-----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, V/AB/QNsMWAQ7SqU86au/7Lxgn15m7Le6w1PEwldJI2LxpRBDvn+dm9KHFxBd+n8 LQGF0grNPF/0bYbr0CSthw== 0000807882-99-000015.txt : 19991206 0000807882-99-000015.hdr.sgml : 19991206 ACCESSION NUMBER: 0000807882-99-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991003 FILED AS OF DATE: 19991202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JACK IN THE BOX INC /NEW/ CENTRAL INDEX KEY: 0000807882 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 952698708 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09390 FILM NUMBER: 99768129 BUSINESS ADDRESS: STREET 1: 9330 BALBOA AVE CITY: SAN DIEGO STATE: CA ZIP: 92123-1516 BUSINESS PHONE: 6195712121 MAIL ADDRESS: STREET 1: 9330 BALBOA AVENUE CITY: SAN DIEGO STATE: CA ZIP: 92123-1516 FORMER COMPANY: FORMER CONFORMED NAME: FOODMAKER INC /DE/ DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K FOR FISCAL YEAR 1999 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 3, 1999 COMMISSION FILE NUMBER 1-9390 Jack in the Box Inc. (formerly Foodmaker, Inc.) -------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2698708 - -------------------------------- --------------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 9330 Balboa Avenue, San Diego, CA 92123 - ------------------------------------------ -------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (858) 571-2121 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ----------------------------------- ----------------------------------------- Common Stock, $.01 par value New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of November 26, 1999, computed by reference to the closing price reported in the New York Stock Exchange - Composite Transactions, was approximately $795 million. Number of shares of common stock, $.01 par value, outstanding as of the close of business November 26, 1999 - 38,295,027. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 2000 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. ITEM 1. BUSINESS The Company Overview. On October 4, 1999, Foodmaker, Inc. changed its name to Jack in the Box Inc. (the "Company"). The Company owns, operates and franchises JACK IN THE BOX(R) quick-service hamburger restaurants. As of October 3, 1999, the JACK IN THE BOX system included 1,517 restaurants, of which 1,191 were Company-operated and 326 were franchised. In fiscal 1999, the Company generated revenues of $1.5 billion. JACK IN THE BOX restaurants are located primarily in the western United States. Based on the number of units, JACK IN THE BOX is the third largest quick-service hamburger chain in most of its major markets. JACK IN THE BOX restaurants offer a broad selection of distinctive, innovative products targeted at the adult fast-food consumer. The JACK IN THE BOX menu features a variety of hamburgers, specialty sandwiches, Mexican foods, finger foods and side items. The core of the JACK IN THE BOX menu is hamburgers, including the signature Jumbo Jack(R), Sourdough Jack(R) and Ultimate Cheeseburger. In addition, the Company offers products unique to the hamburger segment, such as the Teriyaki Chicken Bowl and Chicken Fajita Pita. JACK IN THE BOX restaurants also offer value-priced product alternatives, known as "Jack's Value Menu," to compete against price-oriented competitors. The Company believes that its distinctive menu has been instrumental in developing brand loyalty and appealing to customers with a broader range of food preferences. JACK IN THE BOX restaurants focus on guest service in providing a restaurant experience which exceeds the guests' expectations. The JACK IN THE BOX restaurant chain was the first to develop and expand the concept of drive-thru only restaurants. In addition to drive-thru windows, most restaurants have seating capacities ranging from 20 to 100 persons and are open 18-24 hours a day. Drive-thru sales currently account for approximately 64% of sales at Company-operated restaurants. History. The first JACK IN THE BOX restaurant, which offered only drive-thru service, opened in 1950, and the JACK IN THE BOX chain expanded its operations to approximately 300 restaurants in 1968. After Ralston Purina Company purchased the Company in 1968, a major expansion program was initiated in an effort to penetrate the eastern and midwestern markets, and by 1979 the business grew to over 1,000 units. In 1979, the Company's management decided to divest of 232 restaurants in the east and midwest and concentrate its efforts and resources in the western and southwestern markets, which it believed offered the greatest growth and profit potential at that time. In 1985, the Company was acquired by a group of private investors and, in 1987, completed a public offering of common stock. In 1988, the outstanding publicly-held shares were acquired by private investors through a tender offer. In 1992, the Company completed a recapitalization that included a public offering of common stock and indebtedness. Operating Strategy. The Company's operating strategy includes: (i) offering quality products with high perceived value, (ii) providing fast and friendly customer service, (iii) maintaining a strong brand image, and (iv) targeting an attractive demographic segment. Beginning in 1994, the Company began a series of operating initiatives to improve food quality and guest service. These initiatives include improvements in food preparation and service methods, product reformulations and innovations, and training and retention of employees. In addition, the Company launched its award-winning, irreverent advertising campaign featuring its fictional founder "Jack" which has been instrumental in delivering the message of product quality, innovation and value to customers. The Company believes its menu and marketing campaign appeal to a broad segment of the population, particularly its primary target market of men aged 18-34, the demographic group with the highest incidence of fast-food consumption. The Company operates nearly 80% of its restaurants, one of the highest percentages in the quick-service restaurant industry, which the Company believes enables it to implement its operating strategy and introduce product innovations consistently across the entire system better than other quick-service restaurant chains. Menu Strategy. The menu strategy for JACK IN THE BOX restaurants is to provide high quality products that represent good value and appeal to the preferences of its customers. The menu features traditional hamburgers and side items in addition to specialty sandwiches, Mexican foods, finger foods, breakfast foods, unique side items and desserts. 1 The Company recognizes the advantages of improving existing products through ingredient specifications and changes in preparation and cooking procedures. Such major improvements are communicated to the public through point-of-purchase and television media, with messages such as "We won't make it - `til you order it." During fiscal 1999, the Company implemented its Assemble-to-Order ("ATO") program. This program and the addition of new menu boards have had a favorable impact on sales. JACK IN THE BOX restaurants operate in the hamburger segment which is the largest segment of the quick-service industry. Hamburgers, including the Jumbo Jack, Sourdough Jack and the Ultimate Cheeseburger, accounted for approximately one-quarter of the Company's restaurant sales in fiscal 1999. However, management believes that, as a result of its diverse menu, JACK IN THE BOX restaurants are less dependent on the commercial success of one or a few products than other quick-service chains, and the JACK IN THE BOX menu appeals to guests with a broad range of food preferences. Growth Strategy. The Company's business strategy is to (i) increase same store sales and profitability through the continued implementation of its successful operating strategy and (ii) capitalize on its strong brand name and proven operating strategy by developing new restaurants. The Company believes that its strategy of focusing on food quality and guest service will allow it to differentiate itself from competitors and maintain its restaurant level margins among the highest in the industry. The Company intends to continue to increase same store sales and profitability through improvements in food quality and guest service, product innovations and creative marketing. For example, the Company recently implemented its ATO program by remodeling its restaurant kitchens to improve food quality and to allow for more efficient operations. In addition, the Company's new drive-thru menu boards feature an electronic order confirmation system that allows customers to read their order on an electronic screen, which the Company believes will reduce errors and increase customer satisfaction. Also, in response to consumer demand, self-serve drink stations were implemented in the vast majority of restaurants, improving guest satisfaction and reducing labor. The Company intends to capitalize on its strong brand name and proven operating strategy to achieve attractive returns on investment by developing new Company-operated restaurants and, to a lesser extent, franchised restaurants. The Company opened 115 new Company-operated restaurants in fiscal 1999 and intends to open and operate slightly increased levels of new restaurants in each of the next several years. Newly-opened restaurants typically have sales levels similar to existing restaurants. The Company believes that its brand is underpenetrated in many of its existing markets and intends to leverage media and food delivery costs by increasing its market penetration. In addition, the Company believes that it can further leverage the JACK IN THE BOX brand name by expanding to contiguous and selected high growth new markets. The Company has also begun opening a limited number of restaurants on nontraditional sites, such as adjacent to convenience stores and gas stations, and intends to continue to add nontraditional sites to increase its penetration of existing markets. Site selections for all new JACK IN THE BOX restaurants are made after an extensive review of demographic data and other information relating to population density, restaurant visibility and access, available parking, surrounding businesses and opportunities for market penetration. JACK IN THE BOX restaurants developed by franchisees are built to Company specifications on sites which have been approved by the Company. The Company uses several configurations in building new JACK IN THE BOX restaurants, with the largest restaurants seating 90 customers and the smallest, 44 customers. The typical development costs range from approximately $1.3 million to $1.5 million. The Company seeks to use lease financing and other means to lower its cash investment in a typical leased restaurant to approximately $300,000 to $400,000. Management believes that the flexibility provided by the alternative configurations enables the Company to match the restaurant configuration with specific economic, demographic and geographic characteristics of the site. 2 The following table sets forth the growth in Company-operated and franchised JACK IN THE BOX restaurants since the beginning of fiscal 1995: Fiscal Year ------------------------------------------ 1995 1996 1997 1998 1999 ------------------------------ ------ ------ ------ ------ ------ Company-operated restaurants: Opened .................. 21 26 75 102 115 Sold to franchisees ..... (6) -- (8) (2) -- Closed .................. (4) (15) (6) (8) (6) Acquired from franchisees 42 5 23 14 13 End of period total ..... 863 879 963 1,069 1,191 Franchised restaurants: Opened .................. 12 10 5 2 2 Acquired from Company ... 6 -- 8 2 -- Closed .................. (1) (3) (21) (5) (8) Sold to Company ......... (42) (5) (23) (14) (13) End of period total ..... 389 391 360 345 326 System end of period total ... 1,252 1,270 1,323 1,414 1,517 The following table summarizes, by state, the geographical locations of JACK IN THE BOX restaurants at October 3, 1999: Company- operated Franchised Total ---------------------------------------- -------- ---------- ----- Arizona ................................ 76 44 120 California ............................. 491 237 728 Hawaii ................................. 27 1 28 Idaho .................................. 17 -- 17 Illinois ............................... 13 -- 13 Missouri ............................... 44 -- 44 Nevada ................................. 31 10 41 New Mexico ............................. -- 2 2 Oregon ................................. 20 2 22 Texas .................................. 383 30 413 Washington ............................. 89 -- 89 ----- ----- ----- Total ................................ 1,191 326 1,517 ===== ===== ===== Restaurant Operations. Significant resources are devoted to ensure that all JACK IN THE BOX restaurants offer the highest quality food and service. Emphasis is placed on ensuring that quality ingredients are delivered to the restaurants, restaurant food production systems are continuously developed and improved, and all employees are dedicated to delivering consistently high quality food and service. Through its network of corporate quality assurance, facilities services and restaurant management personnel, including regional vice presidents, area managers and restaurant managers, the Company standardizes specifications for the preparation and service of its food, the conduct and appearance of its employees, and the maintenance and repair of its premises. Operating specifications and procedures are documented in a series of manuals and video presentations. Most restaurants, including franchised units, receive approximately four quality and image inspections and 26 mystery guest reviews each year. Each JACK IN THE BOX restaurant is operated by a Company-employed manager or a franchisee who normally attends an extensive range of management training classes. The Company's management training program involves a combination of classroom instruction and on-the-job training in specially designated training restaurants. Restaurant managers and supervisory personnel train other restaurant employees in accordance with detailed procedures and guidelines prescribed by the Company, utilizing training aids including video equipment available at each location. The restaurant managers are directly responsible for the operation of the restaurants, including product quality, food handling safety, cleanliness, service, inventory, cash control and the conduct and appearance of employees. 3 Restaurant managers are supervised by area managers, each of whom is responsible for approximately 15-20 restaurants. The area managers are supervised by ten regional vice presidents. Under the Company's performance system, regional vice presidents, area and restaurant managers are eligible for quarterly bonuses based on a percentage of location operating profit and profit improvement over the prior year. The Company's "farm-to-fork" food safety and quality assurance program is designed to maintain high standards for the food and materials and food preparation procedures used by Company-operated and franchised restaurants. The Company maintains product specifications and approves sources for obtaining such products. The Company has developed a comprehensive, restaurant-based Hazard Analysis & Critical Control Points ("HACCP") system for managing food safety and quality. HACCP combines employee training, testing by suppliers, and detailed attention to product quality at every stage of the food preparation cycle. The Company's HACCP program has been recognized as a leader in the industry by the USDA, FDA and the Center for Science in the Public Interest. The Company provides purchasing, warehouse and distribution services for both Company-operated and some franchised restaurants. Some products, primarily dairy and bakery items, are delivered directly by approved suppliers to both Company-operated and franchised restaurants. Prior to 1996, most JACK IN THE BOX franchisees used the Company's distribution services to the full extent available even though they were permitted to purchase products directly from any approved source. In 1996, JACK IN THE BOX franchisees formed a purchasing cooperative and contracted with another supplier for distribution services. This transition by most franchisees resulted in a substantial decline in distribution sales, but had only a minor impact on profitability since distribution is a low margin business. The primary commodities purchased by JACK IN THE BOX restaurants are beef, poultry, pork, cheese and produce. The Company monitors the primary commodities it purchases in order to minimize the impact of fluctuations in price and availability, and makes advance purchases of commodities when considered to be advantageous. However, the Company remains subject to price fluctuations in certain commodities. All essential food and beverage products are available, or upon short notice can be made available, from alternative qualified suppliers. The Company maintains centralized financial and accounting controls for Company-operated JACK IN THE BOX restaurants which it believes are important in analyzing profit margins. JACK IN THE BOX restaurants use a specially designed computerized reporting and cash register system. The system provides point-of-sale transaction data and accumulates marketing information. Sales data is collected and analyzed on a weekly basis by management. Franchising Program. The growth of the JACK IN THE BOX concept occurs primarily through the building of new Company-operated restaurants. The Company does not presently recruit new franchisees. The JACK IN THE BOX franchising strategy allows selected franchisee development of restaurants in existing franchised markets. The Company offers development agreements for construction of one or more new restaurants over a defined period of time and in a defined geographic area. Developers are required to prepay one-half of the franchise fees for restaurants to be opened in the future and may forfeit such fees and lose their rights to future developments if they do not maintain the required schedule of openings. The current JACK IN THE BOX franchise agreement provides for an initial franchise fee of $50,000 per restaurant, royalties of 5% of gross sales, marketing fees of 5% of gross sales and, in most instances, a 20-year term. Some existing agreements provide for royalties and marketing fees at rates as low as 4%. In connection with the conversion of a Company-operated restaurant, the restaurant equipment and the right to do business at that location, known as "Trading Area Rights," are sold to the franchisee, in most cases for cash. The aggregate price is equal to the negotiated fair market value of the restaurant as a going concern, which depends on various factors including the history of the restaurant, its location and its cash flow potential. In addition, the land and building are leased or subleased to the franchisee at a negotiated rent, generally equal to the greater of a minimum base rent or a percentage of gross sales (typically 8 1/2%). The franchisee is required to pay property taxes, insurance and maintenance costs. The Company's franchise agreement also provides the Company a right of first refusal on each proposed sale of a franchised restaurant, which it exercises from time to time when the proposed sale price and terms are acceptable to the Company. 4 The Company views its non-franchised JACK IN THE BOX units as a potential resource which, on a selected basis, can be sold to a franchisee to generate additional immediate cash flow and revenues while still maintaining future cash flows and earnings through franchise rents and royalties. Although franchised units totaled 326 of the 1,517 JACK IN THE BOX restaurants at October 3, 1999, the ratio of franchised to Company-operated restaurants is low relative to the Company's major competitors. Advertising and Promotion. The Company engages in substantial marketing programs and activities. Advertising costs are paid from a fund comprised of (i) an amount contributed each year by the Company equal to at least 5% of the gross sales of its Company-operated JACK IN THE BOX restaurants and (ii) the marketing fees paid by franchisees. The Company's use of advertising media is limited to regional and local campaigns both on television and radio spots and in print media. Approximately $86.6 million was spent on advertising and promotions in fiscal 1999, including franchisee contributions of $17.3 million. The current advertising campaign relies on a series of television and radio spot advertisements to promote individual products and to develop the JACK IN THE BOX brand. The Company also spent $1.0 million in fiscal 1999 for local marketing purposes. Franchisees are encouraged to, and generally do, spend funds in addition to those expended by the Company for local marketing programs. Employees. At October 3, 1999, the Company had approximately 37,800 employees, of whom approximately 35,650 were restaurant employees, 550 were corporate personnel, 300 were distribution employees and 1,300 were field management and administrative personnel. Employees are paid on an hourly basis, except restaurant managers, corporate and field management, and administrative personnel. A majority of the Company's restaurant employees are employed on a part-time, hourly basis to provide services necessary during peak periods of restaurant operations. The Company has not experienced any significant work stoppages and believes its labor relations are good. The Company competes in the job market for qualified employees and believes its wage rates are comparable to those of its competitors. Trademarks and Service Marks The JACK IN THE BOX name is of material importance to the Company and is a registered trademark and service mark in the United States and in certain foreign countries. In addition, the Company has registered numerous service marks and trade names for use in its business, including the JACK IN THE BOX logo and various product names and designs. Competition and Markets The restaurant business is highly competitive and is affected by competitive changes in a geographic area, changes in the public's eating habits and preferences, local and national economic conditions affecting consumer spending habits, population trends, and traffic patterns. Key elements of competition in the industry are the quality and value of the food products offered, quality and speed of service, advertising, name identification, restaurant location, and attractiveness of facilities. Each JACK IN THE BOX restaurant competes directly and indirectly with a large number of national and regional restaurant chains as well as with locally-owned quick-service restaurants and coffee shops. In selling franchises, the Company competes with many other restaurant franchisers, and some of its competitors have substantially greater financial resources and higher total sales volume. Regulation Each JACK IN THE BOX restaurant is subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, safety, fire and other departments. Difficulties or failures in obtaining any required licensing or approval could result in delays or cancellations in the opening of new restaurants. The Company is also subject to federal and a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisers in the offer and sale of franchises and may also apply substantive standards to the relationship between franchiser and franchisee, including limitations on the ability of franchisers to terminate franchisees and alter franchise arrangements. The Company believes it is operating in substantial compliance with applicable laws and regulations governing its operations. The Company is subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wages, overtime and other working conditions. A significant number of the Company's food service personnel are paid at rates related to the federal and state minimum wage, and accordingly, increases in the minimum wage increase the Company's labor costs. 5 In addition, various proposals which would require employers to provide health insurance for all of their employees are being considered from time to time in Congress and various states. The imposition of any requirement that the Company provide health insurance to all employees would have a material adverse impact on the consolidated operations and financial condition of the Company and the restaurant industry. The Company is subject to certain guidelines under the Americans with Disabilities Act of 1990 ("ADA") and various state codes and regulations which require restaurants to provide full and equal access to persons with physical disabilities. To comply with such laws and regulations, the cost of remodeling and developing restaurants has increased, principally due to the need to provide certain older restaurants with ramps, wider doors, larger restrooms and other conveniences. The Company is also subject to various federal, state and local laws regulating the discharge of materials into the environment. The cost of developing restaurants has increased as a result of the Company's compliance with such laws. Such costs relate primarily to the necessity of obtaining more land, landscaping and below surface storm drainage and the cost of more expensive equipment necessary to decrease the amount of effluent emitted into the air and ground. Forward-Looking Statements and Risk Factors This Form 10-K contains "forward-looking statements" within the meaning of the securities laws. Although we believe that the expectations reflected in such forward-looking statements are reasonable, and have based these expectations on our beliefs as well as assumptions we have made, such expectations may prove to be materially incorrect due to known and unknown risks and uncertainties. These forward-looking statements are principally contained in the sections captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Statements regarding the Company's future financial performance, including growth in net sales, earnings, cash flows from operations and sources of liquidity; expectations regarding effective tax rates; the number of new restaurants to be opened in the future; continuing investment in new restaurants and refurbishment of existing facilities and Year 2000 compliance are forward-looking statements. In addition, in those and other portions of this Form 10-K, the words "anticipates," "believes," "estimates," "seeks," "expects," "plans," "intends" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the following cautionary statements identify important factors that could cause actual results to differ materially from those expressed in any forward-looking statements. In addition to other factors discussed in this Form 10-K, other factors that could cause results to differ materially are: the effectiveness and cost of advertising and promotional efforts; the degree of success of product offerings; weather conditions; difficulties in obtaining ingredients and variations in ingredient costs; the ability to control operating, general and administrative costs and to raise prices sufficiently to offset cost increases; the ability to recognize value from any current or future co-branding efforts; competitive products and pricing and promotions; the impact of any wide-spread negative publicity; the impact on consumer eating habits of new scientific information regarding diet, nutrition and health; competition for labor; general economic conditions; changes in consumer tastes and in travel and dining-out habits; the impact on operations and the costs to comply with laws and regulations and other activities of governing entities; the costs and other effects of legal claims by franchisees, customers, vendors and others, including settlement of those claims; and the effectiveness of management strategies and decisions. Risks Related to the Food Service Industry. Food service businesses are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. The performance of individual restaurants may be adversely affected by factors such as traffic patterns, demographics and the type, number and location of competing restaurants. 6 Multi-unit food service businesses such as JACK IN THE BOX can also be materially and adversely affected by publicity resulting from poor food quality, illness, injury or other health concerns with respect to the nutritional value of certain food. In early 1993, the Company's business was severely disrupted as a result of an outbreak of food-borne illness bacteria attributed to hamburgers served in JACK IN THE BOX restaurants, principally in the state of Washington. To minimize the risk of any such occurrence in the future, the Company has implemented a HACCP system for managing food safety and quality. Nevertheless, the risk of food-borne illness cannot be completely eliminated. Any outbreak of such illness attributed to JACK IN THE BOX restaurants or within the food service industry could have a material adverse effect on the financial condition and results of operations of the Company. Dependence on frequent deliveries of fresh produce and groceries subjects food service businesses, such as the Company's, to the risk that shortages or interruptions in supply, caused by adverse weather or other conditions, could adversely affect the availability, quality and cost of ingredients. In addition, unfavorable trends or developments concerning factors such as inflation, increased food, labor and employee benefit costs (including increases in hourly wage and unemployment tax rates), increases in the number and locations of competing restaurants, regional weather conditions and the availability of experienced management and hourly employees may also adversely affect the food service industry in general and the Company's financial condition and results of operations in particular. Changes in economic conditions affecting the Company's customers could reduce traffic in some or all of the Company's restaurants or impose practical limits on pricing, either of which could have a material adverse effect on the Company's financial condition and results of operations. The continued success of the Company will depend in part on the ability of the Company's management to anticipate, identify and respond to changing conditions. Risks Associated with Development. The Company intends to grow primarily by developing additional Company-owned restaurants. Development involves substantial risks, including the risk of (i) development costs exceeding budgeted or contracted amounts, (ii) delays in completion of construction, (iii) failing to obtain all necessary zoning and construction permits, (iv) the inability to identify or the unavailability of suitable sites, both traditional and nontraditional, on acceptable leasing or purchase terms, (v) developed properties not achieving desired revenue or cash flow levels once opened, (vi) competition for suitable development sites from competitors (some of which have greater financial resources than the Company), (vii) incurring substantial unrecoverable costs in the event a development project is abandoned prior to completion, (viii) changes in governmental rules, regulations, and interpretations (including interpretations of the requirements of the ADA and (ix) general economic and business conditions. Although the Company intends to manage its development to reduce such risks, there can be no assurance that present or future developments will perform in accordance with the Company's expectations. There can be no assurance that the Company will complete the development and construction of the facilities or that any such developments will be completed in a timely manner or within budget or that such restaurants will generate the Company's expected returns on investment. The Company's inability to expand in accordance with its plans or to manage its growth could have a material adverse effect on its results of operations and financial condition. Risks Associated with Growth. The Company's development plans will require the implementation of enhanced operational and financial systems and will require additional management, operational, and financial resources. For example, the Company will be required to recruit and train managers and other personnel for each new Company-owned restaurant as well as additional development and accounting personnel. There can be no assurance that the Company will be able to manage its expanding operations effectively. The failure to implement such systems and add such resources on a cost-effective basis could have a material adverse effect on the Company's results of operations and financial condition. Reliance on Certain Markets. Because the Company's business is regional, with approximately three-fourths of JACK IN THE BOX restaurants located in the states of California and Texas, the economic conditions, state and local government regulations and weather conditions affecting those states may have a material impact upon the Company's results. 7 Risks Related to Entering New Markets. During fiscal 2000, the Company expects to open restaurants in new markets. There can be no assurance that the Company will be able to successfully enter into new geographical markets, as it may encounter well-established competitors with substantially greater financial resources. The Company may be unable to find attractive locations, successfully market its products and attract customers. Competitive circumstances and consumer characteristics in new markets may differ substantially from those in the markets in which the Company has substantial experience. There can be no assurance that the Company will be able to successfully integrate or profitably operate new Company-operated or franchised restaurants located in its new markets. Competition. The restaurant industry is highly competitive with respect to price, service, location and food quality, and there are many well-established competitors. Certain of the Company's competitors have engaged in substantial price discounting in recent years and may continue to do so in the future. In addition, factors such as increased food, labor and benefits costs and the availability of experienced management and hourly employees may adversely affect the restaurant industry in general and the Company's restaurants in particular. Each JACK IN THE BOX restaurant competes directly and indirectly with a large number of national and regional restaurant chains as well as with locally-owned quick-service restaurants and coffee shops. Some of its competitors have substantially greater financial resources and higher total sales volume. Any changes in these factors could adversely affect the profitability of the Company. Exposure to Commodity Pricing. Although the Company may take hedging positions in certain commodities from time to time and opportunistically contract for some of these items in advance of a specific need, there can be no assurances that the Company will not be subject to the risk of substantial and sudden price increases, shortages or interruptions in supply of such items, which could have a material adverse effect on the Company. Risks Related to Increased Labor Costs. The Company has a substantial number of employees who are paid wage rates at or slightly above the minimum wage. As federal and state minimum wage rates increase, the Company may need to increase not only the wages of its minimum wage employees but also the wages paid to the employees at wage rates which are above minimum wage. If competitive pressures or other factors prevent the Company from offsetting the increased costs by increases in prices, the Company's profitability may decline. In addition, various proposals which would require employers to provide health insurance for all of their employees are being considered from time to time in Congress and various states. The imposition of any requirement that the Company provide health insurance to all employees would have a material adverse impact on the operations and financial condition of the Company and the restaurant industry. Taxes. The Company has been required, because of operating losses incurred in past years, to establish valuation allowances against deferred tax assets recorded for loss and tax credit carryforwards and various other items. Until there is sufficient available evidence that the Company will be able to realize such deferred tax assets through future taxable earnings, the Company's tax provision will be highly sensitive to the expected level of annual earnings, the impact of the alternative minimum tax under the Internal Revenue Code and the limited current recognition of the deferred tax assets. As a result of changing expectations, the relationship of the Company's income tax provision to pre-tax earnings will vary more significantly from quarter to quarter and year to year than companies that have been continuously profitable. However, the Company believes that its effective tax rates are likely to increase in the future. Leverage. The Company is highly leveraged. Its substantial indebtedness may limit the Company's ability to respond to changing business and economic conditions. The contracts under which the Company acquired its debt impose significant operating and financial restrictions which limit the Company's ability to borrow money, sell assets or make capital expenditures or investments without the approval of certain lenders. In addition to cash flows generated by operations, other financing alternatives may be required in order to repay the Company's substantial debt as it comes due. There can be no assurance that the Company will be able to refinance its debt or obtain additional financing or that any such financing will be on terms favorable to the Company. 8 Risks Related to Franchise Operations. At October 3, 1999, the Company had 326 franchised JACK IN THE BOX restaurants. The opening and success of franchised restaurants depends on various factors, including the availability of suitable sites, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules and the financial and other capabilities of the Company's franchisees and developers. There can be no assurance that developers planning the opening of franchised restaurants will have the business abilities or sufficient access to financial resources necessary to open the restaurants required by their agreements. There can also be no assurance that franchisees will successfully operate their restaurants in a manner consistent with the Company's concept and standards. In addition, certain federal and state laws govern the Company's relationships with its franchisees. See "Risks Related to Government Regulations" below. In November 1996, an action was filed by the National JIB Franchisee Association, Inc. (the "Franchisee Association") and several of the franchisees against the Company and others. See Item 3-Legal Proceedings. Dependence on Key Personnel. The Company believes that its success will depend in part on the continuing services of its key executives, including Robert J. Nugent, President and Chief Executive Officer, Charles W. Duddles, Executive Vice President, Chief Financial Officer and Chief Administrative Officer and Kenneth R. Williams, Executive Vice President, Marketing and Operations, none of whom are employed pursuant to an employment agreement. The loss of the services of any of such executives could have a material adverse effect on the Company's business, and there can be no assurance that qualified replacements would be available. The Company's continued growth will also depend in part on its ability to attract and retain additional skilled management personnel. Risks Related to Government Regulations. The restaurant industry is subject to extensive federal, state and local governmental regulations, including those relating to the preparation and sale of food and those relating to building and zoning requirements. The Company and its franchisees are also subject to laws governing their relationships with employees, including minimum wage requirements, overtime, working and safety conditions and citizenship requirements. See "Risks Related to Increased Labor Costs" above. The Company is also subject to federal regulation and certain state laws which govern the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on noncompetition provisions and on provisions concerning the termination or nonrenewal of a franchise. Some states require that certain materials be registered before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could adversely affect the Company and its franchisees. Changes in government regulations could have a material adverse effect on the Company. Environmental Risks and Regulations. As is the case with any owner or operator of real property, the Company is subject to a variety of federal, state and local governmental regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. Failure to comply with environmental laws could result in the imposition of severe penalties or restrictions on operations by governmental agencies or courts of law which could adversely affect operations. The Company does not have environmental liability insurance, nor does it maintain a reserve, to cover such events. The Company has engaged and may engage in real estate development projects and owns or leases several parcels of real estate on which its restaurants are located. The Company is unaware of any significant environmental hazards on properties it owns or has owned, or operates or has operated. In the event of the determination of contamination on such properties, the Company, as owner or operator, can be held liable for severe penalties and costs of remediation. The Company also operates motor vehicles and warehouses and handles various petroleum substances and hazardous substances, but is not aware of any current material liability related thereto. Risks Associated With Year 2000 Compliance. See Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations ("Item 7")-Year 2000 Compliance. 9 ITEM 2. PROPERTIES At October 3, 1999, the Company owned 619 JACK IN THE BOX restaurant buildings, including 399 located on leased land. In addition, it leased 814 restaurants where both the land and building are leased, including 142 restaurants operated by franchisees. At October 3, 1999, franchisees directly owned or leased 84 restaurants. Number of restaurants --------------------------- Company- Franchise- operated operated Total ------------------------------------------- -------- -------- ------ Company-owned restaurant buildings: On Company-owned land .................. 168 52 220 On leased land ......................... 351 48 399 ----- ----- ----- Subtotal ............................... 519 100 619 Company-leased restaurant buildings on leased land ......................... 672 142 814 Franchise directly-owned or directly-leased restaurant buildings ... -- 84 84 ----- ----- ----- Total restaurant buildings ................ 1,191 326 1,517 ===== ===== ===== The Company's leases generally provide for fixed rental payments (with cost-of-living index adjustments) plus real estate taxes, insurance and other expenses; in addition, many of the leases provide for contingent rental payments of between 2% and 10% of the restaurant's gross sales. The Company has generally been able to renew its restaurant leases as they expire at then current market rates. The remaining lease terms of ground leases range from approximately one year to 55 years, including optional renewal periods. The remaining lease terms of the Company's other leases range from approximately one year to 40 years, including optional renewal periods. At October 3, 1999, the leases had initial terms expiring as follows: Number of restaurants --------------------------- Years initial Ground Land and lease term expires leases building leases --------------------------------------------- -------- --------------- 2000 - 2004.................................. 114 110 2005 - 2009.................................. 139 341 2010 - 2014.................................. 64 139 2015 and later............................... 82 224 In addition, the Company owns its principal executive offices in San Diego, California, consisting of approximately 150,000 square feet. The Company owns one warehouse and leases an additional five with remaining terms ranging from one to 19 years, including optional renewal periods. Substantially all the Company's real and personal property are pledged as collateral for various components of the Company's long-term debt. ITEM 3. LEGAL PROCEEDINGS On February 2, 1995, an action by Concetta Jorgensen was filed against the Company in the U.S. District Court in San Francisco, California alleging that restrooms at a JACK IN THE BOX restaurant failed to comply with laws regarding disabled persons and seeking damages in unspecified amounts, punitive damages, injunctive relief, attorneys' fees and prejudgment interest. In an amended complaint, damages were also sought on behalf of all physically disabled persons who were allegedly denied access to restrooms at the restaurant. In February 1997, the court ordered that the action for injunctive relief proceed as a nationwide class action on behalf of all persons in the United States with mobility disabilities. The Company has reached agreement on settlement terms both as to the individual plaintiff Concetta Jorgensen and the claims for injunctive relief, and the settlement agreement has been approved by the U.S. District Court. The settlement requires the Company to make access improvements at Company-operated restaurants to comply with the standards set forth in the ADA Access Guidelines. The settlement requires compliance at 85% of the Company-operated restaurants by April 2001 and for the balance of Company-operated restaurants by October 2005. The Company has agreed to make modifications to its restaurants to improve accessibility and anticipates investing an estimated $19 million in capital improvements in connection with these modifications, including approximately $5 million spent through 10 October 3, 1999. Similar claims have been made against JACK IN THE BOX franchisees and the Company relating to franchised locations which may not be in compliance with the ADA. The relief sought is (i) injunctive relief to bring these additional restaurants into compliance with the ADA, (ii) monitoring expenses to ensure compliance and (iii) attorneys' fees. On November 5, 1996, an action was filed by the Franchisee Association and several of the Company's franchisees in the Superior Court of California, County of San Diego in San Diego, California, against the Company and others. The lawsuit alleged that certain Company policies are unfair business practices and violate sections of the California Corporations Code regarding material modifications of franchise agreements and interfere with franchisees' right of association. It sought injunctive relief, a declaration of the rights and duties of the parties, unspecified damages and rescission of alleged material modifications of plaintiffs' franchise agreements. The complaint contained allegations of fraud, breach of a fiduciary duty and breach of a third party beneficiary contract in connection with certain payments that the Company received from suppliers and sought unspecified damages, interest, punitive damages and an accounting. However, on August 31, 1998, the Court granted the Company's request for summary judgment on all claims regarding an accounting, conversion, fraud, breach of fiduciary duty and breach of third party beneficiary contracts. On March 10, 1999, the Court granted motions by the Company, ruling, in essence, that the franchisees would be unable to prove their remaining claims. On April 22, 1999, the Court entered an order granting the Company's motion to enforce a settlement with the Franchisee Association covering various aspects of the franchise relationship, but involving no cash payments by the Company. In accordance with that order, the Franchisee Association's claims were dismissed with prejudice. On June 10, 1999, a final judgment was entered in favor of the Company and against those plaintiffs with whom the Company did not settle. The Franchisee Association and certain individual plaintiffs filed an appeal on August 13, 1999. Management intends to vigorously defend the appeal. On December 10, 1996, a suit was filed by the Company's Mexican licensee, Foodmex, Inc., in the U.S. District Court in San Diego, California against the Company and its international franchising subsidiary. Foodmex formerly operated several JACK IN THE BOX franchise restaurants in Mexico, but its licenses were terminated by the Company for, among other reasons, chronic insolvency and failure to meet operational standards. The Foodmex suit alleged wrongful termination of its master license, breach of contract and unfair competition and sought an injunction to prohibit termination of its license as well as unspecified monetary damages. The Company and its subsidiary counterclaimed and sought a preliminary injunction against Foodmex. On February 24, 1998, the Court issued an order dismissing Foodmex's complaint without prejudice. In March 1998, Foodmex filed a Second Amended Complaint in the U.S. District Court in San Diego, California alleging contractual, tort and law violations arising out of the same business relationship and seeking damages in excess of $10 million, attorneys' fees and costs. On June 25, 1999, the Court granted the Company's motion for summary judgement on the plaintiff's Second Amended Complaint, resulting in the complete dismissal of Foodmex's claim against the Company. On the same day, the Court granted the Company's motion for partial summary judgement on its breach of contract, trademark infringement, unfair competition and related claims, including the Company's claim for a permanent injunction. The Court ordered Foodmex to cease using any of the Company's proprietary marks, and ordered it to cause its Mexican sublicensees to cease using any of the Company's proprietary marks. Issues regarding Foodmex's liability for breach of a promissory note and damages owed to the Company by Foodmex remain to be decided. No trial date has been set. The Company is also subject to normal and routine litigation. The amount of liability from the claims and actions against the Company cannot be determined with certainty, but in the opinion of management, the ultimate liability from all pending legal proceedings, asserted legal claims and known potential legal claims which are probable of assertion should not materially affect the results of operations and liquidity of the Company. The U.S. Internal Revenue Service ("IRS") examination of the Company's federal income tax return for fiscal year 1996 resulted in the issuance of a proposed adjustment to tax liability of $7.3 million (exclusive of interest). The Company has filed a protest with the Regional Office of Appeals of the IRS to contest the proposed assessment. Management believes that an adequate provision for income taxes has been made. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth fiscal quarter ended October 3, 1999. 11 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The following table sets forth the high and low closing sales prices for the Company's common stock during the fiscal quarters indicated, as reported on the New York Stock Exchange-Composite Transactions: 16 weeks ended 12 weeks ended -------------- -------------------------------------------- Jan. 18, 1998 Apr. 12, 1998 July 5, 1998 Sept. 27, 1998 - ------------------------------------------------------------------------ High....... $20.25 $20.63 $20.94 $17.63 Low........ 14.75 15.25 16.25 13.00 16 weeks ended 12 weeks ended 13 weeks ended -------------- --------------------------- -------------- Jan. 17, 1999 Apr. 11, 1999 July 4, 1999 Oct. 3, 1999 - ------------------------------------------------------------------------ High....... $23.06 $26.63 $28.56 $29.31 Low........ 13.06 22.00 22.38 22.44 The Company has not paid any cash or other dividends (other than the issuance of the Rights, as described in Note 8 to the Consolidated Financial Statements) during its last two fiscal years and does not anticipate paying dividends in the foreseeable future. The Company's credit agreements prohibit and its public debt instruments restrict the Company's right to declare or pay dividends or make other distributions with respect to shares of its capital stock. As of October 3, 1999, there were approximately 500 stockholders of record. 12 ITEM 6. SELECTED FINANCIAL DATA The Company's fiscal year is 52 or 53 weeks, ending the Sunday closest to September 30. The following selected financial data of the Company for each of the four 52-week periods from 1995 to 1998 and the 53-week period of 1999 are extracted or derived from financial statements which have been audited by KPMG LLP, independent auditors.
Fiscal Year -------------------------------------------------------------- 1999 1998 1997 1996 1995 - -------------------------------------- ---------- ---------- ---------- ---------- ---------- (Dollars in thousands, except per share data) Statement of Operations Data: Revenues: Restaurant sales.................... $1,372,899 $1,112,005 $ 986,583 $ 892,029 $ 804,084 Distribution and other sales........ 41,828 26,407 45,233 132,421 179,689 Franchise rents and royalties....... 39,863 35,904 35,426 34,048 32,530 Other revenues (1).................. 2,309 49,740 4,500 4,324 2,413 ---------- ---------- ---------- ---------- ---------- Total revenues.................... 1,456,899 1,224,056 1,071,742 1,062,822 1,018,716 ---------- ---------- ---------- ---------- ---------- Costs of revenues (2)................. 1,142,995 951,619 869,721 882,270 871,792 Equity in loss of FRI (3)............. -- -- -- -- 57,188 Selling, general and administrative expenses (4)......... 164,297 134,926 116,459 109,075 109,731 Interest expense...................... 28,249 33,058 40,359 46,126 48,463 ---------- ---------- ---------- ---------- ---------- Earnings (loss) before income taxes and extraordinary item........ 121,358 104,453 45,203 25,351 (68,458) Income taxes.......................... 44,900 33,400 9,900 5,300 500 ---------- ---------- ---------- ---------- ---------- Earnings (loss) before extraordinary item.................. $ 76,458 $ 71,053 $ 35,303 $ 20,051 $ (68,958) ========== ========== ========== ========== ========== Earnings (loss) per share before extraordinary item: Basic ............................ $ 2.00 $ 1.82 $ .91 $ .52 $ (1.78) Diluted .......................... 1.95 1.77 .89 .51 (1.78) Balance Sheet Data (at end of period): Total assets ......................... $ 833,644 $ 743,588 $ 681,758 $ 653,638 $ 662,674 Long-term debt ....................... 303,456 320,050 346,191 396,340 440,219 Stockholders' equity ................. 217,837 136,980 87,879 51,384 31,253 ---------- (1) Includes the recognition of a $45.8 million Litigation Settlement in 1998 as described in Item 7 - Revenues. (2) Reflects an $18.0 million reduction of restaurant operating costs in 1999 as described in Item 7 - Costs and Expenses. (3) Reflects the complete write-off of the Company's $57.2 million investment in Family Restaurants, Inc. ("FRI") in 1995. (4) Includes the recognition of an $8.0 million stockholders' lawsuit settlement in 1995.
13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations All comparisons under this heading between 1999, 1998 and 1997 refer to the 53-week period ended October 3, 1999, and the 52-week periods ended September 27, 1998 and September 28, 1997, respectively, unless otherwise indicated. Revenues Company-operated restaurant sales were $1,372.9 million, $1,112.0 million and $986.6 million in 1999, 1998 and 1997, respectively. Restaurant sales improved from the prior year by $260.9 million, or 23.5%, in 1999 and $125.4 million, or 12.7%, in 1998, reflecting increases in the average number of Company-operated restaurants and per store average ("PSA") sales. The increase in 1999 also included restaurant sales of approximately $28 million for the additional week. The average number of Company-operated restaurants grew to 1,120 in 1999 from 998 in 1998 and 900 in 1997 with new restaurant openings of 115, 102 and 75, respectively. PSA weekly sales for comparable restaurants increased 8.7% in 1999 and 2.8% in 1998 compared to the respective prior year, due to increases in both the number of transactions and the average transaction amounts. The Company believes restaurant sales improvements are attributed to its two-tier marketing strategy featuring both premium sandwiches and value-priced alternatives, as well as to a popular brand-building advertising campaign that features the Company's fictional founder, "Jack". Also contributing to sales growth in 1999 were the Company's strategic initiatives, including an Assemble-to-Order ("ATO") program in which sandwiches are made when customers order them, new menu boards that showcase combo meals and a new order confirmation system at drive-thru windows. Distribution and other sales were $41.8 million, $26.4 million and $45.2 million in 1999, 1998 and 1997, respectively. Distribution sales of food and supplies to franchisees and others (excluding Chi-Chi's Mexican restaurants) were $30.9 million in 1999, $24.3 million in 1998 and $9.9 million in 1997, reflecting increases in the number of restaurants serviced by the Company's distribution division and PSA sales growth at franchise restaurants. Total distribution and other sales in 1997 include $35.3 million to Chi-Chi's Mexican restaurants, prior to expiration of their contract. Because distribution is a low-margin business, the decrease in distribution revenues in 1998 did not have a material impact on the results of operations or financial condition of the Company. Other sales from fuel and convenience store operations increased to $10.9 million in 1999 from $2.1 million in 1998 as the number of locations operated by the Company grew to seven during 1999 from one in 1998. Franchise rents and royalties were $39.9 million, $35.9 million and $35.4 million in 1999, 1998 and 1997, respectively, slightly more than 10% of sales at franchise-operated restaurants in each of those years. Franchise restaurant sales were $384.7 million in 1999, $345.9 million in 1998 and $352.2 million in 1997, benefiting in 1999 from the Company's strategic initiatives described above. The percentages of sales in 1999 and 1998 were fractionally higher due to increases in percentage rents at certain franchised restaurants. In 1998, other revenues, typically interest income from investments and notes receivable, also included a litigation settlement received from various meat suppliers of $58.5 million, of which $45.8 million (the "Litigation Settlement") was realized after litigation costs. Excluding this unusual item in 1998, other revenues declined to $2.3 million in 1999 from $4.0 million in 1998 and $4.5 million in 1997, reflecting lower investments as cash has been utilized in refinancing activities. Costs and Expenses Restaurant costs of sales, which include food and packaging costs, increased with sales growth and the addition of Company-operated restaurants to $432.2 million in 1999 from $353.5 million in 1998 and $322.4 million in 1997. As a percent of restaurant sales, costs of sales were 31.5% in 1999, 31.8% in 1998 and 32.7% in 1997. The restaurant costs of sales percentages decreased in 1999 and 1998 compared to 1997 primarily due to favorable ingredient costs, principally beef, pork and beverages, offset partially by increased cheese and produce costs. 14 Restaurant operating costs were $646.8 million, $549.2 million and $478.7 million in 1999, 1998 and 1997, respectively. In 1999, the Company reduced accrued liabilities and restaurant operating costs by $18.0 million, primarily due to a change in estimates resulting from improvements to its loss prevention and risk management programs, which have been more successful than anticipated. This change in estimates was supported by an independent actuarial study conducted to evaluate the self-insured portion of the Company's workers' compensation, general liability and other insurance programs. Restaurant operating costs were 48.4% of restaurant sales in 1999, excluding the change in estimates, 49.4% in 1998 and 48.5% in 1997. The restaurant operating costs percentage declined in 1999 compared to 1998, reflecting improved rates of labor-related costs and occupancy expenses, which increased at a lesser rate than PSA sales growth. The percentage increase in 1998 compared to 1997 primarily reflects higher labor costs due to increases in minimum wage and initial training for operational improvements. Additionally, new restaurant preopening costs increased approximately .2% of sales in 1998, principally due to an increase in new restaurants. Costs of distribution and other sales were $41.2 million in 1999, $25.8 million in 1998 and $45.0 million in 1997, reflecting the fluctuations in distribution and other sales. Costs of distribution and other sales were 98.5% of related sales in 1999, 97.8% in 1998 and 99.4% in 1997. The higher percentage in 1999 was primarily due to start-up costs related to fuel and convenience store operations. In 1997, costs included $.4 million in expenses related to the closure of a distribution center which had been used principally to distribute to Chi-Chi's Mexican restaurants. Franchised restaurant costs, which consist principally of rents and depreciation on properties leased to franchisees and other miscellaneous costs, were $22.7 million, $23.0 million and $23.6 million in 1999, 1998 and 1997, respectively. The declines in 1999 and 1998 compared to 1997 principally reflect decreases in franchise-related legal expenses. Selling, general and administrative expenses were $164.3 million, $134.9 million and $116.5 million in 1999, 1998 and 1997, respectively. Advertising and promotion costs were $70.3 million in 1999, $58.3 million in 1998 and $51.9 million in 1997, representing approximately 5.1% of restaurant sales in 1999, 5.2% in 1998 and 5.3% in 1997. In 1999, regional administrative and training expenses are reflected as general and administrative costs. Such costs, which had previously been included with restaurant operating costs, have been reclassified in prior years to conform with the 1999 presentation. General, administrative and other costs were approximately 6.5% of revenues in 1999, 6.3% in 1998 and 6.0% in 1997. The higher percentage in 1999 reflects costs associated with the implementation of the ATO program and other guest initiatives, accelerated restaurant growth, higher incentive compensation attributable to the Company's earnings improvement and increased pension expense. In 1998, such costs included a non-cash charge of approximately $8 million, primarily related to facilities and customer service improvement projects. Interest expense declined to $28.2 million in 1999 from $33.1 million in 1998 and $40.4 million in 1997, principally due to a reduction in total debt outstanding and lower interest rates. Over this three-year period, total long-term debt has been reduced by $93 million and certain debt has been refinanced at lower rates. See "Liquidity and Capital Resources." The tax provisions reflect effective annual tax rates of 37%, 32% and 22% of pre-tax earnings in 1999, 1998 and 1997, respectively. The favorable income tax rates in each year result from the Company's ability to realize, as the Company's profitability has improved, previously unrecognized tax benefits such as business tax credit, tax loss and minimum tax credit carryforwards. In 1998, the Company incurred an extraordinary loss of $7.0 million, less income tax benefits of $2.6 million, on the early extinguishment of $125 million each of its 9 1/4% senior notes and its 9 3/4% senior subordinated notes. In 1997, the Company incurred a similar extraordinary loss of $1.6 million, less income tax benefits of $.3 million, on the early repayment of $50 million of the 9 1/4% senior notes. Net earnings were $76.5 million, or $1.95 per diluted share, in 1999, $66.7 million, or $1.66 per diluted share, in 1998 and $34.1 million, or $.86 per diluted share, in 1997. Fiscal year 1999 and 1998 include unusual items, which increased the Company's net earnings. In 1999, restaurant operating costs were reduced by $18.0 million due to a change in estimates as described above. This change in estimates increased 1999 net earnings by $11.4 million, or $.29 per diluted share, net of income taxes. In 1998, net earnings included approximately $25.7 million, or $.64 per diluted share, net of income taxes, from the Litigation Settlement income offset by the aforementioned non-cash 15 charge, and the extraordinary loss of $4.4 million, or $.11 per share. Excluding these unusual and extraordinary items, earnings increased 43% to $65.1 million or $1.66 per diluted share, in 1999 from $45.4 million, or $1.13 per diluted share, in 1998, which had increased 29% from $35.3 million, or $.89 per diluted share, before an extraordinary item, in 1997. Liquidity and Capital Resources Cash and cash equivalents increased $1.0 million to approximately $10.9 million at October 3, 1999 from approximately $9.9 million at the beginning of the fiscal year. The Company expects to maintain low levels of cash and cash equivalents, reinvesting available cash flows from operations to develop new or enhance existing restaurants and to reduce borrowings under the revolving credit agreement. The Company's working capital deficit decreased $11.5 million to $131.8 million at October 3, 1999 from $143.3 million at September 27, 1998, principally due to an increase in prepaid expenses. The Company and the restaurant industry in general, maintain relatively low levels of accounts receivable and inventories and vendors grant trade credit for purchases such as food and supplies. The Company also continually invests in its business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. On April 1, 1998, the Company entered into a new revolving bank credit agreement, which provides for a credit facility expiring in 2003 of up to $175 million, including letters of credit of up to $25 million. At October 3, 1999, the Company had borrowings of $86.0 million and approximately $81.1 million of availability under the agreement. Beginning in September 1997, the Company initiated a refinancing plan to reduce and restructure its debt. At that time, the Company prepaid $50 million of its 9 1/4% senior notes due 1999 using available cash. In 1998, the Company repaid the remaining $125 million of its 9 1/4% senior notes and all $125 million of its 9 3/4% senior subordinated notes due 2002. In order to fund these repayments, the Company completed, on April 14, 1998, a private offering of $125 million of 8 3/8% senior subordinated notes due 2008, redeemable beginning 2003. Additional funding sources included available cash, as well as bank borrowings under the new bank credit facility. Total debt outstanding has decreased $93.0 million to $305.2 million at October 3, 1999 from $398.2 million at the beginning of fiscal year 1997. The Company is subject to a number of covenants under its various debt instruments including limitations on additional borrowings, capital expenditures, lease commitments and dividend payments, and requirements to maintain certain financial ratios, cash flows and net worth. The bank credit facility is secured by a first priority security interest in certain assets and properties of the Company. In addition, certain of the Company's real estate and equipment secure other indebtedness. The Company requires capital principally to grow the business through new restaurant construction, as well as to maintain, improve and refurbish existing restaurants, and for general operating purposes. The Company's primary sources of liquidity are expected to be cash flows from operations, the revolving bank credit facility, and the sale and leaseback of restaurant properties. Additional potential sources of liquidity include financing opportunities and the conversion of Company-operated restaurants to franchised restaurants. Based upon current levels of operations and anticipated growth, the Company expects that sufficient cash flows will be generated from operations so that, combined with available financing alternatives, the Company will be able to meet debt service, capital expenditure and working capital requirements. Although the amount of liability from claims and actions described in Note 10 of the Consolidated Financial Statements cannot be determined with certainty, management believes the ultimate liability of such claims and actions should not materially affect the results of operations and liquidity of the Company. 16 Seasonality The Company's restaurant sales and profitability are subject to seasonal fluctuations and are traditionally higher during the spring and summer months because of factors such as increased travel and improved weather conditions which affect the public's dining habits. Year 2000 Compliance The information provided below constitutes a "Year 2000 Readiness Disclosure" pursuant to the Year 2000 Information and Business Disclosure Act of 1998. The Company's State of Year 2000 Readiness. In 1995, the Company began to prepare a plan to address the impact of the arrival of the Year 2000 on its business. The Company assessed its information technology ("IT") systems and embedded microprocessor technology ("ET") to determine which technology required modification or replacement and which are critical to the Company's operations. The Company applied internal and external resources to upgrade, repair or replace significant systems that were not Year 2000 ready. Remediation, testing and implementation of the Company's major IT applications and date sensitive ET are substantially complete. The Company's Franchisees. Approximately one-fifth of JACK IN THE BOX restaurants are operated by franchisees. The Company has provided information to its franchisees about the business risks associated with the Year 2000 in video presentations, correspondence and personal meetings over the last two years and has advised them that they are required to be Year 2000 ready by December 31, 1999. The Company shared information with franchisees regarding the compliance status of point-of-sale hardware and software and other restaurant equipment, as well as its own compliance efforts in corporate offices and Company-operated restaurants. The Company replaced, at franchisees' expense, the non-compliant personal computers it had leased and non-compliant software it had licensed to franchisees of approximately 92% of franchised restaurants. In addition, franchisees were provided with copies of contingency plans applicable to Company restaurants. The Costs to Address the Company's Year 2000 Issues. At fiscal year end, the Company estimates that it had incurred costs of more than $12 million for its Year 2000 efforts. The Company believes the total costs of completing its Year 2000 plan will be approximately $13 million with approximately 25% relating to new systems which have been or will be capitalized. Some planned system replacements, which are anticipated to provide significant future benefits, were accelerated due to Year 2000 concerns. The Risks of the Company's Year 2000 Issues. The Company communicated with approximately 3,000 of its vendors with regard to Year 2000 issues, seeking to gain assurance of Year 2000 readiness. Of the approximately 240 vendors which were identified as critical, all have responded that they expect to address all Year 2000 issues affecting the supply of products or services to JACK IN THE BOX restaurants on a timely basis. There can be no guarantees that the Company's vendors will be Year 2000 ready in a timely manner or that third parties with which the Company's computer systems exchange data will be Year 2000 ready both in a timely manner and in a manner compatible with continued data exchange with the Company's computer systems. The Company believes that its most reasonably likely worst case Year 2000 scenario would relate to problems with the systems of third parties rather than the Company's internal systems. If the vendors of the Company's most important goods and services or the suppliers of the Company's necessary energy, telecommunications and transportation needs fail to provide the Company with (1) the materials and services which are necessary to produce, distribute and sell its products, (2) the electrical power and other utilities necessary to sustain its operations, or (3) reliable means of transporting supplies to its restaurants and franchisees, such failure could have a material adverse effect on the results of operations, liquidity and financial condition of the Company. If any IT or ET systems critical to the Company's operations have not been adequately addressed, any of the Company's internal computer systems have not been successfully remediated, or a significant number of the Company's franchisees are not Year 2000 ready, there could be a material adverse effect on the Company's results of operations, liquidity and financial condition. 17 The Company's Contingency Plan. The Company has developed business contingency plans to address both unavoided and unavoidable Year 2000 risks including restaurant specific contingency plans and checklists for restaurant managers, regional plans, and plans addressing various functions at its corporate headquarters. The Company is designating personnel to be available to coordinate responsive actions in the event emergencies occur. Refinements to the plans will be continuously considered and implemented, as appropriate, throughout the remainder of the year and into the Year 2000. Future Accounting Changes In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software. The SOP also requires that costs related to the preliminary project stage and the post-implementation/operations stage of an internal-use computer software development project be expensed as incurred. This Statement is effective for fiscal years beginning after December 15, 1998 and requires that costs incurred prior to the initial application of the SOP not be adjusted to the amounts that would have been capitalized had the SOP been in effect when those costs were incurred. SOP 98-1 is effective for the Company's fiscal year ending October 1, 2000, and is not expected to have a material effect on the Company's financial position or results of operations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This Statement was amended by SFAS 137 which defers the effective date to all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133 is effective for the Company's first quarter in the fiscal year ending September 30, 2001 and is not expected to have a material effect on the Company's financial position or results of operations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary exposure relating to financial instruments is to changes in interest rates. The Company uses interest rate swap agreements to reduce exposure to interest rate fluctuations. At October 3, 1999, the Company had a $25 million notional amount interest rate swap agreement expiring in June 2001. This agreement effectively converts a portion of the Company's variable rate bank debt to fixed rate debt and has a pay rate of 6.63%. The Company's $175 million credit facility bears interest at an annual rate equal to the prime rate or the London Interbank Offered Rate ("LIBOR") plus an applicable margin based on a financial leverage ratio. As of October 3, 1999, the Company's applicable margin was set at .875%. In fiscal year 1999, the average interest rate paid on the credit facility was 6.5%. At October 3, 1999, a hypothetical one percentage point increase in short-term interest rates would result in a reduction of $.6 million in annual pre-tax earnings. The estimated reduction is based on holding the unhedged portion of bank debt at its October 3, 1999 level. At October 3, 1999, the Company had no other material financial instruments subject to significant market exposure. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and related financial information required to be filed are indexed on page F-1 and are incorporated herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 18 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the name, age (as of January 1, 2000) and position of each person who is a director or executive officer of the Company. Name Age Positions -------------------------- ---- ---------------------------------------- Robert J. Nugent(3)(6) 58 President, Chief Executive Officer and Director Charles W. Duddles 59 Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Director Kenneth R. Williams 57 Executive Vice President, Marketing and Operations Lawrence E. Schauf 54 Executive Vice President and Secretary Paul L. Schultz 45 Senior Vice President, Operations and Franchising Karen C. Bachmann 48 Vice President, Corporate Communications Donald C. Blough 51 Vice President, Chief Information Officer Bruce N. Bowers 53 Vice President, Logistics Carlo E. Cetti 55 Vice President, Human Resources and Strategic Planning William F. Motts 56 Vice President, Restaurant Development Harold L. Sachs 54 Vice President, Treasurer David M. Theno, Ph.D. 49 Vice President, Technical Services Linda A. Vaughan 41 Vice President, Marketing Charles E. Watson 44 Vice President, Real Estate and Construction Darwin J. Weeks 53 Vice President, Controller and Chief Accounting Officer Jack W. Goodall(3)(4)(5) 61 Chairman of the Board Michael E. Alpert(4)(5) 57 Director Jay W. Brown(2)(3)(6) 54 Director Paul T. Carter(1)(2)(6) 77 Director Edward W. Gibbons(1)(4) 63 Director Alice B. Hayes, Ph.D.(2)(5) 62 Director Murray H. Hutchison(1)(2)(5) 61 Director L. Robert Payne(1)(4) 66 Director ---------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. (3) Member of the Executive Committee. (4) Member of the Finance Committee. (5) Member of the Nominating and Governance Committee. (6) Member of the Year 2000 Ad Hoc Committee. Mr. Nugent has been President and Chief Executive Officer since April 1996. He was Executive Vice President from February 1985 to April 1996. He has been a director since February 1988. Mr. Nugent has 20 years of experience with the Company in various executive and operations positions. Mr. Duddles has been Executive Vice President and Chief Administrative Officer since May 1988. He has been Chief Financial Officer since October 1985. He has been a director since February 1988. Mr. Duddles has 20 years of experience with the Company in various finance positions. Mr. Williams has been Executive Vice President, Marketing and Operations since May 1996 and was Senior Vice President from January 1993 to May 1996. Mr. Williams has 34 years of experience with the Company in various operations positions. Mr. Schauf has been Executive Vice President and Secretary since August 1996. Prior to joining the Company he was Senior Vice President, General Counsel and Secretary of Wendy's International, Inc. from February 1991 to August 1996. 19 Mr. Schultz has been Senior Vice President, Operations and Franchising since August 1999, and was Vice President from May 1988 to August 1999. Mr. Schultz has 26 years of experience with the Company in various operations positions. Ms. Bachmann has been Vice President, Corporate Communications since November 1999. She was Division Vice President, Corporate Communications from December 1994 until November 1999. Mr. Blough has been Vice President, Chief Information Officer (formerly Vice President, Management Information Systems) since August 1993. Mr. Blough has 21 years of experience with the Company in various management information systems positions. Mr. Bowers has been Vice President, Logistics (formerly Purchasing and Distribution) since April 1982. Mr. Bowers has 30 years of experience with the Company in various manufacturing, purchasing and distribution positions. Mr. Cetti has been Vice President, Human Resources and Strategic Planning since March 1994. Mr. Cetti has 19 years of experience with the Company in various human resources and training positions. Mr. Motts has been Vice President, Restaurant Development since September 1988. Mr. Motts has 17 years of experience with the Company in various restaurant development positions. Mr. Sachs has been Vice President, Treasurer since November 1999. He was Treasurer from January 1986 to November 1999. Mr. Sachs has 21 years of experience with the Company in various finance positions. Dr. Theno has been Vice President, Technical Services (formerly Quality Assurance, Research and Development and Product Safety) since April 1994. He was Vice President, Quality Assurance and Product Safety from March 1993 to April 1994. Ms. Vaughan has been Vice President, Marketing since March 1999. She was Vice President, Products, Promotions and Consumer Research from February 1996 until March 1999. She was Division Vice President, New Products and Promotions from November 1994 until February 1996. Ms. Vaughan has 12 years of experience with the Company in various marketing and finance positions. Mr. Watson has been Vice President, Real Estate and Construction since April 1997. From July 1995 to March 1997, he was Vice President, Real Estate and Construction of Boston Chicken, Inc. He was Division Vice President, Real Estate and Construction of the Company from November 1991 through June 1995. Mr. Watson has 14 years of experience with the Company in various real estate and construction positions. Mr. Weeks has been Vice President, Controller and Chief Accounting Officer since August 1995 and was previously Division Vice President and Assistant Controller from April 1982 through July 1995. Mr. Weeks has 23 years of experience with the Company in various finance positions. Mr. Goodall has been Chairman of the Board since October 1985. For more than five years prior to his retirement in April 1996, he was President and Chief Executive Officer of the Company. Mr. Goodall is a director of Ralcorp Holdings, Inc. Mr. Alpert has been a director of the Company since August 1992. Mr. Alpert was a partner in the San Diego office of the law firm of Gibson, Dunn & Crutcher LLP for more than 5 years prior to his retirement in August 1992. He is currently Advisory Counsel to Gibson, Dunn & Crutcher LLP. Gibson, Dunn & Crutcher LLP provides legal services to the Company from time to time. Mr. Brown has been a director of the Company since February 1996. He is currently a principal with Westgate Group, LLC. From April 1995 to September 1998, Mr. Brown was President and CEO of Protein Technologies International, Inc., the world's leading supplier of soy-based proteins to the food and paper processing industries. He was Chairman and CEO of Continental Baking Company from October 1984 to July 1995 and President of Van Camp Seafood Company from August 1983 to October 1984. From July 1981 through July 1983, he served as Vice President of Marketing for the Company. Mr. Brown is a director of Agribrands International, Inc. and Eagle OPG, Inc. 20 Mr. Carter has been a director of the Company since June 1991. Mr. Carter has been an insurance consultant for the Government Division of Corroon & Black Corporation since February 1987. He retired in February 1987 as Chairman and Chief Executive Officer of Corroon & Black Corporation, Southwestern Region and as Director and Senior Vice President of Corroon & Black Corporation. Mr. Carter is a director of Borrego Springs National Bank. Mr. Gibbons has been a director of the Company since October 1985 and has been a general partner of Gibbons, Goodwin, van Amerongen, an investment banking firm, for more than five years preceding the date hereof. Mr. Gibbons is also a director of Robert Half International, Inc. and Summer Winds Garden Centers, Inc. Dr. Hayes has been a director of the Company since September 1999. She has been the President of the University of San Diego since 1995. From 1989 to 1995, Dr. Hayes served as Executive Vice President and Provost of Saint Louis University. Previously, she spent 27 years at Loyola University of Chicago, where she served in various executive positions. Dr. Hayes is also a director of the Pulitzer Publishing Company, the Old Globe Theatre, Independent Colleges of Southern California, The San Diego Foundation, Loyola University of Chicago, Scripps Bank, and Catholic Charities, Diocese of San Diego. Mr. Hutchison has been a director of the Company since May 1998. He served 18 years as Chief Executive Officer and Chairman of International Technology Corp., one of the largest publicly traded environmental engineering firms in the U.S., until his retirement in 1996. Mr. Hutchison is a director of Sunrise Medical, Inc., Cadiz Land Company Inc., Senior Resource Group, and is Chairman of the Huntington Hotel Corp. Mr. Payne has been a director of the Company since August 1986. He has been President and Chief Executive Officer of Multi-Ventures, Inc. since February 1976 and was Chairman of the Board of Grossmont Bank, a wholly-owned subsidiary of Bancomer, S.A., from February 1974 until October 1995. Multi-Ventures, Inc. is a real estate development and investment company that is also the managing partner of the San Diego Mission Valley Hilton and the Hanalei Hotel. He was a principal in the Company prior to its acquisition by its former parent, Ralston Purina Company, in 1968. That portion of the Company's definitive Proxy Statement appearing under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" to be filed with the Commission pursuant to Regulation 14A within 120 days after October 3, 1999 and to be used in connection with its 2000 Annual Meeting of Shareholders is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION That portion of the Company's definitive Proxy Statement appearing under the caption "Executive Compensation" to be filed with the Commission pursuant to Regulation 14A within 120 days after October 3, 1999 and to be used in connection with its 2000 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT That portion of the Company's definitive Proxy Statement appearing under the caption "Security Ownership of Certain Beneficial Owners and Management" to be filed with the Commission pursuant to Regulation 14A within 120 days after October 3, 1999 and to be used in connection with its 2000 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS That portion of the Company's definitive Proxy Statement appearing under the caption "Certain Transactions" to be filed with the Commission pursuant to Regulation 14A within 120 days after October 3, 1999 and to be used in connection with its 2000 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ITEM 14(a)(1) Financial Statements. See Index to Consolidated Financial Statements on page F-1 of this report. 21 ITEM 14(a)(2) Financial Statement Schedules. Not applicable. ITEM 14(a)(3) Exhibits. Number Description - ------ ------------------------ 3.1 Restated Certificate of Incorporation, as amended 3.2 Restated Bylaws 4.1 Indenture for the 8 3/8% Senior Subordinated Notes due 2008(6) (Instruments with respect to the registrant's long-term debt not in excess of 10% of the total assets of the registrant and its subsidiaries on a consolidated basis have been omitted. The registrant agrees to furnish supplementally a copy of any such instrument to the Commission upon request.) 10.1.1 Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(6) 10.1.2 First Amendment dated as of August 24, 1998 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(7) 10.1.3 Second Amendment dated as of February 27, 1999 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(8) 10.1.4 Third Amendment dated as of September 17, 1999 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein 10.2 Purchase Agreements dated as of January 22, 1987 between Foodmaker, Inc. and FFCA/IIP 1985 Property Company and FFCA/IIP 1986 Property Company(1) 10.3 Land Purchase Agreements dated as of February 18, 1987, by and between Foodmaker, Inc. and FFCA/IPI 1984 Property Company and FFCA/IPI 1985 Property Company and Letter Agreement relating thereto(1) 10.4 Amended and Restated 1992 Employee Stock Incentive Plan(4) 10.5 Capital Accumulation Plan for Executives(2) 10.6 Supplemental Executive Retirement Plan(2) 10.7 Performance Bonus Plan(7) 10.8 Deferred Compensation Plan for Non-Management Directors(3) 10.9 Amended and Restated Non-Employee Director Stock Option Plan 10.10 Form of Compensation and Benefits Assurance Agreement for Executives(5) 23.1 Consent of KPMG LLP 27 Financial Data Schedule (included only with electronic filing) - ---------- (1) Previously filed and incorporated herein by reference from registrant's Registration Statement on Form S-1 (No. 33-10763) filed February 24, 1987. (2) Previously filed and incorporated herein by reference from registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1990. (3) Previously filed and incorporated herein by reference from registrant's Definitive Proxy Statement dated January 17, 1995 for the Annual Meeting of Stockholders on February 17, 1995. (4) Previously filed and incorporated herein by reference from registrant's Registration Statement on Form S-8 (No. 333-26781) filed May 9, 1997. (5) Previously filed and incorporated herein by reference from registrant's Annual Report on Form 10-K for the fiscal year ended September 28, 1997. (6) Previously filed and incorporated herein by reference from registrant's Quarterly Report on Form 10-Q for the quarter ended April 12, 1998. (7) Previously filed and incorporated herein by reference from registrant's Annual Report on Form 10-K for the fiscal year ended September 27, 1998. (8) Previously filed and incorporated herein by reference from registrant's Quarterly Report on Form 10-Q for the quarter ended April 11, 1999. 22 ITEM 14(b) The Company filed Forms 8-K effective July 20, 1999 and October 5, 1999 with the Securities and Exchange Commission reporting its name change from Foodmaker, Inc. to Jack in the Box Inc. ITEM 14(c) All required exhibits are filed herein or incorporated by reference as described in Item 14(a)(3). ITEM 14(d) All supplemental schedules are omitted as inapplicable or because the required information is included in the Consolidated Financial Statements or notes thereto. 23 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JACK IN THE BOX INC. By: CHARLES W. DUDDLES ------------------ Charles W. Duddles Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Director Date: December 2, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- JACK GOODALL Chairman of the Board December 2, 1999 - --------------------- Jack Goodall ROBERT J. NUGENT President, Chief Executive December 2, 1999 - --------------------- Officer and Director Robert J. Nugent (Principal Executive Officer) CHARLES W. DUDDLES Executive Vice President, December 2, 1999 - --------------------- Chief Financial Officer, Charles W. Duddles Chief Administrative Officer and Director (Principal Financial Officer) DARWIN J. WEEKS Vice President, Controller and December 2, 1999 - --------------------- Chief Accounting Officer Darwin J. Weeks (Principal Accounting Officer) MICHAEL E. ALPERT Director December 2, 1999 - --------------------- Michael E. Alpert JAY W. BROWN Director December 2, 1999 - --------------------- Jay W. Brown PAUL T. CARTER Director December 2, 1999 - --------------------- Paul T. Carter EDWARD W. GIBBONS Director December 2, 1999 - --------------------- Edward Gibbons ALICE B. HAYES Director December 2, 1999 - --------------------- Alice B. Hayes MURRAY H. HUTCHISON Director December 2, 1999 - --------------------- Murray H. Hutchison L. ROBERT PAYNE Director December 2, 1999 - --------------------- L. Robert Payne 24 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Independent Auditors' Report.................................... F-2 Consolidated Balance Sheets..................................... F-3 Consolidated Statements of Earnings............................. F-4 Consolidated Statements of Cash Flows........................... F-5 Consolidated Statements of Stockholders' Equity................. F-6 Notes to Consolidated Financial Statements...................... F-7 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors Jack in the Box Inc.: We have audited the accompanying consolidated balance sheets of Jack in the Box Inc. and subsidiaries as of October 3, 1999 and September 27, 1998, and the related consolidated statements of earnings, cash flows and stockholders' equity for the fifty-three weeks ended October 3, 1999, and the fifty-two weeks ended September 27, 1998 and September 28, 1997. 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Jack in the Box Inc. and subsidiaries as of October 3, 1999 and September 27, 1998, and the results of their operations and their cash flows for the fifty-three weeks ended October 3, 1999, and the fifty-two weeks ended September 27, 1998 and September 28, 1997 in conformity with generally accepted accounting principles. KPMG LLP San Diego, California November 5, 1999 F-2 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) October 3, September 27, 1999 1998 - ------------------------------------------------- ------------- ------------- ASSETS Current assets: Cash and cash equivalents.................... $ 10,925 $ 9,952 Accounts receivable, net..................... 9,156 13,705 Inventories.................................. 20,159 17,939 Prepaid expenses............................. 15,387 12,338 Assets held for sale......................... 41,607 28,488 ---------- --------- Total current assets...................... 97,234 82,422 ---------- --------- Property and equipment: Land......................................... 89,352 90,159 Buildings.................................... 379,595 332,840 Restaurant and other equipment............... 334,577 269,135 Construction in progress..................... 55,161 67,546 ---------- --------- 858,685 759,680 Less accumulated depreciation and amortization........................... 251,401 227,973 ---------- --------- 607,284 531,707 ---------- --------- Other assets, net.............................. 129,126 129,459 ---------- --------- $ 833,644 $ 743,588 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt......... $ 1,695 $ 1,685 Accounts payable............................. 44,180 52,086 Accrued liabilities.......................... 183,151 171,974 ---------- --------- Total current liabilities................. 229,026 225,745 ---------- --------- Long-term debt, net of current maturities...... 303,456 320,050 Other long-term liabilities.................... 75,270 58,466 Deferred income taxes.......................... 8,055 2,347 Stockholders' equity: Preferred stock.............................. -- -- Common stock $.01 par value, 75,000,000 authorized, 41,105,434 and 40,756,899 issued, respectively...................... 411 408 Capital in excess of par value............... 290,336 285,940 Accumulated deficit.......................... (38,447) (114,905) Treasury stock, at cost, 2,828,974 shares.... (34,463) (34,463) ---------- --------- Total stockholders' equity................ 217,837 136,980 ---------- --------- $ 833,644 $ 743,588 ========== ========= See accompanying notes to consolidated financial statements. F-3 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) Fiscal year ------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------- Revenues: Restaurant sales....................... $1,372,899 $1,112,005 $ 986,583 Distribution and other sales........... 41,828 26,407 45,233 Franchise rents and royalties.......... 39,863 35,904 35,426 Other.................................. 2,309 49,740 4,500 ---------- ---------- ---------- 1,456,899 1,224,056 1,071,742 ---------- ---------- ---------- Costs and expenses: Costs of revenues: Restaurant costs of sales............ 432,231 353,534 322,377 Restaurant operating costs........... 646,815 549,221 478,747 Costs of distribution and other sales 41,217 25,821 44,978 Franchised restaurant costs.......... 22,732 23,043 23,619 Selling, general and administrative.... 164,297 134,926 116,459 Interest expense....................... 28,249 33,058 40,359 ---------- ---------- ---------- 1,335,541 1,119,603 1,026,539 ---------- ---------- ---------- Earnings before income taxes and extraordinary item................. 121,358 104,453 45,203 Income taxes............................. 44,900 33,400 9,900 ---------- ---------- ---------- Earnings before extraordinary item....... 76,458 71,053 35,303 Extraordinary item-loss on early extinguishment of debt, net of taxes... -- (4,378) (1,252) ---------- ---------- ---------- Net earnings............................. $ 76,458 $ 66,675 $ 34,051 ========== ========== ========== Earnings per share-basic: Earnings before extraordinary item..... $ 2.00 $ 1.82 $ .91 Extraordinary item..................... -- (.11) (.03) ---------- ---------- ---------- Net earnings per share................. $ 2.00 $ 1.71 $ .88 ========== ========== ========== Earnings per share-diluted: Earnings before extraordinary item..... $ 1.95 $ 1.77 $ .89 Extraordinary item..................... -- (.11) (.03) ---------- ---------- ---------- Net earnings per share................. $ 1.95 $ 1.66 $ .86 ========== ========== ========== Weighted average shares outstanding: Basic.................................. 38,144 39,092 38,933 Diluted................................ 39,281 40,113 39,776 See accompanying notes to consolidated financial statements. F-4 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Fiscal year ----------------------------------- 1999 1998 1997 - -------------------------------------------------------- --------- --------- --------- Cash flows from operating activities: Net earnings before extraordinary item ............... $ 76,458 $ 71,053 $ 35,303 Non-cash items included in operations: Depreciation and amortization ...................... 45,857 40,201 37,922 Deferred finance cost amortization ................. 1,794 1,913 2,036 Deferred income taxes .............................. 5,708 585 (7,017) Decrease (increase) in receivables ................... 4,549 (3,223) 2,000 Decrease (increase) in inventories ................... (2,220) 361 2,550 Increase in prepaid expenses ......................... (3,049) (1,184) (1,324) Increase (decrease) in accounts payable .............. (7,906) 12,511 10,282 Increase in other accrued liabilities ................ 35,537 25,925 39,218 --------- --------- --------- Cash flows provided by operating activities ...... 156,728 148,142 120,970 --------- --------- --------- Cash flows from investing activities: Additions to property and equipment .................. (134,333) (111,098) (59,660) Dispositions of property and equipment ............... 12,172 5,431 3,357 Increase in trading area rights ...................... (3,864) (6,763) (5,553) Decrease (increase) in assets held for sale........... (13,119) 2,337 (21,494) Other ................................................ (4,024) (8,358) (1,401) --------- --------- --------- Cash flows used in investing activities .......... (143,168) (118,451) (84,751) --------- --------- --------- Cash flows from financing activities: Principal payments on long-term debt, including current maturities ................................. (9,833) (251,504) (51,817) Proceeds from issuance of long-term debt ............. 4,347 127,690 950 Borrowings under revolving bank loans ................ 334,000 224,500 -- Principal repayments under revolving bank loans ...... (345,500) (127,000) -- Extraordinary loss on retirement of debt, net of taxes -- (4,378) (1,252) Repurchase of common stock ........................... -- (20,000) -- Proceeds from issuance of common stock ............... 4,399 2,426 2,444 --------- --------- --------- Cash flows used in financing activities .......... (12,587) (48,266) (49,675) --------- --------- --------- Net increase (decrease) in cash and cash equivalents ... $ 973 $ (18,575) $ (13,456) ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized ............... $ 26,873 $ 30,551 $ 38,759 Income tax payments ................................ 26,451 28,519 7,179
See accompanying notes to consolidated financial statements. F-5 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands, except per share data)
Common stock ------------------------ Capital in Number of excess of Accumulated Treasury shares Amount par value deficit stock Total ------------------------------------- ------------- ---------- ------------- -------------- ------------ ----------- Balance at September 29, 1996...... 40,253,179 $ 403 $ 281,075 $ (215,631) $(14,463) $ 51,384 Exercise of stock options and warrants......................... 256,290 2 1,711 -- -- 1,713 Tax benefit associated with exercise of stock options........ -- -- 731 -- -- 731 Net earnings....................... -- -- -- 34,051 -- 34,051 ----------- ----- ---------- ---------- -------- --------- Balance at September 28, 1997...... 40,509,469 405 283,517 (181,580) (14,463) 87,879 Exercise of stock options and warrants......................... 247,430 3 1,701 -- -- 1,704 Tax benefit associated with exercise of stock options........ -- -- 722 -- -- 722 Purchases of treasury stock........ -- -- -- -- (20,000) (20,000) Net earnings....................... -- -- -- 66,675 -- 66,675 ----------- ------ --------- ---------- -------- --------- Balance at September 27, 1998...... 40,756,899 408 285,940 (114,905) (34,463) 136,980 Exercise of stock options and warrants......................... 348,535 3 2,733 -- -- 2,736 Tax benefit associated with exercise of stock options........ -- -- 1,663 -- -- 1,663 Net earnings....................... -- -- -- 76,458 -- 76,458 ----------- ------ --------- ---------- -------- --------- Balance at October 3, 1999......... 41,105,434 $ 411 $ 290,336 $ (38,447) $(34,463) $ 217,837 =========== ====== ========= ========== ======== =========
See accompanying notes to consolidated financial statements. F-6 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of operations - On October 4, 1999, Foodmaker, Inc. changed its name to Jack in the Box Inc. (the "Company"). The Company operates and franchises JACK IN THE BOX quick-serve restaurants with operations principally in the western and southwestern United States. Basis of presentation and fiscal year - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions are eliminated. Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 1999 presentation. The Company's fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. The financial statements include the accounts of the Company for and as of the 53 weeks ended October 3, 1999, and 52 weeks ended September 27, 1998 and September 28, 1997. Financial instruments - The fair value of the Company's cash equivalents, accounts receivable and accounts payable approximate the carrying amounts due to their short maturities. The fair values of each of the Company's long-term debt instruments are based on quoted market values, where available, or on the amount of future cash flows associated with each instrument discounted using the Company's current borrowing rate for similar debt instruments of comparable maturity. The estimated fair values of the Company's long-term debt at October 3, 1999 and September 27, 1998 approximate carrying values. The Company uses commodities hedging instruments to reduce the risk of price fluctuations related to future raw materials requirements for commodities such as beef and pork. The terms of such instruments generally do not exceed twelve months, and depend on the commodity and other market factors. Gains and losses are deferred and subsequently recorded as cost of products sold in the statement of earnings in the same period as the hedged transactions. The Company uses interest rate swap agreements in the management of interest rate exposure. The interest rate differential to be paid or received is normally accrued as interest rates change, and is recognized as a component of interest expense over the life of the agreements. At October 3, 1999, the Company had a $25 million notional amount interest rate swap agreement expiring in June 2001. This agreement effectively converts a portion of the Company's variable rate bank debt to fixed rate debt and has a pay rate of 6.63%. At October 3, 1999, the Company had no other material financial instruments subject to significant market exposure. Cash and cash equivalents - The Company invests cash in excess of operating requirements in short term, highly liquid investments with original maturities of three months or less, which are considered cash equivalents. Inventories are valued at the lower of cost (first-in, first-out method) or market. Assets held for sale primarily represent the costs for new sites that will be sold and leased back when construction is completed, as well as costs for buildings on lessor owned land for which the Company will be reimbursed by lessor at the conclusion of construction. Gains and losses realized on the sale leaseback transactions are deferred and credited to income over the lease terms. The leases are classified in accordance with Statement of Financial Accounting Standards ("SFAS") No. 13, Accounting for Leases. Preopening costs are those typically associated with the opening of a new restaurant and consist primarily of employee training costs. Preopening costs are expensed as incurred. F-7 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property and equipment at cost - Expenditures for new facilities and equipment and those that substantially increase the useful lives of the property are capitalized. Facilities leased under capital leases are stated at the present value of minimum lease payments at the beginning of the lease term, not to exceed fair value. Maintenance, repairs, and minor renewals are expensed as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and gains or losses on the dispositions are reflected in results of operations. Buildings, equipment and leasehold improvements are depreciated using the straight-line method based on the estimated useful lives of the assets or over the lease term for certain capital leases (buildings 15 to 33 years and equipment 3 to 30 years). Other assets primarily include trading area rights, lease acquisition costs, deferred franchise contract costs, deferred finance costs and goodwill. Trading area rights represent the amount allocated under purchase accounting to reflect the value of operating existing restaurants within their specific trading area. These rights are amortized on a straight-line basis over the period of control of the property, not exceeding 40 years, and are retired when a restaurant is franchised or sold. Lease acquisition costs represent the acquired values of existing lease contracts having lower contractual rents than fair market rents and are amortized over the remaining lease term. Also included in other assets are deferred franchise contract costs which represent the acquired value of franchise contracts in existence at the time the Company was acquired in 1988 and are amortized over the term of the franchise agreement, usually 20 years; deferred finance costs which are amortized using the interest method over the terms of the respective loan agreements, from 4 to 10 years; and goodwill which represents the excess of purchase price over the fair value of net assets acquired and is amortized on a straight-line basis over 40 years. Impairment of Long-Lived Assets - In accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company evaluates impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The Company also accounts for long-lived assets that are held for disposal at the lower of cost or fair value. Franchise operations - Franchise arrangements generally provide for initial license fees of $50 (formerly $25) per restaurant and continuing payments to the Company based on a percentage of sales. Among other things, the franchisee may be provided the use of land and building, generally for a period of 20 years, and is required to pay negotiated rent, property taxes, insurance and maintenance. Franchise fees are recorded as revenue when the Company has substantially performed all of its contractual obligations. Expenses associated with the issuance of the franchise are expensed as incurred. Franchise rents and royalties are recorded as income on an accrual basis. Gains on sales of restaurant businesses to franchisees, which have not been material, are recorded as other revenues when the sales are consummated and certain other criteria are met. Income taxes - 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 as well as tax loss and credit carryforwards. 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. F-8 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Net earnings per share - The consolidated financial statements are presented in accordance with SFAS 128, Earnings per Share. SFAS 128 requires the presentation of basic earnings per share, computed using the weighted average number of shares outstanding during the period, and diluted earnings per share, computed using the additional dilutive effect of all potential common stock. The diluted earnings per share computation includes the dilutive impact of stock options and warrants. Stock options - The Company accounts for stock options under the intrinsic value based method, as prescribed by Accounting Principles Board ("APB") Opinion No. 25, whereby compensation expense is recognized for the excess, if any, of the quoted market price of the Company stock at the date of grant over the option price. The Company's policy is to grant stock options at fair value at the date of grant. The Company has included pro forma information in Note 7, as permitted by SFAS 123, Accounting for Stock-Based Compensation. Advertising costs - The Company maintains a marketing fund consisting of funds contributed by the Company equal to at least 5% of gross sales of all Company-operated JACK IN THE BOX restaurants and contractual marketing fees paid monthly by franchisees. Production costs of commercials, programming and other marketing activities are expensed to the marketing fund when the advertising is first used and the costs of advertising are charged to operations as incurred. The Company's contributions to the marketing fund and other marketing expenses, which are included in selling, general and administrative expenses in the accompanying consolidated statements of earnings, were $70,297, $58,256 and $51,870 in 1999, 1998 and 1997, respectively. Segment reporting - In 1999, the Company adopted SFAS 131, Disclosures about Segments of an Enterprise and Related Information, which establishes reporting standards for a company's operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. This Statement allows aggregation of similar operating segments into a single operating segment if the businesses are considered similar under the criteria of this Statement. The Company believes it operates in a single segment. Estimations - In preparing the consolidated financial statements in conformity with generally accepted accounting principles, management is required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. In making these assumptions and estimates, management may from time to time seek advice from and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ from these estimates. In 1999, the Company reduced accrued liabilities and restaurant operating costs by $18.0 million, primarily due to a change in estimates resulting from improvements to its loss prevention and risk management programs, which have been more successful than anticipated. This change in estimates was supported by an independent actuarial study conducted to evaluate the self-insured portion of the Company's workers' compensation, general liability and other insurance programs. F-9 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 2. LONG-TERM DEBT 1999 1998 ----------------------------------------------------- -------- -------- The detail of long-term debt at each year end follows: Bank loans, variable interest rate based on established market indicators which approximate the prime rate or less............... $ 86,000 $ 97,500 Senior subordinated notes, 8 3/8% interest, net of discount of $179 and $200, respect- ively, reflecting an 8.4% effective interest rate due April 15, 2008, redeemable beginning April 15, 2003.............. 124,821 124,800 Financing lease obligations, net of discounts of $1,413 and $1,794 reflecting a 10.3% effective interest rate, semi-annual payments of $3,413 and $747 to cover interest and sinking fund requirements, and due in equal installments January 1, 2003 and November 1, 2003, respectively............................... 68,587 68,206 Secured notes, 11 1/2% interest, due in monthly installments through May 1, 2005................. 7,011 7,931 Secured notes, 9 1/2% interest, due August 1, 2017, repaid in 1999................... -- 8,171 Capitalized lease obligations, 11% average interest rate.................................... 16,842 13,529 Other notes, principally unsecured, 10% average interest rate ........................... 1,890 1,598 -------- -------- 305,151 321,735 Less current portion............................... 1,695 1,685 -------- -------- $303,456 $320,050 ======== ======== On April 1, 1998, the Company entered into a revolving bank credit agreement, which expires March 31, 2003 and provides for a credit facility of up to $175 million, including letters of credit of up to $25 million. The credit agreement requires the payment of an annual commitment fee of approximately .2% of the unused credit line. At October 3, 1999, the Company had borrowings of $86.0 million and approximately $81.1 million of availability under the agreement. Beginning in September 1997, the Company initiated a refinancing plan to reduce and restructure its debt. At that time, the Company prepaid $50 million of its 9 1/4% senior notes due 1999 using available cash. The retirement of these notes resulted in an extraordinary loss of $1,602, less income tax benefits of $350, on the early extinguishment of the debt. In 1998, the Company repaid the remaining $125 million of its 9 1/4% senior notes and all $125 million of its 9 3/4% senior subordinated notes due 2002, and incurred an extraordinary loss of $6,978, less income tax benefits of $2,600, relating to the early extinguishment of the debt. In order to fund these repayments, the Company completed, on April 14, 1998, a private offering of $125 million of 8 3/8% senior subordinated notes due 2008, redeemable beginning 2003. Additional funding sources included available cash, as well as bank borrowings under the new bank credit facility. The Company is subject to a number of covenants under its various credit agreements, including limitations on additional borrowings, capital expenditures, lease commitments and dividend payments, and requirements to maintain certain financial ratios, cash flows and net worth. The secured notes and bank loans are secured by substantially all the Company's real and personal property. In addition, certain of the Company's real estate and equipment secure other indebtedness. In January 1994, the Company entered into financing lease arrangements with two limited partnerships (the "Partnerships"), in which interests in 76 restaurants for a specified period of time were sold. The acquisition of the properties, including costs and expenses, was funded through the issuance by a special purpose corporation acting as agent for the Partnerships of $70 million of senior secured notes. On January 1, 2003 and November 1, 2003, the Company must make offers to reacquire 50% of the properties at each date at a price which is sufficient, in F-10 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 2. LONG-TERM DEBT (continued) conjunction with previous sinking fund deposits, to retire the notes. If the Partnerships reject the offers, the Company may purchase the properties at less than fair market value or cause the Partnerships to fund the remaining principal payments on the notes and, at the Company's option, cause the Partnerships to acquire the Company's residual interest in the properties. If the Partnerships are allowed to retain their interests, the Company has available options to extend the leases for total terms of up to 35 years, at which time the ownership of the property will revert to the Company. The transactions are reflected as financings with the properties remaining in the Company's consolidated financial statements. Aggregate maturities and sinking fund requirements on all long-term debt are $3,190, $3,446, $3,668, $110,691 and $37,598 for the years 2000 through 2004, respectively. The 2003 amount is net of $12,706 of accumulated sinking fund payments. Interest capitalized during the construction period of restaurants was $1,469, $1,203 and $683 in 1999, 1998 and 1997, respectively. 3. LEASES As Lessee - The Company leases restaurant and other facilities under leases having terms expiring at various dates through 2054. The leases generally have renewal clauses of 5 to 20 years exercisable at the option of the Company and, in some instances, have provisions for contingent rentals based upon a percentage of defined revenues. Total rent expense for all operating leases was $108,700 $94,275 and $84,964, including contingent rentals of $6,066, $4,561 and $4,513 in 1999, 1998 and 1997, respectively. Future minimum lease payments under capital and operating leases are as follows: Fiscal Capital Operating Year leases leases ----------------------------------------------------------------------- 2000....................................... $ 2,240 $ 95,250 2001....................................... 2,223 93,495 2002....................................... 2,221 91,030 2003....................................... 2,222 88,817 2004....................................... 2,222 86,234 Thereafter................................. 20,304 584,337 ------- ---------- Total minimum lease payments................... 31,432 $1,039,163 ========== Less amount representing interest.............. 14,590 ------- Present value of obligations under capital leases......................... 16,842 Less current portion........................... 613 ------- Long-term capital lease obligations............ $16,229 ======= Building assets recorded under capital leases were $15,466 and $12,301, net of accumulated depreciation of $5,470 and $4,790, as of October 3, 1999 and September 27, 1998, respectively. As Lessor - The Company leases or subleases restaurants to certain franchisees and others under agreements which generally provide for the payment of percentage rentals in excess of stipulated minimum rentals, usually for a period of 20 years. Total rental revenue was $25,134, $22,747 and $22,624, including contingent rentals of $9,655, $6,976 and $6,744 in 1999, 1998 and 1997, respectively. F-11 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 3. LEASES (continued) The minimum rents receivable under these non-cancelable leases are as follows: Fiscal Sales-type Operating year leases leases -------------------------------------------- --------- --------- 2000.................................... $ 44 $ 20,303 2001.................................... 44 17,757 2002.................................... 44 16,340 2003.................................... 44 14,314 2004.................................... 45 12,697 Thereafter.............................. 85 53,187 -------- --------- Total minimum future rentals................ 306 $ 134,598 ========= Less amount representing interest........... 89 -------- Net investment (included in other assets)... $ 217 ======== Land and building assets held for lease were $44,962 and $55,285, net of accumulated depreciation of $20,814 and $20,157, as of October 3, 1999 and September 27, 1998, respectively. 4. INCOME TAXES The fiscal year income taxes consist of the following: 1999 1998 1997 ----------------------------------------- -------- -------- -------- Federal - current........................ $ 31,227 $ 24,618 $ 12,222 - deferred....................... 6,709 3,707 (6,248) State - current........................ 7,965 5,597 4,345 - deferred....................... (1,001) (3,122) (769) -------- -------- -------- Subtotal ................................ 44,900 30,800 9,550 Income tax benefit of extraordinary item. -- 2,600 350 -------- -------- -------- Income taxes............................. $ 44,900 $ 33,400 $ 9,900 ======== ======== ======== A reconciliation of fiscal year income taxes with the amounts computed at the statutory federal rate of 35% follows: 1999 1998 1997 ----------------------------------------- -------- -------- -------- Computed at federal statutory rate....... $ 42,475 $ 36,559 $ 15,821 State income taxes, net of federal effect 4,526 1,609 2,324 Jobs tax credit wages.................... (1,281) (861) (180) Reduction to valuation allowance......... (1,842) (4,581) (10,816) Adjustment of tax loss, contribution and tax credit carryforwards............. 425 584 1,986 Other, net............................... 597 90 765 -------- -------- -------- $ 44,900 $ 33,400 $ 9,900 ======== ======== ======== F-12 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 4. INCOME TAXES (continued) The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at each year end are presented below: 1999 1998 ------------------------------------------------- -------- -------- Deferred tax assets: Tax loss and tax credit carryforwards.......... $ 25,123 $ 36,867 Accrued insurance.............................. 15,377 18,610 Accrued pension and postretirement benefits.... 13,296 12,756 Accrued vacation pay expense................... 7,686 7,019 Other reserves and allowances.................. 7,422 7,586 Deferred income................................ 9,819 4,282 Other, net..................................... 8,515 5,842 -------- -------- Total gross deferred tax assets................ 87,238 92,962 Less valuation allowance....................... 26,965 29,815 -------- -------- Net deferred tax assets........................ 60,273 63,147 -------- -------- Deferred tax liabilities: Property and equipment, principally due to differences in depreciation.................. 57,776 53,203 Intangible assets.............................. 10,552 12,291 -------- -------- Total gross deferred tax liabilities........... 68,328 65,494 -------- -------- Net deferred tax liability..................... $ 8,055 $ 2,347 ======== ======== The valuation allowance of $26,965 as of October 3, 1999 and $29,815 as of September 27, 1998 represents deferred tax assets that may not be realized by the reversal of future taxable differences. The net change in the valuation allowance was a decrease of $2,850 for fiscal year 1999 and a decrease of $4,581 for fiscal year 1998. These decreases related to the expected future use of tax credit carryforwards and deferred tax assets, and actual use of tax loss carryforwards. Management believes it is more likely than not that the net deferred tax assets will be realized through future taxable income or alternative tax strategies. At October 3, 1999, the Company had tax loss carryforwards which expire in 2001. From time to time, the Company may take positions for filing its tax returns which may differ from the treatment of the same item for financial reporting purposes. The ultimate outcome of these items will not be known until such time as the U.S. Internal Revenue Service ("IRS") has completed its examination or until the statute of limitations has expired. As of October 3, 1999, the IRS had completed its examinations of the Company's federal income tax returns through fiscal year 1995. F-13 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 5. RETIREMENT, SAVINGS AND BONUS PLANS The Company has non-contributory defined benefit pension plans covering substantially all salaried and hourly employees meeting certain eligibility requirements. These plans are subject to modification at any time. The plans provide retirement benefits based on years of service and compensation. It is the Company's practice to fund retirement costs as necessary.
Qualified plans Non-qualified plan ------------------- ------------------- 1999 1998 1999 1998 ------------------------------------------------- -------- -------- -------- -------- Change in benefit obligation: Benefit obligation at beginning of year ....... $ 65,369 $ 52,728 $ 16,294 $ 12,829 Service cost .................................. 4,744 3,116 408 342 Interest cost ................................. 4,541 4,047 1,153 1,006 Actuarial (gain) loss ......................... (4,192) 6,759 (24) 2,539 Benefits paid ................................. (1,520) (1,281) (440) (422) -------- -------- -------- -------- Benefit obligation at end of year ............. $ 68,942 $ 65,369 $ 17,391 $ 16,294 ======== ======== ======== ======== Change in plan assets: Fair value of plan assets at beginning of year. $ 55,454 $ 50,916 $ -- $ -- Actual return on plan assets .................. 2,214 3,699 -- -- Employer contributions ........................ 4,704 2,120 440 422 Benefits paid ................................. (1,520) (1,281) (440) (422) -------- -------- -------- -------- Fair value of plan assets at end of year ...... $ 60,852 $ 55,454 $ -- $ -- ======== ======== ======== ======== Reconciliation of funded status: Funded status ................................. $ (8,090) $ (9,915) $(17,392) $(16,294) Unrecognized net loss ......................... 8,026 9,628 2,665 2,795 Unrecognized prior service cost ............... (138) (173) 4,431 4,899 Unrecognized net transition asset ............. 19 28 58 84 -------- -------- -------- -------- Net liability recognized ...................... $ (183) $ (432) $(10,238) $ (8,516) ======== ======== ======== ======== Amounts recognized in the statement of financial position consist of: Prepaid benefit cost .......................... $ -- $ 22 $ -- $ -- Accrued benefit liability ..................... (183) (454) (13,599) (11,764) Intangible asset .............................. -- -- 3,361 3,248 -------- -------- -------- -------- Net liability recognized ...................... $ (183) $ (432) $(10,238) $ (8,516) ======== ======== ======== ========
In determining the present values of benefit obligations, the Company's actuaries assumed discount rates of 7.50% and 7.00% at the measurement dates of June 30, 1999 and 1998, respectively. The assumed rate of increase in compensation levels was 4% for the qualified plans and 5% for the non-qualified plan in 1999 and 1998, respectively. The long-term rate of return on assets was 8.5% in both years. Assets of the qualified plans consist primarily of listed stocks and bonds. F-14 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 5. RETIREMENT, SAVINGS AND BONUS PLANS (continued) The components of the fiscal year net defined benefit pension cost are as follows: Qualified plans Non-qualified plan --------------------------- ------------------------- 1999 1998 1997 1999 1998 1997 ------------------ ------- ------- ------- ------- ------- ------- Service cost ..... $ 4,744 $ 3,116 $ 2,839 $ 408 $ 342 $ 230 Interest cost .... 4,541 4,047 3,657 1,153 1,006 680 Expected return on plan assets.. (5,257) (4,458) (3,595) -- -- -- Net amortization.. 426 (26) 256 601 495 259 ------- ------- ------- ------- ------- ------- Net periodic pension cost.... $ 4,454 $ 2,679 $ 3,157 $ 2,162 $ 1,843 $ 1,169 ======= ======= ======= ======= ======= ======= The Company maintains a savings plan pursuant to Section 401(k) of the Internal Revenue Code, which allows administrative and clerical employees who have satisfied the service requirements and reached age 21, to defer from 2% to 12% of their pay on a pre-tax basis. The Company contributes an amount equal to 50% of the first 4% of compensation that is deferred by the participant. The Company's contributions under this plan were $1,328, $1,141 and $1,138 in 1999, 1998 and 1997, respectively. The Company also maintains an unfunded, non-qualified deferred compensation plan, which was created in 1990 for key executives and other members of management who were then excluded from participation in the qualified savings plan. This plan allows participants to defer up to 15% of their salary on a pre-tax basis. The Company contributes an amount equal to 100% of the first 3% contributed by the employee. The Company's contributions under the non-qualified deferred compensation plan were $481, $372 and $324 in 1999, 1998 and 1997, respectively. In each plan, a participant's right to Company contributions vests at a rate of 25% per year of service. The Company maintains a bonus plan that allows certain officers and management of the Company to earn annual bonuses based upon achievement of certain financial and performance goals approved by the compensation committee of the Company's Board of Directors. Under this plan, $6,390, $3,834 and $3,493 was expensed in 1999, 1998 and 1997, respectively. The Company maintains a deferred compensation plan for non-management directors. Under the plan's equity option, those who are eligible to receive directors' fees or retainers may choose to defer receipt of their compensation. The amounts deferred are converted into stock equivalents at the then current market price of the Company's common stock. The Company provides a deferment credit equal to 25% of the compensation initially deferred. Under this plan, a total of $562, $262 and $835 was expensed in 1999, 1998 and 1997, respectively, for both the deferment credit and the stock appreciation on the deferred compensation. F-15 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 6. POSTRETIREMENT BENEFIT PLAN The Company sponsors a health care plan that provides postretirement medical benefits for employees who meet minimum age and service requirements. The plan is contributory, with retiree contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance. The Company's policy is to fund the cost of medical benefits in amounts determined at the discretion of management. 1999 1998 --------------------------------------------- -------- -------- Change in benefit obligation: Benefit obligation at beginning of year.... $ 16,270 $ 13,201 Service cost............................... 638 517 Interest cost.............................. 1,137 1,021 Actuarial (gain) loss...................... (1,370) 1,499 Benefits paid.............................. (210) 32 -------- -------- Benefit obligation at end of year.......... $ 16,465 $ 16,270 ======== ======== Change in plan assets: Fair value of plan assets at beginning of year........................ $ -- $ -- Employer contributions..................... 177 71 Benefits paid.............................. (177) (71) -------- -------- Fair value of plan assets at end of year... $ -- $ -- ======== ======== Reconciliation of funded status: Funded status.............................. $(16,465) $(16,270) Unrecognized net gain...................... (1,965) (352) -------- -------- Net liability recognized................... $(18,430) $(16,622) ======== ======== All of the net liability recognized in the reconciliation of funded status is included as an accrued benefit liability in the statements of financial position. In determining the above information, the Company's actuaries assumed a discount rate of 7.5% and 7.0% at the measurement dates of June 30, 1999 and 1998, respectively. The components of the fiscal year net periodic postretirement benefit cost are as follows: 1999 1998 1997 --------------------------------------- ------- ------- ------- Service cost........................... $ 638 $ 517 $ 530 Interest cost.......................... 1,137 1,021 913 Net amortization....................... -- (88) (120) ------- ------- ------- Net periodic pension cost.............. $ 1,775 $ 1,450 $ 1,323 ======= ======= ======= For measurement purposes, an 8.0% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 2000 for plan participants under age 65; the rate was assumed to decrease .5% per year to 5.0% by the year 2006 and remain at that level thereafter. For plan participants age 65 years or older, a 6.0% annual health care cost trend rate was assumed for 2000; the rate was assumed to decrease .5% per year to 4.0% by the year 2004 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of October 3, 1999 by $3,440, or 21%, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1999 by $417 or 23%. F-16 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 7. STOCK OPTIONS The Company offers stock option plans to attract, retain and motivate key officers, non-employee directors and employees by providing for or increasing the proprietary interests of such persons to work toward the future financial success of the Company. In January 1992, the Company adopted the 1992 Employee Stock Incentive Plan (the "1992 Plan") and, as part of a merger, assumed outstanding options to employees under its predecessor's 1990 Stock Option Plan and assumed contractually the options to purchase 42,750 shares of common stock granted to two non-employee directors of the Company. Under the 1992 Plan, employees are eligible to receive stock options, restricted stock and other various stock-based awards. Subject to certain adjustments, up to a maximum of 3,775,000 shares of common stock may be sold or issued under the 1992 Plan. No awards shall be granted after January 16, 2002, although stock may be issued thereafter pursuant to awards granted prior to such date. In August 1993, the Company adopted the 1993 Stock Option Plan (the "1993 Plan"). Under the 1993 Plan, employees who do not receive stock options under the 1992 Plan are eligible to receive annually stock options with an aggregate exercise price equivalent to a percentage of their eligible earnings. Subject to certain adjustments, up to a maximum of 3,000,000 shares of common stock may be sold or issued under the 1993 Plan. No awards shall be granted after December 11, 2003, although common stock may be issued thereafter pursuant to awards granted prior to such date. In February 1995, the Company adopted the Non-Employee Director Stock Option Plan (the "Director Plan"). Under the Director Plan, any eligible director of the Company who is not an employee of the Company or a subsidiary of the Company is granted annually an option to purchase shares of common stock at fair market value. The actual number of shares that may be purchased under the option is based on the relationship of a portion of each director's compensation to the fair market value of the common stock, but is limited to fewer than 10,000 shares. Subject to certain adjustments, up to a maximum of 650,000 shares of common stock may be sold or issued under the Director Plan. Unless sooner terminated, no awards shall be granted after February 17, 2005, although common stock may be issued thereafter pursuant to awards granted prior to such date. The terms and conditions of the stock-based awards under the plans are determined by a committee of the Board of Directors on each award date and may include provisions for the exercise price, expirations, vesting, restriction on sales and forfeiture, as applicable. Options granted under the plans have terms not exceeding 11 years and provide for an option exercise price of not less than 100% of the quoted market value of the common stock at the date of grant. F-17 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 7. STOCK OPTIONS (continued) The following is a summary of stock option activity for the three fiscal years ended October 3, 1999: Option exercise price per share --------------------------------------- Weighted Shares Range average -------------------------------- --------------------------------------- Balance at September 29, 1996... 2,712,587 .96-12.25 6.52 Granted..................... 807,165 10.13-12.63 12.35 Exercised................... (251,640) .96-12.25 6.76 Canceled.................... (111,078) 5.75-12.63 8.77 --------- Balance at September 28, 1997... 3,157,034 .96-12.63 7.90 Granted..................... 761,046 17.44-19.06 18.93 Exercised................... (198,200) 1.13-12.63 8.27 Canceled.................... (108,759) 5.75-19.06 11.37 --------- Balance at September 27, 1998... 3,611,121 .96-19.06 10.10 Granted..................... 655,541 13.56-26.63 26.24 Exercised................... (297,148) .96-19.06 9.00 Canceled.................... (105,801) 5.75-26.63 15.27 --------- Balance at October 3, 1999...... 3,863,713 .96-26.63 12.78 ========= The following is a summary of stock options outstanding at October 3, 1999: Options outstanding Options exercisable ------------------------------------- -------------------- Weighted average Weighted Weighted Range of remaining average average exercise Number contractual exercise Number exercise prices outstanding life in years price exercisable price ------------ ----------- ------------- -------- ----------- ------- $ .96-4.19 533,570 1.87 $ 1.29 533,570 $ 1.29 5.00-7.50 828,402 6.29 6.52 716,711 6.41 8.13-12.13 838,358 4.98 10.95 838,358 10.95 12.25-19.06 1,022,763 8.78 16.85 344,370 15.71 24.13-26.63 640,620 10.18 26.35 70,000 24.13 --------- --------- .96-26.63 3,863,713 6.70 12.78 2,503,009 8.62 ========= ========= At October 3, 1999, September 27, 1998 and September 28, 1997, the number of options exercisable were 2,503,009, 2,239,930 and 1,835,341, respectively and the weighted average exercise price of those options were $8.62, $7.32 and $6.40, respectively. Effective fiscal year 1997, the Company adopted the disclosure requirements of SFAS 123. As permitted under this Statement, the Company will continue to measure stock-based compensation cost using its current "intrinsic value" accounting method. For purposes of the following pro forma disclosures required by SFAS 123, the fair value of each option granted after fiscal 1995 has been estimated on the date of grant using the Black-Scholes option-pricing model. Valuation models require the input of highly subjective assumptions, including the expected volatility of the stock price. Therefore, in management's opinion, the existing models do not provide a reliable single measure of the value of employee stock options. The following assumptions were used for grants: risk-free interest rates of 5.5%, 5.7% and 6.4% in 1999, 1998 and 1997, respectively; expected volatility of 35%, 34% and 35%, respectively; and an expected life of 6 years in each year. The Company has not paid any cash or other dividends and does not anticipate paying dividends in the foreseeable future, therefore the expected dividend yield is zero. F-18 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 7. STOCK OPTIONS (continued) The weighted average fair value of options granted was $11.58 in 1999, $8.32 in 1998 and $5.80 in 1997. Had compensation expense been recognized for stock-based compensation plans in accordance with provisions of SFAS 123, the Company would have recorded net earnings of $74,391, or $1.95 per basic share and $1.89 per diluted share, in 1999; $65,011, or $1.66 per basic share and $1.62 per diluted share, in 1998; and $33,211, or $.85 per basic share and $.83 per diluted share, in 1997. For the pro forma disclosures, the options' estimated fair values were amortized over their vesting periods. The pro forma disclosures do not include a full five years of grants since SFAS 123 does not apply to grants before 1995. Therefore, these pro forma amounts are not indicative of anticipated future disclosures. 8. STOCKHOLDERS' EQUITY The Company has 15,000,000 shares of preferred stock authorized for issuance at a par value of $.01 per share. No shares have been issued. On July 26, 1996, the Board of Directors declared a dividend of one preferred stock purchase right (a "Right") for each outstanding share of the Company's common stock, which Rights expire on July 26, 2006. Each Right entitles a stockholder to purchase for an exercise price of $40, subject to adjustment, one one-hundredth of a share of Series A Junior Participating Cumulative Preferred Stock of the Company, or, under certain circumstances, shares of common stock of the Company or a successor company with a market value equal to two times the exercise price. The Rights would only become exercisable for all other persons when any person has acquired or commences to acquire a beneficial interest of at least 20% of the Company's outstanding common stock. The Rights have no voting privileges and may be redeemed by the Board of Directors at a price of $.001 per Right at any time prior to or shortly after the acquisition of a beneficial ownership of 20% of the outstanding common shares. There are 382,765 shares of Series A Junior Participating Cumulative Preferred Stock reserved for issuance upon exercise of the Rights. In conjunction with the December 1988 acquisition of the Company, warrants expiring November 30, 1998 for the purchase of 1,584,573 shares of common stock were issued and were exercisable at $.93 per share, as adjusted. As of the date of expiration, warrants for 1,583,343 shares had been exercised and the remaining warrants were canceled. At October 3, 1999, the Company had 6,446,659 shares of common stock reserved for issuance upon the exercise of stock options. F-19 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 9. AVERAGE SHARES OUTSTANDING Fiscal year net earnings per share is based on the weighted average number of shares outstanding during the year, determined as follows:
1999 1998 1997 ---------------------------------------------- ---------- ---------- ---------- Shares outstanding, beginning of fiscal year . 37,927,925 39,096,815 38,840,525 Effect of common stock issued ................ 215,635 144,739 92,081 Effect of common stock reacquired ............ -- (150,047) -- ---------- ---------- ---------- Weighted average shares outstanding - basic .. 38,143,560 39,091,507 38,932,606 Assumed additional shares issued upon exercise of stock options and warrants, net of shares reacquired at the average market price ..... 1,136,949 1,021,378 843,638 ---------- ---------- ---------- Weighted average shares outstanding - diluted 39,280,509 40,112,885 39,776,244 ========== ========== ==========
The diluted weighted average shares outstanding computation excludes 345,040, 290,042 and 306,302 antidilutive shares in 1999, 1998 and 1997, respectively. 10. CONTINGENCIES AND LEGAL MATTERS In 1998, the Company settled litigation it filed against various meat suppliers seeking reimbursement for all damages, costs and expenses incurred in connection with food-borne illness attributed to hamburgers served at JACK IN THE BOX restaurants in 1993. The Company received in its second quarter of fiscal 1998 approximately $58.5 million in the settlement, of which a net of approximately $45.8 million was realized after litigation costs and before income taxes (the "Litigation Settlement"). The net Litigation Settlement is reflected in other income in 1998. On February 2, 1995, an action by Concetta Jorgensen was filed against the Company in the U.S. District Court in San Francisco, California alleging that restrooms at a JACK IN THE BOX restaurant failed to comply with laws regarding disabled persons and seeking damages in unspecified amounts, punitive damages, injunctive relief, attorneys' fees and prejudgment interest. In an amended complaint, damages were also sought on behalf of all physically disabled persons who were allegedly denied access to restrooms at the restaurant. In February 1997, the court ordered that the action for injunctive relief proceed as a nationwide class action on behalf of all persons in the United States with mobility disabilities. The Company has reached agreement on settlement terms both as to the individual plaintiff Concetta Jorgensen and the claims for injunctive relief, and the settlement agreement has been approved by the U.S. District Court. The settlement requires the Company to make access improvements at Company-operated restaurants to comply with the standards set forth in the Americans with Disabilities Act ("ADA") Access Guidelines. The settlement requires compliance at 85% of the Company-operated restaurants by April 2001 and for the balance of Company-operated restaurants by October 2005. The Company has agreed to make modifications to its restaurants to improve accessibility and anticipates investing an estimated $19 million in capital improvements in connection with these modifications, including approximately $5 million spent through October 3, 1999. Similar claims have been made against JACK IN THE BOX franchisees and the Company relating to franchised locations which may not be in compliance with the ADA. The relief sought is (i) injunctive relief to bring these additional restaurants into compliance with the ADA, (ii) monitoring expenses to ensure compliance and (iii) attorneys' fees. F-20 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 10. CONTINGENCIES AND LEGAL MATTERS (continued) On November 5, 1996, an action was filed by the National JIB Franchisee Association, Inc. (the "Franchisee Association") and several of the Company's franchisees in the Superior Court of California, County of San Diego in San Diego, California, against the Company and others. The lawsuit alleged that certain Company policies are unfair business practices and violate sections of the California Corporations Code regarding material modifications of franchise agreements and interfere with franchisees' right of association. It sought injunctive relief, a declaration of the rights and duties of the parties, unspecified damages and rescission of alleged material modifications of plaintiffs' franchise agreements. The complaint contained allegations of fraud, breach of a fiduciary duty and breach of a third party beneficiary contract in connection with certain payments that the Company received from suppliers and sought unspecified damages, interest, punitive damages and an accounting. However, on August 31, 1998, the Court granted the Company's request for summary judgment on all claims regarding an accounting, conversion, fraud, breach of fiduciary duty and breach of third party beneficiary contracts. On March 10, 1999, the Court granted motions by the Company, ruling, in essence, that the franchisees would be unable to prove their remaining claims. On April 22, 1999, the Court entered an order granting the Company's motion to enforce a settlement with the Franchisee Association covering various aspects of the franchise relationship, but involving no cash payments by the Company. In accordance with that order, the Franchisee Association's claims were dismissed with prejudice. On June 10, 1999, a final judgment was entered in favor of the Company and against those plaintiffs with whom the Company did not settle. The Franchisee Association and certain individual plaintiffs filed an appeal on August 13, 1999. Management intends to vigorously defend the appeal. On December 10, 1996, a suit was filed by the Company's Mexican licensee, Foodmex, Inc., in the U.S. District Court in San Diego, California against the Company and its international franchising subsidiary. Foodmex formerly operated several JACK IN THE BOX franchise restaurants in Mexico, but its licenses were terminated by the Company for, among other reasons, chronic insolvency and failure to meet operational standards. The Foodmex suit alleged wrongful termination of its master license, breach of contract and unfair competition and sought an injunction to prohibit termination of its license as well as unspecified monetary damages. The Company and its subsidiary counterclaimed and sought a preliminary injunction against Foodmex. On February 24, 1998, the Court issued an order dismissing Foodmex's complaint without prejudice. In March 1998, Foodmex filed a Second Amended Complaint in the U.S. District Court in San Diego, California alleging contractual, tort and law violations arising out of the same business relationship and seeking damages in excess of $10 million, attorneys' fees and costs. On June 25, 1999, the Court granted the Company's motion for summary judgement on the plaintiff's Second Amended Complaint, resulting in the complete dismissal of Foodmex's claim against the Company. On the same day, the Court granted the Company's motion for partial summary judgement on its breach of contract, trademark infringement, unfair competition and related claims, including the Company's claim for a permanent injunction. The Court ordered Foodmex to cease using any of the Company's proprietary marks, and ordered it to cause its Mexican sublicensees to cease using any of the Company's proprietary marks. Issues regarding Foodmex's liability for breach of a promissory note, and damages owed to the Company by Foodmex remain to be decided. No trial date has been set. The Company is also subject to normal and routine litigation. The amount of liability from the claims and actions against the Company cannot be determined with certainty, but in the opinion of management, the ultimate liability from all pending legal proceedings, asserted legal claims and known potential legal claims which are probable of assertion should not materially affect the results of operations and liquidity of the Company. F-21 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 10. CONTINGENCIES AND LEGAL MATTERS (continued) The IRS examination of the Company's federal income tax return for fiscal year 1996 resulted in the issuance of a proposed adjustment to tax liability of $7.3 million (exclusive of interest). The Company has filed a protest with the Regional Office of Appeals of the IRS to contest the proposed assessment. Management believes that an adequate provision for income taxes has been made. The Company has six wholly-owned subsidiaries, consisting of CP Distribution Co., CP Wholesale Co., Jack in the Box, Inc. (an inactive New Jersey corporation), Foodmaker International Franchising Inc. (collectively, the "Subsidiary Guarantors") and two other non-guarantor subsidiaries (collectively, the "Non-Guarantor Subsidiaries"). The Subsidiary Guarantors comprise all of the direct and indirect subsidiaries of the Company (other than the Non-Guarantor Subsidiaries which conduct no material operations, have no significant assets on a consolidated basis and account for only an insignificant share of the Company's consolidated revenues). Each of the Subsidiary Guarantors' guarantees of the Company's $125 million senior subordinated notes is full, unconditional and joint and several. The Subsidiary Guarantors have no significant operations or any significant assets or liabilities on a consolidated basis, other than guarantees of indebtedness of the Company, and therefore, no separate financial statements of the Subsidiary Guarantors are presented because management has determined that they are not material to investors. 11. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION October 3, September 27, 1999 1998 ---------------------------------------------- --------- --------- Accounts receivable: Trade ...................................... $ 7,989 $ 6,987 Notes ...................................... 67 908 Other ...................................... 2,929 8,395 Allowances for doubtful accounts ........... (1,829) (2,585) --------- --------- $ 9,156 $ 13,705 ========= ========= Other Assets: Trading area rights, net of amortization of $29,057 and $25,313, respectively ..... $ 73,033 $ 72,993 Lease acquisition costs, net of amortization of $24,625 and $23,613, respectively ..... 15,352 17,157 Other, net of amortization of $14,681 and $12,932, respectively ..... 40,741 39,309 --------- --------- $ 129,126 $ 129,459 ========= ========= Accrued liabilities: Payroll and related taxes .................. $ 45,314 $ 38,201 Sales and property taxes ................... 17,978 12,723 Insurance .................................. 28,548 47,502 Advertising ................................ 15,517 10,098 Capital improvements ....................... 13,798 17,432 Interest ................................... 7,092 7,510 Income tax liabilities ..................... 30,767 14,463 Other ...................................... 24,137 24,045 --------- --------- $ 183,151 $ 171,974 ========= ========= F-22 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 12. QUARTERLY RESULTS OF OPERATIONS (Unaudited) 16 weeks ended 12 weeks ended -------- ------------------------------ Jan. 18, Apr. 12, July 5, Sept. 27, 1998 1998 1998 1998 ---------------------------- -------- -------- -------- -------- Revenues ................... $343,774 $309,909 $280,566 $289,807 Gross profit ............... 65,955 96,013 55,877 54,592 Earnings before extraordinary item ...... 11,674 34,347 12,626 12,406 Net earnings ............... 11,674 34,347 8,248 12,406 Earnings per share before extraordinary item: Basic ................ .30 .88 .32 .32 Diluted .............. .29 .85 .31 .31 16 weeks 13 weeks ended 12 weeks ended ended -------- ------------------- -------- Jan. 17, Apr. 11, July 4, Oct. 3, 1999 1999 1999 1999 ---------------------------- -------- -------- -------- -------- Revenues ................... $407,134 $321,973 $342,448 $385,344 Gross profit ............... 78,873 81,047 71,495 82,489 Net earnings ............... 15,751 24,987 17,377 18,343 Earnings per share: Basic ................ .41 .66 .45 .48 Diluted .............. .40 .64 .44 .47 F-23 EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION CERTIFICATE OF OWNERSHIP AND MERGER MERGING JACK IN THE BOX INC. WITH AND INTO FOODMAKER, INC. (Pursuant to Section 253 of the Delaware General Corporation Law) Foodmaker, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That this corporation owns all of the outstanding shares of Jack in the Box Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware. SECOND: That this corporation, by the following resolutions of its Board of Directors, duly adopted at a meeting held on the 17th day of September, 1999, determined to merge Jack in the Box Inc. into this corporation on the terms and conditions set forth in such resolutions: RESOLVED, that Jack in the Box Inc. be merged with and into the Corporation and that the Corporation be the surviving corporation in such merger. FURTHER RESOLVED, that upon the effectiveness of the merger, the Corporation shall assume all of the liabilities and obligations of Jack in the Box Inc. FURTHER RESOLVED, that upon the effectiveness of the merger, the name of the Corporation shall be changed to "Jack in the Box Inc." and Article I of the Restated Certificate of Incorporation shall be amended to read as follows: "ARTICLE I NAME OF INCORPORATION The name of the Corporation is Jack in the Box Inc." THIRD: That the merger of Jack in the Box Inc. with and into the corporation shall be effective at 8:00 a.m., Eastern Daylight Time, on Monday, October 4, 1999. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed by its Treasurer, and attested by Lawrence E. Schauf, its Secretary, this 30th day of September, 1999. FOODMAKER, INC. By: HAROLD L. SACHS --------------- Harold L. Sachs Treasurer Attest: By: LAWRENCE E. SCHAUF ------------------ Lawrence E. Schauf Secretary CERTIFICATE OF DESIGNATIONS OF SERIES A JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK $.01 Par Value of FOODMAKER, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, Charles W. Duddles, Executive Vice President and Chief Financial Officer, and William E. Rulon, Senior Vice President and Secretary, of Foodmaker, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the Corporation, the Board of Directors on July 26, 1996, adopted the following resolution creating a series of 750,000 (seven hundred and fifty thousand) shares of Preferred Stock, par value $0.01 per share, designated as Series A Junior Participating Cumulative Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Restated Certificate of Incorporation, a series of Preferred Stock of the Corporation be, and it hereby is, created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as Series A Junior Participating Cumulative Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), and the number of shares constituting such series shall be 750,000 (seven hundred and fifty thousand). 1 Section 2. Dividends and Distributions. (a) The holders of shares of Series A Preferred Stock, in preference to the holders of shares of Common Stock, par value $.01 per share, of the Corporation (the "Common Stock") and of any other junior stock of the Corporation that may be outstanding, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the tenth day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $.25 per share ($1.00 per annum), or (ii) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock, or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the amount to which the holder of each share of Series A Preferred Stock was entitled immediately prior to such event under clause (ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (a) of this Section 2 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided, however, that in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $.25 per share ($1.00 per annum) on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. 2 (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which cases such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall cumulate but shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (a) Each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes (and each one one-hundredth of a share of Series A Preferred Stock shall entitle the holder thereof to one vote) on all matters submitted to a vote of the stockholders of the Corporation. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then and in each such event, the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 3 (b) Except as otherwise provided in the Restated Certificate of Incorporation of the Corporation or herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (c) In addition, the holders of shares of Series A Preferred Stock shall have the following special voting rights: (i) In the event that at any time dividends on Series A Preferred Stock, whenever accrued and whether or not consecutive, shall not have been paid or declared and a sum sufficient for the payment thereof set aside, in an amount equivalent to six quarterly dividends on all shares of Series A Preferred Stock at the time outstanding, then and in each such event, the holders of shares of Series A Preferred Stock and each other series of preferred stock now or hereafter issued that shall be accorded such class voting right by the Board of Directors and that shall have the right to elect one director (or, in the event any such other series is entitled to a greater number of directors, such number of directors, which shall be cumulative with and not in addition to the director provided for herein, such director or directors being hereinafter referred to as "Special Directors") as the result of a prior or subsequent default in payment of dividends on such series (each such other series being hereinafter called "Other Series of Preferred Stock"), voting separately as a class without regard to series, shall be entitled to elect the Special Director at the next annual meeting of stockholders of the Corporation, in addition to the directors to be elected by the holders of all shares of the Corporation entitled to vote for the election of directors, and the holders of all shares (including the Series A Preferred Stock) otherwise entitled to vote for directors, voting separately as a class, shall be entitled to elect the remaining members of the Board of Directors, provided that the Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall not have the right to elect more than one Special Director (in addition to any Special Director to which the holders of any Other Series of Preferred Stock are then entitled). Such special voting right of the holders of shares of Series A Preferred Stock may be exercised until all dividends in default on the Series A Preferred Stock shall have been paid in full or declared and funds sufficient therefor set aside, and when so paid or provided for, such special voting right of the holders of shares of Series A Preferred Stock shall cease, but subject always to the same provisions for the vesting of such special voting rights in the event of any such future dividend default or defaults. 4 (ii) At any time after such special voting rights shall have so vested in the holders of shares of Series A Preferred Stock, the Secretary of the Corporation may, and upon the written request of the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding addressed to the Secretary at the principal executive office of the Corporation shall, call a special meeting of the holders of shares of Preferred Stock so entitled to vote, for the election of the Special Directors to be elected by them as herein provided, to be held within 60 days after such call and at the place and upon the notice provided by law and in the By laws for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such special meeting in the case of any such request received less than 90 days before the date fixed for any annual meeting of stockholders, and if in such case such special meeting is not called or held, the holders of shares of Preferred Stock so entitled to vote shall be entitled to exercise the special voting rights provided in this paragraph at such annual meeting. If any such special meeting required to be called as above provided shall not be called by the Secretary within 30 days after receipt of any such request, then the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding may designate in writing one of their number to call such meeting, and the person so designated may, at the expense of the Corporation, call such meeting to be held at the place and upon the notice given by such person, and for that sole purpose shall have access to the stock books of the Corporation. No such special meeting and no adjournment thereof shall be held on a date later than 60 days before the annual meeting of stockholders. If, at any meeting so called or at any annual meeting held while the holders of shares of Series A Preferred Stock have the special voting rights provided for in this paragraph, the holders of not less than 40% of the aggregate voting power of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding are present in person or by proxy, which percentage shall be sufficient to constitute a quorum for 5 the election of additional directors as herein provided, the then authorized number of directors of the Corporation shall be increased by the number of Special Directors to be elected, as of the time of such special meeting or the time of the first such annual meeting held while such holders have special voting rights and such quorum is present, and the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall be entitled to elect the Special Director or Directors so provided for. If the directors of the Corporation are then divided into classes under provisions of the Restated Certificate of Incorporation of the Corporation or the Bylaws, the Special Director or Directors shall belong to each class of directors in which a vacancy is created as a result of such increase in the authorized number of directors. If the foregoing expansion of the size of the Board of Directors shall not be valid under applicable law, then the holders of shares of Series A Preferred Stock and of each Other Series of Preferred Stock, voting as a class, shall be entitled, at the meeting of stockholders at which they would otherwise have voted, to elect a Special Director or Directors to fill any then existing vacancies on the Board of Directors, and shall additionally be entitled, at such meeting and each subsequent meeting of stockholders at which directors are elected, to elect all of the directors then being elected until by such class vote the appropriate number of Special Directors has been so elected. (iii) Upon the election at such meeting by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, of the Special Director or Directors they are entitled so to elect, the persons so elected, together with such persons as may be directors or as may have been elected as directors by the holders of all shares (including Series A Preferred Stock) otherwise entitled to vote for directors, shall constitute the duly elected directors of the Corporation. Each Special Director so elected by holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall serve until the next annual meeting or until their respective successors shall be elected and qualified, or if any such Special Director is a member of a class of directors under provisions dividing the directors into classes, each such Special Director shall serve until the annual meeting at which the term of office of such Special Director's class shall expire or until such Special Director's successor shall be elected and shall qualify, and at each subsequent meeting of stockholders at which the directorship of any Special 6 Director is up for election, said special class voting rights shall apply in the reelection of such Special Director or in the election of such Special Director's successor; provided, however, that whenever the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock shall be divested of the special rights to elect one or more Special Directors as above provided, the terms of office of all persons elected as Special Directors, or elected to fill any vacancies resulting from the death, resignation, or removal of Special Directors shall forthwith terminate (and the number of directors shall be reduced accordingly). (iv) If, at any time after a special meeting of stockholders or an annual meeting of stockholders at which the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, have elected one or more Special Directors as provided above, and while the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock shall be entitled so to elect one or more Special Directors, the number of Special Directors who have been so elected (or who by reason of one or more resignations, deaths or removals have succeeded any Special Directors so elected) shall by reason of resignation, death or removal be reduced the vacancy in the Special Directors may be filled by any one or more remaining Special Director or Special Directors. In the event that such election shall not occur within 30 days after such vacancy arises, or in the event that there shall not be incumbent at least one Special Director, the Secretary of the Corporation may, and upon the written request of the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding addressed to the Secretary at the principal office of the Corporation shall, call a special meeting of the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock so entitled to vote, for an election to fill such vacancy or vacancies, to be held within 60 days after such call and at the place and upon the notice provided by law and in the Bylaws for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such special meeting in the case of any such request received less than 90 days before the date fixed for any annual meeting of stockholders, and if in such case such special meeting is not called, the holders of shares of Preferred Stock so entitled to vote shall be entitled to fill such vacancy or vacancies at such annual meeting. If any such special meeting required to be called as above provided shall not be called by the Secretary within 30 7 days after receipt of any such request, then the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding may designate in writing one of their number to call such meeting, and the person so designated may, at the expense of the Corporation, call such meeting to be held at the place and upon the notice above provided, and for that purpose shall have access to the stock books of the Corporation; no such special meeting and no adjournment thereof shall be held on a date later than 60 days before the annual meeting of stockholders. (d) Nothing herein shall prevent the directors or stockholders from taking any action to increase the number of authorized shares of Series A Preferred Stock, or increasing the number of authorized shares of Preferred Stock of the same class as the Series A Preferred Stock or the number of authorized shares of Common Stock, or changing the par value of the Common Stock or Preferred Stock, or issuing options, warrants or rights to any class of stock of the Corporation as authorized by the Restated Certificate of Incorporation of the Corporation, as it may hereafter be amended. (e) Except as set forth herein, holders of shares of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote as set forth in the Restated Certificate of Incorporation of the Corporation or herein or by law) for taking any corporate action. Section 4. Certain Restrictions. (a) Whenever any dividends or other distributions payable on the Series A Preferred Stock as provided in Section 2 hereof are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not, directly or indirectly: (i) declare or pay dividends on, or make any other distributions with respect to, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on, or make any other distributions with respect to, any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on shares of the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; 8 (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration, directly or indirectly, any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock, without designation as to series, and may be reissued as part of any series of preferred stock created by resolution or resolutions of the Board of Directors (including Series A Preferred Stock), subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made to: 9 (a) the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received the greater of (i) $1.00 per share ($.001 per one one-hundredth of a share), plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock; or (b) the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the aggregate amount to which the holder of each share of Series A Preferred Stock was entitled immediately prior to such event under the proviso in clause (a) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In the event that the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, or otherwise changed, then and in each such event, the shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a 10 greater or lesser number of shares of Common Stock, then and in each such event, the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Notwithstanding the foregoing, the Corporation may acquire shares of Series A Preferred Stock in any other manner permitted by law, the Restated Certificate of Incorporation of the Corporation or herein. Section 9. Rank. Unless otherwise provided in the Restated Certificate of Incorporation of the Corporation or a Certificate of Designations relating to a subsequent series of preferred stock of the Corporation, the Series A Preferred Stock shall rank junior to all other series of the Corporation's preferred stock as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, and senior to the Common Stock of the Corporation. Section 10. Amendment. The Restated Certificate of Incorporation of the Corporation shall not be amended in any manner that would materially and adversely alter or change the powers, preferences or special rights of the Series A Preferred Stock without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single series. Section 11. Fractional Shares. Series A Preferred Stock may be issued in fractions of a share (in one one-hundredths (1/100) of a share and integral multiples thereof) that shall entitle the holder thereof, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of shares of Series A Preferred Stock. 11 IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 15th day of August, 1996. CHARLES W. DUDDLES ------------------- Charles W. Duddles Executive Vice President and Chief Financial Officer Attest: WILLIAM E. RULON - ---------------- William E. Rulon Senior Vice President and Secretary 12 Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF FOODMAKER, INC. Foodmaker, Inc., a corporation organized and existing under the laws of the State of Delaware hereby certifies as follows: 1. The name of the Corporation is Foodmaker, Inc. Foodmaker, Inc. was originally incorporated under the name National Restaurant Systems, Inc., and the original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on July 28, 1971. 2. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of this Corporation. 3. The text of the Restated Certificate of Incorporation as heretofore amended or supplemented is hereby restated and further amended to read in its entirety as follows: ARTICLE I NAME OF CORPORATION The name of this Corporation is Foodmaker, Inc . ARTICLE II REGISTERED OFFICE The address of the registered office of the corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, and the name of its registered agent at that address is The Corporation Trust Company. ARTICLE III PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware (the "GCL"). ARTICLE IV AUTHORIZED CAPITAL STOCK A. The total number of shares which the Corporation shall have authority to issue is ninety million (90,000,000) shares, consisting of seventy-five million (75,000,000) shares of Common Stock, par value of $.01 per share (the "Common Stock"), and fifteen million (15,000,000) shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"). B. The Board of Directors is hereby authorized to issue the Preferred Stock in one or more series, to fix the number of shares of any such series of Preferred Stock, to determine the designation of any such series, and to fix the powers, preferences and rights, and the qualifications, limitations or restrictions of the Preferred Stock to the full extent permitted under the GCL. C. The authority of the Board of Directors shall include, without limitation, the power to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions, if any), the redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such unissued series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. The designation and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof of the initial series of Preferred Stock are the following: 2 (1) Designation and Number of Shares. The distinctive designation of such series of Preferred Stock is "Junior Preferred Stock" (the "Junior Preferred Stock"). The number of shares of Junior Preferred Stock shall be 5,000,000. (2) Dividends. The holders of shares of the Junior Preferred Stock shall be entitled to receive, from and after the filing of this Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, when, as and if declared by the Board of Directors of the Corporation out of the funds of the Corporation legally available therefor, dividends at the rate of nine dollars ($9) per year, payable only in the form of additional shares of Junior Preferred Stock (valued at $100 per share) and not in cash. Dividends shall be paid on a quarterly basis in arrears and will be cumulative from the date of issue. Fractional shares of Junior Preferred Stock shall be issued to the extent necessary to make such dividend payments. Each fractional share of Junior Preferred Stock outstanding shall be entitled to a ratably proportionate amount of all dividends accruing with respect to each outstanding share of the Junior Preferred Stock pursuant to this paragraph (2), and all of such dividends with respect to such outstanding fractional shares shall be fully cumulative and shall accrue (whether or not declared), and shall be payable in the same manner and at such times as provided for in this paragraph (2) with respect to dividends on each outstanding share of the Junior Preferred Stock. (3) Priority With Respect to Dividends. Shares of Junior Preferred Stock shall have priority as to the payment of dividends with respect to the Common Stock of the Corporation and other future series of Preferred Stock ranking junior to the Junior Preferred Stock as to the payment of dividends. No dividends may be paid on any junior series of Preferred Stock or on the Common Stock (other than dividends payable in the Corporation's capital stock) unless full cumulative dividends have been paid (or declared and shares sufficient for the payment thereof set apart for such payment) on the Junior Preferred Stock for all quarterly dividend periods terminating on or prior to the date of payment in full of such dividends on the Common Stock and Junior Preferred Stock. The Corporation may not redeem or purchase or otherwise acquire for value shares of Common Stock or any other class of stock or series of Preferred Stock thereof ranking junior to or a parity with the Junior Preferred Stock as to dividends or upon liquidation (other than 3 redemptions pursuant to employee stock subscription agreements between the Corporation and certain officers and key employees of the Corporation or its subsidiaries) unless, at the time of making such redemption, purchase or other acquisition, the Corporation is not in default with respect to any dividends payable on, or any obligation to redeem or retire, shares of the Junior Preferred Stock. (4) Voting Rights. The holders of the Junior Preferred Stock shall not be entitled to vote, except as hereinafter provided in this paragraph (4) or as otherwise provided by law. On matters subject to a vote by holders of the Junior Preferred Stock, the holders shall be entitled to one vote per share. (a) So long as shares of Junior Preferred Stock remain outstanding, the Corporation shall not directly or indirectly or through merger or consolidation with any other Corporation, without the affirmative vote at a meeting (or the written consent with or without a meeting) of the holders of at least a majority in number of shares of the Junior Preferred Stock then outstanding, (i) create any class or classes of stock ranking equal or prior to the Junior Preferred Stock, either as to dividends or upon liquidation, or increase the number of authorized shares of any class or classes of stock ranking equal or prior to the Junior Preferred Stock either as to dividends or upon liquidation, (ii) amend, alter or repeal (whether by merger, consolidation or otherwise and whether or not the Corporation is the surviving corporation) any of the provisions of the Certificate of Incorporation of the Corporation so as to affect adversely the preferences, special rights or powers of the Junior Preferred Stock (iii) authorize any reclassification of the Junior Preferred Stock. (b) In the event that six (6) or more quarterly dividends (whether or not consecutive) payable on the Junior Preferred Stock are in arrears, the number of directors of the Corporation shall automatically be increased by one and the holders of all outstanding shares of Junior Preferred Stock, voting as a separate class, shall be entitled to elect one director of the Corporation. Such voting right shall remain vested until such time as all dividends in arrears are paid (or declared and a sum sufficient for the payment thereof set aside for payment). (i) Whenever such voting right shall have vested, such right may be exercised initially either at a 4 special meeting of the holders of the Junior Preferred Stock, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such annual meetings or by the written consent of the holders of the Junior Preferred Stock pursuant to Section 228 of the GCL. Such voting right shall continue until such time as (x) all cumulative dividends accumulated on the Junior Preferred Stock, together with additional dividends accrued thereon, if any, shall have been paid in full, and (y) all mandatory redemption obligations with respect to the Junior Preferred Stock which have matured have been met, at which time such voting right of the holders of the Junior Preferred Stock shall terminate, subject to revesting in the event of each and every subsequent event of default of the character indicated above. (ii) At any time when such voting right shall have vested in the holders of the Junior Preferred Stock, and if such right shall not already have been initially exercised, a proper officer of the Corporation shall, upon the written request of the holders of record of ten percent (10%) of the shares of Junior Preferred Stock then outstanding, addressed to the Secretary of the Corporation, call a special meeting of the holders of the Junior Preferred Stock and of any other class or classes of stock having voting power with respect thereto for the purpose of electing directors. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation or, if none, at a place designated by the Secretary of the Corporation. If such meeting shall not be called by the proper officers of the corporation within 30 days after the personal service of such written request upon the Secretary of the Corporation, or within 30 days after mailing the same within the United States, by registered mail, addressed to the Secretary of the Corporation at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), the holders of record of ten percent (10%) of the shares of the Junior Preferred Stock then outstanding may designate in writing a holder of Junior Preferred Stock to call such meeting at the expense of the Corporation and such meeting may be called by such person so designated upon the notice required for annual meetings of stockholders and shall be held at the same place as is elsewhere provided in this sub-paragraph (ii). Any holder of Junior Preferred Stock entitled to vote at such meeting shall have access to the stock books of the Corporation for the purpose of causing a meeting of stockholders to be called pursuant to the provisions of this sub-paragraph (ii). 5 Notwithstanding the provisions of this sub-paragraph (ii), however, no such special meeting shall be called during a period within ninety (90) days immediately preceding the date fixed for the next annual meeting of stockholders. (iii) At any meeting held for the purpose of electing directors at which the holders of Junior Preferred Stock shall have the right to elect a director as provided herein, the presence in person or by proxy of the holders of a majority of the then outstanding shares of Junior Preferred Stock shall be required and be sufficient to constitute a quorum of such class for the election of directors by such class. At any such meeting or adjournment thereof (x) the absence of a quorum of the holders of the Junior Preferred Stock having such right shall not prevent the election of directors other than those to be elected by the holders of Junior Preferred Stock and the absence of a quorum or quorums of the holders of capital stock entitled to elect such other directors shall not prevent the election of directors to be elected by the holders of the Junior Preferred Stock entitled to elect such directors and (y) in the absence of a quorum of the holders of any class of stock entitled to vote for the election of directors, a majority of the holders of such class present in person or by proxy shall have the power to adjourn the meeting for the election of directors which the holders of such class are entitled to elect, from time to time, without notice (except as required by law) other than announcement at the meeting, until a quorum shall be present. (iv) Any director elected by the holders of Junior Preferred Stock pursuant to sub-paragraph (b) shall serve until the earlier of payment in full of the dividend arrearage or the next annual meeting of stockholders, and may be otherwise removed, with or without cause, only by the holders of at least a majority of the shares of Junior Preferred Stock outstanding at the time of such removal. (5) Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Junior Preferred Stock (including shares issued as dividends) will be entitled to receive $100 per share (or pro rata portion thereof with respect to fractional shares) plus an amount equal to the cash value of accrued and unpaid dividends to the date fixed for distribution before any distribution of assets may be made to holders of Common Stock or of any other class of stock of the corporation or series of Preferred Stock ranking junior to the Junior Preferred Stock with respect to the 6 distribution of assets. If upon any liquidation, dissolution or winding up of the Corporation, the amounts payable with respect to the Junior Preferred Stock and any other shares of capital stock of the Corporation ranking as to any such distribution on a parity with the Junior Preferred Stock are not paid in full, the holders of the Junior Preferred Stock and of such other shares will share ratably in any such distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Junior Preferred Stock will not be entitled to any further participation in any distribution of assets by the Corporation. Such liquidation rights are not triggered by any consolidation or merger of the Corporation with or into any other corporation or by the sale, transfer or lease of all or substantially all of the Corporation's assets, provided that the Corporation shall not effect such transaction unless provision is made in the certificate of incorporation of the resulting and surviving corporation or otherwise for the protection of the rights of the holders of Junior Preferred Stock. (6) Optional Redemption. The Junior Preferred Stock may be redeemed at any time at the option of the Corporation, in whole or in part, upon not less than thirty (30) nor more than sixty (60) days' prior notice at a redemption price of $100 per share plus an amount equal to the cash value of all accrued and unpaid dividends to the redemption date. On and after the redemption date, dividends shall cease to accumulate on shares of Junior Preferred Stock called for redemption. (7) Mandatory Redemption. The Corporation shall redeem all outstanding shares of Junior Preferred Stock at a redemption price of $100 per share plus an amount equal to the cash value of all accrued and unpaid dividends to the redemption date upon or immediately prior to the occurrence of any of the following: (i) the sale of all or substantially all of the Corporation's assets to any person other than an affiliate of the Corporation; (ii) the merger or consolidation of the Corporation with or into another corporation or of another corporation with or into the Corporation with the effect that the common stockholders of the Corporation immediately prior to such transaction hold less than 50% of the total voting power entitled to vote in election of directors, managers or trustees of the surviving corporation of such merger; (iii) the liquidation or dissolution of the Corporation; or (iv) the completion by the Corporation of one or more 7 public offerings of Common Stock for aggregate net proceeds of at least $75 million; provided, however, that no such redemption may be effected until the earlier of May 15, 1998 and the date on which no 14-1/4% Senior Subordinated Notes due 1998 of the Corporation remain outstanding. If, for any reason, the Corporation shall fail to discharge its mandatory obligations pursuant to this paragraph (7), such mandatory redemption obligations shall be discharged as soon as the Corporation is able to discharge such obligations, but the redemption price shall be determined as of the date such redemption should have occurred except with respect to the calculation of the amount equal to accrued and unpaid dividends, which calculation shall include all such dividends to the date of payment. If and so long as any mandatory redemption obligations with respect to the Junior Preferred Stock shall not be fully discharged, the Corporation shall not declare or pay any cash dividend or make any distributions in cash upon, or, directly or indirectly, purchase, redeem or otherwise acquire, any capital stock (including any warrants, rights or options exercisable for or convertible into any capital stock of the Corporation, but not including the Junior Preferred Stock) or permit any of its subsidiaries or affiliates to, directly or indirectly, purchase or acquire any such capital stock. Dividends shall continue to accrue on a compounding basis on any mandatory redemption obligation that has not been discharged by the Corporation pursuant to this paragraph (7). (8) Selection of Securities to be Redeemed. In the event that fewer than all of the outstanding shares of Junior Preferred Stock are to be redeemed at any time, number of shares to be redeemed shall be determined by Board of Directors and the shares to be redeemed shall determined as follows: first, all fractional shares of Junior Preferred Stock shall be redeemed, then the Corporation shall select the remaining shares of Junior Preferred Stock to be redeemed pro rata or by lot as may be determined by the Board of Directors. (9) Procedure for Redemption. (a) In the event the Corporation shall redeem shares of Junior Preferred Stock at any time, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 days nor more than 60 days prior to the redemption date, to each 8 holder of record of the shares to be redeemed at such holder's address as the same appears on the stock register of the Corporation; provided, however, that no failure to mail such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of Junior Preferred Stock to be redeemed except as to the holder to whom the Corporation has failed to mail said notice or except as to the holder whose notice was defective. Each such notice shall state: (i) the redemption date; (ii) the number of shares of Junior Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed from such holder, the number of shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price, and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date unless the Corporation defaults in making such payment. (b) Notice having been mailed as aforesaid, from and after the redemption date (unless the Corporation shall fail to provide money for the payment of the redemption price of the shares called for redemption) dividends on the shares of Junior Preferred Stock so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights o the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price including an amount equal to any accrued and unpaid dividends) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. ARTICLE V DIRECTORS The number of directors may hereafter be fixed from time to time pursuant to procedures set forth in the Corporation's bylaws. 9 ARTICLE VI BOARD POWER REGARDING BYLAWS In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind the bylaws of the Corporation. ARTICLE VII ELECTION OF DIRECTORS Elections of directors at annual or special meetings need not be by written ballot unless the bylaws of the Corporation shall so provide. ARTICLE VIII LIMITATION OF DIRECTOR LIABILITY To the fullest extent permitted by the GCL as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the GCL is amended after the date of the filing of this Restated Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the GCL, as so amended from time to time. No repeal or modification of this Article VIII by the stockholders shall adversely affect any right or protection of a director of the Corporation existing by virtue of this Article VIII at the time of such repeal or modification. ARTICLE IX INDEMNIFICATION OF DIRECTORS The Corporation shall indemnify, in the manner and to the full extent permitted by law, any person (or the estate of any person) who was or is a party to, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative, investigative or otherwise, by 10 reason of the fact that such person 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, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise. The Corporation may, to the full extent permitted by law, purchase and maintain insurance on behalf of any such person against any liability which may be asserted against him. To the full extent permitted by law, the indemnification provided herein shall include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, and, in the manner provided by law, any such expenses may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person seeking indemnification to repay such amounts if it is ultimately determined that he is not entitled to be indemnified. The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the full extent permitted by law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. ARTICLE X SECTION 203 ELECTION The Corporation expressly elects not to be governed by Section 203 of the General Corporation Law. ARTICLE XI CORPORATE POWER The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. 11 IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed under the seal of the Corporation this 6th day of March, 1992. FOODMAKER, INC. By: ROBERT L. SUTTIE ---------------- Robert L. Suttie Corporate Vice President and Controller Attest: WILLIAM E. RULON - ---------------- William E. Rulon Secretary 12 CERTIFICATE OF DESIGNATIONS OF SERIES A JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK $.01 Par Value of FOODMAKER, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, Charles W. Duddles, Executive Vice President and Chief Financial Officer, and William E. Rulon, Senior Vice President and Secretary, of Foodmaker, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the Corporation, the Board of Directors on July 26, 1996, adopted the following resolution creating a series of 750,000 (seven hundred and fifty thousand) shares of Preferred Stock, par value $0.01 per share, designated as Series A Junior Participating Cumulative Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Restated Certificate of Incorporation, a series of Preferred Stock of the Corporation be, and it hereby is, created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as Series A Junior Participating Cumulative Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), and the number of shares constituting such series shall be 750,000 (seven hundred and fifty thousand). Section 2. Dividends and Distributions. (a) The holders of shares of Series A Preferred Stock, in preference to the holders of shares of Common Stock, par value $.01 per share, of the Corporation (the "Common Stock") and of any other junior stock of the Corporation that may be outstanding, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the tenth day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $.25 per share ($1.00 per annum), or (ii) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock, or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the amount to which the holder of each share of Series A Preferred Stock was entitled immediately prior to such event under clause (ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (a) of this Section 2 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided, however, that in the event no dividend or distribution shall 2 have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $.25 per share ($1.00 per annum) on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which cases such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall cumulate but shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (a) Each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes (and each one one- hundredth of a share of Series A Preferred Stock shall entitle the holder thereof to one vote) on all matters submitted to a vote of the stockholders of the Corporation. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then and in each such event, the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the 3 numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) Except as otherwise provided in the Restated Certificate of Incorporation of the Corporation or herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (c) In addition, the holders of shares of Series A Preferred Stock shall have the following special voting rights: (i) In the event that at any time dividends on Series A Preferred Stock, whenever accrued and whether or not consecutive, shall not have been paid or declared and a sum sufficient for the payment thereof set aside, in an amount equivalent to six quarterly dividends on all shares of Series A Preferred Stock at the time outstanding, then and in each such event, the holders of shares of Series A Preferred Stock and each other series of preferred stock now or hereafter issued that shall be accorded such class voting right by the Board of Directors and that shall have the right to elect one director (or, in the event any such other series is entitled to a greater number of directors, such number of directors, which shall be cumulative with and not in addition to the director provided for herein, such director or directors being hereinafter referred to as "Special Directors") as the result of a prior or subsequent default in payment of dividends on such series (each such other series being hereinafter called "Other Series of Preferred Stock"), voting separately as a class without regard to series, shall be entitled to elect the Special Director at the next annual meeting of stockholders of the Corporation, in addition to the directors to be elected by the holders of all shares of the Corporation entitled to vote for the election of directors, and the holders of all shares (including the Series A Preferred Stock) otherwise entitled to vote for directors, voting separately as a class, shall be entitled to elect the remaining members of the Board of Directors, provided that the Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall not have the right to elect more than one Special Director (in addition to any Special Director to which the holders of any Other Series of Preferred Stock are then entitled). Such special voting right of the holders of shares of Series A Preferred Stock may be exercised 4 until all dividends in default on the Series A Preferred Stock shall have been paid in full or declared and funds sufficient therefor set aside, and when so paid or provided for, such special voting right of the holders of shares of Series A Preferred Stock shall cease, but subject always to the same provisions for the vesting of such special voting rights in the event of any such future dividend default or defaults. (ii) At any time after such special voting rights shall have so vested in the holders of shares of Series A Preferred Stock, the Secretary of the Corporation may, and upon the written request of the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding addressed to the Secretary at the principal executive office of the Corporation shall, call a special meeting of the holders of shares of Preferred Stock so entitled to vote, for the election of the Special Directors to be elected by them as herein provided, to be held within 60 days after such call and at the place and upon the notice provided by law and in the By laws for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such special meeting in the case of any such request received less than 90 days before the date fixed for any annual meeting of stockholders, and if in such case such special meeting is not called or held, the holders of shares of Preferred Stock so entitled to vote shall be entitled to exercise the special voting rights provided in this paragraph at such annual meeting. If any such special meeting required to be called as above provided shall not be called by the Secretary within 30 days after receipt of any such request, then the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding may designate in writing one of their number to call such meeting, and the person so designated may, at the expense of the Corporation, call such meeting to be held at the place and upon the notice given by such person, and for that sole purpose shall have access to the stock books of the Corporation. No such special meeting and no adjournment thereof shall be held on a date later than 60 days before the annual meeting of stockholders. If, at any meeting so called or at any annual meeting held while the holders of shares of Series A Preferred Stock have the special voting rights provided for in this paragraph, the holders of not less than 40% of the aggregate voting power of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding are present in person or by proxy, which percentage shall be sufficient to 5 constitute a quorum for the election of additional directors as herein provided, the then authorized number of directors of the Corporation shall be increased by the number of Special Directors to be elected, as of the time of such special meeting or the time of the first such annual meeting held while such holders have special voting rights and such quorum is present, and the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall be entitled to elect the Special Director or Directors so provided for. If the directors of the Corporation are then divided into classes under provisions of the Restated Certificate of Incorporation of the Corporation or the Bylaws, the Special Director or Directors shall belong to each class of directors in which a vacancy is created as a result of such increase in the authorized number of directors. If the foregoing expansion of the size of the Board of Directors shall not be valid under applicable law, then the holders of shares of Series A Preferred Stock and of each Other Series of Preferred Stock, voting as a class, shall be entitled, at the meeting of stockholders at which they would otherwise have voted, to elect a Special Director or Directors to fill any then existing vacancies on the Board of Directors, and shall additionally be entitled, at such meeting and each subsequent meeting of stockholders at which directors are elected, to elect all of the directors then being elected until by such class vote the appropriate number of Special Directors has been so elected. (iii) Upon the election at such meeting by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, of the Special Director or Directors they are entitled so to elect, the persons so elected, together with such persons as may be directors or as may have been elected as directors by the holders of all shares (including Series A Preferred Stock) otherwise entitled to vote for directors, shall constitute the duly elected directors of the Corporation. Each Special Director so elected by holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall serve until the next annual meeting or until their respective successors shall be elected and qualified, or if any such Special Director is a member of a class of directors under provisions dividing the directors into classes, each such Special Director shall serve until the annual meeting at which the term of office of such Special Director's class shall expire or until such Special Director's successor shall be elected and shall qualify, and at each subsequent meeting of stockholders 6 at which the directorship of any Special Director is up for election, said special class voting rights shall apply in the reelection of such Special Director or in the election of such Special Director's successor; provided, however, that whenever the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock shall be divested of the special rights to elect one or more Special Directors as above provided, the terms of office of all persons elected as Special Directors, or elected to fill any vacancies resulting from the death, resignation, or removal of Special Directors shall forthwith terminate (and the number of directors shall be reduced accordingly). (iv) If, at any time after a special meeting of stockholders or an annual meeting of stockholders at which the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, have elected one or more Special Directors as provided above, and while the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock shall be entitled so to elect one or more Special Directors, the number of Special Directors who have been so elected (or who by reason of one or more resignations, deaths or removals have succeeded any Special Directors so elected) shall by reason of resignation, death or removal be reduced the vacancy in the Special Directors may be filled by any one or more remaining Special Director or Special Directors. In the event that such election shall not occur within 30 days after such vacancy arises, or in the event that there shall not be incumbent at least one Special Director, the Secretary of the Corporation may, and upon the written request of the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding addressed to the Secretary at the principal office of the Corporation shall, call a special meeting of the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock so entitled to vote, for an election to fill such vacancy or vacancies, to be held within 60 days after such call and at the place and upon the notice provided by law and in the Bylaws for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such special meeting in the case of any such request received less than 90 days before the date fixed for any annual meeting of stockholders, and if in such case such special meeting is not called, the holders of shares of Preferred Stock so entitled to vote shall be entitled to fill such vacancy or vacancies at such annual meeting. If any such special meeting required to be called as above provided 7 shall not be called by the Secretary within 30 days after receipt of any such request, then the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding may designate in writing one of their number to call such meeting, and the person so designated may, at the expense of the Corporation, call such meeting to be held at the place and upon the notice above provided, and for that purpose shall have access to the stock books of the Corporation; no such special meeting and no adjournment thereof shall be held on a date later than 60 days before the annual meeting of stockholders. (d) Nothing herein shall prevent the directors or stockholders from taking any action to increase the number of authorized shares of Series A Preferred Stock, or increasing the number of authorized shares of Preferred Stock of the same class as the Series A Preferred Stock or the number of authorized shares of Common Stock, or changing the par value of the Common Stock or Preferred Stock, or issuing options, warrants or rights to any class of stock of the Corporation as authorized by the Restated Certificate of Incorporation of the Corporation, as it may hereafter be amended. (e) Except as set forth herein, holders of shares of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote as set forth in the Restated Certificate of Incorporation of the Corporation or herein or by law) for taking any corporate action. Section 4. Certain Restrictions. (a) Whenever any dividends or other distributions payable on the Series A Preferred Stock as provided in Section 2 hereof are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not, directly or indirectly: (i) declare or pay dividends on, or make any other distributions with respect to, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on, or make any other distributions with respect to, any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on shares 8 of the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration, directly or indirectly, any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock, without designation as to series, and may be reissued as part of any series of preferred stock created by resolution or resolutions of the Board of Directors (including Series A Preferred Stock), subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made to: 9 (a) the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received the greater of (i) $1.00 per share ($.001 per one one-hundredth of a share), plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock; or (b) the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the aggregate amount to which the holder of each share of Series A Preferred Stock was entitled immediately prior to such event under the proviso in clause (a) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In the event that the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, or otherwise changed, then and in each such event, the shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification 10 or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Notwithstanding the foregoing, the Corporation may acquire shares of Series A Preferred Stock in any other manner permitted by law, the Restated Certificate of Incorporation of the Corporation or herein. Section 9. Rank. Unless otherwise provided in the Restated Certificate of Incorporation of the Corporation or a Certificate of Designations relating to a subsequent series of preferred stock of the Corporation, the Series A Preferred Stock shall rank junior to all other series of the Corporation's preferred stock as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, and senior to the Common Stock of the Corporation. Section 10. Amendment. The Restated Certificate of Incorporation of the Corporation shall not be amended in any manner that would materially and adversely alter or change the powers, preferences or special rights of the Series A Preferred Stock without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single series. Section 11. Fractional Shares. Series A Preferred Stock may be issued in fractions of a share (in one one- hundredths (1/100) of a share and integral multiples thereof) that shall entitle the holder thereof, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of shares of Series A Preferred Stock. 11 IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 15th day of August, 1996. CHARLES W. DUDDLES ---------------------------- Charles W. Duddles Executive Vice President and Chief Financial Officer Attest: WILLIAM E. RULON - ---------------------- William E. Rulon Senior Vice President and Secretary EX-3.2 3 RESTATED BYLAWS JACK IN THE BOX INC. (a Delaware corporation) BY-LAWS AMENDED AND RESTATED EFFECTIVE OCTOBER 4, 1999 ARTICLE I Offices SECTION 1.01 Registered Office. The registered office of Jack in the Box Inc. (hereinafter called the Corporation) in the State of Delaware shall be at 1209 Orange Street, City of Wilmington, County of New Castle, and the name of the registered agent in charge thereof shall be The Corporation Trust Company. SECTION 1.02 Other Offices. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board of Directors (hereinafter called the Board) may from time to time determine or as the business of the Corporation may require. ARTICLE II Meetings of Stockholders SECTION 2.01 Annual Meetings. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution. SECTION 2.02 Special Meetings. A special meeting of the stockholders for the transaction of any proper business may be called at any time by the Board or by the President. SECTION 2.03 Place of Meetings. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the person or persons calling the respective meeting and specified in the respective notices or waivers of notice thereof. SECTION 2.04 Notice of Meetings. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to him personally, or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to him at his post office address furnished by him to the Secretary of the Corporation for such purpose or, if he shall not have furnished to the Secretary his address for such purpose, then at his post office address last known to the Secretary, or by transmitting a notice thereof to him at such address by telegraph, cable, or wireless. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting, shall also state the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall have waived such notice and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except as a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. SECTION 2.05 Quorum. Except in the case of any meeting for the election of directors summarily ordered as provided by law, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. 2 SECTION 2.06 Voting. (a) Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation having voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation: (i) on the date fixed pursuant to Section 6.05 of these By-laws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or (ii) if no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants in common, tenants by entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized, or by any other means permitted by the Delaware General Corporation Law, and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any 3 meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, in these By-laws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon, a quorum being present. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and it shall state the number of shares voted. SECTION 2.07 List of Stockholders. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 2.08 Judges. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint a judge or judges to act with respect to such vote. Each judge so appointed shall first subscribe an oath faithfully to execute the duties of a judge at such meeting with strict impartiality and according to the best of his ability. Such judges shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question, shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of judges shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The judges need not be stockholders of the Corporation, and any officer of the Corporation may be a judge on any question other than a vote for or against a proposal in which he shall have a material interest. 4 SECTION 2.09 Action Without Meeting. Any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. SECTION 2.10 Stockholder Proposals at Annual Meetings (a) Business may be properly brought before an annual meeting by a stockholder only upon the stockholder's timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred and twenty (120) days prior to the meeting as originally scheduled; provided, however, that in the event that less than one hundred (100) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. For purposes of this Section 2.10, any adjournment(s) or postponement(s) of the original meeting which do not require a new written notice shall be deemed for purposes of notice to be a continuance of the original meeting and no business may be brought before any reconvened meeting unless timely notice of such business was given to the Secretary of the Corporation for the meeting as originally scheduled. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding the foregoing, nothing in this Section 2.10 shall be interpreted or construed to require the inclusion of information about any such proposal in any proxy statement distributed by, at the direction of, or on behalf of the Board. 5 (b) The chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.10, and in such case, any such business not properly brought before the meeting shall not be transacted. ARTICLE III Board of Directors SECTION 3.01 General Powers. The property, business and affairs of the Corporation shall be managed by the Board. SECTION 3.02 Number and Term of Office. The exact number of directors shall be fixed from time to time by resolution of the board of directors or the stockholders. Directors need not be stockholders. Each of the directors of the Corporation shall hold office until his successor shall have been duly elected and shall qualify or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3.03 Election of Directors. The directors shall be elected annually by the stockholders of the Corporation and the persons receiving the greatest number of votes, up to the number of directors to be elected, shall be the directors. SECTION 3.04 Resignations. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, it shall take effect immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 3.05 Vacancies. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, or any other cause, may be filled by vote of the majority of the remaining directors, although less than a quorum. Each director so chosen to fill a vacancy shall hold office until his successor shall have been elected and shall qualify or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3.06 Place of Meeting, Etc. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution 6 designate or as shall be designated by the person or persons calling the meeting or in the notice or a waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board can hear each other, and such participation shall constitute presence in person at such meeting. SECTION 3.07 First Meeting. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required. SECTION 3.08 Regular Meetings. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday. Except as provided by law, notice of regular meetings need not be given. SECTION 3.09 Special Meetings. Special meetings of the Board shall be held whenever called by the President or a majority of the authorized number of directors. Except as otherwise provided by law or by these By-laws, notice of the time and place of each such special meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least five (5) days before the day on which the meeting is to be held, or shall be sent to him at such place by telegraph or cable or be delivered personally not less than forty-eight (48) hours before the time at which the meeting is to be held. Except where otherwise required by law or by these By-laws, notice of the purpose of a special meeting need not be given. Notice of any meeting of the Board shall not be required to be given to any director who is present at such meeting, except a director who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 3.10 Quorum and Manner of Acting. Except as otherwise provided in these By-laws or by law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same 7 from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such. SECTION 3.11 Action by Consent. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. SECTION 3.12 Removal of Directors. Subject to the provisions of the Certificate of Incorporation, any director may be removed at any time, either with or without cause, by the affirmative vote of the stockholders having a majority of the voting power of the Corporation given at a special meeting of the stockholders called for the purpose. SECTION 3.13 Compensation. The directors shall receive only such compensation for their services as directors as may be allowed by resolution of the Board. The Board may also provide that the Corporation shall reimburse each such director for any expense incurred by him on account of his attendance at any meetings of the Board or Committees of the Board. Neither the payment of such compensation nor the reimbursement of such expenses shall be construed to preclude any director from serving the Corporation or its subsidiaries in any other capacity and receiving compensation therefor. SECTION 3.14 Committees. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board and except as otherwise limited by law, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Any such committee shall keep written minutes of its meetings and report the same to the Board at the next regular meeting of the Board. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. 8 SECTION 3.15 Nominations for Election to the Board of Directors. (a) Nominations of persons for election to the Board of Directors shall be made only at a meeting of stockholders and only (1) by or at the direction of the Board of Directors or (2) by any stockholders of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 3.15. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made only pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less that ninety (90) days nor more than one hundred and twenty (120) days prior to the meeting; provided, however, that in the event that less than one hundred (100) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. For purposes of this Section 3.15, any adjournment(s) or postponement(s) of the original meeting which do not require a new written notice shall be deemed for purposes of notice to be a continuation of the original meeting and no nominations by a stockholder of persons to be elected directors of the Corporation may be made at any such reconvened meeting unless pursuant to a notice which was timely for the meeting on the date originally schedule. Such stockholder's notice shall set forth: (i) as to each person whom the stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to the Securities Exchange Act of 1934, as amended, (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice (A) the name and address as they appear on the Corporation's books, of such stockholder, and (B) the class and number of shares of the Corporation which are beneficially owned by such stockholder. Notwithstanding the foregoing, nothing in this Section 3.15 shall be interpreted or construed to require the inclusion of information about any such nominee in any proxy statement distributed by, at the direction of, or on behalf of the Board. 9 (b) The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section 3.15, and in such case, the defective nomination shall be disregarded. ARTICLE IV Officers SECTION 4.01 Number. The officers of the Corporation shall be a President, one or more Vice Presidents (the number thereof and their respective titles to be determined by the Board), a Secretary and a Treasurer. SECTION 4.02 Election, Term of Office and Qualifications. The officers of the Corporation, except such officers as may be appointed in accordance with Section 4.03, shall be elected annually by the Board at the first meeting thereof held after the election thereof. Each officer shall hold office until his successor shall have been duly chosen and shall qualify or until his resignation or removal in the manner hereinafter provided. SECTION 4.03 Assistants, Agents and Employees, Etc. In addition to the officers specified in Section 4.01, the Board may appoint other assistants, agents and employees as it may deem necessary or advisable, including one or more Assistant Secretaries, and one or more Assistant Treasurers, each of whom shall hold office for such period, have such authority, and perform such duties as the Board may from time to time determine. The Board may delegate to any officer of the Corporation or any committee of the Board the power to appoint, remove and prescribe the duties of any such assistants, agents or employees. SECTION 4.04 Removal. Any officer, assistant, agent or employee of the Corporation may be removed, with or without cause, at any time: (i) in the case of an officer, assistant, agent or employee appointed by the Board, only by resolution of the Board; and (ii) in the case of an officer, assistant, agent or employee, by any officer of the Corporation or committee of the Board upon whom or which such power of removal may be conferred by the Board. 10 SECTION 4.05 Resignations. Any officer or assistant may resign at any time by giving written notice of his resignation to the Board or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, upon receipt thereof by the Board or the Secretary, as the case may be; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 4.06 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or other cause, may be filled for the unexpired portion of the term thereof in the manner prescribed in these By-laws for regular appointments or elections to such office. SECTION 4.07 The President. The President of the Corporation shall be the chief executive officer of the Corporation and shall have, subject to the control of the Board, general and active supervision and management over the business of the Corporation and over its several officers, assistants, agents and employees. SECTION 4.08 The Vice Presidents. Each Vice President shall have such powers and perform such duties as the Board may from time to time prescribe. At the request of the President, or in case of the President's absence or inability to act upon the request of the Board, a Vice President shall perform the duties of the President and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President. SECTION 4.09 The Secretary. The Secretary shall, if present, record the proceedings of all meetings of the Board, of the stockholders, and of all committees of which a secretary shall not have been appointed in one or more books provided for that purpose; he shall see that all notices are duly given in accordance with these By-laws and as required by law; he shall be custodian of the seal of the Corporation and shall affix and attest the seal to all documents to be executed on behalf of the Corporation under its seal; and, in general, he shall perform all the duties incident to the office of Secretary and such other duties as may from time to time be assigned to him by the Board. SECTION 4.10 The Treasurer. The Treasurer shall have the general care and custody of the funds and securities of the Corporation, and shall deposit all such funds in the name of the Corporation in such banks, trust companies or other depositories as shall be selected by the Board. He shall receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever. He shall exercise general supervision over 11 expenditures and disbursements made by officers, agents and employees of the Corporation and the preparation of such records and reports in connection therewith as may be necessary or desirable. He shall, in general, perform all other duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board. SECTION 4.11 Compensation. The compensation of the officers of the Corporation shall be fixed from time to time by the Board. None of such officers shall be prevented from receiving such compensation by reason of the fact that he is also a director of the Corporation. Nothing contained herein shall preclude any officer from serving the Corporation, or any subsidiary corporation, in any other capacity and receiving such compensation by reason of the fact that he is also a director of the Corporation. Nothing contained herein shall preclude any officer from serving the Corporation, or any subsidiary corporation, in any other capacity and receiving proper compensation therefor. ARTICLE V Contracts, Checks, Drafts, Bank Accounts, Etc. SECTION 5.01 Execution of Contracts. The Board, except as in these By-laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by these By-laws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such officer, assistant, agent or attorney shall give such bond, if any, as the Board may require. SECTION 5.03 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or 12 attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the President, any Vice President or the Treasurer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. SECTION 5.04 General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these By-laws, as it may deem expedient. ARTICLE VI Shares and Their Transfer SECTION 6.01 Certificates for Stock. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the President or a Vice President, and by the Secretary or an Assistant Secretary or by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate, shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every 13 certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6.04. SECTION 6.02 Transfers of Stock. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 6.03 Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these By-laws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. SECTION 6.04 Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do. SECTION 6.05 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution 14 or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders or expressing consent to corporate action without a meeting the Board shall not fix such a record date, the record date for determining stockholders for such purpose shall be the close of business on the day which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. ARTICLE VII Indemnification SECTION 7.01 Action, Etc. Other Than by or in the Right of the Corporation. 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 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, that he had reasonable cause to believe that his conduct was unlawful. 15 SECTION 7.02 Actions, Etc., by or in the Right of the Corporation. 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 attorneys' 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, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Court of Chancery 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 or such other court shall deem proper. SECTION 7.03 Determination of Right of Indemnification. Any indemnification under Section 7.01 or 7.02 (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 Section 7.01 and 7.02. Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by counsel in a written opinion, or (iii) by the stockholders. SECTION 7.04 Indemnification Against Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.01 or 7.02, 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. 16 SECTION 7.05 Prepaid Expenses. Expenses incurred by an officer or director 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 in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. SECTION 7.06 Other Rights and Remedies. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any By-laws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such 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 a person. SECTION 7.07 Insurance. Upon resolution passed by the Board, the Corporation may 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 such liability under the provisions of this Article. SECTION 7.08 Constituent Corporations. For the purposes of this Article, references to "the Corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article with respect to the resulting or 17 surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity. SECTION 7.09 Other Enterprises, Fines, and Serving at Corporation's Request. For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article. ARTICLE VIII Miscellaneous SECTION 8.01 Seal. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and the year of incorporation. SECTION 8.02 Waiver of Notices. Whenever notice is required to be given by these By-laws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice. SECTION 8.03 Amendments. These By-laws, or any of them, may be altered, amended or repealed, and new By-laws may be made, (i) by the Board, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the Board, or (ii) by the stockholders, at any annual meeting of stockholders, without previous notice, or at any special meeting of stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of special meeting. Any By-laws made or altered by the stockholders may be altered or repealed by either the Board or the stockholders. 18 EX-10.1.4 4 THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT Dated as of September 17, 1999 This THIRD AMENDMENT (this "Amendment") is among FOODMAKER, INC., a Delaware corporation (the "Borrower"), the financial institutions and other entities party to the Credit Agreement referred to below (the "Lenders"), and BANK OF AMERICA, N.A. (formerly known as Bank of America National Trust and Savings Association, successor by merger to Bank of America, N.A., formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as L/C Bank (as defined in the Credit Agreement) and as agent (the "Agent") for the Lenders and the Issuing Banks thereunder. PRELIMINARY STATEMENTS: 1. The Borrower, the Lenders, the Arranger, the Documentation Agent and the Agent have entered into a Credit Agreement dated as of April 1, 1998, as amended by the First Amendment, dated as of August 24, 1998 and the Second Amendment, dated as of February 27, 1999 (as so amended, the "Credit Agreement"; capitalized terms used and not otherwise defined herein have the meanings assigned to such terms in the Credit Agreement). 2. The Borrower has requested that the Lenders amend certain provisions of the Credit Agreement to (i) decrease the amount of Permitted Sale-Leaseback Transactions that may be undertaken by the Borrower and its Subsidiaries, (ii) increase the amount of Capital Expenditures that may be made by the Borrower and its Subsidiaries, (iii) increase the aggregate notional amount of Debt in respect of Hedge Agreements that may be incurred by the Borrower, (iv) permit the Borrower and its Subsidiaries to prepay certain Debt, and (v) amend the definition of "Permitted Liens." 3. The Borrower has requested that the Lenders amend Section 5 of the Waiver, dated as of May 27, 1999 (the "Waiver"), among the Borrower, the Lenders, the L/C Bank and the Agent to remove the requirement that financing statements, fixture filings and other instruments be filed or recorded in connection with the change in the name of the Borrower. 4. The Required Lenders are, on the terms and conditions stated below, willing to grant the request of the Borrower. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Amendments to Credit Agreement. Effective as of the date hereof and subject to satisfaction of the conditions precedent set forth in Section 3 hereof, the Credit Agreement is hereby amended as follows: (a) Section 1.01 of the Credit Agreement is hereby amended by deleting in its entirety the table contained in the definition of "Permitted Sale- Leaseback Transaction" and substituting in lieu thereof the following new table: Fiscal Year Ending In Amount ----------- ------------ 1999 $85,000,000 2000 $100,000,000 2001 $125,000,000 2002 $120,000,000 2003 $120,000,000 (b) The definition of "Permitted Liens" in Section 1.01 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (f) thereof, (ii) deleting the period at the end of clause (g) thereof and substituting in lieu thereof a semi-colon, and (iii) inserting immediately following clause (g) thereof the following new clause (h): "Liens not otherwise constituting Permitted Liens so long as neither the aggregate outstanding principal amount of the obligations secured thereby, nor the aggregate fair market value (determined, in the case of each such Lien, as of the date such Lien in incurred) of the assets subject thereto exceeds (i) in the aggregate, $3,000,000 at any time outstanding or (ii) with respect to any transaction, $500,000 at any time outstanding." (c) Section 6.02(b) of the Credit Agreement is hereby amended by deleting the amount of $50,000,000 as it appears in the last line of clause (i)(C) thereof and substituting in lieu thereof the amount of $75,000,000. (d) Section 6.02(k) of the Credit Agreement is hereby amended by deleting subclause (B) of clause (i) thereof in its entirety and substituting in lieu thereof the following new subclause (B): "(B) (x) regularly scheduled or required repayments or redemptions of Surviving Debt, (y) the prepayment of the Surviving Debt identified on Schedule 6.02(k), and (z) the prepayment of Debt in respect of Capitalized Leases and other Debt (whether or not outstanding on the date hereof) in an aggregate principal amount not to exceed $20,000,000," (e) Section 6.04(d) of the Credit Agreement is hereby amended by deleting in its entirety the table set forth at the end of such Section and substituting in lieu thereof the following new table: Fiscal Year Amount ----------- ------------ 1999 $140,000,000 2000 $160,000,000 2001 $185,000,000 2002 $195,000,000 2003 $195,000,000 2 (f) The Schedules to the Credit Agreement are hereby amended by inserting in appropriate numerical sequence a new Schedule 6.02(k) in the form of Exhibit A attached hereto. SECTION 2. Amendments to Waiver. Effective as of the date hereof and subject to satisfaction of the conditions precedent set forth in Section 3 hereof, the Waiver is hereby amended by deleting Section 5 thereof in its entirety. SECTION 3. Conditions to Effectiveness. This Amendment shall not be effective until each of the following conditions precedent shall have been satisfied: (a) the Agent shall have executed this Amendment and shall have received counterparts of this Amendment executed by the Borrower and the Required Lenders and counterparts of the Consent appended hereto (the "Consent") executed by each of the Guarantors and Grantors (as defined in the Security Agreement) listed therein (such Guarantors and Grantors, together with the Borrower, each a "Loan Party" and, collectively, the "Loan Parties"); (b) each of the representations and warranties in Section 4 below shall be true and correct; (c) with respect to the amendment to the Waiver only, each of the conditions to the release of the Collateral set forth in Section 9.01(b) of the Credit Agreement shall have been satisfied. SECTION 4. Representations and Warranties. The Borrower represents and warrants as follows: (a) Authority. The Borrower and each other Loan Party has the requisite corporate power and authority to execute and deliver this Amendment and the Consent, as applicable, and to perform its obligations hereunder and under the Loan Documents (as modified hereby) to which it is a party. The execution, delivery and performance by the Borrower of this Amendment and by each other Loan Party of the Consent, and the performance by each Loan Party of each Loan Document (as modified hereby) to which it is a party have been duly approved by all necessary corporate action of such Loan Party and no other corporate proceedings on the part of such Loan Party are necessary to consummate such transactions. (b) Enforceability. This Amendment has been duly executed and delivered by the Borrower. The Consent has been duly executed and delivered by each Guarantor and each Grantor. This Amendment and each Loan Document (as modified hereby) is the legal, valid and binding obligation of each Loan Party party hereto and thereto, enforceable against such Loan Party in accordance with its terms, and is in full force and effect. 3 (c) Representations and Warranties. The representations and warranties contained in each Loan Document (other than any such representations and warranties that, by their terms, are specifically made as of a date other than the date hereof) are true and correct on and as of the date hereof as though made on and as of the date hereof. (d) No Default. No event has occurred and is continuing that constitutes a Default or Event of Default. SECTION 5. Reference to and Effect on the Loan Documents. (a) Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified hereby. (b) Except as specifically modified above, the Credit Agreement and the other Loan Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Collateral Documents and all of the Collateral described therein do and shall continue to secure the payment of all Secured Obligations under and as defined therein, in each case as amended hereby. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender, any Issuing Bank, the Arranger, the Documentation Agent or the Agent under any of the Loan Documents, nor constitute a waiver or amendment of any provision of any of the Loan Documents. SECTION 6. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment or the Consent by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment or such Consent. SECTION 7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of California. [Signature Pages Follow] 4 IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be executed by their respective officers thereunto duly authorized, as of the date first written above. FOODMAKER, INC., a Delaware corporation By: Harold L. Sachs ---------------------------------- Name: Harold L. Sachs Title: Treasurer BANK OF AMERICA, N.A., as Agent By: Richard G. Parkhurst, Jr. ---------------------------------- Name: Richard G. Parkhurst, Jr. Title: Managing Director Lenders BANK OF AMERICA, N.A. By: Richard G. Parkhurst, Jr. ---------------------------------- Name: Richard G. Parkhurst, Jr. Title: Managing Director CREDIT LYONNAIS LOS ANGELES BRANCH By: Dianne M. Scott ---------------------------------- Name: Dianne M. Scott Title: 1st Vice President/Manager ROYAL BANK OF CANADA By: ---------------------------------- Name: Title: UNION BANK OF CALIFORNIA, N.A. By: ---------------------------------- Name: Title: U.S. BANK NATIONAL ASSOCIATION By: Janet Jordan ---------------------------------- Name: Janet Jordan Title: Vice President BANK ONE, TEXAS, N.A. By: Kathy Turner ---------------------------------- Name: Kathy Turner Title: Director CIBC INC. By: Gerald Girardi ---------------------------------- Name: Gerald Girardi Title: Executive Director CIBC World Markets Corp., as Agent MORGAN GUARANTY TRUST CO. By: Francoise Berthelot ---------------------------------- Name: Francoise Berthelot Title: Vice President SANWA BANK CALIFORNIA By: L. D. Hart ---------------------------------- Name: L. D. Hart Title: Vice President NATEXIS BANQUE - BFCE By: Iain A. Whyte ---------------------------------- Name: Iain A. Whyte Title: Vice President and Group Manager - Corporate Finance By: Bennett C. Pozil ---------------------------------- Name: Bennett C. Pozil Title: Vice President and Group Manager - Entertainment Finance CONSENT Dated as of September 17, 1999 The undersigned, as Guarantors under the "Guaranty" and as Grantors under the "Security Agreement" (as such terms are defined in and under the Credit Agreement referred to in the foregoing Third Amendment), each hereby consents and agrees to the foregoing Amendment and hereby confirms and agrees that (i) the Guaranty and the Security Agreement are, and shall continue to be, in full force and effect and are hereby ratified and confirmed in all respects except that, upon the effectiveness of, and on and after the date of, said Third Amendment, each reference in the Guaranty and the Security Agreement to the "Credit Agreement", "thereunder", "thereof" and words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended by said Third Amendment, and (ii) the Security Agreement and all of the Collateral described therein do, and shall continue to, secure the payment of all of the Secured Obligations as defined in the Security Agreement. CP DISTRIBUTION CO., a Delaware corporation, CP WHOLESALE CO., a Delaware corporation, and JACK IN THE BOX, INC., a New Jersey corporation By: Lawrence E. Schauf ---------------------------------- Name: Lawrence E. Schauf Title: Executive Vice President and Secretary FOODMAKER INTERNATIONAL FRANCHISING, INC., a Delaware corporation By: Harold L. Sachs ---------------------------------- Harold L. Sachs Treasurer EXHIBIT A SCHEDULE 6.02(k) SURVIVING DEBT PERMITTED TO BE PREPAID Balance as of Debt August 29, 1999 - ---------------------------------------------- --------------- Secured notes, 11.5% interest, due in monthly installments through May 1, 2005 $7,160,000 Secured notes, 9.5% interest, due in monthly installments through August 1, 2017 $8,007,000 EX-10.9 5 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN JACK IN THE BOX INC. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN ORIGINALLY ADOPTED FEBRUARY 17, 1995 AMENDED AND RESTATED NOVEMBER 12, 1998 AMENDED AND RESTATED SEPTEMBER 17, 1999 1. Purpose of the Plan. Under this Non-Employee Director Stock Option Plan (the "Director Plan") of Jack in the Box, Inc., a Delaware corporation (the "Company"), options may be granted to eligible persons, as set forth in Section 4, to purchase shares of the Company's common stock ("Common Stock"). This Director Plan is designed to promote the long-term growth and financial success of the Company by enabling the Company to attract, retain and motivate such persons by providing for or increasing their proprietary interest in the Company. 2. Effective Date. This Director Plan shall be in effect commencing on February 17, 1995, subject to approval by the Company's stockholders. Options may not be granted more than ten years after the date of stock holder approval of this Director Plan or termination of this Director Plan by the Board of Directors of the Company (the "Board"), whichever is earlier. 3. Plan Operation. This Director Plan is intended to meet the requirements of Rule 16b-3(c)(2)(ii) adopted under the Securities Exchange Act of 1934 (or its successor) and accordingly is intended to be self- governing. To this end, this Director Plan requires no discretionary action by any administrative body with regard to any transaction under this Director Plan. To the extent, if any, that any questions of interpretation arise, these shall be resolved by the Board. 4. Eligible Persons. The persons eligible to receive a grant of non-qualified stock options hereunder are any Director of the Board who on the date of said grant is not an employee of the Company or a subsidiary of the Company. For purposes of this Section 4, a person shall not be considered an employee solely by reason of serving as Chairman of the Board. 5. Stock Subject to Director Plan. The maximum number of shares that my be subject to options granted hereunder shall be 650,000 shares of Common Stock, subject to adjustments under Section 6. Shares of Common Stock subject to the unexercised portions of any options granted under this Director Plan which expire, terminate or are canceled may again be subject to options under this Director Plan. 6. Adjustments. If the outstanding shares of stock of the class then subject to this Director Plan are increased or decreased, or are changed into or exchanged for a different number or kind of shares or securities, as a result of one or more reorganizations, recapitalizations, stock splits, reverse stock splits, stock dividends, spin-offs and the like, appropriate adjustments shall be made in the number and/or type of shares or securities for which options may thereafter be granted under this Director Plan and for which options then outstanding under this Director Plan may thereafter be exercised. Any such adjustments in outstanding options shall be made without changing the aggregated exercise price applicable to the unexercised portions of such options. 7. Stock Options. A. Grants made after February 13, 1999. Commencing in November, 1999, in November of each year, each non-employee director will be automatically granted a non-qualified stock option to purchase shares of Common Stock. The per share exercise price of each option will be equal to the Current Market Price per share of Common Stock on the date of grant. The number of shares granted will be determined as follows, provided, however that the total fiscal year grant to a non-employee director must be fewer than 10,000 shares. The amount of Total Compensation for a non- employee director of a company of the approximate sales volume of Jack in the Box Inc. shall be determined by reference to the then current 1 Executive Compensation Advisory Services ("ECAS") survey, or a comparable source if ECAS is not available. An amount (the "Non-Option Compensation") will be subtracted from the Total Compensation from the survey and the result will be divided by the "Assumed Value" of the stock option to determine the "Grant Amount". The Grant Amount will be divided by the by the average of the closing prices of the Common Stock on the New York Stock Exchange for the first five trading days of the fiscal year and the result equals the number of shares to be granted in the stock option. The Assumed Value of the stock option will be established initially at thirty-three and one-third percent, but may be reevaluated from time to time based upon recognized market indicators. The Non-Option Compensation is the amount which is the sum of (1) the amount of the standard annual retainer for directors of the Company, (2) the amount of the standard meeting fee for directors multiplied by five, and (3) twenty-five percent of the sum of (1) and (2) (which represents assumed "Company Matching Deferrals" in accordance with the terms of Jack in the Box Inc.'s Deferred Compensation Plan for Non-Management Directors, whether taken or not). B. The Compensation Committee (the "Committee") of the Board of Directors of the Company is authorized under this Plan to grant non- qualified stock options to purchase shares of Common Stock to newly elected or appointed non-employee directors of the Company, upon their election or appointment, in an amount equal to the options granted the proceeding November, pro rated from the date of appointment or election based on the number of months until the next November, provided however that the total grant for any fiscal year must be fewer than 10,000 shares. The per share exercise price of each option will be equal to the Current Market Price per share of Common Stock on the date of grant. C. Current Market Price. The Current Market Price per share of Common Stock shall be the last reported sales price of the Common Stock on the New York Stock Exchange on the date of the grant. In the absence of any reported sales price the Board shall determine the Current Market Price on the basis of such information as it, in good faith, considers appropriate. D. Term and Exercise. Each option will have a term of ten years and shall become exercisable in full ("Vested"), six months after the date of grant. E. Available Shares. If on any date upon which options are to be granted under this Director Plan the number of shares of Common Stock remaining available under the Director Plan are less than the number of shares required for all grants to be made on such date, then options to purchase a proportionate amount of such available number of shares of Common Stock shall be granted to each eligible non-employee director. 8. Documentation of Grants. Awards made under this Director Plan shall be evidenced by written agreements or such other appropriate documentation as the Board shall prescribe. The Board need not require the execution of any instrument or acknowledgment of notice of an award under this Director Plan, in which case acceptance of such award by the respective optionee will constitute agreement to the terms of the award. 9. Nontransferability. Any option granted under this Director Plan shall be its terms be nontransferable by the optionee otherwise than by will or the laws of descent and distribution, and shall be exercisable, during the optionee's lifetime, only by the optionee. 10. Amendment and Termination. The Board may alter, amend, suspend, or terminate this Director Plan, provided that no such action shall deprive any optionee, without his or her consent, of any option granted to the optionee pursuant to this Director Plan or of any of his or her rights under such option. 11. Termination of Directorship. Notwithstanding Section 7 above, all Vested options granted hereunder and held by non-employee directors as of the date of cessation of service as a director may be exercised by the non-employee director or his or her heirs or legal representatives until the earlier of the tenth anniversary of the date of grant or the expiration of ninety days after the date of cessation of such service. 2 12. Manner of Exercise. All or a portion of an exercisable option shall be deemed exercised upon delivery to the Secretary of the Company at the Company's principal office all of the following: (i) a written notice of exercise specifying the number of shares to be purchased signed by the non-employee director or other person then entitled to exercise the option, (ii) full payment of the exercise price for such shares by any of the following or combination thereof (a) cash, (b) certified or cashier's check payable to the order of the Company, or (c) the delivery of whole shares of the Company's Common Stock owned by the option holder and valued at the closing market price on the business day prior to the date of exercise, (iii) such representations and documents as the Board, in its sole discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act of 1933, as amended, and any other federal or state securities laws or regulations, (iv) in the event that the option shall be exercised by any person or persons other than the non-employee director, appropriate proof of the right of such person or persons to exercise the option, and (v) such representations and documents as the Board, in its sole discretion, deems necessary or advisable. 13. Compliance with Law. Common Stock shall not be issued upon exercise of an option granted under this Director Plan unless and until counsel for the Company shall be satisfied that any conditions necessary for such issuance to comply with applicable federal, state or local tax, securities or other laws or rules or applicable securities exchange requirements have been fulfilled. IN TESTIMONY WHEREOF, Jack in the Box Inc. has executed this Director Plan by its officers thereunto duly authorized. 3 EX-23.1 6 CONSENT OF KPMG LLP INDEPENDENT AUDITORS' CONSENT The Board of Directors Jack in the Box Inc.: We consent to incorporation by reference in the registration statement No. 33-50934 on Form S-3 of Jack in the Box Inc. and in registration statement Nos. 33-67450, 33-54602, 33-51490 and 333-85669 on Form S-8 of Jack in the Box Inc. of our report dated November 5, 1999, relating to the consolidated balance sheets of Jack in the Box Inc. and subsidiaries as of October 3, 1999 and September 27, 1998, and the related consolidated statements of earnings, cash flows and stockholders' equity for the fifty-three weeks ended October 3, 1999, and the fifty-two weeks ended September 27, 1998 and September 28, 1997, which report appears in the October 3, 1999 annual report on Form 10-K of Jack in the Box Inc. and subsidiaries, and to the reference to our firm under the heading "Selected Financial Data" in Item 6 of the referenced Form 10-K. KPMG LLP San Diego, California December 1, 1999 EX-27 7 ARTICLE 5 FDS FOR FISCAL YEAR 1999 10-K
5 FISCAL YEAR 1999 CONTAINS 53 WEEKS 1000 12-MOS OCT-03-1999 SEP-28-1998 OCT-03-1999 10,925 0 10,269 1,829 20,159 97,234 858,685 251,401 833,644 229,026 303,456 411 0 0 217,426 833,644 1,414,727 1,456,899 473,448 1,142,995 0 0 28,249 121,358 44,900 76,458 0 0 0 76,458 2.00 1.95
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