certain long-lived assets, including many intangible assets, for possible impairment when events or circumstances indicate the carrying amounts of these assets may not be recoverable. SFAS No. 121 is effective for the Company's fiscal year 1997 and, upon adoption, any impairment losses recognized for assets to be held and used must be recorded in continuing operations while such losses attributable to assets to be disposed of must be reported as a cumulative effect of a change in accounting principle. The Company has not yet completed all of the analysis required to estimate the impact of SFAS No. 121. It is management's intent to implement SFAS No. 121 in fiscal year 1997. 16 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index included at "Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K". ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 17 19 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT BOARD OF DIRECTORS FREDERICK L. BRYANT. Mr. Bryant, 41, is a general partner of ABS Capital Partners, L.P. and has been a Managing Director of Alex. Brown & Sons Incorporated, an investment banking firm, since January 1, 1990. Mr. Bryant was a Principal at Alex. Brown & Sons Incorporated from January 1, 1988 through December 31, 1989. Mr. Bryant has been a director of the Company since October 1993 and serves on the Company's Audit Committee and Special Committee. Mr. Bryant also serves as a director of Transaction Systems Architects, Inc., a computer software company. NORMAN N. HABERMANN. Mr. Habermann, 62, is the President of Scobrett Associates, Inc., which is involved in venture capital and consulting activities. From December 1986 to February 1994, Mr. Habermann was President and Chief Executive Officer of The Restaurant Enterprises Group, Inc., and its predecessors. Mr. Habermann has been a member of the Board since November 23, 1994, when he was appointed by the Board to fill a vacancy. Mr. Habermann is also a member of the Company's Audit Committee and serves as Chair of the Company's Special Committee. Mr. Habermann serves as a director of International Food & Beverage, Inc., a food manufacturer. CARL R. HAYS. Mr. Hays, 58, is currently a franchisee of Outback Steakhouse, Inc., a restaurant company. Mr. Hays was Chief Operating Officer of Al Copeland Enterprises, Inc. from November 1989 to November 1992. Mr. Hays has served as a director of the Company since 1987 and is Chair of the Company's Compensation Committee and a member of the Nominating Committee. Mr. Hays also serves as a director of Fresh Choice, Inc., a restaurant company. CLARK D. JONES. Mr. Jones, 60, has been Chairman of the Board of the Company since 1981. On June 30, 1995, Mr. Jones retired as an employee of the Company, but remains Chairman of the Board. Since July 1995, Mr. Jones is also one of three commissioners on the State of Utah Public Service Commission. Mr. Jones served as Chief Executive Officer of the Company from 1981 to October 1, 1991. Mr. Jones served as interim President and Chief Executive Officer of the Company from May 31, 1993 to January 3, 1994. Mr. Jones has served as a director of the Company since 1971. He is Chair of the Company's Nominating Committee. Mr. Jones serves as a director of MDT Corporation, a medical technology company. DON M. MCCOMAS. Mr. McComas, 51, has been President, Chief Executive Officer and a director of the Company since January 3, 1994. From February 1993 through December 1993 he was President and Chief Executive Officer of El Torito Restaurants, Inc. From January 1988 to January 1993, Mr. McComas served as President and Chief Executive Officer of Carrows Restaurants, Inc. NORTON PARKER. Mr. Parker, 69, retired in April 1994 from his position of more than five years as President and Chief Executive Officer of Capital City Bank. Mr. Parker has served as a director of the Company since 1976 and is Chair of the Company's Audit Committee and a member of the Company's Nominating Committee. WILLIAM L. PATERNOTTE. Mr. Paternotte, 50, has been a Managing Director of Alex, Brown & Sons Incorporated, an investment banking firm, for more than five years, and is currently the Director of Marketing and Client Services. Mr. Paternotte has served as a director of the Company since 1985 and is a member of the Company's Compensation and Nominating Committees. Mr. Paternotte serves as a director of Miami Subs Corporation, a restaurant company. RONALD N. PAUL. Mr. Paul, 61, has been President of Technomic, Inc., a marketing consulting firm, for more than five years. Mr. Paul has served as a director of the Company since 1989 and is a member of the Company's Audit Committee and Special Committee. THOMAS J. RUSSO. Mr. Russo, 54, is the President, Chairman and Chief Executive Officer of Miami Subs Corporation, a restaurant company. Until January 1994, Mr. Russo was Group Chairman and Chief Executive 18 20 Officer of the Housewares Division of Hanson Industries for more than five years. Mr. Russo has served as a director of the Company since 1990 and is a member of the Company's Compensation Committee. OFFICERS IDENTIFICATION OF EXECUTIVE OFFICERS The Company's executive officers are elected annually at the first meeting of the Board of Directors following each annual shareholders' meeting. The Company's executive officers as of December 1, 1995 are:
NAME AGE POSITION Don M. McComas 51 President and Chief Executive Officer Gary A. Bales 41 Senior Vice President of Marketing and Development George H. Gehling 48 Senior Vice President of Human Resources and Franchising Joseph J. Hollencamp 36 Senior Vice President of HomeTown Buffet Operations Charlotte L. Miller 38 Senior Vice President, General Counsel and Secretary David E. Pertl 43 Senior Vice President, Chief Financial Officer and Treasurer Ronald L. Sacks 47 Senior Vice President of Family Restaurant Operations Daniel Yanez 50 Senior Vice President of Food Services
INFORMATION ABOUT MR. MCCOMAS IS SET FORTH IN THE BOARD OF DIRECTORS SECTION OF ITEM 10 OF PART III. GARY A. BALES. Mr. Bales has been Vice President of Marketing since 1987. In February 1993, Mr. Bales was given the additional title of Vice President of Development. In April 1994, Mr. Bales' title was changed to Senior Vice President of Marketing and Development. GEORGE H. GEHLING. Mr. Gehling has been Vice President of Human Resources since November 1988. In February 1993, Mr. Gehling was given the additional title of Vice President of Franchising. In April 1994, Mr. Gehling's title was changed to Senior Vice President of Franchising and Human Resources. JOSEPH J. HOLLENCAMP. Mr. Hollencamp has been the executive responsible for HomeTown Buffet Operations since August 1991. In June 1993, Mr. Hollencamp was named Vice President of HomeTown Buffet Operations, and in April 1994, Mr. Hollencamp's title was changed to Senior Vice President. From August 1990 to August 1991, Mr. Hollencamp was a private contractor for CSI, a cable television company. CHARLOTTE L. MILLER. Ms. Miller has been Vice President, General Counsel and Secretary since November 1992. In April 1994, Ms. Miller's title was changed to Senior Vice President, General Counsel and Secretary. Prior to November 1992, Ms. Miller was an attorney with the firm of Janove & Miller from January 1992 to November 1992 and with the firm of Watkiss & Saperstein from December 1988 to January 1992. DAVID E. PERTL. Mr. Pertl has been Vice President and Chief Financial Officer of the Company since September 1989. In November 1992, Mr. Pertl was also named Treasurer. In April 1994, Mr. Pertl's title was changed to Senior Vice President, Chief Financial Officer and Treasurer. RONALD L. SACKS. Mr. Sacks joined the Company in April 1990 as Vice President of Operations. During 1989 and 1990 Mr. Sacks was Vice President of Restaurant Operations for Country Hospitality, a Carlson Company. In April 1994, Mr. Sacks' title was changed to Senior Vice President of Family Restaurant Operations. 19 21 DANIEL YANEZ. Mr. Yanez joined the Company in March 1994 as Vice President of Food Services. In April 1994, Mr. Yanez' title was changed to Senior Vice President. From 1969 to March 1994, Mr. Yanez was employed by Carrows Restaurants, Inc. in various capacities, including Food and Beverage Vice President from 1984 to March 1994. FILING OF STOCK OWNERSHIP REPORTS BY DIRECTORS AND OFFICERS Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and more than 10% shareholders to file certain reports of stock ownership with the Securities and Exchange Commission and with the National Association of Securities Dealers. These persons are also required to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of copies of the forms received by it, or on written representations from reporting persons, the Company believes that there were no late filings on Forms 3, 4 or 5, or unreported transactions, during fiscal 1995. 20 22 ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth the compensation of the Company's Chief Executive Officer in fiscal 1995 and the five named executive officers whose total annual salary and bonus exceeded $100,000 in fiscal 1995 (the "Named Executive Officers"):
Long Term Compensation Annual Compensation Awards - ------------------------------------------------------------------------------ ------------ Other Annual All Other Name and Principal Fiscal Salary Bonus Compensation Options Compensation Position Year ($) ($)(1) ($) (#) ($)(2) - ------------------ ------ --------- ------ ------------ ------- ------------ Don M. McComas 1995 $ 200,000 $- $ - 10,000 $ 2,564 President & CEO 1994 147,000(3) - 58,049 100,000 114,086 1993 - - - - - Clark D. Jones 1995 150,263(4) - - 33,000 21,045 Chairman of the Board 1994 175,000 - - 20,000 2,628 1993 168,000 - - 15,000 3,130 David E. Pertl, Senior 1995 125,000 - - 13,000 1,497 Vice President & Chief 1994 125,000 - - - 2,050 Financial Officer 1993 120,000 - - 10,000 2,337 Ronald L. Sacks, Senior 1995 118,500 - - 13,000 1,494 Vice President, Family 1994 118,500 - - 2,000 1,441 Restaurant Operations 1993 113,000 - - 10,000 1,918 Daniel Yanez, Senior 1995 115,000 - - 5,000 888 Vice President, Food 1994 62,000(5) - 7,530 30,000 54,625 Services 1993 - - - - - Gary A. Bales, Senior 1995 104,000 - - 5,000 1,394 Vice President, Marketing 1994 104,000 - - 2,000 1,616 Development 1993 100,000 - - 10,000 1,815
(1) Perquisites for each executive officer for each of the three fiscal years was less than 10% of each executive's salary and bonus combined. The amounts shown for Messrs. McComas and Yanez for fiscal 1994 are payments made as a result of taxes incurred in connection with relocation expenses paid by the Company. 21 23 (2) Of the amount shown for Mr. Jones for fiscal 1995, $15,851 is paid retirement benefits, $440 is ESOP Company contributions, $338 is 401(k) Company contributions, $666 is life insurance premiums paid by the Company and $3,750 is director fees paid to Mr. Jones as a non-employee director. Of the amount shown for Mr. McComas for fiscal 1994, $111,690 is relocation expenses and $2,396 is life insurance premiums paid by the Company on behalf of Mr. McComas. Of the amount shown for Mr. Yanez for fiscal 1994, $54,057 is relocation expenses and $568 is life insurance premiums paid by the Company on behalf of Mr. Yanez. The amounts shown for the other Named Executive Officers represent life insurance premiums paid by the Company, 401(k) Company contributions to the Named Executive Officer's account, and ESOP Company contributions to the Named Executive Officer's account. For fiscal 1995, the amounts are as follows:
Name Insurance ($) 401(k) ($) ESOP ($) ---- ------------- ---------- -------- McComas $ 2,564 $ -- $ -- Pertl 888 295 314 Sacks 888 309 298 Yanez 888 -- -- Bales 888 245 261
(3) The amount indicated is Mr. McComas' actual salary received during fiscal 1994 which is less than his annualized salary of $200,000 because his employment with the Company did not commence until January 3, 1994. (4) The amount indicated is Mr. Jones' actual salary received during fiscal 1995 which is less than his annualized salary of $175,000 because his employment with the Company ended on June 30, 1995. (5) The amount indicated is Mr. Yanez' actual salary received during fiscal 1994 which is less than his annualized salary of $115,000 because his employment with the Company did not commence until March 14, 1994. 22 24 OPTION/SAR GRANTS IN LAST FISCAL YEAR The following table sets forth information concerning individual grants of stock options made during fiscal 1995 to the Chief Executive Officer and to the Named Executive Officers:
Potential Realizable Value at Assumed Individual Grants Annual Rates of ----------------------------------------------------------- Stock Price Number of % of Total Appreciation for Securities Options Granted Exercise or Option Term (2) Underlying to Employees Base Price Expiration --------------------- Options Granted in Fiscal Year ($/Sh)(1) Date 5% ($) 10% ($) --------------- -------------- ----------- --------- ------- -------- Don M. McComas 10,000 (3) 4.7393 $4.500 01/03/05 $28,300 $ 71,718 Clark D. Jones 10,000 (4) 4.7393 5.625 10/15/04 35,375 89,648 23,000 (5) 10.9004 4.000 06/21/05 57,858 146,624 David E. Pertl 8,000 (6) 3.7914 5.625 10/11/04 28,300 71,718 5,000 (7) 2.3696 4.625 09/19/05 14,543 36,855 Ronald L. Sacks 5,000 (8) 2.3696 4.750 04/15/05 14,936 37,851 8,000 (9) 3.7914 4.500 04/19/05 22,640 57,375 Daniel Yanez 5,000 (10) 2.3696 5.625 03/15/05 17,688 44,824 Gary A. Bales 5,000 (11) 2.3696 4.750 04/13/05 14,936 37,851
(1) The exercise price is equal to the fair market value of the stock on the date of the grant. (2) All values shown are pre-tax and are rounded to the nearest whole dollar. No gain to the optionees is possible without an increase in the market price of the Company's Common Stock above the market price on the date of grant. If such increase occurs, shareholders will benefit commensurately. If no increase in the market price occurs, optionees will realize no value from stock options. (3) None of the options listed are currently exercisable. Twenty percent (20%) of the options listed will become exercisable January 3, 1996, and each year thereafter until fully vested. The options have a term of 10 years. (4) These options were canceled on June 21, 1995. (5) These are nonqualified stock options all of which are immediately exercisable. The options have a term of 10 years. (6) Twenty percent (20%) of the options listed are exercisable and an additional twenty percent (20%) will become exercisable October 11, 1996, and each year thereafter until fully vested. The options have a term of 10 years. (7) None of the options listed are currently exercisable. Twenty percent (20%) of the options listed will become exercisable September 19, 1996, and each year thereafter until fully vested. The options have a term of 10 years. 23 25 (8) None of the options listed are currently exercisable. Twenty percent (20%) of the options listed will become exercisable April 15, 1996, and each year thereafter until fully vested. The options have a term of 10 years. (9) None of the options listed are currently exercisable. Twenty percent (20%) of the options listed will become exercisable April 19, 1996, and each year thereafter until fully vested. The options have a term of 10 years. (10) None of the options listed are currently exercisable. Twenty percent (20%) of the options listed will become exercisable March 15, 1996, and each year thereafter until fully vested. The options have a term of 10 years. (11) None of the options listed are currently exercisable. Twenty percent (20%) of the options listed will become exercisable April 13, 1996, and each year thereafter until fully vested. The options have a term of 10 years. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES The following table sets forth information regarding individual exercises of stock options made during fiscal 1995 by the Chief Executive Officer and each of the Named Executive Officers:
Number of Securities Value of Unexercised Value Underlying Unexercised In-The-Money Options at Shares Acquired Realized Options at FY-End (#) FY-End ($)(1)(2) ---------- -------------------------- ------------------------- Name on Exercise (#)($)(1) Exercisable Unexercisable Exercisable Unexercisable - ----- -------------- ---------- ----------- ------------- ----------- ------------- Don M. McComas - $ - 55,000 55,000 $ - $ 1,250 Clark D. Jones - - 43,000 - 26,875 - David E. Pertl - - 16,000 19,500 - - Ronald L. Sacks - - 12,400 20,600 - 1,000 Daniel Yanez - - 12,000 23,000 - - Gary A. Bales - - 14,400 12,600 - -
(1) All values shown are pre-tax and are rounded to the nearest whole dollar. (2) Based on the 1995 fiscal year-end fair market value of $4.625 per share of Common Stock as quoted by the National Association of Securities Dealers Automated Quotation System. Directors' Compensation For serving on the Board of Directors, each director who is not an employee of the Company is paid $250 per month and $1,500 per board meeting, with no additional compensation for committee meetings if the committee meeting is held on the same day as a board meeting. Fees for committee meetings, with the exception of the Special Committee, are $500 per meeting or $750 per meeting for serving as chair. Members of the Special Committee are paid $1,000 per meeting attended in person, plus $1,000 per month to Mr. Habermann, as Chair of the Special Committee, and $250 per month to the other members of the Special Committee, as long as the Special committee is continuing its assignment. During fiscal 1995, Mr. Jones was granted nonqualified stock options to purchase 23,000 shares. Also, Mr. Habermann was granted nonqualified stock options to purchase 5,000 shares, and Messrs. Bryant, Hays, Parker, 24 26 Paternotte, Paul and Russo each were granted nonqualified stock options to purchase 2,000 shares pursuant to the Formula Grant provisions of the 1992 Stock Option Plan (the "Formula Grants"). EXECUTIVE AGREEMENTS EMPLOYMENT AGREEMENT FOR PRESIDENT AND CHIEF EXECUTIVE OFFICER The Company entered into an Employment Agreement with Don M. McComas on November 24, 1993, with a commencement date of January 3, 1994. The Employment Agreement is for a term of three years and shall automatically renew for two years on January 3, 1997, and every two years thereafter unless either party provides written notice of intent not to renew 90 days or more prior to the renewal date. Pursuant to the Employment Agreement, Mr. McComas initially received a base salary of $200,000 which will be reviewed annually, and moving and transition allowances. In addition, Mr. McComas receives an automobile allowance and participates in the Executive Incentive Compensation Plan, the Executive Long Term Incentive Plan and the 1992 Executive Long-Term Stock Award Plan. Pursuant to the Employment Agreement, the Compensation Committee granted options to Mr. McComas to purchase 75,000 shares of the Company's stock under the incentive stock option provisions of the 1992 Stock Option Plan and 25,000 shares under the nonqualified stock option provisions of the 1992 Stock Option Plan. The Employment Agreement includes a change of control provision under which Mr. McComas would be paid one dollar less than three times his annual base salary upon a change of control of the Company, and other provisions as described below. EXECUTIVE CHANGE OF CONTROL AGREEMENTS The Company has entered into agreements with the Named Executive Officers (except Messrs. Jones and McComas) providing for certain termination benefits in the event of any actual change in control of the Company. In the event the Company is acquired, a change in control of the Company occurs, or certain events likely to result in a change of control (that are enumerated in the change of control agreements) occur, the Company must pay to an escrow account one and one half times (1.5) the base salary of the participants which amount they may demand be paid to them in the event (i) the participants' employment terminates voluntarily other than for cause, disability, retirement or death during the first 90 days following the change of control, or (ii) the participants' employment terminates involuntarily other than for cause, disability, retirement or death following the change of control; provided however, the participant's right to demand such payments shall terminate upon the earlier of (a) two years after the funds have been deposited in the escrow account, or (b) one year from the date of a change of control. These agreements are dated August 17, 1995 and expire on September 30, 1996 (unless renewed), and replace prior similar agreements which have expired. Amendments to the change of control agreements dated December 1, 1995 state that in the event the merger contemplated by the Agreement and Plan of Merger and Reorganization dated November 30, 1995 between the Company and CKE Restaurants, Inc. (the "CKE Merger") is consummated, the participants may demand the amount in their escrow account be paid to them if (i) the participants' employment terminates involuntarily other than for cause, disability, retirement or death during the first 90 days following the CKE Merger, (ii) the participants' employment terminates voluntarily other than for cause, disability, retirement or death during the second 90 days following the CKE Merger, or (iii) the participants' employment terminates involuntarily other than for cause, disability, retirement or death following the CKE Merger; provided however, the participant's right to demand such payments shall terminate upon the earlier of (a) two years after the funds have been deposited in the escrow account, or (b) one year from the date of the CKE Merger. All other provisions of the change of control agreements remain as originally set forth. Mr. McComas' Employment Agreement, which is described above, contains change of control provisions that provide for payment of one dollar less than three times Mr. McComas' annual base salary upon termination of employment under similar conditions as described above for the Named Executive Officers. 25 27 RETIREMENT AGREEMENT In 1985, the Company adopted an unfunded, noncontributory Supplemental Executive Retirement Plan. No current executives participate in this plan. Six retired individuals are currently receiving payments under this plan. The Company does not intend to utilize the plan in the future for any other executives. Benefits are determined using the participant's average annual base salary of the five consecutive years during the ten-year period prior to the participant's retirement which yields the highest average ("Final Average Earnings"), and are affected by the participant's years of service and age at retirement. Actual amounts payable under this plan are reduced by benefits paid to the participant from the Company's Employee Stock Ownership Plan and 401(k) Plan. Upon his retirement, Mr. Jones received credit for fifteen years of service to the Company, which is the maximum credit allowed under the plan. When he retired on June 30, 1995, Mr. Jones' Final Average Earnings were $182,455. As of December 5, 1995, Mr. Jones' annual retirement benefit equaled $60,636, including reductions due to early retirement and due to benefits paid to Mr. Jones from the Company's Employee Stock Ownership Plan and 401(k) Plan. 26 28 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth certain information as of December 1, 1995, except as noted, with respect to the voting securities of the Company held by each person who owns of record, or is known by the Company to own beneficially, more than five percent of any class of voting securities.
Amount and Nature Title of Name and Address of of Beneficial Percent Class Beneficial Owner Ownership of Class --------- --------------------------------- ----------------- -------- Common Kennedy Capital Management, Inc. 514,000 (1)(2) 10.71% 425 North New Ballas Road St. Louis, MO 63141 Common Heartland Advisors, Inc. 512,500 (3) 10.68% 790 North Milwaukee Street Milwaukee, WI 53202 Common David L. Babson & Company, Inc. 422,500 (1)(2) 8.81% One Memorial Drive Cambridge, MA 02142 Common Dimensional Fund Advisors Inc. 315,150 (4) 6.57% 1299 Ocean Avenue, Suite 1100 Santa Monica, CA 90401 Series A ABS MB (JB) Limited Partnership 946,714 (2) 100.00% Convertible 135 East Baltimore Street Preferred Baltimore, MD 21202
(1) Holdings as of December 5, 1995. (2) The shareholder has sole voting and sole dispositive power over all shares listed. (3) As disclosed by the shareholder in a telephone conversation on December 5, 1995, as of December 5, 1995, Heartland Advisors, Inc. held sold dispositive power over all of the shares listed. Heartland Advisors, Inc. has no direct voting control over any of the shares listed; however, Heartland Group, Inc., a company advised by Heartland Advisors, Inc., has sole voting power over 430,000 of the shares listed. (4) As disclosed by the shareholder in a telephone conversation on December 5, 1995, as of September 30, 1995, Dimensional Fund Advisors Inc. held sole voting power over 211,750 shares; however, persons who are officers of Dimensional Fund Advisors Inc. also serve as officers of DFA Investment Dimensions Group Inc. (the "Fund"), and The DFA Investment Trust Company (the "Trust"), each an open-end management investment company registered under the Investment Company Act of 1940. In their capacity as officers of the Fund and the Trust, these persons vote 81,300 shares which are owned by the Fund and 22,100 shares which are owned by the Trust. Dimensional Fund Advisors Inc. holds sole dispositive power over 315,150 shares. 27 29 SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT The following table sets forth certain information as of December 1, 1995, except as noted, regarding the voting securities of the Company held by directors and the Named Executive Officers.
Amount and Nature Title of Name of of Beneficial Percent Class Beneficial Owner Ownership(1) of Class -------------- -------------------------------- --------------- ---------- Common Frederick L. Bryant 9,000 (2) (3) .19% Common Norman N. Habermann 15,000 (4) .31% Common Carl R. Hays 11,500 (5) .24% Common Clark D. Jones 106,534 (6) 2.22% Common Don M. McComas 60,000 (7) 1.25% Common Norton Parker 11,500 (5) .24% Common William L. Paternotte 14,000 (3) (8) .29% Common Ronald N. Paul 11,500 (5) .24% Common Thomas J. Russo 12,500 (5) .26% Common Gary A. Bales 21,864 (9) .46% Common David E. Pertl 25,760 (10) .54% Common Ronald L. Sacks 16,978 (11) .35% Common Daniel Yanez 15,000 (12) .31% Common Directors and Executive Officers as a Group (16 persons) 381,520 (13) 7.95%
(1) Except as indicated all shares are beneficially owned and sole voting and investment power is held by the persons named. Does not include shares issuable upon exercise of options to purchase shares unless they are exercisable within 60 days. (2) Includes 7,000 shares subject to presently exercisable options. (3) Does not include 946,714 shares of Series A Stock owned by ABS MB (JB) Limited Partnership, an entity related to Alex. Brown & Sons Incorporated, of which Messrs. Bryant and Paternotte are Managing Directors. (4) Includes 5,000 shares subject to presently exercisable options. (5) Includes 11,500 shares subject to presently exercisable options. (6) Includes 43,000 shares subject to presently exercisable options, 5,469 shares in the Employee Stock Ownership Plan and 206 shares held in Mr. Jones' IRA. 28 30 (7) Includes 55,000 shares subject to presently exercisable options. (8) Includes 14,000 shares subject to presently exercisable options. (9) Includes 15,400 shares subject to presently exercisable options, 623 shares in the Employee Stock Ownership Plan and 178 shares in the Company's 401(k) Plan. (10) Includes 18,600 shares subject to presently exercisable options, 292 shares in the Employee Stock Ownership Plan and 205 shares in the Company's 401(k) Plan. (11) Includes 13,400 shares subject to presently exercisable options, 264 shares in the Employee Stock Ownership Plan and 69 shares in the Company's 401(k) Plan. (12) Includes 12,000 shares subject to presently exercisable options. (13) Includes 277,200 shares subject to presently exercisable options, 7,029 shares in the Employee Stock Ownership Plan and 724 shares in the Company's 401(k) Plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CERTAIN TRANSACTIONS INVOLVING MANAGEMENT On October 13, 1993, the Company executed a Certificate of Designations, Preferences and Rights of Series A Stock and issued 946,714 shares of Series A Stock. The sole owner of the Series A Stock is ABS MB (JB) Limited Partnership ("ABS"), of which ABS MB Ltd. is the general partner. ABS MB Ltd. is a wholly owned subsidiary of Alex. Brown Incorporated, which also owns Alex. Brown & Sons Incorporated. Messrs. Bryant and Paternotte, two of the Company's directors, are employees of Alex. Brown & Sons Incorporated. Personal funds of Messrs. Paternotte and Bryant are invested in ABS MB II Employees Limited Partnership which is one of the limited partners of ABS. Mr. Bryant is Vice President of ABS MB Ltd. The 946,714 Series A Stock shares owned by ABS represents an approximate 16% ownership position in the Company. As a holder of Series A Stock, ABS has the right to elect two members to the Board of Directors of the Company. Messrs. Paternotte and Bryant are the current designees of ABS. The Series A Stock is nondividend bearing and is convertible to Common Stock on a one-for-one basis at the option of ABS subject to certain conditions. ABS is entitled to liquidation preferences, rights to approve certain significant corporate transactions and certain registration rights. Mr. McComas and Pam McComas, his wife, are each fifty percent shareholders in Wheels-Up Aircraft Co., an entity that owns an aircraft utilized by the Company for employee travel. The Company pays a fee to Wheels-Up Aircraft for the use of the aircraft. The amounts paid to Wheels-Up Aircraft are reasonable and competitive. During fiscal 1995 the total amount paid by the Company to Wheels-Up Aircraft was $42,000. 29 31 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The financial statements referred to below are attached as pages F-1 to F-19.
PAGE (A) (1) INDEX TO FINANCIAL STATEMENTS: NUMBER ------ Report of Independent Auditors F-1 Consolidated Balance Sheets - September 25, 1995 and September 26, 1994 F-2 Consolidated Statements of Operations - Years Ended September 25, 1995, September 26, 1994, and September 27, 1993 F-4 Consolidated Statements of Changes in Stockholders' Equity - Years Ended September 25, 1995, September 26, 1994, and September 27, 1993 F-5 Consolidated Statements of Cash Flows - Years Ended September 25, 1995, September 26, 1994, and September 27, 1993 F-6 Notes to Consolidated Financial Statements F-8
(A) (2) FINANCIAL STATEMENT SCHEDULES: All schedules to the Financial Statements for which provision is made in Article 5 of Regulation S-X are not required under related instructions, or the information is included in the Consolidated Financial Statements or notes thereto or are inapplicable and therefore have been omitted. (A) (3) EXHIBITS: The exhibits listed on the accompanying Index to Exhibits are filed as part of this Form 10-K. 30 32 EXHIBIT INDEX
Exhibit Number Description of Exhibit ------- ---------------------- 3 ARTICLES OF INCORPORATION AND BYLAWS: The following exhibits are attached to this report: 3(a) Certificate of Incorporation, dated February 21, 1985. 3(b) Bylaws, dated February 25, 1985. 3(c) Certificate of Amendment of the Certificate of Incorporation of JB's Restaurants, Inc., dated February 25, 1987. 3(1) Amendment to Bylaws, dated November 19, 1992. 3(2) Amendment to Bylaws, dated October 27, 1993. 3(3) Certificate of Ownership and Merger Merging JB's Specialty Restaurants, Inc. into JB's Restaurants, Inc., dated October 15, 1993. 3(4) Certificate of Amendment of the Certificate of Incorporation of JB's Restaurants, Inc., dated April 4, 1995. 3(5) Certificate of Change of Location of Registered Office and of Registered Agent, dated July 11, 1995. 3(6) Amendment to Bylaws, dated November 30, 1995. 4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS INCLUDING INDENTURES: The following exhibits are incorporated in this report by reference from identically numbered exhibits to Annual Reports on Form 10-K previously filed by the Company: 4(c)(2) Undertaking to furnish to the Securities and Exchange Commission Long-Term Debt Agreements dated December 22, 1986. 4(f)(g)(h)(3) Note Purchase Agreements between the Company and The Canada Life Assurance Co., Security Mutual Group, and Crown Life Insurance Company, and Warrants for Common Stock held by The Canada Life Assurance Co., Security Mutual Group, and Crown Life Insurance Company, dated September 1, 1987. 4(1)(7) First Amendment to Note Purchase Agreements between the Company and The Canada Life Assurance Co., Security Mutual Group and Crown Life Insurance Company, and Warrants for Common Stock held by The Canada Life Assurance Co., Security Mutual Group and Crown Life Insurance Company, dated April 30, 1992.
31 33 4(2)(8) Second Amendment to Note Purchase Agreement between the Company and Crown Life Insurance Company, The Canada Life Assurance Company and Security Mutual Life Insurance Company (formerly known as Security Mutual Group), dated October 26, 1993. 4(3)(8) Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of the Company, dated October 11, 1993. 4(4)(8) Registration Rights Agreement by the Company for the benefit of ABS MB (JB) Limited Partnership, dated October 27, 1993. 10 MATERIAL CONTRACTS: The following exhibits are incorporated in this report by reference from identically numbered exhibits to Annual Reports on Form 10-K previously filed by the Company: *10(a)(1) JB's Supplemental Executive Retirement Plan, adopted 1985. *10(7)(3) 1987 Non-Qualified Stock Option Plan and form of Agreement, adopted February 13, 1987. *10(8)(3) 1987 Employee Incentive Stock Option Plan and form of Agreement adopted April 21, 1987. *10(9)(3) 1984 Incentive Stock Option Plan as Amended on February 13, 1987, and form of Agreement. *10(i)(5) Amendment to 1984 and 1987 Incentive Stock Option Plans dated July 16, 1990. 10(dd)(6) Multiple Unit Agreement between HTB Restaurants, Inc., a wholly-owned subsidiary of the Company, and HomeTown Buffet, Inc. dated October 9, 1991 effective November 25, 1991. 10(19)(7) First Amendment to Multiple Unit Agreement dated October 9, 1991 between HTB Restaurants, Inc., a wholly-owned subsidiary of the Company, and HomeTown Buffet, Inc. dated January 3, 1992. 10(20)(7) Second Amendment to the Multiple Unit Agreement dated October 9, 1991 between HTB Restaurants, Inc. a wholly-owned subsidiary of the Company, and HomeTown Buffet, Inc. dated June 23, 1992. *10(22)(7) 1992 Stock Option Plan and Form of Agreement adopted September 24, 1992. *10(23)(7) 1992 Executive Long-Term Stock Award Plan and Form of Agreement, adopted by the Board of Directors of the Company dated September 24, 1992.
32 34 *10(32)(8) Employment Agreement between the Company and Don M. McComas dated November 24, 1993. 10(33)(8) Letter Agreement amending the Multiple Unit Agreement, dated October 9, 1991 between HTB Restaurants, Inc., a wholly-owned subsidiary of the Company and HomeTown Buffet, Inc. dated November 30, 1993. 10(34)(9) Note Cancellation Agreement and Release between the Company and M. Robert Davis and Kathleen Davis dated August 5, 1994. *10(35)(9) Form of Agreement between the Company and David E. Pertl, Gary A. Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez, Charlotte L. Miller and Joseph J. Hollencamp for certain severance benefits in the event of a change in control of the Company, dated November 18, 1994. *10(37)(9) Fiscal Year 1995 Executive Incentive Compensation Plan. 10(38)(9) Underwriting Agreement dated March 23, 1994 between the Company, HomeTown Buffet, Inc. , other selling shareholders, and Montgomery Securities. 10(39)(9) Letter dated March 1, 1994 between the Company and Crown Life Insurance Company, Canada Life Assurance Company and Security Mutual Group regarding prepayment of notes outstanding by the Company. *10(40)(9) Executive Long Term Incentive Plan approved by the Board of Directors on April 8, 1994. *10(41)(9) 1992 Stock Option Plan as amended on April 8, 1994 and November 18, 1994. The following exhibits are attached to this report: 10(42) Letter Agreement amending the Multiple Unit Agreement, dated October 9, 1991, as amended January 3, 1992, June 23, 1992 and November 30, 1993, between HTB Restaurants, Inc., a wholly-owned subsidiary of the Company and HomeTown Buffet, Inc., dated July 20, 1995. *10(43) Form of Agreement between the Company and David E. Pertl, Gary A. Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez, Charlotte L. Miller and Joseph J. Hollencamp for certain benefits in the event of a change in control of the company, dated August 17, 1995. *10(44) Fiscal 1996 Executive Incentive Compensation Plan. *10(45) Separation Compensation Plan adopted by the Board of Directors, effective as of September 25, 1995.
33 35 *10(46) Letter Agreement dated January 4, 1995, between the Company and Joseph J. Hollencamp for certain benefits in the event of the sale of HTB Restaurants, Inc., or all of its assets. 10(47) Agreement and Plan of Merger and Reorganization between the Company and CKE Restaurants, Inc., dated November 30, 1995. *10(48) Form of Amendment to Agreements, dated August 17, 1995, between the Company and David E. Pertl, Gary A. Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez, Charlotte L. Miller and Joseph J. Hollencamp for certain benefits in the event of a change in control of the company, dated December 1, 1995. 11 COMPUTATION OF PER SHARE INCOME (LOSS). 22 SUBSIDIARIES OF THE COMPANY. 24 CONSENT OF KPMG PEAT MARWICK LLP. RE: FORM S-8 NO. 2-99014; NO. 33-18431; NO. 33-17363; NO. 33-62150; NO. 33-62152; NO. 33-99144. 27 FINANCIAL DATA SCHEDULE.
*This exhibit is a compensatory plan or management contract filed pursuant to Item 14(c) of Form 10-K. 34 36 (B) REPORTS ON FORM 8-K: The Company has not filed any report on Form 8-K for the quarter ended September 25, 1995. (C) EXHIBITS: Exhibits required to be filed in response to this paragraph of Item 14 are listed above in subparagraph (a)(3). (D) FINANCIAL STATEMENT SCHEDULES: Schedules and report thereon by independent auditors required to be filed in response to this paragraph of Item 14 are listed above in subparagraph (a)(2). - -------------- 1 Previously filed with the Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended September 29, 1985 and is incorporated herein by reference. 2 Previously filed with the Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended September 28, 1986 and is incorporated herein by reference. 3 Previously filed with the Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended September 27, 1987 and is incorporated herein by reference. 4 Previously filed with the Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended September 25, 1988 and is incorporated herein by reference. 5 Previously filed with the Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended September 24, 1990 and is incorporated herein by reference. 6 Previously filed with the Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended September 30, 1991 and is incorporated herein by reference. 7 Previously filed with the Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended September 28, 1992 and is incorporated herein by reference. 8 Previously filed with the Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended September 27, 1993 and is incorporated herein by reference. 9 Previously filed with the Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended September 26, 1994 and is incorporated herein by reference. 35 37 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SUMMIT FAMILY RESTAURANTS INC. (Registrant) December 20, 1995 By: /s/ Don M. McComas --------------------------------------- Don M. McComas President and Chief Executive Officer (principal executive officer) December 20, 1995 By: /s/ David E. Pertl --------------------------------------- David E. Pertl Senior Vice President, Chief Financial Officer, and Treasurer (principal financial officer) December 20, 1995 By: /s/ Theodore Abajian --------------------------------------- Theodore Abajian Vice President and Controller (principal accounting officer) Pursuant to the requirements of the Securities Exchange Act of l934, 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/ Clark D. Jones Chairman of the Board December 20, 1995 - -------------------------------------------- Clark D. Jones /s/ Don M. McComas President, Chief Executive December 20, 1995 - -------------------------------------------- Officer and Director Don M. McComas /s/ Frederick L. Bryant Director December 20, 1995 - -------------------------------------------- Frederick L. Bryant /s/ Norman N. Habermann Director December 20 1995 - -------------------------------------------- Norman N. Habermann /s/ Carl R. Hays Director December 20, 1995 - ------------------------------------------- Carl R. Hays /s/ Norton Parker Director December 20, 1995 - -------------------------------------------- Norton Parker /s/ William L. Paternotte Director December 20, 1995 - ------------------------------------------- William L. Paternotte /s/ Ronald N. Paul Director December 20, 1995 - -------------------------------------------- Ronald N. Paul /s/ Thomas J. Russo Director December 20, 1995 - -------------------------------------------- Thomas J. Russo
36 38 REPORT OF INDEPENDENT AUDITORS The Stockholders and Board of Directors of Summit Family Restaurants Inc., Salt Lake City, Utah We have audited the accompanying consolidated balance sheets of Summit Family Restaurants Inc. and subsidiaries as of September 25, 1995 and September 26, 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended September 25, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Summit Family Restaurants Inc. and subsidiaries as of September 25, 1995 and September 26, 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended September 25, 1995, in conformity with generally accepted accounting principles. As discussed in notes 1 and 6 to the consolidated financial statements, the Company changed its method of accounting for investments to adopt the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" during the first quarter of fiscal 1994. /s/ KPMG Peat Marwick LLP - -------------------------------------- KPMG Peat Marwick LLP Salt Lake City, Utah November 3, 1995, except as to Note 15 which is as of December 11, 1995. F-1 39
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS SEPTEMBER 25, 1995 SEPTEMBER 26, 1994 - ----------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 1,911,000 $ 5,303,000 Short-term investments 180,000 2,160,000 Receivables Short-term portion of notes receivable - Note 4 190,000 173,000 Other receivables 1,898,000 3,404,000 Inventories 1,411,000 1,386,000 Deferred Taxes, net - Note 9 76,000 78,000 Prepaid expenses 199,000 309,000 - ----------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 5,865,000 12,813,000 - ----------------------------------------------------------------------------------------------------------------- PROPERTY, BUILDINGS AND EQUIPMENT, AT COST, LESS ACCUMULATED DEPRECIATION AND AMORTIZATION - NOTES 2 & 7 46,797,000 45,672,000 - ----------------------------------------------------------------------------------------------------------------- REAL PROPERTY AND EQUIPMENT UNDER CAPITALIZED LEASES AT COST, LESS ACCUMULATED AMORTIZATION - NOTES 2, 7 & 8 6,731,000 7,480,000 - ----------------------------------------------------------------------------------------------------------------- OTHER ASSETS Notes receivable, net of current portion - Note 4 2,696,000 2,580,000 Investment in HomeTown Buffet, Inc. - Note 6 6,999,000 5,678,000 Deposits and other 647,000 986,000 - ----------------------------------------------------------------------------------------------------------------- TOTAL OTHER ASSETS 10,342,000 9,244,000 - ----------------------------------------------------------------------------------------------------------------- INTANGIBLE ASSET, AT COST, LESS ACCUMULATED AMORTIZATION Lease acquisition costs 414,000 569,000 Other intangible assets 735,000 830,000 - ----------------------------------------------------------------------------------------------------------------- TOTAL INTANGIBLE ASSETS 1,149,000 1,399,000 - ----------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $70,884,000 $76,608,000 - -----------------------------------------------------------------------------------------------------------------
F-2 40
LIABILITIES & STOCKHOLDERS' EQUITY SEPTEMBER 25, 1995 SEPTEMBER 26, 1994 - --------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable - trade $ 6,772,000 $ 6,874,000 Accrued liabilities Payroll and related taxes 3,334,000 2,764,000 Sales and property taxes 2,071,000 1,855,000 Rent and other 2,045,000 2,762,000 Current maturities of long-term debt - Note 7 2,928,000 1,960,000 - ---------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 17,150,000 16,215,000 - ---------------------------------------------------------------------------------------------------- LONG-TERM DEBT, NET OF CURRENT MATURITIES- NOTES 6, 7 & 8 Capitalized real property and equipment leases 9,795,000 10,609,000 Notes payable 355,000 2,484,000 - ---------------------------------------------------------------------------------------------------- TOTAL LONG-TERM DEBT 10,150,000 13,093,000 - ---------------------------------------------------------------------------------------------------- DEFERRED TAXES, NET - NOTE 9 1,877,000 1,376,000 - ---------------------------------------------------------------------------------------------------- DEFERRED COMPENSATION - NOTE 11 1,580,000 1,588,000 - ---------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES - NOTES 8, 14 & 15 STOCKHOLDERS' EQUITY - NOTES 6, 7, 10, 11 & 12 Preferred stock, $1 par value; 1,000,000 shares authorized; 946,714 issued and outstanding 947,000 947,000 Junior common stock; $.01 par value; 500,000 shares authorized; none outstanding -- -- Common stock, $.10 par value; 10,000,000 shared authorized; 4,798,102 and 5,288,759 shared issued 480,000 529,000 Additional paid-in capital 26,389,000 29,581,000 Unrealized gain on investment in HomeTown Buffet, Inc., net of tax 3,565,000 2,773,000 Retained earnings 8,746,000 13,790,000 - ---------------------------------------------------------------------------------------------------- 40,127,000 47,620,000 Less: 500,000 common stock treasury shares in 1994 at cost -- 3,284,000 - ---------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 40,127,000 44,336,000 - ---------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $70,884,000 $76,608,000 - ----------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-3 41
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 25, 1995 SEPTEMBER 26, 1994 SEPTEMBER 27, 1993 - ----------------------------------------------------------------------------------------------------------------- TOTAL REVENUES $121,099,000 $115,367,000 $114,768,000 - ----------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES: Food costs 40,018,000 37,678,000 36,610,000 Labor costs 42,376,000 40,280,000 38,233,000 Occupancy and other expenses 28,809,000 26,846,000 26,168,000 General and administrative expenses 8,363,000 8,157,000 7,486,000 Depreciation and amortization 6,585,000 6,065,000 6,658,000 Charge for property dispositions - Note 5 -- 1,982,000 4,264,000 - ----------------------------------------------------------------------------------------------------------------- TOTAL COSTS AND EXPENSES 126,151,000 121,008,000 119,419,000 - ----------------------------------------------------------------------------------------------------------------- LOSS FROM OPERATIONS (5,052,000) (5,641,000) (4,651,000) - ----------------------------------------------------------------------------------------------------------------- INTEREST AND OTHER INCOME (EXPENSE): Interest expense (1,535,000) (1,967,000) (2,486,000) Interest income 452,000 668,000 487,000 Gain on sale of HomeTown Buffet, Inc. stock - Note 6 -- 14,700,000 1,727,000 Gains on sales of restaurants to franchisees and other 38,000 630,000 1,126,000 Loss on disposition of note receivable - Note 4 -- (1,564,000) -- - ----------------------------------------------------------------------------------------------------------------- TOTAL INTEREST AND OTHER INCOME (EXPENSE) (1,045,000) 12,467,000 854,000 - ----------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (6,097,000) 6,826,000 (3,797,000) - ----------------------------------------------------------------------------------------------------------------- INCOME TAXES (BENEFIT) - NOTE 9 Current (1,028,000) 2,413,000 (369,000) Deferred (25,000) 307,000 (1,114,000) - ----------------------------------------------------------------------------------------------------------------- TOTAL INCOME TAXES (BENEFIT) (1,053,000) 2,720,000 (1,483,000) - ----------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (5,044,000) 4,106,000 (2,314,000) - ----------------------------------------------------------------------------------------------------------------- EXTRAORDINARY LOSS RESULTING FROM EXTINGUISHMENT OF DEBT (LESS TAX BENEFIT OF $233,000) - NOTE 7 -- 350,000 -- - ----------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ (5,044,000) $ 3,756,000 $ (2,314,000) - ----------------------------------------------------------------------------------------------------------------- Net income (loss) per common share before extraordinary loss $ (1.05) $ 0.72 $ (0.49) Extraordinary loss from early extinguishment of debt, net of tax benefit -- (0.06) -- - ----------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) PER COMMON SHARE $ (1.05) $ 0.66 $ (0.49) - ----------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING 4,794,000 5,723,000 4,693,000 - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-4 42 SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL PREFERRED STOCK COMMON STOCK PAID-IN UNREALIZED RETAINED SHARES PAR VALUE SHARES PAR VALUE CAPITAL GAIN EARNINGS - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, SEPTEMBER 28, 1992 -- $ -- 5,097,388 $510,000 $24,582,000 $ -- $12,348,000 Common stock issued Under options -- -- 164,730 17,000 772,000 -- -- Common stock redeemed and retired -- -- (6,359) (1,000) (32,000) -- -- Net loss -- -- -- -- (2,314,000) - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, SEPTEMBER 27, 1993 -- -- 5,255,759 526,000 25,322,000 -- 10,034,000 Common stock issued Under options -- -- 33,000 3,000 162,000 -- -- Preferred stock issued 946,714 947,000 -- -- 4,097,000 -- -- Unrealized gain on investment in HomeTown Buffet, Inc., net of tax -- -- -- -- -- 2,773,000 -- Net income -- -- -- -- -- -- 3,756,000 - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, SEPTEMBER 26, 1994 946,714 947,000 5,288,759 529,000 29,581,000 2,773,000 13,790,000 Common stock contributed to employee benefit plan -- -- 4,801 -- 13,000 -- -- Treasury stock retired -- -- (495,458) (49,000) (3,205,000) -- -- Unrealized gain on investment in HomeTown Buffet, Inc., net of tax -- -- -- -- -- 792,000 -- Net income -- -- -- -- -- -- (5,044,000) - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, SEPTEMBER 25, 1995 946,714 $947,000 4,798,102 $480,000 $26,389,000 $3,565,000 $ 8,746,000 ================================================================================================================================
TREASURY STOCK TOTAL - ----------------------------------------------------------------------- BALANCE, SEPTEMBER 28, 1992 $(3,284,000) $34,156,000 Common stock issued Under options -- 789,000 Common stock redeemed and retired -- (33,000) Net loss -- (2,314,000) - ----------------------------------------------------------------------- BALANCE, SEPTEMBER 27, 1993 (3,284,000) 32,598,000 Common stock issued Under options -- 165,000 Preferred stock issued -- 5,044,000 Unrealized gain on investment in HomeTown Buffet, Inc., net of tax -- 2,773,000 Net income -- 3,756,000 - ----------------------------------------------------------------------- BALANCE, SEPTEMBER 26, 1994 (3,284,000) 44,336,000 Common stock contributed to employee benefit plan 30,000 43,000 Treasury stock retired 3,254,000 -- Unrealized gain on investment in HomeTown Buffet, Inc., net of tax -- 792,000 Net income -- (5,044,000) - ----------------------------------------------------------------------- BALANCE, SEPTEMBER 25, 1995 $ -- $40,127,000 =======================================================================
See accompanying notes to consolidated financial statements. F-5 43 SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 25, 1995 SEPTEMBER 26, 1994 SEPTEMBER 27, 1993 - ----------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (5,044,000) $ 3,756,000 $ (2,314,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 6,585,000 6,065,000 6,658,000 Charge for property dispositions -- 1,982,000 4,264,000 Provision for losses -- 1,697,000 108,000 Loss on extinguishment of debt -- 583,000 -- (Gain) loss on disposal of assets 209,000 (592,000) (346,000) Gain on sale of HomeTown Buffet, Inc. stock -- (14,700,000) (1,727,000) Change in operating assets and liabilities Decrease (increase) in receivables 1,561,000 399,000 (1,230,000) Decrease (increase) in inventories (25,000) (72,000) 70,000 Decrease (increase) in other assets 449,000 (338,000) 296,000 Increase (decrease) in accounts payable (102,000) 1,910,000 292,000 Increase (decrease) in accrued liabilities 319,000 475,000 (731,000) Increase (decrease) in net deferred taxes (2,000) 308,000 (1,114,000) - ----------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,950,000 1,473,000 4,226,000 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of HomeTown Buffet, Inc. stock -- 16,814,000 2,500,000 Payments received on notes receivables 135,000 2,580,000 297,000 Proceeds from sale of assets 3,028,000 1,865,000 2,762,000 Proceeds from sale of short-term investments 1,980,000 -- -- Purchase of short-term investments -- (2,160,000) -- Exercise of options in HomeTown Buffet, Inc. stock -- (120,000) -- Acquisition of intangible assets (45,000) (362,000) (222,000) Acquisition of property, buildings and equipment (10,620,000) (13,935,000) (4,798,000) - ----------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (5,522,000) 4,682,000 539,000 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under line-of-credit agreement 815,000 -- 28,325,000 Payments under line-of-credit agreement (815,000) (762,000) (29,650,000) ------------ ------------ ----------- Net payments on revolving line-of-credit -- (762,000) (1,325,000) Proceeds from issuance of preferred stock -- 5,044,000 -- Proceeds from issuance of common stock, net of redemptions -- 165,000 756,000 Principal payments on long-term debt and capital leases (1,820,000) (6,965,000) (5,354,000) - ----------------------------------------------------------------------------------------------------------------------- NET CASH USED BY FINANCING ACTIVITIES (1,820,000) (2,518,000) (5,923,000) - ----------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (3,392,000) 3,637,000 (1,158,000) Cash and cash equivalents at beginning of year 5,303,000 1,666,000 2,824,000 - ----------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,911,000 $ 5,303,000 $ 1,666,000 =======================================================================================================================
F-6 44 SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
YEARS ENDED SEPTEMBER 25, 1995 SEPTEMBER 26, 1994 SEPTEMBER 27, 1993 - --------------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information Cash paid for interest $ 1,535,000 $ 2,055,000 $ 2,552,000 Cash paid for income taxes 1,000 3,839,000 106,000 - --------------------------------------------------------------------------------------------------------------------- $ 1,536,000 $ 5,894,000 $ 2,658,000 ===================================================================================================================== Supplemental schedule of noncash investing and financing activities Debt incurred for acquisition of property, buildings and equipment $ -- $ -- $ 1,439,000 Notes and other receivables from sale of inventory, property and equipment -- 830,000 2,242,000 - --------------------------------------------------------------------------------------------------------------------- $ -- $ 830,000 $ 3,681,000 ===================================================================================================================== During each of the fiscal years, stores were sold to franchisees and notes receivable were recorded in exchange for equipment as follows - Note 4: Notes receivable $ 377,000 $ 647,000 $ 1,226,000 Gain recognized (38,000) (630,000) (1,073,000) Gain deferred (207,000) -- -- Cash received 98,000 157,000 312,000 - --------------------------------------------------------------------------------------------------------------------- Net book value of equipment sold $ 230,000 $ 174,000 $ 465,000 =====================================================================================================================
See accompanying notes to consolidated financial statements. F-7 45 SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of Summit Family Restaurants Inc. and its wholly owned subsidiaries (the "Company"). All intercompany accounts and transactions have been eliminated in consolidation. FISCAL YEAR The Company utilizes a 52/53 week fiscal year which ends on the last Monday in September. Fiscal years 1995, 1994 and 1993 contain 52 weeks. INVENTORIES Inventories consist of food, beverages and restaurant supplies and are valued at the lower of cost, determined by the first-in first-out method, or market. INVESTMENT SECURITIES The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" during the first quarter of fiscal 1994. As discussed in Note 6, the Company's investment in HomeTown Buffet, Inc. common stock is treated as an available-for-sale security and is reported at fair market value in the accompanying consolidated balance sheets. Unrealized holding gains are shown as a separate component of stockholders equity, net of tax. Short term investments in the accompanying consolidated balance sheets (consisting primarily of certificates of deposits, with original maturities of greater than three months) represent held-to-maturity securities, and accordingly, have been stated at their cost. PROPERTY, BUILDINGS AND EQUIPMENT Property, buildings and equipment and real property under capitalized leases are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the following useful lives: buildings and leaseholds - lesser of lease life or 20 years; equipment - 5 to 8 years; capitalized leases - lesser of lease life or 20 years. INTANGIBLE ASSETS Lease acquisition costs are amortized using the straight-line method over the remaining terms of the leases, which range from 3-1/2 to 25 years. Other intangible assets are amortized using the straight-line method over the estimated period of value, which ranges from 1 to 40 years. Accumulated amortization totaled $1,913,000 and $1,901,000 in fiscal years 1995 and 1994, respectively. PRE-OPENING COSTS Pre-opening costs, which represent expenses incurred for hiring and training personnel relating to new restaurants and expenses for promotion of new store openings, are capitalized and amortized over the restaurant's first year of operation. F-8 46 FRANCHISING REVENUES AND EXPENSES The Company is a franchisor of JB's Restaurants and a franchisee of HomeTown Buffet restaurants. Gains or losses on Company operated JB's Restaurants sold to franchisees are recognized as a gain or loss in the period the transaction is completed provided the down payment received from the franchisee represents 20% or more of the total purchase price. Otherwise, the gain or loss is deferred and recognized over the period of the franchise agreement. Initial franchise fees received are recognized as revenue in the period the franchised restaurant opens. Franchise royalty revenues and all franchising costs are recognized on the accrual basis. Initial franchise fee payments related to HomeTown Buffet restaurants are amortized using the straight-line method over the life of the franchise agreement. Royalty costs and all other franchise costs are recognized as expense on the accrual basis. PROPERTY DISPOSITIONS Assets which have been identified for closure and held for sale are written down to management's best estimate of realizable value, including related costs of disposition. CASH EQUIVALENTS Cash equivalents consist of short-term liquid assets with original maturities of 3 months or less. INCOME TAXES Income taxes are recorded using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. A reserve is recorded for net deferred tax assets that may not be realized in the future. NET INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share is computed using the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during each period. PRESENTATION Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the current year presentation. F-9 47 2. PROPERTY, BUILDINGS AND EQUIPMENT AND REAL PROPERTY UNDER CAPITALIZED LEASES The components of property, buildings and equipment and real property under capitalized leases are as follows:
SEPTEMBER 25, September 26, 1995 1994 - ------------------------------------------------------------------------------------- Property, buildings and equipment Land $ 5,263,000 $ 5,705,000 Buildings and leasehold improvements 44,023,000 42,653,000 Equipment 34,017,000 34,734,000 - ------------------------------------------------------------------------------------- 83,303,000 83,092,000 Less accumulated depreciation and amortization 36,506,000 37,420,000 - ------------------------------------------------------------------------------------- $46,797,000 $ 45,672,000 ===================================================================================== Real property under capitalized leases, net $15,872,000 $ 16,055,000 Less accumulated amortization 9,141,000 8,575,000 - ------------------------------------------------------------------------------------- $ 6,731,000 $ 7,480,000 =====================================================================================
3. OTHER RECEIVABLES The components of other receivables are as follows:
SEPTEMBER 25, September 26, 1995 1994 - ------------------------------------------------------------------------------------ Income taxes $1,189,000 $2,045,000 Landlord receivables -- 830,000 Franchise royalties and rents 326,000 142,000 Other 383,000 387,000 - ------------------------------------------------------------------------------------ $1,898,000 $3,404,000 ====================================================================================
4. NOTES RECEIVABLE Notes receivable consist of amounts due from corporations and individuals resulting primarily from the sale of property, buildings and equipment. The components of notes receivable are as follows:
SEPTEMBER 25, September 26, 1995 1994 - --------------------------------------------------------------------------------------- Sales of restaurants to franchisees $ 2,399,000 $ 2,254,000 Net investment in direct financing lease 487,000 499,000 - --------------------------------------------------------------------------------------- 2,886,000 2,753,000 Less short-term portion 190,000 173,000 - --------------------------------------------------------------------------------------- $ 2,696,000 $ 2,580,000 =======================================================================================
In August 1994, the Company accepted $2.5 million as full repayment of the note receivable related to the sale of a combined restaurant and motel, resulting in a loss of $1,564,000. The note had a principal and accrued interest balance of $4.1 million and was due in October 1994. The Company had received no payments on the note since January 1994 and elected to accept the lesser payment to eliminate the risks of collection of the full amount and to generate cash for use in restaurant operations. The Company has 14 notes relating to the sales of restaurants to franchisees which are unsecured or secured by receivables, inventory and equipment. Eleven of the notes bear interest at 10.0%. Two notes bear interest at prime plus 3.0% and another bears interest at prime plus 0.5%. Payments are made using a 15-year F-10 48 amortization with 13 of the notes having a 5-year balloon payment and the other note having a 10-year balloon payment. During 1991, the Company entered into a lease with a franchisee on the land and building for a new JB's Restaurant. The Company's net investment in the direct financing lease is as follows:
SEPTEMBER 25, September 26, 1995 1994 - -------------------------------------------------------------------------------------- Future minimum lease payments receivable $ 913,000 $ 975,000 Less unearned income 426,000 476,000 - -------------------------------------------------------------------------------------- Investment in direct financing lease, net 487,000 499,000 Less current portion 12,000 12,000 - -------------------------------------------------------------------------------------- $ 475,000 $ 487,000 ======================================================================================
At September 25, 1995, future minimum lease payments are as follows: $61,000 in 1996, $61,000 in 1997, $61,000 in 1998, $61,000 in 1999, $61,000 in 2000 and $608,000 thereafter. 5. CHARGE FOR PROPERTY DISPOSITIONS In 1994, the charge for property dispositions of $1,982,000 is primarily related to the disposition of certain JB's Restaurants. The charge of $4,264,000 for 1993 is primarily related to the disposition of certain JB's Restaurants, Sbarro restaurants, and the termination of its exclusive area development rights with Sbarro, Inc. 6. INVESTMENT IN HOMETOWN BUFFET, INC. In November 1991, the Company invested $3.8 million with Americana Entertainment Group, Inc., the predecessor of HomeTown Buffet, Inc. ("HTBB"), in exchange for 1,266,667 shares of convertible preferred stock. In July 1993, the Company sold 250,000 shares of its preferred stock investment in HTBB for $2.5 million, resulting in a pre-tax gain of $1.7 million. In the fourth quarter of fiscal 1993, HTBB concluded an initial public offering ("IPO") of its common stock and commenced trading on NASDAQ under the symbol HTBB. At the completion of the IPO the outstanding preferred stock automatically was converted to common stock. During the second quarter of fiscal 1994, the Company exercised its option to purchase 60,000 shares of HTBB common stock and HTBB announced a three for two stock split increasing the Company's ownership of HTBB common stock to 1,585,000 shares. In the third quarter of fiscal 1994, the Company sold 1,056,780 shares of HTBB common stock as a selling shareholder in HTBB's secondary public offering for $16.8 million resulting in a pre-tax gain of $14.7 million. The Company's remaining 528,220 shares of HTBB common stock at September 25, 1995, is pledged as security on certain notes payable (see notes 7 and 15). On September 27, 1993, the Company reported its investment in HTBB at cost. During the first quarter of fiscal 1994, the Company elected early adoption of Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities". In accordance with SFAS No. 115, the Company's investment in the common stock of HTBB meets the definition of available-for-sale securities and, as such, is reported at fair value. On September 25, 1995 and November 3, 1995, the estimated fair value of the Company's 528,220 shares of HTBB common stock was $13.25 and $12.88 per share or $7.0 million and $6.8 million respectively. The unrealized gain of $3.6 million (net of tax) at the fiscal 1995 year-end is recorded as a separate component of stockholders' equity. In addition, the Company has a franchise and exclusive area development agreement with HTBB, under which, as amended, the Company has the exclusive rights to develop and operate HomeTown Buffet restaurants, as a franchisee, in eight western states. Under the terms of the agreement, the Company is required to open a minimum of 17 HomeTown Buffet restaurants in these states prior to June 30, 1996, and open an additional 5 HomeTown Buffet restaurants prior to December 31, 1996. F-11 49 7. LONG-TERM DEBT
Long-term debt consists of: SEPTEMBER 25, September 26, 1995 1994 - --------------------------------------------------------------------------------------------------------- Debt secured by land, buildings, equipment and investment in HomeTown Buffet, Inc.: Note payable to a bank in monthly installments through June 1997, interest at 9.13% per annum $ 1,742,000 $ 2,612,000 Note payable to a bank in monthly installments through January 1997, interest at 8.5% per annum 453,000 747,000 Capitalized real property and equipment lease obligations payable in monthly installments through 2013, interest at 8.9% to 13.9% 10,485,000 11,249,000 Other notes payable to individuals, financial institutions and other companies in monthly, quarterly, and annual installments through 2004, interest at 8.25% to 13.5%; unsecured or secured by land, buildings, and equipment 398,000 445,000 - --------------------------------------------------------------------------------------------------------- 13,078,000 15,053,000 Less current maturities 2,928,000 1,960,000 - --------------------------------------------------------------------------------------------------------- $ 10,150,000 $ 13,093,000 =========================================================================================================
Annual aggregate maturities of long-term debt, including obligations under capitalized leases, are as follows: $2,928,000 in 1996; $799,000 in 1997; $848,000 in 1998; $863,000 in 1999; $918,000 in 2000; and $6,722,000 thereafter. On April 1, 1994, the Company used $5.1 million of the proceeds from the sale of HTBB common stock to prepay outstanding 11.1% interest bearing debt payable to financial institutions. The $5.1 million payment included a prepayment premium of $442,000 and $85,000 of accrued interest. The $442,000 prepayment premium combined with the write-off of unamortized loan acquisition costs of $141,000 are recorded as an extraordinary loss on extinguishment of debt of $350,000, net of tax, in the accompanying 1994 consolidated statements of operations. In connection with the issuance of certain secured notes payable to financial institutions, the Company issued 8,000 nondetachable warrants, with each warrant consisting of an option to purchase, as adjusted, 27.4 shares of the Company's common stock. The warrants are exercisable until July 30, 1996 at $203.25 per warrant ($7.42 per share of common stock). As of September 25, 1995, no warrants had been exercised. 8. LONG-TERM LEASES The Company occupies certain of its restaurants under long-term leases expiring at various dates through 2035. Most restaurant leases have renewal options for terms of five to twenty years, and substantially all require the payment of real estate taxes and insurance. Certain of the leases provide for rent to be the greater of a stipulated minimum rent or a specified percentage of sales. Rent expense for fiscal years 1995, 1994 and 1993, was $6,942,000, $5,938,000, and $5,696,000, respectively. Contingent rentals measured as a percentage of sales, included in rent expense for fiscal years 1995, 1994 and 1993 were $292,000, $615,000, and $706,000, respectively. F-12 50 Future aggregate minimum rental payments on noncancellable leases as of September 25, 1995, exclusive of taxes, insurance and percentage rentals based on sales are as follows:
FURNITURE FIXTURES & TYPE OF PROPERTY REAL PROPERTY EQUIPMENT - -------------------------------------------------------------------------------------------------- Year Ended Capital Operating Operating - -------------------------------------------------------------------------------------------------- 1996 $ 1,837,000 $ 5,342,000 $ 1,556,000 1997 1,817,000 5,291,000 1,187,000 1998 1,776,000 5,115,000 1,050,000 1999 1,731,000 4,915,000 654,000 2000 1,728,000 4,783,000 74,000 Aggregate thereafter 9,863,000 37,853,000 -- - -------------------------------------------------------------------------------------------------- Total minimum lease payments 18,752,000 $63,299,000 $ 4,521,000 =================================== Less amount representing interest (8,267,000) - -------------------------------------------------------- Present value of minimum lease payments $10,485,000 ========================================================
Gains related to sale and leaseback transactions have been deferred for financial reporting purposes and are being amortized over the term of the leases. Deferred gains of $560,000 at September 25, 1995 and $620,000 at September 26, 1994 are reflected as a reduction of real property under capitalized leases in the accompanying consolidated financial statements. F-13 51 9. INCOME TAXES The income tax expense (benefit) consists of the following:
CURRENT DEFERRED TOTAL - ---------------------------------------------------------------------------------------------- Year ended September 25, 1995 U.S. federal $ (950,000) $ (22,000) $ (972,000) State and local (78,000) (3,000) (81,000) - ---------------------------------------------------------------------------------------------- $(1,028,000) $ (25,000) $(1,053,000) ============================================================================================== Year ended September 26, 1994 U.S. federal $ 2,026,000 $ 258,000 $ 2,284,000 State and local 387,000 49,000 436,000 - ---------------------------------------------------------------------------------------------- $ 2,413,000 $ 307,000 $ 2,720,000 ============================================================================================== Year ended September 27, 1993 U.S. federal $ (310,000) $ (935,000) $(1,245,000) State and local (59,000) (179,000) (238,000) - ---------------------------------------------------------------------------------------------- $ (369,000) $(1,114,000) $(1,483,000) ==============================================================================================
The income tax expense (benefit) attributable to income (loss) before income taxes and extraordinary item differs from the amounts computed by applying the U.S. federal statutory tax rate as follows:
September 25, September 26, September 27, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Computed "expected" income tax expense (benefit) $(2,073,000) $ 2,321,000 $(1,291,000) State Income Taxes (81,000) 436,000 (238,000) General Business Credits (231,000) (230,000) (90,000) Change in the valuation allowance for deferred tax assets 1,356,000 -- -- Other, net (24,000) 193,000 136,000 - ------------------------------------------------------------------------------------------------------------ $(1,053,000) $ 2,720,000 $(1,483,000) ============================================================================================================
F-14 52 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are summarized below:
SEPTEMBER 25, 1995 SEPTEMBER 26, 1994 - -------------------------------------------------------------------------------------------------------------------------- CURRENT NON-CURRENT Current Non-Current Deferred tax assets DEFERRED DEFERRED Deferred Deferred - -------------------------------------------------------------------------------------------------------------------------- Deferred compensation $ -- $ 491,000 $ -- $ 520,000 Deferred gain -- 216,000 -- 251,000 Compensated absences, principally due to accrual for financial reporting purposes 134,000 -- 63,000 -- Provision for store dispositions -- 605,000 -- 1,078,000 State net operating loss carryforward -- 225,000 -- -- General business credits -- 2,214,000 -- 739,000 Alternative minimum tax credits -- 508,000 -- 537,000 Other 84,000 70,000 26,000 117,000 - -------------------------------------------------------------------------------------------------------------------------- Total gross deferred tax assets 218,000 4,329,000 89,000 3,242,000 Less valuation allowance (142,000) (1,783,000) (11,000) (379,000) - -------------------------------------------------------------------------------------------------------------------------- Net deferred tax assets 76,000 2,546,000 78,000 2,863,000 - -------------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities - -------------------------------------------------------------------------------------------------------------------------- Plant and equipment, principally due to differences in depreciation and capitalized interest -- (1,478,000) -- (1,435,000) Market valuation of investment in HomeTown Buffet, Inc. -- (2,377,000) -- (1,848,000) Other -- (568,000) -- (956,000) - -------------------------------------------------------------------------------------------------------------------------- Total gross deferred tax liabilities -- (4,423,000) -- (4,239,000) - -------------------------------------------------------------------------------------------------------------------------- Net deferred tax asset (liability) $ 76,000 $(1,877,000) $ 78,000 $(1,376,000) ==========================================================================================================================
The valuation allowance for deferred tax assets as of September 25, 1995, and September 26, 1994, was $1,925,000 and $390,000, respectively. At September 25, 1995, the Company has general business credit carryforwards for federal income tax purposes of approximately $2,214,000 which are available to reduce future federal income taxes, if any, through 2006. In addition, the Company has alternative minimum tax credit carryforwards of approximately $508,000 which are available to reduce future federal regular income taxes, if any, over an indefinite period. 10. PREFERRED STOCK In October 1993, the Company issued 946,714 shares of Series A Convertible Preferred Stock to ABS MB (JB) Limited Partnership ("ABS"), the general partner of which is ABS MB Ltd., a merchant banking affiliate of Alex. Brown & Sons Incorporated for approximately $5.0 million. The preferred stock has a par value of $1.00, is nondividend bearing and is convertible to common stock on a one-for-one basis at the option of ABS subject to certain conditions. The 946,714 preferred shares represent an approximate 16% ownership position in the Company. As holder of the preferred stock, ABS is entitled to liquidation preferences, rights to approve certain significant corporate transactions and certain registration rights. Also, as holder of the preferred stock ABS has the right to elect two of the Company's nine Board members. 11. EMPLOYEE BENEFIT PLANS EMPLOYEE STOCK OWNERSHIP PLAN The Company has an employee stock ownership plan to which the Company contributes funds as authorized by the Board of Directors. The plan has the authority to purchase shares of the Company's common stock. All employees of the Company who have one year of service and are over age 21 participate in the plan. F-15 53 Participant vesting begins with the third year of participation in the plan at the rate of 20 percent per year. Funds contributed to the plan are used to retire debt previously incurred, to pay participants who are entitled to benefits under the plan and to purchase shares of the Company's common stock. Allocated shares within the plan were 92,737 and 114,857 at September 25, 1995, and September 26, 1994, respectively. Contributions to the employee stock ownership plan totaled $0, $85,000 and $90,000 in fiscal years 1995, 1994, and 1993, respectively. 401 (K) PLAN The Company has a 401(k) plan covering all employees who have attained age 21 and completed one year of service. The plan allows participants to allocate up to 10% of their annual compensation before taxes for investment in several investment alternatives. From January 1, 1995, until September 25, 1995, and in calendar 1994 and 1993, the Company made annual matching contributions of the Company's stock to the employees' investment portfolio of up to 25% of the first 3% of annual compensation contributed by the employee. An employee must be employed on December 31 to receive a matching contribution. The Company provided contributions of $26,000 and $27,000 in fiscal years 1995 and 1994, respectively, and the Company made no contribution in fiscal 1993. DEFERRED COMPENSATION PLAN The Company has a deferred compensation plan covering the Chairman and certain former executives, which requires payment upon retirement or disability. Under the plan, participants receive benefits based upon a multiple of compensation prior to retirement and years of service (not to exceed 50 percent of average annual compensation for the highest five-year period) reduced for benefits payable from the Company's profit sharing and employee stock ownership plans. The Company expects that participation in the plan will be limited to those individuals with previously approved deferred compensation agreements. Accruals for this plan were $133,000, $158,000 and $153,000 for fiscal years 1995, 1994, and 1993, respectively. 12. STOCK OPTION AND AWARD PLANS STOCK OPTION PLANS The Company has stock option plans under which options to purchase the Company's common stock may be granted to employees and directors at the fair market value of the stock at the date of grant. Under the plans, options may be granted for a term of not more than ten years. Incentive stock options granted to employees through April 7, 1994, become exercisable over a four-year period. Incentive stock options granted after April 7, 1994 become exercisable over a five-year period. Nonqualified stock options issued to directors are not subject to vesting. As of September 25, 1995, shares under option total 782,400 shares of which 489,350 shares were exercisable at prices ranging from $4.00 to $7.88 per share. F-16 54 The following table presents, for the periods indicated, activity with respect to the Company's stock option plans:
SEPTEMBER 25, September 26, September 27, YEARS ENDED 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- Shares under option, beginning of fiscal year 679,700 527,600 574,430 Options granted (1995 at prices from $3.63 to $6.00 per share; 1994 at prices from $4.00 to $7.75 per share; 1993 at prices from $5.00 to $7.88 per share) 261,000 237,000 207,000 Options expired due to terminations (1995 at prices from $4.50 to $7.75 per share; 1994 at prices from $4.88 to $7.75 per share; 1993 at prices from $4.63 to $7.25 per share) 158,300 51,900 89,100 Options exercised (1995, none; 1994 at prices from $4.13 to $6.88 per share; 1993 at prices from $4.13 to $6.87 per share) -- 33,000 164,730 - ---------------------------------------------------------------------------------------------------------------------- Shares under option, end of fiscal year 782,400 679,700 527,600 ======================================================================================================================
EXECUTIVE LONG-TERM STOCK AWARD PLAN The Company has an Executive Stock Award Plan (the "Plan") adopted in September 1992 by the Board of Directors and approved in February 1993 by the Company's shareholders. There are 100,000 shares authorized under the Plan to be awarded to key employees based on the achievement of certain performance objectives established by the Compensation Committee of the Board of Directors. There were no shares awarded for fiscal years 1995, 1994 or 1993 under this Plan. F-17 55 13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following summarizes financial information by quarter for the two years ended September 25, 1995 and September 26, 1994:
Net Income Gross Net Income (Loss) Revenues Profit (Loss) Per Share - ----------------------------------------------------------------------------------------------------------------- 1995 1st quarter $ 27,263,000 $18,296,000 $ (876,000) $ (.18) 2nd quarter 27,061,000 18,104,000 (678,000) (.14) 3rd quarter 38,095,000 25,413,000 (1,309,000) (.27) 4th quarter 28,680,000 19,268,000 (2,181,000) (.45) - ------------------------------------------------------------------------------------------------------------------ $121,099,000 $81,081,000 $(5,044,000) $(1.05) ================================================================================================================== 1994 1st quarter $ 24,228,000 $16,520,000 $ (537,000) $ (.11) 2nd quarter 25,681,000 17,321,000 (290,000) (.06) 3rd quarter 36,948,000 24,932,000 5,765,000 (1) .99 4th quarter 28,510,000 18,916,000 (1,182,000) (.25) - ------------------------------------------------------------------------------------------------------------------ $115,367,000 $77,689,000 $ 3,756,000 $ .66 ==================================================================================================================
(1) Includes a charge for property dispositions of $1,982,000, a loss on the disposition of a note receivable of $1,564,000, an extraordinary loss of $350,000 (net of tax benefit) resulting from the extinguishment of debt and a gain on the sale of HomeTown Buffet, Inc., common stock of $14,700,000. See Notes 4, 5, 6 and 7. Each quarter of the 52 week fiscal years 1995 and 1994 contain 12 weeks, except for the third quarter, which contains 16 weeks. 14. COMMITMENTS AND CONTINGENCIES In connection with the sale of restaurants, the Company has assigned its rights and obligations under real property leases to the buyer. As such, the Company remains contingently liable for these obligations. Future minimum payments under these leases amount to $1,294,000 in 1996; $1,245,000 in 1997; $1,202,000 in 1998; $1,164,000 in 1999; $1,069,000 in 2000; and $3,287,000 thereafter. In addition, the Company is engaged in ordinary and routine litigation incidental to its business. Management does not anticipate that any amounts which it may be required to pay by reason thereof will have a material effect on the Company's consolidated statements of operations or financial position. 15. SUBSEQUENT EVENTS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION On November 30, 1995, an Agreement and Plan of Merger and Reorganization ("Merger Agreement") was executed between the Company and CKE Restaurants, Inc., a Delaware corporation ("CKE"), pursuant to which a wholly-owned subsidiary of CKE will merge with the Company, and CKE's wholly-owned subsidiary will be the surviving entity. Consideration for the merger to be paid to the Company's shareholders for each share of common stock and for each share of preferred stock will consist of $3.00 in cash and .20513 shares of CKE common stock, provided that the average CKE common stock price is between $12.25 per share and $17.00 per share at the closing. If the average CKE common stock price is higher than $17.00 or lower than $12.25 at the closing, the exchange ratio may be adjusted accordingly. The transaction is currently expected to close during the first calendar quarter of 1996, or as soon as practicable thereafter. The transaction is conditioned upon the Company's shareholders approving the transaction and the usual and customary conditions to closing, including, F-18 56 without limitation, accuracy of the parties' representations and warranties, performance of the parties' covenants and obligations under the Merger Agreement and obtaining proper consents of third parties as necessary. CHANGE IN CONTROL AGREEMENTS Pursuant to certain change of control agreements, the Company may be obligated to pay benefits to the President and seven Senior Vice Presidents in the event of a significant change in ownership of the Company. The Merger Agreement described above triggered a provision in the change of control agreements that requires the Company to place in escrow accounts approximately $1.7 million. Payment of benefits is made upon involuntary termination of those individuals noted above between the signing of the Merger Agreement and one year after consummation of the merger or upon the voluntary termination of employment during the second 90 days following consummation of the merger. The Company has not yet funded the escrow accounts. LEASE COMMITMENT In August 1994, the Company entered into a master lease agreement (the "Agreement") to finance equipment for new HomeTown Buffet restaurants. The agreement, among other things, required the Company to maintain minimum tangible net worth of at least $40 million. Operating results during fiscal 1995 reduced the Company's net worth to less than $40 million as of September 25, 1995. On December 7, 1995, the lessor notified the Company it was in default under the terms of the Agreement and demanded a default payment in the amount of $1,493,938 which represents all remaining rent and other payments due to the lessor. Upon receipt of the default payment, the lessor is obligated to transfer to the Company all rights of ownership to the leased assets. Management is contesting the default and seeks a resolution with the lessor that would allow the Company to continue periodic rent payments as stipulated under the Agreement. While the final outcome of this matter cannot be determined at this time, management, in consultation with legal counsel, believes that such a resolution can be reached. INVESTMENT IN HOMETOWN BUFFET, INC. COMMON STOCK As of September 25, 1995, the Company held 528,220 shares of HTBB common stock. Between September 25, 1995, and December 11, 1995, the Company sold 398,220 shares of HTBB common stock generating net proceeds of $4.8 million resulting in a pre-tax gain of $4.0 million. $2.1 million of these proceeds were used to repay the Company's bank loans in full, $700,000 remains in escrow as partial security against $2.0 million in letters of credit with the remaining $2.0 million retained by the Company. The letters of credit are secured by certain properties owned by the Company, by the remaining 130,000 shares of HTBB common stock and by the escrow account noted above. F-19 57 EXHIBIT INDEX
Exhibit Number Description of Exhibit ------- ---------------------- 3 ARTICLES OF INCORPORATION AND BYLAWS: The following exhibits are attached to this report: 3(a) Certificate of Incorporation, dated February 21, 1985. 3(b) Bylaws, dated February 25, 1985. 3(c) Certificate of Amendment of the Certificate of Incorporation of JB's Restaurants, Inc., dated February 25, 1987. 3(1) Amendment to Bylaws, dated November 19, 1992. 3(2) Amendment to Bylaws, dated October 27, 1993. 3(3) Certificate of Ownership and Merger Merging JB's Specialty Restaurants, Inc. into JB's Restaurants, Inc., dated October 15, 1993. 3(4) Certificate of Amendment of the Certificate of Incorporation of JB's Restaurants, Inc., dated April 4, 1995. 3(5) Certificate of Change of Location of Registered Office and of Registered Agent, dated July 11, 1995. 3(6) Amendment to Bylaws, dated November 30, 1995. 4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS INCLUDING INDENTURES: The following exhibits are incorporated in this report by reference from identically numbered exhibits to Annual Reports on Form 10-K previously filed by the Company: 4(c)(2) Undertaking to furnish to the Securities and Exchange Commission Long-Term Debt Agreements dated December 22, 1986. 4(f)(g)(h)(3) Note Purchase Agreements between the Company and The Canada Life Assurance Co., Security Mutual Group, and Crown Life Insurance Company, and Warrants for Common Stock held by The Canada Life Assurance Co., Security Mutual Group, and Crown Life Insurance Company, dated September 1, 1987. 4(1)(7) First Amendment to Note Purchase Agreements between the Company and The Canada Life Assurance Co., Security Mutual Group and Crown Life Insurance Company, and Warrants for Common Stock held by The Canada Life Assurance Co., Security Mutual Group and Crown Life Insurance Company, dated April 30, 1992.
58 4(2)(8) Second Amendment to Note Purchase Agreement between the Company and Crown Life Insurance Company, The Canada Life Assurance Company and Security Mutual Life Insurance Company (formerly known as Security Mutual Group), dated October 26, 1993. 4(3)(8) Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of the Company, dated October 11, 1993. 4(4)(8) Registration Rights Agreement by the Company for the benefit of ABS MB (JB) Limited Partnership, dated October 27, 1993. 10 MATERIAL CONTRACTS: The following exhibits are incorporated in this report by reference from identically numbered exhibits to Annual Reports on Form 10-K previously filed by the Company: *10(a)(1) JB's Supplemental Executive Retirement Plan, adopted 1985. *10(7)(3) 1987 Non-Qualified Stock Option Plan and form of Agreement, adopted February 13, 1987. *10(8)(3) 1987 Employee Incentive Stock Option Plan and form of Agreement adopted April 21, 1987. *10(9)(3) 1984 Incentive Stock Option Plan as Amended on February 13, 1987, and form of Agreement. *10(i)(5) Amendment to 1984 and 1987 Incentive Stock Option Plans dated July 16, 1990. 10(dd)(6) Multiple Unit Agreement between HTB Restaurants, Inc., a wholly-owned subsidiary of the Company, and HomeTown Buffet, Inc. dated October 9, 1991 effective November 25, 1991. 10(19)(7) First Amendment to Multiple Unit Agreement dated October 9, 1991 between HTB Restaurants, Inc., a wholly-owned subsidiary of the Company, and HomeTown Buffet, Inc. dated January 3, 1992. 10(20)(7) Second Amendment to the Multiple Unit Agreement dated October 9, 1991 between HTB Restaurants, Inc. a wholly-owned subsidiary of the Company, and HomeTown Buffet, Inc. dated June 23, 1992. *10(22)(7) 1992 Stock Option Plan and Form of Agreement adopted September 24, 1992. *10(23)(7) 1992 Executive Long-Term Stock Award Plan and Form of Agreement, adopted by the Board of Directors of the Company dated September 24, 1992.
59 *10(32)(8) Employment Agreement between the Company and Don M. McComas dated November 24, 1993. 10(33)(8) Letter Agreement amending the Multiple Unit Agreement, dated October 9, 1991 between HTB Restaurants, Inc., a wholly-owned subsidiary of the Company and HomeTown Buffet, Inc. dated November 30, 1993. 10(34)(9) Note Cancellation Agreement and Release between the Company and M. Robert Davis and Kathleen Davis dated August 5, 1994. *10(35)(9) Form of Agreement between the Company and David E. Pertl, Gary A. Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez, Charlotte L. Miller and Joseph J. Hollencamp for certain severance benefits in the event of a change in control of the Company, dated November 18, 1994. *10(37)(9) Fiscal Year 1995 Executive Incentive Compensation Plan. 10(38)(9) Underwriting Agreement dated March 23, 1994 between the Company, HomeTown Buffet, Inc. , other selling shareholders, and Montgomery Securities. 10(39)(9) Letter dated March 1, 1994 between the Company and Crown Life Insurance Company, Canada Life Assurance Company and Security Mutual Group regarding prepayment of notes outstanding by the Company. *10(40)(9) Executive Long Term Incentive Plan approved by the Board of Directors on April 8, 1994. *10(41)(9) 1992 Stock Option Plan as amended on April 8, 1994 and November 18, 1994. The following exhibits are attached to this report: 10(42) Letter Agreement amending the Multiple Unit Agreement, dated October 9, 1991, as amended January 3, 1992, June 23, 1992 and November 31, 1993, between HTB Restaurants, Inc., a wholly-owned subsidiary of the Company and HomeTown Buffet, Inc., dated July 20, 1995. *10(43) Form of Agreement between the Company and David E. Pertl, Gary A. Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez, Charlotte L. Miller and Joseph J. Hollencamp for certain benefits in the event of a change in control of the company, dated August 17, 1995. *10(44) Fiscal 1996 Executive Incentive Compensation Plan. *10(45) Separation Compensation Plan adopted by the Board of Directors, effective as of September 25, 1995.
60 *10(46) Letter Agreement dated January 4, 1995, between the Company and Joseph J. Hollencamp for certain benefits in the event of the sale of HTB Restaurants, Inc., or all of its assets. 10(47) Agreement and Plan of Merger and Reorganization between the Company and CKE Restaurants, Inc., dated November 30, 1995. *10(48) Form of Amendment to Agreements, dated August 17, 1995, between the Company and David E. Pertl, Gary A. Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez, Charlotte L. Miller and Joseph J. Hollencamp for certain benefits in the event of a change in control of the company, dated December 1, 1995. 11 COMPUTATION OF PER SHARE INCOME (LOSS). 22 SUBSIDIARIES OF THE COMPANY. 24 CONSENT OF KPMG PEAT MARWICK LLP. RE: FORM S-8 NO. 2-99014; NO. 33-18431; NO. 33-17363; NO. 33-62150; NO. 33-62152; NO. 33-99144. 27 FINANCIAL DATA SCHEDULE.
*This exhibit is a compensatory plan or management contract filed pursuant to Item 14(c) of Form 10-K. EX-3.A 2 CERTIFICATE OF INCORPORATION 1 CERTIFICATE OF INCORPORATION OF JB'S RESTAURANTS, INC. FIRST: The name of this corporation is: JB'S RESTAURANTS, INC. SECOND: The name and address of the registered agent of the corporation in the State of Delaware is: The Corporation Trust Company 1209 Orange Street Wilmington, County of New Castle, Delaware 19801 THIRD: The purpose of the corporation is to engage in the business of owning and operating restaurants and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total amount of capital stock which this corporation has the authority to issue is as follows: Section 1. 10,000,000 shares of common stock, $.10 par value per share. Section 2. 1,000,000 shares of preferred stock, $1.00 par value per share. 2 The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article Fourth, to provide for the issuance of the shares of preferred stock in series, and to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and relative, participating, optional or other special rights of the shares of each series and the qualifications, limitations or restrictions thereof. The authority of the Board with respect to each series of preferred stock shall include, but not be limited to, determination of the following: A. The number of shares constituting the series and the distinctive designation of the series; B. The dividend rate on the shares of the series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of the series; C. Whether the series will have voting rights, and, if so, the terms of the voting rights. D. Whether the series will have conversion privileges, and, if so, the terms and conditions of the conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors determines; E. Whether or not the shares of the series will be redeemable, and, if so, the terms and conditions of redemption, including the date o dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; F. Whether the series shall have a sinking fund for the redemption or purchase of shares of the series, and, if so, the terms and amount of the sinking fund; G. The rights of the shares of the series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of the series; 2 3 H. Any other relative terms, rights, preferences and limitations, if any, of the series as the Board of Directors may lawfully fix under the laws of the State of Delaware as in effect at the time of the creation of such series. Dividends on outstanding shares of preferred stock shall be paid or declared and set apart for payment, before any dividends shall be paid or declared and set apart for payment, on the common stock with respect to the same dividend period. Section 3. 500,00 shares of junior common stock, $.01 par value per share. Shares of junior common stock will have no voting rights associated with them. No dividends will be paid on outstanding shares of junior common stock and holders of junior common stock will not participate in any distribution of the corporation's assets upon liquidation or dissolution. Except as so provided, and subject to the limitations imposed by law, the Board of Directors is authorized to determine the relative rights, preferences, privileges and restrictions granted to or imposed upon shares of junior common stock, including redemption or conversion rights. By consent resolution dated February 25, 1985, the corporation's Board of Directors authorized the issuance of a class of Junior Common Stock, designated Junior Common Stock "Series A," (hereinafter referred to as Junior Common Stock), having the following rights and preferences: RESOLVED, that the 30,000 shares of Junior Common Stock to be issued to Mr. Jones by the Company be and hereby is declared to have the following rights, privileges and preferences, including the conversion and redemption rights set out: Terms of Conversion. Shares of the Junior Common Stock issued to Mr. Jones shall be automatically converted into shares of the Company's Common Stock on a one-for-one basis in accordance with either of the following methods, on a fiscal year basis: (a) Mr. Jones may convert shares of the Company's Junior Common Stock based on the yearly percentage improvement in Return on Total 3 4 Average Capital of the Company, rounded to the nearest tenth of one percent. For purposes of computing the yearly percentage improvement in Return on Total Average Capital, the current fiscal year's Return shall be divided by the immediately preceding fiscal year's Return. The percentage thus obtained shall determine the number of shares Mr. Jones shall convert that fiscal year, based on the following table:
Number of Shares Percentage Convertible ---------- ---------------- Less than 105% -0- 105% to 106.9% 2,000 107% to 108.9% 3,000 109% to 110.9% 4,000 111% to 112.9% 5,000 113% and above 6,000
(b) Mr. Jones may convert shares of the Junior Common Stock based on a comparison, rounded to the nearest tenth of one percent, of the Company's Return on Total Average Capital with the average of the Returns on Total Average Capital, for their latest fiscal years, of the following restaurants: Frisch's Restaurants Shoney's Marcus Corporation Collins Foods Mr. Steak, Inc. Shoney's South VICORP Restaurants, Inc. The percentage thus obtained shall determine the number of shares Mr. Jones shall convert that fiscal year, based on the following table:
Number of Shares Percentage Convertible ---------- ---------------- Less than 100% -0- 100% to 100.9% 1,000 101% to 103.9% 2,000
4 5 104% to 106.9% 3,000 107% to 109.9% 4,000 110% to 112.9% 5,000 113% and above 6,000
Method of Conversion. Mr. Jones shall, within 120 days of the end of the Company's fiscal year, notify the Company in writing of: (a) which method Mr. Jones elects to use in computing the number of shares of Junior Common Stock to be converted for that fiscal year; (b) the computation by which the number of shares eligible for conversion was determined; (c) the number of shares of Junior Common Stock to be converted; and (d) any investment representations requested by the Company or its legal counsel. Included with the notice shall be the certificates of Junior Common Stock representing the number of shares to be converted. Redemption. Mr. Jones may, upon 30 days advance written notice to the Company, require the Company to redeem any number of shares of Junior Common Stock then held by him. Upon such notice and surrender to the Company of certificates representing the number of shares of Junior Common Stock Mr. Jones wishes to have redeemed, the Company shall, within 15 days of its receipt of the notice and certificates, pay Mr. Jones an amount per share for each share of Junior Common Stock so redeemed computed as follows: the Junior Common Stock's price per share shall be computed as 1/10th of the price per share of the Company's Common Stock as quoted by NASDAQ 3 full business days prior to payment to Mr. Jones of the redemption amount. The shares so redeemed shall be canceled by the Company. Definitions. 'Return on Total Average Capital' is defined as the ratio of i) total net income after taxes plus total interest expense less an 5 6 allowance for taxes on the interest expense computed at the actual tax rate paid by the company, all for the latest fiscal year to ii) total stockholders' equity plus total long-term debt, including current maturities of long-term debt, and plus deferred income taxes, all for the fiscal year previous to the latest fiscal year. The numbers used in determining the Return on Total Average Capital shall be the fiscal-year figures provided by the company's annual report to its shareholders or by its audited annual financial statements. The following example illustrates the computation of the Return on Total Average Capital for fiscal 1983 for the Company. Net Income (after-taxes) $2,185,000 Interest Expense 1,263,000 Tax on Interest Expense (38.7%) (388,781) ---------- $2,959,219 Stockholder's Equity $9,836,000 Long-Term Debt 10,656,000 Current Maturities 1,378,000 Deferred taxes 264,000 ---------- 22,104,000
$2,959,219 / $22,104,000 = 13.4% Return on Total Average Capital. FIFTH: The name and mailing address of the incorporator of the corporation is as follows:
Name: Mailing Address: Clark D. Jones 1010 West 2610 South Salt Lake City, Utah 84119
6 7 SIXTH: Bylaws may be adopted, amended or repealed by a vote of 80% of the outstanding stock of the corporation entitled to vote thereon. Bylaws may also be adopted, amended or repealed by the Board of Directors as permitted by law. Notwithstanding the foregoing, any bylaw amendment adopted by the Board of Directors increasing or reducing the authorized number of directors shall require a resolution adopted by the affirmative vote of not less than 80% of the directors. SEVENTH: The number of directors of the Board of Directors of the corporation will be as specified in the bylaws. The board is divided into three classes; Class I, Class II and Class III. Each class will be as nearly equal in number of directors as possible. Each director will serve for a term ending on the third annual shareholders meeting following the annual meeting at which the director was elected; provided, however, that the directors first designated Class I will serve for a term ending on the annual shareholders meeting next following the end of calendar year 1985. Directors first designated Class II will serve for a term ending on the second annual shareholders meeting next following the end of calendar year 1985. Each director will serve until his successor shall have been duly elected and qualified, unless he resigns, becomes disqualified, disabled or is otherwise removed. At each annual election, directors chosen to succeed those whose terms expire will be of the same class as the directors they succeed, unless, by reason of any intervening changes in the authorized number of directors, the Board shall designate one or more directorships whose term expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes. Notwithstanding the rule that the three classes shall be as nearly equal in number of directors as possible, in the event of any change in the authorized number of directors, each director continuing to serve as such will continue in the class of which he is a member until the expiration of his current term, or his prior death, resignation or removal. If any newly created directorship may, consistent with the rule that the three classes be as nearly equal in number of directors as possible, be allocated to two or more classes, the Board shall allocate it to the class whose term of office is due to expire at the next earliest date. 7 8 EIGHTH: The affirmative vote of the holders of not less than 80% of the outstanding stock of the corporation entitled to vote shall be required for approval if (1) this corporation merges or consolidates with any other corporation if such other corporation and its affiliates are directly or indirectly the beneficial owners of more than 10% of the total voting power of all outstanding shares of the voting stock of the corporation (a "Related Corporation"), or if (2) this corporation sells to or exchanges with a Related Corporation all or a substantial part of its assets, or if (3) this corporation issues or delivers any stock or other securities of its issue in exchange or payment for any properties or assets of a Related Corporation or securities issued by a Related Corporation, or in a merger of any affiliate of this corporation with or into a Related Corporation or any of its affiliates; provided, however, that the foregoing shall not apply to any such merger, consolidation, sale or exchange, or issuance or delivery of stock or other securities which was (I) approved by resolution of the Board of Directors adopted by the affirmative vote of not less than a majority of the directors who were directors prior to the acquisition of beneficial ownership of more than 10% of all outstanding shares of the voting stock of the corporation by the Related Corporation and its affiliates, nor shall it apply to any such transaction solely between this corporation and another corporation 50% or more of the voting stock of which is owned by this corporation. "Affiliate" shall have the definition noted in Article Eleventh. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise; and in computing the percentage of outstanding voting stock beneficially owned by any person the shares outstanding and the shares owned shall be determined as of the record date fixed to determine the shareholders entitled to vote or express consent with respect to such proposal. The shareholder vote, if any, required for mergers, consolidations, sales or exchanges of assets or issuances of stock or other securities not expressly provided for in this Article Eighth, shall be such as may be required by applicable law. A "substantial part" of the corporation's assets shall mean assets comprising more than 10% of the book value or fair market value of the total assets of the corporation and its subsidiaries taken as a whole. NINTH: No action may be taken by shareholders except at an annual or special meeting of shareholders. No action may be taken by shareholders by written consent. 8 9 TENTH: Special meetings of the shareholders of the corporation for any purpose may be called at any time by a majority of the members of the Board of Directors or by a committee of the Board of Directors which has been duly empowered by the Board of Directors to call special meetings. Special meetings may not be called by any other person. ELEVENTH: It is the declared intent and policy of this corporation and its shareholders that all shareholders are entitled (I) to participate, through an election to sell or otherwise dispose of their shares, in any proposed acquisition of control of this corporation, and (ii) to be offered a price for their shares which is fair and equitable under the circumstances. Section 1. For the purposes of this Article Eleventh: (a) An "Affiliate" of a specified Person is a Person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. (b) The term "Associate", when used to indicate a relationship with any Person, means (1) any corporation or organization (other than this corporation or a Subsidiary) of which the Person is an officer or partner or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of equity securities, (ii) any trust or other estate in which the Person has a substantial beneficial interest or as to which the Person serves in a fiduciary capacity, and (iii) any relative or spouse of the Person, or any relative of the spouse, who has the same home as the Person, or is an officer or director of any corporation controlling or controlled by the Person. (c) "Beneficial Ownership" shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 or any successor rule or, if Rule 13d-3 is rescinded and there is no successor rule, pursuant to Rule 13d-3 as in effect on June 15, 1985. In any event, a Person shall also be deemed the "Beneficial Owner" of any Voting Shares which: (1) The Person or any of its Affiliates or Associates beneficially owns, directly or indirectly, or 9 10 (2) The Person or any of its Affiliates or Associates (I) has the right to acquire immediately or in the future pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants options or otherwise, or (ii) has sole, or shares, voting or investment power with respect to pursuant to any agreement, arrangement, understanding, relationship or otherwise (other than solely by reason of a revocable proxy granted to the Person for a particular meeting of shareholders, pursuant to a public solicitation of proxies for the meeting, with respect to shares of which neither the Person nor any of its Affiliates or Associates is otherwise deemed the Beneficial Owner), or (3) Are Beneficially Owned, directly or indirectly, by any other Person with which the Person or any of its Affiliates or Associates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this corporation. For purposes of computing the percentage Beneficial Ownership of Voting Shares of a Person in order to determine whether the Person is a Substantial Shareholder, the outstanding Voting Shares shall include shares deemed owned by the person through application of this subparagraph (c), but shall not include any other Voting Shares which may be issuable by this corporation pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, exchange rights, warrants, options or otherwise. For all other purposes, the outstanding Voting Shares shall include only Voting Shares then outstanding. (d) "Common Stock" means not only this corporation's common stock, as authorized by the corporation's Certificate of Incorporation, but also any capital stock or other security convertible into or exchangeable for, and any warrant, option or other right to acquire the common stock of this corporation. If there is at any time more than one class or series of Common Stock or any warrants, options or other securities convertible into or exchangeable for Common Stock, all references of this Article Eleventh to Common Stock or to any Tender Offer, Offer Price or Market Price shall be deemed to refer to and apply to each class or series of Common Stock and any securities convertible into or exchangeable for, and any warrants, options or other rights to purchase Common Stock individually, and the provisions of this Article 10 11 Eleventh shall be deemed to apply separately to each class or series of Common Stock and securities, warrants, options or other rights to purchase Common Stock, and, in addition, the Offer Price with respect to each series or class of Common Stock, or securities, warrants, options or other rights to purchase Common Stock, shall be equivalent to the Offer Prices for the others. (e) A "Majority of the Board" means a majority of the total number of the directors which this corporation would have if there were no vacancies, but only if a majority of the number of directors at the time of the relevant determination consists of Unrelated Directors. If the majority does not then consist of Unrelated Directors, a Majority of the Board shall mean a majority of the then Unrelated Directors. (f) A "Person" means any individual, firm, corporation, partnership, association or other entity. (g) "Subsidiary" means any corporation of which a majority of each class of equity security (as defined in Rule 3a-11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on June 15, 1985) is owned, directly or indirectly, by this corporation. (h) "Substantial Shareholder" means any Person, other than this corporation or any Subsidiary, that is the Beneficial Owner, directly or indirectly, or more than 10% of the outstanding Voting Shares, determined solely on the basis of the total number of Voting Shares Beneficially Owned (and without giving effect to the number or percentage of votes entitled to be cast in respect of the shares pursuant to this Article Eleventh) in relation to the total number of Voting Shares issued and outstanding. A Person shall not be deemed to be a Substantial Shareholder if the Person, prior to the time the Person becomes the Beneficial Owner, directly or indirectly, of more than 10% of the outstanding Voting Shares, commences and thereafter consummates a Tender Offer for all shares of Common Stock then issued and outstanding, the terms of which shall be approved as in the best interests of the corporation and its shareholders by a Majority of the Board. Anything to the contrary notwithstanding, (i) no director or officer of this corporation, no Affiliate or Associate of the director or officer, and no group or member of a group of which the officer or director or any of his 11 12 Affiliates or Associates is a member shall, solely by reason of their acting in their capacities, for any purposes hereof, be deemed to be a Substantial Shareholder, (ii) no employee stock ownership or similar plan or trust of this corporation or any Subsidiary shall, for any purposes hereof, be deemed to be a Substantial Shareholder, nor shall any trustee, Affiliate or Associate of the trustee nor any group of the same, solely by reason of their acting in their capacities, be deemed to be a Substantial Shareholder, and (iii) no director or officer of this corporation nor any Affiliate or Associate of the director or officer shall, by virtue of their acting or agreeing to act in concert with one another or with any group in opposition to any Tender Offer, accumulation of shares of Common Stock or other attempt to gain control of this corporation determined not to be in the best interests of this corporation and its shareholders by a Majority of the Board, for any purposes hereof, be deemed to be a Substantial Shareholder. (i) "Tender Offer" shall mean an offer to acquire equity securities pursuant to a request or invitation for tenders. (j) "Unrelated Director" shall mean a Person who was a member of the Board of Directors as of June 15, 1985 or thereafter elected by the shareholders or appointed by the Board of Directors of this corporation prior to the date the Substantial Shareholder became a Substantial Shareholder, or a Person designated, before his initial election or appointment as a director, as an Unrelated Director by a Majority of the Board. (k) "Voting Shares" shall mean any share of the capital stock of this corporation entitled to vote generally in the election of directors. Section 2. Notwithstanding anything in this Certificate of Incorporation to the contrary, after the date any Person becomes a Substantial Shareholder and until the Person ceases to be a Substantial Shareholder, Persons entitled to vote issued and outstanding Voting Share of any class or series beneficially owned by the Substantial Shareholder in excess of 10% of the then issued and outstanding shares of the class or series shall, subject to the provisions of the last sentence of this Section 2, be entitled to cast 1/10 of one vote per share for each share in excess of 10% of the then issued and outstanding shares of the class or series. If the Substantial Shareholder consummates a Tender Offer conforming with the provisions of Sections 4 and 5 of this Article Eleventh, Persons entitled to vote voting Shares Beneficially Owned by the Substantial 12 13 Shareholder shall thereafter be entitled to cast the number of votes the Persons would be entitled to cast in the absence of this Article Eleventh. For purposes of this Article Eleventh, casting of votes includes voting at any meeting of shareholders in person or by proxy. Section 3. Until a Substantial Shareholder consummates a Tender Offer conforming with the provisions of Sections 4 and 5 of this Article Eleventh, the Substantial Shareholder and all Persons entitled to vote Voting Shares of any class or series Beneficially Owned by the Substantial Shareholder collectively shall not be entitled or permitted to cast in excess of 15% of the total number of votes which the holders of all then outstanding Voting Shares of the class or series would (after giving effect to the provisions of Section 2 of this Article Eleventh) be entitled to cast. Section 4. The Tender Offer referred to in Sections 2 and 3 of this Article Eleventh means a tender offer to acquire, at not less than the applicable Offer Prices, all shares of Common Stock then outstanding and not Beneficially Owned by the Substantial Shareholder and which provides that if the Substantial Shareholder obtains control of this corporation it will use its best efforts to promptly consummate a merger in which holders of all Common Stock not purchased in the Tender Offer will receive the respective Offer Prices in cash. Any Tender Offer shall be directly regulated by and conducted in conformance with the provisions of Section 14 (d) of the Securities Exchange Act of 1934 and the General Rules and Regulations thereunder applicable to tender offers for equity securities registered under Section 12 of such Act or any succeeding statutes. The consideration to be received by holders of common Stock in any Tender Offer shall be in the form of cash exclusively, and the Tender Offer shall be deemed consummated only when payment in full shall be made for all duly tendered shares. A Tender Offer shall not be deemed to have conformed or complied with the provisions of this Section 4 unless (I) the Substantial Shareholder or its Affiliate requests a certificate of an officer of this corporation specifying the Offer Prices as contemplated by Section 5(b) of this Article Eleventh, (ii) the first public announcement thereof setting forth the Offer Prices (the "Announcement") occurs within forty-five days of receipt of the certificate specifying the Offer Prices as contemplated in Section 5 (b), (iii) the Tender Offer is commenced with 30 days after the Announcement, (iv) the Tender Offer remains upon for at least 20 business days and (v) payment for shares tendered is made within 30 days after the shares are tendered. 13 14 Section 5. (a) The "Offer Price" for the Common Stock in any Tender Offer shall be an amount per share of Common Stock not less than the greater of: (1) the Market Price of the Common Stock immediately prior to the Announcement multiplied by a fraction, the numerator of which is the highest per share price (including brokerage commissions, transfer taxes and soliciting dealers' fees) which the Substantial Shareholder paid or agreed or offered to pay for any shares of Common Stock acquired by it within two years prior to the Announcement, and the denominator of which is the Market Price of the Common Stock immediately prior to the initial acquisition by the Substantial Shareholder of any Common Stock during the two-year period; (2) the highest price per share of Common Stock (including brokerage commissions, transfer taxes and soliciting dealers' fees) paid or agreed or offered to be paid by the Substantial Shareholder to acquire any shares of Common Stock; (3) the highest sale price or the average of the highest bid and asked prices for the Common Stock reported during the 12 months prior to the Announcement; (4) the aggregate earnings per share of Common Stock for the four full consecutive fiscal quarters immediately preceding the one in which the Announcement is made as to which financial results have been published by this corporation, multiplied by the price/earnings multiple determined by a Majority of the Board; or (5) the book value of the corporation as of a recent date preceding the Announcement of the Tender Offer, multiplied by the book value multiple determined by a Majority of the Board. In making the determinations referred to under "(4)" and "(5)" above, the Majority of the Board shall act reasonably and may consider all financial and other data they deem relevant, including but not limited to current and historic price earnings multiples of this corporation, current and historic price earnings multiples of other corporations engaged in business similar to 14 15 this corporation whose shares are publicly traded, current and historic price earnings multiples of the Substantial Shareholder or any of its Affiliates, and this corporation's historic and projected financial position, results of operations, return on investment and other financial criteria, and its business plans and future prospects. Notwithstanding the foregoing, a Majority of the Board, in its discretion, may determine, that, in lieu of an amount per share of Common Stock not less than the greater of the amounts determined in accordance with Section 5 (a) (1), (2), (3), (4) or (5) above, the Offer Price shall be an amount per share of Common Stock which shall not be less than a price per share of Common Stock established and determined in writing by an independent, nationally recognized investment banking firm selected by a Majority of the Board as a fair and appropriate price (considering this corporation as a going concern or on the basis of its value in liquidation, whichever circumstance would result in the higher price) for the sale of this corporation in a privately negotiated, arm's-length transaction with a Person other than a Substantial Shareholder or an Affiliate or Associate of a Substantial Shareholder, in light of then prevailing economic conditions, the business and assets of and future prospects for this corporation, the benefits expected to be derived by the acquiring Person (s) from an acquisition of or combination with this corporation, recent examples of similar transactions and other factors deemed relevant by the investment banking firm in making determinations or recommendations as to price in arm's-length acquisition transctions in which a reasonable amount of time is available to secure a purchaser. (b) This corporation shall furnish to any Substantial Shareholder requesting in writing (such request to be addressed to the president at the principal executive offices of this corporation), within 90 days after receipt of the request, a certificate of an officer of this corporation specifying the Offer Prices for the Common Stock determined pursuant to Section 5(a). Each request by a Substantial Shareholder shall specify the prices paid or agreed or offered to be paid for shares of Common Stock referred to in Section 5(a) (1) and (2) above and shall contain an agreement to pay the reasonable fees and expenses of the investment banking firm engaged by the corporation pursuant to Section 5(a) above if the Substantial Shareholder does not make a Tender Offer complying with the provisions of Section 3 and 4 of this Article Eleventh. 15 16 Section 6. For purposes of Section 5 of this Article Eleventh, the "Market Price" of a share of Common Stock on any particular date shall mean the average of the latest bid and asked prices, as published by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or, if the Common Stock is then listed or admitted to trading on a national securities exchange, the last sale price regular way therefor as reported in the consolidated transaction reporting system for securities listed or traded on such exchange, or, in case no such reported sale takes place, the average of the latest bid and asked prices regular way therefor as reported in the consolidated transaction reporting system for securities listed or traded on such exchange, for each of the 45 trading days in which shares of Common Stock shall have been traded immediately preceding the date. If no sales or bid and asked prices are available, "Market Price" shall be determined by a Majority of the Board on a basis they deem reasonable. Section 7. A Majority of the Board shall determine for the purposes of this Article Eleventh, on the basis of information known to them, (i) the number of Voting Shares Beneficially Owned by any Person, (ii) whether a Person is an Affiliate or Associate of another, (iii) whether a Person has an agreement, arrangement or understanding with another as to the matters referred to in Section 1 (c) of this Article Eleventh, (iv) whether the purchase price offered pursuant to any Tender Offer conforms to the requirements as to minimum Offer Prices set forth in Section 5 of this Article Eleventh, and/or (v) any other factual matter relating to the applicability, interpretation or effect of this Article Eleventh. Section 8. A Majority of the Board may demand that any Person it reasonably believes is a Substantial Shareholder (or holds of record Voting Shares Beneficially Owned by any Substantial Shareholder) supply this corporation with complete information as to (i) the record owner(s) of all shares Beneficially Owned by the Person that it is reasonably believed is a Substantial Shareholder, (ii) the number of, and class or series of, shares Beneficially Owned by the Person who it is reasonably believed is a Substantial Shareholder and held of record by each record owner and the number(s) of the stock certificate(s) evidencing such shares, and (iii) any other factual matter relating to the applicability or effect of this Article Eleventh, as may reasonably be requested of the Person, and the Person shall furnish such information within 10 days after receipt of the demand. 16 17 Section 9. Except as otherwise provided by law, the presence, in person or by proxy, of the holders of record of shares of capital stock of this corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this Article Eleventh) entitled to be cast by the holders of shares of capital stock of this corporation entitled to vote shall constitute a quorum at all meetings of the shareholders, and every reference in his Certificate of Incorporation to a majority or other proportion of stock or voting stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for shareholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof then entitled to be cast in respect of the capital stock of this corporation (after giving effect, if required, to the provisions of this Article Eleventh). Section 10. Any determinations made by a Majority of the Board or by a majority of the Board of Directors pursuant to this Article Eleventh in good faith and on the basis of such information as was then reasonably available shall be conclusive and binding upon this corporation and its shareholders, including any Substantial Shareholder. Section 11. Anything to the contrary contained in this Article Eleventh notwithstanding and without limiting the powers, rights and obligations of the Board of Directors, the Board of Directors is entitled and authorized, consistent with its duties as such and its obligations to this corporation and its shareholders, to consider the terms of any proposed Tender Offer or acquisition proposed by any Person, and to determine if and whether to recommend acceptance or rejection thereof, notwithstanding compliance thereof with the other provisions of this Article Eleventh, and in connection therewith, to take or authorize any and all appropriate and proper action deemed in the judgment of the Board of Directors in the best interests of this corporation and the shareholders in the event the Board of Directors shall determine to recommend rejection thereof. Section 12. Nothing contained in this Article Eleventh shall be construed to relieve any Substantial Shareholder from any fiduciary obligation imposed by law. Section 13. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of 17 18 80% or more of the votes entitled to be cast in respect of the capital stock of the corporation shall be required to amend or repeal, or to adopt any provision inconsistent with this Article Eleventh. TWELFTH: (a) A director of the corporation, or the entire Board of Directors of the corporation, may be removed by the shareholders without cause only upon the affirmative vote of the holders of not less than 80% of the stock entitled to vote upon the election of directors. (b) A director may be removed for cause only by the affirmative vote of the holders of a majority of the stock entitled to vote upon his election. (c) As used herein, "cause" for the removal of a director shall be deemed to exist if (i) there has been a finding by not less than 80% of the entire Board of Directors that cause exists and the directors have recommended removal to the shareholders, or (ii) any other cause defined by law. THIRTEENTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on shareholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Articles Sixth, Seventh, Eight, Ninth, Tenth, Eleventh, Twelfth and this Article Thirteenth, may not be repealed or amended in any respect unless such repeal or amendment is approved by the affirmative vote of the holders of not less than 80% of the total voting power of all outstanding shares of voting stock of this corporation. FOURTEENTH: Section 1. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or 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, against expenses (including attorneys' fees), judgments, fines 18 19 and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or 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 against expenses (including attorney's fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable for misconduct in the performance of his duty to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. Section 3. To the extent that any person referred to in Sections 1 and 2 of this Article Fourteenth has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to therein or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 19 20 Section 4. Any indemnification under Sections 1 and 2 of this Article Fourteenth (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 and 2. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum of disinterested directors, or (b) by the shareholders. Section 5. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the manner provided in section 4 of this Article Fourteenth upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as provided in this Article Fourteenth. Section 6. The indemnification provided by this Article Fourteenth shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any statute, by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. Section 7. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or 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, against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against liability under the provisions of this Article Fourteenth. THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation to do business both within and 20 21 without the State of Delaware and in pursuance of the Delaware General Corporation Law, does hereby make and file this certificate. /s/ Clark D. Jones ------------------ Clark D. Jones Acknowledgment STATE OF UTAH ) ) ss. COUNTY OF SALT LAKE The foregoing Certificate of Incorporation of JB's Restaurants, Inc., was acknowledged before me this 21st day of February, 1985, by Clark D. Jones, the person signing the Certificate, who further acknowledged that it is his deed and act that the facts stated therein are true. /s/ Debra J. Buckley -------------------- NOTARY PUBLIC Residing at Salt Lake My Commission Expires: 4/11/87 - ------------- 21 EX-3.B 3 BYLAWS DATED FEBRUARY 25, 1985 1 BYLAWS OF JB'S RESTAURANTS, INC. ARTICLE I OFFICES The principal office of the corporation shall be located at 2610 West 1010 South in Salt Lake City, Utah. The corporation may have such other offices as the Board of Directors may designate or as the business of the corporation may require. ARTICLE II SHAREHOLDERS SECTION 1. Annual Meeting. The annual meeting of the shareholders shall be held at the time and place specified each year by the Board of Directors, for the purpose of electing Directors and for the transaction of any other business that may come before the meeting. SECTION 2. Special Meetings. Special meetings of the shareholders, for purposes described in the notice of meeting, may be called by the Board of Directors or by a committee of the Board of Directors which has been duly empowered by the Board of Directors to call special meetings. No other persons may call or require the calling of a special meeting. SECTION 4. Notice of Meeting. Written notice to each shareholder stating the time and place of the meeting and, in case of a special meeting, the purposes for 2 which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting. SECTION 5. Determining Shareholders of Record. The Board of Directors may provide a record date for the determination of shareholders entitled to notice of and to vote at any meeting of shareholders. The record date shall not be less than ten nor more than sixty days prior to the date of the meeting. Only shareholders of record on the record date are entitled to notice of and to vote at the meeting or any adjournment thereof. SECTION 6. Voting Lists. The officer in charge of the stock ledger of the corporation shall make a complete list of the shareholders entitled to vote at each meeting of shareholders or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each shareholder. Such list shall be made available at the location specified in the written notice of meeting for ten days prior to the meeting and shall be produced and kept open at the meeting for the inspection of any shareholder. SECTION 7. Quorum. A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may, without further notice adjourn the meeting to a future date at which a quorum is present or represented. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. SECTION 8. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after three years from the date of its execution, unless otherwise provided in the proxy. SECTION 9. Voting of Shares. Each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. 3 SECTION 10. Organization and Conduct of Meeting. The Board of Directors shall designate a person to act as chairman of the meeting. The chairman shall appoint a secretary of the meeting. The chairman of any meeting of shareholders shall determine the order of business and the procedure at the meeting, including the regulation of the manner of voting and the conduct of discussion as the chairman sees fit. ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the corporation shall be managed by its Board of Directors. SECTION 2. Number, Tenure and Qualifications. The number of directors of the corporation shall be nine. Each director shall hold office until the next annual meeting of shareholders and until his successor shall have been elected and qualified. SECTION 3. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place for the holding of additional regular meetings without notice other than the resolution. SECTION 4. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President or any three directors. The person or persons authorized to call special meetings of the Board of Directors may fix the time and place for holding any special meeting called by them. SECTION 5. Notice. Notice of any special meeting shall be given at least one day previous thereto by written notice delivered personally or mailed to each director. The attendance of a director at a meeting shall constitute a waiver of notice of the meeting, except where a director attends a meeting to object to the transaction of any business because the meeting is not lawfully called or convened. 4 SECTION 6. Quorum. Five directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. SECTION 7. Manner of Acting. Except as stated in the corporation's Certificate of Incorporation, the act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 8. Action Without a Meeting. Any action that may be taken by the Board of Directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action taken, is signed by all of the Directors. SECTION 9. Meetings by Conference Telephone. Any director may participate in any meeting of the Board of Directors, or any committee thereof, by means of conference telephone or similar communications equipment that enables all persons participating in the meeting to hear one another. Participation in the meeting by conference telephone shall constitute presence in person at the meeting. SECTION 10. Vacancies. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. SECTION 11. Presumption of Assent. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to the action with the person acting as the secretary of the meeting. 5 ARTICLE IV OFFICERS SECTION 1. Number. The officers of the corporation shall be a President, one or more Vice Presidents, a Secretary, Assistant Secretaries, a Treasurer, and Assistant Treasurers each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors, including a Chairman of the Board. SECTION 2. Election and Term of Office. The officers shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as practicable. Each officer shall hold office until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3. Removal. Any officer or agent may be removed by the Board of Directors whenever, in its judgment, the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. SECTION 5. President. The President shall be the principal executive officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. He may sign certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. 6 SECTION 6. Vice Presidents. In the absence of the President or in event of his death, inability or refusal to act, the Vice President who has served in such capacity for the longest time shall perform the duties of the President, unless a contrary method of succession has been set forth in a Board of Director's resolution then in effect. When the Vice President is acting in the capacity of the President, he shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties as from time to time may be assigned to them by the President or by the Board of Directors. SECTION 7. Secretary and Assistant Secretaries. The Secretary and Assistant Secretaries shall: (a) keep the minutes of the proceedings of the shareholders and of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents, the execution of which on behalf of the corporation under its seal is duly authorized; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by the shareholder; (e) sign with the President certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general perform all duties incident to the office of the Secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. SECTION 8. Treasurer and Assistant Treasurers. The Treasurer and Assistant Treasurers shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositaries as shall be selected and (c) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. SECTION 9. Salaries. The salaries of the officers shall be fixed by the Board of Directors and no officer shall be prevented from receiving a salary by reason of the fact that he is also a director of the corporation. 7 SECTION 10. Delegation of Authority. The Board of Directors may delegate the powers or duties of any officer to any other officer or agents, notwithstanding any provision of these Bylaws. ARTICLE V CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. Certificates for Shares. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. The certificates shall be signed by, or contain facsimile signatures of, the President and the Secretary or by such other officers authorized by law and by the Board of Directors so to do, and sealed with the corporate seal or its facsimile. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation or its transfer agent for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the corporation as the board of Directors may prescribe. SECTION 2. Transfer of Shares. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation kept at an office of the corporation or by transfer agents designated as such. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. ARTICLE VI FISCAL YEAR The fiscal year of the corporation shall end on the last Sunday in September of each year. ARTICLE VII DIVIDENDS 8 The Board of Directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law. ARTICLE VIII CORPORATE SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words, "Corporate Seal." ARTICLE IX WAIVER OF NOTICE Unless otherwise provided by law, whenever any notice is required to be given to any shareholder or director of the corporation under the provisions of these Bylaws or under the provisions of the Certificate of Incorporation or under the provisions of the General Corporation Law of Delaware, a waiver thereof in writing, signed by the person or persons entitled to such notice whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XIII AMENDMENTS Except as expressly restricted by the Certificate of Incorporation, these Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Board of Directors at any regular or special meeting of the Board of Directors. Dated: February 25, 1985 /s/ Jennifer E. MacLachlan -------------------------- Assistant Secretary EX-3.C 4 CERT. OF AMEND. OF THE CERT OF INCORP., 2/25/87 1 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF JB'S RESTAURANTS, INC. (Pursuant to Section 242) Clark D. Jones and Charlotte L. Miller certify that: 1. They are the President and Secretary, respectively of JB's Restaurants, Inc., a Delaware corporation (the "Company"). 2. Article Fourteenth of the Company's Certificate of Incorporation is amended in full as follows: FOURTEENTH: Section 1. Elimination of Certain Liability of Directors. A director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. 2 Section 2. Indemnification and Insurance. (a) Right to Indemnification. The corporation shall indemnify and hold harmless any person who was or is made a party to or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent. The corporation's indemnification hereby shall be to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any amendment, only to the extent that the amendment permits the corporation to provide broader indemnification rights than the law permitted the corporation to provide prior to the amendment), against all expense, liability and loss (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the person in connection therewith and the indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition, except that, if the Delaware General Corporation Law requires, the payment of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by the person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the 3 corporation of an undertaking, by or on behalf of the director or officer, to repay all amounts advanced if it shall ultimately be determined that the director or officer is not entitled to be indemnified under this Section or otherwise. The corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers. (b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this Section is not paid in full by the corporation within thirty days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting the claim. It shall be a defense to any action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or shareholders) to have made a determination prior to the commencement of the action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or shareholders) that the claimant has not met the applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (c) Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of shareholders or disinterested directors or otherwise. 4 (d) Insurance. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify the person against expense, liability or loss under the Delaware General Corporation Law. 3. The foregoing Amendment was approved by the Company's Board of Directors. 4. The foregoing Amendment was approved by the Company's shareholders at the 1987 Annual Shareholders Meeting on Friday, February 13, 1987 by more than 50% of the number of shares entitled to be voted. The undersigned hereby certify that they have personal knowledge that the information set forth above is true. Date: 2/25/87 /s/ Clark D. Jones ---------------- ------------------------------ Clark D. Jones, President Date: 2/25/87 /s/ Charlotte L. Miller ---------------- ------------------------------ Charlotte L. Miller, Secretary EX-3.1 5 AMENDMENT TO THE BYLAWS 11/19/92 1 AMENDMENT TO BYLAWS OF JB'S RESTAURANTS, INC. NOVEMBER 19, 1992 At a regularly scheduled meeting of the Board of Directors of JB's Restaurants, Inc. (the Company), for which adequate notice was given, and upon motion duly made and seconded, the Board of Directors of the Company unanimously RESOLVED, TO AMEND THE BYLAWS OF THE COMPANY TO REQUIRE EIGHT RATHER THAN NINE DIRECTORS AND THEREBY AMEND ARTICLE III SECTION 2 OF THE BYLAWS TO READ AS FOLLOWS: SECTION 2. Number, Tenure and Qualifications. The number of directors of the corporation shall be eight. Each director shall hold office until the next annual meeting of shareholders and until his successor shall have been elected and qualified. Dated this 19th day of November, 1992. /s/ Charlotte L. Miller ----------------------- Charlotte L. Miller Corporate Secretary EX-3.2 6 AMENDMENT TO THE BYLAWS 10/27/93 1 SECOND AMENDMENT TO BYLAWS OF JB'S RESTAURANTS, INC. October 27, 1993 By unanimous written consent of the Board of Directors of JB's Restaurants, Inc., a Delaware corporation (the "Company"), dated October 27, 1993, the Board of Directors amended Article III, Section 2. of the Bylaws of the Company in its entirety to read as follows: SECTION 2. Number, Tenure and Qualifications. The number of directors of the corporation shall be nine. Each director shall hold office until the next annual meeting of shareholders and until his successor shall have been elected and qualified. Dated this 27th day of October, 1993. /s/ Charlotte L. Miller ----------------------- Charlotte L. Miller Corporate Secretary EX-3.3 7 CERT OF OWNERSHIP AND MERGER MTNG 11/15/93 1 CERTIFICATE OF OWNERSHIP AND MERGER MERGING JB'S SPECIALTY RESTAURANTS, INC. INTO JB'S RESTAURANTS, INC. (Pursuant to Section 253 of the General Corporation Law of Delaware) JB's Restaurants, Inc., a Delaware corporation (the "Corporation"), does hereby certify: FIRST: That the Corporation is incorporated pursuant to the General Corporation Law of the State of Delaware. SECOND: That the Corporation owns all of the outstanding shares of each class of capital stock of JB's Specialty Restaurants, Inc., a Delaware corporation. THIRD: That the Corporation, by the following resolutions of its Board of Directors, duly adopted on the 15th day of October, 1993, determined to merge into itself JB's Specialty Restaurants, Inc. on the conditions set forth in such resolutions. RESOLVED, that JB's Restaurants, Inc. merge into 2 itself its subsidiary, JB's Specialty Restaurants, Inc., and assume all of said subsidiary's liabilities and obligations; and FURTHER RESOLVED, that the President and Secretary of this Corporation be and they hereby are directed to make, execute and acknowledge a certificate of ownership and merger setting forth a copy of the resolution to merge said JB's Specialty Restaurants, Inc. into this Corporation and to assume said subsidiary's liabilities and obligations and the date of adoption thereof and to file the same in the office of the Secretary of State of the State of Delaware and a certified copy thereof in the office of the Recorder of Deeds of New Castle County. IN WITNESS WHEREOF, said JB's Restaurants, Inc. has caused its corporate seal to be affixed and this certificate to be signed by Clark D. Jones, its President, and Charlotte L. Miller, its Secretary, this 15th day of October, 1993. JB'S RESTAURANTS, INC. By: /s/ Clark D. Jones ------------------------- Clark D. Jones, President ATTEST: 2 3 By: /s/ Charlotte L. Miller ------------------------------ Charlotte L. Miller, Secretary 3 EX-3.4 8 CERT OF OWNERSHIP AND MERGER MTNG 10/15/93 1 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF JB'S RESTAURANTS, INC. (Pursuant to Delaware Code, Title 8, Section 242) Don M. McComas hereby certifies that: 1. he is the President of JB's Restaurants, Inc. (the "Corporation"); 2. Article First of the Corporation's Certificate of Incorporation is hereby amended in its entirety as follows: FIRST: The name of this corporation is: Summit Family Restaurants Inc. 3. the foregoing amendment was duly approved by the Corporation's Board of Directors and the Corporation's shareholders. The undersigned hereby certifies, under penalties of perjury, that the foregoing amendment is his individual act and deed, and the act and deed of the Corporation, and that the facts stated above are true. Date: April 4, 1995 /s/ Don M. McComas ------------------------- Don M. McComas, President EX-3.5 9 CERTIFICATE OF CHANGE OF LOCATION 7/11/95 1 CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE AND OF REGISTERED AGENT It is hereby certified that: 1. The name of the corporation (hereinafter called the "corporation") is: Summit Family Restaurants Inc. 2. The registered office of the corporation within the State of Delaware is hereby changed to 32 Loockerman Square, Suite L-100, City of Dover 19904, County of Kent. 3. The registered agent of the corporation within the State of Delaware is hereby changed to The Prentice-Hall Corporation System, Inc., the business office of which is identical with the registered office of the corporation as hereby changed. 4. The corporation has authorized the changes hereinbefore set forth by resolution of its Board of Directors. Signed on July 11, 1995. /s/ Charlotte L. Miller ---------------------------------- [Typed title of authorized officer] Senior V.P. & Secretary EX-3.6 10 AMENDMENT TO THE BYLAWS 11/30/95 1 THIRD AMENDMENT TO BYLAWS OF SUMMIT FAMILY RESTAURANTS INC. November 30, 1995 At a meeting of the Board of Directors of Summit Family Restaurants Inc., (the "Company"), for which adequate notice was given, and upon motion duly made and seconded, the Board of Directors of the Company unanimously RESOLVED, to amend the Bylaws of the Company to provide that the fiscal year end on the last Monday in September rather than the last Sunday in September, and thereby amend Article VI of the Bylaws to read as follows: The fiscal year of the corporation shall end on the last Monday in September of each year. FURTHER RESOLVED, that the foregoing amendment to Article VI of the Bylaws shall be effective as of the beginning of fiscal year 1989. Dated this 30th day of November, 1995. /s/ Charlotte L. Miller ----------------------- Charlotte L. Miller Corporate Secretary EX-10.42 11 LETTER AGRMNT AMENDING THE MULT UNIT AGRMNT 1/3/92 1 July 20, 1995 C. Dennis Scott, President HomeTown Buffet, Inc. 9171 Towne Centre Drive Suite 575 San Diego, CA 92122 Dear Mr. Scott: Summit Family Restaurants Inc. understands that HomeTown Buffet, Inc. waives the requirement that the seventeenth HomeTown Buffet Restaurant location be opened on or before December 31, 1995 as required by Item II Development, paragraph 1, of the Multiple Unit Agreement dated October 9, 1991 as amended by the First and Second Amendments dated January 3, 1992, June 23, 1992, respectively, and the letter amendment dated November 30, 1993. Summit understands that HomeTown Buffet, Inc. will allow Summit Family Restaurants Inc. until June 30, 1996 to open the seventeenth location. Also, Summit understands that all other requirements of the development schedule in the Multiple Unit Agreement remain in effect. Please indicate your agreement with the above by signing where indicated below. If you have any questions, please contact me. Very Truly Yours, SUMMIT FAMILY RESTAURANTS INC. /s/ Charlotte L. Miller --------------------------------------- Charlotte L. Miller Senior Vice President, General Counsel CLM:dj cc: Don M. McComas /s/ C. Dennis Scott -------------------------------------- C. Dennis Scott, President HomeTown Buffet, Inc. EX-10.43 12 FORM OF AGRMNT BETWN THE CO. AND OTHERS 8/17/95 1 August 17, 1995 VIA HAND DELIVERY Name~ SUMMIT FAMILY RESTAURANTS INC. 440 Lawndale Drive Salt Lake City, Utah 84115-2917 Re: Change of Control Dear Salutation~: The Board of Directors considers you a key member of the management team of Summit Family Restaurants Inc., formerly JB's Restaurants, Inc., (the "Company"). The Company is desirous of retaining well qualified executives and key personnel and to assure both itself and you of continuity of management in the event of any actual or threatened change in control of the Company. The persons in control of the Company subsequent to change in control of the Company may be unwilling to recognize fully your past contributions or reward you upon your termination from employment with severance payments that the Board of Directors would normally deem appropriate in such extraordinary circumstances. Further, any change in control of the Company is likely to occur pursuant to a tender offer for the Company's stock at a substantial premium over the market price for said stock. Your contributions in the past have, and after the signing of this agreement will have, largely aided in creating the premium a tender offeror is willing to pay and such contributions should be rewarded by the Company. Finally, the Board of Directors recognizes that the threat of a major change in the control of the Company would be of significant concern to you. The purpose of this letter is to set forth our mutual agreement regarding your eligibility to receive termination pay under certain specified conditions, as set forth below, in order to foster and encourage your continued attention and dedication to your assigned duties in the event of such potentially disturbing and disruptive circumstances. The Company shall be bound, in consideration of your continued service, to do the following: 1. Upon the occurrence of any of the following events between August 17, 1995 and September 30, 1996, and successive one year periods thereafter, if renewed by the Company, the Company will thereupon pay to an escrow account at Zions First National Bank (the "Escrow Agent") one and one-half (1 1/2) times your "base salary" (as hereinafter defined), or at the discretion of the Company, deliver to the Escrow Agent, and maintain, an irrevocable letter of credit in an equal face amount issued by a bank with assets of at least $1,000,000,000,: 2 Name~ August 17, 1995 Page 2 (a) The Company enters into an agreement or letter of intent, the consummation of which would result in the occurrence of an event enumerated in Section 2(a); (b) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute an event enumerated in Section 2(a); (c) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (d) the Board adopts a resolution to the effect that, for purposes of this agreement, an event requiring funding has occurred. 2. (a) If, after the occurrence of any event enumerated in Section 1 above but before the occurrence of any event enumerated in this Section 2(a), your employment by the Company (1) terminates involuntarily for any reason other than for cause, disability, retirement on or after the date you reach normal retirement age, or death, or (2) materially changes (as defined herein) and you voluntarily terminate your employment with the Company within sixty (60) days immediately following such material change, the Escrow Agent will pay to you, or, if you fail to survive, to your beneficiaries on your behalf, the amount required to be deposited or secured by a letter of credit as described in paragraph 1 above in the manner and subject to the conditions set forth herein, upon your written demand. If, after the occurrence of any event enumerated in this Section 2(a), your employment by the Company (1) terminates involuntarily for any reason other than for cause, disability, retirement on or after the date you reach normal retirement age, or death, or (2) terminates voluntarily within ninety (90) days immediately following the occurrence of any event enumerated in this Section 2(a), or (3) materially changes (as defined herein) and you voluntarily terminate your employment within sixty (60) days immediately following such material change, the Escrow Agent will pay to you, or, if you fail to survive, to your beneficiaries on your behalf, the amount required to be deposited or secured by a letter of credit as described in paragraph 1 above in the manner and subject to the conditions set forth herein, upon your written demand. 3 Name~ August 17, 1995 Page 3 The events enumerated in this Section 2(a) are as follows: (i) any person (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the execution of this agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Section 2(a)(i) or (iii)) whose election by the Board or nomination for election by the Company's stockholders was approved, by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other Company, other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 4 Name~ August 17, 1995 Page 4 (b) If your employment is voluntarily terminated for any reason after the occurrence of an event enumerated in Section 1 above (other than as a result of a material change in your employment with the Company as referenced in Section 2 (a) above), but prior to the occurrence of an event enumerated in Section 2(a), you shall forfeit your right to any payment under this agreement. (c) The amount so deposited for you will be paid in one lump sum as soon as practicable after your demand; provided, however, that the Escrow Agent shall have the right to deduct any amounts required by federal or state laws with respect to this agreement (including, without limitation, any amount required to be withheld in order for the Company to obtain a tax deduction with respect to the payments made pursuant to this agreement). (d) Your right to make a demand hereunder shall terminate upon the expiration of two (2) years from the date of deposit of funds with the Escrow Agent as provided in Section 1 above or, if earlier, one (1) year from the date of an event set forth in Section 2(a) above, unless you have become entitled to make, and in fact have made, a demand within that time period. (e) The term "for cause" shall mean an act by you of dishonesty or fraud constituting a crime under applicable state or federal law, which act is materially damaging or materially detrimental to the business or operations of the Company, provided that you shall have received written notice from the Board of such act and shall have continued to engage in such act after thirty (30) days following receipt of such notice, which notice shall specifically identify the manner in which the Board believes that you have engaged in such act. Notwithstanding the foregoing, you shall not be deemed to have been terminated for cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of an act of dishonesty or fraud constituting a crime under the applicable state or federal law, and continuing such as aforesaid after a notice from the Board, and specifying the particulars thereof in detail. Your conduct, in connection with actions taken in response to a possible Section 2(a) event that were approved by the Board prior to such event shall not, under any circumstance, be deemed conduct giving rise to termination for cause. (f) The term "material change in employment" with the Company shall mean (i) a ten percent (10%) or greater decrease in your annual salary (ii) a diminution in 5 Name~ August 17, 1995 Page 5 title (iii) a decrease in your duties and responsibilities that results in you no longer having the duties and responsibilities associated with your current title or that have been associated with your title during your employment with the Company, or (iv) a requirement that you relocate more than fifty (50) miles from the current offices of the Company. A material change in employment that results in your voluntary termination within sixty (60) days immediately following the material change shall be considered an involuntary termination for the purposes of this letter agreement. (g) Upon termination of your employment under any circumstances giving rise to a right to payment hereunder, the Company shall provide you with appropriate notices under Section 4980B of the Internal Revenue Code, as amended ("COBRA") (or other applicable state or federal law) to enable you to continue your health insurance coverage under the health insurance plan offered by the Company to its employees at the time of your termination. Provided that you complete both of the conditions identified in (A) and (B) below, the Company shall continue to pay the portion of the premiums applicable to your health insurance benefits that the Company paid prior to your termination through the earlier of (1) eighteen (18) months immediately following your termination of employment or (2) such time as you commence employment with an entity or individual from whom health insurance benefits are available to you, regardless of whether such benefits are comparable to the benefits you had been receiving from the Company prior to your termination. Nothing herein prevents you from continuing your health insurance benefits beyond the time period referenced above as allowed by the terms, conditions and limitations of the applicable health insurance plan and applicable state and federal law; provided however, that you will be responsible to pay the entire premium to continue such coverage. Conditions (A) and (B) are as follows: (A) You must complete in a timely manner and return to the Company all documents requested by the Company for you to elect to extend your health insurance coverage under the medical plan of the Company as permitted by COBRA or other applicable state or federal law or other forms requested by the Company; and (B) You must continue to pay in a timely manner that portion of the premium you were obligated to pay prior to your termination. This provision shall not be interpreted to and is not intended to increase the time during which health insurance benefits are available to you under the 6 Name~ August 17, 1995 Page 6 Company's health insurance plan beyond eighteen (18) months following your termination. Your rights, if any, to health insurance under the Company's health insurance plan pursuant to COBRA (or any other state or federal law) shall commence immediately upon your termination of employment and not upon the termination of the Company's payment of any portion of your health insurance benefit. Nothing herein is intended to limit your right, if any, to continue your COBRA benefits, if any, beyond eighteen (18) months as allowed by federal or state law, subject to all conditions or limitations of the health insurance plan and provided you pay the entire premium necessary to continue your COBRA benefits. (h) If your employment is terminated under any circumstances giving rise to a right to payment hereunder, then through the earlier of (1) eighteen (18) months after such termination or (2) until you become employed with an entity or individual from whom such benefits are available, regardless of whether such benefits are comparable, the Company shall arrange to provide you with life and disability insurance benefits substantially similar to those which you are receiving immediately prior to your termination of employment so long as you pay in a timely manner any portion of such premiums for such benefits that you were required to pay prior to your termination. 3. The Company may withdraw the amount so deposited with the Escrow Agent pursuant to Section 1 above when and only when two (2) years have expired from the date of deposit or, if earlier, one (1) year from the date of an event set forth in Section 2(a) above, and no proper demand has been made during that time, or when the conditions requiring the deposit have ceased to exist for a period of ninety (90) days without a demand right having been created, or when your right to a payment under this agreement has been forfeited by you, whichever occurs first. If, before the expiration of such period, there shall occur another event of the kind described in Section 1 above or Section 2(a) above, the Company will not be required to make an additional deposit (except to the extent necessary by an increase in your base salary after the last funding event), but the two (2) year/one (1) year period shall then be measured from the date of the last such event. Notwithstanding a deposit with the Escrow Agent on your behalf pursuant to Section 1 above, you shall continue to be entitled to receive all of your normal and usual benefits from the Company until a termination of your employment shall occur. 4. The Company agrees to pay the charges of the Escrow Agent for its services under this agreement, and the Company will be entitled on a monthly basis to any interest or other income arising from the amount so deposited prior to the date of your demand hereunder. Any interest or other income arising from the amount so deposited after the date of your demand hereunder shall be paid to you. 7 Name~ August 17, 1995 Page 7 5. The escrow arrangement will be subject to the Escrow Agent's usual rules and procedures, and the Company will indemnify the Escrow Agent against any loss or liability for any action taken by it in good faith in such capacity. 6. This agreement shall be independent of any other contract or agreement that may exist between you and the Company from time to time. This agreement shall not restrict the Company's right to terminate your employment with the Company nor your rights to terminate employment with the Company. No merger or consolidation with any other entity, or sale of all or substantially all of the Company's assets shall occur without assumption of this agreement by the purchaser or payment by the purchaser or Company of the sum set forth in Section 1. 7. As used in this agreement, "person" shall be deemed to have the same meaning as when used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), and "beneficial owner" shall have the same meaning as when used in Rule 13d-3 promulgated pursuant to the Exchange Act. As used in this agreement, "Company" refers not only to Summit Family Restaurants Inc. but also to its successors by merger or otherwise. 8. As used herein, "base salary" shall mean the average of the base salary paid to you on a bi-weekly basis during the twelve (12) months immediately preceding the occurrence of the event enumerated in Section 1(a), (b) or (c), and shall exclude any bonuses, profit sharing payments, car allowance, and other items of compensation. If your "base salary" should increase after the occurrence of an event described in Section 1(a), (b) or (c), and prior to the occurrence of an event described in Section 2(a), the amount which must be deposited with the Escrow Agent pursuant to Section 1 shall be adjusted appropriately by including the increased amount when determining the average twelve month base salary. 9. Notwithstanding anything to the contrary in this agreement, if the total amounts payable by the Escrow Agent under this agreement, together with any other amounts to which you are entitled hereunder and under any plan, program, arrangement of, or agreement with the Company would in the aggregate result in the payment of an "excess parachute payment" as defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended ("Code"), the total amounts payable under this agreement and such other payments shall be reduced, in such order and manner as you may elect, or if you fail to so elect, as the Company shall determine, to the largest amount which may be paid without any portion of such amounts being subject to the excise tax imposed by Section 4999 of the Code. The determination of any reduction in such amounts shall be made by a public accounting firm of the Company's choice, which may at the Company's option include the Company's accounting firm or outside certified public accountant, and such determination shall be conclusive and 8 Name~ August 17, 1995 Page 8 binding on you and the Company. You and the Company agree to cooperate fully with such public accounting firm or accountant to assist in making any determination. Any excess amounts so determined shall be returned immediately to the Company upon communication of such information to Escrow Agent from such public accounting firm. 10. In the event that, following the creation of a demand right pursuant to Section 2 hereof, you incur any costs or expenses, including attorneys' fees, in the enforcement of your rights under this agreement or under any plan for the benefit of employees of the Company, including without limitation the Company's stock option plans, pension plan, employee stock ownership plan, thrift and savings plan, bonus arrangement, supplemental pension plan, then, unless the Company or the consolidated, surviving or transferee person in the event of a consolidation, merger or sale of assets, is wholly successful in defending against the enforcement of such rights, the Company, or such consolidated, surviving or transferee person, shall promptly pay to you all such costs and expenses. 11. All notices, requests, demands and other communications which are required to be or may be given under this agreement shall be in writing and shall be deemed to have been duly given when delivered in person or transmitted by telecopy or telex or upon receipt after dispatch by certified or registered first class mail, postage prepaid, return receipt requested, to the party to whom the same is given or made: a. Notice to the Escrow Agent should be sent to: Zions First National Bank One Main Street Salt Lake City, Utah 84111 Attention: Corporate Trust Department b. Notice to the Company should be sent to: President Summit Family Restaurants Inc. 440 Lawndale Drive Salt Lake City, Utah 84115 9 Name~ August 17, 1995 Page 9 With a copy to: General Counsel Summit Family Restaurants Inc. 440 Lawndale Drive Salt Lake City, Utah 84115 c. Notice to you should be sent to: Name~ c/o Summit Family Restaurants Inc. 440 Lawndale Drive Salt Lake City, Utah 84115 12. This agreement constitutes the entire agreement and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. 13. This agreement may not be modified or changed except by a writing, signed by you and the Company. Please indicate your acceptance of this agreement by signing one copy of this letter in the space provided below and returning it to me. The other copy is for your files. Yours very truly, SUMMIT FAMILY RESTAURANTS INC. Don M. McComas President and Chief Executive Officer AGREED TO AND ACCEPTED this _____ day of ____________________, 199__. ___________________________________ Name1~ EX-10.44 13 FISCAL 96 EXEC. INCENTIVE COMPENSATION PLAN 1 RECOMMENDATIONS FISCAL YEAR 1996 EXECUTIVE COMPENSATION SALARY -No salary increases are proposed at this time for the Senior Management team. ANNUAL INCENTIVE COMPENSATION -Recognizing the extraordinary operating circumstances as we enter FY'96, we wish to adopt a Plan which will encourage and reward focus on financial performance. -No payments will be made until budget is exceeded so that, in comparison to budget, payments will be self-funded. Once budget is achieved, it is proposed that the first $250,000 of profit dollars above budget be paid out as incentive. Thereafter, a portion of additional earnings would be paid out on a declining scale: 50% of the first $200,000 additional earnings; 40% of the next $200,000; 30% of the next $300,000, and; 25% of additional earnings. The attachment charts this framework, showing total bonus awards at various performance levels. -As in past years, actual results will be adjusted for significant unbudgeted items such as gains or losses associated with the disposition of assets (such as the sale of HTBB Stock). The Compensation Committee will review transactions and make recommendations for adjustments to the Board. -In the event of the disposition of a part of the Company, financial targets would be adjusted accordingly. -Provide for partial year awards based on fiscal year-to-date results versus budget in the event of the disposition of the Company prior to fiscal year end. Partial year payments, if any, will be pro-rated based on partial year salary. EXECUTIVE LONG TERM STOCK AWARD PLAN -This shareholder approved Plan makes available a total of 100,000 shares for award. No shares are proposed to be made available for award at this time. 2 INCENTIVE VERSUS RESULTS COMPARISON
INCENTIVE EARNINGS BEFORE -------------------- EARNINGS AFTER INCENTIVE $'S % INCENTIVE --------- --- - --------- ($1,052,508) Plan $0 -- ($1,052,508) (802,508) 250,000 100% (1,052,508) (602,000) 350,000 50% (952,000) (402,000) 430,000 40% (832,000) ($102,000) $520,000 30% ($622,000) 25% of all additional $'s FY'95 RESULTS ($5,632,654) $0 ($5,632,654)
3 POSITIONS COVERED BY ANNUAL INCENTIVE PLAN
NO. OF ANNUAL MAX. % MAX. 35% OF EMPLOYEES SALARIES OF SALARY INCENTIVE MAX. --------- -------- --------- --------- ------ Senior Executives 7 $ 846,000 (1)% 332,025 116,209 Vice Presidents 2 135,500 25% 33,875 11,856 Directors 15 754,000 20% 150,800 52,780 Home Office Staff 12 397,000 10% 39,700 13,895 ---------- ------- ------- Annual Totals $2,132,500 556,400 194,740
(1) 50% for President and CFO, 35% for all Senior Executives except the Senior Vice President of Operations, who is at 40%. EX-10.45 14 SEPARATION COMP PLAN ADOPTED BY BOD 9/25/95 1 SUMMIT FAMILY RESTAURANTS INC. Separation Compensation Plan September 25, 1995 1. PURPOSE. The Summit Family Restaurants Inc. Separation Compensation Plan (the "Plan") is intended to provide selected employees of Summit Family Restaurants Inc. and its subsidiaries (the "Company") with certain benefits upon their involuntary termination of employment. The Plan is meant to ease the financial hardships that may be experienced by these employees. 2. SCOPE AND DURATION. The benefits of the Plan will be provided to employees notified of an involuntary termination of employment on or after September 25, 1995, and on or before December 31, 1995. Any and all previous plans, policies and practices of any type concerning benefits upon termination of employment are hereby terminated and superseded by the terms of the Plan. Upon termination of employment, an employee's eligibility for participation in the Company's benefit plans, including the: (i) COMPANY 401(K) RETIREMENT SAVINGS PLAN (ii) COMPANY MEDICAL AND DENTAL PLAN (iii) COMPANY ESOP (iv) COMPANY HEALTH CARE REIMBURSEMENT ACCOUNT shall cease, and such employee's rights with respect to the benefits afforded by such plans shall be in accordance with the provisions of such plans or as required by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") or paragraph 5 (C). Further, after termination of employment, an employee will not accrue vacation time, or paid holidays, nor be eligible for disability benefits, car allowances or other similar benefits normally associated with employment. 3. SELECTION OF EMPLOYEES. The terms and conditions of the Plan are tailored to the business needs of the Company. The only employees eligible for benefits under this Plan are those employees whose work location is at the Home Office of the Company or whose work location is outside of the Home Office and the employee is at the level of district manager or above, and other employees designated by the Company, from time to time, in its sole discretion. Within the previous indicated categories of employees, the Company has sole discretion to determine whether an employee receives benefits under 2 the Plan. Only an employee described below may be considered for benefits under the Plan. A. Employment Termination. An employee is entitled to benefits under the Plan in the event of an involuntary termination of employment under circumstances which, in the Company's opinion and sole discretion, warrant the payment of such benefits. B. Reassignment. Generally, the Company will exercise its discretion (i) to deny benefits under the Plan when an employee who is reassigned to a similar job within the same locale refuses such reassignment and, (ii) to provide benefits under the Plan when an employee who is reassigned to a similar job not within the same locale refuses such reassignment. In order to be eligible to receive benefits under the Plan, the Company must determine that the employee's termination of employment is in the best interest of the Company. Furthermore, and not by way of limitation, no employee terminated for cause (including unsatisfactory performance) will be eligible to receive benefits under the Plan. 4. CONDITIONS. Eligible employees may be required to satisfy such conditions as the Company's management in its sole discretion decides are appropriate in order for an employee to obtain any benefit under the Plan. For example, and not by way of limitation, the Company's management may decide in its discretion that the business requirements of the Company require an employee to continue in employment through a specified date or until a specified project has been completed to the Company's management's satisfaction. If continued employment is necessary to satisfy the condition, an employee's performance of services during the continued employment must be satisfactory to the Company's management. 5. BENEFITS. An employee who is eligible for benefits under the Plan, who satisfies any conditions required under Paragraph 4, above, and whose employment with the Company is involuntarily terminated on the date specified by the Company, may receive any or all of the benefits listed below following the employee's termination of employment with the Company. The determination of which benefit(s) an employee is to receive will be made by the Company in its sole discretion. A. Cash Severance Payment. An employee who the Company determines to be entitled to this benefit will receive an amount to be determined by the Company in lieu of advance notice of termination ("Severance Pay"). B. Cash Separation Payment. An employee who the Company determines to be entitled to this benefit will, subject to execution of the Release described below, receive an amount to be determined by the Company pursuant to a letter from the 2 3 Company to the Employee ("Separation Pay"). Eligible employees will be entitled to receive the above-referenced cash Separation Pay only after executing, and not revoking, a Release and covenant not to sue on the form attached to the Plan (the "Release"). An eligible employee must terminate employment on the date specified by the Company. The employee will have 45 days from termination of employment within which to execute the Release and to receive the cash separation payment. If the employee executes the Release within the 45-day period, the employee will have an additional 7 days from the date the Release is executed to revoke the Release. If the employee does not revoke the Release during the 7-day revocation period, the employee will receive the cash separation payment as soon as administratively feasible thereafter. The executed Release must be submitted to the Senior Vice President of Human Resources, Summit Family Restaurants Inc., 440 Lawndale Drive, Salt Lake City, Utah 84115, before the end of the 45-day period following termination of employment. To revoke a Release, an employee must submit a written letter of revocation to the Human Resources Senior Vice President, Summit Family Restaurants Inc., 440 Lawndale Drive, Salt Lake City, Utah 84115, before the end of the 7-day period following execution of the Release. If the executed Release or letter of revocation is mailed, it must be postmarked no later than the last day of the 45-day period following termination of employment (in the case of the Release) or the 7-day period following execution of the Release (in the case of the letter of revocation). Employees are advised to consult with their personal attorneys before executing the Release. The foregoing time limits may be reduced by the Company in its sole discretion, as allowed by applicable law as to any employee or group of employees. Employees who do not execute a Release, or who revoke a Release, are eligible, at the Company's discretion, to receive only Severance Pay in lieu of notice described above in paragraph 5 A. C. Health Benefits. During the time an employee receives Severance Pay under this Plan, such employee will continue to receive the health benefits the employee received prior to receipt of the Severance Pay, and the appropriate deductions will be made from the Severance Pay for the employee's portion of the premium payments. An employee's medical coverage under the Company's Medical Plan shall terminate upon the last day of the month in which the employee receives Severance Pay, with 3 4 conversion privileges, in accordance with COBRA, as applicable, without Company subsidization of the COBRA monthly premium. Health coverage during payment of Separation Pay is only available through COBRA, without any subsidization by the Company. D. Additional Payments. An employee who the Company determines to be entitled to additional severance compensation will be eligible to receive such additional cash severance compensation as the Company, in the Company's sole discretion, decides is appropriate. An employee who does not execute a Release, or who revokes a Release, shall not be eligible for additional payments. 6. ADMINISTRATION. For purposes of the Plan, the Company's Senior Vice President of Human Resources is the "Administrator." The Administrator shall have the full power and authority as the Plan's Named Fiduciary to manage and control the operation and administration of the Plan, to correct deficiencies therein, and to supply omissions. The Administrator's powers shall include, but shall not be limited to, the discretionary power: A. to determine an employee's eligibility for benefits pursuant to the Plan; to determine the amounts and time of payment of Plan benefits; to take any actions necessary to assure timely payments of benefits to any employee eligible to receive benefits pursuant to the Plan; and to assure a full and fair review for any employee who is denied a claim to any benefit pursuant to the Plan; B. to interpret the Plan and to decide any and all matters arising hereunder, including the right to remedy possible ambiguities; C. to maintain Plan records, to communicate with employees, and to submit required reports to appropriate regulatory authorities; D. to employ other persons (i) to render advice with respect to any responsibility or authority pursuant to the Plan being carried out by the Company or the Administrator and (ii) to assist in the administration of the Plan; and E. to exercise any discretion and to take other action necessary or appropriate to the effective administration of the Plan. The Administrator shall have full and exclusive discretionary power and authority to make factual determinations, to interpret the Plan, to make benefit and eligibility determinations, and to determine all questions arising in the administration, interpretation, and application of the Plan. All decisions, actions and interpretations of the Administrator in the administration of 4 5 the Plan shall be final, binding and conclusive upon all parties. The Administrator and any employee appointed by the Administrator to administer the Plan shall be indemnified by the Company against personal liability for actions taken in good faith in the discharge of their duties under the Plan. Indemnification rights granted hereunder are in addition to, and not in lieu of, any rights to indemnification to which the individual may be entitled pursuant to law or the by-laws of the Company. The Administrator may designate other persons to carry out such of the Administrator's responsibilities hereunder for the operation and administration of the Plan as the Administrator deems advisable, and may delegate to the persons so designated such of his powers as the Administrator deems necessary to carry out such responsibilities. Such designation and delegation shall be subject to such terms and conditions as the Administrator deems proper. Any action or determination made or taken in carrying out responsibilities hereunder by persons so designated by the Administrator shall have the same force and effect for all purposes as if such action or determination had been made or taken by the Administrator. 7. CLAIMS PROCEDURE. A. Application. An employee who is determined by the Administrator not to be entitled to benefits under the Plan may file with the Administrator a signed, written application for benefits specifically identifying the benefits claimed and describing all facts and circumstances entitling the employee to benefits under the Plan. B. Decision. Within ninety (90) days after receipt of a claim for benefits, the Administrator shall notify the employee of the Administrator's decision. If the claim is denied, in whole or in part, the Administrator's notice of denial shall be in writing and shall state: (i) the specific reasons for denial of the claim with specific references to pertinent Plan provisions on which the denial was based; (ii) a description of any additional materials or information necessary for the employee to perfect the claim and an explanation of why the materials or information are necessary; and (iii) an explanation of the Plan's claim review procedure. C. Appeal. In the event a claim for benefits is denied, or if an employee receives no response to a claim within ninety (90) days of its submission (in which case the claim for benefits shall be deemed to have been denied), the employee or the employee's duly authorized representative, at the employee's sole expense, may request reconsideration of the denial by the Administrator, by filing a written request for reconsideration with the Administrator within sixty (60) days of the receipt of the 5 6 written notice of denial or sixty (60) days from the date the claim is deemed to be denied. In pursuing such request, the employee or the employee's duly authorized representative may: (i) review pertinent documents; and (ii) submit issues and comments in writing to the Administrator. D. Reconsideration. The Administrator shall afford any employee requesting reconsideration a full and fair review of the decision denying the employee's claim. The Administrator has the sole discretion to determine whether to hold a hearing to review any or all issues raised by the employee. The Administrator shall issue a written decision to the employee within sixty (60) days after receipt of the request for reconsideration (unless special circumstances require an extension of time, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after the request for review). The Administrator's decision shall give specific reasons for the decision, written in a manner calculated to be understood by the employee and shall include specific references to the pertinent Plan provisions upon which the decision is based. If the decision on reconsideration is not furnished within the time specified above, the claim shall be deemed denied on reconsideration. 8. AMENDMENT AND TERMINATION. The Company retains the right, at any time and from time to time, to amend or terminate the Plan for any reason, and without either the consent of or a prior notification to any employee. Furthermore, the Plan shall automatically terminate when all employees who were notified of their involuntary termination of employment on or prior to December 31, 1995, have received all of the benefits to which they are entitled under the Plan. The Plan has been adopted by the Company to better reflect changing operations and management requirements. Because the Company's particular business needs may change from time to time, it is not possible to predict how or when circumstances might arise that will result in changes in or the elimination of the Plan. The Company retains complete and full discretion to modify, amend or cancel the Plan at any time and for any reason. Only the President of the Company or the Administrator of the Plan can make decisions to modify, amend or cancel the Plan and such decisions must be in writing. Other employees are not likely to know about proposals for changes or the likely outcome of consideration of such proposals. In any event, no Company manager or employee is authorized to discuss, give opinions, predict or otherwise comment on possible future announcements relating to changes in, or the elimination of, the Plan or the adoption of new separation benefit plans. All Company employees are cautioned that they may not rely on such discussion, opinion, prediction or other managerial or employee comment or speculation. 6 7 The Company, in its discretion, may adopt new or modified separation benefit plans or may withdraw or change existing plans or programs in ways that, depending on one's individual circumstances, might be more or less advantageous than the current Plan. If in the Company's view business conditions require, the Company may subsequently implement other separation programs with such provisions as the Company in its sole discretion deems appropriate. 9. MISCELLANEOUS. A. Effect on Employment. The Plan shall not confer upon a person any right to be employed by, or to be continued in the employment of, the Company. B. Alienation and Assignment. No benefit under the Plan may be assigned or alienated, voluntarily or involuntarily. C. Facility of Payment. If the Administrator deems any person incapable of receiving benefits to which the person is entitled by reason of minority, illness, infirmity, or other incapacity, the Administrator may direct that payment be made directly for the benefit of such person or to any person selected by the Administrator to disburse it, whose receipt shall be complete acquittance therefor. To the extent thereof, such payment shall discharge all liability of the Plan. D. Lost Employees. If the Administrator is unable to locate an employee to whom payment is due after making reasonable efforts to locate the employee, any benefit payable under the Plan shall be deemed forfeited. However, if an employee is declared dead under applicable state law as of a date within the period the employee otherwise would be receiving payments under Paragraph 5.A. above, any payments not made to the deceased employee shall be made in accordance with Paragraph 9.E., below. E. Death. If an employee dies while entitled to receive payments under Paragraph 5.A. above, any remaining payments shall be made to the employee's spouse as of the date of the employee's death or, if none, to the employee's estate. The payments will be made at the same time that they would have been made if the employee had survived (or, if later, as soon as administratively feasible after the Company receives all documents and determinations necessary to make payments in respect of the deceased employee). F. Source of Payments. All benefits under the Plan shall be paid exclusively by the Company out of its general assets, and the Company shall have no obligation to fund the Plan. G. Severability. If any provisions of the Plan shall be held invalid or 7 8 unenforceable, such invalidity or unenforceability shall not affect any other provision, and the Plan shall be construed and enforced as if the provision had not been included. H. Headings and Captions. The headings and captions in this document are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be used in the construction of the Plan. I. Gender and Number. Except where otherwise clearly indicated by context, the neuter shall include the masculine and the feminine, the singular shall include the plural, and vice-versa. J. Withholding. All benefits under the Plan shall be paid subject to applicable withholding requirements. 10. TECHNICAL DETAILS. A. Information about the Plan Sponsor and Plan Administrator. (i) The Plan Sponsor is Summit Family Restaurants Inc. (ii) The Plan Sponsor's address is 440 Lawndale Drive Salt Lake City, Utah 84115. (iii) The Plan Sponsor's telephone number is (801) 463-5500. (iv) The Employer Identification Number assigned by the Internal Revenue Service to the Plan Sponsor is 87-0264039. (v) The Administrator of the Plan is the Company's Senior Vice President of Human Resources. (vi) The Administrator's telephone number is (801) 463-5500 and address is 440 Lawndale Drive, Salt Lake City, Utah 84115. All inquiries and requests for information, for document examination, and for copies of documents should be directed to the Senior Vice President of Human Resources, Summit Family Restaurants Inc., 440 Lawndale Drive, Salt Lake City, Utah 84115. All personal data about an employee that might have a bearing on an employee's right to participate under the Plan, or on an employee's benefits, should also be directed to the Company's Senior Vice President of Human Resources at the above address. The Administrator is the agent for the service of legal process; legal process also may be served on the Plan Sponsor. 8 9 B. Identification of the Plan. (i) The Name of the Plan is the "Summit Family Restaurants Inc. Separation Compensation Plan." (ii) The Plan Number assigned by the Sponsor is 550. (iii) The Plan is a welfare benefit plan providing separation pay benefits. (iv) The last day of the Plan's fiscal year is December 31. 11. STATEMENT OF ERISA RIGHTS. The following "Statement of ERISA Rights" is provided pursuant to Section 2520.102- 2(t), Title 29, Code of Federal Regulations. It does not describe the Plan. The "Statement" should not be construed as (a) legal advice or (b) material for which any party related to the plan is responsible. The "Statement" is the product of the U.S. Department of Labor. As a participant in the Plan you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 ("ERISA"). ERISA provides that all plan participants shall be entitled to: (1) Examine, without charge, at the Administrator's office or at other specified locations, all Plan documents, including insurance contracts, collective bargaining agreements (where applicable), and copies of all documents filed by the Plan with the U.S. Department of Labor, such as detailed annual reports and Plan descriptions. (2) Obtain copies of all Plan documents and other Plan information upon written request to the Administrator. The Administrator may make a reasonable charge for the copies. (3) Receive a summary of the Plan's annual financial report. The Administrator is required by law to furnish each participant with a copy of this summary annual report. In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate your Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit under the Plan or exercising your rights under ERISA. If your claim for a benefit under the Plan is denied in whole or in part, you must receive a written 9 10 explanation of the reason for the denial. You have the right to have the Administrator review and reconsider your claim. Under ERISA, there are steps you can take to enforce the rights summarized above. For instance, if you request materials from the Administrator and do not receive them within 30 days, you may file suit in federal court. In such a case, the court may require the Administrator to provide the materials and pay you up to $100 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Administrator. If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that Plan fiduciaries misuse the Plan's funds, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees if, for example, it finds your claim to be frivolous. If you have any questions about your Plan, you should contact your Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest Area Office of the U.S. Labor-Management Services Administration, Department of Labor. Notes: The Department of Labor has issued a number of administrative exemptions from certain reporting and disclosure requirements. Some of these exemptions may apply to the Plan from time to time. For example, many plans are exempted from preparing and filing annual reports and summary annual reports. To the extent that any of these exemptions apply to the Plan, the above "Statement of ERISA Rights" must be considered to be modified. ---------------------------------------------------------------- The foregoing Separation Compensation Plan is executed this 25th day of September, 1995, by the undersigned officer of Summit Family Restaurants Inc, George H. Gehling, its Senior Vice President of Human Resources. /s/ George H. Gehling ----------------------------- George H. Gehling Senior Vice President of Human Resources 10 EX-10.46 15 LTR AGRMNT 1/4/95 BTWN CO. AND JOSEPH HOLLENCAMP 1 January 4, 1995 Mr. Joseph J. Hollencamp 1010 West 2610 South Salt Lake City, Utah 84119 Re: Incentive Plan Dear Joe: As you know, JB's Restaurants, Inc. ("JB's") has had some preliminary conversations with HomeTown Buffet, Inc., regarding the potential sale of JB's HomeTown Buffet restaurants. Currently, those discussions have not progressed very far, but from time to time in the next year or two, the discussions may continue and may result in more serious consideration of the sale of the JB's HomeTown Buffet restaurants to HomeTown Buffet, Inc. JB's values your contributions as HomeTown Buffet Senior Operations Vice President and we do not want the discussions of sale, the possibility of a sale, or the actual sale to interfere with your contributions to, or your relationship with JB's. Also, the financial performance and operations of the HomeTown Buffet restaurants could have an impact on the sales price of the restaurants if a sale occurs. Therefore, in anticipation of a possible sale transaction, the Board of Directors has approved the following incentive plan for you which is in addition to and separate from any other incentive plans in which you participate at JB's. Within thirty (30) days after the close of the sale of all of the HomeTown Buffet restaurants operated by JB's or under construction at the time of the sale, to HomeTown Buffet, Inc. on or before September 30, 1996, JB's shall pay to you the incentive payment described below ("Incentive Payment"). For the purposes of the Incentive Payment, the "sale" of the restaurants shall be considered to have occurred upon the physical and legal transfer of all the restaurants to HomeTown Buffet, Inc. and the receipt of payment by JB's for the sale. In order for you to be eligible to receive the Incentive Payment, you must be employed in good standing with JB's as the Senior Vice President of Operations of JB's HomeTown Buffet division. 2 Mr. Joseph J. Hollencamp January 4, 1995 Page 2 The maximum Incentive Payment for which you may be eligible shall be one percent (1%) of the final sales price received by JB's for the restaurants, but in no event more than $400,000. You will be eligible for a percentage of the total Incentive Payment based upon the timing of the sale as follows: If the sale occurs after December 19, 1994 and on or before March 13, 1995, you will be eligible to receive 20% of the total Incentive Payment. If the sale occurs after March 13, 1995, and on or before July 3, 1995, you will be eligible to receive 40% of the total Incentive Payment. If the sale occurs after July 3, 1995, and on or before September 25, 1995, you will be eligible to receive 60% of the total Incentive Payment. If the sale occurs after September 25, 1995, and on or before December 25, 1995, you will be eligible to receive 80% of the total Incentive Payment. If the sale occurs after December 25, 1995, and on or before September 30, 1996, you will be eligible to receive 100% of the total Incentive Payment. This letter agreement is not a contract of employment, but an incentive plan related solely to the potential sale of the HomeTown Buffet restaurants to HomeTown Buffet, Inc. Therefore, you will remain an at-will employee, subject to the terms of any change of control agreement. If such a sale is not consummated on or before September 30, 1996, this letter agreement shall terminate and be of no force or effect; however, the parties may agree to extend this letter agreement in the event that a potential sale may occur at a later date. Any agreement to sell the HomeTown Buffet restaurants shall be solely at the discretion of JB's and you shall not have any claim pursuant to any agreement between JB's and any purchaser of any or all of the HomeTown Buffet restaurants as a third party beneficiary or otherwise. The purpose of this letter agreement is to provide you sufficient incentive to maintain high standards of operation, sales and profits even though JB's may transfer the ownership of these restaurants at some future date. 3 Mr. Joseph J. Hollencamp January 4, 1995 Page 3 If this letter agreement is acceptable to you, please sign where indicated below and return the original to me. Very truly yours, JB'S RESTAURANTS, INC. /s/ Don M. McComas ----------------------------- Don M. McComas President & Chief Executive Officer /s/ Joseph J. Hollencamp Date 01/05/95 - ----------------------------- -------------------- Joseph J. Hollencamp 4 SECOND AMENDMENT TO BYLAWS OF JB'S RESTAURANTS, INC. October 27, 1993 By unanimous written consent of the Board of Directors of JB's Restaurants, Inc., a Delaware corporation (the "Company"), dated October 27, 1993, the Board of Directors amended Article III, Section 2. of the Bylaws of the Company in its entirety to read as follows: SECTION 2. Number, Tenure and Qualifications. The number of directors of the corporation shall be nine. Each director shall hold office until the next annual meeting of shareholders and until his successor shall have been elected and qualified. Dated this 27th day of October, 1993. /s/ Charlotte L. Miller ----------------------------- Charlotte L. Miller Corporate Secretary EX-10.47 16 AGRMNT AND PLAN OF MERGER AND REORG BTWN CO. & CKE 1 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION BY AND AMONG SUMMIT FAMILY RESTAURANTS INC. AND CKE RESTAURANTS, INC. DATED: NOVEMBER 30, 1995 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 MERGER AND CLOSING 1.1 Formation of Merger Sub. . . . . . . . . . . . . . . . . . . . 1 1.2 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.4 Effects of the Merger . . . . . . . . . . . . . . . . . . . . 2 1.5 Certificate of Incorporation and Bylaws . . . . . . . . . . . 2 ARTICLE 2 CONVERSION OF SECURITIES; DISSENTING SHARES 2.1 Conversion of Securities . . . . . . . . . . . . . . . . . . . 2 2.2 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . 3 2.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . 3 2.4 Exchange of Certificates . . . . . . . . . . . . . . . . . . . 3 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SUMMIT 3.1 Organization, Good Standing and Authority . . . . . . . . . . 5 3.2 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . 5 3.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 5 3.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.6 Exchange Act Reports and Financial Statements . . . . . . . . 6 3.7 Information in Registration Statement and Proxy Statement . . 7 3.8 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 7 3.9 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.10 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.11 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . 8 3.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.14 Title to Properties . . . . . . . . . . . . . . . . . . . . . 9 3.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . 10 3.16 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.17 Contracts and Commitments . . . . . . . . . . . . . . . . . . 11 3.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 11 3.19 Absence of Certain Developments . . . . . . . . . . . . . . . 11
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Page ---- ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF CKE 4.1 Organization, Good Standing and Authority . . . . . . . . . . 13 4.2 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . 13 4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 13 4.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.6 Exchange Act Reports and Financial Statements . . . . . . . . 14 4.7 Information in Registration Statement and Proxy Statement . . 15 4.8 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 15 4.9 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.11 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 16 4.12 Absence of Certain Developments . . . . . . . . . . . . . . . 16 ARTICLE 5 ACTIONS BY SUMMIT AND CKE PENDING THE MERGER 5.1 Maintenance of Business . . . . . . . . . . . . . . . . . . . 17 5.2 Certain Prohibited Transactions . . . . . . . . . . . . . . . 18 5.3 Registration Statement/Proxy Statement . . . . . . . . . . . . 19 5.4 Investigation by CKE . . . . . . . . . . . . . . . . . . . . . 19 5.5 Title Reports . . . . . . . . . . . . . . . . . . . . . . . . 20 5.6 Consents and Best Efforts . . . . . . . . . . . . . . . . . . 20 5.7 Notification of Certain Matters . . . . . . . . . . . . . . . 20 5.8 Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . 21 5.9 Letter of Summit's Accountants . . . . . . . . . . . . . . . . 21 5.10 Letter of CKE's Accountants . . . . . . . . . . . . . . . . . 21 5.11 Stockholders Meeting . . . . . . . . . . . . . . . . . . . . . 21 5.12 New York Stock Exchange Listing . . . . . . . . . . . . . . . 22 5.13 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 22 5.14 Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . 22 5.15 Change of Control Letters . . . . . . . . . . . . . . . . . . 23 5.16 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . 23
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Page ---- ARTICLE 6 CONDITIONS TO SUMMIT'S OBLIGATIONS 6.1 Completion of Other Transactions . . . . . . . . . . . . . . 24 6.2 Representations, Warranties and Covenants . . . . . . . . . 24 6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 25 6.4 No Governmental Proceeding or Litigation . . . . . . . . . . 25 6.5 Certificates . . . . . . . . . . . . . . . . . . . . . . . . 25 6.6 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . 25 6.7 Corporate Documents . . . . . . . . . . . . . . . . . . . . 25 6.8 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . 25 6.9 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE 7 CONDITIONS TO CKE'S OBLIGATIONS 7.1 Completion of Other Transactions . . . . . . . . . . . . . . 26 7.2 Representations, Warranties and Covenants . . . . . . . . . 26 7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.4 No Governmental Proceeding or Litigation . . . . . . . . . . 27 7.5 Certificates and Opinions . . . . . . . . . . . . . . . . . 27 7.6 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . 27 7.7 Corporate Documents . . . . . . . . . . . . . . . . . . . . 27 7.8 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . 27 7.9 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . 27 7.10 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE 8 ACTIONS BY SUMMIT AND CKE AFTER THE CLOSING 8.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . 28 8.2 Directors' and Officers' Insurance . . . . . . . . . . . . . 28 ARTICLE 9 TERMINATION AND AMENDMENT 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . 28 9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . 29 9.3 Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . 29
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Page ---- ARTICLE 10 DEFINITIONS 10.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 11 MISCELLANEOUS 11.1 Survival of Representations, Etc. . . . . . . . . . . . . . 35 11.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 35 11.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 35 11.4 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . 36 11.5 Entire Agreement; Amendments and Waivers . . . . . . . . . . 36 11.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 36 11.7 Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . 37 11.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 37 11.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 37 11.10 Specific Performance . . . . . . . . . . . . . . . . . . . . 37 11.11 Attorneys Fees . . . . . . . . . . . . . . . . . . . . . . . 37 11.12 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . 37 11.13 Confidential Information . . . . . . . . . . . . . . . . . . 37
SUMMIT DISCLOSURE SCHEDULE CKE DISCLOSURE SCHEDULE (iv) 6 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION This Agreement and Plan of Merger and Reorganization, dated as of November 30, 1995 (this "Agreement"), is by and among Summit Family Restaurants Inc., a Delaware corporation ("Summit"), and CKE Restaurants, Inc., a Delaware corporation ("CKE"). Capitalized terms not otherwise defined have the meanings set forth in Article 10. RECITALS A. The respective Boards of Directors of Summit and CKE have determined that the merger (the "Merger") of Summit with and into a newly-formed wholly-owned subsidiary ("Merger Sub") of CKE, with Merger Sub surviving the Merger, would be advantageous and beneficial to their respective corporations and stockholders. B. For United States federal income tax purposes, the parties intend that the Merger qualify as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and promises contained herein and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 MERGER AND CLOSING 1.1 FORMATION OF MERGER SUB. Prior to the Effective Time, CKE shall organize Merger Sub as a wholly-owned subsidiary of CKE incorporated under the laws of the State of Delaware. 1.2 THE MERGER. At the Effective Time, in accordance with this Agreement and the applicable provisions of the Delaware General Corporation Law ("DGCL"), Summit shall in the Merger merge with and into Merger Sub, with Merger Sub surviving the Merger, the separate existence of Summit shall cease, and Merger Sub shall continue as the surviving corporation as set forth in the Certificate of Merger. Merger Sub is sometimes referred to herein as the "Surviving Corporation." 1 7 1.3 CLOSING. The closing of the Merger and the other transactions contemplated herein (the "Closing") shall be held at 10:00 a.m., Utah time on February 28, 1996 or such later date to which Summit and CKE shall agree (the "Closing Date") at the offices of Summit, unless the parties hereto otherwise agree. After satisfaction or waiver of all conditions to the Closing, the parties hereto will cause the Merger to be consummated on the Closing Date by filing with the Secretary of State of the State of Delaware a certificate of merger as is required by, and executed in accordance with, the relevant provisions of DGCL (the time of such filing being the "Effective Time"). 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, the separate corporate existence of Summit shall cease and Merger Sub shall be the Surviving Corporation and shall have all of the rights, privileges, immunities and power and shall be subject to all duties and liabilities of a corporation organized under the DGCL. 1.5 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of Incorporation of Merger Sub in effect at the Effective Time shall be the Certificate of the Surviving Corporation. The Bylaws of Merger Sub in effect at the Effective Time shall be the Bylaws of the Surviving Corporation until amended in accordance with applicable law. ARTICLE 2 CONVERSION OF SECURITIES; DISSENTING SHARES 2.1 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the Merger and without any action on the part of the parties hereto each share of Summit Common Stock and Summit Preferred Stock issued and outstanding immediately prior to the Effective Time, other than shares of Summit Common Stock and Summit Preferred Stock for which appraisal rights have been exercised pursuant to Section 262 of the DGCL, will be converted into the right to receive the Merger Consideration. "Merger Consideration" means, for each share of Summit Common Stock and each share of Summit Preferred Stock: (a) $3.00 in cash (without interest) and (b) a number of shares of CKE Common Stock equal to $3.00 divided by the Adjusted CKE Price. "Adjusted CKE Price" means (a) if the Average CKE Price is equal to or greater than $17.00, $14.625 plus the amount by which the Average CKE Price exceeds $17.00, (b) if the Average CKE Price is less than $17.00 and equal to or 2 8 greater than $12.25, $14.625, (c) if the Average CKE Price is less than $12.25 and CKE has not exercised the Fill-Up Election, $14.625 and (d) if the Average CKE Price is less than $12.25 and CKE has exercised the Fill-Up Election, $14.625 less the amount by which $12.25 exceeds the Average CKE Price. "Average CKE Price" means the average of the per share closing sales prices of CKE Common Stock on the New York Stock Exchange for the 20 consecutive trading days ending two days prior to the Closing Date. 2.2 DISSENTING SHARES. Notwithstanding Section 2.1, shares of Summit Common Stock and Summit Preferred Stock outstanding immediately prior to the Effective Time and held by holders who have not voted in favor of the Merger or consented thereto in writing and who have demanded appraisal for such shares in accordance with Section 262 of the DGCL shall not be converted into rights to receive the Merger Consideration, and holders of such shares of Summit Common Stock and Summit Preferred Stock shall be entitled to receive payment from Summit of the appraised value of such shares of Summit Common Stock and Summit Preferred Stock in accordance with the provisions of such Section 262 unless and until such holders fail to perfect or shall have effectively withdrawn or lost their rights to appraisal and payment under the DGCL. If after the Effective Time any such holder fails to perfect or withdraws or otherwise loses his right to appraisal or payment, such shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration. 2.3 FRACTIONAL SHARES. No fractional shares of CKE Common Stock shall be issued in the Merger. All fractional shares of CKE Common Stock that a holder of CKE Common Stock would otherwise be entitled to receive as a result of the Merger shall be aggregated, and if a fractional share results from such aggregation, such holder shall be entitled to receive from Summit, in lieu thereof, an amount in cash (without interest) derived through the aggregation by Summit of all such fractional shares otherwise issuable, the sale of such shares of CKE Common Stock in the market and the distribution of the proceeds thereof calculated by multiplying the average per share sales price by the fraction of a share of CKE Common Stock to which such holder would otherwise have been entitled. Under no circumstances will the aggregate cash consideration paid by CKE in the Merger constitute more than 50% of the total aggregate consideration paid by CKE in the Merger, with the CKE Common Stock issued in the Merger being valued at the Adjusted CKE Price. 2.4 EXCHANGE OF CERTIFICATES. From and after the Effective Time, each holder of an outstanding certificate which immediately prior to the Effective Time represented outstanding shares of Summit Common Stock and Summit Preferred Stock shall be entitled to receive in exchange therefor, upon surrender thereof to an exchange 3 9 agent to be selected by CKE, a certificate or certificates representing the number of whole shares of CKE Common Stock into which such holder's shares were converted and a check representing (i) any cash payable in lieu of any fractional share of CKE Common Stock computed set forth above and (ii) the cash portion of the Merger Consideration into which such holder's shares were converted. No holder of a certificate or certificates which immediately prior to the Effective Time represented shares of Summit Common Stock or Summit Preferred Stock shall be entitled to receive any dividend or other distribution from CKE until surrender of such holder's certificate for a certificate or certificates representing shares of Summit Common Stock or Summit Preferred Stock. Upon such surrender, there shall be paid to the holder the amount of any dividends or other distributions (without interest) which became payable on or after the Effective Time, but which were not paid by reason of the foregoing, with respect to the number of whole shares of CKE Common Stock represented by the certificates issued upon such surrender. After the Effective Time, there shall be no further registration of transfers of Summit Common Stock and Summit Preferred Stock and holders of certificates representing Summit Common Stock or Summit Preferred Stock shall not enjoy the rights and privileges of holders of such stock or CKE Common Stock other than to exchange the certificates for the Merger Consideration. If, after the Effective Time, certificates representing Summit Common Stock or Summit Preferred Stock are presented to the Surviving Corporation, they shall be cancelled and exchanged for the Merger Consideration. From and after the Effective Time, CKE shall, however, be entitled to treat certificates for shares of Summit Common Stock and Summit Preferred Stock which have not yet been surrendered for exchange and for which appraisal rights have not been perfected pursuant to the DGCL as evidencing solely the right to receive the Merger Consideration represented by such certificates, notwithstanding any failure to surrender such certificates in exchange therefor. If any certificate for shares of CKE Common Stock is to be issued in a name other than that in which the certificate for shares of Summit Common Stock or Summit Preferred Stock surrendered in exchange therefor is registered, it shall be a condition of such issuance that the person requesting such issuance shall pay any transfer or other tax required by reason of the issuance of certificates for such shares of CKE Common Stock in a name other than that of the registered holder of the certificate surrendered, or shall establish to the satisfaction of CKE or its agent that such tax has been paid or is not applicable. Notwithstanding the foregoing, CKE shall not be liable to any holder of shares of Summit Common Stock or Summit Preferred Stock for any shares of CKE Common Stock (or dividends or distributions with respect thereto) or cash in lieu of fractional shares delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 4 10 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SUMMIT Except as otherwise set forth in the Summit Disclosure Schedule, Summit hereby represents and warrants to CKE as follows: 3.1 ORGANIZATION, GOOD STANDING AND AUTHORITY. Each of Summit and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation. Each of Summit and its Subsidiaries has full corporate power to carry on its business, as it is now being conducted, and to own, lease or operate the properties and assets it now owns, leases or operates. Each of Summit and its Subsidiaries is qualified to do business, is in good standing and has all required business licenses in each jurisdiction in which its failure to obtain or maintain such qualification, good standing or license could have a Material Adverse Effect on Summit. 3.2 BINDING AGREEMENT. Summit has all requisite corporate power and corporate authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action, subject to approval of Summit's stockholders. This Agreement is a legal, valid and binding obligation of Summit, enforceable against it in accordance with its terms, except as enforcement thereof may be limited by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity) and the effect of applicable bankruptcy, insolvency, moratorium and other similar laws of general application relating to or affecting creditors' rights generally, including, without limitation, the effect of statutory or other law regarding fraudulent conveyances and preferential transfers. 3.3 CAPITALIZATION. The authorized capitalization of Summit consists solely of (a) 10,000,000 shares of Summit Common Stock, of which 4,798,102 shares were issued and outstanding as of November 30, 1995; (b) 500,000 shares of $.01 par value junior common stock, none of which are outstanding on the date hereof; and (c) 1,000,000 shares of Summit Preferred Stock, of which 946,714 shares were issued and outstanding as of the date hereof. On the Closing Date there will not be outstanding: (i) any options, warrants or other rights to purchase from Summit any capital stock of Summit, except for (x) the options, warrants and other rights to purchase capital stock of Summit outstanding as of the date of this Agreement as set forth on the Summit Disclosure Schedule, (y) options, warrants or other rights to purchase capital stock of Summit granted to employees and officers of Summit as set forth on the Summit Disclosure Schedule and (z) options, warrants and other rights to purchase in the aggregate not more than 50,000 shares of Summit Common Stock granted to new or 5 11 newly promoted employees in the ordinary course of business; (ii) any securities convertible into or exchangeable for shares of such stock; or (iii) any other commitments of any kind for the issuance of additional shares of capital stock or options, warrants or other securities of Summit. 3.4 SUBSIDIARIES. There is set forth in the Summit Disclosure Schedule (i) the name and percentage ownership by Summit of each of its Subsidiaries; (ii) the jurisdiction of incorporation, capitalization and ownership of each Subsidiary; and (iii) the names of the officers and directors of each Subsidiary. 3.5 NO VIOLATION (a) Except as set forth in the Summit Disclosure Schedule, none of Summit or any of its Subsidiaries is (i) in violation of its respective Charter Documents, or (ii) to Summit's best knowledge, in default in the performance of any obligation, agreement or condition contained in any Applicable Agreement, which violation or default could, singly or in the aggregate, have a Material Adverse Effect on Summit. (b) Except as set forth in the Summit Disclosure Schedule, neither the execution or delivery by Summit of this Agreement or the performance by Summit of its obligations under this Agreement will (i) constitute a breach or violation under the Charter Documents of Summit or any of its Subsidiaries; or (ii) conflict with, violate, constitute a material breach or material violation of or a material default (with the passage of time or otherwise) under, require the consent of any Person under, give to others any rights of termination, amendment, acceleration or cancellation of or result in the imposition of a material Lien on any of the properties or assets of Summit or any of its Subsidiaries or an acceleration of material indebtedness pursuant to, any Applicable Agreement. 3.6 EXCHANGE ACT REPORTS AND FINANCIAL STATEMENTS. Summit has furnished or will upon request furnish CKE with copies of its Annual Report on Form 10-K for the fiscal years ended September 28, 1992, September 27, 1993, September 26, 1994 and September 25, 1995 (when available), in each case with exhibits, and all other reports filed or required to be filed with the Securities and Exchange Commission (the "SEC") under applicable laws, rules and regulations since September 26, 1994 (all such reports being herein collectively called the "Summit SEC Reports"), each as filed with the SEC. Each such Summit SEC Report when it became effective or was filed with the SEC, or as amended, as the case may be, complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable, and the rules and regulations of the SEC thereunder, and did not on the date of filing or amendment, if any, contain any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the 6 12 circumstances under which they were made, not misleading. The financial statements contained in said Summit SEC Reports: (i) were prepared in accordance with the books and records of Summit and its Subsidiaries; (ii) were prepared in accordance with GAAP and with Regulation S-X promulgated under the Exchange Act; (iii) fairly present Summit's consolidated financial condition and the consolidated results of its operations, cash flows and shareholders equity as at the relevant dates thereof and for the periods covered thereby; (iv) contain and reflect all necessary adjustments and accruals for a fair presentation of its consolidated financial condition and the consolidated results of its operations, cash flows and shareholders equity for the periods covered by said financial statements; (v) contain and reflect adequate provisions for all reasonably anticipated liabilities for all taxes, federal, state, local or foreign, with respect to the periods then ended and all prior periods; and (vi) with respect to contracts and commitments for the sale of goods or the provision of services by Summit or any Subsidiary, contain and reflect adequate reserves for all reasonably anticipated material losses, costs and expenses in excess of expected receipts. 3.7 INFORMATION IN REGISTRATION STATEMENT AND PROXY STATEMENT. None of the information supplied or to be supplied by Summit for inclusion or incorporation by reference in (i) the registration statement on Form S-4 to be filed with the SEC by CKE in connection with the issuance of shares of CKE Common Stock in the Merger (the "Registration Statement"), will, at the time it becomes effective under the Securities Act and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) the proxy statement relating to the meeting of Summit's stockholders to be held in connection with the Merger (the "Proxy Statement") will, at the date mailed to Summit's stockholders, at the time of the meeting of stockholders to be held in connection with the Merger and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement will, when filed with the SEC by Summit, comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder, except that no representation is made by Summit with respect to statements made therein about CKE and based on information supplied by CKE in writing specifically for inclusion in the Proxy Statement. 3.8 CONSENTS AND APPROVALS. No consent, approval or authorization of, or declaration, filing or registration with, any United States federal or state governmental or regulatory authority is required to be made or obtained by Summit in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, other than any filings required 7 13 under the HSR Act, the Exchange Act and the Securities Act and filings with NASDAQ. 3.9 NO BROKERS. Except as set forth in the Summit Disclosure Schedule, neither Summit nor any affiliate thereof has entered into or will enter into any agreement, arrangement or understanding with any person or firm which will result in any obligation of Summit to pay any finder's fee, brokerage commission or similar payment in connection with the transactions contemplated hereby. 3.10 INSURANCE. Summit and its Subsidiaries maintain, with reputable insurers, insurance in such amounts, including deductible arrangements, and of such a character as is usually maintained by reasonably prudent managers of companies engaged in the same or similar business. 3.11 LABOR MATTERS. Except as set forth in the Summit Disclosure Schedule, (i) there is no labor strike, dispute, slowdown, work stoppage or lockout pending or, to the best knowledge of Summit, threatened against or affecting Summit or any Subsidiary and, during the past five years, there has not been any such action; (ii) there are no union claims to represent the employees of Summit or any Subsidiary; (iii) neither Summit nor any Subsidiary is a party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of Summit or any Subsidiary; (iv) none of the employees of Summit or any Subsidiary are represented by any labor organization and none of Summit or any Subsidiary have any knowledge of any current union organizing activities among the employees of Summit or any Subsidiary, nor to their best knowledge does any question concerning representation exist concerning such employees; (v) Summit and its Subsidiaries are, and have at all times been, in material compliance with all Applicable Employment Laws and are not engaged in any ULP; (vi) there is no ULP charge or complaint against Summit or any Subsidiary pending or, to the best knowledge of Summit, threatened before the NLRB; and (vi) there is no grievance or arbitration proceeding arising out of any collective bargaining agreement or other grievance procedure relating to Summit or any Subsidiary. 3.12 ERISA (a) Summit and its Subsidiaries are in compliance with the provisions of ERISA and the Code, and (ii) have not incurred any material liability with respect to any Benefit Plan or Multiemployer Plan to the Pension Benefit Guaranty Corporation (the "PBGC"), the Internal Revenue Service (the "IRS"), any Benefit Plan or Multiemployer Plan or any other party (other than to make premium payments to the PBGC or benefit payments to participants in the ordinary course of business). Each of 8 14 the Benefit Plans of Summit is in material compliance with all Applicable Laws. The IRS has determined that each such Benefit Plan that is intended to be a qualified plan under section 401(a) of the Code is so qualified and Summit is aware of no event or circumstance that would adversely affect such determination. The liabilities incurred under each such Benefit Plan are accurately reflected on the financial statement included in the Summit SEC Reports. No condition exists or event or transaction has occurred that could result in Summit or any Subsidiary incurring any liability, fine or penalty with respect to any Benefit Plan or Multiemployer Plan that could, singly or in the aggregate, have a Material Adverse Effect on Summit. (b) Summit has previously furnished the Buyer with (i) a true and complete copy of each Benefit Plan, (ii) a copy of each trust or other funding arrangement applicable to each Benefit Plan, (iii) the most recent summary plan description and any applicable summary of material modifications of each Benefit Plan, and (iv) the most recently prepared actuarial report and financial statement, if applicable. Except as contemplated herein, Summit and its Subsidiaries have no commitment or obligation to (x) create or incur any material liability with respect to, or cause to exist any other, employee benefit plan, program or arrangement, (y) enter into any material contract or agreement to provide compensation or benefits to any individual or (z) modify or terminate any Benefit Plan, other than with respect to a modification or termination required by ERISA or the Code. 3.13 TAXES. Except as set forth on the Summit Disclosure Schedule, all Tax Returns and reports required to be filed by Summit or any of its Subsidiaries have been filed or will be timely filed (taking into account extensions), all such Tax Returns are true, correct and complete in all material respects, and all Taxes, due or claimed to be due from Summit or any of its Subsidiaries have been paid, other than those currently payable without penalty or interest and for which an adequate reserve or accrual has been established. There are no: (a) tax audits pending with respect Tax Returns filed by Summit or of any of its Subsidiaries, (b) no waivers of the statute of limitations with respect to any Tax Return filed by Summit of any of the Subsidiaries or (c) to Summit's best knowledge, no actual or proposed additional Tax assessments for any fiscal period ending on or prior to the Closing Date against Summit or any of its Subsidiaries for which an adequate reserve or accrual has not been established. 3.14 TITLE TO PROPERTIES Each of Summit and each Subsidiary (a) has legal and valid title to all the real properties and other assets (tangible, intangible or mixed) it reflects in the financial statements included in the Summit SEC Reports as owned, free and clear of all Liens (other than Permitted Liens) and free and clear of restrictions on the manner in which such property is presently being used, and (b) enjoys peaceful and undisturbed 9 15 possession under all leases to which it is a party as lessee. All of the leases to which Summit or any Subsidiary is a party are legal, valid and binding and in full force and effect, and no payment default by Summit, any Subsidiary or, to the best knowledge of Summit, any other party thereto has occurred or is continuing thereunder. Except as set forth in the financial statements included in the Summit SEC Reports or on the Summit Disclosure Schedule, no property or asset, the value of which is reflected in the balance sheets included in the financial statements included in the Summit SEC Reports, is held under any lease or under any conditional sale or other title retention agreement. Except for such assets and facilities as are immaterial in the aggregate to the business of Summit and its Subsidiaries taken as a whole, all tangible assets and facilities of each of Summit and its Subsidiaries are in good condition and repair and are adequate for the uses to which they are being put. 3.15 ENVIRONMENTAL MATTERS (a) Each of Summit and its Subsidiaries is in compliance with the provisions of all Environmental Laws, which compliance includes, but is not limited to, the possession by Summit or its Subsidiaries, as appropriate, of all licenses, permits and other governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof where the failure to comply could, singly or in the aggregate, have a Material Adverse Effect on Summit. None of Summit or any of its Subsidiaries has received any communication (written or oral), whether from a Governmental Authority, employee or otherwise, that alleges that Summit or any of its Subsidiaries is not in such compliance where the failure to comply could, singly or in the aggregate, have a Material Adverse Effect on Summit, and there are no currently existing circumstances known to Summit that, if not corrected, could prevent such compliance in the future. (b) There is no Environmental Claim pending or, to the best knowledge of Summit, threatened against Summit or any of its Subsidiaries or against any Person whose liability for any Environmental Claim Summit or any of its Subsidiaries has retained or assumed either contractually or by operation of law. To the best knowledge of Summit, there is no basis for any such claim. 3.16 LITIGATION. All Proceedings against Summit or any of its Subsidiaries or any of their properties or assets, and a brief description thereof are listed in the Summit Disclosure Schedule. There is no Proceeding or series of related Proceedings against or affecting Summit or any of its Subsidiaries or any of their properties or assets, that could, singly or in the aggregate, have a Material Adverse Effect on Summit. Neither Summit nor any of its Subsidiaries is subject to any judgment, injunction, decree, writ, interpretation or order of any Governmental 10 16 Authority that could, singly or in the aggregate, have a Material Adverse Effect on Summit. 3.17 CONTRACTS AND COMMITMENTS (a) Except as set forth in the Summit Disclosure Schedule, neither Summit nor any of its Subsidiaries will have any (i) agreement for the employment of any individual or agreements that contain any severance pay liabilities or obligations; or (ii) contract or commitment not terminable without penalty or cost on notice of thirty (30) days or less and which contains an obligation to pay and/or accrue more than $100,000 per year, other than real estate and equipment leases and franchise agreements. (b) Except as set forth in the Summit Disclosure Schedule: (i) to the best knowledge of Summit, neither Summit nor any of its Subsidiaries has breached, nor has received notice in writing or otherwise of any claim that it has breached, any of the terms of conditions of any agreement, contract or commitment set forth or required to be set forth in the Summit Disclosure Schedule, any agreement with HomeTown Buffet, Inc. or any franchise agreement with respect to a JB's restaurant, which breach or breaches singly or in the aggregate are reasonably likely to have a Material Adverse Effect on Summit, and (ii) to the best knowledge of Summit, there are no facts or conditions which have occurred or are anticipated to occur which, through the passage of time or the giving of notice, or both, would constitute a breach under any such contract which breach is reasonably likely to have a Material Adverse Effect on Summit. 3.18 COMPLIANCE WITH LAWS. Except as set forth on the Summit Disclosure Schedule, to the best knowledge of Summit, Summit and its Subsidiaries have complied with all applicable laws, regulations (including, without limitation, applicable occupational health and safety laws and regulations, applicable immigration laws and regulations and applicable laws governing the sale of franchises) and zoning ordinances of foreign, federal, state and local governments and all agencies thereof which affect the business, business practices or any owned or leased properties of Summit and its Subsidiaries and to which Summit and its Subsidiaries may be subject, except where such failure to comply would not singly or in the aggregate have a Material Adverse Effect on Summit. 3.19 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on the Summit Disclosure Schedule and except as expressly contemplated by this Agreement, since September 25, 1995, neither Summit nor any of its Subsidiaries has: 11 17 (i) suffered a Material Adverse Effect in its business, financial condition, operating results, earnings, assets, customer, supplier, employee and sales representative relations, business prospects, business condition or financing arrangements or material casualty loss or damage to its assets (whether or not covered by insurance); (ii) issued, sold or transferred any notes, bonds or other debt securities or any equity securities, securities convertible, exchangeable or exercisable into equity securities, or warrants, options or other rights to acquire equity securities, in each case of Summit or any Subsidiary thereof; (iii) redeemed or repurchased, directly or indirectly, any shares of capital stock or declared, set aside or paid any dividends or made any other distributions with respect to any shares of its capital stock; (iv) borrowed any amount or incurred or become subject to any liabilities, except liabilities incurred in the ordinary course of business; (v) entered into, amended or terminated any lease, contract, agreement or commitment, or taken any other action or entered into any other transaction other than in the ordinary course of business and in accordance with past custom and practice or as contemplated by this Agreement, or entered into any transaction with any insider except as contemplated by this Agreement; (vi) entered into any other material transaction, whether or not in the ordinary course of business, or materially changed any business practice; (vii) made or granted any bonus or any wage, salary or compensation increase in excess of $50,000 per year to any director, officer, employee or sales representative, group of employees or consultant or made or granted any increase in any employee benefit plan or arrangement, or amended or terminated any existing employee benefit plan or arrangement or adopted any new employee benefit plan or arrangement; (viii) conducted its cash management customs and practices (including the collection of receivables, inventory control and payment of payables) other than in the usual and ordinary course of business in accordance with past custom and practice; (ix) changed or authorized any change in its Charter Documents; or (x) committed to any of the foregoing. 12 18 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF CKE Except as otherwise set forth in the CKE Disclosure Schedule, CKE hereby represents and warrants to Summit as follows: 4.1 ORGANIZATION, GOOD STANDING AND AUTHORITY. Each of CKE and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation. Each of CKE and its Subsidiaries has full corporate power to carry on its business, as it is now being conducted, and to own, lease or operate the properties and assets it now owns, leases or operates. Each of CKE and its Subsidiaries is qualified to do business, is in good standing and has all required business licenses in each jurisdiction in which its failure to obtain or maintain such qualification, good standing or license could have a Material Adverse Effect on CKE. 4.2 BINDING AGREEMENT. CKE has all requisite corporate power and corporate authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action. This Agreement is a legal, valid and binding obligation of CKE, enforceable against it in accordance with its terms, except as enforcement thereof may be limited by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity) and the effect of applicable bankruptcy, insolvency, moratorium and other similar laws of general application relating to or affecting creditors' rights generally, including, without limitation, the effect of statutory or other law regarding fraudulent conveyances and preferential transfers. 4.3 CAPITALIZATION. The authorized capitalization of CKE consists solely of (a) 50,000,000 shares of CKE Common Stock, of which 19,140,450 shares were issued and outstanding as of the date hereof; and (b) 5,000,000 shares of Preferred Stock, $.01 per share, of which no shares were issued or outstanding as of the date hereof. On the Closing Date there will not be outstanding: (i) any options, warrants or other rights to purchase from CKE any capital stock of CKE, except for (x) the options, warrants and other rights to purchase capital stock of CKE outstanding as of the date of this Agreement as set forth on the CKE Disclosure Schedule, or (y) options, warrants or other rights to purchase capital stock of CKE granted to employees and officers of CKE as set forth on the CKE Disclosure Schedule; (ii) any securities convertible into or exchangeable for shares of such stock; or (iii) any other commitments of any kind for the issuance of additional shares of capital stock or options, warrants or other securities of CKE other than rights to purchase not more than 400,000 shares of CKE Common Stock granted to existing officers, directors and employees and to new or 13 19 newly promoted employees in the ordinary course of business and other than up to an additional 200,000 shares of CKE Common Stock that may be issued in an acquisition. 4.4 SUBSIDIARIES. There is set forth in the CKE Disclosure Schedule (i) the name and percentage ownership by CKE of each of its Subsidiaries; (ii) the jurisdiction of incorporation, capitalization and ownership of each Subsidiary; and (iii) the names of the officers and directors of each Subsidiary. 4.5 NO VIOLATION (a) Except as set forth in the CKE Disclosure Schedule, none of CKE or any of its Subsidiaries is (i) in violation of its respective Charter Documents, or (ii) to CKE's best knowledge, in default in the performance of any obligation, agreement or condition contained in any Applicable Agreement, which violation or default could, singly or in the aggregate, have a Material Adverse Effect on CKE. (b) Except a set for in the CKE Disclosure Schedule, neither the execution or delivery by CKE of this Agreement or the performance by CKE of its obligations under this Agreement will (i) constitute a material breach or material violation under the Charter Documents of CKE or any of its Subsidiaries; or (ii) conflict with, violate, constitute a material breach or material violation of or a material default (with the passage of time or otherwise) under, require the consent of any Person under, give to others any rights of termination, amendment, acceleration or cancellation of or result in the imposition of a material Lien on any of the properties or assets of CKE or any of its Subsidiaries or an acceleration of material indebtedness pursuant to, any Applicable Agreement. 4.6 EXCHANGE ACT REPORTS AND FINANCIAL STATEMENTS. CKE has furnished or will upon request furnish CKE with copies of its Annual Report on Form 10-K for the fiscal years ended January 31, 1993, 1994 and 1995 and its Quarterly Reports on Form 10-Q for the quarters ended May 22, 1995 and August 14, 1995, in each case with exhibits, and all other reports filed or required to be filed with the Securities and Exchange Commission (the "SEC") under applicable laws, rules and regulations since January 31, 1995 (all such reports being herein collectively called the "CKE SEC Reports"), each as filed with the SEC. Each such CKE SEC Report when it became effective or was filed with the SEC, or as amended, as the case may be, complied in all material respects with the requirements of the Exchange Act, as applicable, and the rules and regulations of the SEC thereunder and did not on the date of filing or amendment, if any, contain any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements contained in said CKE SEC Reports: (i) were prepared in accordance with the books 14 20 and records of CKE and its Subsidiaries; (ii) were prepared in accordance with GAAP and with Regulation S-X promulgated under the Exchange Act; (iii) fairly present CKE's consolidated financial condition and the consolidated results of its operations, cash flows and shareholders equity as at the relevant dates thereof and for the periods covered thereby; (iv) contain and reflect all necessary adjustments and accruals for a fair presentation of its consolidated financial condition and the consolidated results of its operations, cash flows and shareholders equity for the periods covered by said financial statements; (v) contain and reflect adequate provisions for all reasonably anticipated liabilities for all taxes, federal, state, local or foreign, with respect to the periods then ended and all prior periods; and (vi) with respect to contracts and commitments for the sale of goods or the provision of services by CKE or any Subsidiary, contain and reflect adequate reserves for all reasonably anticipated material losses, costs and expenses in excess of expected receipts. 4.7 INFORMATION IN REGISTRATION STATEMENT AND PROXY STATEMENT. None of the information supplied or to be supplied by CKE for inclusion or incorporation by reference in (i) the Registration Statement will, at the time it becomes effective under the Securities Act and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) the Proxy Statement will, at the date mailed to Summit's stockholders, at the time of the meeting of stockholders to be held in connection with the Merger and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Registration Statement will, when filed with the SEC by CKE, comply as to form in all material respects with the provisions of the Securities Act and the rules and regulations thereunder, except that no representation is made by CKE with respect to statements made therein based on information supplied by Summit for inclusion in the Registration Statement. 4.8 CONSENTS AND APPROVALS. No consent, approval or authorization of, or declaration, filing or registration with, any United States federal or state governmental or regulatory authority is required to be made or obtained by CKE in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, other than any filings required under the HSR Act, the Exchange Act, the Securities Act and filings with the New York Stock Exchange. 4.9 NO BROKERS. Except as set forth in the CKE Disclosure Schedule, neither CKE nor any affiliate thereof has entered into or will enter into any agreement, arrangement or understanding with any person or firm which will result in 15 21 any obligation of CKE to pay any finder's fee, brokerage commission or similar payment in connection with the transactions contemplated hereby. 4.10 LITIGATION. All material proceedings against CKE or any of its Subsidiaries or any of their properties or assets, and a brief description thereof are listed in the Disclosure Schedule. There is no Proceeding or series of related Proceedings against or affecting CKE or any of the Subsidiaries or any of their properties or assets, that could, singly or in the aggregate, have a Material Adverse Effect on CKE. Neither CKE nor any of its Subsidiaries is subject to any judgment, injunction, decree, writ, interpretation or order of any Governmental Authority that could, singly or in the aggregate, have a Material Adverse Effect on CKE. 4.11 COMPLIANCE WITH LAWS. Except as set forth on the CKE Disclosure Schedule, to the best knowledge of CKE, CKE and its Subsidiaries have complied with all applicable laws, regulations (including, without limitation, applicable occupational health and safety laws and regulations and applicable immigration laws and regulations) and zoning ordinances of foreign, federal, state and local governments and all agencies thereof which affect the business, business practices or any owned or leased properties of CKE and its Subsidiaries and to which CKE and its Subsidiaries may be subject, except where such failure to comply would not singly or in the aggregate have a Material Adverse Effect on CKE. 4.12 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on the CKE Disclosure Schedule and except as expressly contemplated by this Agreement, since August 14, 1995, neither CKE nor any of its Subsidiaries has: (i) suffered a Material Adverse Effect in its business, financial condition, operating results, earnings, assets, customer, supplier, employee and sales representative relations, business prospects, business condition or financing arrangements or material casualty loss or damage to its assets (whether or not covered by insurance); (ii) issued, sold or transferred any notes, bonds or other debt securities or any equity securities, securities convertible, exchangeable or exercisable into equity securities, or warrants, options or other rights to acquire equity securities, in each case of CKE or any Subsidiary thereof; (iii) redeemed or repurchased, directly or indirectly, any shares of capital stock or declared, set aside or paid any dividends or made any other distributions with respect to any shares of its capital stock; 16 22 (iv) borrowed any amount or incurred or become subject to any liabilities, except liabilities incurred in the ordinary course of business; (v) entered into, amended or terminated any lease, contract, agreement or commitment, or taken any other action or entered into any other transaction other than in the ordinary course of business and in accordance with past custom and practice or as contemplated by this Agreement, or entered into any transaction with any insider except as contemplated by this Agreement; (vi) entered into any other material transaction, whether or not in the ordinary course of business, or materially changed any business practice; (vii) made or granted any bonus or any wage, salary or compensation increase in excess of $50,000 per year to any director, officer, employee or sales representative, group of employees or consultant or made or granted any increase in any employee benefit plan or arrangement, or amended or terminated any existing employee benefit plan or arrangement or adopted any new employee benefit plan or arrangement; (viii) conducted its cash management customs and practices (including the collection of receivables, inventory control and payment of payables) other than in the usual and ordinary course of business in accordance with past custom and practice; (ix) changed or authorized any change in its Charter Documents; or (x) committed to any of the foregoing. ARTICLE 5 ACTIONS BY SUMMIT AND CKE PENDING THE MERGER Summit and CKE covenant as follows for the period from the date hereof through the Closing Date: 5.1 MAINTENANCE OF BUSINESS. Summit shall, and shall cause each Subsidiary to, diligently carry on its business in the ordinary course consistent with past practice, including, without limitation, meeting its obligations as they become due and fulfilling its commitments to suppliers. Summit shall cause its existing insurance policies to be maintained in effect through the Closing Date. 17 23 5.2 CERTAIN PROHIBITED TRANSACTIONS. Without the prior written approval of CKE or except as otherwise contemplated under this Agreement, prior to the Effective Time Summit shall not, and shall cause each of its Subsidiaries not to: (a) incur any indebtedness for borrowed money, assume, guarantee, endorse or otherwise become responsible for obligations of any other individual, partnership, firm or corporation, or make any loans or advances to any individual, partnership, firm or corporation, except in the ordinary course of business and consistent with past practice and, with respect to indebtedness, pursuant to existing agreements; (b) issue any shares of its capital stock or any other securities or any securities convertible into shares of its capital stock or any other securities, other than shares issued upon exercise of issued and outstanding options, warrants and other rights to purchase capital stock of Summit, which rights are outstanding as of the date hereof and are reflected in Schedule 3.3 of the Summit Disclosure Schedule; (c) pay or incur any obligation to pay any dividend on its capital stock or make or incur any obligation to make any distribution or redemption with respect to capital stock; (d) make any change to its Certificate of Incorporation or bylaws other than the filing of the Certificate of Merger; (e) mortgage, pledge or otherwise encumber any of its properties or assets or sell, transfer or otherwise dispose of any of its properties or assets (other than (i) shares of HomeTown Buffet, Inc. common stock held by Summit and (ii) restaurants in the process of being disposed of or transferred as set forth in the Summit Disclosure Schedule) or cancel, release, compromise or assign any indebtedness owed to it or any claims held by it, except in the ordinary course of business and consistent with past practice; (f) make any investment of a capital nature either by purchase of stock or securities, contributions to capital, property transfer or otherwise, or by the purchase of any property or assets of any other individual, partnership, firm or corporation, except in the ordinary course of business and consistent with past practice; (g) make any material tax election or make any material change in Summit's accounting principles or practices; (h) enter into any material contracts that would involve the payment or accrual of payments of more than $100,000 in any fiscal year or enter into any additional franchise agreements; or 18 24 (i) do any other act which would cause any representation or warranty of Summit in this Agreement to be or become untrue. 5.3 REGISTRATION STATEMENT/PROXY STATEMENT Subject to the terms and conditions of this Agreement, Summit and CKE each agree to use their respective reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable by such party with respect to (i) the prompt preparation and filing of the Registration Statement by CKE with the SEC under the Securities Act relating to the offer and sale of the CKE Common Stock in the Merger and (ii) the prompt preparation and filing by Summit of the Proxy Statement pertaining to solicitation of approval of Summit's stockholders, the form of which shall be included as part of the Registration Statement, (iii) such actions as may be required to have the Registration Statement declared effective under the Securities Act and to have the Proxy Statement cleared by the SEC, in each case as promptly as practicable, including by consulting with the other parties hereto as to, and responding promptly to, any SEC comments with respect thereto, and (iv) such actions as may be required to be taken under applicable state securities or blue sky laws in connection with the issuance of the CKE Common Stock contemplated hereby. Each party hereto shall promptly consult with the other party with respect to, provide any necessary information with respect to and provide the other party (and its counsel) copies of, all filings made with respect to the Registration Statement and the Proxy Statement. The information supplied by each party for inclusion in the Registration Statement and the Proxy Statement shall not, at (i) the time the Registration Statement (or any amendment or supplement thereto) is declared effective, (ii) the time the Proxy Statement (or any amendment thereof or supplement thereto) is first mailed to the stockholders of Summit and (iii) the time of the Summit stockholders' meeting, respectively, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading and shall comply as to form in all material respects with the requirements of the Securities Act. In addition, if at any time prior to the Effective Time any event or circumstance relating to either Summit or CKE or any of their respective subsidiaries, or any of their respective officers or directors, should be discovered by Summit or CKE, as the case may be, and which are required to be set forth in an amendment or supplement to the Registration Statement or the Proxy Statement, the discovering party shall promptly inform the other party of such event or circumstance. 5.4 INVESTIGATION BY CKE. Summit shall, and shall cause the Subsidiaries to, allow CKE during regular business hours through their employees, agents, advisors and representatives, to make such investigation of the business, properties, books and records of Summit and its Subsidiaries, and to conduct such 19 25 examination of the condition of Summit and its Subsidiaries, as CKE deems necessary or advisable to familiarize itself and its lenders with such business, properties, books, records, condition and other matters, and to investigate the accuracy and completeness of the representations and warranties of Summit hereunder; provided however, that any information so obtained is subject to the confidentiality agreement previously entered into. Such access shall include authorizing Summit's legal, accounting, tax, insurance and environmental consultants and advisors to cooperate with CKE, its lenders and their advisors. In particular, Summit and its consultants and advisors shall cooperate with CKE to allow CKE (a) to conduct full environmental reviews or studies of Summit's properties and facilities and (b) to arrange for meetings between CKE and the franchisees under the Summit's franchise agreements; provided, that representatives from Summit may attend all such meetings. 5.5 TITLE REPORTS As promptly as possible after the date hereof, Summit shall order preliminary title reports from a title insurance company or companies reasonably satisfactory to CKE for all real properties that are owned by Summit. Summit shall use its best efforts to cause such reports to be delivered to CKE on or prior to [30] days following the date hereof. 5.6 CONSENTS AND BEST EFFORTS. As promptly as possible after the date hereof, CKE and Summit shall make all filings required under the HSR Act. Summit and CKE will, as soon as possible, commence to take all action required to obtain all consents, approvals and agreements of, and to give all notices and make all other filings with, any third parties, including governmental authorities, necessary to authorize, approve or permit the Merger and the other transactions contemplated by this Agreement. In addition, subject to the terms and conditions herein provided, each of the parties hereto covenants and agrees to use its reasonable best efforts to take, or cause to be taken, all action or do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby and to cause the fulfillment of the parties' obligations hereunder. 5.7 NOTIFICATION OF CERTAIN MATTERS. Summit shall give prompt notice to CKE, and CKE shall give prompt notice to Summit, of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate any time from the date hereof to the Closing Date and (ii) any material failure of Summit or CKE, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, and each party shall use all reasonable efforts to remedy same. Summit and the CKE acknowledge that they are 20 26 presently unaware of any facts that cause any representation or warranty contained in this Agreement to be untrue or inaccurate. 5.8 REASONABLE BEST EFFORTS. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. Each party shall promptly consult with the other with respect to, provide any necessary information with respect to and provide the other (or its counsel) copies of, all filings made by such party with any Governmental Entity in connection with this Agreement and the transactions contemplated hereby. In addition, if at any time prior to the Effective Time any event or circumstance relating to either Summit or CKE or any of their respective Subsidiaries, or any of their respective officers or directors, should be discovered by Summit or CKE, as the case may be, and which should be set forth in an amendment or supplement to the Registration Statement or the Proxy Statement, the discovering party shall promptly inform the other party of such event or circumstance. 5.9 LETTER OF SUMMIT'S ACCOUNTANTS. Following receipt by KMPG Peat Marwick LLP, Summit's independent auditors, of an appropriate request from CKE pursuant to Statement on Auditing Standards ("SAS") No. 72, Summit shall use its reasonable best efforts to cause to be delivered to CKE a letter of KMPG Peat Marwick LLP , dated a date within two business days before the date on which the Registration Statement shall become effective and addressed to CKE, in form and substance reasonably satisfactory to CKE and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Registration Statement, which letter shall be brought down to the Effective Time. 5.10 LETTER OF CKE'S ACCOUNTANTS. Following receipt by KMPG Peat Marwick LLP, CKE's independent auditors, of an appropriate request from CKE pursuant to SAS No. 72, CKE shall use its reasonable best efforts to cause to be delivered a letter of KMPG Peat Marwick LLP , dated a date within two business days before the date on which the Registration Statement shall become effective and addressed to CKE, in form and substance reasonably satisfactory to CKE and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Registration Statement, which letter shall be brought down to the Effective Time. 5.11 STOCKHOLDERS MEETING. Summit shall call a meeting of its stockholders for the purpose of voting upon this Agreement, the Merger and related matters. Summit will, through its Board of Directors, recommend to its stockholders 21 27 approval of such matters and will coordinate and cooperate with respect to the timing of this meetings and shall use its reasonable best efforts to hold such meeting as soon as practicable after the date hereof. 5.12 NEW YORK STOCK EXCHANGE LISTING. CKE shall use its reasonable best efforts to cause the CKE Common Stock to be issued in the Merger to be approved for listing on the New York Stock Exchange, subject to official notice of issuance, prior to the Closing Date. 5.13 BENEFIT PLANS (a) It is CKE's present intent to provide continuing employees of Summit and its Subsidiaries with employee benefits comparable to those provided to CKE employees. (b) CKE will, and will cause the Surviving Corporation to, honor without modification all employee severance plans (or policies) and employment and severance agreements of Summit or any of its Subsidiaries hereto identified in the Summit Disclosure Schedule as such agreements (or policies) are in effect on the date of this Agreement. 5.14 STOCK OPTION PLANS (a) On or prior to the Effective Time, Summit and its Board of Directors (or a committee thereof) shall take all action necessary to implement the provisions contained herein; provided, that such provisions do not create an aggregate cash liability at the Effective Time in excess of $606,000. (b) At the election of each holder of an option to purchase shares of Summit Common Stock (a "Summit Stock Option") which is currently vested under a Summit Stock Option Plan, at the Effective Time, (i) all Summit Stock Options held by such holder shall become fully exercisable, (ii) such Summit Stock Options shall be cancelled and (iii) in consideration of such cancellation, Summit shall pay to such holders of such Summit Stock Options an amount in respect thereof equal to the product of (x) the excess, if any, of $6.00 over the respective exercise price thereof and (y) the number of shares of Summit Common Stock subject thereto, respectively (such payment to be net of any required withholding taxes). From and after the Effective Time, each outstanding Summit Stock Option, whether vested or unvested, that is not so cancelled shall constitute an option to acquire, on the same terms and conditions as were applicable under such Summit Stock Option, a number of shares of CKE Common Stock equal to (w) the product of $6.00 and the number of shares of Summit Common Stock purchasable upon exercise of the Summit Stock Option prior to the Effective 22 28 Time divided by (x) the Average CKE Price, at an exercise price per share equal to (y) the aggregate exercise price for the shares of Summit Common Stock purchasable upon exercise of the Summit Stock Option prior to the Effective Date divided by (z) the aggregate number of shares of CKE Common Stock purchasable upon exercise of such Summit Stock Option following the Effective Date. (c) Except as provided herein or as otherwise agreed to by the parties, and to the extent permitted by the Summit Stock Option Plan, the Summit Stock Option Plan shall terminate as of the Effective Time and the provisions in any other plan, program or arrangement, providing for the issuance or grant of any other interest in respect of the capital stock of Summit or any of its Subsidiaries shall be deleted as of the Effective Time. 5.15 CHANGE OF CONTROL LETTERS Summit shall cause the seven employees who have signed the Change of Control letters dated August 17, 1995 identified in Schedule 3.17(a)(i)(c) and Mr. McComas under the employment agreement dated November 24, 1993 to sign modifications extending to 90 days following the Closing the date after which such employees may voluntarily resign and obtain the severance benefits set forth therein. 5.16 EXCLUSIVITY (a) Until the termination of this Agreement pursuant to Section 9.1, Summit will not, nor will it permit its officers, directors, affiliates, representatives or agents, directly or indirectly, to do any of the following: (i) discuss, negotiate, undertake, authorize, recommend, propose or enter into, either as the proposed surviving, merged, acquiring or acquired corporation, any transaction (other than the Merger) involving any disposition or other change of ownership of of Summit's stock or assets, other than acquisitions and dispositions of equipment and other property in the ordinary course of Summit's business and dispositions of HomeTown Buffet, Inc. common stock owned by Summit (an "Acquisition Transaction"); (ii) facilitate, encourage, solicit or initiate or in any way engage in any discussion, negotiation or submission of a proposal or offer in respect of an Acquisition Transaction; 23 29 (iii) furnish or cause to be furnished to any Person any information concerning the business, operations, properties or assets of Summit in connection with an Acquisition Transaction; or (iv) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek any of the foregoing. Summit will inform CKE by telephone within 24 hours of its receipt of any proposal or bid (including the terms thereof and the Person making such proposal or bid) in respect of any Acquisition Transaction. ARTICLE 6 CONDITIONS TO SUMMIT'S OBLIGATIONS The obligations of Summit under this Agreement are subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions: 6.1 COMPLETION OF OTHER TRANSACTIONS. Simultaneously with Summit's effectuation of the transactions to be effected by it at the Closing: (a) The Registration Statement shall have become effective under the Securities Act, the Proxy Statement shall have been cleared by the staff of the SEC and no stop order or proceeding seeking stop orders shall have been issued with respect to the Registration Statement or the Proxy Statement. (b) The Merger shall have been completed and the Certificate of Merger shall have been filed with the Secretary of State of the State of Delaware. (c) This Agreement and the Merger shall have been approved and adopted by the holders of the Summit Common Stock and the Summit Preferred Stock pursuant to and in accordance with the Charter Documents of Summit. (d) The CKE Common Stock shall have been approved for listing on the New York Stock Exchange, subject to official notice of issuance. 6.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and warranties of CKE contained in this Agreement shall be true and correct at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, and CKE shall have performed in all material respects all 24 30 agreements and covenants required hereby to be performed by it prior to or at the Closing Date. There shall be delivered to Summit a certificate (signed by the President or a Vice President of CKE on behalf of the CKE) to the foregoing effect. 6.3 CONSENTS. All consents, approvals and waivers from governmental authorities, and other parties necessary to permit Summit to consummate the transactions as contemplated hereby, shall have been obtained, unless the failure to obtain any such consent, approval or waiver would not have a Material Adverse Effect upon Summit. 6.4 NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action, investigation, inquiry or other Proceeding by any Governmental Authority shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby. No suit, action, investigation, inquiry or other Proceeding by any Governmental Authority or other Person shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and which could reasonably be expected to have a Material Adverse Effect on Summit or its Subsidiaries. 6.5 CERTIFICATES. CKE will furnish Summit with such certificates of its officers, directors and others to evidence compliance with the conditions set forth in this Article 6 as may be reasonably requested by Summit and Summit shall have received an opinion of counsel to CKE reasonably acceptable to Summit. 6.6 TAX OPINION. Summit shall have received an opinion of counsel (a copy of which will be delivered to CKE) to the effect that the Merger shall constitute a tax-free reorganization within the meaning of Section 368(a) of the Code. 6.7 CORPORATE DOCUMENTS. Summit shall have received from CKE resolutions adopted by the board of directors of CKE approving this Agreement and the transactions contemplated hereby, certified by CKE's corporate secretary. 6.8 HSR ACT. The applicable waiting period, including any extension thereof, under the HSR Act shall have expired. 6.9 FAIRNESS OPINION. Summit shall have received a letter from Piper Jaffray Inc. confirming the opinion rendered to Summit's Board of Directors on or prior to the date hereof to the effect that the terms of the Merger are fair to the holders of Summit Common Stock from a financial point of view, a copy of which will be delivered to CKE at the Closing. 25 31 ARTICLE 7 CONDITIONS TO CKE'S OBLIGATIONS The obligations of CKE under this Agreement, including the obligation to pay the Merger Consideration as provided hereby, are subject, in the discretion of CKE, to the satisfaction, on or prior to the Closing Date, of each of the following conditions: 7.1 COMPLETION OF OTHER TRANSACTIONS. Simultaneously with or prior to CKE's effectuation of the transactions to be effected by it at the Closing: (a) The Registration Statement shall have become effective under the Securities Act, the Proxy Statement shall have been cleared by the staff of the SEC and no stop order or proceeding seeking stop orders shall have been issued with respect to the Registration Statement or the Proxy Statement. (b) The Merger shall have been completed and the Certificate of Merger shall have been filed with the Secretary of State of the State of Delaware. (c) This Agreement and the Merger shall have been approved and adopted by the holders of the Summit Common Stock and the Summit Preferred Stock pursuant in accordance with the Charter Documents of Summit. (d) The CKE Common Stock shall have been approved for listing on the New York Stock Exchange, subject to official notice of issuance. 7.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and warranties of Summit contained in this Agreement shall be true and correct at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, and Summit and each Subsidiary shall have performed in all material respects all agreements and covenants required hereby to be performed by any of them prior to or at the Closing Date. There shall be delivered to CKE a certificate (signed by the President or a Vice President of Summit on behalf of Summit) to the foregoing effect. 7.3 CONSENTS. All consents, approvals and waivers from governmental authorities, and other parties necessary to permit Summit or CKE to consummate the transactions as contemplated hereby, shall have been obtained, unless the failure to obtain any such consent, approval or waiver would not have a Material Adverse Effect upon Summit. 26 32 7.4 NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action, investigation, inquiry or other Proceeding by any Governmental Authority shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby. No suit, action, investigation, inquiry or other Proceeding by any Governmental Authority or other Person shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and which could reasonably be expected to have a Material Adverse Effect on Summit or its Subsidiaries. 7.5 CERTIFICATES AND OPINIONS. Summit shall furnish CKE with such certificates of the respective officers of Summit and others to evidence compliance with the conditions set forth in this Article 7 as may be reasonably requested by CKE and CKE shall have received an opinion of counsel to Summit reasonably acceptable to CKE. 7.6 TAX OPINION. CKE shall have received an opinion of counsel to CKE (a copy of which will be delivered to Summit) to the effect that the Merger shall constitute a tax-free reorganization within the meaning of Section 368(a) of the Code. 7.7 CORPORATE DOCUMENTS. CKE shall have received from Summit resolutions adopted by the respective boards of directors of Summit approving this Agreement and the transactions contemplated hereby, certified by the corporate secretary of Summit. CKE shall have also received the corporate minute books, Certificates of Incorporation, bylaws and stock transfer books of Summit and each of the Subsidiaries. 7.8 HSR ACT. The applicable waiting period, including any extension thereof, under the HSR Act shall have expired. 7.9 DISSENTING SHARES. To the extent that holders of Summit Common Stock and Summit Preferred Stock are entitled to dissent from the Merger, the holders of not more than 10% of the shares of Summit Common Stock or Summit Preferred Stock shall have asserted dissenters' rights in accordance with the DGCL. 7.10 FAIRNESS OPINION. CKE shall have received a letter from NatWest Markets confirming the opinion rendered to CKE's Board of Directors on or prior to the date 10 days following to the date hereof to the effect that the terms of the Merger are fair to the holders of CKE Common Stock from a financial point of view, a copy of which will be delivered to Summit at the Closing. 27 33 ARTICLE 8 ACTIONS BY SUMMIT AND CKE AFTER THE CLOSING 8.1 FURTHER ASSURANCES. On and after the Closing Date, Summit and CKE will take all appropriate action and execute all documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the provisions hereof, including without limitation, putting CKE in possession and operating control of the business of Summit. 8.2 DIRECTORS' AND OFFICERS' INSURANCE. CKE shall either: (i) cause Summit to provide directors' and officers' and fiduciary liability insurance having substantially similar terms and conditions and providing substantially similar coverage as the directors' and officers' and fiduciary liability insurance maintained by Summit at the Effective Time for a period of one year following the Effective Time for all present directors and officers of Summit and its Subsidiaries, provided that CKE may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are no less advantageous, or (ii) cause Summit to purchase runoff extensions under its existing directors' and officers' and fiduciary liability insurance policies, extending the period for making claims under such policies for at least one year following the Effective Time; provided, however, that the total expense for such extensions shall not exceed $40,000. ARTICLE 9 TERMINATION AND AMENDMENT 9.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time: (a) by mutual consent of CKE and Summit; (b) by either CKE or Summit if the Merger shall not have been consummated before April 15, 1996 despite the good faith effort of such party to effect such consummation (unless the failure to so consummate the Merger by such date shall be due to the action or failure to act of the party seeking to terminate this Agreement, which action or failure to act constitutes a breach of this Agreement); (c) by CKE if (i) (A) there are inaccuracies in the representations and warranties of Summit that would have a Material Adverse Effect on Summit, or (B) there has been a material breach on the part of Summit in the covenants of Summit set forth herein, or any failure on the part of Summit to comply with its material obliga- 28 34 tions hereunder, or any other events or circumstances shall have occurred, such that, in any such case, Summit could not satisfy on or prior to April 15, 1996, any of the conditions to the Closing set forth herein, or (ii) Summit's stockholders do not approve the Merger at the Summit stockholders' meeting; (d) by Summit if (i) (A) there are inaccuracies in the representations and warranties of CKE having a Material Adverse Effect on CKE or (B) there has been a material breach on the part of CKE in the covenants of CKE set forth herein, or any failure on the part of CKE to comply with its material obligations hereunder, or any other events or circumstances shall have occurred, such that, in any such case, CKE could not satisfy on or prior to April 15, 1996, any of the conditions to the Closing set forth in this Agreement, (ii) Summit's stockholders do not approve the Merger at the Summit stockholders' meeting, (iii) prior to the approval of the Merger by Summit's stockholders, Summit receives a firm offer with respect to an Acquisition Transaction that is reasonably capable of being financed and, in the good faith determination of its Board of Directors after consultation with its financial advisors, is financially superior to the Merger and the Board of Directors of Summit, after consulting with its outside counsel, determines that to proceed with the Merger would violate its fiduciary duties under applicable law, or (iv) if the Average CKE Price is less than $12.25, unless CKE notifies Summit in writing that it elects to proceed with the Closing by issuing additional shares of CKE Common Stock to compensate for the reduction in the Average CKE Price below $12.25 (the "Fill-Up Election"); or (e) by holders of the Summit Preferred Stock through written notice to Summit and CKE if the Average CKE Price is less than $12.25, unless CKE makes the Fill-Up Election. 9.2 EFFECT OF TERMINATION. In the event of a termination of this Agreement by either Summit or CKE as provided in Section 9.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of CKE or Summit or their respective officers or directors (other than as provided in Section 9.3 below for termination by Summit pursuant to Section 9.1(d)(iii)) except for breach of the confidentiality provisions of Section 11.13, and except to the extent that such termination results from the willful breach by a party hereto of any of its representations, warranties, covenants or agreements set forth in this Agreement. 9.3 CERTAIN FEES. In the event that Summit terminates the Agreement pursuant to Section 9.1(d)(iii), Summit shall promptly pay CKE a cash fee of $800,000. In the event that all conditions to CKE's obligations as set forth in Article 7 are satisfied and CKE nevertheless fails to proceed with the Merger, CKE shall forthwith pay Summit a fee of $800,000, in addition to all other damages that Summit may suffer as a result of such breach. 29 35 ARTICLE 10 DEFINITIONS 10.1 DEFINED TERMS. As used herein, the terms below shall have the following meanings: "Adjusted CKE Price" has the meaning set forth in Section 2.1. "Average CKE Price" has the meaning set forth in Section 2.1. "Acquisition Transaction" has the meaning set forth in Section 5.14. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agreement" has the meaning set forth in the Preamble hereof. "Applicable Agreement" means, with respect to any Person, any bond, debenture, note or any other evidence of indebtedness, indenture, mortgage, deed of trust, lease, contract, agreement, license or instrument to which such Person or any of the Subsidiaries is a party or by which any of their respective properties or assets is bound. "Applicable Employment Law" means any Applicable Law governing or respecting employment or the termination thereof, employment practices, terms and conditions of employment, wages, hours of work, occupational safety and health, or discriminatory, wrongful or tortious conduct in connection with the employment relationship. "Applicable Law" means any law, statute, ordinance, judgment, injunction, decree, writ, regulation, interpretation, rule or order of any court or Governmental Authority, and any other governmental restrictions or requirements, including (without limitation) pursuant to any permit or license in effect on or prior to the Closing Date. "Benefit Plan" means, with respect to any Person, an employee benefit plan (as defined in Section 3(3) of ERISA) whether or not covered by ERISA, bonus 30 36 or other incentive plan, deferred compensation, severance arrangement, executive compensation or any material fringe benefit plan or program maintained or contributed to by such Person or any of its Subsidiaries or with respect to which such Person or any of its Subsidiaries has an obligation, actual or potential. "Charter Documents" means, with respect to any Person, the articles or certificate of incorporation and by-laws, partnership agreement or other organizational documents of such Person. "CKE" has the meaning set forth in the Preamble. "CKE Common Stock" means the Common Stock, par value $.01 per share, of CKE. "CKE Disclosure Schedule" means a schedule delivered by CKE to Summit as of the date hereof (and which may be amended or modified on or prior to the Closing Date) which sets forth exceptions to the representations and warranties contained in Article 4 hereof and certain other information called for by Article 4 hereof and other provisions of this Agreement. "Closing" has the meaning set forth in Section 1.2. "Closing Date" has the meaning set forth in Section 1.2. "Code" has the meaning set forth in Recital B. "DGCL" has the meaning set forth in Section 1.1. "Effective Time" has the meaning set forth in Section 1.2. "Environmental Claim" means any claim, action, cause of action, investigation or notice (written or oral) by any Person alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of or resulting from (a) the presence, or release into the environment, of any Materials of Environmental Concern at any location, whether or not owned or operated by Summit or any of the Subsidiaries, or (b) any noncompliance with any Environmental Law. "Environmental Law" means any and all Applicable Laws relating to pollution or the protection of human health or the environment or to emissions, discharges, releases or threatened releases of any Materials of Environmental Concern 31 37 into the environment (including without limitation ambient air, surface water, ground water, or land), or otherwise relating to the manufacture, processing, distribution, generation, treatment, storage, disposal, transport or handling of any Materials of Environmental Concern. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" has the meaning set forth in Section 3.6. "Fill-Up Election" has the meaning set forth in Section 9.1(d)(iv). "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of this Agreement. "Governmental Authority" means any Federal, state, local or foreign court or governmental, administrative or regulatory authority or agency. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "IRS" has the meaning set forth in Section 3.12. "Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim, or a security interest of any kind (including, without limitation, any conditional sale or other title retention agreement, any lease in the nature thereof and any option or other agreement to sell). "Material Adverse Effect" means, with respect to any Person, a material adverse effect on (i) the condition (financial or otherwise), results of operations, assets, liabilities, business or business prospects of such Person, (ii) the ability of such Person or any of its Affiliates to perform its obligations hereunder or (iii) the validity or enforceability of this Agreement. "Merger" shall have the meaning set forth in Recital A. "Merger Consideration" has the meaning set forth in Section 2.1. 32 38 "Materials of Environmental Concern" means pesticides, chemicals, pollutants, contaminants, wastes, toxic substances and hazardous substances. "Multiemployer Plan" means, with respect to any Person, on any date, a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made at any time during the six-year period ending on or prior to such date, by such Person and that is covered by Title IV of ERISA. "NLRB" means the National Labor Relations Board. "PBGC" has the meaning set forth in Section 3.12. "Permitted Liens" means (i) Liens securing indebtedness under the Summit's credit facility with Zions National Bank; (ii) Liens in favor of Summit or any Subsidiary; (iii) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (iv) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (v) carriers', warehousemen's, mechanics', materialmen's, repairmen's, or other similar Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings diligently conducted, (vi) Liens of landlords or of mortgagees of landlords arising by operation of law, provided that the rental payments secured thereby are not yet due and payable, (vii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (viii) easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business of Summit or any of its Subsidiaries, (ix) Purchase Money Liens (including extensions and renewals thereof); (x) any interest or title of a lessor in property subject to any capital lease obligation or operating lease; and (xi) Liens arising from filing Uniform Commercial Code financing statements regarding leases. "Person" means any individual, partnership, corporation, joint venture, association, joint-stock company, trust, unincorporated organization, government or agency or political subdivision thereof, or other entity. "Proceeding" means an action, claim, suit or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. 33 39 "Proxy Statement" has the meaning set forth in Section 3.7. "Purchase Money Lien" means a Lien granted on an asset or property to secure incurred incurred solely to finance the purchase, or the cost of construction or improvement, of such asset or property. "Registration Statement" has the meaning set forth in Section 3.7. "SAS" has the meaning set forth in Section 5.8. "SEC" has the meaning set forth in Section 3.6. "Securities Act" means the Securities Act of 1933, as amended. "Subsidiaries" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of directors. "Summit" has the meaning set forth in the Preamble. "Summit Common Stock" means the Common Stock, par value $.10 per share, of Summit. "Summit Disclosure Schedule" means a schedule delivered by Summit to CKE as of the date hereof (and which may be amended or modified on or prior to the Closing Date) which sets forth exceptions to the representations and warranties contained in Article 3 hereof and certain other information called for by Article 3 hereof and other provisions of this Agreement. "Summit Preferred Stock" means the Series A Convertible Preferred Stock, par value $1.00 per share, of Summit. "Summit Stock Option" has the meaning set forth in Section 5.13. "Summit Stock Option Plans" means the 1987 Nonqualified Stock Option Plan, the 1987 Incentive Stock Option Plan, the 1984 Incentive Stock Option Plan, as amended on February 13, 1987, and the 1992 Stock Option Plan, as amended on April 8, 1994 and November 18, 1994, in each case of Summit. "Tax or Taxes" means any federal, state, local, foreign or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, real or personal property, capital stock, license, 34 40 payroll, wage or other withholding, employment, social security, severance, transfer, stamp, occupation, alternative or add-on minimum, estimated or other taxes of any kind whatsoever (including, without limitation, deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not. "Tax Returns" means any United States Federal, state, local and foreign returns, declarations, elections, statements, reports, schedules and information returns pertaining to any Tax or the refiling or amendment of any such Tax Returns previously filed. "ULP" means an unfair labor practice as defined in the National Labor Relations Act. ARTICLE 11 MISCELLANEOUS 11.1 SURVIVAL OF REPRESENTATIONS, ETC. All statements contained in the Disclosure Schedule or in any certificate or instrument of conveyance delivered by or on behalf of the parties pursuant to this Agreement or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the parties hereunder. The representations and warranties of Summit and CKE contained herein shall not survive the Closing Date. 11.2 ASSIGNMENT. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by Summit without the prior written consent of CKE, or by CKE without the prior written consent of Summit. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and no other person shall have any right, benefit or obligation hereunder. 11.3 NOTICES. Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any party to the others shall be in writing and delivered in person or by courier, telegraphed, telexed or by facsimile transmission (with confirmation given) or mailed by certified mail, postage prepaid, return receipt requested (such mailed notice to be effective on the date of such receipt is acknowledged), as follows: 35 41 If to Summit: Charlotte L. Miller Senior Vice President & General Counsel Summit Family Restaurants Inc. 440 Lawndale Drive Salt Lake City, Utah 84115-2917 (801) 463-5500 Phone (801) 463-5585 Facsimile If to CKE: Richard C. Celio Senior Vice President & General Counsel CKE Restaurants, Inc. 1200 North Harbor Boulevard Anaheim, California 92801 (714) 774-5796 Phone or to such other place and with such other copies as either party may designate as to itself by written notice to the others. 11.4 CHOICE OF LAW. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of Delaware except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern. 11.5 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, together with all exhibits and schedules hereto, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 11.6 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 36 42 11.7 INVALIDITY. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument. 11.8 HEADINGS. The headings of the Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 11.9 EXPENSES. Summit and CKE will each be liable for its own, costs and expenses incurred in connection with the negotiation, preparation, execution or performance of this Agreement. 11.10 SPECIFIC PERFORMANCE. The parties hereto agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy at law would exist, and that the parties shall be be entitled to specific performance of the terms hereof, in addition to actions for damages and any other remedy at law or equity. 11.11 ATTORNEYS FEES. The parties hereby agree that if any party hereto pursues a Proceeding to enforce the terms of this Agreement, the prevailing party in any such Proceeding shall be entitled to recover its attorneys fees and other costs and expenses incurred in such Proceeding from the other party. 11.12 PUBLICITY. Neither party shall issue or make or permit any Affiliate or advisor to issue or make any press release or other public statement regarding the transactions contemplated hereby, without the prior approval of the other party, except as required by law in the opinion of counsel to each party. The parties shall issue a mutually acceptable press release as soon as possible after execution of this Agreemen and as soon as practicable after the Closing Date. 11.13 CONFIDENTIAL INFORMATION. The parties acknowledge that the transaction described herein is of a confidential nature and shall not be disclosed except to consultants, lenders, advisors and affiliates, or as required by law, until such time as the parties make a public announcement regarding the transaction. Neither Summit nor CKE shall make any public disclosure of the specific terms of this Agreement, except as required by law. In connection with the negotiation of this Agreement and the preparation for the consummation of the transactions contemplated hereby, each party acknowledges that it will have access to confidential information relating to the other party. Each party shall treat such information as confidential, preserve the confidentiali- 37 43 ty thereof and not duplicate or use such information, except to advisors, consultants, lenders and affiliates in connection with the transactions contemplated hereby. Summit, at a time and in a manner which it reasonably determines and after prior notice to and consultation with CKE, may notify employees, unions and bargaining agents of the fact of the subject transaction. In the event of the termination of this Agreement for any reason whatsoever, each party shall return to the other all documents, work papers and other material (including all copies thereof) obtained in connection with the transactions contemplated hereby and will use all reasonable efforts, including instructing its employees and others who have had access to such information, to keep confidential and not to use any such information, unless such information is now, or is hereafter disclosed, through no act or omission of such party, in any manner making it available to the general public. 38 44 SIGNATURES IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or have caused this Agreement to be duly executed on their respective behalf by their respective officers thereunto duly authorized, as of the day and year first above written. SUMMIT FAMILY RESTAURANTS INC. By /s/ Don M. McComas ------------------------------ Don M. McComas President and Chief Executive Officer By /s/ Charlotte L. Miller ------------------------------ Charlotte L. Miller Senior Vice President & General Counsel CKE RESTAURANTS, INC. By /s/ Joseph N. Stein ------------------------------ Joseph N. Stein Senior Vice President, Chief Financial Officer By /s/ Richard C. Celio ------------------------------ Richard C. Celio Senior Vice President, General Counsel EX-10.48 17 FORM OF AMED. TO AGRMNT 8/17/95 1 Hand Delivered December 1, 1995 440 Lawndale Drive Salt Lake City, Utah 84115 Re: Change of Control Agreement Dear: Summit Family Restaurants Inc. ("Summit") has entered into a change of control letter agreement with you dated August 17, 1995 ("Change of Control Agreement"). Summit has entered or will enter into an agreement ("CKE Agreement") with CKE Restaurants, Inc. ("CKE") for the merger of Summit with a subsidiary of CKE, which transaction the Board of Directors of Summit has determined is in the best interest of the shareholders, officers and employees of Summit. CKE has requested an amendment to the Change of Control Agreement and Summit and you have agreed to amend the Change of Control Agreement as follows: 1. You agree that in the event you voluntarily terminate your employment with Summit or Summit's successor within (90) days immediately following the closing of the transaction contemplated by the CKE Agreement ("Mandatory 90 day Period") you shall forfeit all your benefits under the Change of Control Agreement and the Change of Control Agreement shall have no further force or effect. During the Mandatory 90 day Period you shall continue to receive salary equivalent to your current salary. 2. Summit agrees that the 90 day period described in paragraph 2(a) of the Change of Control Agreement, during which you may voluntarily terminate your employment and receive your benefits under the Change of Control Agreement, shall begin immediately following the end of the Mandatory 90 day Period. 2 Change of Control Agreement December 1, 1995 Page 2 3. All other provisions of the Change of Control Agreement shall remain in full force and effect. Please indicate your acceptance of the foregoing terms by executing this letter where indicated below. Very truly yours, SUMMIT FAMILY RESTAURANTS INC. Clark D. Jones Chairman of the Board - ---------------------------- - ---------------------------- Signature - ---------------------------- Date EX-11 18 COMPUTATION OF PER SHARE INCOME (LOSS) 1 EXHIBIT 11 COMPUTATION OF PER SHARE INCOME (LOSS). 2 SUMMIT FAMILY RESTAURANTS INC. COMPUTATION OF PER SHARE INCOME (LOSS)
YEARS ENDED SEPTEMBER 25, 1995, SEPTEMBER 26, 1994, AND SEPTEMBER 27, 1993 PRIMARY PER SHARE INCOME (LOSS) --------------------------------------------- 1995 1994 1993 ---- ---- ---- Average shares of common stock outstanding during the year ........... 4,794,000 4,778,000 4,693,000 Common stock equivalents resulting from common stock options ............. * 76,000 * Common stock equivalents resulting from Series A Convertible Preferred Stock .. * 869,000 -- ----------- ---------- ----------- Average shares of common stock for computation of per share income (loss)......................... 4,794,000 5,723,000 4,693,000 Net income (loss) ....................... $(5,044,000) $3,756,000 $(2,314,000) Primary per share income (loss) ......... $ (1.05) $ 0.66 $ (0.49)
FULLY DILUTED PER SHARE INCOME (LOSS) 1995 1994 1993 ---- ---- ---- Average shares of common stock outstanding during the year (1) (1) (1) Common stock equivalents resulting from common stock options Average shares of common stock for computation of per share income (loss) Net income (loss) Fully diluted per share income (loss)
- -------------------- (1) Fully diluted per share income (loss) and primary per share income (loss) are the same. * Anti-dilutive EX-22 19 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 22 SUBSIDIARIES OF THE COMPANY. 2 SUBSIDIARIES OF THE COMPANY 1. HTB Restaurants, Inc., a Delaware corporation, doing business as "HomeTown Buffet" 2. Lucky 7 Inc., a Delaware corporation, previously doing business as "Sbarro" 3. Restaurant Equipment Corporation, a Delaware corporation EX-24 20 CONSENT OF KPMG PEAT MARWICK 1 EXHIBIT 24 CONSENT OF KPMG PEAT MARWICK LLP. 2 INDEPENDENT AUDITORS CONSENT The Board of Directors Summit Family Restaurants Inc.: We consent to incorporation by reference in the registration statements No. 2-99014; No. 33-18431; No. 33-17363; No. 33-62150; No. 33-62152; and No. 33-99144 on Form S-8 of Summit Family Restaurants Inc. and subsidiaries of our report dated November 3, 1995, except as to Note 15 which is as of December 11, 1995, relating to the consolidated balance sheets of Summit Family Restaurants Inc. and subsidiaries as of September 25, 1995 and September 26, 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three year period ended September 25, 1995, and all related schedules, which report appears in the September 25, 1995, annual report on Form 10-K of Summit Family Restaurants Inc. and subsidiaries. /s/ KPMG Peat Marwick LLP - --------------------------------- KPMG Peat Marwick LLP Salt Lake City, Utah December 20, 1995 EX-27 21 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANTS BALANCE SHEET & STATEMENTS OF OPERATIONS AS OF AND FOR THE FISCAL YEAR ENDED SEPTEMBER 25, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO. OTHER SEP-25-1995 SEP-27-1994 SEP-25-1995 1,911,000 180,000 0 0 1,411,000 5,865,000 99,175,000 45,647,000 70,884,000 17,150,000 10,150,000 480,000 0 947,000 38,700,000 70,884,000 121,099,000 121,099,000 40,018,000 40,018,000 58,682,000 0 1,535,000 (6,097,000) (1,053,000) (6,097,000) 0 0 0 (5,044,000) (1.05) (1.05)
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